Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (2015)
23 slides from Norsk Hydro Asa's investor day presentation, 2015
Slide 1: Finance
Finance Financial strength through relative positioning and balanced capital allocation Eivind Kallevik Capital Markets Day 2015
Slide 2: Financial highlights
Financial highlights ~3x¹ - 6 %¹ ~ 10x¹ Implied all-in Underlying EBIT FCF primary cost 11.0 BNOK2 ~ 10 BNOK6 ~1 750 USD/mt4 ~ (7)7 + 28 %¹ - 12 %¹ NOK Realized Implied per share all-in price TSR alumina cost ~17 700 ~ (18) %7 ~ 225 USD/mt5 NOK/mt3 1) Q4 2014 – Q3 2015 compared to Q4 2013 – Q3 2014
Slide 3: Robust free cash flow generation and net cash position
Robust free cash flow generation and net cash position At realized all-in price of ~2 400 USD/mt NOK billion Consolidated FCF 10.3 BNOK (0.7) (0.8) (4.1) (2.0) 15.9 (3.0) 3.3 (2.1) Net debt Q3-2014 Underlying EBITDA Operating capital Tax and other* Investments Dividends Currency and End Q3-2015 mino
Slide 4: Prudent financial framework
Prudent financial framework Relative positioning and reliable dividend in cyclical industry Reliable Operating and Financial Disciplined shareholder Effective risk commercial strength capital remuneration management excellence and flexibility allocation policy Improving efficiency, Investment grade
Slide 5: Lifting earnings potential with industry-leading improvement ambitions
OPERATING AND COMMERCIAL EXCELLENCE – IMPROVING EFFICIENCY Lifting earnings potential with industry-leading improvement ambitions NOK billion 2.9 13.2 4.5 10.3 6.0 5.8 UEBIT 2011 Currency Product price Raw materials Less USD 300 UEBIT 2015 ex. Improvements UEBIT 2015 New UEBIT 2019E and inflation 20
Slide 6: Structurally improved cost position
OPERATING AND COMMERCIAL EXCELLENCE – STRENGTHENING MARGINS Structurally improved cost position Productivity gains supported by currency All-in implied primary cost and margin, USD/mt 1) Implied alumina cost and margin, USD/mt 1) 300 475 26 2,500 2300 2175 600 300 66 2,000 2,175 1 875 250 1,500 1,75
Slide 7: Optimizing working capital remains key priority
OPERATING AND COMMERCIAL EXCELLENCE – MANAGING WORKING CAPITAL Optimizing working capital remains key priority Release in Q3 following the above-average build-up earlier in the year NOK billion* USD/t 20 78 78 • Net operating capital generally moves with 76 76 76 76 76 74 LME development 72 72 70 70
Slide 8: Driving long-term shareholder value
Driving long-term shareholder value Balancing capital allocation and financial strength Essential capex Solid balance Sustaining capex ensures operational excellence Long-term shareholder value sheet and Investments to keep market share, reduce costs, Share strengthen margins • Reinvest in liquidity
Slide 9: Maintain investment-grade credit rating
FINANCIAL STRENGTH AND FLEXIBILITY Maintain investment-grade credit rating Funds from operations determine the balance sheet structure • Maintain investment-grade rating Net adjusted debt / Equity 60 % − At least BBB Stable 50 % 55 % − Currently: BBB (S&P), Baa2 (Moody’s), both with stable 40 % 32 %
Slide 10: Maintain a solid balance sheet
FINANCIAL STRENGTH AND FLEXIBILITY Maintain a solid balance sheet Net adjusted debt reduced on higher cash position NOK billion • Increase in Qatalum and Sapa net debt mainly driven by weaker NOK Sep 30, 2014 (2.1) (5.4) (6.4) (6.6) (20.5) MNOK* Sep. 2015 Sep. 2014 -16% Sapa (50%) 1 250 860 Qatalum
Slide 11: Pension obligations increase with falling discount rates
FINANCIAL STRENGTH AND FLEXIBILITY Pension obligations increase with falling discount rates Discount rates development vs Defined benefit obligation (DBO)** Defined benefit obligation sensitivity to 0.5 pp change in % DBO, BNOK discount rates* 4.5 (22) BNOK Norway (21) 4.0 (20) % 2.00 2.50 3.00 3.50
Slide 12: Long-term sustaining capex NOK 3.5 - 4 billion
DISCIPLINED CAPITAL ALLOCATION Long-term sustaining capex NOK 3.5 - 4 billion Higher than average sustaining capex driven by long-life investments in Brazil NOK billion 6.0 5.7 5.7 5.5 (0.2) 5.0 (0.8) 4.7 4.5 4.4 4.0 4.0 3.5 3.5 3.5 3.3 3.1 3.0 2.7 2.6 2.5 2.0 1.5 1.0 0.5 0 2009 2010 2011 2012 2013
Slide 13: Majority of sustaining capex allocated upstream
DISCIPLINED CAPITAL ALLOCATION Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion 10.2 • Sustaining projects for 2014-2016: 10 − Red mud disposal area 9 8.6 − Bauxite tailing dam − Smelter relining 8 − Energy rehabilitation 6.7 7 6.2 • Ongoing
Slide 14: Aiming for stable and competitive cash return to shareholders
RELIABLE SHAREHOLDER REMUNERATION POLICY Aiming for stable and competitive cash return to shareholders • Revised dividend policy at the start of 2015 Payout ratio NOK/Share − 40% of net income over the cycle 22 % ~100% − Average 2010-2014 payout ratio of ~100% reflects weak Payout ratio earnings in
Slide 15: Significant exposure to commodity and currency fluctuations
EFFECTIVE RISK MANAGEMENT Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +1.06 Sustainable effect: 3 100 NOK/share NOK million USD BRL EUR 2 400 UEBIT 2 830 (930) (270) UEPS 0.92 (0.29) (0.09) One-off reeval
Slide 16: 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 2,370 • 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 17: 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 780 − ~One month lag • Realized alumina price lags PAX by one month 540 Cost impact Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 18: Limited financial hedging, flexible business model
EFFECTIVE RISK MANAGEMENT Limited financial hedging, flexible business model • Volatility mitigated by strong balance sheet • Improving relative position to ensure competitiveness • Diversified business: - Upstream cyclicality balanced with more stable earnings downstream - Exposed to different mark
Slide 19: Improvement efforts lift EBITDA potential
Improvement efforts lift EBITDA potential Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative EBITDA-range in 3 scenarios NOK billion 25 Excl. realized improvement programs 2011-2015* 20 Incl. 4,5 BNOK in realized improvement programs (as is) 15 Incl. 3,0
Slide 20: Improvement efforts and capital discipline contribute to FCF growth…
Improvement efforts and capital discipline contribute to FCF growth… Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative Free cash flow (FCF) range in 3 scenarios NOK billion 15 Excl. realized improvement programs 2011-2015* Incl. 4,5 BNOK in realized impr
Slide 21: …and lift potential for competitive returns
…and lift potential for competitive returns Scenarios are not forecasts, but represent earnings potential based on sensitivities Indicative RoaCE range in 3 scenarios 15% Excl. realized improvement programs 2011-2015* 12% Incl. 4,5 BNOK in realized 9% improvement programs (as is) 6% Incl. 2.9 BNOK**
Slide 22: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe CMD 2015 update Improvement programs 2.9 BNOK 2016-2019 4.5 BNOK 2009 - 2015E Sustaining capex 3.5 - 4.0 BNOK Over the cycle 4.7 BNOK 2015E Average capex incl. growth 6.6 BNOK* 2016-2018 5.8 BNOK 2015E D
Slide 23: Financial strength through relative positioning and balanced capital allocation
Financial strength through relative positioning and balanced capital allocation • Continuous cost and margin improvements • Working capital management • Financial strength and flexibility • Disciplined capital allocation • Reliable shareholder remuneration policy • Effective risk management