Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2016 Earnings Presentation
57 slides from Norsk Hydro Asa's earnings presentation, July 2016
Slide 1: Results up on higher prices and sales, offset by currency
Results up on higher prices and sales, offset by currency Second quarter presentation
Slide 2: Cautionary note
Cautionary note Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expan
Slide 3: Svein Richard Brandtzæg, President and CEO
Svein Richard Brandtzæg President and CEO 3
Slide 4: Q2 highlights
Q2 highlights • Underlying EBIT of NOK 1 618 million • Higher realized alumina and all-in aluminium prices, offset by currency developments • Higher aluminium and alumina sales • Significantly improved Sapa results • Better improvement program on track for 2019 target of NOK 2.9 billion • Positive c
Slide 5: Global undersupply in Q2, continued strong demand growth in China
Global undersupply in Q2, continued strong demand growth in China Demand and production (quarterly annualized) Production less demand 1 000 mt primary aluminium 12 month rolling quarterly average, in 1 000 mt primary aluminium 65 000 5 000 60 000 4 000 55 000 3 000 2 000 50 000 1 000 45 000 0 40 000
Slide 6: Primary aluminium market expected to be largely balanced in 2016
Primary aluminium market expected to be largely balanced in 2016 Limited effect of capacity restarts in China in first half, more expected in second half Supply development 2016 Market balance 2016 Mill tonnes Mill tonnes 1.0 – 1.5 mill tonnes Oversupply ~2.4 (0.5) – 0.5 mill tonnes ~1.3 (1.0 – 1.5)
Slide 7: Slightly increasing all-in LME prices
Slightly increasing all-in LME prices USD/mt USD/mt USD/mt NOK/mt 2 100 2 100 3 000 18 000 1 900 1 900 2 600 16 000 1 700 1 700 2 200 14 000 1 500 1 500 1 800 12 000 1 300 1 300 1 400 10 000 Feb-14 Jul-14 Dec-14 May-15 Oct-15 Jun-16 Mar-16 Jan 12 Jan 13 Jan 14 Jan 15 Jan 16 Jun 16 LME 3m USD LME cas
Slide 8: Improved comp. adv. China
Shrinking arbitrage, stable export levels given wider arbitrage in Q1 Preliminary export figures indicate June exports slightly below April/May level Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 Improved comp. adv. China 400 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 4
Slide 9: Alumina prices up in Q2, lower Chinese bauxite imports from Malaysia offset by Guinea
Alumina prices up in Q2, lower Chinese bauxite imports from Malaysia offset by Guinea Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 450 20% 8 19% 7 400 18% 6 350 17% 5 300 16% 4 15% 3 250 14% 2 200 13% 1 PAX % of LME 150 12% 0 1.1.13 1.1.14 1.1.15 1.1.16 Nov 20
Slide 10: China net imports falling on lower alumina imports
China net imports falling on lower alumina imports Downstream exports increasing Annualized aluminium equivalents1), million mt • Bauxite and alumina 25 2011 2012 2013 2014 2015 20162 − Alumina imports down in Q2 20 − Increasing volumes from Guinea compensating for lower bauxite imports from Malaysi
Slide 11: Better program on track for 2019 target
Better program on track for 2019 target NOK 2.9 billion targeted in 2016-2019, NOK 1.1 billion in 2016 Better BNOK 2.91) Better Better Better Primary Rolled Bauxite & Metal Products Alumina BNOK 1.0 BNOK 0.9 BNOK 1.0 • On track for NOK 400 million • Behind the NOK 200 million target • On track for N
Slide 12: Increased implied alumina cost, higher alumina production
Increased implied alumina cost, higher alumina production Implied alumina cost and margin, USD/mt 1) Annualized alumina production, million mt Alunorte 475 59 6.3 6.2 6.1 6.1 425 5.9 6.0 5.9 5.9 5.8 5.8 5.8 233 39 5.5 36 5.2 5.0 201 183 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q1
Slide 13: Reduced cost and improved prices lift margins in Primary Metal
Reduced cost and improved prices lift margins in Primary Metal Lower costs, positive non-operational effects All-in implied primary cost and margin, USD/mt 1) • Developments Q2 vs Q1 550 − Reduced fixed and carbon costs, partly offset by 250 325 increased alumina and energy costs 1 775 − Positive no
Slide 14: Healthy demand for Rolled Products, seasonally strong in Q2
Healthy demand for Rolled Products, seasonally strong in Q2 Q2 2016 vs Q1 2016 Q2 2016 vs Q2 2015 13% 9% 8% 6% 4% 3% 2% (3%) Can & foil Lithography Special products Total Rolled Products Can & foil Lithography Special products Total Rolled Products & automotive & automotive Rolled Products (ex Slim)
Slide 15: Seasonally stronger extrusion demand
Seasonally stronger extrusion demand • Seasonally stronger demand in Q2 − ~3% increase in North America − ~4.5% increase in Europe • Demand increased from same quarter last year − ~2.5% in North America due to increased building activity and strong automotive demand − ~1.5% in Europe due to positive
Slide 16: Record results for Sapa in second quarter
Record results for Sapa in second quarter Seasonally higher demand and stronger margins Hydro share of underlying EBIT Hydro share of underlying net income NOK million NOK million 450 300 400 250 350 300 200 250 150 200 150 100 100 50 50 0 0 Q214 Q215 Q216 Q214 Q215 Q216 16
Slide 17: Energy: Stable prices during snowmelt period
Energy: Stable prices during snowmelt period Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 2014 500 2015 80 2016 400 60 300 40 200 MIN NO2 (2002-2014) MAX NO2 (2002-2014) 20 2014 100 2015 2016 0 0 1 4 7 10 13 16 19 22 25 28 31 34 37 4
Slide 18: Progressing toward Better, Bigger and Greener ambition
Progressing toward Better, Bigger and Greener ambition Strengthening competiveness and managing portfolio in Q2 Energy: Model for industrial Rolled Products: Entering into Other: Closed sale of ownership of power (ANS/DA) new competitive power contract Herøya Industrial park approved by Parliament f
Slide 19: Karmøy Technology Pilot advancing toward 2017 start-up
Karmøy Technology Pilot advancing toward 2017 start-up Next-generation technology • R&D as the next step in efficiency optimization • Testing the world’s most energy and climate efficient aluminium technology • Significant spin-off effects for the entire primary portfolio • First metal expected seco
Slide 20: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 20
Slide 21: Results up on higher prices and sales, offset by currency
Results up on higher prices and sales, offset by currency NOK billion 0.4 (0.5) 0.1 (0.1) 0.2 2.7 1.5 1.6 Underlying Underlying LME, PAX Net currency Costs Volume & margin Other Underlying EBIT Q2 2015 EBIT Q1 2016 and premium* EBIT Q2 2016 * Price revenue effects, cost effects included in costs 21
Slide 22: Key financials
Key financials Underlying EPS up to 0.52 NOK/share NOK million Q2 2016 Q1 2016 Q2 2015 First half 2016 First half 2015 Revenue 20 391 20 138 22 436 40 529 45 726 Underlying EBIT 1 618 1 501 2 667 3 119 5 875 Items excluded from underlying EBIT 360 192 31 552 29 Reported EBIT 1 978 1 693 2 698 3 672
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 360 in non-recurring and timing effects NOK million Q2 2016 Q1 2016 Q2 2015 First half 2016 First half 2015 Underlying EBIT 1 618 1 501 2 667 3 119 5 875 Unrealized derivative effects on LME related contracts 146 137 (31) 283 (171) Unrealized effects
Slide 24: Bauxite & Alumina
Bauxite & Alumina Higher realized alumina price offset by negative currency development Key figures Q2 2016 Q1 2016 Q2 2015 Alumina production, kmt 1 554 1 517 1 437 Total alumina sales, kmt 2 078 2 073 2 099 Realized alumina price, USD/mt 240 219 292 Implied alumina cost, USD/mt 201 183 233 Bauxite
Slide 25: Primary Metal
Primary Metal Increased all-in metal prices, higher sales volumes and lower costs lift results Key figures Q2 2016 Q1 2016 Q2 2015 Primary aluminium production, kmt 518 514 509 Total sales, kmt 596 552 544 Realized LME price, USD/mt 1 546 1 497 1 803 Realized LME price, NOK/mt 12 826 12 950 13 923 R
Slide 26: Metal Markets
Metal Markets Negative currency and inventory valuation effects, weaker results at remelters Key figures Q2 2016 Q1 2016 Q2 2015 Remelt production, kmt 146 144 141 Metal products sales, kmt 1) 777 736 750 Underlying EBITDA, NOK million 98 191 (64) Underlying EBIT excl currency and inventory valuatio
Slide 27: Rolled Products
Rolled Products Seasonally stronger sales offset by negative currency effects and weaker Neuss results Key figures Q2 2016 Q1 2016 Q2 2015 External sales volumes, kmt 238 229 243 Underlying EBITDA, NOK million 432 446 488 Underlying EBIT, NOK million 242 248 315 Underlying EBIT Q2 results NOK millio
Slide 28: Energy
Energy Results down on lower production amid stable prices, partly offset by lower costs Key figures Q2 2016 Q1 2016 Q2 2015 Power production, GWh 2 674 3 160 2 103 Net spot sales, GWh 1 393 1 795 724 Southwest Norway spot price (NO2), NOK/MWh 213 212 171 Underlying EBITDA, NOK million 352 453 227 U
Slide 29: Sapa JV
Sapa JV Seasonally stronger demand and higher margins Key figures – Sapa (50%) Q2 2016 Q1 2016 Q2 2015 Revenue, NOK million* 7 036 6 953 7 242 Underlying EBITDA, NOK million 566 450 399 Underlying EBIT, NOK million 402 286 241 Underlying Net income (loss), NOK million 270 183 145 Sales volumes (kmt)
Slide 30: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q2 2016 Q1 2016 Q2 2015 Sapa JV 270 183 145 Other (100) (162) (150) Eliminations (45) 160 338 Other and Eliminations 125 181 333 30
Slide 31: Net cash development Q2 2016
Net cash development Q2 2016 Positive cash flow in a quarter with dividends, supported by operating capital release NOK billion Net cash flow from operations NOK 3.5 billion** (0.3) 1.0 (0.9) (2.0) 2.9 0.2 4.8 3.9 End Q1 2016 Underlying EBITDA Operating capital Taxes and other* Investments and Divid
Slide 32: Adjusted net debt decreased in Q2 2016
Adjusted net debt decreased in Q2 2016 Mainly due to higher net cash position Jun 30 Mar 31 Dec 31 NOK billion 2016 2016 2015 Cash and cash equivalents 9.2 5.9 6.9 Short-term investments 2.6 5.5 5.8 Short-term debt (3.6) (3.8) (3.6) Long-term debt (3.5) (3.7) (4.0) Net cash/(debt) 4.8 3.9 5.1 Net pe
Slide 33: Priorities
Priorities • Deliver on Better improvement program • Strengthen competitive position through technology pilot and new automotive line • Maintain financial strength and flexibility 33
Slide 34: Additional information
Additional information HYDRO
Slide 35: Prudent financial framework
Prudent financial framework Strong balance sheet and reliable dividend in cyclical industry Reliable Lifting Financial Disciplined shareholder Effective risk cash flow strength capital remuneration management potential and flexibility allocation policy Improving efficiency, Investment grade Long-ter
Slide 36: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Actual 2015 Improvement programs 2.9 BNOK 2016-2019 4.5 BNOK 2009 - 2015 Sustaining capex 3.5 - 4.0 BNOK Over the cycle 4.6 BNOK 2015 Average capex incl. growth 6.1 BNOK 1) 2016-2018 5.8 BNOK 2015 Divide
Slide 37: Shareholder and financial policy; Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns • Hedging strategy: compared to alternative investments in peers − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Maintained divid
Slide 38: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt Adjusted net debt / Equity 60 % NOK billion 55 % 50 % 40 % 32 % Mar 31, 2016 30 % 24 % 26 % 3.9 (4.7) (7.6) (8.4) (16.8) 22 % 20 % 19 % 20 % 11 % 10 % -5
Slide 39: Majority of sustaining capex allocated upstream
Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion • Long-term annual sustaining capex BNOK 3.5-4.0 10.2 10 • Sustaining projects for 2014-2016: − Red mud disposal area 9 8.1 − Bauxite tailing dam 8 − Smelter relining − Energy rehabilitation 7
Slide 40: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +0.97 NOK/share Sustainable effect: 2,860 2,200 NOK million USD BRL EUR UEBIT 2 610 (970) (270) One-off reevaluation effect: UEBIT Underlying Net Income Financi
Slide 41: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.5% of 3-month LME price per tonne alumina 640 − ~One month lag • Realized alumina price lags PAX by one month 500 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 42: Primary Metal sensitivities
Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months 2,180 • Realized premium lags market premium by ~1-2 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME pric
Slide 43: Depreciation by currency and business area
Depreciation by currency and business area Total 2015 depreciation 5.0 BNOK Depreciation currency exposure by business area Depreciation by business area 2015 NOK & 4% 1% Percent USD EUR BRL Others Bauxite & Alumina 100% 15% Primary Metal 25% 25% 50% 39% Bauxite and alumina Metal Markets 25% 45% 30%
Slide 44: Items excluded from underlying results - 2016
Items excluded from underlying results - 2016 NOK million (+=loss/()=gain) Q1 2016 Q2 2016 Unrealized derivative effects on LME related contracts Bauxite & alumina - - Total impact Bauxite & alumina - - Unrealized derivative effects on LME related contracts Primary metal (72) 38 Unrealized effects o
Slide 45: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) 19 11 Total impact Bauxite & alumina 3 (6) (6) 19 11 Unrealized derivative effects on LME related contrac
Slide 46: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Bauxite & Alumina (288) (269) (26) 528 780 482 628 532 189 174 (55) 2 421 Primary Metal 312 420 1 216 1 989 2 012 1 448 762 407 318 702 3 937
Slide 47: Operating segment information
Operating segment information EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Bauxite & Alumina (284) (269) (23) 537 776 487 634 513 189 174 (39) 2 411 Primary Metal 303 434 1 278 1 912 1 956 1 528 664 311 408 668 3 928 4 459 Metal
Slide 48: Operating segment information
Operating segment information Total revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Bauxite & Alumina 3 511 3 828 3 737 4 770 5 461 5 127 5 758 5 542 4 212 4 572 15 847 21 889 Primary Metal 6 618 6 384 6 986 8 075 9 096 8 154 7
Slide 49: Operating segment information
Operating segment information Internal revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Bauxite & Alumina 1 304 1 424 1 480 2 071 2 074 2 150 2 103 2 030 1 769 1 873 6 279 8 356 Primary Metal 5 391 5 047 5 396 5 833 7 307 7 095 6
Slide 50: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Bauxite & Alumina 410 431 442 519 460 470 420 633 451 485 1 802 1 983 Primary Metal 437 427 431 499 511 483 483 475
Slide 51: Income statements
Income statements NOK million Q2 2016 Q1 2016 Q2 2015 First half 2016 First half 2015 Year 2015 Revenue 20 391 20 138 22 436 40 529 45 726 87 694 Share of the profit (loss) in equity accounted investments 323 170 276 493 542 512 Other income, net 481 111 195 592 467 461 Total revenue and income 21 1
Slide 52: Balance sheets
Balance sheets NOK million Jun 30 2016 Mar 31 2016 Dec 31 2015 Sep 30 2015 Jun 30 2015 Cash and cash equivalents 9 220 5 946 6 917 9 372 8 142 Short-term investments 2 629 5 479 5 752 1 860 1 240 Accounts receivable 12 085 12 699 10 797 14 417 14 847 Inventories 11 820 11 684 12 192 11 996 12 722 Ot
Slide 53: Operational data
Operational data Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 1 451 1 437 1 498 1 577 1 517 1 554 5 933 5 962 Sourced alum
Slide 54: Operational data
Operational data Metal Markets Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year2014 Year 2015 Remelt production (1 000 mt) 139 141 128 130 145 141 117 130 144 146 538 533 Third-party Metal Products sales (1 000 mt) 84 81 80 79 74 80 81 84 72 74 324 319 Metal Produ
Slide 55: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Year 2014 Year 2015 Sales volume (1000 mt) 346 360 346 314 359 367 350 322 35
Slide 56: Investor Relations in Hydro
Investor Relations in Hydro Stian Hasle Head of Investor Relations Next events t: +47 97736022 e: stian.hasle@hydro.com Third Quarter Results Olena Lepikhina October 25, 2016 Investor Relations Officer t: +47 96853035 e: olena.lepikhina@hydro.com Capital Markets Day December 1-2, 2016 Gunn Elise Sko
Slide 57: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO