Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Q3 2017 Earnings Presentation
60 slides from Norsk Hydro ASA's earnings presentation, October 2017
Slide 1: Results down on increased raw material costs and currency
Results down on increased raw material costs and currency Third quarter presentation
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: Q3 highlights
Q3 highlights • Underlying EBIT of NOK 2 446 million • Negative result effects from raw material costs and USD depreciation • Weak Rolled Products results on continued operational issues and negative currency effect • Acquisition of Sapa completed on October 2, integration progressing according to p
Slide 5: Balanced global primary aluminium market in Q3
Balanced global primary aluminium market in Q3 Surplus in China, deficit in world outside China Demand and production (quarterly annualized) Production less demand*) 1 000 mt primary aluminium 1 000 mt primary aluminium 70 000 5 000 65 000 4 000 60 000 3 000 55 000 2 000 50 000 1 000 0 45 000 (1 000
Slide 6: Primary aluminium market expected to be largely balanced in 2017
Primary aluminium market expected to be largely balanced in 2017 Tightening markets on the back of Chinese closures and production disruptions outside China World ex. China 2017 3-4 % Estimated primary market balance 2017 (mill t.) 2 000 ~1.0 % 1 000 ~29.1 – 29.3 Production 0 Demand ~27.2 -1 000 (‘0
Slide 7: Increasing average all-in aluminium prices in Q3
Increasing average all-in aluminium prices in Q3 Arbitrage between LME and SHFE closed in Q3 LME and SHFE aluminium prices All-in aluminium prices USD/mt USD/mt NOK/mt 2 200 3 000 18 000 2 000 2 600 16 000 1 800 2 200 14 000 1 600 1 800 12 000 1 400 1 200 1 400 10 000 Jan-15 Apr-15 Jul-15 Oct-15 Jan
Slide 8: Decreasing Chinese Jul-Aug semis export
Decreasing Chinese Jul-Aug semis export Preliminary export figures indicate decreasing exports in September compared to August Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 400 Improved comp. adv. China 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) Jan-07 Jul-07 Jan-0
Slide 9: Alumina prices significantly up in Q3, increased further in October
Alumina prices significantly up in Q3, increased further in October Increasing Atlantic bauxite exports to China, primarily from Guinea Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 8 500 22% 7 450 20% 6 400 5 18% 350 4 300 16% 3 250 2 14% 200 1 PAX % of LME (3
Slide 10: China: bauxite imports remain high in Q3, decreasing semis export
China: bauxite imports remain high in Q3, decreasing semis export Annualized aluminium equivalents*, million mt 25 2012 2013 2014 2015 2016 2017 Q3 (est)** • Bauxite and alumina 20 − Continued increase in bauxite volumes from Guinea China import − Higher alumina imports in Q3 15 • Primary aluminium
Slide 11: On track for 2019 target of NOK 2.9 billion, despite 2017 setback
On track for 2019 target of NOK 2.9 billion, despite 2017 setback Behind NOK 500 million 2017 target, due to Rolled Products and Primary Metal Better Better Better Bauxite & Primary Rolled Better Alumina Metal Products BNOK BNOK 1.0 BNOK 1.0 BNOK 0.9 2.91) • High production at Alunorte and • Albras
Slide 12: Implied alumina cost up in Q3, stable realized alumina prices
Implied alumina cost up in Q3, stable realized alumina prices Implied alumina cost and margin, USD/mt 1) Developments Q3 vs Q2 475 • Margins down on higher implied alumina cost 425 59 67 36 • Implied alumina cost in Q3 affected by: 237 228 − Increasing raw material prices 204 − Negative currency eff
Slide 13: Increasing all-in implied primary cost, stable margins
Increasing all-in implied primary cost, stable margins All-in implied primary cost and margin, USD/mt 1) Developments Q3 vs Q2 • Margins stable from Q2 475 475 300 • Negative currency effect from stronger NOK vs USD 1 550 1 700 1 725 • Higher carbon cost partly offset by lower alumina cost 1 3752) 1
Slide 14: Rolled Products: increased sales volumes vs 2016
Rolled Products: increased sales volumes vs 2016 2017 sales affected by operational issues Q3 2017 vs Q2 2017 Q3 2017 vs Q3 2016 YTD 2017 vs YTD 2016 10% 8% 3% 3% 3% 2% 2% (1%) (1%) (1%) (4%) (8%) Can & foil Lithography & Special Total Rolled Can & foil Lithography & Special Total Rolled Can & foil
Slide 15: Addressing the operational issues in Rolled Products
Addressing the operational issues in Rolled Products Hamburg Alunorf Used Beverage Can line Automotive Line 3 • Furnace tap-out – resolved • Production instability reduced • Ramp-up process – delayed • Qualification process – delayed in Q3 • Compacter issue – resolved • Design modifications – mostly
Slide 16: Sapa acquisition completed October 2
Sapa acquisition completed October 2 • Hydro with full ownership in the global leader in extruded aluminium solutions • Hydro now fully integrated across value chain and markets • Unparalleled strength in technology, R&D, innovation and product development • Unmatched product and service offerings,
Slide 17: Earnings continue to improve in Sapa
Earnings continue to improve in Sapa Hydro share of underlying EBIT Hydro share of underlying net income NOK million NOK million 350 250 300 200 250 150 200 150 100 100 50 50 0 0 Q315 Q316 Q317 Q315 Q316 Q317 17
Slide 18: Healthy demand growth for extruded products, seasonally weaker
Healthy demand growth for extruded products, seasonally weaker • Seasonally weaker demand in Q3 versus Q2 − ~1% decrease in North America − ~7% decrease in Europe • Demand increased year-over-year − ~4% in North America − Increasing penetration within automotive and strong commercial building and co
Slide 19: Energy: prices supported by hydrology in Q3
Energy: prices supported by hydrology in Q3 Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) 600 100 500 80 NOK/MWh 400 Percent % 60 300 40 200 100 20 - 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week
Slide 20: Karmøy Technology Pilot on track for first metal in Q4 2017
Karmøy Technology Pilot on track for first metal in Q4 2017 World’s most climate and energy-efficient aluminium production • On time and budget, ~95 % completed end-Q3 • Net Hydro capex 2015-Q3 2017 BNOK 2.5 − Total capex BNOK 3.7 − Enova support BNOK 1.2 • Net Hydro capex 2015-2018 BNOK 2.7 − Total
Slide 21: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 21
Slide 22: Results down on increased raw material costs and currency
Results down on increased raw material costs and currency NOK billion (0.3) (0.2) (0.2) 0.2 2.9 2.4 1.5 Underlying Underlying FX Raw material cost Volumes / seasonality Other Underlying EBIT Q3 2016 EBIT Q2 2017 EBIT Q3 2017 22
Slide 23: Key financials
Key financials Underlying EPS down to 0.82 NOK/share NOK million Q3 2017 Q2 2017 Q3 2016 First 9 months 2017 First 9 months 2016 Revenue 22 799 24 591 20 174 70 416 60 703 Underlying EBIT 2 446 2 930 1 477 7 660 4 596 Items excluded from underlying EBIT (123) 16 (101) 18 451 Reported EBIT 2 323 2 94
Slide 24: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded negative MNOK 123 in timing effects NOK million Q3 2017 Q2 2017 Q3 2016 First 9 months 2017 First 9 months 2016 Underlying EBIT 2 446 2 930 1 477 7 660 4 596 Unrealized derivative effects on LME related contracts 30 (92) 32 (80) 314 Unrealized effects on
Slide 25: Bauxite & Alumina
Bauxite & Alumina Results down on increased costs, mainly due to raw material prices Key figures Q3 2017 Q2 2017 Q3 2016 Alumina production, kmt 1 605 1 576 1 635 Total alumina sales, kmt 2 251 2 196 2 221 Realized alumina price, USD/mt 297 295 240 Implied alumina cost, USD/mt 237 228 204 Bauxite pr
Slide 26: Primary Metal
Primary Metal Results down on increased raw material costs and negative currency effects Key figures Q3 2017 Q2 2017 Q3 2016 Primary aluminium production, kmt 527 523 526 Total sales, kmt 568 579 573 Realized LME price, USD/mt 1 921 1 902 1 612 Realized LME price, NOK/mt 15 496 16 265 13 375 Realize
Slide 27: Metal Markets
Metal Markets Negative currency and inventory valuation effects, seasonally lower results from remelters Key figures Q3 2017 Q2 2017 Q3 2016 Remelt production, kmt 136 152 125 Metal products sales, kmt 1) 707 759 720 Underlying EBITDA, NOK million 114 268 141 Underlying EBIT excl currency and invent
Slide 28: Rolled Products
Rolled Products Dedicated efforts to resolve operational and ramp-up issues Key figures Q3 2017 Q2 2017 Q3 2016 External sales volumes, kmt 236 239 231 Underlying EBITDA, NOK million 312 297 407 Underlying EBIT, NOK million 95 84 211 Underlying EBIT Q3 results NOK million • Negative currency effect
Slide 29: Energy
Energy Results up on higher power production and contribution from commercial activities Key figures Q3 2017 Q2 2017 Q3 2016 Power production, GWh 2 509 2 369 2 946 Net spot sales, GWh 1 168 996 1 699 Southwest Norway spot price (NO2), NOK/MWh 258 252 212 Underlying EBITDA, NOK million 424 337 336 U
Slide 30: Sapa JV
Sapa JV Continued improvements in all segments, seasonally weaker demand Key figures – Sapa (50%) Q3 2017 Q2 2017 Q3 2016 Q3 results Revenue, NOK million 6 992 7 655 6 570 • Quarter-on-quarter results down on seasonally weaker Underlying EBITDA, NOK million 456 626 406 demand Underlying EBIT, NOK mi
Slide 31: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q3 2017 Q2 2017 Q3 2016 Sapa JV 209 329 157 Other (96) (71) (66) Eliminations 68 (88) (17) Other and Eliminations 181 170 75 31
Slide 32: Increasing cost pressure in the aluminium industry
Increasing cost pressure in the aluminium industry Increasing market prices for all input factors Petroleum coke FOB USG (indexed) Pitch FOB USG (indexed) Alumina PAX index (indexed) 2.4 2.4 2.4 2.2 2.2 2.2 2 2 2 1.8 1.8 1.8 1.6 1.6 1.6 1.4 1.4 1.4 1.2 1.2 1.2 1 1 1 0.8 0.8 0.8 Q116 Q216 Q316 Q416 Q
Slide 33: Net cash development Q3 2017
Net cash development Q3 2017 NOK billion Net cash flow from operations NOK 3.3 billion* (0.4) (0.1) (1.3) 3.9 (0.2) 7.7 6.0 End Q2 2017 Underlying EBITDA Operating capital Taxes and other Investments and Other End Q3 2017 divestments * Net cash provided by operating activities, less change in restri
Slide 34: Financing of the Sapa-transaction
Financing of the Sapa-transaction • Sapa preliminary purchase price NOK 11.9 billion, paid on October 2 − NOK 7.9 billion from cash − NOK 4 billion drawn on Revolving Credit Facility (RCF) − NOK 2.9 billion drawn on RCF to refinance Sapa’s outstanding RCF debt • Plan for bond issuances in Norwegian
Slide 35: Adjusted net debt decreased in Q3 2017
Adjusted net debt decreased in Q3 2017 Increase in net cash, decrease in net pension liability and debt in equity accounted investees Sept 30 Jun 30 Mar 31 NOK billion 2017 2017 2017 Cash and cash equivalents 17.9 8.0 8.3 Short-term investments 2.0 4.9 4.4 Short-term debt (9.1) (3.7) (3.5) Long-term
Slide 36: Capex shifting from 2017 to 2018
Capex shifting from 2017 to 2018 NOK billion • Shift in capex from 2017 to 2018, primarily related to 9 Shift in capex sustaining capex in Primary Metal and Bauxite & ~1 BNOK 8 7.4 7.4 Alumina 7 6.0 6 • Estimated sustaining capex in Extruded Solutions 5 ~1.5 BNOK 4 3 2 1 2016 2017E 2018E Karmøy tech
Slide 37: Priorities
Priorities • Safety first • Extruded Solutions integration • Technology pilot, automotive line and recycling facility • Better improvement ambition, strong measures in Rolled Products
Slide 38: Additional information
Additional information HYDRO
Slide 39: 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 40: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe 2016 status Better improvement ambition 2.9 BNOK 2016-2019 1.4 BNOK 2016 Sustaining capex ~ 4 BNOK Over the cycle 4.9 BNOK 2016 Average capex incl. growth ~ 6.5 BNOK 1) 2017-2019 7.4 BNOK 2016 Dividend p
Slide 41: 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 42: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt Adjusted net debt / Equity 60 % NOK billion <55 % 50 % 40 % 32 % Jun 30, 2017 6.0 (4.2) (7.6) (6.9) (12.8) 26 % 28 %2 30 % 24 % 22 % 20 % 19 % 20 % 14 %
Slide 43: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +1.06 NOK/share Sustainable effect: 3 400 NOK million USD BRL EUR 2 500 UEBIT 3 170 (1 080) (290) One-off reevaluation effect: UEBIT Underlying Net Income Finan
Slide 44: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14% of 3-month LME price per tonne alumina 1,070 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 270 Bauxite • ~2.45 tonnes bauxite per tonne alumina (50
Slide 45: Primary Metal sensitivities
Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months 2 900 • Realized premium lags market premium by ~2-3 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium 240 • ~14.5% of 3-month LME
Slide 46: Items excluded from underlying results - 2017
Items excluded from underlying results - 2017 NOK million (+=loss/()=gain) Q1 2017 Q2 2017 Q3 2017 Impairment charge Bauxite & alumina - - - Other effects Bauxite & alumina - - - Total impact Bauxite & alumina - - - Unrealized derivative effects on LME related contracts Primary metal 29 (8) (20) Unr
Slide 47: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 780 482 628 532 189 174 153 711 756 662 413 2 421 1 227 Primary Metal 2 012 1 448 762 407 318 702 637 601 900 1 486
Slide 48: Operating segment information
Operating segment information EBIT NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 776 487 634 513 189 174 153 680 756 662 413 2 411 1 196 Primary Metal 1 956 1 528 664 311 408 668 591 619 797 1 538 1 282 4 459
Slide 49: Operating segment information
Operating segment information Total revenue NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 5 461 5 127 5 758 5 542 4 212 4 572 4 925 5 834 5 911 5 858 5 612 21 889 19 543 Primary Metal 9 096 8 154 7 951 7 138
Slide 50: Operating segment information
Operating segment information Internal revenue NOK million Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Bauxite & Alumina 2 074 2 150 2 103 2 030 1 769 1 873 1 929 1 914 2 528 2 441 2 320 8 356 7 484 Primary Metal 7 307 7 095 6 641 5 925
Slide 51: Operating segment information
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 52: 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 Year 2015 Year 2016 Bauxite & Alumina 460 470 420 633 451 485 511 833 577 586 644 1 983 2 279 Primary Metal 511 483 483 475 474
Slide 53: Income statements
Income statements First 9 months First 9 months NOK million Q3 2017 Q2 2017 Q3 2016 2017 2016 Year 2016 Revenue 22 799 24 591 20 174 70 416 60 703 81 953 Share of the profit (loss) in equity accounted investments 371 491 256 1 271 749 985 Other income, net 240 184 96 588 688 1 030 Total revenue and
Slide 54: Balance sheets
Balance sheets NOK million Sep 30 2017 Jun 30 2017 Mar 31 2017 Dec 31 2016 Sep 30 2016 Jun 30 2016 Mar 31 2016 Cash and cash equivalents 17 853 7 993 8 333 8 037 7 952 9 220 5 946 Short-term investments 1 985 4 896 4 403 4 611 4 438 2 629 5 479 Accounts receivable 13 156 13 465 12 851 10 884 11 495
Slide 55: Operational data
Operational data Bauxite & Alumina Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Alumina production (kmt) 1 451 1 437 1 498 1 577 1 517 1 554 1 635 1 635 1 523 1 576 1 605 5 962 6 341 Sourced alumina (kmt) 666 725 806 590 531 615 512 883
Slide 56: Operational data
Operational data Metal Markets Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Remelt production (1 000 mt) 145 141 117 130 144 146 125 133 143 152 136 533 548 Third-party Metal Products sales (1 000 mt) 74 80 81 84 72 74 78 80 79 80 74 319
Slide 57: Sapa joint venture
Sapa joint venture Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Year 2015 Year 2016 Sales volume (1000 mt) 359 367 350 322 353 358 341 312 349 36
Slide 58: Sapa joint venture
Sapa joint venture Sapa JV (100 % basis), information by business area Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Precision Tubing 2015 2016 Extrusion Europe 2015 2016 2016 2016 2016 2016 2017 2017 2017 2016 2016 2016 2016 2017 2017 2017 Volume (kmt) 37 40 37 35 36 38 36 145 150 Volume (kmt) 148 157
Slide 59: Investor Relations in Hydro
Investor Relations in Hydro Stian Hasle Head of Investor Relations t: +47 97736022 e: stian.hasle@hydro.com Next event Even Simonsen Investor Relations Officer Capital Markets Day t: +47 97953364 November 30, 2017 e: even.simonsen@hydro.com For more information see Gunn Elise Skogen www.hydro.com/ir
Slide 60: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO