Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q1 2018 Earnings Presentation
57 slides from Norsk Hydro Asa's earnings presentation, April 2018
Slide 1: Results up on higher prices, higher raw material cost
Results up on higher prices, higher raw material cost Q1 2018
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: Q1 highlights
Q1 highlights • Underlying EBIT of NOK 3 147 million • Alunorte producing at 50% as of March 1, negotiations ongoing with Brazilian authorities • Higher realized all-in aluminium and alumina prices, partly offset by increased raw material costs • Strong result in Extruded Solutions • Better improvem
Slide 5: Alunorte situation – status and measures
Alunorte situation – status and measures Status Measures • Alunorte producing at 50% following orders from environmental • MNOK ~500 in increasing water authorities and court treatment capacity by 50% • Paragominas producing at 50%, due to reduced Alunorte • MNOK ~250 to support broad production col
Slide 6: External and internal reports confirm no overflow from bauxite deposit areas
External and internal reports and Brazilian authorities confirm no overflow from bauxite deposit areas • Report from third-party environmental consultancy SGW Services and report from internal task force confirm: − No overflows from bauxite residue deposits − No indication of contamination of local
Slide 7: Negotiations to resume production progressing
Negotiations to resume production progressing • Hydro seeking dialogue with all relevant authorities to find solutions • Constructive dialogue with Government of Pará, including state environmental agency SEMAS • Seeking negotiations with Ministerio Publicò • Other legal and political processes ongo
Slide 8: Global aluminium market balanced in Q1 2018
Global aluminium market balanced in Q1 2018 Continued deficit in world outside China, offset by similar surplus in China Quarterly market balances, world ex. China and China Production less demand*) 1000 mt primary aluminium 1 000 mt primary aluminium 1 500 2 000 1 000 1 000 500 0 0 (1 000) ( 500) (
Slide 9: Primary aluminium market moving towards deficit in 2018, increased uncertainty
Primary aluminium market moving towards deficit in 2018, increased uncertainty 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 3-4 % (mill t.) -2 000 4-6 % ~37.4 – 37.8 -3 000 Product
Slide 10: Average aluminium prices increasing in Q1
Average aluminium prices increasing in Q1 Aluminium prices increasing in April following announced Rusal sanctions LME and SHFE aluminium prices Regional standard ingot premiums USD/mt NOK/mt USD/mt 2 600 22 000 500 2 400 20 000 400 2 200 18 000 2 000 300 16 000 1 800 200 14 000 1 600 100 1 400 12 0
Slide 11: Average alumina prices down in Q1, sharp increase in March
Average alumina prices down in Q1, sharp increase in March Alunorte situation together with Rusal sanctions creating uncertainty in the alumina market Platts alumina index (PAX) • Uncertainty on alumina availability following Alunorte USD/mt Percent curtailment and Rusal sanctions, triggering price
Slide 12: Solid demand growth expected in key downstream segments
Solid demand growth expected in key downstream segments Extrusions – estimated market growth 2018 vs 2017 (%) Rolled products – estimated market growth 2018 vs 2017 (%) Building & Construction Building & Construction Transport and Transport and automotive automotive Packaging Industrial* Industrial*
Slide 13: Increased uncertainty following imposed trade tariffs and sanctions
Increased uncertainty in global aluminium markets following imposed trade tariffs and sanctions Section 232 • The US administration has imposed tariffs of 10 percent on aluminium imports to the US • Exemptions for certain countries are currently under discussion • Final framework to be decided, long
Slide 14: Continued cost increases in the aluminium industry
Continued cost increases in the aluminium industry Petroleum coke FOB USG (indexed) Pitch FOB USG (indexed) Alumina PAX index (indexed) 3.2 3.2 3.2 2.8 2.8 2.8 2.4 2.4 2.4 2.0 2.0 2.0 1.6 1.6 1.6 1.2 1.2 1.2 0.8 0.8 0.8 Q116 Q216 Q316 Q416 Q117 Q217 Q317 Q417 Q118 Q116 Q216 Q316 Q416 Q117 Q217 Q317
Slide 15: Reduced upstream margins on increased costs
Reduced upstream margins on increased costs Additional costs in Bauxite & Alumina following Alunorte production cut Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) USD/mt 1) 375 475 84 500 133 350 425 74 2 075 1 850 1 675 287 1 7252) 265 1 5752) 235 1 3502) Q1 2017 Q
Slide 16: Rolled Products: increased sales volumes year-over-year
Rolled Products: increased sales volumes year-over-year, driven by automotive and can Sales volume Q1 2018 vs Q1 2017 Q1 2018 vs Q4 2017 Growth in % 14% 12% 9% 6% 4% 2% 0% (2%) Can & foil Lithography & Special products Total Rolled Products Can & foil Lithography & Special products Total Rolled Prod
Slide 17: Extruded Solutions: Continued improvements in net added value
Extruded Solutions: Continued improvements in net added value Net added value* per kg (Indexed to Q1 2016**) 1.10 1.00 0.90 Extrusion Europe Extrusion North America Building Systems Precision Tubing Extruded Solutions Q1 2016 Q1 2017 Q1 2018 * Net Added Value: calculated as operating revenues less c
Slide 18: Karmøy pilot producing world's most climate and energy-efficient aluminium
• Karmøy pilot now producing the world’s most climate and energy-efficient aluminium • Ramp-up during first half 2018 • 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 18
Slide 19: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 19
Slide 20: Results up on higher alumina and aluminium prices, partly offset by raw material costs
Results up on higher alumina and aluminium prices, partly offset by raw material costs Q1 2018 vs Q1 2017 NOK billion (2.1) 2.5 0.4 3.6 3.1 2.3 Underlying EBIT Q4 2017 Underlying EBIT Q1 2017 Realized aluminium Raw material costs Other Underlying EBIT Q1 2018 and alumina prices 20
Slide 21: Key financials
Key financials Underlying EPS up to 1.06 NOK/share NOK million Q1 2018 Q1 2017 Q4 2017 Full year 2017 Revenue 39 971 23 026 38 803 109 220 Underlying EBIT 3 147 2 284 3 555 11 215 Items excluded from underlying EBIT 155 126 956 974 Reported EBIT 3 301 2 410 4 511 12 189 Financial income (expense) (4
Slide 22: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK ~150 in timing effects from underlying EBIT NOK million Q1 2018 Q1 2017 Q4 2017 Full year 2017 Underlying EBIT 3 147 2 284 3 555 11 215 Unrealized derivative effects on LME related contracts 114 (18) (140) (220) Unrealized effects on power and raw ma
Slide 23: Bauxite & Alumina
Bauxite & Alumina Increasing alumina prices offset by increased raw material costs Key figures Q1 2018 Q1 2017 Q4 2017 Alumina production, kmt 1 277 1 523 1 693 Total alumina sales, kmt 2 071 2 129 2 344 Realized alumina price, USD/mt 371 309 398 Implied alumina cost, USD/mt 287 235 265 Bauxite prod
Slide 24: Primary Metal
Primary Metal Results down on increased costs, partly offset by increased realized aluminum prices Key figures Q1 2018 Q1 2017 Q4 2017 Primary aluminium production, kmt 514 516 528 Total sales, kmt 578 577 554 Realized LME price, USD/mt 2 140 1 757 2 092 Realized LME price, NOK/mt 16 929 14 798 17 0
Slide 25: Metal Markets
Metal Markets Increased results from remelters and positive inventory valuation effects Key figures Q1 2018 Q1 2017 Q4 2017 Remelt production, kmt 150 143 137 Metal products sales, kmt* 745 735 720 Underlying EBITDA, NOK million 201 47 209 Underlying EBIT excl currency and inventory valuation 139 83
Slide 26: Rolled Products
Rolled Products Improved margins, production performance and Neuss power contract, partly offset by currency effects Key figures Q1 2018 Q1 2017 Q4 2017 External sales volumes, kmt 245 241 224 Underlying EBITDA, NOK million 456 307 325 Underlying EBIT, NOK million 232 106 95 Underlying EBIT Results
Slide 27: Extruded Solutions
Extruded Solutions Results up on improved volumes and margins Key figures Q1 2018 Q1 2017* Q4 2017 External sales volumes, kmt 362 355 318 Underlying EBITDA, NOK million 1 155 1 100 728 Underlying EBIT, NOK million 734 700 284 Underlying EBIT* Results Q1 18 vs Q1 17 NOK million • Increased sales vol
Slide 28: Energy
Energy Results down on lower power production, partly offset by increased prices Key figures Q1 2018 Q1 2017 Q4 2017 Power production, GWh 2 433 2 869 3 089 Net spot sales, GWh 763 1 409 1 633 Southwest Norway spot price (NO2), NOK/MWh 361 278 287 Underlying EBITDA, NOK million 339 476 519 Underlyin
Slide 29: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q1 2018 Q1 2017 Q4 2017 Sapa JV 281 Other (207) (140) (279) Eliminations 368 (67) (436) Other and Eliminations 161 74 (715) 29
Slide 30: Net debt development Q1 2018
Net debt development Q1 2018 NOK billion Net cash flow from operations NOK 1.8 billion* (2.1) 5.0 (1.1) (3.6) (4.1) (1.5) 0.2 End Q4 2017 Underlying EBITDA Operating capital Taxes and other Investments and Other End Q1 2018 divestments • Net cash provided by operating activities from cash flow state
Slide 31: Adjusted net debt slightly down in Q1
Adjusted net debt slightly down in Q1 Mar 31 Dec 31 Sept 30 NOK billion 2018 2017 2017 Cash and cash equivalents 9.4 11.8 17.9 Short-term investments 1.0 1.3 2.0 Short-term debt (5.3) (8.2) (9.1) Long-term debt (8.7) (9.0) (3.1) Net cash/(debt) (3.6) (4.1) 7.7 Net pension liability at fair value, ne
Slide 32: 2018 priorities
2018 priorities • Safety first • Delivering on short and long-term sustainability agenda in Parà • Resuming production at Alunorte, Paragominas and Albras • Value-creating integration • Technology pilot, automotive line and recycling facility
Slide 33: Additional information
Additional information HYDRO
Slide 34: 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 35: 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 36: 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 37: 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 % Sep 30, 2017 7.7 (4.1) (6.9) (6.5) (9.9) 26 % 26 % 30 % 24 % 22 % 20 % 19 % 20 % 14 % 11
Slide 38: 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 39: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10% UEPS Currency sensitivities +10% +1.29 NOK million NOK/share Sustainable effect: 3 800 2 950 NOK million USD BRL EUR UEBIT 3 740 (1 160) (230) One-off reevaluation effect: UEBIT Underlying Net Income Financi
Slide 40: 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 1,510 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 210 Bauxite • ~2.45 tonnes bauxite per tonne alumina (40
Slide 41: 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 • ~1.9 tonnes per tonne aluminium 290 • ~14.5% of 3-month LME
Slide 42: Items excluded from underlying results - 2018
Items excluded from underlying results - 2018 NOK million (+=loss/()=gain) Q1 2018 Impairment charge Bauxite & alumina - Other effects Bauxite & alumina - Total impact Bauxite & alumina - Unrealized derivative effects on LME related contracts Primary metal (114) Unrealized effects on power contracts
Slide 43: 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 44: 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 Q1 2018 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 711 756 662 413 1 872 741 1 227 3 704 Primary Metal 318 702 637 601 900 1 486 1 298 1 377 823 2 258 5 061 Metal Markets
Slide 45: 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 Q1 2018 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 680 756 662 413 1 872 741 1 196 3 704 Primary Metal 408 668 591 619 797 1 538 1 282 1 112 917 2 285 4 729 Metal Markets 235 91 131
Slide 46: 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 Q1 2018 Year 2016 Year 2017 Bauxite & Alumina 4 212 4 572 4 925 5 834 5 911 5 858 5 612 8 040 6 309 19 543 25 421 Primary Metal 7 694 8 006 7 900 7 262 8 641 9 575 8 958 9 291 10 1
Slide 47: 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 Q1 2018 Year 2016 Year 2017 Bauxite & Alumina 1 769 1 873 1 929 1 914 2 528 2 441 2 320 2 944 2 800 7 484 10 234 Primary Metal 6 519 6 693 6 441 5 680 6 941 7 631 7 093 7 223 8
Slide 48: 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 49: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Year 2016 Year 2017 Bauxite & Alumina 451 485 511 833 577 586 644 679 630 2 279 2 486 Primary Metal 474 484 488 467 492 505 504 526 546 1 913 2
Slide 50: Income statements
Income statements NOK million Q1 2018 Q1 2017 Q4 2017 Year 2017 Revenue 39 971 23 026 38 803 109 220 Share of the profit (loss) in equity accounted investments 221 409 256 1 527 Other income, net 155 164 2 358 2 947 Total revenue and income 40 346 23 599 41 417 113 693 Raw material and energy expens
Slide 51: Balance sheets
Balance sheets NOK million Mar 31 2018 Dec 31 2017* Sep 30 2017 Jun 30 2017 Mar 31 2017 Dec 31 2016 Cash and cash equivalents 9 371 11 828 17 853 7 993 8 333 8 037 Short-term investments 1 031 1 311 1 985 4 896 4 403 4 611 Accounts receivable 22 785 19 983 13 156 13 465 12 851 10 884 Inventories 20
Slide 52: Operational data
Operational data Bauxite & Alumina Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Year 2016 Year 2017 Alumina production (kmt) 1 517 1 554 1 635 1 635 1 523 1 576 1 605 1 693 1 277 6 341 6 397 Sourced alumina (kmt) 531 615 512 883 600 645 667 610 1 121 2 541 2 522 Total alum
Slide 53: Operational data
Operational data Metal Markets Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Year 2016 Year 2017 Remelt production (1 000 mt) 144 146 125 133 143 152 136 137 150 548 568 Third-party Metal Products sales (1 000 mt) 72 74 78 80 79 80 74 86 70 304 319 Metal Products sales excl
Slide 54: Pro forma information
Pro forma information Summary consolidated underlying financial and operating results NOK million Q1 2018 Q1 2017 Q4 2017 2017 2016 Revenue 39 971 36 129 38 803 148 920 130 630 EBIT 3 301 2 868 3 048 11 927 8 229 Items excluded from underlying EBIT (155) (182) 508 510 (698) Underlying EBIT 3 147 2 6
Slide 55: Extruded Solutions, information by business area
Extruded Solutions, information by business area Historical Sapa information (100% basis) Q1 2016 – Q3 2017 and FY 2015-16 Extruded Solutions, fully consolidated in Hydro in Q1 2018 and Q4 2017* Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Precision Tubing 2016 2016 2016 2016 2017 2017 2017
Slide 56: 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 57: 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 Second quarter results t: +47 97953364 July 24, 2018 e: even.simonsen@hydro.com For more information see Aud Helen Halvorsen www.hydro.com/i