Good afternoon, everyone, and welcome to the Alcoa Corporation Fourth Quarter and Full-Year 2018 Earnings Presentation and Conference Call. All participants will be in listen-only mode. [Operator Instructions] And please note that today's event is being recorded. And I would now like to turn the conference over to James Dwyer, Vice President of Investor Relations. Please go ahead.

Thank you, William, and good day, everyone. I'm joined today by Roy Harvey, Alcoa Corporation President and Chief Executive Officer; and William Oplinger, Executive Vice President and Chief Financial Officer. We will take your questions after comments by Roy and Bill. As a reminder, today's discussion will contain forward-looking statements relating to future events and expectations that are subject to various assumptions and caveats. Factors that may cause the Company's actual results to differ materially from these statements are included in today's presentation and in our SEC filings. In addition, we have included some non-GAAP financial measures in this presentation. Reconciliations to the most directly comparable GAAP financial measures can be found in the appendix to today's presentation. Any reference in our discussion today to EBITDA means adjusted EBITDA. Also, a note on our financial statements. Consistent with our three previous 2018 earnings presentations, all comparative prior periods have been updated in accordance with the Financial Accounting Standard Board's recent change to the presentation of non-service pension and OPEB costs. This change resulted in Alcoa moving such costs out of EBITDA and into other income/expense. Finally, as previously announced, the earnings release and slide presentation are available on our website. With that, I’ll turn it over to Roy.

Thank you, Jim, and thank you to everyone for joining today's earnings call. Our fourth quarter and full-year 2018 results reflect our determination to accelerate the strengthening of Alcoa. Despite sequentially weaker markets, we had a strong fourth quarter with higher profits in our Bauxite and Alumina business units. And with the help of higher market prices earlier in the year, we increased annual profits, addressed liabilities, significantly strengthened our balance sheet and began to return cash to stockholders. We've built upon the progress we've made since our launch, and by executing our strategic priorities to reduce complexity, drive returns and strengthen the balance sheet we're better positioned to thrive through market cycles. But as we turn to 2019, markets have trended lower and there is increased uncertainty surrounding global trade. This has created a dynamic environment for input pricing and product pricing. Our businesses, however, are ready for these challenges, and we are determined to drive improved operations, react smartly and with urgency to changing market conditions and to further strengthen our Company's foundation. With that, let's get started with an overview of the fourth quarter. We reported net income of $43 million or $0.23 a share. On an adjusted basis, excluding special items, net income was $125 million or $0.66 a share. On an adjusted EBITDA basis, excluding special items, we generated $749 million and reported solid cash generation. Turning to our businesses, and beginning with safety. The fourth quarter was free of serious injuries. We're very happy with this achievement and we look forward to building upon it as the year progresses. Operationally, in Alumina, our Pinjarra refinery in Western Australia, one of the largest in the world, attained a fourth quarter production record. Our Alumina segment also reported a rise in quarterly profit. In Aluminum, last…

Thanks, Roy. Let's start with the income statement. Sequentially, revenues are down $46 million on lower aluminum and alumina prices. Compared to last year, revenues are up $170 million, primarily on higher alumina prices. In the quarter, the net income attributable to Alcoa Corporation was $43 million or $0.23 per share on 188.2 million shares outstanding. Special items in the quarter totaled $82 million after tax and non-controlling interests. Of the $138 million of restructuring before tax and non-controlling interests, $107 million was to establish an allowance on Brazil state VAT credits. While the Company retains the ability to utilize the credits in the future, only the restart of our Sao Luis smelter provides the opportunity to monetize the credits. Amid unfavorable market conditions and with the current inability to obtain a favorable power contract, we felt it necessary to stop recording additional VAT credit and to establish an allowance on the current balances. We still believe the Sao Luis smelter assets are valuable for the future and continue to maintain the smelter assets. Other restructuring charges of note include $12 million for pension and OPEB actions and $8 million for take-or-pay contracts at idled facilities. Now let's look at the income statement, excluding special items. Our fourth quarter 2018 adjusted net income, excluding special items was $125 million or $0.66 per share. Adjusted EBITDA excluding special items was $749 million, down $46 million sequentially primarily due to lower metal prices. Our fourth quarter EBITDA margin was 22%. A few other items of note on a sequential comparison basis: other expenses increased $25 million due to losses in the Aluminum side of our Saudi joint venture and lower foreign currency benefits. Our operational tax rate in the quarter was 38.8%, 6.8 percentage points lower sequentially. In the third quarter, we…

Thank you, Bill. Turning to our market outlook. First, I'd like to highlight, why we're excited about the future of our aluminum market. Beginning on the left hand portion of the slide, long-term demand growth is expected to remain robust in the next five years. When looking at expected consumption growth, aluminum continues to outpace competing materials. We expect that demand growth for primary aluminum will remain strong at a 3.4% compound annual growth rate to 2023. We are also fortunate to have a well diversified base of sectors that consume aluminum. In fact, no one sector makes up more than about 25% of aluminum demand. The three largest sectors, construction, transportation and packaging are each expected to have significant growth worldwide in the next five years. We expect transportation demand for aluminum, for example, to grow at a 3.9% compound annual growth rate supported by trends that include rising wealth in emerging economies in the light weighting and electrification of vehicle fleets. The Electrical sector is also expected to contribute significant demand growth by 2023. Especially in India, a country that is responsible for almost 1 million tons of growth during this period. In the developed markets of North America and Europe, where most of our production is located, aluminum consumption growth is expected to outpace positive overall GDP growth. Positive economic growth in both mature and emerging markets will therefore provide a steady source of demand growth for the many critical end products that rely on aluminum in their supply chains, while new aluminum supply will come on line over these five years. In the near-term particularly, we expect that supply growth will not keep up with consumption. Given a more restrictive approach to operational permitting inside China and the clear capital cost disadvantage restricting new supply outside…

Thank you. And we will now begin the question-and-answer session. [Operator Instructions] And the first questioner today will be Timna Tanners of Bank of America Merrill Lynch. Please go ahead.

Hey, happy New Year guys.

Hey Timna.

Thanks for all the great detail. I guess I had to laugh when I saw the simplification is still a priority because I went to Slide 31 and I got really confused. So I was hoping you could help without getting too into the minutia, sort of through what those components are? Are those above and beyond kind of the discussion that Bill gave us earlier? Or are those already in guidance? For example, when you talk about the mix and the pricing, is that something that would already be reflected in your sensitivity charts or tables or is that something that's separate?

Timna, it's probably a little bit of a combination. So if we just briefly run through it, the first of all, it talks about the operational stability and improvement that we expect to see out of alumina, which we highlighted that we had some difficult times this year and we're expecting to recover from that, picking up some of the – we're picking up some of the – overcoming some of the negativity we saw in the fourth quarter on the alumina price mix column. So picking up $30 million there, giving you an estimate of the flow-through of alumina into smelting and that's the $45 million. And then the next two are really outsider sensitivities, right. We don't give you a sensitivity on maintenance spend or what flat rolled products is going to look like in the first quarter. So we've provided that here for you. And then the second last one is about raw materials. There's so much uncertainty around raw materials right now. It's a very, very difficult to predict where raw materials are going to end the year. So we're just trying to point out to you what they look like in the first quarter. And then the last bullet point is really a substitution for some of the prior guidance that we've given around intercompany profit elimination. You know now that we're off of LIFO. I alluded to that in my comments. So LIFO is now gone. So this is just something that will help you understand where the intercompany profit elimination will be based on different API prices. So it's a mixture to answer your question.

Okay. That's helpful, and I'll go through that in more detail separately. And then I was just wondering, I know that it's really fresh talking about the advances in Spain. But just, you know, as you talk about the landscape over the past year, it had me thinking about where the Company's footprint wants to be going forward in current market conditions. You've talked on the potential to restart the refinery in Brazil. You're producing less in Canada. Can you talk a little bit about how you see the footprint evolving or is this that the ideal footprint for the Company in the current circumstances? And can you give us any color on the impact of the Spanish shutdown for operations? Thanks.

Yes, Timna. So let me start at a high level and then I'll get a little bit more granular because I think it becomes a different question and a different answer for each of the facilities. When we look at our portfolio right now, I think we feel that in the world in which we've been living for this past year, it's the right portfolio, and I'd remove Spain from that because we've obviously been having the discussions around the Spanish restructuring. However, that doesn't mean that we are very focused on both looking at our current facilities given this new set of pricing conditions and also looking at our footprint and thinking about what is it that we're trying to do with the future. And so very simply, we see that the value isn't in the number of tons that we produce, but in the fact that we have a low-cost, high-quality portfolio that allows us to both weather the downturns, but also do a smart job at strengthening ourselves and also improving our production capacity at our current locations when times are better. And that is a constant process. So when you then sort of zoom in and look at this on a case-by-case basis, and so one example that you mentioned was in Brazil where we have been idle smelter. It's a relatively competitive smelter, but that lacks a power contract that makes it competitive in today's world. That's something that can shift relatively quickly. It depends on the Brazilian real. It depends on market conditions both inside of Brazil and outside of Brazil. And it also depends on our ability to negotiate with the government, both the regional and national government of Brazil to find a long-term power contract. We continue to look at each of our locations to see what can we do to make them stronger, whether there is any justification for a restart, and additionally, and this becomes particularly important at times like today where we see relatively strong alumina prices and weaker aluminum prices, we also look at our portfolio to do two things. Number one, make sure that when we restart failed electrolytic parts, whether we choose to bring them back on line again, which is very much a variable cost exercise or whether we actually choose to look at a longer-term curtailment of a part or all of the facility. So it's a rather long-winded answer to your question. However, it really is a constant exercise and something that we ask each of our businesses, Bauxite, Alumina and Aluminum, to be constantly evaluating where they are and ensuring that that then matches up with what we see as the long-term fundamentals of our business.

Okay. Thanks for that.

And the next questioner today will be Alex Hacking with Citi. Please go ahead.

Yes. Thank you for the question. I guess the first question would be around the adjusted net debt goal. You mentioned that you can get to that target just based on the mandatory minimum OPEB pension payments. I guess what would trigger you or what would trigger you to pay above those levels in order to accelerate that target? Would it just be based on free cash flow levels? Thanks.

Yes. Good question, Alex. As I said, we've got a target that is three to five years out there. If we achieve our expected return on assets in the asset portfolio for the pensions of 6.75% and discount rates don't change, then we would be able to achieve that target without making any discretionary contributions to the pension above and beyond the mandatory. If we were to find ourselves in a position where we don't achieve the expected return on assets or discount rates were to decline from where they sit today, we would have to make contributions to achieve that net debt target. So that's why we basically are putting the net debt target out there saying, hey, we should be able to achieve it with the mandatory contributions, but if we don't get the expected return on assets or if discount rates change on us considerably we would need to make contributions.

Okay. So just to clarify, therefore you would anticipate making no voluntary contributions this year or in 2019 unless there's unexpectedly poor asset performance?

Yes, the only caveat that I would have on that is, if we choose to do some level of further de-risking, we've done de-risking in the pension plan in 2018. We contributed whatever, $1 billion of cash into the pension plan to be able to take a considerable amount of the liability off the balance sheet. But at this point, I'm not anticipating that we would make considerable contributions beyond the mandatory.

Okay, thanks. And then I guess just my second question on flat rolled. Are you still comfortable with the guidance that you gave on the last call of around a $25 million run rate? I noticed in the commentary that in the first quarter, you expect it to be quite a bit weaker than that, but you did say last quarter that it would be weaker in the first half. So is that previous guidance still good?

Yes. We gave previous guidance of about $100 million for the year. We're still targeting for $100 million for the year. And as we say, the first quarter will be a little bit weaker than the fourth.

Thanks a lot.

And the next questioner today will be Chris Terry with Deutsche Bank. Please go ahead.

Hi, Roy and Bill. Yes. I just wanted to feed off the question that Alex was asking around the cash flows just now. On Slide 15 and 16, in terms of the $150 million you still have remaining in the buyback program and just tying that to what you actually bought back in the latter part of the fourth quarter. Is the speed of the buyback program that you spend entirely dependent on the EBITDA you're actually generating at the time and also the minimum required pension of the $300 million that you're going to spend during this year? Just trying to get an idea of how you prioritize the buybacks against the other buckets that are mentioned on Slide 15 for the excess cash. Thanks.

Yes, so it will be based on having excess cash. So I think to answer your question, you said, hey, will be based on EBITDA. Yes, I mean ultimately as EBITDA translates into cash flow, it will be based on having excess cash. And during the course of the year, we will make the determination – if we have that excess cash, we'll weigh it versus the other options that we've laid out in the capital allocation framework, and that's the three things that we talked about there, which is returning cash to shareholders, potentially further delevering and looking at long-term growth opportunities and make a determination. So if there is excess free cash flow, we'll evaluate those three, given the long-term capital allocation program that we've announced.

Okay, thanks. So it looks like Slide 16 is going down the right hand side of the FY 2019 outlook, so $300 million sounds like it's pretty fixed and all the capital expenditures. So just thinking about the buyback program, it really would just come down to what you generate during the year, for example, going back, back CapEx or look at other items within that framework?

Yes. The $300 million, if you look at us historically, it's been pretty steady over the last few years, $300 million of sustaining capital. Goes up or down a little bit over the last few years, but $300 million is pretty good number. And then $150 million of return seeking, that's the – we came out with $150 million return seeking target for 2018. We underspent that as the return seeking projects came available. We made decisions around how quickly to implement those. But that would be the target for 2019.

Okay, thanks. And just the last one for me. The Slide 19, balances on each of the end markets. What have you assumed for Alunorte on the alumina balance? Thanks.

So on the alumina balance, we assume essentially status quo as of today. So there is no assumed restart, and not because we're taking a position on that, but simply because we wanted to put a stake in the ground as what does the market look like prior to the return. And it's the same impact on aluminum as well with Albras, which is connected over to Alunorte.

Okay. Thank you. That's it for me.

And the next questioner today will be Matthew Korn with Goldman Sachs. Please go ahead.

Hey, good evening, everybody. Thanks for taking my questions.

Hey, Matt.

A question on the situation in Spain. Could you explain a little bit more next steps on the worker negotiations there? You say the release, there's a vote at the end of the month. Does that need approval by the provincial government? Are there any other hurdles that you're going to need to clear before you can move forward there?

Yes, Matthew, let me take a stab at that one. So essentially the process is pretty well laid out from here going forward, and I'll give you some caveats about what will happen. So first of all, we have an agreement with the workers' representatives and so that is a very positive step. The next step and this will happen in about a week, is that the workers will then have their option to opine about that. So assuming that they agree, that essentially means we go into the program as it's already defined. And so we start curtailment and the workforce will participate in those activities and then we'll continue on to the rest of what you've seen there. We will continue to operate the casthouses. We will keep those plants for six months, until the end of June in a position where it can be restarted, and we'll look to see if there is someone that wants to step into those operating positions. If the workforce would choose not to agree with the program as laid out, we then have 15 days in order to decide how we react to that choice. Again, that's a very prescripted legal process inside of Spain. However, I wouldn't want to try and foreshadow what the decision would be at that particular moment.

I appreciate it. Thanks for the clarity. I also want to dig a little bit more on some of your market outlooks on the different commodities. In alumina, China is ever the linchpin there. How much additional refining capacity are you counting on in that base case for Chinese alumina supply in 2019? Then, because it's connected, I guess what's your next view on Chinese smelter production into next year?

Yes. And it's hard to pin down what should the exact number be. And I think you're touching on this, Matthew, because the fact is, the Chinese, if anything, are very reactive to the way that the pricing happens to be pointing them. And so we saw very quickly at the end of this year that when that gap between global pricing and Chinese pricing was in their favor they were able to export and when that gap closed they very quickly stopped exporting. And so as we build our balances, we always take into account how we think conditions should develop on the ground. And so that's a bit of a caveat of how we try to build that. And inside of that, we then think about what new capacity has been announced, how will the capacities then adapt to that particular situation that we find ourselves. So for alumina, I'm trying to think back – I don't have the number right in my mind, and I don't have it right in front of me either. Essentially what we've done is we've taken the announced new facilities coming on line, and there have been a few of those. We've taken into consideration also the relatively short-term winter curtailments, and we did have one curtailment that was announced and has been acted upon. And we then brought that into what we think that supply/demand balance would be inside of China.

I appreciate it. Good job with everything, guys, in what's been a really challenging year.

Thank you.

Yes. Thanks, Matt.

And the next questioner today will be Piyush Sood with Morgan Stanley. Please go ahead.

Roy, Bill, congratulation on the quarter. A couple of questions. First one, you were forecasting a deficit in aluminum in 2018, and now, a bigger deficit in 2019. Just want to understand how do you account for China's 5 million ton plus exports in this? So without Chinese exports, would world ex-China be in a much bigger deficit? Just want to understand your – how you account for those flows. And also, why do you think aluminum prices are where they are right now despite these large deficits?

So let me answer your deficit question first and then we can step in and talk a little bit more about the price question. So remember when you look at that page, it is specifically dealing with primary aluminum balances. And so that has advantages and it has disadvantages. It's a relatively simplified world view. So inside of that, let's take the China balance very specifically. Inside of that, if they are producing semi-fabricated products that are actually intended for export, it still counts as Chinese demand because it's consuming primary material either as that first, very basic primary product or as molten metal that's included in Chinese demand. If that then is exported, that then becomes an input into what is being consumed outside of China. So when you look at the rest of world demand, there is actually an impact of those 5.8 million tons that are falling out. There is a negative impact because now you're not just demanding primary aluminum to go into those semi-fabricated products. You're actually consuming some of that Chinese material. So essentially, the impact on the global balances is negligible because it is embedded in the way that we're doing these primary aluminum balances. However, it does serve in two ways. It serves as a connection between the two markets. But then it also serves – it allows this overcapacity in China to be turned into products and that then – those products are then exported and sold outside of China. And so it does very much have an impact on what's happening with global supply and demand balances, but it also has an impact on what's happening in aluminum pricing. So I'll use that to move right into your second question. So first and foremost, I think it's obvious that there's…

That's helpful. A question on Slide 16. The prior period taxes of $360 million, just want to understand if what's attributable to you versus Alumina Limited, should we assume a split around 60/40 or anything you could talk about that?

Yes. It's a great question. And it should be – you should note that it's a line item that we haven't provided in the past, and we're making sure that people understand that we do have trailing tax payments that have to be made largely and predominantly in Australia, right, because our AWAC enterprise makes a lot of the money that it makes in Australia. So a big piece of that would be a 60/40 split because it's in the AWAC enterprise. So good question, Piyush.

All right. And thank you. And last one. Slide 31, when we think of alumina operational stability, should we think of it as a second-half transition or can that happen in maybe 1Q or 2Q?

I'll let Roy talk about it, but I guess my view is, we started to see some of that stability come back in the fourth quarter already. If you look at the fourth quarter numbers, we started to see that stability versus what we had seen in the second and the third quarter. And in my view, we've largely regained much of the stability that we have around the system. So I think we should start to see that in the first half already.

Yes. I completely agree with Bill. Our expectation is that we see a stable Alumina business through the entire 12 months.

Thanks guys and all the best.

Thanks, Piyush.

And the next questioner today will be Lucas Pipes with B. Riley FBR. Please go ahead.

Hey, good afternoon, everyone. Wanted to ask a quick question on the buyback of $50 million during the fourth quarter. Could you share with us kind of at what price you were buying back stock? And then also, why not more? And when do you intend to increase purchases again? Thank you.

Sure. I think the average price was $29.01 in the $50 million that we spent. And the question of why not more. We had a capital allocation program that's at – we wanted to target a minimum threshold of keeping $1 billion. We were really looking at cash as it was coming in during the course of the quarter. And then the other key aspect is that we had a fairly short window in which we could buy back. You know we renegotiated our revolver in the fourth quarter also. In renegotiating our revolver, we were blacked out. So we had only a short period of time in the fourth quarter in which we were able to be buying back before we then went into the blackout period associated with earnings at the end of the year. So that's the reason why we did not do more.

Got it. That's helpful. Hopefully, you will not get another opportunity to buy at $25, but...

I'm sorry, $29.01.

No. I was being facetious.

No. I'm with you. I hope we don't get an opportunity to buy at $25.

But just another follow-up. I think it was page 16 where you gave the operational tax rate. I'm a little confused about why it's higher in 2019 given the lower alumina price. Could you maybe share a little bit more color on what's driving that increase for the 2019 guidance versus 2018? Thank you.

It all comes down to where you make your profits and the jurisdictions in which you're making profits. And so clearly, we didn't provide you a full-year EBITDA guidance, but given today's prices with the alumina and aluminum where it's at, we would anticipate that tax rate, right. So we're essentially just basically taking the current market prices for aluminum and alumina, trying to determine where we're going to make profits and also have losses. And that's what generates that 45% to 55%. I would point to you that I did make it clear in my comments that at today's prices we'd probably be at the upper end of that. So it's 50% to 55% range.

Got it. Okay. Well, thank you very much and best of luck.

Thank you.

Thanks, Lucas.

And the last questioner today will be Justin Bergner with Gabelli & Company. Please go ahead.

Thank you for fitting me in Roy and Bill. Good afternoon.

Hey, Justin.

Hi, a couple of quick cleanup questions. Is the cash tax in the book tax – is the cash tax rate also expected to be in that 45% to 55% range?

I would have to look, Justin. I think the really key thing for the modeling purposes is that you understand that cash tax catch-up, right. So that's why we pointed out that it's an incremental $200 million of cash tax catch-up that was associated with profits that we made in 2018 that we have to pay in 2019.

Okay, great. Yes, I was asking ex the catch-up, but I assume I'll loop up for some more clarity later. In the press release, you mention a $70 million to $80 million benefit from the curtailment proposed in Spain. I assume some of that benefit on the net income line is related to the impairment and reduced depreciation. So can you give a sense as to how much that should aid EBITDA?

I don't have it off the top of my head. So you have to circle back with Jim on how much is that? I mean one thing to keep in mind that in Spain, pre-tax and post-tax are largely the same because we've got a valuation allowance on the tax rate in Spain. So the $70 million to $80 million of net income, the $70 million to $80 million of pre-tax, how much of that is the EBITDA, I'm not certain of – how much of that is depreciation, I'm not certain of that off the top of my head.

Okay, thanks. And then lastly, the maintenance spend tick-up, is that just a first quarter phenomenon? Or is that going to continue throughout 2019 relative to what you spent in 2018?

That's a first quarter phenomenon. And I guess to circle back to some extent where we started with Timna's question. The reason why we provided that extra page, bullet point guidance is because given the fact that – as Roy said, we're not providing the full-year EBITDA guidance. We felt compelled to try to give you some much better insight into both the first quarter and the full-year. But to specifically answer your question, that's as a first quarter guidance item.

And just to add one more piece of information, Justin, just to give you a little bit more of an explanation. The largest part of our facilities in refining happen to be in the southern hemisphere. And so we tend to see a reverse trend. It's now the summer months when we tend to see more maintenance happening or some of the larger maintenance activities. So it tends to be pretty cyclical that the beginning of the year tends to be one of the most important maintenance months for us.

Okay, great. Thank you for taking my questions.

Thank you, Justin.

And this will conclude our question-and-answer session. I would now like to turn the conference back over to Roy Harvey for any closing remarks.

Great, William. Thank you. And once again, thanks to everyone for joining our earnings call today. Today's results reflect the success of our strategic priorities and how much stronger Alcoa is today than when we launched in late 2016. We have more opportunities to drive value for stockholders this year and we look forward to updating you again at the end of the first quarter. So thank you, and William, back to you.

And the conference has now concluded. Thank you for attending today's presentation. And you may now disconnect your lines.