Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (October 2015)
116 slides from Norsk Hydro Asa's investor presentation, October 2015
Slide 1: Investor presentation October 2015
Investor presentation October 2015
Slide 2: Table of contents and cautionary note
Table of contents Third quarter results 2015 3 Cautionary note Certain statements included within this announcement contain forward- looking information, including, without limitation, those relating to (a) Market 36 forecasts, projections and estimates, (b) statements of management’s plans, objecti
Slide 3: Q3 2015
Q3 2015 (3)
Slide 4: Q3 highlights
Q3 highlights • Underlying EBIT of NOK 2 215 million • Historically low implied alumina cost on record bauxite production and currency • Lower realized alumina and all-in aluminium prices • Strong downstream development in seasonally weaker quarter • LoI signed with Vale to raise MRN ownership to 45
Slide 5: Chinese supply growth outpaces demand
Chinese supply growth outpaces demand Global oversupply increases to ~1 million tonnes Demand and production (quarterly annualized) Production less demand* 1 000 mt primary aluminium 1 000 mt primary aluminium 65 000 5 000 60 000 4 000 55 000 3 000 50 000 2 000 45 000 1 000 40 000 0 35 000 (1 000) 3
Slide 6: Production deficit around 1 million mt World ex-China
Production deficit around 1 million mt World ex-China Demand and production (quarterly annualized) Production less demand* 1 000 mt primary aluminium 1 000 mt primary aluminium 30 000 4 000 3 000 25 000 2 000 1 000 20 000 0 (1 000) 15 000 (2 000) Jan-08 Feb-09 Mar-10 Apr-11 May-12 Jun-13 Jul-14 Aug-
Slide 7: Global inventory days remain high
Global inventory days remain high Declining LME stocks, increasing unreported stocks Total global inventory days, 4-quarters rolling average Days 115 105 95 85 75 65 55 45 35 Q4 05 Q1 07 Q2 08 Q3 09 Q4 10 Q1 12 Q2 13 Q3 14 Q3 15 Source: CRU/Hydro (7)
Slide 8: Declining Chinese net semis exports
Declining Chinese net semis exports Shrinking arbitrage Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 400 Improved comp. adv. China 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) Jan-07 Jun-08 Nov-09 Apr-11 Sep-12 Feb-14 Sep-15 Jul-15 Semis exports (Left axis) Chinese
Slide 9: Lower all-in ingot prices
Lower all-in ingot prices USD/mt NOK/mt • 3-month LME price traded between 3 100 18 000 1 511 and 1731 USD/mt during Q3 2 900 17 000 Primary aluminium LME* USD/mt NOK/mt 2 700 Q3 2015 average 1 621 13 309 16 000 2 500 Q3 2015 end 1 573 13 392 2 300 15 000 Q2 2015 average 1 787 13 831 Q2 2015 end 1 6
Slide 10: Around 30% of global primary production cash negative
Around 30% of global primary production cash negative Of which 60-70% in China USD/mt 2 400 2 200 2 000 1 800 Current LME 3m ~1 550 USD/t 1 600 1 400 1 200 1 000 800 600 400 200 0 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000 55 000 60 000 Source: CRU, Hydro Analysis (10)
Slide 11: Alumina prices down on weaker market balance
Alumina prices down on weaker market balance Cost curve lowered by fuel and currency Platts alumina index (PAX) • Average Q3 price 292 USD/mt USD/mt Percent − Down 45 USD/mt compared to Q2 450 20% − Currently trading at ~260 USD/mt 19% 400 • Alumina price as percentage of LME 18% at 18.1% in Q3 17%
Slide 12: Alumina prices down on weaker market balance
Alumina prices down on weaker market balance Cost curve lowered by fuel and currency Platts alumina index (PAX) • Average Q3 price 292 USD/mt USD/mt BRL/mt − Down 45 USD/mt compared to Q2 450 1 200 − Currently trading at ~260 USD/mt 400 1 000 • Alumina price as percentage of LME at 18.1% in Q3 800 3
Slide 13: Higher raw material imports, semis export down
Higher raw material imports, semis export down Annualized aluminium equivalents*, million mt YTD** 2011 2012 2013 2014 2015 • Bauxite and alumina 25 − Bauxite imports from Malaysia continue to rise China import 20 − Alumina imports up in Q3, YTD lower than in 2014 15 • Primary aluminium − No signifi
Slide 14: Optimizing and high-grading in challenging markets
Optimizing and high-grading in challenging markets Hydro Karmøy Alouette Entering LoI with Divesting of Slim Utilizing flexible investing to meet agreeing on terms for Vale for MRN rolling mill production system auto demand new power contract Aug 21 Sep 10 Oct 9 Oct 19 2015 (14)
Slide 15: Hydro enters LoI with Vale to raise MRN ownership to 45 percent
Hydro enters LoI with Vale to raise MRN ownership to 45 percent • Ensuring optimal long-term development Mineração Rio do Norte (MRN) of Hydro Alunorte’s second source of high- • First-quartile cost position, high quality bauxite quality bauxite • Annual capacity 18 million tonnes • Largest mine in
Slide 16: Implied alumina cost at historically low level
Implied alumina cost at historically low level Record bauxite production at Paragominas • Significant decline in implied alumina cost Implied alumina cost and margin, USD/mt 1) − Increased bauxite and alumina production 475 − Historically weak BRL 425 35 • Paragominas annualized bauxite 252 59 produ
Slide 17: Lower margin on weaker all-in prices
Lower margin on weaker all-in prices Implied cost down on weaker currency and raw material costs All-in implied primary cost and margin, USD/mt 1) • Developments Q3 vs Q2 575 ‒ Lower alumina prices 550 350 ‒ Weaker NOK and BRL vs USD 1 875 1 775 1 675 • USD 180 JV program on track to be 1 2752) 1 32
Slide 18: Higher sales from Rolled Products
Higher sales from Rolled Products Positive developments in seasonally weaker quarter Q3 2015 vs Q2 2015 Q3 2015 vs Q3 2014 14% 4% 4% 2% 2% 0% 1% (7%) Packaging Litho, Auto & General Total Rolled Packaging Litho, Auto & General Total Rolled & building Heat exchanger engineering Products & building He
Slide 19: Continued strong North American extrusion demand
Continued strong North American extrusion demand Europe seasonally weaker • Mixed developments in third quarter − Continued strong North American demand − Seasonally weaker demand in Europe, down 4% • Demand increased compared to same quarter last year − 6% in North America due to increased building
Slide 20: Energy: Low prices on high inflow from snowmelt
Energy: Low prices on high inflow from snowmelt Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 2013 100 2014 2015 500 80 400 60 300 40 200 MIN NO2 (2002-2013) MAX NO2 (2002-2013) 20 100 2013 2014 2015 0 0 1 4 7 10 13 16 19 22 25 28 31 34 3
Slide 21: Weaker prices, strong rolled product sales and record bauxite production
Weaker prices, strong rolled product sales and record bauxite production NOK billion 0.2 (1.6) 0.2 0.8 2.7 2.2 1.5 Underlying Underlying LME, PAX Net currency Volumes Fixed and Underlying EBIT Q3-2014 EBIT Q2-2015 and premium and margins variable cost EBIT Q3-2015 (21)
Slide 22: Key financials
Key financials Unrealized currency loss on USD debt and EUR-embedded derivatives First 9 months First 9 months NOK million Q3 2015 Q2 2015 Q3 2014 2015 2014 Revenue 21 594 22 436 19 698 67 320 56 251 Underlying EBIT 2 215 2 667 1 490 8 090 2 806 Items excluded from underlying EBIT (586) 31 447 (557)
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded net loss of MNOK 586, including restructuring charges in Sapa First 9 months First 9 months NOK million Q3 2015 Q2 2015 Q3 2014 2015 2014 Underlying EBIT 2 215 2 667 1 490 8 090 2 806 Unrealized effects on power and raw material contracts 73 161 54 386 18
Slide 24: Bauxite & Alumina
Bauxite & Alumina Lower alumina price offset by higher production and currency tailwinds Q3 Q2 Q3 Key figures 2015 2015 2014 Alumina production, kmt 1 498 1 437 1 478 Total alumina sales, kmt 2 268 2 099 1 922 Realized alumina price, USD/mt 273 292 287 Implied alumina cost, USD/mt 217 233 252 Bauxit
Slide 25: Primary Metal
Primary Metal Results down on falling all-in metal prices Q3 Q2 Q3 Key figures 2015 2015 2014 Primary aluminium production, kmt 520 509 487 Total sales, kmt 550 544 542 Realized LME price, USD/mt 1 685 1 803 1 906 Realized LME price, NOK/mt 13 779 13 923 11 909 Realized premium, USD/mt 342 509 537 I
Slide 26: Qatalum results down
Qatalum results down Lower results on falling all-in prices and volumes Q3 Q2 Q3 Key figures – Qatalum (50%) 2015 2015 2014 Revenue, NOK million 1 242 1 542 1 207 Underlying EBITDA, NOK million 365 584 446 Underlying EBIT, NOK million 85 303 231 Underlying Net income (loss), 26 245 189 NOK million P
Slide 27: Metal Markets
Metal Markets Results up as trading performance improves with moderating premiums Q3 Q2 Q3 Key figures 2015 2015 2014 Remelt production, kmt 117 141 128 Metal products sales, kmt 1) 676 750 696 Underlying EBITDA, NOK million 317 (64) 192 Underlying EBIT excl currency and 189 21 152 inventory valuati
Slide 28: Rolled Products
Rolled Products All-time high result in a seasonally weaker quarter Q3 Q2 Q3 Key figures 2015 2015 2014 External sales volumes, kmt 248 243 244 Underlying EBITDA, NOK million 517 488 417 Underlying EBIT, NOK million 331 315 243 Underlying EBIT Q3 results NOK million • Higher shipments despite season
Slide 29: Energy
Energy Improved results on high production partly offset by falling prices Q3 Q2 Q3 Key figures 2015 2015 2014 Power production, GWh 2 839 2 103 2 170 Net spot sales, GWh 1 363 724 873 Southwest Norway spot price (NO2), 102 171 247 NOK/MWh Underlying EBITDA, NOK million 241 227 275 Underlying EBIT,
Slide 30: Seasonally lower results in Sapa JV
Seasonally lower results in Sapa JV Seasonal weakness in Europe partly offset by strong demand in North America • Quarter-on-quarter results affected by: Key figures – Sapa (50%) Q3 2015 Q2 2015 Q3 2014 − Seasonally lower sales volumes in Europe Revenue, NOK million 6 954 7 247 5 802 − Strong North
Slide 31: Other and Eliminations
Other and Eliminations Other and Eliminations, Q3 Q2 Q3 Underlying EBIT, NOK million 2015 2015 2014 Sapa JV 120 145 55 Other (95) (150) (128) Eliminations (13) 338 (276) Other and Eliminations 12 333 (349) (31)
Slide 32: Net cash (debt) development
Net cash (debt) development Increase in net cash following material operating capital release NOK billion Net cash flow from operations NOK 4.5 billion (1.0) 2.1 (1.2) (0.7) 3.4 3.3 0.7 End Q2-2015 Underlying EBITDA Operating capital Taxes and other* Investments Currency and End Q3-2015 minorities *
Slide 33: 2015 capex expectations reduced
2015 capex expectations reduced Driven by currency and value optimization effects NOK billion -15% 6.8 (0.2) (0.8) 5.8 2.5 2.5 3.3 Previous 2015 guidance Net currency effect Capex optimization Revised 2015 guidance (33)
Slide 34: Reduction in net adjusted debt in Q3 2015
Reduction in net adjusted debt in Q3 2015 Higher net cash position partly offset by increased net pension liability Sep 30 Jun 30 Mar 31 NOK billion 2015 2015 2015 Cash and cash equivalents 9.4 8.1 7.2 Short-term investments 1.8 1.2 2.5 Short-term debt (3.5) (3.7) (4.2) Long-term debt (4.4) (5.0) (5
Slide 35: Priorities
Priorities • Continue improvement drive • Stabilize and lift Alunorte production • Deliver growth projects in Rolled Products
Slide 36: Market
Market (36)
Slide 37: Aluminium is the metal of the future
Aluminium is the metal of the future • Lightweight • Corrosion resistant • Excellent conductivity − 1/3 density of steel − Oxide layer − Thermal – electrical • Recyclability • Formability • Alloying technology − 5% of original energy − Extrusion, rolling, casting − Gives wide range of physical consu
Slide 38: Aluminium demand accelerating in response to global needs
Aluminium demand accelerating in response to global needs Strong demand drivers in key aluminium segments Growth in automotive vehicle production Global primary aluminium demand growth Aluminium content in cars increasing Transport CAGR, % Growth in other transport modes, e.g. railway Construction U
Slide 39: Broad-based aluminium demand growth across segments and regions
Broad-based aluminium demand growth across segments and regions Global semis 2014 demand ~75 million tonnes Global aluminium semis demand, per segment Global aluminium semis demand, per region Million tonnes (2014) Million tonnes (2014) 5% 4% 3% 5% 1% 8% 27% 12% 8% 45% 15% 9% 13% 25% 19% CAGR per se
Slide 40: Infinite ideas in aluminium
Infinite ideas in aluminium More and more sectors “discover” new areas for aluminium applications Lightweight, non-corrosive Zero-emission electrical car ferry in 100% aluminium Floating aluminium bridge with a submerged offshore applications for light-weighting. In operation from 2015 floating tunn
Slide 41: Transport drives global flat rolled product growth of 5%
Transport drives global flat rolled product growth of 5% Total FRP 2014 consumption ~ 23 million tonnes Global FRP consumption by end-use 2014 CAGR 2014-2019, % Transport 12% 10% 14% Electrical 5% 9% 4% Construction 5% 12% Total consumption 5% Machinery & Equipment 5% 51% Consumer durables and other
Slide 42: Automotive demand growth outperforms all other segments
Automotive demand growth outperforms all other segments 40 years of uninterrupted growth – accelerating from 2015 to 2025 Aluminium vehicle penetration, North America Global Body-in-White demand – ‘000 mt Pounds per light vehicle 600 DUCKER WORLDWIDE 2 100 500 In 2015, aluminium penetration CAGR wil
Slide 43: Aluminium – a perfect fit for next-generation automotive
Aluminium – a perfect fit for next-generation automotive Lighter weight translates to lower fuel emissions C02 emissions C02 emissions • Tightening fuel economy regulations 327 g/100 km 194 g/100 km • 10% reduction in vehicle weight gives car manufacturers a 5-7% fuel saving • 1 kg of aluminium repl
Slide 44: Higher raw material imports and semis exports in 2014
Higher raw material imports and semis exports in 2014 Annualized aluminium equivalents*, million mt 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015** 25 20 to China Import 15 10 5 0 from China Export ( 5) ( 10) Bauxite Alumina Scrap Primary aluminium Fabricated Semis Net aluminium imports Source:
Slide 45: Large and concentrated bauxite resources
Large and concentrated bauxite resources But many challenges for future developments Billion mt Guinea 41.0 China 4.1 2.9 India Vietnam Jamaica 3.0 4.7 6.2 1.1 0.5 1.0 Venezuela 0.5 1.8 0.3 Malaysia 1.0 Indonesia 0.2 4.0 1.5 Brazil 8.7 Australia 2.5 9.5 5.6 Bauxite suppliers Atlantic Pacific short/m
Slide 46: Alumina market is consolidating
Alumina market is consolidating Net long equity alumina position based on 2014 production, million tonnes Alcoa 4.3 Alcoa/AWAC 8.3 Vale 3.0 BHP Billiton 3.0 Glencore 2.4 Rio Tinto Alcan* 1.9 BHP Billiton 1.9 Hydro 1.8 Kaiser 1.0 Hindalco 0.4 Alcan 0.8 UC Rusal 0.3 Sual 0.7 Vedanta (0.4) Rio Tinto 0.
Slide 47: Business overview
Business overview (47)
Slide 48: Hydro - Group
Hydro - Group (48)
Slide 49: Hydro: a resource rich global aluminium company
Hydro: a resource rich global aluminium company Hydro underlying EBIT quarterly, NOK billion 3 551 5 982 1 297 2 725 5 692 8 090 3.5 3.0 2.5 2.0 • Based in Norway, involved 1.5 in activities in more than 50 countries 1.0 • 13 000 employees 0.5 • Operating revenues − 2013: NOK 65 billion 0 − 2014: NO
Slide 50: Strong positions across aluminium value chain
Strong positions across aluminium value chain Raw materials Primary aluminium production, Aluminium in products processing and energy marketing and recycling Bauxite Rolled Sapa JV (50%) Energy Primary Metal Metal Markets & Alumina Products • Bauxite capacity • Long-term power supply • 2.1 million t
Slide 51: Hydro - a first tier aluminium company
Hydro - a first tier aluminium company Equity production in 2014 in aluminium equivalents ex-China, thousand mt 9 000 Alumina Aluminium 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Alcoa/AWAC Rio Tinto Alcan* UC Rusal Norsk Hydro BHP Billiton Glencore/Century Hindalco Vedanta Emirates Global Al
Slide 52: Hydro’s continuous transformation for value creation
Hydro’s continuous transformation for value creation Curtailing 26% of USD 300 program Climb From B to A JV program Portfolio high-grading primary metal capacity 2009 2010 CCIP 1 2011 2012 CCIP 2 2013 2014 Starting up Qatalum Acquiring bauxite and Establishing Strengthening alumina assets Sapa JV re
Slide 53: Hydro’s aspiration for higher value creation
Hydro’s aspiration for higher value creation • Further strengthen • Turn leading HSE/CSR • Continue improvements relative industry position position into competitive drive • Enhance market advantage • Capture commercial positions and high-grade • Deliver on fast-developing opportunities portfolio cu
Slide 54: Better: Hydro improvement drive continues at full pace
Better: Hydro improvement drive continues at full pace ‘Energy Aspiration’ Sapa JV Total contribution from Hydro’s improvement programs (excl. Sapa) ‘JV program’ ‘From B to A’ 2011*-2014 2015-2016** ‘Climb’ BNOK 3.7 BNOK 1.5 ‘USD 300 program’ CCIP II * USD 300 from 2009 ** Real 2014 terms Realized i
Slide 55: Bigger: A solid platform for building an even stronger Hydro
Bigger: A solid platform for building an even stronger Hydro Bauxite & Alumina Energy Primary Aluminium Rolled Products • Move beyond nameplate • Mature captive growth • Enhance position in • Expand automotive capacity opportunities high-margin segments capacity to 200,000 t/yr • Further improve bau
Slide 56: Greener: Hydro aims to be climate neutral by 2020
Greener: Hydro aims to be climate neutral by 2020 Electrolysis technology pilot Energy and primary production Developing the world’s most energy efficient electrolysis cells with the most Reduce emissions, limited CO2 footprint increase efficiency Aluminium in use Meeting consumer needs Maximize use
Slide 57: Safe and responsible operations is a top priority
Safe and responsible operations is a top priority TRI Rate* 10.3 7.0 6.0 5.4 4.0 4.1 3.9 3.7 3.8 3.4 3.4 3.2 2.9 3.0 2002 2004 2006 2008 2010 2012 2014 * TRI rate defined as cases per 1 million hours worked (57)
Slide 58: Hydro strengths
Attractive Improvement Hydro positions throughout the culture and technological Financial strength value chain leadership (58)
Slide 59: Bauxite & Alumina
Bauxite & Alumina (59)
Slide 60: High-quality asset portfolio
High-quality asset portfolio MRN Paragominas Alunorte CAP alumina bauxite mine bauxite mine alumina refinery refinery project • 5% ownership • Full financial exposure, increase • 92% ownership • 81% ownership • Volume off-take agreement for ownership to 100% by 2016 • World’s largest alumina refiner
Slide 61: Strengthening the competitiveness of Bauxite & Alumina
Strengthening the competitiveness of Bauxite & Alumina From B to A Improvement categories Improvements in NOK million 1100 Alunorte 1000 • Increase productivity and rightsize organization • Stabilize performance at nameplate capacity 900 • Improve logistics efficiency 800 700 Paragominas 600 NOK 1 •
Slide 62: Paragominas – One of the world’s largest bauxite mines
Paragominas – One of the world’s largest bauxite mines • 2014 production: 9.5 million mt • Target to deliver production increases and stabilize • Possible expansion: up to 15 million mt • Long-life resource base (62)
Slide 63: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2014 • Labor cost 9% − Influenced by Brazilian wage level 26% − Productivity improvements 20% • Maintenance and consumables − Influenced by Brazilian inflation • Large fixed cost base 19%
Slide 64: Alunorte – World’s largest alumina refinery
Alunorte – World’s largest alumina refinery • 2014 production: 5.9 million mt • Targeting stable production above 6 million tonnes • World-class conversion cost position • Modern technology • Bauxite supplied from Paragominas and MRN (64)
Slide 65: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost position 2014 Implied alumina cost* position 2014 − USD 250 per mt USD 250 per mt − Alunorte, Paragominas and sourced alumina • Bauxite 6% − Internal bauxite from Paragominas at cost, sourced 12% bauxite from MRN 31% • Energy − First-
Slide 66: External alumina sourcing
External alumina sourcing • ~ 2.0 million mt of external alumina sourcing in 2015 • Long term off-take agreement with Rio Tinto − 900 000 mt annually from Yarwun • Short- and medium term contracts − To balance and optimize position geographically − Various pricing mechanisms − Older contracts linked
Slide 67: Alumina pricing shifting from LME-link to market fundamentals
Alumina pricing shifting from LME-link to market fundamentals Index spot price exposure • Future pricing should reflect fundamentals 100% of bauxite and alumina value chain • New norm for the industry − Index pricing and short to medium-term contracts − Getting wider acceptance in the market • Hydro
Slide 68: Primary Metal
Primary Metal (68) W) HYDRO
Slide 69: World-wide production network
World-wide production network Primary aluminium annual production capacity 49% Norway, 1 015 000 tonnes • Sunndal (100%) : 390 000 tonnes • Årdal (100%): 190 000 tonnes 6% • Karmøy (100%): 190 000 tonnes Canada, 120 000 tonnes • Høyanger (100%): 65 000 tonnes • Alouette (20%): 120 000 tonnes • Husne
Slide 70: Delivering on ambitious USD 300 improvement program
Delivering on ambitious USD 300 improvement program Total annual improvement effect of NOK ~1.5 billion Improvement categories Improvements in USD per mt* Operational improvements 300 • Improved current efficiency • Reduced power consumption • Reduced anode consumption 250 Fixed cost reductions and
Slide 71: Primary Metal joint ventures improvement program
Primary Metal joint ventures improvement program USD 180 per mt improvements by end-2016, corresponding to NOK 1.2billion Improvement categories Improvements in USD per mt* 180 160 Fixed cost reductions 140 and lean operations 120 100 USD 180 Operational improvements 80 per mt • Improved current eff
Slide 72: Improvement drive yields results in primary production
Improvement drive yields results in primary production Underlying EBITDA per mt in USD for respective primary aluminium divisions 1H 2012 2H 2012 1H 2013 2H 2013 1H 2014 2H 2014 700 700 700 700 700 700 500 500 500 500 500 500 300 300 300 300 300 300 100 100 100 100 100 100 -100 -100 -100 -100 -100 -
Slide 73: Develop technology to fulfill ambitions
Develop technology to fulfill ambitions HAL 300 HAL4e R&D portfolio • Operating for several years in • Benchmark technology on process • HAL 4e Ultra – future vision Sunndal and Qatar parameters and environmental − Significantly lower kWh/kg footprint − New materials and cell design • Operating at:
Slide 74: Metal Markets
Metal Markets (74)
Slide 75: Strong position in value-added casthouse products
Strong position in value-added casthouse products • Capitalizing on value-added casthouse Extrusion ingot products portfolio 1.3 million mt • Extensive multi-sourcing system including fully- and part-owned primary casthouses and stand-alone remelters Foundry alloys • Flexible sourcing system enablin
Slide 76: Pricing of value-added products
Pricing of value-added products Smelter Intermediate product Casthouse Aluminium Standard ingot Value added products Extrusion ingot Foundry alloy Sheet ingot Wire rod Traded on LME • US Midwest - 1020 • Extrusion Ingot – Priced above standard ingot (in cent per pound) • Foundry Alloy – Priced above
Slide 77: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and − Revenue impact – volume and product ingot inventory valuation effect, NOK million* premiums above LME 250 − Cost impact − Scrap and standard ingot premiums above LME 200 − Raw material mix − Freight cost – pr
Slide 78: Rolled Products
Rolled Products (78) QQ) HYDRO
Slide 79: No. 1 flat rolled products producer in Europe
No. 1 flat rolled products producer in Europe External sales in tonnages 2014 • World leader in high-end products foil and litho Total 946 kT − Alunorf (JV 50%) – world’s largest rolling mill − Grevenbroich plant – world’s largest finishing mill 12% 19% • High-grading product portfolio − Margin mana
Slide 80: Attractive market position and customers
Attractive market position and customers More than 50% of products with global reach Our products Our customers Our position Litho World market leader Global reach Foil Can Leading position in Europe Auto Regional Leading position in Europe reach GE/ Building (80)
Slide 81: Hydro inside
Hydro inside Hydro supplies premium European carmakers with aluminium “Lightweight construction is a core element of Jaguar’s DNA and Jaguar is at the cutting-edge of aluminium technology in the automotive industry” BMW 7 series Peugeot 308 “Audi believes aluminium still offers abundant potential, e
Slide 82: Fulfilling customer and environmental needs
Fulfilling customer and environmental needs Through technological advancements Products − 5µm high-performance aluminium foil saves up to 16% in material − Light-weighting in automotive by replacing steel typically saves 15-20kg of CO2 per kg of aluminium used Process − Continuous improvement and st
Slide 83: Rolled Products earnings drivers
Rolled Products earnings drivers Underlying EBIT per tonne, NOK 1 400 • Contract structure 1 200 − Margin business based on conversion price − LME element passed on to customers 1 000 − Range from spot contracts to multi-year contracts 800 600 • High share of fixed costs - volume sensitive 400 200 •
Slide 84: Sapa joint venture
Sapa joint venture HYDRO
Slide 85: Sapa – global leader in extruded products
Sapa – global leader in extruded products Heavyweight company – lightweight material External sales of 1.4 million tonnes (2014) Precision Building Tubing System 7% 6% Extrusions Asia • 50/50 joint venture between Hydro and Orkla, 2% Extrusions established September 1, 2013, with 23,000 Europe emplo
Slide 86: Sapa JV delivers solutions to Ford F-150
Sapa JV delivers solutions to Ford F-150 World’s most selling vehicle • Partnership to supply structural aluminium tubing − Also provide ongoing development support for future extrusion applications • Ford F-150 2015 Model − Aluminium-alloy body − ~700 pounds lighter than 2014 model Picture with cou
Slide 87: Energy
Energy (87)
Slide 88: Power production increased to 10 TWh
Power production increased to 10 TWh Power production capacity (TWh), per region and reversion year • Power producing assets and ongoing projects Normal annual − Maintain cost control in operations and projects production − Holsbru and Vasstøl power plants into operation in Sogn 10 TWh 2051-2057* 20
Slide 89: Hydro energy needs across the value chain
Hydro energy needs are spread across the value chain, global regions and energy carriers Europe Power 19.6 TWh North America Natural gas 3.2 TWh Power 1.7 TWh Middle East Power 4.6 TWh South America Power 7.3 TWh Australia/Asia Coal 4.9 TWh Power 1.0 TWh Fuel oil 8.2 TWh Hydro’s energy consumption i
Slide 90: Second largest hydropower producer in Norway
Hydro is second largest hydropower producer in Norway But a net buyer of power globally Norwegian power producers* Power production and consumption TWh normal production in Hydro smelters** 42 TWh 10 10 14 5 19 9 8 7 6 ~20 ~17 5 4 3 2 Production Consumption Production Consumption 1 Norway Outside No
Slide 91: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side Spot 0-6 3) price • Long-term contract 1 10 (8-12)1) • Market pricing • Fixed annual pricing Regulated adjustments price 14-172 ) • Market pricing • Duration varies • Different indexa
Slide 92: Broad optionality within the reversal regime
Broad optionality allows to maintain value of our assets within the reversal regime Sell to a publicly owned entity Merge into a larger publicly owned asset TWh with one or several owners 10* 2 Sell 2/3 1 3 7 NewCo or >= 9 TWh 7 3 Sell 100% 7 >= 6 TWh RSK ~3 TWh Energy Energy production production w
Slide 93: Energy earnings drivers
Energy earnings drivers Underlying EBIT* and spot price • Production and market prices strongly NOK million NOK/MWh 2000 500 linked to hydrological conditions 1500 400 • Stable annual EBIT contribution 300 1000 200 • Seasonal market variations in demand 500 100 and supply 0 0 2003 2004 2005 2006 200
Slide 94: Hydro’s value proposition
Hydro’s value proposition • Improve relative industry position • Capitalize on raw material positions • Maintain financial strength and flexibility • Ensure competitive shareholder return (94)
Slide 95: Additional information
Additional information (95)
Slide 96: Shareholder and financial policy
Shareholder and financial policy • Hydro aims to give its shareholders competitive returns compared to alternative investments in peers • Maintained dividend policy − Ordinary dividend: 40% of net income over the cycle − Average ordinary pay-out ratio 2010-2014 is ~95% − Share buybacks and extraordi
Slide 97: Hedging policy
Hedging policy • Bauxite & Alumina, Primary Metal − Remain primarily exposed to LME prices − Operational LME hedging − One-month forward sales − Currency exposure, mainly USD, NOK and BRL − Policy of maintaining long-term debt in USD • Metal Markets, Rolled Products − Operational LME and currency he
Slide 98: Capital allocation mainly upstream
Capital allocation mainly upstream NOK billion Debt-financed investments Qatalum • Long-term sustaining capex NOK ~3.5 billion Investments Qatalum 10.2 annually Growth capex Sustaining capex • Sustaining projects for 2014-2016: − Red mud disposal area − Bauxite tailing dam 6.2 − Smelter relining ~5.
Slide 99: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) 750 180 600 150 120 450 90 300 60 150 30 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Caustic soda (USD/mt) Petroleum coke FOB USG (USD/mt) 900 600 750 500 600 40
Slide 100: Price and currency sensitivities
Price and currency sensitivities Commodity price sensitivity +10%* Currency sensitivities +10%* Hydro Group: Sustainable effect: NOK NOK million EBIT million USD BRL EUR EBIT 2 900 (690) (360) Aluminium 3 280 One-off reevaluation effect: Fuel oil (220) Financial (990) 500 (1 760) items Pet coke (260
Slide 101: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.5% of 3-month LME price per tonne alumina 800 − ~One month lag • Realized alumina price lags PAX by one month 520 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 102: Primary Metal sensitivities
Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months 2 280 • Realized premium lags market premium by ~1-2 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME pric
Slide 103: Depreciation by currency and business area
Depreciation by currency and business area Total 2014 depreciation 4.6 BNOK Depreciation currency exposure by business area Depreciation by business area* NOK & 4% 1% Percent USD EUR BRL Others 15% Bauxite & Alumina 100% 2% 39% Primary Metal 25% 20% 55% Metal Markets 25% 75% Rolled Products 90% 10%
Slide 104: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) Total impact Bauxite & alumina 3 (6) (6) Unrealized derivative effects on LME related contracts Primary metal 54 (41)
Slide 105: Items excluded from underlying results - 2014
Items excluded from underlying results - 2014 NOK million (+=loss/()=gain) Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Unrealized derivative effects on LME related contracts Bauxite & Alumina (4) (1) (2) (10) (16) Total impact Bauxite & Alumina (4) (1) (2) (10) (16) Unrealized derivative effects on LME rel
Slide 106: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year 2013 Year 2014 Bauxite & Alumina (63) (244) (370) (379) (288) (269) (26) 528 780 482 628 (1 057) (55) Primary Metal 364 237 337 484 312 420 1 216 1 9
Slide 107: Operating segment information
Operating segment information EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year 2013 Year 2014 Bauxite & Alumina (76) (241) (370) (491) (284) (269) (23) 537 776 487 634 (1 178) (39) Primary Metal 19 122 338 377 303 434 1 278 1 912 1 956 1 5
Slide 108: Operating segment information
Operating segment information Total revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year 2013 Year 2014 Bauxite & Alumina 3 304 3 147 3 354 3 546 3 511 3 828 3 737 4 770 5 461 5 127 5 758 13 350 15 847 Primary Metal 5 945 5 896 5 884 5 554
Slide 109: Operating segment information
Operating segment information Internal revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year 2013 Year 2014 Bauxite & Alumina 1 322 1 253 1 277 1 375 1 304 1 424 1 480 2 071 2 074 2 150 2 103 5 226 6 279 Primary Metal 5 132 4 856 4 860 4 566
Slide 110: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year 2013 Year 2014 Bauxite & Alumina 429 448 417 424 410 431 442 519 460 470 420 1 718 1 802 Primary Metal 470 472 461 452 437
Slide 111: Income statements
Income statements First 9 months First 9 months NOK million Q3 2015 Q2 2015 Q3 2014 2015 2014 Year 2014 Revenue 21 594 22 436 19 698 67 320 56 251 77 907 Share of the profit (loss) in equity accounted investments 115 276 287 657 450 415 Other income, net 167 195 145 633 424 751 Total revenue and inc
Slide 112: Balance sheets
Balance sheets NOK million Sep 30 2015 Jun 30 2015 Mar 31 2015 Dec 31 2014 Sep 30 2014 Cash and cash equivalents 9 372 8 142 7 172 9 253 6 045 Short-term investments 1 860 1 240 2 456 1 786 1 745 Accounts receivable 14 417 14 847 15 122 11 703 11 280 Inventories 11 996 12 722 13 392 12 642 10 334 Ot
Slide 113: Operational data
Operational data Year Year Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 2013 2014 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 1 451 1 437 1 498 5 377 5 933 Sourced alumina (kmt) 476 427 711 395 550 431 532 503
Slide 114: Operational data
Operational data Metal Markets Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Year2013 Year2014 Remelt production (1 000 mt) 135 132 127 123 139 141 128 130 145 141 117 517 538 Third-party Metal Products sales (1 000 mt)2) 88 84 82 82 84 81 80 79 74 80 81 336
Slide 115: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales Year volumes Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 367 350 322 353 358 341
Slide 116: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Next events Head of Investor Relations t: +47 970 96 711 e: pal.kildemo@hydro.com Capital Markets Day December 3-4, 2015 Fourth quarter results Olena Lepikhina February 17, 2016 Investor Relations Officer t: +47 96853035 For more information see e: olena.lepik