Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (November 2017)
163 slides from Norsk Hydro Asa's investor day presentation, Nov 30, 2017
Slide 1: Capital Markets Day
Capital Markets Day London November 30, 2017
Slide 2: Table of contents
Table of contents Hydro 6 Finance 38 Market Outlook 66 Extruded Solutions 102 Strategic direction – Better, Bigger, Greener 117 Bauxite & Alumina 120 Primary Metal 126 Rolled Products 134 Sustainability 142 2
Slide 3: Safety information at The Andaz
Safety information at The Andaz • There are no scheduled fire alarm tests today, so if the fire alarms go off please listen to the announcements and follow the instructions • The Fire Assembly point is over in Exchange Square by the Fat Lady statue • The Event Management Team will be on hand to assi
Slide 4: Cautionary note in relation to certain forward-looking statements
Cautionary note in relation to certain forward-looking statements 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
Slide 5: Agenda
Agenda 07:30 – 08:00 Light breakfast and registration 11:15 – 11:35 Break 08:00 – 08:05 Welcome 11:35 – 12:40 Hydro’s strategic direction 08:05 – 08:45 Hydro Bauxite & Alumina Primary Metal 08:45 – 09:15 Finance Rolled Products Sustainability 09:15 – 09:30 Q&A 12:40 – 12:55 Q&A 09:30 – 09:50 Break 1
Slide 6: The leading force in aluminium
The leading force in aluminium Adding value across the value chain Svein Richard Brandtzæg, President and CEO
Slide 7: Lifting the bar for responsibility and sustainability
Lifting the bar for responsibility and sustainability Good for our people, great for business TRI Making 2.7* a positive YTD 2017 difference Carbon- neutral by 2020** On track Safety first Part of the solution Good citizen Aiming for an injury-free Implementing the industry’s most Making a positive
Slide 8: Main developments during 2017
Main developments during 2017 Bauxite & Primary Rolled Energy Extruded Alumina Metal Products Solutions Record-high bauxite & Karmøy technology pilot on Inauguration of 1.65 TWh wind-based Becoming 100% alumina production track for first metal Q4 2017 Automotive line 3 power sourcing* owner in Sapa
Slide 9: Integration of Extruded Solutions on track
Integration of Extruded Solutions on track The Hydro model allows all business areas to be run according to their specific business drivers and needs Organizational Initial synergy Systems integration structure in place potential confirmed on track • New corporate management board for • Confirmed sy
Slide 10: Aluminium gaining momentum on favorable fundamentals
Aluminium gaining momentum on favorable fundamentals 10
Slide 11: Geopolitical uncertainty, robust global growth
Geopolitical uncertainty, robust global growth Global gross domestic product growth 2018 % y-o-y 3.2% 6.5% China 2.1% Europe 2.4% North- America Source: Global Insight 11
Slide 12: China sentiment shifting due to rising environmental concerns
China sentiment shifting due to rising environmental concerns • Aluminium demand continue to grow, but at more moderate level • Financing becoming increasingly restricted • Bauxite resources depleting domestically, increasing dependency on imports, in particular from Guinea • Increasing raw material
Slide 13: Global aluminium market expected to be largely balanced in 2018
Global aluminium market expected to be largely balanced in 2018 Inventories trending towards historical levels Inventory levels, reported and unreported Expect largely balanced primary market in 2018 Global, in thousand tonnes 15000 140 2 000 13000 120 11000 1 000 China 100 9000 80 7000 0 60 Global
Slide 14: Continued strong long-term outlook for aluminium
Continued strong long-term outlook for aluminium CAGR 2017-2027 Semis Primary Recycling ~3% 2-3% 3-4%* Source: CRU, Hydro analysis * Process and post-consumer scrap 14
Slide 15: Delivering on Hydro's overall strategic direction
Delivering on Hydro’s overall strategic direction 15
Slide 16: Fully integrated across the aluminium value chain and markets
Fully integrated across the aluminium value chain and markets Broad products and solutions offering from bauxite to end-user products Bauxite Transport & Building & Packaging Electronics & Machinery & Consumer automotive construction electrical equipment durables Alumina Energy Primary Metal Rolled
Slide 17: Hydro – differentiating through the integrated model
Hydro – differentiating through the integrated model Bauxite Alumina Energy Primary Metal Rolled Products Extrusion Recycling Source: graphical illustration based on company websites/reports, CRU 17
Slide 18: Strong global presence throughout the aluminium value chain
Strong global presence throughout the aluminium value chain Built on market understanding, customer closeness and competence Europe The complete aluminium company 10 TWh in North America the Nordic #1 position • High-quality bauxite and alumina production in Brazil power extruded market solutions •
Slide 19: Better, Bigger, Greener
Better, Bigger, Greener Hydro’s aspiration for higher value creation Better Bigger Greener Raise performance and Expand the use of aluminium and Lead the transition improve customer offering strengthen Hydro’s platform for growth towards sustainable solutions • Extend Hydro’s leadership in advanced
Slide 20: Creating value across the aluminium value chain
Creating value across the aluminium value chain 20
Slide 21: Leading the industry in innovation, R&D and product development
Leading the industry in innovation, R&D and product development Driving technological development to support customers, increase market share and lift efficiency Next- Automotive generation lightweighting electrolysis Low-carbon, Digitalization circular and Industry solutions 4.0 21
Slide 22: Why aluminium?
Why aluminium? Hydro’s strategic direction aims to realize full potential of aluminium’s strong qualities and versatility Aluminium Steel Copper Composites PVC Lightness and strength Strength and durability Conductivity Lightness Lightness and formability Durability and formability Recyclability Cor
Slide 23: Hydro launches its first certified sustainable products
Hydro launches its first certified sustainable products Converting our industry-leading climate position into products for the low-carbon, circular economy 4.0 has a guaranteed maximum carbon footprint of 4 kg CO2/ kg aluminium 75R has a guaranteed minimum post-consumer scrap content of 75% 23
Slide 24: Operational and commercial excellence
Operational and commercial excellence Focus on cost efficiency and process technology Focus on margin management and product innovation Centralized business model Decentralized business model Bauxite & Alumina Energy Primary Metal Metal Markets Rolled Products Extruded Solutions • Increased and stab
Slide 25: Industry-leading improvement drive
Industry-leading improvement drive Improvement target lifted to NOK 3.0 billion 2016-2019, NOK 1.7 billion realized by end-2017 Bauxite & Alumina Rolled Products Primary Metal Better BNOK 1.3 in 2019 BNOK 0.7 in 2019 BNOK 1.0 in 2019 • High production at Alunorte and • Operational and ramp-up • Impr
Slide 26: Among the best positioned in the industry upstream
Among the best positioned in the industry upstream Alumina BOC curve by company (2017) Smelter BOC curve by company (2017) USD/mt USD/mt 400 2 400 2 000 300 1 600 200 1 200 800 100 400 0 0 0 30 000 60 000 90 000 120 000 mt 0 15 000 30 000 45 000 60 000 mt Source: Republished under license from CRU I
Slide 27: Primary aluminium in premium segment for casthouse products
Primary aluminium in premium segment for casthouse products Extrusion ingots customer value survey 2017* poor customer Premium Hydro extrusion ingot value segment Competitors extrusion ingot Bubble size indicates market share Relative perceived price 10% 25% 50% good Commodity customer segment value
Slide 28: Strong and improving customer satisfaction downstream
Strong and improving customer satisfaction downstream Competence, flexibility and advanced products are key success factors Rolled Products customer satisfaction survey* Extruded Solutions Europe customer satisfaction survey** Satisfaction level indexed Satisfaction level indexed 112 112 108 108 104
Slide 29: Securing long-term competitive power sourcing for smelter portfolio
Securing long-term competitive power sourcing for smelter portfolio 1.65 TWh/year from 2021 sourced for the Norwegian smelter portfolio since last CMD Sourcing platform for fully-owned smelters, Norway* TWh 20 Utilizing wind 15 power to strengthen Hydro’s renewables base in Norway 10 5 0 2017 2018 2
Slide 30: Securing long-term competitive power sourcing for smelter portfolio
Securing long-term competitive power sourcing for smelter portfolio Sourcing platform for JVs and Neuss smelter* TWh 20 Providing Hydro’s 15 global assets with Text competitive power sourcing 10 5 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 Alouet
Slide 31: Our financial framework for increased value-creation
Our financial framework for increased value-creation 31
Slide 32: Driving long-term shareholder value
Driving long-term shareholder value Priorities for cash over the cycle Strong balance sheet and cash generation Distribution to shareholders M&A Sustaining capex and selective growth Predictable dividend Organic growth 32
Slide 33: Strong balance sheet and cash generation
Strong balance sheet and cash generation Adjusted net debt / Equity Hydro Hydro incl Sapa* Cash flow generation strengthened by Sapa-acquisition** 60% Operating cash flow, in NOK billion Hydro Hydro incl Sapa* 50% Target <55% 40% 16.2 28% 30% 15.0 14.4 20% 14% 11% 13.0 10% 12.2 0% 2016 Q3 2017 10.0
Slide 34: Capital allocation - sustaining capex
Capital allocation - sustaining capex Sustaining capital expenditures • Long-term sustaining capex BNOK 5.5 – 6, including In NOK million Extruded Solutions 8 7 6.8 6.5 – 7.0 • Main sustaining projects 2018-2020: − Bauxite residue disposal area 6 5.6 Long-term sustaining capex − Opening of new bauxi
Slide 35: Capital allocation – selective growth
Capital allocation – selective growth • Presence in full value chain and all market segments gives increased growth opportunities • Projects evaluated on strategic and economic merit − Differentiated cost of capital between business areas • Incremental growth projects 2018 – 2020 includes smaller cr
Slide 36: Dividend policy
Dividend policy • Aiming for competitive shareholder returns Payout ratio, in NOK/share 40% compared to alternative investments in peers 3.5 3.0 • Dividend policy: 133% − Ordinary dividend: 40% of net income over the cycle 2.5 Average payout ratio − Floor of NOK 1.25 per share, committed to a predic
Slide 37: Hydro 2018
Hydro 2018 Lifting performance, driving value creation, extending industry leadership • Maintaining financial strength and flexibility, providing attractive returns over the cycle • Strengthening competitiveness and resolving operational challenges • Differentiating through the integrated model and
Slide 38: Finance: Maximizing the potential for value creation
Finance Maximizing the potential for value creation Eivind Kallevik, CFO
Slide 39: Prudent financial framework
Prudent financial framework 39
Slide 40: Prudent financial framework
Prudent financial framework Managing industry cyclicality, driving long-term shareholder value Reliable Financial Disciplined Lifting cash flow shareholder Effective risk strength capital potential remuneration management and flexibility allocation policy Improving efficiency, Investment grade credi
Slide 41: Supporting earnings with industry-leading improvement ambitions
LIFTING CASH FLOW POTENTIAL Supporting earnings with industry-leading improvement ambitions Underlying EBIT development Better improvement ambition by NOK billion Better ambition 2016-2019 category, 3.0 BNOK 2016-2019 Improvements 2011-2015 Improvements 2009-2011 1.3 13.1 1.6 11.8 6.2 10.2 6.2 4.0 V
Slide 42: Sapa adds significant operating cash flow from day 1
LIFTING CASH FLOW POTENTIAL Sapa adds significant operating cash flow from day 1, with further improvement potential and growth opportunities Cash flow from operations* Sapa (100%) Underlying EBITDA per mt • BNOK 1 restructuring on annual basis NOK billion NOK delivered ahead of plan 16.2 15.0 14.4
Slide 43: Rolled Products: Challenging 2017, investing for future growth
LIFTING CASH FLOW POTENTIAL Rolled Products: Challenging 2017, investing for future growth Rolled Products Underlying EBIT per mt • Operational issues reducing cash flow in 2017 NOK − Production performance at Alunorf and Hamburg have been stabilized 1 248 1 204 − Technical issues related to the UBC
Slide 44: Increasing margins upstream, raw material cost push
LIFTING CASH FLOW POTENTIAL Increasing margins upstream, raw material cost push Implied alumina cost and margin, USD/mt 1) All-in implied primary cost and margin, USD/mt 2) Realized 300 Realized 2 353 alumina price 275 284 276 all-in price 3) 2 271 2 179 2 125 16 34 240 66 350 500 61 475 1 838 425 4
Slide 45: Optimizing working capital remains key priority
LIFTING CASH FLOW POTENTIAL Optimizing working capital remains key priority NOK Billion Days 25 22 80 • Net operating capital generally follows 22 22 21 21 20 21 LME 20 20 20 20 70 20 17 18 • Extruded Solutions average working 17 17 capital around 5 BNOK 60 15 • Extruded Solutions reducing overall n
Slide 46: Maintaining a solid balance sheet and investment-grade credit rating
FINANCIAL STRENGTH AND FLEXIBILITY Maintaining a solid balance sheet and investment-grade credit rating Strong liquidity, also following the Sapa acquisition Adjusted net debt Adjusted net debt / Equity 60 % NOK billion <55 % 50 % 40 % 32 % Jun 30, 2017 6.0 (4.2) (7.6) (6.9) (12.8) 26 % 28 %2 30 % 2
Slide 47: Successful financing of the Sapa-transaction in bond markets
FINANCIAL STRENGTH AND FLEXIBILITY Successful financing of the Sapa-transaction in the Norwegian and Swedish bond markets • Successful placement of bonds in Norway and Sweden • Very strong interest and highly competitive terms achieved • Total amount: NOK 3 billion and SEK 3 billion − 2Y SEK 1 billi
Slide 48: Long-term sustaining capex around NOK 5.5-6.0 billion
DISCIPLINED CAPITAL ALLOCATION Long-term sustaining capex around NOK 5.5-6.0 billion Higher than average sustaining capex 2018-2020 mainly driven by sustaining investments in Brazil NOK billion 8 8 7 7 ~6.8 6.5 – 7.0 6 5.8 6 5.7 ~5.6 LT sustaining capex 5 5 4.2 4 4 3 3 2 2 1 1 0 0 2014 2015 2016 201
Slide 49: Growth capex focused on high-grading, recycling and technology
DISCIPLINED CAPITAL ALLOCATION Growth capex focused on high-grading, recycling and technology Majority of sustaining capex allocated upstream NOK billion • Sustaining projects for 2018-2020: 10 − Bauxite residue disposal area − Opening of new bauxite mining area ~8.1 8 7.9 ~7.7 7.5 – 8.0 − Pipeline
Slide 50: Capital allocated across the value chain based on premium above cost of capital
DISCIPLINED CAPITAL ALLOCATION Capital allocated across the value chain, based on estimated premium above cost of capital Underlying EBITDA • Increased growth opportunities through presence in full value Hydro BNOK Cost of capital chain and all market segments 7.5 %* 18 • Upstream 16 − Cost of capit
Slide 51: Increasing relative share of downstream exposure
DISCIPLINED CAPITAL ALLOCATION Increasing relative share of downstream exposure Hydro before transaction: Hydro after transaction: Hydro depreciation after transaction: Capital employed by end Q3-17 Capital employed by end Q3-17 In BNOK BNOK ~80 BNOK ~96 ~7.5 ~0.4 ~1.3 ~5.8 Downstream up from 23% to
Slide 52: Increasing relative share of downstream exposure
DISCIPLINED CAPITAL ALLOCATION Increasing relative share of downstream exposure Hydro before transaction: Hydro after transaction: Hydro depreciation after transaction: Underlying EBITDA LTM Q3-17 Underlying EBITDA LTM Q3-17 In BNOK BNOK 15 BNOK 18 ~7.5 ~0.4 ~1.3 ~5.8 Downstream up from 14% to ~27%
Slide 53: Limited financial hedging, flexible business model
EFFECTIVE RISK MANAGEMENT Limited financial hedging, flexible business model Historical correlations between commodities and currencies indicate a natural earnings hedge • Hedging strategy Cross-correlations between currencies and commodities − Fluctuating with the market: revenues primarily exposed
Slide 54: Sensitivities and scenarios
Sensitivities and scenarios 54
Slide 55: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +1.18 NOK/share Sustainable effect: 3 500 NOK million USD BRL EUR 2 700 UEBIT 3 450 (1 210) (220) UEBITDA 3 540 (900) (80) UEPS 1.17 (0.37) (0.07) UEBIT Underly
Slide 56: 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 11,230 230 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 180 Bauxite • ~2.45 tonnes bauxite per tonne alum
Slide 57: 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 3,090 • Realized premium lags market premium by ~1-2 months 3 090 Cost impact Alumina • ~1.9 tonnes per tonne aluminium 250 • ~14.5% of 3-mont
Slide 58: Commodities and currencies need to be seen in tandem
Commodities and currencies need to be seen in tandem Spot prices and currency rates indicate earnings upside Underlying EBIT sensitivity to changes in LME and Key variables “run-rate”* vs Q3-17 realized USD/NOK Annual effect Change in LME price Q3-17 Impact on Impact on UEPS realized Run-rate* % cha
Slide 59: Improvement efforts lift UEBITDA potential
Improvement efforts lift UEBITDA potential Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative UEBITDA-range in 3 scenarios NOK billion 35 30 25 20 Incl. 1.3 BNOK* in remaining improvement 15 ambitions 2018 - 2019 10 As is, incl. 2017 improvement achieveme
Slide 60: Improvement efforts and capital discipline contribute to FCF growth
Improvement efforts and capital discipline contribute to FCF growth… Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative Free cash flow (FCF) range in 3 scenarios NOK billion 15 10 Incl. 1.3 BNOK* in remaining improvement ambitions 2018 - 2019 5 As is, inc
Slide 61: …and lift potential for competitive returns
…and lift potential for competitive returns Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative RoaCE range in 3 scenarios 18% 15% 12% 9% Incl. 1.3 BNOK* in 6% remaining improvement ambitions 2018 - 2019 3% As is, incl. 2017 improvement achievements 0% -3%
Slide 62: Financial targets and aspiration
Financial targets and aspiration 62
Slide 63: Driving long-term shareholder value
Driving long-term shareholder value Balancing capital allocation and financial strength Capital expenditures Solid balance Sustaining capex to ensure operational excellence Long-term shareholder value sheet and Investments to keep market share, reduce costs, strengthen margins • Reinvest in Distribu
Slide 64: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe CMD 2017 status Better improvement ambition 3.0 BNOK 2016-2019 1.7 BNOK 2017E Long-term sustaining capex ~ 5.5 - 6.0 BNOK Over the cycle 5.6 BNOK 2017E Dividend payout ratio 40% of net income Over the cy
Slide 65: Maximizing long-term value creation potential
Maximizing long-term value creation potential • Continuous cost and margin improvements • Financial strength and flexibility • Disciplined capital allocation • Reliable shareholder remuneration policy • Working capital management • Effective risk management (65)
Slide 66: Market Outlook
Market Outlook Kathrine Fog, SVP Corporate Strategy & Analyses
Slide 67: Macro and downstream
Macro and downstream HYDRO
Slide 68: Improving macro environment evident in aluminium demand
Improving macro environment evident in aluminium demand Semis demand at or above GDP in key regions Manufacturing PMI’s Semis demand annual growth, key regions (%) 65 10% 60 8% Increasing production 55 6% 50 4% Contracting production 45 2% 40 0% China North America Western Europe World ex. China Sep
Slide 69: Substitution trend in automotive progressing
Substitution trend in automotive progressing US semis demand in automotive remains positive although car sales have overall moderated in 2017 US and European automotive indicators Semis demand in transport, annual growth (Index, Jan. 2008=100) (%) 130 10% 120 8% 110 100 6% 90 80 4% 70 2% 60 50 0% Ja
Slide 70: Automotive demand for aluminium supporting several semis products
Automotive demand for aluminium supporting several semis products Car makers utilizing aluminium to reduce weight and increase fuel-efficiency High-growth automotive segment with substantial further Global semis demand for transport sector by product form potential due to aluminium’s superior inhere
Slide 71: New segments and applications supporting aluminium demand
New segments and applications supporting aluminium demand Marine / Offshore applications Zero-emission electrical car ferries in B&C, ex. Supertall buildings Transportation, truck & trailer applications 100% aluminium for light-weighting Aluminium in solar panels Industrial applications, ex. furnitu
Slide 72: Rolled products demand driven by transport segment
Rolled products demand driven by transport segment Transport share increasing in total rolled products demand General rolled products demand, Expected market development selected regions • Continued substitution trend in transport main YoY-growth demand driver • Growth in packaging driven by can sto
Slide 73: Extrusion market supported by continued momentum in B&C and transport
Extrusion market supported by continued momentum in B&C market and improving demand in transport Global segment composition, extrusion Housing market indicators US truck and trailer market (2017) Index, Jan 2010=100 Monthly shipments, annual growth 240 90% 3% 4% 220 70% 5% 200 50% 12% 180 30% 160 10
Slide 74: Solid extrusion demand growth in several key regions
Solid extrusion demand growth in several key regions Gradual improvement expected in Europe, Chinese demand growth estimated to moderate Extrusion demand, selected regions YoY-growth 10% North America 10% Western Europe 10% China Expected market development 5% 5% 5% • US housing market still sustain
Slide 75: Largely stable Chinese semis exports last year
Largely stable Chinese semis exports last year Limited extrusion exports to Europe and North America, extrusion stocks transferred from Mexico to Vietnam Monthly Chinese net semis exports (12-month moving average) Annual Chinese extrusion exports, by region Thousand tonnes Thousand tonnes 350 12% 14
Slide 76: Trade flows partly impacted by trade measures
Trade flows partly impacted by trade measures Chinese semis exports by destination – Asia key region 3% (2016) 8% Europe 10% US • Import duties • Import duties 44% on semis on semis • Dumping cases 11% • Dumping cases • Signals on more protection 15% 9% Asia Africa North America Asia Europe • Some i
Slide 77: Primary metal market
Primary metal market HYDRO
Slide 78: Recap CMD 2016: Global primary market expected to be largely balanced in 2017
Recap CMD 2016: Global primary market expected to be largely balanced also in 2017 Global (’000 mt) Global growth expectations 2017 Demand: 3-5 % Supply: 4-6 % 65 000 Supply Demand 60 000 Demand 55 000 influences 2017 Supply influences 2017 Momentum in 50 000 Chinese construction Chinese restarts an
Slide 79: Global primary market for 2017 in small deficit
Global primary market for 2017 in small deficit Both supply and demand higher than expected Global (’000 mt) Global growth 2017 Happened to a limited extent Happened to a large extent Demand: ~6.0 % Supply: ~7.0 % 65 000 Supply Demand 60 000 Demand 55 000 influences 2017 Supply influences 2017 Momen
Slide 80: Global primary market expected to be largely balanced in 2018
Global primary market expected to be largely balanced in 2018 Primary supply and demand growth expected to be largely similar Global (’000 mt) Global growth expectations 2018 Supply and demand: 4-5 % 70 000 Supply Demand 65 000 60 000 Supply Demand influences 2018 influences 2018 55 000 Gradual slow
Slide 81: Supply-side reform and environmental shutdowns moderating Chinese supply growth
Supply-side reform and environmental shutdowns moderating Chinese primary supply growth 1 800 Annual production effect (‘000t) 1 000 Supply side reform Environmental shutdowns Weiqiao 1 300 East Hope 800 ~500 Shandong 300 Xinfa 500 Henan Xinjiang Jiarun 200 Inner Mongolia Jinlian Shanxi 2+26 affecte
Slide 82: Key drivers for China's aluminium expansion losing momentum
Key drivers for China’s aluminium expansion losing momentum Drivers for aluminium capacity Past Present • Continued strong growth short-term, but expected to slow longer term Demand growth • Export market impacted by trade restrictions • From softer to harder constraints: strong enforcement of envir
Slide 83: Chinese energy market reforms impacting aluminium smelter cost
Chinese energy market reforms impacting aluminium smelter cost Reforms expected to even out power prices across the specter of Chinese aluminium producers Chinese Power Market Reform: Chinese Steam Coal Price Band Key objectives RMB/t 800 700 Implement power Standardize and 600 pricing mechanisms st
Slide 84: Higher and steeper cost curve in 2017 compared to 2016
Higher and steeper cost curve in 2017 compared to 2016 Higher end of the cost curve dominated by Chinese smelters Index: Jan 2016 = 100 Business operating cost (BOC) 250 USD/t 2 500 200 2 250 2 000 150 1 750 1 500 100 1 250 Cost pressure in 2017 50 1 000 Higher coal prices Higher alumina prices 750
Slide 85: Primary aluminium market to be largely balanced in 2018
Primary aluminium market to be largely balanced in 2018 Market balances largely similar compared to 2017 World ex. China 2018 3-4 % Primary market balance 2018 (mill t.) (‘000t) 3-4 % 2 000 ~30.1 – 30.4 Production ~28.0 – 28.3 Demand 1 000 0 -1 000 China 2018 4-6 % (mill t.) -2 000 4-6 % ~37.5 – 38.
Slide 86: Stocks outside China continue to decrease, Chinese stocks moved higher
Stocks outside China continue to decrease, while Chinese stocks have moved higher Chinese exports not fully filling up deficits outside China China World ex. China (‘000t) (‘000t) 12000 180 12000 180 160 160 10000 10000 140 140 8000 120 8000 120 100 100 6000 6000 80 80 4000 60 4000 60 40 40 2000 200
Slide 87: Inventory days approaching historically tight levels outside China in 2018
Inventory days approaching historically tight levels in world outside China in 2018 Chinese inventory days expected to increase, but not substantially China World ex. China (‘000t) (‘000t) 12000 180 12000 180 160 160 10000 10000 140 140 8000 120 8000 120 100 100 6000 6000 80 80 4000 60 4000 60 40 40
Slide 88: All-in price level supported by higher LME and premiums in 2017
All-in price level supported by higher LME and premiums in 2017, prices in NOK supported by continued weak NOK vs USD USD/mt NOK/mt USD/mt 3 000 20 000 900 800 18 000 700 2 600 600 16 000 500 2 200 400 14 000 300 1 800 200 12 000 100 1 400 10 000 0 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Ja
Slide 89: Bauxite and alumina market
Bauxite and alumina market 89
Slide 90: Chinese primary production dependent on imported resources
Chinese primary production dependent on imported resources Around 37% based on imported raw material (average 2013-2017) % of Primary Production 100 6.3 % Imported 90 80 2017f 30.4 % 40% Imported 70 60 50 100 % 93.7 % Domestic 40 63.3 % Domestic 30 20 10 0 Primary production Alumina Bauxite Source:
Slide 91: Bauxite production in China to decline, triggering more imports
Bauxite production in China to decline, triggering more imports Chinese bauxite imports set to increase Chinese bauxite production and imports Mtpy 250 • Depleting resources not sufficient to sustain operations in key provinces: 200 − inland refineries may convert to imported bauxite or relocate to
Slide 92: Guinea's bauxite production is rising
Guinea’s bauxite production is rising Projects to add 25-30 Mtpa of bauxite export capacity, resource base could support additional volumes • Committed capacity increasing to ~70 Mtpy by 2020 Guinea bauxite production (million mt) • Substantial bauxite resources available 80 − 20+ billion mt within
Slide 93: Chinese bauxite imports increasingly exposed to freight
Chinese bauxite imports increasingly exposed to freight Freight represents ~20 to 60% of the CIF price, freight rates increasing from low levels CIF China, USD/t Origin of Chinese bauxite imports 90 2013 2017 80 Altantic Pacific 70 60 50 Baltic Dry Index 40 3000 2000 30 1000 20 0 Jun-13 Jun-14 Jun-1
Slide 94: Higher alumina cost curve in 2017 compared to 2016
Higher alumina cost curve in 2017 compared to 2016 Higher end of the cost curve dominated by Chinese refineries Index: Jan 2016 = 100 USD/t Shandong 300 400 average $302 250 350 200 300 150 250 100 200 Cost pressure in 2017 Higher caustic prices 50 150 Higher Chinese bauxite prices Higher freight co
Slide 95: Chinese winter shutdowns affecting alumina supply
Chinese winter shutdowns affecting alumina supply Overall alumina impact likely to exceed smelter winter shutdowns Current Extended Scope of 2+26 Alumina production lost to winter cuts City Policy (annualized production effect) (’000kt) 2500 Inner Mongolia Liaoning Hebei 2000 Shanxi Shandong 1500 2+
Slide 96: Alumina market balancing, Chinese additions also outside China
Alumina market balancing, Chinese additions also outside China Limited capacity increases outside China Ras Al Khair (1.8) Chinese additions Point Comfort (2.3) Al Taweelah (2.0) 2018: ~4.0 Mt Corpus Christi (1.63) India (1.0) Being dismantled Alpart (1.65) Friguia (0.65) Nhan Co (0.65) Paranam (2.2
Slide 97: Alumina prices rise amid policy implementation uncertainty
Alumina prices rise amid policy implementation uncertainty Market tightness, high metal prices, and increasing costs support prices Recent alumina price drivers Platts alumina index (PAX, to 22 Nov 2017)) USD/t Percent Market balances 550 • New smelter projects ramping up in China 24% 500 • Re-stock
Slide 98: Long-term outlook and summary
Long-term outlook and summary 98
Slide 99: Strong growth drivers across segments providing solid demand outlook
Strong growth drivers across segments providing solid demand outlook Still encouraging demand outlook from strong base – converging demand China and outside China Strong demand drivers in key aluminium segments Global semis demand per segment, CAGR 2000-17 2017-27 Growth in automotive vehicle produc
Slide 100: Growth in global semis demand creates opportunities for primary and recycled material
Growth in global semis demand creates opportunities for both primary and recycled material Solid growth for semis, primary and recycling CAGR 2017 – 2027 Semis Primary Recycling* ~3 % 2-3 % 3-4 % Source: CRU, Hydro Analysis * Post-consumer and fabrication scrap ** Unallocated creep estimated at same
Slide 101: Market outlook summary
• Solid long-term demand outlook supported by strong growth drivers across segments • Chinese primary supply moderating due to policy reform • Global primary market largely balanced this year and next • Cost curve pressured upwards by rising alumina and coal prices, with regional differences • Recyc
Slide 102: From extrusions to solutions
From extrusions to solutions Egil Hogna, EVP Extruded Solutions
Slide 103: Extruded Solutions – #1 in the global aluminium extrusion industry
Extruded Solutions – #1 in the global aluminium extrusion industry Present in ~ 40 countries > 50% of production using remelted aluminium 22,400 people * BNOK 56 in turnover ** * As of end-2016 ** Rolling 12 months Q3 2017 103
Slide 104: The global extrusion champion – worldwide reach, local presence
The global extrusion champion – worldwide reach, local presence Clear leader in a fragmented industry where closeness to customers and markets are key success factors Unrivalled position as #1 extrusions provider globally Customers in diversified end-markets Extrusion sales volumes (2016), in thousa
Slide 105: Unique market positions, built on European and US strongholds
Unique market positions, built on European and US strongholds 22,400 highly competent people across the world Extrusion Europe Extrusion North America Precision Tubing Building Systems • Market leader focusing on • Uniquely positioned as the • Technology leader in selected • Leading European player
Slide 106: Proven track-record of value creation with further potential
Proven track-record of value creation with further potential Successful value-over-volume strategy Last 12 months underlying EBITDA Net added value* per kg After-tax ROACE (100%) (NOK, indexed to 2014) EBITDA in MNOK ROACE in % 138 136 4000 14 3500 12 125 3000 10 2500 8 2000 6 100 100 1500 97 98 97
Slide 107: Strategic principles in Extruded Solutions
Strategic principles in Extruded Solutions • Make a decent profit decently – safety, quality and compliance • Positive dissatisfaction – be happy, but not satisfied • Fail fast – and learn from it • Value over volume – and the power of available capacity • Develop unique niches – with Extruded Solut
Slide 108: Our competitive advantages are strengthened as part of Hydro
Our competitive advantages are strengthened as part of Hydro 1 Unmatched technology competence 2 Value chain width and depth 3 Global reach and local presence 108
Slide 109: Our strategy is about value over volume
Our strategy is about “value over volume” with simplification and collaboration to avoid waste of resources Increase value-added Simplify and Grow to lift margins 1 to our customers 2 collaborate 3 and profitability 109
Slide 110: Moving from simple extrusions to more advanced solutions
Moving from simple extrusions to more advanced solutions More than half of our billets are remelted from scrap in our own cast houses Extrusions are often cut and joined Fabrication and assembly to customer specific products or modules Surface treatment for long life and low maintenance costs 110
Slide 111: Targeting the high-tech, high-competence segments of extrusion
Targeting the high-tech, high-competence segments of extrusion Increased focus on value-add, specialized and advanced product niches Tailored solutions Finished products Service 111
Slide 112: Increasing our capabilities also through sustaining investments
Increasing our capabilities also through sustaining investments • Sustaining capex BNOK 1.3-1.5 • Includes productivity and reliability improvements, safety investments and replacement projects • Replacing parts that are worn-out increases reliability and drives stability and quality in the processe
Slide 113: Profitable growth and sustainability combined
Profitable growth and sustainability combined Re-opening the Bedwas factory in Wales • Bedwas will supply the automotive industry, focusing on electrical vehicles • A key customer is the London Electrical Vehicle Company, with its new zero-emissions capable black cab • Investment of £9.6 million in
Slide 114: Shaping the furniture of future with IKEA
Shaping the furniture of future with IKEA • From extrusions to solutions • IKEA purchasing: Got a problem? Ask Hydro – they will solve it • Innovation support from the beginning − Strong product development − Fast and flexible in-house prototyping − Superior surface finish − One-stop shop 114
Slide 115: Shaping the furniture of future with IKEA
Shaping the furniture of future with IKEA The soon-to-be launched Delaktig sofa • Complete base frame in extruded aluminium • Knocked down in a cardboard box • Assembled by the customers • Sales start Feb 2018 • 100% of the aluminium (frame, legs, feet) is recyclable 115
Slide 116: Priorities as Extruded Solutions
Priorities as Extruded Solutions • Further improve within safety, quality and compliance • Increase share of value-added solutions to customers through commercial excellence and innovation • Continue simplification drive to reduce complexity and non-value adding activities • Lift margins and create
Slide 117: Strategic direction Better, Bigger, Greener
Strategic direction Better, Bigger, Greener
Slide 118: Better, Bigger, Greener
Better, Bigger, Greener Hydro’s aspiration for higher value creation Better Bigger Greener Raise performance and Expand the use of aluminium Lead the transition towards improve customer offering and strengthen Hydro’s platform sustainable solutions for growth 118
Slide 119: Ambitious mid-term strategic goals within the Hydro aspiration
Ambitious mid-term strategic goals within the Hydro aspiration* Ambitions Target Timeframe Progress¹ Status • Improve safety performance, strive for injury free environment TRI<2 2020 2.82 • Realize ongoing improvement efforts Better BNOK 3.0 2019 1.7 BNOK • Secure new competitive sourcing contracts
Slide 120: Bauxite & Alumina: Better than ever through operational excellence
Bauxite & Alumina Better than ever through operational excellence Silvio Porto, EVP Bauxite & Alumina
Slide 121: Paragominas: New production record achieved
Paragominas: New production record achieved Bauxite production in thousand mt 12 000 LTM* Q3 2017 production up 3% from strong 2016 11 000 • 11.4 million mt production LTM Q3 2017 • Successfully implemented Bauxite & Alumina Business System 10 000 • Improved equipment condition, operating standards
Slide 122: MRN – important part of Alunorte's bauxite sourcing strategy
MRN – important part of Alunorte’s bauxite sourcing strategy Strategic Importance Long-term issues Short-term issues Update Mtpy Bauxite Paragominas MRN 5.5 6.5 4.8 11.0 11.0 11.0 6.3* Mtpy 6.6* Mtpy 7.0* Mtpy • Secures strong relative cost • Need to move to new mining • Lower production at the • Ba
Slide 123: Alunorte 7.0: On the way to extended capacity
Alunorte 7.0: On the way to extended capacity Alumina production in thousand mt 6 500 Significantly improved production stability 6 250 • 6.3 million mt production LTM* Q3 2017 • Improved equipment effectiveness and process stability based 6 000 on Bauxite & Alumina Business System 5 750 • Further d
Slide 124: Commercial: Successful implementation of strategy
Commercial: Successful implementation of strategy .. Hydro alumina sales exposure to index pricing increased 35% 50% 65% 75% 75% 85% Improved alumina & bauxite margins 100% • New alumina contracts: 100% sold on index 80% • Continued focus on CIF terms & end-users 60% 40% • External bauxite sales of
Slide 125: Improvement program ahead of plan
Improvement program ahead of plan Better Bauxite & Lifting 2019-target from BNOK 1.0 to BNOK 1.3 Alumina BNOK 1.3 Improvement categories Improvements in NOK million Operational costs Optimize margins 1200 • Optimize purchase conditions for raw materials 1000 • Reduce fixed costs Process improvements
Slide 126: Primary Metal: Better, bigger and greener with technology and digitization
Primary Metal Better, bigger and greener with technology and digitization Hilde M. Aasheim, EVP Primary Metal
Slide 127: Primary Metal continues ambitious improvement efforts
Primary Metal continues ambitious improvement efforts Better Primary Will deliver BNOK ~0.5 in period 2018-2019 Metal BNOK 1.0 Long history of improvement efforts Strengthened relative position BNOK 0.5 to be BNOK 3 delivered 2010-2016 Underlying EBITDA per mt in USD for respective delivered 2018-20
Slide 128: Initiatives in place to lift Albras performance
Initiatives in place to lift Albras performance Lower improvement speed than planned in Primary Metal for 2017 primarily due to Albras performance 2017 improvement efforts behind plan at Albras due to asset integrity issues • Reduced amperage to relieve high rectifier load • Higher maintenance costs
Slide 129: Karmøy Technology Pilot enabling spin-offs to existing smelters
Karmøy Technology Pilot enabling spin-offs to existing smelters Production at fully owned and joint venture plants 2014-2025 (Ktpy) 200 Fully owned Joint ventures Albras reduction 175 150 125 100 75 Delivered 50 25 Spin-off effects 0 2014 2015 2016 2017E 2018E 2019E 2020 2021 2022 2023 2024 2025E -2
Slide 130: Driving innovation to further strengthen our position in the market
Driving innovation to further strengthen our position in the market Continue to capture strong growth in automotive segments Sales to automotive in Europe Mt per year 600 500 400 300 200 100 0 2014 2015 2016 2017 2018 2019 2020 2021 Extrusion ingot Foundry alloys Sheet ingot * Europe only. Forward v
Slide 131: Growing in recycling
Growing in recycling Targeting 30% increase in RFA Sales Investing in the leading recycling Targeting 100% increase in RFA sales for EI remelters, in mt capabilities and technology post-consumer scrap usage Post-consumer scrap usage, in mt 350 58% 200 25% 300 56% 54% 160 20% 250 52% 200 120 15% 50%
Slide 132: Industry 4.0 enabling further improvements
Industry 4.0 enabling further improvements Digitized support functions Karmøy Technology Pilot scope Industry 4.0 stretching further Autonomous Connected Advanced Automation, robotics Digital and predictive processes operator analytics and AGV maintenance Virtual supply chain 132
Slide 133: Better, bigger and greener with technology and digitization
Better, bigger and greener with technology and digitization Strengthening our competitive position further Karmøy Product Recycling Technology Pilot differentiation Industry 4.0 Taking advantage Enabling ambitious Driving demand Enabling further of increased creep program growth for improvements scr
Slide 134: Rolled Products: Expanding in higher-margin and fast-growing segments
Rolled Products Expanding in higher-margin and fast-growing segments Kjetil Ebbesberg, EVP Rolled Products
Slide 135: Portfolio high-grading, recycling and cost efficiency are key
Portfolio high-grading, recycling and cost efficiency are key Automotive with the highest growth ambitions, recycling of used beverage cans of strategic importance Automotive Foil Beverage can Lithography Special products Ambition Gain No.2 position Fostering No.1 position in Grow No.2 position Defe
Slide 136: 2017 result influenced by operational issues
2017 result influenced by operational issues AluNorf and Hamburg mainly solved, UBC and AL3 with clear measures in place RP Underlying EBIT - YTD Q3 2017 vs YTD Q3 2016 Four main performance issues - measures being implemented • AluNorf – production performance stabilized • Hamburg – production perf
Slide 137: Ramp up of used beverage can recycling line in progress
Ramp up of used beverage can recycling line in progress Highly advanced sorting technology, closing the loop for our can customers • Ramp-up delayed due to equipment design issues – production performance negatively impacted • Main actions taken: • Main design modifications completed in October 2017
Slide 138: Automotive line 3 qualification process ongoing
Automotive line 3 qualification process ongoing Potential of the line is well perceived by customers as future technology in automotive • Line installed within planned investment frame and Indicative BiW ramp-up plan vs original plan with good safety performance • Ramp-up process delayed due to tech
Slide 139: Doubling of automotive share with ramp-up of Automotive line 3
Doubling of automotive share with ramp-up of Automotive line 3 Automotive to support high-grading ambitions Sales by segment 2010 2016 2021 11% 15% 24% 8% 10% 16% Auto Can Europe Can overseas Litho Foil Special 139
Slide 140: Innovation as strong driver for increased competitiveness
Innovation as strong driver for increased competitiveness Customer surveys outline Hydro as the preferred innovation partner HPSplus LIBS System The next generation for sorting of of lithographic sheet automotive scrap brought to the successfully installed market by Hydro - at R&D center Bonn – impr
Slide 141: Way forward on NOK 900 million improvement ambition
Way forward on NOK 900 million improvement ambition Better Rolled Products Challenging to meet ambition in 2019, risk of 1 year delay due to operational issues 700 MNOK Improvement ambition Rolled Products 1000 MNOK 900 Improvements driven by 800 Recycling • Automotive growth 700 • Recycling 600 Hig
Slide 142: The future belongs to sustainable businesses
The future belongs to sustainable businesses Arvid Moss, EVP Energy and Corporate Business Development
Slide 143: The world of aluminium is greatly influenced by key long-term trends
The world of aluminium is greatly influenced by key long-term trends Producers, consumers, regulators and end-users Technology driving Resource depletion Climate challenge solutions for the future 143
Slide 144: Responsibility has been part of Hydro's DNA for 112 years
Responsibility has been part of Hydro’s DNA for 112 years “…create a more viable society by innovative and efficient use of natural resources and products” Innovation Infrastructure Safety Community Environment Natural resources Welfare Education Innovation 144
Slide 145: The Sustainable Development Goals cannot be reached without business
The Sustainable Development Goals cannot be reached without the active participation of business 145
Slide 146: Making responsibility and sustainability a competitive edge
Making responsibility and sustainability a competitive edge Planet, people, prosperity Improving Making a Driving our positive innovation footprint difference 146
Slide 147: Making responsibility and sustainability a competitive edge
Making responsibility and sustainability a competitive edge Planet, people, prosperity Improving Making a Driving our positive innovation footprint difference 147
Slide 148: The climate paradox
The climate paradox Increasing share of aluminium production is coal-based CO2 emissions and main energy source in Aluminium production by power source aluminium production by country Mill tonnes Tonne CO2 / tonne aluminium 20 Coal An industry challenge 90 Forecast 18 Governments Direct Indirect wil
Slide 149: Our global industry's most ambitious climate strategy
Our global industry’s most ambitious climate strategy Hydro on track to be carbon-neutral from a life-cycle perspective by 2020 Hydro’s CO2 emissions from a life-cycle perspective* Million kg Co2 Production – reduction in 2.5 own emissions 2.0 1.5 Products – use 1.0 phase benefits 0.5 Recycling of 0
Slide 150: Strengthening rehabilitation at Hydro Paragominas
Strengthening rehabilitation at Hydro Paragominas Updated targets and research partnership guide rehabilitation efforts to restore biodiversity Forest Clearing Topsoil Forest rehabilitation removal and storage Overburden Topsoil removal and recovery storage Updated 1:1 rehabilitation target • 1:1 re
Slide 151: A long-term agenda to optimize stakeholder and shareholder benefits
A long-term agenda to optimize stakeholder and shareholder benefits ‘Business cannot succeed in societies that fail’ – World Business Council on Sustainable Development Improving Making a Driving our positive innovation footprint difference 151
Slide 152: Targeting the fundamental drivers of long-term development
Targeting the fundamental drivers of long-term development Aligned with community expectations and needs, and through local partnerships Contribute to quality education in our communities* Promote decent work throughout the value and supply chain Foster economic growth in our communities* Strengthen
Slide 153: Making responsibility and sustainability a competitive edge
Making responsibility and sustainability a competitive edge Planet, people, prosperity Improving Making a Driving our positive innovation footprint difference 153
Slide 154: Renewables, flexibility and storage to play together
Renewables, flexibility and storage to play together Competitive long-term sourcing solutions, and making Hydro «Better, Bigger, Greener» Positioning for the future means: • Greener competitive sourcing, industrial processes and electrification Hydropower Norway, Wind Nordic and Brazil Demand flexib
Slide 155: Part of the solution
Part of the solution Use-phase benefits, recycling friendly Setting new standards Hydro Extruded Solutions to deliver in environmentally friendly to the world’s first purpose-built, and sustainable buildings. mass-market electric taxi in London. 155
Slide 156: Combining high-value outputs with lower cost inputs
Combining high-value outputs with lower cost inputs Repositioning Hydro’s recycling activities, preparing for the circular economy >50% of EI remelter sales Rolled Products in 2016 based on RFA 100 kmt 250 kmt post-consumer scrap by 2020 ~50 kmt in 150 kmt in post-consumer 2017 post-consumer scrap r
Slide 157: Sustainability and competitiveness hand-in-hand
Sustainability and competitiveness hand-in-hand Sustainability will become more and more important Producers Users Third party certification system for responsible Civil society production of aluminium 157
Slide 158: Commercializing low-carbon aluminium
Commercializing low-carbon aluminium Promoting responsible aluminium as the metal of the future 158
Slide 159: Hydro's climate strategy converted into low-carbon products
Hydro’s climate strategy converted into low-carbon products Our uniqueness is our integrated value chain, share of hydro-power and post consumer scrap recycling Hydro 4.0 Hydro 75R Bauxite Alumina Shipping Energy Anodes Electrolysis Casting All-in approach At least 75% post-consumer Maximum or below
Slide 160: Capturing growing markets for low-carbon and recyclable aluminium
Capturing growing markets for low-carbon and recyclable aluminium 160
Slide 161: Responsibility and business hand in hand
Responsibility and business hand in hand The future belongs to sustainable businesses 161
Slide 162: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO
Slide 163: Investor Relations in Hydro
Investor Relations in Hydro Stian Hasle Head of Investor Relations t: +47 97736022 e: stian.hasle@hydro.com Next event Even Simonsen Investor Relations Officer Fourth quarter results t: +47 97953364 February 16, 2017 e: even.simonsen@hydro.com For more information see Aud Helen Halvorsen www.hydro.c