Alcoa posts first quarterly loss in eight years

Alcoa was the first out of the blocks among the majors in 2002 with its quarterly financials, and the results were less than stellar.

Suffering a special after tax-charge of US$241 million (US28 per share) related to the company’s restructuring plans, announced in November, Alcoa posted a net loss for the fourth quarter of US$142 million (US17 per share) on revenue of US$5.18 billion. For the 2000 fourth quarter, net income was US$392 million (US45) on revenue of US$6.56 billion.

The last time Alcoa reported a quarterly net loss was during the first quarter of 1994, when it was US$108.3 million (US61 per share) in the red.

For all of 2001, including special charges, net income was US$908 million (US$1.05) on revenue of US$22.86 billion, compared with 2000’s net income of US$1.48 billion (US$1.80) on all-time record revenue of US$22.94.

“We are not satisfied with these results,” says Alcoa CEO Alain Belda. “We are confident the restructuring of our primary and fabricating businesses, coupled with our continued focus on implementing the Alcoa Business System and our commitment to grow the company, will enable us to resume sustainable savings and profitable growth in 2002 and beyond.”

In November, as aluminum prices touched 30-month lows of less than US$1,300 per tonne, Alcoa announced it would cut 6,500 jobs, or 4.6% of its workforce, in both North America and Europe in order to increase efficiency.

Apart from the restructuring charges, Alcoa’s bottom line was also hit in the quarter by net costs of US$72 million, before tax, associated with customers’ bad debts and claims, net contract losses and settlements, and a power failure at the company’s smelter in Warrick, Ind.

The remainder of the loss for restarting the potlines at Warrick will be primarily incurred in the current quarter.

Alcoa says its cost reductions in the fourth quarter were affected by lower volumes associated with persistently weak markets, and restructuring activities in the company’s fabricating businesses.

The company has already achieved US$348 million in annual cost savings toward its 2003 target of US$1 billion per year.

Says Belda: “Although the near-term business climate remains challenging, we are confident we will achieve the two key financial goals we established for 2003: US$1 billion in cost savings and entering the top quintile of return-on-capital performance for Standard & Poor’s Industrials.”

In other news, Reuters reports that Alcoa has pulled out of the Aroaima bauxite and alumina mining operations in Guyana.

Quoting the commissioner of the Guyana Geology and Mines Commission, the news agency reports Alcoa sold its stake in the joint venture with the Guyanese government for a token US$1 at the end of last year, so that the operation is now wholly owned and operated by Guyanese.

In addition, Alcoa will forgive US$60 million in debt it is owed on the project.

The Aroaima mine had been scheduled to produce 2 million tonnes a year, but output has been cut back to 1.4 million tonnes for 2002, owing to a downturn in bauxite and alumina prices.

The main markets for the metallurgical and chemical grade bauxite produced by the mine is North America, with refinery-grade bauxite heading for North America, Europe and Japan.

Apparently, the Guyanese government still intends to continue with its privatization plans for the Aroaima mine, as well as the closed Linden aluminum refinery and the Kwakwani aluminum site.

In early January, Alcoa launched a bid for Norwegian light metals maker Elkem, valuing the group at 7.6 billion Norwegian crowns, or US$849.3 million.

Alcoa is offering 155 crowns (US$17.38) per Elkem share (its recent trading price), after having bought 64,650 shares in Elkem on the open market and raising its stake to just over 40% from 39.5%.

Alcoa has held its shares in Elkem since 1998, but under quirky Norwegian securities-trading law, any company with more than 40% ownership has to make an unconditional, cash offer for all the outstanding shares at a price equal to the highest price paid by the acquisitor during the last six months.

In accordance with that law, the tender offer will remain open for four weeks. Elkem has 49,280,000 shares outstanding.

Since Alcoa offered only 155 crowns and no premium, it was not clear that it really wanted full control of the company.

Alcoa says it believes Elkem’s diversified business offers a solid value at NKr155 per share, and that it expects that the current management team at Elkem will continue to deliver growth and value for its shareholders.

Elkem Chairman Finn Jebsen, who is also chief executive of Norwegian industrial group Orkla, which owns 32% of Elkem, says that “as a bid for a company, this is very bad.”

He tells Reuters “it’s usual to have a considerable premium over the market level and also over the highest price in the past year. This is often 30%, which would have given a price of NKr 200 or more. This is also the value that most analysts seem to give the shares.”

Elkem shares climbed 4.5% to 162 crowns immediately following the takeover announcement, and the issue was among the biggest gainers on the Oslo bourse, far outperforming a 0.7% fall in the benchmark index.

Elkem, through its 50-50 partnership with Alcoa, is the second-largest aluminum producer in Norway. Elkem Aluminium has a primary production capacity of 200,000 tonnes per year.

Elkem is also the world’s largest supplier of silicon metal, important in aluminum castings for the automotive industry.

Alcoa has been operating for almost 40 years in Norway through joint ventures with Elkem. Together, Elkem and Alcoa own and operate aluminum plants in Lista and Mosjoen, and are committed to modifying both facilities.

The modifications at Mosjoen represent a joint investment of NKr 1.8 billion (US$202 million) over two years, and all three potlines at Lista have been converted to Elkem’s new Soderberg technology. Alcoa has also invested NKr 500 million (US$56 million) in the state-of-the-art Scandinavian Casting Centre in Lista, Norway, to produce structural components for cars.

Alcoa also announced that its Alumar smelter at San Luis, in Brazil’s Maranhao state, will resume full production following the suspension of energy rationing in the north of the country.

Alcoa’s Brazilian subsidiary, Alcoa Aluminio, has a 54% interest in Alumar’s annual production of 370,000 tonnes, with the remainder held by BHP Billiton (bhp-n).

Aluminum output was cut at San Luis by 63,000 tonnes a year from July 1, 2001, and by an additional 29,500 tonnes from September 2001, resulting in a total cut of around 25% of overall production capacity.

Alcoa expects the smelter will operate at full capacity by the end of the first quarter of 2002.