28 th International Aluminum Conference, Geneva, Switzerland Global Aluminum FRP Industry Sustainability Economic & Environmental Erwin Mayr, President Novelis Europe 9/19/2013
Topic today: Industry Sustainability Economic Long-term profitability required to fulfill growing market demand Environmental Business strategy preserving increasingly scarce natural resources 2
Topic today: Industry Sustainability Economic Long-term profitability required to fulfill growing market demand Global demand growth Capital needs Required sustainable industry profitability 3
Estimated FRP demand to grow by 10m tons until 2020 M tons 30 25 20 15 10 5 18 +10 28 FRP demand to grow 10 Million tons over the next decade Average annual growth rate at 5% 0 2012 2015 2020 Source: Novelis industry analysis 4
Large difference in growth rates per product segment expected M tons CAGR 30 25 20 15 ~5% Automotive Foil Can ~20% ~4% ~4-5% 10 5 Industrial Products / Electronics ~6% 0 2012 2015 2020 Source: Novelis industry analysis 5
Global trends driving demand for aluminum POPULATION Demographics Asian Growth Urbanization 6 PER CAPITA ALUMINUM CONSUMPTION Economic Development Material Preference Sustainability
Key growth drivers Global population growth 2012-2020 9.4% +670m The world s population will grow by 9.4% or 668 Million people between 2012 and 2020 Africa 19% 37% Africa 55% Asia 11% The Americas -3% Europe 0% Australia / Oceania By 2020, 77% of the world s population will live in Asia and Africa Europe s population will actually decrease India s growth is expected to be 20% vs. only 7% in China Less than 25% will live in Europe, the Americas and Australia together Source: United Nations, World Population Prospects, 2012 Edition 7
FRP demand for Cans almost doubling until 2025 Today 2016 2020 2025 4.7 Mt 5.6 Mt 6.3 Mt 8 Mt Source: Novelis global FRP fact base and projections 8
FRP demand growth in Automotive is catching up with Can rapidly Today 2016 2020 2025 4.7 Mt 5.6 Mt 6.3 Mt 8 Mt 0.34 Mt 1.1 Mt 2.0 Mt >5 Mt Source: Novelis global FRP fact base and projections 9
Economic growth is the fundamental driver for aluminum demand complemented by substitution of steel Per capita aluminum consumption in kg 30 25 20 15 10 Emerging markets China Turkey Developed markets Spain Italy South Korea Taiwan Japan France Switzerland Germany Australia Canada USA Bubble size = Total country aluminum consumption Tomorrow s curve Today s curve 5 India Brazil Russia 0 0 5 10 15 20 25 30 35 40 45 50 55 GDP per capita in USDk Source: Harbor Aluminum Intelligence Unit (2013), CIA World Factbook (2012) 10
Significant capital investments required to fulfill demand growth +20bn USD +10M tons Capital Expenditure FRP demand +5bn USD additional Working Capital to be raised, invested and running by 2020 Source: Novelis industry analysis 11
Regional split of USD ~25bn global investments until 2020 North America China +5.1bn Europe & MENA +12bn +5.2bn South America +0.9bn +3.4bn Other Asia Source: Novelis global FRP fact base and projections 12
Evolution of FRP industry profitability Past FRP industry profitability in EBITDA/t USD 500 400 300 200 100 0 2007 08 09 10 11 12 13 14 15 16 17 18 19 2020 Source: Novelis industry analysis 13
Required sustainable profitability to grow the business Assumptions Required CAPEX investment specific to product line (e.g. Automotive)! Working capital turnover driven by market segment Solved for overall EBITDA per ton required to fund growth entirely (cumulatively FCF-neutral by 2022) Required FRP industry-average sustainable EBITDA = 1 EBITDA/t levels gradually increasing until 2020 from today s level of ~340 USD/t Source: Novelis industry analysis 14
Investments for growth will require an increase of profitability FRP demand increase and profitability in EBITDA/t USD 600 Required profitability increase 500 400 Tomorrow 2020 Required profitability increase 300 200 Today 2012 100 0 0 10 20 30 FRP demand in m tons Source: Novelis industry analysis ~25bn investment & working capital until 2020 ~$25bn investment & working capital 15
Sustainable FRP industry profitability to fund market growth FRP industry profitability in EBITDA/t USD 600 500 400 Sustainable FRP industry profitability +150 USD/t 300 200 100 0 2007 08 09 10 11 12 13 14 15 16 17 18 19 2020 Source: Novelis industry analysis 16
Profitability evolution across the FRP value chain FRP aluminum value chain profitability trend Average return-on-sales ratio 08-10 vs. 10-12, in % 25% Upstream Downstream Legend: 08-10 10-12 Average of 15% 5% - 5% Alumina & Primary 1 FRP 2 Can Beverage / Auto 5 Electronics 6 Maker 3 Bottlers 4 1 BHP Metal, Hydro, Alcoa, RioTinto (all Alumina & Primary) 2 Alcoa (FRP), Novelis, Aleris (RPNA & RPEU), Hydro (Rolled products) 3 Crown (Beverage can), Ball (Metal beverage pckg), Rexam (Beverage Can) 4 AB InBev, Coca-Cola, PepsiCo. Coca-Cola Bottling Co. Incorporated 5 Audi, BMW (Automobiles), Mercedes-Benz (Cars), Ford (Automotive), GM (Automotive) 6 Samsung Electronics, LG Electronics, Apple Inc. Source: Company financial publications, Novelis analysis 17
Topic today: Industry sustainability Environmental Closed loop model Recycling capabilities evercan Business strategy preserving increasingly scarce natural resources 18
Our industry in the past Excessive use of primary resources 19 High energy consumption Widespread landfill waste
Recent history of aluminum production 20
Recent history of aluminum production 21
Tomorrow s aluminum closed loop model 22
Leading the industry with bold moves Recycling investments Nachterstedt, Germany 400kt Oswego, NY 100kt Yeongju, Korea 265kt Pinda, Brazil 190kt 23
Novelis building world s largest recycling center in Nachterstedt Largest aluminum recycling facility in the world 400kT Project on schedule (SOP mid-2014) and on budget (250M USD) New technology to handle wide variety of scrap types will become the technology standard for future plants 24
How is Nachterstedt different? SHREDDING 25 SORTING MELTING
evercan high-recycled content can Highest recycled content container ever developed for mass market delivery of carbonated beverages like soda and beer Current guaranteed recycled content of 90% for the body; 70% for the can Ultimate goal: 100% recycled content can Closed loop recycling process Positioning the can as the most sustainable packaging option available 26
The world s largest Auto production capacity expansion ever done Currently commissioning two new CASH lines for Novelis Oswego factory to come online beginning of 2014 240 000 metric tons of annual capacity Production volumes already sold-out long-term Full closed loop recycling capabilities and existing contracts with major customers 27
Novelis contribution to lightweighting in China s auto industry First automotive manufacturing facility in China Serving automotive BiW aluminum demand in Asia Annual capacity of 120kt starting in HY2 2014 Employing same process technology as in all Novelis automotive facilities world-wide 28
Novelis is pursuing a strategy preserving scarce natural resources wide Recycling rap range of sc 29 y Low energ remelting Sustainable c ts end produ
Industry Sustainability A short recap Economic Additional ~10M tons p.a. of aluminum FRP demand by 2020 USD ~25bn capital investment required to provide production capacity Major increase of FRP profitability required to fund growth sustainably Environmental From take-make-dispose to borrow-use-recycle Closed loop recycling systems, for mining-free aluminum Sustainable products with low carbon footprint from cans to cars, across the globe 30