Investor presentation                        May/June 2011
Table of contents                   Cautionary note                                    Certain statements included within ...
Company      overview(3)
Hydro: resource rich and fully integrated                                         Hydro underlying EBIT quarterly, NOK mil...
Hydro’s value proposition                       • Transforming bauxite and alumina                         acquisition enh...
Strong positions across aluminium value chain    Raw materials processing                           Primary aluminium prod...
Aluminium is the metal of the future  • Lightweight                                        • Formability      • 1/3 densit...
Hydro becomes first tier aluminium companyProduction capacity for 2010 in aluminium equivalents, million tonnes9 000      ...
Responsible business is our license to operateSafety remains a top priority                                      Commitmen...
Strategy for further value creation Bauxite & Alumina                        • Integrate                        • Expand  ...
Market       outlook(11)
Significant aluminium demand growth expectedDemand for primary aluminium                                                  ...
Aluminium price increase, strong premiumsAluminium price          USD per tonne                                    Ingot p...
Volumes seasonally higher        Hydro’s downstream sales Q1 2011 vs Q4 2010                                              ...
Mid-term development scenario thinkingWorld outside China1 000 tonnes28 000                                               ...
Global inventory days trending downWorld reported primary aluminium inventories                • Inventory days reduction ...
China balanced in primary aluminium 1 000 tonnes             600                                                          ...
Positive 2011 market outlook maintainedWorld outside China (quarterly annualized)                                         ...
Downstream demand developmentDemand, million tonnes                                                                       ...
66% of bauxite reserves in 3 countriesBillion tonnes                                                          Guinea      ...
China dependent on bauxite importsChinese bauxite sourcing            • Domestic bauxite reserves estimatedMillion tonnes ...
Significant alumina demand growth expectedMillion tonnes160                                                               ...
Alumina market expected to remain balanced       Alumina balance world outside China, million tonnes       90             ...
Alumina market is consolidatingNet long alumina position, million tonnes Alcoa                                     4.3    ...
Attractive cost positionGlobal business operating cost curve 2010USD per tonne                                            ...
Alumina price developmentHistorical alumina price                                                        Platts index in U...
Commodity prices drive industry costsCrude oil – Brent       (USD/bbl)          Coal – CIF ARA      (USD/mt)              ...
Strong power prices, low reservoir levelsHydro’s snow and water reservoir levels assumed better than market averageMarket ...
First quarter       results 2011(29)
• Vale transaction completed       • Qatalum ramp-up on track       • Positive market outlook(30)
Q1 highlights•   Underlying EBIT NOK 1 448 million•   Stronger sales supported by seasonally improved markets•   Stable Ba...
Ambitious cost improvement program on targetEstimated primary aluminium cash cost and margin                              ...
Historic Vale transaction completed• Platform for further growth as fully   integrated resource-rich aluminium   company• ...
Underlying EBIT                                                                                                           ...
Underlying EBIT developmentNOK billion                                                0.2              (0.2)              ...
Key financials NOK million                           Q1 2011   Q4 2010   Q1 2010   Year 2010 Revenue                      ...
Tax and financial expenseTax                                                          FinanceNOK million                  ...
Items excluded from underlying EBIT NOK million                                   Q1 2011   Q4 2010   Q1 2010   Year 2010 ...
Pro forma underlying EBIT & EBITDAUnderlying EBIT before transaction and contribution from acquired Vale assetsNOK million...
Preliminary purchase price allocation                                                                                NOK b...
Pro forma income statement Q1 2011                                                                                  Vale  ...
Bauxite & AluminaPro forma                                          Q1        Q4      Q1 Key figures                      ...
Primary MetalPro forma                                         Q1         Q4       Q1 Key figures                         ...
Metal Markets                                                    Q1      Q4        Q1 Key figures                         ...
Rolled Products                                     Q1     Q4      Q1 Key figures                       2011   2010    201...
Extruded Products                                     Q1     Q4      Q1 Key figures                       2011   2010    2...
Energy                                        Q1      Q4      Q1 Key figures                          2011    2010    2010...
Net cash development Q1NOK billion              Net cash flow from                    Net cash flow from                  ...
Robust financial positionNet cash/(debt), NOK billion                                                                     ...
Priorities 2011                         • Successful integration and improved                           performance in Bau...
Business       overview(51)
Bauxite & Alumina(52)
High-quality asset portfolio MRN                  Paragominas                 Alunorte alumina               CAP alumina  ...
Integration process well underway                      • Solid management team                      • Global organization ...
Paragominas – production process• Production process  • Strip mining allows for quick environmental    recovery  • Bauxite...
Paragominas – production process                         Reclaimer                    Silo                      SAG mill  ...
Paragominas bauxite mining costs• Labor largest cost factor              Paragominas bauxite mining costs 2010  • Influenc...
Paragominas prioritiesBauxite production, million tonnes            • Operational improvements10                          ...
Alunorte - production process                                                                               Bauxite dewate...
Alunorte prioritiesAlumina production, million tonnes                          • Operational improvements7                ...
Favorable integrated alumina cash cost position• Integrated alumina cash cost position 2010              Integrated alumin...
Expansion projects - CAP and Paragominas III                      • Capacity                       • CAP alumina refinery ...
Business model – volume flows1 000 tonnes, pro forma 2010                                                    External     ...
Attractive alumina position1 000 tonnes9 000                  Open position not committed to sales contracts8 000         ...
Shift towards shorter contract durations            % of LME per tonne alumina for                        Contract duratio...
Alumina pricing shifting from LME-link toalumina market fundamentals                       • Future pricing should reflect...
Hydro’s commercial strategy                      • Move towards index pricing                        • Currently not offer...
Strong social and environmental commitment• Strategic partnerships to establish  basis for multi-party dialogue  • Social ...
Primary Metal(69)
World-wide production networkPrimary aluminium annual production capacity                                                 ...
Strong focus to further improve cost positionEstimated primary aluminium production                                      E...
Improvement program: USD 300 per tonneCost reduction target from 2009 level for ~1 000 000 tonnes annual capacity         ...
Attractive Qatalum fundamentals        Joint venture (50/50) between        World-class smelter        Qatar Petroleum and...
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
Investor presentation - July 2011
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Hydro prepares an investor presentation each quarter, which is used in meetings with investors and financial analysts. The presentation is based on the latest capital markets day presentation with subsequent updates each quarter.

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Investor presentation - July 2011

  1. 1. Investor presentation May/June 2011
  2. 2. Table of contents Cautionary note 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 strategies for Hydro, such as planned expansions, Company overview 3 investments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, Market outlook 11 (d) various expectations about future developments in Hydro’s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by “expected”, “scheduled”, “targeted”, First quarter results 2011 29 “planned”, “proposed”, “intended” or similar statements. Although we believe that the expectations reflected in such forward- Business overview 51 looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our – Bauxite & Alumina 52 actual results to differ materially from those projected in a forward- looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not – Primary Metal 69 limited to: our continued ability to reposition and restructure our upstream and downstream aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for – Metal Markets 78 aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro’s – Rolled Products 82 key markets and competition; and legislative, regulatory and political factors. – Extruded Products 89 No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, – Energy 96 future events or otherwise. Additional information 102(2)
  3. 3. Company overview(3)
  4. 4. Hydro: resource rich and fully integrated Hydro underlying EBIT quarterly, NOK million 9 930 6 009 (2 555) 3 551 1 448 • Based in Norway with 3 200 operations in 40 countries 2 800 • 23 000 employees 2 400 2 000 • Operating revenues 1 600 • 2007: NOK 94 billion 1 200 • 2008: NOK 89 billion 800 • 2009: NOK 67 billion 400 • 2010: NOK 76 billion 0 • Current market capitalization (400) • NOK 100 billion/USD 18 billion (800) 2007 2008 2009 2010 2011(4)
  5. 5. Hydro’s value proposition • Transforming bauxite and alumina acquisition enhances earnings robustness and provides long alumina position for decades to come • Repositioning of Primary Metal on track for USD 300 per tonne cost improvement by end-2013 • World-class Qatalum smelter in full production from June 2011 • Increasing value of Energy business and competence • Exciting prospects for high-end downstream business in mature and emerging markets • Proactive portfolio, performance and margin management(5)
  6. 6. Strong positions across aluminium value chain Raw materials processing Primary aluminium production, Aluminium in products and energy marketing and recycling Bauxite Primary Metal Rolled Extruded & Alumina Energy Metal Markets Products Products• Bauxite capacity • Long-term power • 2.4 million tonnes • 3.8 million tonnes • 1 million tonnes • 0.6 million tonnes 12.2 million tonnes supply secured primary capacity (primary, remelt, • Margin business • Margin business• Expansion potential • 9.4 TWh of renewable • High LME and USD recycling and cold • Regional business • Local business to 17.2 million tonnes energy production sensitivity metal) • Close to customers • Close to customers• Alumina capacity in Norway • Improving cost • Expertise in materials • Innovation • Innovation 6.9 million tonnes position • Flexible system • Market leading in • Market leading in• Expansion potential • Leading in technology • Strong marketing litho and foil Building Systems to 14.5 million tonnes organization• Long-term sourcing • Risk management contracts for bauxite and aluminaPro forma capacity for end-2010 after Vale transaction. 100% of volumes for assets that are fully consolidated and pro rata volumes for other assets.(6)
  7. 7. Aluminium is the metal of the future • Lightweight • Formability • 1/3 density of steel • Extrusion, rolling, casting • Low melting point vs. steel • Recyclability • 5% of original energy consumption • Excellent conductivity • 75% of all aluminium produced still in use • Thermal – electrical • Corrosion resistant • Alloying technology • Gives wide range of physical properties • Oxide layer Properties lead • Aluminium intensive urbanization and infrastructure to increased • Climate challenge – aluminium as part of the solution market share • Recyclability more important with high energy prices(7)
  8. 8. Hydro becomes first tier aluminium companyProduction capacity for 2010 in aluminium equivalents, million tonnes9 000 Alumina Aluminium8 0007 0006 0005 0004 0003 0002 0001 000 0 Alcoa Chalco Rusal Rio Tinto Hydro pro Chiping Weiqiao BHP Vale Hydro East Hope China Dubal Xinf a Yichuan Aluminium Cent ury Vedant a forma Xinf a Billit on Group Power Group Power BahrainSource: CRU(8)
  9. 9. Responsible business is our license to operateSafety remains a top priority Commitment to sustainable operationsTRI rate • Reducing specific energy consumption and climate gas emissions 10.3 • Helping our customers reduce their climate footprint • Responsible restructuring 7.0 • Welcoming new colleagues from Vale 6.0 – drawing on their competence 5.4 • Hydro is recognized on key indexes 4.0 4.1 3.9 3.7 2.9 2002 2003 2004 2005 2006 2007 2008 2009 2010(9)
  10. 10. Strategy for further value creation Bauxite & Alumina • Integrate • Expand • Commercialize Primary Metal • Reposition • Keep solid cash flow in current assets • Expand in high-class assets Energy • Increase value of business and competence • Focus on operations and commercialization of current assets • Implement global approach to power sourcing 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(10)
  11. 11. Market outlook(11)
  12. 12. Significant aluminium demand growth expectedDemand for primary aluminium World outside China ChinaMillion tonnes9080 +80%70 3760 285040 17 3730 3120 2410 0 2010 2015 2020 Fight for raw materials to continue Resource-constrained world(12)
  13. 13. Aluminium price increase, strong premiumsAluminium price USD per tonne Ingot premiums USD per tonne3 400 200 1753 000 1502 600 125 1002 200 751 800 501 400 25 01 000 Jan-08 Apr-08 Jul-08 Oct-08 Jan-09 Apr-09 Jul-09 Oct-09 Jan-10 Apr-10 Jul-10 Oct-10 Jan-11 2001 2003 2005 2007 2009 2011 2013 2015 LME (3-month avg.) LME forward April 21, 2011 US Mid West Japan Europe*Primary aluminium LME USD/tonne NOK/tonne Ingot premiums, USD/tonne US Mid West Japan EuropeQ1 2010 average 2 527 14 437 Q1 2011 average 140 113 193Q1 2010 end 2 632 14 502 Q4 2010 average 138 116 189Q4 2010 average 2 368 14 036Q4 2010 end 2 468 14 368 Average 2010 138 120 159Average 2010 2 199 13 257 Average 2009 105 95 58Average 2009 1 702 10 575Average 2008 2 620 14 453 Average 2008 93 79 83 * Duty-paidSource: Reuters Ecowin Source: Metal Bulletin, MW/MJP: Platts(13)
  14. 14. Volumes seasonally higher Hydro’s downstream sales Q1 2011 vs Q4 2010 Total downstream sales* Rolled Products: +5% Extruded Products: +8% Foil Litho Can Packaging Auto & General Extrusion Building Extrusion Extrusion Precision beverage & building heat engineering Eurasia Systems North South Tubing exchanger America America Q1 11 vs Q1 11 vs 16% 17% 17% Q4 10 Q1 10 14% 10% 6% 6% 3% 4% 3% 1% -6% -13% Hydro’s upstream sales Q1 2011 vs Q4 2010 Total upstream sales Extrusion ingot Sheet ingot Foundry alloys Q1 11 vs Q1 11 vs Q4 10 Q1 10 19% 15% 12% 4% 2% Albras included from March 1, 2011(14)
  15. 15. Mid-term development scenario thinkingWorld outside China1 000 tonnes28 000 Supply Demand27 00026 00025 000 3%–6%24 000 5%–9%23 00022 000 Supply influences Demand influences21 000 • New projects 19% • GDP growth • Potential restart • Further restocking • Supply disruptions • Emerging markets20 00019 00018 000 2006 2007 2008 2009 2010 2011 2012Source: CRU/Hydro(15)
  16. 16. Global inventory days trending downWorld reported primary aluminium inventories • Inventory days reduction driven by1 000 tonnes Days increased consumption7 000 806 000 70 • Q1 LME stocks increase believed to partly reflect unreported metal moved into 605 000 reported warehouses 504 000 • High inventories well known in market 40 • Different views on unreported inventories3 000 302 000 • Estimated total reported and unreported 20 inventories ~11 million tonnes1 000 10 • Represents ~3 months of consumption 0 0 • Financial deals locking up metal Q1 07 Q3 07 Q1 08 Q3 08 Q1 09 Q3 09 Q1 10 Q3 10 Q1 11 • Profitable on a 3-6 month horizon IAI Other LME SHFE Global inventory daysSource: CRU(16)
  17. 17. China balanced in primary aluminium 1 000 tonnes 600 • Reduced production due to 500 Chinese New Year celebration 400 in FebruaryNet import 300 • Production resumed after 200 Chinese New Year 100 • China expected to be broadly 0 balanced in 2011 (100) • New capacity to be built inNet export (200) north and west China (300) • Partly replacing high-cost (400) production in south and east 2007 2008 2009 2010 Primary / alloyed Semis Fabricated Scrap Total Source: Hydro / Antaike, April 2011 (17)
  18. 18. Positive 2011 market outlook maintainedWorld outside China (quarterly annualized) • World outside China1 000 tonnes • Annualized demand at 25.3 million tonnes in Q130 000 • Up 1% vs Q4 201028 00026 000 • 7% demand growth expected in 201124 000 • Capacity development22 000 • 1.2 million tonnes curtailed capacity restarted20 000 or in process of being restarted18 000 • 1.2 million tonnes curtailed capacity may16 00014 000 restart if current market conditions continue12 00010 000 8 000 • China 6 000 • Annualized demand at 16.7 million tonnes in Q1 4 000 • Down 3% vs Q4 2010 2 000 0 • 10% demand growth expected in 2011 • Broadly balanced in primary aluminium Dec-07 Mar-08 Jun-08 Sep-08 Dec-08 Mar-09 Jun-09 Sep-09 Dec-09 Mar-10 Jun-10 Sep-10 Dec-10 Mar-11 Demand ProductionSource: CRU(18)
  19. 19. Downstream demand developmentDemand, million tonnes Share of semis consumption27 2010 – 54 million tonnes Western Europe North America China & Mexico22 Consumer Electrical durables 10% 7% Packaging17 Machinery 9% & equipment 10% Foil stock 8%12 Other 6% Transport 26% 7 Construction 24% 2 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012 2008 2009 2010 2011 2012-3 Transport C onstruction Packaging Foil Electrical C onsumer durables Machinery & equipment OtherSource: CRU Source: CRU LT October 2010(19)
  20. 20. 66% of bauxite reserves in 3 countriesBillion tonnes Guinea 14.9 China 2.1 Mali 0.9 1.2 0.0 4.0 India Vietnam Jamaica Venezuela 1.6 2.3 1.1 0.5 1.8 0.4 0.3 0.0 Indonesia Cameroon 1.0 0.1 1.2 0.0 Brazil Australia 8.2 9.5 5.9 2.0 Big-league (Top- 3) Total bauxite, billion tonnes: reserves, mine site resources *, and undeveloped resources ** Mid-league (Top- 11; each > 2% of world total) Potential reserves, billion tonnes: associated with currently operating mines ****) Mine site resources are known bauxite resources that do not currently qualify as reserves for various reasons**) Undeveloped resources might or might not became feasible for new mines (quality, size, access, etc)***) Potential reserves = current reserves (economically extractible) + 70% of mine site resources. Undeveloped resources are excluded.(20)Source: Roskill and Hydro analysis
  21. 21. China dependent on bauxite importsChinese bauxite sourcing • Domestic bauxite reserves estimatedMillion tonnes at 1.3-2.0 billion tonnes 115 Import 42 Domestic source • Quality of domestic bauxite resources 67 73 deteriorating 30 21 37 • Indonesia supplies ~75% of imported 19 bauxite 2005 2010 2015 • The balance mainly from AustraliaChinese alumina sourcingMillion tonnes 54 • China to be relatively balanced in alumina Import 5 49 • Minor imports Domestic source 35 4 29 • New alumina capacity mainly based on 16 domestic bauxite 7 9 2005 2010 2015 Source: Antaike / Hydro(21)
  22. 22. Significant alumina demand growth expectedMillion tonnes160 +80% Alumina demand140 135 Production China 55 Production world outside China 118120 48100 81 80 29 80 70 60 52 40 20 0 2010 2015 2020*2020 production world outside China includes 10 million tonnes of highly probable projectsSource: Hydro analysis/ Antaike(22)
  23. 23. Alumina market expected to remain balanced Alumina balance world outside China, million tonnes 90 Alumina demand + export to China 6-10 80 Highly probable new capacity million Alumina production tonnes 70 60 50 40 30 20 10 0 2011 2012 2013 2014 2015 2020Export to 3.5 3.5 4.0 4.5 4.5 5.0ChinaIdled 5.1 4.2 4.2 3.5 3.5 3.5capacitySource: Hydro analysis / CRU(23)
  24. 24. Alumina market is consolidatingNet long alumina position, million tonnes Alcoa 4.3 Alcoa 8.0 Vale 3.0 Chalco 2.8 Glencore 2.4 BHP Billiton 2.1 Chalco 2.0 Hydro 1.5 BHP Billiton 1.9 Glencore 1.5 Kaiser 1.0 Rio Tinto 0.7 Alcan 0.8 Klesch -0.5 Sual 0.7 Rusal -0.6 Rio Tinto 0.5 Tajik -0.8 Pechiney 0.4 2000 Aluar -0.9 2011 VAW -0.5 Century -1.1 Hydro -0.6 Vimetco -1.1 Alba -0.9 Alba -1.7 Dubal -1.0 Dubal -2.2 Rusal -1.2 Source: CRU and Hydro analysis(24)
  25. 25. Attractive cost positionGlobal business operating cost curve 2010USD per tonne Alunorte stand-alone450400350300 Average - USD 243250200150100 50 0 0 5 10 15 20 25 30 35 40 45 50 55 60 65 70 75 80 85 90 Million tonnesSource: CRU(25)
  26. 26. Alumina price developmentHistorical alumina price Platts index in USD* Alumina price Alumina priceUSD per tonne % LME USD per tonne % LME % of LME % of LME700 32 450 20600 28 425 24 400 18500 20 375400 16 350 16300 12 325200 8 300 14100 4 275 0 0 12 250 1998 2000 2002 2004 2006 2008 2010 09.10 10.10 11.10 12.10 01.11 02.11 03.11 04.11Source: Reuters/CRU/Platts. *Platts started spot notifications in August 2010(26)
  27. 27. Commodity prices drive industry costsCrude oil – Brent (USD/bbl) Coal – CIF ARA (USD/mt) Petroleum coke FOB USG (USD/tonne)160 245 550140 210 500120 175 450100 140 400 80 105 350 60 70 300 40 35 250 0 200 20 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011Power – EEX Germany (EUR/MWh) Freight – Baltic Dry Index Caustic soda (USD/tonne)90 11 900 1 20080 10 200 1 05070 8 500 90060 6 800 75050 5 100 60040 3 400 45030 1 700 30020 0 150 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011 2005 2006 2007 2008 2009 2010 2011Source: Reuters Ecowin / PACE / CMAI(27)
  28. 28. Strong power prices, low reservoir levelsHydro’s snow and water reservoir levels assumed better than market averageMarket price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2)NOK/MWh Percent 700 100 2010 2011 2010 2011 90 600 80 500 70 60 400 50 300 40 200 30 20 100 10 0 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week Week Price NOK/MWh Q4 2010 Q1 2011 Reservoir levels Dec 31, 2010 Mar 31, 2011 System 498 518 Norway 45.3 % 18.1 % Southwestern Norway (NO2) 469 520 Southwestern Norway (NO2) 42.8 % 15.4 %Source: Nordpool and NVE(28)
  29. 29. First quarter results 2011(29)
  30. 30. • Vale transaction completed • Qatalum ramp-up on track • Positive market outlook(30)
  31. 31. Q1 highlights• Underlying EBIT NOK 1 448 million• Stronger sales supported by seasonally improved markets• Stable Bauxite & Alumina result, weak production performance• Primary Metal up on higher prices, partly offset by increased raw material costs• Down- and midstream lifted by higher sales and lower costs• Solid Energy result(31)
  32. 32. Ambitious cost improvement program on targetEstimated primary aluminium cash cost and margin • USD 300 per tonne cost improvementUSD/tonne 1) • USD 50 per tonne realized in 2010 475 475 • Further USD 125 per tonne targeted in 2011 425 475 375 375 2 175 25 • Cash cost up ~USD 125 from 2010 1 750 1 875 due to increased raw material costs 1 675 • Energy 1 475 • LME-linked alumina prices 1 275 1 275 1 225 • Petroleum coke • Weaker USD • Program assumptions 2008 2009 2010 Q1 2011 3) • Higher energy and petroleum coke costs may offset some improvements Estimated cash cost excluding LME-linked alumina cost 2) Estimated LME-linked alumina cost 2) • Improvements may be influenced by fluct- Estimated EBITDA margin uations in raw material prices and currencies1) Realized aluminium price minus EBITDA margin per tonne primary • Applies to ~1 000 000 tonnes annual capacity aluminium. Excludes Qatalum earnings and volumes, but includes net earnings from primary casthouses.2) 13% of LME 3 month price with 2.5 months delay3) Albras included from March 1, 2011(32)
  33. 33. Historic Vale transaction completed• Platform for further growth as fully integrated resource-rich aluminium company• Positions Hydro as a leading global bauxite and alumina player• Integration process well under way• Key priority: increase production towards nameplate capacity • Weak production performance in Q1• Promising growth prospects• Vale has become key shareholder in Hydro with 22% ownership(33)
  34. 34. Underlying EBIT 1 448 1 110 965 688 588 -493 -618 -651 -793 NOK million Q1 2009 Q2 2009 Q3 2009 Q4 2009 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011 Bauxite & Alumina 1) (228) (73) 21 (117) 162 288 71 113 155 Primary Metal 1) 3 (815) (780) (623) (169) 382 318 86 583 Metal Markets (245) 196 (15) (20) 65 31 163 62 143 Rolled Products (53) (28) 51 57 223 309 227 105 232 Extruded Products (204) (26) 95 68 117 201 102 24 105 Energy 447 281 217 295 588 177 169 482 573 Other and eliminations 1) (213) (153) (382) (311) (297) (278) (85) (284) (344) Total (493) (618) (793) (651) 688 1 110 965 588 1 4481) Bauxite & Alumina, Primary Metal and Other and eliminations are reclassified from 2009.(34)
  35. 35. Underlying EBIT developmentNOK billion 0.2 (0.2) 0.1 1.4 0.3 0.4 0.6 Q4 2010 LME price and Volume Equity accounted C ost smelters Other Q1 2011 currency investments(35)
  36. 36. Key financials NOK million Q1 2011 Q4 2010 Q1 2010 Year 2010 Revenue 21 138 19 406 18 145 75 754 Underlying EBIT 1 448 588 688 3 351 Items excluded from underlying EBIT 4 408 180 297 (167) Reported EBIT 5 855 768 985 3 184 Financial income (expense) (93) 292 545 522 Income (loss) before tax 5 762 1 060 1 530 3 706 Income tax expense (608) (401) (605) (1 588) Net income (loss) 5 154 658 924 2 118 Underlying net income (loss) 1 244 376 401 1 852 Reported EPS, NOK 2.89 0.39 0.68 1.33 Underlying EPS, NOK 0.65 0.21 0.27 1.14(36)
  37. 37. Tax and financial expenseTax FinanceNOK million Q1 2011 Q4 2010 NOK million Q1 2011 Q4 2010Income before tax 5 762 1 060 Interest income 51 84 Dividends received and net gain on securities (10) 22Equity accounted investments (19) 17 Financial income 41 107Revaluation gain Alunorte and CAP 4 222 -Adjusted income before tax 1 559 1 043 Interest expense (80) (30) Net foreign exchange gain (loss) (30) 232Income tax expense (608) (401) Other (25) (16) Financial expense (134) 185Effective tax rate 11% 38%Adjusted effective tax rate 39% 38% Net financials (93) 292• Low tax rate for Q1 due to tax-free revaluation • Lower interest income due to reduced cash gain on previous stakes in Alunorte and CAP balance in Q1• Adjusted effective tax rate influenced by high • Net foreign exchange loss due to weaker USD share of earnings from Energy subject to power largely offset by gains on intercompany balances sur tax in EUR(37)
  38. 38. Items excluded from underlying EBIT NOK million Q1 2011 Q4 2010 Q1 2010 Year 2010 Underlying EBIT 1 448 588 688 3 351 Unrealized effects power contracts 40 (151) (272) (609) Unrealized LME and other derivative effects (136) 283 230 (117) Metal effect, Rolled Products 176 92 314 560 Rationalization charges and closure costs - (131) 19 (130) Impairment charges - (12) (61) (187) Gains (losses) on divestments - 7 67 74 Vale transaction related effects 4 328 - - - Other - 91 - 242 Reported EBIT 5 855 768 985 3 184(38)
  39. 39. Pro forma underlying EBIT & EBITDAUnderlying EBIT before transaction and contribution from acquired Vale assetsNOK million 3 351 + 790 = 4 141 1 538 1 369 91 1 231 259 1 448 266 1 110 841 698 965 253 688 588 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011Underlying EBITDA before transaction and contribution from acquired Vale assetsNOK million 6 420 + 3 030 = 9 450 2 881 2 702 2 555 467 825 835 2 213 2 415 1 979 830 539 1 877 1 720 1 440 1 383 Q1 2010 Q2 2010 Q3 2010 Q4 2010 Q1 2011(39)
  40. 40. Preliminary purchase price allocation NOK billionProperty, plant and equipment 44.8Goodwill 2.7Net other assets 9.2Deferred tax liabilities (6.2)Net interest-bearing debt (6.4)Net assets acquired 44.1Net assets acquired by Hydro 37.0Minority interests 7.1Net assets acquired 44.1Consideration shares issued to Vale 20.0Cash consideration paid 6.3Deferred cash payment Paragominas 1.5Fair value of previously held shares in Alunorte and CAP 9.2Net assets acquired by Hydro 37.0Revaluation gain on Alunorte and CAP recognized in Q1 2011 reported result ~4.2Estimated annual excess value depreciation (exposed to NOK/BRL exchange rate) ~1.0(40)
  41. 41. Pro forma income statement Q1 2011 Vale Pro forma Aluminium Pro forma Hydro afterNOK million Hydro actual combined adjustments transactionRevenue 21 138 2 121 (444) 22 815Share of the profit (loss) in equity accounted investments (19) - (27) (45)Other income, net 4 553 - (4 421) 132Total revenue and income 25 672 2 121 (4 891) 22 902Depreciation, amortization and impairment 940 214 162 1 316Other expenses 18 877 1 656 (551) 19 981Earnings before financial items and tax (EBIT) 5 855 251 (4 502) 1 604Financial income (expense), net (93) (22) (21) (137)Income (loss) before tax 5 762 229 (4 523) 1 468Income taxes (608) (79) 144 (543)Tax rate 11% 37%Net income (loss) 5 154 150 (4 379) 925Net income (loss) attributable to minority interest 112 21 11 144Net income (loss) attributable to Hydro shareholders 5 043 129 (4 390) 782Earnings per share attributable to Hydro shareholders 2.89 0.38(41)
  42. 42. Bauxite & AluminaPro forma Q1 Q4 Q1 Key figures 2011 2010 2010 Alumina production, kmt 1 336 1 448 1 394 Total alumina sales, kmt 1 762 2 018 1 843 Realized alumina price, USD/mt 329 311 293 Apparent alumina cash cost, USD/mt 266 251 231 Bauxite production, kmt 1 720 2 017 1 745 Underlying EBITDA, NOK million 725 693 643 Underlying EBIT, NOK million 237 223 205 Q1 operating results • Weak production performance in Alunorte and ParagominasUnderlying EBIT • Higher realized alumina price driven by LME linkNOK million • Lower sales volumes in Alunorte 1 225 237 • Increased caustic and energy costs 448 • Higher bauxite costs due to scheduled maintenance of 348 Paragominas bauxite pipeline and increased operating costs • Lower contribution from commercial activities 223 237 205 Outlook • Higher LME-linked alumina prices 2010 2011 • Improved production at Alunorte and Paragominas • Reduced unit costs due to higher utilization(42)
  43. 43. Primary MetalPro forma Q1 Q4 Q1 Key figures 2011 2010 2010 Primary aluminium production, kmt 490 475 447 Total sales, kmt 627 624 601 Realized LME price, USD/mt 2 366 2 131 2 039 Realized LME price, NOK/mt 13 664 12 739 11 826 Underlying EBITDA, NOK million 1 137 808 320 Underlying EBIT, NOK million 592 230 (203) Q1 operating resultsUnderlying EBIT • Prices and premiums lift result by NOK 480 millionNOK million • Increased raw material costs, partly offset by lower fixed 816 592 costs, reduce result by NOK 170 million 592 • Insurance compensation of NOK 145 million included in 481 positive NOK 20 million Qatalum result 306 230 • Albras contributing NOK 50 million vs NOK 144 million in Q4 Outlook (203) • Close to 100% of primary production affecting Q2 results 2010 2011 priced at ~USD 2 450 mt, excluding Qatalum • Increased alumina and petroleum coke cost • Restart of 15 000 mt at Sunndal 3 line in June(43)
  44. 44. Metal Markets Q1 Q4 Q1 Key figures 2011 2010 2010 Remelt production, kmt 150 147 143 Total metal products sales, kmt 772 688 670 Underlying EBITDA, NOK million 168 88 91 Underlying EBIT excl currency and 95 73 144 inventory valuation effects, NOK million Underlying EBIT, NOK million 143 62 65 Q1 operating resultsUnderlying EBITNOK million • Increased sales volumes for third-party products 321 143 • Improved margins for remelters • Lower contribution from metal sourcing and trading • Positive currency and inventory valuation effects of 163 NOK 50 million 143 65 62 Outlook 31 • Slightly increased volumes • Volatile trading and currency effects 2010 2011(44)
  45. 45. Rolled Products Q1 Q4 Q1 Key figures 2011 2010 2010 External sales volumes, kmt 245 234 231 Underlying EBITDA, NOK million 342 226 335 Underlying EBIT, NOK million 232 105 223Underlying EBITNOK million 864 232 Q1 operating results 309 • Seasonally higher sales improve result 227 232 by NOK 80 million 223 • Improved margins driven by general 105 engineering applications • Higher energy costs offset by lower maintenance costs 2010 2011 Outlook • Solid order book for 2011 • Stable sales volumes in Q2(45)
  46. 46. Extruded Products Q1 Q4 Q1 Key figures 2011 2010 2010 External sales volumes, kmt 136 127 128 Underlying EBITDA, NOK million 237 162 252 Underlying EBIT, NOK million 105 24 117Underlying EBITNOK million 444 105 Q1 operating results • Weak European construction market 201 • Seasonally higher volumes • Lower costs 117 102 105 • Solid results in Precision Tubing and Extrusion South America 24 Outlook • Current market conditions expected to continue, 2010 2011 but increased volatility in demand • Seasonally higher sales(46)
  47. 47. Energy Q1 Q4 Q1 Key figures 2011 2010 2010 Power production, GWh 2 308 2 263 2 781 Net spot sales, GWh 955 827 1 323 Southwest Norway spot price (NO2), 520 469 430 NOK/MWh Underlying EBITDA, NOK million 600 502 623 Underlying EBIT, NOK million 573 482 588Underlying EBIT Q1 operating resultsNOK million • High and stable production 1 416 573 • Strong spot prices • Lower transmission costs 588 573 482 Outlook • Significantly lower production and spot sales • Lower prices 177 169 2010 2011(47)
  48. 48. Net cash development Q1NOK billion Net cash flow from Net cash flow from operations NOK (0.6 billion) investing NOK (6.4 billion) 2.4 (1.9) (1.2) 11.0 (0.6) (5.7) (5.7) (2.0) (0.2) End-Q4 2010 Underlying Operating Other Investments / Net cash Debt increase Other End-Q1 2011 EBITDA capital adjustments divestments payment Vale(48)
  49. 49. Robust financial positionNet cash/(debt), NOK billion Dec 31, Dec 31, Mar 31, 11.0 NOK billion 2009 2010 2011 Cash and cash equivalents 2.6 10.9 3.7 Short-term investments 1.5 1.3 1.3 Short-term debt (2.0) (0.9) (2.5) Long-term debt (0.1) (0.3) (4.5) Net cash/(debt) 2.0 11.0 (2.0) Net int.-bearing debt in equity (8.0) (7.8) (7.3) accounted invest. Net pension liability at fair value, (5.6) (5.6) (5.5) 2.0 net of expected tax benefit Other adjustments* (4.0) (4.0) (5.6) Adjusted net debt (15.6) (6.4) (20.5) Dec 31, 2009 Dec 31, 2010 Mar 31, 2011 * Operating lease commitments and other (2.0)(49)
  50. 50. Priorities 2011 • Successful integration and improved performance in Bauxite & Alumina • Primary Metal repositioning through USD 300 program and Qatalum ramp-up • Solid operations with firm cost control and strong market focus(50)
  51. 51. Business overview(51)
  52. 52. Bauxite & Alumina(52)
  53. 53. High-quality asset portfolio MRN Paragominas Alunorte alumina CAP alumina Alpart alumina bauxite mine bauxite mine refinery refinery project refinery • 5% ownership • 60% ownership, 100% • 91% ownership • 81% ownership • 35% ownership • Volume off-take by 2015 • World’s largest alumina • CAP refinery (Phase I) • Capacity 1.65 agreement for • One of the world’s refinery is planned to be million tonnes Vale’s 40% stake largest bauxite mines • 2010 production in operation in 2015 of alumina • Capacity 18 • 2010 production 5.8 million tonnes • Paragominas expansion • Fully integrated million tonnes 7.5 million tonnes • Nameplate capacity of to be developed with bauxite • Nameplate capacity of 6.3 million tonnes in parallel • 100% curtailed 9.9 million tonnes • Bauxite supplied from • Investment estimates since mid-2009 • Possible expansion to Paragominas and MRN and expansion concepts 15 million tonnes under evaluation • World-class conversion • Long-life resource cost position • Full utilization of the existing bauxite pipeline Refining and mining External supply Sales contract Bauxite licenses competencies contracts portfolio(53)
  54. 54. Integration process well underway • Solid management team • Global organization Successful • Headquarters, Rio de Janeiro, Brazil start • Operations, Para State, Brazil • Marketing, Lausanne, Switzerland • Workforce of 6 500 people in Brazil • Stakeholder relations well established • Authorities • Customers • Social dialogue developing positively • Expansion projects maturing(54)
  55. 55. Paragominas – production process• Production process • Strip mining allows for quick environmental recovery • Bauxite found in 0.5-2.5 meter layers 4-18 meters below ground• 244 km pipeline from Paragominas to Alunorte • Only bauxite slurry pipeline in the world • 15 million tonnes annual capacity • Low environmental impact• High-quality bauxite • Gibbsite bauxite with 48-49% available alumina and 4.5-5% of reactive silica • Absence of organics reduces investments and cash cost at Alunorte(55)
  56. 56. Paragominas – production process Reclaimer Silo SAG mill Pumping station Classification to pipeline Tailings dam/recovered Classification water Ball mill Recrusher Vibrating screen(56)
  57. 57. Paragominas bauxite mining costs• Labor largest cost factor Paragominas bauxite mining costs 2010 • Influenced by Brazilian wage level • Productivity improvements Sustaining capital; 9 % Other costs; 19• Maintenance/consumables % • Influenced by Brazilian inflation Labor; 25 %• Energy cost – power and fuel Maintenance/ consumables, 19% Support & Energy; 16 % infrastructure; 12 %(57)
  58. 58. Paragominas prioritiesBauxite production, million tonnes • Operational improvements10 • Housekeeping and safety9 • Improve performance stability8 • Beneficiation plant • Dewatering filters in Alunorte7 • Stripping ratio6 • Recovery rate5 • Improved production system43 • Target significant production increase2 • Nameplate capacity of 9.9 million tonnes10 2007 2008 2009 2010 Target(58)
  59. 59. Alunorte - production process Bauxite dewatering Steam Alumina Al2O3 Powerhouse Bauxite Caustic soda Evaporation Test tank Calcination Digestion Hydrate Classification (Al(OH)3) Precipitation Decanters Mud residue(59)
  60. 60. Alunorte prioritiesAlumina production, million tonnes • Operational improvements7 • Housekeeping and safety • Improve plant efficiency6 • Performance in older lines5 • Availability of coal boilers • Dewatering filters4 • Port costs • Improved production system32 • Targeting stable production above 6 million tonnes1 • Nameplate capacity of 6.3 million tonnes0 1995 1997 1999 2001 2003 2005 2007 2009(60)
  61. 61. Favorable integrated alumina cash cost position• Integrated alumina cash cost position 2010 Integrated alumina cash cost position 2010 • USD 238 per tonne • Alunorte, Paragominas and sourced alumina Sourced alumina;• Bauxite 8% • Cash cost to be improved as Paragominas increase production and pipeline is fully utilized• Energy Other costs; 15 % • First-quartile energy consumption – 8 MJ/t Bauxite; 36 % • Energy mix of heavy fuel oil and coal• Caustic soda • Competitive caustic soda consumption due to bauxite with low level of reactive silica Energy; 31 %• Other costs Caustic soda, • Maintenance, labor and other 10%• Sourced alumina • Alumina purchased for resale(61)
  62. 62. Expansion projects - CAP and Paragominas III • Capacity • CAP alumina refinery I • 1.9 million tonnes • Paragominas bauxite mine expansion III • Up to 15 million tonnes • Time schedule • CAP refinery I planned to produce in 2015 • Paragominas expansion developed in parallel • Investment estimates and expansion concepts under evaluation • Competitive cost position • Full utilization of existing bauxite pipeline • Technology and project execution for CAP built on Alunorte experience(62)
  63. 63. Business model – volume flows1 000 tonnes, pro forma 2010 External sourcing 2 100 alumina External 1) 2 100 4 500 alumina sales Paragominas 7 500 Commercial Prod (100%) 7 500 operations Alunorte Internal 2) Hydro availability Prod (100%) 5 300 Hydro 2 900 alumina sales 100% 5 800 availability Alumina 7 400 Hydro Bauxite 900 availability Equity 91% MRN 6 700 Prod (100%) 17 000 900 External Hydro availability bauxite sales Equity 5% 900 Contract 40%1) Third party customers and non-consolidated joint ventures2) Fully owned smelters and consolidated joint ventures(63)
  64. 64. Attractive alumina position1 000 tonnes9 000 Open position not committed to sales contracts8 000 Sourcing contracts7 000 CAP equity6 000 Alunorte equity5 0004 0003 000 Smelter demand*2 0001 000 0 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020*Sunndal 3 line assumed back in operation, Neuss and Søral at 2010 production level(64)
  65. 65. Shift towards shorter contract durations % of LME per tonne alumina for Contract durations long-term contracts <2000 2011 13.00-14.00% 13.25-15.25% 12.00-13.00% 20% 20% 25% 45% 35% 55% Long-term contracts (>6 years) Medium-term contracts (3-5 years) 1990-2000 2000-2005 2005-2010 Spot (< 2 years)Source: Hydro estimates(65)
  66. 66. Alumina pricing shifting from LME-link toalumina market fundamentals • Future pricing should reflect the fundamentals of the bauxite and alumina value chain • Bauxite, a fight for cost efficient resources going forward • Index pricing and shorter term contracts(66)
  67. 67. Hydro’s commercial strategy • Move towards index pricing • Currently not offering medium/long-term LME linked contracts • Actively promote index pricing • Focus on contracts with 1-4 year duration • Focus on selling to end-users • Hydro’s existing combined sales portfolio • Average alumina price ~13-14% of LME • Similar percentage expected for 2011-2015 • Minor volumes available for sale before 2016 • Majority of sales contracts expire in 2016-2018(67)
  68. 68. Strong social and environmental commitment• Strategic partnerships to establish basis for multi-party dialogue • Social program/community investments based on input from stakeholders• Reforestation • World-leading experts to review rehabilitation program• Health and safety top priority • Ambition to be industry benchmark • Hydro’s values and culture important for further improvements(68)
  69. 69. Primary Metal(69)
  70. 70. World-wide production networkPrimary aluminium annual production capacity Norway, 880 000 tonnes • Sunndal (100%) : 375 000 tonnes • Årdal (100%): 190 000 tonnes Canada, 115 000 tonnes • Karmøy (100%): 170 000 tonnes • Alouette (20%): 115 000 tonnes 42% • Høyanger (100%): 60 000 tonnes • Expansion potential • Søral (50%): 85 000 tonnes 6% Germany, 230 000 tonnes 11% • Neuss (100%): 230 000 tonnes 2.1 Slovakia, 90 000 tonnes 4% • Slovalco (55%): 90 000 tonnes million tonnes Qatar, 300 000 tonnes 14% • Qatalum (50%): 300 000 tonnes • Ramping up during first half 2011 • Expansion potential 11% Australia, 240 000 tonnesBrazil , 235 000 tonnes 12% • Kurri Kurri (100%): 175 000 tonnes• Albras: (51%): 235 000 tonnes • Tomago (20%): 65 000 tonnesAttributable capacity: 2.1 million mt. Consolidated capacity: 2.4 million tonnes, Slovalco and Albras are consolidated) The smelters have an additionalremelt capacity: 0.6 million tonnes. Consolidated casthouse capacity: 3.0 million tonnes. Qatalum and Søral are equity accounted in Hydro’s results.(70)
  71. 71. Strong focus to further improve cost positionEstimated primary aluminium production Estimated business operating cost 2014 by CRUcash costs USD/tonneFull year 2010, USD/tonne2 800 2 800 Hydro Peer companies2 400 2 4002 000 2 0001 600 1 600 Hydro1 200 1 200 Accumulated world capacity, 1 000 tonnes 800 800 Rusal Rio Tinto Hydro Alcoa C entury 0 10 000 20 000 30 000 40 000 50 000 60 000Estimated primary aluminium production cash costs including casthouse margin based on company reports. Assumptions: Hydro cash costs increased by USD50/tonne for relining cost in order to compare with Alcoa. Pricing: Century 1 month LME cash lag, Hydro 3 months and 20 days LME forward lag, Alcoa, RioTinto and Rusal 15 days LME cash lag.Source: CRU, BOC2014: LME 2 145 USD/tonne (real 2010)(71)
  72. 72. Improvement program: USD 300 per tonneCost reduction target from 2009 level for ~1 000 000 tonnes annual capacity 300 Operational improvements • Improved current efficiency • Reduced power consumption • Reduced anode consumption Fixed cost reductions and lean operations 200 125 Further operational improvements Technology costs/spin-offs USD 300/tonne Investments 100 Maintenance and relining 50 Procurement Logistics 0 Realized 2011 2012 2013 2010 onwards Organization and manning Casthouse product margin(72)
  73. 73. Attractive Qatalum fundamentals Joint venture (50/50) between World-class smelter Qatar Petroleum and Hydro • Cash costs estimated around 1 400-1 500 USD per tonne at 2010 • Capacity: 585 000 tonnes market conditions when in full production 2011 focus Ideally located to serve all major • Ramp-up to be completed by June 2011 markets in Asia, US and Europe • Stabilize production and cost optimization(73)

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