Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2019 Earnings Presentation
129 slides from Norsk Hydro Asa's earnings presentation, July 2019
Slide 1: Second quarter 2019 Investor presentation
Second quarter 2019 Investor presentation July 2019
Slide 2: Table of contents / Cautionary note
Table of contents Second quarter results 2019 3 Cautionary note Certain statements included in this announcement contain forward-looking information, Market 35 including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerni
Slide 3: Second quarter results 2019
Second quarter results 2019 Investor presentation, July 2019
Slide 4: Second quarter highlights
Second quarter highlights • Underlying EBIT of NOK 875 million • Ramp-up progressing successfully at Alunorte, Paragominas and Albras • Bauxite & Alumina up on increased production and currency, mostly offset by lower realized alumina prices • Primary Metal down on lower realized aluminium price • F
Slide 5: Ramp-up progressing successfully in Pará
Ramp-up progressing successfully in Pará Commissioning new press filter technology at Alunorte Ramp-up process Way forward Alunorte Alunorte production in ramp-up period, daily production annualized in million mt Alunorte production, annualized in million mt 6 6 85-95% 5 5 75-85% 4 4 3 3 2 Embargo 2
Slide 6: Key focus going forward
Key focus going forward CHANGE PICTURE • Safe ramp-up of Alunorte, Albras and Paragominas key priority • Fully committed to deliver on obligations under technical and social agreement (TAC and TC) • Continued dialogue with state environmental agency SEMAS and Ministerio Público on creating common pl
Slide 7: Status update cyber attack
Status update cyber attack Operational and financial impact • Overall financial impact for Q2 NOK 250-300 million • Of which Extruded Solutions NOK 150-200 million • Overall financial impact for Q1 NOK 300-350 million • Of which Extruded Solutions NOK 250-300 million • At end-Q2 operations have larg
Slide 8: Global aluminium market in deficit in Q2 2019
Global aluminium market in deficit in Q2 2019 Continued deficit in world outside China, Q2 deficit also in China Quarterly market balances, world ex. China and China Production less demand*) 1 000 mt primary aluminium 1 000 mt primary aluminium 1 500 2 000 1 000 1 000 500 0 0 (1 000) ( 500) (2 000)
Slide 9: Global market expected in deficit for 2019
Global market expected in deficit for 2019 China largely balanced, world outside China in deficit World ex. China 2019 Estimated primary market balance 2019 0-1 % (mill t.) (‘000t) 1 000 2-3 % ~29.6 – 29.9 Production Demand ~28.2 – 28.5 0 China 2019 (mill t.) -1 000 1-2 % 1-3 % Production ~36.4 – 36
Slide 10: Inventories gradually trending downwards, increasing Chinese semis exports
Inventories gradually trending downwards, increasing Chinese semis exports Global reported and unreported, in thousand tonnes Inventory days Semis exports from China, in thousand tonnes Comp. adv (USD/mt) 16000 140 500 1 000 450 120 800 400 Competitive advantage China 12000 100 350 600 300 80 400 80
Slide 11: LME aluminium prices down in Q2
LME aluminium prices down in Q2 SHFE up in Q2, reducing competitiveness on metal from China 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 12 000 1 200 10 000 0 Jan-1
Slide 12: Alumina prices down in Q2, continued volatility
Alumina prices down in Q2, continued volatility Platts alumina index (PAX) • Alumina prices trending downwards in 1H 2019 USD/t and into Q3 750 35% • Continued price volatility, impacted in Q2 by Chinese 650 30% environmental curtailments and Alunorte restart 550 25% • Refinery cost in general trend
Slide 13: Softening downstream demand growth
Softening downstream demand growth Weak demand in Europe, reduced extrusion growth in North America Extrusions – estimated market growth 2019 vs 2018 (%) Rolled products – estimated market growth 2019 vs 2018 (%) Building & Building & Construction Construction Transport & Transport & automotive auto
Slide 14: Raw material costs continue to trend downwards
Raw material costs for the aluminium industry continue to trend downwards Petroleum coke FOB USG (indexed) Pitch FOB USG (indexed) Alumina PAX index (indexed) 2.5 2.5 2.5 2.0 2.0 2.0 1.5 1.5 1.5 1.0 1.0 1.0 0.5 0.5 0.5 0.0 0.0 0.0 Q116 Q316 Q117 Q317 Q118 Q318 Q119 Q116 Q316 Q117 Q317 Q118 Q318 Q119
Slide 15: Upstream costs trending downwards
Upstream costs trending downwards Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) USD/mt 4) 375 50 75 63 2 175 2 200 2 100 62 69 367 311 296 1 7755) 1 8505) 1 775) Q2 2018 Q1 2019 Q2 2019 Q2 2018 Q1 2019 Q2 2019 430 373 365 Price 2) 2 547 2 256 2 184 All-in 6) 17.2 %
Slide 16: Rolled Products: Sales reduction driven by softening markets
Rolled Products: Sales reduction driven by softening markets YTD 2019 vs YTD 2018 Q2 2019 vs Q2 2018 Q2 2019 vs Q1 2019 Sales volume Growth in % 3% 3% 1% 0% (1%) (2%) (2%) (4%) (6%) (6%) (7%) (7%) Can & foil Special products Can & foil Special products Can & foil Special products Lithography & Total
Slide 17: Extruded Solutions: Continued improvements in net added value
Extruded Solutions: Continued improvements in net added value Net added value* per kg (NOK**, indexed to 2016) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Extrusion Europe Extrusion North America Building Systems Precision Tubing Extruded Solutions 2016 2017 2018 Roll 12m (Q2 2019) * Net Added Value: calculated as
Slide 18: Portfolio optimization in Extruded Solutions
Portfolio optimization in Extruded Solutions • Constantly reviewing overall portfolio, aiming to optimize and streamline • Several smaller restructuring efforts ongoing in Europe – simplifying footprint and addressing softening demand in several markets • The following restructuring efforts are ongo
Slide 19: Nordic power prices down on improved hydrological balance
Nordic power prices down on improved hydrological balance and lower coal and gas prices Nordic System and German Power Prices (EUR/MWh) Nordic Hydrological Balance EUR/MWh TWh +/- normal 60 0 50 -5 40 -10 30 -15 20 -20 10 -25 0 -30 2018-Q2 2018-Q3 2018-Q4 2019-Q1 2019-Q2 Q2-2018 Q3-2018 Q4-2018 Q1-2
Slide 20: Økern Portal in Oslo chooses aluminium
Økern Portal in Oslo chooses aluminium with low carbon footprint Hydro’s Circal75R enabling builders and architects to meet demanding sustainability targets 20
Slide 21: Results down on lower realized prices
Results down on lower realized prices Q2 2019 vs Q2 2018 NOK billion 2.7 (1.4) (0.4) (0.2) 0.9 0.5 (0.3) UEBIT Q2 2018 Realized Realized alumina price Downstream Currency Energy and other UEBIT Q2 2019 aluminium price volume and margin 21
Slide 22: Improved results on lower costs and higher volumes
Improved results on lower costs and higher volumes Q2 2019 vs Q1 2019 NOK billion 0.2 (0.4) 0.9 0.5 (0.3) 0.2 0.6 UEBIT Q1 2019 Raw material Upstream volume Realized aluminium Energy price and volume Downstream and other UEBIT Q2 2019 and fixed cost and alumina price 22
Slide 23: Key financials
Key financials Year NOK million Q2 2019 Q2 2018 Q1 2019 2018 Revenue 39 176 41 254 37 583 159 377 Underlying EBIT 875 2 713 559 9 069 Items excluded from underlying EBIT 219 (274) 539 547 Reported EBIT 656 2 986 20 8 522 Financial income (expense) (664) (441) 6 (2 060) Income (loss) before tax (8) 2
Slide 24: Items excluded from Underlying EBIT
Items excluded from Underlying EBIT Excluded a loss of 219 MNOK from Underlying EBIT Year NOK million Q2 2019 Q2 2018 Q1 2019 2018 Underlying EBIT 875 2 713 559 9 069 Unrealized derivative effects on LME related contracts (11) 306 (200) (39) Unrealized derivative effects on power and raw material co
Slide 25: Bauxite & Alumina
Bauxite & Alumina Results up on ramping-up production and currency tailwinds Key figures Q2 2019 Q2 2018 Q1 2019 Alumina production, kmt 932 829 805 Total alumina sales, kmt 1 668 1 842 1 423 Realized alumina price, USD/mt 365 430 373 Implied alumina cost, USD/mt 296 367 311 Bauxite production, kmt
Slide 26: Primary Metal
Primary Metal Results down on lower realized prices Key figures Q2 2019 Q2 2018 Q1 2019 Primary aluminium production, kmt 486 492 485 Total sales, kmt 527 549 534 Realized LME price, USD/mt 1 858 2 183 1 912 Realized LME price, NOK/mt 15 959 17 292 16 291 Realized premium, USD/mt 326 364 344 Implied
Slide 27: Metal Markets
Metal Markets Results up on stronger performance from remelters and commercial activities Key figures Q2 2019 Q2 2018 Q1 2019 Remelt production, kmt 139 153 131 Metal products sales, kmt 1) 707 746 683 Underlying EBITDA, NOK million 328 262 219 Underlying EBIT excl currency and inventory valuation 3
Slide 28: Rolled Products
Rolled Products Results down on lower volumes and margins, weaker results from Neuss smelter Key figures Q2 2019 Q2 2018 Q1 2019 External sales volumes, kmt 242 251 246 Underlying EBITDA, NOK million 326 438 384 Underlying EBIT, NOK million 75 212 138 Results Q2 19 vs Q2 18 • Lower results from the
Slide 29: Extruded Solutions
Extruded Solutions Results negatively affected by the cyber attack and softer markets Key figures Q2 2019 Q2 2018 Q1 2019 External sales volumes, kmt 348 373 333 Underlying EBITDA, NOK million 1 279 1 383 1 099 Underlying EBIT, NOK million 772 957 593 Results Q2 19 vs Q2 18 • ~ MNOK 150-200 in negat
Slide 30: Energy
Energy Results down on lower volumes Key figures Q2 2019 Q2 2018 Q1 2019 Power production, GWh 1 993 2 550 2 553 Net spot sales, GWh 289 961 770 Southwest Norway spot price (NO2), NOK/MWh 360 369 468 Underlying EBITDA, NOK million 242 479 583 Underlying EBIT, NOK million 176 417 517 Results Q2 19 vs
Slide 31: Other and Eliminations
Other and Eliminations Underlying EBIT, NOK million Q2 2019 Q2 2018 Q1 2019 Other (253) (156) (307) Eliminations (5) (74) 46 Other and Eliminations (258) (229) (261) 31
Slide 32: Net debt increased in Q2 2019
Net debt increased in Q2 2019 Reflecting dividend payment to shareholders NOK billion Net cash flow from operations NOK 2.6 billion 1.3 (1.6) 2.9 (2.7) (12.1) (2.6) (0.4) (15.1) End Q1 2019 Underlying EBITDA Operating capital Taxes and other Net investments Dividends Other End Q2 2019 32
Slide 33: Adjusted net debt up in Q2
Adjusted net debt up in Q2 Driven by increased net debt position Jun 30, Mar 31 Dec 31 2018 NOK billion 2019 2019 Restated1) Cash and cash equivalents 10.6 6.1 6.0 Short-term investments 1.1 1.3 1.0 Short-term debt (8.2) (8.9) (9.4) Long-term debt (18.6) (10.6) (9.3) Net cash/(debt) (15.1) (12.1) (1
Slide 34: Measures to improve performance and cash generation
Measures to improve performance and cash generation Lifting • Safe and efficient operations - always key priority profitability • Return Alunorte, Paragominas and Albras to full production and operational excellence • Rolled Products restructuring and strategic review • New improvement efforts acros
Slide 35: Market
Market Investor presentation, July 2019
Slide 36: Macro trends and favorable properties drive aluminium demand
Macro trends and favorable properties drive aluminium demand Hydro’s strategic direction aims to realize full potential of aluminium’s strong qualities and versatility Aluminium Steel Copper Composites PVC Lightness and strength Strength and durability Conductivity Lightness Lightness and formabilit
Slide 37: Transport & construction key semis demand segments
Transport & construction key semis demand segments Global semis demand 2018: ~91 million tonnes Per segment Per product form Per region 6% 1% 2% 1% 9% 2% 2% 11% 14% 27% 30% 6% 24% 48% 16% 11% 8% 25% 7% 34% 18% Transport Electrical Rolled products Wire & Cable China Central & South America Constructi
Slide 38: Automotive demand for aluminium supporting several semis products
Automotive demand for aluminium supporting several semis products Car makers utilizing aluminium to reduce weight and increase fuel-efficiency Global semis demand for transport sector by product form Mill t 30 25 6.5% 20 5.0% 15 10 2.5% 5 CAGR Level of High-growth automotive segment with substantial
Slide 39: E-mobility trend favourable for aluminium demand
E-mobility trend favourable for aluminium demand High aluminium content in BEVs, increasing share of total car sales Electric vehicle* share of new car sales (%) Net increase in aluminium content in electric vehicle’s Average kg aluminium per vehicle type in 2018 30% ~200 Rolled Castings Extrusions
Slide 40: Rolled products demand driven by transport segment
Rolled products demand driven by transport segment Transport share increasing in total rolled products demand General rolled products demand, selected regions Global segment composition, rolled products YoY-growth (2018) 8% 4% 2% Packaging 5% Transport 8% Construction 6% Machinery & Equipment 14% 50
Slide 41: Moderating extrusion demand growth in Western Europe and North America
Moderating extrusion demand growth in Western Europe and North America, improving in Asia Extrusion demand, selected regions Global segment composition, extrusions YoY-growth (2018) 10% North America 10% Western Europe 10% China 3% 4% 6% 5% 5% 5% 12% 0% 0% 0% 2017 2018E 2019E 2017 2018E 2019E 2017 2
Slide 42: Strong growth drivers across segments providing solid demand outlook
Strong growth drivers across segments providing solid demand outlook Still encouraging demand outlook from strong base – converging demand China and outside China Strong demand drivers in key aluminium segments Global semis demand per segment, CAGR 2000-18 2018-28 Growth in automotive vehicle produc
Slide 43: Aluminium continues to be the fastest growing base metal
Aluminium continues to be the fastest growing base metal Solid growth for semis, primary and recycling 2018-2028 Global metal demand Index 2000=100 300 250 200 Semis Primary Recycling1) 150 ~3 % 2-3 % ~4 % 100 50 0 2000 2002 2004 2006 2008 2010 2012 2014 2016 2018 Aluminium primary Copper Crude Stee
Slide 44: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) 750 180 600 150 120 450 90 300 60 150 30 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Caustic soda (USD/mt) Petroleum
Slide 45: Historical strong correlation between LME and 90th percentile smelters
Historical strong correlation between LME and 90th percentile smelters Primary metal market World ex-China China Market balance in thousand tonnes 1) Nominal USD/t Market balance in thousand tonnes 1) Nominal USD/t 10 000 2 800 10 000 2 800 2 600 2 600 8 000 8 000 2 400 2 400 6 000 2 200 6 000 2 200
Slide 46: Global cost curve lower in 2019 as raw materials cost normalize
Global cost curve lower in 2019 as raw materials cost normalize Primary metal market CRU BOC curve by smelter USD/t 3 000 2 750 2 500 2 250 2 000 1 750 1 500 1 250 1 000 750 500 0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 000’tons 2017 2018 Spot curve, June 2019 Source: Republished under lice
Slide 47: Total global inventory days trending downwards
Total global inventory days trending downwards Primary metal market Global reported stocks and inventory days Total global stocks and inventory days • Reported stocks decreasing in Thousand tonnes Inventory days Thousand tonnes Inventory days Q2-19 10 000 90 16 000 140 • Reported stocks ex. China sl
Slide 48: Alumina market consolidating, becoming more integrated
Alumina market consolidating, becoming more integrated EGA and Vedanta planning capacity additions Estimated net equity alumina position, in million tonnes 2000 2018 Alcoa/AWAC 4.3 Alcoa/AWAC 7.7 Vale 3.0 South 32 2.7 Glencore 2.4 Nalco 1.3 BHP Billiton 1.9 Rio Tinto 1.0 Kaiser 1.0 China 1.0 Alcan 0
Slide 49: Limited new alumina capacity ex-China expected in 2019
Limited new alumina capacity ex-China expected in 2019 Long lead times to add new capacity China (3-5) Point Comfort (2.3) Al Taweelah (2.0) Alpart (1.6) Friguia (0.6) Anrak (1.5) Recently curtailed Restarted capacity 50% Alunorte (3.2) Capacity additions during 2019 Chinese additions Atlantic curta
Slide 50: Large and concentrated bauxite resources
Large and concentrated bauxite resources Guinea stands out as a long-term source Bauxite resources billion mt Guinea 41.0 China 4.0 Vietnam Jamaica 9.2 1.2 Venezuela India 1.8 3.5 Big-league (Top 4) Mid-league (each > 1 Bt) Indonesia Less significant bauxite resources 4.0 Total bauxite resources Bra
Slide 51: China increasingly reliant on bauxite imports
China increasingly reliant on bauxite imports Guinea bauxite increasingly satisfying Chinese demand Growing need for bauxite imports amid domestic depletion Monthly Chinese bauxite imports by origin Mt Mt 300 80% 9 Other Domestic prod Forecast Guinea Alumina import 8 70% Brazil 250 Bauxite imports 7
Slide 52: Business overview
Business overview Investor presentation, July 2019
Slide 53: Hydro – Group
Hydro – Group
Slide 54: Driving sustainability / Lifting profitability
Driving sustainability Lifting profitability
Slide 55: Safe and responsible operations is a top priority
Safe and responsible operations is a top priority Leadership in HSE, CSR and compliance as a license to operate TRI Rate1) 10.3 7.0 6.0 5.4 4.0 4.1 3.9 3.8 3.7 3.4 3.4 3.5 3.5 3.2 3.0 3.1 2.9 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Jun 1) Tot
Slide 56: Hydro: a resource rich global aluminium company
Hydro: a resource rich global aluminium company Hydro underlying EBIT quarterly, NOK billion 2 725 5 692 9 656 6 425 11 215 9 069 YTD 1 434 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues • 2016: NOK 82 billion • Based in Norway, • Operating revenues involved in activities in 0.5 inv
Slide 57: Fully-integrated value chain
Fully-integrated value chain World class assets, high-end products and leading market positions Raw materials Primary aluminium production, Aluminium in products processing and energy marketing and recycling Bauxite & Alumina Energy Primary Metal Metal Markets Rolled Products Extruded Solutions • Hi
Slide 58: Strong global presence throughout the aluminium value chain
Strong global presence throughout the aluminium value chain Built on market understanding, customer closeness and competence The complete North America Europe Rolled Products aluminium company Primary Metal • High-quality bauxite and alumina Energy 10 TWh in #3 position #1 position #1 position produ
Slide 59: Hydro - the fourth largest aluminium producer outside China
Hydro - the fourth largest aluminium producer outside China Equity production in 2017 in aluminium equivalents, thousand mt Alumina 9 000 Aluminium 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Weiqao Alcoa/AWAC Rio Tinto UC Rusal Chalco Xinfa Norsk Hydro South32 Glencore/Century Hindalco Vedant
Slide 60: Strong positions across the value chain
Strong positions across the value chain Upstream Midstream Downstream Competitive cash cost position upstream Strong position in value added products1 Improving NAV1,2 in Extruded Solutions 1.2 Alumina BOC curve by company1 (2018) 100% 1.0 USD/mt 0.8 90% 0.6 80% 0.4 0.2 70% 0.0 Extrusion Extrusion B
Slide 61: Better Bigger Greener
Our mid-term goals strongly affected by Alunorte situation Ambitions Target Timeframe Progress¹ Status • Improve safety performance, strive for injury free environment TRI<2 2020 3.42 Better • • Realize ongoing improvement efforts Better Secure new competitive sourcing contracts in Norway post 2020
Slide 62: Better BNOK 3.0
Industry-leading improvement drive Better improvement program will not meet NOK 3.0 billion 2019 target due to the Alunorte situation Hydro’s improvement Hydro’s current 1) drive until 2015 improvement ambition Better BNOK 3.0 Total improvements 2009-2015: Bauxite & Alumina Rolled Products Primary M
Slide 63: A solid platform for building an even stronger Hydro
A solid platform for building an even stronger Hydro Bauxite & Alumina Energy Primary Aluminium Rolled Products • Move beyond nameplate • Mature captive growth • Enhance position in high-margin • Expand nominal automotive BiW capacity opportunities segments capacity to 200,000 t/yr • Potential for d
Slide 64: Carbon-neutral from a life-cycle perspective by 2020
Carbon-neutral from a life-cycle perspective by 2020 Hydro’s climate strategy: Carbon-neutral Integrated into business strategy in all business areas from a life-cycle perspective by 2020 In mill tonnes CO2 Climate and • Increasing energy-efficiency and reducing emissions in production processes in
Slide 65: Summary of strategic focus areas going forward
Summary of strategic focus areas going forward On-going initiatives and strategic ambitions Bauxite & Alumina Energy Primary Metal Rolled Products Extruded Solutions • B&A operations • RSK solution • Pilot spin-offs • Further growth in • Selective growth back on track • New business • Husnes restart
Slide 66: Bauxite & Alumina
»)) Hydro Bauxite & Alumina.
Slide 67: Bauxite and alumina cluster in Para, Brazil
Bauxite and alumina cluster in Para, Brazil MRN bauxite mine Paragominas bauxite mine Alunorte alumina refinery CAP alumina refinery project • Top 3 bauxite mine in the world • 100% ownership • 92% ownership • Long-term greenfield opportunity • 5% ownership • One of the world’s largest bauxite • Wor
Slide 68: Reduced production at Alunorte and Paragominas following embargo
Reduced production at Alunorte and Paragominas, following Alunorte embargo Bauxite production in Paragominas Alumina production at Alunorte Annualized million tonnes Annualized million tonnes 12.2 11.812.112.1 6.7 11.7 10.9 10.810.411.0 6.1 5.9 6.0 5.9 6.3 6.1 6.2 6.5 6.5 6.2 6.3 6.4 10.2 5.8 5.8 5.
Slide 69: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2017 • Large fixed cost base • Labor cost 16% Labor • Influenced by Brazilian wage level Energy 25% • Productivity improvements Support & infrastructure • Maintenance and consumables Maint
Slide 70: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost 2017 - USD 242 per mt Implied alumina cost1) position 2017 • Alunorte, Paragominas and external alumina sourcing for resale USD 242 per mt • Implied alumina cost 2018 – USD 358 per mt • Short alumina position, additional external sour
Slide 71: Impact on Alunorte and Paragominas cost profiles following curtailment
Impact on Alunorte and Paragominas cost profiles following 50% curtailment Alunorte Paragominas Alunorte cost split Fixed cost in BRL Paragominas cost split Fixed cost in BRL 200 150 150 100 15-20% 100 50 50 0 0 Q3 Q4 Q1 Q2 Q3 Q4 Q3 Q4 Q1 Q2 Q3 Q4 2017 2017 2018 2018 2018 2018 2017 2017 2018 2018 20
Slide 72: Strong commercial organization maximizing the value of B&A assets
Strong commercial External alumina sourcing • 2.0-2.5 million mt of external alumina sourced annually organization maximizing • 4.0 million mt sourced in 2018 to compensate for the 50% production embargo at Alunorte the value of B&A assets • Additional sourcing mainly on PAX • Long term off-take agr
Slide 73: Shift of alumina sales to index-based pricing
Shift of alumina sales to index-based pricing continues at full speed Index pricing the new norm for the industry Sales exposure to index and short term pricing1) 35% 50% 65% 75% 75% 85% index index index index index index 100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0% 2015 2016 2017 2018 2019 2020 Int
Slide 74: Energy
Energy
Slide 75: Energy is a key differentiator in the aluminium industry
Energy is a key differentiator in the aluminium industry Center of energy excellence in Hydro Bauxite Alumina Primary Rolling Extrusion ~25% ~35% ~35% Energy cost* ~10% ~8% ~50% Energy business area’s • Power sourcing • Power sourcing • Power sourcing and • Power sourcing • Power sourcing contributi
Slide 76: Hydro's global primary energy demand
Hydro’s global primary energy demand Spanning the entire aluminium value chain, all global regions and energy carriers Europe North America Power 19.8 TWh Power 2.2 TWh Natural gas 10.6 million MMBtu Natural gas 8.1 million MMBtu Middle East Natural gas 43.8 million MMBtu South America Power 4.8 TWh
Slide 77: Securing long-term competitive power sourcing for smelters
Securing long-term competitive power sourcing for smelters Unique combination of hydro- and windpower Sourcing platform for fully-owned smelters, Norway1) Sourcing platform for JVs and Neuss smelter1) TWh TWh 20 20 18 16 14 15 12 10 10 8 6 5 4 2 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Slide 78: 10 TWh normal annual power production
10 TWh normal annual power production Development in power assets last five years Power production capacity (TWh), • 2012: Holsbru and Vasstøl power plants in operation per region and reversion year • 2013: Vigeland acquisition completed, exemption from concession requirement granted • 2016: Midtlæg
Slide 79: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side TWh TWh Spot price 0-6 3) • Long-term contract 1 10 (8-12) 1) • Market pricing • Fixed annual Regulated pricing price adjustments • Market pricing 14-17 2) • Duration varies • Differe
Slide 80: Energy earnings drivers
Energy earnings drivers Underlying EBIT1) and spot price • Production and market prices strongly linked to hydrological NOK million NOK/MWh conditions 2 000 500 400 • Fairly stable annual EBIT contribution 1 500 300 1 000 • Seasonal market variations in demand and supply 200 500 100 • Occasional del
Slide 81: Primary Metal
Primary Metal
Slide 82: World-wide primary aluminium production network
World-wide primary aluminium production network Primary Metal and Metal Markets Norway, 1 125 000 tonnes 50% • Sunndal (100%): 405,000 tonnes • Årdal (100%): 195,000 tonnes • Karmøy (100%): 270,000 tonnes • Høyanger (100%): 65,000 tonnes • Husnes (100%): 190,000 tonnes Slovakia, 175 000 tonnes 8% •
Slide 83: On track with verifying world's most efficient electrolysis technology
On track with verifying world’s most climate and energy efficient electrolysis technology • Karmøy technology pilot • 48 HAL4e cells, 12.3 kWh/kg • 12 HAL4e Ultra cells, < 11.8 kWh/kg • All 60 cells in normal operation • Fine tuning of process parameters, pot tending equipment, and operational pract
Slide 84: Spin-off implementation from Karmøy technology pilot started
Spin-off implementation from Karmøy technology pilot started • Spin off elements are an integral part of improvement programs at all plants • Business cases carefully considered for each improvement step • Volume vs. energy consumption improvements part of the business case evaluations Creep ambitio
Slide 85: Unlocking new improvements through Industry 4.0 initiatives
Unlocking new improvements through Industry 4.0 initiatives 40 ongoing projects Robotics & Automation projects Trusted Data Layer Casthouse Soft Sensor incl. Trusted Data Layer Mobile Maintenance Worker Trusted Data Layer Carbon + Analytics Bring Your Own Device workbench improvements Digital Founda
Slide 86: Low carbon footprint due to renewable energy base
Low carbon footprint due to renewable energy base and industry lowest energy consumption Total emissions, in tonne CO2/t al Energy consumption in Hydro smelters1), kwh/kg al 20.0 17.5 18 18.0 16 15.0 14.8 14.4 16.0 13.9 13.5 14 12.5 12.3 14.0 11.5-11.8 12 12.0 10.0 10 10.0 8 8.0 6 6.0 4.0 4 2.0 2 0.
Slide 87: Competitive primary aluminium cash cost
Competitive primary aluminium cash cost • Primary aluminium cash cost 2018 Liquid aluminium cash cost 20183) • All-in implied primary aluminium cash cost1) USD 2 175 per mt • LME implied primary aluminium cash cost2) USD 1 825 per mt • Alumina 4% Alumina • Alumina prices for 2018 heavily affected by
Slide 88: Metal Markets
Metal Markets
Slide 89: Strong position in value-added casthouse products
Strong position in value-added casthouse products • Capitalizing on value-added Leading global position casthouse products portfolio Extrusion ingot Unique primary and 1.6 million mt recycling capacity network • Extensive multi-sourcing system including fully- and part-owned Leading global position
Slide 90: Market-driven expansion in recycling
Market-driven expansion in recycling Developing and investing in capacity and solutions Targeting 40% increase Targeting 40% increase in Lucé remelter in RFA Sales post-consumer scrap usage Azuqueca expansion upgrade completed RFA sales for EI remelters, in mt Post-consumer scrap usage, in mt 400 62
Slide 91: Pricing of value-added products
Pricing of value-added products Smelter Intermediate product Casthouse Aluminium Standard ingot Value added products Extrusion ingot Foundry alloy Sheet ingot Wire rod Traded on LME • US Midwest - 1020 • Extrusion Ingot – Priced above standard ingot US (in cent per pound) • Foundry Alloy – Priced ab
Slide 92: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and inventory • Revenue impact – volume and product premiums valuation effect, NOK million1) above LME 400 • Cost impact • Scrap and standard ingot premiums above LME 350 • Raw material mix 300 • Freight cost – pro
Slide 93: Rolled Products
_—. Rolled Products
Slide 94: Hydro Rolled Products
Hydro Rolled Products Strong European production base and global sales force ~1 million tonnes of flat rolled Europe The Americas products per year Holmestrand Karmøy • Unique integrated aluminium cluster • Dedicated smelter Hamburg • World’s largest rolling mill Neuss • Dedicated conversion mills A
Slide 95: Major flat rolled products producer in Europe
Major flat rolled products producer in Europe • World leader in high-end products foil and litho External sales in tonnages 2018 • Alunorf (JV 50%) – world’s largest rolling mill Total 951 kT • Grevenbroich plant – world’s largest multi-product finishing mill 15% 10% Foil • High-grading product port
Slide 96: Strong positions in rolled products market segments
Strong positions in rolled products market segments Portfolio high-grading and strong focus on quality and service as key elements for success Automotive Foil Beverage can Lithography Special products Ambition Gain No.2 position Strengthen global No. 1 Grow into No.2 position Strengthen global Stren
Slide 97: Doubling of automotive share with ramp-up of Automotive line 3
Doubling of automotive share with ramp-up of Automotive line 3 Automotive to support high-grading ambitions Sales by segment 2010 2018 2022 11% 18% 23% 8% 16% 21% Auto Can Europe Can overseas Litho Foil Special 97
Slide 98: Rolled Products earnings drivers
Rolled Products earnings drivers Underlying EBIT per tonne, NOK • Contract structure • Margin business based on conversion price 1 400 • LME element passed on to customers 1 200 • Range from spot contracts to multi-year contracts 1 000 • High share of fixed costs - volume sensitive 800 600 • Annual
Slide 99: Extruded Solutions
») tydro Extruded. ~ w@
Slide 100: Extruded Solutions – #1 in the global aluminium extrusion industry
Extruded Solutions – #1 in the global aluminium extrusion industry Present in ~40 countries 22 400 people 1) 1.4 Million mt sales2) 1) As of end-2016 2) 2018 100
Slide 101: The global extrusion champion – worldwide reach, local presence
The global extrusion champion – worldwide reach, local presence Clear leader in a fragmented industry where closeness to customers and markets are key success factors Unrivalled position as #1 extrusions provider globally Customers in diversified end-markets Extrusion sales volume (2018), in thousan
Slide 102: Organized in four business units to maximize synergies
Organized in four business units to maximize synergies across units 22,700 highly competent people across the world, total turnover of BNOK 64 Extrusion Europe Extrusion North America Precision Tubing Building Systems • Market leader focusing on • Uniquely positioned as the only • Technology leader
Slide 103: Successful value-over-volume strategy
Successful value-over-volume strategy Targeting the high-tech, high-competence segments of extrusion Simplify and Deliver value-added Grow to lift margins collaborate to our customers and profitability Simplification drive to Higher share of value-added solutions Lifting margins and creating increas
Slide 104: Proven track-record of value creation with further potential
Proven track-record of value creation with further potential Last 12 months underlying EBITDA Net added value1) per kg 147 in MNOK (NOK, indexed to 2014) 139 4,500 136 4,000 125 3,500 3,000 2,500 100 100 100 2,000 97 98 98 1,500 1,000 500 2014 2015 2016 2017 2018 0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 1
Slide 105: Extruded Solutions earnings drivers
Extruded Solutions earnings drivers Underlying EBITDA per tonne1), NOK • Extruded Solutions aims to deliver minimum 10% average annual underlying EBIT growth over the next three years2) 4000 • Contract structure 3500 • Margin business based on conversion price • LME element passed on to customers 30
Slide 106: Additional information
Additional information Investor presentation, July 2019
Slide 107: Prudent financial framework
Prudent financial framework Managing industry cyclicality, driving long-term shareholder value Lifting cash flow Financial strength Disciplined Predictable dividend Effective risk potential and flexibility capital allocation policy management Improving efficiency, Investment grade credit Long-term s
Slide 108: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe 2018 status Better improvement ambition 3.0 BNOK 2016-2019 (0.6) BNOK 2018 Dividend payout ratio 40% of net income Over the cycle ~57%1) 2014-2018 FFO/adjusted net debt 2) > 40% Over the cycle 44% 20185)
Slide 109: Shareholder and financial policy / Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns compared to • Hedging strategy alternative investments in comparable companies • Fluctuating with the market: primarily exposed to LME and USD • Dividend policy • Volatility mitigated by strong
Slide 110: 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 BNOK <55% 32 % 33 % 24 % 26 % 26 % 22 % 20 % 3) 19 % Dec 31, 2018 (11.7) (4.0) (5.6) (8.8) (30.1) 14 % 11 % Restated 3) 2009 2
Slide 111: Growth capex focused on incremental growth and productivity improvements
Growth capex focused on incremental growth and productivity improvements Majority of sustaining capex allocated upstream NOK billion ~10-10.5 • Sustaining projects for 2018-2021: • Pipeline replacement in B&A 8.8 ~8.5-9.5 • PM rectifiers and asset integrity Albras 7.9 7.8* • Smelter relining 7.2 • A
Slide 112: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10% Currency sensitivities +10% NOK million Sustainable effect: 3 600 NOK million USD BRL EUR 2 500 UEBIT 3 680 (1 110) (240) One-off reevaluation effect: UEBIT Underlying Net Income 3) Financial items 40 800 (3
Slide 113: 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 with one month lag • Realized alumina price lags PAX by one month 1 600 Cost impact Bauxite 200 • ~2.45 tonnes bauxite per tonne alumina •
Slide 114: 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 • Realized premium lags market premium by ~2-3 months 3 170 Cost impact Alumina 290 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 115: Items excluded from underlying results - 2019
Items excluded from underlying results - 2019 NOK million (+=loss/()=gain) Q1 2019 Q2 2019 Alunorte agreements - provision Bauxite & Alumina 35 14 Total impact Bauxite & Alumina 35 14 Unrealized derivative effects on LME related contracts Primary Metal 122 (15) Unrealized effects on power contracts
Slide 116: Items excluded from underlying results - 2018
Items excluded from underlying results - 2018 NOK million (+=loss/()=gain) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Year 2018 Alunorte agreements - provision Bauxite & Alumina - - 519 - 519 Total impact Bauxite & Alumina - - 519 - 519 Unrealized derivative effects on LME related contracts Primary Metal (114)
Slide 117: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 685 493 153 415 3 704 2 282 Primary Metal 900 1 486 1 298 1 377 823 755 861 (677) (771) (604) 5 06
Slide 118: Operating segment information
Operating segment information EBIT NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 166 493 118 401 3 704 1 763 Primary Metal 797 1 538 1 282 1 112 917 776 954 (524) (919) (554) 4 729 2 123 Met
Slide 119: Operating segment information
Operating segment information Total revenue NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 5 911 5 858 5 612 8 040 6 309 6 877 6 749 8 613 4 866 5 745 25 421 28 548 Primary Metal 8 641 9 575 8 958 9 291 10 170 10 083
Slide 120: Operating segment information
Operating segment information Internal revenue NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 2 528 2 441 2 320 2 944 2 800 3 237 3 733 4 381 2 496 3 052 10 234 14 152 Primary Metal 6 941 7 631 7 093 7 223 8 152 8 090
Slide 121: Operating segment information
Operating segment information Return on average capital employed 1) (RoaCE) Reported RoaCE Underlying RoaCE 2018 2017 2016 2015 2014 2013 2012 2018 2017 2016 2015 2014 2013 2012 Bauxite & Alumina 4.3% 8.5% 2.7 % 5.3 % (0.1) % (2.5) % (1.5) % 5.5% 8.5% 2.8 % 5.3 % (0.1) % (2.2) % (1.6) % Primary Meta
Slide 122: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 577 586 644 679 630 573 509 384 605 589 2 486 2 095 Primary Metal 492 505 504 526 546 575 583 548
Slide 123: Income statements
Income statements NOK million Q2 2019 Q2 2018 Q1 2019 First half 2019 First Half 2018 Year 2018 Revenue 39 176 41 254 37 583 76 759 81 225 159 377 Share of the profit (loss) in equity accounted investments 47 286 3 50 506 765 Other income, net 139 184 183 322 339 772 Total revenue and income 39 362
Slide 124: Balance sheets
Balance sheets NOK million Jun 30, 2019 Mar 31, 2019 Dec 31 20181) Sep 30 2018 Jun 30 2018 Mar 31 2018 Cash and cash equivalents 10 590 6 099 5 995 6 846 5 682 9 371 Short-term investments 1 090 1 274 975 1 176 1 136 1 031 Accounts receivable 23 186 23 542 20 744 21 727 23 442 22 785 Inventories 22
Slide 125: Operational data
Operational data Bauxite & Alumina Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Alumina production (kmt) 1 523 1 576 1 605 1 693 1 277 829 821 786 805 932 6 397 3 712 Sourced alumina (kmt) 600 645 667 610 900 985 907 1 163 711 704 2 522 3 954 To
Slide 126: Operational data
Operational data Metal Markets Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Remelt production (1 000 mt) 143 152 136 137 150 153 126 135 131 139 568 563 Third-party Metal Products sales (1 000 mt) 79 80 74 86 70 77 83 73 70 83 319 304 Metal Prod
Slide 127: Extruded Solutions, information by business area
Extruded Solutions, information by business area Historical Sapa information (100% basis) Q1 2017 – Q3 2017 Extruded Solutions, fully consolidated in Hydro since Q4 2017 1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Precision Tubing 2017 2017 2017 2017 2018 2018 2018 2018 2018 2019
Slide 128: Investor Relations in Hydro
Investor Relations in Hydro Next events Investor Day Stian Hasle Head of Investor Relations September 24, 2019 t: +47 97736022 e: stian.hasle@hydro.com Third quarter results Olena Lepikhina Investor Relations Officer October 23, 2019 t: +47 96853035 e: olena.lepikhina@hydro.com For more information
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