Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2017 Earnings Presentation
61 slides from Norsk Hydro Asa's earnings presentation, July 2017
Slide 1: Results up on higher aluminium prices
Results up on higher aluminium prices Second 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: 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: Increasing Chinese Apr-May semis export
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: 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 17: 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 17
Slide 18: 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 19: 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 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, ~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 21: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 21
Slide 22: 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 22
Slide 23: 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 24: 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 25: 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 26: 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 27: 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 28: 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 29: 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 30: 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 31: 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 32: 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 32
Slide 33: 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 34: 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 35: Priorities
Priorities • Safety first • Better improvement ambition: focus on Rolled Products • Technology pilot, automotive line and recycling facility • Sapa integration planning
Slide 36: Additional information
Additional information HYDRO
Slide 37: 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 38: 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 39: 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 40: 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 41: 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 42: 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 43: 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 44: 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 45: 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 46: 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 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 Year 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 co
Slide 48: 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 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 49: 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 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 50: 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 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 51: 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 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 52: 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 53: 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 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 54: 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 55: 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 56: 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 57: 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 58: 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 59: Sapa joint venture
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 60: 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
Slide 61: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO