Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2015 Earnings Presentation
115 slides from Norsk Hydro Asa's earnings presentation, July 2015
Slide 1: Investor presentation July 2015
Investor presentation July 2015
Slide 2: Table of contents
Table of contents Second quarter results 2015 3 Cautionary note Certain statements included within this announcement contain forward- looking information, including, without limitation, those relating to (a) Market 35 forecasts, projections and estimates, (b) statements of management’s plans, object
Slide 3: Q2 2015
Q2 2015 01 (3)
Slide 4: Q2 highlights
Q2 highlights • Underlying EBIT of NOK 2 667 million • Record downstream results on seasonally stronger sales • Lower realized alumina and all-in aluminium prices • New ICMS tax framework in place • Long-term power secured for Rheinwerk • Continued challenging global market balance • 2015 global pri
Slide 5: Global supply continues to exceed demand
Global supply continues to exceed demand Chinese oversupply exceeds world-ex China deficit for primary aluminium 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
Slide 6: World ex-China demand remains well above production
World ex-China demand remains well above production 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 Jul-09 Jan-11 Jul-12 Jan-14 Jun-15 Jan-09 Apr-10
Slide 7: Continued high levels of Chinese exports
Continued high levels of Chinese exports Semis arbitrage shrinking 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 Jun-15 Semis exports (Left axis) Chin
Slide 8: Standard ingot premiums back at historic levels
Standard ingot premiums back at historic levels Regional standard ingot premiums USD per mt 600 500 400 300 200 100 0 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15 US Mid West Japan Europe (duty-paid) • US Mid-West and EU duty-paid ingot • Japan premium at 380 USD/mt in Q2, premium falling to 150-200 US
Slide 9: Product premiums declining with ingot
Product premiums declining with ingot Hydro realizes premiums on 1-2 month time lag USD per mt 900 800 700 600 500 400 300 200 100 0 Jan-08 Apr-09 Jul-10 Oct-11 Jan-13 Apr-14 Jul-15 EI over ingot Ingot DDP Premium Indicator Metal Bulletin Billet Premium Indicator Source: Metal Bulletin, Hydro (9)
Slide 10: Lower all-in ingot price
Lower all-in ingot price • 3-month LME price traded between USD/mt NOK/mt 3 100 18 000 1 683 and 1 938 USD/mt during Q2 2 900 17 000 2 700 Primary aluminium LME* USD/mt NOK/mt 16 000 2 500 Q2 2015 average 1 787 13 831 Q2 2015 end 1 689 13 272 2 300 15 000 Q1 2015 average 1 813 14 062 2 100 Q1 2015 e
Slide 11: Stable alumina prices as percentage of LME
Stable alumina prices as percentage of LME Platts alumina index (PAX) • Average Q2 price 337 USD/mt USD/mt Percent − Down 4 USD/mt compared to Q1 450 20% − Currently trading at ~309 USD/mt 19% 400 18% • Alumina price as percentage of LME 17% at 18.8% in Q2 350 − Up from 18.4% in Q1 16% 300 15% 14% 2
Slide 12: China: Increased imports of net metal equivalents
China: Increased imports of net metal equivalents Annualized aluminium equivalents*, million mt YTD • Bauxite and alumina 2011 2012 2013 2014 2015** − China successful in bauxite 25 source diversification, increasing volumes from China import 20 Malaysia − Alumina imports stable 15 • Primary alumini
Slide 13: Accelerating bauxite production following maintenance
Accelerating bauxite production following maintenance • Bauxite production accelerates Implied alumina cost and margin, USD/mt 1) following ball-mill maintenance at 475 Paragominas 13 425 263 • “From B to A” improvement program 75 59 progressing ahead of plan 233 225 − Reduced margin development in
Slide 14: New ICMS tax framework in place in Brazil
New ICMS tax framework in place in Brazil • 15-year framework in place for Paragominas, Alunorte and Albras • Continued ICMS effect on fuel oil and diesel − ~250 MBRL per annum* • ICMS on 50% of electricity at Albras − Tax expected to be offset through domestic sales • Other intra-state purchases ar
Slide 15: Stable all-in implied primary aluminium cost
Stable all-in implied primary aluminium cost All-in implied primary cost and margin, USD/mt 1) • Developments Q2 vs Q1 325 ‒ Seasonally lower fixed costs 700 550 1 925 1 800 1 775 • USD 180 JV program on track, to be 1 3752) concluded by end-2016 1 225 2) 1 1502) Q2 2014 Q1 2015 Q2 2015 2 244 2 510
Slide 16: Slide 16
Slide 17: Materially improving cost position at Rheinwerk
Materially improving cost position at Rheinwerk • Signed 8-year power contract German (EEX*) electricity forward prices EUR/MWh − Axpo Trading AG − From 2018 to 2025 55 − 0.9 TWh (100 MW) 50 • Partly replaces contract signed in 2012 45 − 2.2 TWh (250 MW) 40 35 Rheinwerk 30 • Annual capacity of 235 k
Slide 18: Stronger demand for extruded products
Stronger demand for extruded products North-America driving demand above seasonality • Seasonally stronger demand − 4% increase in North America − 5% increase in Europe • Demand increased compared to same quarter last year − 8% in North America due to increased building activity and strong automotiv
Slide 19: Energy: Low prices on inflow from delayed snowmelt
Energy: Low prices on inflow from delayed snowmelt Market price Southwestern Norway (NO2) Snow levels in percentage of normal* NOK/MWh 600 NO3 500 400 300 NO5 200 NO1 100 2013 2014 2015 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week Energy price NOK/MWh Q2 2015 Q1 2015 NO2 Southwestern No
Slide 20: Energy: Low prices on inflow from delayed snowmelt
Energy: Low prices on inflow from delayed snowmelt Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 500 80 400 60 300 40 200 MIN NO2 (2002-2013) MAX NO2 (2002-2013) 20 2013 100 2013 2014 2014 2015 2015 0 0 1 4 7 10 13 16 19 22 25 28 31 3
Slide 21: Improved downstream earnings, upstream down on weaker prices
Improved downstream earnings, upstream down on weaker prices NOK billion (1.2) 0.5 0.3 (0.3) 0.2 3.2 2.7 0.5 Underlying Underlying LME, PAX Energy price Costs and Currency Eliminations Underlying EBIT Q2-2014 EBIT Q1-2015 and premium and volume volumes and other EBIT Q2-2015 (21)
Slide 22: Key financials
Key financials Revenues down on lower prices, volumes up NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First Half 2014 Revenue 22 436 23 290 18 272 45 726 36 553 Underlying EBIT 2 667 3 208 544 5 875 1 316 Items excluded from underlying EBIT 31 (2) 75 29 126 Reported EBIT 2 698 3 206 620 5 904
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Positive MNOK 31 in items excluded, including restructuring charges in Sapa NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First Half 2014 Underlying EBIT 2 667 3 208 544 5 875 1 316 Unrealized effects on power and raw material contracts 161 151 (40) 312 135
Slide 24: Bauxite & Alumina
Bauxite & Alumina Results down on lower realized alumina price and higher costs Q2 Q1 Q2 Key figures 2015 2015 2014 Alumina production, kmt 1 437 1 451 1 526 Total alumina sales, kmt 2 099 2 136 2 071 Realized alumina price, USD/mt 292 300 276 Implied alumina cost, USD/mt 233 225 263 Bauxite product
Slide 25: Slide 25
Slide 26: Qatalum results flat
Qatalum results flat Higher sales offset by lower prices Q2 Q1 Q2 Key figures – Qatalum (50%) 2015 2015 2014 Revenue, NOK million 1 542 1 492 1 095 Underlying EBITDA, NOK million 584 585 370 Underlying EBIT, NOK million 303 305 158 Underlying Net income (loss), 245 246 111 NOK million Primary alumin
Slide 27: Metal Markets
Metal Markets Continued weak result in sourcing and trading on falling ingot premiums Q2 Q1 Q2 Key figures 2015 2015 2014 Remelt production, kmt 141 145 141 Metal products sales, kmt 1) 750 626 726 Underlying EBITDA, NOK million (64) 47 120 Underlying EBIT excl currency and inventory 21 60 121 valua
Slide 28: Rolled Products
Rolled Products Record second quarter result. Seasonally stronger shipments Q2 Q1 Q2 Key figures 2015 2015 2014 External sales volumes, kmt 243 227 245 Underlying EBITDA, NOK million 488 465 350 Underlying EBIT, NOK million 315 292 177 Underlying EBIT Q2 results NOK million • Seasonally higher shipm
Slide 29: Energy
Energy Results drop on lower power production and prices Q2 Q1 Q2 Key figures 2015 2015 2014 Power production, GWh 2 103 3 071 2 248 Net spot sales, GWh 724 1 610 1 028 Southwest Norway spot price (NO2), 171 238 168 NOK/MWh Underlying EBITDA, NOK million 227 429 209 Underlying EBIT, NOK million 179
Slide 30: Improved results in Sapa JV
Improved results in Sapa JV Reflecting strong North American market and restructuring efforts • Quarter-on-quarter results affected by: Key figures – Sapa (50%) Q2 2015 Q1 2015 Q2 2014 − Seasonally higher sales volumes Revenue, NOK million 7 247 7 067 5 772 − Strong North-American market development
Slide 31: Other and Eliminations
Other and Eliminations Other and Eliminations, Q2 Q1 Q2 Underlying EBIT, NOK million 2015 2015 2014 Sapa JV 145 119 131 Other (150) (117) (176) Eliminations 338 (284) (8) Other and Eliminations 333 (281) (52) (31)
Slide 32: Net cash (debt) development
Net cash (debt) development Net cash position after dividend NOK billion Net cash flow from operations NOK 4.2 billion 0.3 0.0 (1.2) 3.9 (2.0) 0.7 (0.3) End Q1-2015 Underlying EBITDA Operating capital Taxes* Investments Dividends End Q2-2015 * Includes 800 MNOK reimbursement of VAT in Brazil for the
Slide 33: Adjusted net debt development Q2 2015
Adjusted net debt development Q2 2015 Reduced net pension liability due to higher discount rates Jun 30 Mar 31 Dec 31 NOK billion 2015 2015 2014 Cash and cash equivalents 8.1 7.2 9.3 Short-term investments 1.2 2.5 1.8 Short-term debt (3.7) (4.2) (6.0) Long-term debt (5.0) (5.7) (5.1) Net cash/(debt)
Slide 34: Priorities
Priorities • Deliver on improvement efforts • Lift production at Alunorte • Deliver downstream growth projects • Strengthen competitiveness in uncertain markets
Slide 35: Market
Market 02 (35)
Slide 36: 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 37: 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 Aluminium content in cars increasing Primary aluminium demand growth Transport Growth in other transport modes, e.g. railway Urbanization Construction Hou
Slide 38: 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 39: 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 40: 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 41: 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 42: 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 43: 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** 20 to China 15 Import 10 5 0 from China Export ( 5) ( 10) Bauxite Alumina Scrap Primary aluminium Fabricated Semis Net aluminium imports Source: CRU
Slide 44: 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 45: 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 46: Business overview
Business overview 03 (46)
Slide 47: Hydro - Group
Hydro - Group (47)
Slide 48: 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 5 875 3.5 3.0 2.5 • Based in Norway, involved 2.0 in activities in more than 50 countries 1.5 • 13 000 employees • Operating revenues 1.0 − 2013: NOK 65 billion − 2014: NOK 78 b
Slide 49: 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 50: 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 51: Hydro's path towards global leadership
Hydro’s path towards global leadership Curtailing 26% of USD 300 Climb From B to A JV-program primary metal capacity program 2009 2010 CCIP 1 2011 2012 CCIP 2 2013 Starting up Acquiring bauxite Establishing Qatalum and alumina assets Sapa JV (51)
Slide 52: 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 53: 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 54: 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 55: Greener: Hydro aims to be climate neutral by 2020
Greener: Hydro aims to be climate neutral by 2020 Energy and Electrolysis technology pilot primary production Developing the world’s most energy Reduce emissions, efficient electrolysis cells with the increase efficiency most limited CO2 footprint Aluminium in use Meeting consumer needs Maximize use
Slide 56: 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 2.9 2002 2004 2006 2008 2010 2012 2014 * TRI rate defined as cases per 1 million hours worked (56)
Slide 57: Hydro
Attractive Improvement positions culture and Financial Hydro throughout the technological strength value chain leadership (57)
Slide 58: Bauxite & Alumina
Bauxite & Alumina (58)
Slide 59: 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 60: 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 61: Paragominas
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 (61)
Slide 62: 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 63: Alunorte
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 (63)
Slide 64: 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 bauxite from MRN 12% 31% • Energy − First-
Slide 65: 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 66: 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 67: Primary Metal
Primary Metal HYDRO
Slide 68: 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 69: 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 70: 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 71: 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 72: 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 73: Metal Markets
Metal Markets (73)
Slide 74: 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 75: 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 76: 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 200 − Cost impact − Scrap and standard ingot premiums above LME 150 − Raw material mix − Freight cost – pr
Slide 77: Rolled Products
Rolled Products (77) QQ) HYDRO
Slide 78: 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 79: 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 (79)
Slide 80: 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 81: 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 82: 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 400 sensitive 200 •
Slide 83: Sapa joint venture
Sapa joint venture HYDRO
Slide 84: 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 • 50/50 joint venture between Hydro and Orkla, Asia 2% Extrusions established September 1, 2013, with 23,000 Europe emplo
Slide 85: 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 86: Energy
Energy (86)
Slide 87: 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 − Maintain cost control in operations and projects production − Holsbru and Vasstøl power plants into operation in Sogn 10 TWh 2051-2057 2012 − Vig
Slide 88: Hydro energy needs are spread 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 89: Hydro is 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 90: 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 91: Broad optionality allows to maintain value of our assets
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 Energy Energy >= 6 TWh RSK ~3 TWh production production w
Slide 92: 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 • Occasional delink between
Slide 93: 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 (93)
Slide 94: Additional information
Additional information 04 (94)
Slide 95: 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 96: 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 97: 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 Growth capex annually Sustaining capex • Sustaining projects for 2014-2016: − Red mud disposal area − Bauxite tailing dam 6.2 ~6.8 − Smelter relinin
Slide 98: 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 99: 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 2 940 (760) (340) Aluminium 3 260 One-off reevaluation effect: Fuel oil (240) Financial (960) 590 (1 510) items Pet coke (240
Slide 100: 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 530 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 101: 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 2,270 • 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 102: 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% 39% Primary Metal 25% 20% 55% 2% Metal Markets 25% 75% Rolled Products 90% 10%
Slide 103: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) Total impact Bauxite & alumina 3 (6) Unrealized derivative effects on LME related contracts Primary metal 54 (41) Unrealized effec
Slide 104: 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 105: 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 Year 2013 Year 2014 Bauxite & Alumina (63) (244) (370) (379) (288) (269) (26) 528 780 482 (1 057) (55) Primary Metal 364 237 337 484 312 420 1 216 1 989 2 012 1 4
Slide 106: 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 Year 2013 Year 2014 Bauxite & Alumina (76) (241) (370) (491) (284) (269) (23) 537 776 487 (1 178) (39) Primary Metal 19 122 338 377 303 434 1 278 1 912 1 956 1 528 855 3 928
Slide 107: 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 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 13 350 15 847 Primary Metal 5 945 5 896 5 884 5 554 6 618 6 384 6
Slide 108: 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 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 5 226 6 279 Primary Metal 5 132 4 856 4 860 4 566 5 391 5 047 5
Slide 109: 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 Year 2013 Year 2014 Bauxite & Alumina 429 448 417 424 410 431 442 519 460 470 1 718 1 802 Primary Metal 470 472 461 452 437 427 431 499
Slide 110: Income statements
Income statements NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First half 2014 Year 2014 Revenue 22 436 23 290 18 272 45 726 36 553 77 907 Share of the profit (loss) in equity accounted investments 276 265 122 542 162 415 Other income, net 195 271 147 467 279 751 Total revenue and income 22 9
Slide 111: Balance sheets
Balance sheets NOK million Jun 30 2015 Mar 31 2015 Dec 31 2014 Sep 30 2014 Jun 30 2014 Cash and cash equivalents 8 142 7 172 9 253 6 045 6 617 Short-term investments 1 240 2 456 1 786 1 745 1 765 Accounts receivable 14 847 15 122 11 703 11 280 10 835 Inventories 12 722 13 392 12 642 10 334 10 213 Ot
Slide 112: Operational data
Operational data Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 1 451 1 437 5 377 5 933 Sourced alumina (kmt) 476 427 711 395 550 431 532 503 666 725 2 009
Slide 113: 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 Year2013 Year2014 Remelt production (1 000 mt) 135 132 127 123 139 141 128 130 145 141 517 538 Third-party Metal Products sales (1 000 mt)2) 88 84 82 82 84 81 80 79 74 80 336 324 Metal Prod
Slide 114: 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 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 367 350 322 353 358 1 399 Revenu
Slide 115: 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 Third quarter results October 21, 2015 Capital Markets Day Olena Lepikhina December 3-4, 2015 Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhi