Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (November 2016)
27 slides from Norsk Hydro Asa's investor day presentation, November 2016
Slide 1: Finance: Maximizing long-term value creation potential
Finance Maximizing long-term value creation potential Eivind Kallevik Capital Markets Day 2016
Slide 2: Financial performance over time
Financial performance over time Earnings and RoACE supported by continuous improvements Uncompromised balance sheet strength 10 9.7 10% 10 30% 5.1 5.4 6.0 5.7 6.2 1.7 1.7 0.7 2.7 0 0% 1.3 (0.1) 0 0% 2011 2012 2013 2014 2015 LTM Q3-16 2011 2012 2013 2014 2015 LTM Q3-16 Underlying EBIT - BNOK (LHS)* U
Slide 3: Prudent financial framework
Prudent financial framework 43
Slide 4: 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 5: Supporting earnings with industry-leading improvement ambitions
LIFTING CASH FLOW POTENTIAL Supporting earnings with industry-leading improvement ambitions Underlying EBIT development Better improvement ambition by NOK billion categoty, 2.9 BNOK 2016-2019 Better ambition 2016-2019 Improvements 2011-2015 Improvements 2009-2011 1.8 7.1 6.0 5.6 5.3 Volume/capacity
Slide 6: Structurally improved cost position upstream
LIFTING CASH FLOW POTENTIAL Structurally improved cost position upstream Productivity gains supported by currency tailwinds All-in implied primary cost and margin, USD/mt 1) Implied alumina cost and margin, USD/mt 3) Realized Realized all-in price 2) 2 368 2 353 alumina price 2 271 286 284 275 2 179
Slide 7: Improving margins downstream
LIFTING CASH FLOW POTENTIAL Improving margins downstream Rolled Products Underlying EBIT per mt Sapa (100%) Underlying EBIT per mt NOK NOK 1,248 1,260 1,456 1,204 973 1,032 785 783 738 656 466 2013 2014 2015 LTM Q3 2016* (63) UEBIT/t ex. Neuss EBIT/t incl. Neuss 2013 2014 2015 LTM Q3 2016 • Gradual
Slide 8: Optimizing working capital remains key priority
LIFTING CASH FLOW POTENTIAL Optimizing working capital remains key priority Release in 2016 following the above-average inventory build-up last year NOK billion* Days 20 80 • Net operating capital generally follows LME 76 76 76 74 72 72 70 70 68 68 70 71 70 69 • NOC release throughout 2016 driven by
Slide 9: Continuous portfolio review
LIFTING CASH FLOW POTENTIAL Continuous portfolio review Recent non-core and legacy asset divestments contribute to cash flow Asset/business Completed Cash effect Accounting effect Description Casthouse Hannover, Germany Q1 2014 ~MEUR 7 ~MEUR 4 Legacy asset Stranded asset following closure Koorang Bu
Slide 10: 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 Adjusted net debt / Equity − Currently: BBB (S&P), Baa2 (Moody’s), both with stable outlook 60 % <55 % 50 % • Financial ratio ambi
Slide 11: Maintain a solid balance sheet
FINANCIAL STRENGTH AND FLEXIBILITY Maintain a solid balance sheet Reduced adjusted net debt Adjusted net debt • Reduction in Qatalum and Sapa net debt due to NOK billion positive net cash flow and stronger NOK 8.0 6.1 1.3 End Q3-15 0.3 3.3 (5.5) (8.0) (7.1) (17.3) 5.9 6.8 -18 -18%% End Q3-16 End Q3-
Slide 12: Long-term sustaining capex around NOK 4 billion
DISCIPLINED CAPITAL ALLOCATION Long-term sustaining capex around NOK 4 billion Higher than average sustaining capex driven by sustaining investments in Brazil NOK billion 6.0 5.5 5.3 5.0 5.0 4.9 4.7 4.5 4.2 4.0 3.5 3.5 3.3 3.0 2.8 2.7 2.5 2.0 1.5 1.0 0.5 0 2011 2012 2013 2014 2015 2016E 2017E 2018E
Slide 13: Growth capex focused on high-grading, recycling and technology
DISCIPLINED CAPITAL ALLOCATION Growth capex focused on high-grading, recycling and technology Majority of sustaining capex allocated upstream NOK billion • Sustaining projects for 2016-2019: 7.8 − Red mud disposal area 7 6.8 − Bauxite tailing dam 6.3 − Opening of new bauxite mining area 6 5.8 − Prim
Slide 14: Aiming for reliable and competitive returns to shareholders
RELIABLE SHAREHOLDER REMUNERATION POLICY Aiming for reliable and competitive returns to shareholders Aiming for competitive shareholder returns Payout ratio compared to alternative investments in peers NOK/Share ~110% Average 22 % payout ratio Dividend policy since 2014 2011-2015 • Ordinary dividend
Slide 15: Limited financial hedging, flexible business model
EFFECTIVE RISK MANAGEMENT Limited financial hedging, flexible business model Historical correlations between commodities and currencies indicate a natural earnings hedge • Hedging strategy Cross-correlations between currencies and commodities − Fluctuating with the market: revenues primarily exposed
Slide 16: Sensitivities and scenarios
Sensitivities and scenarios 56
Slide 17: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* UEPS Currency sensitivities +10%* NOK million +0.98 NOK/share Sustainable effect: 2,900 NOK million USD BRL EUR 2,200 UEBIT 2 780 (1 120) (250) UEBITDA 2 830 (840) (160) UEPS 0.91 (0.31) (0.06) UEBIT Underl
Slide 18: 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 850 − ~One month lag • Realized alumina price lags PAX by one month Cost impact 240 Bauxite • ~2.45 tonnes bauxite per tonne alumina • P
Slide 19: 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 • Realized premium lags market premium by ~1-2 months 2,480 Cost impact Alumina • ~1.9 tonnes per tonne aluminium 210 • ~14.5% of 3-month LME
Slide 20: Commodities and currencies need to be seen in tandem
Commodities and currencies need to be seen in tandem Spot prices and currency rates indicate earnings upside Underlying EBIT sensitivity to changes in LME Key variables “run-rate”* vs Q3-16 realized and USD/NOK Annual effect Change in LME price Q3-16 Impact on Impact on UEPS realized Run-rate* % cha
Slide 21: 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 20 15 Incl. 1.9 BNOK* in remaining 10 improvement ambitions 2017 - 2019 5 Incl. 5.6 BNOK in realized improvement progra
Slide 22: 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 10 Incl. 1.9 BNOK* in remaining improvement 5 ambitions 2017 - 2019 Incl. 5.6
Slide 23: ...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% 12% 9% 6% Incl. 1.8 BNOK* in remaining improvement 3% ambitions 2017 - 2019 0% Incl. 5.6 BNOK in realized improvement programs 20
Slide 24: Financial targets and aspiration
Financial targets and aspiration 64
Slide 25: Driving long-term shareholder value
Driving long-term shareholder value Balancing capital allocation and financial strength Capital expenditures Solid balance Sustaining capex to ensure operational excellence Long-term shareholder value sheet and Investments to keep market share, reduce costs, Share strengthen margins • Reinvest in li
Slide 26: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe CMD 2016 status Better improvement ambition 2.9 BNOK 2016-2019 1.1 BNOK 2016E Sustaining capex ~ 4 BNOK Over the cycle 5.3 BNOK 2016E Average capex incl. growth 6.0 BNOK 1) 2017-2019 7.8 BNOK 2016E Divid
Slide 27: Maximizing long-term value creation potential
Maximizing long-term value creation potential • Continuous cost and margin improvements • Working capital management • Financial strength and flexibility • Disciplined capital allocation • Reliable shareholder remuneration policy • Effective risk management (67)