FINANCIAL HIGHLIGHTS
--------------------
- Operating earnings for the second quarter of $0.77 per share, up 24%
year-over-year and 28% quarter-over-quarter;
- Income from continuing operations of $0.56 per share versus $0.77 a
year earlier and $0.56 in the first quarter;
- Sequentially higher operating profits in three out of four business
groups, with record results in Packaging.
MONTREAL, Canada, Aug. 8 /PRNewswire-FirstCall/ - Alcan Inc. (NYSE, TSX:
AL) today reported second quarter income from continuing operations of $208
million or $0.56 per common share versus $285 million or $0.77 per common
share a year earlier and $208 million or $0.56 per share in the first quarter
of 2005.(x)
Operating earnings from continuing operations, which exclude foreign
currency balance sheet translation effects and Other Specified Items (OSIs),
were $286 million or $0.77 per common share in the second quarter, up from
$230 million or $0.62 per share a year-ago and $223 million or $0.60 per share
in the first quarter of 2005. Operating earnings for the second quarter of
2005 included mark-to-market gains on derivatives of $0.06 per share as
compared to a loss of $0.08 per share a year earlier and a gain of $0.01 per
share in the first quarter of 2005.
"The strong results for the second quarter reflect our steady progress
against industry-wide cost pressures," said Travis Engen, President and CEO.
"Operating results for three out of four business groups improved sequentially
and, in fact, reached a record level in Packaging," he added.
"With our major portfolio changes in place, the focus is squarely on
executing against our operating agenda," stated Engen. "This is clearly
evident at the Alouette smelter, where the expansion is now producing at full
capacity three months ahead of schedule. Similarly, we are making excellent
progress on the expansion of our Gove alumina refinery, and the integration of
Pechiney is well on track to achieve our synergy target of $360 million by
year end," he noted.
(x) Note: All amounts in this press release are expressed in U.S. dollars
unless otherwise stated. 2004 amounts include Alcan's former rolled
products business (Novelis), which was spun-off on 6 January 2005.
<<
------------------------------------------------------------------------
First
Second Quarter Six Months Quarter
($ millions, except ---------------------------------------------
where indicated) 2005 2004 2005 2004 2005
------------------------------------------------------------------------
Operating earnings -
excluding foreign
currency balance
sheet translation
and Other Specified
Items 286 230 509 419 223
Foreign currency
balance sheet
translation 4 63 34 72 30
Other Specified Items
(OSIs) (82) (8) (127) (72) (45)
----------------------------------------------
Income from continuing
operations 208 285 416 419 208
Income (Loss) from
discontinued operations (17) 46 (7) 18 10
----------------------------------------------
Net income 191 331 409 437 218
----------------------------------------------
Earnings per share
($ per share)
Operating earnings 0.77 0.62 1.36 1.13 0.60
Income from continuing
operations 0.56 0.77 1.11 1.13 0.56
Net income 0.52 0.89 1.09 1.18 0.58
Average number of shares
outstanding (millions) 370.2 368.1 370.1 367.5 370.0
-------------------------------------------------------------------------
2004 amounts include Novelis but have been retroactively adjusted to
reflect the reclassification of certain businesses as discontinued
operations.
-------------------------------------------------------------------------
Operating Earnings
Operating earnings for the second quarter of 2005 were $56 million higher
than in the comparable year-ago quarter. The improvement reflected benefits
from higher aluminum prices upstream, better pricing and sales mix downstream,
positive derivative impacts and synergy capture, partially offset by the
negative effects of the weaker U.S. dollar, higher costs for energy and raw
materials and the impact of the rolled products spin-off.
Compared to the first quarter of 2005, operating earnings were up
$63 million. The improvement reflected higher volumes across all business
groups, derivative gains and synergy benefits. Price and sales mix
improvements in downstream businesses were offset by changes to the sales mix
in upstream businesses.
Income from Continuing Operations
Income from continuing operations for the second quarter of 2005 included
a net after-tax charge of $82 million or $0.22 per common share for OSIs. The
principal items were after-tax costs of $30 million related to the
restructuring of certain Engineered Products facilities, principally in
Europe, after-tax costs of $23 million associated with the Pechiney synergy
program and after-tax asset impairments of $16 million.
Net Income
Results from discontinued operations in the second quarter of 2005
included the Pechiney Electrometallurgie (PEM) ferroalloy business, which was
sold in June 2005, as well as the copper trading business and certain non-core
Engineered Products operations. Collectively, discontinued operations recorded
an after-tax loss of $17 million in the second quarter compared to an after-
tax profit of $46 million in the year-ago quarter and an after tax profit of
$10 million in the first quarter of 2005. The decline in the second quarter
mainly resulted from a loss on the sale of PEM.
Including results from discontinued operations, the Company reported net
income of $191 million, or $0.52 per common share, compared to net income of
$331 million or $0.89 per common share a year earlier and net income of
$218 million or $0.58 per common share in the first quarter of 2005.
Synergies
Results for the second quarter included incremental pre-tax synergy
benefits of about $46 million over the year-ago quarter and $10 million over
the first quarter of 2005. The annualized synergy run-rate at the end of the
second quarter of 2005 was $270 million, well on track to reach the total
target of $360 million by year end.
Sales and Operating Revenues
------------------------------------------------------------------------
First
Second Quarter Six Months Quarter
($ millions, unless ---------------------------------------------
otherwise noted) 2005 2004 2005 2004 2005
------------------------------------------------------------------------
Sales & operating
revenues 5,206 6,208 10,384 12,228 5,178
Shipments
(thousands of tonnes)
Ingot products(x) 744 499 1,468 992 724
Aluminum used in
engineered products
& packaging 336 386 663 760 327
---------------------------------------------
Subtotal 1,080 885 2,131 1,752 1,051
Rolled products - 712 - 1,380 -
---------------------------------------------
Total aluminum volume 1,080 1,597 2,131 3,132 1,051
Ingot product
realizations
($ per tonne)(x) 2,034 1,812 2,046 1,801 2,058
Average LME 3-month
price ($ per tonne) 1,796 1,686 1,842 1,676 1,887
------------------------------------------------------------------------
(x) Includes primary and secondary ingot and scrap aluminum. Realized
prices generally lag LME price changes by one month. The first
quarter 2005 realization was corrected from that previously
published.
2004 amounts include Novelis but have been retroactively adjusted to
reflect the reclassification of certain businesses as discontinued
operations.
------------------------------------------------------------------------
Sales and operating revenues were $5.2 billion in the second quarter,
down $1 billion from the year-ago quarter mainly reflecting the impact of the
spin-off of the rolled products business on 6 January 2005. Excluding the
impact of the spin-off, sales and operating revenues increased due to higher
prices, improved volumes and currency translation effects. Compared to the
first quarter of 2005, revenues were up slightly as the impact of higher
volumes across all business groups was largely offset by currency translation
effects.
Total aluminum volume, at 1,080 thousand tonnes (kt), was down 517kt from
a year earlier due to the spin-off of the rolled products business on
6 January 2005. The increase in ingot product shipments in the second quarter
mainly reflects volumes sold to Novelis that were previously classified as
intercompany sales.
Ingot product price realizations, at $2,034 per tonne, were $222 per
tonne higher than in the year-ago quarter and $24 per tonne lower than the
first quarter. The bulk of Alcan ingot sales are based on the LME 3-month
price with a one month lag plus a local market premium and any applicable
product premium. In the second quarter, the average LME 3-month price with a
one month lag was $1,868 per tonne, up from $1,850 in the first quarter.
Average realizations declined from the first quarter mainly due to a less
favourable product mix and softening market premia.
Cash Flow and Debt
Cash from operating activities in continuing operations was $242 million
in the second quarter of 2005 compared to $428 million a year earlier. The
reduced level of cash from operating activities reflects lower income from
continuing operations and increased working capital. After dividends of $62
million and capital expenditures of $453 million, free cash flow from
continuing operations was negative $273 million for the second quarter of
2005. In the year-ago quarter, after dividends of $58 million and capital
expenditures of $265 million, free cash flow from continuing operations was
$105 million. The year-over-year increase in capital spending was mainly due
to the expansion of the Gove alumina refinery in Australia.
Debt as a percentage of invested capital as at 30 June 2005 was 40%,
unchanged from the end of the first quarter-end and down from 46% at the end
of the prior-year quarter.
REVIEW OF BUSINESS GROUP PROFIT AND CORPORATE ITEMS
---------------------------------------------------
------------------------------------------------------------------------
First
Second Quarter Six Months Quarter
---------------------------------------------
($ millions) 2005 2004 2005 2004 2005
------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina 111 126 208 214 97
Primary Metal 425 436 856 814 431
Engineered Products (x) 101 106 216 210 115
Packaging 177 168 331 336 154
Equity accounted joint
venture eliminations (77) (52) (151) (105) (74)
Change in fair market
value of derivatives 33 (12) 30 (12) (3)
------------------------------------------------------------------------
Subtotal 770 772 1,490 1,457 720
Novelis entities - 175 - 342 -
------------------------------------------------------------------------
770 947 1,490 1,799 720
Corporate Items
Intersegment, corporate
offices and other (161) (134) (246) (392) (85)
Depreciation &
amortization (268) (324) (540) (660) (272)
Interest (90) (87) (175) (180) (85)
Income taxes (70) (125) (168) (166) (98)
Equity income 28 17 57 33 29
Minority interests (1) (9) (2) (15) (1)
------------------------------------------------------------------------
Income from continuing
operations 208 285 416 419 208
------------------------------------------------------------------------
2004 amounts have been retroactively adjusted to reflect the
reclassification of certain businesses as discontinued operations and the
impact of the Novelis spin-off completed on 6 January 2005.
(x) BGP for the second quarter of 2005 includes restructuring charges of
$30 million.
------------------------------------------------------------------------
Business Group Profit (BGP)
Bauxite and Alumina: BGP for the second quarter was $111 million, a
reduction of $15 million from the year-ago quarter. While the group benefited
from the year-over-year increase in LME-linked contract prices for alumina,
this was more than offset by higher costs for energy, maritime freight and
caustic soda, the impact of the stronger Australian and Canadian dollars and
the loss of a favourable alumina contract due to the sale of Aluminium de
Grece in March 2005. On a sequential quarter basis, BGP increased $14 million
due to higher shipment volumes and contract prices for alumina and increased
bauxite sales, partially offset by higher costs for energy and caustic soda.
Group results for the third quarter are expected to be below second quarter
levels due to lower LME-linked contract prices for alumina, which typically
lag LME price changes by one quarter, and rising cost pressure from energy and
caustic soda.
Primary Metal: BGP for the second quarter was $425 million, a decrease of
$11 million from the year-ago quarter. Benefits from higher LME prices and
market premia, as well as improved product mix and synergies, were more than
offset by the impact of the weaker U.S. dollar, higher energy and raw
materials costs, as well as lower sales of smelter equipment. On a sequential
quarter basis, BGP declined by $6 million as benefits from increased shipments
were more than offset by higher raw material prices, including energy, and a
weaker sales mix, reflecting softer market conditions for value-added
products. The 300-kt/y expansion at the 40%-owned Alouette smelter in Quebec
reached full capacity in June, three months ahead of schedule. While the group
will benefit in the third quarter from additional production at Alouette,
results are expected to be lower than in the second quarter due mainly to
reduced market premia in North America combined with higher costs for
maintenance and freight.
Engineered Products: BGP was $101 million in the second quarter, which
included $30 million of charges principally related to the restructuring of
the Sierre and Singen facilities in Switzerland. Excluding these charges, BGP
reached a record $131 million in the second quarter, which represented a 24%
increase over the year-ago second quarter and a 14% increase over the first
quarter of 2005. Higher aerospace volumes, an improved sales mix in specialty
sheet, synergy benefits from the Pechiney acquisition and favourable market
conditions for composites and cable more than offset the adverse impact of
higher raw material costs on both a year-over-year and sequential quarter
basis. Results for the third quarter are expected to be below the second
quarter level of $101 million due to normal seasonality in Europe.
Packaging: BGP was $177 million in the second quarter, $9 million higher
than in the year-ago quarter and a new record for the Group. Results and
margins improved in the quarter mainly reflecting successful efforts to pass
through raw material cost increases in product pricing, as well as benefits
from synergy capture and cost initiatives, volume increases in the Americas
and Asia and favourable currency translation effects. On a sequential quarter
basis, BGP was up $23 million or 15%, reflecting a seasonal pick-up in demand,
cost improvements and the continuing recovery of earlier raw material cost
increases. Results for the third quarter are expected to be below second
quarter levels due to normal seasonality in Europe.
Corporate Items
The Intersegment, corporate offices and other expense category includes
corporate head office costs as well as other non-operating items and the
elimination of profits on intersegment sales of aluminum. In the second
quarter of 2005, OSIs of $90 million pre-tax were included in this expense
category.
Depreciation and amortization expenses, at $268 million, were $56 million
lower than in the year-ago quarter primarily reflecting the impact of the
rolled products business spin-off.
Investments in entities over which Alcan has significant influence but
not control are accounted for using the equity method. Equity income was
$28 million in the second quarter, $11 million higher than in the year-ago
quarter, and little changed from the first quarter of 2005. The year-over-year
increase mainly reflects mark-to-market impacts on derivatives as well as a
contribution from the Alcan Ningxia joint venture in China.
The Company's effective tax rate on income from continuing operations was
28% in the second quarter and 32% year to date. The lower effective tax rate
in the second quarter resulted from balance sheet translation effects due to a
further weakening of the Canadian dollar in the first half of 2005. In the
first quarter, the effective tax rate was 35%, which reflected the impact of
non-cash tax charges of $27 million offset in part by translation effects.
OUTLOOK
-------
For 2005, world primary aluminum consumption is forecast to increase by
approximately 4.6%, while production from new capacity and restarts is
expected to increase world supply by about 6.3%. Alcan continues to forecast a
market deficit of about 200 kt for 2005.
The following table provides Alcan estimates of the annualized after-tax
impact of currency and LME price movements on net income from continuing
operations. Earnings sensitivities are unchanged from those previously
published in the Company's 2004 10-K.
Increase In
in rate/ millions $/
price of $ share
-------------------------------------------------------------------------
Economic impact of changes in period-average
exchange rates
European currencies $0.10 (56) (0.15)
Canadian dollar $0.10 (110) (0.30)
Australian dollar $0.10 (40) (0.11)
-------------------------------------------------------------------------
Balance sheet translation impact of changes
in period-end exchange rates
Canadian dollar $0.10 (170) (0.46)
Australian dollar $0.10 (20) (0.05)
-------------------------------------------------------------------------
Economic impact of changes in period-average
LME prices (x)
Aluminum $100/t 170 0.46
-------------------------------------------------------------------------
(x) Realized prices generally lag LME price changes by one month. Changes
in local and regional premia may also impact aluminum price
realizations. Sensitivities are updated as required to reflect
changes in the Company's commercial arrangements and portfolio of
operations. Not included are sensitivities to energy and raw-
material prices, which may have significant impacts.
NOTE ON FORWARD LOOKING STATEMENTS
----------------------------------
Statements made in this press release which describe the Company's or
management's objectives, projections, estimates, expectations or predictions
of the future may be "forward-looking statements" within the meaning of
securities laws, which can be identified by the use of forward-looking
terminology such as "believes," "expects," "may," "will," "should,"
"estimates," "anticipates" or the negative thereof or other variations
thereon. The Company cautions that, by their nature, forward-looking
statements involve risk and uncertainty and that the Company's actual actions
or results could differ materially from those expressed or implied in such
forward-looking statements or could affect the extent to which a particular
projection is realized. Important factors which could cause such differences
include global supply and demand conditions for aluminum and other products,
aluminum ingot prices and changes in raw materials' costs and availability,
changes in the relative value of various currencies, cyclical demand and
pricing within the principal markets for the Company's products, changes in
government regulations, particularly those affecting environmental, health or
safety compliance, economic developments, relationships with and financial and
operating conditions of customers and suppliers, the effects of integrating
acquired businesses and the ability to attain expected benefits, the Company's
ability to dispose of assets at the anticipated prices and other factors
within the countries in which the Company operates or sells its products and
other factors relating to the Company's ongoing operations including, but not
limited to, litigation, labour negotiations and fiscal regimes.
DEFINITIONS
-----------
"$" all amounts are in U.S. dollars.
"Business Group Profit" (BGP) comprises earnings before interest, income
taxes, minority interests, depreciation and amortization and excludes certain
items, such as corporate costs, restructuring costs (relating to major
corporate-wide acquisitions or initiatives), impairment and other special
charges, and pension actuarial gains, losses and other adjustments, that are
not under the control of the business groups or are not considered in the
measurement of their profitability. These items are generally managed by the
Company's corporate head office, which focuses on strategy development and
oversees governance, policy, legal, compliance, human resources and finance
matters. Financial information for individual business groups includes the
results of certain joint ventures and other investments accounted for using
the equity method on a proportionately consolidated basis, which is consistent
with the way the business groups are managed. However, the BGP of these joint
ventures and equity-accounted investments is removed from total BGP for the
Company and the net after-tax results are reported as equity income. The
change in the fair market value of derivatives has been removed from
individual business group results and is shown on a separate line within total
BGP. This presentation provides a more accurate portrayal of underlying
business group results and is in line with the Company's portfolio approach to
risk management.
"Derivatives" including forward contracts, swaps and options are
financial instruments used by the Company to manage the specific risks arising
from fluctuations in exchange rates, interest rates, aluminum prices and other
commodity prices. Mark-to-market gains and losses on derivatives will be
offset over time by gains and losses on the underlying exposures.
"Foreign currency balance sheet translation" effects largely arise from
translating monetary items (principally deferred income taxes and long-term
liabilities) denominated in Canadian and Australian dollars into U.S. dollars
for reporting purposes. Although these effects are primarily non-cash in
nature, they can have a significant impact on the Company's net income.
"Free cash flow" consists of cash from operating activities in continuing
operations less capital expenditures and dividends. Management believes that
free cash flow, for which there is no comparable GAAP measure, is relevant to
investors as it provides an indication of the cash generated internally that
is available for investment opportunities and debt service.
"GAAP" refers to Generally Accepted Accounting Principles.
"LME" refers to the London Metal Exchange.
"Operating earnings from continuing operations" is presented in addition
to income from continuing operations and reported net income. Operating
earnings from continuing operations are not calculated in accordance with U.S.
GAAP and there is no standard definition of this term. Accordingly, it is
unlikely that comparisons can be made among different companies that make
operating earnings information available. The determination of whether an item
is treated as an Other Specified Item involves the exercise of judgement by
Alcan management. The Company believes that operating earnings from continuing
operations is a useful measure because it excludes items that are not typical
of ongoing operating activities, such as Other Specified Items, as well as
items that are outside management's control, such as the impact of foreign
currency balance sheet translation. Management has concluded that operating
earnings is a relevant measure for shareholders and other investors as it
removes the inherent volatility of such items, whether favourable or
unfavourable, and provides a clearer picture of underlying business
performance. Moreover, the measure is in line with the Company's internal
performance measurement and management systems. Operating earnings information
has historically been presented in response to requests from investors and
financial analysts, who have indicated that they find the information highly
relevant and essential to their understanding of the Company.
"Other Specified Items" (OSIs) include, for example: restructuring and
synergy charges; asset impairment charges; gains and losses on non-routine
sales of assets, businesses or investments; unusual gains and losses from
legal claims and environmental matters; gains and losses on the redemption of
debt; income tax reassessments related to prior years and the effects of
changes in income tax rates; and other items that, in Alcan's view, do not
typify normal operating activities.
"Synergy run-rate" is the annualized rate of savings resulting from
actions taken to date.
All tonnages are stated in metric tonnes, equivalent to 2,204.6 pounds.
All figures are unaudited.
QUARTERLY RESULTS WEBCAST
-------------------------
Alcan's quarterly results conference call with investors and analysts
will take place on Monday, August 8, 2005 at 10:00 a.m. EST and will be
webcast via the Internet at http://www.alcan.com .
Supporting documentation (press release, financial statements and
investor presentation) is available at http://www.alcan.com, using the Investors
link. Miscellaneous and previous years' filings may be accessed using the
following links to the http://www.sec.gov (U.S.) and http://www.sedar.com (Canada) websites.
ALCAN INC.
----------
Alcan is a multinational, market-driven Company and a global leader in
aluminum and packaging. With world-class operations in primary aluminum,
fabricated aluminum as well as flexible and specialty packaging, aerospace
applications, bauxite mining and alumina processing, today's Alcan is well
positioned to meet and exceed its customers' needs for innovative solutions
and service. Alcan employs almost 70,000 people and has operating facilities
in 55 countries and regions.
ALCAN INC.
----------
INTERIM CONSOLIDATED STATEMENT OF INCOME (unaudited)
-------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------
Periods ended June 30 2005 2004 2005 2004
-------------------------------------------
-------------------------------------------
(in millions of US$, except
per share amounts)
Sales and operating revenues 5,206 6,208 10,384 12,228
Costs and expenses
Cost of sales and operating
expenses, excluding
depreciation and
amortization noted below 4,130 4,918 8,220 9,890
Depreciation and
amortization 268 324 540 660
Selling, administrative and
general expenses 345 365 725 761
Research and development
expenses 49 58 98 119
Interest 90 87 175 180
Other expenses (income) -
net 73 54 97 51
-------------------------------------------
4,955 5,806 9,855 11,661
-------------------------------------------
Income from continuing
operations before income
taxes and other items 251 402 529 567
Income taxes 70 125 168 166
-------------------------------------------
Income from continuing
operations before other
items 181 277 361 401
Equity income 28 17 57 33
Minority interests (1) (9) (2) (15)
-------------------------------------------
Income from continuing
operations 208 285 416 419
Income (Loss) from
discontinued operations (17) 46 (7) 18
-------------------------------------------
Net income 191 331 409 437
Dividends on preference
shares 1 1 3 3
-------------------------------------------
Net income attributable to
common shareholders 190 330 406 434
-------------------------------------------
-------------------------------------------
Earnings (Loss) per share
Basic and Diluted:
Income from continuing
operations 0.56 0.77 1.11 1.13
Income (Loss) from
discontinued operations (0.04) 0.12 (0.02) 0.05
-------------------------------------------
Net income per common share
- basic and diluted 0.52 0.89 1.09 1.18
-------------------------------------------
-------------------------------------------
Dividends per common share 0.30 0.30 0.45 0.45
-------------------------------------------
-------------------------------------------
INTERIM CONSOLIDATED BALANCE SHEET (unaudited)
-------------------------------------------------------------------------
June 30, December
2005 31, 2004
-----------------------
-----------------------
(in millions of US$)
ASSETS
------
Current assets
Cash and time deposits 222 184
Trade receivables (net of
allowances of $62 in 2005 and $99 in 2004) 2,861 3,247
Other receivables 846 936
Deferred income taxes 110 214
Inventories 2,863 4,040
Current assets held for sale 172 791
-----------------------
Total current assets 7,074 9,412
-----------------------
Deferred charges and other assets 2,251 2,877
Deferred income taxes 969 870
Property, plant and equipment
Cost (excluding Construction work in progress) 15,383 21,956
Construction work in progress 899 816
Accumulated depreciation (5,479) (9,478)
-----------------------
10,803 13,294
-----------------------
Intangible assets (net of accumulated
amortization of $177 in 2005 and $172 in 2004) 1,028 1,230
Goodwill 4,992 5,496
Long-term assets held for sale 30 162
-----------------------
Total assets 27,147 33,341
-----------------------
-----------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
Current liabilities
Payables and accrued liabilities 4,415 5,843
Short-term borrowings 339 2,486
Debt maturing within one year 854 569
Deferred income taxes 27 23
Current liabilities of operations held for sale 104 335
-----------------------
Total current liabilities 5,739 9,256
-----------------------
Debt not maturing within one year 5,630 6,345
Deferred credits and other liabilities 4,270 4,986
Deferred income taxes 1,279 1,543
Long-term liabilities of operations held for sale 9 249
Minority interests 91 236
Shareholders' equity
Redeemable non-retractable preference shares 160 160
Common shareholders' equity
Common shares 6,104 6,670
Additional paid-in capital 692 112
Retained earnings 3,322 3,362
Common shares held by a subsidiary (31) (35)
Accumulated other comprehensive income (loss) (118) 457
-----------------------
9,969 10,566
-----------------------
10,129 10,726
-----------------------
Total liabilities and shareholders' equity 27,147 33,341
-----------------------
-----------------------
INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
-------------------------------------------------------------------------
Second Quarter Six Months
-------------------------------------------
Periods ended June 30 2005 2004 2005 2004
-------------------------------------------
-------------------------------------------
(in millions of US$)
OPERATING ACTIVITIES
Net income 191 331 409 437
Loss (Income) from
discontinued operations 17 (46) 7 (18)
-------------------------------------------
Income from continuing
operations 208 285 416 419
Adjustments to determine cash
from operating activities:
Depreciation and amortization 268 324 540 660
Deferred income taxes (13) 42 42 14
Equity income, net of
dividends 2 (1) (25) (17)
Asset impairment provisions 25 2 33 10
Loss (Gain) on sale of
businesses and investments -
net 17 (42) 16 (42)
Stock option compensation 5 2 10 4
Change in operating working
capital
Change in receivables (157) (137) (353) (518)
Change in inventories (128) (11) (114) 44
Change in payables and
accrued liabilities (34) 12 (272) 199
Change in deferred charges,
other assets, deferred
credits and other
liabilities - net 44 (83) (72) (103)
Other - net 5 35 (46) 30
-------------------------------------------
Cash from operating activities
in continuing operations 242 428 175 700
Cash from (used for) operating
activities in discontinued
operations (18) 33 50 51
-------------------------------------------
Cash from operating activities 224 461 225 751
-------------------------------------------
FINANCING ACTIVITIES
Proceeds from issuance of
new debt - net of issuance
costs 780 177 1,166 718
Debt repayments (610) (234) (1,196) (454)
Short-term borrowings - net 29 (145) (1,993) (375)
Common shares issued 6 8 10 33
Dividends - Alcan shareholders
(including
preference) (56) (56) (114) (113)
- Minority interests (6) (2) (6) (4)
-------------------------------------------
Cash from (used for) financing
activities in continuing
operations 143 (252) (2,133) (195)
Cash from (used for) financing
activities in discontinued
operations 41 (30) 4 (31)
-------------------------------------------
Cash from (used for) financing
activities 184 (282) (2,129) (226)
-------------------------------------------
INVESTMENT ACTIVITIES
Purchase of property, plant
and equipment (453) (265) (745) (517)
Business acquisitions and
purchase of investments (39) (55) (42) (423)
Net proceeds from disposal
of businesses, investments
and other assets (9) (24) 3 20
Settlement of amounts due
from Novelis - net - - 2,535 -
-------------------------------------------
Cash from (used for)
investment activities in
continuing operations (501) (344) 1,751 (920)
Cash from (used for)
investment activities in
discontinued operations 121 9 64 (4)
-------------------------------------------
Cash from (used for)
investment activities (380) (335) 1,815 (924)
-------------------------------------------
Effect of exchange rate
changes on cash and time
deposits (11) (1) (29) (28)
-------------------------------------------
Increase (Decrease) in cash
and time deposits 17 (157) (118) (427)
Cash and time deposits -
beginning of period 205 508 340 778
-------------------------------------------
Cash and time deposits -
end of period in continuing
operations 222 235 222 235
Cash and time deposits -
end of period in current
assets held for sale - 116 - 116
-------------------------------------------
Cash and time deposits -
end of period 222 351 222 351
-------------------------------------------
-------------------------------------------
ALCAN INC.
----------
(in millions of US$, except where indicated)
1. BASIS OF PRESENTATION
The unaudited interim consolidated financial statements are based upon
accounting policies and methods of their application consistent with those
used and described in the Company's annual financial statements as contained
in the most recent annual report. The interim financial statements do not
include all of the financial statement disclosures included in the annual
financial statements prepared in accordance with accounting principles
generally accepted in the United States of America (U.S. GAAP) and therefore
should be read in conjunction with the Company's annual report.
In the opinion of management of the Company, the unaudited interim
consolidated financial statements reflect all adjustments, which consist only
of normal and recurring adjustments, necessary to present fairly the financial
position and the results of operations and cash flows in accordance with U.S.
GAAP, applied on a consistent basis. The results reported in these interim
consolidated financial statements are not necessarily indicative of the
results that may be expected for the entire year.
Spin-off of Rolled Products Businesses
--------------------------------------
On January 6, 2005, Alcan completed the spin-off of Novelis Inc.
(Novelis), as described in note 4 - Spin-off of Rolled Products Businesses.
Prior to the spin-off, these businesses were owned by Alcan. Alcan's
consolidated financial statements as at December 31, 2004 and for the second
quarter and six months ended June 30, 2004 include the operations transferred
to Novelis. Alcan's consolidated financial statements as at and for the second
quarter and six months ended June 30, 2005 exclude the operations transferred
to Novelis. Management concluded that all income earned and cash flows
generated by Novelis entities from January 1 to 5, 2005, were insignificant.
In addition, the transactions between Alcan and Novelis during this period
were also immaterial, with the exception of a net gain on derivative
contracts, which has been recorded in retained earnings.
2. SALES OF BUSINESSES AND RESTRUCTURING ACTIVITIES
Following a detailed assessment subsequent to the Pechiney acquisition,
the Company began restructuring efforts at certain European sites in the
fourth quarter of 2004. As a result of this restructuring, the Company
committed to a plan to sell two high purity businesses, Mercus and Froges, in
France. These businesses were classified in discontinued operations and assets
held for sale during the fourth quarter of 2004. In the second quarter of
2005, the Company announced a change in its strategy of selling the businesses
due to changes in market and economic conditions. The Company envisions
suspending one of two activities at the Mercus high purity metal processing
mill and closing the Froges rolling mill. As a result of the change in
strategy, these two businesses have been reclassified to assets held and used
and are included in continuing operations.
On June 14, 2005, the Company announced the restructuring of its
Engineered Products facilities in Singen, Germany, and Sierre, Switzerland, in
order to improve efficiency and ensure their long-term viability. Alcan will
integrate its extrusion activities at the Singen and Sierre sites, and
restructure the automotive structures and composites into its operations at
Singen.
On April 20, 2005, the Company completed the sale of its service centres
in France (Almet France) for net proceeds of $4 to Amari Metal France Ltd.,
which specializes in distributing aluminum, stainless steel and cuprous metal
products. The assets of Almet France were previously classified as held for
sale and included in discontinued operations.
On December 30, 2004, the Company announced that it had reached agreement
on the principal terms of a sale of Pechiney Electrometallurgie (PEM) to
Ferroatlantica, S.L., of Spain. The Company classified this business in
discontinued operations and assets held for sale during the fourth quarter of
2004. The Company's decision to sell this business was based on an extensive
evaluation of the Company's operations subsequent to the Pechiney acquisition
and is consistent with the Company's strategy of divesting non-core
activities. On June 1, 2005, the Company completed the sale of PEM for net
proceeds of $150.
On December 29, 2004, the Company announced that, following an extensive
evaluation of the Company's operations subsequent to the Pechiney acquisition,
it had entered into a binding agreement for the sale of its controlling
interest in Aluminium de Grece S.A. (AdG), as well as the transfer of certain
related contracts, to Mytilineos Holdings S.A. of Greece. The Company
classified this business in discontinued operations and assets held for sale
during the fourth quarter of 2004. The Company owned approximately
13 million shares in AdG, representing a 60.2% equity interest. The
transaction was completed on March 15, 2005 at a value of $104. Under the
terms of this agreement, Mytilineos Holdings and certain affiliated companies
acquired from the Company a 53% equity position in AdG. The balance of the
Company's interest in AdG, some 7.2%, may be sold by the Company to Mytilineos
Holdings one year after closing pursuant to a three-month put option at a
price equivalent to the selling price of the shares. Subsequently, Mytilineos
Holdings will have a call option for six months to purchase any remaining
interest, at a price equivalent to the selling price of the shares.
3. CAPITALIZATION OF INTEREST COSTS
Total interest costs in continuing operations in the second quarter and
six months of 2005 were $95 and $185, respectively (2004: $89 and $184) of
which $5 and $10 (2004: $2 and $4) were capitalized.
4. SPIN-OFF OF ROLLED PRODUCTS BUSINESSES
On January 6, 2005, Alcan completed the spin-off of Novelis to its
shareholders. Alcan shareholders received one Novelis common share for every
five Alcan common shares held. Novelis consists of substantially all of the
aluminum rolled products businesses held by Alcan prior to its 2003
acquisition of Pechiney, together with some of Alcan's alumina and primary
metal-related businesses in Brazil, which are fully integrated with the rolled
products operations there, as well as four former Pechiney rolling facilities
in Europe.
The agreements giving effect to the spin-off provide for various post-
transaction adjustments and the resolution of outstanding matters, which are
expected to be carried out by the parties by the end of 2005.
Following the spin-off, the Company settled amounts due from Novelis and
used the net proceeds of $2.6 billion to settle third party debt, and to cover
a preliminary payment of $100 made by the Company to Novelis in accordance
with a separation agreement between the parties.
5. LONG-TERM DEBT
On May 31, 2005, the Company issued $500 of 5.00% Notes due in 2015 and
$300 of 5.75% Notes due in 2035. The net proceeds of these offerings were used
to repay outstanding commercial paper debt.
Montreal, Canada
8 August 2005
>>
SOURCE ALCAN INC.
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CONTACT:
MEDIA CONTACT: Anik Michaud, (514) 848-8151;
Conference call numbers: North America (866) 783-6547, Local &
overseas (706) 758-0152; INVESTOR CONTACT: Corey Copeland, (514)
848-8368; Conference call numbers: North America, (888) 689-9505;
Local & overseas, (706) 758-0150; To request a free copy of this
organization's annual report, please go to http://www.newswire.ca
and click on reports@cnw .
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