Alcoa 2014 Annual Report Download - page 5

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enabling truck drivers to increase their fuel savings and payloads.
For our U.S. military customers, we produced the world’s largest
aluminum forging for the armored undercarriage of troop transport
vehicles, an innovation that will save countless soldiers’ lives. The
increased thermal performance and superior blast resistance of
Alcoa’s windows and framing systems for the facades of nonresidential
buildings have become an indispensable part of the green building
phenomenon to improve energy efficiency by 25%. Aluminum
bottles and aseptic foil are breathing new life into our packaging
business. In each of those markets, our technologies are enabling
our customers—and therefore Alcoa—to gain market share.
We also took decisive actions in 2014 to improve the profitability
of our commodity business. We reduced the capacity of our smelting
business by 549 thousand metric tons through divestitures, closures
and curtailments of high-cost assets. Construction of the Ma’aden-
Alcoa integrated aluminum complex in Saudi Arabia neared
completion in 2014, under budget and ahead of schedule. The
combination of the highly profitable Saudi complex, the reduction of
high-cost facilities and significant productivity improvements in our
remaining upstream operations are expected to enable us to achieve
our 2016 targets of reaching the 21st and 38th percentiles on the
respective alumina refining and aluminum smelting cost curves.
In 2014, we made significant progress in exerting greater control
of our commodity business. Since introducing the Alumina Price
Index (API) in 2010 to sell our smelter-grade alumina at prices that
represent alumina market fundamentals rather than being linked to
the volatile aluminum price on the London Metal Exchange, we have
been steadily increasing our API/spot sales. In 2014, 68% of total
third-party smelter-grade alumina sales were based on API/spot
market pricing, up from 55% in 2013. In our aluminum business,
we have been offering differentiated, value-add products that are
cast in forms customized for the needs of customers. Value-add
products represented 65% of total shipments from our smelters
in 2014, up from 60% in 2013.
The success of all our businesses depends on five levers that
we call the Alcoa Advantage. As in the previous three years, we
generated more than $1 billion of year-over-year productivity
savings. Half of that came from our Procurement Advantage,
leveraging more than $18 billion in buying power and streamlining
our supplier base. When we strengthened our Operating System
Advantage with an idea generation tool, more than 55% of Alcoans
in plants and locations around the world took responsibility
for suggesting and following through on new projects that are
generating additional cost savings, working capital improvements
and growth opportunities. A major reason for greater employee
involvement and productivity is our Talent Advantage that enables
us to attract, develop and motivate outstanding talent, resulting in
a 57% increase in our employee engagement scores in the past
eight years. Each year, we also measure the effectiveness of our
Customer Advantage through an industry-wide program called
Net Promoter Score (NPS); in 2014, we exceeded the industrial
Best-in-Class NPS rating by more than four points. Our Technology
Advantage enables our businesses to work with our Alcoa Technical
Center to develop the many innovations we describe in this report.
During my visits to Alcoa facilities around the world in 2014, it has
been gratifying to see the Alcoa Advantage in action. To single out
just one of hundreds of examples, during a visit with the CEO of a
major aerospace customer of our power and propulsion business
in Whitehall, Michigan, one of our newly-hired engineers, Peter
Takunjo, demonstrated an acoustic emissions technology that he
developed to detect cracks in ceramic cores early on. As those
cracks were previously only discovered during final testing at the
end of the manufacturing cycle, the new technology dramatically cut
costs in our manufacturing process and improved on-time delivery
to our customers. Peter’s recruitment and development at Alcoa,
and his opportunity as a newly-hired engineer to work on one of
Alcoa’s most sophisticated products for a key customer, is a classic
example of the Alcoa Advantage working together in a way that no
competitor can match.
In addition to the Alcoa Advantage, our businesses benefit from a
set of Alcoa Values that have endured the test of time—Integrity;
Respect; Environment, Health and Safety; Innovation; and Excellence.
Serving as our Company’s North Star, Alcoa’s Values guided the
generations of Alcoans who came before us. Those same Values
are attracting the best and brightest of today’s generation to Alcoa
and inspiring them to help transform Alcoa for future generations.
Thanks to our acceleration of that transformation during 2014,
the path to Alcoa’s future is much clearer and our leaders have
far greater control in shaping that future than ever before. We are
pleased to see that you, our shareholders, have confidence in our
transformation strategy and have benefitted from another solid
year of Alcoa business performance and shareholder returns.
You have my commitment, as well as that of Alcoa’s directors
and management, that we will build on the successes of 2014
for many years to come.
Klaus Kleinfeld
Chairman of the Board and Chief Executive Officer