Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2015 Earnings Presentation
58 slides from Norsk Hydro Asa's earnings presentation, July 2015
Slide 1: Record downstream earnings, upstream down on weaker prices
Record downstream earnings, upstream down on weaker prices Second quarter presentation
Slide 2: Cautionary note
Cautionary note Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions,
Slide 3: Svein Richard Brandtzæg, President and CEO
Svein Richard Brandtzæg President and CEO (3)
Slide 4: Q2 highlights
Q2 highlights • Underlying EBIT of NOK 2 667 million • Record downstream results on seasonally stronger sales • Lower realized alumina and all-in aluminium prices • New ICMS tax framework in place • Long-term power secured for Rheinwerk • Continued challenging global market balance • 2015 global pri
Slide 5: Global supply continues to exceed demand
Global supply continues to exceed demand Chinese oversupply exceeds world-ex China deficit for primary aluminium Demand and production (quarterly annualized) Production less demand* 1 000 mt primary aluminium 1 000 mt primary aluminium 65 000 5 000 60 000 4 000 55 000 3 000 50 000 2 000 45 000 1 000
Slide 6: World ex-China demand remains well above production
World ex-China demand remains well above production Demand and production (quarterly annualized) Production less demand* 1 000 mt primary aluminium 1 000 mt primary aluminium 30 000 4 000 3 000 25 000 2 000 1 000 20 000 0 (1 000) 15 000 (2 000) Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jun-15 Jan-09 Apr-10
Slide 7: Continued high levels of Chinese exports
Continued high levels of Chinese exports Semis arbitrage shrinking Semis exports Comp. adv. (monthly, kmt) (USD/mt) 500 1 000 450 800 400 Improved comp. adv. China 350 600 300 400 250 200 200 150 0 100 ( 200) 50 0 ( 400) Jan-07 Jun-08 Nov-09 Apr-11 Sep-12 Feb-14 Jun-15 Semis exports (Left axis) Chin
Slide 8: Standard ingot premiums back at historic levels
Standard ingot premiums back at historic levels Regional standard ingot premiums USD per mt 600 500 400 300 200 100 0 Jan-08 Jul-09 Jan-11 Jul-12 Jan-14 Jul-15 US Mid West Japan Europe (duty-paid) • US Mid-West and EU duty-paid ingot • Japan premium at 380 USD/mt in Q2, premium falling to 150-200 US
Slide 9: Product premiums declining with ingot
Product premiums declining with ingot Hydro realizes premiums on 1-2 month time lag USD per mt 900 800 700 600 500 400 300 200 100 0 Jan-08 Apr-09 Jul-10 Oct-11 Jan-13 Apr-14 Jul- EI over ingot Ingot DDP Premium Indicator Metal Bulletin Billet Premium Indicator Source: Metal Bulletin, Hydro (9)
Slide 10: Lower all-in ingot price
Lower all-in ingot price USD/mt NOK/mt • 3-month LME price traded between 3 100 18 000 1 683 and 1 938 USD/mt during Q2 2 900 17 000 2 700 Primary aluminium LME* USD/mt NOK/mt 16 000 2 500 Q2 2015 average 1 787 13 831 Q2 2015 end 1 689 13 272 2 300 15 000 Q1 2015 average 1 813 14 062 2 100 Q1 2015 e
Slide 11: Stable alumina prices as percentage of LME
Stable alumina prices as percentage of LME Platts alumina index (PAX) • Average Q2 price 337 USD/mt USD/mt Percent − Down 4 USD/mt compared to Q1 450 20% − Currently trading at ~309 USD/mt 19% 400 18% • Alumina price as percentage of LME 17% at 18.8% in Q2 350 − Up from 18.4% in Q1 16% 300 15% 14% 2
Slide 12: China: Increased imports of net metal equivalents
China: Increased imports of net metal equivalents Annualized aluminium equivalents*, million mt YTD • Bauxite and alumina 2011 2012 2013 2014 2015** − China successful in bauxite 25 source diversification, increasing volumes from China import 20 Malaysia − Alumina imports stable 15 • Primary alumini
Slide 13: Accelerating bauxite production following maintenance
Accelerating bauxite production following maintenance • Bauxite production accelerates Implied alumina cost and margin, USD/mt 1) following ball-mill maintenance at 475 Paragominas 13 425 263 • “From B to A” improvement program 75 59 progressing ahead of plan 233 225 − Reduced margin development in
Slide 14: New ICMS tax framework in place in Brazil
New ICMS tax framework in place in Brazil • 15-year framework in place for Paragominas, Alunorte and Albras • Continued ICMS effect on fuel oil and diesel − ~250 MBRL per annum* • ICMS on 50% of electricity at Albras − Tax expected to be offset through domestic sales • Other intra-state purchases ar
Slide 15: Stable all-in implied primary aluminium cost
Stable all-in implied primary aluminium cost All-in implied primary cost and margin, USD/mt 1) • Developments Q2 vs Q1 325 ‒ Seasonally lower fixed costs 700 550 1 925 1 800 1 775 • USD 180 JV program on track, to be 1 3752) concluded by end-2016 1 225 2) 1 1502) Q2 2014 Q1 2015 Q2 2015 2 244 2 510
Slide 16: Seasonally higher shipments in Rolled Products
Seasonally higher shipments in Rolled Products Increased demand for general engineering on reduced imports Q2 2015 vs Q1 2015 Q2 2015 vs Q2 2014 14% 10% 7% 2% 3% (1%) (3%) (8%) Packaging Litho, Auto & General Total Rolled Packaging Litho, Auto & General Total Rolled & building Heat exchanger enginee
Slide 17: Materially improving cost position at Rheinwerk
Materially improving cost position at Rheinwerk • Signed 8-year power contract German (EEX*) electricity forward prices EUR/MWh − Axpo Trading AG − From 2018 to 2025 55 − 0.9 TWh (100 MW) 50 • Partly replaces contract signed in 2012 45 − 2.2 TWh (250 MW) 40 35 Rheinwerk 30 • Annual capacity of 235 k
Slide 18: Stronger demand for extruded products
Stronger demand for extruded products North-America driving demand above seasonality • Seasonally stronger demand − 4% increase in North America − 5% increase in Europe • Demand increased compared to same quarter last year − 8% in North America due to increased building activity and strong automotiv
Slide 19: Energy: Low prices on inflow from delayed snowmelt
Energy: Low prices on inflow from delayed snowmelt Market price Southwestern Norway (NO2) Snow levels in percentage of normal* NOK/MWh 600 NO3 500 400 300 NO5 200 NO1 100 2013 2014 2015 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 Week Energy price NOK/MWh Q2 2015 Q1 2015 NO2 Southwestern No
Slide 20: Energy: Low prices on inflow from delayed snowmelt
Energy: Low prices on inflow from delayed snowmelt Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 500 80 400 60 300 40 200 MIN NO2 (2002-2013) MAX NO2 (2002-2013) 20 2013 100 2013 2014 2014 2015 2015 0 0 1 4 7 10 13 16 19 22 25 28 31 3
Slide 21: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO (21)
Slide 22: Improved downstream earnings, upstream down on weaker prices
Improved downstream earnings, upstream down on weaker prices NOK billion (1.2) 0.5 0.3 (0.3) 0.2 3.2 2.7 0.5 Underlying Underlying LME, PAX Energy price Costs and Currency Eliminations Underlying EBIT Q2-2014 EBIT Q1-2015 and premium and volume volumes and other EBIT Q2-2015 (22)
Slide 23: Key financials
Key financials Revenues down on lower prices, volumes up NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First Half 2014 Revenue 22 436 23 290 18 272 45 726 36 553 Underlying EBIT 2 667 3 208 544 5 875 1 316 Items excluded from underlying EBIT 31 (2) 75 29 126 Reported EBIT 2 698 3 206 620 5 904
Slide 24: Items excluded from underlying EBIT
Items excluded from underlying EBIT Positive MNOK 31 in items excluded, including restructuring charges in Sapa NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First Half 2014 Underlying EBIT 2 667 3 208 544 5 875 1 316 Unrealized effects on power and raw material contracts 161 151 (40) 312 135
Slide 25: Bauxite & Alumina
Bauxite & Alumina Results down on lower realized alumina price and higher costs Q2 Q1 Q2 Key figures 2015 2015 2014 Alumina production, kmt 1 437 1 451 1 526 Total alumina sales, kmt 2 099 2 136 2 071 Realized alumina price, USD/mt 292 300 276 Implied alumina cost, USD/mt 233 225 263 Bauxite product
Slide 26: Primary Metal
Primary Metal Results down on falling all-in metal prices Q2 Q1 Q2 Key figures 2015 2015 2014 Primary aluminium production, kmt 509 497 488 Total sales, kmt 544 534 559 Realized LME price, USD/mt 1 803 1 897 1 762 Realized LME price, NOK/mt 13 923 14 383 10 660 Realized premium, USD/mt 509 614 476 I
Slide 27: Qatalum results flat
Qatalum results flat Higher sales offset by lower prices Q2 Q1 Q2 Key figures – Qatalum (50%) 2015 2015 2014 Revenue, NOK million 1 542 1 492 1 095 Underlying EBITDA, NOK million 584 585 370 Underlying EBIT, NOK million 303 305 158 Underlying Net income (loss), 245 246 111 NOK million Primary alumin
Slide 28: Metal Markets
Metal Markets Continued weak result in sourcing and trading on falling ingot premiums Q2 Q1 Q2 Key figures 2015 2015 2014 Remelt production, kmt 141 145 141 Metal products sales, kmt 1) 750 626 726 Underlying EBITDA, NOK million (64) 47 120 Underlying EBIT excl currency and inventory 21 60 121 valua
Slide 29: Rolled Products
Rolled Products Record second quarter result. Seasonally stronger shipments Q2 Q1 Q2 Key figures 2015 2015 2014 External sales volumes, kmt 243 227 245 Underlying EBITDA, NOK million 488 465 350 Underlying EBIT, NOK million 315 292 177 Underlying EBIT Q2 results NOK million • Seasonally higher shipm
Slide 30: Energy
Energy Results drop on lower power production and prices Q2 Q1 Q2 Key figures 2015 2015 2014 Power production, GWh 2 103 3 071 2 248 Net spot sales, GWh 724 1 610 1 028 Southwest Norway spot price (NO2), 171 238 168 NOK/MWh Underlying EBITDA, NOK million 227 429 209 Underlying EBIT, NOK million 179
Slide 31: Improved results in Sapa JV
Improved results in Sapa JV Reflecting strong North American market and restructuring efforts • Quarter-on-quarter results affected by: Key figures – Sapa (50%) Q2 2015 Q1 2015 Q2 2014 − Seasonally higher sales volumes Revenue, NOK million 7 247 7 067 5 772 − Strong North-American market development
Slide 32: Other and Eliminations
Other and Eliminations Other and Eliminations, Q2 Q1 Q2 Underlying EBIT, NOK million 2015 2015 2014 Sapa JV 145 119 131 Other (150) (117) (176) Eliminations 338 (284) (8) Other and Eliminations 333 (281) (52) (32)
Slide 33: Net cash (debt) development
Net cash (debt) development Net cash position after dividend NOK billion Net cash flow from operations NOK 4.2 billion 0.3 0.0 (1.2) 3.9 (2.0) 0.7 (0.3) End Q1-2015 Underlying EBITDA Operating capital Taxes* Investments Dividends End Q2-2015 * Includes 800 MNOK reimbursement of VAT in Brazil for the
Slide 34: Adjusted net debt development Q2 2015
Adjusted net debt development Q2 2015 Reduced net pension liability due to higher discount rates Jun 30 Mar 31 Dec 31 NOK billion 2015 2015 2014 Cash and cash equivalents 8.1 7.2 9.3 Short-term investments 1.2 2.5 1.8 Short-term debt (3.7) (4.2) (6.0) Long-term debt (5.0) (5.7) (5.1) Net cash/(debt)
Slide 35: Priorities
Priorities • Deliver on improvement efforts • Lift production at Alunorte • Deliver downstream growth projects • Strengthen competitiveness in uncertain markets
Slide 36: Additional information
Additional information (36)
Slide 37: Shareholder and financial policy
Shareholder and financial policy • Hydro aims to give its shareholders competitive returns compared to alternative investments in peers • Maintained dividend policy − Ordinary dividend: 40% of net income over the cycle − Average ordinary pay-out ratio 2010-2014 is ~95% − Share buybacks and extraordi
Slide 38: Hedging policy
Hedging policy • Bauxite & Alumina, Primary Metal − Remain primarily exposed to LME prices − Operational LME hedging − One-month forward sales − Currency exposure, mainly USD, NOK and BRL − Policy of maintaining long-term debt in USD • Metal Markets, Rolled Products − Operational LME and currency he
Slide 39: Capital allocation mainly upstream
Capital allocation mainly upstream NOK billion Debt-financed investments Qatalum • Long-term sustaining capex NOK ~3.5 billion Investments Qatalum 10.2 Growth capex annually Sustaining capex • Sustaining projects for 2014-2016: − Red mud disposal area − Bauxite tailing dam 6.2 ~6.8 − Smelter relinin
Slide 40: 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 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 Caustic soda (USD/mt) Petroleum coke FOB USG (USD/mt) 900 600 750 500 600 40
Slide 41: Price and currency sensitivities
Price and currency sensitivities Commodity price sensitivity +10%* Currency sensitivities +10%* Hydro Group: Sustainable effect: NOK NOK million EBIT million USD BRL EUR EBIT 2 940 (760) (340) Aluminium 3 260 One-off reevaluation effect: Fuel oil (240) Financial (960) 590 (1 510) items Pet coke (240
Slide 42: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.5% of 3-month LME price per tonne alumina 800 • ~One month lag • Realized alumina price lags PAX by one month 530 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 43: Primary Metal sensitivities
Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months 2,270 • Realized premium lags market premium by ~1-2 months Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME pric
Slide 44: Depreciation by currency and business area
Depreciation by currency and business area Total 2014 depreciation 4.6 BNOK Depreciation currency exposure by business area Depreciation by business area* NOK & 4% 1% Percent USD EUR BRL Others 15% Bauxite & Alumina 100% 39% Primary Metal 25% 20% 55% 2% Metal Markets 25% 75% Rolled Products 90% 10%
Slide 45: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) Total impact Bauxite & alumina 3 (6) Unrealized derivative effects on LME related contracts Primary metal 54 (41) Unrealized effec
Slide 46: Items excluded from underlying results - 2014
Items excluded from underlying results - 2014 NOK million (+=loss/()=gain) Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Unrealized derivative effects on LME related contracts Bauxite & Alumina (4) (1) (2) (10) (16) Total impact Bauxite & Alumina (4) (1) (2) (10) (16) Unrealized derivative effects on LME rel
Slide 47: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Bauxite & Alumina (63) (244) (370) (379) (288) (269) (26) 528 780 482 (1 057) (55) Primary Metal 364 237 337 484 312 420 1 216 1 989 2 012 1 4
Slide 48: Operating segment information
Operating segment information EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Bauxite & Alumina (76) (241) (370) (491) (284) (269) (23) 537 776 487 (1 178) (39) Primary Metal 19 122 338 377 303 434 1 278 1 912 1 956 1 528 855 3 928
Slide 49: Operating segment information
Operating segment information Total revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Bauxite & Alumina 3 304 3 147 3 354 3 546 3 511 3 828 3 737 4 770 5 461 5 127 13 350 15 847 Primary Metal 5 945 5 896 5 884 5 554 6 618 6 384 6
Slide 50: Operating segment information
Operating segment information Internal revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Bauxite & Alumina 1 322 1 253 1 277 1 375 1 304 1 424 1 480 2 071 2 074 2 150 5 226 6 279 Primary Metal 5 132 4 856 4 860 4 566 5 391 5 047 5
Slide 51: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Bauxite & Alumina 429 448 417 424 410 431 442 519 460 470 1 718 1 802 Primary Metal 470 472 461 452 437 427 431 499
Slide 52: Income statements
Income statements NOK million Q2 2015 Q1 2015 Q2 2014 First Half 2015 First half 2014 Year 2014 Revenue 22 436 23 290 18 272 45 726 36 553 77 907 Share of the profit (loss) in equity accounted investments 276 265 122 542 162 415 Other income, net 195 271 147 467 279 751 Total revenue and income 22 9
Slide 53: Balance sheets
Balance sheets NOK million Jun 30 2015 Mar 31 2015 Dec 31 2014 Sep 30 2014 Jun 30 2014 Cash and cash equivalents 8 142 7 172 9 253 6 045 6 617 Short-term investments 1 240 2 456 1 786 1 745 1 765 Accounts receivable 14 847 15 122 11 703 11 280 10 835 Inventories 12 722 13 392 12 642 10 334 10 213 Ot
Slide 54: Operational data
Operational data Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year 2013 Year 2014 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 1 451 1 437 5 377 5 933 Sourced alumina (kmt) 476 427 711 395 550 431 532 503 666 725 2 009
Slide 55: Operational data
Operational data Metal Markets Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Year2013 Year2014 Remelt production (1 000 mt) 135 132 127 123 139 141 128 130 145 141 517 538 Third-party Metal Products sales (1 000 mt)2) 88 84 82 82 84 81 80 79 74 80 336 324 Metal Prod
Slide 56: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales Year volumes Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 367 350 322 353 358 1 399 Revenu
Slide 57: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Next events Head of Investor Relations t: +47 970 96 711 e: pal.kildemo@hydro.com Third quarter results October 21, 2015 Capital Markets Day Olena Lepikhina December 3-4, 2015 Investor Relations Officer t: +47 96853035 For more information see e: olena.lepikhi
Slide 58: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO