Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q4 2017 Earnings Presentation
138 slides from Norsk Hydro Asa's earnings presentation, February 2018
Slide 1: Investor Presentation February 2018
INVESTOR PRESENTATION February 2018
Slide 2: Table of contents and cautionary note
Table of contents Fourth quarter results 2017 3 Cautionary note Certain statements included in this announcement contain forward-looking information, including, Market 40 without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerni
Slide 3: Q4 2017
Q4 2017 HYDRO
Slide 4: Q4 highlights
Q4 highlights • Underlying EBIT of NOK 3 555 million • Higher realized all-in aluminium and alumina prices, partly offset by increased costs • Downstream results down on seasonality, first quarter fully consolidating Extruded Solutions • Energy up on increased production volumes • Better improvement
Slide 5: Global market balanced in 2017
Global market balanced in 2017 Continued deficit in world outside China, offset by similar surplus in 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 45
Slide 6: Primary aluminium market expected to be largely balanced in 2018
Primary aluminium market expected to be largely balanced in 2018 2018 global demand growth expected at 4-5% World ex. China 2018 3-4 % Estimated 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
Slide 7: Increasing average all-in aluminium prices in Q4
Increasing average all-in aluminium prices in Q4 2017 average all-in aluminium prices significantly up from 2016 LME and SHFE aluminium prices All-in aluminium prices USD/mt USD/mt NOK/mt 2 400 3 000 20 000 2 200 18 000 2 600 2 000 16 000 1 800 2 200 14 000 1 600 1 800 12 000 1 400 1 200 1 400 10 00
Slide 8: Improved comp. adv. China
Slightly increased Chinese export levels in 2017 vs 2016 Widening price arbitrage between LME and SHFE during Q4 Semis exports Comp. adv. Monthly, in thousand mt (USD/mt) 500 1 000 450 Improved comp. adv. China 800 400 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) Jan-07 Jan-08 Jan-09 Jan
Slide 9: Alumina price rally early Q4, decreasing in November and December
Alumina price rally early Q4, decreasing in November and December Increasing Atlantic bauxite exports to China, primarily from Guinea Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 550 24% 8 500 7 22% 450 6 20% 400 5 350 18% 4 300 3 16% 250 2 14% 200 1 150 12% 0
Slide 10: China: net aluminium imports increasing in 2017 vs 2016
China: net aluminium imports increasing in 2017 vs 2016 Annualized aluminium equivalents* Million mt 25 2012 2013 2014 2015 2016 2017 • Increased bauxite imports, Guinea surpassed 20 Australia as the largest bauxite source in 2017 China import 15 • Alumina imports slightly reduced in 2017 vs 2016 10
Slide 11: On track for increased 2019 target of BNOK 3.0
On track for increased 2019 target of BNOK 3.0, despite 2017 setback Realized 2017 improvements of MNOK 350 vs MNOK 500 target Better Bauxite & Alumina Primary Metal Rolled Products Target BNOK 1.3 in 2019 Target BNOK 1.0 in 2019 Target BNOK 0.7 in 2019 • Delivered MNOK 1 100 in 2016/17, • Delivered
Slide 12: Record production at Paragominas and Alunorte
Record production at Paragominas and Alunorte Alunorte alumina production 6.3 6.4 Million mt 6.0 • Strong improvement trend continues 5.9 in 2017 5.4 • Improved equipment effectiveness, process stability and operating standard based on Bauxite & Alumina 2013 2014 2015 2016 2017 Business System Parag
Slide 13: Record margins on increased realized alumina prices, costs up
Record margins on increased realized alumina prices, costs up Implied alumina cost and margin Developments Q4 vs Q3 USD/mt 1) 475 133 • Margins up on strongly increased realized alumina 59 425 prices, partly offset by higher implied alumina cost 265 60 237 • Implied alumina cost in Q4 affected by: 1
Slide 14: Improved margins, increasing all-in implied primary cost
Improved margins, increasing all-in implied primary cost All-in implied primary cost and margin Developments Q4 vs Q3 USD/mt 1) 500 • Margins up on increased realized aluminium prices, 475 325 partly offset by higher implied primary cost 1 850 1 550 1 725 1 575 2) • Implied primary cost in Q4 affect
Slide 15: Rolled Products: increased sales volumes in 2017 vs 2016
Rolled Products: increased sales volumes in 2017 vs 2016 2017 sales affected by operational issues Q4 2017 vs Q3 2017 Q4 2017 vs Q4 2016 2017 vs 2016 10% 10% 5% 3% 3% 2% 0% 0% (1%) (4%) (5%) Can & foil Lithography & Special Total Rolled Can & foil Lithography & Special Total Rolled (10%) automotive*
Slide 16: Healthy demand growth for extruded products, seasonally weaker
Healthy demand growth for extruded products, seasonally weaker • Seasonally weaker demand in Q4 versus Q3 − ~7% decrease in North America − ~7% decrease in Europe • Demand increased Q4 2017 vs Q4 2016 − ~7% in North America − Stronger automotive demand and higher activity in the building and constru
Slide 17: Advancing in product innovation
Advancing in product innovation Acoustic window Ikea Delaktig sofa London taxi 17
Slide 18: Energy: average prices up, improved hydrology in Q4
Energy: average prices up, improved hydrology in Q4 Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) 600 100 500 80 NOK/MWh 400 Percent % 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 37 40 43 46 49
Slide 19: Karmøy pilot producing climate and energy-efficient aluminium
• Karmøy pilot now producing the world’s most climate and energy-efficient aluminium • Ramp-up during first half 2018 • Positive spin-off effects for the existing smelter portfolio • Net Hydro capex 2015-2018 BNOK 2.7 • Total capex BNOK 4.3 • Enova support BNOK 1.6 19
Slide 20: Husnes to resume full production
Husnes to resume full production • Investment decision to upgrade and start up the second line at Husnes, lifting production from current 95 000 mt/yr to 190 000 mt/yr • New technology elements to be introduced, leading to increased efficiency and profitability • Expected to begin production first h
Slide 21: Hydro acquires Arconic's two extrusion plants in Brazil
Hydro acquires Arconic’s two extrusion plants in Brazil • Acquisition strengthens downstream position in Brazil Alunorte Albras • Transaction in line with strategy of selected growth within Extruded Solutions Paragominas • Synergy potential with existing Extruded Solutions plant in Brazil • Agreed c
Slide 22: Proposing increased 2017 dividend of NOK 1.75 per share
Proposing increased 2017 dividend of NOK 1.751 per share Payout ratio of ~41% for the year • Aiming for competitive shareholder returns compared to alternative investments in peers • Reflects strong operational performance in 2017 and solid financial position, taking into account the volatility in t
Slide 23: Results up on higher alumina and aluminium prices, partly offset by costs
Results up on higher alumina and aluminium prices, partly offset by costs Q4 2017 vs Q3 2017 (0.6) NOK billion 1.3 (0.4) 0.1 0.8 3.6 2.4 1.8 Underlying Underlying All-in realized Realized Raw material cost Fixed costs Other Underlying EBIT Q4 2016 EBIT Q3 2017 aluminium prices alumina prices EBIT Q4
Slide 24: Results up on higher prices, partly offset by costs and currency
Results up on higher alumina and aluminium prices, partly offset by costs and currency Full year 2017 vs full year 2016 NOK billion (3.9) 4.6 (1.4) (1.3) 0.2 6.6 11.2 9.7 6.4 Underlying Underlying All-in realized Realized Raw material Fixed costs and Currency Other Underlying EBIT 2015 EBIT 2016 alu
Slide 25: Key financials
Key financials Underlying EPS up to 1.33 NOK/share NOK million Q4 2017 Q3 2017 Q4 2016 Full year 2017 Full year 2016 Revenue 38 803 22 799 21 250 109 220 81 953 Underlying EBIT 3 555 2 446 1 829 11 215 6 425 Items excluded from underlying EBIT 956 (123) 135 974 586 Reported EBIT 4 511 2 323 1 964 12
Slide 26: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded positive BNOK ~1 from underlying EBIT, mainly transaction related effects from Sapa acquisition NOK million Q4 2017 Q3 2017 Q4 2016 Full year 2017 Full year 2016 Underlying EBIT 3 555 2 446 1 829 11 215 6 425 Unrealized derivative effects on LME related c
Slide 27: Bauxite & Alumina
Bauxite & Alumina Results up on increased alumina prices Key figures Q4 2017 Q3 2017 Q4 2016 Alumina production, kmt 1 693 1 605 1 635 Total alumina sales, kmt 2 344 2 251 2 472 Realized alumina price, USD/mt 398 297 257 Implied alumina cost, USD/mt 265 237 197 Bauxite production, kmt 3 049 3 043 3
Slide 28: Primary Metal
Primary Metal Results up on increased aluminium prices, partly offset by costs Key figures Q4 2017 Q3 2017 Q4 2016 Primary aluminium production, kmt 528 527 526 Total sales, kmt 554 568 528 Realized LME price, USD/mt 2 092 1 921 1 647 Realized LME price, NOK/mt 17 066 15 496 13 659 Realized premium,
Slide 29: Metal Markets
Metal Markets Increased results from sourcing and trading activities and positive currency effects Key figures Q4 2017 Q3 2017 Q4 2017 Remelt production, kmt 137 136 133 Metal products sales, kmt 1) 720 707 660 Underlying EBITDA, NOK million 209 114 175 Underlying EBIT excl currency and inventory va
Slide 30: Rolled Products
Rolled Products Improved margins, offset by lower volumes and increased cost Key figures Q4 2017 Q3 2017 Q4 2016 External sales volumes, kmt 224 236 213 Underlying EBITDA, NOK million 325 312 222 Underlying EBIT, NOK million 95 95 6 Underlying EBIT Q4 results NOK million • Improved margins 708 380 •
Slide 31: Extruded Solutions
Extruded Solutions Volumes and results down on seasonality Key figures Q4 2017 Q3 2017* Q4 2016* External sales volumes, kmt 318 339 310 Underlying EBITDA, NOK million 728 903 652 Underlying EBIT, NOK million 284 510 257 Underlying EBIT* Q4 results NOK million • Seasonally lower volumes 2 330 • Impr
Slide 32: Energy
Energy Results up on higher power production Key figures Q4 2017 Q3 2017 Q4 2016 Power production, GWh 3 089 2 509 2 551 Net spot sales, GWh 1 633 1 168 1 176 Southwest Norway spot price (NO2), NOK/MWh 287 258 296 Underlying EBITDA, NOK million 519 424 412 Underlying EBIT, NOK million 457 368 359 Un
Slide 33: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q4 2017 Q3 2017 Q4 2016 Sapa JV 209 167 Other (279) (96) (130) Eliminations (436) 68 (38) Other and Eliminations (715) 181 (1) 33
Slide 34: Continued cost increases in the aluminium industry
Continued cost increases in the aluminium industry Increasing market prices for all input factors Petroleum coke FOB USG (indexed) Pitch FOB USG (indexed) Alumina PAX index (indexed) 2.6 2.6 2.6 2.4 2.4 2.4 2.2 2.2 2.2 2.0 2.0 2.0 1.8 1.8 1.8 1.6 1.6 1.6 1.4 1.4 1.4 1.2 1.2 1.2 1.0 1.0 1.0 0.8 0.8 0
Slide 35: Net cash development Q4 2017
Net cash development Q4 2017 NOK billion Net cash flow from operations NOK 6.3 billion* 1.8 (1.1) 5.5 (14.1) 7.7 (3.9) (4.1) End Q3 2017 Underlying EBITDA Operating capital Taxes and other Investments and Other End Q4 2017 divestments * Net cash provided by operating activities, less change in restr
Slide 36: Net cash development full year 2017
Net cash development full year 2017 NOK billion Net cash flow from operations NOK 14.4 billion* (1.1) (1.9) 17.4 (17.7) 6.0 (2.6) (4.2) (4.1) End Q4 2016 Underlying EBITDA Operating capital Taxes and other Investments and Dividends Other End Q4 2017 divestments * Net cash provided by operating activ
Slide 37: Adjusted net debt up in Q4 on Sapa transaction related effects
Adjusted net debt up in Q4 on Sapa transaction related effects Dec 31 Sept 30 Jun 30 NOK billion 2017 2017 2017 Cash and cash equivalents 11.8 17.9 8.0 Short-term investments 1.3 2.0 4.9 Short-term debt (8.2) (9.1) (3.7) Long-term debt (9.0) (3.1) (3.2) Net cash/(debt) (4.1) 7.7 6.0 Net pension liab
Slide 38: 2017 accomplishments
2017 accomplishments • Created world-leading integrated aluminium company • Record production at Alunorte and Paragominas • Better improvements of MNOK 350 • Addressed operational and ramp-up issues in Rolled Products
Slide 39: 2018 priorities
2018 priorities • Safety first • Value-creating integration • Technology pilot, automotive line and recycling facility • Better improvement program • Innovation and technology
Slide 40: Market
Market 40
Slide 41: Macro trends and favorable properties drive aluminium demand
Macro trends and favorable properties drive aluminium demand 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 formabilit
Slide 42: 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 250 200 Land Rover Sport 2010 L
Slide 43: 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 44: 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 45: Extrusion market supported by B&C momentum and transport demand
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 46: 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 47: Growth in global semis demand creates opportunities
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 48: 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 Global aluminium semis demand Global aluminium semis product – 88 mill mt, per segment – 88 mill mt, per region composition – 88 mill mt Million tonnes (2017) Mill
Slide 49: 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 50: 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 4 0
Slide 51: Overall in 2017, the LME traded around the 90th percentile
Primary metal market Overall in 2017, the LME traded around the 90th percentile 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 assumpti
Slide 52: 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 slightly decreasin
Slide 53: Alumina market is consolidating, and becoming more integrated
Alumina market Alumina market is consolidating, and becoming more integrated Estimated net long equity alumina position, in million tonnes Alcoa/AWAC 4.3 Alcoa/AWAC 7.7 Vale 3.0 South 32 3.0 Glencore 2.4 Hydro 1.7 BHP Billiton 1.9 Rio Tinto 1.0 Kaiser 1.0 Hindalco 0.4 Alcan 0.8 UC Rusal (1.1) Sual 0
Slide 54: 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 55: 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 Origin of Chinese bauxite imports USD/t 90 2013 2017 80 Altantic Pacific 70 60 50 Baltic Dry Index 3000 40 2000 30 1000 20 0 Jun-13 Jun-14 Jun-15
Slide 56: Business overview
Business overview HYDRO
Slide 57: Hydro - Group
HYDRO Hydro - Group
Slide 58: 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 11 215 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues involved in activities in − 2016: NOK 82 billion 0.5 more than 40 countries − 2017: NOK 109 billion
Slide 59: 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 Extruded Solutions • Hi
Slide 60: 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 61: 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 61
Slide 62: 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 63: Hydro - a first tier aluminium company
Hydro - a first tier aluminium company Equity production in 2017 in aluminium equivalents, thousand mt 9 000 Alumina Aluminium 8 000 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 Alu
Slide 64: 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 65: Ambitious mid-term strategic goals within the Hydro aspiration
Ambitious mid-term strategic goals within the Hydro aspiration* Ambitions Target Timeframe Progress Status • Improve safety performance, strive for injury free environment TRI<2 2020 3.22 • Realize ongoing improvement efforts Better BNOK 3.0 2019 1.8 BNOK • Secure new competitive sourcing contracts
Slide 66: Better: Industry-leading improvement drive
Better: Industry-leading improvement drive Improvement target lifted to NOK 3.0 billion 2016-2019, NOK 1.7 billion realized by end-2017 Hydro’s improvement drive until 2015 Hydro’s current Total improvements 2009-2015: improvement ambition BNOK 4.5 BNOK 3.01) Better ‘Energy Aspiration’ Sapa JV Bauxi
Slide 67: 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 • Debottl
Slide 68: 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 69: 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 3.2 2.9 3.0 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 * Total recordable incidents (TRI
Slide 70: 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 71: 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 72: Bauxite & Alumina
HYDRO Bauxite & Alumina
Slide 73: 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 74: Stabilizing and lifting bauxite and alumina production
Stabilizing and lifting bauxite and alumina production Improving operations Bauxite production in Paragominas Alumina production at Alunorte 6.7 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 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
Slide 75: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2017 • Large fixed cost base Labor 16% • Labor cost 25% Energy − Influenced by Brazilian wage level Support & infrastructure Maintenance/consumables − Productivity improvements Other costs
Slide 76: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost position 2017 Implied alumina cost* position 2017 − USD 242 per mt USD 242 per mt − Alunorte, Paragominas and external alumina sourcing for resale • Bauxite 13% Bauxite − Internal bauxite from Paragominas at cost, sourced bauxite from
Slide 77: 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 - 2.5 million mt of external alumina sourced annually • Future pricing should reflect fundamentals of bauxite and alumina value chain • Long term off-take agreement wit
Slide 78: Shift of alumina sales to index-based pricing continues
Shift of alumina sales to index-based pricing continues at full speed Index pricing the 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 2020 Inte
Slide 79: 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 80: Energy
HYDRO Energy
Slide 81: 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 82: 10 TWh normal annual power production
10 TWh normal annual power production Power production capacity (TWh), • Development in power assets last five years per region and reversion year − 2012: Holsbru and Vasstøl power plants in operation − 2013: Vigeland acquisition completed, exemption from Sogn concession requirement granted - no tim
Slide 83: 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* 2007-2017
Slide 84: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side Spot TWh TWh price 0-6 3) 1 10 (8-12) 1) • Long-term contract • Market pricing Regulated • Fixed annual pricing price adjustments 14-17 2) • Market pricing • Duration varies • Differe
Slide 85: 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 86: 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 87: Primary Metal
HYDRO Primary Metal
Slide 88: World-wide production network
World-wide production network Primary Metal and Metal Markets 50% Norway, 1 040 000 tonnes • Sunndal (100%): 405 000 tonnes 7 stand-alone remelters: • Årdal (100%): 200 000 tonnes 6% • 2 in the US • Karmøy (100%): 195 000 tonnes Canada, 120 000 tonnes • 5 in Europe (UK, Luxembourg, • Høyanger (100%)
Slide 89: 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 90: 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 • ~50% of 200 000 mt creep ambitions – estimated annual EBITDA 201
Slide 91: 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 92: 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 93: Competitive primary aluminium cash cost
Competitive primary aluminium cash cost • Primary aluminium cash cost 2017 Liquid aluminium cash cost 20173 − All-in implied primary aluminium cash cost1 USD 1 725 per mt − LME implied primary aluminium cash cost2 USD 1 425 per mt 4% • Alumina 13% − Alumina from both internal and external sources −
Slide 94: Metal Markets
HYDRO Metal Markets
Slide 95: 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 96: Ambition of growing in recycling
Ambition of 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 70% 200 30% 300 60% 25% 250 50% 160 20% 200
Slide 97: Driving innovation to further strengthen market position
Driving innovation to further strengthen market position 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 view based o
Slide 98: 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 99: 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 100: Rolled Products
Rolled Products
Slide 101: Hydro Rolled Products
Hydro Rolled Products Holmestrand Rolling mill Karmøy Sales Office Smelter R&D centre Hamburg Neuss Norf Grevenbroich Bonn Singapore Strong European ~1 million tonnes Unique integrated Casthouse network and Industry-leading of flat rolled products per aluminium cluster: integrated recycling R&D faci
Slide 102: Major flat rolled products producer in Europe
Major flat rolled products producer in Europe External sales in tonnages 2017 • World leader in high-end products foil and litho Total 940 kT − Alunorf (JV 50%) – world’s largest rolling mill − Grevenbroich plant – world’s largest multi-product finishing mill 11% 16% Foil • High-grading product port
Slide 103: 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 104: 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 104
Slide 105: 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 106: 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 107: Extruded Solutions
HYDRO Extruded Solutions
Slide 108: Extruded Solutions – #1 in the global aluminium extrusion industry
Extruded Solutions – #1 in the global aluminium extrusion industry 22 400 people 1) 1.4 million mt production 2) Present in ~40 countries 1) As of end-2016 2) 2017 108
Slide 109: 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 110: 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 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: 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 in MNOK (NOK, indexed to 2014) 4000 139 136 3500 125 3000 2500 2000 1500 100 100 97 98 98 1000 500 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 2014 2015 2016 2017
Slide 113: Extruded solutions earnings drivers
Extruded solutions earnings drivers Underlying EBITDA per tonne*, NOK 4000 • Contract structure 3500 − Margin business based on conversion price − LME element passed on to customers 3000 − Mostly short term contract, typically ranging from spot to 12 months, few longer term contracts with 2500 float
Slide 114: Transactional details Sapa-acquisition
Transactional details Sapa-acquisition Transactional details Strategic fit and rationale • 100% Sapa enterprise value BNOK 27 • Accretive to earnings and strong cash generation from Sapa from day 1 • Synergies of MNOK 200 per year • Sapa new business area in Hydro, Extruded Solutions 1 2 3 • Finance
Slide 115: Additional information
Additional information HYDRO
Slide 116: 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 117: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Q4 2017 status Better improvement ambition 3.0 BNOK 2016-2019 1.8 BNOK 2017 Long-term sustaining capex ~ 5.5 - 6.0 BNOK Over the cycle 5.7 BNOK 2017 Dividend payout ratio 40% of net income Over the cycle
Slide 118: 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 119: 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 % Jun 30, 2017 6.0 (4.2) (7.6) (6.9) (12.8) 26 % 26 % 30 % 24 % 22 % 20 % 19 % 20 % 14 % 1
Slide 120: 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 • Sustaining projects for 2018-2020: 10 − Bauxite residue disposal area 8.8 − Opening of new bauxite mining area ~7.9 ~8.1 8 7.5 – 8.0 − Pipeline replacement 7.2 − Primary recti
Slide 121: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10% UEPS Currency sensitivities +10%* +1.31 NOK million NOK/share Sustainable effect: 3 900 2 990 NOK million USD BRL EUR UEBIT 3 860 (1 210) (230) One-off reevaluation effect: UEBIT Underlying Net Income Financ
Slide 122: 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 1,770 − ~One month lag • Realized alumina price lags PAX by one month Cost impact Bauxite 210 • ~2.45 tonnes bauxite per tonne alumina • P
Slide 123: 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 3 400 • Realized premium lags market premium by ~2-3 months Cost impact Alumina 290 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 124: Items excluded from underlying results - 2017
Items excluded from underlying results - 2017 NOK million (+=loss/()=gain) Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2017 Impairment charge Bauxite & alumina - - - - - Other effects Bauxite & alumina - - - - - Total impact Bauxite & alumina - - - - - Unrealized derivative effects on LME related contracts
Slide 125: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 711 756 662 413 1 872 1 227 3 704 Primary Metal 318 702 637 601 900 1 486 1 298 1 377 2 258 5 061 Metal Markets 167 75 117 152 2
Slide 126: Operating segment information
Operating segment information EBIT NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 680 756 662 413 1 872 1 196 3 704 Primary Metal 408 668 591 619 797 1 538 1 282 1 112 2 285 4 729 Metal Markets 235 91 131 172 (13) 282 59
Slide 127: Operating segment information
Operating segment information Total revenue NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Bauxite & Alumina 4 212 4 572 4 925 5 834 5 911 5 858 5 612 8 040 19 543 25 421 Primary Metal 7 694 8 006 7 900 7 262 8 641 9 575 8 958 9 291 30 862 36 466 Meta
Slide 128: Operating segment information
Operating segment information Internal revenue NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Bauxite & Alumina 1 769 1 873 1 929 1 914 2 528 2 441 2 320 2 944 7 484 10 234 Primary Metal 6 519 6 693 6 441 5 680 6 941 7 631 7 093 7 223 25 333 28 888 Me
Slide 129: Operating segment information
Operating segment information Return on average capital employed* (ROaCE) Reported ROaCE Underlying ROaCE 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 Bauxite & Alumina 8.5% 2.7 % 5.3 % (0.1) % (2.5) % (1.5) % 8.5% 2.8 % 5.3 % (0.1) % (2.2) % (1.6) % Primary Metal 11.8% 5.2 % 10.7 % 1
Slide 130: Operating segment information
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 Q4 2017 Year 2015 Year 2016 Year 2017 Bauxite & Alumina 460 470 420 633 451 485 511 833 577 586 644 679 1 983 2 279 2 486 Primar
Slide 131: Income statements
Income statements NOK million Q4 2017 Q3 2017 Q4 2016 Year 2016 Year 2017 Revenue 38 803 22 799 21 250 81 953 109 220 Share of the profit (loss) in equity accounted investments 256 371 236 985 1 527 Other income, net 2 358 240 342 1 030 2 947 Total revenue and income 41 417 23 410 21 829 83 969 113
Slide 132: Balance sheets
Balance sheets NOK million Dec 31 2017 Sep 30 2017 Jun 30 2017 Mar 31 2017 Dec 31 2016 Cash and cash equivalents 11 828 17 853 7 993 8 333 8 037 Short-term investments 1 311 1 985 4 896 4 403 4 611 Accounts receivable 19 983 13 156 13 465 12 851 10 884 Inventories 20 873 13 585 12 940 12 557 12 381
Slide 133: Operational data
Operational data Bauxite & Alumina Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Alumina production (kmt) 1 517 1 554 1 635 1 635 1 523 1 576 1 605 1 693 6 341 6 397 Sourced alumina (kmt) 531 615 512 883 600 645 667 610 2 541 2 522 Total alumina sales (kmt) 2 07
Slide 134: Operational data
Operational data Metal Markets Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Year 2016 Year 2017 Remelt production (1 000 mt) 144 146 125 133 143 152 136 137 548 568 Third-party Metal Products sales (1 000 mt) 72 74 78 80 79 80 74 86 304 319 Metal Products sales excl. ingot trading
Slide 135: Pro forma information
Pro forma information Summary consolidated underlying financial and operating results NOK million Q4 2017 Q3 2017 Q4 2016 2017 2016 Revenue 38,803 35,454 32,568 148,920 130,630 EBIT 3,048 2,640 2,045 11,927 8,229 Items excluded from underlying EBIT 508 114 (128) 510 (698) Underlying EBIT 3,555 2,754
Slide 136: Extruded Solutions, information by business area
Extruded Solutions, information by business area Historical Sapa information (100% basis) Q1 2016 – Q3 2017 and FY 2016-17 Extruded Solutions, fully consolidated in Hydro in Q4 2017* Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Precision Tubing 2016 2016 2016 2016 2017 2017 2017 2015 2016 2017 Ex
Slide 137: Historical information for Sapa
Historical information for Sapa 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 3
Slide 138: 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 First quarter results t: +47 97953364 April 25, 2018 e: even.simonsen@hydro.com For more information see Aud Helen Halvorsen www.hydro.com/i