Alcoa 2003 Annual Report Download - page 3

Afew years ago, we raised the bar
on Alcoa’s stated Vision of being
the best aluminum company
in the world to that of aspiring to be the
best company in the world. While we
have much to be proud of as we enter a
new year, we know that we have more
to do… and that this goal is about more
than delivering strong financial perform-
ance. It is about sustained financial suc-
cess, while building for the future. And
it is about delivering on all of Alcoa’s
seven Values.
Despite what was a challenging
business environment in many markets
across the globe, we did make significant
strides in 2003:
• Income from continuing operations
rose 117% to $1.034 billion, or $1.20
per share, in 2003, and every segment
demonstrated higher profitability;
• Our disciplined approach to capital allowed us to pay down
more than $1 billion in debt, providing us with additional flexi-
bility in pursuing profitable growth opportunities;
• We surpassed our second three-year, cost-savings challenge by
reaching $1.012 billion of annualized savings (the first, in
1998-2000, achieved $1.1 billion in savings), which helped
drive gross margins higher;
• Revenues increased 6% to $21.5 billion; and
• We recorded the lowest lost workday rate in the Company’s
history.
Reflecting this performance, in part, Alcoa’s total share-
owner return for 2003, including dividend reinvestment, was
70%. For comparative purposes, the Dow Jones Industrial
Average, of which we are a component, returned 25% during
the same period.
Goals and Strategies for 2004 and Beyond
In 2004, we are committed to our financial goals:
1. Profitable Growth – We will continue the drive to profitably
grow our revenues as well as to join the first quintile of the S&P
Industrials measured in terms of Return on Capital (ROC).
2. Cost Savings – Financial fitness is key to our future. In sup-
port of our profitable growth challenge, we have launched our
third three-year, cost-savings challenge to eliminate an addi-
tional $1.2 billion in costs by the end of 2006. When we set
our first billion-dollar, cost-savings goal in 1998, it was diffi-
cult, but we achieved it. The second billion-dollar challenge,
Fellow Shareowners:
which we completed and surpassed last
year, was even more challenging. The
new goal will be equally tough, but we
have the talent, a proven Alcoa Business
System (ABS), and the determination to
reach it. Upon its completion, we will
have eliminated more than $3.3 billion
in costs, which will help offset the impact
of tough global conditions we have
experienced over the last three years and
benefit us when markets resume their
growth patterns.
While we have made strides toward
our ROC goal of permanent member-
ship in the first quintile of the S&P
Industrials, we still have a long way to
go. Our fourth quarter 2003 ROC on
an annualized basis was 7.6% versus
a company ROC of 4.2% in 2002. The
first quintile entry point, however, is
currently around 16%.
This goal is not about the honor of membership in the first
quintile. It is about earning the right from shareowners, through
our performance and consistency, to continue to profitably
grow. It will provide us the opportunity to plan for the future,
continue to offer challenging jobs, and pursue growth opportu-
nities for shareowners, for Alcoans, and other stakeholders.
All our efforts are based upon two precepts: deliver short-
term performance while positioning the company to be successful
for years to come. The steps we are implementing are improving
both short-term and long-term profitability… and laying the
foundation for our continued leadership position for generations
to come. We are:
• Continuing to refine our portfolio of businesses;
• Strengthening our asset base and improving its productivity;
• Extending our global reach and repositioning our primary
businesses lower on the cost curve;
• Strengthening our connection to customers; and
• Building on the transformation of our businesses – from
making products to delivering solutions… working across
businesses in order to help our customers be successful within
their markets.
Portfolio Reconfiguration
Last year, we announced a program to divest a number of busi-
nesses that either did not have the ability to grow in excess of
GDP or did not have the ability to deliver superior returns in sec-
tors where Alcoa maintains a sustainable competitive advantage.
Alain Belda, Chairman and Chief Executive Officer
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