Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (December 2013)
162 slides from Norsk Hydro Asa's investor day presentation, Dec 5, 2013
Slide 1: Capital Markets Day
Capital Markets Day December 5, 2013 (1)
Slide 2: Table of contents
Table of contents Hydro 4 Financial update 43 Market outlook 75 Rolled Products 110 Primary Metal 125 Bauxite & Alumina 138 (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 the bar
Lifting the bar Svein Richard Brandtzæg Capital Markets Day 2013 (4)
Slide 5: Performance
HSE, CSR and compliance are integral parts of our business model Our first responsibility and our license to operate TRI rate YTD 2013 10.3 Performance 2012 HSE 7.0 performance 3.4 3.5 Performance 6.0 5.4 4.0 4.1 3.9 3.8 CSR 3.7 3.4 2.9 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Complian
Slide 6: Hydro's main priorities
Hydro’s main priorities Bauxite & Alumina Energy Primary Metal Rolled Products Deliver on productivity goals, Maximize asset potential, Continue improvement drive, Continue to high-grade portfolio, realize improvement targets strengthen global support function capitalize on technological edge develo
Slide 7: A clear agenda, clear results
A clear agenda, clear results Making Hydro more robust and commercially agile has been our main focus since becoming streamlined in aluminium Curtailing 26% of USD 300 program Climb From B to A JV-program primary metal capacity 2009 2010 2011 2012 2013 Starting up Acquiring bauxite Establishing Qata
Slide 8: Regional market outlook
Europe China North America Continued weak markets, signs of Balanced primary Growing demand, market, upstream bottoming out mainly driven by imports transport Asia ex. China Emerging Growth picking up markets as middle class increases Softening demand amid structural issues (8)
Slide 9: Primary metal improvement drive
Primary metal Improvement drive for increased competitiveness North America Stronger market Rolled Products share through Maintaining Sapa JV market share, high-grading Qatalum portfolio First-decile on cash cost, generating Hydro in Asia dividends Positioned as biggest supplier Bauxite & in PFA mar
Slide 10: China – a net aluminium importer from a full value chain perspective
China – a net aluminium importer from a full value chain perspective • China expected to be increasingly short in raw materials going forward • Raw materials shortage to be mainly covered through bauxite imports • Metal strategy remains unchanged • Balanced in production/consumption • Trade barriers
Slide 11: Alumina and aluminium prices not high enough to give sustainable returns
Alumina and aluminium prices not high enough to give sustainable returns Platts alumina index (USD per mt) Aluminium price (3 month USD/mt), premium (EU DP USD/mt) 450 20 3 100 Alumina price % of LME Aluminium price + premium 2 900 400 18 2 700 2 500 350 16 2 300 2 100 300 14 1 900 250 12 1 700 Aug-
Slide 12: Aluminium demand continues to show healthy growth
Aluminium demand continues to show healthy growth World ex. China, primary demand growth 3-4% CAGR 2-4% 2% growth growth 2013 2014 2012 - 2022 (12)
Slide 13: Capital Markets Day 2012
Capital Markets Day 2012 • Improve relative industry position • Capitalize on raw material positions • Maintain financial strength and flexibility • Ensure competitive shareholder return (13)
Slide 14: Hydro
Attractive Improvement Hydro positions throughout the culture and technological Financial strength value chain leadership (14)
Slide 15: Hydro
Attractive Improvement Hydro positions throughout the culture and technological Financial strength value chain leadership (15)
Slide 16: Hydro maintains a full value-chain focus
Hydro maintains a full value-chain focus Energy Extrusion Bauxite Rolling Alumina Remelting Primary metal Casting Bauxite/Alumina Smelters Remelters Rolled Products Extruded Products: 50% share of Sapa, present in more than 40 countries (16)
Slide 17: A highly attractive asset base
A highly attractive asset base High-quality bauxite and alumina Captive hydropower Competitive smelter portfolio World-class Qatalum European leader in rolling A global extrusion champion (17)
Slide 18: Bauxite & Alumina: Aiming to improve relative industry position
Bauxite & Alumina: Aiming to improve relative industry position Underlying EBITDA per mt in USD for respective alumina divisions 1H 2011 1H 2013 100 100 75 75 50 50 25 25 0 0 -25 -25 All figures based on public accounting data, not verified by Hydro. Data not adjusted for different accounting princi
Slide 19: Primary Metal: A strong improvement track record
Primary Metal: A strong improvement track record Underlying EBITDA per mt in USD for respective primary aluminium divisions 1H 2011 1H 2013 800 800 600 600 400 400 200 200 0 0 All figures based on public accounting data, not verified by Hydro. Data not adjusted for different accounting principles an
Slide 20: Rolled Products: Aiming to be a global leader in innovation
Rolled Products: Aiming to be a global leader in innovation • Portfolio high-grading and focus on core products to lift value creation • Strengthen customer relations and competitiveness through innovation • Expand recyling capacity to improve cost position (20)
Slide 21: Energy: Strong operational performance
Energy: Strong operational performance • Norwegian captive power production lifted 0.5 TWh in a normal year • Strong project execution track record on Production lifted Holsbru, Herva, Vasstøl and Rjukan from 9.5 TWh to 10 TWh in a normal year • Vigeland acquisition adds 180 GWh and strategic positi
Slide 22: A resource-rich Hydro
rich Hydro A resource- HYDRO
Slide 23: Hydro
Attractive Improvement Hydro positions throughout the culture and technological Financial strength value chain leadership (23)
Slide 24: Improvements throughout the value chain
Improvements throughout the value chain ‘Energy Aspiration’ Energy Sapa JV Extrusion Bauxite ‘From B to A’ ‘CCIP’ ‘Climb’ Rolling Alumina Remelting Primary metal ‘USD 300 Casting program’ ‘JV program’ (24)
Slide 25: Primary Metal: a strong culture of continuous improvement
Primary Metal: a strong culture of continuous improvement Maintain improvements, identify new opportunities USD 100 USD 300 USD 300 USD 180 program program program JV program completion 2009 2009 2010 2011 2013 2013 Financial Sovereign crisis debt crisis (25)
Slide 26: Bauxite & Alumina maintains 2015 targets despite setbacks
Bauxite & Alumina maintains 2015 targets despite setbacks ‘From B to A’ • NOK 1 billion improvement by end-2015 • 20% manning reduction • Improvement momentum back on track during 2014 (26)
Slide 27: Dedicated programs also in Rolled Products and Energy
Dedicated programs also in Rolled Products and Energy ‘Climb’ ‘Aspiration’ (27)
Slide 28: Sapa JV - ideally positioned for value creation
Sapa JV - ideally positioned for value creation Capitalizing on market leading position, realizing synergies through continued focus on restructuring (28) 12/9/2013
Slide 29: Technological leadership is a strong competitive advantage
Technological leadership is a strong competitive advantage Reducing energy consumption and Developing products and solutions that help our Reducing waste in a world of limited resources, emissions in our own processes customers reduce energy consumption and emissions recovering value from used produ
Slide 30: Technology development to increase energy efficiency and reduce costs
Technology development to increase energy efficiency and reduce costs kWh/ 17.5 kg Al Historical Data Short Term Ambition Medium Term Ambition Long Term Vision 15.0 14.8 14.4 14.1 13.8 13.5 12.5 12.3 11.5-11.8 10.0 10 0 Karmøy Hydro Hydro Hydro Global avg.* Hydro HAL300 HAL4e HAL4e HAL4e Hydro 1967
Slide 31: Potential pilot at Karmøy to test the world's most efficient electrolysis
Potential pilot at Karmøy to test the world’s most efficient electrolysis (31)
Slide 32: A highly versatile material, superior user-phase benefits
A highly versatile material, superior user-phase benefits (32)
Slide 33: Slide 33
Slide 34: Hydro aims to be climate neutral
Hydro aims to be climate neutral Emissions User-phase benefits Recycling (34)
Slide 35: Hydro
Attractive Improvement Hydro positions throughout the culture and technological Financial strength value chain leadership (35)
Slide 36: Historical overproduction continues to weigh on prices
Historical overproduction continues to weigh on prices World ex. China LME and BOC Metal Balance (USD/t) 3 000 4 000 2 500 3 000 2 000 1 500 2 000 1 000 1 000 500 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013YTD ( 500) (1 000) (1 000) (1 500) (2 000) LME 3m Metal balance
Slide 37: Capacity-build has come from diversification and national interest
Capacity-build has come from diversification and national interest Capacity additions and closures, Net changes 2000-2013 (ktpy) RUSSIA CHINA 500 21 900 EUROPE NORTH AMERICA 100 -1 200 INDIA MIDDLE EAST 1 000 3 100 SOUTH AMERICA AUSTRALASIA -200 0 (37)
Slide 38: Hydro expects a balanced market to continue
Hydro expects a balanced market to continue World ex. China 1 000 mt 30 000 25 000 20 000 15 000 10 000 5 000 0 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 Jul-10 Jan-11 Jul-11 Jan-12 Jul-12 Jan-13 Jul-13 Demand Production Source: CRU/Hydro (38)
Slide 39: Market balance reflected in inventory development
Market balance reflected in inventory development World ex. China reported primary aluminium inventories 1 000 mt Days 8 000 120 7 000 100 6 000 80 5 000 4 000 60 3 000 40 2 000 20 1 000 0 0 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 IAI Other LME World ex. C
Slide 40: Hydro has maintained a robust financial position through the downturn
Hydro has maintained a robust financial position through the downturn NOK billion Net cash/(debt) 2010 3.5 (0,5) 31-Dec-08 30-Sep-13 2011 Adjusted net debt excl. EAI1 31-Dec-08 30-Sep-13 2013 (10,6) (10,7) 1) Net pension liability, operating lease commitments and other. (40)
Slide 41: Aiming to lift unsatisfactory returns to competitive levels over the cycle
Aiming to lift unsatisfactory returns to competitive levels over the cycle TSR in percentage, based on year-end prices 2008-2012 (Including financial crisis of 2008) 2009-2012 (Excluding financial crisis of 2008) 15% 15% 5% 5% -5% -5% -15% -15% -25% -25% -35% -35% -45% -45% -55% -55% -65% -65% -75%
Slide 42: Strong improvement culture, attractive asset base, robust financial position
• Strong improvement culture • Attractive asset base • Robust financial position (42)
Slide 43: Finance
Finance Eivind Kallevik Capital Markets Day 2013 (43)
Slide 44: Agenda
Agenda • Financial policy • Financial reporting going forward • Internal measures • External results • Earning drivers (44)
Slide 45: Financial policy
Financial policy 01 (45)
Slide 46: Priorities for capital allocation
Priorities for capital allocation • Ensure competitive return to shareholders • Maintain a solid balance sheet • Pursue disciplined and selective growth (46)
Slide 47: Maintain financial flexibility
Maintain financial flexibility • Robust balance sheet • Strong focus on liquidity − NOK 8.4 billion in cash and cash equivalents by end-Q3 2013 − USD 1.7 billion credit facility with maturity 2018*, currently undrawn − NOK 1.5 billion bond issued with maturity 2019 • Maintain investment-grade rating
Slide 48: 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 – BRL hedged for 2014 • Metal Markets, Rolled Products − Operation
Slide 49: Aiming for competitive returns to shareholders
Aiming for competitive returns to shareholders NOK/Share* • Dividend payout ratio* to average 30% over the cycle 22%** − Average 172% 2008-2012 4 3 • Buyback of shares and extraordinary dividends 56% considered when earnings, liquidity position and capital 2 200% structure allow 1 0% 0 • Ambition to
Slide 50: Financial reporting going forward
Financial reporting going forward 02 (50)
Slide 51: Sapa joint venture
Sapa joint venture • Hydro’s 50% ownership in Sapa accounted for as equity accounted investment − Sapa (50%) included with Hydro’s share of net income under Other & Eliminations • Stand-alone financing − Hydro’s share of net interest bearing debt NOK ~900 million at end of Q3 (51)
Slide 52: Implementation of new accounting standards
Implementation of new accounting standards • Impacts Rolled Products Alunorf hot-rolling mill − Pro-rata consolidated as joint operation from 1 Jan 2014 – Historically reported as equity accounted investment – Change related to implementation of IFRS 11 − Increases EBITDA, but EBIT unchanged − Incre
Slide 53: Short-term update: low aluminium prices and lower power production
Short-term update: low aluminium prices and lower power production • Decreasing LME price − Standard ingot premiums remain flat, somewhat down from high levels • Stable alumina prices • Seasonality of metal businesses • Lower power production and higher prices • Stable European markets (53)
Slide 54: Internal measures
Internal measures 03 (54)
Slide 55: Falling LME partly offset by significant improvements in Primary Metal
Falling LME partly offset by significant improvements in Primary Metal NOK Million LME 3M (USD) 1 000 2 700 500 2 500 0 2 300 ( 500) 2 100 (1 000) 1 900 (1 500) 1 700 (2 000) Q3 11 UEBIT Q3 13 UEBIT 1 500 (55)
Slide 56: Falling LME partly offset by significant improvements in Primary Metal
Falling LME partly offset by significant improvements in Primary Metal NOK Million 1 000 500 0 ( 500) (1 000) (1 500) (2 000) Q3 11 UEBIT LME Volume Premium NOK/USD Alumina USD 300 and Q3 13 UEBIT other (56)
Slide 57: Rolled Products Climb somewhat offsetting cost inflation and currency
Rolled Products “Climb” somewhat offsetting cost inflation and currency NOK Million Climb 750 700 650 600 550 500 450 400 350 300 YTD'12 UEBIT Cost, productivity and Volume and margin Cost inflation Currency effects '13 vs. YTD'13 UEBIT high-grading '12 (57)
Slide 58: Positive trend in net operating capital
Positive trend in net operating capital NOK Billion* Days* 16 90 14 85 83 12 80 80 10 8 74 75 6 70 70 4 65 2 0 60 Q1-Q3 2010 Q1-Q3 2011 Q1-Q3 2012 Q1-Q3 2013 Amount Days * Pro-forma, excluding extruded products for Q1 2010 – Q3 2013 (58)
Slide 59: Long-term sustaining capex NOK ~3.5 billion
Long-term sustaining capex NOK ~3.5 billion NOK billion Sustaining capex 3.5 3.5 3.1 ~2.9 2.6 2009 2010 2011 2012 2013E Excluding Extruded Products from 2013 onwards (59)
Slide 60: Long-term sustaining capex NOK ~3.5 billion
Long-term sustaining capex NOK ~3.5 billion NOK billion NOK billion Sustaining capex Alunorf accounting Increased B&A Increased relining Sustaining capex ~3.9 3.5 3.5 ~3.5 3.1 ~2.9 ~2.9 2.6 2009 2010 2011 2012 2013E 2013E 2014E Long-term Excluding Extruded Products from 2013 onwards (60)
Slide 61: Majority of capital allocated upstream
Majority of capital allocated upstream NOK billion Debt-financed investments Qatalum • Sustaining capex NOK 3.5 billion annually Investments Qatalum 10.2 Growth capex Sustaining capex • Minor growth projects planned for 2014 • ~85% of sustaining capital to be allocated upstream in 2014 6.2 4.61 ~4.3
Slide 62: External results
External results 04 (62)
Slide 63: Robust financial position
Robust financial position NOK billion 1.7 Net cash/(debt) (0.5) 31-Dec-12 30-Sep-13 Adjusted net debt1 (8.3) (10.7) 31-Dec-12 30-Sep-13 1) Net pension liability, operating lease commitments and other. Hydro’s share of EAI net debt from Qatalum (NOK 5.5 billion) and Sapa (NOK 0.9 billion) not include
Slide 64: Cash neutral after dividend at LME ~1 900 $/mt
Cash neutral after dividend at LME ~1 900 $/mt NOK billion 5.5 (2.0) (1.7) (1.7) 1.7 1.8 (0.8) (1.6) (0.5) Net cash Q4 Underlying Other Investments Dividend Net cash after Operating capital Currency Net debt Q3 2012 EBITDA adjustments dividend translation & 2013 Other (64)
Slide 65: Competitive yield throughout the downturn
Competitive yield throughout the downturn Hydro compared to aluminium peers Dividend yield in percentage, based on year-end share-prices 2009 2010 2011 2012 3% 3% 3% 3% 2% 2% 2% 2% 1% 1% 1% 1% 0% 0% 0% 0% Hydro Aluminium Peers Source: Thomson Reuters (65)
Slide 66: Stable investment-grade rating
Stable investment-grade rating • Maintain investment-grade rating Moody’s Baa1/BBB+ − Currently: BBB (S&P), Baa2 (Moody’s), both with stable outlook Stable outlook − Competitive access to capital important for Hydro’s Baa2/BBB business model S&P • Financial ratio ambitions over business cycle Baa3/B
Slide 67: Earning drivers
Earning drivers 05 (67)
Slide 68: Understanding Hydro's earning drivers
Understanding Hydro’s earning drivers • Starting point and assumptions • Simplified models • Negative correlations • Complexity (68)
Slide 69: Price and currency sensitivities
Price and currency sensitivities Aluminium price sensitivity +10%* Currency sensitivities +10%* NOK million 2 500 NOK million EBIT Financial items USD 1 950 (1 100) 1 900 BRL (825) 740 EUR (175) (685) • Annual sensitivities based on normal annual business volumes, LME USD 1 800 per mt, Oil USD 500 p
Slide 70: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.5% of 3-month LME price per tonne alumina 900 • ~One month lag Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • Pricing partly LME-linked for bauxite from MRN Caustic soda
Slide 71: 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 1 500 Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME price per tonne alumina, increasing volumes priced on Platts inde
Slide 72: Annualized underlying EBITDA scenarios
Annualized underlying EBITDA scenarios Scenarios are not forecasts, but represent earnings potential based on sensitivities NOK billion Indicative EBITDA-range in 3 scenarios Additional factors influencing earnings 14 12 10 Improvement Slovalco power 8 efforts contract 6 4 ? 2 Alunorf Raw materials
Slide 73: Financial priorities
Financial priorities • Cash flow generation • Continuous improvements • Margin management • Shareholder return (73)
Slide 74: Q&A
Q&A (74)
Slide 75: Market outlook
Market outlook Arvid Moss Erik Fossum Capital Markets Day 2013 (75)
Slide 76: Agenda market outlook
Agenda market outlook 1 Macroeconomic and downstream outlook 2 Primary supply/demand 3 Premium development and Hydro impact 4 China 5 Bauxite and alumina market 6 Long-term outlook (76)
Slide 77: Macroeconomic and downstream outlook
Macroeconomic and downstream outlook 01 (77)
Slide 78: Aluminium demand correlating with economic growth, outperforming other base metals
Aluminium demand correlating with economic growth, outperforming other base metals World ex. China aluminum demand, IP and GDP World ex. China demand base metals Index 2000=100 Index 2000=100 140 140 130 130 120 120 110 110 100 100 90 90 80 80 70 70 2000 2002 2004 2006 2008 2010 2012 2000 2002 2004
Slide 79: Current macro picture: improving sentiment in developed economies and China
Current macro picture: improving sentiment in developed economies and China, growth is softening in emerging economies Manufacturing PMI in 2013, selected economies 60 • US is gaining positive momentum 55 • Eurozone out of recession • China stabilizing at 7-8 % growth in GDP 50 • Lower trend in othe
Slide 80: Automotive and construction indicators are picking up in the US
Automotive and construction indicators are picking up in the US, still mixed situation in the Eurozone Automotive indicators Construction indicators Jan. 2008=100 Jan. 2008=100 140 140 120 120 100 100 80 80 60 60 40 40 jan. jul. jan. jul. jan. jul. jan. jul. jan. jul. jan. jul. jan. jul. jan. jul. j
Slide 81: Semis demand outlook reflecting multi-speed macro development
Semis demand outlook reflecting multi-speed macro development Total semis demand, annual growth (%) Western Europe China 1 10 9 7 North America 7 (3) 4 (7) 2 2012 2013 2014 2012 2013 2014 2012 2013 2014 Rest of Asia 5 5 World ex. China 2 3-4 2 2012 2013 2014 2 Change in forecast from Nov. 2012 2012
Slide 82: Primary supply/demand
Primary supply/demand 02 (82)
Slide 83: Recap Capital Markets Day 2012: balanced primary market
Recap Capital Markets Day 2012: balanced primary market World ex. China (’000 mt) 28 000 Supply Demand 26 000 24 000 Demand growth base case: 2-4 % 22 000 20 000 Demand influences 18 000 • Weak European markets 16 000 • Continued growth in US • Developing regions 14 000 12 000 10 000 2006 2007 2008
Slide 84: Production curtailments resulted in largely balanced market in 2013
Production curtailments resulted in largely balanced market in 2013 World ex. China (’000 mt) 28 000 Supply Demand 26 000 24 000 Demand growth: 2% 22 000 20 000 Demand Supply influences 18 000 influences • Weak H1, but • Curtailments improving H2 16 000 • Project delays • Europe bottoming out • Soft
Slide 85: Balanced outlook for 2014
Balanced outlook for 2014 Possibility of modest inventory decline World ex. China (’000 mt) 28 000 Supply Demand 26 000 24 000 Demand growth base case: 22 000 2-4 % 20 000 Demand 18 000 influences • Positive US momentum 16 000 • Moderate growth in Europe 14 000 • Emerging economies improving 12 000
Slide 86: Limited net supply growth expected over the next years
Limited net supply growth expected over the next years World ex. China (’000 mt) 28 000 Supply development Supply Demand (million tonnes) 26 000 For how 6 long? 24 000 Demand growth ~4 base case: 4 2-4 % 22 000 ~1.7 India and Russia 2 20 000 3 1 Announced to Supply 0 18 000 Green- Loss be closed inf
Slide 87: LME prices supported by increasing cost base
LME prices supported by increasing cost base Power rate Alumina del. price Carbon cost LME price vs BOC development (USD/MWh) (USD/mt alumina) (USD/mt aluminium) world ex. China (USD/mt) 35 350 250 3,000 +200 +300 +100 USD/mt USD/mt USD/mt 30 300 200 2,500 25 250 2,000 150 20 200 1,500 15 150 LME 3m
Slide 88: Premium development and Hydro impact
Premium development and Hydro impact Head of Commercial, Erik Fossum 03 (88)
Slide 89: Solid premium development for Hydro's key product categories
Solid premium development for Hydro’s key product categories European Premium Development* Indexed. 2003=100 250 230 210 190 170 150 130 110 90 70 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Q1 2013 Q2 2013 Q3 2013 Oct 2013 Extrusion Ingot Foundry Alloys Sheet Ingot Hydro’s European 338 000 mt
Slide 90: World ex. China inventories starting to decline
World ex. China inventories starting to decline Standard ingot premiums look to have peaked World ex. China primary aluminium inventories Regional standard ingot premiums 1 000 mt Days USD per mt 10 000 150 300 9 000 275 250 8 000 120 225 7 000 200 6 000 90 175 5 000 150 4 000 60 125 100 3 000 75 2
Slide 91: Increasing premiums and queues underlying trigger for LME rule change
Increasing premiums and queues underlying trigger for LME rule change Customer price (USD/mt) Aluminium stock locations Current queue (LME registered) (days) 2 700 Affected warehouses by LME rule change Premium (DUP) LME cash price Vlissingen 2 062 275 332 2 500 Detroit 1 404 675 337 2 300 2 100 Rot
Slide 92: LME warehousing rule changes will impact market players in different ways
LME warehousing rule changes will impact market players in different ways Primary balance, World ex. China US money market rate K tonne 30 000 Traders 6% 25 000 20 000 4% 15 000 10 000 2% Producers Warehouses 5 000 0 0% Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-07 Jan-08 Jan-09 Jan-10 Jan-11 Jan
Slide 93: Product portfolio improvement efforts continuing in 2014
Product portfolio improvement efforts continuing in 2014 Commercial agenda 2013 Focus areas in 2014 • Increasing focus on • Extrusion Ingot: increase product premium margin focus on post-consumed scrap vs. market share as metal-source for re-melt • Shifting product mix • Sheet Ingot: testing Adjusta
Slide 94: China
China 04 (94)
Slide 95: Continued strong Chinese primary aluminium demand
Continued strong Chinese primary aluminium demand Balanced supply/demand Supply/Demand (’000 mt) 25 000 Supply Demand 20 000 15 000 10 000 5 000 0 2006 2007 2008 2009 2010 2011 2012 2013 E Source: CRU (95)
Slide 96: Challenges in Xinjiang
Challenges in Xinjiang Transport cost associated with one tonne aluminium production USD/tonne Aluminium 450 400 350 300 250 200 150 100 Railway 50 Distance in kilometer Transmission lines 0 1000 2000 3000 4000 5000 Alumina to Xinjiang Aluminium from Xinjiang Coal from Xinjiang • Energy export throu
Slide 97: China's metal strategy underpinned by trade barriers
China’s metal strategy underpinned by trade barriers at several parts of the value chain VAT Tolling Export duties Transport Premiums Million mt. 2007 2008 2009 2010 2011 2012 2013 YTD* • Balanced in primary metal 20 • Short upstream in the value chain, Net import to China 15 mainly resolved through
Slide 98: Bauxite and alumina market
Bauxite and alumina market 05 (98)
Slide 99: Hydro a major company in the world market of bauxite and alumina
Hydro a major company in the world market of bauxite and alumina Main long and short companies outside China in 2012 third-party market, million mt Bauxite market Alumina market 15 60 10 8 10 40 6 4 5 20 2 0 0 0 Hydro* Vedanta Indonesia export RTA Glencore CBA BHP Billiton Rusal China import Alba Al
Slide 100: Average CIF China bauxite price up 50% since 2009
Average CIF China bauxite price up 50 % since 2009 Chinese bauxite imports by source, million tonnes USD/mt 70 65 Other 60 India 60 Australia 55 50 Indonesia 50 40 45 30 40 20 35 10 30 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 0 2008 2009 2010 2011 2012 2013YTD Avr CIF China From Indonesia From Australia •
Slide 101: Higher bauxite costs in China amid emerging third-party market
Higher bauxite costs in China amid emerging third-party market and depletion of quality reserves Quality and reserves Bauxite supply cost - Shanxi A/S ratio RMB/mt 6.0 500 400 5.5 2009 300 200 5.0 2012 100 AA% 4.5 0 56.0 56.5 57.0 57.5 58.0 58.5 59.0 59.5 60.0 Open pit, internal Open pit, trader Und
Slide 102: Indonesia's potential restrictions on bauxite exports
Indonesia’s potential restrictions on bauxite exports Creating uncertainty for China • Still no clear direction on how the export restriction will be implemented in Jan 2014 • Total export restriction unlikely ? − Bauxite export quotas granted on commitment to alumina refining projects and clear pro
Slide 103: China's import dependency expected to increase
China’s import dependency expected to increase, but sourcing of bauxite imports remains uncertain Chinese bauxite supply, excluding stock building • Increasing Chinese demand for imported bauxite Million mt due to depletion of domestic resources and falling 180 70% quality 160 140 • Indonesia’s expo
Slide 104: World ex. China alumina market largely balanced due to exports to China
World ex. China alumina market largely balanced due to exports to China • In a normally balanced market, annual China alumina imports Chinese alumina imports have historically (’000 mt) USD/mt been in the range of 3 to 5 million tonnes 800 120 700 100 • Chinese alumina import levels are driven by pr
Slide 105: Continued support for alumina prices in the world outside China
Continued support for alumina prices in the world outside China Alumina price Short/medium-term contract prices in % of LME USD/mt 430 20% 18% 410 19% 17% 390 18% 17% 16% 370 16% 350 15% 15% 330 14% 14% 310 13% 13% 290 12% 270 11% 12% 250 10% 11% Aug-10 Aug-11 Aug-12 Aug-13 Dec-10 Feb-11 Dec-11 Feb-
Slide 106: Long-term outlook
Long-term outlook 06 (106)
Slide 107: Healthy growth in aluminium demand
Healthy growth in aluminium demand Robust demand projections Demand for semis Million mt 107 108 4-6% annual growth 89 85 52 54 68 70 Global trends 39 42 29 30 China 46 47 55 54 World ex. 39 40 China 2013 E 2017 E 2022 E Capabilities Forecast 2010 Forecast 2013 Source: CRU (107)
Slide 108: China expected to have a continued shortage upstream in the value chain
China expected to have a continued shortage upstream in the value chain Million mt 2007 2008 2009 2010 2011 2012 2013 YTD* 20 Illustrative development 15 Import to China 10 5 0 Export from China ( 5) Bauxite Alumina Scrap Primary aluminium Fabricated Semis Source: CRU/Antaike/Hydro. Bauxite/alumina
Slide 109: Market outlook summary
• Improving demand in mature economies and solid long-term projections in emerging economies • Industry curtailments and delayed projects, still high aluminium stocks • Solid product premium development • Pricing of bauxite and alumina on its own merits (109)
Slide 110: Rolled Products
Rolled Products Oliver Bell Capital Markets Day 2013 (110)
Slide 111: Megatrends supporting demand for aluminium products
Megatrends supporting demand for aluminium products Megatrends Aluminium solutions | Greener products Food production: 30% of emissions Urbanization Conserving and protecting food better in storing and transport Transportation: 25% of emissions New middle class Making cars lighter with aluminium Env
Slide 112: Global semis consumption will give upstream aluminium demand growth
Global semis consumption will give upstream aluminium demand growth Global consumption (’000 mt) Semis consumption by end-use 120 000 11% 100 000 Total CAGR 4-6% 25% Transport 80 000 16% Construction Electrical Machinery & Equipment 60 000 Packaging Primary Consumer durables & Other 40 000 CAGR 4-5%
Slide 113: Global FRP consumption growth of 6%, driven by transport
Global FRP consumption growth of 6%, driven by transport Flat Rolled Products Global - CAGR 2013-2017 10% 13% Transport 10% Electrical 7% 11% 4% Construction 6% 9% Total 6% 52% Machinery & Equipment 5% Consumer durables/others 5% Transport Construction Electrical Machinery & Equipment Packaging 4% P
Slide 114: Transport also main driver for growth in European FRP consumption
Transport also main driver for growth in European FRP consumption Flat Rolled Products Europe - CAGR 2013-2017 10% 20% Transport 9% Total 3% 9% Electrical 3% 2% 45% Construction 2% 14% Consumer durables/others 2% Machinery & Equipment 1% Transport Construction Electrical Machinery & Equipment Packag
Slide 115: Substitution contributing to growth in aluminium demand
Substitution contributing to growth in aluminium demand Aluminium sheet demand for automotive applications robust and fast growing Car production, million units Body in white demand, thousand tonnes CAGR ’12-’20 CAGR ’12-’20 70 4% 62 1 552 24% 2% 52 35% 2% 872 13% 7% 285 45% 2012 2016 2020 2012 2016
Slide 116: Leading edge and preferred partner for product developments
Leading edge and preferred partner for product developments Example: high formability for automotive applications through innovation Step-change innovation Single-part side panel • Forming limits represent the main challenge in automotive applications • Clad alloy HA 6016-X allows for strongly impro
Slide 117: Aluminium: a sustainable material from a life cycle perspective
Aluminium: a sustainable material from a life cycle perspective Resource efficiency across the value chain Production User-phase Recycling (117)
Slide 118: Sustainable aluminium packaging
Sustainable aluminium packaging • 30% of greenhouse gas emissions from CO2 emissions of a cup of coffee food production and consumption • Hydro contributes with optimized packaging to preserve food Produce coffee Transport Brew hot water Packaging Source: EAFA study (118)
Slide 119: Rolled Products pro climate
Rolled Products pro climate Benefiting the global climate and meeting customer needs Foil for packaging Automotive sheet Aluminium roller shutters Protect what’s good Less weight, less emissions Lower energy consumption 1 kg aluminium saves 76 kg CO2 1 kg aluminium saves 20kg CO2 1 kg aluminium save
Slide 120: We want our metal back
We want our metal back • Climate protection Why? • Prerequisite for greener aluminium image • Attractive business Beverage can recycling rate, Western Europe (%) • Support collection and recycling 70 How? • 75% recycling rate in Europe by 2015 60 • Plan to increase recycling capacity through 50 a ne
Slide 121: Meeting customer needs and overall market requirements
Meeting customer needs and overall market requirements • Customer value creation and lifting competitiveness through innovation, quality and service • Expand in transportation and other fast-growing markets • Further strengthening core assets and fully capitalize on strong technology and cost positi
Slide 122: Climb: Rolled Products' improvement program
“Climb”: Rolled Products’ improvement program NOK Million Target Time period Climb 750 800 MNOK 2012-2016 700 650 Contributing to bottom line by 600 • High-grading product portfolio 550 • Margin management • Productivity improvement 500 • Reducing net cost level 450 400 350 300 YTD '12 UEBIT Cost, V
Slide 123: Rolled Products summary
• Megatrends driving aluminium products demand • Aluminium plays key role in climate protection • Transport key growth segment • Hydro well positioned to capture market opportunities (123)
Slide 124: Q&A
Q&A (124)
Slide 125: Primary Metal
Primary Metal Hilde M. Aasheim Capital Markets Day 2013 (125)
Slide 126: Primary Metal and Metal Markets production portfolio
Primary Metal and Metal Markets production portfolio Norway UK Germany Canada Luxembourg Slovakia France US Spain Qatar Brazil Primary Remelt/ JV 100% Recycling 2.2 million mt 1.0 million mt Australia 2.2 million mt is consolidated capacity . Slovalco and Albras are fully consolidated, Tomago and Al
Slide 127: Increasing portfolio robustness
Increasing portfolio robustness Estimated primary aluminium cash cost and margin • Delivering on ambitious USD 300 improvement USD per mt 1) program for fully-owned smelters 475 300 425 375 • Starting to see effect from improvement program for joint venture smelters 1 775 1 550 • Confirming Qatalum
Slide 128: Delivering on ambitious USD 300 improvement program
Delivering on ambitious USD 300 improvement program Total annual improvement effect of NOK ~1.4 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 129: Continuous improvements in fully-owned smelters
Continuous improvements in fully-owned smelters Step-change Instability Stabilize • Continuing our way of working in the Primary • New areas for step-change will be explored Metal Production System (AMPS) − Testing of alternative raw materials • Culture of continuous improvements − Further effect of
Slide 130: Ambitious improvement programs in joint venture smelters
Ambitious improvement programs in joint venture smelters Key for Hydro’s success • Generally large scale and efficient smelters • Hydro is industrial partner in Albras, Qatalum Søral 180 kt (49.9%) and Slovalco Alouette 600 kt (20%) Slovalco 165 kt (55.3%) − RTA provides technology support in Alouet
Slide 131: Primary Metal joint ventures improvement program
Primary Metal joint ventures improvement program USD 180 per mt improvements by end-2016, corresponding to NOK 1.2 billion Improvement categories Improvements in USD per mt* 180 160 Fixed cost reductions 140 and lean operations 120 USD 180 100 per mt Operational improvements 80 • Improved current ef
Slide 132: Qatalum – first-decile cash cost position confirmed
Qatalum – first-decile cash cost position confirmed • Continued strong production performance, consistently above nameplate capacity • First-decile business operating cash cost position − Improved BOC due to reduced fixed cost level and higher premiums − Further improvement efforts being executed •
Slide 133: 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 2011 2H 2011 1H 2012 2H 2012 1H 2013 700 700 700 700 700 500 500 500 500 500 300 300 300 300 300 100 100 100 100 100 -100 -100 -100 -100 -100 Hydro Peers All figures b
Slide 134: Leading worldwide supplier of casthouse products
Leading worldwide supplier of casthouse products • Capitalizing on competence, customer Primary production Extrusion ingot 1.6 million mt 1.5 million mt satisfaction and sustainability position to increase margins • Strategy of high-grading product portfolio Remelt primary casthouses Foundry alloys
Slide 135: Technology and innovation to fulfill ambitions
Technology and innovation to fulfill ambitions Energy consumption*, kWh per kg aluminium Possible pilot plant at Karmøy 18 17 Using next generation cell technology 16 15 14 13 12 11 10 9 8 7 6 Karmøy Hydro Hydro Hydro HAL300 HAL4e HAL4e Hydro 1967 1998 2003 2012 2012 2012 Ultra vision Historical Dat
Slide 136: Robust power coverage
Robust power coverage • Current aluminium capacity with full power coverage until 2021 • ~2/3 based on hydropower • Long-term power contract signed for Slovalco • Focus on power supply in Norway beyond 2020 − Comfortable Nordic power market balance (136)
Slide 137: Primary Metal priorities
Primary Metal priorities • Continued cash cost improvement • Commercial excellence • Technology development and innovation (137) 12/9/2013
Slide 138: Bauxite & Alumina
Bauxite & Alumina Johnny Undeli Capital Markets Day 2013 (138)
Slide 139: World-class asset base, focus on operational improvements
World-class asset base, focus on operational improvements • Alunorte temporary production setback, operational improvements being implemented • High-quality bauxite resource base • Paragominas prepared for increased Alunorte production (139)
Slide 140: Improving value creation starts with operational performance
Improving value creation starts with operational performance • Internal measures to improve value creation − Recover from outages − Deliver on “From B to A” improvement program − Reach nameplate capacity − Shift to new industry pricing of products • External influences − Cost inflation − BRL currenc
Slide 141: Temporary setback in Alunorte alumina refinery
Temporary setback in Alunorte alumina refinery • Temporary production setbacks, triggered by external power outages on May 18 and June 2 • Mitigating actions being implemented − More robust energy supply − Process improvements − New management (141)
Slide 142: Positioning in Brazil the Hydro Way
Positioning in Brazil the Hydro Way • HSE/CSR industry leadership • Strengthening stakeholder relations • 1:1 reforestation from 2017 • Cooperation with universities in Oslo and Bélem on bio-diversity (142)
Slide 143: Bauxite
Bauxite 01 (143)
Slide 144: Paragominas: strong focus on performance and quality
Paragominas: strong focus on performance and quality • High-quality Gibbsite bauxite • Production 2012 on record level, temporarily lowered in 2013 due to Alunorte outages • 15% manning reduction executed • Second pump station successfully implemented − Increased reliability of bauxite pipeline maki
Slide 145: Bauxite contributing to commercial success
Bauxite contributing to commercial success • Brazilian bauxite quality attractive in global market − Shipments to Atlantic and Pacific markets • Bauxite pricing on own merits • Excess MRN bauxite sold with quality premium to China (145)
Slide 146: Alumina
Alumina 02 (146)
Slide 147: Alumina price trending higher in percent of LME
Alumina price trending higher in percent of LME USD/mt 430 19% 410 18% Platts 390 alumina 17% index USD/mt % of LME 370 16% Q1 2013 340 16.7% 350 330 15% Q2 2013 326 17.4% 310 14% Q3 2013 317 17.3% 290 Alumina, USD/mt % of LME 13% 270 250 12% Feb-11 Apr-11 Feb-12 Apr-12 Feb-13 Apr-13 Oct-10 Oct-11 O
Slide 148: Shifting sales portfolio towards end-users
Shifting sales portfolio towards end-users Total portfolio exposure • Focus on developing strategic consumer 100% business 90% − Closer links with end-users 80% 70% • Sales on delivered (CIF) terms 60% − Better control of total value chain/logistics 50% 40% 30% • Global sales portfolio 20% 10% 0% 20
Slide 149: Alumina pricing on own fundamentals
Alumina pricing on own fundamentals 100% • Alumina index price has become the leading pricing mechanism in the market • Alunorte the preferred quality in the market • Internal pricing on arms-length principle 2 014 2 017 2 020 Potential index exposure on external sales LME link in external sales Int
Slide 150: Alunorte
Alunorte 03 (150)
Slide 151: Alunorte experiences temporary setback following power outages
Alunorte experiences temporary setback following power outages • Temporary production setback, triggered by external power outages in May and June • Main issue: settled hydrate in precipitation tanks • Main focus on tank recovery − Mechanical removal of settled hydrate − Caustic cleaning − Full main
Slide 152: Solids reduced by 50% in precipitation tanks
Solids reduced by 50% in 116 precipitation tanks May 18 Total height of solids in tanks (meters) June 2 May Jun Jul Aug Sep Oct Nov Actual Target (152)
Slide 153: Alunorte production speed gradually improving
Alunorte production speed gradually improving Production, annualized million tonnes 5.6 5.5 5.2 5.0 Q1 Q2 Q3 Oct/Nov (153)
Slide 154: Improving robustness against power outages
Improving robustness against power outages Lines Backup power diesel generators Cogeneration Ongoing studies for 1/2/3 implementation 4/5 6/7 (154)
Slide 155: Alunorte's path towards nameplate capacity
Alunorte’s path towards nameplate capacity 2013 2014 Q4 Q1 Q2 Q3 Q4 Production pace • Stabilization of asset performance in Q1 and Q2 followed by a steady production growth Precipitation productivity (yield) • Continuous improvement starting from one of the best yields in the world Flow availability
Slide 156: Way forward
Way forward 04 (156)
Slide 157: Aiming for operational and commercial leadership
Aiming for operational and commercial leadership • Accelerate Alunorte’s operational improvements • Maximize potential of world-class bauxite and alumina assets • Capture full value of products − Pricing based on own fundamentals • Build on strong Brazilian presence to further develop Hydro‘s global
Slide 158: "From B to A" improvement program back on targeted level in 2014
“From B to A” improvement program back on targeted level in 2014 • Production setback impacts 2013 speed of improvement program • Underlying improvements ongoing, bringing program back to target level in 2014 • Strong commercial contribution • 2015 target confirmed − NOK 1 billion annual improvement
Slide 159: Q&A
Q&A (159)
Slide 160: Hydro 2014
Hydro 2014 • Maintain overall improvement momentum • Return ‘From B to A’ program back on track • Deliver on new JV-program according to plan • Strengthen customer focus through innovation • Maintain financial strength and flexibility (160)
Slide 161: Infinite Aluminium
, INFINITE ALUMINIUM HYDRO
Slide 162: Investor Relations in Hydro
Investor Relations in Hydro Rikard Lindqvist Head of Investor Relations Next events t: +47 417 51 199 e: rikard.lindqvist@hydro.com Fourth Quarter Results February 12, 2014 Pål Kildemo Investor Relations Officer t: +47 970 96 711 e: pal.kildemo@hydro.com For more information see www.hydro.com/ir (16