Aluminium. Arvid Moss Sector President, Metal Products. Metals segment

Transcription

1 Aluminium Arvid Moss Sector President, Metal Products Metals segment

2 51145_1 H ydro M edia Main messages Increasing equity alumina production at lower cost Improving primary system Cost improvement in progress for in-the-market smelters Portfolio changes to improve cost Expanding profitable metal products system The preferred supplier in Europe Achieving attractive profitability Growing globally well positioned as more metal will travel

3 51145_1 H ydro M edia Metals segment 2003 Primary Metal Metal Products Aluminium tonnes tonnes* Magnesium tonnes Employees Primary Metal and Metal Products Primary Metal only Metal Products only Metal products in North-American Sector * Total shipments of metal products under Hydro Aluminium control. Includes for 2003 approx tonnes metal product in North-American Sector (part of Extrusion and Automotive Segment) and approx tonnes in Rolled Products Segment

4 51145_1 H ydro M edia Metals segment: EBITDA EBIT and EBITDA Revenues (millions) CROGI % ,8% Gross Investment *) NOK million Depreciation & Amortisation EBIT H 2004 EBITDA 1H 2003 * Gross Investment by

5 51145_1 H ydro M edia Delivering on our commitments Primary Metal What we said What we have done Delivery (operational): Cost reductions. Best practice sharing Low capital intensive capacity increases Total fixed cost increased approx 1 %, while production increased 8% Increased volume with tonnes - positive result effect of approximately NOK 175 million tonnes in pipeline Direction: Improve relative cost position in production Portfolio improvements No greenfield projects Alouette II and Sunndal 4 Closure of Søderberg decided Alpart partnership restructured. Alumina plant in Germany sold Alunorte 1 st expansion complete. Alunorte 2 nd expansion in progress Long term alumina supply contract with Comalco

6 51145_1 H ydro M edia Primary metal production key value drivers Achieve competitive edge through Sourcing Alumina Power Carbon Production Continuous cost reductions and operational excellence Asset quality and favourable operating locations Market proximity or low cost operating climate Technology leadership Optimising existing operations Low CAPEX and environmental leading for expansions Project Management excellence

7 51145_1 H ydro M edia Cash operating cost 2003 world ranking Cost (US$)/tonne Sunndal Pb Karmøy Pb Høyanger Pb Søral (50%) Alouette (20%) Tomago (12.4%) Slovalco (20%) 2003: 0,7 mtpy 2007: 1,0 mtpy Hydro (Høyanger Sø) (Årdal Sø) Elbewerk Hamburg (33%) Rheinwerk Årdal Pb Kurri Kurri Karmøy Sø 2003: 0,8 mtpy 2007: 0. 7 mtpy Global average 1120 USD/t Cumulative Production (%) Note: Cash operating cost calculated as the sum of liquid metal cost, casthouse cost, casting losses, site overhead cost, freight cost, interest on work in progress, margin cost and head office cost. Source: CRU. Assumptions LME 2003: USD USD/NOK 2002: mill.tonnes costed. Position of Hydro Aluminium smelters: Hydro Aluminium actual cost

8 51145_1 H ydro M edia Increasing equity alumina at lower cost Cash Cost USD/t Hydro equity alumina production versus needs in primary plant Year E 2006E 000 tonne Coverage 40% 50% 60% World weighted average 2004 (140 USD/t) Hydro Aluminium equity 2002 (139 USD/t) Hydro Aluminium equity 2004* (121 USD/t) Cumulative production, million tonnes per year *After sale of alumina plant in Germany. Bauxite to Alunorte at cost. Including bauxite levy Alpart Source: CRU: Major Western World Refineries (43 mill tons, i.e 80% of world production). Hydro Aluminium estimates. 2006E = Year end speed

9 51145_1 H ydro M edia Alumina market balance should improve attractive long term contracts possible Potentials for increased production globally Capacity potential above expected demand Million tonnes Continue mix of medium and long term contractual and equity supply of alumina Equity: Evaluate opportunities Alunorte brownfield Alpart debottlenecking Other asset opportunities Four major suppliers a) Other net suppliers b) Current short players c) Others d) Total net capacity a) Alcoa, BHP Billiton, Comalco, CVRD b) Glencore, CVG, Nalco, Sterilite c) Alcan, Hydro Aluminium, Rusal d) Others (China and several smaller projects)

10 51145_1 H ydro M edia Global power prices trend upward Average power price to aluminium smelters-world wide Nominal values USD/MWh E Hydro Aluminium after 2006 Increased power cost Norway - compensated by Aluimprover Increased power cost Germany - negotiations ahead Sources: CRU, Hydro Aluminium

11 51145_1 H ydro M edia Improving primary system Continuous cost reductions Norway: demanning 800 employees (Aluimprover) Potentials being evaluated in Germany Closure of Søderberg capacity in Årdal and Høyanger, tonnes Expected demanning 280 employees No net book value at time of closure

12 51145_1 H ydro M edia Improving primary system Portfolio changes Share of production in smelters above tonnes annual capacity Western World 2002: 24 % 2007E: 40 % (20 % above tonnes per year) Hydro Aluminium 2002: 4 % 2007E: 30 % (10 % above tonnes per year) Hydro moves closer to average

13 51145_1 H ydro M edia Improving primary system Project excellence Alunorte I ( tonnes per year) USD 325 /tonne Final cost approx. 80% of CEP On time. Accelerated start up Slovalco ( tonnes per year) On time and budget Aluchemie Carbon ( tonnes per year) On time and budget Aardal Carbon ( tonnes per year) On time. Final cost approx. 85% of CEP Sunndal IV ( tonnes per year) USD per tonne Aluminium On time and budget. Accelerated start up Alouette ( tonnes per year) On time and budget

14 51145_1 H ydro M edia Priorities Primary Metal Improve relative cost position Continue to pursue improved alumina position Improving primary system Continuous cost reductions and operational excellence Deliver on investment projects Portfolio changes to improve cost

15 Expanding profitable metal products system 51145_1 H ydro M edia

16 51145_1 H ydro M edia Metal Products market portfolio 2003 Extrusion Ingot Sheet Ingot Foundry Alloy Internal 39% External 61% Internal 76% External 24% Internal 0% External 100%

17 51145_1 H ydro M edia Delivering on our commitments Metal Products What we said Delivery (Operational): Cost reductions and best practice sharing Maximize throughput Keep investments at a minimum What we have done Fixed cost per ton reduced Volume up 16% on last year Done (CAPEX only 4% of Gross Assets) Strategic: Short-term improve and utilize European assets fully Strengthen leading positions in Foundry alloys Develop Asian markets and establish aluminium foothold in China 100% utilization currently Done in Europe 50% volume increase from 2003 Expansion in process

18 51145_1 H ydro M edia Metal Products - Key value drivers Achieve superior returns on capital through Offering additional value to customer Optimised and streamlined operations Primary casthouses Maximize capacity utilisation. Long series Remelters close to market Optimize logistic costs. Shorter series Continuous learning across system from internal benchmarking. Optimised metal flow (own primary, external primary, ingot, scrap recycling)

19 De-commoditize 51145_1 H ydro M edia

20 51145_1 H ydro M edia Strong market pull based on business model and value proposition in market place Europe 35 Estimated percent market share Extrusion Ingot Sheet Ingot Primary Foundry Alloys

21 51145_1 H ydro M edia Customers clearly see a value in additional services "Which kind of additional services would add value for your business?" 72% 79% April 2001 December % 61% 42% 48% 48% 38% 47% 28% E-Commerce Technical Service Common product/process development programs ISO TS LME/Risk Management Source: PIMS interviews 2004, primary foundry alloy customers

22 51145_1 H ydro M edia A valuable Hydro Billet Plus service concept Value for our customers Value for Hydro Aluminium Excellent/ perfect Absolute inadequate Souce: PIMS Europe Ltd.2004 Service concept Optimization of production system 7.0Improve understanding of 6.0commercial risk, incl. 5.0assistance regarding 4.0LME Better utilize 1.0opportunities when buying billets 0.0 Web-enabled Customers' overall satisfaction Increased customer loyalty Higher sales volumes Improved net margins Importance Evaluation Hydro Aluminium performance

23 51145_1 H ydro M edia Rolling out the concept in North America Asia next 35 Europe Estimated percent market s hare Extrusion Ingot 23 Sheet Ingot PFA Estimated percent market share US Extrusion Ingot Asia Extrusion Ingot

24 51145_1 H ydro M edia North American market restructuring opportunity in extrusion ingot Extrusion ingot market structure The situation: Shortage of primary Smaller players in trouble Securing scrap a major challenge 000 tonnes sales Primary Remelt Our response: Contribute to reshaping Expanding service concept Upgrading to facilitate additional scrap sources Exploring potential additional greenfield remelt facilities 0 Hydro Alcan Alcoa Noranda Mitsui Ormet Century Pechiney Indalex Bonnell Al Shapes OVA Kaiser Thacker North west Werner Cuprum

25 51145_1 H ydro M edia Optimizing casthouses Increased volume and lower cost in operations Karmøy 2003 ~ tonnes per year Index 100 = cost and production volume in YTD Cash cost per tonne Production

26 51145_1 H ydro M edia Hydro Aluminium electrolysis metal Alouette 50 Europe 1300 To North America Kurri Kurri Kurri Kurri / Tomago 220 With ownership

27 51145_1 H ydro M edia Global system with third party partners metal Metal flows 2004 Sayansk Alouette 50 Europe 1300 Slovalco & Talum 200 Sayansk 80 To North America 400 Kurri Kurri Pianmeca 40 With ownership Without ownership Albras 100 Aluar Kurri Kurri / Tomago 220

28 51145_1 H ydro M edia Remelters in the markets create flexibility Sayansk Alouette Europe 1300 Slovalco & Talum 200 Sayansk 80 To North America Kurri Kurri Pianmeca 40 With ownership Without ownership Remelt Albras 100 Aluar Kurri Kurri / Tomago 220

29 51145_1 H ydro M edia Hydro well positioned when more metal will travel in the future Norway: Extrusion Ingot premium 250 $/mt Operating/freight cost -130 $/mt = Net margin 120 $/mt Sayansk Alouette Europe 1300 Slovalco & Talum 200 Sayansk 80 To North America Kurri Kurri Pianmeca 40 With ownership Without ownership Remelt Albras 100 South Africa Ingot premium 50 $/mt Operating/freight cost -70 $/mt = Net margin -20 $/mt Kurri Kurri / Tomago 220

30 51145_1 H ydro M edia Priorities Metal Products Expanding profitable metal products system Enhance value of unique customer service concept Lead in Europe - strengthen positions in the US and Asia Operational concept - technology, logistics, system optimization Cost reductions and best practice sharing Growing globally well positioned as more metal will travel Continue to utilize European assets fully Expand global sourcing network for metal products and ingot capital discipline Expand in scrap recycling in Europe and the US

31 51145_1 H ydro M edia Forward-looking statements/ use of non-gaap financial measures In order to utilize the safe harbor provisions of the United States Private Securities Litigation Reform Act of 1995, Hydro is providing the following cautionary statement: This presentation contains certain forward-looking statements with respect to the financial condition, results of operations and business of the Company and certain of the plans and objectives of the Company with respect to these items. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The actual results and developments may differ materially from those expressed or implied in the forward-looking statements due to any number of different factors. These factors include, but are not limited to, changes in costs and prices, changes in economic conditions, and changes in demand for the Company's products. Additional information, including information on factors which may affect Hydro's business, is contained in the Company's 2003 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission. With respect to each non-gaap financial measure Hydro uses in connection with its financial reporting and other public communications, Hydro provides a presentation of what Hydro believes to be the most directly comparable GAAP financial measure and a reconciliation between the non-gaap and GAAP measures. This information can be found in Hydro s earnings press releases, quarterly reports and other written communications, all of which have been posted to Hydro s website (

32 Appendix Aluminium

33 51145_1 H ydro M edia Breakdown of Primary Metal average site operating cost position HAL weighted average, percent 33 8 Technology Contracts Regulatory & Tax frames 16 5 Economy of scale Efficient work processes Local cost level 100 Alumina Carbon *) Power Labor **) Other ***) Cast-house costs Site operating cost Global market prices National/ regional markets Input factors depending on local/regional conditions, efficiency, etc. Factor cost determinants 41% Source: CRU cost model for Hydro Aluminium % 34% * Raw materials and bake furnace fuel costs ** Includes carbon plant, potroom and maintenance labor costs *** Relining cost, capital replacement cost, administrative cost

34 51145_1 H ydro M edia Aluminium price 3 months LME price, average per quarter USD/tonne