Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (November 2007)
134 slides from Norsk Hydro Asa's investor presentation, November 2007
Slide 1: Investor presentation
Investor presentation November 2007 1
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: Table of contents
Table of contents Company overview 4 Industry & market outlook 19 Aluminium Metal 26 Qatalum 42 Alumina & Bauxite 52 Aluminium Products 57 Energy 77 Third quarter results 2007 84 Additional Financials 101 3
Slide 4: Company overview
1 Company overview 4
Slide 5: 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 nine months 2007: NOK 73 billion ● EBIT ● 2006: NOK 7.5 billion ● First-half 2007: NOK 9.0 billion Energy ● Market capitalization N
Slide 6: 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 6
Slide 7: 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 ** 28 September 2007 close. Aluminium and Oil & Energy based on transaction equation adjusted for dividend payments 7
Slide 8: Competitive share price development
Competitive share price development New York Stock Exchange 1 January 2002 to 30 September 2007 1 January 2005 to 30 September 2007 CVRD 1 741% CVRD 385% BHP Billiton 615% BHP Billiton 234% Hydro 483% Rio Tinto 195% Statoil 395% Hydro 180% Rio Tinto 341% Statoil 121% ConocoPhillips 192% ConocoPhilli
Slide 9: "New" Hydro well received
”New” Hydro well received Relative share price development NYSE 18 December 2006 – 1 May 2007 18 December 2006 – 26 October 2007 ”New” Hydro 51% ”New” Hydro 98% Alcan 20% Alcan 110% Alcoa 14% Alcoa 29% Oslo Stock Oslo Stock Exchange Exchange 9% 17% Benchmark Benchmark Index Index Source: Yahoo Finan
Slide 10: Strong aluminium industry position
Strong aluminium industry position Integrated Emerging Market Mining & Metal Manufacturing Primary Rolled Extrusions Other 4 251 3 900 Production in 1 000 tonnes in 2006 3 552 3 151 2 500 1 930 1 799 1 359 1 040 1 100 985 930 915 616 429 270 260 230 163 Alcoa¹ Hydro United Chalco BHP RioTinto 4 CVRD
Slide 11: Peer comparison 2006
Peer comparison 2006 Metal sales vs primary production (tonnes) Downstream in % of primary production Alcoa 156% Alcoa 98% Alcan 127% Alcan 39% Hydro 198% Hydro 95% 100% 100% Alumina ownership coverage Captive power * Alcoa 218% Alcoa 21% Alcan 74% Alcan 43% Hydro 55% Hydro 34% 100% 100% Source: Com
Slide 12: Aluminium value chain 2006
Aluminium value chain 2006 Million tonnes Bauxite Bauxite* 0.5 1.4 z MRN equity production – Brazil: 0.9 million tonnes z Alpart equity production – Jamaica: 1.3 million tonnes Alumina Alumina** 1.0 0.8 z Alunorte – Brazil: 1.3 million tonnes Aluminium z Alpart – Jamaica: 0.6 million tonnes Metal Pr
Slide 13: Competitive return on capital
Competitive return on capital ROC 14% "New" Hydro Alcoa Alcan 12% 10% 8% 6% 4% 2% 0% 2004 2005 2006 2007 Source: Bloomberg return on capital methodology. 2007 figures are Q3 2006-Q2 2007. “New” Hydro figures are approximations to Bloomberg methodology. 13
Slide 14: 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 14
Slide 15: 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 16: 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 17: Strong payout to shareholders
Strong payout to shareholders Total payout ratio Hydro before demerger 1) Dividend Share buyback ● Hydro aims to give its shareholders 58% 58% competitive returns compared to alternative investments in peers 15% 23% 45% ● Dividend payout ratio2) will average 10% 30% over the cycle 44% 35% 35% ● Buyb
Slide 18: Capital employed – upstream focus
Capital employed – upstream focus Total NOK 46 billion1) 30 September 2007 Energy, 9% Automotive, 3% Extrusion, 10% Metal, 59% Rolled Products, 19% 1) Including NOK 2.5 billion in negative capital employed in “Corporate and Other” not shown in graph 18
Slide 19: Industry & market outlook
2 Industry & market outlook 19
Slide 20: 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 20
Slide 21: Key global factors
Key global factors ● Industry consolidation ● China ● Power prices ● Future aluminium price level, including carbon-pricing effects 21
Slide 22: China striving for balance
China striving for balance 600 Primary / alloyed Semis Fabricated Scrap Net ● No current subsidies on export of 400 metal and low value added products 200 0 ● Majority of export to Asian markets (200) Q1 06 Q2 06 Q3 06 Q4 06 Q1 07 Q2 07 Q3 07 est ● China expected to be balanced, (400) medium to long
Slide 23: 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 462 400 395 350 ● Current forward price levels in 300 Europe 60-70 USD/MWh (including 301 CO2-cost) 250 ● 10 USD
Slide 24: 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 25: Shift in forward curve
Shift in forward curve LME USD/tonne* 2 900 31-Dec-2006 30-Jun-2007 26-Oct-2007 2 800 2 700 2 600 2 500 2 400 2 300 2 200 2 100 2 000 1 900 2007 2008 2009 2010 2011 2012 2013 * After 63 month clearing period, forward curves are based on Hydro approximations 25
Slide 26: Aluminium Metal
3 Aluminium Metal 26
Slide 27: Key messages
Key messages ● Repositioning improves cost position ● Strong financial performance ● Favorable market ● Firm asset base ● Operational excellence ● Commitment to people, operational excellence and technology development ● Focused project implementation in Qatalum 1 and Alunorte 3 ● Maturing profitabl
Slide 28: Aluminium Metal production facilities
Aluminium Metal production facilities North America Europe: ● 114 000 mt smelting capacity in 1 smelter ● 1 457 000 mt primary smelting capacity in 8 smelters ● 369 000 mt remelt capacity in 6 remelters ● 359 000 mt remelt capacity in 6 remelters Middle East: ● Qatalum 1 smelter under construction (
Slide 29: High profitability in all businesses
High profitability in all businesses Adjusted profitability first-half 2007 (not annualized) RoaCE percent 20 10 0 Alumina & bauxite1) Primary production2) S&T and remelters3) Share of capital employed (total NOK 29 billion) 1) Adjusted for unrealized LME and currency effects of positive NOK 123 mil
Slide 30: Competitive cost position
Competitive cost position Business operating cost 2007* Business operating cash cost USD/tonne 3 000 BOC Weighted average RioTintoAlcan Alcoa Hydro (CRU) 2 600 2 200 1 800 1 400 1 000 Accumulated tonnage (000 tonnes) 600 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 * Source: CRU, 2007. B
Slide 31: Hydro smelters well positioned
Hydro smelters well positioned Neuss smelter on cash basis Business operating cash cost USD/tonne 3 000 Average: 1 624 USD/tonne Average ex. Neuss: 1 539 USD/tonne 2 600 Neuss 2 200 1 800 1 400 1 000 Accumulated tonnage (000 tonnes) 600 0 5 000 10 000 15 000 20 000 25 000 30 000 35 000 40 000 * Sour
Slide 32: Growth and restructuring efforts
Growth and restructuring efforts Improved cost position Business operating cash cost USD/tonne 3 000 Business operating cost Weighted average Hydro (CRU) Qatalum Hydro CRU incl c losed c apacity Hydro CRU incl Qatalum ex c losed c ap 2 600 Closed 250 000 tonnes capacity 2 200 in Norway and Germany (
Slide 33: Strong growth in primary production
Strong growth in primary production CAGR 2001-07: 14% 2001 2007E Share of global production: 3.3% 4.5% Share of global production (ex. China) 3.7% 7.0% 1 000 tonnes 2,000 1,800 1,600 1,400 1,200 1,000 800 600 400 200 C losed production Primary production 0 2001 2002 2003 2004 2005 2006 2007E 2011E 3
Slide 34: Reduced emissions
Reduced emissions Improvement example Kg CO2e / kg ● Achievements aluminium* 6 ● Production doubled and absolute greenhouse gas emissions in Norway 5 reduced by 1 million tonnes CO2 annually 4 ● Improved cathode designs 3 ● Improved process control and 2 Qatalum operational practices 1 0 1990 1995 2
Slide 35: Aluminium Metal Production System
Aluminium Metal Production System Global and mandatory platform for further improvements Standardized Work Processes Defined customer-supplier relations Principles Standards and Optimized flow to reduce waste common tools Dedicated teams Local implementation of common principles Visual leadership Vi
Slide 36: Casthouse products add value
Casthouse products add value Leading supplier in Europe - growing globally Own production Primary foundry alloys Extrusion ingot Remelting & recycling Wire rod Sheet ingot Commercial agreements Casthouse 36
Slide 37: Smelters and remelters close to customer
Smelters and remelters close to customer Quality, flexibility and short lead times ● Capacity in Western Europe Remelters Smelters with remelting capacity ● 1.4 mill tonnes of primary metal Products plants with remelting and ● 1.4 mill tonnes of remelting and recycling recycling capacity ● Total vol
Slide 38: Hydro's position in recycling
Hydro’s position in recycling ● Technology – competence ● Two-chamber melting furnace and rotary furnaces ● Metallurgical alloy development and scrap competence ● Capabilities to handle difficult scrap ● Rolled Products: ● 4 remelters in Europe: 300 000 tonnes ● Extrusion ingot: ● 6 remelters in Eur
Slide 39: High-grading the growth portfolio
High-grading the growth portfolio Bauxite and alumina opportunities Metal opportunities Qatalum Alumina project under expansion - Alunorte 39
Slide 40: Next-generation cell technology
Next-generation cell technology Well on its way ● With global competitive and ambitious performance targets ● Operating well above 400 kA ● Innovative design ● low specific investment cost ● low energy consumption ● leading environmental performance ● 6 cells in full operation early 2008 at the Årda
Slide 41: Long-term profitable growth
Long-term profitable growth Brownfield metal opportunities ● Norway (Karmøy): Power supply is key ● Qatar: Targeting double Qatalum capacity ● Australia: Build on existing presence Additional world-class greenfield opportunities ● Key factors ● Power cost and source ● Market and logistics ● Risk and
Slide 42: Qatalum
4 Qatalum 42
Slide 43: Experienced project organization
Experienced project organization Key success factor ● One single organization responsible for execution of all projects ● dedicated project teams ● work processes, systems and procedures ● Hydro project history in Qatar since 1970 Oseberg Field Center QVC Tyin Qafco 4 Troll C Sunndal 4 Ormen Lange 4
Slide 44: Qatalum a 50/50 joint venture company
Qatalum a 50/50 joint venture company Joint venture agreement 50% 50% z Gas supply z Technology and competence z Industrial climate z Metal marketing z Site & off-take z Project management Power plant and smelter 44
Slide 45: Qatalum location
Qatalum location Mesaieed Industrial City 45
Slide 46: Qatalum smelter
Qatalum smelter Largest greenfield capacity built in one step ● First-stage capacity ● Smelter: 585 000 tonnes per year ● 704 cells in 2 double-lined potrooms ● Hydro technology ● Anode plant and cast houses ● 1 250 MW power plant ● Possible expansion to 1 200 000 tonnes per year ● Technology design
Slide 47: Key reference project - Sunndal 4
Key reference project - Sunndal 4 ● Hydro technology used in Sunndal, further developed for Qatalum ● Project execution, start-up and operations experience implemented in Qatalum ● Personnel with experience from Sunndal key in Qatalum project 47
Slide 48: Qatalum site layout
Qatalum site layout Mesaieed Industrial City Port Cast house Pot lines Power Plant Carbon 48
Slide 49: Qatalum project schedule
Qatalum project schedule ● Heads of agreement December 2004 ● Joint venture agreement March 2006 ● Investment decision October 2006 ● Final build decision July 2007 ● Production start-up December 2009 ● Full production Mid-2010 49
Slide 50: Project execution strategy
Project execution strategy Engineering Procurement Construction (EPC) contract philosophy ● Maximize competition by involving resources and experience of several principal aluminium contractors for 11 EPC packages ● Compensation formats mainly lump-sum 50
Slide 51: Qatalum investment cost
Qatalum investment cost ● Estimate ~USD 5.6 billion (100%) ● Cost pressure for local sub-contractors ● Weakened USD ● Satisfactory project economics at LME 1 900 USD/tonne 51
Slide 52: Alumina & bauxite
5 Alumina & bauxite 52
Slide 53: Hydro well covered with alumina
Hydro well covered with alumina New refinery positions Hydro for further growth in metal Alumina coverage Percent 140% 120% 100% LME-linked contracts 80% MoU new refinery equity 60% 40% Equity 20% 0% 2007 2008 2009 2010 2011 2012 2013 2014 2015 Based on existing smelter capacity and decided smelter
Slide 54: Strong growth in alumina production
Strong growth in alumina production Hydro’s equity alumina production 1 000 tonnes 3 500 MoU new refinery Alunorte 3 000 Alpart 2 500 2 000 1 500 1 000 500 0 2001 2002 2003 2004 2005 2006 2007E 2011E 54
Slide 55: MoU for new alumina project in Brazil
MoU for new alumina project in Brazil ● MoU with the Brazilian mining group CVRD ● Important step to further expand global primary aluminium and raw materials sourcing ● Final alumina production 7.4 million tonnes per year ● Four-stage development, each 1.85 tonnes ● Investment estimate first stage
Slide 56: Bauxite equity coverage
Bauxite equity coverage Relative to primary aluminium Equity coverage Long-term contract coverage 100% 80% 60% 45% 73% 74% 74% 75% 40% 20% 55% 27% 26% 26% 25% 0% 2000 2005 2006 2007E 2010E Consumption 3.3 8.1 8.4 8.4 9.6 Production 1.8 2.2 2.2 2.2 2.4 million tonnes * Equity production: (i) Mineraca
Slide 57: Aluminium Products
6 Aluminium Products 57
Slide 58: Key messages
Key messages ● Restructuring delivered according to plan ● Strong improvement in financial results ● Reduction of workforce – 3 300 people ● Reduction fixed assets – 30% ● Five distinct businesses – all with leading positions ● Attractive markets for Hydro’s products ● Technological leadership and o
Slide 59: ROACE and capital employed 2007
ROACE and capital employed 2007 Adjusted profitability first half 2007 (not annualized) ● Capital employed 30 June 2007 NOK 17.2 billion ● Down from NOK 19.5 billion per end-2005 before restructuring ● RoaCE first half 2007 3.7% RoaCE 8 6 4 2 0 Extrusion 1) Rolled Products Automotive 2) Capital empl
Slide 60: Distinct businesses with leading positions
Distinct businesses with leading positions Diverse markets – each with strong Hydro presence Rolled Products Extrusion Automotive* (50% of revenues) (40% of revenues) (10% of revenues) Rolled Products Extrusion Eurasia Precision Tubing Extrusion Americas Automotive Structures Building Systems Report
Slide 61: Rolled products consumption
Rolled products consumption Moderate but constant growth rates in Europe Western Europe North America Asia Pacific Million tonnes Million tonnes Million tonnes 6 7 6 12% 12% 12% 6 5 10% 10% 5 10% 8% 5 8% 8% 4 4 6% 4 6% 6% 3 3 4% 4% 4% 3 2 2% 2% 2 2% 2 0% 0% 0% 1 1 -2% 1 -2% -2% 0 -4% 0 -4% 0 -4% 200
Slide 62: Peer group comparison
Peer group comparison Rolled Products market shares European market ● 80% of shipments in Europe 4.6 million tonnes Export*: 747 000 tonnes ● 8% of business in North Import*: 1 046 000 tonnes America ● 12% of business in Asia/rest of the world 16% Hydro 17% 59% 25% Other Novelis 60% 23% Market sourc
Slide 63: Rolled Products EBIT development
Rolled Products EBIT development Adjusted for special items NOK million 262 EBIT improvement in 2007 194 ● Shipments 780 000 tonnes, 144 158 4% higher than first nine 135 136 months 2006 and above market 83 development ● Margins improved by successful margin management and 2006 2007 backed by market
Slide 64: Improving performance
Improving performance Rolled Products External shipments ● Significantly improving 1 000 tonnes operational performance 1 200 1 004 940 953 1 000 780 800 ● Firm margin management 600 400 200 0 ● Margins negatively influenced 2004 2005 2006 9 months by USD development 2007 EBIT per tonne, NOK * ● Con
Slide 65: Main products and applications
Main products and applications Rolled Products 65
Slide 66: Extruded products consumption
Extruded products consumption Correction from relative high growth in 2004 Europe North America Million tonnes Million tonnes 3.5 11% 3.5 11% 9% 9% 3.0 3.0 7% 7% 2.5 5% 2.5 5% 3% 3% 2.0 2.0 1% 1% -1% -1% 1.5 1.5 -3% -3% 1.0 -5% 1.0 -5% -7% -7% 0.5 0.5 -9% -9% 0.0 -11% 0.0 -11% 2002 2003 2004 2005 20
Slide 67: Peer group comparison
Peer group comparison Extrusion – Market shares Europe North America Market size 2.9 million tonnes Market size 2.0 million tonnes Hydro 16% Alcoa/Sapa* 26% Other Other 39% 45% Alcoa/Sapa* 24% Indalex 14% Aleris 4% Bonnell Alcan Hydro Metra 6% 9% Kaiser 8% 2% 7% Figures show soft alloys, internal es
Slide 68: Extrusion EBIT development
Extrusion EBIT development Adjusted for special items NOK million ● European extruders and Building 272 Systems performing better than 245 227 2006 201 197 184 165 ● North America facing major challenges 2006 Q1 2007 Adjusted EBIT 818 673 Reported EBIT 259 610 68
Slide 69: Excellent performance in Europe
Excellent performance in Europe Segment Extrusion External shipments ● Solid market environment in 1 000 tonnes Europe for Extrusion and 600 526 Building Systems 392 400 ● Strong margin management 200 ● High capacity utilization 0 2006 9 months 2007 ● Challenging US market EBIT per tonne, NOK * 2 20
Slide 70: Main products and applications
Main products and applications Extrusion Creative Technology TRIANGEL Germany The new stairway system Profile von Profi’s.... für Profi’s SANITEC “Lisenen” system (connection of aluminium trapezoidal sheets) OTIS 70
Slide 71: Building Systems
3 strong brands Building Systems 71
Slide 72: Hydro Building Systems
Hydro Building Systems Creating energy-efficient solutions InventSkin® – part of the solution ● A façade concept made of multiple layers providing several energy- efficiency functions ● Reduces primary energy and CO2 emissions - 50% or more for heating, cooling, ventilating and lighting ● Up to 80%
Slide 73: Leading automotive positions
Leading automotive positions Precision Tubing Automotive Structures ● Strong global presence ● High expertise in aluminium crash management systems ● Strong forecast growth particularly in China and South America ● Attractive products being developed - building on process know-how ● Challenging down
Slide 74: Automotive applications
Automotive applications Precision Tubing 74
Slide 75: Product overview
Product overview Automotive Structures Sub frame components Longitudinals Crash boxes Bumper beams Bumper beams Windshield Frames Add-on frames / solutions 75
Slide 76: Automotive EBIT development
Automotive EBIT development Adjusted for special items NOK million ● Precision Tubing performance 57 45 43 improvements as planned 0 ● Automotive Structures strong focus on turnaround (49) (72) (66) 2006 2007* Adjusted EBIT (50) 8 Reported EBIT (883) 644 *Incl. Q1 contribution from Castings operatio
Slide 77: Energy
7 Energy 77
Slide 78: Key messages
Key messages ● Leverage energy competence for smelter growth ● Hydropower portfolio provides significant cash generation ● Promising Solar prospects 78
Slide 79: Competitive power sourcing
Competitive power sourcing Critical for aluminium smelting Power coverage ● Power represents 30% of production costs 100% Neuss ● Long-term power sourcing ensures 75% predictable costs Contract Contracts ● Globalization of Hydro’s power 50% activities 25% Self Generated Self generated 0% 2007 2008 2
Slide 80: Renewable production in Norway
Renewable production in Norway ● Telemark ● 6 power stations, 500 MW installed capacity ● 3.2 TWh normal production ● Basis for early industrial developments at Rjukan ● Røldal-Suldal ● 7 power stations, 580 MW installed capacity ● 2.7 TWh normal production ● Developed to supply smelter at Karmøy in
Slide 81: Generation and industrial sourcing
Generation and industrial sourcing Managed on net portfolio basis TWh TWh ● Power portfolio optimized versus ~2 Short-term Market sales 0-4 market within concession, contracts Concession power ~1 contractual and operational Long-term external 1 restrictions 9 (7-11) Own production ● Maintain power p
Slide 82: Norwegian statutory framework
Norwegian statutory framework 2.7 0.5 ● Concession bindings Telemark ● 60-year concession period from start-up No reversion 2049 ● Concession power deliveries 2.7 ● Operational and industrial “own-use” Røldal restrictions Suldal 2022 3.0 ● Interim government decree Sogn ● Decree changes 2051-2057 TW
Slide 83: Attractive partner in solar ventures
Attractive partner in solar ventures Hydro has long experience of industrialization and metallurgy ● Mono-crystalline wafers ● Plant (130 MW) under construction in Årdal ● 16% ownership ● Thin-film, roll-to-roll technology ● Pilot plant (1.5 MW) due in 2008 ● 23% ownership HyCore ● Solar grade silic
Slide 84: Third quarter results 2007
8 Third quarter results 2007 84
Slide 85: Highlights
Highlights ● Hydro established as leading aluminium company ● Operational results off from previous strong quarters ● Lower aluminium prices in NOK ● Seasonally lower volumes ● Sizeable gains from currency hedges ● Qatalum project faces cost pressures 85
Slide 86: Income from continuing operations
Income from continuing operations ”New” Hydro NOK million Gains from divestments 3 194 2 581 2 621 2 307 1 856 1 354 239 2006 2007 Accumulated 5 757 8 396 86
Slide 87: "New" Hydro income statements
”New” Hydro income statements NOK million Q3 2007 Q2 2007 Q3 2006 Revenue 22 064 25 314 24 044 Share of the profit in equity accounted investments 265 326 163 Other income, net 8 62 99 Total revenue and income 22 338 25 702 24 306 Depreciation, amortization and impairment 820 988 1 002 Other expense
Slide 88: Solid financial position
Solid financial position ”New” Hydro September 30 ● Demerger debt settled October 1 NOK billion 2007 Cash and cash equivalents 33.9 ● Redemption of State’s shares Short-term investments 2.2 ● NOK 2.8 billion in September Short-term debt (2.2) ● NOK 5.5 billion proceeds from Long-term debt (0.3) Poly
Slide 89: Aluminium Metal
Aluminium Metal ● Realized aluminium price USD 2 597 per tonne ● Primary production 435 000 tonnes, unchanged from Q2 ● Positive unrealized LME and currency effects ● Additional long-term alumina supply from Rio Tinto 89
Slide 90: Strong aluminium price
Strong aluminium price USD per tonne LME (3-month avg.) Primary aluminium LME USD/tonne 3 000 2 800 LME forward Q3 2007 average 2 605 2 600 Q3 2007 end 2 520 2 400 2 200 Q2 2007 average 2 799 2 000 Q2 2007 end 2 725 1 800 1 600 Average 2007 (first nine months) 2 717 1 400 1 200 Average 2006 (year) 2
Slide 91: Aluminium Metal EBIT
Aluminium Metal EBIT Adjusted for special items NOK million 2 399 ● Main changes from Q2 2 245 ● Lower price in NOK reduces EBIT by 2 120 1 928 NOK 285 million 1 832 1 812 1 809 ● Lower contribution from Alunorte and Søral of NOK 135 million ● Realized aluminium price ● USD 2 597 per tonne ● Flat vs
Slide 92: Qatalum faces cost pressures
Qatalum faces cost pressures ● Investment estimate (100%) ~USD 5.6 billion ● Cost pressure for sub-contractors ● Weakened USD ● Satisfactory project economics at LME 1 900 USD/tonne 92
Slide 93: Aluminium Products
Aluminium Products ● Strong European market ● Seasonally lower volumes ● Results hit by unrealized LME and metal effects ● Automotive and U.S. Extrusion results still weak 93
Slide 94: U.S. Extrusion manning reductions
U.S. Extrusion manning reductions 3 500 Full-time equivalents ● Significant manning reductions last 12 months ● Full-time equivalents: 1 245 3 000 ● Including 280 from Ellenville Extrusion closure ● Other fixed costs have been 2 500 reduced ● Additional operational 2 000 improvement measures 1 500 S
Slide 95: Aluminium Products EBIT
Aluminium Products EBIT Adjusted for special items NOK million 498 492 • Rolled Products • Adjusted EBIT NOK 136 million 398 ● Seasonally low volumes 367 288 269 260 • Extrusion ● Adjusted EBIT NOK 201 million ● Volumes at satisfactory levels • Automotive • Adjusted EBIT NOK (45 million) 2006 2007 ●
Slide 96: Energy
Energy ● Results negatively affected by weak spot prices ● Partly offset by high production ● Solar business under development ● Ascent Solar pilot plant construction start-up in October ● HyCore and NorSun investments on track 96
Slide 97: Energy EBIT
Energy EBIT Adjusted for special items NOK million ● Low spot prices 558 ● Q3 average 156.1 NOK/MWh ● Depressed prices in Southern Norway (NO1) 383 ● High production: 3.3 TWh 369 294 266 ● Net spot volumes: ~60% production 229 207 ● High reservoir levels 2006 2007 Adjusted EBIT 1 464 842 Reported EB
Slide 98: Solid Polymers net income
Solid Polymers net income NOK million 296 ● Sales volumes stable Depreciation after tax ● Strong S-PVC and P-PVC prices 226 186 164 ● No recorded depreciation from June 157 146 137 2007 as Polymers is classified as 133 held for sale 73 ● Net earnings until closing remain with Hydro according to sale
Slide 99: Outlook
Outlook Weak USD, strong NOK will have negative impact Aluminium Metal ● Continued strong primary metal market ● 83% of Q4 production sold at 2 447 USD/tonne end-Q3 ● Including full effect of strategic hedges Aluminium Products ● Strong but softening European rolled products and extrusion markets ●
Slide 100: Priorities
Priorities ● Operational excellence in all businesses ● Upstream growth opportunities to be matured ● Build on leading downstream market positions ● Further improvement initiatives in the U.S. and Automotive ● Qatalum – execute world-leading smelter project 100
Slide 101: Additional financials
9 Additional financials 101
Slide 102: Capital allocation – upstream focus
Capital allocation – upstream focus NOK billion ~80 percent of 2008 investments are 11-12 upstream Qatalum: USD 2.75 billion ● ~55 percent project financed ● Completion Q4 2009 ~6.5 Alunorte 3: USD 300 million 1.2 ● Completion Q4 2008 3.9 1.0 New alumina project: USD 300 million ● Assumed completion
Slide 103: Investment hurdles
Investment hurdles 3 000 ● LME 1 900 USD/tonne 2 800 2 600 ● NOK/USD 6.5 2 400 2 200 2 000 ● NOK/EUR 8.0 1 800 1 600 ● 8-10% IRR real after tax 1 400 ● IRR after tax above Hydro’s cost of capital when risk is accounted for in 1 200 cash flows 1 000 800 600 Investment hurdle 400 LME (3-month avg.) 20
Slide 104: Capital structure considerations
Capital structure considerations Balance sheet will be leveraged Financial ratios over the business cycle to cater for ● Funds from operations ● Growth opportunities to net debt > 40%1) ● Efficient capital structure ● Net debt to equity < 0.552) ● Measures to adjust balance sheet to be announced wit
Slide 105: Price and currency sensitivities
Price and currency sensitivities Income NOK million before tax Net income Change Aluminium price per tonne 710 510 100 USD Aluminium price per tonne excl. strategic hedges 880 630 100 USD Income NOK million before tax Net income Change USD before financial items 3 210 2 280 1 NOK USD financial items
Slide 106: Hedging policy
Hedging policy ● Hydro to remain exposed to LME prices ● Partly natural hedge through alumina contracts and power contracts ● Operational LME hedging three months forward ● Managing customers’ pricing ● Marked-to-market valuations of positions result in unrealized gain/losses ● Currency exposure, ma
Slide 107: Pensions
Pensions 31 December All funded plans well funded NOK million1) 2006 Projected benefit obligation (23 411) Main assumptions net pension Fair value of plan assets 16 564 liability Termination benefits and other (917) Net pension liability (7 764) ●Discount rate 4.5% ●Rate of compensation increase 3.4
Slide 108: Adjusted income
Adjusted income Q3 2007 NOK million Reported income Adjustments Adjusted income Aluminium Metal 2 172 (363) 1 809 Aluminium Products (247) 535 288 Energy 242 (35) 207 Corporate and other (128) 221 93 Total EBIT 2 039 358 2 397 Financial income (expense), net 1 282 (1 199) 83 Income continuing operat
Slide 109: Adjusted income
Adjusted income Q3 2006 NOK million Reported income Adjustments Adjusted income Aluminium Metal 2 365 (437) 1 928 Aluminium Products (435) 704 269 Energy 324 59 383 Corporate and other (107) (18) (125) Total EBIT 2 147 308 2 455 Financial income (expense), net (136) 257 121 Income continuing operati
Slide 110: Special items 2007
Special items 2007 9 months NOK million Q1 2007 Q2 2007 Q3 2007 2007 Closure costs Aluminium Metal 17 66 20 103 Impairment Ellenville 1) Aluminium Metal - 144 - 144 Unrealized (gains)/losses on LME contracts Aluminium Metal (272) (193) (312) (777) Unrealized (gains)/losses on power contracts Alumini
Slide 111: Special items 2006
Special items 2006 Q1 Q2 Q3 Q4 9 months Year NOK million 2006 2006 2006 2006 2006 2006 Closure costs Aluminium Metal 499 11 14 48 524 572 Impairment Ellenville 1) Aluminium Metal - - - 67 - 67 Unrealized (gains)/losses on LME contracts Aluminium Metal (422) (217) (208) 341 (847) (506) Unrealized (ga
Slide 112: Operating segment information
Operating segment information "New" Hydro Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year 9 months 9 months NOK million, IFRS 2006 2006 2006 2006 2007 2007 2007 2006 2006 2007 EBIT adjusted for special items Aluminium Metal 1 832 2 120 1 928 1 812 2 399 2 245 1 809 7 691 5 880 6 453 Aluminium Products 367 398 269 260 498
Slide 113: Operating segment information
Operating segment information "New" Hydro Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year 9 months 9 months NOK million 2006 2006 2006 2006 2007 2007 2007 2006 2006 2007 Reported EBIT Aluminium Metal 1 706 2 333 2 365 899 2 534 2 465 2 172 7 302 6 404 7 170 Aluminium Products 486 326 (435) (481) 1 315 355 (247) (104) 377
Slide 114: Operating segment information
Operating segment information "New" Hydro Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year 9 months 9 months NOK million 2006 2006 2006 2006 2007 2007 2007 2006 2006 2007 Total revenue Aluminium Metal 17 933 17 906 16 182 16 239 17 284 15 983 14 226 68 259 52 021 47 493 Aluminium Products 12 967 13 538 13 263 13 819 14 24
Slide 115: Operating segment information
Operating segment information "New" Hydro Q1 Q2 Q3 Q4 Q1 Q2 Q3 Year 9 months 9 months NOK million 2006 2006 2006 2006 2007 2007 2007 2006 2006 2007 Share of profit in equity accounted investments Aluminium Metal 233 249 385 (12) 236 323 275 854 867 834 Aluminium Products 18 30 (224) 9 14 (8) (3) (16
Slide 116: Combined income statements
Combined income statements ”New” Hydro 2007 9 months NOK million Q1 2007 Q2 2007 Q3 2007 2007 Revenue 25 905 25 314 22 064 73 283 Share of the profit in equity accounted investments 248 326 265 840 Other income, net 849 62 8 919 Total revenue and income 27 003 25 702 22 338 75 043 Depreciation, amor
Slide 117: Combined income statements
Combined income statements ”New” Hydro 2006 9 months NOK million Q1 2006 Q2 2006 Q3 2006 Q4 2006 Year 2006 2006 Revenue 26 046 25 489 24 044 23 593 99 172 75 579 Share of the profit in equity accounted investments 260 285 163 27 736 709 Other income, net 104 102 99 253 558 305 Total revenue and inco
Slide 118: Combined balance sheets
Combined balance sheets "New" Hydro NOK million September 30 2007 December 31 2006 September 30 2006 Cash and cash equivalents 33 948 6 609 16 340 Short-term investments 2 197 15 020 12 698 Accounts receivable 16 746 17 786 20 567 Inventories 12 579 14 220 14 641 Other current assets 4 118 3 862 5 7
Slide 119: Condensed combined balance sheet
Condensed combined balance sheet "New" Hydro NOK million Sep 30 2007 Jun 30 2007 Mar 31 2007 Dec 31 2006 Cash and cash equivalents 33 948 20 735 21 780 6 609 Short-term investments 2 197 6 273 14 981 15 020 Receivables and other current assets 20 864 21 862 23 209 21 648 Inventories 12 579 13 611 14
Slide 120: Condensed combined balance sheet
Condensed combined balance sheet "New" Hydro NOK million Dec 31 2006 Sep 30 2006 Jun 30 2006 Mar 31 2006 Jan 1 2006 Cash and cash equivalents 6 609 16 340 7 367 20 484 10 266 Short-term investments 15 020 12 698 12 669 3 850 3 859 Receivables and other current assets 21 648 26 297 25 739 25 842 21 4
Slide 121: Strategic LME hedge programs
Strategic LME hedge programs Q4 2007 2008 2009 2010 Volume tonnes 74 000 187 000 15 000 10 000 LME price USD/tonne 2 030 2 230 2 400 2 300 ● Q4 2007 includes a NOK/USD hedge with USD 27 million sold at 9.5 NOK/USD ● Hedges in 2007 relate to Sunndal, Germany and Slovalco ● Hedges in 2008 relate to Ge
Slide 122: Aluminium Metal – operational data
Aluminium Metal – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Volumes and prices 2007 2007 2007 2006 2006 2006 2006 2005 2005 Primary production (1 000 mt) 435 435 433 450 449 451 449 464 461 LME realized (USD/mt) including hedges 2 597 2 606 2 588 2 430 2 462 2 368 2 146 1 851 1 770 NOK/USD realize
Slide 123: Aluminium Metal financials
Aluminium Metal financials IFRS First 9 months IFRS US GAAP US GAAP NOK million 2007 2006 2005 2004 Revenue 47 493 68 259 54 579 51 957 Share of the profit in equity-accounted investments 834 854 272 281 Other income, net 69 154 - - Depreciation 1 677 2 192 1 687 3 798 EBIT2) 7 170 7 302 2 966 1 066
Slide 124: Aluminium Products – operational data
Aluminium Products – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 2007 2007 2007 2006 2006 2006 2006 2005 2005 Rolled Products external shipments 253 262 264 246 249 251 253 227 244 (1 000 tonnes) Extrusion external shipments 123 135 134 124 129 138 136 146 146 (1 000 tonnes) Automotive external ship
Slide 125: Aluminium Products financials
Aluminium Products financials IFRS First 9 IFRS US GAAP US GAAP NOK million months 2007 2006 2005 2004 Revenue 39 922 53 588 42 477 43 533 Share of the profit in equity-accounted investments 3 (168) 47 68 Other income, net 698 175 - - Depreciation 917 2 159 2 913 1 848 EBIT1) 1 423 (104) (323) 1 142
Slide 126: Aluminium Products financials
Aluminium Products financials Rolled Products, Extrusion and Automotive First 9 Q1 Q2 Q3 Q4 Q1 Q2 Q3 months NOK million, IFRS 2006 2006 2006 2006 2007 2007 2007 2006 2007 Revenue Rolled Products 5 535 5 669 5 875 6 053 6 630 6 835 6 021 23 132 19 486 Extrusion 5 095 5 377 5 207 4 722 5 497 5 470 4 8
Slide 127: Aluminium Products financials
Aluminium Products financials Rolled Products, Extrusion and Automotive Q1 Q2 Q3 Q4 Q1 Q2 Q3 First 9 NOK million, IFRS 2006 2006 2006 2006 2007 2007 2007 2006 months 2007 EBITDA Rolled Products 612 365 210 136 488 365 211 1 323 1 064 Extrusion (23) 399 270 243 366 281 304 889 951 Automotive 196 140
Slide 128: Energy – operational data
Energy – operational data Q3 Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Volumes and prices 2007 2007 2007 2006 2006 2006 2006 2005 2005 Power production, TWh 3.30 2.75 2.65 1.82 1.90 1.83 2.75 2.79 2.73 Nordic spot electricity price, NOK/MWh 156.1 182.2 218.3 370.0 482.8 348.0 364.0 254.6 234.4 South Norway spot elect
Slide 129: Energy financials
Energy financials IFRS First 9 months IFRS US GAAP US GAAP NOK million 2007 2006 2005 2004 Revenue1) 4 850 7 309 6 614 4 108 Share of the profit in equity accounted investments 2 22 10 2 Other income, net 10 12 Depreciation 72 120 142 121 EBIT2) 926 1 457 1 133 743 EBITDA 1 006 1 582 1 283 875 Inves
Slide 130: Equity accounted investments
Equity accounted investments Strong underlying earnings contribution Alunorte Søral Alunorf 1 534 293 334 977 862 826 290 240 148 565 504 173 29 332 99 907 196 624 466 505 355 279 After tax EBITDA After tax EBITDA After tax EBITDA 2005 2006 First half 2007 US GAAP IFRS IFRS 130
Slide 131: Return on capital employed – RoaCE
Return on capital employed – RoaCE 11.2% 10.2% 9.0% 7.8% 4.5% 2004 2005 2006 2006 2007 First half Jan-Jun figures are not annualized. 2004-2005 figures are US GAAP. IFRS from 2006 131
Slide 132: RoaCE by business area
RoaCE by business area Aluminium Metal Aluminium Products Energy 25.1% 18.0% 18.3% 12.2% 12.0%11.5% 11.4% 9.7% 7.9% 6.2% 3.3% 3.7% 2.7% -3.2% -0.7% 2004 2005 2006 2006 2007 2004 2005 2006 2006 2007 2004 2005 2006 2006 2007 First half First half First half Capital employed 30 June 2007 NOK 28.9 billi
Slide 133: Investor Relations in Hydro
Investor Relations in Hydro t: +47 22 53 92 80 Stefan Solberg Head of Investor Relations m: +47 917 27 528 e: stefan.solberg@hydro.com t: +47 22 53 92 24 Irene Raposo Investor Relations Assistant m: +47 414 02 174 e: irene.raposo@hydro.com For more information see: www.hydro.com/ir 133
Slide 134: www.hydro.com
www.hydro.com