Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (September 2007)
41 slides from Norsk Hydro Asa's investor day presentation, Sep 6, 2007
Slide 1: Hydro – set for growth
Hydro – set for growth Eivind Reiten, President and CEO September 6, 2007 1
Slide 2: Key messages
Key messages • Strategic and operational progress • Merger of oil and gas activities with Statoil, sale of Polymers • Aluminium Metal repositioned • Aluminium Products restructured • Strong value creation • Firm growth in aluminium consumption • Competitive strengths • Power position • Operational p
Slide 3: StatoilHydro – a strong combination
StatoilHydro – a strong combination 3
Slide 4: Significant value creation
Significant value creation NOK billion 400 350 300 250 Dividend and buybacks Yara 200 Oil and gas Aluminium 150 Hydro 100 50 0 1999* 2007** * 4 January 1999 close, nominal value ** 31 August 2007 close. Aluminium and Oil & Energy based on transaction equation adjusted for dividend payments 4
Slide 5: "New" Hydro well received
”New” Hydro well received Relative share price development NYSE 18 December 2006 – 1 May 2007 18 December 2006 – 31 August 2007 ”New” Hydro 51% ”New” Hydro 54% Alcan 20% Alcan 105% Alcoa 14% Alcoa 20% Oslo Stock Oslo Stock Exchange Exchange 9% 8% Benchmark Benchmark Index Index Source: Yahoo Finance
Slide 6: A resourceful aluminium company
A resourceful aluminium company Aluminium • 25 000 employees1) Metal • Operations in more than 30 countries • Turnover Aluminium • 2006: NOK 99 billion Products • First-half 2007: NOK 51 billion • EBIT • 2006: NOK 7.5 billion • First-half 2007: NOK 7.0 billion Energy • Market capitalization NOK 87 b
Slide 7: Strategic and operational progress
Strategic and operational progress 7
Slide 8: Aluminium Metal repositioned
Aluminium Metal repositioned • Build decision Qatalum 1 – 50% in 585 000-tonne smelter • Closures of high-cost smelters in Norway and Germany • Alunorte expansion 3 in progress • MoU with CVRD to build new alumina plant in Brazil 8
Slide 9: Turnaround in Aluminium Products
Turnaround in Aluminium Products • Divestments and closures • Sales of Castings, Meridian and smaller units • Closure of magnesium plant in Becancour (Canada) and Ellenville extrusion (US) • Improvement measures to offset weak US extrusion market • Capacity adjustments • 30% manning reduction in the
Slide 10: Improvement in all business areas
Improvement in all business areas RoaCE, percent 2005 30 2006 First half 2007 (not annualized) 25.1 25 20 18.0 18.3 15 12.2 11.5 10 7.9 6.2 5 -3.2 -0.7 0 Aluminium Metal Aluminium Products Energy -5 10
Slide 11: Continued focus on safety
Continued focus on safety TRI rate Hydro employees 12 10 8 6 4 2 0 2002 2003 2004 2005 2006 2007* * 12-month rolling June 2006-June 2007 11
Slide 12: Growing aluminium consumption
Growing aluminium consumption 12
Slide 13: Healthy demand for aluminium
Healthy demand for aluminium • Properties give competitive edge • Recyclability more important with high energy price • Expected annual demand growth 4.0-4.5% coming 10 years • China represents almost 2/3 of expected growth • Main product segments expected to grow 4.0-5.0% annually 13
Slide 14: Key global factors
Key global factors • Industry consolidation • China • Power prices • Future aluminium price level, including carbon-pricing effects 14
Slide 15: China striving for balance
China striving for balance 1 000 tonnes Semis • Frequently changing taxes and Scrap metal 2 000 Primary/alloyed Fabricated Net incentives Net import 1 500 1 000 • No current subsidies on export of metal and low value added products 500 2007 2005 2006 Jan-Jun 0 • Majority of export to Asian markets -
Slide 16: Chinese policy – consequences
Chinese policy – consequences • Chinese policy will continue to support high metal prices • Chinese export policy expected to continue pressure on margins for fabricated products outside China • Most attractive to export to Asia • Hydro will continue to develop market positions in Europe based on qu
Slide 17: Substantial increase in power cost
Substantial increase in power cost Global average power cost per tonne aluminium* USD/tonne • Power currently represents 26% of 500 cost with average global price of 450 approx 31 USD/MWh 462 400 350 395 • Current forward price levels in Europe 60-70 USD/MWh (including 300 CO2-cost) 301 250 • 10 USD
Slide 18: Power prices drive smelter locations
Power prices drive smelter locations Net export/import from major regions* 1 000 million tonnes 8 000 2005 2010 2020 6 000 4 000 2 000 0 -2 000 -4 000 -6 000 -8 000 -10 000 North America Europe Africa South America Middle East * Only regions with major changes in export or import shown Source: Hydro
Slide 19: Hydro well positioned
Hydro well positioned Current capacity and projects well covered with captive hydropower and long-term contracts Strategy for new capacity • Attractive combinations – power, market proximity, value-added products, technology • Partnerships 19
Slide 20: Shift in forward curve
Shift in forward curve LME USD/tonne* 2 800 Aug-05 Aug-06 Aug-07 2 600 2 400 2 200 2 000 1 800 1 600 1 400 2007 2008 2009 2010 2011 2012 * After 63 month clearing period, forward curves are based on Hydro approximations 20
Slide 21: Strong platform for growth
Strong platform for growth 21
Slide 22: Competitive strengths
Competitive strengths • Power position • Operational performance • Technological leadership across value chain • Close to markets and customers • Reputable partner in joint ventures • Distinct project management skills • Financial capacity to grow 22
Slide 23: Strong organizational platform for growth
Strong organizational platform for growth • Experienced organization with proven track record • For the future • Systematic engineering culture combined with • Retain and recruit the best foresight and courage • Progressive partnerships • Culture for industrial and community partnership 23
Slide 24: Technology leadership across value chain
Technology leadership across value chain Reduce cost and broaden areas for growth • Next-generation smelter technology to reduce cost • Leading casthouse production system – cost and margins • Unique metallurgical competence – important through value chain • Customer-focused R&D 24
Slide 25: Metal - improve upstream positions
Metal - improve upstream positions 25
Slide 26: Continued cost improvement
Continued cost improvement New metal projects and closures of high-cost capacity 3 000 BOC W eighted Average Hydro (CRU) Qatalum Hydro CRU including Qatalum 2 600 2 200 1 800 1 400 1 000 600 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 Source: CRU, 2007. Business operating cost definitio
Slide 27: Pursue attractive metal projects
Pursue attractive metal projects • Access to power at attractive terms key determining factor • Utilize power expertise, technology and project execution, value-added products for access to projects • Build on reputation in business and community partnerships • Ongoing studies • Karmøy, Norway • Qat
Slide 28: Continued growth in alumina production
Continued growth in alumina production Hydro production, 1 000 tonnes • MoU in Brazil based on long- 4 000 standing partnership with CVRD MoU in Brazil 3 500 Alunorte Alpart • Looking for new equity positions 3 000 – primarily based on integrated bauxite mine 2 500 2 000 1 500 1 000 500 0 2002 2004
Slide 29: Products – improve bottom-line
Products – improve bottom-line • Grow attractive product segments • Capitalize on competitive edge 29
Slide 30: Build on leading position
Build on leading position Rolled Products • Improve profit • Cash generator from operations • High-grading product portfolio • Focus on Europe • Quality assets • High-value niches • Leading margins 30
Slide 31: Build on leading position
Build on leading position Extrusion Building Systems Extrusion Eurasia • Selective growth, including Russia and Middle East Extrusion Americas • Turnaround from weak results Building Systems • High margins • No 1 globally • Selective growth, mainly in • Solid profit (no1) • High margins Europe • Str
Slide 32: Build on leading position
Build on leading position Precision Tubing Structures Precision Tubing • Increase utilization of installed capacity Structures • Turnaround • No 1 globally • Advanced products • Historically solid • Low-capacity profit utilization • Weak results 32
Slide 33: Energy – expand value of competence
Energy – expand value of competence 33
Slide 34: Expand value of energy competence
Expand value of energy competence Energy Utilize energy competence as integral part of aluminium growth ambitions • Captive hydro-power – high value for Hydro’s business Solar venture – attractive prospects and potential • Well-developed production assets integration with Building Systems provide st
Slide 35: Financially healthy
Financially healthy • Strong cash-flow from operations • Capital discipline • Shareholder policy 35
Slide 36: Capital employed – upstream focus
Capital employed – upstream focus Total NOK 48 billion* 30 June 2007 Energy 8% Automotive 5% Extrusion 10% Metal 58% Rolled Products 19% 1) Including NOK 2.5 billion in negative capital employed in “Corporate and Other” not shown in graph 36
Slide 37: Capital allocation – upstream focus
Capital allocation – upstream focus NOK billion 11-12 ~80 percent of 2008 investments are upstream Aluminium Metal • Qatalum: USD 2.4 billion ~6.5 • Alunorte 3: USD 300 million 1.2 • New alumina project: USD 300 million 3.9 1.0 4.1 Aluminium Products 1.3 • Selective growth initiatives in Extrusion 2
Slide 38: Shareholder policy
Shareholder policy • Hydro aims to give its shareholders competitive returns compared to alternative investments in peers • Dividend payout ratio1) will average 30% over the cycle • Buyback of shares and extraordinary dividends • When earnings, liquidity position and capital structure allow 1) Divid
Slide 39: High payout to shareholders
High payout to shareholders Total payout ratio 1) Dividend Share buyback • Current capital structure 58% 58% recognized as inefficient 15 % 23 % • Measures to adjust balance sheet 45% to be announced with Q4 results 44 % 10 % • Share buyback and dividend 35 % 35 % payout 2004 2005 2006 1) Dividend a
Slide 40: Key messages
Key messages • Strategic and operational progress • Firm growth in aluminium consumption • Competitive strengths • Focused aluminium strategy • Shareholder return – a key priority 40
Slide 41: Cautionary note in relation to certain forward-looking statements
Cautionary note in relation to certain forward-looking statements Certain statements contained in this announcement constitute “forward-looking information” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as a