Alcoa, the aluminium giant, today revealed plans to slash 6,700 jobs as it refocuses on its lucrative smelting and refining operations and offloads underperforming downstream businesses.
As part of the restructuring, Alcoa has agreed to join its soft alloy extrusion business, which shapes aluminium for use and accounts for around 7 per cent of its revenues, with the Sapa Group, part of Norway’s Orkla ASA, in a joint venture the two firms intend to take public.
The plans will also involve the closure of its Swansea plant, which produces sheet metal for cans, at the cost of about 320 jobs. Those workers were notified of the closure yesterday, Alcoa said.
Andrew Davies, the Welsh Enterprise Minister, has requested an “urgent meeting” with Alcoa over the fate of the Swansea plant, bought by Alcoa in 1968. The Welsh Assembly added that it would demand the return of a £2 million grant awarded to the plant should it close.
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A union representative told the BBC that staff working at the plant would be “rightly outraged” at Alcoa’s decision.
The company expects the plant closings and consolidations to save approximately $125 million (£66m) a year before taxes. The job cuts represent about 5 per cent of Alcoa’s 129,000 employees in 44 countries.
The company expects fourth quarter charges of between $375 million and $425 million after tax linked to the restructuring.
Analysts said with Alcoa shares trading at a discount to their own historic multiples and foreign competitors muscling in on the upstream sector, the revamp had been expected and suggested more changes could be made.
Analysts at Credit Suisse said: “We believe this is the first step in the overdue restructuring of Alcoa’s underperforming businesses.”
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Analysts at ABN-Amro said in a note: “The decision is clearly supported by the data … The key division of the re-positioning focus (Extruded and End Products_ generates 12 per cent of operating revenues, but only one per cent of earnings and underperforms other divisions.”
They added: “While Alcoa was focusing downstream, global competitors were moving into the lucrative upstream business and Alcoa’s smelting fleet in particular was sliding back up the cost curve.”
The new company formed by the combination of Alcoa’s soft alloy extrusion business with that of the Sapa Group’s will be majority owned by Orkla and operated by Sapa, is expected to be created by the end of the first quarter, pending government approval, Alcoa said.
ABN-Amro added: “It appears that Alcoa has decided that it cannot improve the performance of some of its assets, so is moving to divest or shut them.”
Alcoa’s soft alloy extrusion business has about 6,400 employees at 22 plants in eight countries. It had shipments of 585,000 metric tons and revenue of $2.1 billion in 2005. An additional three soft alloy plants, based in the US, not included in the venture will be sold.
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Sapa’s smaller soft alloy business employs about 6,000 people at 18 facilities in 12 countries and shipped 275,000 metric tons for revenue of $1.3 billion.
Alcoa chairman and chief executive Alain Belda said in a statement: “Through the first three quarters of 2006, we have generated more earnings than in any full year in our company’s history, and in order to continue to move forward, we now need to take the difficult but necessary restructuring steps that will continue to maximize profitability across the company.”
A total of 4,800 jobs will be eliminated in Alcoa’s automotive and light vehicle wire harness and component operations, according to Alcoa, which has corporate headquarters in New York.
That includes closing manufacturing operations at the company’s AFL Seixal plant in Portugal and restructuring its AFL light vehicle and component operations in the US and Mexico.
About 370 positions will be cut in the US and Europe because of restructuring in the company’s hard alloy extrusion production operations, which serve the aerospace, automotive and industrial products markets.
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Alcoa said it will eliminate 470 positions in its packaging production operations, while its primary metals and alumina operations will be trimmed by 330 positions “to further strengthen the company’s position on the global cost curve.”
Separately, Alcoa said it plans to book a gain of $85 million to $95 million related to the previously announced sale of its house siding business.
Alcoa shares rose 72 cents to close at $29.19 on the New York Stock Exchange and lost 2 cents in after-hours trading.