Higher downstream results offset by lower prices. First quarter presentation

Transcription

1 Higher downstream results offset by lower prices First quarter presentation

2 Cautionary note Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management s plans, objectives and strategies for Hydro, such as planned expansions, investments 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, as well as (i) statements preceded by expected, scheduled, targeted, planned, proposed, intended or similar statements. 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 aluminium business; 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. 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.

3 Svein Richard Brandtzæg President and CEO 3

4 Q1 highlights Underlying EBIT of NOK million for Q1 Lower realized alumina and all-in aluminium prices Record low implied alumina and all-in primary costs Seasonally stronger downstream results BNOK 2.9 Better improvement ambition progressing according to plan 2016 global primary metal market largely balanced 4

5 Declining global oversupply of primary aluminium Driven by curtailments and stronger demand Demand and production (quarterly annualized) mt primary aluminium jan.08 mar.09 mai.10 jul.11 sep.12 nov.13 jan.15 mar.16 Demand Production Production less demand 1) mt primary aluminium (1 000) (2 000) jan.09 jun.10 nov.11 apr.13 sep.14 Mar-16 feb.16 ~4.9 % demand growth Q1-16 vs Q1-15 ~8.1 % China ~1.3 % Western Europe ~1.6 % North America ~(5.3 %) Central and South America 2016 demand growth expected unchanged at 3-4 % Source: CRU/Hydro 1) Yearly rolling average of quarterly annualized production less demand 5

6 Undersupply Oversupply Aluminium market expected to be largely balanced in 2016 Higher risk of capacity restarts in China Supply development 2016 Mill tonnes ~2.4 Estimated cash negative in ) 15 % 20 % World ex-china China Market balance 2016 Mill tonnes mill tonnes ~1.2 ( ) mill tonnes (0.5) 0.5 mill tonnes ~0.8 ~1.6 Potential additions Net effect of curtailments & confirmed restarts World ex-china China Global Source: CRU, Hydro Analysis 1) Based on CRU BoC curve 2016 and CRU price assumptions of LME 3m at USD/mt and SHFE at RMB/mt 6

7 SHFE prices increase on tighter market, stable all-in LME prices USD/mt USD/mt USD/mt NOK/mt Feb-14 Jul-14 Dec-14 May-15 Oct-15 Apr-16 Mar jan 12 jun 13 nov 14 apr 16 LME 3m USD SHFE* ex. VAT in USD LME cash LME cash + Europe duty paid LME cash + US Midwest LME Cash + Europe dutypaid NOK (RHS) Source: Metal Bulletin, MW/MJP: Platts, Reuters Ecowin, Hydro analysis * Shanghai Futures Exchange 7

8 Improved comp. adv. China Shrinking arbitrage amid rising SHFE prices Preliminary exports figures indicate increased exports in March Semis exports (monthly, kmt) Comp. adv. (USD/mt) ( 200) 0 ( 400) jan.07 nov.08 sep.10 jul.12 mai.14 mar.16 Semis exports (Left axis) Chinese competitive adv. downstream* (Right axis) Source: CRU/Ecowin Est. metal cost China versus Europe: LME cash + European duty-paid standard ingot premium China: SHFE cash + avg. local premium + freight export rebates (~13 %)

9 Aug 2010 Jan 2011 Jun 2011 Nov 2011 Apr 2012 Aug 2012 Jan 2013 June 2013 Nov 2013 Apr 2014 Aug 2014 Jan 2015 June 2015 Nov 2015 Mar 2016 Alumina prices rebound on tightening market balance Driven by ~10 million tonnes of global curtailments Platts alumina index (PAX) USD/mt Percent 20% 19% 18% 17% 16% 15% 14% 13% 12% Average Q1 price of 222 USD/mt Down 11 USD/mt from Q4 Currently trading at ~257 USD/mt Intra-quarter low of 197 USD/mt Alumina price as percentage of LME at 14.6 % in Q1 Down from 15.5 % in Q4 Currently trading at ~15.7 % Intra-quarter low of 13.1 % PAX % of LME Source: Platts, Ecowin, China Customs, CRU 9

10 China export China import China net aluminium imports falling amid lower bauxite imports Lower scrap import Annualized aluminium equivalents 1), million mt ) Bauxite and alumina Beginning January 15, 2016, Malaysia imposed a threemonth moratorium on bauxite, extended to mid-july Increase in bauxite exports from Guinea Bauxite stocks in China estimated above 30 million tonnes Alumina imports falling in Q ( 5) ( 10) Primary aluminium No significant import or export However, some primary exports for remelt Scrap Scrap imports continue to trend lower Semis and fabricated Exports moderated in February Bauxite Alumina Scrap Primary aluminium Fabricated Semis Total aluminium imports Source: CRU/Antaike/Hydro *1) Bauxite/alumina to aluminium conversion factor: 5.0/ ) Jan/Feb figures annualized, except for bauxite and alumina which are Q1 figures 10

11 Better progressing according to plan NOK 2.9 billion targeted in , NOK 1.1 billion in 2016 Better BNOK 2.9 1) Better Primary Metal BNOK 1.0 Better Rolled Products BNOK 0.9 Better Bauxite & Alumina BNOK 1.0 NOK 400 million target in 2016 USD 180 JV program on target to be completed by end-2016 NOK 200 million target in 2016 UBC recycling start-up Automotive line 3 (AL3) on target for end-2016 start-up Improved portfolio mix following Slim divestment NOK 500 million target in 2016 High and stable production at Alunorte and Paragominas Logistical optimization 1) Real 2015 terms 11

12 1Q13 2Q13 3Q13 4Q13 1Q14 2Q14 3Q14 4Q14 1Q15 2Q15 3Q15 4Q15 1Q16 Implied alumina cost reaches new record low Lower raw material costs, partly offset by lower bauxite and alumina volumes and prices Implied alumina cost and margin, USD/mt 1) Annualized alumina production, million mt Alunorte ,5 5,0 5,2 5,8 5,8 6,1 5,9 6,0 5,9 5,8 5,9 6,3 6,1 Q Q Q Price 2) 16.1 % 15.8 % 14.6 % LME% 3) Implied EBITDA cost per mt EBITDA margin per mt 1) Realized alumina price minus underlying EBITDA for B&A, per mt alumina sales 2) Realized alumina price 3) Realized alumina price as % of three month LME price with one month lag USD/mt 4 decline in implied alumina cost from Q4 Lower fuel oil cost and bauxite price Weaker BRL 12

13 Declining margins in Primary Metal on lower prices Lower raw material costs offset by higher fixed costs and non-operational effects All-in implied primary cost and margin, USD/mt 1) ) ) ) Developments Q1 vs Q4 Lower variable costs, mainly alumina Weaker NOK and BRL vs USD Higher fixed costs ICMS on historical power sales Q Q Q Full production at Årdal to resume by end of Q All-in 3) LME 4) All-in Implied EBITDA cost per mt LME Implied EBITDA cost per mt All-in EBITDA margin per mt 1) Realized all-in aluminium price minus underlying EBITDA margin, including Qatalum, per mt aluminium sold 2) Realized LME aluminium price minus underlying EBITDA margin, including Qatalum, per mt primary aluminium produced 3) Realized LME plus realized premiums, including Qatalum 4) Realized LME, including Qatalum

14 Improved product mix in Rolled Products Q vs Q Q vs Q Rolled Products Rolled Products (ex Slim) Rolled Products Rolled Products (ex Slim) 11% 0% 0% 2% 1% (1%) (6%) (5%) Can & foil Lithography & automotive Special products Total Rolled Products Can & foil Lithography & automotive Special products Total Rolled Products 14

15 Improved product mix in Rolled Products Seasonally stronger sales volumes adjusted for Slim divestment Q vs Q Q vs Q Rolled Products Rolled Products Rolled Products (ex Slim) Rolled Products (ex Slim) 15% 19% 11% 9% 7% 9% 0% 4% 0% 4% 2% 1% (1%) (1%) (6%) (5%) Can & foil Lithography & automotive Special products Total Rolled Products Can & foil Lithography & automotive Special products Total Rolled Products 15

16 Seasonally stronger extrusion demand Seasonally stronger demand 10 % increase in North America 10 % increase in Europe Demand increased from same quarter last year 3 % in North America due to increased building activity and strong automotive demand Stabilizing European building and construction market 16

17 Record results for Sapa in first quarter Seasonally higher demand and stronger margins Hydro share of underlying EBIT NOK million 300 Hydro share of underlying net income NOK million Q114 Q115 Q116 0 Q114 Q115 Q116 17

18 Energy: Stronger production on higher reservoir levels Market price Southwestern Norway (NO2) NOK/MWh Water reservoir levels Southwestern Norway (NO2) Percent MIN NO2 ( ) MAX NO2 ( ) Week Week Energy price NOK/MWh Q Q Reservoir levels Mar 31, 2016 Dec 31, 2015 Southwestern Norway (NO2) System Southwestern Norway (NO2) Norway 54.7% 45.6% 89.5% 82.5% 18

19 Norwegian government proposes to amend industrial concession act Would allow private entities physical hydropower offtake from minority stakes Proposal from government on industrial ownership published April 15 Parliament to vote on proposal by summer 2016 Proposal for hydropower JVs Maximum 1/3 private ownership maintained Allow private owners access to physical power at cost Pro-rata power offtake in line with ownership share Proposed model for industrial ownership (ANS/DA) Private company Dividend via power 1/3 ownership NewCo 2/3 ownership Public Company (-ies) Dividend via power Would enable Hydro to maintain access to physical power through restructuring RSK assets into maximum 1/3 ownership in new company May use 1/3 of the power for industrial production 2/3 of the power sold in the market 19

20 Stepping up efforts to reduce carbon footprint across the value chain Hydro aims to be carbon neutral by 2020 from a life cycle perspective Renewable energy base Reducing emissions in primary production Developing new products and applications Closing the loop through recycling Signing of new long-term power contracts Construction of Karmøy Technology Pilot Launch of Hydro battery foil solution, HyLectral Start of production at used beverage can facility TWh from 2020 to 2039 Based on wind power Baseload supply Verifying next-generation aluminum production technology kwh/kg Spin-off technology elements for existing portfolio Unmatched surface quality Eco-friendlier battery production Optimum efficiency in use Awarded Alufoil trophy 2016 >40kmt/year of liquid aluminium from recycled beverage cans Lowering metal cost 20

21 Eivind Kallevik Executive Vice President and CFO 21

22 Stronger downstream results offset by lower prices NOK billion 3.2 (0.3) (0.1) Underlying EBIT Q Underlying EBIT Q LME, PAX and premium Net currency Downstream results Other Underlying EBIT Q

23 Key financials Underlying EPS of 0.39 NOK/share NOK million Q Q Q Revenue Underlying EBIT Items excluded from underlying EBIT 192 (841) (2) (1 398) Reported EBIT Financial income (expense) (70) (1 680) (4 834) Income (loss) before tax Income taxes (313) (113) (455) (1 092) Net income (loss) Underlying net income (loss) Reported EPS, NOK Underlying EPS, NOK

24 Items excluded from underlying EBIT Excluded MNOK 192 in non-recurring and timing effects NOK million Q Q Q Underlying EBIT Unrealized derivative effects on LME related contracts (140) (415) Unrealized effects on power and raw material contracts Metal effect, Rolled Products (43) (177) 61 (458) Gains (losses) on divestments (15) (365) - (365) Other effects - (285) - (248) Items excluded in equity accounted investment (Sapa) 26 (53) (74) (331) Reported EBIT

25 Bauxite & Alumina Results down on lower realized alumina price Key figures Q Q Q Alumina production, kmt Total alumina sales, kmt Realized alumina price, USD/mt Implied alumina cost, USD/mt Bauxite production, kmt Underlying EBITDA, NOK million Underlying EBIT, NOK million Underlying EBIT Q1 results NOK million Lower alumina sales price due to lower LME and PAX Bauxite and alumina production down from record levels in Q4 Lower bauxite and alumina sales volumes and margins Positive contribution from lower fuel costs and currency Positive effect from lower depreciation following catch-up effects in Q Outlook Stable alumina production Planned pipeline and ball mill maintenance in Paragominas 25

26 Primary Metal Falling all-in metal prices offset by lower raw material costs Key figures Q Q Q Primary aluminium production, kmt Total sales, kmt Realized LME price, USD/mt Realized LME price, NOK/mt Realized premium, USD/mt Implied all-in primary cost, USD/mt * Underlying EBITDA, NOK million Underlying EBIT, NOK million Underlying EBIT Q1 results NOK million Lower realized all-in prices reduced results by MNOK ~250 Lower raw material costs lifted results by MNOK ~300 Seasonally higher fixed costs contributed with MNOK ~100 negative Positive net currency effect of MNOK ~ 100 ICMS tax on earlier surplus power sales and other effects of MNOK ~ 150 negative Outlook About 50 % of primary production affecting Q results priced at USD ~1 525 per mt, ex. Qatalum About 50% of premiums affecting Q2 booked at USD ~320 per mt, ex. Qatalum Higher sales volumes * Realized all-in aluminium price minus underlying EBITDA margin, including Qatalum, per mt aluminium sold. Figures for 2014 have been restated due to a change in definition 26

27 Improved Qatalum results Lower costs and higher realized premiums Key figures Qatalum (50%) Q Q Q Revenue, NOK million Underlying EBITDA, NOK million Underlying EBIT, NOK million 28 (105) 305 Underlying Net income (loss), NOK million (36) (167) 246 Primary aluminium production, kmt Casthouse sales, kmt Underlying net income up by NOK 131 million Lower raw material and fixed costs Higher realized premiums following a negative time lag adjustment in Q4 Stable production above nameplate capacity, sales volumes down compared to strong sales in Q4 27

28 Metal Markets Stronger results at remelters and positive currency effects Key figures Q Q Q Remelt production, kmt Metal products sales, kmt 1) Underlying EBITDA, NOK million Underlying EBIT excl currency and inventory valuation effects, NOK million Underlying EBIT, NOK million Underlying EBIT NOK million (89) Q1 results Strong result at remelters driven by higher volumes Seasonally higher metal products sales Weaker metal sourcing and trading performance NOK 21 million in positive currency and inventory valuation effects vs NOK 28 million negative in Q4 Outlook Higher volumes at remelters Volatile trading and currency effects 1) Includes external and internal sales from primary casthouse operations, remelters and third party metal sources. 28

29 Rolled Products Seasonally stronger results, volumes affected by the Slim divestment Key figures Q Q Q External sales volumes, kmt Underlying EBITDA, NOK million Underlying EBIT, NOK million Underlying EBIT Q1 results NOK million Shipments flat, higher when adjusted for Slim divestment Negative margin and cost development offset by higher volumes Neuss results improved on lower raw material costs Outlook Seasonally higher shipments Neuss results driven by all-in metal and raw material price development

30 Energy Results up on high production partly offset by higher costs Key figures Q Q Q Power production, GWh Net spot sales, GWh Southwest Norway spot price (NO2), NOK/MWh Underlying EBITDA, NOK million Underlying EBIT, NOK million Underlying EBIT NOK million Q1 results High production level Higher property taxes* and transmission costs Outlook Lower property taxes* Price and volume uncertainty * From 2015 property tax is charged to the period it becomes an unconditional payment obligation (in Norway when invoiced). This leads to periodic variations within the year without affecting the annual property tax level. 30

31 Sapa JV - Improved results in all business segments Seasonally stronger demand and higher margins Key figures Sapa (50%) Q Q Q Revenue, NOK million* Underlying EBITDA, NOK million Underlying EBIT, NOK million Underlying Net income (loss), NOK million Sales volumes (kmt) Quarter-on-quarter results affected by seasonally stronger demand and higher margins Year-on-year results supported by Improvement and restructuring program Increased share of higher margin business Positive currency effects Continued strong demand growth in North America * Historical revenues have been reclassified 31

32 Other and Eliminations Other and Eliminations, Underlying EBIT, NOK million Q Q Q Sapa JV Other (162) (169) (117) Eliminations (284) Other and Eliminations 181 (83) (281) 32

33 Net cash development Q Reduction in net cash following seasonal operating capital build-up NOK billion Net cash flow from operations NOK 0.1 billion 2.7 (1.8) (0.9) (1.3) End Q Underlying EBITDA Operating capital Taxes and other Investments and divestments Currency and other End Q

34 Adjusted net debt increased in Q Mainly due to lower net cash position NOK billion Mar Dec Sep Cash and cash equivalents Short-term investments Short-term debt Long-term debt (3.8) (3.7) (3.6) (4.0) (3.5) (4.4) Net cash/(debt) Net pension liability at fair value, net of expected tax benefit Other adjustments 1) (8.4) (4.7) (8.0) (5.3) (7.1) (5.5) Adjusted net debt ex. EAI (9.2) (8.2) (9.3) Net debt in EAI 2) (7.6) (8.0) (8.0) Adjusted net debt incl. EAI (16.8) (16.2) (17.3) 1) Operating lease commitments and other obligations 2) Equity accounted investments Qatalum and Sapa. Hydro share (50%) of net debt in Qatalum 6.6 BNOK, and in Sapa 1.0 BNOK at the end of Q

35 Priorities Strengthen relative industry position Optimize resource base Build aluminium technology pilot and new automotive line Maintain financial strength 35

36 Additional information 04 36

37 Prudent financial framework Strong balance sheet and reliable dividend in cyclical industry Lifting cash flow potential Financial strength and flexibility Disciplined capital allocation Reliable shareholder remuneration policy Effective risk management Improving efficiency, strengthening margins with operational and commercial excellence Improvement efforts 4.5 BNOK ) 2.9 BNOK ) Managing working capital Investment grade credit rating > BBB Stable Financial ratio targets over the cycle FFO/aND 3) > 40% and/e 4) < 55% Strong liquidity Long-term sustaining capex below depreciation BNOK per year Total capex incl. growth 2015 BNOK BNOK 8.1 5) Average BNOK 6.1 5) Attractive organic growth prospects for the future Sector competitive TSR Dividend policy since 2014 Dividend 1 NOK/share 40% payout ratio of Net Income over the cycle Special dividends and share buybacks in the toolbox Volatility mitigated by strong balance sheet and relative positioning Hedging policy Operational LME and currency hedging Limited financial hedging Long-term debt in USD Diversified business M&A optionality 1) USD 300 program from ) Real 2015 terms 3) Funds from operations / adjusted net debt 4) Adjusted net debt / Equity 5) With Karmøy Technology Pilot net investment, after ENOVA support

38 Hydro s aspiration underpinned by firm financial targets Medium and long-term Ambition Timeframe Actual 2015 Improvement programs 2.9 BNOK Sustaining capex BNOK Over the cycle Average capex incl. growth 6.1 BNOK 1) Dividend payout ratio 40% of net income Over the cycle FFO/adjusted net debt 3) > 40% Over the cycle Adjusted net debt/equity < 55% Over the cycle RoACE Competitive 4) Over the cycle 4.5 BNOK BNOK BNOK 2015 ~110% 2) % % % 5) ) With Karmøy Technology Pilot net investment, after ENOVA support 2) Dividend paid divided by net income from continuing operations attributable to equity holders, including proposed 2015 dividend 3) FFO funds from operations 4) Measured against a relevant peer group 5) Underlying return on average capital employed (RoACE)

39 Shareholder and financial policy Hedging policy Hydro aims to give its shareholders competitive returns compared to alternative investments in peers Maintained dividend policy Ordinary dividend: 40% of net income over the cycle Five-year average ordinary pay-out ratio of ~110%* Committed to a stable and reliable dividend level: currently 1 NOK/share since 2014 Share buybacks and extraordinary dividends as supplement in periods with strong financials and outlook Maintain investment-grade rating At least BBB Stable Currently: BBB stable (S&P) & Baa2 stable (Moody s) Competitive access to capital and important for Hydro s business model (counterparty risk and partnerships) Financial ratios over the business cycle Funds from operations to adjusted net debt > 40% Adjusted net debt to equity < 55% Hedging strategy: Fluctuating with the market: primarily exposed to LME and USD Volatility mitigated by strong balance sheet Improving relative position to ensure competitiveness Diversified business: Upstream cyclicality balanced with more stable earnings downstream Exposed to different markets and cycles Bauxite & Alumina, Primary Metal Operational LME hedging - one-month forward sales Currency exposure, mainly USD, NOK and BRL Metal Markets, Rolled Products Operational LME and currency hedging to secure margin Flexibility to hedge LME or currency in certain cases Maintaining long-term debt in the revenue currency (USD) Strong liquidity: NOK 5.9 billion in cash and cash equivalents, end-q USD 1.7 billion in multi-currency revolving credit facility maturing in 2020, currently undrawn * Including NOK dividend per share proposed by Board of Directors, dependent on approval from the Annual General Meeting on May 2,

40 Maintaining a solid balance sheet and investment-grade credit rating Funds from operations determine the balance sheet structure Adjusted net debt NOK billion Adjusted net debt / Equity 60 % 50 % 55 % Dec 31, % 5.1 (5.3) (8.0) (8.0) (16.2) 40 % 30 % 20 % 10 % 0 % 32 % % % % % % % 2015 Mar 31, (4.7) (7.6) (8.4) (16.8) Funds from operations / Adjusted net debt 120 % 118 % 100 % 89 % Net debt (cash) Operating leases and other Debt in EAI Net pension liability 80 % 60 % 40 % 42 % 39 % 33 % 42 % 40 % 20 % 0 % 1 %

41 Majority of sustaining capex allocated upstream High-grading and technology growth investments NOK billion Long-term annual sustaining capex BNOK Sustaining projects for : Red mud disposal area Bauxite tailing dam Smelter relining Energy rehabilitation Ongoing organic growth projects: RP Automotive line RP UBC recycling line Clervaux recycling upgrade Alunorf debottlenecking Energy projects AFM technology Debt-financed investment Qatalum Investments Qatalum E 2017E 2018E Karmøy technology pilot (net of ENOVA support) Sustaining capex Growth capex WMR technology acquisition in 2015 Karmøy technology pilot : Gross investment 4.3 BNOK Of which ENOVA support ~1.6 BNOK 2011 excludes Vale assets acquisition Excluding Extruded Products from 2013 onwards 41

42 Significant exposure to commodity and currency fluctuations Aluminium price sensitivity +10%* NOK million UEPS NOK/share Currency sensitivities +10%* Sustainable effect: NOK million USD BRL EUR UEBIT (890) (280) One-off reevaluation effect: UEBIT Underlying Net Income Financial items (580) 530 (2 700) Other commodity prices, sensitivity +10%* NOK million 270 Standard ingot*** 190 Realized PAX** (280) Pet coke (180) Fuel oil (130) Caustic soda (60) Pitch (30) Coal Annual sensitivities based on normal annual business volumes, LME USD per mt, fuel oil USD 310 per mt, petroleum coke USD 350 per mt, caustic soda USD 245 per mt, coal USD 45 per mt, USD/NOK 8.70, BRL/NOK 2.20, EUR/NOK 9.50 Aluminium price sensitivity is net of aluminium price indexed costs and excluding unrealized effects related to operational hedging BRL sensitivity calculated on a long-term basis with fuel oil assumed in USD. In the short-term, fuel oil is BRL-denominated Excludes effects of priced contracts in currencies different from underlying currency exposure (transaction exposure) Currency sensitivity on financial items includes effects from intercompany positions 2016 Platts alumina index (PAX) exposure used USD 140 per mt USD 210 per mt USD 350 per mt USD 310 per mt USD 245 per mt EUR 400 per mt USD 45 per mt *Excluding Sapa JV ** 2016 Platts alumina index exposure *** Europe duty paid standard ingot premium 42

43 Bauxite & Alumina sensitivities Annual sensitivities on underlying EBIT if +10% in price NOK million Revenue impact ~14.5% of 3-month LME price per tonne alumina ~One month lag Realized alumina price lags PAX by one month Cost impact Bauxite ~2.45 tonnes bauxite per tonne alumina Pricing partly LME-linked for bauxite from MRN (30) Caustic soda ~0.1 tonnes per tonne alumina Prices based on IHS Chemical, pricing mainly monthly per shipment Aluminium USD per mt Realized PAX* USD 210 per mt (180) Fuel oil USD 310 per mt (130) Caustic soda USD 245 per mt Coal USD 45 per mt Energy ~0.11 tonnes coal per tonne alumina, Platts prices, one year volume contracts, weekly per shipment pricing ~0.11 tonnes heavy fuel oil per tonne alumina, prices set by ANP/Petrobras in Brazil, weekly pricing (ANP) or anytime (Petrobras) Increased use of coal as energy source in Alunorte * 2016 Platts alumina index exposure Currency rates used: USD/NOK 8.70, BRL/NOK 2.20, EUR/NOK

44 Primary Metal sensitivities Annual sensitivities on underlying EBIT if +10% in price NOK million Revenue impact Realized price lags LME spot by ~1-2 months Realized premium lags market premium by ~1-2 months Cost impact Alumina ~1.9 tonnes per tonne aluminium ~14.5% of 3-month LME price per tonne alumina, increasing volumes priced on Platts index ~Two months lag Aluminium USD per mt 250 Standard ingot premium USD 140 per mt* (340) Realized PAX ** USD 210 per mt (260) Petroleum coke USD 350 per mt (60) Pitch EUR 400 per mt Carbon ~0.35 tonnes petroleum coke per tonne aluminium, Pace Jacobs Consultancy, 2-3 year volume contracts, half yearly pricing ~0.08 tonnes pitch per tonne aluminium, CRU, 2-3 year volume contracts, quarterly pricing Power 13.7 MWh per tonne aluminium Long-term power contracts with indexations * Europe duty paid. Hydro Q1 16 realized premium USD 288 per mt **2016 Platts alumina index exposure Currency rates used: USD/NOK 8.70, BRL/NOK 2.20, EUR/NOK

45 Depreciation by currency and business area Total 2015 depreciation 5.0 BNOK Depreciation currency exposure by business area Depreciation by business area* Percent USD EUR BRL Bauxite & Alumina 100% NOK & Others 15% 4% 1% Primary Metal 25% 25% 50% Metal Markets 25% 45% 30% Rolled Products 90% 10% 2% 39% Bauxite and alumina Primary Metal Metal Markets Energy 100% Other & Eliminations 100% Rolled Products Energy Other & Eliminations 39% * Based on 2015 depreciation figures 45

46 Items excluded from underlying results NOK million (+=loss/()=gain) Q Unrealized derivative effects on LME related contracts Bauxite & alumina - Total impact Bauxite & alumina - Unrealized derivative effects on LME related contracts Primary metal (72) Unrealized effects on power contracts Primary metal (18) Total impact Primary metal (90) Unrealized derivative effects on LME related contracts Metal markets (68) Total impact Metal markets (68) Unrealized derivative effects on LME related contracts Rolled products 12 Metal effect Rolled products 43 (Gains)/losses on divestments Rolled products 15 Total impact Rolled products 69 Unrealized derivative effects on power contracts Energy 4 Total impact Energy 4 Unrealized derivative effects on power contracts Other and eliminations (73) Unrealized derivative effects on LME related contracts Other and eliminations (8) Items excluded in equity accounted investment (Sapa) Other and eliminations (26) Total impact Other and eliminations (107) Total EBIT Hydro (192) Net foreign exchange (gain)/loss Hydro (1 032) Income (loss) before tax Hydro (1 224) Calculated income tax effect Hydro 365 Other adjustments to net income Hydro (700) Net income (loss) Hydro (1 559) 46

47 Items excluded from underlying results NOK million (+=loss/()=gain) Q Q Q Q Unrealized derivative effects on LME related contracts Bauxite & alumina 3 (6) (6) Total impact Bauxite & alumina 3 (6) (6) Unrealized derivative effects on LME related contracts Primary metal 54 (41) Unrealized effects on power contracts Primary metal 2 (2) Insurance compensation (Qatalum) Primary metal - (37) - - (37) Total impact Primary metal 56 (81) Unrealized derivative effects on LME related contracts Metal markets 146 (45) Total impact Metal markets 146 (45) Unrealized derivative effects on LME related contracts Rolled products (80) (49) 95 Metal effect Rolled products (61) (2) (Gains)/losses on divestments Rolled products Total impact Rolled products (141) Unrealized derivative effects on power contracts Energy 1 (9) Total impact Energy 1 (9) Unrealized derivative effects on power contracts Other and eliminations (154) (150) (106) (122) (533) Unrealized derivative effects on LME related contracts Other and eliminations 17 (20) (Gains)/losses on divestments Other and eliminations (69) (69) Items excluded in equity accounted investment (Sapa) Other and eliminations Termination of lease contract Vækerø Park Other and eliminations Total impact Other and eliminations (63) (32) (29) Total EBIT Hydro 2 (31) Net foreign exchange (gain)/loss Hydro (346) (48) Income (loss) before tax Hydro (377) Calculated income tax effect Hydro (454) 144 (1 069) (38) (1 418) Net income (loss) Hydro (234)

48 Operating segment information Underlying EBIT NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina (288) (269) (26) (55) Primary Metal Metal Markets (89) Rolled Products Energy Other and Eliminations (8) (52) (349) (308) (281) (83) 181 (717) (19) Total Underlying EBITDA NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets (64) Rolled Products Energy Other and Eliminations 4 (40) (336) (290) (267) (64) 194 (662) 42 Total

49 Operating segment information EBIT NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina (284) (269) (23) (39) Primary Metal Metal Markets (122) (44) Rolled Products (95) (358) Energy Other and Eliminations 102 (140) (342) (866) (218) (235) 288 (1 245) (48) Total EBITDA NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets (99) (19) Rolled Products (158) Energy Other and Eliminations 115 (127) (329) (848) (204) (216) 301 (1 190) 14 Total

50 Operating segment information Total revenue NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets Rolled Products Energy Other and Eliminations (8 917) (8 706) (9 055) (10 112) (11 171) (11 286) (10 666) (9 808) (10 373) (36 790) (42 931) Total External revenue NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets Rolled Products Energy Other and Eliminations Total

51 Operating segment information Internal revenue NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets Rolled Products (52) (22) 91 (81) (109) (33) (58) 109 (132) Energy Other and Eliminations (8 948) (8 735) (9 084) (10 147) (11 192) (11 306) (10 683) (9 827) (10 390) (36 914) (43 008) Total Share of profit /(loss) in equity accounted investments NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal (168) (37) Metal Markets Rolled Products Energy Other and Eliminations (51) (359) 16 (6) (313) 123 Total (34) (144)

52 Operating segment information Depreciation, amortization and impairment NOK million Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Bauxite & Alumina Primary Metal Metal Markets Rolled Products Energy Other and Eliminations Total Capital employed upstream focus NOK million Mar 31, 2016 Bauxite & Alumina Primary Metal Metal Markets Rolled Products Energy Other and Eliminations (1 493) Total Rolled Products 14% Metal Markets 3% Energy 4% Bauxite & Alumina 38% Graph excludes BNOK (1.5) in capital employed in Other and Eliminations Primary Metal 41% 52

53 Income statements NOK million Q Q Q Year 2015 Revenue Share of the profit (loss) in equity accounted investments Other income, net (144) (172) Total revenue and income Raw material and energy expense Employee benefit expense Depreciation, amortization and impairment Other expenses Earnings before financial items and tax (EBIT) Financial income Financial expense (174) 88 (1 768) 297 (5 130) Income (loss) before tax Income taxes (313) 655 (113) (455) (1 092) Net income (loss) Net income (loss) attributable to non-controlling interests Net income (loss) attributable to Hydro shareholders Earnings per share attributable to Hydro shareholders NOK million Q Q Q Q Q Q Q Q Q Year2014 Year2015 Net income (loss) (168) (1 345) Underlying net income (loss) Earnings per share (0.18) (0.65) Underlying earnings per share

54 Balance sheets NOK million Mar Dec Sep Jun Mar Cash and cash equivalents Short-term investments Accounts receivable Inventories Other current assets Property, plant and equipment Intangible assets Investments accounted for using the equity method Prepaid pension Other non-current assets Total assets Bank-loans and other interest-bearing short-term debt Trade and other payables Other current liabilities Long-term debt Provisions Pension liabilities Deferred tax liabilities Other non-current liabilities Equity attributable to Hydro shareholders Non-controlling interests Total liabilities and equity

55 Operational data Bauxite & Alumina Q Q Q Q Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Alumina production (kmt) Sourced alumina (kmt) Total alumina sales (kmt) Realized alumina price (USD) 1) Implied alumina cost (USD) 2) Bauxite production (kmt) 3) Sourced bauxite (kmt) 4) Underlying EBITDA margin 11) 12) 11.1% 6.5% 1.4% 1.3% 3.5% 4.2% 11.2% 21.9% 22.7% 18.5% 18.2% 21.0% 15.2% 11.0% 20.1% Primary Metal 5) Q Q Q Q Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Realized aluminium price LME, USD/mt Realized aluminium price LME, NOK/mt 7) Realized premium above LME, USD/mt 6) Realized premium above LME, NOK/mt 6)7) Realized NOK/USD exchange rate 7) Realized NOK/USD exchange rate excluding hedge Implied primary cost (USD) 8) Implied all-in primary cost (USD) 9) Primary aluminium production, kmt Casthouse production, kmt 10) Total sales, kmt 11) Underlying EBITDA margin 12) 14.1% 12.1% 13.6% 16.9% 11.4% 13.3% 23.6% 30.8% 27.7% 23.7% 15.7% 12.4% 10.3% 20.5% 20.3% 1) Weighted average of own production and third party contracts, excluding hedge results. The majority of the alumina is sold linked to the LME prices with a one month delay. 2) Implied alumina cost (based on EBITDA and sales volume) replaces previous apparent alumina cash cost 3) Paragominas on wet basis 4) 40 percent MRN offtake from Vale and 5 percent Hydro share on wet basis 5) Operating and financial information includes Hydro's proportionate share of production and sales volumes in equity accounted investments. Realized prices, premiums and exchange rates exclude equity accounted investments 6) Average realized premium above LME for casthouse sales from Primary Metal. Historical premiums for 2013 have been revised due to change of definition 7) Including strategic hedges /hedge accounting applied 8) Realized LME price minus Underlying EBITDA margin (incl. Qatalum) per mt primary aluminium produced. Includes net earnings from primary casthouses. 9) Realized all-in price minus Underlying EBITDA margin (incl. Qatalum) per mt primary aluminium sold. Includes net earnings from primary casthouses. 10) Production volumes for 2013 have been revised, due to change of definition 11) Total sales replaces previous casthouse sales due to change of definition 12) Underlying EBITDA divided by total revenues

56 Operational data Metal Markets Q Q Q Q Q Q Q Q Q Year2014 Year2015 Remelt production (1 000 mt) Third-party Metal Products sales (1 000 mt) Metal Products sales excl. ingot trading (1 000 mt) 1) Hereof external sales excl. ingot trading (1 000 mt) External revenue (NOK million) Rolled Products Q Q Q Q Q Q Q Q Q Year2014 Year2015 Rolled Products external shipments (1 000 mt) Rolled Products Underlying EBIT per mt, NOK Underlying EBITDA margin 2) 6.7% 6.6% 7.4% 5.3% 7.5% 7.9% 8.3% 7.2% 7.8% 6.5% 7.8% Energy Q Q Q Q Q Q Q Q Q Year2014 Year2015 Power production, GWh Net spot sales, GWh Nordic spot electricity price, NOK/MWh Southern Norway spot electricity price (NO2), NOK/MWh Underlying EBITDA margin 2) 30.8% 15.1% 18.4% 21.3% 27.6% 19.9% 20.9% 27.2% 28.0% 21.6% 24.4% 1) Includes external and internal sales from primary casthouse operations, remelters and third party Metal sources 2) Underlying EBITDA divided by total revenues 56

57 Sapa joint venture information Sapa JV (100 % basis), underlying (unaudited) NOK million, except sales volumes Q Q Q Q Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Sales volume (1000 mt) Revenues* Underlying EBITDA (43) Underlying EBIT (339) (55) Underlying net income (loss) (281) (44) Sapa JV (100 % basis), reported (unaudited) NOK million Q Q Q Q Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Reported EBIT (148) (1 096) (1 985) (787) (3) (679) (316) 528 Reported net income (loss) (620) (103) (719) (626) 246 Sapa JV (100 % basis), reconciliation between reported and underlying EBIT (unaudited) NOK million, except sales volumes Q Q Q Q Q Q Q Q Q Year 2014 Year 2015 Reported EBIT (3) (679) (316) 528 Items excluded from EBIT: Unrealized derivative effects (79) (145) (158) (95) (189) Restructuring cost and other items (231) (218) (70) (546) (47) (260) (135) (249) - (1 065) (690) Total items excluded from EBIT** (159) (182) (4) (624) (191) (418) (230) (41) 83 (969) (879) Underlying EBIT (55) Pro forma figures before Q * Historical revenues have been reclassified ** Negative figures represent a net cost to be added to get from reported EBIT to Underlying EBIT 57

58 Investor Relations in Hydro Pål Kildemo Head of Investor Relations t: e: Olena Lepikhina Investor Relations Officer t: e: Gunn Elise Skogen Investor Relations Assistant t: e: Next events Second Quarter Results July 21, 2016 For more information see 58

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