Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2018 Earnings Presentation
60 slides from Norsk Hydro Asa's earnings presentation, July 2018
Slide 1: Results down on volumes and costs, higher realized prices
Results down on volumes and costs, higher realized prices Q2 2018
Slide 2: Cautionary note
Cautionary note Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expan
Slide 3: Svein Richard Brandtzæg, President and CEO
Svein Richard Brandtzæg President and CEO 3
Slide 4: Q2 highlights
Q2 highlights • Underlying EBIT of NOK 2 713 million • Better improvement program hit by Brazil situation, not expected to reach 2018 target • Alunorte, Paragominas and Albras producing at 50%, affecting results negatively • Karmøy Technology Pilot at full production • Increased costs, mostly offset
Slide 5: Current status Brazil-situation
Current status Brazil-situation • Alunorte producing at 50% following orders from • Picture Alunorte environmental authorities and court − Paragominas and Albras producing at 50%, due to reduced Alunorte production • Continued dialogue with Government of Pará, including state environmental agency SE
Slide 6: Current status Alunorte
Current status Alunorte No overflows from bauxite residue deposits, measures implemented at Alunorte • Report from third-party environmental consultancy SGW Services and report from internal task force confirm: − No overflows from bauxite residue deposits − No indication of contamination of local co
Slide 7: Alunorte and Paragominas operations
Alunorte and Paragominas operations Paragominas • Temporarily suspended work contracts for 80 employees and terminated 175 contractors Alunorte • Currently operating 5 lines, 2 in standby – short ramp-up period • Assessing to curtail 3 out of 7 lines – increasing operational robustness − Will increa
Slide 8: Global aluminium market in deficit in Q2 2018
Global aluminium market in deficit in Q2 2018 Continued deficit in world outside China, Q2 deficit also in China Quarterly market balances, world ex. China and China Production less demand*) 1000 mt primary aluminium 1 000 mt primary aluminium 1 500 2 000 1 000 1 000 500 0 0 (1 000) ( 500) (1 000) (
Slide 9: Primary aluminium market expected in deficit in 2018, continued uncertainty
Primary aluminium market expected in deficit in 2018, continued uncertainty World ex. China 2018 3-4 % Estimated primary market balance 2018 (mill t.) (‘000t) 2-3 % 2 000 ~30.1 – 30.4 Production ~27.7 – 28.0 Demand 1 000 0 China 2018 -1 000 2-3 % (mill t.) 4-6 % -2 000 ~37.0 – 37.4 Production ~35.8
Slide 10: Average aluminium prices higher in Q2
Average aluminium prices higher in Q2 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 12 000 100 1 400 1 200 10 000 0 Jan-16 Jun-16 Nov-16 Apr-17 Sep-17 Feb-18 Jul-18 Jan-16 Jun
Slide 11: Average alumina prices retreat from peak in April, remain high
Average alumina prices retreat from peak in April, remain high Market remains tight outside China due to continued Alunorte 50% supply disruption Platts alumina index (PAX) USD/t 750 35% • High price volatility following uncertainty on alumina availability on Rusal sanctions and Alunorte curtailment
Slide 12: Solid demand growth expected in key downstream segments
Solid demand growth expected in key downstream segments Extrusions – estimated market growth 2018 vs 2017 (%) Rolled products – estimated market growth 2018 vs 2017 (%) Building & Building & Construction Construction Transport and Transport and automotive automotive Packaging Industrial* Industrial*
Slide 13: Imposed trade tariffs and sanctions increase market uncertainty
Imposed trade tariffs and sanctions increase market uncertainty Section 232 • US administration imposed tariffs of 10 percent on aluminium imports to the US − For EU, Canada and other preliminary exempted countries, the tariff was effective June 1st − Permanent exemptions only for Argentina (accepte
Slide 14: Continued cost increase for the aluminium industry
Continued cost increase for the aluminium industry 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 Q116 Q316 Q117 Q317 Q118 Q116 Q316 Q117 Q317 Q118 Caustic soda (ind
Slide 15: Rising upstream costs on raw material costs and reduced production
Rising upstream costs on raw material costs and reduced production Additional costs in Bauxite & Alumina following Alunorte production cut Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) 63 USD/mt4) 375 375 475 475 84 425 2 075 2 175 67 1 700 367 1 7755) 287 1 7255)
Slide 16: Rolled Products: Increased sales volumes YTD 2018 vs YTD 2017
Rolled Products: Increased sales volumes YTD 2018 vs YTD 2017 Mainly driven by automotive and can YTD 2018 vs YTD 2017 Q2 2018 vs Q2 2017 Q2 2018 vs Q1 2018 Sales volume Growth in % 8% 5% 5% 4% 3% 3% 3% 3% 2% 2% 1% 1% Can & foil Special products Can & foil Special products Can & foil Special product
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 Q1 2016) 1.2 1.1 1.0 0.9 Extrusion Europe Extrusion North America Building Systems Precision Tubing Extruded Solutions Q2 2016 Q2 2017 Q2 2018 * Net Added Value: calculated as operating revenues
Slide 18: Rising power prices on increasing fuel prices and dry weather
Rising power prices on increasing fuel prices and dry weather Negative hydrological balance lifts Nordic prices above German Nordic System & German power prices Nordic Hydrological Balance EUR/MWh TWh +/- normal 50.0 20 15 40.0 10 5 30.0 0 20.0 -5 -10 10.0 -15 0.0 -20 2017-Q2 2017-Q3 2017-Q4 2018-Q1
Slide 19: Securing long-term competitive power sourcing for smelter portfolio
Securing long-term competitive power sourcing for smelter portfolio Wind power good fit with flexible Nordic hydropower • ~8 TWh/year hydro and wind power contracts signed to source aluminium production in Norway beyond 2021 • ~4.5 TWh/year wind power contracts signed from 2021 and onwards − Utilizi
Slide 20: Karmøy Technology Pilot at full production
• Karmøy Technology Pilot at full production, producing the world’s most climate and energy-efficient aluminium • Spin-off effects for the existing smelter portfolio 20
Slide 21: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 21
Slide 22: Results down on volumes and costs, higher realized prices
Results down on volumes and costs, higher realized prices Q2 2018 vs Q2 2017 NOK billion 2.4 (2.4) (0.6) 0.2 0.2 3.1 2.9 2.7 Underlying Underlying Realized aluminium Upstream costs Upstream volume Downstream result Other Underlying EBIT Q1 2018 EBIT Q2 2017 and alumina prices EBIT Q2 2018 22
Slide 23: Key financials
Key financials Underlying EPS of 1.02 NOK/share NOK million Q2 2018 Q2 2017 Q1 2018 First half 2018 First half 2017 Revenue 41 254 24 591 39 971 81 225 47 617 Underlying EBIT 2 713 2 930 3 147 5 859 5 214 Items excluded from underlying EBIT (274) (16) (155) (428) (141) Reported EBIT 2 986 2 946 3 30
Slide 24: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK ~270 in timing effects from underlying EBIT NOK million Q2 2018 Q2 2017 Q1 2018 First half 2018 First half 2017 Underlying EBIT 2 713 2 930 3 147 5 859 5 214 Unrealized derivative effects on LME related contracts 306 (92) 114 419 (110) Unrealized eff
Slide 25: Bauxite & Alumina
Bauxite & Alumina Increased raw material costs and reduced output, partly offset by higher alumina prices Key figures Q2 2018 Q2 2017 Q1 2018 Alumina production, kmt 829 1 576 1 277 Total alumina sales, kmt 1 842 2 196 2 071 Realized alumina price, USD/mt 430 295 371 Implied alumina cost, USD/mt 367
Slide 26: Impact on cost due to Alunorte and Paragominas 50% curtailed
Impact on cost due to Alunorte and Paragominas 50% curtailed Alunorte Paragominas Alunorte cost split Paragominas cost split Fixed cost in BRL Fixed cost in BRL 200 150 15-20% 150 100 100 50 50 0 0 Q3 2017 Q4 2017 Q1 2018 Q2 2018 60-70% Q3 2017 Q4 2017 Q1 2018 Q2 2018 Fixed cost per mt in BRL Fixed
Slide 27: Primary Metal
Primary Metal Results down on increased costs, partly offset by increased realized aluminum prices Key figures Q2 2018 Q2 2017 Q1 2018 Primary aluminium production, kmt 492 523 514 Total sales, kmt 549 579 578 Realized LME price, USD/mt 2 183 1 902 2 140 Realized LME price, NOK/mt 17 292 16 265 16 9
Slide 28: Metal Markets
Metal Markets Increased results from remelters and commercial activities Key figures Q2 2018 Q2 2017 Q1 2018 Remelt production, kmt 153 152 150 Metal products sales, kmt* 746 759 745 Underlying EBITDA, NOK million 262 268 201 Underlying EBIT excl currency and inventory valuation 224 152 139 effects,
Slide 29: Rolled Products
Rolled Products Higher margins and sales volumes, improved Neuss result Key figures Q2 2018 Q2 2017 Q1 2018 External sales volumes, kmt 251 239 245 Underlying EBITDA, NOK million 438 297 456 Underlying EBIT, NOK million 212 84 232 Underlying EBIT Results Q2 18 vs Q2 17 NOK million • Improved operati
Slide 30: Extruded Solutions
Extruded Solutions Results up on improved volumes and margins Key figures Q2 2018 Q2 2017 Q1 2018 External sales volumes, kmt 373 359 362 Underlying EBITDA, NOK million 1 383 1 252 1 155 Underlying EBIT, NOK million 957 836 734 Underlying EBIT* Results Q2 18 vs Q2 17 NOK million • Improved margins 2
Slide 31: Energy
Energy Results up on higher power production and prices Key figures Q2 2018 Q2 2017 Q1 2018 Power production, GWh 2 550 2 369 2 433 Net spot sales, GWh 961 996 763 Southwest Norway spot price (NO2), NOK/MWh 369 252 361 Underlying EBITDA, NOK million 479 337 339 Underlying EBIT, NOK million 417 284 2
Slide 32: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q2 2018 Q2 2017 Q1 2018 Sapa JV 329 Other (156) (71) (207) Eliminations (74) (88) 368 Other and Eliminations (229) 170 161 32
Slide 33: Net debt development Q2 2018
Net debt development Q2 2018 NOK billion Net cash flow from operations NOK 1.6 billion* (2.2) 4.6 (3.6) (0.8) (1.6) (7.5) (3.6) (0.3) End Q1 2018 Underlying EBITDA Operating capital Taxes and other Investments and Dividend Other End Q2 2018 divestments • Net cash provided by operating activities fro
Slide 34: Adjusted net debt up in Q2
Adjusted net debt up in Q2 Jun 30 Mar 31 Dec 31 NOK billion 2018 2018 2017 Cash and cash equivalents 5.7 9.4 11.8 Short-term investments 1.1 1.0 1.3 Short-term debt (5.0) (5.3) (8.2) Long-term debt (9.4) (8.7) (9.0) Net cash/(debt) (7.5) (3.6) (4.1) Net pension liability at fair value, net of expect
Slide 35: 2018 priorities
2018 priorities • Safety first • Resuming production at Alunorte, Paragominas and Albras • Value-creating integration • Project execution
Slide 36: Additional information
Additional information HYDRO
Slide 37: Prudent financial framework
Prudent financial framework Managing industry cyclicality, driving long-term shareholder value Reliable Financial Disciplined Lifting cash flow shareholder Effective risk strength capital potential remuneration management and flexibility allocation policy Improving efficiency, Investment grade credi
Slide 38: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Q4 2017 status Better improvement ambition 3.0 BNOK 2016-2019 1.8 BNOK 2017 Long-term sustaining capex ~ 5.5 - 6.0 BNOK Over the cycle 5.7 BNOK 2017 Dividend payout ratio 40% of net income Over the cycle
Slide 39: Shareholder and financial policy, Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns compared • Hedging strategy to alternative investments in comparable companies − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Di
Slide 40: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt Adjusted net debt / Equity NOK billion 60 % <55 % 50 % 40 % 32 % Dec 31, 2017 (4.1) (6.0) (5.8) (7.9) (23.8) 26 % 26 % 30 % 24 % 22 % 20 % 19 % 20 % 14 %
Slide 41: Growth capex focused on high-grading, recycling and technology
Growth capex focused on high-grading, recycling and technology Majority of sustaining capex allocated upstream NOK billion • Sustaining projects for 2018-2020: 10 − Bauxite residue disposal area 8.8 − Opening of new bauxite mining area ~7.9 ~8.1 8 7.5 – 8.0 − Pipeline replacement 7.2 − Primary recti
Slide 42: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10% UEPS Currency sensitivities +10% +1.30 NOK million NOK/share Sustainable effect: 3 900 2 980 NOK million USD BRL EUR UEBIT 3 940 (1 060) (250) One-off reevaluation effect: UEBIT Underlying Net Income Financi
Slide 43: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14% of 3-month LME price per tonne alumina 1,940 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 210 Bauxite • ~2.45 tonnes bauxite per tonne alumina (40
Slide 44: Primary Metal sensitivities
Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • Realized price lags LME spot by ~1-2 months 3 400 • Realized premium lags market premium by ~2-3 months Cost impact Alumina 360 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 45: Items excluded from underlying results - 2018
Items excluded from underlying results - 2018 NOK million (+=loss/()=gain) Q2 2018 Q1 2018 Total impact Bauxite & alumina - - Unrealized derivative effects on LME related contracts Primary metal (41) (114) Unrealized effects on power contracts Primary metal 20 20 Significant rationalization charges
Slide 46: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 711 756 662 413 1 872 741 364 1 227 3 704 Primary Metal 318 702 637 601 900 1 486 1 298 1 377 823 755 2 258 5 06
Slide 47: Operating segment information
Operating segment information EBIT NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Bauxite & Alumina 189 174 153 680 756 662 413 1 872 741 364 1 196 3 704 Primary Metal 408 668 591 619 797 1 538 1 282 1 112 917 776 2 285 4 729 Metal Mar
Slide 48: Operating segment information
Operating segment information Total revenue NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Bauxite & Alumina 4 212 4 572 4 925 5 834 5 911 5 858 5 612 8 040 6 309 6 877 19 543 25 421 Primary Metal 7 694 8 006 7 900 7 262 8 641 9 575 8
Slide 49: Operating segment information
Operating segment information Internal revenue NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Bauxite & Alumina 1 769 1 873 1 929 1 914 2 528 2 441 2 320 2 944 2 800 3 237 7 484 10 234 Primary Metal 6 519 6 693 6 441 5 680 6 941 7 631
Slide 50: Operating segment information
Operating segment information Return on average capital employed* (ROaCE) Reported ROaCE Underlying ROaCE 2017 2016 2015 2014 2013 2012 2017 2016 2015 2014 2013 2012 Bauxite & Alumina 8.5% 2.7 % 5.3 % (0.1) % (2.5) % (1.5) % 8.5% 2.8 % 5.3 % (0.1) % (2.2) % (1.6) % Primary Metal 11.8% 5.2 % 10.7 % 1
Slide 51: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Bauxite & Alumina 451 485 511 833 577 586 644 679 630 573 2 279 2 486 Primary Metal 474 484 488 467 492 505 504 526
Slide 52: Income statements
Income statements NOK million Q2 2018 Q2 2017 Q1 2018 First half 2018 First half 2017 Revenue 41 254 24 591 39 971 81 225 47 617 Share of the profit (loss) in equity accounted investments 286 491 221 506 900 Other income, net 184 184 155 339 348 Total revenue and income 41 724 25 266 40 346 82 070 4
Slide 53: Balance sheets
Balance sheets NOK million Jun 30 2018 Mar 31 2018 Dec 31 2017* Sep 30 2017 Jun 30 2017 Mar 31 2017 Cash and cash equivalents 5 682 9 371 11 828 17 853 7 993 8 333 Short-term investments 1 136 1 031 1 311 1 985 4 896 4 403 Accounts receivable 23 442 22 785 19 983 13 156 13 465 12 851 Inventories 22
Slide 54: Operational data
Operational data Bauxite & Alumina Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Alumina production (kmt) 1 517 1 554 1 635 1 635 1 523 1 576 1 605 1 693 1 277 829 6 341 6 397 Sourced alumina (kmt) 531 615 512 883 600 645 667 610 900 985 2 541 2
Slide 55: Operational data
Operational data Metal Markets Q1 2016 Q2 2016 Q3 2016 Q4 2016 Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Year 2016 Year 2017 Remelt production (1 000 mt) 144 146 125 133 143 152 136 137 150 153 548 568 Third-party Metal Products sales (1 000 mt) 72 74 78 80 79 80 74 86 70 77 304 319 Metal Prod
Slide 56: Pro forma information
Pro forma information Summary consolidated underlying financial and operating results NOK million Q2 2018 Q2 2017 Q1 2018 2017 2016 Revenue 41 254 38 534 39 971 148 920 130 630 EBIT 2 986 3 372 3 301 11 927 8 229 Items excluded from underlying EBIT (274) 52 (155) 510 (698) Underlying EBIT 2 713 3 42
Slide 57: Extruded Solutions, information by business area
Extruded Solutions, information by business area Historical Sapa information (100% basis) Q1 2016 – Q3 2017 and FY 2015-16 Extruded Solutions, fully consolidated in Hydro in 2018 and Q4 2017* Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Precision Tubing 2016 2016 2016 2016 2017 2017 2
Slide 58: 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 59: Investor Relations in Hydro
Investor Relations in Hydro Stian Hasle Head of Investor Relations t: +47 97736022 e: stian.hasle@hydro.com Next event Olena Lepikhina Third quarter results Investor Relations Officer t: +47 96853035 e: olena.lepikhina@hydro.com October 24, 2018 For more information see Aud Helen Halvorsen www.hydro
Slide 60: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO