NORSK HYDRO ASA 
Fourth quarter 2020 Investor presentation
February 2021
Table of contents
Fourth quarter results 2020
3
Market
29
Business overview
42
Hydro - Group
43
Bauxite & Alumina
62
Energy
70
Aluminium Metal
82
Metal Markets
88
Rolling
Extrusions
92 98
Additional information
Cautionary note
Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expansions, investments, divestments, curtailments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d)
various expectations about future developments in Hydro's markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, and (i) qualified statements such as "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar.
Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream businesses; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro's key markets and competition; and legislative, regulatory and political factors.
108
No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.
2
Delivering 2020 improvement program and strong cash generation
Pål Kildemo
CFO & EVP
Q4 2020
Underlying EBITDA NOK 3 476 million Free cash flow NOK 3 352 million
Global recovery reducing aluminium oversupply
Volume growth downstream exceeding the market
Exceeded improvement program target for 2020
Lyse Kraft DA transaction completed
Proposed dividend of NOK 1.25 per share for 2020, revised policy for 2021
4 4
Key performance metricsQ4
Underlying EBITDA
NOK million
Free cash flow1)
NOK billion
3 476
3 387
2 792
Underlying RoaCE
12-month rolling %
3.9%
3.7%
1.3%
4Q19
3Q20
4Q20
4Q19
3Q20
4Q20
4Q19
3Q20
4Q20
Upstream costs2,3)
USD per tonne
Downstream volumes
Thousand tonnes
491 490
4Q19
Bauxite & AluminaPrimary Metals
3Q20
4Q20
4Q19
Rolled ProductsExtruded Solutions
1) Free cash flow is uEBITDA plus change in net operating capital, other operating cash and investments
2) Realized alumina price minus underlying EBITDA for B&A, per mt alumina sales
509
3Q20
4Q20
3) Realized all-in aluminium price less underlying EBITDA margin, incl Qatalum, per mt aluminium sold. Implied primary cost and margin rounded to nearest USD 25
Improvement program status
NOK millions
8 500
2020 achieved
2021 target
2025 overall target
5
Global recovery reducing oversupply by ~1 million tonnes in 2021
Quarterly market balances, world ex. China and China
Thousand tonnes, primary aluminium
2 500
Estimates global balance 2021
Million tonnes, primary aluminium
1.4
(1 000)
2 000
(1 500)
(2 000)
1 500
1 000
( 500)
500
0
Q1-16
Q2-16
Q3-16
Q4-16
Q1-17
Q2-17
Q3-17
Q4-17
Q1-18
Q2-18
Q3-18
Q4-18
Q1-19
Q2-19
Q3-19
Q4-19
Q1-20
Q2-20
Q3-20
Q4-20
>
CRU
Harbor
WoodmacEx. ChinaChinaGlobal balance
Ex. ChinaChina
Source: Republished under license from CRU International Ltd , Harbor Aluminium, Wood Mackenzie
6
Results up due to raw material costs, downstream results and currency effects
Partly offset by maintenance related costs and antidumping duties
Q4 2019 vs. Q4 2020
NOK billion
0.6
(0.7)
(0.3)
1.4
UEBIT Q4 2019
Raw material cost
Downstream result
Currency
Other
Eliminations
UEBIT Q4 2020
7
Stable results from Q3 to Q4
Positively impacted by prices and volumes upstream, offset by raw material and other costs
Q3 2020 vs. Q4 2020
NOK billion
1.4
(0.4)
(1.0)
(0.6)
1.4
UEBIT Q3 2020
Realized aluminium and alumina priceUpstream volume
Energy
Raw material cost
Other
Eliminations
UEBIT Q4 2020
8
2020 results up due to lower raw material cost, currency effects and fixed costs
Partially offset by lower prices upstream and lower volumes downstream
2019 vs. 2020
NOK billion
3.4
(4.4)
(3.1)
(2.4)
(0.9)
6.1
UEBIT 2019
Raw material costCurrencyUpstream volumeFixed costRealized aluminium priceRealize alumina priceDownstream volume & marginOther
UEBIT 2020
9
Improvement program providing uplift of NOK 4.2 billion to the 2020 result
Compared to 2018 baseline
2018 vs. 2020
NOK billion
Improvement program target for 2020 exceeded
Extended program launched of NOK 8.5 billion in EBITDA improvements by 2025 with NOK 6.0 billion to be achieved by year end-2021
2020 accumulated improvement
NOK billion
2025 accumulated improvement potential by year1,2)
NOK billion
1) Alunorte and Paragominas ramp-up to full nameplate capacity
2) 2025 EBITDA target excludes ca 0.2 BNOK in depreciation, mainly in AM
Volume ramp-up
• Alunorte producing at nameplate at year end, production at ~87% for full year 2020
Cost and efficiency initiatives
• Accelerated measures to reduce fixed costs across Hydro
• Organizational and portfolio right-sizing and SG&A cost optimization
• Operational excellence and production optimization
• Improving technical parameters
• Raw-material efficiency including metal cost optimization and procurement
• Pre-emptive maintenance taken to ensure asset integrity and robustness and maintain production
Commercial ambition: Additional NOK 2.0 billion in market and customer growth opportunities by 2025 launched at CMD 2020
Key financials
NOK million
Q4 2020
Q4 2019
Q3 2020
Year 2020
Year 2019
Revenue 35 894 | 35 490 33 169 138 118 149 766 |
Underlying EBIT Items excluded from underlying EBIT Reported EBIT 1 449 (5 322) 6 770 | 560 959 (399) 1 407 (415) 1 822 6 051 (3 181)
|
Reported EBITDA 8 850 | 2 617 3 879 19 465 9 878 |
Underlying EBITDA 3 476 | 2 792 3 387 14 316 11 832 |
Financial income (expense)
| 231 (168) (1 787) (4 723) 35 4 509 (2 055) (1 556) |
Income taxes (849) | (497) (256) (950) (813) |
Net income (loss) 7 277 | (665) (221) 3 560 (2 370) |
Underlying net income (loss) 834 | (303) 550 2 718 708 |
Reported EPS, NOK 3.43 Underlying EPS, NOK 0.35 | (0.23) (0.12) (0.11) 0.26 1.83 1.25 (0.88) 0.52 |
Excluded a gain of NOK ~5.3 billion from Underlying EBIT
NOK million
Q4 2020
Q4 2019
Q3 2020
Year 2020
Year 2019
Underlying EBIT 1 449 | 560 1 407 6 051 3 359 |
Unrealized derivative effects on LME related contracts 149 Unrealized derivative effects on power and raw material contracts (133) Metal effect, Rolling 93 Significant rationalization charges and closure costs (22) Impairment charges (52)Alunorte agreements - provisions Transaction related effects Pension Other effects - 5 291 - (4) | (1) 656 340 (91) (8) (160) (171) 99 23 (95) (298) (370) (78) (41) (202) (1 484) (783) (77) (1 968) (906) - - (129) (80) 14 - 65 - 5 407 (21) - 62 (125) 68 203 (68) |
Reported EBIT 6 770 | (399) 1 822 9 232 499 |
Hydro Bauxite & Alumina
Results up due to lower raw materials costs and currency, offset by lower alumina prices and higher other costs
Key figures
Alumina production, kmt
Total alumina sales, kmt
Realized alumina price, USD/mt
Implied alumina cost, USD/mt1)
Bauxite production, kmt
Underlying EBITDA, NOK million
Underlying EBIT, NOK million
Underlying RoaCE, % LTM2)
Underlying EBIT
NOK million
1) 2) 3)
974 | 1 806 | • | Alunorte expected to produce around nameplate capacity |
• | Around NOK ~200 million related to crane repairs | ||
2019 | 2020 | ||
Realized alumina price minus underlying EBITDA for B&A, per mt alumina sales |
URoaCE calculated as underlying EBIT last 4 quarters less 25% tax / Average capital employed last 4 quarters Realized alumina price
Implied alumina cost and margin
USD/mt1)
Q4 2020
Q4 2019
Q3 2020
1 410
1 430
2 122
2 164
272
281
241
255
2 556
2 222
587
504 578
116 5.9%
(75) 108
2.5% 4.9%
153
415
481
(75)
535
1047
108
116
1 074
255
228
241
Q419
Q320
Q420
1 990 260
281
260
272
Price 3)
228
1 167
Implied EBITDA cost per mt1)
All-in EBITDA margin per mt
Results Q4 20 vs Q4 19
• Positive currency effects USD/BRL
• Lower raw material prices
• Lower alumina prices
• Higher alumina sourcing costs
• Higher maintenance costs associated with crane repairs of around NOK 170 million
Outlook Q1 21
All-in implied primary cost and margin
Hydro Aluminium Metal
Results up due to lower raw material and fixed costs
Key figures
Q4 2020
Q4 2019
Q3 2020
Primary aluminium production, kmt
532 547 1 792 16 364
545 522
Total sales, kmt
529 548
Realized LME price, USD/mt
1 754 15 913
1 596
Realized LME price, NOK/mt
14 712
Realized premium, USD/mt
224
257 1 775
211
Implied all-in primary cost, USD/mt 1)
1 650
1 650
Underlying EBITDA, NOK million
1 432
812 404
Underlying EBIT, NOK million
844
155 (156)
Underlying RoaCE, % LTM2)
Underlying EBIT
NOK million
2.9%
(2.6)% 1.3%
(1 259) 2019
1 225 2020
1) Realized all-in aluminium price minus underlying EBITDA margin, including Qatalum, per mt aluminium sold. Including Qatalum volumes.
2) URoaCE calculated as underlying EBIT last 4 quarters less 25% tax / Average capital employed last 4 quarters
3) Implied primary cost and margin rounded to nearest USD 25
4) Realized LME aluminium price less underlying EBITDA margin, incl Qatalum, per mt primary aluminium produced
USD/mt1,3)
Q320
Q419
Q420
2 011 1 754
1 807 1 596
2 015 1 792
All-in5)LME6)
65%
65%
All-in Implied EBITDA cost per mt 1)LME Implied EBITDA cost per mt 4)
69%
% value add products7)
All-in EBITDA margin per mt
Results Q4 20 vs Q4 19
• Lower raw material prices
• Lower fixed costs and depreciation
Outlook Q1 21
• ~65% of primary production for Q1 priced at USD ~1 980 per mt 8)
• ~59% of premiums affecting Q4 booked at USD ~273 per mt 8)
• Q1 realized premium expected in the range of USD 225-275 per ton
• Higher fixed costs and higher power prices
5) Realized LME plus realized premiums, including Qatalum
6) Realized LME, including Qatalum
7) % of volumes extrusion ingot, foundry alloy, sheet ingot, wire rod of total sales volumes
8) Bookings, also including pricing effects from LME strategic hedging program as per 31.12.2020
Hydro Metal Markets
Results up due to sourcing and trading activities
Key figures
Remelt production, kmt
Q4 2020
Q4 2019
Q3 2020
140
121 124
Metal products sales, kmt 1)
672
648 668
Underlying EBITDA, NOK million
287
167 233
Underlying EBIT excl currency and inventory valuation effects, NOK million
Underlying EBIT, NOK million
Underlying RoaCE, % LTM2)
Underlying EBIT
NOK million
248 21.4%
132 198
27.3% 16.7%
132
261
21
198
248
983 728
2019 2020
1) Includes external and internal sales from primary casthouse operations, remelters and third-party metal sources.
2) URoaCE calculated as underlying EBIT last 4 quarters less 25% tax / Average capital employed last 4 quarters
Results Q4 20 vs Q4 19
• Higher results from sourcing and trading activities
• Positive contribution from currency effects
Outlook Q1 21
• Volatile trading and currency effects
Rolling volumes stable in Q4, market recovery continuing in 2021
Market development better than forecasted at Q3
Internal sales volumes - actual
Q4 2020 vs Q4 2019
Rolling segment sales volume
Source: CRU
External market forecasts
Year over year
Rolled products European market growth
Growth in %
8
(2) Q4
Q1
2021
Hydro Rolling
Results down due to US anti-dumping duties, partly offset by cost improvements
Key figures | Q4 2020 | Q4 2019 | Q3 2020 |
External sales volumes, kmt | 218 | 219 | 212 |
Underlying EBITDA, NOK million | 114 | 308 | 316 |
Underlying EBIT, NOK million | (188) | 34 | 17 |
Underlying RoaCE, % LTM1) | 0.4% | 2.4% | 1.7% |
Underlying EBIT | |||
NOK million | |||
17 |
413 70
2019 2020
1) URoaCE calculated as underlying EBIT last 4 quarters less 25% tax / Average capital employed last 4 quarters
Results Q4 20 vs Q4 19
• Negative impact of around NOK 250 million related to US anti-dumping duties
• Lower costs from the ongoing improvement program
• Improved results from Neuss on lower raw material costs
Outlook Q1 21
• Anti-dumping duties of around ~100 MNOK
• Continued market recovery, uncertainty remains
Extrusions volumes up in Q4, market recovery continues
Market developed better than forecasted at Q3
Internal sales volumes - actual | External market forecasts |
Q4 2020 vs Q4 2019 | Year over Year |
Extrusions segment sales volume | Extrusion market growth |
Growth in % | Growth in % |
16 |
Source. CRU
(3)
10
Q4
Q1
North AmericaEurope
2021
Hydro Extrusions
Results up due to lower costs and higher volumes
Key figures
External sales volumes, kmt
Q4 2020
Q4 2019
Q3 2020
291
272
278
Underlying EBITDA, NOK million
1 044
655
1 412
Underlying EBIT, NOK million
Underlying RoaCE, % LTM1)
Underlying EBIT
NOK million
511 6.2%
85 5.7%
894 4.9%
2 009 2019
85
702
89
894
511
2 196 2020
1)URoaCE calculated as underlying EBIT last 4 quarters less 25% tax / Average capital employed last 4 quarters
Results Q4 20 vs Q4 19
• Higher sales volumes
• Lower costs from ongoing improvement efforts and other temporary cost reductions
Outlook Q1 21
• Market recovery, uncertainty remains
• Continued focus on cost initiatives, some costs expected to return as market resumes
Hydro Energy
Results up on higher production volumes offset by lower prices
Key figures
Power production, GWh
Q4 2020
Q4 2019
Q3 2020
3 396
2 332
3 161
Net spot sales, GWh
Southwest Norway spot price (NO2), NOK/MWh
Underlying EBITDA, NOK million
365 200
419
Underlying EBIT, NOK million
352
296 132
Underlying RoaCE, % LTM1,2)
8.7%3)
12.9% 26.3%
Underlying EBIT
NOK million
517
437
53
132
352
1 243 974
2019 2020
1) URoaCE calculated as underlying EBIT last 4 quarters less 70% tax/ Average capital employed last 4 quarters
2) 80% tax rate applied for full year 2019 and 2020
3) Increased capital employed from Lyse transaction negatively impacting uRoaCE from Q3 to Q4
Results Q4 20 vs Q4 19
• Lower power prices due to strong hydrological balance
• Higher power production volumes
Outlook Q1 21
• Average NO2 spot price ~499 NOK/Mwh in January
• Drier, colder weather in January nearly eliminating surpluses in hydrological balance
Lyse Kraft DA creating accounting gain in Q4, and other changes in Energy taking effect in 2021
Recognized gain of NOK 5.3 billion in Q4 2020
Additional full year effects in Energy from 2021
NOK billion
7.8
Fair value of LKDA share
Carrying value RSKCross gainElimination
(IFRS)Recognized gain
• Fair value estimate of 25.6% ownership in LKDA NOK 7.8 billion
(EV multiple of 3.3 NOK/Mwh)
• Reported gain of NOK 5.3 billion after adjustment of low carrying book values for RSK and IFRS elimination
• Reduction in EBITDA of NOK 100 - 200 million per year due to changes in accounting following the Lyse Kraft DA transaction
• Reporting pro-rata share of LKDA net income (EAI)1) as part of EBITDA; RSK was previously reported as a "subsidiary" with EBITDA reported directly
• Reduced volumes of 750 GWh partially offset by higher quality assets for net negative impact of 550 GWh (Negative NOK ~100 to 150 million EBITDA2))
• Expiry of legacy power supply contract entered in 2008 will have positive effect of NOK ~650 million3), in addition to NOK ~750 million positive effects from changes in the contract portfolio, including new internal contract3,4)
• Internal contract gain offset by higher costs NOK 300 to 350 million in AM
• New units Batteries and Renewable Growth in build up phase.
Estimate NOK ~100 to 200 million in operating and project development costs
1) In general, a DA-structure is not a separate tax subject and tax is paid directly by owners. However, part of the portfolio is held through limited liability companies and thus separate tax subjects, impacting Net income from Lyse Kraft DA
2) Based on assumed price of 300 NOK/MWh, cost of 70 NOK/MWh, additional 100 GWh positive effect on net income results in net negative effect of NOK 100 million on net income
3) Compared to 2020
4) Based on spot Fx prices
Other and Eliminations
Negative eliminations on higher internal volumes
Underlying EBIT, NOK million
Q3 2020 | |
(435) | |
(166) | |
(1 003) | (948) |
2019 | 2020 |
Q4 2020
Q4 2019
Other | (300) | (223) | (204) |
Eliminations | (135) | 156 | 417 |
Other and Eliminations | (435) | (67) | 213 |
Underlying EBIT
NOK million
213
(67)
(560)
Net debt improves in Q4 on positive cash flow generation
Hydro at lowest net debt level since Q3 2018, 2019 dividend paid in Q4
Adjusted net debt reduced in Q4 2020
Dec 31, | Sep 30, | Jun 30, | Mar 31, | |
NOK billion | 2020 | 2020 | 2020 | 2020 |
Cash and cash equivalents | 17.6 | 17.5 | 15.4 | 12.2 |
Short-term investments | 4.1 | 5.4 | 5.1 | 1.6 |
Short-term debt | (4.7) | (6.9) | (7.1) | (7.7) |
Long-term debt | (24.8) | (25.9) | (26.6) | (21.3) |
Net cash/(debt) | (7.8) | (9.9) | (13.2) | (15.2) |
Net pension liability at fair value, net of | (9.9) | (11.5) | (11.1) | (12.4) |
expected tax benefit | ||||
Other adjustments1) | (4.9) | (4.6) | (4.8) | (5.2) |
Adjusted net debt ex. EAI | (22.6) | (26.1) | (29.1) | (32.8) |
Net debt in EAI | (5.3) | (5.5) | (5.6) | (6.5) |
Adjusted net debt incl. EAI | (27.9) | (31.6) | (34.6) | (39.3) |
1)
"Other adjustments" include, e.g., asset retirement obligations, cash and short-term investments in
Industriforsikring
Around 10% of aluminium volumes hedged for 2021-23
Further portfolio measures being evaluated to support strategic targets
• Aluminium hedges of 250 kt/yr 2021-23 in place per end-January at price levels seen in late December/early January
• Pricing mainly in NOK, with USD hedges converted to
NOK via USDNOK derivatives
• Corresponding raw material exposure partially secured using financial derivatives or physical contracts
• Total hedges in place:
• 30% B&A BRLUSD exposure 2021-2022
• 10% aluminium volumes 2021-2023
Proposing dividend of NOK 1.251) per share for 2020
Represents payout of ~NOK 2.6 billion
• Competitive shareholder returns and dividend yield compared to alternative investments in peers
• Reflects a robust financial situation, taking into account a demanding year with covid outbreak and volatility in the aluminium industry
• Average five-year payout ratio2) of ~65%
• Dividend policy 40% payout ratio of reported net income over the cycle with 1.25 NOK/share considered as floorAluminium peer group dividend yield3) (%)
• Updated dividend policy from 2021 reflecting Hydro's ambitions to lift performance and cash return to shareholders over the cycle
• Hydro's dividend policy is to, over the cycle, pay out minimum 50 percent of underlying net income
• The dividend policy has a floor of NOK 1.25 per share. Share buy-backs or extraordinary dividends will supplement dividends during periods of strong financials, due considerations being given to the commodity cycle and capital for future growth.
1) Pending approval from the AGM on May 06, 2021
2) Dividend paid divided by net income from continuing operations attributable to equity holders, including proposed 2020 dividend
3) Dividend yield defined as dividend per share paid out in year 2020/share price year end 2020. Peer group includes (in alphabetical order): Upstream: Alcoa, Century, Chalco, Hindalco, Rusal Downstream: Amag, Arconic, Constellium, Kaiser
Source: Nasdaq IR Insight
Capital return dashboard for 2020
Hydro targets uRoaCe above 10% over the cycle
Bauxite & AluminaAluminium MetalMetal MarketsRollingExtrusionsEnergy
Capital employed1)
1) Graph excludes (9.0) BNOK in capital employed in Other & Eliminations
5) Free cash flow - operating cash flow less investing cash flow excl. sales/purchases of short-term investments
2) URoaCE Hydro (Annual definition) calculated as underlying EBIT last 4 quarters less Income tax expense adjusted for 6) CAPEX reduced by ~25% in 2020 in response to Covid-19; Excluding NOK (0.1) billion from, e.g., changes intax on financial items/ Average capital employed last 4 quarters.
3) Funds from operation LTM/Average LTM adjusted net debt
4) From 2021, Hydro will replace this measure with a goal of net debt excluding equity accounted investments over uEBITDA < 2x than 2x
prepayments/payables for capex. Cash effective capex based on the cash flow statement amounts to NOK 6.5 billion (adjusted for changes in short-term investments
7) Pending approval from the AGM on May 06, 2021
Market
Investor presentation, February 2021
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
Lightness and strengthDurability and formabilityCorrosion resistanceConductivityRecyclability
Energy-intensity
For illustrative purposes only
Steel
Strength and durabilityRecyclability
Price
WeightCorrosionEnergy-intensity
Copper
ConductivityCorrosion resistanceRecyclability
PriceWeightEnergy-intensity
Composites
LightnessStrength
Price
Recyclability
Climate footprint
Energy-intensity
PVC
Lightness and formabilityCorrosion resistancePrice
Climate footprintRecyclabilityDurability
Transport & construction key semis demand segments
Global semis demand 2020: ~85 million tonnes
Per segment
TransportConstructionConsumer durablesPackagingFoil stockElectricalMachinery & EquipmentOther
Source: CRU, Hydro Analysis
Per product form
Rolled productsWire & CableExtrusionsCastingsForgings
Powder & paste, other
Per region
ChinaAsia ex. ChinaAfricaEurope
North AmericaCentral & South AmericaAustralasia
Segment composition in extruded and rolled products
Global segment composition, extrusions
(2020)
Construction
Transport
Machinery & equipment
Electrical
Consumer durables
Other
Source: Hydro analysis, Republished under license from CRU International Ltd
Global segment composition, rolled products
(2020)
Packaging
Transport
Construction
Machinery & Equipment
Consumer durables
Electrical
Other
Jan-21
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
Jan-21
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
Jan-21
Jan-19
May-19
Sep-19
Jan-20
May-20
Sep-20
LME 3m USD
LME 3m NOK (RHS)SHFE* ex. VAT in USD
Source: Metal Bulletin, Platts, Reuters Ecowin, Hydro analysis
US Mid WestJapanEurope (duty-paid)
PAX - LHS
% LME 3m - RHS
Industry raw material costs in Q4
Petroleum coke FOB USG (indexed)
2,5
2,0
1,5
1,0
0,5
0,0
Q4-16
Q2-17
Q4-17
Q2-18
Caustic soda (indexed)
2,5
Q4-18
2,0
1,5
1,0
0,5
0,0
Q4-16
Q2-17
Q4-17
Q2-18
Q4-18
Indication of current market prices
Q2-19
Q4-19
Q2-20
Q2-19
Q4-19
Q2-20
Source: Thomson Reuters, PACE, IHS Markit, Platts, ANP, CRU
Pitch FOB USG (indexed)
Alumina PAX index (indexed)
2,5 2,5
2,0 2,0
1,5 1,5
1,0 1,0
0,5 0,5
0,0 0,0
Q4-20
Q4-16
Q2-17
Q4-17
Q2-18
Fuel oil A1 (Indexed)
Q4-18
Q2-19
Q4-19
Q2-20
Q4-20
Steam coal (indexed)
2,5 2,5
2,0 2,0
1,5 1,5
1,0 1,0
0,5 0,5
0,0 0,0
Q4-16
Q2-17
Q4-17
Q2-18
Q4-18
Q2-19
Q4-19
Q2-20
Q4-20
Q4-20
Q4-16
Q2-17
Q4-17
Q2-18
Q4-18
Q2-19
Q4-19
Q2-20
Q4-20
Q4-16
Q2-17
Q4-17
Q2-18
Q4-18
Q2-19
Q4-19
Q2-20
Q4-20
Historical strong correlation between LME and 90th percentile smelters
Primary metal market
World ex-China
Market balance in thousand tonnes 1)
10 000
8 000
6 000
4 000
2 000
0
-2 000
-4 000
2000
2004 | 2016 | 2004 | 2016 |
Market balance | 90th Percentile | Market balance | 90th Percentile |
2000
Source: CRU, Hydro Analysis
1) Primary production less primary demand
2008
2012
LME 3-monthNominal USD/t
China
Market balance in thousand tonnes 1)
2 800
10 000
2 600
8 000
2 400
2 200
6 000
2 000
4 000
1 800
2 000
1 600
1 400
0
Nominal USD/t
1 200
-2 000
1 000
800
-4 000
2020
2008
2012
SHFE Cash
2 800
2 600
2 400
2 200
2 000
1 800
1 600
1 400
1 200
1 000
800
2020
Global cost curve increases in 2021 on recovering raw material and energy 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
Source: Republished under license from CRU International Ltd
20 000
30 000
40 000
20172018201920202021
50 000
60 000
70 000 000'tons
Total global inventory days up after weak demand in Q2 2020
Primary metal market
Global reported stocks and inventory days
Thousand tonnes
10 000
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
0
2005
2006
2007
2008
2009
2010
Reported ChinaOther reported ROWLME stocks
Global reported inventory days
Source: CRU, Hydro Analysis
Inventory days
Total global stocks and inventory days
Thousand tonnes
90
16 000
80
14 000
70
12 000
60
10 000
50
8 000
40
30
6 000
20
4 000
10
2 000
0
2011
2012
2013
2014
2015
2016
2017
2018
2019
2020
2005
2006
2007
2008
2009
2010
2011
2012
2013
2014
2015
2016
Global estimated unreportedGlobal reported
Global total inventory daysInventory days
• Total stocks increased in 2020
140 120 100 80 60 40 20 0
• Stocks in World ex China up on demand shortfall due to corona crisis, however strong Chinese demand leading to decreased inventories in China after Q1
• LME stocks down in second half 2020
• High uncertainty regarding absolute level of unreported volumes
2017
2018
2019
2020
Alumina market consolidating, becoming more integrated
Estimated net equity alumina position, in million tonnes
Year 2000
Alcoa/AWAC
Glencore BHP Billiton
Kaiser Alcan Sual Rio Tinto Pechiney
Hydro (0.6)
Dubal (1.0)
Rusal (1.2)
Vale
VAW (0.5)
Alba (0.9)
Source: CRU, Hydro
Assuming Alunorte at full peoduction
Year 2020
4.3
Alcoa/AWAC
South 32
Hydro
Rio Tinto
Nalco
Hindalco
UC Rusal
8,6
0,0
Vedanta -1,3
Century -1,6
EGA -2,9
Alba -3,0
Alumina prices have recovered from March lows; China alumina imports continue at high levels
Platts alumina index (PAX)
USD/mt
750 36,0%
150 12,0%
Jan-16
Apr-16
Jul-16
Oct-16
Jan-17
Apr-17
Jul-17
Oct-17
Jan-18
Apr-18
Jul-18
Oct-18
Jan-19
Apr-19
Jul-19
Oct-19
Jan-20
Apr-20
Alumina exportsAlumina imports
Source: Platts, Bloomberg, CRU, Metal Bulletin, China customs, IHS Markit, Hydro analysis
PAX - LHS
% LME Al 3m - RHS
Monthly Chinese alumina trade balance (kt)
In '000 tonnes
600
Jul-20
Oct-20
Jan-21
-100
-200
-300
-400
-500
500
400
300
200
100
0
Large and concentrated bauxite resources
Guinea stands out as a long-term source
Source: Hydro analysis, CM Group
China increasingly reliant on bauxite imports
Guinea bauxite increasingly satisfying Chinese demand
Growing need for bauxite imports amid domestic depletion
2005
Oct-20
Domestic bauxite
2007
2009
• | Decreasing Chinese bauxite availability and increasing costs triggering more | Guinea bauxite production has increased significantly |
bauxite imports | ||
• Atlantic-sourced seaborne bauxite continues to grow, adding freight exposure |
•
• Chinese bauxite quality deteriorating
• Domestic bauxite less competitive relative to imported bauxite as landed prices fall
Source: CM, China customs,
Monthly Chinese bauxite imports by origin
Mt
60%
10
50%
8
40%
6
30%
4
20%
10%
2
0%
0
2011
2013
2015
2017
2019
Jan-08
Oct-08
Jul-09
Apr-10
Jan-11
Oct-11
Jul-12
Apr-13
Jan-14
Oct-14
Jul-15
Apr-16
Jan-17
Oct-17
Jul-18
Apr-19
Jan-20
Business overview
Investor presentation, October 2020
Hydro Group
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
2.9
3.4 3.4 3.2 3.0 2.6 3.1 3,5 3.1 2.7
2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
1) Total recordable incidents (TRI) rate defined as cases per 1 million hours worked, for own employees
Hydro: a resource rich global aluminium company
Hydro underlying EBIT quarterly, NOK billion
5 692
1) As per Dec 31, 2020
9 656
6 425
11 234
9 070
3 360
6 052
The aluminium value chain
World class assets, high-end products and leading market positions
Raw materials processing and energy
Bauxite & Alumina
• High quality Gibsite bauxite
• Bauxite capacity 10.8 million tonnes (100% Paragominas and 5% MRN)
• World's largest alumina refinery outside China with capacity of 6.3 million tonnes
• Long-term sourcing contracts for bauxite and alumina
Energy
• Long-term power supply secured in Norway
• Norway's third largest operator of hydropower with 12.9 TWh
• Norway's fifth largest hydropower producer - ~9.4 TWh normal renewable energy production
• Ownership in Lyse Kraft DA, the third largest hydro power producer
• New business opportunities within renewable and batteries/storage solutions
Aluminium Metal
• 2.3 million tonnes primary capacity
• Karmøy Technology Pilot testing world's most climate and energy efficient aluminium production
• High LME and USD sensitivity
• Improving cost position
• Leading in technology
100% of volumes for assets that are fully consolidated and pro rata volumes for other assets.
Primary aluminium production, marketing and recycling
Metal Markets
• ~3.3 million tonnes (primary, remelt, recycling and cold metal)
• Expertise in materials
• Flexible system
• Strengthening recycling position
• High share value-add products
• Strong marketing organization
• Risk management
• Strong market positions in
Europe, Asia and the US
Rolling
Aluminium in products
• ~900 thousand tonnes - Europe's largest producer
• Margin business
• Regional business
• Close to customers
• Innovation and R&D
Extrusions
• 1.3 million tonnes
• No. 1 position in North
America and Europe
• Solid foothold in emerging markets
Strong global presence throughout the aluminium value chain
Built on market understanding, customer closeness and competence
The complete aluminium company
• High-quality bauxite and alumina production in Brazil
• Primary production in Norway,
Germany, Qatar, Slovakia, Brazil, Canada, Australia
• 9.4 TWh captive hydropower production
• European #2 in rolled products
• World leader in aluminium extruded profiles
• Remelting in the US, European recycling network
• Unparalleled technology and
R&D organization
1) Outside China
2) Extrusion ingot, sheet ingot, primary foundry alloys and wire rod
3) Primary Foundry Alloys
North America
Europe
Rolling Aluminium Metal
Energy
Bauxite & Alumina
Extrusions
Recycling
Hydro - the fifth largest aluminium producer outside China
Equity production in 2020 in aluminium equivalents, thousand tonnes
10 000
9 000
8 000
7 000
6 000
5 000
4 000
3 000
2 000
1 000
0
China Hongqiao United Company
Xinfa Group
Group Ltd
Rusal
Source: CRU
Hydro with Alunorte at 6.3 million mt Ala to Al conversion factor: 1.925
Rio Tinto
ChalcoEmirates Global Aluminium (EGA)AlcoaYunnan Aluminium Co LtdEast Hope GroupNorsk HydroVedanta LtdJiuquan Iron & Steel Group Co
Ltd (JISCO)
Alumina
HindalcoQinghai Investment Group
Seizing opportunities where our capabilities match megatrends
IStrengthen position in low-carbon aluminium
Diversify and grow in recycling and new energy
Strengthening position in low-carbon aluminium
Main priorities
Cost-competitive asset base
• Safety, compliance and operational excellence
• 1st and 2nd quartile cost in B&A and AM
• Secure competitive power and raw materials
• Fixed cost
Strong market positions
• Deliver innovative solutions, build on strong customer collaboration
• Grow in automotive and e-mobility solutions
• Further explore substitution potential
Sustainable footprint
• Source renewable based power
• Innovation driving expanded product offering of CIRCAL and REDUXA
• Increase recycling
Diversifying and growing into new areas
Recycling
Renewables
Batteries
Raising the improvement ambitions toward 2025
Cost improvements, commercial ambitions, and strategic growth initiatives
BNOK 8.5
on EBITDA by 20251,2,3)
Businessareas
Hydro Group
Bauxite&AluminaAluminium MetalExtrusionsRolling
Energy
Staff functions and centralized initiatives
8.5
3.0
3.0
1.3
1.1
0.1
0.1
1) Against 2018 baseline 2) Excluding EBITDA uplift from commercial and strategic growth initiatives 3) ~3 BNOK in capex required to meet remaining improvement program 4) BNOK ~5 required to meet remaining commercial ambition
Improvement program BNOK 8.5
Base volumes
3.8
2.7
1.1
• Reversing effects on
B&A production and ramp-up of Husnes and Albras
Operational excellence
1.7
0.6
-0.3
0.9
0.2
0.02
• Volume creep, improved raw material use and reduced losses
• Energy mix and fuel switch
Fixed costs
2.1
0.9
0.8
0.5
0.04
0.1
• Organizational rightsizing, re-structuring and SG&A reduction
• Synergies from
Lyse transaction
Procurement
0.9
0.1
0.4
0.4
• Improvement within supplier, demand and specification, and process management
Commercial ambition
BNOK 2.0
Commercial
BNOK 2.0 on EBITDA by 20254)
Strategic growth initiatives
• | Customer driven | Larger changes in |
growth initiatives | business portfolio and | |
• | New products and | strategic direction |
green brand | ||
• | Portfolio high grading | |
53 |
0.3
1.2
0.5
Strategic growth initiatives
Recycling EBITDA uplift BNOK 1.0 - 1.5 across Aluminium Metal,
Extrusions, Rolling
Renewable Growth - 1GW renewable projects (2021)Battery EBITDA uplift BNOK 0.6 - 0.7
•
Capital allocated according to strategic modes
Strategic modes reflect global megatrends and high-return opportunities
Sustainability: the basis for our future positioning
Delivering on environmental ambition
Special focus on Brazil
Tailings dry backfill
• Industry pioneering project eliminating the need for new large dams for storage of bauxite tailings
1:1 rehabilitation of available mined out areas
• On track with respect to target of rehabilitating available areas within two years of initial mining
Bauxite residue management - target of 10% utilization from 2030
• Ongoing studies on bauxite residue alternative uses
56
On track to deliver our 2030 climate ambition
Goal to also reduce CO2 emissions by 10% by 2025
Ambition to reduce own
30% by 2030
Greener energy mix at Alunorte key enabler for the 30% reduction by 2030
• Fuel switch project replacing heavy fuel oil with liquid natural gas emissions by 10% in 2025,
• Project on track to reduce 600 thousand tonnes CO2 by 2025
• Installation of three electrical boilers
• Potential to reduce additional 400 thousand tonnes CO2 by 2025
• Pilot installation planned in 2021
• Electrification of remaining coal boilers
• Additional 2 million tonnes CO2 reduction by 2030
• Key enabler of 30% reduction target
• MoUs signed to develop solar/wind projects to deliver renewable energy at attractive cost
1) Based on 2018 portfolio
R&D for low or zero-carbon technology towards 2050
Exploring different paths
• Carbon Capture and Storage
• Carbon Capture and Utilization
• Biocarbon anodes
• Carbon-free process
Strong demand for greener products
External sales volumes
(000s)
~1401)
External sales volumes
(000s)
1) Capacity level require upgrades and investments in primary remelters; Some upgrades will be dependent on market conditions
2) Norwegian smelter portfolio currently Hydro REDUXA certified
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
Alumina
0.1
1.3
0.2
1.6
CastingSmelting
0.1
Power generation
0.1
Other
<0.6
Anode
3.4 - 4.0 kg CO2e/kg AI
1.4
CastingSmelting
0.2
0.4
0.1
Power generation
0.1
-0.3
0.1
Alumina
Anode
PCS
2.0 kg CO2e/kg AI
Bauxite
Bauxite
Typical production values
Potential production values
Hydro 2025 key strategic priorities
Deliver on three value-creation levers
Finalize strategic review Rolling
Achieve 10% RoaCE target over the cycle
Reduce CO2 emissions by 30% by 2030
Meet and shape demand for greener products
Why invest in Hydro?
Attractive asset baseStrong market positions downstream
Greener products leadershipRobust cash position and balance sheet
Strong shareholder focus
Sustainable growth journey
1) Growth segments including automotive, can and building & construction, based on 2019 exposures 2) Investment grade
Bauxite & Alumina
Bauxite and alumina cluster in Para, Brazil
MRN bauxite mine
• Top 3 bauxite mine in the world
• 5% ownership
• Volume off-take agreement for Vale's 40% stake
• 2020 production 12.9 mill tonnes
Paragominas bauxite mine
• 100% ownership
• Nameplate capacity of 9.9 million tonnes
• 2017 production 11.4 million tonnes
• 2018 production 6.2 million tonnes*
• 2019 production 7.4 million tonnes*
• 2020 production 8.6 million tonnes
• Long-life resource
Alunorte alumina refinery
• 92% ownership
• World's largest alumina refinery outside China
• Nameplate capacity of 6.3 million tonnes
• 2017 production 6.4 million tonnes
• 2018 production 3.7 million tonnes*
• 2019 production 4.5 million tonnes*
• 2020 production 5.5
million tonnes
Bauxite licenses
Refining and | External | Sales contract |
mining competencies | supply contracts | portfolio |
* Alunorte and Paragominas produced at 50% capacity from March 2018 to May 2019 due to a 50% production embargo on the Alunorte refinery. The production embargo was lifted in May 2019.
• Bauxite supplied from
Paragominas and MRN
• World-class conversion cost position
• Utilizing state-of-the-art press filter technology to process bauxite residue
• Enhancing plant robustness to prepare for extreme weather events
Fast production ramp-up after extended pipeline maintenance in Q3 2020
Bauxite production in Paragominas
Annualized million tonnes
2Q20
12,2
11,8 12,1 12,1
11,7
4Q14
2Q15*
4Q15
2Q16
4Q16
2Q17
4Q17
Q218
Q418
Q219
Paragominas bauxite mine
• Production affected by Alunorte embargo from March 2018 - May 2019, currently ramping-up
• Production affected by extended pipeline maintenance from August to October 2020
* Extended maintenance period in March / April 2015 resulted in lower bauxite production
Alumina production at Alunorte
Annualized million tonnes
Q419
Q220
Q420
4Q14
2Q15
4Q15
2Q16
4Q16
2Q17
Alunorte alumina refinery
4Q17
2Q18
4Q18
2Q19
4Q19
4Q20
• Production affected by 50% Alunorte embargo from March 2018 - May 2019, currently ramping-up
• Production affected by extended pipeline maintenance from August to October 2020
Bauxite operational mining costs in Paragominas
• Energy cost - Power and fuel
Indicative Paragominas bauxite mining costs
• Large fixed cost base
• Labor cost
• Influenced by Brazilian wage level
• Productivity improvements
• Maintenance and consumables
• Mainly influenced by Brazilian inflation
LaborEnergy
Support & infrastructure
Maintenance/consumables
Other costs
Favorable integrated alumina cost position
• Implied alumina cost 2020 - USD 221 per mt1)
• Alunorte, Paragominas and external alumina sourcing for resale
• Bauxite
• Internal bauxite from Paragominas at cost, sourced bauxite from MRN
• External bauxite sales
• Energy
• First-quartile energy consumption - 8 GJ/mt
• Energy mix of heavy fuel oil, coal and electric power
• Caustic soda
• Competitive caustic soda consumption due to bauxite quality
• Competitive caustic soda sourcing contracts
• Other costs
• Maintenance, labor and services
1) Realized alumina price minus Underlying EBITDA for B&A, per mt alumina sales
Indicative implied alumina cost composition
BauxiteCaustic soda
Energy
Other costs
Sourced alumina
Strong commercial organization maximizing the value of B&A assets
External alumina sourcing
• 2.0-2.5 million mt of external alumina sourced annually
• Long term off-take agreement with Rio Tinto
• ~900 000 mt annually from Yarwun refinery
• Short and medium-term contracts
• To balance and optimize position geographically
• Various pricing mechanisms
Long positions in bauxite and alumina
• Pricing should reflect bauxite and alumina market fundamentals
• Selling surplus MRN bauxite externally
• Premium for high bauxite product quality
• Majority sold to customers in the Atlantic basin
• Mostly term contracts based on % of PAX and/or fixed USD/mt element
• Selling 3-4 million mt/yr of alumina externally
• | Older contracts linked to LME | • | Index pricing and short to medium-term contracts |
• | New medium to long term contracts mostly index | • | |
New contracts: 100% sold on index, except Hydrate and short-term | |||
• | Fixed USD per mt for spot contracts on index | contracts, normal terms 1-5 years | |
• | Legacy LME-linked contracts: priced at ~14% of LME 3M |
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)
100 %
35%
index
50%
index
65%
index
90 %
80 %
70 %
60 %
50 %
40 %
30 %
20 %
10 %
0%
2021
2015
2016
2017
Internal index
Intenal LME
External index
1) Rounded figures. Indicating volumes available for index pricing. Includes minority sales priced at % of LME with floor.
Based on annual sourced volumes of around 2.5 mill t, assuming normal production at Alunorte.
75%
index
75%
index
2018
2019
External LME
85%
index
2020
Index exposure
88%
index
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
3.0 BNOK
on EBITDA by 2025 in improvement potential
Fuel switch project supporting improvement program and sustainability targets
Capex, BNOK
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2020
2021
Growth and return-seekingSustaining
2022-25
Energy
Energy is a key differentiator in the aluminium industry
Center of energy excellence in Hydro
Energy cost 1)Energy business area's contribution to Hydro
~25%Market understanding. Framework advocacy. «Greener» support & energy efficiency support. Security of supply
1) Share of Business Operating Cash Cost
Bauxite
Alumina
~35% ~50%
Primary
~35%
Rolling
~10%
Extrusion
~8%
global primary energy demand
Spanning the entire aluminium value chain, all global regions and energy carriers
Hydro's total energy portfolio amounts to 252 million GJ per year. By contrast only 15% of this is captive hydropower in Norway (10 TWh)
Coal 434 thousand tonnes Fuel oil 2.8 million BOE
South America Power 3.4 TWh
Primary energy is defined as energy production plus energy imports, minus energy exports.
Values are listed in its conventional trading unit. Electrical energy: 1 MWh = 3.6 GJ, MMBtu = Million British thermal units = 1.06 GJ, ton=metric ton thermal coal = 28 GJ, BOE= Barrel of Oil Equivalent = 6.12 GJ. Bar charts are represented in the equivalent primary energy size for each category.
Based on equity-adjusted 2019 values for Norsk Hydro's bauxite mines, alumina refineries, smelters, remelters, rolling mills and extrusion plants.
Securing long-term competitive power sourcing for smelters
Unique combination of hydro- and windpower
Sourcing platform for fully-owned smelters, Norway1)
TWh
1) Net ~8 TWh captive assumed available for smelters
2) Albras and Slovalco on 100% basis
Sourcing platform for JVs and Neuss smelter2)
TWh
Lower captive volume and higher operator volume post transaction
Normal annual production, Equity share
10.2 TWh
Operator hydropower
10.5 TWh
Before the transaction
* Production figures for RSK and Lyse Kraft DA are based on a historical average reference as assumed in the transaction. Figures for Sogn and Telemark reflect estimated middle production
No reversion Subject to reversion
Bubble size = production in TWh
1) Reversion year
After the transaction
Normal annual production, Equity share
9.4 TWh
Operator hydropower
12.9 TWh
No reversion Subject to reversion
Bubble size = production in TWh
Market pricing principle applied to internal contracts
Based on external price references
Sourcing side
TWh
Normal production
Norway post 2020
9.4
(7-11) 1)
Sourcing on long-term contracts
1) Depending on the precipitation level, hydropower production may vary from 7 TWh in a dry year to 11 TWh in a wet year
2) Consumption in AM at current production levels and at full installed capacity (incl. Karmøy pilot plant)
3) Net spot sales vary depending on the power production level and internal consumption in AM
4) Depending on status of sourcing
* Includes legacy external contracts
Revenue side
TWh
0-63)
1
Net spot salesConcession power *Consumption in Primary Metal
Energy earnings drivers
Underlying EBIT1) and spot price
NOK million
2 000
1 500
1 000
500
0
200320042005200620072008200920102011201220132014201520162017201820192020
Underlying EBIT and spot price
NOK million
800
600
400
200
0
2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018 2019 2020
Underlying EBITSpot price
1) Underlying EBIT 2003-2006 based on USGAAP 2) Compared to 2020
NOK/MWh
• Production and market prices strongly linked to hydrological conditions
500
• Fairly stable annual EBIT contribution
400
300
• Seasonal market variations in demand and supply
200
100
• Occasional delink between area prices
0
• Power portfolio optimized versus market
• Stable and competitive cost base:
NOK/MWh
• Mainly fixed costs
600
• Volume-related transmission costs
500
400
300
• Expiry of legacy supply contract entered in 2008 will have positive effect of ~NOK 650 million2) from 2021
200
100
• New 8 TWh internal contract for power sales to Aluminium Metal in
0
Norway effective from 2021-30
Building complementary businesses, creating value
A platform for growth, scaling and new ideas
Wind and solar
Battery value chain
Attractively positioned for ESG-driven financial sectorExtensive experience in liberalized and connected power markets, deep operational, commercial, regulatory and project competence
Trusted industrial partnerExtracting value from existing assets, competencies, positionsWell-positioned to access third-party project finance resources and
ESG funding supportResponsible operations and more climate friendly solutions for the low-carbon, circular economySustainability across the value chain
Growing and diversifying our portfolio where capabilities match trends: Renewable Growth
• Capturing existing value in Hydro's power demand and industrial footprint
• Approx. 10 TWh repowering required by 2025
• 100+ sites globally
• Leveraging Hydro's unique position in value chain
• Power sourcing and trading, source optimization
• Asset operations (hydro, wind)
• Project management; commercial expertise
• Industrial energy management
• Solidifying position in high growth renewables industry
• Supporting Hydro's low carbon and sustainability agenda
Hydro well placed for growth in battery industry
Battery industry
Hydro
Strategy of stepwise engagement in the battery
• Aim: to build a new sustainable and profitable business that will diversify and strengthen Hydro's overall portfolio
• New business unit "Hydro Batteries" to perform active industrial ownership of current assets and develop new opportunities
• Expanding battery footprint with selective positions and partnerships across value chain
• Successful strategic investments already made with strong pipeline of opportunities
Mining/Refining
Battery Chemistry
Cell production
Integration/OEMs
Recycling Reuse
21%
Investments taken
Not currently active in market
Ownership stake
Capital return dashboard for Energy
Returns above the cost of capital reflecting the depreciated asset base
Capital employed in Energy
0%
~7 BNOKYE 2020
The RSK-Lyse transaction expected to increase capital employed from 2021
0.1 BNOK
on EBITDA by 2025 in improvement potential
13 %
9 %
2016
2017
2018
2019
2020
~15%
2016-2020 average URoaCE
18 % | 19 % |
18 % |
0.7 BNOK
in EBIT upside due to the new contract portfolio from 2021
URoaCE > CoC
Capex, BNOK
0.8
0.6
0.4
0.2
0.0
2020
2021
Growth and return-seekingSustaining
6-7%
Nominal long-term cost of capital
2022-25
Aluminium Metal
World-wide primary aluminium production network
Aluminium Metal and Metal Markets
Norway, 1 125 000 tonnes
| 50% |
7 stand-alone remelters
• 2 in the US
• 5 in Europe (UK, Luxembourg,
France, Spain and Germany)
Canada, 120 000 tonnes
| 5% |
Brazil 460 000 tonnes
| 20% |
Primary
Remelt/Recycling
2.30.9
million tonnes
million tonnes
2.3 million mt is consolidated capacity. Slovalco and Albras are fully consolidated, Tomago and Alouette are proportionally consolidated and Qatalum is equity accounted. Neuss, which is a part of Rolling, is not included. 0.9 million mt includes stand-alone remelters, recycling facilities and additional casthouse capacity at primary plants.
Slovakia, 175 000 tonnes
| 8% |
Qatar, 305 000 tonnes
| 13% |
Australia, 75 000 tonnes
| 3% |
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 workbench improvements
Bring Your Own Device
Digital Foundation including Cyber Security
Organization Foundation including Aluminium Metal Digital Academy
Low carbon footprint due to renewable energy base and industry lowest energy consumption
Total emissions, in tonne CO2/t al
20
18 16 14 12 10 8 6 4 2 0
12.3 11.5-11.8
Peers
Source: CRU and Hydro analysis
1) Hydro's consolidated share
World average (2020)
Energy consumption in Hydro smelters1), kwh/kg al
17.5
10.0
Hydro
Karmøy Hydro 1967 1993
Hydro 1998
Hydro 2003
Hydro 2018
Hydro HAL300 HAL4E HAL4e HAL4e 2020 2012 Ultra
World average (2020)
18 16 14 12 10 8 6
4
2 0
Hydro vision
Competitive primary aluminium cash cost
• Primary aluminium cash cost 2020
• All-in implied primary aluminium cash cost1) USD 1 700 per mt
• LME implied primary aluminium cash cost2) USD 1 450 per mt
• Alumina
• Purchases based on alumina index ~75%
• Purchased based on LME link ~25%
• Power
• Long-term contracts
• 2/3 of power need from renewable power
• Contracts with a mix of indexations; inflation, LME, coal, fixed
• Carbon
• 2-3 year contracts for petroleum coke and pitch, quarterly pricing
• Fixed costs
• Maintenance, labor, services and other
• Other
• Other direct costs and relining
Liquid aluminium cash cost 2020 3)
1) Realized LME aluminium price plus premiums minus underlying EBITDA margin, including Qatalum, per mt primary aluminium sold
2) Realized LME aluminium price minus underlying EBITDA margin, including Qatalum, per mt primary aluminium produced
3) Pie chart based on cost of producing liquid aluminium, not directly comparable to the LME or All-in implied primary aluminium cash cost
Alumina
Power
Carbon
Fixed cost
Other
Capital return dashboard for Aluminium Metal & Metal Markets
Returns below the cost of capital mainly reflecting challenging markets and the Alunorte situation. Good returns in recycling
Capex, BNOK
Capital employed in AM (MM)
3.0 + 0.3 BNOK
on EBITDA by 2025 in improvement potential and commercial ambitions
1)Creep and recycling with high profitability
Potential CO2 compensation from 2021
3.0
2.5
2.0
1.5
1.0
0.5
0.0
2020
2021
Growth and return-seekingSustaining
2022-25
Metal Markets
Strong position in value-added casthouse products
• Capitalizing on value-added casthouseproducts portfolio
• Extensive multi-sourcing system including fully- and part-owned primary casthouses and stand-alone remelters
• Flexible sourcing system enabling rapid and cost effective volume adjustments
• Value creation from margin management based on commercial expertise and risk management competence
• Strong market positions in Europe, US and Asia
Numbers are based on 2020 Metal Markets sales, including casthouse and remelter production, standard ingot and external sources
Casthouse production
Primary production
Remelting & recycling
Commercial agreements
Extrusion ingot 1.4 million mtFoundry alloys 0.5 million mt
Sheet ingot 0.2 million mtWire rod 0.1 million mt
Standard ingot 0.4 million mt
Leading global position
Unique primary and recycling capacity network
Leading global position
Strong capabilities in all automotive segments
Leading European position
Well positioned to capture automotive growth
Leading European position
Market attractively supported by copper substitution
Leading global position
Global flow optimization through key positions
Pricing of value-added products
Smelter
Intermediate productCasthouse
Traded on LME
US
• US Midwest - 1020 (in cent per pound)
• Extrusion Ingot - Priced above standard ingot
• Foundry Alloy - Priced above standard ingot
• Sheet ingot - Priced above standard ingot
• Wire rod - Priced above standard ingot
Europe
Traded on LME
• Duty paid IW Rotterdam
• Duty unpaid IW Rotterdam
• Extrusion ingot - Priced above LME
• Foundry Alloy - Priced partly above standard ingot and partly above LME
• Sheet ingot - Priced above standard ingot
• Wire rod - Priced partly above standard ingot and partly above LME
Asia
Traded on LME & SHFE
• CIF Japan Premium (MJP)
• Singapore In Warehouse
• CIF South Korea
• Extrusion ingot - Priced partly above standard ingot and partly above LME
• Foundry Alloy - Priced partly above standard ingot and partly above LME
• Sheet ingot - Priced partly above standard ingot and partly above LME
Metal Markets earnings drivers
• Remelters
• Revenue impact - volume and product premiums above LME
• Cost impact
• Scrap and standard ingot premiums above LME
• Raw material mix
• Freight cost - proximity to market
• Energy consumption and prices
• Other main businesses
• Physical and LME trading
• Third-party products
• Results influenced by currency fluctuations and inventory valuation effects
• Underlying EBIT ex. currency and inventory valuation effects at around 500 MNOK per year
1) Underlying EBIT ex. currency and ingot inventory valuation effect have been restated for 2014
Underlying EBIT excluding currency effects and inventory valuation effect, NOK million1)
400
( 50)
300 250 200 150 100 50 0
350
Hydro Rolling
Rolling - strong European production base and global sales force
• ~1 million tonnes of flat rolled products per year
• Unique integrated aluminium cluster
• Neuss
• Alunorf
• Grevenbroich
• Casthouse network and integrated recycling capacity
• Strong customer satisfaction on quality
• However, unsatisfactory returns over latest years - performance turn-around required
Rolling mill
Sales OfficeSmelterR&D centre
Major flat rolled products producer in Europe
• Highly competitive asset base
• Alunorf (JV 50%) - world's largest rolling mill
• Grevenbroich plant - world's largest multi-product finishing mill
• High-grading product portfolio
• Margin management and cash generation
• Portfolio adjustment towards higher margins
• Capitalize on automotive market growth
• Investment in new automotive body-in-white capacity
• Ramp-up ongoing
• Strengthen recycling position through used beverage can recycling plant and investments in recycling furnacesExternal sales in tonnages 2020
Total 964 kT
Foil
Can
Auto
General engineering
Litho
Several attractive segments within rolling industryHydro targets to shift portfolio towards auto
Exposure 2020
Indicative segment attractiveness1)
Recycling friendlinessTargeted exposure 2024
Cans Aluminium can body stock & can ends for production of alum. beverage cans 32% High High 32% | Automotive Rolled aluminium for chassis, body and component applications 11% High Medium 16% |
1) Based on expected growth, competitive landscape, returns and margins
General Engineering
Solutions for buildings and for general engineering applications
38%
Low to High
Medium
Lithographic sheet
Lithographic strip for offset printing plates used for printed media
10%
Medium
Low
Packaging foil
Broad variety of products from aluminium foil to solid containers
9%
Low
Low
38%
6%
9%
Rolling earnings drivers
Underlying EBIT per tonne, NOK
1 400
1 200
1 000
(200)
(400)
(600)
600
400
200
800
0
• Contract structure
• Margin business based on conversion price
• LME element passed on to customers
• Range from spot contracts to multi-year contracts
• High share of fixed costs - volume sensitive
• Annual seasonality driven by maintenance and customer activity
• Q4 typically the weakest quarter of the year
• Q4 2020 negatively impacted by US antidumping tariffs
• Preferred supplier market position in high-end products
Capital return dashboard for Rolling
Returns below the cost of capital due to continuous margin pressure and operational challenges
Capex2), BNOK
Capital employed in Rolling
1.1 + 0.5 BNOK
on EBITDA by 2025 in improvement potential and commercial ambitions
Strategic review process
1) Relevant for the rolling business. CoC for the Neuss smelter in line with 10-11% for the upstream business
2) Excluding limited capital expenditures related to the manning reduction.
1,5
1,0 0,5 0,0
2020
2021
Growth and return-seekingSustaining
2022-25
Hydro Extrusions
Extrusions #1 in the global aluminium extrusion industry
Present in
~40
countries
19 800
people 1)
1.1
Million mt sales2)
1) Permanent employees as of end-2020
2) Total sales in 2020 - Significantly impacted by Covid-19. Total sales in 2019 at 1.3 million mt
Unrivalled position as the largest extrusion provider globally with a strong and diversified segment footprint
Unrivalled position as #1 extrusions provider globally
Extrusion sales volume (2019), tonnes (000s)
Four distinct Business Units, all with strong segment presence
Total volume 2019: 1.27 mill tonnes
Building Systems
1500
Precision
Tubing
6% 11%
DistributionAutomotive
1000
12%
17%
Extrusion
Europe
500
40%
Industrial & HVACR 1)
GuangdongWeiye…
Transport
0
18%
22%
ExtrudedSolutionsXingfaAluminium
Zhongwang
ShandongHuajian
GuangdongFenglu
GuangyaAluminium
AsiaAluminum
GuangdongJMA
Constellium
Extrusion
North America
43%
Building & Construction
31%
Source: Company filings, CRU
1) HVACR: Heat, ventilation, air condition & refrigeration
100
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Norsk Hydro ASA published this content on 12 February 2021 and is solely responsible for the information contained therein. Distributed by Public, unedited and unaltered, on 12 February 2021 08:57:00 UTC.
