Alcoa announced it will re-position several of its downstream operations in order to further improve returns and profitability through a targeted restructuring of operations and the creation of a soft alloy extrusion joint venture with the intention of eventually offering the venture to the public markets through an IPO.
Following an extensive review of its downstream operations, Alcoa has a letter of intent with Orkla ASA’s SAPA Group (Sapa) to create a joint venture that would combine its soft alloy extrusion business with Sapa’s Profiles extruded aluminum business, with the intention of eventually offering an IPO of the combined entity.
The new venture will be majority owned by Orkla and operated by Sapa. It is anticipated that the joint venture will be formed by the end of the first quarter 2007, subject to customary government approvals.
Alcoa’s soft alloy extrusion business has 22 facilities in eight countries and approximately 6,400 employees. In 2005, total soft alloy extrusion shipments were approximately 585,000 metric tons and revenues were approximately $2.1 billion. Sapa’s Profiles business has 18 facilities in 12 countries and approximately 6,000 employees. It had 2005 shipments of 275,000 metric tons and revenues of $1.3 billion.
Alcoa will continue to operate its hard alloy extrusion business which serves the aerospace, automotive, and selected other markets. Separately, Alcoa will begin the process to divest the three soft alloy facilities not included in the joint venture located in Warren, OH; Tifton, GA; and Plant City, FL.
“After reviewing a number of options, we have decided the best course to further strengthen our downstream operations and maximize shareowner returns is to combine the soft alloy operations of these two businesses,” said Alcoa Chairman and CEO Alain Belda.
“The combination of these two operations provides many opportunities to improve profitability by leveraging the scale of a broader global manufacturing system,” said Belda.
“Our overall downstream operations have continued to improve their financial performance the past few years. We have leading positions in key flat-rolled product segments where we have grown 14 percent annually since 2002 and where we are also in a strong position to capture further growth in China and Russia,” added Belda. “Other downstream operations such as Alcoa Howmet and Alcoa Fastening Systems have improved profitability by more than 60 percent the past year. And our forgings, global building and construction and hard alloy extrusion businesses are solid performers. This move and our continued focus to continually maximize returns should serve our downstream operations well for the next several years.”
As part of the review of its overall downstream operations, Alcoa also plans a targeted restructuring program in order to further increase efficiency and profitability. The restructuring will encompass plant closings and consolidations that will affect approximately 6,700 positions across the company's global businesses during the next year. This program is expected to save approximately $125 million before taxes on an annualized basis.
"Through the first three quarters of 2006, we have generated more earnings than in any full year in our Company's history, and in order to continue to move forward, we now need to take the difficult but necessary restructuring steps that will continue to maximize profitability across the Company," said Belda.
Included in the fourth quarter 2006 restructuring are the following major components:
Flat Rolled Products (FRP)
- Restructuring of the company’s can sheet operations resulting in the elimination of approximately 320 positions, including the closure of the Swansea can sheet facility in the United Kingdom;
- Conversion of the idled San Antonio, Texas rolling mill into a temporary flat rolled products technical facility serving Alcoa’s global FRP business.
Extruded and End Products
- Optimization of the company's global hard alloy extrusion production operations serving the aerospace, automotive and industrial products markets, resulting in the elimination of approximately 370 positions in the U.S. and Europe.
- Restructuring and consolidation of the Company’s automotive and light vehicle wire harness and component operations, including the closure of the manufacturing operations of the AFL Seixal plant in Portugal and restructuring of the AFL light vehicle and component operations in the U.S. and Mexico affecting more than 4,800 positions.
Packaging and Consumer
- Consolidation of selected operations within the company's global packaging production to increase productivity, resulting in the elimination of approximately 470 positions.
Primary Metals and Alumina
- Reduction within the company’s global primary metals and alumina operations by approximately 330 positions to further strengthen the company’s position on the global cost curve.
Total charges for the fourth quarter 2006 – including an impairment charge associated with the contribution of assets to the soft alloy joint venture, and the restructuring -- are expected to be between $375 million and $425 million after tax, with approximately 50 percent attributable to the soft alloy extrusion business.
In addition, the Company will recognize an $85 to $95 million after-tax gain in discontinued operations in the fourth quarter as a result of the previously announced sale of its Home Exteriors business on October 31, 2006 for $305 million in cash. Alcoa is scheduled to report its fourth quarter and year-end 2006 results on January 9, 2007.