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Capital Markets Day 2011: Leading position for Hydro

Hydro now holds a leading position in the aluminum industry thanks to significant long positions in bauxite and alumina in a world with limited resources, ambitious cost-cutting programs across the value chain and the competitive Qatalum smelter.

"The long-term prospects for aluminum are still very promising, despite the current economic turmoil, and I am very satisfied with the strong development in operating performance," said CEO Svein Richard Brandtzæg. "Given our solid financial position and our ability to initiate and implement corrective measures, we are trying to leave the time of short-term uncertainty behind us and to further improve our position in the industry of this promising metal," said Brandtzæg. 

Hydro closed the major transaction in Brazil in 2011 and is now a fully integrated aluminum company with world-class facilities for both bauxite mining and alumina refining. These plants have already made significant operational improvements in the nine months they have been owned by Hydro.

Apart from the fact that Hydro now covers the entire value chain from bauxite to processed products and has solid prerequisites in the aluminum business in the long term, Qatalum reached full production capacity in September. Qatalum is a state-of-the-art smelter with the world's largest foundry and a logistically convenient location.

Current macroeconomic uncertainties, including sovereign debt in Europe, the slow recovery in the US economy and slowing growth in emerging markets, have had a negative impact on consumer behavior, which in turn has led to a lower aluminum price and weaker end markets.

As a clear answer to the uncertain economic environment, Hydro has initiated several improvement measures along the entire value chain. The Primary Metal division's $ 300 improvement program is on track and should reach its target for the end of 2013, while the more flexible remelting system was used to meet the reduced demand for the summer.

“Continuous improvement is a key concern in all business areas to ensure Hydro’s leadership. Our operating model has already delivered impressive results in the Bauxite & amp; Alumina brought in and our operational capabilities allow our processors to create new business opportunities through technology leadership and innovation, "said Brandtzæg.

The demand for aluminum has increased significantly in the past two years, by 19 percent in 2010 and by about 7 percent in 2011. Demand can also be expected to rise outside of China in 2012, but growth is likely to slow to three to five percent. The main market conditions for aluminum are still good thanks to the many positive properties of the metal, such as low weight and recyclability. In the longer term, solid growth in the global aluminum markets can be expected.

Important points on Capital Markets Day:

  • The strategically important plants of the business area Bauxite & amp; Hydro's alumina has achieved solid operational improvements since its acquisition in the first quarter of 2011. The introduction of the Hydro production system continues and has already led to significant progress.

  • Hydro strives to exploit the full potential of the long position in bauxite and alumina in a world with limited resources, which can be further strengthened by the projects at CAP and Paragominas. As part of the strategy, Hydro intends to use this advantageous position to consider business opportunities to expand its smelter portfolio.

  • The $ 300 improvement program for the company's smelters is on schedule and is expected to be completed by the end of 2013. A total cost saving of $ 200 per ton is anticipated for 2011, and another $ 100 per ton reduction is anticipated by the end of 2013. The industry is struggling with raw material cost pressures and stronger exchange rates. These effects offset the savings achieved through the improvement program, but at the same time make the importance of the measures taken clear.

  • The Qatalum smelter reached full production capacity in September 2011. The 5.8 billion project has been completed, the smelter now produces 600,000 tons per year, which is slightly more than the designed capacity. Qatalum's products have helped Hydro grow its market position in the United States and Asia. The goal in 2012 is to optimize processes and achieve a cost level of $ 1400-1500 per ton, starting from the market conditions in 2010.

  • In the current uncertain economic situation with a high degree of volatility, Hydro's financial situation is robust. The net debt is only NOK 0.1 billion. The goal is to maintain financial flexibility and "investment grade" valuation. Maintenance investments are expected to be NOK 3.5 billion in 2012, with approximately one billion linked to the Brazilian assets acquired from Vale.

  • Hydro presents three scenarios for earnings potential at Capital Markets Day. The scenarios are not forecasts, but rather represent the earnings potential based on selected aluminum prices and NOK / USD exchange rates using a sensitivity analysis. All non-LME-related income and costs as well as other currencies are kept constant and the pro forma adjusted EBITDA of the last four quarters is been used as a starting point. All three scenarios indicate that EBITDA will be well above maintenance investments, which illustrates Hydro's ability to generate cash flow.
This text is machine translated. To view the original German text, click on DE on the top right of this window

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