Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (February 2016)
129 slides from Norsk Hydro Asa's investor presentation, February 2016
Slide 1: Investor presentation February 2016
Investor presentation February 2016
Slide 2: Table of contents / Cautionary note
Table of contents Fourth quarter results 2015 3 Cautionary note Certain statements included within this announcement contain forward-looking information, including, Market 36 without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objecti
Slide 3: Q4 2015
Q4 2015 HYDRO
Slide 4: Q4 highlights
Q4 highlights • Underlying EBIT of NOK 1 566 million for Q4, NOK 9 656 million for full-year 2015 • Proposed dividend for 2015 of NOK 1 per share • Record high quarterly bauxite and alumina1) production • Lower costs, including record low implied alumina cost • Lower realized alumina and all-in alum
Slide 5: Global oversupply ~1.2 million tonnes in 2015
Global oversupply ~1.2 million tonnes in 2015 ~2.1 million tonnes oversupply in China, ~0.9 million tonnes undersupply World ex-China Demand and production (quarterly annualized) Production less demand1) 1 000 mt primary aluminium 1 000 mt primary aluminium 65 000 5 000 4 000 60 000 3 000 55 000 2 0
Slide 6: Aluminium market expected to be largely balanced in 2016
Aluminium market expected to be largely balanced in 2016 Significant curtailments in China at the end of 2015 Supply development 20161) Market balance 20162) Mill tonnes Milll tonnes Estimated cash negative in 20161) 25 % 65 % 1.5 – 2.0 mill tonnes ~3,4 World ex-China China Oversupply (0.5) – 0.5 ~1
Slide 7: Increased Chinese net semis export on widening arbitrage
Increased Chinese net semis export on widening arbitrage Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 400 Improved comp. adv. China 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) jan.07 mai.08 sep.09 jan.11 mai.12 sep.13 jan.15 Feb 16 Semis exports (Left axis) Chinese
Slide 8: Stabilizing all-in ingot prices after weakening in Q4
Stabilizing all-in ingot prices after weakening in Q4 Tightening spread between standard ingot and product premiums USD/mt NOK/mt USD/mt 3 000 18 000 900 800 700 2 600 16 000 600 500 2 200 14 000 400 300 1 800 12 000 200 100 1 400 10 000 0 jan 11 jan 12 jan 13 jan 14 jan 15 Feb1616 jan jan.11 nov.11
Slide 9: Alumina prices fall in oversupplied markets
Alumina prices fall in oversupplied markets Signs of curtailments as around 50% of global alumina capacity is estimated to be loss-making Platts alumina index (PAX) Global alumina business operating costs (USD/mt)1) USD/mt Percent USD/mt 450 20% 450 19% 400 400 350 18% 350 300 17% 250 PAX Australia
Slide 10: China net import balance stable
China net import balance stable Small increases in upstream imports and downstream exports Annualized aluminium equivalents1), million mt • Bauxite and alumina 25 2011 2012 2013 2014 2015 − Beginning January 15 2016, Malaysia imposed three-month moratorium on bauxite mining to reduce associated poll
Slide 11: Bauxite and alumina production reach record quarterly levels
Bauxite and alumina* production reach record quarterly levels Implied alumina cost continues steep decline Annualized bauxite production, million mt Implied alumina cost and margin, USD/mt 1) • Significant decline in implied Paragominas 10,9 11,7 alumina cost 10,2 475 9,0 9,1 9,5 9,1 74 − Increased
Slide 12: Lower primary margin on weaker all-in prices
Lower primary margin on weaker all-in prices Implied primary cost down on weaker currency and lower alumina price All-in implied primary cost and margin, USD/mt 1) • Developments Q4 vs Q3 − Lower variable costs, mainly alumina 800 350 275 − Weaker NOK and BRL vs USD 1 775 1 675 1 575 • Årdal power o
Slide 13: Hydro to build Karmøy technology pilot
Hydro to build Karmøy technology pilot With spin-off effects for the entire portfolio • Technology pilot with production of 75 000 mt − 48 cells HAL4e technology – 12.3 kWh/kg − 12 cellsNext-generation HAL4e Ultra - 11.5 – 11.8 kWh/kg technology • Spin-off technology elements for existing portfolio
Slide 14: Seasonally lower sales in Rolled Products
Seasonally lower sales in Rolled Products Year-on-year improvement driven by stronger can sales and positive general engineering development Q4 2015 vs Q3 2015 Q4 2015 vs Q4 2014 17% 10% 7% (4%) (7%) (7%) (8%) (10%) Packaging & building Litho, Auto & General engineering Total Rolled Packaging & buil
Slide 15: Seasonally weaker extrusion demand
Seasonally weaker extrusion demand • Seasonally weaker demand − 9% decrease in North America − 7% decrease in Europe • Demand increased from same quarter last year − 1% in North America due to increased building activity and strong automotive demand − Stable in Europe, weak building activity continu
Slide 16: Sapa restructuring agenda delivered one year ahead of plan
Sapa restructuring agenda delivered one year ahead of plan Sapa aims for additional improvements Sapa 100% basis • Significant improvements since 2013 MNOK 1) 1,407 − Realized synergy program of about NOK 1 billion − Higher share of value-added products − Divestments and closure of non-profitable bu
Slide 17: Energy: Inflow remains high, but seasonally higher prices
Energy: Inflow remains high, but seasonally higher prices Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 2014 2015 500 2016 80 400 60 300 40 200 MIN NO2 (2002-2014) MAX NO2 (2002-2014) 20 2014 100 2015 2016 0 0 1 4 7 10 13 16 19 22 25
Slide 18: Strong improvement track record continues in 2015
Strong improvement track record continues in 2015 MNOK 800 delivered in 2015, another NOK 2.9 billion targeted in 2016-2019 Hydro’s improvement drive until 2015 Hydro’s new improvement ambition Tailor-made ambitions Total improvements 2011-2015: BNOK 4.51) Total improvements of BNOK 2.9 across the v
Slide 19: Proposed 2015 dividend NOK 1.0 per share
Proposed 2015 dividend NOK 1.0 per share Payout ratio of 101 % for the year • Aim to provide stable cash return to shareholders • Reflects operational performance and strong financial position • Uncertain market outlook taken into consideration • Average five-year payout ratio1) of ~110 % − Dividend
Slide 20: Declining metal prices, lower costs and record production in Brazil
Declining metal prices, lower costs and record production in Brazil NOK billion 0.2 (0.3) (1.2) 2.9 0.4 2.2 0.3 1.6 Underlying Underlying LME, PAX Net currency Fixed and Energy price Other Underlying EBIT Q4-2014 EBIT Q3-2015 and premium* variable cost and volume EBIT Q4-2015 * Price revenue effects
Slide 21: Key financials
Key financials Underlying EPS 2015 of 2.98 NOK/share NOK million Q4 2015 Q3 2015 Q4 2014 2015 2014 Revenue 20 374 21 594 21 656 87 694 77 907 Underlying EBIT 1 566 2 215 2 886 9 656 5 692 Items excluded from underlying EBIT (841) (586) (591) (1 398) (18) Reported EBIT 725 1 630 2 295 8 258 5 674 Fin
Slide 22: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 841, including loss on Slim divestment NOK million Q4 2015 Q3 2015 Q4 2014 2015 2014 Underlying EBIT 1 566 2 215 2 886 9 656 5 692 Unrealized derivative effects on LME related contracts 5 (249) - (415) 352 Unrealized effects on power and raw material
Slide 23: Bauxite & Alumina
Bauxite & Alumina Lower realized alumina price offset by record production and currency tailwinds Key figures Q4 2015 Q3 2015 Q4 2014 Alumina production, kmt 1 577 1 498 1 501 Total alumina sales, kmt 2 368 2 268 2 043 Realized alumina price, USD/mt 245 273 303 Implied alumina cost, USD/mt 187 217 2
Slide 24: Primary Metal
Primary Metal Falling all-in metal prices, partly offset by lower costs Key figures Q4 2015 Q3 2015 Q4 2014 Primary aluminium production, kmt 521 520 499 Total sales, kmt 531 550 527 Realized LME price, USD/mt 1 555 1 685 1 997 Realized LME price, NOK/mt 13 125 13 779 13 355 Realized premium, USD/mt
Slide 25: Qatalum results decline further
Qatalum results decline further Lower realized aluminium price and premiums Key figures – Qatalum (50%) Q4 2015 Q3 2015 Q4 2014 Revenue, NOK million 1 226 1 242 1 510 Underlying EBITDA, NOK million 216 365 614 Underlying EBIT, NOK million (105) 85 371 Underlying Net income (loss), NOK million (167)
Slide 26: Metal Markets
Metal Markets Results negatively affected by currency effects Key figures Q4 2015 Q3 2015 Q4 2014 Remelt production, kmt 130 117 130 Metal products sales, kmt 1) 676 676 654 Underlying EBITDA, NOK million 180 317 243 Underlying EBIT excl currency and inventory valuation 180 189 130 effects, NOK mill
Slide 27: Rolled Products
Rolled Products Seasonally weaker results Key figures Q4 2015 Q3 2015 Q4 2014 External sales volumes, kmt 229 248 213 Underlying EBITDA, NOK million 404 517 280 Underlying EBIT, NOK million 204 331 96 Underlying EBIT Q4 results NOK million • Seasonally lower shipments 698 1 142 • Stable margin and c
Slide 28: Energy
Energy Increasing prices from low levels, lower production costs Key figures Q4 2015 Q3 2015 Q4 2014 Power production, GWh 2 882 2 839 2 823 Net spot sales, GWh 1 292 1 363 1 339 Southwest Norway spot price (NO2), NOK/MWh 197 102 248 Underlying EBITDA, NOK million 403 241 402 Underlying EBIT, NOK mi
Slide 29: Seasonally weaker results in Sapa JV
Seasonally weaker results in Sapa JV BNOK 1 in synergies delivered one year ahead of plan • Quarter-on-quarter results affected by: Key figures – Sapa (50%) Q4 2015 Q3 2015 Q4 2014 − Seasonally weaker demand Revenue, NOK million* 6 410 6 948 5 921 − Negative impact from unsanctioned quality testing
Slide 30: Divestment of Herøya Industrial Park
Divestment of Herøya Industrial Park Supporting Hydro’s pure play aluminium strategy • Herøya Industripark AS and Herøya Nett AS put for sale in Jan 2015 − Assets include properties, buildings, infrastructure, electricity grid and process water supplies • In Dec 2015 Hydro agreed to sell Herøya Indu
Slide 31: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q4 2015 Q3 2015 Q4 2014 Sapa JV 70 120 (22) Other (169) (95) (118) Eliminations 17 (13) (168) Other and Eliminations (83) 12 (308) 31
Slide 32: Net cash development Q4 2015
Net cash development Q4 2015 Increase in net cash following further operating capital release NOK billion Net cash flow from operations NOK 4.3 billion (0.3) 1.7 (2.1) (0.4) 3.0 5.1 3.3 End Q3-2015 Underlying EBITDA Operating capital Taxes and other Investments Currency and minorities End Q4-2015 32
Slide 33: Net cash development 2015
Net cash development 2015 Net cash position driven by higher cash flow from operations NOK billion Net cash flow from operations NOK 14.3 billion 0.8 (1.1) (5.4) (2.0) 14.7 (1.7) 5.1 (0.1) End 2014 Underlying EBITDA Operating capital Tax & other* Investments Dividends Currency and minorities End 201
Slide 34: Adjusted net debt reduced in Q4 2015
Adjusted net debt reduced in Q4 2015 Higher net cash position partly offset by increased net pension liability Dec 31 Sep 30 Jun 30 NOK billion 2015 2015 2015 Cash and cash equivalents 6.9 9.4 8.1 Short-term investments 5.8 1.8 1.2 Short-term debt (3.6) (3.5) (3.7) Long-term debt (4.0) (4.4) (5.0) N
Slide 35: 2015 achievements and 2016 priorities
2015 • Record B&A and downstream results • Improvements across value chain • Significant positive development in Brazil 2016 • Strengthen relative industry position • Secure resource base • High-grade portfolio • Maintain financial strength 35
Slide 36: Market
Market 36
Slide 37: Aluminium is the metal of the future due to its attractive properties
Aluminium is the metal of the future due to its attractive properties Macro trends drive aluminium demand Climate challenge Urbanization Demographic change Aluminium properties make it part of the solution • Lightweight • Corrosion resistant • Excellent conductivity − 1/3 density of steel − Oxide la
Slide 38: Environmental regulations accelerate substitution across segments
Environmental regulations accelerate substitution across segments Copper substituion in HVAC&R, Steel substitution in automotive cabling and transmission lines Key enabler for energy-efficient buildings 13% 6x 40% HVAC&R* BiW 2016-2023 market growth of energy CAGR potential from worldwide consumed ~
Slide 39: Automotive demand growth outperforms all other segments
Automotive demand growth outperforms all other segments Aluminium starting to penetrate mass-market vehicles Steel Aluminium Aluminium vehicle penetration, North America C02 emissions C02 emissions Pounds per light vehicle 327 g/100 km 194 g/100 km 600 DUCKER WORLDWIDE 500 In 2015, aluminium penetra
Slide 40: Semis demand to grow above GDP with increasing recycling share
Semis demand to grow above GDP with increasing recycling share Global demand outlook CAGR 2015 – 2025 Million tonnes 120 Semis Primary Recycling 100 4–5% 3–4% 5–6% 80 60 40 20 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 Primary Recycled material* Semis Source: CRU, Hydro Analysis *Post-
Slide 41: Strong growth drivers across multiple segments
Strong growth drivers across multiple segments Short-term macroeconomic volatility, long term fundamentals still in place Strong demand drivers in key aluminium segments Semis demand CAGR 2015 – 2025 Growth in automotive vehicle production Transport Aluminium content in cars increasing 5–6% Growth i
Slide 42: Transport & construction key semis demand segments
Transport & construction key semis demand segments China accounting for 45 per cent of global semis demand Global aluminium semis demand - 79 mill mt, per segment Global aluminium semis demand – 79 mill mt, per region Million tonnes (2015) Million tonnes (2015) Transport 3% China 5% 5% 26% Construct
Slide 43: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) 750 180 150 600 120 450 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 44: Historical strong correlation between LME and 90th percentile smelters
Primary metal market Historical strong correlation between LME and 90th percentile smelters LME prices fall on global oversupply and lower cost curves World ex-China China Market balance in thousand tonnes* Nominal USD/t Market balance in thousand tonnes* Nominal USD/t 10 000 Current LME 2800 10 000
Slide 45: Roughly 40-50% of global smelter capacity currently cash negative
Primary metal market Roughly 40-50% of global smelter capacity currently cash negative Of which ~75% is located in China Business operating cost by smelter, 2016 USD/tonne 2 500 Chinese smelters Smelters outside China 2 000 Current LME 3m ~1500 USD/t 1 500 1 000 500 0 0 5 000 10 000 15 000 20 000 25
Slide 46: The global primary market approaching a balanced state in 2016
Primary metal market The global primary market approaching a balanced state in 2016 Driven by curtailments and limited capacity additions outside China World ex. China Primary market balances 2015 (‘000t) ~3 % 2016 3000 China (mill t.) 2000 ROW ~0 % 1000 Global 28 Production 0 26,3 Demand -1000 Worl
Slide 47: Total global inventories remain high
Primary metal market Total global inventories remain high Global reported stocks declining, uncertain unreported volumes Global reported stocks and inventory days Total global stocks and inventory days Thousand tonnes Inventory days Thousand tonnes Inventory days 120 • Reported stocks decreasing ove
Slide 48: Higher Chinese raw material imports and semis exports in 2015
Bauxite and alumina markets Higher Chinese raw material imports and semis exports in 2015 Annualized aluminium equivalents*, million mt 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 25 to China 20 Import 15 10 5 0 from China Export ( 5) ( 10) Bauxite Alumina Scrap Primary aluminium Fabricated Se
Slide 49: Large and concentrated bauxite resources
Bauxite market Large and concentrated bauxite resources But many challenges for future developments Billion mt Bauxite suppliers short/medium term Big-league (Top- 3) Guinea 41.0 Mid-league (Top- 10; each > 2% of world total) China 1) Total bauxite, billion tonnes: 4.0 reserves, mine site resources*
Slide 50: China driving bauxite prices
Bauxite market China driving bauxite prices Malaysia emerging as largest bauxite exporter to China in 2015 Bauxite quality comparison China bauxite imports, volume and price by country USD/tonne CIF Available Al2O3 % 100 90 Energy Usage Reactive SiO2 % 80 70 60 Residue Generation Caustic Usage 50 40
Slide 51: Alumina market is consolidating
Alumina market Alumina market is consolidating Net long equity alumina position based on 2015 production, million tonnes Alcoa 4.3 Alcoa/AWAC 8.7 Vale 3.0 South 32 3.1 Glencore 2.4 Hydro 1.6 BHP Billiton 1.9 Rio Tinto Alcan 1.2 Kaiser 1.0 Hindalco 0.5 Alcan 0.8 UC Rusal (0.1) Sual 0.7 Vedanta (0.4)
Slide 52: Business overview
Business overview HYDRO
Slide 53: Hydro - Group
HYDRO Hydro - Group
Slide 54: 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 9 656 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues 0.5 involved in activities in − 2014: NOK 78 billion more than 50 countries − 2015: NOK 88 billion 0 • 13 0
Slide 55: Fully-integrated value chain
Fully-integrated value chain World class assets, high-end products and leading market positions Raw materials Primary aluminium production, Aluminium in products processing and energy marketing and recycling Bauxite Energy Primary Metal Metal Markets Rolled Products Sapa JV (50%) & Alumina • High qu
Slide 56: Hydro - a first tier aluminium company
Hydro - a first tier aluminium company Equity production in 2015 in aluminium equivalents, thousand mt 8 000 Alumina Aluminium 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Weiqao Alcoa/AWAC Rio Tinto Alcan* UC Rusal Chalco Xinfa Norsk Hydro BHP Billiton Glencore/Century Hindalco Vedanta Emirates Glob
Slide 57: Hydro’s continuous transformation for value creation
Hydro’s continuous transformation for value creation Better BNOK 2.9 Curtailing 26% of primary USD 300 program Climb From B to A JV program Portfolio high-grading Launching a new metal capacity improvement ambition 2016-2019 2009 2010 CCIP 1 2011 2012 CCIP 2 2013 2014 2015 Starting up Qatalum Acquir
Slide 58: Hydro aspiration supported with ambitious mid-term strategic goals
Hydro aspiration supported with ambitious mid-term strategic goals Ambitions Target Timeframe • Improve safety performance, strive for injury free environment TRI<2 2020 • Deliver on Better improvement ambition BNOK 2.9 2019 • Secure new competitive sourcing contracts in Norway post 2020 4-6 TWh 202
Slide 59: Better: proven track-record of productivity gains continues
Better: proven track-record of productivity gains continues Hydro’s improvement drive until 2015 Hydro’s new improvement ambition Tailor-made ambitions across Total improvements 2011-2015: Total improvements of the value chain BNOK 4.5¹ BNOK 2.9 from 2016-20192 Better ‘Energy Primary Better Metal As
Slide 60: 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 high- • Expand automotive capacity opportunities margin segments capacity to 200,000 t/yr** • Further improve
Slide 61: Greener: Carbon-neutral from a life-cycle perspective by 2020
Greener: Carbon-neutral from a life-cycle perspective by 2020 Integrated into business strategy in all business areas • Increasing energy-efficiency and reducing emissions in production processes in aluminium plants, rolling mills, and alumina refinery • Increasing production of renewable hydropower
Slide 62: Safe and responsible operations is a top priority
Safe and responsible operations is a top priority Leadership in HSE, CSR and compliance as a license to operate TRI Rate* 10.3 7.0 6.0 5.4 4.0 4.1 3.9 3.7 3.8 3.4 3.4 3.2 2.9 3.0 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 * Total recordable incidents (TRI) rate defined as
Slide 63: Leading performance compared to aluminium peers
Leading performance compared to aluminium peers First-quartile aluminium producer, 2016 Smelter BOC curve by company Strongest balance sheet, USD/t Total Debt/Total Equity, 2010-2014 2 000 251 % 1 500 181 % 1 000 71 % 25 % 11 % 500 0 10 000 20 000 30 000 40 000 50 000 60 000 First quartile alumina p
Slide 64: Bauxite & Alumina
HYDRO Bauxite & Alumina
Slide 65: Bauxite and alumina cluster in Para, Brazil
Bauxite and alumina cluster in Para, Brazil MRN bauxite mine Paragominas bauxite mine Alunorte alumina refinery CAP alumina refinery project • Top 3 bauxite mine in the world • Full financial exposure, increase ownership • 92% ownership • 81% ownership • 5% ownership to 100% by 2016 • World’s larges
Slide 66: Further strengthening the competitiveness of Bauxite & Alumina
Further strengthening the competitiveness of Bauxite & Alumina Alunorte BNOK 1.0 improvements 2016 – 2019 • Increase production • Improve energy consumption 500 • Reduce fixed costs 500 1 000 Paragominas • Support production above nameplate capacity • Improve product flow and minimize tailings Comme
Slide 67: Stabilizing and lifting bauxite and alumina production
Stabilizing and lifting bauxite and alumina production Improving operations Bauxite production in Paragominas, Reducing alumina production rate variability in Alunorte Annualized million tonnes Annualized million tonnes Hydrate production boxplot 11,7 7,3 10,9 10,2 6,6 9,1 9,5 9,1 9,0 8,7 9,0 8,3 5,
Slide 68: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2015 • Labor cost 10% − Influenced by Brazilian wage level − Productivity improvements 27% Labor • Maintenance and consumables 19% Energy Support & infrastructure − Influenced by Brazilian
Slide 69: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost position 2015 Implied alumina cost* position 2015 − USD 215 per mt USD 215 per mt − Alunorte, Paragominas and sourced alumina • Bauxite 19% − Internal bauxite from Paragominas at cost, sourced bauxite from MRN − External bauxite sales
Slide 70: Commercial activities
Commercial activities External alumina sourcing Long bauxite and alumina position • ~ 2.3 million mt of external alumina sourced annually: • Future pricing should reflect fundamentals of bauxite and alumina value chain − ~ 2.8 million mt of external alumina was sourced in 2015 • Long term off-take a
Slide 71: Shift of alumina sales to index-based pricing continues at full speed
Shift of alumina sales to index-based pricing continues at full speed Sales exposure to index and short term pricing* 35% index 50% index 65% index 75% index 75% index 85% index ~1 mmt net ~2.7 mmt net ~4 mmt net ~5 mmt net ~5 mmt net ~5.8 mmt net 100 % 100% 90 % 90% 80 % 80% 70 % 70% 60 % 60% 50 %
Slide 72: Bauxite & Alumina mid-term goals
Bauxite & Alumina mid-term goals Creating shareholder value through efficient and commercial use of raw materials Ambitions Target Timeframe • Improve safety performance, strive for injury free environment TRI <2 2020 • Deliver on new improvement ambition BNOK 1.0 2019 • Lift alumina production at A
Slide 73: Energy
HYDRO Energy
Slide 74: 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 Coal 4.9 TWh Australia/Asia Fuel oil 8.2 TWh Power 1.0 TWh Hydro’s energy consumption i
Slide 75: Securing long-term competitive power sourcing for smelters
Securing long-term competitive power sourcing for smelters Sourcing platform for fully-owned smelters, Norway* Sourcing platform for JVs and Rheinwerk smelter** TWh TWh 25 20 18 16 20 14 12 15 10 8 10 6 4 5 2 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 20
Slide 76: Power production increased to 10 TWh
Power production increased to 10 TWh Power production capacity (TWh), • Power producing assets and ongoing projects per region and reversion year − Maintain cost control in operations and projects − Holsbru and Vasstøl power plants into operation in 2012 Sogn − Vigeland acquisition completed, exempt
Slide 77: Competitive production costs driven by economies of scale
Competitive production costs driven by economies of scale and operational improvements Taxes and fees account for a large share of costs, making sustainable framework conditions crucial Average operating cost, incl. tax/fees, by category Total operating costs for Norwegian power producers* 2007-2015
Slide 78: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side Spot price 0-6 3) 1 10 (8-12)1) • Long-term contract • Market pricing • Fixed annual pricing Regulated adjustments price 14-172 ) • Market pricing • Duration varies • Different indexa
Slide 79: Broad optionality to maintain asset value within the reversion regime
Broad optionality to maintain asset value within the reversion regime Hydro’s preferred alternative is to maintain industrial ownership of RSK volumes Sell to a publicly-owned entity Merge into a larger publicly-owned Proposed model for industrial asset with one or several owners ownership (ANS/DA)
Slide 80: Energy earnings drivers
Energy earnings drivers Underlying EBIT* and spot price NOK million NOK/MWh • Production and market prices strongly linked to 2000 500 hydrological conditions 1500 400 1000 300 • Stable annual EBIT contribution 200 500 100 • Seasonal market variations in demand and supply 0 0 2003 2004 2005 2006 200
Slide 81: Energy mid-term goals
Energy mid-term goals Creating shareholder value by maximizing value of own hydropower assets and ensuring reliable and competitive energy supply for Hydro Ambitions Target Timeframe • Improve safety performance – injury free environment TRI <2 2020 • Robust industrial ownership for RSK – maintain p
Slide 82: Primary Metal
HYDRO Primary Metal
Slide 83: World-wide production network
World-wide production network Primary Metal and Metal Markets 49% Norway, 1 015 000 tonnes • Sunndal (100%) : 390 000 tonnes 7 stand-alone remelters: • Årdal (100%): 190 000 tonnes 6% • 2 in the US • Karmøy (100%): 190 000 tonnes Canada, 120 000 tonnes • 5 in Europe (UK, Luxemboug, France, • Høyange
Slide 84: Delivering on ambitious improvement programs
Delivering on ambitious improvement programs Fully-owned smelters improvements continue beyond USD 300 Joint venture improvement program on track Improvement categories Improvement categories Operational improvements Improvements 2009-2015, USD 180 per mt improvements • Improved current efficiency c
Slide 85: Technology-driven capacity creep of ~200 000 mt over the next decade
Technology-driven capacity creep of ~200 000 mt over the next decade Contributing to the new BNOK 1 improvement ambition by 2019 Production fully-owned¹ smelter portfolio Production joint venture2 portfolio New BNOK 1.0 improvement ambition 2014-2025, in mt 2014-2025, in mt Includes remainder of USD
Slide 86: 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 800 700 600 500 400 300 200 100 - 2011 2012 2013 2014 1h2015 -100 -200 Hydro Peers 1) All figures based on public accounting data, not verified by Hydro. Data not adjuste
Slide 87: Continuous technology development
Continuous technology development R&D vision HAL 300 HAL4e R&D vision • Operating for several years in • To be used in Karmøy technology pilot • 10 kWh/kg Sunndal and Qatalum • Benchmark on energy-efficiency • Carbon capture-ready cell − 13.5 kWh/kg and environment − 314 kA • Higher degree of automa
Slide 88: Low carbon footprint due to renewable energy base
Low carbon footprint due to renewable energy base and industry lowest energy consumption Indirect emissions, in tonne CO2/t al Energy consumption in Hydro smelters*, kwh/kg al 18 17.5 18 16 16 15.0 14.8 14.4 13.7 13.5 14 14 12.5 12.3 11.5-11.8 12 12 10.0 10 10 8 8 6 6 4 4 2 2 0 0 Hydro Karmøy Hydro
Slide 89: Primary Metal mid-term goals
Primary Metal mid-term goals Creating shareholder value by strengthening relative cost position through lean operations and technology Ambitions Target Timeframe • Improve safety performance – strive for injury-free environment TRI <2 2020 • Deliver BNOK 1 bn under new improvement ambition BNOK 1.0
Slide 90: Metal Markets
HYDRO Y) J Oo < } © = © J Oo =
Slide 91: Strong position in value-added casthouse products
Strong position in value-added casthouse products • Capitalizing on value-added casthouse products Extrusion ingot portfolio 1.4 million mt • Extensive multi-sourcing system including fully- and part-owned primary casthouses and stand- alone remelters Foundry alloys 0.5 million mt • Flexible sourcin
Slide 92: 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 • US Midwest - 1020 • Extrusion Ingot – Priced above standard ingot (in cent per pound) • Foundry Alloy – Priced above sta
Slide 93: Value-added products trade at a premium to standard ingot
Value-added products trade at a premium to standard ingot Hydro realizes premiums on 1-2 month time lag USD/t 900 800 700 600 500 400 300 200 100 0 jan.90 jan.91 jan.92 jan.93 jan.94 jan.95 jan.96 jan.97 jan.98 jan.99 jan.00 jan.01 jan.02 jan.03 jan.04 jan.05 jan.06 jan.07 jan.08 jan.09 jan.10 jan.1
Slide 94: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and − Revenue impact – volume and product ingot inventory valuation effect, NOK million* premiums above LME 250 − Cost impact − Scrap and standard ingot premiums above LME 200 − Raw material mix − Freight cost – pr
Slide 95: Rolled Products
Rolled Products
Slide 96: Hydro Rolled Products
Hydro Rolled Products Aiming to be No. 1 in Europe and world benchmark • Strong European production base and global sales force Karmøy Holmestrand • 1 million tonnes of flat rolled products per year • Unique integrated aluminium cluster: Hamburg − smelter − world’s largest rolling mill Neuss Norf Gr
Slide 97: No. 1 flat rolled products producer in Europe
No. 1 flat rolled products producer in Europe External sales in tonnages 2015 • World leader in high-end products foil and litho Total 948 kT − Alunorf (JV 50%) – world’s largest rolling mill − Grevenbroich plant – world’s largest multi-product finishing mill 12 % Foil 17 % Can Building and other •
Slide 98: Strong positions in market segments with high focus on quality and innovation
Strong positions in market segments with high focus on quality and innovation Automotive Foil Beverage can Lithography Special products Ambition Gain No.2 position Defend global No. 1 Maintain No.3 Defend global Maintain No.1 in European BiW in high-end plain foil position in Europe No.1 position po
Slide 99: Hydro to become second largest BiW producer in Europe
Hydro to become second largest BiW producer in Europe Quadrupling BiW capacity to 200,000 mt/yr by 2017 “Lightweight construction is a core element of Jaguar’s DNA and Jaguar is at the cutting-edge of aluminium technology in the automotive industry” Peugeot 308 BMW 7 series “Audi believes aluminium
Slide 100: Continuously improving competitiveness in Rolled Products
Continuously improving competitiveness in Rolled Products Significant contribution from recycling, operational improvements and portfolio high-grading Target Time period NOK Million 900 MNOK 2016-2019 900 Recycling Operational improvements Improvement driven by High-grading, margin & • Recycling • P
Slide 101: 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 800 contracts 600 • High share of fixed costs - volume 400 sensitive 200 0
Slide 102: Rolled Products mid-term goals
Rolled Products mid-term goals Creating shareholder value with technology, product innovation and customer relations Ambitions Target Timeframe • Improve safety performance – injury free environment TRI <2 2020 • Deliver on new improvement ambition 900 MNOK 2019 • Differentiate through product innov
Slide 103: Sapa joint venture
HYDRO Sapa joint venture
Slide 104: Strong improvement trend in Sapa JV
Strong improvement trend in Sapa JV 1 BNOK restructuring and synergy program completed Sapa restructuring agenda delivered one year ahead of plan* Sapa 100% basis 1,407.0 MNOK • 50/50 joint venture between Hydro and Orkla, established September 1, 2013, with 23,500 employees • No. 1 position in Nort
Slide 105: Sapa – global leader in extruded products
Sapa – global leader in extruded products More advanced applications and quality-focused customers Sapa 2014 revenue composition Sapa – partnering with major OEMs on aluminium solutions By geography By market 2% 15% 15% • Supplying structural aluminium tubing 4% • Providing ongoing development suppo
Slide 106: 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 106
Slide 107: Additional information
Additional information HYDRO
Slide 108: Prudent financial framework
Prudent financial framework Strong balance sheet and reliable dividend in cyclical industry Reliable Lifting Financial Disciplined shareholder Effective risk cash flow strength capital remuneration management potential and flexibility allocation policy Improving efficiency, Investment grade credit L
Slide 109: Hydro’s aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Actual 2015 Improvement programs 2.9 BNOK 2016-2019 4.5 BNOK 2009 - 2015 Sustaining capex 3.5 - 4.0 BNOK Over the cycle 4.6 BNOK 2015 Average capex incl. growth 6.1 BNOK 1) 2016-2018 5.8 BNOK 2015 Divide
Slide 110: Shareholder and financial policy / Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns • Hedging strategy: compared to alternative investments in peers − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Maintained divid
Slide 111: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt Adjusted net debt / Equity 60 % NOK billion 55 % 50 % 40 % 32 % 30 % 24 % 26 % Dec 31, 2014 (0.1) (5.3) (7.3) (8.2) (20.9) 22 % 20 % 19 % 20 % 11 % 10 %
Slide 112: Majority of sustaining capex allocated upstream
Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion • Long-term annual sustaining capex BNOK 3.5-4 10,2 10 • Sustaining projects for 2014-2016: − Red mud disposal area 9 8,1 − Bauxite tailing dam 8 − Smelter relining 7 − Energy rehabilitation 6,
Slide 113: Significant exposure to commodity and currency fluctuations
EFFECTIVE RISK MANAGEMENT Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +0.98 Sustainable effect: 2 892 NOK/share 2 200 NOK million USD BRL EUR UEBIT 2 591 (890) (272) One-off reevaluation effect: UEBIT Und
Slide 114: 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 643 − ~One month lag • Realized alumina price lags PAX by one month 507 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 115: 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 2 210 • 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 116: Depreciation by currency and business area
Depreciation by currency and business area Total 2015 depreciation 5.0 BNOK Depreciation currency exposure by business area Depreciation by business area* 4% 1% NOK & Percent USD EUR BRL Others 15% Bauxite & Alumina 100% Primary Metal 25% 25% 50% 39% 2% Bauxite and alumina Metal Markets 25% 45% 30%
Slide 117: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) 19 11 Total impact Bauxite & alumina 3 (6) (6) 19 11 Unrealized derivative effects on LME related contrac
Slide 118: 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 119: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina (288) (269) (26) 528 780 482 628 532 (55) 2 421 Primary Metal 312 420 1 216 1 989 2 012 1 448 762 407 3 937 4 628 Metal Markets 141 100 171
Slide 120: Operating segment information
Operating segment information EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina (284) (269) (23) 537 776 487 634 513 (39) 2 411 Primary Metal 303 434 1 278 1 912 1 956 1 528 664 311 3 928 4 459 Metal Markets 73 93 265 285 (122) (44
Slide 121: Operating segment information
Operating segment information Total revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 3 511 3 828 3 737 4 770 5 461 5 127 5 758 5 542 15 847 21 889 Primary Metal 6 618 6 384 6 986 8 075 9 096 8 154 7 951 7 138 28 064 32 340 Meta
Slide 122: Operating segment information
Operating segment information Internal revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 1 304 1 424 1 480 2 071 2 074 2 150 2 103 2 030 6 279 8 356 Primary Metal 5 391 5 047 5 396 5 833 7 307 7 095 6 641 5 925 21 667 26 967 Met
Slide 123: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 410 431 442 519 460 470 420 633 1 802 1 983 Primary Metal 437 427 431 499 511 483 483 475 1 794 1 952 Metal Market
Slide 124: Income statements
Income statements NOK million Q4 2015 Q3 2015 Q4 2014 Year 2014 Year 2015 Revenue 20 374 21 594 21 656 77 907 87 694 Share of the profit (loss) in equity accounted investments (144) 115 (34) 415 512 Other income, net (172) 167 327 751 461 Total revenue and income 20 057 21 875 21 948 79 073 88 667 R
Slide 125: Balance sheets
Balance sheets NOK million Dec 31, 2015 Sep 30 2015 Jun 30 2015 Mar 31 2015 Dec 31, 2014 Cash and cash equivalents 6 917 9 372 8 142 7 172 9 253 Short-term investments 5 752 1 860 1 240 2 456 1 786 Accounts receivable 10 797 14 417 14 847 15 122 11 703 Inventories 12 192 11 996 12 722 13 392 12 642
Slide 126: Operational data
Operational data Bauxite & Alumina Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Alumina production (kmt) 1 428 1 526 1 478 1 501 1 451 1 437 1 498 1 577 5 933 5 962 Sourced alumina (kmt) 550 431 532 503 666 725 806 590 2 016 2 787 Total alumina sales (kmt) 1 90
Slide 127: Operational data
Operational data Metal Markets Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year2014 Year2015 Remelt production (1 000 mt) 139 141 128 130 145 141 117 130 538 533 Third-party Metal Products sales (1 000 mt) 84 81 80 79 74 80 81 84 324 319 Metal Products sales excl. ingot trading (
Slide 128: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Sales volume (1000 mt) 343 311 346 360 346 314 359 367 35
Slide 129: 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 First Quarter Results April 27, 2016 Olena Lepikhina Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhina@hydro.com www.hydro.com/ir 129