Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (November 2014)
182 slides from Norsk Hydro Asa's investor day presentation, Nov 27, 2014
Slide 1: Capital Markets Day
Capital Markets Day November 27, 2014 (1)
Slide 2: Table of contents
Table of contents Hydro 4 Financial update 41 Market outlook 72 Rolled Products 111 Primary Metal 130 Bauxite & Alumina 150 (2)
Slide 3: Cautionary note in relation to certain forward-looking statements
Cautionary note in relation to certain forward-looking statements Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and
Slide 4: Lifting performance, creating value in tight markets
Lifting performance, creating value in tight markets Svein Richard Brandtzæg Capital Markets Day 2014 (4)
Slide 5: HSE, CSR and compliance – integral parts of our business
HSE, CSR and compliance – integral parts of our business TRI rate 10.3 Safety YTD 2014 performance Performance at industry benchmark 3.3 * 3.3 2002 YTD 2014 * By end-October 2014 (5)
Slide 6: Our agenda for value creation
Our agenda for value creation Curtailing 26% of USD 300 program Climb From B to A JV program primary metal capacity 2009 2010 CCIP 1 2011 2012 CCIP 2 2013 Starting up Qatalum Acquiring bauxite and Establishing alumina assets Sapa JV (6)
Slide 7: Hydro continues on set direction during 2014
Hydro continues on set direction during 2014 EUR 130 million Permanent closure New long-term Sunndal production automotive investment of 180,000 t/year power contracts of optimized by replacing Alumina production in Germany to lift BiW Kurri Kurri smelter a total 2.7 TWh for remelt volumes with at A
Slide 8: Recent positive developments, following unsatisfactory low-cycle returns
Recent positive developments, following unsatisfactory low-cycle returns Reflecting developments in underlying market fundamentals TSR in percentage Hydro and Peers TSR in percentage Hydro 2008 - YTD2014 (Including financial crisis of 2008)* 2008 – YTD 2014* 20% 100% 10% 80% 0% 60% -10% 40% -20% 20%
Slide 9: Improving markets
Yn @ ® x — © = D = 5 fe) — a = HYDRO
Slide 10: Aluminium demand expectations remain healthy
Aluminium demand expectations remain healthy World ex-China demand base metals Index 2000=100 150 2014-2024 130 3-4 % CAGR 110 90 Aluminium semis Copper Zinc Lead Tin Nickel 70 Cold-Rolled Stainless Steel 2000 2002 2004 2006 2008 2010 2012 2014 E Source: CRU, Reuters Ecowin CAGR – Compound annual gr
Slide 11: Inventory reductions driven by primary curtailments
Inventory reductions driven by primary curtailments Production less demand world ex-China Supply/demand world ex-China** Inventory days Quarterly annualized* Primary aluminium, in thousand tonnes World ex-China reported primary aluminium inventories Primary aluminium, in thousand tonnes 3 500 2 000
Slide 12: Inventory reductions driven by primary curtailments
Inventory reductions driven by primary curtailments Production less demand world ex-China Supply/demand world ex-China** Total stock levels in 2014 Quarterly annualized* Primary aluminium, in thousand tonnes Detroit and Vlissingen Primary aluminium, in thousand tonnes Million tonnes Queue days 800 3
Slide 13: All-in price of aluminium in upward trend
All-in price of aluminium in upward trend All-in ingot price exceeds USD 2 500/tonne as premiums continue to rise to new records Regional standard ingot premiums All-in ingot aluminium price USD per tonne USD per tonne 600 3 000 400 2 500 200 2 000 0 1 500 Jan-08 Mar-09 May-10 Jul-11 Sep-12 Nov-13 N
Slide 14: Market balance indicates pricing above 90th percentile on the cost curve
Market balance indicates pricing above 90th percentile on the cost curve High inventories separates current period from earlier periods where demand exceeded production LME price vs BOC development world ex-China LME price and marginal Supply/demand balance in smelter in USD world ex-China in thousa
Slide 15: The world around us
The world around us Main external drivers for aluminium and Hydro Global GDP Materials substitution Climate change China (15)
Slide 16: The main approaches within the global aluminium industry
The main approaches within the global aluminium industry ‘China Inc.’ Shareholder return Monetizing energy Resource re-valuation China (16)
Slide 17: Hydro's aspiration for higher value creation
Hydro’s aspiration for higher value creation (17)
Slide 18: Better, Bigger, Greener aspirations
• Continue improvements drive • Further strengthen relative • Turn leading HSE/CSR position industry position into competitive advantage • Capture commercial opportunities • Enhance market positions • Deliver on fast-developing and high-grade portfolio customer demands • Extend technology and innova
Slide 19: Better
Better HYDRO
Slide 20: Strengthening our performance by improving the way we work
Strengthening our performance by improving the way we work People and competence Health and safety (20)
Slide 21: A more robust, better positioned Hydro
A more robust, better positioned Hydro 2.7 TWh ‘Energy Aspiration’ Energy Extrusion Bauxite ‘From B to A’ CCIP II NOK 0.7 ‘Climb’ Rolling Alumina billion NOK 0.1 NOK 0.6 billion billion Remelting Primary metal ‘USD 300 Casting program’ ‘JV program’ NOK 2.3 billion Delivered improvements 2011-2014 (U
Slide 22: Energy: Realizing full potential of strong asset base and competencies
Energy: Realizing full potential of strong asset base and competencies Further improve earnings from energy asset management and commercial activities • Increase value creation based on “new normal” equity production of 10 TWh per year • Further improve operational performance • Capture full value p
Slide 23: Bauxite and Alumina: Lifting production, reducing costs
Bauxite and Alumina: Lifting production, reducing costs Aiming to seize value from fundamental pricing and tightening markets • Reach nameplate capacity for Paragominas bauxite and Alunorte alumina production (9.9 and 6.3 million tonnes/yr) • Further reduce costs and increase efficiency • Expand alu
Slide 24: Primary Metal: Capitalizing on operational improvements
Primary Metal: Capitalizing on operational improvements Increasing efforts to capture high-premium markets • Utilize improvement momentum to further reduce cost position of smelter portfolio • Continue to target high-premium segments, aiming to deliver increased value over standard ingot • Capture m
Slide 25: Rolled Products: Meeting customer demands and expanding in attractive markets
Rolled Products: Meeting customer demands and expanding in attractive markets Taking a bigger share in high-margin growth segments • High-grading portfolio through margin management and portfolio adjustments • Increase volumes and lift margins based on automotive lightweighting trend • Utilize UBC*
Slide 26: Sapa: On track to deliver on NOK 1 billion restructuring program
Sapa: On track to deliver on ambitious NOK 1 billion restructuring program Flexibility and capability to meet customer expectations • Continue improvement efforts and realization of annual synergies through rightsizing portfolio • Maintain No. 1 position in North America and Europe through unique ne
Slide 27: Company-wide focus areas to lift competitiveness and value creation
Company-wide focus areas to lift competitiveness and value creation Competence, technology, product development and innovation Operational competence Technology development Energy Extrusion Bauxite Rolling Alumina Remelting Primary metal Casting Innovative solutions Customer-focused R&D (27)
Slide 28: Hydro improvement drive continues at full pace
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 improveme
Slide 29: Bigger
Bigger HYDRO
Slide 30: Aluminium – an increasingly important building block of modern society
Aluminium – an increasingly important building block of modern society Providing exciting commercial opportunities throughout the value chain Transportation Food packaging Buildings, constructions Applications and products and Powerhouse Building & construction 4 % CAGR* Transport 2014-2024 6 % CAGR
Slide 31: Low-cycle period utilized strategically to strengthen relative positions
Low-cycle period utilized strategically to strengthen relative positions Rectangles show changes since 2008, including Qatalum, Vale, Sapa JV and Husnes Captive Rolling Bauxite Alumina Metal Recycling hydro-power Extrusion Annual consolidated capacity in metal equivalents (million tonnes) 4 2 3 2 3
Slide 32: 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 capacity opportunities high-margin segments to 200,000 t/yr by end-2016 • Further
Slide 33: Greener
Greener HYDRO
Slide 34: 'Greener' captures Hydro's full sustainability agenda
‘Greener’ captures Hydro’s full sustainability agenda Aiming to set new standards to support the value proposal from communities to customers Climate change Social projects Environment (34)
Slide 35: The industry's most ambitious climate strategy: Carbon-neutral by 2020
The industry’s most ambitious climate strategy: Carbon-neutral by 2020 Supported by the three pillars of Hydro’s technology strategy Energy and primary production Reduce emissions, increase efficiency Aluminium in use Maximize user- phase benefits ‘End-of-life’ Increase recycling, back to the loop (
Slide 36: Climate as a competitive advantage
Climate as a competitive advantage Will gradually grow stronger as the world moves to meet the climate challenge Lower direct emissions in Hydro Kg CO2e/Kg aluminium 8 6 -70% 4 2 0 1990 1995 2000 2005 2013 Hydro in leading industry position on CO2 emissions Kg CO2e/Kg aluminium 16 12 8 4 0 Hydro ave
Slide 37: Lighter vehicles make a big impact on the climate challenge
Lighter vehicles make a big impact on the climate challenge Aluminium – part of the solution For each 10% reduction Declining CO2 emission targets around the world in vehicle weight, car manufacturers achieve fuel-savings of 5-7% Land Rover Sport 2010 Land Rover Sport 2014 3,100 kg 2,200 kg C02 emis
Slide 38: Hydro's value proposition
Hydro’s value proposition (38)
Slide 39: Hydro's roadmap towards sustainable profitability
Hydro’s roadmap towards sustainable profitability Solid contribution from improvement efforts RoaCE (%) 12 8 4 0 Hydro excluding Delivered Remaining RoaCE improvement programs improvement efforts improvement efforts scenario Realized “all-in” 2011-2014* 2015-2016 Based on delivered and USD 2 500, US
Slide 40: Value creation in Hydro
Increase shareholder returns through Value • Operational and commercial improvement drive creation • High-grading and selective growth to improve relative industry position in Hydro • Lower energy consumption and footprint to strengthen future competitive climate advantage (40)
Slide 41: Finance
Finance Eivind Kallevik Capital Markets Day 2014 (41)
Slide 42: Finance 2014
Finance 2014 • 1 Financial developments • 2 Sensitivities • 3 Financial policy • 4 Financial reporting going forward
Slide 43: Finance 2014
Finance 2014 • 1 Financial developments • 2 Sensitivities • 3 Financial policy • 4 Financial reporting going forward
Slide 44: Financial highlights
Financial highlights + 35 %¹ - 14%¹ Implied Underlying EBIT primary cost 3.3 bn NOK2 ~1 360 USD4 Realized + 13¹ all-in price NOK ~13 800 NOK3 per share TSR ~47%5 + 5%¹ 1) Q4 2013 – Q3 2014 compared to Q4 2012 – Q3 2013 2) Underlying EBIT. Sum 12 months rolling Q4 2013 – Q3 2014 3) Realized aluminium
Slide 45: Cash neutral after dividend at realized all-in price
Cash neutral after dividend at realized all-in price ~2 300 USD/mt NOK billion 7.8 -2.8 -3.1 -1.9 -0.5 -0.5 -1.0 -2.1 -0.6 Net debt Q3 2013 Underlying EBITDA Other adjustments Investments Dividends Net debt after Operating capital Currency translation Net debt Q3 2014 dividends (45)
Slide 46: Continued decline in operating capital days
Continued decline in operating capital days NOK billion* Days* 16 90 80 14 74 80 69 64 70 12 60 10 50 8 40 6 30 4 20 2 10 0 0 Q4'10-Q3 '11 Q4'11-Q3'12 Q4'12 -Q3'13 Q4'13-Q3'14 Amount (LHS) Days (RHS) * Pro-forma, excluding extruded products for Q4 2010 – Q3 2013 LHS = left hand side. RHS = right han
Slide 47: Maintain solid financial position
Maintain solid financial position NOK billion Net cash/(debt) -0.5 -2.1 30-Sep-13 30-Sep-14 Adjusted net debt1 -10.7 -14.1 30-Sep-13 30-Sep-14 1) Net pension liability, operating lease commitments and other. Hydro’s share of EAI net debt from Qatalum and Sapa not included. (47)
Slide 48: Finance 2014
Finance 2014 • 1 Financial developments • 2 Sensitivities • 3 Financial policy • 4 Financial reporting going forward
Slide 49: Understanding Hydro's earning drivers
Understanding Hydro’s earning drivers • Starting point and assumptions • Simplified models • Negative correlations • Complexity (49)
Slide 50: Hydro price and currency sensitivities
Hydro price and currency sensitivities Aluminium price sensitivity +10%* Currency sensitivities +10%* NOK million 2 800 NOK million EBIT Financial items USD 2 800 -1 100 2 200 BRL -850 700 EUR -300 -1 000 • Annual sensitivities based on normal annual business volumes, LME USD 1 900 per mt, Oil USD 5
Slide 51: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.3% of 3-month LME price per tonne alumina ‒ ~One month lag 650 • Realized alumina price lags PAX by one month 400 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • Pricing
Slide 52: Primary Metal sensitivities
Primary Metal sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months • Realized premium lags market premium by ~2-4 months 1 950 Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.3% of 3-month LME price per t
Slide 53: Energy sensitivities
Energy sensitivites Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • NO2 and NO5 spot price for net spot sales • Internal contract sales based on own production are priced on long term market based prices 90 • Internal contract sales based on externally sourced contract
Slide 54: Annualized underlying EBITDA scenarios
Annualized underlying EBITDA scenarios Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative EBITDA-range in 3 scenarios NOK billion Additional factors influencing earnings 25 • Production volumes • Alumina index prices 20 • Energy prices • Downstream margin
Slide 55: Finance 2014
Finance 2014 • 1 Financial developments • 2 Sensitivities • 3 Financial policy • 4 Financial reporting going forward
Slide 56: Priorities for capital allocation
Priorities for capital allocation • Aim for competitive return to shareholders • Maintain a solid balance sheet • Pursue disciplined and selective growth (56)
Slide 57: Improving the potential for competitive returns
Improving the potential for competitive returns In NOK billion 12 10 8 6 4 2 0 Underlying EBIT 2011* Currency Product prices Raw materials incl. ICMS Underlying EBIT 2014 Less USD 300 Underlying EBIT 2014 Improvements 2011- Underlying EBIT and inflation ex improvements 2009-2011 ex improvements 2014
Slide 58: Lifting the potential for competitive returns through improvement efforts
Lifting the potential for competitive returns through improvement efforts Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative RoaCE-range in 3 scenarios RoaCE % 15% 10% 5% 0% Excl. realized improvement programs 2011-2014* Incl. realized improvement program
Slide 59: Competitive yield compared to aluminium peers
Competitive yield compared to aluminium peers Dividend yield in percentage, based on year-end share-prices 2009 2010 2011 2012 2013 3% 3% 3% 3% 3% 2% 2% 2% 2% 2% 1% 1% 1% 1% 1% 0% 0% 0% 0% 0% Hydro Aluminium Peers Source: Thomson Reuters (59)
Slide 60: Aiming for stable and competitive cash return to shareholders
Aiming for stable and competitive cash return to shareholders • Average 86% 2009-2013 5 year payout ratio, 2009 – 2013* • Share buybacks and extraordinary dividends considered 1.5 when earnings, liquidity position and capital structure 1.3 allow 1.1 86%** 0.9 0.7 30% 0.5 0.3 0% 0% of net income 0.1
Slide 61: Maintain a solid balance sheet
Maintain a solid balance sheet • Maintain investment-grade rating Adjusted funds from operations / Adjusted net − Currently: BBB (S&P), Baa2 (Moody’s), both with interest-bearing debt stable outlook 140% − Competitive access to capital important for Hydro’s business model 120% 100% 80% • Financial r
Slide 62: Long-term sustaining capex NOK ~3.5 billion
Long-term sustaining capex NOK ~3.5 billion NOK billion 3.9 3.5 3.5 3.1 2.6 2.7 2009 2010 2011 2012 2013 2014E CMD 2013 Sustaining capex Excluding Extruded Products from 2013 onwards (62)
Slide 63: Long-term sustaining capex NOK ~3.5 billion
Long-term sustaining capex NOK ~3.5 billion NOK billion NOK billion 5.7 3.9 3.9 3.5 3.5 ~3.5 3.1 3.3 2.6 2.7 2009 2010 2011 2012 2013 2014E 2014E 2014E 2015E Long-term CMD 2013 CMD 2013 Sustaining capex Sustaining capex B&A Delayed Sustaining Other Excluding Extruded Products from 2013 onwards (63)
Slide 64: High-grading portfolio through 2015
High-grading portfolio through 2015 (64) 11/29/2014
Slide 65: Majority of capital allocated upstream
Majority of capital allocated upstream NOK billion 10.2 Debt-financed investments Qatalum • Long-term sustaining capex NOK 3.5 billion annually Investments Qatalum Growth capex Sustaining capex • Sustaining projects for 2014 – 2016: ‒ Red mud disposal area ‒ Bauxite tailing dam 6.2 ~6.5 ‒ Smelter re
Slide 66: Hedging policy
Hedging policy • Bauxite & Alumina, Primary Metal − Operational LME hedging – One-month forward sales − Currency exposure, mainly USD, NOK and BRL – Policy of maintaining long-term debt in USD – BRL hedged for 2014 • Metal Markets, Rolled Products − Operational LME and currency hedging to secure mar
Slide 67: Finance 2014
Finance 2014 • 1 Financial developments • 2 Sensitivities • 3 Financial policy • 4 Financial reporting going forward
Slide 68: Consolidation of Hydro Husnes (Søral) & Aluchemie
Consolidation of Hydro Husnes (Søral) & Aluchemie • Transaction closed October 31 − Full consolidation as of November 1 2014 Husnes • Annual capacity of 180 000 tonnes primary metal • Proportional consolidation of Aluchemie anode factory ‒ Currently producing 90 000 tonnes − Hydro now owns 46.7% • 1
Slide 69: Regulatory framework in Brazil
Regulatory framework in Brazil • Hydro aims to develop robust and viable operations in Pará with stable and predictable framework conditions • Aluminium industry in Pará ICMS deferral to be revisited in July 2015 − ICMS on fuel oil remains in place since February 2014 – ~BRL 60 million per quarter −
Slide 70: Short-term update: Increasing all-in prices and higher B&A production
Short-term update: Increasing all-in prices and higher B&A production • Increasing all-in metal and alumina prices • Weakening NOK and BRL • Higher bauxite and alumina production • Rolled products Q4 maintenance • Lower NO2 power prices (70)
Slide 71: Financial priorities
Financial priorities • Shareholder return • Cash flow generation • Continuous improvements • Margin management • Financial strength and flexibility (71)
Slide 72: Market outlook
Market outlook Arvid Moss Erik Fossum Capital Markets Day 2014 (72)
Slide 73: Agenda market outlook
Agenda market outlook • 1 Macroeconomic and downstream outlook • 2 Primary supply/demand • 3 Premium development • 4 Bauxite and alumina market • 5 China • 6 Energy • 7 Long-term outlook (73)
Slide 74: Macroeconomic and downstream outlook
Macroeconomic and downstream outlook 01 (74)
Slide 75: Broad-based aluminium demand growth across segments and regions
Broad-based aluminium demand growth across segments and regions Global aluminium semis demand, per segment Global aluminium semis demand, per region Million tonnes (2014) Million tonnes (2014) Central & South America Consumer durables Eastern Other Africa Europe Packaging Transport Global semis West
Slide 76: Aluminium demand progressing in line with economic growth
Aluminium demand progressing in line with economic growth Economic activity and semis demand picking up in western economies The US Western Europe YoY-growth YoY-growth GDP 8.0 % 8.0 % Industrial production Total semis demand 6.0 % 6.0 % 4.0 % 4.0 % 2.0 % 2.0 % 0.0 % 0.0 % -2.0 % -2.0 % -4.0 % -4.0
Slide 77: Legislation is key driver for growing intensity in auto segment
Legislation is key driver for growing intensity in auto segment US: CAFE target European Union: emissions target MPG: miles per gallon g/km: grams of CO2 per km 60 200 180 50 160 40 140 120 30 100 80 20 60 40 10 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2
Slide 78: High growth in transport segment
High growth in transport segment supported both by increasing aluminium usage per car and vehicle production volumes Aluminium content in cars increasing Global semis demand for transportation sector by product form Average kg per car Million tonnes Total: 6,8 %* 250 Forecast 30 4,3 %* 25 9,6 %* 200
Slide 79: Rolled products segment much supported by transport sector
Rolled products segment much supported by transport sector, but also general improvements in other industrial segments General rolled products demand, selected regions Expected market development YoY-growth • Strong demand contribution from increased 10.0 % aluminium usage in transport segment 8.0 %
Slide 80: Extrusion outlook improving on solid construction activity
Extrusion outlook improving on the back of solid construction activity in the US and improvement from low levels in Europe Extrusion demand, selected regions Expected market development YoY-growth • US housing market sustaining positive 10.0 % momentum 8.0 % • Construction activity in peripheral Eur
Slide 81: Primary supply/demand
Primary supply/demand 02 (81)
Slide 82: Recap Capital Markets Day 2013: Balanced outlook for 2014
Recap Capital Markets Day 2013: Balanced outlook for 2014 Possibility of modest inventory decline World ex-China Supply Demand Demand growth Thousand tonnes base case: 2-4 % 28 000 26 000 24 000 22 000 Demand 20 000 Supply influences influences Positive US momentum 18 000 Potential curtailments Mode
Slide 83: Production curtailments and solid demand resulting in a market deficit for 2014
Production curtailments and solid demand resulting in a market deficit for 2014 World ex-China Supply Demand Est. demand growth Thousand tonnes 2014: 3 - 4 % 28 000 26 000 24 000 22 000 Demand 20 000 Supply influences influences Positive US momentum 18 000 Potential curtailments Moderate growth Pote
Slide 84: Expectations for modest inventory decline also in 2015
Expectations for modest inventory decline also in 2015 Tight market balance continuing World ex-China Supply Demand Demand growth Thousand tonnes base case: 3-4 % 28 000 26 000 24 000 22 000 Demand 20 000 influences Transport segment 18 000 Sustained US momentum Mixed development 16 000 in Eurozone
Slide 85: Supply growth next year mainly in Asian regions
Supply growth next year mainly in Asian regions World ex-China Supply Demand Demand growth Thousand tonnes base case: 3-4 % 28 000 Supply development 2015 26 000 (million tonnes) 24 000 Other ~0.4 Structural issues 22 000 Ramp-up challenges 20 000 Supply Potential influences curtailments, 18 000 Few
Slide 86: Premium development
Premium development Head of Commercial, Erik Fossum 03 (86)
Slide 87: Several factors have contributed to a steady rise in standard ingot premiums
Several factors have contributed to a steady rise in standard ingot premiums since the Financial crisis Customer price Ingot premiums historically low Two phases with different drivers for (USD per tonne) during the Financial Crisis rising ingot premiums 3 500 20.0 % European Duty-paid 18.0 % LME 3m
Slide 88: Solid ingot premium development amid metal tightness
Solid ingot premium development amid metal tightness Regional standard ingot premiums and contango Production less demand, (quarterly annualized)* USD per tonne LME 3m - cash World ex-China Thousand tonnes 600 100 3 500 80 500 60 2 500 400 40 1 500 300 20 0 500 200 -20 100 - 500 -40 0 -60 -1 500 Jan
Slide 89: Tighter metal balances underpinning rise in ingot premium levels
Tighter metal balances amid smelter curtailments further underpinning rise in standard ingot premium levels North America Europe Market balance, thousand tonnes Ingot premium (USD per tonne) Market balance, thousand tonnes Ingot premium (USD per tonne) - 500 500 -1 000 500 450 - 900 450 - 400 400 40
Slide 90: Declining stock levels, several warehouses complying with LME rules
Declining stock levels, several warehouses already complying with suggested LME rules World-ex China reported primary aluminium inventories Stock levels selected warehouses Thousand tonnes Days Thousand tonnes 8 000 160 2 500 7 000 140 2 000 6 000 120 1 500 5 000 100 1 000 500 4 000 80 0 3 000 60 Ap
Slide 91: Product premiums also at record high levels
Product premiums also at record high levels USD per tonne 900 800 700 600 500 400 300 Product 200 premium lifted on its own 100 fundamentals 0 Jan-90 Feb-92 Mar-94 Apr-96 May-98 Jun-00 Jul-02 Aug-04 Sep-06 Oct-08 Nov-10 Dec-12 Oct-14 EI over ingot European duty-paid ingot Metal Bulletin Billet Premi
Slide 92: Bauxite and alumina market
Bauxite and alumina market 04 (92)
Slide 93: China developing new bauxite import sources
China developing new bauxite import sources No Indonesian bauxite exports translates to higher prices average CIF China Import volume by origin Value-in-use bauxite price increasing more Million tonnes USD per tonne 80 Delta 2014 vs 2011: 80 Indonesia -27 Avr CIF China Value-in-Use 70 Australia +7 7
Slide 94: Short term, new imports and inventory offer relief
Short term, new imports and inventory offer relief Enough volume, but higher cost Inventory and import excluding Indonesia No short/mid term bauxite squeeze Import ex-Indonesia Million tonnes Million tonnes • China demand for imported bauxite is below 4 million 45 Inventory (LHS) 3.5 tonnes per mont
Slide 95: Long term China has bauxite challenges
Long term China has bauxite challenges Greenfield is needed, but cost CIF China is uncertain Chinese bauxite import forecast More challenging in and outside China Million tonnes • Lower quality on new China domestic bauxite 55 resources • Domestic bauxite prices increasing, especially in the 50 new
Slide 96: Bauxite potentials
Bauxite potentials New sources being explored, but not expected to replace the importance of Indonesia All figures in billion tonnes 41,0 3,0 4,1 India 4,7 China 1,1 Jamaica Vietnam Guinea 9,5 8,7 2,0 Indonesia Total bauxite potential, Australia including undeveloped Brazil resources Bauxite supplie
Slide 97: Alumina curtailments have tilted China into domestic alumina deficit
Alumina curtailments have tilted China into domestic alumina deficit High impact on world alumina prices Platts FOB Australia and China domestic alumina balance (ex imports) USD per tonne Million tonnes 360 2.0 Sufficient slack in 350 1.5 available 1.0 bauxite & Lack of 340 sufficient 0.5 alumina ba
Slide 98: China
China 05 (98)
Slide 99: Chinese primary market in slight oversupply
Chinese primary market in slight oversupply Supply/Demand thousand tonnes 30 000 Supply Demand 25 000 20 000 Demand influences 15 000 Supply Softer development in influences real estate market Xinjiang projects Public investments 10 000 ramping up supporting infrastructure demand Restarts and closur
Slide 100: Chinese net semis exports picking up amid cost advantage
Chinese net semis exports picking up over the last months amid current cost advantage Semis exports Incentive for export* thousand tonnes (USD per tonne) 350 Increasing incentive for semis exports 1 000 and actual pick-up of volumes 300 800 Increased incentive for export* 250 600 200 400 150 200 100
Slide 101: Net semis exports stable as share of total production
Net semis exports stable as share of total production, Asia key destination area Million tonnes Share Semis exports by destination Factors influencing semis export trend 50 10.0 % (2013) 45 3% 9% 40 8.0 % • Continued metal price advantage and VAT- 35 rebates 10% • Higher quality gives better export
Slide 102: China's metal flows underpinned by trade barriers
China’s metal flows underpinned by trade barriers at several parts of the value chain VAT Tolling Export duties Transport Premiums Million tonnes 2007 2008 2009 2010 2011 2012 2013 2014* • Balanced in primary metal 20 • Short upstream in the value chain, 15 mainly resolved through bauxite Net import
Slide 103: Energy
Energy 06 (103)
Slide 104: Current German & Nordic power prices low over last years
Current German & Nordic power prices low over last years German & Nordic power market, forward and history EUR per MWh 100 • Low CO2 price 90 80 • Relatively low fuel prices 70 • Lower power demand 60 50 • High growth in renewables 40 30 20 10 0 jan. 08 jan. 09 jan. 10 jan. 11 jan. 12 jan. 13 jan. 1
Slide 105: Nordic power generation expected to increase more than demand
Nordic power generation expected to increase more than demand Nordic power demand and consumption Main power price drivers medium & long term: TWh Fuel and CO2 Statistics Forecast 500 • Prices on coal, gas and CO2 are most important for power 450 prices via cross border trade with Germany, Poland an
Slide 106: Uncertain CO2 prices going forward
Uncertain CO2 prices going forward The possible CO2 price until 2030 spans a wide range • The EU ETS regulatory regime has high impact on EUR per tonne European power prices 60 − Final regulatory scheme for 2030 expected in second half of the decade 50 40 • CO2 costs are reflected in the power price
Slide 107: Brazilian power market affected by hydrological draught
Brazilian power market affected by hydrological draught BRL per Mwh • Brazilian power market suffering from historic 800 low inflows 700 • High short term balancing prices impacting 600 the power industry 500 • Hydro is covered on long term contract to 400 2024 for Albras 300 200 100 0 2002 2003 200
Slide 108: Long Term Outlook
Long Term Outlook 07 (108)
Slide 109: Global aluminium primary demand growth set to continue across regions and segments
Global aluminium primary demand growth set to experience continued strong growth across regions and segments Strong demand drivers in key aluminium segments Global Primary demand estimates Million tonnes Growth in automotive vehicle production Transport Aluminium content in cars increasing 69 Growth
Slide 110: Market outlook summary
• Solid, broad-based demand growth across segments and regions, but European macro uncertainty prevails • Primary market deficits expected to continue in World ex-China, gradually reducing inventories • Bauxite and alumina increasingly priced on their own merits • Increasing upstream costs lifting C
Slide 111: Rolled Products
Rolled Products Oliver Bell Capital Markets Day 2014 (111)
Slide 112: Rolled Products agenda
• 1 Business overview • 2 Market update • 3 Better • 4 Bigger • 5 Greener • 6 Summary
Slide 113: Rolled Products – No 1 producer in Europe
Rolled Products – No 1 producer in Europe • European production base with global reach • 1 million tonnes of flat rolled products per year Holmestrand • World class assets Karmøy − Casthouse network & integrated recycling capacity − World’s largest rolling mill with dedicated conversion mill Hamburg
Slide 114: Rolled Products market positions
Rolled Products market positions Leading market positions – supported by leading R&D competence Lithography Foil Beverage can Automotive World market leader World market leader Leading position Leading position in aseptic foil in Europe in Europe (114)
Slide 115: Robust long-term growth outlook for flat rolled products worldwide
Robust long-term growth outlook for flat rolled products worldwide Transport is main driver for growth – Body-in-White consumption growth outperforming all other segments Global FRP consumption by end-use 2014 CAGR 2014-2018 Body-in-White demand in thousand tonnes 10% 14% Transport 11% 2 100 CAGR 9%
Slide 116: Stable long-term development in Europe
Stable long-term development in Europe Potentially some signs of weakening short-term European FRP consumption by end-use 2014 CAGR 2014-2018 Body-in-White demand in thousand tonnes 10% 20% Transport 8% 670 CAGR 12% 13% Electrical 3% 3% Total consumption 3% 530 10% Machinery & Equipment 3% Construct
Slide 117: Mixed macro economic development in the Eurozone short term
Mixed macro economic development in the Eurozone short term Softer short-term signals in core countries, signs of improvement in peripheral regions Manufacturing PMI, major Eurozone economies PMI 60 55 50 45 40 jan. 14 apr. 14 jul. 14 okt. 14 Germany France Eurozone Italy Spain Source: Ecowin PMI –
Slide 118: Chinese exports increasing, driven by metal advantage
Chinese exports increasing, driven by metal advantage Chinese strip and foil exports Chinese metal advantage* Thousand tonnes USD per tonne 800 2 500 Other Asia Middle East Africa 600 2 000 Americas Rest of world EU28+EFTA 400 1 500 200 1 000 0 500 - 200 0 - 400 1/1/2009 1/1/2010 1/1/2011 1/1/2012 1
Slide 119: Better, Bigger, Greener in Rolled Products
Better, Bigger, Greener in Rolled Products (119)
Slide 120: Better
Better HYDRO
Slide 121: Extend technology and innovation lead
Extend Close totechnology customer: and innovation creating lead value through innovation Forming optimized AA5182 variant in automotive applications • High formability and high corrosion resistance due to optimized specification ‒ Strategic supplier to major European OEM’s ‒ Based on leading R&D co
Slide 122: Close to customer: creating value through quality and services
Close to customer: Extend creating technology value through and innovation lead quality and services Specialty segment Commercial segment Importance Importance Low Supply Product High Low Product High chain quality Technical Technical solution quality Commercial service customer services Delivery se
Slide 123: Rolled Products' Climb improvement program on track
Rolled Products’ “Climb” improvement program on track NOK Million Target Time period 1 000 800 MNOK 2012-2016 900 800 Climb 700 Contributions driven by 600 • High-grading product portfolio 500 • Margin management 400 • Productivity improvement 300 • Reducing net cost level 200 100 0 Underlying Cost
Slide 124: Bigger
Bigger HYDRO
Slide 125: Pursuing attractive growth opportunities
Pursuing attractive growth opportunities Hydro BiW development tonnes Brands 250 000 37 277 466 647 35 30 200 000 25 150 000 20 100 000 15 10 50 000 5 Major step in automotive Body-in-White (BiW) market 0 0 2008 2014 2017 2020 • Installation of automotive line 3 lifting capacity to 200 thousand tonn
Slide 126: Hot mill expansion and strengthening of recycling position
Hot mill expansion and strengthening of recycling position Expanding AluNorf hot mill capacity • Capacity increase by ~60 000 tonnes • Debottlenecking core asset • Start of production 2016 Establishing strong recycling position • Installation of UBC* recycling line • Fulfilling customer needs and st
Slide 127: Greener
Greener (127)
Slide 128: Extend technology and innovation lead: customer and environmental needs
Extend technology Fulfilling innovation leadneeds customer and environmental Products • 5µm high-performance aluminium foil saves up to 16% in material • Light-weighting in automotive by replacing steel saves up to 20kg of CO2 per kg of aluminium used Process • Continuous improvement and step change
Slide 129: Our ambition: No 1 in Europe and benchmark in the world
Our ambition: No 1 in Europe and benchmark in the world • Differentiate through innovation, • Enhance market positions • Fulfill customer and quality, service and lead time and portfolio high-grading environmental needs • Continue operational • Strengthen relative industry • Being part of the soluti
Slide 130: Primary Metal
Primary Metal Hilde M. Aasheim Capital Markets Day 2014 (130)
Slide 131: Primary Metal agenda
• 1 Business overview • 2 Better • 3 Bigger • 4 Greener • 5 Summary
Slide 132: Primary Metal and Metal Markets production portfolio
Primary Metal and Metal Markets production portfolio Norway UK Germany Canada Luxembourg Slovakia France US Spain Qatar Primary Brazil Remelt/ JV 100% Recycling 2.1 million tonnes 1.0 million tonnes Australia 2.1 million mt is consolidated capacity . Slovalco and Albras are fully consolidated, Tomag
Slide 133: Better
Better HYDRO
Slide 134: Systematic improvement work over several years
Systematic improvement work over several years Total EBIT improvements in NOK billion1, YTD Q32014 annualized vs 2009 Beyond 2.5 USD 300 Program 2 JV 1.5 improvement programs NOK 1 2.3² billion USD 300 Program 0.5 0 USD 300 program USD 180 program Beyond USD 300 program Total improvements 1) Compare
Slide 135: Repositioning through improvement focus and portfolio measures
Repositioning through improvement focus and portfolio measures In NOK billion 3 Actions taken Beyond USD 300 Program 2 1 JV Market effects improvement programs 0 -1 USD 300 Program -2 Underlying EBIT 2009 LME/premium/currency Raw materials/other Inflation Portfolio changes Improvement programs Under
Slide 136: Qatalum: First decile cash cost position
Qatalum: First decile cash cost position • Continued strong production performance with superior products to the market • Improvement efforts providing solid results – strong cost discipline and operational excellence • Implementing next generation cathodes to further increase productivity • Strong
Slide 137: Ambitious improvement programs continue
Ambitious improvement programs continue Fully-owned smelters – increasing output from existing JV improvement program on track lines, gaining productivity USD 180 per mt improvements by end-2016, corresponding to NOK 1.2 billion Production development in Norwegian fully-owned smelters, indexed from
Slide 138: Strong position in value-added casthouse products
Strong position in value-added casthouse products 85% of global sales volume is value added 2.7 million tonnes casthouse production in 2013 Extrusion ingot, 52% Foundry alloys, 19% Wire rod, 2% Sheet ingot, 12% Standard ingot, 15% All numbers are based on 2013 production and includes equity producti
Slide 139: Significant value creation through value-added products
Significant value creation through value-added products Illustrated by the European market Average premium above LME in USD per tonne 800 700 600 500 400 300 200 100 0 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 Q114 Q214 Q314 Q414E Weighted average value-added premium* Duty paid standard
Slide 140: Focusing on advanced customers
Focusing on advanced customers • Strategy of high-grading product portfolio • AFM* technology to strengthen capabilities towards automotive sector • Strong R&D focus on alloy developments in cooperation with customers • Focus on total quality aspect − Service and technical support − Reliable and on-
Slide 141: Strong relative position compared to peers
Strong relative position compared to peers Customer satisfaction survey* Customer satisfaction survey* Extrusion Ingot Foundry alloys Relative perceived price Relative perceived price Hydro Hydro Relative perceived quality Relative perceived quality *2014 Customer satisfaction survey for Europe perf
Slide 142: Bigger
(142)
Slide 143: Strengthening the Norwegian production base
Strengthening the Norwegian production base • Five Norwegian fully-owned smelters including newly acquired Husnes • Competence cluster and technology − Pilot at Karmøy to utilize highly advanced smelting technology • Current macroeconomic cycle favorable for power sourcing, confirmed by 2.7 TWh cont
Slide 144: Possible pilot plant at Karmøy
Possible pilot plant at Karmøy • Annual production 70 000 tonnes • Using next-generation cell technology − World’s most energy efficient cell with the lowest CO2 footprint • Springboard for portfolio-wide competence and technology development and operational improvements • Conditions − Aluminium mar
Slide 145: Several opportunities within Norwegian portfolio
Several opportunities within Norwegian portfolio Potential to add 310 000 tonnes per year In thousand tonnes per year Limited investments Enova 2 500 supported Restart options Technology driven technology pilot 2 400 capacity increases 2 300 70 310 100 2 200 90 2 100 50* 2 000 1 900 1 800 1 700 1 60
Slide 146: Attractive growth opportunities
Attractive growth opportunities When time is right Norway Qatalum Alouette (146)
Slide 147: Greener
Greener HYDRO
Slide 148: Primary Metal contributing to a greener Hydro
Primary Metal contributing to a greener Hydro Emissions Use-phase benefits Recycling Reduce energy consumption and Develop products/solutions helping customers Reduce waste and recover value emissions in our own processes reduce energy consumption and emissions from used products CO2 emissions for s
Slide 149: A globally leading aluminium producer
A globally leading aluminium producer • Deliver on improvement • Realize 100,000 mt creep in • Grow the recycling programs fully-owned smelters business to improve margins and environmental footprint • Secure competitive power • Extend technology lead with sourcing Karmøy pilot plant • Reduce energy
Slide 150: Bauxite & Alumina
Bauxite & Alumina Alberto Fabrini Capital Markets Day 2014
Slide 151: Bauxite & Alumina agenda
• 1 Introduction • 2 Better: From B to A • 3 Bigger • 4 Greener • 5 Strategic direction
Slide 152: Competitive aluminium cluster in Pará
Competitive aluminium cluster in Parà Strategic position in mineral resources creates competitive advantage Alunorte Capacity: 6.3 million tonnes 92% Hydro ownership MRN Albras Capacity: 18 million tonnes Capacity: 460 000 tonnes 5% Hydro ownership 51% Hydro ownership 40% offtake agreement Paragomin
Slide 153: Better, Bigger, Greener in Bauxite & Alumina
Better, Bigger, Greener in Bauxite & Alumina (153)
Slide 154: Better
Better HYDRO
Slide 155: Weak B&A results over the past years
Weak B&A results over the past years Underlying EBIT NOK million 1 200 • Operational issues in 2013 at Alunorte − Also affecting performance in Paragominas 800 • High Brazilian inflation impacting costs 400 • Continuous low alumina prices 0 • Regulatory challenges - 400 • Positive currency developme
Slide 156: Responding to challenges with improvement efforts
Responding to challenges with improvement efforts In NOK billion 2 1 Market effects Actions taken 0 -1 -2 -3 -4 2011 Underlying EBIT Price effect Inflation Raw Material Price Other Currency From B to A YTD Q314 Underlying EBIT Annualized (156)
Slide 157: From B to A back on track in 2014
From B to A back on track in 2014 • Total program on track − Paragominas ahead of target − Underlying improvements in Alunorte ongoing, bringing program closer to target level during 2014 − Strong commercial contribution, ahead of target • Estimated delivery by end 2014: NOK 700 million • 2015 targe
Slide 158: Paragominas
Better Paragominas HYDRO
Slide 159: Paragominas ahead of planned cost improvements
Paragominas ahead of planned cost improvements • Positive contributions from all areas − Production increased to record levels − Productivity improvements driven by debottlenecking at beneficiation plant and optimization of mining operations − Fixed cost reduction mainly due to manning reduction of
Slide 160: Paragominas production beyond nameplate capacity
Paragominas production beyond nameplate capacity Production, annualized million tonnes 10.1 9.5 9.0 9.1 9.1 8.3 7.1 6.0 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Oct14 (160)
Slide 161: Productivity increased through reduction in number of dozers
Productivity increased through reduction in number of dozers Dozer productivity • Improved process for removing overburden to m³ per hour open mining strips • Reducing distance travelled for moving 540 equipment by increasing cut angle for transport 520 17% ramps 14° to 18° Productivity 500 increase
Slide 162: Alunorte
Better Alunorte HYDRO
Slide 163: Alunorte improvement efforts recovering following 2013 setback
Alunorte improvement efforts recovering following 2013 setback • Strong recovery during 2014 − Continuing positive contributions from increasing production − Stabilizing performance and increasing raw material efficiency − Still lagging development in manning reduction 2011 2012 2013 2014 2015 • Inc
Slide 164: Positive production trend continues
Positive production trend continues Production, annualized million tonnes 6.1 6.0 5.9 5.8 5.8 5.5 5.2 5.0 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 Oct14 (164)
Slide 165: Delivering on Alunorte plan towards nameplate capacity
Delivering on Alunorte plan towards nameplate capacity 2013 2014 Q4 Q1 Q2 Q3 a 5.7 5.8 6.0 6.0 Hydrate production million tonnes/year Stabilization of asset performance in Q1 and Q2 followed by steady production growth Precipitation Yield grams/litre 86.5 86.6 88.0 Continuous improvement starting fr
Slide 166: Improved operational parameters resulting in lower costs
Improved operational parameters resulting in lower costs Overall equipment effectiveness (OEE) (%) 100 • Focus on residual life 90 • Disciplined root cause failure analysis 80 70 2011 2012 2013 2014YTD Precipitation yield (grams/litre) 90 • OEE achievements 85 • Better temperature control and A/C ra
Slide 167: Commercial
Better Commercial HYDRO
Slide 168: Strong improvements in commercial
Strong improvements in commercial • Commercial improvements achieved through − Strategic pricing ambitions to price bauxite and alumina on own fundamentals − Reduce demurrage cost − Portfolio optimization − Improved pricing terms on existing and new contracts 2011 2012 2013 2014 2015 Actual Target (
Slide 169: Creating value through reduced demurrage costs and higher bauxite margins
Creating value through reduced demurrage costs, and higher bauxite margins Demurrage cost Commercial bauxite EBIT/tonne 2011 – 100% basis 2011 – 100% basis 2011 2012 2013 2014 YTD 2011 2012 2013 2014 YTD (169)
Slide 170: Alumina pricing on own fundamentals
Alumina pricing on own fundamentals Index spot price exposure • Increased index potential 100% − Some contract renegotiations − Sourcing volumes higher than previously indicated, stable going forward • Focus on developing strategic consumer business − Closer links with end-users • Sales on delivered
Slide 171: More attractive market positions
More attractive market positions • China and Indonesia represent commercial opportunities − Brazilian bauxite quality attractive in global market − Excess bauxite sold at a premium − Bauxite pricing on own merits, value-in-use pricing gaining traction • Increasing commercial diversification through
Slide 172: Bigger
Bigger HYDRO
Slide 173: Secure and develop bauxite resources for future decades
Secure and develop bauxite resources for future decades • High-quality Gibbsite bauxite at Paragominas − High available alumina − Good alumina/silica ratio − Low impurities − Organic free • Paragominas expansion possibility to 15 million tonnes per year, supported by current pipeline − Securing baux
Slide 174: CAP alumina refinery project: attractive project when time is right
CAP alumina refinery project: attractive project when time is right Utilize large bauxite reserves in Paragominas • Competitive investment cost and cost position − Utilizing existing pipeline capacity • Full review of technical solutions to further reduce cost and increase efficiency • Ready to proc
Slide 175: Greener
Greener HYDRO
Slide 176: Hydro's social and environmental commitment in Pará
Hydro’s social and environmental commitment in Pará Focus on health, safety, environment, social and educational programs Safety first Education Social projects Environment (176)
Slide 177: Reforestation: Our license to operate
Reforestation: Our “license to operate” Mining rehabilitation ratio 1:1 by 2017, aiming for no net loss in biodiversity long term (177)
Slide 178: Para Sempre: Proactive approach to regulatory challenges
Para Sempre: Proactive approach to regulatory challenges • Systematic dialog with key stakeholders − Politicians: Local, state, federal − Industry associations − NGOs and media • Focus on Hydro’s contribution to a sustainable aluminium value chain in Pará state • Underline need for competitive and p
Slide 179: Aiming for operational and commercial leadership in bauxite and alumina
Aiming for operational and commercial leadership in bauxite and alumina • Continue operational • Secure and develop bauxite • Improve organizational improvement drive resources for future capabilities and HSE decades performance • Price bauxite and alumina on own fundamentals • Mature CAP project an
Slide 180: Hydro 2015
Hydro 2015 Lifting performance and shareholder value in tight physical markets • Delivering on improvement programs • Targeting high-margin markets and maturing growth portfolio, while maintaining tight capital discipline • Increasing energy-efficiency and lowering climate footprint (180)
Slide 181: Infinite Aluminium
, INFINITE ALUMINIUM HYDRO
Slide 182: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Head of Investor Relations t: +47 970 96 711 Next events e: pal.kildemo@hydro.com Fourth Quarter Results February 11, 2015 Olena Lepikhina Investor Relations Officer t: +47 96853035 e: olena.lepikhina@hydro.com For more information see www.hydro.com/ir (182)