Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q3 2016 Earnings Presentation
58 slides from Norsk Hydro Asa's earnings presentation, 2016
Slide 1: Higher aluminium prices, more than offset by currency and seasonality
Higher aluminium prices, more than offset by currency and seasonality Third quarter presentation
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: Q3 highlights
Q3 highlights • Underlying EBIT of NOK 1 477 million • Higher realized aluminium prices, offset by currency developments • Record-high alumina production of 6.5 million mt annualized • Seasonally lower metal sales • Trial production started at new automotive line in Germany • Better improvement prog
Slide 5: Current global undersupply, continued strong demand growth in China
Current global undersupply, continued strong demand growth in China Demand and production Production less demand Quarterly annualized, in 1 000 mt primary aluminium 12 month rolling quarterly average, in 1 000 mt primary aluminium 65 000 5 000 60 000 4 000 55 000 3 000 2 000 50 000 1 000 45 000 0 40
Slide 6: Primary aluminium market expected to be largely balanced in 2016
Primary aluminium market expected to be largely balanced in 2016 Tighter 2016 global market balance on the back of improved market balance in China Supply development 2016 Market balance 2016 Mill tonnes Milll tonnes 0.5 – 1.0 mill tonnes ~2.5 Oversupply ~1.4 0 – (0.5) mill tonnes (1.0 – 1.5) ~0.8 m
Slide 7: Slightly increasing average all-in aluminium prices in Q3
Slightly increasing average all-in aluminium prices in Q3 LME and SHFE aluminium prices All-in aluminium prices USD/mt USD/mt NOK/mt 2 200 3 000 18 000 2 000 2 600 16 000 1 800 2 200 14 000 1 600 1 800 12 000 1 400 1 200 1 400 10 000 Jan-15 Jun-15 Nov-15 Apr-16 Sep-16 Jan-15 Jun-15 Nov-15 Apr-16 Sep
Slide 8: Improved comp. adv. China
Stable Chinese export levels YTD 2016 vs YTD 2015 Limited arbitrage opportunity 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 Jan-08 Jan-09 Jan-10 Jan-11 Jan-12 Jan-13 Jan-14 Jan-15 Jan
Slide 9: Alumina prices down in Q3, increasing Chinese bauxite imports
Alumina prices down in Q3, increasing Chinese bauxite imports from Guinea and Brazil Platts alumina index (PAX) Monthly Chinese bauxite imports USD/mt Percent Million mt 400 20% 8 19% 7 350 18% 6 17% 5 300 16% 4 250 3 15% 14% 2 200 13% 1 PAX % of LME 150 12% 0 Jan-13 Jul-13 Jan-14 Jul-14 Jan-15 Jul-
Slide 10: China Q3 net imports largely stable
China Q3 net imports largely stable Annualized aluminium equivalents1), million mt 25 2011 2012 2013 2014 2015 20162) • Bauxite and alumina 20 − Alumina imports slightly up in Q3 China import − Increasing volumes from Guinea and Brazil 15 • Primary aluminium 10 − Export at low levels • Scrap 5 − Imp
Slide 11: Better program on track for 2019 target
Better program on track for 2019 target NOK 2.9 billion targeted in 2016-2019, NOK 1.1 billion in 2016 Better BNOK 2.91) Better Better Better Primary Rolled Bauxite & Metal Products Alumina BNOK 1.0 BNOK 0.9 BNOK 1.0 • On track for NOK 400 million • Behind the NOK 200 million target • On track for N
Slide 12: Record-high Q3 alumina production at Alunorte
Record-high Q3 alumina production at Alunorte Annualized alumina production, million mt 6.5 • Record-high annualized 6.3 production of 6.5 million mt 6.2 6.1 6.1 5.9 6.0 5.9 5.9 • Strong improvement trend 5.8 5.8 5.8 • Positive impact from Bauxite 5.5 & Alumina Business System 5.2 (BABS) 5.0 • Conti
Slide 13: Implied alumina cost slightly up in Q3, stable realized alumina prices
Implied alumina cost slightly up in Q3, stable realized alumina prices Implied alumina cost and margin, USD/mt 1) Developments Q3 vs Q2 475 56 • USD 3 per mt increased implied alumina cost 425 36 39 • Stable realized alumina prices 217 • Increased production at Alunorte and Paragominas 201 204 • Imp
Slide 14: Increased implied primary cost, higher realized prices
Increased implied primary cost, higher realized prices All-in implied primary cost and margin, USD/mt 1) Developments Q3 vs Q2 350 • USD ~50 per mt increased implied primary cost 325 300 • Higher all-in prices 1 675 1 500 1 550 • Higher raw material costs, lower fixed costs 1 3252) 1 1752) 1 275 2)
Slide 15: Seasonally weaker Q3, but overall healthy demand in Rolled Products
Seasonally weaker Q3, but overall healthy demand in Rolled Products Q3 2016 vs Q2 2016 Q3 2016 vs Q3 2015 YTD 2016 vs YTD 2015 8% 4% 4% 3% 1% 1% (1%) (1%) (3%) (3%) (6%) (7%) Can & foil Lithography Special Total Rolled Can & foil Lithography Special Total Rolled Can & foil Lithography Special Total
Slide 16: Seasonally weaker demand for extruded products
Seasonally weaker demand for extruded products • Seasonally weaker demand in Q3 − ~4.6% decrease in North America − ~5.8% decrease in Europe • Demand increased from same quarter last year − ~0.7% in North America due to increased building activity and automotive demand, but slowing demand from the t
Slide 17: Earnings continue to improve in Sapa
Earnings continue to improve in Sapa Hydro share of underlying EBIT Hydro share of underlying net income NOK million NOK million 300 180 160 250 140 200 120 100 150 80 100 60 40 50 20 0 0 Q314 Q315 Q316 Q314 Q315 Q316 17
Slide 18: Energy: Stable prices, lower inflow towards end of the quarter
Energy: Stable prices, lower inflow towards end of the quarter Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 2014 2015 500 2016 80 400 60 300 40 200 MIN NO2 (2002-2014) MAX NO2 (2002-2014) 20 2014 100 2015 2016 - 0 1 4 7 10 13 16 19 2
Slide 19: Karmøy Technology Pilot advancing toward 2017 start-up
Karmøy Technology Pilot advancing toward 2017 start-up ~40% completed by end-Q3 • On track for first metal second half 2017 • Capex 2015/YTD 2016 of NOK 1.6 bn − Of which Enova support NOK 0.4 bn • Net capex BNOK 2.7: − Total capex BNOK 4.3 − Enova support BNOK 1.6 19
Slide 20: Trial production started at new automotive line 3 in Germany
Trial production started at new automotive line 3 in Germany Pursuing an attractive growth opportunity • Project on schedule, trial production started in October 2016 • Project on budget, EUR 130 million • Contracting ahead of planned schedule • Automotive line 3 moves Hydro towards No. 2 position i
Slide 21: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO 21
Slide 22: Higher aluminium prices more than offset by currency and seasonality
Higher aluminium prices more than offset by currency and seasonality NOK billion 0.2 (0.2) (0.2) 0.1 2.2 1.6 1.5 Underlying Underlying All-in aluminium Net currency Volumes ex. Energy Other Underlying EBIT Q3 2015 EBIT Q2 2016 and alumina prices* EBIT Q3 2016 * Price revenue effects 22
Slide 23: Key financials
Key financials Underlying EPS down to 0.46 NOK/share NOK million Q3 2016 Q2 2016 Q3 2015 First 9 months 2016 First 9 months 2015 Revenue 20 174 20 391 21 594 60 703 67 320 Underlying EBIT 1 477 1 618 2 215 4 596 8 090 Items excluded from underlying EBIT (101) 360 (586) 451 (557) Reported EBIT 1 376
Slide 24: Items excluded from underlying EBIT
Items excluded from underlying EBIT Excluded MNOK 101 in timing and other material effects NOK million Q3 2016 Q2 2016 Q3 2015 First 9 months 2016 First 9 months 2015 Underlying EBIT 1 477 1 618 2 215 4 596 8 090 Unrealized derivative effects on LME related contracts 32 146 (249) 314 (420) Unrealize
Slide 25: Bauxite & Alumina
Bauxite & Alumina Higher production and cost improvements more than offset by currency Key figures Q3 2016 Q2 2016 Q3 2015 Alumina production, kmt 1 635 1 554 1 498 Total alumina sales, kmt 2 221 2 078 2 268 Realized alumina price, USD/mt 240 240 273 Implied alumina cost, USD/mt 204 201 217 Bauxite
Slide 26: Primary Metal
Primary Metal Higher all-in prices offset by higher costs, currency, and seasonally lower sales Key figures Q3 2016 Q2 2016 Q3 2015 Primary aluminium production, kmt 526 518 520 Total sales, kmt 573 596 550 Realized LME price, USD/mt 1 612 1 546 1 685 Realized LME price, NOK/mt 13 375 12 826 13 779
Slide 27: Metal Markets
Metal Markets Seasonality offset by positive contribution from metal sourcing and trading Key figures Q3 2016 Q2 2016 Q3 2015 Remelt production, kmt 125 146 117 Metal products sales, kmt 1) 720 777 676 Underlying EBITDA, NOK million 141 98 317 Underlying EBIT excl currency and inventory valuation 11
Slide 28: Rolled Products
Rolled Products Results down on seasonally lower shipments and reduced margins Key figures Q3 2016 Q2 2016 Q3 2015 External sales volumes, kmt 231 238 248 Underlying EBITDA, NOK million 407 432 517 Underlying EBIT, NOK million 211 242 331 Underlying EBIT Q3 results NOK million • Seasonally lower shi
Slide 29: Energy
Energy Increased area and production costs partly offset by higher volumes Key figures Q3 2016 Q2 2016 Q3 2015 Power production, GWh 2 946 2 674 2 839 Net spot sales, GWh 1 699 1 393 1 363 Southwest Norway spot price (NO2), NOK/MWh 212 213 102 Underlying EBITDA, NOK million 336 352 241 Underlying EB
Slide 30: Sapa JV
Sapa JV Results down on seasonally weaker demand Key figures – Sapa (50%) Q3 2016 Q2 2016 Q3 2015 Revenue, NOK million* 6 570 7 036 6 948 Underlying EBITDA, NOK million 406 566 367 Underlying EBIT, NOK million 244 402 202 Underlying Net income (loss), NOK million 157 270 120 Sales volumes (kmt) 170
Slide 31: Other and Eliminations
Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q3 2016 Q2 2016 Q3 2015 Sapa JV 157 270 120 Other (66) (100) (95) Eliminations (17) (45) (13) Other and Eliminations 75 125 12 31
Slide 32: Net cash development Q3 2016
Net cash development Q3 2016 Increase in net cash position driven by cash flow from operations NOK billion Net cash flow from operations NOK 2.4 billion** 0.1 (0.5) 2,8 (1.5) (0.3) 5,4 4,8 End Q2 2016 Underlying EBITDA Operating capital Taxes and other Investments and Minorities and other End Q3 201
Slide 33: Adjusted net debt decreased further in Q3 2016
Adjusted net debt decreased further in Q3 2016 Mainly due to higher net cash position Sep 30 Jun 30 Mar 31 NOK billion 2016 2016 2016 Cash and cash equivalents 8.0 9.2 5.9 Short-term investments 4.4 2.6 5.5 Short-term debt (3.6) (3.6) (3.8) Long-term debt (3.4) (3.5) (3.7) Net cash/(debt) 5.4 4.8 3.
Slide 34: Priorities
Priorities • Deliver on Better improvement program • Strengthen competitive position through technology pilot and new automotive line • Maintain financial strength and flexibility 34
Slide 35: Additional information
Additional information HYDRO
Slide 36: Prudent financial framework
Prudent financial framework Strong balance sheet and reliable dividend in cyclical industry Reliable Lifting Financial Disciplined shareholder Effective risk cash flow strength capital remuneration management potential and flexibility allocation policy Improving efficiency, Investment grade Long-ter
Slide 37: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Actual 2015 Improvement programs 2.9 BNOK 2016-2019 4.5 BNOK 2009 - 2015 Sustaining capex 3.5 - 4.0 BNOK Over the cycle 4.6 BNOK 2015 Average capex incl. growth 6.1 BNOK 1) 2016-2018 5.8 BNOK 2015 Divide
Slide 38: Shareholder and financial policy, Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns • Hedging strategy: compared to alternative investments in peers − Fluctuating with the market: primarily exposed to LME and USD − Volatility mitigated by strong balance sheet • Maintained divid
Slide 39: 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 % Jun 30, 2016 30 % 26 % 4.8 (4.8) (7.2) (8.7) (15.9) 24 % 22 % 19 % 20 % 20 % 11 % 10 % -1
Slide 40: Majority of sustaining capex allocated upstream
Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion • Long-term annual sustaining capex BNOK 3.5-4.0 10.2 10 • Sustaining projects for 2014-2016: − Red mud disposal area 9 8.1 − Bauxite tailing dam 8 − Smelter relining − Energy rehabilitation 7
Slide 41: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations UEPS Currency sensitivities +10%* Aluminium price sensitivity +10%* NOK million +1.02 NOK/share Sustainable effect: 3 000 2 300 NOK million USD BRL EUR UEBIT 2 680 (1 050) (260) One-off reevaluation effect: UEBIT Underlying Net Income Finan
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 610 − ~One month lag 520 • Realized alumina price lags PAX by one month 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 2 290 • 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 2015 depreciation 5.0 BNOK Depreciation currency exposure by business area Depreciation by business area 2015 4% 1% NOK & Percent USD EUR BRL Others 15% Bauxite & Alumina 100% Primary Metal 25% 25% 50% 39% Bauxite and alumina Metal Markets 25% 45% 30%
Slide 45: Items excluded from underlying results - 2016
Items excluded from underlying results - 2016 NOK million (+=loss/()=gain) Q1 2016 Q2 2016 Q3 2016 Unrealized derivative effects on LME related contracts Bauxite & alumina - - - Total impact Bauxite & alumina - - - Unrealized derivative effects on LME related contracts Primary metal (72) 38 (24) Unr
Slide 46: Items excluded from underlying results - 2015
Items excluded from underlying results - 2015 NOK million (+=loss/()=gain) Q1 2015 Q2 2015 Q3 2015 Q4 2015 2015 Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) 19 11 Total impact Bauxite & alumina 3 (6) (6) 19 11 Unrealized derivative effects on LME related contrac
Slide 47: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Bauxite & Alumina (288) (269) (26) 528 780 482 628 532 189 174 153 (55) 2 421 Primary Metal 312 420 1 216 1 989 2 012 1 448 762 407 31
Slide 48: Operating segment information
Operating segment information EBIT NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Bauxite & Alumina (284) (269) (23) 537 776 487 634 513 189 174 153 (39) 2 411 Primary Metal 303 434 1 278 1 912 1 956 1 528 664 311 408 668 591 3
Slide 49: Operating segment information
Operating segment information Total revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Bauxite & Alumina 3 511 3 828 3 737 4 770 5 461 5 127 5 758 5 542 4 212 4 572 4 925 15 847 21 889 Primary Metal 6 618 6 384 6 986 8 075
Slide 50: Operating segment information
Operating segment information Internal revenue NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Bauxite & Alumina 1 304 1 424 1 480 2 071 2 074 2 150 2 103 2 030 1 769 1 873 1 929 6 279 8 356 Primary Metal 5 391 5 047 5 396 5 833
Slide 51: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Bauxite & Alumina 410 431 442 519 460 470 420 633 451 485 511 1 802 1 983 Primary Metal 437 427 431 499 511
Slide 52: Income statements
Income statements First 9 months First 9 months NOK million Q3 2016 Q2 2016 Q3 2015 2016 2015 Year 2015 Revenue 20 174 20 391 21 594 60 703 67 320 87 694 Share of the profit (loss) in equity accounted investments 256 323 115 749 657 512 Other income, net 96 481 167 688 633 461 Total revenue and inco
Slide 53: Balance sheets
Balance sheets NOK million Sep 30 2016 Jun 30 2016 Mar 31 2016 Dec 31 2015 Sep 30 2015 Cash and cash equivalents 7 952 9 220 5 946 6 917 9 372 Short-term investments 4 438 2 629 5 479 5 752 1 860 Accounts receivable 11 495 12 085 12 699 10 797 14 417 Inventories 11 517 11 820 11 684 12 192 11 996 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 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 1 451 1 437 1 498 1 577 1 517 1 554 1 635 5 933 5 96
Slide 55: Operational data
Operational data Metal Markets Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year2014 Year2015 Remelt production (1 000 mt) 139 141 128 130 145 141 117 130 144 146 125 538 533 Third-party Metal Products sales (1 000 mt) 84 81 80 79 74 80 81 84 72 74 78 324 3
Slide 56: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Q1 2015 Q2 2015 Q3 2015 Q4 2015 Q1 2016 Q2 2016 Q3 2016 Year 2014 Year 2015 Sales volume (1000 mt) 346 360 346 314 359 367 35
Slide 57: Investor Relations in Hydro
Investor Relations in Hydro Stian Hasle Next events Head of Investor Relations t: +47 97736022 e: stian.hasle@hydro.com Sapa investor briefing November 3, 2016 Olena Lepikhina Investor Relations Officer Capital markets day t: +47 96853035 December 1-2, 2016 e: olena.lepikhina@hydro.com Fourth quarte
Slide 58: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO