Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2019 Earnings Presentation
58 slides from Norsk Hydro Asa's earnings presentation, July 2019
Slide 1: Second quarter results 2019
Second quarter results 2019
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: Second quarter highlights
Second quarter highlights • Underlying EBIT of NOK 875 million • Ramp-up progressing successfully at Alunorte, Paragominas and Albras • Bauxite & Alumina up on increased production and currency, mostly offset by lower realized alumina prices • Primary Metal down on lower realized aluminium price • F
Slide 4: Ramp-up progressing successfully in Pará
Ramp-up progressing successfully in Pará Commissioning new press filter technology at Alunorte Ramp-up process Way forward Alunorte Alunorte production in ramp-up period, daily production annualized in million mt Alunorte production, annualized in million mt 6 6 85-95% 5 5 75-85% 4 4 3 3 2 Embargo 2
Slide 5: Key focus going forward
Key focus going forward CHANGE PICTURE • Safe ramp-up of Alunorte, Albras and Paragominas key priority • Fully committed to deliver on obligations under technical and social agreement (TAC and TC) • Continued dialogue with state environmental agency SEMAS and Ministerio Público on creating common pl
Slide 6: Status update cyber attack
Status update cyber attack Operational and financial impact • Overall financial impact for Q2 NOK 250-300 million • Of which Extruded Solutions NOK 150-200 million • Overall financial impact for Q1 NOK 300-350 million • Of which Extruded Solutions NOK 250-300 million • At end-Q2 operations have larg
Slide 7: Global aluminium market in deficit in Q2 2019
Global aluminium market in deficit in Q2 2019 Continued deficit in world outside China, Q2 deficit also in China Quarterly market balances, world ex. China and China Production less demand*) 1 000 mt primary aluminium 1 000 mt primary aluminium 1 500 2 000 1 000 1 000 500 0 0 (1 000) ( 500) (2 000)
Slide 8: Global market expected in deficit for 2019
Global market expected in deficit for 2019 China largely balanced, world outside China in deficit World ex. China 2019 Estimated primary market balance 2019 0-1 % (mill t.) (‘000t) 1 000 2-3 % ~29.6 – 29.9 Production Demand ~28.2 – 28.5 0 China 2019 (mill t.) -1 000 1-2 % 1-3 % Production ~36.4 – 36
Slide 9: Inventories gradually trending downwards, increasing Chinese semis exports
Inventories gradually trending downwards, increasing Chinese semis exports Global reported and unreported, in thousand tonnes Inventory days Semis exports from China, in thousand tonnes Comp. adv (USD/mt) 16000 140 500 1 000 450 120 800 400 Competitive advantage China 12000 100 350 600 300 80 400 80
Slide 10: LME aluminium prices down in Q2
LME aluminium prices down in Q2 SHFE up in Q2, reducing competitiveness on metal from China 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 1 600 100 1 400 12 000 1 200 10 000 0 Jan-1
Slide 11: Alumina prices down in Q2, continued volatility
Alumina prices down in Q2, continued volatility Platts alumina index (PAX) • Alumina prices trending downwards in 1H 2019 USD/t and into Q3 750 35% • Continued price volatility, impacted in Q2 by Chinese 650 30% environmental curtailments and Alunorte restart 550 25% • Refinery cost in general trend
Slide 12: Softening downstream demand growth
Softening downstream demand growth Weak demand in Europe, reduced extrusion growth in North America Extrusions – estimated market growth 2019 vs 2018 (%) Rolled products – estimated market growth 2019 vs 2018 (%) Building & Building & Construction Construction Transport & Transport & automotive auto
Slide 13: Raw material costs for the aluminium industry continue to trend downwards
Raw material costs for the aluminium industry continue to trend downwards 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 Q318 Q119 Q116 Q316 Q117 Q317 Q118 Q318 Q119
Slide 14: Upstream costs trending downwards
Upstream costs trending downwards Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) USD/mt 4) 375 50 75 63 2 175 2 200 2 100 62 69 367 311 296 1 7755) 1 8505) 1 775) Q2 2018 Q1 2019 Q2 2019 Q2 2018 Q1 2019 Q2 2019 430 373 365 Price 2) 2 547 2 256 2 184 All-in 6) 17.2 %
Slide 15: Rolled Products: Sales reduction driven by softening markets
Rolled Products: Sales reduction driven by softening markets YTD 2019 vs YTD 2018 Q2 2019 vs Q2 2018 Q2 2019 vs Q1 2019 Sales volume Growth in % 3% 3% 1% 0% (1%) (2%) (2%) (4%) (6%) (6%) (7%) (7%) Can & foil Special products Can & foil Special products Can & foil Special products Lithography & Total
Slide 16: Extruded Solutions: Continued improvements in net added value
Extruded Solutions: Continued improvements in net added value Net added value* per kg (NOK**, indexed to 2016) 1.2 1.0 0.8 0.6 0.4 0.2 0.0 Extrusion Europe Extrusion North America Building Systems Precision Tubing Extruded Solutions 2016 2017 2018 Roll 12m (Q2 2019) * Net Added Value: calculated as
Slide 17: Portfolio optimization in Extruded Solutions
Portfolio optimization in Extruded Solutions • Constantly reviewing overall portfolio, aiming to optimize and streamline • Several smaller restructuring efforts ongoing in Europe – simplifying footprint and addressing softening demand in several markets • The following restructuring efforts are ongo
Slide 18: Nordic power prices down on improved hydrological balance
Nordic power prices down on improved hydrological balance and lower coal and gas prices Nordic System and German Power Prices (EUR/MWh) Nordic Hydrological Balance EUR/MWh TWh +/- normal 60 0 50 -5 40 -10 30 -15 20 -20 10 -25 0 -30 2018-Q2 2018-Q3 2018-Q4 2019-Q1 2019-Q2 Q2-2018 Q3-2018 Q4-2018 Q1-2
Slide 19: Økern Portal in Oslo chooses aluminium with low carbon footprint
Økern Portal in Oslo chooses aluminium with low carbon footprint Hydro’s Circal75R enabling builders and architects to meet demanding sustainability targets 19
Slide 20: Financial update
Financial update Eivind Kallevik, Executive Vice President and CFO
Slide 21: Results down on lower realized prices
Results down on lower realized prices Q2 2019 vs Q2 2018 NOK billion 2.7 (1.4) (0.4) (0.2) 0.9 0.5 (0.3) UEBIT Q2 2018 Realized Realized alumina price Downstream Currency Energy and other UEBIT Q2 2019 aluminium price volume and margin 21
Slide 22: Improved results on lower costs and higher volumes
Improved results on lower costs and higher volumes Q2 2019 vs Q1 2019 NOK billion 0.2 (0.4) 0.9 0.5 (0.3) 0.2 0.6 UEBIT Q1 2019 Raw material Upstream volume Realized aluminium Energy price and volume Downstream and other UEBIT Q2 2019 and fixed cost and alumina price 22
Slide 23: Key financials
Key financials Year NOK million Q2 2019 Q2 2018 Q1 2019 2018 Revenue 39 176 41 254 37 583 159 377 Underlying EBIT 875 2 713 559 9 069 Items excluded from underlying EBIT 219 (274) 539 547 Reported EBIT 656 2 986 20 8 522 Financial income (expense) (664) (441) 6 (2 060) Income (loss) before tax (8) 2
Slide 24: Items excluded from Underlying EBIT
Items excluded from Underlying EBIT Excluded a loss of 219 MNOK from Underlying EBIT Year NOK million Q2 2019 Q2 2018 Q1 2019 2018 Underlying EBIT 875 2 713 559 9 069 Unrealized derivative effects on LME related contracts (11) 306 (200) (39) Unrealized derivative effects on power and raw material co
Slide 25: Bauxite & Alumina
Bauxite & Alumina Results up on ramping-up production and currency tailwinds Key figures Q2 2019 Q2 2018 Q1 2019 Alumina production, kmt 932 829 805 Total alumina sales, kmt 1 668 1 842 1 423 Realized alumina price, USD/mt 365 430 373 Implied alumina cost, USD/mt 296 367 311 Bauxite production, kmt
Slide 26: Primary Metal
Primary Metal Results down on lower realized prices Key figures Q2 2019 Q2 2018 Q1 2019 Primary aluminium production, kmt 486 492 485 Total sales, kmt 527 549 534 Realized LME price, USD/mt 1 858 2 183 1 912 Realized LME price, NOK/mt 15 959 17 292 16 291 Realized premium, USD/mt 326 364 344 Implied
Slide 27: Metal Markets
Metal Markets Results up on stronger performance from remelters and commercial activities Key figures Q2 2019 Q2 2018 Q1 2019 Remelt production, kmt 139 153 131 Metal products sales, kmt 1) 707 746 683 Underlying EBITDA, NOK million 328 262 219 Underlying EBIT excl currency and inventory valuation 3
Slide 28: Rolled Products
Rolled Products Results down on lower volumes and margins, weaker results from Neuss smelter Key figures Q2 2019 Q2 2018 Q1 2019 External sales volumes, kmt 242 251 246 Underlying EBITDA, NOK million 326 438 384 Underlying EBIT, NOK million 75 212 138 Results Q2 19 vs Q2 18 • Lower results from the
Slide 29: Extruded Solutions
Extruded Solutions Results negatively affected by the cyber attack and softer markets Key figures Q2 2019 Q2 2018 Q1 2019 External sales volumes, kmt 348 373 333 Underlying EBITDA, NOK million 1 279 1 383 1 099 Underlying EBIT, NOK million 772 957 593 Results Q2 19 vs Q2 18 • ~ MNOK 150-200 in negat
Slide 30: Energy
Energy Results down on lower volumes Key figures Q2 2019 Q2 2018 Q1 2019 Power production, GWh 1 993 2 550 2 553 Net spot sales, GWh 289 961 770 Southwest Norway spot price (NO2), NOK/MWh 360 369 468 Underlying EBITDA, NOK million 242 479 583 Underlying EBIT, NOK million 176 417 517 Results Q2 19 vs
Slide 31: Other and Eliminations
Other and Eliminations Underlying EBIT, NOK million Q2 2019 Q2 2018 Q1 2019 Other (253) (156) (307) Eliminations (5) (74) 46 Other and Eliminations (258) (229) (261) 31
Slide 32: Net debt increased in Q2 2019
Net debt increased in Q2 2019 Reflecting dividend payment to shareholders NOK billion Net cash flow from operations NOK 2.6 billion 1.3 (1.6) 2.9 (2.7) (12.1) (2.6) (0.4) (15.1) End Q1 2019 Underlying EBITDA Operating capital Taxes and other Net investments Dividends Other End Q2 2019 32
Slide 33: Adjusted net debt up in Q2
Adjusted net debt up in Q2 Driven by increased net debt position Jun 30, Mar 31 Dec 31 2018 NOK billion 2019 2019 Restated1) Cash and cash equivalents 10.6 6.1 6.0 Short-term investments 1.1 1.3 1.0 Short-term debt (8.2) (8.9) (9.4) Long-term debt (18.6) (10.6) (9.3) Net cash/(debt) (15.1) (12.1) (1
Slide 34: Measures to improve performance and cash generation
Measures to improve performance and cash generation Lifting • Safe and efficient operations - always key priority profitability • Return Alunorte, Paragominas and Albras to full production and operational excellence • Rolled Products restructuring and strategic review • New improvement efforts acros
Slide 35: Additional information
Additional information Investor presentation, July 2019
Slide 36: Prudent financial framework
Prudent financial framework Managing industry cyclicality, driving long-term shareholder value Lifting cash flow Financial strength Disciplined Predictable dividend Effective risk potential and flexibility capital allocation policy management Improving efficiency, Investment grade credit Long-term s
Slide 37: Hydro's aspiration underpinned by firm financial targets
Hydro’s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe 2018 status Better improvement ambition 3.0 BNOK 2016-2019 (0.6) BNOK 2018 Dividend payout ratio 40% of net income Over the cycle ~57%1) 2014-2018 FFO/adjusted net debt 2) > 40% Over the cycle 44% 20185)
Slide 38: Shareholder and financial policy / Hedging policy
Shareholder and Hedging policy financial policy • Hydro aims to give its shareholders competitive returns compared to • Hedging strategy alternative investments in comparable companies • Fluctuating with the market: primarily exposed to LME and USD • Dividend policy • Volatility mitigated by strong
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 BNOK <55% 32 % 33 % 24 % 26 % 26 % 22 % 20 % 3) 19 % Dec 31, 2018 (11.7) (4.0) (5.6) (8.8) (30.1) 14 % 11 % Restated 3) 2009 2
Slide 40: Growth capex focused on incremental growth and productivity improvements
Growth capex focused on incremental growth and productivity improvements Majority of sustaining capex allocated upstream NOK billion ~10-10.5 • Sustaining projects for 2018-2021: • Pipeline replacement in B&A 8.8 ~8.5-9.5 • PM rectifiers and asset integrity Albras 7.9 7.8* • Smelter relining 7.2 • A
Slide 41: Significant exposure to commodity and currency fluctuations
Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10% Currency sensitivities +10% NOK million Sustainable effect: 3 600 NOK million USD BRL EUR 2 500 UEBIT 3 680 (1 110) (240) One-off reevaluation effect: UEBIT Underlying Net Income 3) Financial items 40 800 (3
Slide 42: 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 with one month lag • Realized alumina price lags PAX by one month 1 600 Cost impact Bauxite 200 • ~2.45 tonnes bauxite per tonne alumina •
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 • Realized premium lags market premium by ~2-3 months 3 170 Cost impact Alumina 290 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 44: Items excluded from underlying results - 2019
Items excluded from underlying results - 2019 NOK million (+=loss/()=gain) Q1 2019 Q2 2019 Alunorte agreements - provision Bauxite & Alumina 35 14 Total impact Bauxite & Alumina 35 14 Unrealized derivative effects on LME related contracts Primary Metal 122 (15) Unrealized effects on power contracts
Slide 45: Items excluded from underlying results - 2018
Items excluded from underlying results - 2018 NOK million (+=loss/()=gain) Q1 2018 Q2 2018 Q3 2018 Q4 2018 Year 2018 Alunorte agreements - provision Bauxite & Alumina - - 519 - 519 Total impact Bauxite & Alumina - - 519 - 519 Unrealized derivative effects on LME related contracts Primary Metal (114)
Slide 46: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 685 493 153 415 3 704 2 282 Primary Metal 900 1 486 1 298 1 377 823 755 861 (677) (771) (604) 5 06
Slide 47: Operating segment information
Operating segment information EBIT NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 166 493 118 401 3 704 1 763 Primary Metal 797 1 538 1 282 1 112 917 776 954 (524) (919) (554) 4 729 2 123 Met
Slide 48: Operating segment information
Operating segment information Total revenue NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 5 911 5 858 5 612 8 040 6 309 6 877 6 749 8 613 4 866 5 745 25 421 28 548 Primary Metal 8 641 9 575 8 958 9 291 10 170 10 083
Slide 49: Operating segment information
Operating segment information Internal revenue NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 2 528 2 441 2 320 2 944 2 800 3 237 3 733 4 381 2 496 3 052 10 234 14 152 Primary Metal 6 941 7 631 7 093 7 223 8 152 8 090
Slide 50: Operating segment information
Operating segment information Return on average capital employed 1) (RoaCE) Reported RoaCE Underlying RoaCE 2018 2017 2016 2015 2014 2013 2012 2018 2017 2016 2015 2014 2013 2012 Bauxite & Alumina 4.3% 8.5% 2.7 % 5.3 % (0.1) % (2.5) % (1.5) % 5.5% 8.5% 2.8 % 5.3 % (0.1) % (2.2) % (1.6) % Primary Meta
Slide 51: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Bauxite & Alumina 577 586 644 679 630 573 509 384 605 589 2 486 2 095 Primary Metal 492 505 504 526 546 575 583 548
Slide 52: Income statements
Income statements NOK million Q2 2019 Q2 2018 Q1 2019 First half 2019 First Half 2018 Year 2018 Revenue 39 176 41 254 37 583 76 759 81 225 159 377 Share of the profit (loss) in equity accounted investments 47 286 3 50 506 765 Other income, net 139 184 183 322 339 772 Total revenue and income 39 362
Slide 53: Balance sheets
Balance sheets NOK million Jun 30, 2019 Mar 31, 2019 Dec 31 20181) Sep 30 2018 Jun 30 2018 Mar 31 2018 Cash and cash equivalents 10 590 6 099 5 995 6 846 5 682 9 371 Short-term investments 1 090 1 274 975 1 176 1 136 1 031 Accounts receivable 23 186 23 542 20 744 21 727 23 442 22 785 Inventories 22
Slide 54: Operational data
Operational data Bauxite & Alumina Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Alumina production (kmt) 1 523 1 576 1 605 1 693 1 277 829 821 786 805 932 6 397 3 712 Sourced alumina (kmt) 600 645 667 610 900 985 907 1 163 711 704 2 522 3 954 To
Slide 55: Operational data
Operational data Metal Markets Q1 2017 Q2 2017 Q3 2017 Q4 2017 Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Year 2017 Year 2018 Remelt production (1 000 mt) 143 152 136 137 150 153 126 135 131 139 568 563 Third-party Metal Products sales (1 000 mt) 79 80 74 86 70 77 83 73 70 83 319 304 Metal Prod
Slide 56: Extruded Solutions, information by business area
Extruded Solutions, information by business area Historical Sapa information (100% basis) Q1 2017 – Q3 2017 Extruded Solutions, fully consolidated in Hydro since Q4 2017 1) Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Precision Tubing 2017 2017 2017 2017 2018 2018 2018 2018 2018 2019
Slide 57: Investor Relations in Hydro
Investor Relations in Hydro Next events Investor Day Stian Hasle Head of Investor Relations September 24, 2019 t: +47 97736022 e: stian.hasle@hydro.com Third quarter results Olena Lepikhina Investor Relations Officer October 23, 2019 t: +47 96853035 e: olena.lepikhina@hydro.com For more information
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