Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (October 2017)
142 slides from Norsk Hydro Asa's investor presentation, October 2017
Slide 1: Investor Presentation October 2017
INVESTOR PRESENTATION October 2017
Slide 2: Table of contents / Cautionary note
Table of contents Third quarter results 2017 3 Cautionary note Certain statements included in this announcement contain forward-looking information, including, Market 37 without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concernin
Slide 3: Q3 2017
Q3 2017 3
Slide 4: Q3 highlights
Q3 highlights • Underlying EBIT of NOK 2 446 million • Negative result effects from raw material costs and USD depreciation • Weak Rolled Products results on continued operational issues and negative currency effect • Acquisition of Sapa completed on October 2, integration progressing according to p
Slide 5: Balanced global primary aluminium market in Q3
Balanced global primary aluminium market in Q3 Surplus in China, deficit in world outside China Demand and production (quarterly annualized) Production less demand*) 1 000 mt primary aluminium 1 000 mt primary aluminium 70 000 5 000 65 000 4 000 60 000 3 000 55 000 2 000 50 000 1 000 0 45 000 (1 000
Slide 6: Primary aluminium market expected to be largely balanced in 2017
Primary aluminium market expected to be largely balanced in 2017 Tightening markets on the back of Chinese closures and production disruptions outside China World ex. China 2017 3-4 % Estimated primary market balance 2017 (mill t.) 2 000 ~1.0 % 1 000 ~29.1 – 29.3 Production 0 Demand ~27.2 -1 000 (‘0
Slide 7: Increasing average all-in aluminium prices in Q3
Increasing average all-in aluminium prices in Q3 Arbitrage between LME and SHFE closed in Q3 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 Jul-15 Oct-15 Jan
Slide 8: Improved comp. adv. China
Decreasing Chinese Jul-Aug semis export Preliminary export figures indicate decreasing exports in September compared to August 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-0
Slide 9: Alumina prices significantly up in Q3, increased further in October
Alumina prices significantly up in Q3, increased further in October Increasing Atlantic bauxite exports to China, primarily from Guinea Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 8 500 22% 7 450 20% 6 400 5 18% 350 4 300 16% 3 250 2 14% 200 1 PAX % of LME (3
Slide 10: China: bauxite imports remain high in Q3, decreasing semis export
China: bauxite imports remain high in Q3, decreasing semis export Annualized aluminium equivalents*, million mt 25 2012 2013 2014 2015 2016 2017 Q3 (est)** • Bauxite and alumina 20 − Continued increase in bauxite volumes from Guinea China import − Higher alumina imports in Q3 15 • Primary aluminium
Slide 11: On track for 2019 target of NOK 2.9 billion, despite 2017 setback
On track for 2019 target of NOK 2.9 billion, despite 2017 setback Behind NOK 500 million 2017 target, due to Rolled Products and Primary Metal Better Better Better Bauxite & Primary Rolled Better Alumina Metal Products BNOK BNOK 1.0 BNOK 1.0 BNOK 0.9 2.91) • High production at Alunorte and • Albras
Slide 12: Implied alumina cost up in Q3, stable realized alumina prices
Implied alumina cost up in Q3, stable realized alumina prices Implied alumina cost and margin, USD/mt 1) Developments Q3 vs Q2 475 • Margins down on higher implied alumina cost 425 59 67 36 • Implied alumina cost in Q3 affected by: 237 228 − Increasing raw material prices 204 − Negative currency eff
Slide 13: Increasing all-in implied primary cost, stable margins
Increasing all-in implied primary cost, stable margins All-in implied primary cost and margin, USD/mt 1) Developments Q3 vs Q2 • Margins stable from Q2 475 475 300 • Negative currency effect from stronger NOK vs USD 1 550 1 700 1 725 • Higher carbon cost partly offset by lower alumina cost 1 3752) 1
Slide 14: Rolled Products: increased sales volumes vs 2016
Rolled Products: increased sales volumes vs 2016 2017 sales affected by operational issues Q3 2017 vs Q2 2017 Q3 2017 vs Q3 2016 YTD 2017 vs YTD 2016 10% 8% 3% 3% 3% 2% 2% (1%) (1%) (1%) (4%) (8%) Can & foil Lithography & Special Total Rolled Can & foil Lithography & Special Total Rolled Can & foil
Slide 15: Addressing the operational issues in Rolled Products
Addressing the operational issues in Rolled Products Hamburg Alunorf Used Beverage Can line Automotive Line 3 • Furnace tap-out – resolved • Production instability reduced • Ramp-up process – delayed • Qualification process – delayed in Q3 • Compacter issue – resolved • Design modifications – mostly
Slide 16: Sapa acquisition completed October 2
Sapa acquisition completed October 2 • Hydro with full ownership in the global leader in extruded aluminium solutions • Hydro now fully integrated across value chain and markets • Unparalleled strength in technology, R&D, innovation and product development • Unmatched product and service offerings,
Slide 17: 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 350 250 300 200 250 150 200 150 100 100 50 50 0 0 Q315 Q316 Q317 Q315 Q316 Q317 17
Slide 18: Healthy demand growth for extruded products, seasonally weaker
Healthy demand growth for extruded products, seasonally weaker • Seasonally weaker demand in Q3 versus Q2 − ~1% decrease in North America − ~7% decrease in Europe • Demand increased year-over-year − ~4% in North America − Increasing penetration within automotive and strong commercial building and co
Slide 19: Energy: prices supported by hydrology in Q3
Energy: prices supported by hydrology in Q3 Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) 600 100 500 80 NOK/MWh 400 Percent % 60 300 40 200 100 20 - 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 37 40 43 46 49 52 Week
Slide 20: 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, ~95 % completed end-Q3 • Net Hydro capex 2015-Q3 2017 BNOK 2.5 − Total capex BNOK 3.7 − Enova support BNOK 1.2 • Net Hydro capex 2015-2018 BNOK 2.7 − Total
Slide 21: Results down on increased raw material costs and currency
Results down on increased raw material costs and currency NOK billion (0.3) (0.2) (0.2) 0.2 2.9 2.4 1.5 Underlying Underlying FX Raw material cost Volumes / seasonality Other Underlying EBIT Q3 2016 EBIT Q2 2017 EBIT Q3 2017 21
Slide 22: Key financials
Key financials Underlying EPS down to 0.82 NOK/share NOK million Q3 2017 Q2 2017 Q3 2016 First 9 months 2017 First 9 months 2016 Revenue 22 799 24 591 20 174 70 416 60 703 Underlying EBIT 2 446 2 930 1 477 7 660 4 596 Items excluded from underlying EBIT (123) 16 (101) 18 451 Reported EBIT 2 323 2 94
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded negative MNOK 123 in timing effects NOK million Q3 2017 Q2 2017 Q3 2016 First 9 months 2017 First 9 months 2016 Underlying EBIT 2 446 2 930 1 477 7 660 4 596 Unrealized derivative effects on LME related contracts 30 (92) 32 (80) 314 Unrealized effects on
Slide 24: Bauxite & Alumina
Bauxite & Alumina Results down on increased costs, mainly due to raw material prices Key figures Q3 2017 Q2 2017 Q3 2016 Alumina production, kmt 1 605 1 576 1 635 Total alumina sales, kmt 2 251 2 196 2 221 Realized alumina price, USD/mt 297 295 240 Implied alumina cost, USD/mt 237 228 204 Bauxite pr
Slide 25: Primary Metal
Primary Metal Results down on increased raw material costs and negative currency effects Key figures Q3 2017 Q2 2017 Q3 2016 Primary aluminium production, kmt 527 523 526 Total sales, kmt 568 579 573 Realized LME price, USD/mt 1 921 1 902 1 612 Realized LME price, NOK/mt 15 496 16 265 13 375 Realize
Slide 26: Metal Markets
Metal Markets Negative currency and inventory valuation effects, seasonally lower results from remelters Key figures Q3 2017 Q2 2017 Q3 2016 Remelt production, kmt 136 152 125 Metal products sales, kmt 1) 707 759 720 Underlying EBITDA, NOK million 114 268 141 Underlying EBIT excl currency and invent
Slide 27: Rolled Products
Rolled Products Dedicated efforts to resolve operational and ramp-up issues Key figures Q3 2017 Q2 2017 Q3 2016 External sales volumes, kmt 236 239 231 Underlying EBITDA, NOK million 312 297 407 Underlying EBIT, NOK million 95 84 211 Underlying EBIT Q3 results NOK million • Negative currency effect
Slide 28: Energy
Energy Results up on higher power production and contribution from commercial activities Key figures Q3 2017 Q2 2017 Q3 2016 Power production, GWh 2 509 2 369 2 946 Net spot sales, GWh 1 168 996 1 699 Southwest Norway spot price (NO2), NOK/MWh 258 252 212 Underlying EBITDA, NOK million 424 337 336 U
Slide 29: Sapa JV
Sapa JV Continued improvements in all segments, seasonally weaker demand Key figures – Sapa (50%) Q3 2017 Q2 2017 Q3 2016 Q3 results Revenue, NOK million 6 992 7 655 6 570 • Quarter-on-quarter results down on seasonally weaker Underlying EBITDA, NOK million 456 626 406 demand Underlying EBIT, NOK mi
Slide 30: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q3 2017 Q2 2017 Q3 2016 Sapa JV 209 329 157 Other (96) (71) (66) Eliminations 68 (88) (17) Other and Eliminations 181 170 75 30
Slide 31: Increasing cost pressure in the aluminium industry
Increasing cost pressure in the aluminium industry Increasing market prices for all input factors Petroleum coke FOB USG (indexed) Pitch FOB USG (indexed) Alumina PAX index (indexed) 2.4 2.4 2.4 2.2 2.2 2.2 2 2 2 1.8 1.8 1.8 1.6 1.6 1.6 1.4 1.4 1.4 1.2 1.2 1.2 1 1 1 0.8 0.8 0.8 Q116 Q216 Q316 Q416 Q
Slide 32: Net cash development Q3 2017
Net cash development Q3 2017 NOK billion Net cash flow from operations NOK 3.3 billion* (0.4) (0.1) (1.3) 3.9 (0.2) 7.7 6.0 End Q2 2017 Underlying EBITDA Operating capital Taxes and other Investments and Other End Q3 2017 divestments * Net cash provided by operating activities, less change in restri
Slide 33: Financing of the Sapa-transaction
Financing of the Sapa-transaction • Sapa preliminary purchase price NOK 11.9 billion, paid on October 2 − NOK 7.9 billion from cash − NOK 4 billion drawn on Revolving Credit Facility (RCF) − NOK 2.9 billion drawn on RCF to refinance Sapa’s outstanding RCF debt • Plan for bond issuances in Norwegian
Slide 34: Adjusted net debt decreased in Q3 2017
Adjusted net debt decreased in Q3 2017 Increase in net cash, decrease in net pension liability and debt in equity accounted investees Sept 30 Jun 30 Mar 31 NOK billion 2017 2017 2017 Cash and cash equivalents 17.9 8.0 8.3 Short-term investments 2.0 4.9 4.4 Short-term debt (9.1) (3.7) (3.5) Long-term
Slide 35: Capex shifting from 2017 to 2018
Capex shifting from 2017 to 2018 NOK billion • Shift in capex from 2017 to 2018, primarily related to 9 Shift in capex sustaining capex in Primary Metal and Bauxite & ~1 BNOK 8 7.4 7.4 Alumina 7 6.0 6 • Estimated sustaining capex in Extruded Solutions 5 ~1.5 BNOK 4 3 2 1 2016 2017E 2018E Karmøy tech
Slide 36: Priorities
Priorities • Safety first • Extruded Solutions integration • Technology pilot, automotive line and recycling facility • Better improvement ambition, strong measures in Rolled Products
Slide 37: Market
Market 37
Slide 38: 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 39: 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 40: 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 41: 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 42: Recycling is becoming more important as post consumed scrap gains momentum
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 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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 stable in Q3-17, d
Slide 49: 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 50: 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 51: 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 52: Business overview
Business overview HYDRO
Slide 53: Hydro - Group
HYDRO Hydro - Group
Slide 54: 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 7 680 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 55: 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 & Alumina Energy Primary Metal Metal Markets Rolled Products Sapa JV (50%) • High qu
Slide 56: 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 57: 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 58: 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 59: 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 60: 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 61: 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 2.9 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 YTD 2017 * Total recordable incidents
Slide 62: 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 63: 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 63
Slide 64: Bauxite & Alumina
HYDRO Bauxite & Alumina
Slide 65: 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 66: 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 67: 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 Annualized million tonnes 6.5 6.5 6.4 6.3 6.3 12.2 6.2 6.2 11.7 11.8 12.1 6.1 6.0 6.1 10.9 10.8 11.0 5.9 5.9 5.9 5.8 5.8 5.8 10.2 1
Slide 68: 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% Labor − Influenced by Brazilian wage level 25% Energy − Productivity improvements Support & infrastructure Maintenance/consumables • Maintenance and consumables Other
Slide 69: 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 70: 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 − ~2.5 million mt of external alumina was sourced in 2
Slide 71: 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 72: 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 73: Energy
HYDRO Energy
Slide 74: 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 75: 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 76: 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 77: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side TWh TWh 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 • Differe
Slide 78: 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 79: 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 80: 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 81: Primary Metal
HYDRO Primary Metal
Slide 82: 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 83: 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 84: 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 85: 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 86: Primary Metal mid-term goals
Primary Metal mid-term goals Creating shareholder value by strengthening relative cost position through lean operations and technology Status Ambitions Target Timeframe Progress1 20161 • Improve safety performance, strive for injury-free environment TRI <2 2020 2.52 • Realize ongoing improvement eff
Slide 87: Metal Markets
HYDRO Metal Markets
Slide 88: 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 89: 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 90: 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 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 Hydro in car models in Rolled 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 contracts 800 • High share of fixed costs - volume sensitive 600 400 • Pre
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: 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 Strong global Customers in diversified end-markets positions (Share of Sapa’s sales volumes) 22,400 people Present in 40 countries Bu
Slide 102: 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, with total turnover of BNOK 53 Extrusion Europe Extrusion North America Precision Tubing Building Systems • Market leader focusing on • Uniquely positioned as the • Technology leader in sel
Slide 103: Targeting the high-tech, high-competence segments of extrusion
Targeting the high-tech, high-competence segments of extrusion Sapa with increased focus on value-add, specialized and advanced product niches Tailored solutions Finished products Service • Custom high-quality extrusions • Sapa offers a wide range of finished • Sapa provides packaging, assembly of p
Slide 104: 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 • BNOK 1 restructuring on annual basis (NOK, indexed) delivered ahead of plan EBITDA in MNOK 135 • Further potential for value-creation 4 000 −
Slide 105: Hydro acquires Sapa
Hydro acquires Sapa Creating a global aluminium champion
Slide 106: Hydro to acquire Sapa, creating a global aluminium champion
Hydro to acquire Sapa, creating a global aluminium champion Transactional details Strategic fit and rationale • Sapa enterprise value BNOK 27 • Accretive to earnings and strong cash generation from Sapa from day 1 • Synergies of MNOK 200 per year • Sapa to become new business area in Hydro • To be f
Slide 107: 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 Recycling Extrusion Rolled Products Transport & Building & Electronics & Machinery & Consumer Primary Metal Packaging automotive construction electrical equipment dur
Slide 108: Stronger together
Stronger together Complementing each other, connecting the world of infinite aluminium Hydro’s contribution • Upstream performance leader • Technology, R&D & process innovation • Strong commercial positions mid and downstream • High-quality asset and resource base Sapa’s contribution 1 2 3 • Global
Slide 109: Product service offering and quality throughout the value chain
1 Product service offering and quality throughout the value chain Global leadership Built on market understanding, customer closeness and competence Europe The complete aluminium company Strong ~22% North America presence in the Nordic market • High-quality bauxite and alumina production in Brazil s
Slide 110: Unmatched in technology, innovation and product development
1 Unmatched in technology, innovation and product development Global leadership Superior capability and competence to enhance customer value-creation Driving technology, R&D and Leading in process innovation across the value chain technology and innovation = • Primary aluminium technology + • Alloy
Slide 111: Growth and optionality through full value chain exposure
Growth and optionality through full value chain exposure 2 Growth Alumina Energy • High-quality assets from bauxite to products and market insight across global markets Bauxite Primary Metal • Increased differentiation and risk diversification in combination with lower relative LME exposure Recyclin
Slide 112: Strengthening Hydro’s ability to grow in most attractive markets
Strengthening Hydro’s ability to grow in most attractive markets 2 Growth Competitive advantage based on product development and innovative edge Strong overall semis demand growth Positioned for growth in a range of high-margin segments Transport Packaging Cooperating with automotive brands Substitu
Slide 113: Global leader in offering full range of lightweighting solutions
Global leader in offering full range of lightweighting solutions 2 Growth Car makers utilizing aluminium to reduce weight and increase fuel-efficiency Automotive and transport representing significant share of High-growth automotive segment with substantial further Hydro’s total portfolio potential
Slide 114: Strengthening the industry’s most ambitious climate strategy
3 Strengthening the industry’s most ambitious climate strategy Infinite solutions Lightweighting the future, circular solutions for the circular economy Promoting responsible aluminium Maintaining Hydro’s lead also within Exceeding customer expectations as the metal of the future sustainability and
Slide 115: Synergy and optimization possibilities in remelt and recycling
3 Synergy and optimization possibilities in remelt and recycling Infinite solutions • Increases remelt capacity from ~1 million tonnes to Best practice Procurement Scrap loop ~2* million tonnes per year sharing scale benefits optimization • Strong platform to further grow post-consumer scrap recycli
Slide 116: Solid earnings across the entire aluminium value chain
Solid earnings across the entire aluminium value chain Increasing relative share of capital employed downstream Hydro after transaction, underlying EBITDA 2016 Hydro after transaction, capital employed end-2016 BNOK 14.2 BNOK ~97 Downstream up from 24% to ~35% of capital employed Downstream up from
Slide 117: Acquisition funded by debt and strong balance sheet
Acquisition funded by debt and strong balance sheet In BNOK • Transaction financed through cash positions and bond 8 issue in Norwegian and international markets 6 • Temporarily funded by committed undrawn credit lines 4 • Hydro reiterates commitment to retain investment grade credit ratings and rob
Slide 118: Sapa to be included in existing structure of Hydro
Sapa to be included in existing structure of Hydro Sapa to maintain operational and commercial freedom Indicative transaction timeline Technology President Corporate Board** & CEO strategy** July 10 Share purchase agreement signed Within 30 working days Publication of Information Memorandum from sig
Slide 119: Acquisition price below analyst estimates and at a favourable multiple
Acquisition price below analyst estimates and at a favourable multiple Sell-side analyst estimates of Sapa enterprise value, in BNOK Enterprise value/EBITDA multiple last twelve months Q1 2017 40 15 Acquisitions1 Current trading2 14 35 13 Analyst average enterprise value Sapa 12 30 11 Sapa acquisiti
Slide 120: Additional information
Additional information HYDRO
Slide 121: 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 122: 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 ~ 6.5 BNOK 1) 2017-2019 7.4 BNOK 2016 Dividend p
Slide 123: 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 124: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt Adjusted net debt / Equity 60 % NOK billion <55 % 50 % 40 % 32 % Jun 30, 2017 6.0 (4.2) (7.6) (6.9) (12.8) 26 % 28 %2 30 % 24 % 22 % 20 % 19 % 20 % 14 %
Slide 125: 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: 3 400 NOK million USD BRL EUR 2 500 UEBIT 3 170 (1 080) (290) One-off reevaluation effect: UEBIT Underlying Net Income Finan
Slide 126: 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 1,070 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 270 Bauxite • ~2.45 tonnes bauxite per tonne alumina (50
Slide 127: 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 2 900 • Realized premium lags market premium by ~2-3 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium 240 • ~14.5% of 3-month LME
Slide 128: Items excluded from underlying results - 2017
Items excluded from underlying results - 2017 NOK million (+=loss/()=gain) Q1 2017 Q2 2017 Q3 2017 Impairment charge Bauxite & alumina - - - Other effects Bauxite & alumina - - - Total impact Bauxite & alumina - - - Unrealized derivative effects on LME related contracts Primary metal 29 (8) (20) Unr
Slide 129: Operating segment information: Underlying EBIT
Operating segment information Underlying EBIT NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 780 482 628 532 189 174 153 711 756 662 413 2 421 1 227 Primary Metal 2 012 1 448 762 407 318 702 637 601 900 1 486
Slide 130: Operating segment information: EBIT
Operating segment information EBIT NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 776 487 634 513 189 174 153 680 756 662 413 2 411 1 196 Primary Metal 1 956 1 528 664 311 408 668 591 619 797 1 538 1 282 4 459
Slide 131: Operating segment information: Total revenue
Operating segment information Total revenue NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 5 461 5 127 5 758 5 542 4 212 4 572 4 925 5 834 5 911 5 858 5 612 21 889 19 543 Primary Metal 9 096 8 154 7 951 7 138
Slide 132: Operating segment information: Internal revenue
Operating segment information Internal revenue NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 2 074 2 150 2 103 2 030 1 769 1 873 1 929 1 914 2 528 2 441 2 320 8 356 7 484 Primary Metal 7 307 7 095 6 641 5 925
Slide 133: 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 134: Operating segment information: Depreciation, amortization and impairment
Operating segment information Depreciation, amortization and impairment NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 460 470 420 633 451 485 511 833 577 586 644 1 983 2 279 Primary Metal 511 483 483 475 474
Slide 135: Income statements
Income statements First 9 months First 9 months NOK million Q3 2017 Q2 2017 Q3 2016 2017 2016 Year 2016 Revenue 22 799 24 591 20 174 70 416 60 703 81 953 Share of the profit (loss) in equity accounted investments 371 491 256 1 271 749 985 Other income, net 240 184 96 588 688 1 030 Total revenue and
Slide 136: Balance sheets
Balance sheets NOK million Sep 30 2017 Jun 30 2017 Mar 31 2017 Dec 31 2016 Sep 30 2016 Jun 30 2016 Mar 31 2016 Cash and cash equivalents 17 853 7 993 8 333 8 037 7 952 9 220 5 946 Short-term investments 1 985 4 896 4 403 4 611 4 438 2 629 5 479 Accounts receivable 13 156 13 465 12 851 10 884 11 495
Slide 137: Operational data
Operational data Bauxite & Alumina Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Alumina production (kmt) 1 451 1 437 1 498 1 577 1 517 1 554 1 635 1 635 1 523 1 576 1 605 5 962 6 341 Sourced alumina (kmt) 666 725 806 590 531 615 512 883
Slide 138: Operational data
Operational data Metal Markets Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Remelt production (1 000 mt) 145 141 117 130 144 146 125 133 143 152 136 533 548 Third-party Metal Products sales (1 000 mt) 74 80 81 84 72 74 78 80 79 80 74 319
Slide 139: Sapa joint venture
Sapa joint venture Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes 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 Q2 2017 Q3 2017 Year 2015 Year 2016 Sales volume (1000 mt) 359 367 350 322 353 358 341 312 349 36
Slide 140: Sapa JV information by business area
Sapa joint venture Sapa JV (100 % basis), information by business area Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Precision Tubing 2015 2016 Extrusion Europe 2015 2016 2016 2016 2016 2016 2017 2017 2017 2016 2016 2016 2016 2017 2017 2017 Volume (kmt) 37 40 37 35 36 38 36 145 150 Volume (kmt) 148 157
Slide 141: 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 Capital Markets Day t: +47 97953364 November 30, 2017 e: even.simonsen@hydro.com For more information see Gunn Elise Skogen www.hydro.com/ir
Slide 142: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO