Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (September 2019)
84 slides from Norsk Hydro Asa's investor day presentation, Sep 24, 2019
Slide 1: Investor Day 2019
Investor Day 2019 Lifting profitability, driving sustainability Oslo, September 24, 2019
Slide 2: Contents
Contents 6 Hydro – Lifting profitability, driving sustainability 8 Lifting profitability 28 Driving sustainability 39 Strategic priorities 46 Financial priorities – Lifting cash flows and returns 48 Lifting cash flows 55 Lifting returns 72 Additional information 2
Slide 3: Safety information
Safety information Fire Hose Fire Panic Button Emergency Exit Public Services Fire: 110 Police: 112 Ambulance: 113 Investor Day presentation
Slide 4: 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 5: Agenda
Agenda 07:30 – 08:00 Light breakfast and registration 08:00 – 08:05 Welcome 08:05 – 09:15 Hydro 09:15 – 09:35 Q&A 09:35 – 09:55 Break 09:55 – 10:40 Financial priorities 10:40 – 11:00 Q&A 11:00 – 12:00 Lunch 5
Slide 6: Lifting profitability, driving sustainability
Lifting profitability, driving sustainability Investor Day – Oslo, September 24, 2019 Hilde Merete Aasheim President & CEO
Slide 7: Lifting profitability, driving sustainability: Mobilizing for change
Lifting profitability, driving sustainability Mobilizing for change • BNOK 6.4 improvement ambition • Restructuring of Rolled Products • New capital allocation framework • 10% RoaCE target over the cycle • Cut CO2 emissions by 30% by 2030 10% target is Underlying Return on Average Capital Employed 7
Slide 8: Lifting profitability
Lifting profitability Investor Day 2019
Slide 9: Current markets affected by volatility and low visibility
Current markets affected by volatility and low visibility 9
Slide 10: Immediate measures
Immediate measures Launched May 8 to improve performance and cash generation • Safe, compliant and efficient operations – always top priority • Return Alunorte, Paragominas and Albras to full production and operational excellence • Rolled Products restructuring and strategic review • New improvement
Slide 11: Progress towards lifting final embargo in Brazil
Progress towards lifting final embargo in Brazil… Successful ramp-up at Alunorte Ramp-up process One of two embargos on DRS2 lifted Alunorte production in ramp-up period, daily production annualized in million mt • DRS2 embargo under civil lawsuit lifted on September 20 • Alunorte still subject to e
Slide 12: …costs are improving…
…costs are improving… Q417 cost levels achievable at normalized market prices and full production Bauxite & Alumina Primary Metal Alumina Business Operating Cost curve* (2019) Smelter Business Operating Cost curve* (2019) @50 @100% Alunorte Hydro PM • Competitively positioned on the global cost curv
Slide 13: …and strengthening long-term framework
…and strengthening long-term framework • Continued safe ramp-up • Building trust in local communities through community meetings and dialogue • Fully committed to deliver on obligations under technical and social agreement (TAC and TC) – deliveries progressing according to plan 13
Slide 14: Significant improvement potential identified in Rolled Products
Significant improvement potential identified in Rolled Products Improvements to be realized while continuing strategic review Unsatisfactory returns in Rolled Products Restructuring of Rolled Products Underlying Roace in % Underlying EBIT in MNOK 2013 2014 2015 2016 2017 2018 9 1200 BNOK 0.9 BNOK 0.
Slide 15: Rolled Products - strong European production base and global sales force
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 • Neuss • Alunorf Hamburg • Grevenbroich Neuss Alunorf • Casthouse network and integrated Grevenb
Slide 16: Several attractive segments within rolling industry
Several attractive segments within rolling industry – Hydro targets to shift portfolio towards auto and can Cans Automotive General Engineering Lithographic sheet Packaging foil Aluminium can body stock Rolled aluminium for Solutions for buildings and Lithographic strip for Broad variety of products
Slide 17: Strong improvement initiatives within organizational and operational efficiency and commercial excellence
Strong improvement initiatives within organizational and operational efficiency and commercial excellence Organisational efficiency Operational efficiency Commercial excellence • Total planned reduction of • Procurement • Product mix and portfolio personnel – 735 FTE’s1 optimization • Liquid metal c
Slide 18: Restructuring and improvement initiatives in Rolled Products
Restructuring and improvement initiatives in Rolled Products Targeting BNOK 0.9 improvements 2023 vs 2018, more than 40% to be realised by 2021 Rolled Products improvements per year and category In MNOK 900 Commercial 800 excellence 700 Operational 600 efficiency 500 400 300 Organisational efficienc
Slide 19: Targeting BNOK 0.9 net operating capital reduction
Targeting BNOK 0.9 net operating capital reduction Targeting BNOK 0.9 net operating capital release by end-2021 vs end-2018 • Of which BNOK 0.7 by end-2020 Reduction will be achieved by reducing inventory levels • Improved planning process and optimized material flow • Reduced raw materials supply •
Slide 20: Rolled Products roadmap to profitability
Rolled Products roadmap to profitability Improvements to be realized while continuing strategic review 0.9 BNOK 0.9 BNOK EBIT Operating capital ~8% RoACE improvement improvement RoaCE1 potential 7-8% CoC2 8% 2% URoaCE 2018 Improvement potential URoaCE potential after improvements 1) Excluding Neuss
Slide 21: Launch of new and ambitious improvement program
Launch of new and ambitious improvement program Targeting 3.7 BNOK in improvements on top of 2.7 BNOK in curtailment reversal Improvements by year, in NOK billion By business area 5.5 BNOK 2019-21 0.9 BNOK 2022-23 0,2 6,4 0,4 0,3 0,7 0,5 2,0 1,5 3,7 3,5 1,0 6.4 BNOK 0,8 2023 2,7 0,7 0,9 2,7 0,5 0,7
Slide 22: Revised operating model with leaner staff functions and strong business areas
Revised operating model with leaner staff functions and strong business areas A number of initiatives to streamline and strengthen support functions Fit-4-Future Revised operating model New Corporate Development function established Corporate center 0.5 BNOK improvement 2023 vs 2018 250 FTE reductio
Slide 23: Total measures with significant cash flow contribution
Total measures with significant cash flow contribution Large share being delivered in 2019-2021 Improvement ambition Rolled Products Net Operating Short-term sustaining Incl reversal of curtailments restructuring Capital release capex reduction • Cost and efficiency initiatives, • Target to reach 52
Slide 24: Profitability
Profitability RoaCE > 10% Over the cycle All business areas RoaCE > Cost of Capital Over the cycle Underlying RoaCE
Slide 25: Different strategic modes for the business areas
Different strategic modes for the business areas A robust and profitable industry leader, built on innovation and sustainability Safe, compliant and efficient operations – The Hydro Way Business area Bauxite & Alumina Primary / Metal Markets Energy Rolled Products Extruded Solutions Strategic mode S
Slide 26: Differentiated capital allocation
Differentiated capital allocation Safe, compliant and efficient operations – The Hydro Way Business area Bauxite & Alumina Primary / Metal Markets Energy Rolled Products Extruded Solutions Strategic mode Sustain and improve* Selective growth Strategic review Selective growth Selected growth Impact o
Slide 27: Hydro's roadmap to targeted profitability
Hydro’s roadmap to targeted profitability Market scenarios 13 % RoaCE target >10% over the cycle 10 % 10 % 9% 7% 9% 4% 8% 7% 6% URoaCE 1 Improvement potential 2 URoaCE after URoacE@spot URoaCE@forward URoaCE@CRU 2018 adjusted improvements with LME 1900 USD/t 2018 adjusted margins 1 PAX 330 USD/t USD
Slide 28: Driving sustainability
Driving sustainability Investor Day 2019
Slide 29: Hydro has a strong starting point
Hydro has a strong starting point The Hydro Way Lowest CO2 emissions Net carbon-neutral from a ‒ a more viable society Emissions from electrolysis, life-cycle perspective by 2020 in tonne CO2/t Al, 2019 Net emissions (life-cycle) Million mt 18.0 Direct Indirect 16.0 2.5 14.0 2.0 12.0 1.5 10.0 8.0 1.
Slide 30: Sustainability: basis for our future positioning
Sustainability: basis for our future positioning Social responsibility Environment Climate Sustainability in the marketplace: greener products portfolio 30
Slide 31: Building trust in local communities
Building trust in local communities Becoming a better neighbor in Brazil Targeted activities where we have operations Improving dialog through community meetings in Pára Our global social responsibility ambition: Empowering 500,000 people with education and skills by end of 2030 124 137 3 2017 2018
Slide 32: Tackling the industry's key environmental challenges across the value chain
Tackling the industry’s key environmental challenges across the value chain • Restoring biodiversity at our bauxite mine • Exploring more sustainable tailings management practices • Turning bauxite residue into a resource • Recovering our historical bauxite residue storage areas Targets and ambition
Slide 33: New climate strategy: Cut CO2 emissions by 30% by 2030
New climate strategy: Cut CO2 emissions by 30% by 2030 Help customers Reduce own emissions reduce their emissions Greener sourcing Greener production Greener products 33
Slide 34: Climate roadmap towards 2030 and beyond
Climate roadmap towards 2030 and beyond Innovation and technology development key enablers toward CO2-free processes Ambition to reduce own Greener energy mix at Alunorte: R&D for low or zero-carbon emissions by 10% in 2025, Key enabler for new climate technology towards 2050 30% by 2030 and environ
Slide 35: Greener products: From REDUXA 4.0 to 2.0
Greener products: From REDUXA 4.0 to 2.0 New energy mix in Alunorte important enabler to reach 2.0 From REDUXA 4.0 Towards REDUXA 2.0 by 2030 <0.6 3.4 – 4.0 kg CO2e/kg AI 1.6 0.1 Other Casting Smelting 1.4 0.1 -0.3 Casting 0.1 Smelting 2.0 kg CO2e/kg AI 0.2 PCS 1.3 Power generation Anode Alumina 0.1
Slide 36: Growing in recycling – expanding CIRCAL portfolio
Growing in recycling – expanding CIRCAL portfolio Competence, technology, integrated value chain Recycled post-consumer scrap 2014-2018* In ‘000 mt 400 350 300 250 200 150 100 50 0 2014 2015 2016 2017 2018 Primary Metal Rolled Products Extruded Solutions * Total post-consumer scrap – only a certain
Slide 37: Økern Portal
Økern Portal 37
Slide 38: Expanding the market for greener products
Expanding the market for greener products Removable Product Sticker 1. Educate ourselves and society: Reduced info What are “greener materials and products” • Lifecycle emission perspective • Low-emission primary material • Post-consumer recycled material • Design for recycling • Incentivize recycli
Slide 39: Strategic priorities
Strategic priorities Investor Day 2019
Slide 40: We believe in aluminium
We believe in aluminium Demand growth across main segments and regions Solid demand growth across main segments Global demand increasingly supplied Transport Packaging by recycled material ~3% ~3% Semis 2-3% Primary Buildings and Electrical, consumer construction durables & industrial ~2% ~2% ~2% Re
Slide 41: Demand expectations down on increased uncertainty
Demand expectations down on increased uncertainty Global primary aluminium market moving towards a balanced 2020 Market balance Inventory levels Estimated primary market balance, in thousand mt Global reported and unreported, in thousand mt Inventory days 1 000 16000 140 2019 2020 120 12000 0 100 80
Slide 42: Strategic priorities
Strategic priorities • Safety, compliance and operational excellence 1 Cost competitive asset base based on operational excellence and innovation • 1st and 2nd quartile cost in B&A and PM • Secure competitive power and raw materials • Deliver innovative solutions, build on strong customer collaborat
Slide 43: Strategic objectives
Strategic objectives Driving long-term shareholder value • More stable • Sustainable value chain earnings profile with lower footprint will reduce risk • Less exposed to China • Differentiate through • More downstream sustainable products, customer base developing greener products for the future • 1
Slide 44: Profitability Sustainability
Profitability Sustainability ROACE > 10% CO2 - 30%
Slide 45: Lifting profitability, driving sustainability
Lifting profitability, driving sustainability
Slide 46: Financial priorities: Lifting cash flows and returns
Financial priorities Lifting cash flows and returns Investor Day – Oslo, September 24, 2019 Pål Kildemo EVP and CFO
Slide 47: Driving long-term shareholder value
Driving long-term shareholder value Lifting cash flows and returns Improvement ambition Lifting Capex Rolled Products cash flows towards optimization restructuring 2023 Net operating capital release 47
Slide 48: Lifting cash flows
Lifting cash flows Investor Day 2019
Slide 49: Several initiatives to strengthen performance
Several initiatives to strengthen performance Lift earnings potential with the new improvement ambition 6.4 BNOK on EBIT by 2023 Improve free cash Lift profitability with Lifting flow generation with Rolled Products cash flows short-term sustaining restructuring towards capex reduction 0.9 BNOK 2023
Slide 50: Revitalizing the improvement drive
Revitalizing the improvement drive Targeted improvements to deliver ambitious potential Improvement levers Curtailment Upstream and centralized initiatives Downstream and Energy reversal 6.4 BNOK Fixed costs Volume/ efficiency Consumption factors and other Husnes Procurement Net EBIT Extruded Soluti
Slide 51: Upstream costs returning to the pre-curtailment levels
Upstream costs returning to the pre-curtailment levels Fixed costs expected to be back at around Q4-17 levels with full production Alunorte cash cost development, Primary Metal Business operating cost (BOC) development USD/t indexed to Q4 2017 USD/t indexed to Q4 2017 1,4 2H19 above Q417 levels 1,5
Slide 52: Portfolio optimization and increased focus on costs in Extruded Solutions
Portfolio optimization and increased focus on costs in Extruded Solutions Delivering value added to our customers at a reasonable cost Continuous portfolio review aiming to optimize and - Net added value (NAV) replaced with Direct contribution (DC) streamline footprint, reduce costs NOK per kg • Sev
Slide 53: Releasing NOC built in 2018 on the back of the Alunorte situation
Releasing NOC built in 2018 on the back of the Alunorte situation, market and macro uncertainty Net operating capital development Key issues resulting in NOC build in 2018 BNOK # days • Alunorte embargo led to increased alumina inventory levels at higher 30 70 alumina price 64 • Market uncertainty (
Slide 54: Reducing short-term sustaining capex by ~1 BNOK
Reducing short-term sustaining capex by ~1 BNOK Project pipeline to be based on updated capital allocation framework and strategic priorities Historical capex, BNOK Updated capex guidance vs CMD 2018, BNOK Short-term sustaining capex reduction of ~1 BNOK in Longer-term Main sustaining projects 2019-
Slide 55: Lifting returns
Lifting returns Investor Day 2019
Slide 56: Long-term financial priorities
Long-term financial priorities Financial strength Robust shareholder payout and flexibility • 40% payout ratio of Net Income over the cycle • Maintain investment grade credit rating • Curently BBB (S&P), Baa2 (Moody’s*) • Dividend floor of 1.25 NOK/share • Balance sheet ratio targets over the cycle:
Slide 57: Clear principles for capital allocation
Clear principles for capital allocation Evaluate funds available for allocation Review Projected funds from operations in several market scenarios Strategy Strong balance sheet Dividend commitments to shareholders Sustaining capex License to operate (HSE, CSR, compliance) External and internal bench
Slide 58: Capital return dashboard for Hydro
Capital return dashboard for Hydro Hydro targets URoaCE above 10% over the cycle Capital employed1) 10 % 9% 2% Bauxite & Alumina 7% Primary Metal 10% 9% 5% 5% 24 % 28 % Metal Markets Rolled Products ~100 BNOK Extruded Solutions in 2018 Energy 2014 2015 2016 2017 2018 URoaCE target Nominal long-term
Slide 59: Hydro roadmap to profitability
Hydro roadmap to profitability Main drivers – improvement measures and market support URoaCE potential Market scenarios 2023 Main further upside drivers Main downside risks • Technology and digitization • Negative market and macro 13 % • Sustainability differentiation and developments, incl. trade >
Slide 60: Capital return dashboard for Bauxite & Alumina
Capital return dashboard for Bauxite & Alumina Returns below the cost of capital reflecting challenging markets, embargo and operational issues during the early years Capital employed in B&A 9% 5% 6% 28 % 3% 10-11% ~30 BNOK 0% URoaCE > CoC Nominal long-term in 2018 2014 2015 2016 2017 2018 cost of c
Slide 61: Bauxite & Alumina roadmap to profitability
Bauxite & Alumina roadmap to profitability Main drivers – production and raw material optimization, market support URoaCE potential Market scenarios 2023 Main further upside drivers Main downside risks • Faster ramp-up and additional • Negative market and macro 10-11% nominal CoC 11 % operational im
Slide 62: Capital return dashboard for Primary Metal & Metal Markets
Capital return dashboard for Primary Metal & Metal Markets Returns below the cost of capital mainly reflecting challenging markets and the Alunorte situation. Good returns in recycling Capital employed in PM (MM) 13 % 11 % 10%-11% 10 % 5% 5% ~34 (3) BNOK 2014 2015 2016 2017 2018 URoaCE > CoC (7-8%)
Slide 63: Primary Metal and Metal Markets roadmap to profitability
Primary Metal and Metal Markets roadmap to profitability Main drivers – efficiency gains from Industry 4.0 and production creep, market support URoaCE potential Market scenarios 2023 Main further upside drivers Main downside risks • Commercial differentiation, incl. • Negative market and macro 10-11
Slide 64: Capital return dashboard for Extruded Solutions
Capital return dashboard for Extruded Solutions Returns in line with the cost of capital reflecting leading market positions and value-over-volume strategy Capital employed in ES 7% 7% 24 % 7-8% ~26 BNOK in 2018 2017 2018 URoaCE > CoC Nominal long-term cost of capital ~7% 2017-2018 average URoaCE Ca
Slide 65: Extruded Solutions roadmap to profitability
Extruded Solutions roadmap to profitability Main drivers – portfolio and cost optimization, value-over-volume strategy and selective growth URoaCE potential 9% Main further upside drivers Main downside risks • Continued value-over-volume strategy • Negative market and macro 7-8% nominal CoC • Select
Slide 66: Capital return dashboard for Rolled Products
Capital return dashboard for Rolled Products Returns below the cost of capital due to continuous margin pressure and operational challenges Capital employed in RP 8% 5% 5% 2% 2% 7-8% ~13 BNOK URoaCE > CoC in 2018 2014 2015 2016 2017 2018 Nominal long-term cost of 12 % capital1) ~5% 2014-2018 average
Slide 67: Rolled Products roadmap to profitability
Rolled Products roadmap to profitability Main drivers – restructuring focused on cost and efficiency improvements URoaCE potential Main further upside drivers Main downside risks 8% • Growth in attractive market segments • Restructuring execution 7-8% nominal CoC or recycling • Negative market and m
Slide 68: Capital return dashboard for Energy
Capital return dashboard for Energy Returns significantly above the cost of capital reflecting the depreciated asset base Capital employed in Energy 21 % 17 % 17 % 18 % 18 % 2% 6-7% ~2 BNOK URoaCE > CoC in 2018 2014 2015 2016 2017 2018 Nominal long-term cost of capital ~18% 2014-2018 average URoaCE
Slide 69: Energy with a significant upside to cash generation
Energy with a significant upside to cash generation Main drivers – changes in contract portfolio from 2021 and new business potential UEBITDA potential ~0.7 BNOK in upside from 2021 BNOK 0,3 • ~0,4 BNOK from expiry of the legacy supply contract entered in 2008 0,4 • ~0,3 BNOK due to the changes in c
Slide 70: Sustainability translated into profitability
Sustainability translated into profitability Alunorte fuel switch project Karmøy technology pilot Recycling in Metal Markets Significantly Spin-off effects: lower energy volume creep, 12% RoaCE lower energy avg. last 5 years costs consumption Automotive growth Greener brands Battery solutions - Corv
Slide 71: Driving long-term shareholder value
Driving long-term shareholder value Financial strength Robust shareholder payout and flexibility Improvement • 40% payout ratio of Net Income over ambitions the cycle • Maintain investment grade credit rating • Curently BBB (S&P), Baa2 (Moody’s1)) 6.4 BNOK • Dividend floor of 1.25 NOK/share • Balanc
Slide 72: Additional information
Additional information Investor Day 2019
Slide 73: 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: 3 460 NOK million USD BRL EUR 2 400 UEBIT 3 290 (1 060) (250) One-off reevaluation effect: UEBIT Underlying Net Income Financial items 30 750 (3 20
Slide 74: 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 1 310 Cost impact Bauxite 190 • ~2.45 tonnes bauxite per tonne alumina •
Slide 75: 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 3 050 Cost impact Alumina 290 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 76: Assumptions behind scenarios
Assumptions behind scenarios Scenarios are not forecasts, but illustrative earnings, cash flow and return potential based on sensitivities • Starting point – UEBITDA 2018 with LME price adjusted to 2016-2018 Price assumptions average, PAX to 17% of LME, and excluding Albras power sales of 450 MNOK.
Slide 77: Investor Relations in Hydro
Investor Relations in Hydro Next event Stian Hasle Head of Investor Relations Third quarter results t: +47 97736022 e: stian.hasle@hydro.com October 23, 2019 Olena Lepikhina Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhina@hydro.com www.hydro.com/ir Aud Helen Ha
Slide 78: Notes
Notes ») Hydro
Slide 79: Notes
Notes ») Hydro
Slide 80: Notes
Notes ») Hydro
Slide 81: Notes
Notes ») Hydro
Slide 82: Notes
Notes ») Hydro
Slide 83: Notes
Notes ») Hydro
Slide 84: We are aluminium