Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Q3 2019 Earnings Presentation
134 slides from Norsk Hydro ASA's earnings presentation, October 2019
Slide 1: Third quarter 2019 Investor presentation
Third quarter 2019 Investor presentation October 2019 1
Slide 2: Table of contents and cautionary note
Table of contents Third quarter results 2019 3 Cautionary note Certain statements included in this announcement contain forward-looking information, Market 37 including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concernin
Slide 3: Third quarter results 2019
Investor presentation, October 2019
Slide 4: Third quarter highlights
Third quarter highlights • Underlying EBIT of NOK 1 366 million • Final Alunorte embargo lifted • Results down on lower aluminium and alumina prices • Positive effects from higher upstream production and lower raw material costs • New improvement program on track for 2019 target • Increased market u
Slide 5: Ramping up production at Alunorte
Ramping up production at Alunorte • Final embargo lifted on September 26, allowing Alunorte to resume installation and commissioning activities at DRS2 • 83% average capacity utilization in Q3, targeting 75-85% in Q4 • Commissioning of 9th press filter during November, expected to reach full utiliza
Slide 6: On track for 2019 improvement target of NOK 500 million
On track for 2019 improvement target of NOK 500 million Faster ramp-up in Brazil, Extruded Solutions facing market headwinds By business area Bauxite & Alumina Primary Metal Curtailment reversal Curtailment reversal Fixed cost and efficiency 0,9 Fixed cost and efficiency Husnes restart 0,2 2,7 0,9 R
Slide 7: Global aluminium market in deficit in Q3 2019
Global aluminium market in deficit in Q3 2019 Balanced market in world outside China, deficit in China driven by production disruptions 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
Slide 8: Global primary market expected in deficit for 2019
Global primary market expected in deficit for 2019 World ex. China 2019 Estimated primary market balance 2019 (2) - (1) % (mill t.) (‘000t) 0 2-3 % ~28.8 – 29.1 Production ~28.2 – 28.5 Demand -1 000 China 2019 (mill t.) 1-2 % (2) - (1) % Production ~36.1 – 36.5 Demand ~35.5 – 35.9 -2 000 China World
Slide 9: Largely balanced market expected for 2020
Largely balanced market expected for 2020 Higher production growth and continued subdued demand World ex. China 2020 Estimated primary market balance 2020 (mill t.) (‘000t) 2-3 % (1) - 1 % 2 000 ~28.9 – 29.2 ~28.7 – 29.3 Production Demand 1 500 1 000 China 2020 (mill t.) 4-6 % 500 1-3 % Production ~
Slide 10: Competitive advantage China
Inventories gradually trending downwards Chinese semis exports moderating Global reported and unreported, in thousand tonnes Inventory days Semis exports from China, in thousand tonnes Comp. adv (USD/mt) 16000 140 500 1 000 450 800 120 400 Competitive advantage China 12000 600 100 350 300 400 80 250
Slide 11: Stable LME in USD, improving in NOK during Q3
Stable LME in USD, improving in NOK during Q3 Tightening spread between standard ingot and product premiums LME and SHFE aluminium prices European extrusion ingot margin over standard ingot USD/mt NOK/mt USD/mt 900 2 600 22 000 800 2 400 20 000 700 2 200 600 18 000 2 000 500 16 000 400 1 800 14 000
Slide 12: Negative extrusions demand in Europe and North America
Negative extrusions demand in Europe and North America Driven by weak macroeconomic development Extrusions – estimated market growth 2019 vs 2018 (%) Extrusions – estimated market growth 2019 vs 2018 (%) 0% Building & construcion -1% Transport & -2% automotive -3% Industrial -4% -5% Other -6% -7% To
Slide 13: Extruded Solutions taking firm measures in weak markets
Extruded Solutions taking firm measures in weak markets • Restructuring in Europe • Full closures: Pinto (Spain), Redditch (UK), Rotherham (UK), Wakefield warehouse (UK), Lodz warehouse (Poland), Dusseldorf office (Germany) • Divestments: Chisineu Cris (Romania) • Restructuring in North America • Fu
Slide 14: Transport and packaging demand remains firm, rolled products demand weakening
Transport and packaging demand remains firm, overall rolled products demand weakening Rolled products – estimated market growth 2019 vs 2018 (%) Rolled products – Estimated market growth 2019 vs 2018 (%) 5% Building & construcion 4% Transport & automotive 3% Packaging 2% Industrial 1% Other 0% Total
Slide 15: Growing can market, supported by substitution
Growing can market, supported by substitution • Sustainability trend supporting substitution to aluminium • Several announcements on transition from beverage companies and can producers • Can sheet demand in Europe expected to grow by 5-6% in 2019 and 6-7% in 2020 • Interesting market growth opportu
Slide 16: Restructuring and strategic review in Rolled Products
Restructuring and strategic review in Rolled Products • Improvement and restructuring • Organizational efficiency • Operational efficiency • Commercial excellence • Shifting volumes to more attractive market segments: automotive and can • BNOK 0.9 improvement targeted by 2023, in addition to BNOK 0.
Slide 17: Alumina prices down in Q3
Alumina prices down in Q3 Increasing alumina imports to China on widening price arbitrage Platts alumina index (PAX) Monthly Chinese alumina trade balance (kt) In USD per tonne In percentage of LME In ‘000 tonnes 750 35% 500 ~2.9 million ~0.6 million tonnes tonnes 400 imports net imports 650 30% 300
Slide 18: Industry raw material costs down in Q3
Industry raw material costs down in Q3 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 Q319 Q116 Q316 Q117 Q317 Q118 Q318 Q119 Q319 Q116 Q316 Q117 Q317 Q118
Slide 19: Upstream costs trending downwards
Upstream costs trending downwards Implied costs approaching pre-curtailment levels Implied alumina cost and margin All-in implied primary cost and margin USD/mt 1) USD/mt 4) 425 75 84 175 69 2 150 2 100 1 900 57 376 296 253 1 7505) 1 7755) 1 6005) Q3 2018 Q2 2019 Q3 2019 Q3 2018 Q2 2019 Q3 2019 460
Slide 20: Nordic power prices down on improved hydrological balance
Nordic power prices down on improved hydrological balance through Q3 Nordic System and German Power Prices (EUR/MWh) Nordic hydrological balance EUR/MWh TWh +/- normal 60 10 50 5 40 0 30 -5 20 -10 10 -15 0 -20 2018-Q3 2018-Q4 2019-Q1 2019-Q2 2019-Q3 Q3- Q4- Q1- Q2- Q3- 2018 2018 2019 2019 2019 Nordi
Slide 21: Audi e-tron and Hydro: joint sustainability commitment
Audi e-tron and Hydro: joint sustainability commitment • Hydro provides ASI certified aluminium to the battery housing of the Audi e-tron • The Aluminium Stewardship Initiative is the industry-leading standard of responsibility and sustainability • Hydro with longest unbroken chain of ASI certificat
Slide 22: Results down on lower realized prices
Results down on lower realized prices Year-on-year results Q3 2019 vs Q3 2018 NOK billion 2,7 0,5 (0.9) (2.0) 1,4 1,5 (1.6) 1.2 UEBIT Q3 2018 Realized Realized Upstream volume Upstream costs Currency Energy and other UEBIT Q3 2019 aluminium price alumina price 22
Slide 23: Improved results on lower costs and higher volumes upstream
Improved results on lower costs and higher volumes upstream Quarter-on-quarter results Q3 2019 vs Q2 2019 NOK billion 1,4 0,3 0,9 0,7 (0.5) (0.7) 0.8 UEBIT Q2 2019 Realized Realized alumina price Upstream volume Upstream costs Currency and other UEBIT Q3 2019 aluminium price 23
Slide 24: Key financials
Key financials NOK million Q3 2019 Q3 2018 Q2 2019 Year 2018 Revenue 37 517 39 766 39 176 159 377 Underlying EBIT 1 366 2 676 875 9 069 Items excluded from underlying EBIT 1 144 620 219 547 Reported EBIT 222 2 057 656 8 522 Financial income (expense) (1 628) (423) (664) (2 060) Income (loss) before
Slide 25: Items excluded from Underlying EBIT
Items excluded from Underlying EBIT Excluded a loss of 1 144 MNOK from Underlying EBIT NOK million Q3 2019 Q3 2018 Q2 2019 Year 2018 Underlying EBIT 1 366 2 676 875 9 069 Unrealized derivative effects on LME related contracts 120 (436) (11) (39) Unrealized derivative effects on power and raw materia
Slide 26: Bauxite & Alumina
Bauxite & Alumina Results down on lower realized alumina prices Key figures Q3 2019 Q3 2018 Q2 2019 Alumina production, kmt 1 320 821 932 Total alumina sales, kmt 2 124 1 711 1 668 Realized alumina price, USD/mt 310 460 365 Implied alumina cost, USD/mt1) 253 376 296 Bauxite production, kmt 2 152 1 2
Slide 27: Primary Metal
Primary Metal Results down on lower realized metal prices Key figures Q3 2019 Q3 2018 Q2 2019 Primary aluminium production, kmt 522 497 486 Total sales, kmt 537 516 527 Realized LME price, USD/mt 1 784 2 194 1 858 Realized LME price, NOK/mt 15 732 17 905 15 959 Realized premium, USD/mt 305 367 326 I
Slide 28: Metal Markets
Metal Markets Results up on stronger performance from remelters and commercial activities Key figures Q3 2019 Q3 2018 Q2 2019 Remelt production, kmt 125 126 139 Metal products sales, kmt 1) 662 685 707 Underlying EBITDA, NOK million 395 22 328 Underlying EBIT excl currency and inventory valuation 33
Slide 29: Rolled Products
Rolled Products Results up driven by Neuss smelter Key figures Q3 2019 Q3 2018 Q2 2019 External sales volumes, kmt 245 235 242 Underlying EBITDA, NOK million 430 314 326 Underlying EBIT, NOK million 166 82 75 Underlying RoaCE, % LTM* 1.5% 3.6% 1.0% Results Q3 19 vs Q3 18 • Stable results from the ro
Slide 30: Extruded Solutions
Extruded Solutions Results up on higher margins, despite lower volumes Key figures Q3 2019 Q3 2018 Q2 2019 External sales volumes, kmt 316 343 348 Underlying EBITDA, NOK million 1 099 931 1 279 Underlying EBIT, NOK million 559 497 772 Underlying RoaCE, % LTM* 5.9% 7.8% 5.9% Results Q3 19 vs Q3 18 •
Slide 31: Energy
Energy Results down on lower volumes and prices Key figures Q3 2019 Q3 2018 Q2 2019 Power production, GWh 2 273 2 888 1 993 Net spot sales, GWh 582 1 315 289 Southwest Norway spot price (NO2), NOK/MWh 328 475 360 Underlying EBITDA, NOK million 319 716 242 Underlying EBIT, NOK million 254 652 176 Und
Slide 32: Other and Eliminations
Other and Eliminations Underlying EBIT, NOK million Q3 2019 Q3 2018 Q2 2019 Other (160) (190) (253) Eliminations (257) 93 (5) Other and Eliminations (417) (97) (258) Underlying EBIT NOK million 161 (97) (261) (258) (417) (229) (145) (310) (936) 2018 2019 32
Slide 33: Net debt reduced in Q3 2019
Net debt reduced in Q3 2019 Higher operating cash flow supported by further NOC release NOK billion Net cash flow from operations NOK 3.5 billion 1.0 (0,9) (2,0) 3.5 (1,0) (14,5) (15,1) End Q2 2019 Underlying EBITDA Operating capital Taxes and other Net investments Other End Q3 2019 33
Slide 34: Adjusted net debt up in Q3
Adjusted net debt up in Q3 Driven by increased net pension liability on lower discount rates Sep 30, Jun 30, Mar 31 NOK billion 2019 2019 2019 Cash and cash equivalents 10.6 10.6 6.1 Short-term investments 0.9 1.1 1.3 Short-term debt (6.1) (8.2) (8.9) Long-term debt (20.0) (18.6) (10.6) Net cash/(de
Slide 35: Capital return dashboard for Hydro Q3 2019
Capital return dashboard for Hydro Q3 2019 Hydro targets URoaCE above 10% over the cycle Capital employed1) 1% Bauxite & Alumina URoaCE FFO/aND Free cash flow 26 % 27 % Primary Metal ~99 BNOK Metal Markets Rolled Products 2.4% 24% 0.7 BNOK in Q319 Extruded Solutions LTM Q3 20193) LTM Q3 20194) YTD Q
Slide 36: Lifting profitability, driving sustainability
Priorities • Safe and efficient operations • Portfolio optimization, restructuring and compensating measures in challenging market • Delivering on improvement programs, including returning Brazilian assets to full production and operational excellence • Net operating capital release and strict capit
Slide 37: Market
Investor presentation, October 2019
Slide 38: Macro trends and favorable properties drive aluminium demand
Macro trends and favorable properties drive aluminium demand Hydro’s strategic direction aims to realize full potential of aluminium’s strong qualities and versatility Aluminium Steel Copper Composites PVC Lightness and strength Strength and durability Conductivity Lightness Lightness and formabilit
Slide 39: Transport & construction key semis demand segments
Transport & construction key semis demand segments Global semis demand 2018: ~91 million tonnes Per segment Per product form Per region 6% 1% 2% 1% 9% 2% 2% 11% 14% 27% 30% 6% 24% 48% 16% 11% 8% 25% 7% 34% 18% Transport Electrical Rolled products Wire & Cable China Central & South America Constructi
Slide 40: Segment composition in extruded and rolled products
Segment composition in extruded and rolled products Global segment composition, extrusions Global segment composition, rolled products (2018) (2018) 4% 3% Construction 2% Packaging 4% 5% Transport 6% Transport Machinery & equipment Construction 8% Electrical Machinery & Equipment 12% Consumer durabl
Slide 41: Extrusions and rolled products demand by region
Negative extrusions demand in Europe and North America, rolled products demand supported by packaging & transport Extrusions – estimated market size 2015-2019 (million tons) Rolled products – estimated market size 2015-2019 (million tons) Europe North America Europe North America Total % growth 2018
Slide 42: Strong growth drivers across segments providing solid demand outlook
Strong growth drivers across segments providing solid demand outlook Solid demand growth across main segments Global demand increasingly supplied Transport Packaging by recycled material ~3% ~3% Semis 2-3% Primary Buildings and Electrical, consumer construction durables & industrial ~2% ~2% ~2% Recy
Slide 43: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) 750 180 600 150 120 450 90 300 60 150 30 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 Caustic soda (USD/mt) Petroleum
Slide 44: Historical strong correlation between LME and 90th percentile smelters
Historical strong correlation between LME and 90th percentile smelters Primary metal market World ex-China China Market balance in thousand tonnes 1) Nominal USD/t Market balance in thousand tonnes 1) Nominal USD/t 10 000 2 800 10 000 2 800 2 600 2 600 8 000 8 000 2 400 2 400 6 000 6 000 2 200 2 200
Slide 45: Global cost curve lower in 2019 as raw materials cost normalize
Global cost curve lower in 2019 as raw materials cost normalize Primary metal market CRU BOC curve by smelter USD/t 3 000 2 750 2 500 2 250 2 000 1 750 1 500 1 250 1 000 750 500 0 10 000 20 000 30 000 40 000 50 000 60 000 70 000 000’tons 2017 2018 Spot curve, Q3 2019 Source: Republished under licens
Slide 46: Total global inventory days trending downwards
Total global inventory days trending downwards Primary metal market Global reported stocks and inventory days Total global stocks and inventory days • Reported stocks decreasing in Thousand tonnes Inventory days Thousand tonnes Inventory days Q3-19 10 000 90 16 000 140 • Reported stocks ex. China fl
Slide 47: Alumina market consolidating, becoming more integrated
Alumina market consolidating, becoming more integrated EGA and Vedanta planning capacity additions Estimated net equity alumina position, in million tonnes 2000 2018 Alcoa/AWAC 4.3 Alcoa/AWAC 7,7 Vale 3.0 South 32 2,7 Glencore 2.4 Nalco 1,3 BHP Billiton 1.9 Rio Tinto 1,0 Kaiser 1.0 China 1,0 Alcan 0
Slide 48: Large and concentrated bauxite resources
Large and concentrated bauxite resources Guinea stands out as a long-term source Bauxite resources billion mt Guinea 41.0 China 4.0 Vietnam Jamaica 9.2 1.2 Venezuela India 1.8 3.5 Big-league (Top 4) Mid-league (each > 1 Bt) Indonesia Less significant bauxite resources 4.0 Total bauxite resources Bra
Slide 49: China increasingly reliant on bauxite imports
China increasingly reliant on bauxite imports Guinea bauxite increasingly satisfying Chinese demand Growing need for bauxite imports amid domestic depletion Monthly Chinese bauxite imports by origin Mt Mt 10 Other 300 Domestic prod 80% Forecast Guinea Alumina import 9 70% Brazil 250 Bauxite imports
Slide 50: Business overview
Investor presentation, October 2019
Slide 51: Hydro — Group
Hydro — Group
Slide 52: Profitability Sustainability
Profitability Sustainability ROACE > 10% CO2 - 30%
Slide 53: Safe and responsible operations is a top priority
Safe and responsible operations is a top priority Leadership in HSE, CSR and compliance as a license to operate TRI Rate1) 10.3 7.0 6.0 5.4 4.0 4.1 3.9 3.7 3.8 3,5 3,5 3.4 3.4 3.2 2.9 3.0 3,1 2.6 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD Sep 1) Tot
Slide 54: Hydro: a resource rich global aluminium company
Hydro: a resource rich global aluminium company Hydro underlying EBIT quarterly, NOK billion 2 725 5 692 9 656 6 425 11 215 9 069 YTD 2 800 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues involved in activities in • 2016: NOK 82 billion • Based in Norway, • Operating revenues 0.5 inv
Slide 55: The aluminium value chain
The aluminium value chain World class assets, high-end products and leading market positions Raw materials Primary aluminium production, Aluminium in products processing and energy marketing and recycling Bauxite & Alumina Energy Primary Metal Metal Markets Rolled Products Extruded Solutions • High
Slide 56: Strong global presence throughout the aluminium value chain
Strong global presence throughout the aluminium value chain Built on market understanding, customer closeness and competence The complete North America Europe Rolled Products aluminium company Primary Metal • High-quality bauxite and alumina 10 TWh in Energy #3 position #1 position #1 position produ
Slide 57: Hydro - the fourth largest aluminium producer outside China
Hydro - the fourth largest aluminium producer outside China Equity production in 2017 in aluminium equivalents, thousand mt Alumina 9 000 Aluminium 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 Weiqao Alcoa/AWAC Rio Tinto UC Rusal Chalco Xinfa Norsk Hydro South32 Glencore/Century Hindalco Vedant
Slide 58: Launch of new and ambitious improvement program
Launch of new and ambitious improvement program Targeting 3.7 BNOK in improvements on top of 2.7 BNOK in curtailment reversal Improvements by year, in NOK billion By business area 5.5 BNOK 2019-21 0.9 BNOK 2022-23 0,2 6,4 0,4 0,3 0,7 0,5 2,0 1,5 3,7 3,5 1,0 6.4 BNOK 0,8 2023 2,7 0,7 0,9 2,7 0,5 0,7
Slide 59: Revitalizing the improvement drive
Revitalizing the improvement drive Targeted improvements to deliver ambitious potential Improvement levers Curtailment Upstream and centralized initiatives Downstream and Energy reversal 6.4 BNOK Fixed costs Volume/ efficiency Consumption factors and other Husnes Procurement Net EBIT Extruded Soluti
Slide 60: Total measures with significant cash flow contribution
Total measures with significant cash flow contribution Large share being delivered in 2019-2021 Improvement ambition Rolled Products Net Operating Short-term sustaining Incl reversal of curtailments restructuring Capital release capex reduction • Cost and efficiency initiatives, • Target to reach 52
Slide 61: Differentiated capital allocation
Differentiated capital allocation Different strategic modes for the business areas Safe, compliant and efficient operations – The Hydro Way Business area Bauxite & Alumina Primary / Metal Markets Energy Rolled Products Extruded Solutions Strategic mode Sustain and improve* Selective growth Strategic
Slide 62: Sustainability: basis for our future positioning
Sustainability: basis for our future positioning Social responsibility Environment Climate Sustainability in the marketplace: greener products portfolio 62
Slide 63: Building trust in local communities
Building trust in local communities Becoming a better neighbor in Brazil Targeted activities where we have operations Improving dialog through community meetings in Pára Our global social responsibility ambition: Empowering 500,000 people with education and skills by end of 2030 124 137 3 2017 2018
Slide 64: Tackling the industry's key environmental challenges
Tackling the industry’s key environmental challenges across the value chain • Restoring biodiversity at our bauxite mine • Exploring more sustainable tailings management practices • Turning bauxite residue into a resource • Recovering our historical bauxite residue storage areas Targets and ambition
Slide 65: New climate strategy: Cut CO2 emissions by 30% by 2030
New climate strategy: Cut CO2 emissions by 30% by 2030 Innovation and technology development key enablers toward CO2-free processes Ambition to reduce own Greener energy mix at Alunorte: R&D for low or zero-carbon emissions by 10% in 2025, Key enabler for new climate technology towards 2050 30% by 2
Slide 66: Greener products: From REDUXA 4.0 to 2.0
Greener products: From REDUXA 4.0 to 2.0 New energy mix in Alunorte important enabler to reach 2.0 From REDUXA 4.0 Towards REDUXA 2.0 by 2030 <0.6 3.4 – 4.0 kg CO2e/kg AI 0.1 Other 1.6 Casting Smelting 1.4 0.1 -0.3 Casting 0.1 Smelting 2.0 kg CO2e/kg AI 0.2 PCS 1.3 Power generation Anode Alumina 0.1
Slide 67: Growing in recycling – expanding CIRCAL portfolio
Growing in recycling – expanding CIRCAL portfolio Competence, technology, integrated value chain Recycled post-consumer scrap 2014-2018* In ‘000 mt 400 350 300 250 200 150 100 50 0 2014 2015 2016 2017 2018 Primary Metal Rolled Products Extruded Solutions * Total post-consumer scrap – only a certain
Slide 68: Sustainability translated into profitability
Sustainability translated into profitability Alunorte fuel switch project Karmøy technology pilot Recycling in Metal Markets Significantly Spin-off effects: lower energy volume creep, 12% RoaCE lower energy avg. last 5 years costs consumption Automotive growth Greener brands Battery solutions - Corv
Slide 69: Strategic objectives
Strategic objectives Driving long-term shareholder value • More stable • Sustainable value chain earnings profile with lower footprint will reduce risk • Less exposed to China • Differentiate through • More downstream sustainable products, customer base developing greener products for the future • 1
Slide 70: Bauxite & Alumina
Bauxite & Alumina
Slide 71: Bauxite and alumina cluster in Para, Brazil
Bauxite and alumina cluster in Para, Brazil MRN bauxite mine Paragominas bauxite mine Alunorte alumina refinery • Top 3 bauxite mine in the world • 100% ownership • 92% ownership • Bauxite supplied from • 5% ownership • Nameplate capacity of 9.9 million tonnes • World’s largest alumina Paragominas a
Slide 72: Ramping-up production following lifting of the embargoes
Ramping-up production following lifting of the embargoes Bauxite production in Paragominas Alumina production at Alunorte Annualized million tonnes Annualized million tonnes 12,2 11,8 12,112,1 6,7 11,7 10,9 10,8 10,4 11,0 6,1 5,9 6,0 5,9 6,3 6,1 6,2 6,5 6,5 6,2 6,3 6,4 10,2 5,8 5,8 5,9 9,7 9,1 9,5 9
Slide 73: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Paragominas bauxite mining costs 2017 • Large fixed cost base Labor • Labor cost 16% Energy • Influenced by Brazilian wage level 25% Support & infrastructure • Productivity improvements Maintenance/consumables Other costs
Slide 74: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost 2017 - USD 242 per mt Implied alumina cost1) position 2017 • Alunorte, Paragominas and external alumina sourcing for resale USD 242 per mt • Implied alumina cost 2018 – USD 358 per mt • Short alumina position, additional external sour
Slide 75: Strong commercial organization maximizing the value of B&A assets
Strong commercial organization maximizing the value of B&A assets External alumina sourcing Long positions in bauxite and alumina • 2.0-2.5 million mt of external alumina sourced annually • Pricing should reflect bauxite and alumina market fundamentals • 4.0 million mt sourced in 2018 to compensate
Slide 76: Shift of alumina sales to index-based pricing continues
Shift of alumina sales to index-based pricing continues at full speed Index pricing the new norm for the industry Sales exposure to index and short term pricing1) 35% 50% 65% 75% 75% 85% index index index index index index 100 % 90 % 80 % 70 % 60 % 50 % 40 % 30 % 20 % 10 % 0% 2015 2016 2017 2018 201
Slide 77: Capital return dashboard for Bauxite & Alumina
Capital return dashboard for Bauxite & Alumina Returns below the cost of capital reflecting challenging markets, embargo and operational issues during the early years Capital employed in B&A 9% 5% 6% 28 % 3% 10-11% ~30 BNOK 0% URoaCE > CoC Nominal long-term in 2018 2014 2015 2016 2017 2018 cost of c
Slide 78: Energy
Energy
Slide 79: Energy is a key differentiator in the aluminium industry
Energy is a key differentiator in the aluminium industry Center of energy excellence in Hydro Bauxite Alumina Primary Rolling Extrusion ~25% ~35% ~35% Energy cost* ~10% ~8% ~50% Energy business area’s • Power sourcing • Power sourcing • Power sourcing and • Power sourcing • Power sourcing contributi
Slide 80: Hydro's global primary energy demand
Hydro’s global primary energy demand Spanning the entire aluminium value chain, all global regions and energy carriers Europe North America Power 19.8 TWh Power 2.2 TWh Natural gas 10.6 million MMBtu Natural gas 8.1 million MMBtu Middle East Natural gas 43.8 million MMBtu South America Power 4.8 TWh
Slide 81: Securing long-term competitive power sourcing for smelters
Securing long-term competitive power sourcing for smelters Unique combination of hydro- and windpower Sourcing platform for fully-owned smelters, Norway1) Sourcing platform for JVs and Neuss smelter1) TWh TWh 20 20 18 16 14 15 12 10 10 8 6 5 4 2 0 0 2015 2016 2017 2018 2019 2020 2021 2022 2023 2024
Slide 82: Normal annual power production of 10 TWh
10 TWh normal annual power production Development in power assets last five years Power production capacity (TWh), • 2012: Holsbru and Vasstøl power plants in operation per region and reversion year • 2013: Vigeland acquisition completed, exemption from concession requirement granted • 2016: Midtlæg
Slide 83: Market pricing principle applied to internal contracts
Market pricing principle applied to internal contracts Based on external price references Sourcing side Revenue side TWh TWh Spot price 0-6 3) • Long-term contract 1 10 (8-12) 1) • Market pricing • Fixed annual Regulated pricing price adjustments • Market pricing 14-17 2) • Duration varies • Differe
Slide 84: Energy earnings drivers
Energy earnings drivers Underlying EBIT1) and spot price • Production and market prices strongly linked to hydrological NOK million NOK/MWh conditions 2 000 500 400 • Fairly stable annual EBIT contribution 1 500 1 000 300 • Seasonal market variations in demand and supply 200 500 100 • Occasional del
Slide 85: Capital return dashboard for Energy
Capital return dashboard for Energy Returns significantly above the cost of capital reflecting the depreciated asset base Capital employed in Energy 21 % 17 % 17 % 18 % 18 % 2% 6-7% ~2 BNOK URoaCE > CoC in 2018 2014 2015 2016 2017 2018 Nominal long-term cost of capital 2014-2018 ~18% average URoaCE
Slide 86: Primary Metal
Primary Metal
Slide 87: World-wide primary aluminium production network
World-wide primary aluminium production network Primary Metal and Metal Markets Norway, 1 125 000 tonnes 50% • Sunndal (100%): 405,000 tonnes • Årdal (100%): 195,000 tonnes • Karmøy (100%): 270,000 tonnes • Høyanger (100%): 65,000 tonnes • Husnes (100%): 190,000 tonnes Slovakia, 175 000 tonnes 8% •
Slide 88: Unlocking new improvements through Industry 4.0 initiatives
Unlocking new improvements through Industry 4.0 initiatives 40 ongoing projects Robotics & Automation projects Trusted Data Layer Casthouse Soft Sensor incl. Trusted Data Layer Mobile Maintenance Worker Trusted Data Layer Carbon + Analytics Bring Your Own Device workbench improvements Digital Founda
Slide 89: Low carbon footprint due to renewable energy base
Low carbon footprint due to renewable energy base and industry lowest energy consumption Total emissions, in tonne CO2/t al Energy consumption in Hydro smelters1), kwh/kg al 20,0 17,5 18 18,0 16 15,0 14,8 14,4 16,0 13.9 13.5 14 12,5 12,3 14,0 11.5-11.8 12 12,0 10,0 10 10,0 8 8,0 6 6,0 4,0 4 2,0 2 0,
Slide 90: Competitive primary aluminium cash cost
Competitive primary aluminium cash cost • Primary aluminium cash cost 2018 Liquid aluminium cash cost 20183) • All-in implied primary aluminium cash cost1) USD 2 175 per mt • LME implied primary aluminium cash cost2) USD 1 825 per mt • Alumina 4% Alumina • Alumina prices for 2018 heavily affected by
Slide 91: Capital return dashboard for Primary Metal & Metal Markets
Capital return dashboard for Primary Metal & Metal Markets Returns below the cost of capital mainly reflecting challenging markets and the Alunorte situation. Good returns in recycling Capital employed in PM (MM) 13 % 10 % 11 % 5% 5% 10%-11% ~34 (3) BNOK 2014 2015 2016 2017 2018 URoaCE > CoC (7-8%)
Slide 92: Metal Markets
f v Metal Markets
Slide 93: Strong position in value-added casthouse products
Strong position in value-added casthouse products • Capitalizing on value-added Leading global position casthouse products portfolio Extrusion ingot Unique primary and 1.6 million mt recycling capacity network • Extensive multi-sourcing system including fully- and part-owned Leading global position
Slide 94: Pricing of value-added products
Pricing of value-added products Smelter Intermediate product Casthouse Aluminium Standard ingot Value added products Extrusion ingot Foundry alloy Sheet ingot Wire rod Traded on LME • US Midwest - 1020 • Extrusion Ingot – Priced above standard ingot • Foundry Alloy – Priced above standard ingot US (
Slide 95: Metal Markets earnings drivers
Metal Markets earnings drivers • Remelters Underlying EBIT excluding currency effects and inventory • Revenue impact – volume and product premiums valuation effect, NOK million1) above LME 400 • Cost impact • Scrap and standard ingot premiums above LME 350 • Raw material mix 300 • Freight cost – pro
Slide 96: Rolled Products
Rolled Products
Slide 97: Rolled Products - strong European production base and global sales force
Rolled Products - strong European production base and global sales force • ~1 million tonnes of flat rolled Europe The Americas products per year Holmestrand Karmøy • Unique integrated aluminium cluster • Neuss • Alunorf Hamburg • Grevenbroich Neuss Alunorf • Casthouse network and integrated Grevenb
Slide 98: Major flat rolled products producer in Europe
Major flat rolled products producer in Europe • World leader in high-end products foil and litho External sales in tonnages 2018 • Alunorf (JV 50%) – world’s largest rolling mill Total 951 kT • Grevenbroich plant – world’s largest multi-product finishing mill 15 % 10 % Foil • High-grading product po
Slide 99: Several attractive segments within rolling industry
Several attractive segments within rolling industry – Hydro targets to shift portfolio towards auto and can Cans Automotive General Engineering Lithographic sheet Packaging foil Aluminium can body stock Rolled aluminium for Solutions for buildings and Lithographic strip for Broad variety of products
Slide 100: Restructuring and improvement initiatives in Rolled Products
Restructuring and improvement initiatives in Rolled Products Targeting BNOK 0.9 improvements 2023 vs 2018, more than 40% to be realised by 2021 Rolled Products improvements per year and category In MNOK 900 Commercial 800 excellence 700 Operational 600 efficiency 500 400 300 Organisational efficienc
Slide 101: Rolled Products earnings drivers
Rolled Products earnings drivers Underlying EBIT per tonne, NOK • Contract structure • Margin business based on conversion price 1 400 • LME element passed on to customers 1 200 • Range from spot contracts to multi-year contracts 1 000 • High share of fixed costs - volume sensitive 800 600 • Annual
Slide 102: Capital return dashboard for Rolled Products
Capital return dashboard for Rolled Products Returns below the cost of capital due to continuous margin pressure and operational challenges Capital employed in RP 8% 5% 5% 2% 2% 7-8% ~13 BNOK URoaCE > CoC in 2018 2014 2015 2016 2017 2018 Nominal long-term cost of 12 % capital1) ~5% 2014-2018 average
Slide 103: Extruded Solutions
Extruded Solutions
Slide 104: Extruded Solutions – #1 in the global aluminium extrusion industry
Extruded Solutions – #1 in the global aluminium extrusion industry Present in ~40 countries 22 400 people 1) 1.4 Million mt sales2) 1) As of end-2016 2) 2018 104
Slide 105: The global extrusion champion – worldwide reach, local presence
The global extrusion champion – worldwide reach, local presence Clear leader in a fragmented industry where closeness to customers and markets are key success factors Unrivalled position as #1 extrusions provider globally Customers in diversified end-markets Extrusion sales volume (2018), in thousan
Slide 106: Organized in four business units to maximize synergies
Organized in four business units to maximize synergies across units 22,700 highly competent people across the world, total turnover of BNOK 64 Extrusion Europe Extrusion North America Precision Tubing Building Systems • Market leader focusing on • Uniquely positioned as the only • Technology leader
Slide 107: Successful value-over-volume strategy
Successful value-over-volume strategy Targeting the high-tech, high-competence segments of extrusion Deliver value-added Simplify and to our customers at a Grow to lift margins collaborate reasonable cost and profitability Simplification drive to Higher share of value-added solutions Lifting margins
Slide 108: Proven track-record of value creation with further potential
Proven track-record of value creation with further potential Last 12 months underlying EBITDA Direct contribution* per kg in MNOK (NOK**, indexed to 2016) 4 500 1,2 4 000 3 500 1,0 3 000 0,8 2 500 0,6 2 000 1 500 0,4 1 000 0,2 500 0 0,0 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Q1 Q3 Extrusion Europe Extrusion
Slide 109: Extruded Solutions earnings drivers
Extruded Solutions earnings drivers Underlying EBITDA per tonne1), NOK • Extruded Solutions aims to deliver minimum 10% average annual underlying EBIT growth over the next three years2) 4000 • Contract structure 3500 • Margin business based on conversion price 3000 • LME element passed on to custome
Slide 110: Capital return dashboard for Extruded Solutions
Capital return dashboard for Extruded Solutions Returns in line with the cost of capital reflecting leading market positions and value-over-volume strategy Capital employed in ES 7% 7% 24 % 7-8% ~26 BNOK in 2018 2017 2018 URoaCE > CoC Nominal long-term cost of capital ~7% 2017-2018 average URoaCE Ca
Slide 111: Additional information
») Hydro Additional information
Slide 112: Driving long-term shareholder value
Driving long-term shareholder value Financial strength Robust shareholder payout and flexibility Improvement • 40% payout ratio of Net Income over ambitions the cycle • Maintain investment grade credit rating • Curently BBB (S&P), Baa2 (Moody’s1)) 6.4 BNOK • Dividend floor of 1.25 NOK/share • Balanc
Slide 113: Clear principles for capital allocation
Clear principles for capital allocation Evaluate funds available for allocation Review Projected funds from operations in several market scenarios Strategy Strong balance sheet Dividend commitments to shareholders Sustaining capex License to operate (HSE, CSR, compliance) External and internal bench
Slide 114: 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 115: 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 % 19 % Mar 31, 2019 (12,1) (3,9) (5,7) (8,4) (30.1) 14 % 11 % 3) 2009 2010 2011 201
Slide 116: Project pipeline based on updated capital allocation framework
Project pipeline to be based on updated capital allocation framework and strategic priorities Majority of sustaining capex allocated upstream NOK billion ~10.5 ~9.5-10 Main sustaining projects 8.8 ~9.0 • Alunorte robustness 7.9 7.8* • Pipeline replacement in B&A 7.2 • Smelter relining and asset inte
Slide 117: 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: 3 530 NOK million USD BRL EUR 2 470 UEBIT 3 600 (1 060) (240) One-off reevaluation effect: UEBIT Underlying Net Income 3) Financial items - 820 (3
Slide 118: 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 1 360 Cost impact Bauxite 190 • ~2.45 tonnes bauxite per tonne alumina •
Slide 119: 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 3 100 Cost impact Alumina 300 • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME
Slide 120: Items excluded from underlying results - 2019
Items excluded from underlying results - 2019 NOK million (+=loss/()=gain) Q1 2019 Q2 2019 Q3 2019 Alunorte agreements - provision Bauxite & Alumina 35 14 30 Total impact Bauxite & Alumina 35 14 30 Unrealized derivative effects on LME related contracts Primary Metal 122 (15) (27) Unrealized effects
Slide 121: 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 122: Operating segment information: underlying EBIT
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 Q3 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 685 493 153 415 481 3 704 2 282 Primary Metal 900 1 486 1 298 1 377 823 755 861 (677) (771
Slide 123: Operating segment information: EBIT
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 Q3 2019 Year 2017 Year 2018 Bauxite & Alumina 756 662 413 1 872 741 364 166 493 118 401 450 3 704 1 763 Primary Metal 797 1 538 1 282 1 112 917 776 954 (524) (919) (554) 30
Slide 124: Operating segment information: total revenue
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 Q3 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 6 211 25 421 28 548 Primary Metal 8 641 9 575 8 958 9 291
Slide 125: Operating segment information: internal revenue
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 Q3 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 2 527 10 234 14 152 Primary Metal 6 941 7 631 7 093 7 2
Slide 126: Operating segment information: RoaCE
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 127: Operating segment information: depreciation and amortization
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 Q3 2019 Year 2017 Year 2018 Bauxite & Alumina 577 586 644 679 630 573 509 384 605 589 590 2 486 2 095 Primary Metal 492 505 504 526 546
Slide 128: Income statements
Income statements NOK million Q3 2019 Q3 2018 Q2 2019 First nine First nine Year 2018 months 2019 months 2018 Revenue 37 517 37 766 39 176 114 276 120 991 159 377 Share of the profit (loss) in equity accounted investments 123 229 47 173 735 765 Other income, net 268 169 139 590 508 772 Total revenue
Slide 129: Balance sheets
Balance sheets NOK million Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Dec 31 20181) Sep 30 2018 Jun 30 2018 Mar 31 2018 Cash and cash equivalents 10 581 10 590 6 099 5 995 6 846 5 682 9 371 Short-term investments 929 1 090 1 274 975 1 176 1 136 1 031 Accounts receivable 23 007 23 186 23 542 20 744 21 72
Slide 130: 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 Q3 2019 Year 2017 Year 2018 Alumina production (kmt) 1 523 1 576 1 605 1 693 1 277 829 821 786 805 932 1 320 6 397 3 712 Sourced alumina (kmt) 600 645 667 610 900 985 907 1 163 711 704
Slide 131: 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 Q3 2019 Year 2017 Year 2018 Remelt production (1 000 mt) 143 152 136 137 150 153 126 135 131 139 125 568 563 Third-party Metal Products sales (1 000 mt) 79 80 74 86 70 77 83 73 70 83 82 319
Slide 132: 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 Q3 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Precision Tubing 2017 2017 2017 2017 2018 2018 2018 2018 2018
Slide 133: Investor Relations in Hydro
Investor Relations in Hydro Next events Fourth quarter results Stian Hasle Head of Investor Relations February 7, 2020 t: +47 97736022 e: [email protected] Olena Lepikhina For more information see Investor Relations Officer www.hydro.com/ir t: +47 96853035 e: [email protected] Aud Helen
Slide 134: Hydro - We are aluminium