Arconic announces three-year targets at inaugural Investor Day

Arconic Inc. today announced its levers for value creation and three-year financial targets through 2019 at its inaugural Investor Day event in New York.

Arconic is focused on driving shareholder value. The Company has substantially improved its portfolio and margins since 2008, and today holds strong market positions across the sectors it serves, with 70 percent of revenues derived from number one or two market positions. Arconic is well-positioned to capture secular growth tailwinds in aerospace and automotive, and achieve margin expansion through cost reductions and share gains across all segments, driven by differentiated technology.

{googleAdsense}

The Company’s $1.2 billion1 retained interest (19.9 percent) in Alcoa Corporation provides further financial flexibility and Arconic plans to monetize this stake responsibly, with timing based on market conditions. Resulting cash would be used for debt pay-down and share repurchases.

The following three-year business targets were announced for the 2017 to 2019 time period:

• Arconic Revenue – $11.8-$12.4 billion in 2017, with 7-8 percent compound annual growth rate (CAGR) through 2019
• Adjusted EBITDA margin – approximately 15 percent targeted for 2017, growing to approximately 17 percent in 2019
• Combined segment adjusted EBITDA margin (excluding corporate spend) – approximately 17 percent targeted for 2017, growing to approximately 19 percent in 2019
• Return on Net Assets (RONA) – approximately 9 percent targeted for 2017, growing to 11-12 percent in 2019
• Leverage – in 2019, target of 2.0-2.5 times net debt to adjusted EBITDA
• Free Cash Flow – more than $350 million in 2017, increasing to approximately $700 million in 2019

“We lead the company with an ‘owner mindset’, strongly focused on shareholder value,” said Arconic Chairman and CEO Klaus Kleinfeld. “Our value creation model has six priority areas – innovation, market share and growth, productivity and overhead cost reduction, capital efficiency, de-leveraging and returning cash to shareholders. Arconic’s recent separation from Alcoa Corporation has unleashed distinct advantages; our management team is completely focused on the major end markets we serve, our technology portfolio is wholly concentrated on value-add products and processes, we have an exacting capital expenditure approval process, an efficient operating structure, and are an attractive employer of choice for high performing talent.”

Kleinfeld continued, “Arconic’s businesses have strong market positions and margin profiles and are positioned to capture near-term growth tailwinds in our major segments. We have a clear execution path to incremental value by improving our businesses, a strong balance sheet profile and financial flexibility, and are attacking all opportunities to drive shareholder value. These strengths, combined with our new three-year targets, provide a clear roadmap for shareholder value creation.”

The company also outlined earnings potential for each of its three segments for the next three to five years:

• Engineered Products and Solutions - ~400 basis point margin improvement over 2016 adjusted EBITDA margin target of ~21 percent.
• Global Rolled Products - ~200 basis point margin improvement over 2016 adjusted EBITDA margin target of ~11+ percent.
• Transportation and Construction Solutions ~250 basis point margin improvement over 2016 adjusted EBITDA margin target of ~15 percent.

Arconic has a strong track record of delivering productivity savings and expects to achieve $650 million in 2016. The Company is targeting net savings of approximately 2 percent of revenue in 2017. Arconic applies an ‘owner mindset’ to capital allocation, prioritizing growth, optimization of financial position, debt pay-down and return of cash to shareholders. The Company has an exacting approach to capital expenditure approval, with 2017 expenditures capped at $650 million.