Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Q2 2020 Earnings Presentation
127 slides from Norsk Hydro ASA's earnings presentation, July 2020
Slide 1: Second quarter 2020 Investor presentation
Second quarter 2020 Investor presentation July 2020
Slide 2: Table of contents and cautionary note
Table of contents Second quarter results 2020 3 Cautionary note Certain statements included in this announcement contain forward-looking information, Market 36 including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerni
Slide 3: Firm measures, lower costs in challenging markets
Firm measures, lower costs in challenging markets Hilde Merete Aasheim, President and CEO
Slide 4: Q2 2020 – Underlying EBIT NOK 949 million, free cash flow NOK 1.0 billion
Positive cost Macro uncertainty development, Record-low amid Covid-19, weaker prices production cost at strong measures and downstream Alunorte in response volumes Improvement Positioning Hydro initiatives running for the future at full speed Q2 2020 – Underlying EBIT NOK 949 million Free cash flow
Slide 5: Forceful measures in response to Covid-19
Forceful measures in response to Covid-19 Mitigating actions • Strict and precautionary actions to ensure health and safety • Safeguarding operations in Brazil through community support and supply chain contingency plans • Financial measures to improve robustness and protect liquidity • Operational
Slide 6: Global economy in recession, Chinese demand showing signs of recovery
Global economy in recession, Chinese demand showing signs of recovery Estimated GDP-growth 2020 Y-o-Y, key regions (%) Chinese key indicators quarterly growth Y-o-Y (%) 10 10 2 2 1 0 0 0 -1 -3 -4 -6 -5 -5 -6 -10 -9 -10 -8 -12 -13 -13 -20 -20 -18 -20 -30 -30 -33 -40 -40 -45 -50 -50 Global US Eurozone
Slide 7: Global aluminum market expected in significant surplus through 2020
Global aluminum market expected in significant surplus through 2020 driven by Covid-19 Chinese recovery with positive impact Quarterly market balances, world ex. China and China Estimates global balance 2020 Thousand tonnes, primary aluminium Million tonnes, primary aluminium 2 500 3.4 3.2 2 000 1 5
Slide 8: Extruded Solutions volumes down, market showing signs of recovery
Extruded Solutions volumes down, market showing signs of recovery from lowest levels Internal sales volumes - actual External market forecasts Q2 2020 vs Q2 2019 Quarter 2020 vs Quarter 2019 Extruded Solutions segment sales volume Extrusion market growth per quarter Growth in % Growth in % -22 -14 -
Slide 9: Rolled Products volumes down, market showing signs of recovery
Rolled Products volumes down, market showing signs of recovery from lowest levels Internal sales volumes - actual External market forecasts Q2 2020 vs Q2 2019 Quarter 2020 vs Quarter 2019 Rolled Products segment sales volume Rolled products market growth per quarter Growth in % Growth in % 11 2 -7 -
Slide 10: Average sales prices down Q2 vs Q1, improving during Q2
Average sales prices down Q2 vs Q1, improving during Q2 Chinese recovery with positive impact LME and SHFE aluminium prices Regional standard ingot premiums Platts alumina index (PAX) USD/mt NOK/mt USD/mt USD/mt In % of LME 500 450 24% 19 000 22% 1 900 400 400 20% 17 000 300 350 1 700 18% 16% 200 30
Slide 11: Majority of key raw material costs down in Q2
Majority of key raw material costs down in Q2 However, some increases expected in Q3, especially for alumina and fuel oil Lower market prices for Primary Metal raw materials Lower market prices for Bauxite & Alumina raw materials USD/t USD/t EUR/t USD/t USD/t USD/t 700 530 630 470 580 360 340 360 26
Slide 12: Improved primary cash cost but margins reduced from lower all-in price
Improved primary cash cost but margins reduced from lower all-in aluminium price Lower value-add products sales impact all-in aluminium price All-in implied primary cost and margin Primary Metal product mix USD/mt Total sales volume (kt) 75 2 145 2 127 577 510 300 175 2 100 25% 28% 33% 1 700 42% 1 6
Slide 13: Record-low production costs supported by Alunorte performance
Record-low production costs supported by raw material prices and improved operational performance at Alunorte Implied alumina cost and margin • Q2 2020 showing reduced implied alumina cost and record low USD/mt Alunorte cash cost 430 • Cost improvement driven by lower raw material costs and weakenin
Slide 14: Improvement efforts on track toward 2020 target
Improvement efforts on track toward 2020 target 2023 goal of Accumulated 2020 targeted 7.3 BNOK Curtailment reversal improvement efforts unchanged • Alunorte targeting to reach nameplate capacity by end of 2020 In NOK billion Operational improvement 4.1 • Improving operational parameters, optimizing
Slide 15: Sustainability dashboard 2020
Sustainability dashboard 2020 Positive development in safety performance through Covid-19 situation Safety Social responsibility Community response Biodiversity TRI per million hours worked (YTD) to Covid-19 4 On track Actions and donations in Brazil: 2.3 2018 2030 Empowering 500,000 people ~36,000
Slide 16: Delivering on our priorities
Delivering on our priorities Protecting people and communities Keeping the wheels turning Implementing mitigating actions, Q2 Free Cash Flow (NOK billion) preserving cash flow 1.2 3.1 (2.0) (1.2) 1.0 UEBITDA Change in NOC Other operating Investments Free cash flow cash flow (net) 16
Slide 17: Strengthening competitive position with low-carbon aluminium
Strengthening competitive position with low-carbon aluminium Enabled by technology and innovation 99 West Tower in Frankfurt in Hydro Emmaljunga baby strollers in Hydro Hydro CIRCAL enters can market CIRCAL REDUXA with HELL ENERGY partnership Profitability & Leading sustainable industrial company, c
Slide 18: Growing and diversifying portfolio: recycling, renewables and batteries
Growing and diversifying portfolio where Hydro’s capabilities match megatrends Recycling, renewables and batteries Ramping up recycling: €10M Tonstad: Operating one of Norway’s Hydro Volt: EV battery recycling JV investment in Azuqueca in Spain largest wind power farms between Hydro and Northvolt Pr
Slide 19: EU framework conditions supporting our Profitability and Sustainability agenda
EU framework conditions supporting our Profitability and Sustainability agenda Protecting our competitive position and shaping greener demand Green Deal: Positioning sustainable Next phase in EU ETS: Working to Trade defense instruments: products in low-carbon, circular protect low-carbon aluminium
Slide 20: Underlying EBIT bridge Q2 2020 vs Q2 2019
Higher upstream production, lower costs and positive currency developments offset by lower prices and downstream volumes Q2 2020 vs Q2 2019 NOK billion 0.7 (2.0) 1.6 0.8 (3.4) 2.2 0.9 0.9 0.2 UEBIT Q2 2019 Raw material cost Fixed cost Currency Volume upstream Downstream Realized aluminium Energy and
Slide 21: Underlying EBIT bridge Q2 2020 vs Q1 2020
Results down on decreasing prices and volumes, partly offset by lower costs and positive currency developments Q2 2020 vs Q1 2020 NOK billion 2.2 Upstream 0.2 (1.0) (1.3) 0.7 0.5 (0.4) 0.9 (0.2) 0.1 UEBIT Q1 2020 Realized aluminium Volume Raw material Currency Fixed cost Downstream Energy Other UEBI
Slide 22: Key financials
Key financials NOK million Q2 2020 Q2 2019 Q1 2020 Year 2019 Revenue 30 931 39 176 38 124 149 766 Underlying EBIT 949 875 2 247 3 359 Items excluded from underlying EBIT 2 610 219 (54) 2 860 Reported EBIT (1 661) 656 2 301 499 Reported EBITDA 2 267 2 737 4 470 9 878 Underlying EBITDA 3 050 2 928 4 4
Slide 23: Underlying EBIT excludes a negative effect of NOK 2.6 billion
Underlying EBIT excludes a negative effect of NOK 2.6 billion NOK million Q2 2020 Q2 2019 Q1 2020 Year 2019 Underlying EBIT 949 875 2 247 3 359 Unrealized derivative effects on LME related contracts (478) (11) 13 (91) Unrealized derivative effects on power and raw material contracts (62) 72 183 99 M
Slide 24: Bauxite & Alumina
Bauxite & Alumina Results up on higher production, lower raw material costs and positive currency effects Key figures Q2 2020 Q2 2019 Q1 2020 Alumina production, kmt 1 442 932 1 531 Total alumina sales, kmt 2 243 1 668 2 140 Realized alumina price, USD/mt 261 365 278 Implied alumina cost, USD/mt1) 1
Slide 25: Primary Metal
Primary Metal Results up on lower raw material costs and positive currency effects Key figures Q2 2020 Q2 2019 Q1 2020 Primary aluminium production, kmt 509 486 528 Total sales, kmt 510 527 577 Realized LME price, USD/mt 1 579 1 858 1 758 Realized LME price, NOK/mt 15 689 15 959 16 658 Realized prem
Slide 26: Metal Markets
Metal Markets Results down on lower production and margins at recycling facilities Key figures Q2 2020 Q2 2019 Q1 2020 Remelt production, kmt 88 139 137 Metal products sales, kmt 1) 606 707 675 Underlying EBITDA, NOK million 58 328 296 Underlying EBIT excl currency and inventory valuation 135 352 84
Slide 27: Rolled Products
Rolled Products Results down on significantly reduced sales volumes Key figures Q2 2020 Q2 2019 Q1 2020 External sales volumes, kmt 198 242 236 Underlying EBITDA, NOK million 249 326 588 Underlying EBIT, NOK million (57) 75 299 Underlying RoaCE, % LTM1) 2.6% 1.0% 3.3% Results Q2 20 vs Q2 19 • Signif
Slide 28: Extruded Solutions
Extruded Solutions Results down on significantly reduced sales volumes Key figures Q2 2020 Q2 2019 Q1 2020 External sales volumes, kmt 224 348 305 Underlying EBITDA, NOK million 649 1 279 1 242 Underlying EBIT, NOK million 89 772 702 Underlying RoaCE, % LTM1) 3.9% 5.9% 5.7% Results Q2 20 vs Q2 19 •
Slide 29: Energy
Energy Results down on lower prices Key figures Q2 2020 Q2 2019 Q1 2020 Power production, GWh 2 097 1 993 2 868 Net spot sales, GWh 444 289 1 169 Southwest Norway spot price (NO2), NOK/MWh 50 360 154 Underlying EBITDA, NOK million 122 242 505 Underlying EBIT, NOK million 53 176 437 Underlying RoaCE,
Slide 30: Other and Eliminations
Other and Eliminations Underlying EBIT, NOK million Q2 2020 Q2 2019 Q1 2020 Other (109) (253) (219) Eliminations (58) (5) (341) Other and Eliminations (166) (258) (560) Underlying EBIT NOK million (261) (258) (417) (67) (560) (166) (1 003) (727) 2019 2020 30
Slide 31: Net debt down in Q2 2020
Net debt down in Q2 2020 NOK billion Net cash flow from operations NOK 2.2 billion 1.2 (2.0) 3.1 (1.2) 1.1 (13.2) 0.0 (15.2) Net debt Q1-20 UEBITDA Change in NOC Other operating Investments (net) Shareholder Currency and other Net debt Q2-20 cash flow dividends 31
Slide 32: Adjusted net debt down in Q2 2020
Adjusted net debt down in Q2 2020 Lower net debt and net pension liability Jun 30, Mar 31, Dec 31, Sep 30, NOK billion 2020 2020 2019 2019 Cash and cash equivalents 15.4 12.2 12.3 10.6 Short-term investments 5.1 1.6 1.0 0.9 Short-term debt (7.1) (7.7) (6.2) (6.1) Long-term debt (26.6) (21.3) (18.9)
Slide 33: Strong focus on liquidity in challenging markets
Strong focus on liquidity in challenging markets Strong liquidity and balance sheet • NOK 15.4 billion in cash and cash equivalents end of Q2 2020 • USD 1.6 billion in multi-currency revolving credit facility maturing in 2025, currently undrawn Reinforced by forceful actions in response to challengi
Slide 34: Capital return dashboard YTD 2020
Capital return dashboard YTD 2020 Measures to preserve cash and financial strength during the Covid-19 situation Capital employed1) 1% Bauxite & Alumina Capital returns Balance sheet Free cash flow YTD 2020 22 % Primary Metal 26 % Metal Markets Rolled Products URoaCE FFO/aND ~92 BNOK Extruded Soluti
Slide 35: Lifting profitability, driving sustainability
Priorities • Protecting our people and communities – health and safety first • Lifting cash flow by restoring full capacity and delivering on improvement ambitions • Positioning for the future as a leading Lifting profitability, sustainable industrial company driving sustainability 35
Slide 36: Market
Market Investor presentation, July 2020
Slide 37: 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 38: Transport & construction key semis demand segments
Transport & construction key semis demand segments Global semis demand 2019: ~90 million tonnes Per segment Per product form Per region 6% 1% 2% 1% 10% 2% 2% 11% 15% 26% 31% 6% 47% 24% 11% 16% 8% 24% 8% 33% 18% Transport Electrical Rolled products Wire & Cable China Central & South America Construct
Slide 39: Segment composition in extruded and rolled products
Segment composition in extruded and rolled products Global segment composition, extrusions Global segment composition, rolled products (2019) (2019) 3% 3% 5% Construction 4% Packaging 6% Transport 5% Transport Machinery & equipment Construction 8% Machinery & Equipment Electrical 12% Consumer durabl
Slide 40: 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 2020 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020 Caustic soda (USD/mt)
Slide 41: 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 2 200 6 000 2 200
Slide 42: Global cost curve lower on declining raw material prices
Global cost curve lower on declining raw material prices 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 2019 Spot curve, June 2020 Source: Republished under licens
Slide 43: Total global inventory days shifting upwards
Total global inventory days shifting upwards Primary metal market Global reported stocks and inventory days Total global stocks and inventory days • Reported stocks increasing into Thousand tonnes Inventory days Thousand tonnes Inventory days 2020 10 000 90 16 000 140 • Stocks in both World ex China
Slide 44: Alumina market consolidating, becoming more integrated
Alumina market consolidating, becoming more integrated Estimated net equity alumina position, in million tonnes 2000 2019 Alcoa/AWAC 4.3 Alcoa/AWAC 8.2 Vale 3.0 South 32 3.2 Glencore 2.4 Hydro 1.8 BHP Billiton 1.9 Rio Tinto 1.4 Kaiser 1.0 Nalco 1.2 Alcan 0.8 Hindalco 0.2 Sual 0.7 UC Rusal -0.2 Rio T
Slide 45: Alumina prices increased gradually from April lows
Alumina prices increased gradually from April lows, alumina imports to China continue at high levels Platts alumina index (PAX) Monthly Chinese metallurgical alumina trade balance (kt) In USD per tonne In percentage of LME In ‘000 tonnes 750 ~2.9 million ~1.0 million ~1.4 million 33% 500 tonnes tonn
Slide 46: 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 47: 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 Forecast 80% 9 Guinea Alumina import 70% Brazil 250 Bauxite imports
Slide 48: Business overview
Business overview Investor presentation, July 2020
Slide 49: Hydro – Group
Hydro – Group
Slide 50: Profitability and Sustainability targets
Profitability Sustainability ROACE > 10% CO2 - 30% 50
Slide 51: 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 3.4 3.4 3.2 2.9 3.0 3.1 3.1 2.6 2.3 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 YTD June 2
Slide 52: 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 3 196 3.5 3.0 2.5 2.0 1.5 1.0 • Based in Norway, • Operating revenues • 2016: NOK 82 billion • Based in Norway, • Operating revenues involved in activities in 0.5 involve
Slide 53: 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 54: 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 55: Hydro - the fourth largest aluminium producer outside China
Hydro - the fourth largest aluminium producer outside China Equity production in 2019 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 Xinfa Alcoa/AWAC Chalco UC Rusal Rio Tinto Norsk Hydro East Hope South32 Emirates Global Hindal
Slide 56: 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 Fixed costs Volume/ Consumption Husnes Procurement Net EBIT Net EBIT 6.4 BNOK efficiency factors and other Extrud
Slide 57: 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 58: Driving sustainability: Hydro has a strong starting point
Driving sustainability: Hydro has a strong starting point The Hydro Way Lowest CO2 emissions Net carbon-neutral from a ‒ a more viable society Emissions from electrolysis, life-cycle perspective by 2020 in tonne CO2/t Al, 2019 Net emissions (life-cycle) Million mt 18.0 Direct Indirect 16.0 2.5 14.0
Slide 59: Sustainability: basis for our future positioning
Sustainability: basis for our future positioning Social responsibility Environment Climate Sustainability in the marketplace: greener products portfolio 59
Slide 60: 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 61: 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 62: 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 1.6 0.1 Other 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 63: Sustainability translated into profitability
Sustainability translated into profitability Alunorte fuel switch project Karmøy technology pilot Recycling in Metal Markets Significantly Spin-off effects: volume creep, 12% lower energy costs lower energy RoaCE consumption avg. last 5 years Automotive growth Greener brands Battery solutions - Corv
Slide 64: 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 65: Bauxite & Alumina
Bauxite & Alumina
Slide 66: 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 67: 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 11.7 11.8 12.1 12.1 6.7 10.9 10.8 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 6.1 10.2 10.4 10.4 5.8 5.9 5.7 5.8
Slide 68: Bauxite operational mining costs in Paragominas
Bauxite operational mining costs in Paragominas • Energy cost - Power and fuel Indicative Paragominas bauxite mining costs • Large fixed cost base Labor 16% Energy • Labor cost 25% Support & infrastructure • Influenced by Brazilian wage level Maintenance/consumables • Productivity improvements Other
Slide 69: Favorable integrated alumina cost position
Favorable integrated alumina cost position • Implied alumina cost 2019 - USD 275 per mt1) Indicative implied alumina cost composition • Alunorte, Paragominas and external alumina sourcing for resale • Affected by 50% production curtailment and additional external sourcing 13% Bauxite • Bauxite Caust
Slide 70: Strong commercial organization maximizing 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 • Long term off-take agreement with Rio Tinto •
Slide 71: Shift of alumina sales to index-based pricing
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 2019 2020 Int
Slide 72: 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% 6% 5% 27 % 3% 3% 10-11% ~28 BNOK 2015 2016 2017 2018 2019 URoaCE > CoC Nominal long-term in 2019 cost of c
Slide 73: Energy
Energy
Slide 74: 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 1) ~10% ~8% ~50% Energy business area’s • Power sourcing • Power sourcing • Power sourcing and • Power sourcing • Power sourcing contribu
Slide 75: 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 76: 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 smelter2) 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 77: 10 TWh normal annual power production
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 78: 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 79: 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 1 500 300 1 000 • Seasonal market variations in demand and supply 200 500 100 • Occasional del
Slide 80: 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 19 % 17 % 18 % 18 % 1% 13 % 6-7% ~2 BNOK URoaCE > CoC in 2019 2015 2016 2017 2018 2019 Nominal long-term cost of capital ~17% 2015-2019 average URoaCE
Slide 81: Primary Metal
| y ore Primary Metal
Slide 82: 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 83: 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 84: 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 17.5 18 18 16 15.0 14.8 14.4 16 13.9 13.5 14 12.5 12.3 14 11.5-11.8 12 12 10.0 10 10 8 8 6 6 4 4 2 2 0 0 Hydro Karmøy Hydro
Slide 85: Competitive primary aluminium cash cost
Competitive primary aluminium cash cost • Primary aluminium cash cost 2019 Liquid aluminium cash cost 2019 3) • All-in implied primary aluminium cash cost1) USD 2 000 per mt • LME implied primary aluminium cash cost2) USD 1 675 per mt 6% • Alumina Alumina • Alumina prices for 2019 still affected by
Slide 86: 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) 11 % 13 % 5% 5% 10%-11% ~33 (2.5) BNOK 2015 2016 2017 2018 -3 % 2019 URoaCE > CoC (7-8%
Slide 87: Metal Markets
f Metal Markets
Slide 88: 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 1.5 million mt recycling capacity network • Extensive multi-sourcing system including fully- and part-owned Leading global position
Slide 89: 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 (in cent per pound) • Foundry Alloy – Priced above
Slide 90: 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 91: Rolled Products
Rolled Products
Slide 92: 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 93: 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 port
Slide 94: 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 95: 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 96: 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% 2% 2% 2% 7-8% ~12 BNOK URoaCE > CoC in 2019 2015 2016 2017 2018 2019 Nominal long-term 11 % cost of capital1) ~4% 2015-2019 average
Slide 97: Extruded Solutions
Extruded Solutions
Slide 98: Extruded Solutions – #1 in the global aluminium extrusion industry
Extruded Solutions – #1 in the global aluminium extrusion industry Present in ~40 countries 21 700 people 1) 1.3 Million mt sales2) 1) Permanent employees as of end-2019 2) 2019 98
Slide 99: 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 100: Organized in four business units
Organized in four business units to maximize synergies across units 22,700 highly competent people across the world, total turnover of BNOK 62 Extrusion Europe Extrusion North America Precision Tubing Building Systems • Market leader focusing on • Uniquely positioned as the only • Technology leader
Slide 101: 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 and collaborate reasonable cost profitability Simplification drive to Higher share of value-added solutions Lifting margins
Slide 102: Extruded Solutions earnings drivers
Extruded Solutions earnings drivers Underlying EBITDA per tonne1), NOK • Contract structure • Margin business based on conversion price 4500 • LME element passed on to customers 4000 • Mostly short-term contract, typically ranging from spot to 12 months, few longer term contracts with floating price
Slide 103: 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% 6% 25 % 7-8% ~26 BNOK in 2019 2017 2018 2019 URoaCE > CoC Nominal long-term cost of capital ~7% 2017-2019 average U
Slide 104: Additional information
Additional information Investor presentation, July 2020
Slide 105: Driving long-term shareholder value: financial ambitions and targets
Driving long-term shareholder value Financial ambitions and targets 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
Slide 106: 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 107: Shareholder and financial policy, hedging policy
Shareholder and Hedging policy financial policy • Aiming for competitive shareholder returns and dividend yield compared to • Hedging strategy alternative investments in peers • Fluctuating with the market: primarily exposed to LME and USD • Dividend policy • Volatility mitigated by strong balance s
Slide 108: Maintaining a solid balance sheet and investment-grade credit rating
Maintaining a solid balance sheet and investment-grade credit rating Adjusted net debt Adjusted net debt / Equity BNOK <55% 36 % 32 % 33 % Dec 31, 2019 (11.8) (5.1) (5.5) (8.6) (31.0) 24 % 26 % 26 % 22 % 20 % 19 % 14 % 11 % Mar 31, 2020 (15.2) (5.2) (6.5) (12.4) (39.3) 2009 2010 2011 2012 2013 2014
Slide 109: Updated capex estimate amid Covid-19
Updated capex estimate amid Covid-19 We will freeze 20% of targeted 2020 capex (BNOK 2) NOK billion ~9.5-10 9.6 • Capex freeze is split ~50/50 between sustaining and growth projects ~7.5-8 • Postponement of sustaining projects to later periods where possible without jeopardizing operations 6.2 6.5-7
Slide 110: 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: 3 610 NOK million USD BRL EUR 2 530 UEBIT 3 190 (930) (230) One-off reevaluation effect: UEBIT Underlying Net Income Financial items (20) 870 (3 60
Slide 111: 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 1 250 Cost impact Bauxite 90 • ~2.45 tonnes bauxite per tonne alumina •
Slide 112: 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 3 280 Cost impact Alumina • ~1.9 tonnes per tonne aluminium • ~14.5% of 3-month LME pric
Slide 113: Items excluded from underlying results - 2020
Items excluded from underlying results - 2020 NOK million (+=loss/()=gain) Q1 2020 Q2 2020 Alunorte agreements - provision Bauxite & Alumina 129 - Total impact Bauxite & Alumina 129 - Unrealized derivative effects on LME related contracts Primary Metal (64) 200 Unrealized effects on power contracts
Slide 114: Items excluded from underlying results - 2019
Items excluded from underlying results - 2019 NOK million (+=loss/()=gain) Q1 2019 Q2 2019 Q3 2019 Q4 2019 Year 2019 Alunorte agreements - provision Bauxite & Alumina 35 14 30 - 80 Impairment charges Bauxite & Alumina - - - 145 145 Total impact Bauxite & Alumina 35 14 30 145 225 Unrealized derivativ
Slide 115: Operating segment information: underlying EBIT and EBITDA
Operating segment information Underlying EBIT NOK million Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Bauxite & Alumina 741 364 685 493 153 415 481 (75) 535 1 047 2 282 974 Primary Metal 823 755 861 (677) (771) (604) (39) 155 573 (37) 1 762 (1
Slide 116: Operating segment information: EBIT and EBITDA
Operating segment information EBIT NOK million Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Bauxite & Alumina 741 364 166 493 118 401 450 (221) 406 1 047 1 763 749 Primary Metal 917 776 954 (524) (919) (554) 30 (394) 784 (777) 2 123 (1 838) Meta
Slide 117: Operating segment information: total revenue
Operating segment information Total revenue NOK million Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Bauxite & Alumina 6 309 6 877 6 749 8 613 4 866 5 745 6 211 5 983 6 029 6 173 28 548 22 805 Primary Metal 10 170 10 083 9 984 9 196 9 023 8 937
Slide 118: Operating segment information: internal revenue
Operating segment information Internal revenue NOK million Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Bauxite & Alumina 2 800 3 237 3 733 4 381 2 496 3 052 2 527 2 474 2 780 2 380 14 152 10 550 Primary Metal 8 152 8 090 7 672 7 691 7 633 7 480
Slide 119: Operating segment information: RoaCE
Operating segment information Return on average capital employed 1) (RoaCE) Reported RoaCE Underlying RoaCE 2019 2018 2017 2016 2015 2014 2013 2019 2018 2017 2016 2015 2014 2013 Bauxite & Alumina 1.9% 4.6% 8.5% 2.7 % 5.3 % (0.1) % (2.5) % 2.5% 6.0% 8.5% 2.8 % 5.3 % (0.1) % (2.2) % Primary Metal (3,9
Slide 120: Operating segment information: depreciation, amortization and impairment
Operating segment information Depreciation, amortization and impairment NOK million Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Bauxite & Alumina 630 573 509 384 605 589 590 725 567 503 2 095 2 509 Primary Metal 546 575 583 548 619 605 616 1 19
Slide 121: Income statements
Income statements NOK million Q2 2020 Q2 2019 Q1 2020 First Half 2020 First Half 2019 Year 2019 Revenue 30 931 39 176 38 124 69 055 76 759 149 766 Share of the profit (loss) in equity accounted investments 48 47 (4) 45 50 241 Other income, net 695 139 473 1 168 322 1 000 Total revenue and income 31
Slide 122: Balance sheet
Balance sheet NOK million Jun 30, 2020 Mar 31, 2020 Dec 31, 2019 Sep 30, 2019 Jun 30, 2019 Mar 31, 2019 Cash and cash equivalents 15 385 12 160 12 286 10 581 10 590 6 099 Short-term investments 5 110 1 641 969 929 1 090 1 274 Trade and other receivables 18 916 24 539 18 959 23 007 23 186 23 542 Inve
Slide 123: Operational data
Operational data Bauxite & Alumina Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Alumina production (kmt) 1 277 829 821 786 805 932 1 320 1 430 1 531 1 442 3 712 4 487 Sourced alumina (kmt) 900 985 907 1 163 711 704 660 769 664 667 3 954 2 845 To
Slide 124: Operational data
Operational data Metal Markets Q1 2018 Q2 2018 Q3 2018 Q4 2018 Q1 2019 Q2 2019 Q3 2019 Q4 2019 Q1 2020 Q2 2020 Year 2018 Year 2019 Remelt production (1 000 mt) 150 153 126 135 131 139 125 121 137 88 563 516 Third-party Metal Products sales (1 000 mt) 70 77 83 73 70 83 82 82 79 85 304 317 Metal Produ
Slide 125: Extruded Solutions, information by business area
Extruded Solutions, information by business area Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Extrusion Europe 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 2020 2020 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Precision Tubing 2018 2018 2018 2018 2018 2019 2019 2019 2019 2019 2020 2020 Volume (kmt) 159 160 138 129 586 139
Slide 126: Investor Relations in Hydro: next events
Investor Relations in Hydro Next events Third quarter results Line Haugetraa t: +47 41406376 October 23, 2020 e: [email protected] Christopher Minora For more information see www.hydro.com/ir t: +47 90695131 e: [email protected] Aud Helen Halvorsen t: +47 95182741 e: aud.helen.halv
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