Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (September 2006)
37 slides from Norsk Hydro Asa's investor day presentation, Sep 28, 2006
Slide 1: Capital Markets Day 2006
Capital Markets Day 2006 www.hydro.com 2006-09-28
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: Use of non-GAAP financial measures / Cautionary note on oil and gas reserves
Use of non-GAAP financial measures/ Cautionary note in relation to oil and gas reserves With respect to each non-GAAP financial measure Hydro uses in connection with its financial reporting and other public communications, Hydro provides a presentation of what Hydro believes to be the most directly
Slide 4: Eivind Reiten
Eivind Reiten President and CEO 4
Slide 5: Strategy for future growth
Strategy for future growth z Build on strong position in industries with attractive market outlook z Manage cost inflation challenges in both industries z Grow our resource base in oil and gas - Strengthened resource base - Continued high exploration and selective acquisitions - Robust production an
Slide 6: Strong and volatile price environment
Strong and volatile price environment Oil price in USD/bbl Aluminium price in USD/tonne 80 Brent FOB Dated LME (3 month avg.) 3 000 Brent forward LME forward 70 2 800 2 600 60 2 400 50 2 200 40 2 000 1 800 30 1 600 20 1 400 10 1 200 2000 2002 2004 2006 2008 2010 2000 2002 2004 2006 2008 2010 Source:
Slide 7: 5-year forward price at record-high levels in 2006
5-year forward price at record-high levels in 2006 USD/tonne 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 2003 2004 2005 2006 7
Slide 8: Maneuvering in a more difficult landscape
Maneuvering in a more difficult landscape 8
Slide 9: Hydro has what it takes
Hydro has what it takes z World-class technology and competence z Proven high-quality operations z Cooperation tradition – Hydro and Norway - Commercial partnerships - Experience in cooperating with local and national authorities and communities z Strong positions in key basins z Systematic risk man
Slide 10: Increasing industry cost
Increasing industry cost Dayrates ultra deepwater drilling rigs Average fixture rates Steel prices USD/day Index (1994=100) 400 000 200 300 000 150 200 000 100 100 000 50 0 0 2001 2002 2003 2004 2005 2006 2001 2002 2003 2004 2005 2006 Sources: Fearnley Offshore (rig rates), CRUspi.com (Steel prices)
Slide 11: Hydro's cost increase well below industry average
Hydro’s cost increase well below industry average Hydro versus industry peer group* z Rig rates up more than 200 percent since 2004 Index based on USD/boe operating cost**, 2001 = 100 200 z Steel up 80 percent since 2003 Industry peers z Drilling services up 50 percent Hydro since 2005 150 z Logisti
Slide 12: Distinct project skills more valuable than ever
Distinct project skills more valuable than ever Gimboa Ormen Lange Sunndal Qatalum 12
Slide 13: Climate change – the biggest challenge of all
Climate change – the biggest challenge of all 13
Slide 14: Performance update
ft a Performance update
Slide 15: Key messages last year
Key messages last year z Hydro - Maintain financial strength - Build on technological and operational leadership z Oil & Energy - Profitable production growth - Strengthen resource base z Aluminium - Prioritize upstream investments and repositioning - Reduce downstream exposure – focus on cash gener
Slide 16: Safety improving
Safety improving Total reported injuries per million working hours (TRI) Rate 15 10 5 0 2000 2001 2002 2003 2004 2005 2006* * 12 month rolling Oct 2005-Oct 2006 16
Slide 17: Improved returns
Improved returns Return on average capital employed – RoaCE 16.8% 14.9% 14.4% 13.0% 8.4% 2003 2004 2005 2005 2006 Jan-Sep Jan-Sep Jan-Sep figures are not annualized 17
Slide 18: RoaCE by business area
RoaCE by business area First nine months 2006 18.4% 15.9% 0.9% Oil & Energy Aluminium Metal Aluminium Products Figures are not annualized 18
Slide 19: Competitive share price development
Competitive share price development 1 January 2004 to 31 December 2005 1 January to 1 December 2006 Statoil 111% ExxonMobil 37% BG Group 101% BG Group 36% Hydro 95% Chevron 29% ConocoPhillips 85% RepsolYPF 22% RepsolYPF 55% Statoil 22% ENI 50% Hydro 20% ExxonMobil 44% Alcan 19% Total 39% ENI 18% Che
Slide 20: Competitive payout to shareholders
Competitive payout to shareholders Payout ratio – dividend and buyback 58% Dividend Share buyback 45% 31% 31% 20% 2002 2003 2004 2005 2006 Jan-Sep Dividend allocated to the year for which the dividend was paid. Buyback allocated to the year when the buyback transactions were executed. 20
Slide 21: Competitive payout to shareholders
Competitive payout to shareholders Dividend and share buyback relative to net income 1 January 2004 to 31 December 2005 Alcan 110% BP 81% ExxonMobil 67% ENI 55% Total 53% Statoil 53% Hydro 51% Shell 51% Chevron 45% Alcoa 43% ConocoPhillips 24% RepsolYPF 20% Dividends Buyback BG Group 17% 0% 25% 50%
Slide 22: Active portfolio management 1999-2006
Active portfolio management 1999-2006 Acquisitions and divestments 1999-2006 Enterprise value NOK billion Acquisitions Saga Petroleum (1999) 31 VAW (2002) 24 Spinnaker Exploration (2005) 16 Wells, Technal and SDFI (2001-2002) 6 Total acquisitions 77 Divestments Yara International (2004) *21 Various
Slide 23: A more focused portfolio
A more focused portfolio Capital employed NOK 109 billion Net book value of Oil & Aluminium Aluminium assets 31 Dec 2005 Other Energy Metal Products Growth NOK 56 billion Upstream repositioning NOK 27 billion and growth Cash generation NOK 19 billion NOK 6 billion and divestments 23
Slide 24: Hydro Polymers – listing or divestment being considered
Hydro Polymers – listing or divestment being considered z Solid turnaround delivered z EBITDA first nine months 2006 NOK 795 million z Competitive position strengthened through chlorine and ethylene investments at Rafnes, Norway z Positive outlook 24
Slide 25: Capital allocation – upstream focus
Capital allocation – upstream focus NOK billion 43 21.9 * 2007-2010 z Oil & Energy - Projects on track 30 30 Approx. 28 - High exploration activity NOK 30 billion annually 4 2.5 5 6 5.5 z Aluminium - Priority upstream 20 19 18 2.6 13.5 2005 2006P 2006E 2007P Oil & Energy Exploration Aluminium Metal
Slide 26: Additional information
ft a Additional information
Slide 27: Capital allocation 2007-2010
Capital allocation 2007-2010 Annual investments approximately NOK 30 billion 35 Aluminium investments E&P: Committed investments Uncommitted investments E&P: Exploration expenditure 30 25 NOK 55-60 billion in uncommitted/non-sanctioned investments and annual exploration expenditure of NOK 5 5-6 bill
Slide 28: 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 29: Investment criteria
Investment criteria z Oil price USD 35 per barrel z Aluminium price USD 1 700 per tonne z NOK/USD 6.5 z NOK/EUR 8.0 z Hurdle rate 8-10% IRR real after tax - IRR after tax above Hydro’s cost of capital when risk is accounted for in cash flows 29
Slide 30: RoaCE by business area
RoaCE by business area Oil & Energy Aluminium Metal Aluminium Products 26.2% 23.4% 24.7% 18.4% 16.2% 15.9% 11.6% 7.7% 7.9% 8.1% 4.5% 4.0% 3.3% 2.9% 1.7% 0.9% -0.3% -2.4% 2002 2003 2004 2005 2005 2006 2002 2003 2004 2005 2005 2006 2002 2003 2004 2005 2005 2006 Jan-Sep Jan-Sep Jan-Sep Jan-Sep figures
Slide 31: Sources and uses of cash
Sources and uses of cash NOK billion 2.6 0.0 5.0 3.4 1.5 11.8 0.3 2.8 3.2 19.3 8.0 1.6 16.4 5.5 2.7 9.1 3.7 0.5 41.8 3.1 Dividends 4.9 2.0 Buyback 2.4 27.7 27.4 Debt (net) 22.8 Acquisitions 19.1 17.7 18.4 Investments 15.2 17.0 14.7 Disposals* Operations Sources Uses Sources Uses Sources Uses Sources
Slide 32: Increasing payout to shareholders
Increasing payout to shareholders Dividend policy: 30 percent payout over time NOK million Dividend Buyback 1 589 1 684 5 506 5 021 1 599 1 155 3 619 763 555 2 711 2 811 2 470 2 576 2 094 1 604 1 718 1 718 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 Jan-Nov Dividend allocated to the year
Slide 33: Field development portfolio
Field development portfolio Generating above 200 000 boed at peak Hydro share Start year Field name at peak rate Peak year Country Type Operator 2006 Dalia 21,000 2008 Angola Oil Total 2007 Ormen Lange 70,000 2010 Norway Gas/Cond Hydro Rosa 14,000 2008 Angola Oil Total Independence Hub Area 11,500 2
Slide 34: 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) 34
Slide 35: 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 35
Slide 36: Investor Relations in Hydro
Investor Relations in Hydro 36
Slide 37: 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