Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Q4 2015 Earnings Presentation
60 slides from Norsk Hydro ASA's earnings presentation, February 2016
Slide 1: Declining metal prices, lower costs and record production in Brazil
Declining metal prices, lower costs and record production in Brazil Fourth quarter presentation
Slide 2: Cautionary note
Cautionary note Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions,
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 1 566 million for Q4, NOK 9 656 million for full-year 2015 • Proposed dividend for 2015 of NOK 1 per share • Record high quarterly bauxite and alumina1) production • Lower costs, including record low implied alumina cost • Lower realized alumina and all-in alum
Slide 5: Global oversupply ~1.2 million tonnes in 2015
Global oversupply ~1.2 million tonnes in 2015 ~2.1 million tonnes oversupply in China, ~0.9 million tonnes undersupply World ex-China Demand and production (quarterly annualized) Production less demand1) 1 000 mt primary aluminium 1 000 mt primary aluminium 65 000 5 000 4 000 60 000 3 000 55 000 2 0
Slide 6: Aluminium market expected to be largely balanced in 2016
Aluminium market expected to be largely balanced in 2016 Significant curtailments in China at the end of 2015 Supply development 20161) Market balance 20162) Mill tonnes Milll tonnes Estimated cash negative in 20161) 25 % 65 % 1.5 – 2.0 mill tonnes ~3,4 World ex-China China Oversupply (0.5) – 0.5 ~1
Slide 7: Increased Chinese net semis export on widening arbitrage
Increased Chinese net semis export on widening arbitrage 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 mai.08 sep.09 jan.11 mai.12 sep.13 jan.15 Feb 16 Semis exports (Left axis) Chinese
Slide 8: Stabilizing all-in ingot prices after weakening in Q4
Stabilizing all-in ingot prices after weakening in Q4 Tightening spread between standard ingot and product premiums USD/mt NOK/mt USD/mt 3 000 18 000 900 800 700 2 600 16 000 600 500 2 200 14 000 400 300 1 800 12 000 200 100 1 400 10 000 0 jan 11 jan 12 jan 13 jan 14 jan 15 Feb1616 jan jan.11 nov.11
Slide 9: Alumina prices fall in oversupplied markets
Alumina prices fall in oversupplied markets Signs of curtailments as around 50% of global alumina capacity is estimated to be loss-making Platts alumina index (PAX) Global alumina business operating costs (USD/mt)1) USD/mt Percent USD/mt 450 20% 450 19% 400 400 350 18% 350 300 17% 250 PAX Australia
Slide 10: China net import balance stable
China net import balance stable Small increases in upstream imports and downstream exports Annualized aluminium equivalents1), million mt • Bauxite and alumina 25 2011 2012 2013 2014 2015 − Beginning January 15 2016, Malaysia imposed three-month moratorium on bauxite mining to reduce associated poll
Slide 11: Bauxite and alumina production reach record quarterly levels
Bauxite and alumina* production reach record quarterly levels Implied alumina cost continues steep decline Annualized bauxite production, million mt Implied alumina cost and margin, USD/mt 1) • Significant decline in implied Paragominas 10,9 11,7 alumina cost 10,2 475 9,0 9,1 9,5 9,1 74 − Increased
Slide 12: Lower primary margin on weaker all-in prices
Lower primary margin on weaker all-in prices Implied primary cost down on weaker currency and lower alumina price All-in implied primary cost and margin, USD/mt 1) • Developments Q4 vs Q3 − Lower variable costs, mainly alumina 800 350 275 − Weaker NOK and BRL vs USD 1 775 1 675 1 575 • Årdal power o
Slide 13: Hydro to build Karmøy technology pilot
Hydro to build Karmøy technology pilot With spin-off effects for the entire portfolio • Technology pilot with production of 75 000 mt − 48 cells HAL4e technology – 12.3 kWh/kg − 12 cellsNext-generation HAL4e Ultra - 11.5 – 11.8 kWh/kg technology • Spin-off technology elements for existing portfolio
Slide 14: Seasonally lower sales in Rolled Products
Seasonally lower sales in Rolled Products Year-on-year improvement driven by stronger can sales and positive general engineering development Q4 2015 vs Q3 2015 Q4 2015 vs Q4 2014 17% 10% 7% (4%) (7%) (7%) (8%) (10%) Packaging & building Litho, Auto & General engineering Total Rolled Packaging & buil
Slide 15: Seasonally weaker extrusion demand
Seasonally weaker extrusion demand • Seasonally weaker demand − 9% decrease in North America − 7% decrease in Europe • Demand increased from same quarter last year − 1% in North America due to increased building activity and strong automotive demand − Stable in Europe, weak building activity continu
Slide 16: Sapa restructuring agenda delivered one year ahead of plan
Sapa restructuring agenda delivered one year ahead of plan Sapa aims for additional improvements Sapa 100% basis • Significant improvements since 2013 MNOK 1) 1,407 − Realized synergy program of about NOK 1 billion − Higher share of value-added products − Divestments and closure of non-profitable bu
Slide 17: Energy: Inflow remains high, but seasonally higher prices
Energy: Inflow remains high, but seasonally higher prices Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 2014 2015 500 2016 80 400 60 300 40 200 MIN NO2 (2002-2014) MAX NO2 (2002-2014) 20 2014 100 2015 2016 0 0 1 4 7 10 13 16 19 22 25
Slide 18: Strong improvement track record continues in 2015
Strong improvement track record continues in 2015 MNOK 800 delivered in 2015, another NOK 2.9 billion targeted in 2016-2019 Hydro’s improvement drive until 2015 Hydro’s new improvement ambition Tailor-made ambitions Total improvements 2011-2015: BNOK 4.51) Total improvements of BNOK 2.9 across the v
Slide 19: Proposed 2015 dividend NOK 1.0 per share
Proposed 2015 dividend NOK 1.0 per share Payout ratio of 101 % for the year • Aim to provide stable cash return to shareholders • Reflects operational performance and strong financial position • Uncertain market outlook taken into consideration • Average five-year payout ratio1) of ~110 % − Dividend
Slide 20: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 20
Slide 21: Declining metal prices, lower costs and record production in Brazil
Declining metal prices, lower costs and record production in Brazil NOK billion 0.2 (0.3) (1.2) 2.9 0.4 2.2 0.3 1.6 Underlying Underlying LME, PAX Net currency Fixed and Energy price Other Underlying EBIT Q4-2014 EBIT Q3-2015 and premium* variable cost and volume EBIT Q4-2015 * Price revenue effects
Slide 22: Key financials
Key financials Underlying EPS 2015 of 2.98 NOK/share NOK million Q4 2015 Q3 2015 Q4 2014 2015 2014 Revenue 20 374 21 594 21 656 87 694 77 907 Underlying EBIT 1 566 2 215 2 886 9 656 5 692 Items excluded from underlying EBIT (841) (586) (591) (1 398) (18) Reported EBIT 725 1 630 2 295 8 258 5 674 Fin
Slide 23: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 841, including loss on Slim divestment NOK million Q4 2015 Q3 2015 Q4 2014 2015 2014 Underlying EBIT 1 566 2 215 2 886 9 656 5 692 Unrealized derivative effects on LME related contracts 5 (249) - (415) 352 Unrealized effects on power and raw material
Slide 24: Bauxite & Alumina
Bauxite & Alumina Lower realized alumina price offset by record production and currency tailwinds Key figures Q4 2015 Q3 2015 Q4 2014 Alumina production, kmt 1 577 1 498 1 501 Total alumina sales, kmt 2 368 2 268 2 043 Realized alumina price, USD/mt 245 273 303 Implied alumina cost, USD/mt 187 217 2
Slide 25: Primary Metal
Primary Metal Falling all-in metal prices, partly offset by lower costs Key figures Q4 2015 Q3 2015 Q4 2014 Primary aluminium production, kmt 521 520 499 Total sales, kmt 531 550 527 Realized LME price, USD/mt 1 555 1 685 1 997 Realized LME price, NOK/mt 13 125 13 779 13 355 Realized premium, USD/mt
Slide 26: Qatalum results decline further
Qatalum results decline further Lower realized aluminium price and premiums Key figures – Qatalum (50%) Q4 2015 Q3 2015 Q4 2014 Revenue, NOK million 1 226 1 242 1 510 Underlying EBITDA, NOK million 216 365 614 Underlying EBIT, NOK million (105) 85 371 Underlying Net income (loss), NOK million (167)
Slide 27: Metal Markets
Metal Markets Results negatively affected by currency effects Key figures Q4 2015 Q3 2015 Q4 2014 Remelt production, kmt 130 117 130 Metal products sales, kmt 1) 676 676 654 Underlying EBITDA, NOK million 180 317 243 Underlying EBIT excl currency and inventory valuation 180 189 130 effects, NOK mill
Slide 28: Rolled Products
Rolled Products Seasonally weaker results Key figures Q4 2015 Q3 2015 Q4 2014 External sales volumes, kmt 229 248 213 Underlying EBITDA, NOK million 404 517 280 Underlying EBIT, NOK million 204 331 96 Underlying EBIT Q4 results NOK million • Seasonally lower shipments 698 1 142 • Stable margin and c
Slide 29: Energy
Energy Increasing prices from low levels, lower production costs Key figures Q4 2015 Q3 2015 Q4 2014 Power production, GWh 2 882 2 839 2 823 Net spot sales, GWh 1 292 1 363 1 339 Southwest Norway spot price (NO2), NOK/MWh 197 102 248 Underlying EBITDA, NOK million 403 241 402 Underlying EBIT, NOK mi
Slide 30: Seasonally weaker results in Sapa JV
Seasonally weaker results in Sapa JV BNOK 1 in synergies delivered one year ahead of plan • Quarter-on-quarter results affected by: Key figures – Sapa (50%) Q4 2015 Q3 2015 Q4 2014 − Seasonally weaker demand Revenue, NOK million* 6 410 6 948 5 921 − Negative impact from unsanctioned quality testing
Slide 31: Divestment of Herøya Industrial Park
Divestment of Herøya Industrial Park Supporting Hydro’s pure play aluminium strategy • Herøya Industripark AS and Herøya Nett AS put for sale in Jan 2015 − Assets include properties, buildings, infrastructure, electricity grid and process water supplies • In Dec 2015 Hydro agreed to sell Herøya Indu
Slide 32: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q4 2015 Q3 2015 Q4 2014 Sapa JV 70 120 (22) Other (169) (95) (118) Eliminations 17 (13) (168) Other and Eliminations (83) 12 (308) 32
Slide 33: Net cash development Q4 2015
Net cash development Q4 2015 Increase in net cash following further operating capital release NOK billion Net cash flow from operations NOK 4.3 billion (0.3) 1.7 (2.1) (0.4) 3.0 5.1 3.3 End Q3-2015 Underlying EBITDA Operating capital Taxes and other Investments Currency and minorities End Q4-2015 33
Slide 34: Net cash development 2015
Net cash development 2015 Net cash position driven by higher cash flow from operations NOK billion Net cash flow from operations NOK 14.3 billion 0.8 (1.1) (5.4) (2.0) 14.7 (1.7) 5.1 (0.1) End 2014 Underlying EBITDA Operating capital Tax & other* Investments Dividends Currency and minorities End 201
Slide 35: Adjusted net debt reduced in Q4 2015
Adjusted net debt reduced in Q4 2015 Higher net cash position partly offset by increased net pension liability Dec 31 Sep 30 Jun 30 NOK billion 2015 2015 2015 Cash and cash equivalents 6.9 9.4 8.1 Short-term investments 5.8 1.8 1.2 Short-term debt (3.6) (3.5) (3.7) Long-term debt (4.0) (4.4) (5.0) N
Slide 36: 2015 achievements and 2016 priorities
2015 • Record B&A and downstream results • Improvements across value chain • Significant positive development in Brazil 2016 • Strengthen relative industry position • Secure resource base • High-grade portfolio • Maintain financial strength 36
Slide 37: Additional information
Additional information HYDRO
Slide 38: Prudent financial framework
Prudent financial framework Strong balance sheet and reliable dividend in cyclical industry Reliable Lifting Financial Disciplined shareholder Effective risk cash flow strength capital remuneration management potential and flexibility allocation policy Improving efficiency, Investment grade credit L
Slide 39: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Actual 2015 Improvement programs 2.9 BNOK 2016-2019 4.5 BNOK 2009 - 2015 Sustaining capex 3.5 - 4.0 BNOK Over the cycle 4.6 BNOK 2015 Average capex incl. growth 6.1 BNOK 1) 2016-2018 5.8 BNOK 2015 Divide
Slide 40: Shareholder and financial policy; Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns • Hedging strategy: compared to alternative investments in peers − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Maintained divid
Slide 41: 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 % 30 % 24 % 26 % Dec 31, 2014 (0.1) (5.3) (7.3) (8.2) (20.9) 22 % 20 % 19 % 20 % 11 % 10 %
Slide 42: Majority of sustaining capex allocated upstream
Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion • Long-term annual sustaining capex BNOK 3.5-4 10,2 10 • Sustaining projects for 2014-2016: − Red mud disposal area 9 8,1 − Bauxite tailing dam 8 − Smelter relining 7 − Energy rehabilitation 6,
Slide 43: Significant exposure to commodity and currency fluctuations
EFFECTIVE RISK MANAGEMENT Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +0.98 Sustainable effect: 2 892 NOK/share 2 200 NOK million USD BRL EUR UEBIT 2 591 (890) (272) One-off reevaluation effect: UEBIT Und
Slide 44: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.5% of 3-month LME price per tonne alumina 643 − ~One month lag • Realized alumina price lags PAX by one month 507 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
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 2 210 • Realized premium lags market premium by ~1-2 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME pric
Slide 46: Depreciation by currency and business area
Depreciation by currency and business area Total 2015 depreciation 5.0 BNOK Depreciation currency exposure by business area Depreciation by business area* 4% 1% NOK & Percent USD EUR BRL Others 15% Bauxite & Alumina 100% Primary Metal 25% 25% 50% 39% 2% Bauxite and alumina Metal Markets 25% 45% 30%
Slide 47: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) 19 11 Total impact Bauxite & alumina 3 (6) (6) 19 11 Unrealized derivative effects on LME related contrac
Slide 48: Items excluded from underlying results - 2014
Items excluded from underlying results - 2014 NOK million (+=loss/()=gain) Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Unrealized derivative effects on LME related contracts Bauxite & Alumina (4) (1) (2) (10) (16) Total impact Bauxite & Alumina (4) (1) (2) (10) (16) Unrealized derivative effects on LME rel
Slide 49: Operating segment information: Underlying EBIT
Operating segment information Underlying EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina (288) (269) (26) 528 780 482 628 532 (55) 2 421 Primary Metal 312 420 1 216 1 989 2 012 1 448 762 407 3 937 4 628 Metal Markets 141 100 171
Slide 50: Operating segment information: EBIT
Operating segment information EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina (284) (269) (23) 537 776 487 634 513 (39) 2 411 Primary Metal 303 434 1 278 1 912 1 956 1 528 664 311 3 928 4 459 Metal Markets 73 93 265 285 (122) (44
Slide 51: Operating segment information: Total revenue
Operating segment information Total revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 3 511 3 828 3 737 4 770 5 461 5 127 5 758 5 542 15 847 21 889 Primary Metal 6 618 6 384 6 986 8 075 9 096 8 154 7 951 7 138 28 064 32 340 Meta
Slide 52: Operating segment information: Internal revenue
Operating segment information Internal revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 1 304 1 424 1 480 2 071 2 074 2 150 2 103 2 030 6 279 8 356 Primary Metal 5 391 5 047 5 396 5 833 7 307 7 095 6 641 5 925 21 667 26 967 Met
Slide 53: Operating segment information: Depreciation and capital employed
Operating segment information Depreciation, amortization and impairment NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Bauxite & Alumina 410 431 442 519 460 470 420 633 1 802 1 983 Primary Metal 437 427 431 499 511 483 483 475 1 794 1 952 Metal Market
Slide 54: Income statements
Income statements NOK million Q4 2015 Q3 2015 Q4 2014 Year 2014 Year 2015 Revenue 20 374 21 594 21 656 77 907 87 694 Share of the profit (loss) in equity accounted investments (144) 115 (34) 415 512 Other income, net (172) 167 327 751 461 Total revenue and income 20 057 21 875 21 948 79 073 88 667 R
Slide 55: Balance sheets
Balance sheets NOK million Dec 31, 2015 Sep 30 2015 Jun 30 2015 Mar 31 2015 Dec 31, 2014 Cash and cash equivalents 6 917 9 372 8 142 7 172 9 253 Short-term investments 5 752 1 860 1 240 2 456 1 786 Accounts receivable 10 797 14 417 14 847 15 122 11 703 Inventories 12 192 11 996 12 722 13 392 12 642
Slide 56: Operational data
Operational data Bauxite & Alumina Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Alumina production (kmt) 1 428 1 526 1 478 1 501 1 451 1 437 1 498 1 577 5 933 5 962 Sourced alumina (kmt) 550 431 532 503 666 725 806 590 2 016 2 787 Total alumina sales (kmt) 1 90
Slide 57: Operational data
Operational data Metal Markets Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year2014 Year2015 Remelt production (1 000 mt) 139 141 128 130 145 141 117 130 538 533 Third-party Metal Products sales (1 000 mt) 84 81 80 79 74 80 81 84 324 319 Metal Products sales excl. ingot trading (
Slide 58: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Year 2014 Year 2015 Sales volume (1000 mt) 343 311 346 360 346 314 359 367 35
Slide 59: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Head of Investor Relations t: +47 970 96 711 Next events e: pal.kildemo@hydro.com First Quarter Results April 27, 2016 Olena Lepikhina Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhina@hydro.com www.hydro.com/ir 59
Slide 60: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO