Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q4 2017 Earnings Presentation
64 slides from Norsk Hydro Asa's earnings presentation, February 2018
Slide 1: Results up on higher aluminium and alumina prices Q4 2017
Results up on higher aluminium and alumina prices Q4 2017
Slide 2: Cautionary note
Cautionary note Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expan
Slide 3: Svein Richard Brandtzæg, President and CEO
Svein Richard Brandtzæg President and CEO 3
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: Slightly increased Chinese export levels in 2017 vs 2016
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, despite 2017 setback
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: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 23
Slide 24: 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 25: Full year 2017 underlying EBIT bridge
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 26: 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 27: 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 28: 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 29: 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 30: 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 31: 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 32: 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 33: 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 34: 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) 34
Slide 35: 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 36: 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 37: 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 38: 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 39: 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 40: 2018 priorities
2018 priorities • Safety first • Value-creating integration • Technology pilot, automotive line and recycling facility • Better improvement program • Innovation and technology
Slide 41: Additional information
Additional information HYDRO
Slide 42: 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 43: 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 44: 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 45: 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 46: 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 47: 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 48: 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 49: 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 50: 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 51: 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 52: 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 53: 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 54: 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 55: 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 56: 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 57: 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 58: 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 59: 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 60: 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 61: 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 62: 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 63: 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 64: 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