Good day, ladies and gentlemen, and welcome to the Second Quarter 2015 Alcoa Earnings Conference Call. My name is Tracy [ph] and I will be your operator for today. As a reminder, today’s conference is being recorded for replay purposes. I would now like to turn the conference over to your host for today, Nahla Azmy, Vice President of Investor Relations. Please proceed.

Thank you, Tracy [ph]. Good afternoon, and welcome to Alcoa’s Second Quarter 2015 Earnings Conference Call. I’m joined by Klaus Kleinfeld, Chairman and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. After comments by Klaus and Bill, we will take your questions. Before we begin, I would like to remind you that today’s discussion will contain forward-looking statements relating to future events and expectations. You can find factors that cause the company’s actual results to differ materially from these presumptions listed in today’s press release and presentation and in our most recent SEC filings. In addition, we have included some non-GAAP financial measures in our discussion. Reconciliation to the most directly comparable GAAP financial measures can be found in today’s press release in the appendix to today’s presentation and on our website at www.alcoa.com under the Investors section. Any reference in our discussion today to historical EBITDA means adjusted EBITDA for which we have provided and reconciliations in the appendix. And with that, I would like to turn the call over to Klaus.

Very good, Nahla. Thank you. So let’s, in the usual fashion, summarize this quarter. Solid operational results; transformation on track; a really strong quarter; adjusted earnings up nearly 16%, driven by the downstream record profit, $210 million, up 4%; aerospace revenues up 29%; midstream up 9% profitability; auto sheet revenue up 180% year-over-year. And then the upstream, solid performance in spite of the significant market headwinds. On the Alumina segment, it has been the best first-half profit results since 2007, and on the Primary Metals, very resilient, even though the Midwest transaction price in this year has dropped by 22%. Productivity gains stands now through half year at $324 for the quarter coming from all segments. Very, very good. Free cash flow at $205 million, and if you look at cash from operations, $472 million, and that’s after the $300 million that we paid for the Australia gas supply contract. Cash on hand stands at $1.3 billion. Now let’s also look at transformation: it’s on track. Firth Rixson, I’ll talk about it later, on track. And you can see what we’re doing there. Regulatory approvals for RTI, we have received all the necessary ones. RTI has scheduled the shareholder award for July 21, and we expect to close by end of July. Micromill really also exciting news: qualification agreements on place with 8 major automotive customers from all three continents. Then on the upstream side, I mean, as you know, we announced the capacity reviews, and we are following up on those. I mean, we have completed this 12-year Australian gas supply contract, allowing us to stay competitive there. We have curtailed more part of the Alumina refinery in Surinam. We have closed down fully our Southeast smelter. We permanently closed Pocos de Caldas, the smelter in Brazil. We’ve announced the permanent closure of the Anglesea power station and the coal mine in Australia. So this is a good fraction on the most important things we’ve done in this quarter, and all of these actions led to a really strong quarter that we see.. With this, over to you, Bill, to give us more color on this.

Thanks, Klaus. Will to review the income statement. Second quarter 2015 revenues rose to $5.9 billion from $5.8 billion in the second quarter of 2014, up 1% year-over-year. Organic growth in Aerospace, Automotive, and Alumina combined with acquisitions grew second quarter revenues by 12.7%. This profitable growth more than offset an 11.7% decline in revenues caused by closing and divesting lower margin businesses and market headwinds. This revenue shift reflects the positive effect of the company’s transformation. Compared to a year-ago quarter basis, cost of goods sold percentage improved by 250 basis points driven by strong productivity gains and a stronger U.S. dollar, somewhat offset by cost increases and lower metal premiums. Overhead costs continued to decline both sequentially and year-over-year. Year-on-your EBITDA improved to $166 million, up 21% over the second quarter of 2014. This was driven by strong performance from Alumina, EPS, and GRP, offset partially by pricing and energy headwinds from Primary Metals. The second quarter effective tax rate of nearly 27% was lower than our expected operational tax rate of 31%, due to favorable, net discrete and special taxes in the quarter of $22 million. Excluding this impact, our operational rate for the quarter and year-to-date was 31%, which is consistent with our expected operational rate for the year. Overall, net income was $140 million or $0.10 a share. Excluding special items, net income was $250 million, up nearly 16% versus the same period in 2014. This resulted in earnings per share, excluding special items of $0.19. Let’s take a closer look at the special items. In the quarter, we recorded an after-tax charge of $110 million or $0.09 per share, primarily restructuring related. We announced the closure of the Pocos smelter and Anglesea power plant and mine facilities resulting in a $95 million and $22…

Well, thank you, Bill. And on with the market, I mean, let’s talk with the end markets. Let’s start with aerospace. So we do believe that the aerospace market is going to grow a percent this year. This is one percentage point down from our previous view, and that’s entirely due to the shift that we are seeing on the slow platform ramp up, mainly, the A350 in the sea areas. Then the good news of this is that all of this moves into 2016 and 2017 and there leads to a nearly doubling of what we saw before as the growth rates there. Then let’s look at the Paris air show and there was a little bit of oddity here, because right after the air show, the Chinese premier we visited France, and as usual, signed a lot of contracts there, also for Airbus. If you add this up, the contracts that were signed in Paris as well as at the then subsequent visit of the premier, it adds up to $125 billion of orders and commitments for Airbus and Boeing alone. If you compare that with last year [indiscernible] that’s $216 billion, so that’s actually pretty good news. Auto book on commercial jets is over nine years of production. The airline fundamentals continue to be solid, 6.7% passenger and 5.5% [indiscernible], the other profitability continues to be good on $29 billion is the estimated of the IATA these days. So let’s move on the Automotive, let’s start with the North America. We expect 1% to 4% straight. It’s currently our strong with 4.4% led by light trucks, production is up 1.7%, inventories flat by some 60 days, and sensors are up 4.7% driven by passenger cars, and that’s a response to the strength in light trucks and the…

[Operator Instructions] Your first question comes from Timna Tanners of Bank of America Merrill Lynch. Your line is open.

Yeah, hi. Good evening, guys. How are you?

Hello, Timna.

Hi.

I think what I hear from a lot of investors is just the concern over the Alumina market in general. And I see that certainly you detailed for us the expected change in the Midwest premium and the impact into the third quarter, but then there the LME impact into the second quarter -- third quarter as well. And you did talk about a little greater surplus, but you didn’t change Chinese demand forecast. I’m just wondering what you’re thinking about the possible response Alcoa can provide to the market in light of lower aluminum prices and the continued issue of Chinese over supplier, overcapacity?

Well, Timna, that’s a good point. I mean, let’s start. I don’t even know where to start but let’s start what we believe has happened here why the regional premium as well is the primary LME prices have come down. We believe the major driver of this has been a phenomenon called China fake semis, right? And in reality, these fake semis are re-melds disguises as semi-finished products. They circumvent the China’s 15% export duty, and they receive a 13% VAT rebate, right? And they directly compete against Western primary, and this is not in line at all with what the Chinese authorities have intended with their policy. They intended with the 15% export duties to avoid exports of primary metals, and with the 13% VAT rebate, to incentivize real value-add products, which they are not. Right? And they are doing it because they don’t want to deplete critical natural resources like water and energy. And on top of it, these folks often inflate their prices to get increased VAT returns, so they are taking the money away from the Chinese people. So we believe that this should stop. I mean, we need a level playing field. We are obviously carefully monitoring it and considering all options. We believe the Chinese government will not tolerate such an abuse and given the prices today, that’s the other interesting thing, the attractiveness of even the fake semis export has strongly declined. And there is – by the way, to clarify this, there is really no primary metal coming, no real primary metal coming out of China for a whole host of reasons, one, because the 15% export duty as a barrier, and the second one, because of the economics that exist today.

And I think that’s one...

Right. And then...

Yeah, go ahead, Timna.

I was just going to say, no, I think it’s clear that the ARB is closed and that there should be conceivably fewer exports from China of the fake semis, as you call it. But I was just wondering two specific things. One is, do you believe that the Chinese will curtail capacity? Because they’re not always as efficient as maybe we’d like on that front. And then two is, if prices were to stay at these low LME price levels, what are further measures that Alcoa could take?

Well, look, I mean, on your first question, I mean, keep in mind that this is the first time that those two planets have communicated with each other. I’ve always described it, and we had – I think we had some good conversations, Timna, that in reality, whatever China did with their primary business was their business. I mean, so they haven’t exported, and I can’t be crystal because that hasn’t changed, right? What has changed is this phenomenon of fake semis which is going against primary in the West. So this is the first time these two planetary systems have talked, and literally, they talked in a way that the deficit in the West got destroyed with the fake semis that came out in a really, I mean, I would call it an illegal fashion, stealing money away from the Chinese people and being totally against that. So in reality, I don’t know whether they are going to curtail more. You know, you’ve seen that for the first time, by the way, last week, Chinalco has now announced that they are curtailing. And you see that there is an increased pressure also from SASAC, the owner of all state-owned enterprises. On the state-owned enterprises that are not profitable, have non-profitable business to become profitable. So all of these things are there, you know, but can we guarantee that all of this gets executed? No. But under normal circumstances, assuming the fake semis would go away, I would not be too concerned. So secondly, what can Alcoa do? Alcoa, it has been doing and will continue to do to optimize the portfolio. You’ve seen it again this quarter. I mean, we’ve basically, on the smelting side, we’ve taken off full capacity in San Luis, right? Totally curtailed, you know? We’ve permanently closed our Pocos de Caldas smelter, right? And then on the refinery side, we continue to also improve our cost position. And there are many, many more ideas on that end, plus then also to bring our cost down on the short term as well as on the long term. The Intalco contract is a short-term way, how to get our energy costs down and the gas contract for Australia is a very long-term one to really make sure that the value of a really high-value asset like our system in Western Australia will be enjoyed, frankly, by generations that come after us because this thing only kicks in, I mean, in 20...

2020.

2020.

2020 to 2030.

2020. So this is not something that comes tomorrow, but we believe that’s the right thing to do to get shareholder value here.

The only thing I would add to that, Timna, is recall we have a review, a capacity review currently underway of 2.8 million metric tons in refining and 500,000 metric tons in smelting. So San Luis and Pocos were the first curtailments and closures under that review.

Okay. So more to come potentially?

[Indiscernible]

Yeah, thank you for that answer. I appreciate it.

Oh, well, thank you, Timna.

[Operator Instructions] Your next question comes from the line of David Lipschitz with CLSA. Your line is now open.

Okay. Dave, hello.

Hi, Dave. Dave?

Dave is calling from New York Stock Exchange.

Can you hear me okay?

We can hear you now.

Oh, yeah. Now we can hear you. We can hear you now.

Sorry about that.

Yeah, that’s good. Okay.

So I guess my question is you’ve done the Firth Rixson; you’ve done the RTI. Are you looking at any more either upstream or other metal type of stuff in the specialty side? Is that something that still interests you? Or pretty much, you’re feeling pretty good where you are right now?

Well, look, what I would say, we know how to manage innovation and we know how to professionally integrate. And I’ve said this before, I mean, some people have said, oh, my God, I mean, they are now on acquisition mode, but it’s really been a bit coincidental that both the two opportunities came so close after each other. And I’d be happy to indulge on that, why this happened, but you sometimes can’t plan for something that you build up over a longer period of time, you know? The integration, by the way, is handled by different teams inside of Alcoa, so the worry that some people have raised, oh, my God, I mean, are they overeating? Can they handle it? I think is way overblown, and we are very well aware of it, and that’s, by the way, one of the most important criteria that we use before we go after it. So we are really committed, I mean, to do all that we can do to create shareholder value. That’s really all I would say with this. And I think I’ve shown in my presentation how the organic growth as well as the inorganic growth has strengthened our position in attractive markets like aerospace, and those that have been at the Paris Air Show I would think could really feel it. You could feel it by the response from our customers, the attractiveness of our offerings, and that’s, I think that’s really what counts and that’s what’s going to create shareholder value, short as well as long-term.

Okay. Thank you.

Thank you, Dave. Yeah.

Your next question comes from the line of Tony Rizzuto with Cowen & Company. Your line is open.

Thank you very much. Hi, Klaus and Bill.

Hey, Tony.

Hey, Tony.

Hi. I’ve got a question on Rolls-Royce, and there’s been some negative commentary coming out of that company and with regard to the trend engine build rates and the supply chain. And I’m wondering can you talk about that a little bit? How concerned are you? And are we possibly looking at another supply chain de-stock period going forward here?

Well, Tony, I’ve shown you our forecast for this year and the next two years and then the 10 years out, right? And you can see that we are really optimistic, as most people are, in where this market is going, right? So, and the fundamentals are there. I mean, and they are very different from what we’ve seen before. We didn’t have an emerging Asia that adds 100 million new passengers every year in the next 20 years every year. We didn’t have a situation where the next-generation aircraft was so much more attractive in terms of fuel efficiency and maintenance costs and where we literally had 600 aircraft per annum retiring every year. All of this, I think, plays into this and we – I mean, we do see a robust demand also on the engine side, which is basically a derivative of the planes and of the new planes and the usage, and we do not see any dips in there or any risks. I think that is more, and I think if you talk to the experts there you would very soon see that this is more a company-specific thing rather than a market situation, right? And the good news is, I mean, we cater to everybody. I mean, basically, every jet engine maker as well as every airplane platform maker is our customer, right? And we are really, really happy about this business.

Okay. I wonder if I may ask a second question.

Sure.

And it’s your spending thus far on capital, both growth and sustaining, has been, obviously, at a run rate thus far, through the first six months, it’s been below what you’re targeting for the year. And I did hear you say it was expected to ramp up as we go through the year. But as you sit there today and talking to us about his, is it likely – I mean, you’ve done a very good job of managing capital spending and cash flows over the last couple of years. Can you provide any further granularity on your thought process about overall capital spending for the year?

Sure, Tony. I made the point on the return-seeking capital that we’re looking to ramp it up. Those return-seeking capital projects have very good returns. They’re generally either cost savings or organic growth opportunities, and so we really want to ensure that we spend the money on the return-seeking projects so that we can get the returns. Given the current market environment in the Upstream business, we’ll do everything we can to manage sustaining capital successfully, and that’s the area that as we look forward to our $500 million free cash flow target, it’s one of the areas we’ll be looking to manage to try to achieve that target.

Okay. Great. Thank you very much, Bill and Klaus.

Thank you, Tony.

Your next question comes from the line of Brian MacArthur with UBS. Your line is open.

Hi. Good evening. I was just, and thank you very much. I think it is very helpful to take the metals flow in the GRP business. But you also didn’t go back and restate 2010, 2011 and 2012, and you sort of set your goal of getting an EBITDA per ton of 344 based on those three years, and yet since then, we’ve sold a lot of mill that probably weren’t doing that well. Obviously, auto’s got a lot better. You managed to do 342 already this quarter in an environment that’s pretty tough. Is that fair to assume that I am just curious you didn’t reset that target, because obviously, I would think it would be quite a bit better given your mix going forward or am I incorrect in assuming that?

Well, I mean, the – when we put the target out, we were actually assuming that we would change the mix. So without a change of the mix, this would have been impossible to achieve, right? And particularly, when you see the decline in the enormous headwinds that we are facing on the packaging side, I mean, when I look at our rolling business, I must say, I mean, they are doing on both sides a really, really good job to bring the cost down in the packaging business. They are facing a lot of headwinds there, right? And at the same time, we’re growing with innovation and then we have this revolutionary innovation there with the micro-mill and the micro-mill materials.

Then, I mean, I hope that this is not getting varied. You know, the very fact that we announced – when did we announce it? It’s end of last year, December or so, right? Wasn’t that about the time when we announced micro-mill?

Yes.

And we have now eight customers that have signed up a qualification contract and they are coming eight automated customers, big names.

From all...

And they are coming from all three continents. And that shows you what this team has been doing, right? So this is how we look at it, I mean, from short-term, but the 344 has already, and on your specific question, this was already, I mean, assuming that portfolio actions would be necessary for this.

But that would’ve included, obviously, the metal price after and everything as well, too, right?

Well, so...

The targets were set on the trailing three years, and we assumed essentially flat metal prices from there.

Yeah.

So in essence, by setting the target with flat metal prices, you didn’t have a metal price impact in the numbers.

Great. Okay. That’s what I was just going to...

Yeah. So the target is still a valid target, and as Klaus eloquently said, it’s really a tale of two cities. You got a packaging business that has some significant headwinds and you’ve got an aerospace and automotive business that’s doing well.

Great. That helps a lot clarifying it. Thanks very much.

Thank you.

Your next question comes from the line of Jeremy Clever [ph] with Deutsche Bank. Your line is now open.

Hi, Jeremy.

Hello, Jeremy. Jeremy, you have to unmute.

Hi, guys. Just wanted a little bit more clarity on...

We need you to speak up here.

Can you speak up a little bit more?

I just needed a little bit more clarity on the fake semis coming out of China. I was just wondering if you guys would or chance take the same route as some of those steel companies and perhaps raise the trade case. Or if you’re just waiting for China to kind of implore the discipline on their own companies?

Well, Jeremy, that’s a good question. Frankly, as I said, I mean, we are considering all options here, but I believe, I’ve not been in China four weeks ago or so and had a lot of conversations also with high-level folks. I mean, they are very clear that this is not in line with their policy and that they are deeply looking into this. My strong assumption is that they will be shutting this down. Because in reality, I mean, why have they put these procedures in place? Because they don’t want primary metal to leave the country, because primary metal is another way, it’s a liquefied way of energy. And that energy that they don’t have enough in their country, and that has a level of pollution, creates a level of pollution and eats up water in areas where there is water shortage. I mean, one of the big expenses that has happened on the primary metals production is in the Gobi Desert up in the north in the Xinjiang province, right? And the Xinjiang province is a desert. They don’t have water there and they either still use water coolage, power cold fire power generation, which is really terrible, I mean, to do, in the desert or they go with air cool. And air cool is basically you now have to lift with the lower efficiency which basically means you burn more coal. So with this, your CO2 amount goes up in an area where they already suffer from enormous problems with air quality, right? And this government, as we could see today again and yesterday, I mean, it’s very much also focused on how their people are feeling about the government, right? And social stability. And social stability is more and more tight also to environmental conditions, which is kind of typically as economies move up, right? So that’s how I see this. But I would say, I mean, our position is we are open to all options. By this point in time, I’m relatively optimistic that the Chinese will take care of it.

One more, if I may.

Sure, Jeremy.

On both power and propulsion, you guys had set a goal for 2016 of $2.2 billion. I’m just wondering how close are you to getting that with the organic growth versus having the acquired growth fund birthrates and RTI in 2000?

Well, on the APP, in fact, on the APP, I mean, the only non-organic North that we have had there is to how, that’s relatively smaller.

About $100 million.

About $100 million. So the 2.2 is really an organic growth when you look at mileage ahead in there on airspace, right? You see a lot of APP plans there, right, like him to.

Laporte.

Where we are putting in couple you’re putting in investments and conferences, I mean, that allow us to have bigger casts, bigger investment accounts for the larger jet engine and a better coding for blades and hands than for a Whitehall. We have investments there. So most of it is really organic growth their through innovation, a really strong innovation. Thank you for asking. APP is a really, a really great business. Doing very, very well.

Thank you. Good luck.

Thank you, Jeremy.

Your next question comes from Paretosh Misra with Morgan Stanley. Your line is now open.

Thanks. I have a question on slide 21 regarding your airspace market guidance. I was wondering if you could provide some more color as to what platforms are driving this growth and driving the change in your guidance in 2016 to 2017?

Oh, I see, you’re talking about the - in market slide. The end market slide, and I think you are referring to this first bullet point, the shift of this 1%, this is purely referring to a plane, but if you take this chart and you compare it with the chart, with the same chart that we had for aerospace in the first quarter, you would see that at that point in time, we predicted a growth for this year 9% to 10%, and we are now taking this down to 8% to 9%. The reason why we are taking it down is because we’ve seen in the first half of the year that the ramp up in the supply chain for the new platforms, mainly the A350 and the T-Series I have been to Max low. However, this is not a reflection of the orders that are there. It’s just a reflection of the ramp of the impossible slide supply shape to catch up the rest of the year. So this moving into next year and into the next year. So that’s why we, on the one hand, are shifting, taking the 1% down here at the same time we are adding this to the 2016 and 2017, we will be of staying there. And used in this growth rate basically doubles then through this move. Does that explain your question?

Yep.

Very good. Thank you.

Thank you, Paretosh. All right.

There are no further questions at this time. I will turn the call back over to Mr. Kleinfeld.

Okay. Very good, and good discussion, also. Let me close. This was a strong quarter, showed some transformation is right on, our value added businesses outperforming acquisition is fully on track, at streaming, [indiscernible] resilient, strong productivity, excellent cash generation. One thing that I can guarantee you, we are laser beam focused on shifting the portfolio to hire profitability and repositioning of network. Thank you for calling in, and I’m looking forward to our next conversations, and very much.

Thank you for joining, ladies and gentlemen. This concludes today’s conference call. You may now disconnect.