Alcoa Will Sell Foil Division, Takes Other Measures to Battle Weak Economy

Alcoa has detailed a series of specific actions to conserve cash, reduce costs and strengthen the Company’s competitiveness during the current economic downturn. Building on the Company’s commitment from October, these actions address additional production curtailments, cost and procurement efficiencies, portfolio streamlining and reduction of capital expenditures and other liquidity enhancements.

“These are extraordinary times, requiring speed and decisiveness to address the current economic downturn, and flexibility and foresight to be prepared for future uncertainties in our markets,” said Klaus Kleinfeld, President and CEO of Alcoa Inc. “We are taking a wide-ranging set of aggressive, but prudent, measures to ensure that Alcoa maintains its competitive lead in today’s challenging markets while also emerging even stronger when the economy recovers.”

Production Curtailments
Further smelting reductions of more than 135,000 metric tons per year (mtpy) will be implemented resulting in reduction of total primary aluminum output by more than 750,000 mtpy, or 18 percent of annualized output. Alumina production will also be reduced accordingly across the global refining system to a total of 1.5 million mtpy in response to market conditions. Curtailments will be fully implemented by the end of the first quarter 2009.

Cost and Procurement Efficiencies
Targeted reductions, curtailments and plant closures and consolidations will reduce headcount by more than 13,500 employees or 13 percent of the Company’s worldwide workforce by the end of 2009. An additional 1,700 contractor positions also will be eliminated. The Company has also instituted a global salary and hiring freeze.

Accelerated procurement actions to address major input costs such as energy, coke, caustic soda, and aluminum fluoride will provide significant short term cash benefits. Initiatives to secure raw materials from alternate suppliers globally are providing cost advantages for several key inputs. These actions are expected to yield savings of greater than 20 percent in each of the materials. Lower market oil and gas prices also are having a positive impact.

Alcoa continued to make progress on its re-powering strategy and has finalized and signed agreements to supply power through 2040 to three smelters in Quebec that will benefit approximately 25% of the Company’s smelting production. Nearly 80% of the Company’s capacity is now covered by re-powering agreements and self generation through 2025 and the Company is aggressively pursuing other efforts across its portfolio.

Portfolio Streamlining
As previously announced, Alcoa and ORKLA ASA (Orkla) have agreed to exchange their stakes in a Norwegian smelting partnership and a Swedish extrusion joint venture in order to focus on their respective areas of expertise and best practices. Alcoa will receive Orkla’s 50 percent stake in Elkem Aluminum and Orkla will receive Alcoa’s 45 percent stake in the SAPA extrusion profiles business.

Elkem Aluminum, which will be 100 percent owned by Alcoa following the transaction, includes aluminum smelters in Lista and Mosjoen, Norway with a combined output of 282,000 metric tons per year (mtpy). Included in the transaction is Elkem’s stake in a newly opened anode plant in Mosjoen in which Alcoa already holds an approximate 82 percent stake.

Alcoa also intends to divest four non-core downstream businesses: Electrical and Electronic Systems; Global Foil; Cast Auto Wheels; and Transportation Products Europe. The businesses to be sold had 2008 combined revenues of $1.8 billion and an estimated after-tax operating loss of approximately $105 million. The businesses employ a combined 22,600 people at 38 locations. Expected net proceeds for the divestitures are estimated to be approximately $100 million.

Source: Alcoa

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