Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q1 2017 Earnings Presentation
127 slides from Norsk Hydro Asa's earnings presentation, May 2017
Slide 1: Investor Presentation May 2017
INVESTOR PRESENTATION May 2017
Slide 2: Table of contents and cautionary note
Table of contents First quarter results 2017 3 Cautionary note Certain statements included in this announcement contain forward-looking information, including, Market 34 without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concernin
Slide 3: Q1 2017
Q1 2017 3
Slide 4: Q1 highlights
Q1 highlights • Underlying EBIT of NOK 2 284 million • Higher realized all-in aluminium and alumina prices • Raw material cost pressure • Rolled Products results affected by operational issues • Better program on schedule for 2017 target of NOK 500 million • Karmøy Technology Pilot on time and budge
Slide 5: Global primary aluminium surplus in Q1
Global primary aluminium surplus in Q1 Driven by strong production growth in China, partly offset by continued strong demand Demand and production (quarterly annualized) Production less demand*) 1 000 mt primary aluminium 1 000 mt primary aluminium 65 000 5 000 60 000 4 000 55 000 3 000 50 000 2 000
Slide 6: Primary aluminium market expected to be largely balanced in 2017
Primary aluminium market expected to be largely balanced in 2017 Stronger-than-expected demand and production growth in China World ex. China 2-4 % Primary market balance 2017 (mill t.) (‘000t) 2-3 % 2 000 ~29.1 Production ~27.6 Demand 1 000 World ex. China 0 China 10-12 % (mill t.) -1 000 6-8 % ~35
Slide 7: Increasing average all-in aluminium prices in Q1
Increasing average all-in aluminium prices in Q1 Widening arbitrage between LME and SHFE in Q1 compared to Q4 LME and SHFE aluminium prices All-in aluminium prices USD/mt USD/mt NOK/mt 2 200 3 000 18 000 2 000 2 600 16 000 1 800 2 200 14 000 1 600 1 800 12 000 1 400 1 200 1 400 10 000 Jan-15 Apr-15
Slide 8: Lower Chinese Jan-Feb export levels despite increasing arbitrage
Lower Chinese Jan-Feb export levels despite increasing arbitrage Preliminary export figures indicate increased exports in March Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 400 Improved comp. adv. China 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) Jan-07 Jul-07 Jan-
Slide 9: Alumina prices significantly up on average in Q1 vs Q4
Alumina prices significantly up on average in Q1 vs Q4 Continued high Atlantic bauxite exports to China Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 400 21% 8 20% 7 350 19% 6 18% 300 5 17% 4 16% 250 3 15% 2 200 14% PAX % of LME (3 mo) 13% 1 150 12% 0 Jan July
Slide 10: China: bauxite imports remain high in Q1, slightly lower semis export
China: bauxite imports remain high in Q1, slightly lower semis export Annualized aluminium equivalents*, million mt 25 2012 2013 2014 2015 2016 2017** • Bauxite and alumina 20 − Continued high volumes from Australia and Guinea − Alumina imports remain subdued China import 15 • Primary aluminium expo
Slide 11: On track for 2019 target of NOK 2.9 billion 2016-2019
On track for 2019 target of NOK 2.9 billion 2016-2019 Slightly behind plan, still expect to reach 2017 target of NOK 500 million Better Better Better Bauxite & Rolled Primary Better Alumina Products Metal BNOK BNOK 1.0 BNOK 0.9 BNOK 1.0 2.91) • Lower Q1 production at Alunorte and • Operational issue
Slide 12: Increased implied alumina cost, higher prices lift margins
Increased implied alumina cost, higher prices lift margins Implied alumina cost and margin, USD/mt 1) Developments Q1 vs Q4 475 74 • Margins up on higher realized prices 425 60 235 • Implied alumina cost in Q1 affected by: 36 197 − Increased raw material prices, mainly caustic and fuel oil 183 − Hig
Slide 13: Increased all-in implied primary cost, higher margins
Increased all-in implied primary cost, higher margins All-in implied primary cost and margin, USD/mt 1) Developments Q1 vs Q4 • Margins up from Q4 on increased realized 250 325 350 aluminium prices 1 675 1 550 1 550 • All-in implied primary cost up on increased alumina 1 2252) 1 3252) 1 350 2) costs
Slide 14: Seasonally stronger Q1, overall healthy demand in Rolled Products
Seasonally stronger Q1, overall healthy demand in Rolled Products Continued strong growth within Body-in-White car parts Q1 2017 vs Q4 2016 Q1 2017 vs Q1 2016 17% 15% 13% 12% 8% 5% 3% 0% Can & foil Lithography Special products Total Rolled Can & foil Lithography Special products Total Rolled & autom
Slide 15: Seasonally stronger market demand for extruded products
Seasonally stronger market demand for extruded products • Seasonally stronger demand in Q1 versus Q4 − ~11.1% increase in North America − ~10.9% increase in Europe • Demand increased year-over-year − ~1.7% in North America − Stronger automotive demand and higher building and construction activity −
Slide 16: Earnings continue to improve in Sapa
Earnings continue to improve in Sapa Hydro share of underlying EBIT Hydro share of underlying net income NOK million NOK million 450 300 400 250 350 300 200 Change 250 200 150 picture 150 100 100 50 50 0 0 Q115 Q116 Q117 Q115 Q116 Q117 16
Slide 17: Energy: Stable prices, hydrological balance normalizing during Q1
Energy: Stable prices, hydrological balance normalizing during Q1 Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) 600 100 500 80 400 Percent % NOK/MWh 60 300 40 200 20 100 0 - 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 1 4 7 10 13 16 19 22 25 28 31 34
Slide 18: Karmøy Technology Pilot on track for first metal in Q4 2017
Karmøy Technology Pilot on track for first metal in Q4 2017 World’s most climate and energy-efficient aluminium production • On time and budget, ~80 % completed end-Q1 • Net Hydro capex 2015-Q1 2017 BNOK 1.9 − Total capex BNOK 2.8 − Enova support BNOK 0.9 • Net Hydro capex 2015-2018 BNOK 2.7 − Total
Slide 19: Investing for the future in Rolled Products: UBC
Investing for the future in Rolled Products Targeting UBC ramp-up during 2017 • The most advanced sorting technology available, closing the loop for our can customers • Ramp-up ongoing • Delay due to equipment performance issues • Output speed of >40 000 mtpa liquid aluminium expected by end-2017 1)
Slide 20: Investing for the future in Rolled Products: Automotive Line 3
Investing for the future in Rolled Products Product qualification in progress at Automotive Line 3 • EUR 130 million investment, on time and budget • Product qualification in progress, moving forward for ramp-up to nominal capacity of 150 000 mtpa in 2017 • Strengthens Hydro’s position in automotive
Slide 21: Higher prices lift results, increased raw material costs
Higher prices lift results, increased raw material costs NOK billion (0.8) 1.3 0.1 (0.1) 2.3 1.8 1.5 Underlying Underlying All-in aluminium Raw material costs Volumes Other Underlying EBIT Q1 2016 EBIT Q4 2016 and alumina prices* EBIT Q1 2017 * Price revenue effects 21
Slide 22: Key financials
Key financials Underlying EPS up to 0.75 NOK/share NOK million Q1 2017 Q4 2016 Q1 2016 2016 Revenue 23 026 21 250 20 138 81 953 Underlying EBIT 2 284 1 829 1 501 6 425 Items excluded from underlying EBIT 126 135 192 586 Reported EBIT 2 410 1 964 1 693 7 011 Financial income (expense) 136 (140) 1 001
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 126 in timing effects NOK million Q1 2017 Q4 2016 Q1 2016 2016 Underlying EBIT 2 284 1 829 1 501 6 425 Unrealized derivative effects on LME related contracts (18) 87 137 401 Unrealized effects on power and raw material contracts (173) 20 87 61 Metal
Slide 24: Bauxite & Alumina
Bauxite & Alumina Results up on higher realized alumina prices, partly offset by rising raw material costs and reduced volumes Key figures Q1 2017 Q4 2016 Q1 2016 Alumina production, kmt 1 523 1 635 1 517 Total alumina sales, kmt 2 129 2 472 2 073 Realized alumina price, USD/mt 309 257 219 Implied a
Slide 25: Primary Metal
Primary Metal Results up on higher realized all-in prices, partly offset by increased alumina cost Key figures Q1 2017 Q4 2016 Q1 2016 Primary aluminium production, kmt 516 526 514 Total sales, kmt 577 528 552 Realized LME price, USD/mt 1 757 1 647 1 497 Realized LME price, NOK/mt 14 798 13 659 12 9
Slide 26: Metal Markets
Metal Markets Reduced contribution from metal sourcing and trading and negative currency and inventory valuation effects Key figures Q1 2017 Q4 2016 Q1 2016 Remelt production, kmt 143 133 144 Metal products sales, kmt 1) 735 660 736 Underlying EBITDA, NOK million 47 175 191 Underlying EBIT excl curr
Slide 27: Rolled Products
Rolled Products Results up on increased sales volumes, negative impact from operational issues Key figures Q1 2017 Q4 2016 Q1 2016 External sales volumes, kmt 241 213 229 Underlying EBITDA, NOK million 307 222 446 Underlying EBIT, NOK million 106 6 248 Underlying EBIT Q1 results NOK million • Season
Slide 28: Energy
Energy Results up on higher power production, partly offset by lower prices Key figures Q1 2017 Q4 2016 Q1 2016 Power production, GWh 2 869 2 551 3 160 Net spot sales, GWh 1 409 1 176 1 795 Southwest Norway spot price (NO2), NOK/MWh 278 296 212 Underlying EBITDA, NOK million 476 412 453 Underlying E
Slide 29: Sapa JV
Sapa JV Seasonally stronger demand and continuous improvements Key figures – Sapa (50%) Q1 2017 Q4 2016 Q1 2016 • Quarter-on-quarter results up on seasonally stronger demand Revenue, NOK million 7 162 6 105 6 953 Underlying EBITDA, NOK million 550 327 450 • Year-on-year results supported by: Underly
Slide 30: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q1 2017 Q4 2016 Q1 2016 Sapa JV 281 167 183 Other (140) (130) (162) Eliminations (67) (38) 160 Other and Eliminations 74 (1) 181 30
Slide 31: Net cash development Q1 2017
Net cash development Q1 2017 Stable net cash position NOK billion Net cash flow from operations NOK 1.0 billion* (1.7) 3.6 (0.9) (1.2) 0.1 6.0 5.9 End Q4 2016 Underlying EBITDA Operating capital Taxes and other Investments and Other End Q1 2017 divestments * Net cash provided by operating activities
Slide 32: Adjusted net debt decreased slightly in Q1 2017
Adjusted net debt decreased slightly in Q1 2017 Reduced net pension liability and net debt in equity accounted investments Mar 31 Dec 31 Sep 30 NOK billion 2017 2016 2016 Cash and cash equivalents 8.3 8.0 8.0 Short-term investments 4.4 4.6 4.4 Short-term debt (3.5) (3.3) (3.6) Long-term debt (3.4) (
Slide 33: Priorities
Priorities • Safety first • Deliver on Better improvement ambition • Strengthen competitive position through technology pilot, new automotive line and UBC facility
Slide 34: Market
Market 34
Slide 35: Aluminium is the metal of the future due to its attractive properties
Aluminium is the metal of the future due to its attractive properties Macro trends drive aluminium demand Climate challenge Urbanization Demographic change Aluminium properties make it part of the solution • Lightweight • Corrosion resistant • Excellent conductivity − 1/3 density of steel − Oxide la
Slide 36: Environmental regulations accelerate substitution across segments
Environmental regulations accelerate substitution across segments Copper substitution in HVAC&R, Steel substitution in automotive cabling and transmission lines Key enabler for energy-efficient buildings 6x 40% 15% HVAC&R** market growth of energy BiW 2015-2022 potential from worldwide consumed CAGR
Slide 37: Automotive demand growth outperforms all other segments
Automotive demand growth outperforms all other segments Aluminium is essential for automotive lightweighting and emissions reduction Steel Aluminium Aluminium vehicle penetration, North America Kg per light vehicle C02 emissions C02 emissions 327 g/100 km 194 g/100 km 250 Land Rover Sport 2010 200 L
Slide 38: 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 CAGR 2016 – 2025 Primary demand versus recycled material, global Million tonnes 140 Forecast 120 100 80 60 40 Semis Primary Recycling* 20 3-4 % 2-3 % 4-5 % 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 2
Slide 39: Recycling is becoming more important as post consumed scrap grows
Recycling is becoming more important as the generation of post consumed scrap material gains momentum Global post consumed scrap collection grows strongly Primary Bauxite Alumina Production Mill tons 35 Forecast 30 Casthouse Semis Final Total aluminium shapes products 25 products in use 20 15 10 Cle
Slide 40: Strong growth drivers across segments providing solid demand outlook
Strong growth drivers across segments providing solid demand outlook Short-term macroeconomic volatility, long-term fundamentals still in place Strong demand drivers in key aluminium segments Semis demand CAGR 2016 – 2025 Growth in automotive vehicle production Transport Aluminium content in cars in
Slide 41: Transport & construction key semis demand segments
Transport & construction key semis demand segments China accounting for 47 per cent of global semis demand Global aluminium semis demand – 83 mill mt, per segment Global aluminium semis demand – 83 mill mt, per region Million tonnes (2016) Million tonnes (2016) Transport 2% China 5% 5% 26% Construct
Slide 42: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) 750 180 600 150 120 450 90 300 60 150 30 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Caustic soda (USD/mt) Petroleum coke FOB USG (USD/m
Slide 43: Historical strong correlation between LME and 90th percentile smelters
Primary metal market Historical strong correlation between LME and 90th percentile smelters World ex-China China Market balance in thousand tonnes* Nominal USD/t Market balance in thousand tonnes* Nominal USD/t 10 000 2 800 10 000 2 800 2 600 2 600 8 000 8 000 2 400 2 400 6 000 2 200 6 000 2 200 2 0
Slide 44: Prices trading above the 90th percentile on the global cost curve
Primary metal market Prices trading above the 90th percentile on the global cost curve CRU BOC curve by smelter (2017) USD/t 2 500 Chinese smelters Rest of world 2 000 1 500 1 000 500 0 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 45 000 50 000 55 000 60 000 65 000 Source: CRU CRU 2017 a
Slide 45: Primary aluminium market expected to be largely balanced in 2017
Primary aluminium market expected to be largely balanced in 2017 Stronger-than-expected demand and production growth in China World ex. China 2-4 % Primary market balance 2017 (mill t.) (‘000t) 2-3 % 2 000 ~29.1 Production ~27.6 Demand 1 000 World ex. China 0 China 10-12 % (mill t.) -1 000 6-8 % ~35
Slide 46: Total global inventories remain high
Primary metal market Total global inventories remain high Global reported stocks declining, uncertain unreported volumes Global reported stocks and inventory days Total global stocks and inventory days Thousand tonnes Inventory days Thousand tonnes Inventory days • Reported stocks decreased in 2016,
Slide 47: Large and concentrated bauxite resources
Bauxite market Large and concentrated bauxite resources Many supply alternatives in short and medium term, Guinea as a potential long-term source Bauxite resources billion mt Big-league (Top 4) Guinea Mid-league (each > 1 Bt) 41.0 Less significant bauxite resources Total bauxite, billion tonnes: Chi
Slide 48: Chinese bauxite imports – a dynamic landscape
Bauxite market Chinese bauxite imports – a dynamic landscape Malaysia ban continues, Guinea emerged as major supplier in 2016, continuing also in 2017 China bauxite imports, volume and price by country Bauxite price CIF China USD/tonne CIF USD/tonne Malaysia entrance 90 65 80 60 Indonesia ban 70 Gui
Slide 49: Alumina market is consolidating, and becoming more integrated
Alumina market Alumina market is consolidating, and becoming more integrated Estimated net long equity alumina position based on 2016 production, million tonnes Alcoa/AWAC 4.3 Alcoa/AWAC 7.5 Vale 3.0 South 32 3.1 Glencore 2.4 Hydro 1.7 BHP Billiton 1.9 Rio Tinto 0.9 Kaiser 1.0 Hindalco 0.4 Alcan 0.8
Slide 50: Business overview
Business overview HYDRO
Slide 51: Hydro - Group
HYDRO Hydro - Group
Slide 52: Hydro: a resource rich global aluminium company
Hydro: a resource rich global aluminium company Hydro underlying EBIT quarterly, NOK billion 5 982 1 297 2 725 5 692 9 656 6 425 2 287 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues involved in activities in − 2015: NOK 88 billion 0.5 more than 40 countries − 2016: NOK 82 billion •
Slide 53: Fully-integrated value chain
Fully-integrated value chain World class assets, high-end products and leading market positions Raw materials Primary aluminium production, Aluminium in products processing and energy marketing and recycling Bauxite Energy Primary Metal Metal Markets Rolled Products Sapa JV (50%) & Alumina • High qu
Slide 54: Hydro - a first tier aluminium company
Hydro - a first tier aluminium company Equity production in 2016 in aluminium equivalents, thousand mt 8 000 Alumina Aluminium 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Weiqao Alcoa/AWAC Rio Tinto UC Rusal Chalco Xinfa Norsk Hydro South32 Glencore/Century Hindalco Vedanta Emirates Global Aluminium
Slide 55: Ambitious mid-term strategic goals within the Hydro aspiration
Ambitious mid-term strategic goals within the Hydro aspiration Ambitions Target Timeframe Progress¹ Status 20161 • Improve safety performance, strive for injury free environment TRI<2 2020 2.62 • Realize ongoing improvement efforts Better BNOK 2.9 2019 1.4 BNOK • Secure new competitive sourcing cont
Slide 56: Better: proven track-record of productivity gains continues
Better: proven track-record of productivity gains continues Hydro’s improvement drive until 2015 Hydro’s new improvement ambition Tailor-made ambitions across Total improvements 2009-2015: Total improvements of the value chain BNOK 4.5 BNOK 2.9 from 2016-20191, incl. BNOK 1.4 delivered in 2016 Bette
Slide 57: Bigger: A solid platform for building an even stronger Hydro
Bigger: A solid platform for building an even stronger Hydro Bauxite & Alumina Energy Primary Aluminium Rolled Products • Move beyond nameplate • Mature captive growth • Enhance position in high-margin • Expand nominal automotive capacity opportunities segments BiW capacity to 200,000 t/yr • Further
Slide 58: Greener: Carbon-neutral from a life-cycle perspective by 2020
Greener: Carbon-neutral from a life-cycle perspective by 2020 Integrated into business strategy in all business areas Climate and energy- • Increasing energy-efficiency and reducing emissions in production processes in aluminium plants, rolling mills, and alumina refinery efficiency in production •
Slide 59: Safe and responsible operations is a top priority
Safe and responsible operations is a top priority Leadership in HSE, CSR and compliance as a license to operate TRI Rate* 10.3 7.0 6.0 5.4 4.0 4.1 3.9 3.7 3.8 3.4 3.4 3.2 2.9 3.0 2.8 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017 * Total recordable incidents
Slide 60: Operational leadership among peers
Operational leadership among peers Solid cost positions in aluminium value chain Lowest CO2 emissions Smelter BOC curve by company (2017) Tonnes CO2/tonne aluminium, 2016 USD/mt 20 2 000 Direct Indirect Average 500 0 0 30 000 60 000 Among the best on safety performance Alumina BOC curve by company (
Slide 61: Hydro’s value proposition
Hydro’s value proposition Innovation and differentiation through integrated value chain • Managing cyclicality through financial strength and flexibility • Strengthening competitiveness through improvements and high-grading • Differentiating through the integrated value chain 61
Slide 62: Bauxite & Alumina
HYDRO Bauxite & Alumina
Slide 63: Bauxite and alumina cluster in Para, Brazil
Bauxite and alumina cluster in Para, Brazil MRN bauxite mine Paragominas bauxite mine Alunorte alumina refinery CAP alumina refinery project • Top 3 bauxite mine in the world • 100% ownership • 92% ownership • 81% ownership • 5% ownership • One of the world’s largest bauxite mines • World’s largest
Slide 64: Further strengthening the competitiveness of Bauxite & Alumina
Further strengthening the competitiveness of Bauxite & Alumina Strong progress on operational and commercial efforts Better Bauxite & Alumina Improvement categories Improvements in NOK million BNOK 1.0 Alunorte 1000 Fixed • Support production above nameplate 900 cost capacity 800 Commercial • Improv
Slide 65: Stabilizing and lifting bauxite and alumina production
Stabilizing and lifting bauxite and alumina production Improving operations Bauxite production in Paragominas, Alumina production at Alunorte, Annualized million tonnes 6.5 6.5 Annualized million tonnes 6.3 12.2 6.2 6.2 11.7 6.1 6.1 6.0 10.9 10.8 11.0 5.9 5.9 5.9 5.8 5.8 5.8 10.2 10.4 9.5 9.7 5.5 9.
Slide 66: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2016 • Labor cost 15% − Influenced by Brazilian wage level 25% − Productivity improvements Labor • Maintenance and consumables Energy Support & infrastructure − Influenced by Brazilian inf
Slide 67: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost position 2016 Implied alumina cost* position 2016 − USD 197 per mt USD 197 per mt − Alunorte, Paragominas and sourced alumina • Bauxite 8% − Internal bauxite from Paragominas at cost, sourced bauxite from MRN − External bauxite sales
Slide 68: Strong commercial organization maximizing the value of B&A assets
Strong commercial organization maximizing the value of B&A assets External alumina sourcing Long bauxite and alumina position • 2.0 - 3.0 million mt of external alumina sourced annually • Future pricing should reflect fundamentals of bauxite and alumina value chain − ~ 2.5 million mt of external alu
Slide 69: Shift of alumina sales to index-based pricing continues
Shift of alumina sales to index-based pricing continues at full speed Alumina pricing becomes a new norm for the industry Sales exposure to index and short term pricing* 35% index 50% index 65% index 75% index 75% index 85% index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2015 2016 2017 2018 2019 2
Slide 70: Bauxite & Alumina mid-term goals
Bauxite & Alumina mid-term goals Creating shareholder value through efficient and commercial use of raw materials Ambitions Target Timeframe Progress1 Status 20161 • Improve safety performance, strive for injury free environment TRI <2 2020 1.82 • Realize ongoing improvement efforts Better Bauxite &
Slide 71: Energy
HYDRO Energy
Slide 72: Hydro energy needs are spread across the value chain
Hydro energy needs are spread across the value chain, global regions and energy carriers Europe Power 19.6 TWh North America Natural gas 3.2 TWh Power 1.7 TWh Middle East Power 4.6 TWh South America Power 7.3 TWh Coal 4.9 TWh Australia/Asia Fuel oil 8.2 TWh Power 1.0 TWh Hydro’s energy consumption i
Slide 73: Securing long-term competitive power sourcing for smelters
Securing long-term competitive power sourcing for smelters Sourcing platform for fully-owned smelters, Norway* Sourcing platform for JVs and Neuss smelter** TWh TWh 20 20 15 15 10 10 5 5 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024 2025 2026 2027 2028 2029 2030 2031 2032 2033 2015 2016 2017
Slide 74: Power production increased to 10 TWh
Power production increased to 10 TWh Power production capacity (TWh), • Power producing assets and ongoing projects per region and reversion year − Maintain cost control in operations and projects − Holsbru and Vasstøl power plants in operation in 2012 Sogn 2051-2057* − Vigeland acquisition complete
Slide 75: Competitive production costs driven by economies of scale
Competitive production costs driven by economies of scale and operational improvements Taxes and fees account for a large share of costs, making sustainable framework conditions crucial Average operating cost, incl. tax/fees, by category Total operating costs for Norwegian power producers* 2007-2016
Slide 76: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side Spot price 0-6 3) 1 10 (8-12) 1) • Long-term contract • Market pricing • Fixed annual pricing Regulated adjustments price 14-17 2) • Market pricing • Duration varies • Different index
Slide 77: Broad optionality to maintain asset value within the reversion regime
Broad optionality to maintain asset value within the reversion regime Hydro’s preferred alternative is to maintain industrial ownership of RSK volumes Sell to a publicly-owned entity Merge into a larger publicly-owned Model for industrial ownership (ANS/DA) asset with one or several owners TWh 10* 2
Slide 78: Energy earnings drivers
Energy earnings drivers Underlying EBIT* and spot price NOK million NOK/MWh • Production and market prices strongly linked to 2 000 500 hydrological conditions 1 500 400 1 000 300 • Fairly stable annual EBIT contribution 200 500 100 • Seasonal market variations in demand and supply 0 0 2003 2004 200
Slide 79: Energy mid-term goals
Energy mid-term goals Creating shareholder value by maximizing value of own hydropower assets and ensuring reliable and competitive energy supply for Hydro Ambitions Target Timeframe Progress1 Status 20161 • Improve safety performance, strive for injury free environment TRI <2 2020 02 • Robust indus
Slide 80: Primary Metal
HYDRO Primary Metal
Slide 81: World-wide production network
World-wide production network Primary Metal and Metal Markets 49% Norway, 1 040 000 tonnes • Sunndal (100%): 405 000 tonnes 7 stand-alone remelters: • Årdal (100%): 195 000 tonnes 6% • 2 in the US • Karmøy (100%): 190 000 tonnes Canada, 120 000 tonnes • 5 in Europe (UK, Luxemboug, France, • Høyanger
Slide 82: Technology-driven capacity creep of ~200 000 mt over the next decade
Technology-driven capacity creep of ~200 000 mt over the next decade Contributing to the BNOK 1 Better improvement ambition by 2019 Better Primary Metal Production for Fully Owned and Joint Venture smelters 2014-2025 NOK 1 billion to be delivered by end-2019 BNOK 1.0 In thousand mt In million NOK 20
Slide 83: Low carbon footprint due to renewable energy base
Low carbon footprint due to renewable energy base and industry lowest energy consumption Total emissions, in tonne CO2/t al Energy consumption in Hydro smelters*, kwh/kg al 17.5 18 18 16 15.0 16 14.8 14.4 13.7 13.5 14 14 12.5 12.3 11.5-11.8 12 12 10.0 10 10 8 8 6 6 4 4 2 2 0 0 Karmøy Hydro Hydro Hyd
Slide 84: Continuous technology development
Continuous technology development R&D vision HAL 300 HAL4e R&D vision • Operating for several years in Sunndal and • To be used in Karmøy technology pilot • 10 kWh/kg Qatalum • Benchmark on energy-efficiency • Carbon capture-ready cell − 13.5 kWh/kg and environment − 314 kA • Enhanced use of artific
Slide 85: Primary Metal mid-term goals
Primary Metal mid-term goals Creating shareholder value by strengthening relative cost position through lean operations and technology Ambitions Target Timeframe Progress1 Status 20161 • Improve safety performance, strive for injury-free environment TRI <2 2020 2.52 • Realize ongoing improvement eff
Slide 86: Metal Markets
HYDRO Metal Markets
Slide 87: Strong position in value-added casthouse products
Strong position in value-added casthouse products Leading global position Unique primary and Extrusion ingot recycling capacity network 1.5 million mt • Capitalizing on value-added casthouse products portfolio Leading global position Strong capabilities in all • Extensive multi-sourcing system inclu
Slide 88: Market differentiation to further grow value-added products position
Market differentiation to further grow value-added products position Automotive feasibility studies Crash alloy development • Quality Leadership Core • Lead Time and Delivery Performance differentiators • Commercial & Technical Services • R&D Development and Cooperation Primary total emissions, Hydr
Slide 89: Pricing of value-added products
Pricing of value-added products Smelter Intermediate product Casthouse Aluminium Standard ingot Value added products Extrusion ingot Foundry alloy Sheet ingot Wire rod Traded on • US Midwest - 1020 • Extrusion Ingot – Priced above standard ingot (in cent per pound) • Foundry Alloy – Priced above sta
Slide 90: Value-added products trade at a premium to standard ingot
Value-added products trade at a premium to standard ingot Hydro realizes premiums on 2-3 month time lag USD/t 900 800 700 600 500 400 300 200 100 0 Jan-90 Jan-91 Jan-92 Jan-93 Jan-94 Jan-95 Jan-96 Jan-97 Jan-98 Jan-99 Jan-00 Jan-01 Jan-02 Jan-03 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 Jan-10 Jan-1
Slide 91: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and − Revenue impact – volume and product ingot inventory valuation effect, NOK million* premiums above LME 250 − Cost impact − Scrap and standard ingot premiums above LME 200 − Raw material mix − Freight cost – pr
Slide 92: Rolled Products
Rolled Products
Slide 93: Hydro Rolled Products
Hydro Rolled Products Holmestrand Rolling mill Karmøy Sales Office Smelter R&D centre Hamburg Neuss Norf Grevenbroich Bonn Strong European ~1 million tonnes Unique integrated Casthouse network and Industry-leading of flat rolled products per aluminium cluster: integrated recycling R&D facility produ
Slide 94: Major flat rolled products producer in Europe
Major flat rolled products producer in Europe External sales in tonnages 2016 • World leader in high-end products foil and litho Total 911 kT − Alunorf (JV 50%) – world’s largest rolling mill − Grevenbroich plant – world’s largest multi-product finishing mill 11% Foil 18% Can • High-grading product
Slide 95: Strong positions in market segments
Strong positions in market segments Portfolio high-grading and strong focus on quality and service as key elements for success Automotive Foil Beverage can Lithography Special products Ambition Gain No.2 position Strengthen global No. 1 Grow No.3 position Strengthen global Strengthen No.1 in Europea
Slide 96: Hydro to become second largest BiW producer in Europe
Hydro to become second largest BiW producer in Europe Pursuing attractive automotive growth opportunity Increasing share of automotive in Rolled Hydro in car models Products’ portfolio 24 % 14 % 12 % Audi Q7 Peugeot 308 BMW 7 series Porsche Macan Audi A6 New Mercedes C Class T 2010 2015 2020 96
Slide 97: Continuously improving competitiveness in Rolled Products
Continuously improving competitiveness in Rolled Products Significant contribution from recycling, operational improvements and portfolio high-grading Better NOK 900 million to be delivered by end-2019 Rolled MNOK Products 900 MNOK Improvements driven by 1000 900 • Automotive growth Recycling 800 •
Slide 98: Rolled Products earnings drivers
Rolled Products earnings drivers Underlying EBIT per tonne, NOK 1 400 • Contract structure 1 200 − Margin business based on conversion price − LME element passed on to customers 1 000 − Range from spot contracts to multi-year 800 contracts 600 • High share of fixed costs - volume 400 sensitive 200 0
Slide 99: Rolled Products mid-term goals
Rolled Products mid-term goals Creating shareholder value with technology, product innovation and customer relations Ambitions Target Timeframe Progress1 Status 20161 • Improve safety performance, strive for injury free environment TRI <2 2020 4.02 • Realize ongoing improvement efforts Better Rolled
Slide 100: Sapa joint venture
HYDRO Sapa joint venture
Slide 101: Strong improvement trend in Sapa JV
Strong improvement trend in Sapa JV Sapa 100% basis, in BNOK 2.5 • 50/50 joint venture between Hydro and Orkla, established September 1, 2013, with 22,200 2 employees • No. 1 position in North America and Europe 1.5 • Strong foothold in emerging markets • Increasing share of value added activities 1
Slide 102: Sapa – global leader in extruded products
Sapa – global leader in extruded products More advanced applications and quality-focused customers Sapa 2016 volume composition By geography By market By business area 2% 11% 3% 17% 16% 6% 42% 50% 17% 20% 45% 1% 42% 29% Europe Automotive HVAC&R Extrusion Europe North & Central America Transportation
Slide 103: Additional information
Additional information HYDRO
Slide 104: 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 Long-
Slide 105: Hydro’s aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe 2016 status Better improvement ambition 2.9 BNOK 2016-2019 1.4 BNOK 2016 Sustaining capex ~ 4 BNOK Over the cycle 4.9 BNOK 2016 Average capex incl. growth 6.1 BNOK 1) 2017-2019 7.4 BNOK 2016 Dividend pay
Slide 106: Shareholder and financial policy, Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns compared • Hedging strategy to alternative investments in comparable companies − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Di
Slide 107: 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 NOK billion 60 % 55 % 50 % 40 % 32 % Dec 31, 2016 6.0 (4.2) (6.9) (7.3) 30 % 24 % 26 % (12.5) 22 % 19 % 20 % 20 % 14 % 11 % 10
Slide 108: Growth capex focused on high-grading, recycling and technology
Growth capex focused on high-grading, recycling and technology Majority of sustaining capex allocated upstream NOK billion 7.4 7.2 • Sustaining projects for 2016-2019: 7 − Residue disposal area 6.3 − Bauxite tailing dam 6 5.8 − Opening of new bauxite mining area − Primary rectifiers 5 4.8 − Smelter
Slide 109: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +1.06 NOK/share Sustainable effect: 3 200 2 400 NOK million USD BRL EUR UEBIT 3 120 (1 170) (250) One-off reevaluation effect: UEBIT Underlying Net Income Finan
Slide 110: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14% of 3-month LME price per tonne alumina 1,210 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 260 Bauxite • ~2.45 tonnes bauxite per tonne alumina (60
Slide 111: 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 2 700 • Realized premium lags market premium by ~2-3 months Cost impact Alumina 270 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 112: Items excluded from underlying results - 2017
Items excluded from underlying results - 2017 NOK million (+=loss/()=gain) Q1 2017 Impairment charge Bauxite & alumina - Other effects Bauxite & alumina - Total impact Bauxite & alumina - Unrealized derivative effects on LME related contracts Primary metal 29 Unrealized effects on power contracts Pr
Slide 113: Items excluded from underlying results - 2016
Items excluded from underlying results - 2016 NOK million (+=loss/()=gain) Q1 2016 Q2 2016 Q3 2016 Q4 2016 Year 2016 Unrealized derivative effects on LME related contracts Bauxite & alumina - - - - - Impairment charge Bauxite & alumina - - - 285 285 Other effects Bauxite & alumina - - - (254) (254)
Slide 114: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 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 co
Slide 115: Operating segment information: Underlying EBIT
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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Bauxite & Alumina (288) (269) (26) 528 780 482 628 532 189 174 153 711 756 2 421 1 227 Primary Metal 312 420 1 216 1 9
Slide 116: Operating segment information: EBIT
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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Bauxite & Alumina (284) (269) (23) 537 776 487 634 513 189 174 153 680 756 2 411 1 196 Primary Metal 303 434 1 278 1 912 1 956 1
Slide 117: Operating segment information: Total revenue
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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Bauxite & Alumina 3 511 3 828 3 737 4 770 5 461 5 127 5 758 5 542 4 212 4 572 4 925 5 834 5 911 21 889 19 543 Primary Me
Slide 118: Operating segment information: Internal revenue
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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Bauxite & Alumina 1 304 1 424 1 480 2 071 2 074 2 150 2 103 2 030 1 769 1 873 1 929 1 914 2 528 8 356 7 484 Primary M
Slide 119: Operating segment information: RoaCE
Operating segment information Return on average capital employed* (RoaCE) Reported RoaCE Underlying RoaCE 2016 2015 2014 2013 2012 2016 2015 2014 2013 2012 Bauxite & Alumina 2.7 % 5.3 % (0.1) % (2.5) % (1.5) % 2.8 % 5.3 % (0.1) % (2.2) % (1.6) % Primary Metal 5.2 % 10.7 % 10.4 % 2.3 % (3.1) % 5.2 %
Slide 120: Operating segment information: Depreciation, amortization and impairment
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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Bauxite & Alumina 410 431 442 519 460 470 420 633 451 485 511 833 577 1 983 2 279 Primary Me
Slide 121: Income statements
Income statements NOK million Q1 2017 Q4 2016 Q1 2016 Year 2016 Revenue 23 026 21 250 20 138 81 953 Share of the profit (loss) in equity accounted investments 409 236 170 985 Other income, net 164 342 111 1 030 Total revenue and income 23 599 21 829 20 419 83 969 Raw material and energy expense 14 8
Slide 122: Balance sheets
Balance sheets NOK million Mar 31 2017 Dec 31 2016 Sep 30 2016 Jun 30 2016 Mar 31 2016 Cash and cash equivalents 8 333 8 037 7 952 9 220 5 946 Short-term investments 4 403 4 611 4 438 2 629 5 479 Accounts receivable 12 851 10 884 11 495 12 085 12 699 Inventories 12 557 12 381 11 517 11 820 11 684 Ot
Slide 123: Operational data
Operational data Bauxite & Alumina Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Alumina production (kmt) 1 428 1 526 1 478 1 501 1 451 1 437 1 498 1 577 1 517 1 554 1 635 1 635 1 523 5 962 6 341 Sourced alumina (kmt) 550
Slide 124: 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 Q3 2016 Q4 2016 Q1 2017 Year 2015 Year 2016 Remelt production (1 000 mt) 139 141 128 130 145 141 117 130 144 146 125 133 143 533 548 Third-party Metal Products sales (1 000 mt) 84 81 80 79
Slide 125: Sapa joint venture
Sapa joint venture Sapa JV (100 % basis), underlying (unaudited) Year Year 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 Q3 2016 Q4 2016 Q1 2017 2015 2016 Sales volume (1000 mt) 346 360 346 314 359 36
Slide 126: Sapa joint venture: information by business area
Sapa joint venture Sapa JV (100 % basis), information by business area Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Precision Tubing 2015 2016 Extrusion Europe 2015 2016 2016 2016 2016 2016 2017 2016 2016 2016 2016 2017 Volume (kmt) 37 40 37 35 36 145 150 Volume (kmt) 148 157 142 130 154 563 577 Operating revenues
Slide 127: 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 Second quarter results t: +47 97953364 July 25, 2017 e: even.simonsen@hydro.com For more information see Gunn Elise Skogen www.hydro.com/ir