Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (January 2007)
71 slides from Norsk Hydro Asa's investor presentation, January 2007
Slide 1: Investor Presentation – January 2007
Investor Presentation – January 2007
Slide 2: 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
Slide 3: Strategy for "New Hydro"
Strategy for “New Hydro” 3
Slide 4: Transaction background
Transaction background z The Boards of Hydro and Statoil have agreed to recommend a merger of Hydro’s oil & gas activities with Statoil to form a new oil and gas company z For Hydro’s shareholders this means: - They will hold 32.7 percent of the new company and receive 0.8622 shares in the new compa
Slide 5: Net debt development
Net debt development z Net interest bearing debt - Hydro’s oil and gas activities: NOK 0 at year end 2006 - “New Hydro” estimate: NOK 4 billion at year end 2006 - Hydro’s oil and gas activities to fund proposed 2006 dividend NOK 6.1 billion - NOK 5.00 per share - “New Hydro” to fund repurchase of th
Slide 6: Key milestones
Key milestones z 18 December 2006 Transaction announced z 20 February 2007 2006 preliminary results z March 2007 Prospectus (F-4) to SEC z 8 May 2007 Annual General Meeting z Second quarter 2007 Extraordinary General Meeting z Third quarter 2007 Expected closing 6
Slide 7: Hydro going forward
Hydro going forward z One of the world's three leading integrated aluminium companies z Norway's second largest power producer z 27 000 employees, 7 000 of them in Norway z Annual turnover more than NOK 100 billion z Operating income for the year's first nine months NOK 8.3 billion z Operations in m
Slide 8: Development in market capitalization
Development in market capitalization NOK billion Hydro Yara "New Hydro" Oil & Energy 154 88 72 45 2000 2007* * 17 January 2007. Aluminium and Oil & Energy based on transaction equation adjusted for dividend payments 8
Slide 9: Competitive share price development
Competitive share price development 1 January 2002 to 31 December 2006 1 January 2006 to 16 January 2007 Hydro 314% Hydro 39% Statoil 302% ExxonMobil 28% BG Group 231% BG Group 27% ENI 172% Chevron 23% ConocoPhillips 139% Alcan 20% RepsolYPF 137% ENI 14% Total 105% RepsolYPF 10% ExxonMobil 95% Conoc
Slide 10: Strategy for long-term growth
Strategy for long-term growth z Building on a leading, global position in metal production z Pursuing new, attractive opportunities in alumina and metal z Leveraging strong platforms in Extrusion, Precision Tubing, Building Systems and Rolled Products z Power production is a strategic asset z Solar
Slide 11: Strong industry position
Strong industry position Integrated Emerging Market Mining & Metal Manufacturing 3 900 3 790 3 320 Production in 1 000 tonnes in 2005 2,435 2,350 1 826 1 331 1 050 953 854 870 850 841 614 498 409 240 201 110 155 100 100 100 Alcoa¹ Alcan Hydro 29 United Chalco Hindalco BHP Rio CVRD Novelis Aleris 2 S
Slide 12: Competitive return on capital
Competitive return on capital RoaCE 25 % Hydro Alcoa Alcan 20 % 15 % 10 % 5% 0% 2004 2005 2006* Source: Bloomberg return on capital methodology. Hydro figures are approximations to Bloomberg methodology. * Annualized 12
Slide 13: Strong Aluminium cash flow
Strong Aluminium cash flow NOK billion 40 Accumulated EBITDA Accumulated investments 30 20 10 0 2003 2004 2005 2006 Jan-Sep 13
Slide 14: Aluminium Metal
Aluminium Metal 14
Slide 15: Aluminium Metal
Aluminium Metal z Strong focus on return on capital z Restructuring on track z Operational excellence and production creep z Long-term profitable growth 15
Slide 16: China driving the demand for primary aluminium
China driving the demand for primary aluminium 4 percent annual growth rate 2005-2020 Million tonnes 70 China Other 60 35% 50 34% 31% 40 22% 30 13% 20 65% 66% 69% 78% 10 87% 0 2000 2005 2010E 2015E 2020E Source: CRU 2006 16
Slide 17: Aluminium price development
Aluminium price development USD/tonne LME (3 month avg.) 3 000 LME forward 2 800 2 600 2 400 2 200 2 000 1 800 1 600 1 400 1 200 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 2010 2011 2012 Source: Reuters Ecowin and Bloomberg 17 January 2007 17
Slide 18: Upstream aluminium positioned for growth
Upstream aluminium positioned for growth Bauxite Alumina Primary Casthouse products z 65 percent equity alumina position at low cash cost z 1.7 million tonnes per year primary production in 2007, target 2 million tonnes per year 2010 z Global leader in casthouse technology and products z Financials
Slide 19: Restructuring executed – improved cost position
Restructuring executed – improved cost position z Restructuring on track – closing 180 000 tonnes z Restructuring costs below NOK 1 billion z Improving average cash cost 40-50 USD/tonne 19
Slide 20: Further capacity creep in existing plants
Further capacity creep in existing plants Increased primary production in tonnes per year* 200 000 z Low capital expenditures per tonne 150 000 z Strong profitability z EBITDA contribution in 2006 100 000 - NOK 500 million 50 000 0 2002-2006E 2006-2010E * All prebake lines excl. Stade 20
Slide 21: Production volumes 2004-2010
Production volumes 2004-2010* 1 000 tonnes Approx. 2 000 1 825 1 800 1 720 1 730 2004 2005 2006E 2007E 2010E * Including closed or to-be-closed capacity of Hamburg, Stade and Søderberg at Årdal, Høyanger. Qatalum in full production from mid-2010. 21
Slide 22: Industry costs rising – Hydro's position improved
Industry costs rising – Hydro’s position improved Significant shift in industry cost curve* Cost (USD/tonne) z Alumina 2 500 Hydro’s 2006 position 2006 - Two thirds of cost increase 2 250 Hydro’s 2003 position - Coming down from peak 2 000 2003 1 750 z Energy 2006 average 1 640 1 500 - Oil and gas p
Slide 23: Increase in smelting cost
Increase in smelting cost Cost per tonne for Hydro’s smelter capacity, 2005=100* z Cost development 2005-2006 - NOK 1.2 billion total power cost increase** - New contracts and increased 140 Other grid cost Norway and Germany Alumina - Alumina cost increase 120 - 60 percent equity position Power - 40
Slide 24: Long-term power contracts ensure predictable cost levels going forward
Long-term power contracts ensure predictable cost levels going forward Contract portfolio 14 TWh Norway* z Power supply and price secured 3.5 TWh Australia z Norway: gradual increase in power price until 2010 as new contracts Canada 1.6 TWh replace old 1.0 TWh Slovakia z Germany: moderately increasi
Slide 25: Alunorte alumina refinery – key asset in repositioning
Alunorte alumina refinery – key asset in repositioning z Targeting 6.5 million tonnes production by 2009 z Hydro stake 34 percent of world’s largest refinery z First-quartile investment costs and highly competitive conversion costs z Platform for pursuing new opportunities in Brazil and in other bau
Slide 26: Qatalum – profitable mega-smelter in key region
Qatalum – profitable mega-smelter in key region z 585 000 tonnes per year – expansion potential to 1.2 million tonnes per year z First quartile operating cost – captive power z 50/50 joint venture between Hydro and Qatar Petroleum z Final cost estimate and build decision summer 2007 26
Slide 27: Qatalum – profitable mega smelter in key region
Qatalum – profitable mega smelter in key region World production 2006, 1 000 tonnes z 50/50 Hydro/Qatar Petroleum Cost 2006* (USD/tonne) 2 500 z 585 000 tonnes per year, expansion potential to 1.2 million tonnes 2 000 z Low operating cost – captive power 1 500 1 000 Qatalum z High efficiency and cre
Slide 28: Competence and technology provide basis for growth
Competence and technology provide basis for growth z Distinct project management skills z Proprietary technology opens doors for new business opportunities z Next-generation smelter cell technology being developed z Value-added primary products attractive to partners 28
Slide 29: Primary production will grow in new areas
Primary production will grow in new areas Metal opportunities Bauxite/alumina opportunities Business development office location 29
Slide 30: Aluminium Products
Aluminium Products 30
Slide 31: Aluminium Products
Aluminium Products z Strong momentum in restructuring - Solid platform for good returns in Extrusion - Rolled Products improving, market still challenging z Strong record in delivering innovative aluminium solutions z Financials first nine months 2006 - Operating revenues NOK 39.9 billion - Adjusted
Slide 32: Adjusted profitability 2006 and capital employed
Adjusted profitability 2006 and capital employed Signed divestments Remaining assets 10 percent RoaCE Share of capital employed (total NOK 19 billion) Extrusion 1) Rolled Products Automotive 2) Magnesium 1) Including Extrusion Europe, Extrusion Overseas, Building Systems and Precision Tubing 2) Incl
Slide 33: Restructuring Aluminium Products
Restructuring Aluminium Products z Closures - Magnesium Porsgrunn, Magnesium Canada, extrusion capacity UK z Divestments - Aluminium Castings, enterprise value NOK 3.7 billion - Meridian magnesium casting, enterprise value NOK 0.6 billion z Divestments in process - Automotive Structures, Magnesium r
Slide 34: High-grade portfolio of downstream assets
High-grade portfolio of downstream assets Extrusion Precision Tubing Building Systems z Proven business model in Extrusion - Close to customer, innovative solutions, added value activities z Global leader in Precision Tubing - Well positioned for global customers z Building Systems leading brands -
Slide 35: Extrusion – key figures
Extrusion – key figures Geographical revenue split 2005* Volume split 2005* NOK 18.6 billion 558 000 tonnes Other Precision 8% Tubing 11% North America 23% Extrusion Europe North Extrusion 69% America Europe 23% 51%** Building Systems 15% * Revenues include Extrusion and Precision Tubing. Volumes in
Slide 36: Extrusion peer group comparison – relative size
Extrusion peer group comparison – relative size Tonnes North America Europe 755 285 558 403 470 480 300 250 275 210 155 145 120 100 50 55 Alcoa Hydro Sapa Indalex Alcan Kaiser Bonnell Corus (now Metra Aleris) Figures show soft alloys, internal estimates 2005 Market size sources are CRU and EAA 36
Slide 37: Extrusion peer group comparison – market shares
Extrusion peer group comparison – market shares North America Europe Market size 2 million tonnes Market size 2.7 million tonnes Hydro Alcoa 14% 24% Other Alcoa 38% 10% Sapa Indalex Other 9% 14% 60% Metra Alcan Sapa 2% 5% Hydro 3% Bonnell 8% 6% Kaiser 7% Figures show soft alloys, internal estimates
Slide 38: Rolled Products - portfolio evaluation concluded
Rolled Products - portfolio evaluation concluded z Well invested z Leading rolled products assets in Europe z Excellent market position z Strong organization z Main challenges: European industry structure and China 38
Slide 39: Rolled Products – key figures
Rolled Products – key figures Geographical revenue split 2005 Volume split 2005 NOK 19.0 billion 953 000 tonnes Other 15% Litho 17% North America 8% Foil 16% Europe 77% Strip 67% 39
Slide 40: Rolled Products peer group comparison - relative size
Rolled Products peer group comparison - relative size 1 000 mt 3 500 Europe North America Other Total 3 000 470 2 500 2 000 1 500 1 000 500 0 Novelis Alcoa Hydro Sources: Alcoa Annual Report 2005 (no reporting of split per region) and Novelis Annual Report 2005 40
Slide 41: Rolled Products peer group comparison - market shares
Rolled Products peer group comparison - market shares North America Europe Market size 5.3 million tonnes Market size 4.4 million tonnes 470 Hydro 1% 1% Hydro 16% 16% 23%Novelis 23% 59% 25% 76% Other Novelis 59% 25% Other 76% Market sources are CRU and EAA 41
Slide 42: Power
Power 42
Slide 43: Power – a solid foundation
Power – a solid foundation z Norway’s second largest hydroelectric power producer - Average annual production 9 TWh (7-11 TWh) - ~ 7.5 % of Norway’s total hydropower production - Low production costs and investments - Low environmental impacts z Financials first nine months 2006 - Operating revenues
Slide 44: Well-developed production assets
Well-developed production assets Hydro installations Top ten Hydro power stations Production Tyin Consumption Skagen Vemork Såheim Suldal I Røldal Sunndal Sogn Suldal II Telemark Høyanger Årdal Svelgfoss Sogn Røldal-Suldal Karmøy Telemark Share Salten Other Røldal/ Suldal Mæl Grenland GWh/yr 0 500 1
Slide 45: Production plants
Production plants Fortun Rjukan Tyin SKS Produksjon AS Neverdalsåga Røldal-Suldal Svelgfoss Vrangfoss Eidsfoss Skafså 100% owned Partly owned Hydro has a contractual right to a share of annual production 45
Slide 46: Production volumes and concessions
Production volumes and concessions z Average annual production of 9 TWh z 2.7 TWh with no reversion z 3.6 TWh subject to reversal in 2044-2056* z 2.7 TWh subject to reversal in 2022 * Includes the Fortun plants (1.6 TWh) where the current concession expires in 2017. Hydro has applied for renewal of
Slide 47: The power portfolio is flexible
The power portfolio is flexible z Long-term purchase contracts of power until 2020 (~7 TWh) z The market value of the power portfolio is optimized every day z Actual spot exposure will vary from hour to hour based on own production z ~2 TWh exposed to prevailing spot prices 47
Slide 48: Hydropower provides stable income long term
Hydropower provides stable income long term Q1-Q3 NOK million 2003 2004 2005 2006 Operating revenues * 5 074 4 341 6 499 8 241 Operating income 664 732 1 109 1 036 EBITDA 1 078 819 1 233 1 143 * Operating revenues are influenced by trading volumes and amount of power sourced on behalf of Aluminium 4
Slide 49: Hydro Polymers
Hydro Polymers 49
Slide 50: Hydro Polymers - Europe's fourth largest PVC producer
Hydro Polymers - Europe’s fourth largest PVC producer z Solid turnaround delivered z Production sites in Norway, Sweden and the UK – 1 200 employees z Competitive upstream integration in ethylene z Global vinyl positioning through JV’s in China, Qatar and Portugal z Positive outlook 50
Slide 51: From raw materials to industrial products
From raw materials to industrial products Salt & oil Caustic PVC PVC Recycled soda resin compound PVC 51
Slide 52: European PVC capacity per company
European PVC capacity per company 1 340 1 195 905 625 620 450 400 360 200 190 100 EVC Solvin AtoFina Hydro Vinnolit LVM Shinetsu Vestolit Cires AragonesasHellenic Polymers Petrol 52
Slide 53: Business locations
Business locations NORETYL QVC RAFNES SUZHOU HUASU PORSGRUNN CIRES STENUNGSUND HELSINGBORG AYCLIFFE 53
Slide 54: High quality assets
High quality assets z Chlorine production at Rafnes was successfully upgraded in two steps during 2005 and 2006 - Investments of NOK 1.7 billion z The Rafnes’ chlorine process is based on the best available membrane technology z The investment has made the Hydro Polymers operation self-supplied with
Slide 55: Hydro Polymers – key figures
Hydro Polymers – key figures Operating revenues in NOK million 5 356 5 512 5 036 4 208 2004 2005 2005 2006 Jan-Sep Adjusted EBITDA in NOK million and margin in percent 774 794 564 563 15.8% 14.5% 13.4% 10.2% 2004 2005 2005 2006 Jan-Sep 55
Slide 56: Hydro - priorities
Hydro - priorities 56
Slide 57: Growth and value creation
Growth and value creation z Strong return on capital z Operational excellence z Delivering new growth opportunities globally z Solid financial position - Maintain dividend policy of 30 percent - Increase leverage to finance attractive growth opportunities 57
Slide 58: Additional information
Additional information 58
Slide 59: Preliminary carve-out statements
Preliminary carve-out statements First nine months ended NOK billion 30 September 2006 Operating revenues 81.8 Depreciation, depletion and amortization 3.1 Other operating cost 70.4 Operating income 8.3 Non-consolidated investees 0.7 Financial income (expense), net (0.1) Income before tax and minori
Slide 60: Indicative price and currency sensitivities 2007
Indicative price and currency sensitivities 2007 NOK million Income before tax Net income Change Oil price per barrel 1 190 345 1 USD Aluminium price per tonne 1 000 655 100 USD NOK million Income before tax Net income Change USD Oil & Energy 10 340 3 780 1 NOK USD Aluminium Metal 3 280 2 130 1 NOK
Slide 61: Rising smelter cost for the industry
Rising smelter cost for the industry USD per tonne 1 640 1 450 Other cost Power Alumina 1 290 45% 1 120 41% 1 090 41% 35% 36% 26% 28% 28% 28% 28% 37% 36% 31% 29% 31% 2002 2003 2004 2005 2006 Source: CRU (Corporate operating cost definition) 61
Slide 62: Increasing alumina equity coverage for Hydro
Increasing alumina equity coverage for Hydro Alumina equity coverage (bars) Equity alumina production (line) Percent 1 000 tonnes 100% 4 000 75% 75% 3 000 55% 50% 43% 2 000 23% 25% 1 000 0% 0 1998 2002 2006E 2010E 62
Slide 63: Primary aluminium production per quarter
Primary aluminium production per quarter 1 000 mt 1 472 1 720 1 826 1 349 457 461 464 441 446 444 449 451 449 415 418 381 388 360 343 2003 2004 2005 2006 YTD Slovalco consolidated from Q1 2004 63
Slide 64: Aluminium – operational data
Aluminium – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Volumes and prices * 2006 2006 2006 2005 2005 2005 2005 Primary production (1 000 mt) 449 451 449 464 461 457 444 LME realized (USD/mt) including hedges 2 462 2 368 2 146 1 851 1 770 1 842 1 783 NOK/USD realized including hedges ** 6.36 6.47 6.85 6.5
Slide 65: Aluminium Metal hedge programs
Aluminium Metal hedge programs 1) 2006 2007 2008 2006-2008 program – volume mt 2) 130 000 163 800 167 100 2006-2008 program – LME price USD/mt 2 140 2 300 2 200 2003-2007 program (Sunndal) – volume mt 3) 96 900 108 900 - 2003-2007 program (Sunndal) – LME price USD/mt 1 500 1 500 - 2003-2007 program
Slide 66: Hydro primary aluminium production 2003-2005
Hydro primary aluminium production 2003-2005 1 000 metric tonnes Smelter site Country Interest 2005 2004 2003 Sunndal Norway 100.0% 362 306 210 Karmøy Norway 100.0% 277 278 271 Årdal Norway 100.0% 233 222 215 Neuss Germany 100.0% 225 223 221 Slovalco* Slovakia 20.0% 159 157 27 Kurri-Kurri Australia
Slide 67: Main smelter cost elements
Main smelter cost elements Alumina and power – approximately 60 - 70% World average cost structure* Hydro average cost structure* Other Other 13% 13% Casthouse Alumina Casthouse 33% 4% Alumina 7% Carbon 40% 10% Carbon 9% Labor 7% Labor 10% Power Power 26% 28% * CRU 2005, Site Operating Cost definiti
Slide 68: Global smelter site operating cost position
Global smelter site operating cost position Weighted average, percent 7 13 10 28 100 9 Technology Regulatory Economy of scale 33 Contracts & Efficient work Tax frames processes Local cost level Alumina Carbon *) Power Labor **) Other ***) Cast-house Site operating costs cost Global market National/
Slide 69: Global alumina business operating cost position
Global alumina business operating cost position Weighted average, percent 4 11 12 Sustaining Costs 30 100 4 9 30 Bauxite Caustic Power Energy Labor Equipment Other Alumina * Business Soda operating cost * Alumina business operating cost USD 178/tonne in 2005 Source: 2005 CRU, Nominal US$. Note: By-p
Slide 70: Investor Relations in Hydro
Investor Relations in Hydro 70
Slide 71: Investor Relations in Hydro
Investor Relations in Hydro t +47 22 53 32 73 Ada Christiane Rieker Vice President ada.christiane.rieker@hydro.com m +47 951 82 718 Investor Relations t +47 22 53 24 55 Gudmund Isfeldt Officer gudmund.isfeldt@hydro.com m +47 480 01 180 Investor Relations t +47 22 53 35 39 Stefan Solberg Officer stef