Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Q4 2014 Earnings Presentation
60 slides from Norsk Hydro ASA's earnings presentation, February 2015
Slide 1: Record results on improved markets and performance
Record results on improved markets and performance Fourth quarter presentation (1)
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: Q4 highlights
Q4 highlights • Record high quarterly underlying EBIT of NOK 2 886 million • Proposed dividend for 2014 of NOK 1 per share • Revised dividend policy: 40% of net income over the cycle • Higher realized all-in* metal and alumina prices, supported by currency movements • Improved operating performance
Slide 5: Multi-speed global economy
Multi-speed global economy Encouraging macro development in the US, softer in Eurozone • Weaker German industrial production Eurozone • Quantitative easing measures from the ECB starting in March • Weaker, but still positive demand outlook • Strong industrial production US • Strong aluminium demand
Slide 6: Major currency movements affecting industry costs
Major currency movements affecting industry costs USD appreciation against currencies where Falling oil prices have limited effect Hydro has significant operations* on smelting costs USD appreciation end January-14 to end January-15 Brent crude oil,USD per barrel 25% 130 110 20% 90 70 15% 50 10% 30
Slide 7: Physical market deficit continues
Physical market deficit continues World ex-China Demand and production (quarterly annualized) Production less demand, (quarterly annualized)* 1 000 mt primary aluminium 1 000 mt primary aluminium 30 000 4 000 3 000 25 000 2 000 1 000 20 000 0 (1 000) 15 000 (2 000) jan.08 mai.09 sep.10 jan.12 mai.13
Slide 8: Standard ingot premiums continued to rise in Q4
Standard ingot premiums continued to rise in Q4 Mixed regional developments so far in 2015 Regional standard ingot premiums • Mixed regional developments USD per mt 600 − US Mid-West premium strong at ~535 USD/mt 500 − EU premium softening 30 USD/mt to ~470 USD/mt 400 − Japan premium stable at 425 U
Slide 9: Stronger all-in ingot price in NOK
Stronger all-in ingot price in NOK • 3-month LME price traded between USD/mt NOK/mt 3 100 18 000 1 854 and 2 070 USD/mt during Q4 2 900 17 000 • Recent LME decrease offset by 2 700 weakening NOK 16 000 2 500 • Realized LME price for Q4 1 997 USD/mt 2 300 15 000 2 100 Primary aluminium LME* USD/mt NO
Slide 10: Reported inventories world ex-China decline further
Reported inventories world ex-China decline further Increase in inventory days reflects seasonally lower demand World ex-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 05 Q3 07 Q1 10 Q3 12 Q4 14 IAI Other LME Worl
Slide 11: Alumina prices stable despite weak commodity markets
Alumina prices stable despite weak commodity markets, value-in-use bauxite prices down from highs Platts alumina index (PAX) Bauxite prices USD/mt Percent USD/mt 450 20% 80 19% 400 18% 70 17% 350 16% 60 300 15% 14% 50 250 13% 200 12% 40 Aug 2010 Apr 2012 Nov 2013 Jan 2015 Jan-12 Jan-13 Jan-14 Jan-15
Slide 12: China: Higher raw material imports and semis exports
China: Higher raw material imports and semis exports Lower 2014 bauxite imports partly offset by alumina imports Annualized aluminium equivalents*, million mt 2011 2012 2013 2014 • Bauxite and alumina 25 − Significant drop in bauxite imports due to Indonesian China import 20 export ban − Higher baux
Slide 13: Chinese semis exports picking up amid increased metal advantage
Chinese semis exports picking up amid increased metal advantage Comp. adv Semis exports (USD/mt) (monthly, kmt) 1 000 500 450 800 400 Improved comp. adv. China 600 350 300 400 250 200 200 0 150 100 ( 200) 50 ( 400) 0 jan.07 jun.07 jul.09 mar.11 aug.11 jan.12 jun.12 jul.14 feb.09 okt.10 feb.14 apr.08
Slide 14: Lower cost and higher margins in Bauxite & Alumina
Lower cost and higher margins in Bauxite & Alumina • USD 23 per mt reduction in implied Implied alumina cost and margin, USD/mt 1) alumina cost from third quarter 475 − Improved energy efficiency and fixed cost 23 425 reductions 15 − Currency and Reintegra tax refund 263 260 program contributing pos
Slide 15: Improving margins in Primary Metal
Improving margins in Primary Metal Implied primary cost and margin, USD/mt 1) • Implied cost on a downward trend ‒ Improvement efforts 300 ‒ Positive exchange rate development 400 1 775 550 ‒ Increasing premiums 1 500 1 300 • EBITDA margin3) ~830 USD/mt in Q4 2014 • USD 180 JV program on track, to b
Slide 16: Investment decision made for Karmøy technology pilot
Investment decision made for Karmøy technology pilot Demonstrating the world’s most energy and climate-efficient aluminium production • Annual production 75 000 tonnes − First metal in 2017 at the earliest • Estimated total project cost NOK 3.9 billion − Including Enova support of NOK 1.5 billon, ap
Slide 17: Lower shipments in Rolled Products
Lower shipments in Rolled Products Rolled Products sales by segment Q4 2014 vs. Q3 2014 Q4 2014 vs. Q4 2013 0% (5%) (8%) (9%) (9%) (13%) (13%) (15%) Packaging Litho, Auto & General Total Rolled Packaging Litho, Auto & General Total Rolled & building Heat exchanger engineering Products & building Hea
Slide 18: Seasonally weaker demand for extruded products
Seasonally weaker demand for extruded products • Seasonally weaker demand − 10% decrease in North America − 6% decrease in Europe • Demand increased compared to same quarter last year − 9% in North America due to increased building activity and strong automotive demand − Stable in Europe, weak build
Slide 19: Sapa restructuring program ahead of plan
Sapa restructuring program ahead of plan • Targeting synergies of around NOK 1 billion by end 2016 − About half realized in underlying 2014 results • Majority of restructuring activities taking place in Europe − 20 major restructuring projects announced, 3 in the US, the rest in Europe (19)
Slide 20: Energy: High inflow and volatile prices
Energy: High inflow and volatile prices Market price Southwestern Norway (NO2) Water reservoir levels Southwestern Norway (NO2) NOK/MWh Percent 600 100 500 80 400 60 300 40 200 MIN NO2 (2002-2013) MAX NO2 (2002-2013) 2013 2013 20 100 2014 2014 2015 2015 0 0 1 4 7 10 13 16 19 22 25 28 31 34 37 40 43
Slide 21: Proposed 2014 dividend NOK 1 per share
Proposed 2014 dividend NOK 1 per share Dividend policy: 40% of net income over the cycle • Revised dividend policy reflecting commitment to return cash to shareholders • New policy and increased dividend level in line with: − Solid financial position − Improved earnings outlook − Continued tight cap
Slide 22: Eivind Kallevik, Executive Vice President and CFO
Eivind Kallevik Executive Vice President and CFO (22)
Slide 23: High-level quarterly result development
High-level quarterly result development NOK billion 0,2 (0.2) 1,3 2,9 1,5 0.1 0,5 Underlying EBIT Q4 Underlying EBIT Q3 Energy volume and Realized LME, Bauxite & Alumina Eliminations and Underlying EBIT Q4 2013 2014 price premiums and PAX* volume and costs other 2014 Figures for 2013 throughout the
Slide 24: Key financials
Key financials NOK million Q4 2014 Q3 2014 Q4 2013 2014 2013 Revenue 21 656 19 698 16 570 77 907 64 877 Underlying EBIT 2 886 1 490 471 5 692 2 725 Items excluded from underlying EBIT (591) 447 (485) (18) (1 063) Reported EBIT 2 295 1 937 (14) 5 674 1 663 Financial income (expense) (2 341) (1 105) (
Slide 25: Items excluded from underlying EBIT
Items excluded from underlying EBIT NOK million Q4 2014 Q3 2014 Q4 2013 2014 2013 Underlying EBIT 2 886 1 490 471 5 692 2 725 Unrealized effects on power and raw material contracts (261) 54 14 (72) (107) Unrealized derivative effects on LME related contracts - 220 (78) 352 (202) Metal effect, Rolled
Slide 26: Bauxite & Alumina
Bauxite & Alumina Q4 Q3 Q4 Key figures 2014 2014 2013 Alumina production, kmt 1 501 1 478 1 452 Total alumina sales, kmt 2 043 1 922 1 959 Realized alumina price, USD/mt 303 287 263 Implied alumina cost, USD/mt 229 252 259 Bauxite production, kmt 2 582 2 287 2 080 Underlying EBITDA, NOK million 1 04
Slide 27: Primary Metal
Primary Metal Q4 Q3 Q4 Key figures 2014 2014 2013 Primary aluminium production, kmt 499 487 492 Total sales, kmt 527 542 515 Realized LME price, USD/mt 1 997 1 906 1 802 Realized LME price, NOK/mt 13 355 11 909 10 916 Implied primary cost USD/mt 1 175 1 275 1 375 Underlying EBITDA, NOK million 2 489
Slide 28: Higher realized all-in metal price drives Qatalum earnings
Higher realized all-in metal price drives Qatalum earnings Q4 Q3 Q4 Key figures – Qatalum (50%) 2014 2014 2013 Revenue, NOK million 1 510 1 207 1 072 Underlying EBITDA, NOK million 614 446 504 Underlying EBIT, NOK million 371 231 237 Underlying Net income (loss), 317 189 203 NOK million Primary alum
Slide 29: Metal Markets
Metal Markets Q4 Q3 Q4 Key figures 2014 2014 2013 Remelt production, kmt 130 128 123 Metal products sales, kmt* 645 674 648 Underlying EBITDA, NOK million 243 192 214 Underlying EBIT excl currency and inventory 106 136 144 valuation effects, NOK million Underlying EBIT, NOK million 221 171 190 Under
Slide 30: Rolled Products
Rolled Products Q4 Q3 Q4 Key figures 2014 2014 2013 External sales volumes, kmt 213 244 226 Underlying EBITDA, NOK million 280 417 284 Underlying EBIT, NOK million 96 243 100 Underlying EBIT Q4 results NOK million • Seasonally lower shipments 615 698 • Stronger margin pressure • Positive contributio
Slide 31: Energy
Energy Q4 Q3 Q4 Key figures 2014 2014 2013 Power production, GWh 2 823 2 170 2 411 Net spot sales, GWh 1 339 873 1 089 Southwest Norway spot price (NO2), 248 247 287 NOK/MWh Underlying EBITDA, NOK million 402 275 420 Underlying EBIT, NOK million 360 234 383 Underlying EBIT Q4 results NOK million • R
Slide 32: Sapa joint venture
Sapa joint venture • Lower results compared to previous Key figures – Sapa (50%) Q4 2014 Q3 2014 Q4 2013 quarter, mainly due to lower seasonal Revenue, NOK million 5 945 5 802 5 066 demand • Improved results compared to same Underlying EBITDA, NOK million 171 246 (22) quarter last year due to: Under
Slide 33: Other and Eliminations
Other and Eliminations Q4 Q3 Q4 Other and Eliminations 2014 2014 2013 Sapa JV (22) 55 (140) Other (118) (128) (134) Eliminations (168) (276) (31) Other and Eliminations (308) (349) (306) (33)
Slide 34: Net cash(debt) development Q4 2014
Net cash(debt) development Q4 2014 NOK billion Net cash flow from operations NOK 4.4 billion 0.2 (0.8) (1.6) (0.1) 4.2 (2.1) End Q3-2014 Underlying Operating Investments Currency End Q4-2014 EBITDA capital and other (34)
Slide 35: Net cash(debt) development 2014
Net cash(debt) development 2014 NOK billion Net cash flow from operations NOK 5.9 billion (2.2) (2.2) 10.3 (3.0) (1.5) 0.7 (2.1) (0.1) End Q4-2013 Underlying Operating Tax and other Investments Dividends Currency End Q4-2014 EBITDA capital and and other Divestments (35)
Slide 36: Adjusted net debt development Q4 2014
Adjusted net debt development Q4 2014 Dec 31 Sep 30 Jun 30 NOK billion 2014 2014 2014 Cash and cash equivalents 9.3 6.0 6.6 Short-term investments 1.8 1.7 1.8 Short-term debt (6.0) (5.0) (6.1) Long-term debt (5.1) (4.8) (4.1) Net cash/(debt) (0.1) (2.1) (1.9) Net pension liability at fair value, net
Slide 37: 2014 and 2015 outlook
2014 • Tightening physical markets • Stable and robust Brazilian operations • Significant contributions from improvement programs 2015 • Continuing operational and commercial improvement drive • High-grading and selective growth to improve relative industry positions • Lower energy consumption and f
Slide 38: Additional information
Additional information (38)
Slide 39: Shareholder and financial policy
Shareholder and financial policy • Hydro aims to give its shareholders competitive returns compared to alternative investments in peers • Maintained dividend policy − Ordinary dividend: 40% of net income over the cycle − Average ordinary pay-out ratio 2010-2014 is ~95%* − Share buybacks and extraord
Slide 40: Hedging policy
Hedging policy • Bauxite & Alumina, Primary Metal − Remain primarily exposed to LME prices − Operational LME hedging − One-month forward sales − Currency exposure, mainly USD, NOK and BRL − Policy of maintaining long-term debt in USD − BRL hedged for 2014 • Metal Markets, Rolled Products − Operation
Slide 41: Capital allocation mainly upstream
Capital allocation mainly upstream NOK billion Debt-financed investments Qatalum Investments Qatalum • Sustaining capex NOK ~3.5 billion 10.2 Growth capex annually Sustaining capex • Minor growth projects planned for 2014 • ~85% of sustaining capital to be 6.2 allocated upstream in 2014 4.6 (1) • De
Slide 42: Commodity prices drive industry costs
Commodity prices drive industry costs Fuel oil A1 (USD/mt) Steam coal (USD/mt) Petroleum coke FOB USG (USD/mt) 750 180 600 600 150 500 120 400 450 90 300 300 60 200 150 30 100 0 0 0 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 2011 2012 2013 2014 2006 2007 2008 2009 2010 201
Slide 43: Price and currency sensitivities
Price and currency sensitivities Commodity price sensitivity +10%* Currency sensitivities +10%* Hydro Group: Sustainable effect: NOK NOK million EBIT million USD BRL EUR EBIT 3 230 (820) (350) Aluminium 3 200 One-off reevaluation effect: Oil (240) Financial (1 130) 770 (1 500) items Pet coke (240) •
Slide 44: Bauxite & Alumina sensitivities
Bauxite & Alumina sensitivities Sensitivities on underlying EBIT if +10% in price Revenue impact NOK million • ~14.3% of 3-month LME price per tonne alumina • ~One month lag 840 • Realized alumina price lags PAX by one month Cost impact Bauxite 480 • ~2.45 tonnes bauxite per tonne alumina • Pricing
Slide 45: Primary Metal sensitivities
Primary Metal sensitivities 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 ~2-4 months 2170 Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.3% of 3-month LME price per to
Slide 46: Depreciation by currency and business area
Depreciation by currency and business area Total 2014 depreciation 4,6 BNOK Depreciation currency exposure by business area Depreciation by business area* 4% 1% NOK & Percent USD EUR BRL Others 15% Bauxite & Alumina 100% 39% Primary Metal 25% 20% 55% 2% Metal Markets 25% 75% Rolled Products 90% 10%
Slide 47: Items excluded from underlying results - 2014
Items excluded from underlying results - 2014 NOK million (+=loss/()=gain) Q1 2014 Q2 2014 Q3 2014 Q4 2014 2014 Unrealized derivative effects on LME related contracts Bauxite & Alumina (4) (1) (2) (10) (16) Total impact Bauxite & Alumina (4) (1) (2) (10) (16) Unrealized derivative effects on LME rel
Slide 48: 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 49: Operating segment information
Operating segment information Underlying EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Bauxite & Alumina (63) (244) (370) (379) (288) (269) (26) 528 (1 057) (55) Primary Metal 364 237 337 484 312 420 1 216 1 989 1 422 3 937 Metal Markets 146 147
Slide 50: Operating segment information
Operating segment information EBIT NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Bauxite & Alumina (76) (241) (370) (491) (284) (269) (23) 537 (1 178) (39) Primary Metal 19 122 338 377 303 434 1 278 1 912 855 3 928 Metal Markets 228 121 116 202 73 93
Slide 51: Operating segment information
Operating segment information Total revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Bauxite & Alumina 3 304 3 147 3 354 3 546 3 511 3 828 3 737 4 770 13 350 15 847 Primary Metal 5 945 5 896 5 884 5 554 6 618 6 384 6 986 8 075 23 279 28 064 Meta
Slide 52: Operating segment information
Operating segment information Internal revenue NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Bauxite & Alumina 1 322 1 253 1 277 1 375 1 304 1 424 1 480 2 071 5 226 6 279 Primary Metal 5 132 4 856 4 860 4 566 5 391 5 047 5 396 5 833 19 413 21 667 Met
Slide 53: Operating segment information
Operating segment information Depreciation, amortization and impairment NOK million Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Bauxite & Alumina 429 448 417 424 410 431 442 519 1 718 1 802 Primary Metal 470 472 461 452 437 427 431 499 1 855 1 794 Metal Market
Slide 54: Income statements
Income statements NOK million Q4 2014 Q3 2014 Q4 2013 Year 2013 Year 2014 Revenue 21 656 19 698 16 570 64 877 77 907 Share of the profit (loss) in equity accounted investments (34) 287 (150) (240) 415 Other income, net 327 145 103 801 751 Total revenue and income 21 948 20 130 16 523 65 438 79 073 R
Slide 55: Balance sheets
Balance sheets NOK million Dec 31, 2014 Sep 30 2014 Jun 30 2014 Mar 31 2014 Dec 31 2013 Cash and cash equivalents 9 253 6 045 6 617 6 476 8 412 Short-term investments 1 786 1 745 1 765 3 081 2 480 Accounts receivable 11 703 11 280 10 835 11 116 9 539 Inventories 12 642 10 334 10 213 9 599 10 070 Oth
Slide 56: Operational data
Operational data Bauxite & Alumina Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year 2013 Year 2014 Alumina production (kmt) 1 361 1 248 1 316 1 452 1 428 1 526 1 478 1 501 5 377 5 933 Sourced alumina (kmt) 476 427 711 395 550 431 532 503 2 009 2 016 Total alumina sales (kmt) 1 87
Slide 57: Operational data
Operational data Metal Markets Q1 2013 Q2 2013 Q3 2013 Q4 2013 Q1 2014 Q2 2014 Q3 2014 Q4 2014 Year2013 Year2014 Remelt production (1 000 mt) 135 132 127 123 139 141 128 130 517 538 Third-party Metal Products sales (1 000 mt) 84 78 76 78 84 79 78 71 317 311 Metal Products sales excl. ingot trading (
Slide 58: 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 Q3 2014 Q4 2014 Year 2014 Sales volume (1000 mt) 343 311 346 360 346 314 359 368 350 322 1 399 Revenues 10 414 9 654 10 367 1
Slide 59: Investor Relations in Hydro
Investor Relations in Hydro Pål Kildemo Next event Head of Investor Relations t: +47 970 96 711 e: [email protected] First quarter results April 29, 2015 Olena Lepikhina For more information see Investor Relations Officer www.hydro.com/ir t: +47 96853035 e: [email protected] (59)
Slide 60: Infinite Aluminium Hydro
INFINITE ALUMINIUM HYDRO