Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q1 2019 Earnings Presentation
136 slides from Norsk Hydro Asa's earnings presentation, June 2019
Slide 1: First quarter 2019 Investor presentation
First quarter 2019 Investor presentation June 2019
Slide 2: Table of contents and cautionary note
Table of contents First 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 concernin
Slide 3: First quarter results 2019
First quarter results 2019 Investor presentation, June 2019
Slide 4: Driving sustainability, lifting profitability
Driving sustainability Lifting profitability
Slide 5: Strong foundation
Strong foundation • Strong company culture and competence • Efficient operations and quality products • Attractive assets across the value chain • Leading position in sustainability and innovation 5
Slide 6: We believe in aluminium
We believe in aluminium Building block of modern society Transportation and Packaging and Buildings and Applications and automotive recycling construction end-user products 6
Slide 7: Challenging period for Hydro and the industry
Challenging period for Hydro and the industry Extraordinary events Industry and Hydro not delivering Increasing political unpredictability satisfactory returns LME in USD 2500 2400 2300 2200 2100 2000 1900 1800 1700 1600 1500 2011 2012 2013 2014 2015 2016 2017 2018 2019 Source: Nasdaq 7
Slide 8: Immediate actions to improve performance and cash generation
Immediate actions to improve performance and cash generation • Safe and efficient operations - always key priority • Return Alunorte, Paragominas and Albras to full production and operational excellence • Rolled Products restructuring and strategic review • New improvement efforts across all busines
Slide 9: First quarter highlights
First quarter highlights • Underlying EBIT of NOK 559 million • Production embargos at Alunorte lifted by Federal Court – Alunorte, Paragominas and Albras resuming production • Financial impact of cyber attack NOK 300-350 million in Q1 – main impact in Extruded Solutions • Strong performance in Extr
Slide 10: Operations in Pará moving towards normal production
Operations in Parà moving towards normal production Status • Federal court in Belem, Brazil, lifted production embargoes May 15 and 20 – allowing full value chain in Pará to move towards normal production • Federal court decision to keep embargos on the new bauxite residue disposal area (DRS2) Opera
Slide 11: Going forward
Going forward • 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 platform – timing for embar
Slide 12: Status update cyber attack
Status update cyber attack Operational and financial impact • Overall financial impact for Q1 NOK 300-350 million • Of which Extruded Solutions NOK 250-300 million • Production running close to normal in Extruded Solutions, with value creation approaching 100% • Production running as normal in other
Slide 13: Global aluminium market in surplus in Q1 2019
Global aluminium market in surplus in Q1 2019 Continued deficit in world outside China, surplus 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) Jan-12 F
Slide 14: 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 (mill t.) 0-2 % (‘000t) 1 000 2-3 % ~29.7 – 30.2 Production ~28.2 – 28.5 Demand 0 China 2019 (mill t.) -1 000 1-3 % 2-4 % Production ~36.5 – 37
Slide 15: Competitive advantage China
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 140 600 1 000 120 800 500 Competitive advantage China 12000 100 600 400 80 400 8000 300 6
Slide 16: Downstream demand slowing in Europe, steady in North America
Downstream demand slowing in Europe, continued steady 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 automotive Packaging Indus
Slide 17: Q1 vs Q4: upstream costs down, stable margins
Q1 vs Q4: upstream costs down, stable margins Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) USD/mt 4) 54 50 50 375 2 350 62 2 200 2 075 84 287 409 311 1 7255) 2 0005) 1 8505) Q1 2018 Q4 2018 Q1 2019 Q1 2018 Q4 2018 Q1 2019 371 463 373 Price 2) 2 435 2 403 2 256 All
Slide 18: Rolled Products: Stable sales volumes Q1 2019 vs Q1 2018
Rolled Products: Stable sales volumes Q1 2019 vs Q1 2018 Lower foil sales offset by higher sales in automotive and general engineering Q1 2019 vs Q1 2018 Q1 2019 vs Q4 2018 Sales volume 14% 13% Growth in % 12% 9% 4% 4% 0% -6% Can & foil Special products Can & foil Special products Lithography & Tota
Slide 19: 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 (Q1 2019) * Net Added Value: calculated as
Slide 20: Higher power prices on hydrological deficit and high CO2
Higher power prices compared to last year on hydrological deficit and high CO2 prices Nordic System and German Power Price Nordic Hydrological Balance EUR/MWh TWh +/- normal 60 20 15 50 10 5 40 0 30 -5 -10 20 -15 -20 10 -25 0 -30 2018-Q1 2018-Q2 2018-Q3 2018-Q4 2019-Q1 Q1-2018 Q2-2018 Q3-2018 Q4-201
Slide 21: Results down on volume, price and raw material cost
Results down on volume, price and raw material cost Q1 2019 vs Q1 2018 NOK billion 3.1 (1.2) (0.9) (0.6) 0.6 (0.5) 0.6 UEBIT Q1 2018 Raw material Realized Upstream volume Currency Other incl. Energy UEBIT Q1 2019 and fixed costs aluminium price 21
Slide 22: Results flat as lower raw material costs offset lower prices
Results flat as lower raw material costs and downstream seasonality offset lower prices Q1 2019 vs Q4 2018 NOK billion (0.3) 0.5 0.6 0.6 (1.0) 0.6 UEBIT Q4 2018 Realized aluminium Raw material costs Downstream seasonality Other incl. Energy UEBIT Q1 2019 and alumina price 22
Slide 23: Key financials
Key financials Year NOK million Q1 2019 Q1 2018 Q4 2018 2018 Revenue 37 583 39 971 38 386 159 377 Underlying EBIT 559 3 147 534 9 069 Items excluded from underlying EBIT 539 (155) 356 547 Reported EBIT 20 3 301 178 8 522 Financial income (expense) 6 (475) (721) (2 060) Income (loss) before tax 26 2
Slide 24: Items excluded from Underlying EBIT
Items excluded from Underlying EBIT Excluded a loss of 539 MNOK from Underlying EBIT Year NOK million Q1 2019 Q1 2018 Q4 2018 2018 Underlying EBIT 559 3 147 534 9 069 Unrealized derivative effects on LME related contracts (200) 114 (22) (39) Unrealized derivative effects on power and raw material co
Slide 25: Bauxite & Alumina
Bauxite & Alumina Results down on production restrictions and higher raw material costs Key figures Q1 2019 Q1 2018 Q4 2018 Alumina production, kmt 805 1 277 786 Total alumina sales, kmt 1 423 2 071 1 983 Realized alumina price, USD/mt 373 371 463 Implied alumina cost, USD/mt 311 287 409 Bauxite pro
Slide 26: Primary Metal
Primary Metal Results down on lower prices and higher raw material costs Key figures Q1 2019 Q1 2018 Q4 2018 Primary aluminium production, kmt 485 514 490 Total sales, kmt 534 578 503 Realized LME price, USD/mt 1 912 2 140 2 041 Realized LME price, NOK/mt 16 291 16 929 17 038 Realized premium, USD/m
Slide 27: Metal Markets
Metal Markets Results up on stronger performance from remelters and commercial activities Key figures Q1 2019 Q1 2018 Q4 2018 Remelt production, kmt 131 150 135 Metal products sales, kmt 1) 683 745 682 Underlying EBITDA, NOK million 219 201 301 Underlying EBIT excl currency and inventory valuation 2
Slide 28: Rolled Products
Rolled Products Lower results mainly due to negative Neuss contribution Key figures Q1 2019 Q1 2018 Q4 2018 External sales volumes, kmt 246 245 220 Underlying EBITDA, NOK million 384 456 133 Underlying EBIT, NOK million 138 232 (113) Results Q1 19 vs Q1 18 • Stable results from the rolling mills: Un
Slide 29: Extruded Solutions
Extruded Solutions Strong performance negatively affected by the cyber attack Key figures Q1 2019 Q1 2018 Q4 2018 External sales volumes, kmt 333 362 318 Underlying EBITDA, NOK million 1 099 1 155 645 Underlying EBIT, NOK million 593 734 202 Results Q1 19 vs Q1 18 • Estimated negative effect of the
Slide 30: Energy
Energy Results up on higher prices and improved commercial performance Key figures Q1 2019 Q1 2018 Q4 2018 Power production, GWh 2 553 2 433 2 822 Net spot sales, GWh 770 763 1 166 Southwest Norway spot price (NO2), NOK/MWh 468 361 455 Underlying EBITDA, NOK million 583 339 566 Underlying EBIT, NOK
Slide 31: Other and Eliminations
Other and Eliminations Underlying EBIT, NOK million Q1 2019 Q1 2018 Q4 2018 Other (307) (207) (299) Eliminations 46 368 154 Other and Eliminations (261) 161 (145) 31
Slide 32: Net debt increased in Q1 2019
Net debt increased in Q1 2019 Affected by the new IFRS16 Leases standard NOK billion Net cash flow from operations NOK 0.8 billion (8.7) 0.1 (3.1) (1.9) 2.6 (1.6) (11.7) 0.5 (12.1) End Q4 2018 IFRS16-Leases* End Q4 2018 Underlying EBITDA Operating capital Taxes and other Investments/divestments Othe
Slide 33: Adjusted net debt up in Q1
Adjusted net debt up in Q1 Driven by increased net debt position Mar 31 Dec 31 Dec 31 Sep 30 NOK billion 2019 2018 2018 2018 Restated1) Cash and cash equivalents 6.1 6.0 6.0 6.8 Short-term investments 1.3 1.0 1.0 1.2 Short-term debt (8.9) (9.4) (8.5) (6.6) Long-term debt (10.6) (9.3) (7.1) (7.9) Net
Slide 34: 2019 priorities
2019 priorities • Safe and efficient operations • Ramp up Alunorte, Paragominas and Albras, resume DRS2 operations • Rolled Products restructuring and strategic review • New improvement drive • Focus on cash 34
Slide 35: Market
Market Investor presentation, June 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% 9% 2% 2% 11% 14% 27% 1% 30% 6% 24% 48% 16% 11% 8% 25% 7% 18% 34% Transport Electrical Rolled products Wire & Cable China Africa Construction Consumer durab
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 higher in 2018
Global cost curve higher in 2018 driven by raw material cost increase Primary metal market CRU BOC curve by smelter (2018) 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 Jan 2019 Source: Republished under
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 increasing in Thousand tonnes Inventory days Thousand tonnes Inventory days Q1-19 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, June 2019
Slide 53: Hydro – Group
Hydro – Group
Slide 54: Engineering the future, light-weighting our planet
Engineering the future, light-weighting our planet • Combining natural resources and competence to engineer lighter, smarter solutions to current problems and future needs • Leading the transition towards the low-carbon society within global aluminium • Lifting the bar for corporate responsibility a
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 3.2 3.1 3.2 2.9 3.0 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Apr 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 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues involved in activities in • 2016: NOK 82 billion • Based in Norway, • Operating revenues 0.5 involved in a
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: Differentiating through the integrated model
Hydro – differentiating through the integrated model Bauxite Alumina Energy Primary Metal Rolled Products Extrusion Recycling Source: graphical illustration based on company websites/reports, CRU 58
Slide 59: 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 60: 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 61: 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 62: Better, Bigger, Greener
Better, Bigger, Greener Hydro’s aspiration for higher value creation Better Bigger Greener Raise performance and Expand the use of aluminium Lead the transition towards improve customer offering and strengthen Hydro’s platform sustainable solutions for growth • Extend Hydro’s leadership in • Advocat
Slide 63: Mid-term goals strongly affected by Alunorte situation
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 64: Better – Industry-leading improvement drive
Better – 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
Slide 65: Bigger – A solid platform for building an even stronger Hydro
Bigger – 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 • Potent
Slide 66: Greener – Carbon-neutral from a life-cycle perspective by 2020
Greener – 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 pro
Slide 67: 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 68: Bauxite & Alumina
»)) Hydro Bauxite & Alumina.
Slide 69: Bauxite and alumina cluster in Pará, 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 70: Reduced production at Alunorte and Paragominas
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 71: 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 72: 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 73: 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 74: Strong commercial organization maximizing 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 75: 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 76: Significant negative curtailment effects on Better improvement program
Significant negative curtailment effects on Better improvement program Will not reach 2019 target due to the Alunorte situation • 50% production at Alunorte and Paragominas with Bauxite & Alumina Better program progress strong negative impact on improvement program In BNOK 2016-2018E BNOK -1.0 1.4 1
Slide 77: Energy
Energy
Slide 78: 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 79: 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 Power 19.8 TWh North America Natural gas 10.6 million MMBtu Power 2.2 TWh Natural gas 8.1 million MMBtu Middle East Natural gas 43.8 million MMBtu South America Power 4.8 TWh
Slide 80: 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 81: 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 82: 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 adjustments price • Market pricing 14-17 2) • Duration varies • Differe
Slide 83: 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 • Fairly stable annual EBIT contribution 400 1 500 • Seasonal market variations in demand and supply 300 1 000 • Occasional delink between
Slide 84: Primary Metal
Primary Metal
Slide 85: 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 86: Improvement program in 2018 impacted by Alunorte situation
Improvement program in 2018 impacted by Alunorte situation Primary Metal keeps focus on continuous improvements Primary Metal Better program progress Long history of improvement efforts with BNOK 2,6 In BNOK delivered in 2010-2015 1.0 1.0 2018 Improvement program influenced by: 0.9 • 50% curtailment
Slide 87: Verifying world's most climate and energy 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 88: 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 89: 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 90: 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 91: 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 92: Metal Markets
Metal Markets
Slide 93: 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 94: 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 95: 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 96: 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 250 • Cost impact • Scrap and standard ingot premiums above LME 200 • Raw material mix • Freight cost – proximi
Slide 97: Rolled Products
_—. Rolled Products
Slide 98: 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 99: 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 100: 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 101: 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 101
Slide 102: Better Rolled Products improvement ambition
Better Rolled Products improvement ambition Original target delayed by one year due to operational issues Better • Original target 0.9 BNOK by 2019 delayed to 2020 Improvement ambition Rolled Products Rolled Products • 0.7 BNOK targeted by 2019 BNOK 0.9 BNOK by 2020 • Better RP Improvements driven b
Slide 103: 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 104: Extruded Solutions
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Slide 105: 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 105
Slide 106: 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 107: Organized in four business units
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 108: 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 109: 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 110: 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 111: Additional information
Additional information Investor presentation, June 2019
Slide 112: 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 113: 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 114: 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 115: 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 % 19 % Sep 30, 2018 (6.5) (5.5) (5.6) (6.4) (24.0) 14 % 11 % 3) 2009 2010 2011 2012
Slide 116: Growth capex focused on incremental growth and productivity
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 117: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Sensitivities affected by the Alunorte and Albras curtailments Sensitivities with full production Sensitivities with 50% production Aluminium price sensitivity +10%, NOK million Aluminium price sensitivity +10%, NOK million 3 640 3 270 2 55
Slide 118: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities affected by the Alunorte curtailment Sensitivities with full production Sensitivities with 50% production Annual sensitivities on underlying EBIT if +10% in price Annual sensitivities on underlying EBIT if +10% in price NOK million NOK million 1 630 570
Slide 119: Primary Metal sensitivities
Primary Metal sensitivities Sensitivities affected by the Albras curtailment Sensitivities with full production Sensitivities with 50% production Annual sensitivities on underlying EBIT if +10% in price Annual sensitivities on underlying EBIT if +10% in price NOK million NOK million 3 200 2 830 250
Slide 120: Business area sensitivity parameters
Business area sensitivity parameters Bauxite & Alumina Primary Metal Revenue impact Revenue impact • ~14% of 3-month LME price per tonne alumina with one month lag • Realized price lags LME spot by ~1-2 months • Realized alumina price lags PAX by one month • Realized premium lags market premium by ~
Slide 121: Items excluded from underlying results - 2019
Items excluded from underlying results - 2019 NOK million (+=loss/()=gain) Q1 2019 Alunorte agreements - provision Bauxite & Alumina 35 Total impact Bauxite & Alumina 35 Unrealized derivative effects on LME related contracts Primary Metal 122 Unrealized effects on power contracts Primary Metal 27 To
Slide 122: 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 123: 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 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 685 493 153 3 704 2 282 Primary Metal 900 1 486 1 298 1 377 823 755 861 (677) (771) 5 061 1 762 Metal Mark
Slide 124: 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 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 166 493 118 3 704 1 763 Primary Metal 797 1 538 1 282 1 112 917 776 954 (524) (919) 4 729 2 123 Metal Markets (13) 28
Slide 125: 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 Year 2017 Year 2018 Bauxite & Alumina 5 911 5 858 5 612 8 040 6 309 6 877 6 749 8 613 4 866 25 421 28 548 Primary Metal 8 641 9 575 8 958 9 291 10 170 10 083 9 984 9 196 9
Slide 126: 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 Year 2017 Year 2018 Bauxite & Alumina 2 528 2 441 2 320 2 944 2 800 3 237 3 733 4 381 2 496 10 234 14 152 Primary Metal 6 941 7 631 7 093 7 223 8 152 8 090 7 672 7 691 7
Slide 127: 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 128: 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 Year 2017 Year 2018 Bauxite & Alumina 577 586 644 679 630 573 509 384 605 2 486 2 095 Primary Metal 492 505 504 526 546 575 583 548 619 2 026 2
Slide 129: Income statements
Income statements NOK million Q1 2019 Q1 2018 Q4 2018 Year 2018 Revenue 37 583 39 971 38 386 159 377 Share of the profit (loss) in equity accounted investments 3 221 30 765 Other income, net 183 155 264 772 Total revenue and income 37 769 40 346 38 680 160 913 Raw material and energy expense 25 136
Slide 130: Balance sheets
Balance sheets NOK million Mar 31, 2019 Dec 31 20181) Sep 30 2018 Jun 30 2018 Mar 31 2018 Dec 31 20171) Cash and cash equivalents 6 099 5 995 6 846 5 682 9 371 11 828 Short-term investments 1 274 975 1 176 1 136 1 031 1 311 Accounts receivable 23 542 20 744 21 727 23 442 22 785 19 983 Inventories 25
Slide 131: Operational data
Operational data Bauxite & Alumina Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Year 2017 Year 2018 Alumina production (kmt) 1 523 1 576 1 605 1 693 1 277 829 821 786 805 6 397 3 712 Sourced alumina (kmt) 600 645 667 610 900 985 907 1 163 711 2 522 3 954 Total alumina sale
Slide 132: Operational data
Operational data Metal Markets Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Year 2017 Year 2018 Remelt production (1 000 mt) 143 152 136 137 150 153 126 135 131 568 563 Third-party Metal Products sales (1 000 mt) 79 80 74 86 70 77 83 73 70 319 304 Metal Products sales excl
Slide 133: 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 in 2018 and Q4 2017 1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Precision Tubing 2017 2017 2017 2017 2018 2018 2018 2018 2018 2019
Slide 134: 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 135: Investor Relations in Hydro
Investor Relations in Hydro Next events Second quarter results Stian Hasle Head of Investor Relations July 23, 2019 t: +47 97736022 e: stian.hasle@hydro.com Olena Lepikhina Investor Day Investor Relations Officer t: +47 96853035 September 24, 2019 e: olena.lepikhina@hydro.com Aud Helen Halvorsen Inv
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