Thank you. Good morning, and welcome to this conference call. We will start with a presentation by our CEO, Hilde Moretta Orafainz followed by a Q and A session, where our CFO, Paul Shieldemot, will also attend. The presentation slides we will walk through can be seen on the webcast. The link to the webcast as well as the slides can be found on geetel.com.
Please note that you will need to dial into the conference call to be able to ask questions at the end. It will not be possible to ask questions over the webcast. If there are any media inquiries from 1 on 1 with Kipcho or Paul after the presentation, please contact Heidomedia, Aldo Moulin. With us, I turn the microphone over to you, Linda.
Thank you, Lina, and good morning to all of you joining us on the webcast on such a short notice. We have now concluded our strategic review of Hydro Rolling. And as of today, we have entered into an agreement to sell 100% of the business to KPS Capital Partners. In today's presentation, we will go through the rationale for the decision to sell and provide an overview of the transaction details. Let's turn to Page 2.
At Investor Day in September 2019,
our we
set a new and ambitious agenda for the company to lift profitability and drive sustainability. Earnings have simply been too low for too long time. We launched several initiatives, a new ambitious improvement program of SEK 7,300,000,000 a strategic review of the rolling business area a new capital allocation framework to allow for different strategic modes and capital allocation to the different business areas And we set a clear target for profitability to deliver Eluwad share of at least 10% over the cycle with every business area our aim to deliver above our cost of capital. We also set new ambitions for climate and the environment, including a target to reduce our own CO2 emissions by 30% by 2,030. The Ruachtsu target and capital allocation frameworks to drive our behavior in terms of portfolio development and capital allocation, making sure that we invest in areas with the highest sustainable returns.
We have made significant progress towards all these ambitions. And today, we have reached another milestone. The finalization of the strategic review of rolling marks another step towards making Hydro a profitable and sustainable industry leader to the benefit our employees, our customers and our shareholders. Now we will turn to Page 3. Last year, we revisited our strategy with a new road map towards 2025.
We will pursue our strategic ambition by capturing opportunities where our capabilities match the global megatrends, such as sustainability, electrification and urbanization. We have a great starting point with a unique position within renewable based low carbon aluminum as well as recycled aluminum and with strong capabilities built up through our 115 year history in Renewable Energy. Our strategic direction towards 2025 is about strengthening our position in low carbon aluminum, while exploring new growth opportunities in areas our speakers such as recycling, renewable energy and batteries. We are well on track. We are delivering low carbon products and solutions to new customers and markets, and we are taking steps to position ourselves in the ongoing energy transition.
Our ability to deliver on our strategic ambition rest on our ability to ensure robustness and profitability in all business areas, bringing up cash and allocating fresh capital where we see the potential our for greatest return. Turning to the next page. So let's move over to today's announcements. In 2019, we initiated a restructuring and strategic review of rolling, following many years of low returns and low cash flows. We undertook a full potential review and identified significant improvement potentials.
And I'm pleased that rolling has already delivered above expectations in the Hydro twenty our 25 Improvement Program. Compared to the 2018 baseline, NOK 500,000,000 of EBITDA improvements have been realized by end of 2020, well underway to deliver on the NOK 1,100,000,000 target by 2025. However, our 2020 has been a difficult year with the global COVID outbreak, challenging markets and high restructuring costs, and the rolling reduction remains low, ending the year at 0.4%. The specific review was undertaken to evaluate if Hydro was the best owner to develop rolling its full potential, and it's also included evaluating different ownership structures. We have now concluded the strategic review and have reached the decision that our rolling business will have a better basis for full potential development under new ownership, considering capacity our staff and staff are required to develop the business.
The decision to sell will strengthen our ability to deliver on the HUJ 2025 strategy, and in addition, will ensure the full potential development of Rolink under the new owner. We believe this is a good solution for both Hydro and for Rolink our employees who will continue their efforts and growth in a new focused and dedicated company. Let's turn to Page 5. Our speakers. So today, we have signed an agreement to sell 100 percent of Israel Rolling to KPS for an enterprise value of Avro, EUR 1380,000,000.
The transaction includes 7 plants, 1 R and D center, Global Sales Offices and a total of around 5,000 employees. 650 of the employees are located in Norway, while the remaining are mainly located in Germany. In 2020, Hisro Rolling contributed approximately with NOK 24,000,000,000 in revenue, 17% of Hesos total and NOK 1,300,000,000 in underlying EBITDA, 9% of Hesos total. Our sales amounted to 864,000 tonnes, serving segments including can, oil, petroleum lithography, Automotive and General Engineering. Turning to the next page.
We are pleased to have found the new owner for Rolling with a strong track record of owning industrial companies. U. S. Based KPS makes controlling equity investments across a variety of industries, which fits well with Jovian's existing capabilities and potential. The host of deep understanding of manufacturing processes and are committed to create and maintain world class manufacturing operations in all parts of the world, our operating 158 manufacturing facilities in a total of 22 countries.
JPS takes a strategic approach with stakeholders, including management teams, employees, unions, customers, vendors and communities our and recognize the importance to maintain continuity of operational performance during and after the transaction. This includes areas of safety, product quality, on time delivery and customer service. The new owner provides its companies with the capital necessary to support organic growth initiatives involving capacity expansion, equipment upgrades, R and D and new product development initiatives. Turning to Page 7. The The sale of rolling is an important step to deliver and accelerate on the Israel 2025 strategy, lifting profitability, driving sustainability, creating value for all stakeholders.
We aim to strengthen our position in low carbon aluminum, while exploring new growth in areas where our capabilities match the global megatrends. In upstream, we are sustaining and improving our facilities, ensuring vigorousness and competitiveness, while also reducing our climate footprint through, for example, the first switch project in boxsetalumina. This enabled us to further develop our low carbon aluminum products, where we are seeing great traction in the market for Hydroju Duxa and Hydro our CECL to triple and double, respectively, from 2020 to 2021 compared to the new baseline. In addition to a greener product offering, we're also investing in volumes in extrusion through gaining market shares in dedicated segments, in addition to strengthening segment focus to drive further growth. On the strategic growth side, we are currently developing a pipeline of attractive our investment opportunities in recycling, renewables and batteries.
We will take position in geographies and segments of the value chain, our which leverage our core industrial expertise and footprint, building on the foundation already in place. The world needs to produce more for less in the future, making recycling a great potential for us. And in recycling, we will build capability to double post consumer scrap volumes through organic and inorganic growth. We have several exciting projects in the pipeline that we hope to revert to you in not too distant future. We also want to build on our competence portfolio and more than 100 years of renewable energy development to become an international renewable energy developer.
In Renewable Energy, we are gradually progressing on the investment decisions into more than 1 gigawatt of renewable power projects in 2021. Leveraging Kyzyl's energy expertise together with partners to capture value throughout the value chain. And in the energy storage area, we are also progressing on our strategy with our pilot recycling plant for used EV batteries here in Norway through our partner owned HydroVolt. And another example is our partnership with Panasonic and Equinor to explore the possibility to build a Gigafactory for battery production in Norway based on Renewable Energy. Finally, the transaction will also further strengthen our balance sheet, increasing our robustness our speakers to deliver on these strategic ambitions through the cycle.
Now let's turn to Page 8. The sale of rolling will have limited impact on other business areas as rolling operates as a stand alone business with strong without strong dependencies on Hydro. The Drilling has entered into agreements on continued supply of sheetingot from Norway to Germany, our steel metal to karmel and raw material for the Rheinberg smelter as well as facility services for the karmel site and other transition service agreements a second half of twenty nineteen. As a result of the transaction, the CapEx guidance for 2020 to 2025 will be reduced from NOK 9,000,000,000 to NOK 9,500,000,000 to NOK 8,500,000,000 which increased our capacity to pursue new growth initiatives. The overall 2025 improvement target of NOK 8,500,000,000 will be reduced by NOK 1,100,000,000 following the sale.
However, of these NOK 1,100,000,000, NOK 500,000,000 has already been realized as of 2020. The recycling ambition to double post consumer scrap remains compared to new baseline expectations. Turn to the next page. The scope of the transaction is the rolling business area, including plants in Germany and Norway, 1 R and D center and global sales offices, which in 2020 generated an underlying EBITDA of NOK 1,300,000,000. The sale was completed following a competitive auction process with involvement of both financial and industrial bidders.
And the agreed enterprise value between Hisro and KPS is averaging 1,380,000,000. By our Following the transaction, our pension liabilities will be reduced by €856,000,000 and discontinued operations in Hydro's financial reporting from the Q1 of 2021. The valuation indicates an impairment of €160,000,000 to €190,000,000 which will be included in the annual financial statements for 2020. A finalization of the sale is subject to customary approvals from competition authorities and is expected to be completed within second half of twenty twenty one. Turning to the last page.
Unruh has gone from being one long value chain within aluminum to now pursuing a strategy built on 2 pillars, Renewable Energy and Aluminum. This is how we will create value going forward. Building on the same foundation a question that has made us 115 years old. We will continue to build businesses that matter, producing products and solutions for the low carbon circular economy. And with that, I would like to thank you for joining the presentation and invite you to stay for the Q and A session.
We shall begin now. Thank you.
Thank you, Hilde. Please note that you will need to dial into the conference call at the end, it will not be possible to ask questions over the webcast. And then I think we're ready for questions. So operator, please go ahead.
By
We'll take our first question from our participant.
Our speakers. Yes, good morning. This is Ioannis Masvoulas from Morgan Stanley. Congratulations on the transaction and thanks for the presentation. Just a couple of questions from my side.
The first In terms of the balance sheet, on the back of this transaction, the cash proceeds coming in later this year, It's fair to say that the balance sheet looks under levered. How are you thinking about potential for additional cash returns To shareholders. And then secondly, the divestments also frees up some CapEx. How you think about reallocating some of that capital into some of the other initiatives. And the key question for me here is whether you're planning to accelerate some of your growth initiatives here.
Thank you.
I can start by saying that the sale of Rolled Products strengthening our ability now to pursue the strategy that we have laid out for Israel 2025. But it's really an opportunity to accelerate our 2 pillars in terms of strengthening our low carbon positioning as well as growing in the areas of recycling in terms of renewable energy and batteries. And I think that's what we are focusing on now that we actually can really focus on the path going forward as well as to strengthening our balance sheet, as I said in my introduction, which again gives us that ability to grow.
And on your questions on cash return, Janis, as you know, we recently updated our dividend policy, and we our aim to grow our dividend in line with our earnings improvement and also the higher percentage. And if The current market environment that you see today continues throughout the year, then we will be looking at that a much more comfortable dividend payment for 2021.
And that's all driven by the payout, So no comments on additional returns for special or buybacks later in the year?
No. As we see it today, these proceeds will be used to deliver on our strategic ambitions, given the cyclicality in our industry and the interesting growth prospects that we see within recycling, renewable growth, batteries and also growing exclusion as well as delivering on our sustainability ambitions. We will not be paying an extraordinary dividend.
Understood. That's clear. Thank you so much.
We'll take our next question from our next participant. Your line is open. Please go ahead.
Good morning. Hopefully, you can hear me. It's Liam Fitzpatrick from Deutsche Bank. 2 or 3 questions. Firstly, look, it looks like a great deal.
I just wanted to check, are there any kind of negative our synergies, if you like, that could impact other divisions, extruded metal markets primary from the sale of this the business. Secondly, on tax, I mean, you're mentioning a write down, so I assume that there won't be much Tax to pay on this, but could you just give some clarity on that point? And thirdly, just wanted to come back to the previous set of questions. I mean, should we assume that these proceeds and element of this could be used towards inorganic opportunity moving forward. Thank you.
I can perhaps just comment on the synergies. We as I said in my presentation, The sale of rolling will have limited impact on the other businesses. The rolling operates as a stand alone business with our strong dependencies. And so there is no dis synergies for the rest of
And when it comes to your question regarding gain or loss on transactions, of course, but there are some technical aspects to it also. We've done this transaction our segments now for the year within 2020, which would represent then a loss in 2020 on the transaction as such, as you indicated. However, I think we should be aware also that In the period between the signing of the transaction and the close of the transaction, but rolling will be held as a sale for sale or discontinued operations. And when you actually close the transaction, then our currency gains or losses that you have in other comprehensive income will be recycled through the income a statement which will reduce the loss we are seeing now. But based on year end currency rate, this is again, of around €500,000,000 So we're still seeing a total loss on transaction.
With respect to the latest last question, yes, this opens as we have communicated earlier also. By We're looking at opportunities for both organic and inorganic growth, especially within the recycling area.
Okay, very clear. Thank you.
We'll take our next question from our next participant. Please go ahead.
Yes. Good morning, folks. It's Jason Fariclof from Bank of America. I guess just a question on the footprint, right? So with the Right.
So with the sale of rolling, do you think the company now has the appropriate industrial footprint? And I guess could you speak a little bit about which business is now at the bottom of the list in terms of ROCE? Could we see more investments or divestments Or are we done?
I think How we have to look at that? We are invested in the whole value chain of aluminum. But Each business has to be on the podium in the world championship. So that's boxed alumina, primary or aluminum metal and now Extruded Solutions. They all have to earn their growth and develop as a sustainable and profitable our business, and we are evaluating the portfolio on that basis.
And even more so now based on the return targets that we have set and also the capital allocation process towards having an active focus on the portfolio as such in order to grow the company in terms of profitability and sustainability. So I think that's how we see it. We took the strategic review of Aeroproducts simply because the earnings have been too low. We have been evaluating that for quite some time now and come to the conclusion today that this business is better served with a more dedicated and a new owner. And then We will develop the portfolio based on the 2 pillars that I've described, the strengthening of our our position when it comes to low carbon aluminum.
We believe that aluminum is an important enabler for the energy transition and then also growing on our with our capabilities towards recycling and more renewable and batteries.
So sorry, Hilda, which business would now have the lowest Rockey in the portfolio after we lose rolling.
Jason, as you know, all our businesses have their strengths and weaknesses that we are developing, and we don't put them on the our stabilization curve externally. We have part of our operations, which are now delivering much better returns than they have for a while. Well, how we select and look at portfolio management is we go through every business area. We see what does their roadmap to profitability it look like, what capital head does it require and then are they able to deliver on that. If we see that That is not the case.
We will reallocate to other business areas as we have been over the process now. So we are developing all 4 of the remaining business areas. We are growing some of them to a larger extent. So you could say that we're more interested in growth in parts of the downstream energy and recycling part, whereas in primary, we're less more focused on keeping cost low and generating cash flows from the first and second quarter last year.
Okay, very clear. Thank you.
We'll take our next question from the next participant. Please go ahead.
Yes, good morning guys. This is Amos Fletcher from Barclays. Most of my questions have been asked. I just wanted to ask about whether the noise smelter is included in the sale or are you retaining that? Thanks.
The North America is included.
Okay, great. Thanks very much.
We'll take our next question from the next participant. Please go ahead.
Our Hi, good morning. This is Jatinder Goel from Exane BNP Paribas. A couple of questions, Just something related to what Jason was trying to ask on existing portfolio. On extrusion business, is that something You want to keep permanently or if the private equity wanted it for a value more than that you value in your own eyes, would you be willing to part with it given You're willing to part with one part of downstream, so it's not a fully integrated aluminum proposition anymore. Are you open to that idea as well?
And second question on rolling business, was it always a choice between selling the whole of it because it's So integrated as a single unit as you indicated in your presentation or could you have kept some of the businesses which you probably wanted more than others? Thank you, Bernd.
On your first question on extrusion, I would like to come back to what I said how we evaluate the portfolio of our businesses, and that's how we see it. We are focusing on creating profitable and sustainable businesses that serves both shareholders as well as the other stakeholders. And it's not so much about being integrated or not. It's about building solid businesses where we can use our capabilities, and that's how we look at that's how we will look at the portfolio going forward. As Paul was talking about, we have defined strategic modes for the businesses that we have right now and be very clear on that each business has to deliver above their cost of capital, and that's how we will actively by follow the and work with the portfolio.
When it comes to the rolling business and your question was about if we have evaluated to sell part of it or not, We have thoroughly evaluated all opportunities in terms of the deal and come forward with the announcement today, which we felt was the best solution for the rolling business going forward as well as for G DRO to use the sale for strengthening the rest of the proponents.
Okay. Thank you so much.
We'll take our next question from the next participant. Please go ahead.
By our speakers.
We'll take our next question from the next participant. Our
Hi, folks. It's Jason Vericlove again. Sorry, just a quick follow-up call. So a decent part of the, if you like, the payment for this asset is actually the pensions. And obviously, we're in a bit of an unprecedented environment in terms of interest rates.
So could you talk to us a little bit about How the pensions that are being included in the overall consideration, how they've been valued? Are we using the year end 2020? And what's the discount rate that you've used in those pension numbers, please?
Yes. No, that's a good question, Jason. If you start with the bridge between the cash proceeds and the enterprise value. Then of course, pension is the largest element that sits between there. As we stated, we free up around SEK 850,000,000.
But in the bridge, We have a lower value for pension. So we have a discount of what you saw at year end, also reflecting your comment on the interest rate environment. Boris. So we have a the pension in the bridge is around 10% to 15% lower than what was set at year end. Then we have some other debt or debt like items, which make up the rest of the bridge.
We have, As you know, undertaken quite a rationalization and restructuring effort in rolling. The result effects are included in our statements, but the provisions and the cash effects come later. So there's €50,000,000 to €100,000,000 in restructuring provisions. There's the asset retirement obligations and environmental cleanup costs, which are around €50,000,000 or so. And then there's also some intercompany debt between €30,000,000 €50,000,000 and then you have other smaller balance sheet and debt like items.
So the pension is the big a figure figure, a discount of 10% to 15% compared to what we see at the year end. And then there's provisions,
Okay. Thanks, pal. Look, In a way, a bit of a related question. Could you talk to us a little bit about working capital? I assume the business is being sold, if you like, full of working capital.
Have you got an idea of how much working capital is actually in this business?
Yes. Of course, it depends on the timing of the transaction. And let's get back to the details, etcetera,
It appears there are no further questions at this time.
Thank you and thank you everyone for joining us today. And please don't hesitate to contact us in IR if you have any additional questions. Thank you and have a good day.