Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q4 2014 Earnings Presentation
113 slides from Norsk Hydro Asa's earnings presentation, February 2015
Slide 1: Investor presentation February 2015
Investor presentation February 2015 4 2014
Slide 2: Table of contents and cautionary note
Table of contents Forth quarter results 2014 3 Cautionary note Certain statements included within this announcement contain forward- looking information, including, without limitation, those relating to (a) Market 37 forecasts, projections and estimates, (b) statements of management’s plans, objecti
Slide 3: Q4 2014
Q4 2014 01 (3)
Slide 4: Q4 highlights
Q4 highlights • Record high quarterly underlying EBIT of NOK 2 886 million • Proposed dividend for 2014 of NOK 1 per share • Revised dividend policy: 40% of net income over the cycle • Higher realized all-in* metal and alumina prices, supported by currency movements • Improved operating performance
Slide 5: Multi-speed global economy
Multi-speed global economy Encouraging macro development in the US, softer in Eurozone • Weaker German industrial production Eurozone • Quantitative easing measures from the ECB starting in March • Weaker, but still positive demand outlook • Strong industrial production US • Strong aluminium demand
Slide 6: Major currency movements affecting industry costs
Major currency movements affecting industry costs USD appreciation against currencies where Falling oil prices have limited effect Hydro has significant operations* on smelting costs USD appreciation end January-14 to end January-15 Brent crude oil, USD per barrel 25% 130 110 20% 90 70 15% 50 10% 30
Slide 7: Physical market deficit continues
Physical market deficit continues World ex-China Demand and production (quarterly annualized) Production less demand, (quarterly annualized)* 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 mai.09 sep.10 jan.12 mai.13
Slide 8: Standard ingot premiums continued to rise in Q4
Standard ingot premiums continued to rise in Q4 Mixed regional developments so far in 2015 Regional standard ingot premiums • Mixed regional developments USD per mt 600 − US Mid-West premium strong at ~535 USD/mt 500 − EU premium softening 30 USD/mt to ~470 USD/mt 400 − Japan premium stable at 425 U
Slide 9: Stronger all-in ingot price in NOK
Stronger all-in ingot price in NOK • 3-month LME price traded between USD/mt NOK/mt 3 100 18 000 1 854 and 2 070 USD/mt during Q4 2 900 17 000 • Recent LME decrease offset by 2 700 weakening NOK 16 000 2 500 • Realized LME price for Q4 1 997 USD/mt 2 300 15 000 2 100 Primary aluminium LME* USD/mt NO
Slide 10: Reported inventories world ex-China decline further
Reported inventories world ex-China decline further Increase in inventory days reflects seasonally lower demand 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 05 Q3 07 Q1 10 Q3 12 Q4 14 IAI Other LME Worl
Slide 11: Alumina prices stable despite weak commodity markets
Alumina prices stable despite weak commodity markets, value-in-use bauxite prices down from highs Platts alumina index (PAX) Bauxite prices USD/mt Percent USD/mt 450 20% 80 19% 400 18% 70 17% 350 16% 60 300 15% 14% 50 250 13% 200 12% 40 Aug 2010 Apr 2012 Nov 2013 Jan 2015 Jan-12 Jan-13 Jan-14 Jan-15
Slide 12: China: Higher raw material imports and semis exports
China: Higher raw material imports and semis exports Lower 2014 bauxite imports partly offset by alumina imports Annualized aluminium equivalents*, million mt 2011 2012 2013 2014 • Bauxite and alumina 25 − Significant drop in bauxite imports due to Indonesian China import 20 export ban − Higher baux
Slide 13: Chinese semis exports picking up amid increased metal advantage
Chinese semis exports picking up amid increased metal advantage Comp. adv Semis exports (USD/mt) (monthly, kmt) 1 000 500 450 800 400 Improved comp. adv. China 600 350 300 400 250 200 200 0 150 100 ( 200) 50 ( 400) 0 jan.07 jun.07 jul.09 mar.11 aug.11 jan.12 jun.12 jul.14 feb.09 okt.10 feb.14 apr.08
Slide 14: Lower cost and higher margins in Bauxite & Alumina
Lower cost and higher margins in Bauxite & Alumina • USD 23 per mt reduction in implied Implied alumina cost and margin, USD/mt 1) alumina cost from third quarter 475 − Improved energy efficiency and fixed cost 23 425 reductions 15 − Currency and Reintegra tax refund 263 260 program contributing pos
Slide 15: Improving margins in Primary Metal
Improving margins in Primary Metal Implied primary cost and margin, USD/mt 1) • Implied cost on a downward trend ‒ Improvement efforts 300 ‒ Positive exchange rate development 400 1 775 550 ‒ Increasing premiums 1 500 1 300 • EBITDA margin3) ~830 USD/mt in Q4 2014 • USD 180 JV program on track, to b
Slide 16: Investment decision made for Karmøy technology pilot
Investment decision made for Karmøy technology pilot Demonstrating the world’s most energy and climate-efficient aluminium production • Annual production 75 000 tonnes − First metal in 2017 at the earliest • Estimated total project cost NOK 3.9 billion − Including Enova support of NOK 1.5 billon, ap
Slide 17: Lower shipments in Rolled Products
Lower shipments in Rolled Products Rolled Products sales by segment Q4 2014 vs. Q3 2014 Q4 2014 vs. Q4 2013 0% (5%) (8%) (9%) (9%) (13%) (13%) (15%) Packaging Litho, Auto & General Total Rolled Packaging Litho, Auto & General Total Rolled & building Heat exchanger engineering Products & building Hea
Slide 18: Seasonally weaker demand for extruded products
Seasonally weaker demand for extruded products • Seasonally weaker demand − 10% decrease in North America − 6% decrease in Europe • Demand increased compared to same quarter last year − 9% in North America due to increased building activity and strong automotive demand − Stable in Europe, weak build
Slide 19: Sapa restructuring program ahead of plan
Sapa restructuring program ahead of plan • Targeting synergies of around NOK 1 billion by end 2016 − About half realized in underlying 2014 results • Majority of restructuring activities taking place in Europe − 20 major restructuring projects announced, 3 in the US, the rest in Europe (19)
Slide 20: Energy: High inflow and volatile prices
Energy: High inflow and volatile prices 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) 2013 2013 20 100 2014 2014 2015 2015 0 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43
Slide 21: Proposed 2014 dividend NOK 1 per share
Proposed 2014 dividend NOK 1 per share Dividend policy: 40% of net income over the cycle • Revised dividend policy reflecting commitment to return cash to shareholders • New policy and increased dividend level in line with: − Solid financial position − Improved earnings outlook − Continued tight cap
Slide 22: High-level quarterly result development
High-level quarterly result development NOK billion 0,2 (0.2) 1,3 2,9 1,5 0.1 0,5 Underlying EBIT Q4 Underlying EBIT Q3 Energy volume and Realized LME, Bauxite & Alumina Eliminations and Underlying EBIT Q4 2013 2014 price premiums and PAX* volume and costs other 2014 Figures for 2013 throughout the
Slide 23: Key financials
Key financials NOK million Q4 2014 Q3 2014 Q4 2013 2014 2013 Revenue 21 656 19 698 16 570 77 907 64 877 Underlying EBIT 2 886 1 490 471 5 692 2 725 Items excluded from underlying EBIT (591) 447 (485) (18) (1 063) Reported EBIT 2 295 1 937 (14) 5 674 1 663 Financial income (expense) (2 341) (1 105) (
Slide 24: Items excluded from underlying EBIT
Items excluded from underlying EBIT NOK million Q4 2014 Q3 2014 Q4 2013 2014 2013 Underlying EBIT 2 886 1 490 471 5 692 2 725 Unrealized effects on power and raw material contracts (261) 54 14 (72) (107) Unrealized derivative effects on LME related contracts - 220 (78) 352 (202) Metal effect, Rolled
Slide 25: Bauxite & Alumina
Bauxite & Alumina Q4 Q3 Q4 Key figures 2014 2014 2013 Alumina production, kmt 1 501 1 478 1 452 Total alumina sales, kmt 2 043 1 922 1 959 Realized alumina price, USD/mt 303 287 263 Implied alumina cost, USD/mt 229 252 259 Bauxite production, kmt 2 582 2 287 2 080 Underlying EBITDA, NOK million 1 04
Slide 26: Primary Metal
Primary Metal Q4 Q3 Q4 Key figures 2014 2014 2013 Primary aluminium production, kmt 499 487 492 Total sales, kmt 527 542 515 Realized LME price, USD/mt 1 997 1 906 1 802 Realized LME price, NOK/mt 13 355 11 909 10 916 Implied primary cost USD/mt 1 175 1 275 1 375 Underlying EBITDA, NOK million 2 489
Slide 27: Higher realized all-in metal price drives Qatalum earnings
Higher realized all-in metal price drives Qatalum earnings Q4 Q3 Q4 Key figures – Qatalum (50%) 2014 2014 2013 Revenue, NOK million 1 510 1 207 1 072 Underlying EBITDA, NOK million 614 446 504 Underlying EBIT, NOK million 371 231 237 Underlying Net income (loss), 317 189 203 NOK million Primary alum
Slide 28: Metal Markets
Metal Markets Q4 Q3 Q4 Key figures 2014 2014 2013 Remelt production, kmt 130 128 123 Metal products sales, kmt* 645 674 648 Underlying EBITDA, NOK million 243 192 214 Underlying EBIT excl currency and inventory 106 136 144 valuation effects, NOK million Underlying EBIT, NOK million 221 171 190 Under
Slide 29: Rolled Products
Rolled Products Q4 Q3 Q4 Key figures 2014 2014 2013 External sales volumes, kmt 213 244 226 Underlying EBITDA, NOK million 280 417 284 Underlying EBIT, NOK million 96 243 100 Underlying EBIT Q4 results NOK million • Seasonally lower shipments 615 698 • Stronger margin pressure • Positive contributio
Slide 30: Energy
Energy Q4 Q3 Q4 Key figures 2014 2014 2013 Power production, GWh 2 823 2 170 2 411 Net spot sales, GWh 1 339 873 1 089 Southwest Norway spot price (NO2), 248 247 287 NOK/MWh Underlying EBITDA, NOK million 402 275 420 Underlying EBIT, NOK million 360 234 383 Underlying EBIT Q4 results NOK million • R
Slide 31: Sapa joint venture
Sapa joint venture • Lower results compared to previous Key figures – Sapa (50%) Q4 2014 Q3 2014 Q4 2013 quarter, mainly due to lower seasonal Revenue, NOK million 5 945 5 802 5 066 demand • Improved results compared to same Underlying EBITDA, NOK million 171 246 (22) quarter last year due to: Under
Slide 32: Other and Eliminations
Other and Eliminations Q4 Q3 Q4 Other and Eliminations 2014 2014 2013 Sapa JV (22) 55 (140) Other (118) (128) (134) Eliminations (168) (276) (31) Other and Eliminations (308) (349) (306) (32)
Slide 33: Net cash(debt) development Q4 2014
Net cash(debt) development Q4 2014 NOK billion Net cash flow from operations NOK 4.4 billion 0.2 (0.8) (1.6) (0.1) 4.2 (2.1) End Q3-2014 Underlying Operating Investments Currency End Q4-2014 EBITDA capital and other (33)
Slide 34: Net cash(debt) development 2014
Net cash(debt) development 2014 NOK billion Net cash flow from operations NOK 5.9 billion (2.2) (2.2) 10.3 (3.0) (1.5) 0.7 (2.1) (0.1) End Q4-2013 Underlying Operating Tax and other Investments Dividends Currency End Q4-2014 EBITDA capital and and other Divestments (34)
Slide 35: Adjusted net debt development Q4 2014
Adjusted net debt development Q4 2014 Dec 31 Sep 30 Jun 30 NOK billion 2014 2014 2014 Cash and cash equivalents 9.3 6.0 6.6 Short-term investments 1.8 1.7 1.8 Short-term debt (6.0) (5.0) (6.1) Long-term debt (5.1) (4.8) (4.1) Net cash/(debt) (0.1) (2.1) (1.9) Net pension liability at fair value, net
Slide 36: 2014 and 2015 outlook
2014 • Tightening physical markets • Stable and robust Brazilian operations • Significant contributions from improvement programs 2015 • Continuing operational and commercial improvement drive • High-grading and selective growth to improve relative industry positions • Lower energy consumption and f
Slide 37: Market
Market 02 (37)
Slide 38: 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 39: 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 Rising primary aluminium demand Transport Growth in other transport modes, e.g. ‘000 mt railway Urbanization Construc
Slide 40: Broad-based aluminium demand growth across segments and regions
Broad-based aluminium demand growth across segments and regions Global semis 2014 demand 74.9 million tonnes Global aluminium semis demand, per segment Global aluminium semis demand, per region Million tonnes (2014) Million tonnes (2014) CAGR per segment (%), 2004-2014 CAGR per region (%), 2004-2014
Slide 41: 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 42: Transport drives global flat rolled product growth of 5%
Transport drives global flat rolled product growth of 5% Total FRP 2014 consumption around 23 million tonnes Global FRP consumption by end-use 2014 CAGR 2014-2018, % Transport 11% 10 % 14 % Electrical 6% 9% 4% Construction 6% 12 % Total consumption 5% Machinery & Equipment 5% 51 % Consumer durables
Slide 43: 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 content – pounds per light vehicle Global Body-in-White demand – ‘000 mt 600 DUCKER WORLDWIDE 500 In 2015, aluminium penetration 2 100 will reach the critical mass for
Slide 44: Aluminium – a perfect fit for next-generation automotive
Aluminium – a perfect fit for next-generation automotive Lighter weight means lower fuel emissions • Tightening fuel economy regulations • 10% reduction in vehicle weight gives car manufacturers a 5-7% fuel saving Land Rover Sport 2010 Land Rover Sport 2014 • 1 kg of aluminium replacing mild steel,
Slide 45: Higher raw material imports and semis exports in 2014
Higher raw material imports and semis exports in 2014 China remains balanced on primary metal Annualized aluminium equivalents*, million mt 2006 2007 2008 2009 2010 2011 2012 2013 2014 20 to China 15 Import 10 5 0 from China Export ( 5) ( 10) Bauxite Alumina Scrap Primary aluminium Fabricated Semis
Slide 46: 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 Jamaica 6.2 3.0 1.1 0.5 1.0 Venezuela Vietnam 1.8 0.3 4.7 Indonesia 0.5 2.0 2.0 Brazil 8.7 Australia 2.5 9.5 5.6 Bauxite suppliers Atlantic Pacific short/medium term Big-le
Slide 47: 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 48: Business overview
Business overview 03 (48)
Slide 49: Hydro - Group
Hydro - Group (49)
Slide 50: Hydro: a resource rich global aluminium company
Hydro: a resource rich global aluminium company • Based in Norway, involved Hydro underlying EBIT quarterly, NOK million in activities in more than 50 countries (2 555) 3 551 5 982 1 297 2 725 5 692 • 13 000 employees 2 700 • Operating revenues 2 200 − 2013: NOK 65 billion − 2014: NOK 78 billion 1 7
Slide 51: 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 52: 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 53: 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 (53)
Slide 54: 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 55: 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 56: 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 57: 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 58: 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 2002 2004 2006 2008 2010 2012 2014 (58)
Slide 59: Hydro
Attractive Improvement positions culture and Financial Hydro throughout the technological strength value chain leadership (59)
Slide 60: Bauxite & Alumina
Bauxite & Alumina (60)
Slide 61: 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 62: Strengthening the competitiveness of Bauxite & Alumina
Strengthening the competitiveness of Bauxite & Alumina From B to A Alunorte • Increase productivity and rightsize organization • Stabilize performance at nameplate capacity • Improve logistics efficiency Paragominas • Increase productivity and rightsize organization • New methods to support producti
Slide 63: 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 • Current reserve life: 30 years − ~300 million mt − Long-life resource (63)
Slide 64: 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 65: 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 (65)
Slide 66: Favorable integrated alumina cash cost position
Favorable integrated alumina cash cost position • Implied alumina cash cost position 2014 Implied alumina cash 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 12% bauxite from MRN 31% • E
Slide 67: External alumina sourcing
External alumina sourcing • 2.0 million mt of external alumina sourcing in 2014 • 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 t
Slide 68: 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 69: Primary Metal
Primary Metal HYDRO
Slide 70: 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 71: 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 72: 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 73: 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 1H 2012 1H 2013 1H 2014 700 700 700 700 500 500 500 500 300 300 300 300 100 100 100 100 -100 -100 -100 -100 Hydro Peers All figures based on public accounting dat
Slide 74: Develop technology to fulfill ambitions
Develop technology to fulfill ambitions HAL 300 HAL4e R&D portfolio • Operating for several years in • Benchmark technology • HAL4e optimization – to be Sunndal – process parameters and ready for next project environment • Ramping up in Qatar • HAL Ultra – future vision • 30 months of operations in
Slide 75: Metal Markets
Metal Markets (75)
Slide 76: Preferred partner in casthouse products
Preferred partner in casthouse products • Capitalizing on value-added casthouse products portfolio Extrusion ingot • Extensive multi-sourcing system 1.3 million mt including fully- and part-owned primary casthouses and stand- alone remelters Foundry alloys 0.4 million mt • Flexible sourcing system e
Slide 77: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and − Revenue impact – volume and product ingot stock valuation effect, NOK million premiums above LME 250 − Cost impact − Scrap and standard ingot premiums 200 above LME − Raw material mix 150 − Freight cost – pro
Slide 78: Rolled Products
Rolled Products (78) Q) HYDRO
Slide 79: 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 Foil 12 % − Alunorf (JV 50%) – world’s largest rolling mill Litho 19 % − Grevenbroich plant – world’s largest finishing mill Can 22 % • Strategy of high-grading product po
Slide 80: 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 (80)
Slide 81: 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 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 sensitive 400 200 •
Slide 83: Sapa joint venture
Sapa joint venture HYDRO
Slide 84: Global leader in extruded products established
Global leader in extruded products established • Sapa, 50/50 joint venture, between Hydro and Orkla • Positioned for restructuring and value creation • Established September 1, 2013 • Hydro has agreed to supply the new company with extrusion billets, ~400 000 mt per year at market prices (84)
Slide 85: 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 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 Telemark • Power producing assets and ongoing projects Normal 3.1 0.5 − Maintain cost control in operations and projects production 2044- − Holsbru and Vasstøl power plants into operation in No revers
Slide 88: Hydro’s energy map
Hydro’s energy map Energy consumption in alumina refineries, smelters and rolling mills Europe Power 16.7 TWh North America Natural gas 3.3 TWh Power 1.7 TWh Middle East Power 4.6 TWh South America Power 4.6 TWh Australia/Asia Coal 5.3 TWh Power 1.0 TWh Fuel oil 7.3 TWh Based on Hydro’s equity produ
Slide 89: Reversion regime secures Hydro’s values
Reversion regime secures Hydro’s values • Pursue value enhancement strategy − Develop and enhance value of power assets − Power assets remain an integrated part of aluminium production in Norway − Power and smelter portfolio will be reviewed concurrently − Participate in restructuring of power secto
Slide 90: 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 • Relatively weak annual EBIT contribution 300 1000 − Lower spot prices, higher area price 200 500 differences, increased transmissi
Slide 91: 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 (91)
Slide 92: Additional information
Additional information 04 (92)
Slide 93: 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 extraord
Slide 94: 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 95: Capital allocation mainly upstream
Capital allocation mainly upstream NOK billion Debt-financed investments Qatalum Investments Qatalum • Sustaining capex NOK ~3.5 billion 10.2 Growth capex annually Sustaining capex • Minor growth projects planned for 2014 • ~85% of sustaining capital to be 6.2 allocated upstream in 2014 4.6 (1) • De
Slide 96: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) Petroleum coke FOB USG (USD/mt) 750 180 600 600 150 500 120 400 450 90 300 300 60 200 150 30 100 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 201
Slide 97: 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 3 230 (820) (350) Aluminium 3 200 One-off reevaluation effect: Oil (240) Financial (1 130) 770 (1 500) items Pet coke (240) •
Slide 98: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.3% of 3-month LME price per tonne alumina • ~One month lag 840 • Realized alumina price lags PAX by one month Cost impact Bauxite 480 • ~2.45 tonnes bauxite per tonne alumina • Pricing
Slide 99: Primary Metal sensitivities
Primary Metal sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months • Realized premium lags market premium by ~2-4 months 2170 Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.3% of 3-month LME price per to
Slide 100: 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* 4% 1% NOK & 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 101: 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 102: Items excluded from underlying results - 2013
Items excluded from underlying results - 2013 NOK million (+=loss/()=gain) Q1 2013 Q2 2013 Q3 2013 Q4 2013 2013 Unrealized derivative effects on LME related contracts Bauxite & Alumina 13 (3) - 3 12 Legal settlements Bauxite & Alumina - - - 109 109 Total impact Bauxite & Alumina 13 (3) - 112 121 Unr
Slide 103: 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 Year 2013 Year 2014 Bauxite & Alumina (63) (244) (370) (379) (288) (269) (26) 528 (1 057) (55) Primary Metal 364 237 337 484 312 420 1 216 1 989 1 422 3 937 Metal Markets 146 147
Slide 104: 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 Year 2013 Year 2014 Bauxite & Alumina (76) (241) (370) (491) (284) (269) (23) 537 (1 178) (39) Primary Metal 19 122 338 377 303 434 1 278 1 912 855 3 928 Metal Markets 228 121 116 202 73 93
Slide 105: 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 Year 2013 Year 2014 Bauxite & Alumina 3 304 3 147 3 354 3 546 3 511 3 828 3 737 4 770 13 350 15 847 Primary Metal 5 945 5 896 5 884 5 554 6 618 6 384 6 986 8 075 23 279 28 064 Meta
Slide 106: 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 Year 2013 Year 2014 Bauxite & Alumina 1 322 1 253 1 277 1 375 1 304 1 424 1 480 2 071 5 226 6 279 Primary Metal 5 132 4 856 4 860 4 566 5 391 5 047 5 396 5 833 19 413 21 667 Met
Slide 107: 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 Year 2013 Year 2014 Bauxite & Alumina 429 448 417 424 410 431 442 519 1 718 1 802 Primary Metal 470 472 461 452 437 427 431 499 1 855 1 794 Metal Market
Slide 108: Income statements
Income statements NOK million Q4 2014 Q3 2014 Q4 2013 Year 2013 Year 2014 Revenue 21 656 19 698 16 570 64 877 77 907 Share of the profit (loss) in equity accounted investments (34) 287 (150) (240) 415 Other income, net 327 145 103 801 751 Total revenue and income 21 948 20 130 16 523 65 438 79 073 R
Slide 109: Balance sheets
Balance sheets NOK million Dec 31, 2014 Sep 30 2014 Jun 30 2014 Mar 31 2014 Dec 31 2013 Cash and cash equivalents 9 253 6 045 6 617 6 476 8 412 Short-term investments 1 786 1 745 1 765 3 081 2 480 Accounts receivable 11 703 11 280 10 835 11 116 9 539 Inventories 12 642 10 334 10 213 9 599 10 070 Oth
Slide 110: Operational data
Operational data Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 5 377 5 933 Sourced alumina (kmt) 476 427 711 395 550 431 532 503 2 009 2 016 Total alumina sales (kmt) 1 87
Slide 111: Operational data
Operational data Metal Markets Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year2013 Year2014 Remelt production (1 000 mt) 135 132 127 123 139 141 128 130 517 538 Third-party Metal Products sales (1 000 mt) 84 78 76 78 84 79 78 71 317 311 Metal Products sales excl. ingot trading (
Slide 112: 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 Year 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 368 350 322 1 399 Revenues 10 414 9 654 10 367 1
Slide 113: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Next event Head of Investor Relations t: +47 970 96 711 e: pal.kildemo@hydro.com First quarter results April 29, 2015 Olena Lepikhina For more information see Investor Relations Officer www.hydro.com/ir t: +47 96853035 e: olena.lepikhina@hydro.com (113)