Download - Norsk Hydro's value chain
Page 1 © Hydro
Hydro’s value chain
April 2011
From bauxite to building systems
Page 2 © Hydro
Our talents
• Building businesses
that matter
• A passion for
social commerce
• Always looking for
commercial solutions
• Making the most of
what’s available
Our Values
• Courage
• Respect
• Cooperation
• Determination
• Foresight
The Hydro Way
Hydro’s Mission
is to create a more
viable society by
developing natural
resources and
products in innovative
and efficient ways
Page 3 © Hydro
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Hydro underlying EBIT quarterly, NOK million
Resource rich and fully integrated
2008 2009 20102007
• Based in Norway with operations in 40 countries
• 23,000 employees
• Operating revenues
• 2007: NOK 94 billion,
Euro 11.7 billion
• 2008: NOK 89 billion,
Euro 10.8 billion
• 2009: NOK 67 billion,
Euro 7.6 billion
• 2010: NOK 76 billion,
Euro 9.5 billion
• Market capitalization
• End March 2011~NOK 95 billion, Euro 12 billion
6 009 (2 555) 3 3519 930
Page 4 © Hydro
Responsible business is our license to operate
10.3
7.0
6.0
5.4
4.0 4.1 3.93.7
2.9
2002 2003 2004 2005 2006 2007 2008 2009 2010
TRI rate
Safety remains a top priority Commitment to sustainable operations
• Reducing specific energy consumption and climate gas emissions
• Helping our customers reduce their climate footprint
• Responsible restructuring
• Welcoming new colleagues from Vale – drawing on their competence
• Recognized on key indexes
Page 5 © Hydro
Upstream production facilities
Bauxite/alumina
Smelters
Remelters
Page 6 © Hydro
Aluminium downstream worldwide network
Extruded Products
Rolled Products
Page 7 © Hydro
0
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9 000
Alcoa Chalco Rusal Rio Tinto Hydro afteracquisit ion
ChipingXinfa
Weiqiao BHPBilliton
Vale Hydro East HopeGroup
ChinaPower
Dubal XinfaGroup
YichuanPower
AluminiumBahrain
Century Vedanta
Alumina Aluminium
Today’s aluminium industry position
Source: CRU
Production capacity for 2010 in aluminium equivalents, million metric tons per year
Page 8 © Hydro
1Hydro’s value chain
Page 9 © Hydro
Hydro’s value chain
Bauxite Alumina EnergyPrimary
aluminiumCasting Products
Rolling
Extrusion
Page 10 © Hydro
Bauxite & Alumina
Pro forma capacity for end 2010 after Vale transaction. 100% of volumes for assets that are fully consolidated and pro rata volumes for other assets.
• Bauxite capacity 12.2 million metric tons per year
• Expansion potential to 17.2 million metric tons per year
• Alumina capacity 6.9 million metric tons per year
• Expansion potential to 14.5 million metric tons per year
• Long-term sourcing contracts for bauxite and alumina
Page 11 © Hydro
New global Bauxite & Alumina business area
MRN bauxite mine
Paragominas bauxite mine
CAP alumina refinery project
Alunorte alumina refinery
Alpart alumina refinery
Bauxite licensesRefining and mining
competenciesExternal supply
contractsSales contract
portfolio
• 5% ownership
• Signed volume off-take agreement for Vale’s 40% stake
• Capacity 18 million metric tons per year
• 60% ownership, 100% by 2015
• One of the world’s largest bauxite mines
• 2010 production 7.5 million metric tons per year
• Target to reach 10 million metric tons per year
• Possible expansion to 15 million metric tons per year
• Reserve life of several decades
• 81% ownership
• CAP refinery (Phase I) is planned to be in operation in 2015
• Paragominas expansion to be developed in parallel
• Investment estimates and expansion concepts under evaluation
• Full utilization of the existing bauxite pipeline
• 91% ownership
• World’s largest alumina refinery
• 2010 production 5.8 million metric tons per year
• Target to reach 6.3 million metric tons per year
• Bauxite supplied from Paragominas and MRN
• First quartile integrated cash cost position
• 35% ownership
• Capacity 1.65 million metric tons per year of alumina
• Fully integrated with bauxite
• 100% curtailed since mid-2009
Page 12 © Hydro
Hydro long in bauxite and alumina
0.5
1.4
1.91.8
3.3
2.2
3.7
4.2
2.2
Includes idled capacity. Assumed assets included on a pro rata basis. 2016 includes Paragominas at 15 million metric tons and CAP first phase.
Aluminium equivalent equity capacity, million metric tons per year
Hydro end-2010(Before Vale transaction)
Pro forma end-2010(60% Paragominas)
Pro forma 2016(100% Paragominas)
• Hydro’s position transformed from large share of long-term contract sourcing to full resource ownership
• Excess alumina sold on standard industry contracts until 2015
• Portfolio of bauxite and alumina sourcing contracts strengthens equity position
• Hydro will annually purchase 6.8 million metric tons of bauxite on an evergreen contract from MRN
• Hydro’s current alumina sourcing contracts will remain in portfolio
Bauxite Alumina Aluminium Bauxite Alumina Aluminium Bauxite Alumina Aluminium
Page 13 © Hydro
Energy
• Long-term power supply secured
• 9.4 TWh of renewable energy production in Norway
Page 14 © Hydro
Substantial values in long-term assets in Norway
• Stable and solid cash generation
• Indicative annual EBITDA NOK 1.6 – 1.8 billion
• Hydro’s power balance, normal year
• Normal production ~9.4 TWh
• Sourcing on long-term contracts ~7.0 TWh
• Consumption in Primary Metal* ~12.5 TWh
• Contract sales and concession power ~1.0 TWh
• Spot sales ~3.0 TWh
• Value enhancement potential
• Growth opportunities in Norway
• Holsbru project to add 84 GWh from 2012
• Optimization of power value in market, and in cooperation with smelters
3.1
2.8
3.0 0.5
Power production capacity (TWh) per region and reversion year
2044-2049
2023
2051-2057
No reversion
Telemark
Røldal-Suldal
Sogn
Normal production
9.4
* Including Sunndal 3 line currently curtailed
Page 15 © Hydro
Solid long-term power coverage for Primary Metal
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2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Self-generated Long-term
Medium-term Consumption
• 90% of power needs secured until 2020
• High share of renewable energy
• More than two-thirds of power needs from renewable sources
• Albras smelter in Brazil has hydropower-based contracts through 2024
• High share of general inflation linked and fixed-price contracts
• Limited commodity price exposure
• Securing acceptable power sourcing in Europe requires CO2 compensation
GWh
Page 16 © Hydro
Primary Metal
• 2.4 million metric tons per year primary capacity
• High LME and USD sensitivity
• Improving cost position
• Leading in technology
Pro forma capacity for end 2010 after Vale transaction. 100% of volumes for assets that are fully consolidated and pro rata volumes for other assets.
Primary aluminium
Page 17 © Hydro
Attractive Qatalum fundamentals
• Joint venture (50/50) between Qatar Petroleum and Hydro
• Capacity: 585,000 metric tons
• Smelter with world-class cash cost position
• Ideally located to serve all major markets in Asia, U.S. and Europe
• 2011 focus
• Ramp-up to be completed by June 2011
• Stabilize production and cost optimization
Page 18 © Hydro
Technology costs/spin-offs
Maintenance and relining
Investments
Procurement
Organization and manning
Casthouse product margin
Logistics
Operational improvements• Improved current efficiency
• Reduced power consumption• Reduced anode consumption
Fixed-cost reductionsand lean operations
Further operational improvements
Improvement program: $300 per mt
50
125
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Realized
2010
2011 2012 2013
onwards
Cost reduction target from 2009 level for ~1 million metric tons annual capacity
$300/mt
Page 19 © Hydro
Strong focus to further improve cost position
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Source: CRU, BOC
Estimated business operating cost 2014 by CRU
USD/metric ton
Accumulated world capacity, 1,000 metric tons
Estimated primary aluminium production cash costs
First half 2010, USD/ton
800
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1 600
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2 800
Rio Tinto Rusal Hydro Alcoa Century
Hydro
Hydro
Peer companies
Page 20 © Hydro
Metal Markets
Casting • 3.8 million metric tons (primary, remelt, recycling and cold metal)
• Expertise in materials
• Flexible system
• Strong marketing organization
• Risk management
Pro forma capacity for end 2010 after Vale transaction. 100% of volumes for assets that are fully consolidated and pro rata volumes for other assets.
Page 21 © Hydro
Leading metal products supplier in Europe
Casthouse productionPrimary production
Remelting & recyclingCommercial agreements
The preferred partner in casthouse
products and services
• Growing marketing position in U.S. and Asia through Qatalum volumes
• Enhance value of market system and optimize value on top of LME price
• Capitalize on strong market position through sourcing and trading strategies
• Firm operational LME risk management
Sheet ingot525,000 mt/year
Extrusion ingot1,550,000 mt/year
Foundry alloys450,000 mt/year
Page 22 © Hydro
Rolled Products
• 1 million metric tons per year
• Regional business
• Close to customers
• Innovation
• Market leading in litho and foil
Rolling
Page 23 © Hydro
No. 1 flat rolled products producer in Europe
• World leading positions in high-end products: foil, litho and automotive
• Record results in 2010
• Technology leadership and innovation
• Strategy
• Focus production system on core assets
• High-grading product portfolio
Automotive, heat
exchangers and general engineering
Revenues:NOK 6.8 billion
Packaging & building
Revenues:
NOK 11.3 billion
Litho
Revenues:
NOK 3.7 billion
Page 24 © Hydro
Attractive market position and customers
Our products Our customers Our position
Litho
World market leader
Foil
Can Leading position in Europe
Auto
Leading position in Europe
GE/
Building
More than 50% of products with global reach
Globalreach
Regionalreach
Page 25 © Hydro
Extruded Products
• 0.6 million metric tons/year
• Local business – Close to customers. More than 40 locations in 19 countries
• Close to customers
• Innovation and design
• Market leading in Building Systems
Extrusion
Page 26 © Hydro
Strong position in Europe, U.S. and BrazilExtruded Products
• Leading position in Europe in Extrusion and Building Systems
• Strong position in the U.S. and Brazil
• Global leader in precision tubing
• Strategy
• Reinforce European extrusion base
• Specialist in energy-neutral building solutions, including solar
• Selective acquisitions
• Entry into emerging markets
• Operating revenues ~NOK 19.4 billion
• ~9,500 employeesStrong
entrepreneur-ship,
management culture and competence
Product innovation through strong
customer relations
Extrusion EurasiaRevenues: NOK 8.8 billion
Building SystemsRevenues: NOK 5.6 billion
Extrusion North America
Revenues: NOK 2.5 billion
Extrusion South America
Revenues: NOK 0.8 billion
Precision TubingRevenues NOK 2.4 billion
Page 27 © Hydro
• “Mastering” Europe/gaining market share in the U.S.
• Close to customers due to strong regional presence
• More then 40 locations in 19 countries
• Top product innovation and design
• Main segments
• Building and construction
• Automotive
• Transport
• Solar
• 2010 sales volume: 388,000 metric tons
A true entrepreneurial-driven enterpriseExtrusion Eurasia, Extrusion North America and Extrusion South America
Location
Page 28 © Hydro
Building the future with aluminium
Aluminium used for
construction to double by
2020
The future is energy-
neutral buildings
Energy saving
• Reduce materials • High insulation
Energy gaining
• Active• Passive
100% recyclable
• Design• Limited types of,and non-harming
materials
Building Systems
2010 sales volume: 73,000 metric tons
Page 29 © Hydro
Winning in a demanding marketPrecision Tubing
• Competence - our proven resource
• Strike a new path
• Strong global presence
• 2010 sales volume: 67,000 metric tons
Page 30 © Hydro
Aluminium products
Automotive
Foil packaging
Beverage cans
Heat exchangersBuilding & construction
Lithographic plates
Consumer electronics
Heat exchangers
Hydro innovation drives product demand
Page 31 © Hydro
Recycling
• Release value of conserved energy in the material
• Improve carbon footprint and raise viability profile of Hydro
• Primary metal production is under threat in Europe – restructuring and consolidation of recycling industry
• Collected aluminium scrap volumes will increase significantly
Page 32 © Hydro
2Strong performanceand healthyfinancial position
Page 33 © Hydro
2010: A stronger Hydro
-900
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-300
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2009 20102008
• Underlying EBIT up NOK 6.1 billionfrom 2009
• Reduced costs
• Improved operational performance
• Higher prices and strengthened demand
• Secured long bauxite and alumina position
• Maintained solid financial position
• Reduced operating capital days
• Qatalum ramp-up
• Stepped up cost improvement program
6,009 (2,555) 3,551
Underlying EBIT
NOK million
Page 34 © Hydro
Strong financial position
11,0
(0,1)
2,0
Dec 31, 2009 Jun 30, 2010 Dec 31, 2010
Net cash/(debt), NOK billion
NOK billionDec 31,
2009Jun 30,
2010Dec 31,
2010
Cash and cash equivalents 2.6 2.2 10.9
Short-term investments 1.5 1.3 1.3
Short-term debt (2.0) (1.5) (0.9)
Long-term debt (0.1) (2.1) (0.3)
Net cash/(debt) 2.0 (0.1) 11.0
Net int.-bearing debt in equity
accounted invest.(8.0) (9.1) (7.8)
Net pension liability at fair value,
net of expected tax benefit(5.6) (5.2) (5.6)
Other adjustments* (4.0) (3.8) (4.0)
Adjusted net debt (15.6) (18.2) (6.4)
* Operating lease commitments and other
Page 35 © Hydro
3Outlook
Page 36 © Hydro
Aluminium is the metal of the future
• Formability• Extrusion, rolling, casting
• Low melting point vs. steel
• Excellent conductivity• Thermal – electrical
• Alloying technology• Gives a wide range of physical properties
• Lightweight• One-third the density of steel
• Recyclability• 5% of original energy consumption
• 75% of all aluminium produced still in use
• Corrosion resistant• Oxide layer
Properties leadto increasedmarket share
• Aluminium-intensive urbanization and infrastructure• Climate challenge – aluminium as part of the solution• Recyclability more important with high energy prices
Page 37 © Hydro
Firm long-term demand for aluminium
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1980 1990 2000 2010E 2020E
Source: CRU, Oct 2010
World primary aluminium demand, 1,000 metric tons
+ 18%
+ 39%
+ 54%
+ 76%
Change in % per decadeMain future
growth expectedin transportationand construction
sectors
Page 38 © Hydro
Aluminium tubing for solar collectors
Hydro is taking the lead in Europe in the introduction of aluminium tubes to the solar thermal industry, replacing traditional copper tubes
EU: Stricter emissions limitsAluminium: Part of the solution
Hydro has developed new multilayer sheet materials which enable car makers to greatly reduce nitrogen oxide emissions from vehicles
The new trend: “Aluminium cars”New Audi A6 contains a large amount of aluminium and aluminium solutions – making it lighter, safer and more environmentally sustainable
Innovation drives aluminium demand
Page 39 © Hydro
Strategy for further value creation
Bauxite & Alumina
Primary Metal
Energy
Mid- and downstream • Continue proven high-end product strategy
• Pursue profitable life-cycle investments: recycling, energy-efficient building systems, aluminum in transport
• Expand selectively in emerging markets
• Increase value of business and competence
• Focus on operation and commercialization of current assets
• Implement global approach to power sourcing
• Reposition
• Keep solid cash flow in current assets
• Expand in high-class assets
• Integrate
• Expand
• Commercialize
Page 40 © Hydro
Priorities 2011
• Successful integration of Vale’s aluminum assets
• Upstream repositioning through $300 program and Qatalum ramp-up
• Solid operations with firm cost control and strong market focus
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