Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2017 Earnings Presentation
140 slides from Norsk Hydro Asa's earnings presentation, July 2017
Slide 1: Investor Presentation July 2017
INVESTOR PRESENTATION July 2017
Slide 2: Table of contents and cautionary note
Table of contents Second 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 concerni
Slide 3: Q2 2017
Q2 2017 3
Slide 4: Q2 highlights
Q2 highlights • Underlying EBIT of NOK 2 930 million • Higher realized aluminium prices, somewhat offset by lower realized alumina prices and higher raw material costs • Weak Rolled Products results primarily due to reduced margins linked to product mix and operational issues • Record quarterly resu
Slide 5: Global primary aluminium deficit in Q2
Global primary aluminium deficit in Q2 Driven by increasing deficit 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 45 000 0 40 000 (1 000) 35 00
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 2017 2-4 % Primary market balance 2017 (mill t.) (‘000t) 2-3 % 2 000 ~28.8 – 29.4 Production ~27.5 – 27.8 Demand 1 000 0 China 2017 10-12 % (mill t.) -1 000 6
Slide 7: Increasing average all-in aluminium prices in Q2
Increasing average all-in aluminium prices in Q2 Continued wide arbitrage between LME and SHFE LME and SHFE aluminium prices All-in aluminium prices USD/mt USD/mt NOK/mt 2 200 3 000 18 000 2 000 16 000 2 600 1 800 14 000 2 200 1 600 12 000 1 800 1 400 10 000 1 200 1 400 8 000 Jan-15 Apr-15 Jul-15 Oc
Slide 8: Improved comp. adv. China
Increasing Chinese Apr-May semis export Preliminary export figures indicate stable exports in June compared to May 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 Oct-07 Jul-08 Apr-09 Jan
Slide 9: Q2 average alumina prices down, declining trend reversed in June
Q2 average alumina prices down, declining trend reversed in June Increasing Atlantic bauxite exports to China, primarily from Guinea Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 400 21% 8 20% 7 350 19% 6 18% 5 300 17% 4 16% 250 3 15% 2 200 14% PAX % of LME (3
Slide 10: China: bauxite imports remain high in Q2, increasing semis export
China: bauxite imports remain high in Q2, increasing semis export Annualized aluminium equivalents*, million mt 25 2012 2013 2014 2015 2016 2017 Q2 (est)** • Bauxite and alumina 20 − Continued high volumes from Australia and Guinea China import 15 − Alumina imports remain subdued 10 • Primary alumin
Slide 11: On track for 2019 target of NOK 2.9 billion
On track for 2019 target of NOK 2.9 billion 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) • High production at Alunorte and • Operational issues reducing • S
Slide 12: Lower alumina prices, slightly lower implied alumina cost
Lower alumina prices, slightly lower implied alumina cost Implied alumina cost and margin, USD/mt 1) Developments Q2 vs Q1 475 • Margins down on lower realized prices 74 425 67 • Implied alumina cost in Q2 affected by: 39 235 228 − Higher caustic soda and bauxite consumption at Alunorte 201 − Lower
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 Q2 vs Q1 • Margins up from Q1 on increased realized 475 325 350 aluminium prices 1 675 1 700 1 500 • All-in implied primary cost up on increased alumina 1 1752) 1 3502) 1 375 2) costs
Slide 14: Rolled Products: Q2 sales affected by operational issues
Rolled Products: Q2 sales affected by operational issues Overall healthy demand growth, continued strong growth within Body-in-White car parts Q2 2017 vs Q1 2017 Q2 2017 vs Q2 2016 H1 2017 vs H1 2016 11% 9% 5% 3% 0% 0% (1%) (3%) (3%) (4%) (4%) (5%) Can & foil Lithography & Special Total Rolled Can &
Slide 15: Actions to resolve operational issues in Rolled Products
Actions to resolve operational issues in Rolled Products • Operational challenges at Hamburg and Alunorf − Expected to return to normal performance during H2 2017 • Ramp-up challenges in the Used Beverage Can line − Output speed of >40 000 mtpa expected by end-2017 • Automotive Line 3 in process of
Slide 16: Record quarterly result in Sapa in Q2
Record quarterly result in Sapa in Q2 Hydro share of underlying EBIT Hydro share of underlying net income NOK million NOK million 500 350 450 300 400 350 250 300 200 250 150 200 150 100 100 50 50 0 0 Q215 Q216 Q217 Q215 Q216 Q217 16
Slide 17: Seasonally stronger market demand for extruded products
Seasonally stronger market demand for extruded products • Seasonally stronger demand in Q2 versus Q1 − ~3% increase in North America − ~9% increase in Europe • Demand increased year-over-year − ~3% in North America − Stronger automotive demand and higher building and construction activity − Reduced
Slide 18: Energy: Seasonally lower prices during snow melt period in Q2
Energy: Seasonally lower prices during snow melt period in Q2 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 37 4
Slide 19: 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, ~85 % completed end-Q2 • Official opening August 24 • Net Hydro capex 2015-Q2 2017 BNOK 2.2 − Total capex BNOK 3.2 − Enova support BNOK 1.1 • Net Hydro cap
Slide 20: Results up on higher aluminium prices
Results up on higher aluminium prices NOK billion (0.2) 0.1 (0.1) 0.1 0.7 2.9 2.3 1.6 Underlying Underlying Realized Realized Costs Volumes FX & Other Underlying EBIT Q2 2016 EBIT Q1 2017 aluminium prices* alumina prices* EBIT Q2 2017 * Price revenue effects 20
Slide 21: Key financials
Key financials Underlying EPS up to 1.04 NOK/share NOK million Q2 2017 Q1 2017 Q2 2016 First half 2017 First half 2016 Revenue 24 591 23 026 20 391 47 617 40 529 Underlying EBIT 2 930 2 284 1 618 5 214 3 119 Items excluded from underlying EBIT 16 126 360 141 552 Reported EBIT 2 946 2 410 1 978 5 356
Slide 22: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 16 in timing effects NOK million Q2 2017 Q1 2017 Q2 2016 First half 2017 First half 2016 Underlying EBIT 2 930 2 284 1 618 5 214 3 119 Unrealized derivative effects on LME related contracts (92) (18) 146 (110) 283 Unrealized effects on power and raw
Slide 23: Bauxite & Alumina
Bauxite & Alumina Results down on lower realized alumina prices Key figures Q2 2017 Q1 2017 Q2 2016 Alumina production, kmt 1 576 1 523 1 554 Total alumina sales, kmt 2 196 2 129 2 078 Realized alumina price, USD/mt 295 309 240 Implied alumina cost, USD/mt 228 235 201 Bauxite production, kmt 2 943 2
Slide 24: Primary Metal
Primary Metal Results up on higher realized aluminium prices, partly offset by increased alumina cost Key figures Q2 2017 Q1 2017 Q2 2016 Primary aluminium production, kmt 523 516 518 Total sales, kmt 579 577 596 Realized LME price, USD/mt 1 902 1 757 1 546 Realized LME price, NOK/mt 16 265 14 798 1
Slide 25: Qatalum – limited effect from imposed sanctions on Qatar
Qatalum – limited effect from imposed sanctions on Qatar Key figures – Qatalum (50%) Q2 2017 Q1 2017 Q2 2016 Revenue, NOK million 1 483 1 355 1 182 Underlying EBITDA, NOK million 604 457 372 Underlying EBIT, NOK million 291 157 75 Underlying Net income (loss), NOK million 232 98 11 Primary aluminium
Slide 26: Metal Markets
Metal Markets Contribution up from commercial activities and remelters, positive currency and inventory valuation effects Key figures Q2 2017 Q1 2017 Q2 2016 Remelt production, kmt 152 143 146 Metal products sales, kmt 1) 759 735 777 Underlying EBITDA, NOK million 268 47 98 Underlying EBIT excl curr
Slide 27: Rolled Products
Rolled Products Reduced average margins, accrual for employee compensation, reduced impact from operational issues Key figures Q2 2017 Q1 2017 Q2 2016 External sales volumes, kmt 239 241 238 Underlying EBITDA, NOK million 297 307 432 Underlying EBIT, NOK million 84 106 242 Underlying EBIT Q2 results
Slide 28: Energy
Energy Results down on seasonally lower power production Key figures Q2 2017 Q1 2017 Q2 2016 Power production, GWh 2 369 2 869 2 674 Net spot sales, GWh 996 1 409 1 393 Southwest Norway spot price (NO2), NOK/MWh 252 278 213 Underlying EBITDA, NOK million 337 476 352 Underlying EBIT, NOK million 284
Slide 29: Sapa JV
Sapa JV Seasonally stronger demand and continuous improvements Key figures – Sapa (50%) Q2 2017 Q1 2017 Q2 2016 • Best quarterly result in Sapa’s history Revenue, NOK million 7 655 7 162 7 036 • Quarter-on-quarter results up on seasonally stronger Underlying EBITDA, NOK million 626 550 566 demand an
Slide 30: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q2 2017 Q1 2017 Q2 2016 Sapa JV 329 281 270 Other (71) (140) (100) Eliminations (88) (67) (45) Other and Eliminations 170 74 125 30
Slide 31: Net cash development Q2 2017
Net cash development Q2 2017 Stable net cash position NOK billion Net cash flow from operations NOK 3.9 billion* (0.7) 0.2 (1.1) 4.3 (2.6) (0.1) 5.9 6.0 End Q1 2017 Underlying EBITDA Operating capital Taxes and other Investments and Dividends Other End Q2 2017 divestments * Net cash provided by oper
Slide 32: Adjusted net debt increased slightly in Q2 2017
Adjusted net debt increased slightly in Q2 2017 Increased net debt in equity accounted investments Jun 30 Mar 31 Dec 31 NOK billion 2017 2017 2016 Cash and cash equivalents 8.0 8.3 8.0 Short-term investments 4.9 4.4 4.6 Short-term debt (3.7) (3.5) (3.3) Long-term debt (3.2) (3.4) (3.4) Net cash/(deb
Slide 33: Priorities
Priorities • Safety first • Better improvement ambition: focus on Rolled Products • Technology pilot, automotive line and recycling facility • Sapa integration planning
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 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 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: 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 Q2-17
Slide 46: 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 47: 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 48: 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 49: Business overview
Business overview HYDRO
Slide 50: Hydro - Group
HYDRO Hydro - Group
Slide 51: 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 5 214 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 52: 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 53: 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 54: 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 55: 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 56: 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 57: 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 58: 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 59: 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 60: 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 60
Slide 61: Bauxite & Alumina
HYDRO Bauxite & Alumina
Slide 62: 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 63: 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 64: 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 6.3 12.2 6.2 6.2 11.7 11.8 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
Slide 65: 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 66: 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 67: 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 68: 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 69: 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 70: Energy
HYDRO Energy
Slide 71: 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 72: 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 73: 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 74: 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 75: 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 76: 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 77: 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 78: Primary Metal
HYDRO Primary Metal
Slide 79: 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 80: 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 81: Low carbon footprint due to renewable energy base and lowest energy consumption
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 82: 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 83: 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 84: Metal Markets
HYDRO Metal Markets
Slide 85: 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 86: 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 87: 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 88: 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 89: Rolled Products
Rolled Products
Slide 90: 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 91: 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 92: 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 93: 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 93
Slide 94: 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 95: 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 96: 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 97: Sapa joint venture
HYDRO Sapa joint venture
Slide 98: 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 99: 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 100: 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 101: 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 After-tax ROCE (100%) (NOK, indexed) delivered ahead of plan EBITDA in MNOK ROCE in % 135 • Further poten
Slide 102: Hydro acquires Sapa
Hydro acquires Sapa Creating a global aluminium champion
Slide 103: 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 104: 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 105: 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 106: 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 107: 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 108: 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 109: 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 110: 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 111: 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 112: 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 113: 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 114: 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 115: 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 116: 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 117: Additional information
Additional information HYDRO
Slide 118: 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 119: 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 120: 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 121: 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 % Mar 31, 2017 5.9 (4.3) (6.7) (6.9) 30 % 24 % 26 % (12.1) 22 % 19 % 20 % 20 % 14 % 11 % 10
Slide 122: 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 123: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +1.11 NOK/share Sustainable effect: 3 500 NOK million USD BRL EUR 2 600 UEBIT 3 410 (1 170) (270) One-off reevaluation effect: UEBIT Underlying Net Income Finan
Slide 124: 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 1,130 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 290 Bauxite • ~2.45 tonnes bauxite per tonne alumina (50
Slide 125: 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 3 000 • Realized premium lags market premium by ~2-3 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium 270 • ~14.5% of 3-month LME
Slide 126: Items excluded from underlying results - 2017
Items excluded from underlying results - 2017 NOK million (+=loss/()=gain) Q1 2017 Q2 2017 Impairment charge Bauxite & alumina - - Other effects Bauxite & alumina - - Total impact Bauxite & alumina - - Unrealized derivative effects on LME related contracts Primary metal 29 (8) Unrealized effects on
Slide 127: 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 128: 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 Year 2015 Year 2016 Bauxite & Alumina 780 482 628 532 189 174 153 711 756 662 2 421 1 227 Primary Metal 2 012 1 448 762 407 318 702 637 601 900 1 486 4 628 2 258
Slide 129: 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 Year 2015 Year 2016 Bauxite & Alumina 776 487 634 513 189 174 153 680 756 662 2 411 1 196 Primary Metal 1 956 1 528 664 311 408 668 591 619 797 1 538 4 459 2 285 Metal Marke
Slide 130: 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 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 21 889 19 543 Primary Metal 9 096 8 154 7 951 7 138 7 694 8 006 7
Slide 131: 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 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 8 356 7 484 Primary Metal 7 307 7 095 6 641 5 925 6 519 6 693 6
Slide 132: 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 133: 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 Year 2015 Year 2016 Bauxite & Alumina 460 470 420 633 451 485 511 833 577 586 1 983 2 279 Primary Metal 511 483 483 475 474 484 488 467
Slide 134: Income statements
Income statements NOK million Q2 2017 Q1 2017 Q2 2016 First half 2017 First half 2016 Year 2016 Revenue 24 591 23 026 20 391 47 617 40 529 81 953 Share of the profit (loss) in equity accounted investments 491 409 323 900 493 985 Other income, net 184 164 481 348 592 1 030 Total revenue and income 25
Slide 135: Balance sheets
Balance sheets NOK million Jun 30 2017 Mar 31 2017 Dec 31 2016 Sep 30 2016 Jun 30 2016 Mar 31 2016 Cash and cash equivalents 7 993 8 333 8 037 7 952 9 220 5 946 Short-term investments 4 896 4 403 4 611 4 438 2 629 5 479 Accounts receivable 13 465 12 851 10 884 11 495 12 085 12 699 Inventories 12 940
Slide 136: 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 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 5 962 6 341 Sourced alumina (kmt) 666 725 806 590 531 615 512 883 600 645 2 787
Slide 137: 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 Year 2015 Year 2016 Remelt production (1 000 mt) 145 141 117 130 144 146 125 133 143 152 533 548 Third-party Metal Products sales (1 000 mt) 74 80 81 84 72 74 78 80 79 80 319 304 Metal Prod
Slide 138: 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 Year 2015 Year 2016 Sales volume (1000 mt) 359 367 350 322 353 358 341 312 349 366 340 31
Slide 139: Sapa JV information by business area
Sapa joint venture Sapa JV (100 % basis), information by business area Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Precision Tubing 2015 2016 Extrusion Europe 2015 2016 2016 2016 2016 2016 2017 2017 2016 2016 2016 2016 2017 2017 Volume (kmt) 37 40 37 35 36 38 145 150 Volume (kmt) 148 157 142 130 154 155 563
Slide 140: 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 Third quarter results t: +47 97953364 October 25, 2017 e: even.simonsen@hydro.com For more information see Gunn Elise Skogen www.hydro.com/i