Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (January 2011)
144 slides from Norsk Hydro Asa's investor day presentation, Jan 13, 2011
Slide 1: Capital Markets Day: Shaping the future
Capital Markets Day: Shaping the future Svein Richard Brandtzæg, President and CEO January 13, 2011 (1)
Slide 2: Hydro's value proposition
Hydro’s value proposition ● Transforming bauxite and alumina acquisition enhances earnings robustness and provides long alumina position for decades to come ● Repositioning of Primary Metal on track for USD 300 per tonne cost improvement by end-2013 ● World-class Qatalum smelter in full production f
Slide 3: Encouraging price signals
Encouraging price signals Recovering aluminium price Increasing ingot premiums LME 3-month in USD/tonne USD per tonne 3 500 200 US Mid-West Japan Europe* 3 000 175 150 2 500 125 2 000 100 1 500 75 1 000 50 500 25 0 0 Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Apr- Jul- Oct- Jan- Jan- Apr- Jul- Oct
Slide 4: Sales approaching pre-crisis level
Sales approaching pre-crisis level Metal Markets quarterly external sales, 1 000 tonnes Rolled Products quarterly sales, 1 000 tonnes 471 486 452 457 414 429 253 259 240 375 395 374 213 231 242 239 324 323 205 211 191 187 2008 2009 2010 2008 2009 2010 Extruded Products quarterly sales, 1 000 tonnes
Slide 5: Results improved
Results improved Hydro underlying EBIT quarterly, NOK million ● Reduced costs and curtailment of 2 032 high-cost production capacity 1 619 ● Manning reductions 1 490 1 110 ● Firm margins downstream 965 868 688 ● Improved sales volumes ● Higher LME prices ● Solid Energy results (493) (618) (651) (793
Slide 6: Agenda 2010: a stronger Hydro
Agenda 2010: a stronger Hydro Navigate the storm Stay focused Shape the future (6)
Slide 7: Responsible business is our license to operate
Responsible business is our license to operate Safety remains a top priority Commitment to sustainable operations TRI rate ● Reducing specific energy consumption and 10.3 climate gas emissions ● Helping our customers reduce their climate footprint 7.0 6.0 ● Responsible restructuring 5.4 ● Welcoming
Slide 8: Transforming bauxite and alumina acquisition
Transforming bauxite and alumina acquisition (8)
Slide 9: Hydro becomes long in bauxite and alumina
Hydro becomes long in bauxite and alumina Aluminium equivalent equity capacity, million tonnes ● Hydro’s position transformed Hydro end-2010 Pro forma end-2010 Pro forma 2016 (Before Vale transaction) (60% Paragominas) (100% Paragominas) from large share of long-term contract sourcing to full 4.2 re
Slide 10: Gives Hydro control of world-class assets
Gives Hydro control of world-class assets Bauxite licenses Paragominas, bauxite mine Alunorte, alumina refinery CAP alumina • Capacity: 10 million tonnes refinery project • Capacity: 6.3 million tonnes • Ownership: 60%, 100% from 2015 • Ownership: 91% • First quartile cash cost position including Pa
Slide 11: Lifts Hydro to first tier in aluminium industry
Lifts Hydro to first tier in aluminium industry Production capacity for 2010 in aluminium equivalents, million tonnes 9 000 Alumina Aluminium 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Alcoa Chalco Rusal Rio Tint o Hydro pro Chiping Weiqiao BHP Vale Hydro East Hope China Dubal Xinfa Yichuan A
Slide 12: Attractive commercial foundation for alumina
Attractive commercial foundation for alumina ● Scarcity of high-quality bauxite ● Large alumina and bauxite deficit in China seems to continue ● Growth expectations for aluminium requires new alumina capacity next decade ● Development and construction costs for new capacity increasing ● Future prici
Slide 13: Bauxite & Alumina
Bauxite & Alumina Johnny Undeli, Executive Vice President and Head of Bauxite & Alumina (13)
Slide 14: New global Bauxite & Alumina Business area
New global Bauxite & Alumina Business area MRN Paragominas CAP alumina Alunorte Alpart bauxite mine bauxite mine refinery project alumina refinery alumina refinery 5% ownership Taking over 60%, 81% ownership 91% ownership 35% ownership increasing to 100% Signed volume by 2015 off-take agreement for
Slide 15: Successful integration process well underway
Successful integration process well underway ● Global Bauxite & Alumina organization ● Headquarter in Rio de Janeiro ● Commercial operations in Lausanne ● 4 100 employees in Brazil ● Ready to take leadership at operation ● Strong management team in place ● Improve capacity utilization ● Operational
Slide 16: Alunorte – from world's largest to world class
Alunorte – from world’s largest to world class ● World’s largest alumina refinery ● 2010 production 5.8 million tonnes ● Target to reach 6.3 million tonnes ● Bauxite supplied from Paragominas and MRN ● First quartile integrated cash cost position (16)
Slide 17: Paragominas – increased output main challenge
Paragominas – increased output main challenge ● One of the world’s largest bauxite mines ● 2010 production 7.5 million tonnes ● Target to reach 10 million tonnes ● Ramp-up schedule ● Possible expansion to 15 million tonnes ● Reserve life of several decades (17)
Slide 18: Benchmark social and environmental commitment
Benchmark social and environmental commitment Business strategy CSR strategy Stakeholder Impact engagement Value added management and programs activities transparency Based on: • Business needs and opportunities • Social risks, challenges and opportunities • Community needs and expectations (18)
Slide 19: 66% of bauxite availability concentrated in 3 countries
66% of bauxite availability concentrated in 3 countries Billion tonnes Guinea 14.9 China 2.1 Mali 0.9 1.2 0.0 Jamaica 4.0 India Vietnam Venezuela 1.1 1.8 1.6 2.3 0.5 0.3 0.4 0.0 Indonesia Cameroon 1.0 0.1 1.2 0.0 Brazil 8.2 Australia 9.5 2.0 5.9 Big-league (Top- 3) Total bauxite, billion tonnes: res
Slide 20: Alumina market appears balanced
Alumina market appears balanced World outside China, million tonnes 70 64 60 62 58 60 56 50 40 30 20 10 0 2011 2012 2013 2014 2015 Source: CRU and Hydro analysis Production Export to China Demand (20)
Slide 21: Alumina market is consolidating
Alumina market is consolidating Equity alumina production less equity alumina requirement, million tonnes Alcoa 4.3 Alcoa 8.0 Vale 3.0 Chalco 2.8 Glencore 2.4 BHP Billiton 2.1 Chalco 2.0 Hydro 1.5 BHP Billiton 1.9 Glencore 1.5 Kaiser 1.0 Rio Tinto 0.7 Alcan 0.8 Klesch -0.5 Sual 0.7 Rusal -0.6 Rio Ti
Slide 22: Shift towards shorter contract durations
Shift towards shorter contract durations % of LME per tonne alumina Contract durations Platts index in USD 1) for long-term contracts <2000 2011 400 13.0- 13.25- 14.75% 380 12.2- 13.8% 15% 12.7% 25% 25% 360 45% 340 320 30% 300 50% 280 16-Aug 31-Aug 15-Sep 29-Sep 13-Oct 27-Oct 11-Nov 26-Nov 10-Dec 24
Slide 23: Expansion projects – CAP and Paragominas III
Expansion projects – CAP and Paragominas III ● Time schedule ● CAP refinery (Phase I) is planned to be in operation in 2015 ● Paragominas expansion to be developed in parallel ● Investment estimates and expansion concepts under evaluation ● Cost position – value creation ● Competitive cash cost ● Fu
Slide 24: Strong position – ambitious targets
Strong position – ambitious targets World cash cost curve 2009, USD/tonne ● Establish Hydro as a leading global 500 bauxite and alumina player 400 ● Strong market organization in Lausanne ● Significant operational improvements, 300 including improved HSE 200 Weighted average ● Establish Hydro as a g
Slide 25: Positions Hydro for further upstream growth
Positions Hydro for further upstream growth Canada, aluminium ● Potential expansion of Alouette smelter from 0.6 to 0.9 million tonnes Qatar, aluminium ● Low-cost operations ● 20% Hydro stake ● Potential for expanding Qatalum from 0.6 to Attractive 1.2-1.5 million tonnes Brazil, bauxite growth ● Uti
Slide 26: Repositioning Primary Metal
Repositioning Primary Metal (26)
Slide 27: Ambitious cost improvement program on track
Ambitious cost improvement program on track Estimated primary aluminium production cash costs ● USD 100 cost improvement program on track USD/tonne1 with USD 50 cost savings for 2010 2 175 ● Further improvement potential in cash cost position 1 750 1 675 ● Estimated first nine months 2010 cash cost
Slide 28: Qatalum in full production from June 2011
Qatalum in full production ● World-class smelter ● First quartile position from June 2011 on cost curve ● Ideally located to serve all major markets ● Main tasks in 2011 ● Reach full capacity ● Stabilize production (28)
Slide 29: Solid long-term power coverage for Primary Metal
Solid long-term power coverage for Primary Metal 35 000 ● 90% of power needs secured until 2020 30 000 ● High share of renewable energy 25 000 ● More than 2/3 of power needs from renewable sources 20 000 ● Albras smelter in Brazil has hydropower 15 000 based contracts through 2024 10 000 ● High shar
Slide 30: Increasing value of Energy business and competence
Increasing value of Energy business and competence (30)
Slide 31: Hydro is a global energy player
Hydro is a global energy player Energy consumption in smelters, rolling mills and alumina refineries Europe Power 14.8 TWh Natural gas 2.4 TWh North America Power 1.6 TWh Middle East Power 4.6 TWh South America Power 4.2 TWh Coal 5.6 TWh Australia/Asia Fuel oil 7.4 TWh Power 3.8 TWh Natural gas 0.1
Slide 32: Substantial values in long-term assets in Norway
Substantial values in long-term assets in Norway ● Stable and solid cash generation Power production capacity (TWh) per region and reversion year ● Indicative annual EBITDA NOK 1.6 – 1.8 billion Telemark 3.0 0.5 ● Hydro’s power balance, normal year ● Normal production ~9.4 TWh No reversion 2044- 204
Slide 33: Reversion regime secures Hydro's values
Reversion regime secures Hydro’s values • Pursue value enhancement strategy • Develop and enhance value of power assets • Power assets remain an integrated part of aluminium production in Norway • Power and smelter portfolio will be reviewed concurrently • Participate in restructuring of power secto
Slide 34: Exciting prospects for high-end downstream business
Exciting prospects for high-end downstream business in mature and emerging markets (34)
Slide 35: Leading metal products supplier in Europe
Leading metal products supplier in Europe Metal Markets ● Growing marketing position in U.S. and The preferred Asia through Qatalum volumes partner in Extrusion ingot casthouse 1 550 000 tonnes ● Enhance value of market system and products and services optimize value on top of LME price ● Strengthen
Slide 36: No. 1 flat rolled products producer in Europe
No. 1 flat rolled products producer in Europe Rolled Products ● World leading positions in high-end products: foil, litho and automotive Packaging & building Revenues: NOK 8.8 billion ● Record results in 2010 ● Strategy ● Margin management and cash generation ● Focus production system on core assets
Slide 37: Strong position in Europe, U.S. and Brazil
Strong position in Europe, U.S. and Brazil Extruded Products ● Leading position in Europe in Extrusion and Building Systems ● Strong position in the U.S. and Brazil Extrusion Eurasia Building Systems Revenues: NOK 8.0 billion Revenues: NOK 6.3 billion ● Global leader in precision tubing ● Strategy ●
Slide 38: Shaping the future
Shaping the future (38)
Slide 39: Solid financial position
Solid financial position Net cash, NOK billion ● Financial position end-Q3 2010 10.8 ● Net cash: NOK 2.3 billion 1) ● Net adjusted debt: NOK 14.9 billion 2) ● Completed 2010 rights issue preserves financial flexibility ● Funded cash component in Vale transaction ● Supports investment grade credit ra
Slide 40: Competitive shareholder returns prioritized
Competitive shareholder returns prioritized Relative share price development in USD ● Hydro aims to give its shareholders Capital Markets Day Dec 2, 2010 – Jan 7, 2011 competitive returns compared to alternative 1.4 investments in peers 1.3 1.2 ● Maintained dividend policy 1.1 ● Ordinary dividend: 3
Slide 41: Firm long-term demand for aluminium
Firm long-term demand for aluminium World primary aluminium demand, 1 000 tonnes 80 000 + 76% 70 000 60 000 Change in % per decade 50 000 + 54% 40 000 + 39% 30 000 + 18% 20 000 10 000 0 1980 1990 2000 2010E 2020E Source: CRU (41)
Slide 42: Aluminium is the metal of the future
Aluminium is the metal of the future Properties drive increased market share ● Lightweight ● Recyclability ● Corrosion resistant ● Formability ● Excellent conductivity ● Alloying technology gives a wide range of physical properties (42)
Slide 43: Hydro innovation drives product demand
Hydro innovation drives product demand Consumer electronics Lithographic plates Automotive Heat Heat exchangers Building & construction exchangers Foil packaging Beverage cans (43)
Slide 44: Building the future with aluminum
Building the future with aluminum Aluminium used for Energy saving construction • Reduce materials to double by • High insulation 2020 The future is energy- Energy neutral gaining buildings • Active • Passive 100% recyclable • Design • Limited types of, and non-harming materials (44)
Slide 45: Strategy for further value creation
Strategy for further value creation Bauxite & Alumina • Integrate • Expand • Commercialize Primary Metal • Reposition • Keep solid cash flow in current assets • Expand in high-class assets Energy • Increase value of business and competence • Focus on operation and commercialization of current assets
Slide 46: Shaping the future
Shaping the future • Innovation and technology • Operational excellence • Value creation (46)
Slide 47: www.hydro.com
www.hydro.com
Slide 48: Aluminium market outlook
Aluminium market outlook Arvid Moss, Executive Vice President and Head of Energy and Corporate Business Development January 13, 2011 (1)
Slide 49: Agenda
Agenda ● Market situation 2010 ● Status development from 2009 ● Restocking effect ● Downstream development ● Mid-term development 2011 – 2014 ● Possible scenarios ● China ● Cost curve (2)
Slide 50: Strong recovery in 2010 from crisis
Strong recovery in 2010 from crisis Change year-on-year world outside China 24% Gross domestic product Aluminium demand Industrial production 20% 16% 12% 8% 4% 0% 1971 1972 1973 1974 1975 1976 1977 1978 1979 1980 1981 1982 1983 1984 1985 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 19
Slide 51: 2010 balance – our expectations
2010 balance – our expectations World outside China, 1 000 tonnes 2010 imbalance “handling” options: 28 000 ● Consumption upside (GDP, pipeline) Supply Demand ● Stock increase 27 000 ● Increased primary demand due to 2009 imbalance handled by: increased scrap exports to China 26 000 ● New curtailmen
Slide 52: 2010 balance - outcome
2010 balance - outcome World outside China, 1 000 tonnes 2010 imbalance: 28 000 ● Higher consumption increase (GDP, pipeline) Supply Demand ● Stock increase 27 000 ● Increased primary demand due to increased 2009 imbalance handled by: scrap exports to China 26 000 25 000 Net curtailments 24 000 23 0
Slide 53: Commodity as asset class affects aluminium
Commodity as asset class affects aluminium LME 3-month, USD/tonne LME USD/tonne 3 600 3 600 Jan-07 Jan-08 Jan-09 Jan-11 3 200 3 200 2 800 2 800 2 400 2 400 2 000 2 000 1 600 1 600 1 200 1 200 2007 2007 2008 2008 2009 2009 2010 2010 2011 2007 2008 2009 2010 2011 2012 2013 2014 2015 Source: Reuters Ec
Slide 54: High inventories well known in market
High inventories well known in market World reported primary aluminium inventories ● Different views on unreported inventories 1 000 tonnes 7 000 ● Estimated total reported and unreported IAI Other LME SHFE inventories ~11 million tonnes 6 000 ● Represents ~3 months of consumption 5 000 ● Financial
Slide 55: Tight physical market despite high inventories
Tight physical market despite high inventories Ingot premium, USD/tonne 200 Europe: Duty paid US Mid-West Japan 180 160 140 120 100 80 60 40 20 0 '2003 '2004 '2005 '2006 '2007 '2008 '2009 2008-Q1 2008-Q2 2008-Q3 2008-Q4 2009-Q1 2009-Q2 2009-Q3 2009-Q4 2010-Q1 2010-Q2 2010-Q3 2010-Q4 Source: Metal Bu
Slide 56: Production cuts in China due to energy issues
(9) 9 000 10 000 11 000 12 000 13 000 14 000 15 000 16 000 17 000 18 000 19 000 Jan-08 Source: CRU 1 000 tonnes Feb-08 Mar-08 Apr-08 May-08 China (annualized) Supply Jun-08 Jul-08 Aug-08 Sep-08 Oct-08 Demand Nov-08 Dec-08 Jan-09 Feb-09 Mar-09 Apr-09 May-09 Jun-09 Jul-09 Aug-09 Sep-09 Oct-09 Nov-09 D
Slide 57: China remains balanced in aluminium
China remains balanced in aluminium 1 000 tonnes 600 500 Net import 400 300 200 100 0 Net export - 100 - 200 - 300 - 400 2007 2008 2009 2010 Source: Antaike/Hydro Primary / alloyed Scrap metal Semis Fabricated Total net (10)
Slide 58: Significant rise in Chinese power prices
Significant rise in Chinese power prices Average power prices for aluminium industry ● Short-term actions to meet 2010 target of USD/MWh 20% reduction in energy consumption/GDP 60 vs 2005 50 ● Average power costs continues to increase 40 ● Industry restructuring taking place 30 ● Aluminium’s share o
Slide 59: China is dependent on bauxite imports
China is dependent on bauxite imports Alumina coverage aluminium production 55 ● Share of imported bauxite in China in 5 Import 50 2010: ~35% Domestic source 35 4 31 ● Quality of domestic bauxite resources is 15 deteriorating 7 8 ● New capacity mainly based on domestic 2005 2010 2015 bauxite Bauxite
Slide 60: China expected to remain balanced medium term
China expected to remain balanced medium term Potential long-term importer ● Primary aluminium exports Semis demand China continue to be discouraged through million tonnes export taxes 27 Other Machinery & equipment 24 C onsumer durables ● Potential long-term imports partly 21 Electrical based on Ch
Slide 61: Downstream development indicates return to underlying growth
Downstream development indicates return to underlying growth Demand, million tonnes 12 Other Western Europe North America & Mexico Machinery & equipment 10 C onsumer durables Electrical 8 Foil Packaging 6 C onstruction Transport 4 2 0 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 Source: CRU (14
Slide 62: Mid-term development scenario thinking
Mid-term development scenario thinking World outside China 1 000 tonnes 28 000 Demand 27 000 26 000 25 000 3%–6% 24 000 5%–9% 23 000 Demand influences • GDP growth 22 000 • Further restocking 21 000 • Emerging markets 20 000 19 000 18 000 2006 2007 2008 2009 2010 2011 2012 Source: CRU/Hydro (15)
Slide 63: Mid-term development scenario thinking
Mid-term development scenario thinking World outside China 1 000 tonnes 28 000 Supply Demand 27 000 26 000 25 000 24 000 23 000 Supply influences 22 000 • New projects • Potential restart 21 000 • Supply disruptions 20 000 19 000 18 000 2006 2007 2008 2009 2010 2011 2012 Source: CRU/Hydro (16)
Slide 64: Relative improvement in cost position
Relative improvement in cost position Cash cost indexed 100 Hydro Alcoa C e ntury R usa l R io Tinto 95 90 85 80 75 70 2008 2009 Q 1 2010 Q 2 2010 Q 3 2010 Estimated primary aluminium production cash costs including casthouse margin based on company reports. Assumptions: Hydro cash costs increased b
Slide 65: Strong focus to further improve cost position
Strong focus to further improve cost position Estimated primary aluminium production cash costs Business operating cost 2014 First half 2010, USD/tonne USD/tonne 2 800 2 800 2 400 2 400 2 000 2 000 1 600 1 600 Hydro 1 200 1 200 Accumulated world capacity, 1 000 tonnes 800 800 Rio Tinto Rusal Hydro A
Slide 66: Firm long-term demand for aluminium
Firm long-term demand for aluminium Primary aluminium consumption 1 000 tonnes 80 000 + 76% 70 000 Change in % per decade 60 000 50 000 + 54% 40 000 + 39% + 18% 30 000 20 000 10 000 0 1980 1990 2000 2010E 2020E Source: CRU (19)
Slide 67: Points to watch
Points to watch ● Manageable supply/demand balance ● Demand development ● Macro development ● Further filling of pipeline ● Supply development ● Restarts outside China dependant on market fundamentals ● New capacity ● Investor influence on LME ● Financial deals/stocks ● China balance (20)
Slide 68: www.hydro.com
www.hydro.com
Slide 69: Rolled Products
Rolled Products Oliver Bell, Executive Vice President and Head of Rolled Products January 13, 2011 (1)
Slide 70: Strong portfolio
Strong portfolio (2)
Slide 71: Hydro's Rolled Products operations
Hydro’s Rolled Products operations ● 1 million tonnes of flat rolled products annually Holmestrand Karmøy ● Turnover of ~NOK 20 billion ● Hydro operates 7 rolling assets Hamburg in 4 countries Norf/ Grevenbroich ● We employ ~4 000 Cisterna Malaysia Rolling Mill Sales Office (3)
Slide 72: We focus on these applications
We focus on these applications Foil Generell Can Engineering Litho Auto Construction (4)
Slide 73: Strengthened business through the downturn
Strengthened business through the downturn Decoupling cost from volume development Portfolio Managing Releasing Handling Managing adjustment cash operating risks costs capital Capex NOC -50% -110 million euro ● Inasa plant ● Focus capex on ● ”Move it out” ● Strict ● Procurement divested per minimum
Slide 74: Decoupling cost from volume development
Decoupling cost from volume development 1) Jan-Sep 2010 vs Jan-Sep 2009 ● “Climb” program to increasingly 25 % decouple volume from cost development 15 % ● 37% of volume gain retained on bottom line 37% ● Product focus initiated – with full run-rate in 2012 C ost development Increase in shipments So
Slide 75: Strong performance and result improvement
Strong performance and result improvement Systematic for success Underlying EBITDA 6-months moving average NOK million 900 800 ● Solid cash-generation 700 600 ● Initiated measures 500 leading to new record 400 result in 2010 300 200 100 0 Jan-06 Apr-06 Jul-06 Oct-06 Jan-07 Apr-07 Jul-07 Oct-07 Jan-0
Slide 76: Well positioned in attractive market
Well positioned in attractive market (8)
Slide 77: Market: NOK 300 billion and 18 million tonnes
Market: NOK 300 billion and 18 million tonnes Consumption per continent 2010 and CAGR 2010 - 2015 Europe 4.5 million tonnes North America 4% 4.4 million tonnes China 4% 4.9 million tonnes 10% Rest of world 3.7 million Latin World tonnes America 5% 0.8 million 18.2 million tonnes 5% tonnes 6% Source:
Slide 78: Hydro a key player in flat rolled products
Hydro a key player in flat rolled products ● No. 1 flat-rolled products producer in Europe ● No. 3 worldwide ● Operating world-class benchmark assets ● Alunorf (JV 50%) - World’s largest rolling mill ● Grevenbroich plant - World’s largest finishing mill ● Technology leadership and innovation (10)
Slide 79: Attractive customers and market position
Attractive customers and market position 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 reach Leading position in Europe GE/ Building (11)
Slide 80: Hydro European producer with global reach
Hydro European producer with global reach 25% export share for high-end markets serving key global customers & markets Tonnes North America Asia-Pacific 79 000, 8% 56 000, 6% Middle East 76 000, 8% World Latin 943 000 Lamerica 100% 27 000, 3% Source: Hydro analysis; based on export sales by region 2
Slide 81: Leadership through differentiation
Leadership through differentiation (13)
Slide 82: Aluminum foil – protects what's good
Aluminum foil – protects what´s good Minimum thickness for maximum protection Human hair Aluminum foil ~ 55 µm ~6.3 µm 600:1 10µm 600:1 10µm (14)
Slide 83: Product example aseptic foil
Product example aseptic foil Contact with fill good PE 40 µm Al Foil 6 µm PE 20 µm Carton 250g/m² PE 20 µm With one ... we produce ... and protect 5% of packaging slab ... 740 km of foil 12 000 000 liters weight 80% Source: HARP analysis of juice of protection (15)
Slide 84: Hydro world market leader in aseptic foil
Hydro world market leader in aseptic foil Customer satisfaction key to success Development of supplier ranking Tetra Pak 2007 - 2010 % 85 Hydro 80 Competitor 1 75 Competitor 2 70 65 3Q2007 4Q2007 1Q2008 2Q2008 3Q2008 4Q2008 1Q2009 2Q2009 3Q2009 4Q2009 1Q2010 2Q2010 3Q2010 Source: Tetra Pak analysis
Slide 85: World market leader in lithographic sheet
World market leader in lithographic sheet Development litho sales in metric tonnes 1962-2010 180000 160000 • Hydro world market leader 140000 • Hydro technology leader 120000 100000 • Setting the standard 80000 60000 40000 20000 0 1962 1965 1968 1971 1974 1977 1980 1983 1986 1989 1992 1995 1998 2001
Slide 86: Lifting the bar every year
Lifting the bar every year Example litho: Differentiation through one step change per year Introduce automated Reduce surface Introduce flatness tolerance Inspection new patented with 50 % Improved alloy for larger Reduction surface for high printing plates of leadtime quality Litho by 50 % plates 2
Slide 87: Aluminum growth potentials
Aluminum growth potentials (19)
Slide 88: Megatrends drive aluminium demand
Megatrends drive aluminium demand New Environmental Urbanization middle class sustainability Source: Hydro analysis (20)
Slide 89: Can market providing solid base for growth
Can market providing solid base for growth Beverage can stock consumption (2010E) and CAGR (2010-2013 estimation) Tonnes World Europe 3 930 000, 650 000, +5% North +4% China America 1 730 000 320 000 +0% +17% Latin Rest of world America 770 000, +2% 460 000 +9% Source: Hydro analysis (21)
Slide 90: Mega trends and substitution drive demand
Mega trends and substitution drive demand Automotive market with impressive growth prospects Megatrends + Substitution = Aluminium demand Alu vs. Copper/Steel Demand BIW (Body-in-white) price ratio ´07-´10 European passenger cars (1 000 tons) Urbanization (3-month-moving-average) 400 0.6 6.0 0.6 5.5
Slide 91: Aluminum – metal of choice for weight reduction
Aluminum – metal of choice for weight reduction Moving from luxury cars to volume models Weight reduction of car body SLC project kg body weight 300 Aluminium sheet • Super-light car-project (SLC) Aluminium study showed clear preference for 250 cast+extrusion aluminum for light-weighting (35%) Magne
Slide 92: Green aluminum packaging
Green aluminum packaging ● 20% of greenhouse gas emissions from food production and consumption ● We contribute with optimised packaging to preserve food ● Example Produce coffee CO2 emission of a cup of coffee: Transport Brew hot water Packaging Source: EAFA study (24)
Slide 93: Green aluminum – potential for future growth
Green aluminum – potential for future growth Aluminum part of the solution for the climate change New reflector HyBridAl strip Lighter constructions foil from 3M from Hydro from Hydro Hydro’s target: “The most efficient mirror of the world” ● Highly reflecting, but cost efficient & light ● Robust, l
Slide 94: Summary
Summary (26)
Slide 95: Positioned for new levels of profitability
Positioned for new levels of profitability ● Strengthened position in the downturn ● Emerged as a leaner and more profitable business ● “Climb” program decoupling volume from costs ● Profitable growth by leadership in quality, technology & innovation (27)
Slide 96: www.hydro.com
www.hydro.com
Slide 97: Repositioning Primary Metal
Repositioning Primary Metal Hilde Merete Aasheim, Executive Vice President and Head of Primary Metal January 13, 2011 (1)
Slide 98: Continued focus on repositioning
Continued focus on repositioning Extended improvement program in Norwegian plants Finish ramp-up of Qatalum Successful integration of Albras Increased improvement ambition in Kurri Kurri • Cost repositioning of existing assets • Integration and ramp-up of new assets (2)
Slide 99: Improvement efforts give results
Improvement efforts give results Estimated primary aluminium production cash costs ● ~25% decrease in cash cost from USD/tonne1 2008 to 2009 2 175 ● Mainly reduction in input cost driven by market 1 750 and closure of high-cost capacity 1 675 ● Benefit of cost reduction program ● USD 50 decrease in
Slide 100: Operational excellence and fixed cost focus
Operational excellence and fixed cost focus – delivering better than plan in 2010 USD/tonne 50 ● Realized improvement USD 50/tonne vs. target USD 40/tonne by end-2010 40 ● Fixed cost and process improvements 30 contributing equally 20 ● Solid operational performance 10 0 Improvement target 2010 Real
Slide 101: Improvement program lifted to USD 300 per tonne
Improvement program lifted to USD 300 per tonne Operational improvements • Improved current efficiency 300 • Reduced power consumption • Reduced anode consumption Fixed cost reductions and lean operations 200 125 Further operational improvements Technology costs/spin-offs USD Investments 300/tonne 1
Slide 102: Roadmap to competitiveness
Roadmap to competitiveness Business operating cost 2010 Deliver USD Secure industry 1. USD/mt 300/tonne friendly energy 3000 Long-term improvements regime 2500 sustainability for 2000 smelter portfolio 1500 1000 2. 500 Align Cash generation for 0 kt Drive organization re-investment continuous 0 5000
Slide 103: Attractive Qatalum fundamentals
Attractive Qatalum fundamentals ● Integrated power plant with long- term and low-cost gas sourcing ● Low cash cost smelter ● Potential for future expansion ● Serving markets on 3 continents (7)
Slide 104: Successful handling of Qatalum outage
Successful handling of Qatalum outage ● Power outage and mitigating actions ● Black-out following short circuit in external transformer on August 9, 2010 ● Studies, review of routines, tests and training part of mitigating actions ● Qatalum has taken necessary steps to minimize future risk ● Market
Slide 105: Status of Qatalum ramp-up
Status of Qatalum ramp-up ● Restart after power outage commenced on September 15, 2010 with ambition to finish ramp-up by end-Q1 2011 ● By January 13 ~50% of ramp-up has been completed ● Ramp-up is currently being hampered by technical challenges related to the cooling water system for the steam tur
Slide 106: From ramp-up to stable operations in 2011
From ramp-up to stable operations in 2011 Qatalum primary aluminium production, 1 000 tonnes ● Current focus on further ramp-up 600 ● 2011 estimated production ~100 000 tonnes below capacity, dependent on 500 timing of final ramp-up ● 2012 production ~600 000 tonnes 400 ● Following ramp-up: Transiti
Slide 107: New presence in Brazil with Albras
New presence in Brazil with Albras ● Among the largest smelters in the Americas and established in 1985-86 ● Hydro is a majority owner ● Owned 51% by Hydro and 49% by Nippon Amazon Aluminium Company ● Long-term energy coverage with hydropower based LME-indexed contract until end-2024 ● Alumina sourc
Slide 108: Integration planning well under way
Integration planning well under way ● Work program defined to assess improvement opportunities ● Hydro has had a technical service agreement with Albras over several years ● Hydro has had a long-term metal purchase contract with Vale for ~1 million tonnes primary aluminium (12)
Slide 109: Ambition to remain leader in primary technology
Ambition to remain leader in primary technology Next- generation smelter HAL 300 HAL4e R&D portfolio In operation Pilot plant Future vision (13)
Slide 110: HAL 300 – current top standard
HAL 300 – current top standard Next- generation smelter HAL 300 ● Operating for several years in Sunndal ● Ramping up in Qatar HAL ● Qatalum 300 power outage verified the robustness of the cells HAL4e R&D portfolio In operation Pilot plant Future vision ● Operating at: ● 13.3 kWh/kg ● 313 kA ● 1.6 t
Slide 111: HAL4e – delivering impressive results
HAL4e – delivering impressive results Next- generation smelter HAL4e ● Benchmark technology – process parameters and environment ● 30 months of operations in Årdal HAL 300 HAL4e ● First verification period delivered better result than target R&D portfolio In operation Pilot plant Future vision ● Cur
Slide 112: R&D portfolio – preparing for future projects
R&D portfolio – preparing for future projects Next- Next- generation generation smelter smelter R&D portfolio ● HAL4e optimization – to be ready for next project ● HAL Ultra – future vision HAL 300 HAL4e R&D portfolio ● Significantly lower kWh/kg In operation Pilot plant Future vision ● Carbon captu
Slide 113: Primary Metal priorities
Primary Metal priorities ● Deliver improvements according to extended program to enhance competitiveness ● Complete ramp-up of Qatalum and realize full potential of low-cost smelter ● Successful integration of Albras – providing smelting capacity in fast- growing region ● Leader in primary technolog
Slide 114: www.hydro.com
www.hydro.com
Slide 115: Proactive portfolio, performance and margin management
Proactive portfolio, performance and margin management Jørgen C. Arentz Rostrup, Executive Vice President and CFO January 13, 2011 (1)
Slide 116: Agenda
Agenda ● Performance management ● Earnings drivers ● Financial position (2)
Slide 117: Strong positions across aluminium value chain
Strong positions across aluminium value chain Raw materials processing Primary aluminium production, Aluminium in products and energy marketing and recycling Bauxite & Alumina Energy Primary Metal Metal Markets Rolled Products Extruded Products ● High LME sensitivity ● Production and market ● High L
Slide 118: Performance management
Performance management (4)
Slide 119: Continuous drive for improvement
Continuous drive for improvement Planning and performance framework Business Individual Performance Strategy plan goals follow-up • Market outlook • Financial and • Leadership • Performance vs targets • Portfolio development operational targets expectations and • Business reviews and • Capital frame
Slide 120: Primary Metal repositioning continues
Primary Metal repositioning continues Fixed cost development quarterly average, indexed ● Continuous cost focus 100 ● Further improvement potential in cash cost position ● Estimated first nine months 2010 cash cost USD 1 750/NOK 10 600 90 ● USD 100 per tonne cost improvement program on track with US
Slide 121: Strong cost focus in Extruded Products
Strong cost focus in Extruded Products Fixed cost per tonne quarterly average for Extrusion Eurasia, indexed ● Competitive cost base from measures 110 implemented in 2009 100 ● Cost per tonne down from 2008-level 90 80 ● Firm cost management 70 2008 2009 Jan-Sep 2010 ● Continuous improvements with s
Slide 122: Solid energy market operations secure spot premium
Solid energy market operations secure spot premium Accumulated spot price premium, NOK/Mwh ● Significant intra-day spot price volatility in 10 Nordic power markets 8 ● Value enhancement through optimization using asset flexibility 6 ● Maintenance schedule adapted to market 4 ● Flexibility depends on
Slide 123: Net operating capital reduced
Net operating capital reduced Net operating capital (NOC), NOK million NOC days ● Reduction of NOK 5.8 billion in 2009 25 000 100 ● Increase of NOK 2.9 billion in 2010 20 000 80 ● Strong management focus 15 000 60 ● Ambition 2011 ● Stable inventory levels and payable days 10 000 40 ● Reduction in da
Slide 124: Capital allocation mainly upstream
Capital allocation mainly upstream NOK billion C apex Vale Debt-financed investments Qatalum ● Qatalum capital expenditure completed 10.2 Investments Qatalum in 2010 New growth projects Sustaining capex ● Equity contribution ~NOK 4 billion ~6.71 ● Sustaining capex NOK 3.5 billion annually from 2011
Slide 125: Earnings drivers
Earnings drivers (11)
Slide 126: Understanding of earnings drivers
Understanding of earnings drivers • Starting point/assumptions • Simplified models • Negative correlations • Complexity (12)
Slide 127: Price and currency sensitivities
Price and currency sensitivities Aluminium price sensitivity +/- 10% Currency sensitivities +/- 10% NOK million NOK Financial Income Net 3 200 million EBIT items before tax income USD 2 800 (650) 2 150 1 450 2 400 BRL (850) 800 (50) (50) EUR (50) (1 050) (1 100) (800) • Annual sensitivities based on
Slide 128: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT if +/- 10% in price Revenue impact NOK million ● ~13-14% of 3-month LME price per tonne alumina ● ~One month lag 1 200 Cost impact Bauxite ● ~2.4 tonnes bauxite per tonne alumina ● Pricing partly LME-linked for bauxite from MRN Caustic
Slide 129: Vale aluminium earnings considerations
Vale aluminium earnings considerations ● Ongoing purchase price allocation evaluations ● Excess value depreciation expected to be significantly reduced compared to pro forma financial statements in Prospectus from June 2010 ● From NOK 1.5 billion to around NOK 1.0 billion ● Subject to further verifi
Slide 130: Primary Metal sensitivities
Primary Metal sensitivities Sensitivities on underlying EBIT if +/- 10% in price Revenue impact NOK million ● Realized price lags 3-month LME price by ~3-4 months ● Qatalum and Albras realized price lags spot price LME by 2 000 ~1 month Cost impact Alumina ● ~1.9 tonnes per tonne aluminium ● ~13% of
Slide 131: Attractive Qatalum fundamentals
Attractive Qatalum fundamentals ● 2011 focus ● Ramp-up to be completed by June 2011 ● Stabilize production ● Depreciated over ~20 years ● Marginal tax implications ● First quartile cash cost based on very competitive gas contract ● Earnings capacity ● Cash costs estimated in the range 1 400-1 500 US
Slide 132: Metal Markets earnings drivers
Metal Markets earnings drivers Remelters Underlying EBIT excluding currency effects and ● Revenue impact – volume and product ingot stock valuation effect, NOK million premiums above LME 300 ● Cost impact ● Scrap and standard ingot premiums above LME 250 ● Raw material mix 200 ● Freight cost – proxi
Slide 133: Rolled Products earnings drivers
Rolled Products earnings drivers Underlying EBIT per tonne, NOK ● Contract structure 1 400 ● Margin business based on conversion price ● LME element passed on to customers 1 200 ● Medium-term contracts 1 000 ● Range from spot contracts to multi-year contracts 800 ● High share of fixed costs - volume
Slide 134: Extruded Products earnings drivers
Extruded Products earnings drivers ● Contract structure Underlying EBIT per tonne, NOK ● Mainly short-term contracts 2 000 ● Large number of small orders to small/medium- sized customers 1 500 ● Produce to order - limited share of commodity type products ● Strong cost focus 1 000 ● Margin management
Slide 135: Energy earnings drivers
Energy earnings drivers Underlying EBIT* and spot price ● Production and market prices strongly NOK million NOK/MWh 2 000 500 linked to hydrological conditions 1 500 400 300 ● Relatively stable annual EBIT contribution 1 000 200 ● Large quarterly variations due to volatile spot 500 100 sales and spo
Slide 136: Hedging policy
Hedging policy ● Upstream ● Primarily remain exposed to LME prices ● Partly off-setting effects through raw material prices and negative currency correlations with LME ● Majority of 2011 LME exposure in Vale transaction hedged ● Operational LME hedging ● Three months forward sales to manage customer
Slide 137: Financial position
Financial position (23)
Slide 138: Financial position
Financial position NOK billion 10.8 1) Cash less interest-bearing debt 3.5 2) 2.0 2.3 Dec 31, 2007 Dec 31, 2008 Dec 31, 2009 Sep 30, 2010 (0.8) Adjusted net debt1)2) 2) (15.4) (15.5) (14.9) 1) Adjusted for cash consideration to Vale 2) Net interest-bearing debt in equity accounted investments, net p
Slide 139: Investment grade rating confirmed
Investment grade rating confirmed Maintain investment grade rating Financial ratios ambitions over ● Currently: BBB (S&P), Baa2 (Moody’s), both business cycle with stable outlook ● Funds from operations to net adjusted debt > 40% ● Competitive access to capital and important ● Net adjusted debt to e
Slide 140: Maintain financial flexibility
Maintain financial flexibility ● Strong focus on liquidity ● Maintain revolving credit facility to support unexpected or short-term funding requirements ● Intention to re-establish Hydro as issuer in bond markets ● Long-term funding of long-term funding requirements (26)
Slide 141: Financial priorities
Financial priorities ● Continuous improvements ● Vale integration ● Margin management ● Cash flow and financial flexibility ● Shareholder returns (27)
Slide 142: Strategy for further value creation
Strategy for further value creation Bauxite & Alumina • Integrate • Expand • Commercialize Primary Metal • Reposition • Keep solid cash flow in current assets • Expand in high-class assets Energy • Increase value of business and competence • Focus on operation and commercialization of current assets
Slide 143: Shaping the future
Shaping the future • Innovation and technology • Operational excellence • Value creation (29)
Slide 144: www.hydro.com
www.hydro.com