Generating sufficient returns to exceed our after-tax cost of capital is Alcan’s top priority. Each business group made steady progress in implementing its mid-term plan to attain this overall target, which helped Alcan not only reach but exceed its ROCE target in 2006.
Alcan’s research and development (R&D) activities continue to be closely aligned with the needs of its core businesses. The Company is focused on improving process technology as illustrated by the announcement in December 2006 of a refocusing of the Primary Metal Business Group’s R&D efforts around key centres in France and Quebec. In addition, downstream businesses are focused on developing new product applications for a diverse range of markets and customers. R&D spending at central research laboratories, technology centres and technical departments was $220 million in 2006, comparable with spending of $227 million in 2005. Spending was slightly higher in 2004 due to the inclusion of Novelis entities.
In 2006, the increased spending reflects the Company’s investment in the pilot spent potlining* (SPL) treatment facility being built in the Saguenay–Lac-Saint-Jean region of Quebec. The aluminum SPL recycling plant will use a treatment process known as the Low Caustic Leaching and Liming (LCLL) process. This SPL treatment solution combines a series of processes already used by Alcan and treats the waste material efficiently so the SPL can be recycled into usable by-products. The decline in 2005 compared to 2004 is due to the inclusion of Novelis entities in 2004.
*
Spent potlining (SPL) is the main waste residue generated by the reduction process in the smelters. It consists of the residue lining, made up of bricks and carbon, inside the pots used in aluminum smelting. When the lining deteriorates to the point of being replaced, the material becomes spent potlining.
2001
2002
2003
2004
2005
2006
100
83
136
144
137
166
Alcan Inc.
100
78
100
111
117
135
S&P 500 Index
100
76
98
108
112
129
S&P Industrials Index
100
85
152
154
184
233
S&P Diversified Metals & Mining Index
100
95
131
148
155
183
S&P Materials Index
1
For a calculation of the Company's most recent Capital Employed and Operating Return on Capital Employed, please refer to Alcan's June 30, 2007 Supplementary Information available on Alcan's website at www.alcan.com.
2
Capital employed is the sum of total debt and borrowings, net deferred income taxes, minority interests, preference shares, common shareholders’ equity and net assets held for sale.
3
Operating return on capital employed is operating earnings excluding the impact of minority interests and after-tax interest expense (using a Canadian statutory tax rate of 33% for 2006 and 32% for 2005 and 2004) divided by average capital employed. Operating earnings is Income from continuing operations adjusted for Foreign currency balance sheet translation and Other Specified Items as defined in the Glossary section of this Report.
4
Alcan's research and development (R&D) comprises a system of research laboratories, applied engineering centres and plant technical departments covering all major markets and regions. For further details, refer to Part I, Item 1E - Research and Development in the Company's 2006 Annual Report on Form 10-K.
5
Environmental protection costs relate to environmental matters such as air emissions, wastewater storage, treatment and discharges, the use and handling of hazardous or toxic materials, waste disposal practices and the remediation of environmental contamination. For further details, refer to Part I, Item 1F - Environment, Health and Safety/Alcan Integrated Management System in the Company's 2006 Annual Report on Form 10-K.
6
Cumulative total shareholder return on $100 invested in Alcan Inc. shares as at December 31, 2001 is compared against other relevent indices assuming the reinvestment of all dividends. For further details, please refer to Performance Graphs in the Company's 2007 Proxy Circular.
