Capital Markets Day 2009

Transcription

1 Capital Markets Day 2009 Svein Richard Brandtzæg, President and CEO (1)

2 Hydro s value proposition Leading integrated aluminium and energy company with global reach and attractive positions across the value chain Upstream cost position to be improved by the world-class Qatalum smelter Strong operational performance and cost focus Financial discipline Long-term prospects for aluminium remain encouraging (2)

3 Demanding market developments LME inventories rising to record-high levels Unprecedented fall in aluminium price tonnes LME 3-month in USD/tonne Jan- 08 Mar- 08 May- 08 Jul- 08 Sep- 08 Nov- 08 Jan- 09 Mar- 09 May- 09 Jul- 09 Sep Jan- 08 Mar- 08 May- 08 Jul- 08 Sep- 08 Nov- 08 Jan- 09 Mar- 09 May- 09 Jul- 09 Sep- 09 Nov- 09 (3)

4 Mixed signals in markets and economy Risk of w-shaped recovery Strong NOK LME inventories at record level Supply/demand imbalance Hydro Sales volumes increasing Margins stable Relatively strong LME-price in USD World GDP and IP growing Strong equity markets (4)

5 Significant impact on Hydro Drop in Hydro s sales volumes Jan-Sep 2009 vs Jan-Sep 2008 Drop in Hydro s underlying EBIT NOK million Upstream Downstream % -23% Jan-Sep 2008 Jan-Sep 2009 (5)

6 Agenda 2010: a stronger Hydro Navigate the storm Stay focused Shape the future (6)

7 Solid measures executed in 2009 Hydro Extruded Products Rolled Products Operating capital reduced by NOK 5.8 billion Capital expenditure plans cut by 50% from 2008-level Permanent and temporary workers reduced by Staff and support manning reduced by 30%, NOK 750 million in reduced manning and external costs Significant cost savings and manning reductions Agreement to divest Automotive Structures Decision to close Adrian precision tubing plant Significant cost savings and manning reductions Agreement to divest Inasa rolling mill Metal Markets Primary Metal Utilized flexible remelt system to quickly respond to demand changes Cash costs reduced by 30% Primary aluminium production curtailed by 26% Alumina production curtailed by 22% (7)

8 Safety remains a top priority TRI rate Jan-Oct 2009 (8)

9 Challenges remain despite achievements Energy Resilient earnings throughout downturn Extruded Products Rolled Products Metal Markets Profitable in Q3 after losses in three prior quarters Demand still at low level Profitable in Q3 after losses in two prior quarters Demand still at low level Full production in tight product market Net margins at low level Primary Metal Overall cost position needs to be further improved (9)

10 Repositioning Primary Metal Hilde Merete Aasheim, Executive Vice President Primary Metal Tom Røtjer, Executive Vice President Projects (10)

11 Primary Metal has taken strong measures to address the challenges Capacity adjustments Reduced remelting Produced standard ingot instead of products Reduced primary capacity Cut raw material costs and fixed costs Production curtailments Reduced manning Strong focus on procurement initiatives Tight cash discipline Cut capital expenditures Reviewed sustaining capital expenditure level Reduced operating capital (11)

12 Targeted cash cost improvements achieved Cost* in USD per tonne indexed, 2008=100 ~(30)% Production curtailments at high-cost smelters Karmøy (Søderberg line) Neuss Søral Sunndal 3 line Year 2008 Q Reduced input costs in 2009 Alumina Petroleum coke Fuel oil, caustic soda, coal, freight and alloys Fixed costs Alumina Power Anodes Other *Includes only 100% owned smelters. Year 2008 cash cost based on LME for alumina cost of ~USD 2 750, and NOK/USD ~5.6. Q recalculated based on LME for alumina cost of USD 1 500, and NOK/USD 6.5. (12)

13 Primary Metal continues to cut cash cost Focus on lean smelter operations and operational excellence 2009 * Alumina 29% Conversion cost 31% Target to reduce cash cost by 100 USD per tonne, representing 20% reduction in conversion cost Carbon 13% * Includes only fully consolidated smelters Power 27% (13)

14 Ambitious plan to cut cost by 100 USD/tonne 90% to be realized by end-2011 compared to % 90% 80% 70% 60% 50% 40% 30% Accelerated operational performance defined within Primary Metals production management system: Improved current efficiency Reduced power consumption Reduced anode consumption Reduced fixed cost and lean operations 20% 10% 0% 2010E 2011E 2012E Calculation based on stable assumptions for LME, currencies, raw material prices etc. Includes only fully consolidated smelters. (14)

15 Next steps in repositioning Implement stretch targets for cost savings and operational performance at existing assets Continued efforts on procurement initiatives Production curtailments Additional curtailments if needed No restarts before it makes financial and industrial sense New growth projects only in first quartile on cost curve Qatalum start-up (15)

16 (16) Qatalum completion November 94% Potroom buildings 1.2 km long

17 (17) 2008 September - Potroom buildings

18 (18) Plant overview - October 26, 2009

19 (19) Inside potroom buildings

20 (20) 2009 September - first anode rodding

21 (21) Anode baking and storage

22 (22) Anode baking

23 (23) Casthouse

24 (24) 2009 October - raw material storage

25 (25) 2009 October - first ship with liquid pitch

26 (26) October power plant

27 (27) Construction village

28 (28) Leading integrated aluminium and energy company

29 Creating strength by being integrated Energy Primary Metal Metal Markets Rolled Products Extruded Products Normal power production capacity 9.4 Twh Primary capacity mt, remelt capacity mt Remelt capacity mt Sales mt Sales mt Sales mt Broader strategic options Financial robustness Operational synergies Research, development and technology Metal balance and commercial capabilities Strong leadership and talent pool Production/sales figures for 2008 (29)

30 Strong power position Share of self-generated power * Percent 60% 50% 40% 30% 20% 10% Industry average 2007** Share of renewable energy Percent 80% 70% 60% 50% 40% 30% 20% 10% 0% % 2009 est * Including normal production of equity power less concession power sales ** Source: CRU Hydro* World average** (30)

31 Power assets represent solid values Power production is an integrated part of aluminium production in Norway Normal production capacity per region and terms Normal production today 9.4 Twh Development potential TWh Telemark No reversion Reversion implications No renewal or new concessions Can own up to 1/3 of publicly owned plants Everlasting concessions if sold to public companies Implications for Hydro First large system to revert in 2023 Value protected by possibility to sell assets Exposure to power market can be maintained Sogn Røldal-Suldal TWh Note: public ownership implies ownership by the state or municipalities (31)

32 Long-term power sourcing at competitive prices Indexation of power supplies Percent 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% Self-generation and long-term contracts ensures predictability and robustness Limited commodity exposure Indexation to LME and coal with time-lag NOK and USD the dominant currency exposure ~20 TWh power consumption in Primary Metal in 2009 Self generated Inflation Fixed LME Coal (32)

33 Favorable alumina position Alumina coverage Percent 140% 120% 100% 80% 60% 40% 20% LME-linked contracts Equity from CAP* Equity 0% % ownership in Alunorte World s largest alumina refinery Highly competitive conversion cost Bauxite Hydro s share of Alunorte production covered by 17% equity bauxite, remainder on longterm contracts Strategy Improve cost position Grow with CAP project Further increase bauxite/alumina coverage CAP is illustrated with the first stage plus two expansions. (33)

34 Attractive upstream growth pipeline Qatalum 2 aluminium smelter, Qatar CAP alumina refinery, Brazil Hydro power developments, Norway Potential for expanding Qatalum up to 1.2 million mt Utilize next-generation smelting technology, HAL4e Joint venture agreement between Vale (61%), Hydro (20%) and Dubal (19%) First stage 1.9 million mt of alumina, potential for expansions up to 7.4 million mt Development potential TWh Utilizing existing concession areas and infrastructure (34)

35 Strong midstream position Leading supplier in Europe growing globally Primary production Extrusion ingot Remelting & recycling Casthouse Primary foundry alloys Commercial agreements Sheet ingot (35)

36 Downstream: Extruded Products Underlying EBITDA* NOK million (1) 2009 *Excluding Automotive Structures 222 Leading positions in Extrusion Eurasia and Building Systems Strong entrepreneurial spirit, management culture and competence Product quality and service excellence Product innovation through strong customer relations Performance management operational excellence Strong position in the US and Brazil Strategy Reinforce European extrusion base Specialist in energy-neutral building solutions Selective acquisitions Entry into new markets (36)

37 Downstream: Rolled Products Strong position in foil, litho and automotive Underutilization and overcapacity is an industry challenge Underlying EBITDA NOK million Strategy Margin management and cash generation Focus production system on core assets High grading product portfolio (37)

38 Agreement to divest Inasa rolling mill signed Bavaria Industriekapital AG to acquire Hydro s smallest European rolling mill Inasa in Spain Annual capacity of tonnes Break-even EBITDA in the last four years In line with Hydro s strategy to focus on its core rolling mills Transaction summary Cash neutral Expected closing within 3-4 months After-tax loss of NOK 200 million to be charged to Q4 results (38)

39 (39) Long-term prospects for aluminium remain encouraging

40 Indefinite ideas in aluminium 1/3 the density of steel Recyclability 5% of original energy consumption 75% of all aluminium produced still in use Corrosion resistant Oxide layer Formability Extrusion, rolling, casting Low melting point vs. steel Excellent conductivity Thermal electrical Alloying technology gives a wide range of physical properties (40)

41 Global megatrends Preparing for a low-carbon economy Millions emerge from poverty Ever increasing demand for energy Climate change (41)

42 Aiming for the next leap in primary technology HAL 300 HAL4e Future technology vision 13.3 kwh/kg 1.6 tonne CO2/tonne aluminium 12.8 kwh/kg 1.5 tonne CO2/tonne aluminium Significantly lower kwh/kg 0 tonne CO2/tonne aluminium (42)

43 Put the world on an energy diet (43)

44 Energy-neutral buildings (44)

45 High growth rates expected next 10 years World semis consumption in important sectors: average annual growth rate % tonnes / % annual growth % 6.9% % % 4.0% 7.8% 7.2% 5.6% 0 Source: CRU Transport Construction Packaging Foil Stock Electrical Consumer Durables Machinery & Equipment Other (45)

46 (46) Concluding remarks

47 Balance sheet cash positive Net cash in NOK billion Ordinary and extraordinary dividend paid in 2008 Net cash NOK 2.4 billion end-q3 Adjusted net debt* NOK 19.0 billion end-q3 Maintaining investment grade rating highly prioritized Dec 31, 2007 Dec 31, 2008 Sep 30, 2009 *Including net interest-bearing debt in joint ventures, net pension liability, operating lease commitments and other (47)

48 Competitive shareholder returns Relative share price development in USD Capital Markets Day Sep 24, 2008 Nov 27, Hydro aims to give its shareholders competitive returns compared to alternative investments in peers Dividend policy maintained 30% of net income over the cycle Sep- 08 Oct- 08 Nov- 08 Dec- 08 Jan- 09 Feb- 09 Mar- 09 Apr- 09 May- 09 Jun- 09 Jul- 09 Aug- 09 Sep- 09 Oct- 09 Hydro 8% Alcoa (51)% BHP Billiton 22% Rio Tinto (30)% Vale 36% Century (73)% (48)

49 Hydro s priorities Reposition upstream business Execute Qatalum Proactive corrective measures Financial flexibility Stay close to customers Solid operations (49)

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