Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2014 Earnings Presentation
51 slides from Norsk Hydro Asa's earnings presentation, July 2014
Slide 1: All-in metal price rise continues, seasonally lower Energy results
All-in metal price rise continues, seasonally lower Energy results 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 NOK 544 million • Higher all-in aluminium and realized alumina prices • Alunorte production at record levels • Seasonally lower power production and prices • World outside China primary aluminium demand continues to exceed production (4)
Slide 5: Demand to exceed production in 2014
Demand to exceed production in 2014 World outside China World outside China (quarterly annualized) Production less demand, (quarterly annualized)* 1 000 mt 1 000 mt 30 000 4 000 3 000 25 000 2 000 1 000 20 000 0 15 000 (1 000) Jan-08 Dec-08 Nov-09 Oct-10 Sep-11 Aug-12 Jul-13 Jun-14 Dec-08 Nov-09 Oct
Slide 6: Standard ingot premiums remain at record levels
Standard ingot premiums remain at record levels Regional standard ingot premiums • European and Japanese standard USD per mt 500 ingot premium continued to rise through Q2 2014 450 400 • US, EU (duty-paid) and Japanese 350 premiums above 400 USD/mt 300 250 • Value-added premiums also at record- high
Slide 7: Tighter physical markets driving all-in aluminium price
Tighter physical markets driving all-in aluminium price USD per mt • 3-month LME price ranged between 2 900 1 750 and 1 900 USD/mt during Q2 2 700 − Traded at 16-month high in July 2 500 2 300 • LME increase partly offset by strengthening NOK 2 100 1 900 • Realized price for Q2 1 762 USD/mt 1 700 1
Slide 8: Reduction in reported inventories world ex-China
Reduction in reported inventories world ex-China World outside China reported primary aluminium inventories 1 000 mt Days 8 000 120 7 000 100 6 000 80 5 000 4 000 60 3 000 40 2 000 20 1 000 0 0 Q1 00 Q1 01 Q1 02 Q1 03 Q1 04 Q1 05 Q1 06 Q1 07 Q1 08 Q1 09 Q1 10 Q1 11 Q1 12 Q1 13 Q1 14 IAI Other LME Wo
Slide 9: Declining alumina prices
Declining alumina prices Platts alumina index (PAX) USD per mt Percent 450 20% • Average price 316 USD/mt, down 19% 12 USD/mt from Q1 400 18% • Alumina as % of LME decreased due 350 17% to rising LME price, lowest level since January 2013 16% 300 15% 14% 250 PAX % of LME 13% 200 12% Aug May Mar Dec
Slide 10: Indonesia bauxite ban remains in place
Indonesia bauxite ban remains in place Average Chinese import price USD per mt 65 • Uncertainty around possibility to obtain export licenses for those with plans to 60 build Indonesia alumina capacity 55 • Indonesian election in progress 50 • Increased price for bauxite imports to China 45 40 35 Jan
Slide 11: China bauxite imports continue to decline
China bauxite imports continue to decline Annualized aluminium equivalents*, million mt YTD 2011 2012 2013 2014** • Bauxite and alumina 25 − Significant drop in bauxite imports from January to China import 20 May as Indonesia export ban is taking effect 15 − Alumina imports increasing YTD compared t
Slide 12: Record levels of alumina production
Record levels of alumina production ICMS negatively affects implied alumina cost • Alumina production at record level Implied alumina cost and margin, USD/mt 1) 47527 • Bauxite production increasing 425 267 12 28 • “From B to A” improvement program 260 258 progressing according to plan − Target NOK
Slide 13: Primary Metal operational improvements continue
Primary Metal operational improvements continue Implied primary cost and margin, USD/mt 1) • Primary cost continues downward trend 475 325 − Improvement efforts with bottom-line effect 375 425 − Favorable exchange rate development 1 825 350 − Increasing premiums 1 600 1 400 • USD 180 JV program on t
Slide 14: Qatalum confirms first-decile cost position
Qatalum confirms first-decile cost position Implied Qatalum primary cost and margin, USD/mt 1) 475 650 425 1 500 800 750 1 175 1 000 H1 2012 H1 2013 H1 2014 2 161 1 986 1 755 LME2) Implied EBITDA cost per mt EBITDA margin per mt 1) Realized aluminium price minus EBITDA margin per mt primary aluminiu
Slide 15: Hydro to take over Søral aluminium plant
Hydro to take over Søral aluminium plant • To take over RTAs 50% share • Short-term cost relief • Closing expected second half 2014, pending regulatory approval Sør-Norge Aluminium (Søral) • Annual capacity of 180 kmt • Currently producing 90 kmt • 100% value added products • Located on the west coa
Slide 16: Enova supports Hydro's technology pilot
Enova supports Hydro’s technology pilot • NOK 1.5 billion contribution − Pending ESA approval • Potentially world’s most energy-efficient production line for aluminium − Target of 12.3 KWh/kg − Reduced carbon emissions • Other conditions necessary for building − Strengthened regional grid − Competit
Slide 17: Norwegian power sourcing until 2030
Norwegian power sourcing until 2030 • Competitive power sourcing key to Nordic system forward prices, EUR/MWh sustaining operations for Norwegian 70 aluminium portfolio 60 • Statkraft contract expires 2020 50 − 6.4 TWh 40 30 • Four new power contracts signed − Total 2.7 TWh 20 − Agder Energi, Lyse E
Slide 18: Advanced Hydro casting technology targeting growing automotive market
Advanced Hydro casting technology targeting growing automotive market • Investment in high-tech casting tables − Adjustable Flexible Moulds (AFM) − In-house technology − Årdal and Høyanger • Strengthens Hydro’s position as supplier of advanced sheet ingot • Positive customer feedback − Surface quali
Slide 19: The automotive industry embraces aluminium
The automotive industry embraces aluminium • Regulations driving light weighting of cars − Corporate average fuel economy (CAFE) − EU 2020 vehicle targets • Aluminium is the clear choice − Ductile material with high specific energy absorption − Especially competitive for body in white, due to stiffn
Slide 20: Stable shipments in Rolled Products
Stable shipments in Rolled Products Rolled Products sales by segment Q2 2014 vs. Q1 2014 Q2 2014 vs. Q2 2013 Packaging & Litho, Auto & Heat General engineering Total Rolled Packaging & Litho, Auto & Heat General engineering Total Rolled Building exchanger Products Building exchanger Products 11% 8%
Slide 21: Seasonally stronger demand for extruded products
Seasonally stronger demand for extruded products • Seasonal demand rises from Q1 − Increases in North America and Europe • Increased demand compared to same period last year • Global demand for precision tubing continues − Strong automotive market − Substitution within automotive and residential seg
Slide 22: Higher reservoir levels, lower prices
Higher reservoir levels, lower prices Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2)* NOK/MWh Percent 700 100 90 600 80 500 70 400 60 50 300 40 200 30 2013 2013 20 100 2014 2014 10 10 year average 0 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43 46 49 52 1 4 7 1
Slide 23: High-level quarterly result development
High-level quarterly result development NOK billion 0.1 (0.3) 0.1 0.8 (0.2) 0.5 0.5 Underlying EBIT Q2 Underlying EBIT Q1 Price and Margin Sapa Energy volume and Other Underlying EBIT Q2 2013 2014 price 2014 Figures for 2013 throughout the presentation have been adjusted reflecting IFRS 11 (23)
Slide 24: Key financials
Key financials NOK million Q2 2014 Q1 2014 Q2 2013 First Half 2014 First Half 2013 Revenue 18 272 18 282 16 052 36 553 32 161 Underlying EBIT 544 772 520 1 316 1 596 Items excluded from underlying EBIT 75 50 (144) 126 (516) Reported EBIT 620 822 376 1 442 1 081 Financial income (expense) (199) 92 (1
Slide 25: Items excluded from underlying EBIT
Items excluded from underlying EBIT NOK million Q2 2014 Q1 2014 Q2 2013 First Half 2014 First Half 2013 Underlying EBIT 544 772 520 1 316 1 596 Unrealized effects on power and raw material contracts (40) 175 155 135 (114) Unrealized derivative effects on LME related contracts 136 (5) (129) 131 (159)
Slide 26: Bauxite & Alumina
Bauxite & Alumina Q2 Q1 Q2 Key figures 2014 2014 2013 Alumina production, kmt 1 526 1 428 1 248 Total alumina sales, kmt 2 071 1 906 1 696 Realized alumina price, USD/mt 276 269 275 Implied alumina cost, USD/mt 263 258 254 Bauxite production, kmt 2 370 2 242 1 765 Underlying EBITDA, NOK million 162
Slide 27: Primary Metal
Primary Metal Q2 Q1 Q2 Key figures 2014 2014 2013 Primary aluminium production, kmt 488 484 483 Total sales, kmt 559 593 531 Realized LME price, USD/mt 1 762 1 749 1 926 Realized LME price, NOK/mt 10 660 10 702 11 217 Implied primary cost USD/mt 1 375 1 400 1 575 Underlying EBITDA, NOK million 852 7
Slide 28: Higher premiums drive Qatalum earnings
Higher premiums drive Qatalum earnings Key figures – Qatalum (50%) Q2 2014 Q1 2014 Q2 2013 • Underlying net income increases by NOK 37 million from Q1 2014 Revenue, NOK million 1 095 1 087 1 080 Underlying EBITDA, NOK million 370 342 338 • Higher realized premiums partially offset by lower volumes U
Slide 29: Metal Markets
Metal Markets Q2 Q1 Q2 Key figures 2014 2014 2013 Remelt production, kmt 141 139 132 Metal products sales, kmt* 700 720 678 Underlying EBITDA, NOK million 120 157 165 Underlying EBIT excl currency and inventory 122 161 109 valuation effects, NOK million Underlying EBIT, NOK million 100 141 147 Under
Slide 30: Rolled Products
Rolled Products Q2 Q1 Q2 Key figures 2014 2014 2013 External sales volumes, kmt 245 243 245 Underlying EBITDA, NOK million 350 351 346 Underlying EBIT, NOK million 177 181 183 Underlying EBIT NOK million 615 358 Q2 results • Stable shipments • Lower margins due to rising premiums 183 181 181 177 152
Slide 31: Energy
Energy Q2 Q1 Q2 Key figures 2014 2014 2013 Power production, GWh 2 248 2 964 2 090 Net spot sales, GWh 1 028 1 581 829 Southwest Norway spot price (NO2), 168 249 296 NOK/MWh Underlying EBITDA, NOK million 209 474 302 Underlying EBIT, NOK million 169 435 268 Underlying EBIT Q2 results NOK million • R
Slide 32: Sapa joint venture
Sapa joint venture Key figures – Sapa (50%) Q2 2014 Q1 2014 • Seasonally stronger quarter Revenue, NOK million 5 772 5 673 • Underlying net income increases by NOK 96 million from Q1 Underlying EBITDA, NOK million 321 220 Underlying EBIT, NOK million 175 78 • Restructuring agenda progressing accordi
Slide 33: Other and Eliminations
Other and Eliminations Q2 Q1 Q2 Other and Eliminations 2014 2014 2013 Sapa JV 131 35 - Other (176) (127) (110) Eliminations (8) 84 40 Other and Eliminations (52) (8) (70) (33)
Slide 34: Net cash/(debt) development Q2 2014
Net cash/(debt) development Q2 2014 NOK billion Net cash flow from operations NOK (1.0) billion 1.7 (0.4) (0.2) (0.7) (0.6) (1.6) (1.9) Net debt Q1 2014 Underlying EBITDA Operating Capital Other adjustments Investments Dividends Net debt Q2 2014 (34)
Slide 35: Adjusted net debt increased to NOK 13.6 billion
Adjusted net debt increased to NOK 13.6 billion NOK billion Jun 30. 2014 Mar 31, 2014 Cash and cash equivalents 6.6 6.5 Short-term investments 1.8 3.1 Short-term debt (6.1) (6.3) Long-term debt (4.1) (3.9) Net cash/(debt) (1.9) (0.6) Net pension liability at fair value, net of (6.3) (5.2) expected t
Slide 36: Stabilize production, deliver improvement programs, harvest improved market
• Stabilize bauxite and alumina production • Deliver on improvement programs • Harvest potential in improved market (36)
Slide 37: Additional information
Additional information (37)
Slide 38: Items excluded from underlying results - 2014
Items excluded from underlying results - 2014 NOK million (+=loss/()=gain) Q1 2014 Q2 2014 Unrealized derivative effects on LME related contracts Bauxite & Alumina (4) (1) Total impact Bauxite & Alumina (4) (1) Unrealized derivative effects on LME related contracts Primary Metal (12) (38) Unrealized
Slide 39: Items excluded from underlying results - 2013
Items excluded from underlying results - 2013 NOK million (+=loss/()=gain) Q1 2013 Q2 2013 Q3 2013 Q4 2013 2013 Unrealized derivative effects on LME related contracts Bauxite & Alumina 13 (3) - 3 12 Legal settlements Bauxite & Alumina - - - 109 109 Total impact Bauxite & Alumina 13 (3) - 112 121 Unr
Slide 40: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Year 2012 Year 2013 Bauxite & Alumina (144) (188) (386) (73) (63) (244) (370) (379) (288) (269) (791) (1 057) Primary Metal 36 245 (4) 58 364 237 337 484 312 420
Slide 41: Operating segment information
Operating segment information EBIT NOK million Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Year 2012 Year 2013 Bauxite & Alumina (136) (199) (387) (62) (76) (241) (370) (491) (284) (269) (783) (1 178) Primary Metal (91) (1 227) (48) 112 19 122 338 377 303 434 (1 2
Slide 42: Operating segment information
Operating segment information Total revenue NOK million Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Year 2012 Year 2013 Bauxite & Alumina 3 195 3 573 3 032 3 465 3 304 3 147 3 354 3 546 3 511 3 828 13 265 13 350 Primary Metal 7 458 7 578 6 169 5 485 5 945 5 896 5
Slide 43: Operating segment information
Operating segment information Internal revenue NOK million Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Year 2012 Year 2013 Bauxite & Alumina 1 241 1 356 1 111 1 098 1 322 1 253 1 277 1 375 1 304 1 424 4 806 5 226 Primary Metal 6 331 6 341 5 097 4 442 5 132 4 856 4
Slide 44: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Year 2012 Year 2013 Bauxite & Alumina 475 439 428 409 429 448 417 424 410 431 1 750 1 718 Primary Metal 542 1 645 482 356 470 472 461 45
Slide 45: Income statements
Income statements NOK million Q2 2014 Q1 2014 Q2 2013 First half 2014 First half 2013 Year 2013 Revenue 18 272 18 282 16 052 36 553 32 161 64 877 Share of the profit (loss) in equity accounted investments 122 40 (70) 162 (36) (240) Other income, net 147 132 213 279 450 801 Total revenue and income 1
Slide 46: Balance sheets
Balance sheets NOK million Jun 30 2014 Mar 31 2014 Dec 31 2013 Sep 30 2013 Jun 30 2013 Cash and cash equivalents 6 617 6 476 8 412 8 397 7 399 Short-term investments 1 765 3 081 2 480 1 433 1 273 Accounts receivable 10 835 11 116 9 539 10 769 9 811 Inventories 10 213 9 599 10 070 9 758 9 669 Other c
Slide 47: Operational data
Operational data Year Year Bauxite & Alumina Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 2012 2013 Alumina production (kmt) 1 464 1 491 1 441 1 397 1 361 1 248 1 316 1 452 1 428 1 526 5 792 5 377 Sourced alumina (kmt) 324 332 399 335 476 427 711 395 550 431 1 390
Slide 48: Operational data
Operational data Year Year Metal Markets Q1 2012 Q2 2012 Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 2012 2013 Remelt production (1 000 mt) 152 142 136 119 135 132 127 123 139 141 548 517 Third-party Metal Products sales (1 000 mt) 76 82 81 85 84 78 76 78 84 79 323 317 Metal Prod
Slide 49: Sapa joint venture information
Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q3 2012 Q4 2012 Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 368 Revenues 10 414 9 654 10 367 10 974 10 797 10 132 11 346 11 544 Underl
Slide 50: Price and currency sensitivities
Price and currency sensitivities Commodity price sensitivity +10%* Currency sensitivities +10%* NOK million EBIT NOK million EBIT Financial items Aluminium 2 500 USD 2 045 (1 125) Oil (180) BRL (840) 730 Pet coke (185) EUR (155) (1 120) • Annual sensitivities based on normal annual business volumes,
Slide 51: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Head of Investor Relations Next event t: +47 970 96 711 e: pal.kildemo@hydro.com Third Quarter Results October 22, 2014 For more information see www.hydro.com/ir (51)