Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Day (December 2002)
126 slides from Norsk Hydro Asa's investor day presentation, Dec 9, 2002
Slide 1: A performance culture
Capital Markets Day 2002 A performance culture Executive Vice President Alexandra Bech Oslo, December 9, 2002
Slide 2: Key levers for value creation
2 Key levers for value creation Portfolio Value Performance creation People 40338_3_h 2002 * 2 Hydro Media
Slide 3: A large international organisation
3 A large international organisation 50 700 employees* 60+ countries (Top ten) Others Agri 10 % 19 % Norway 14 669 Germany 6 788 USA 4 153 O&E France 3 913 8% Denmark 2 449 UK 2 156 Italy 2 141 Sweden 1 731 China 1 701 Brazil 1 120 63 % Aluminium *Per 30.09.02 40338_3_h 2002 * 3 Hydro Media
Slide 4: Improving from a strong position
4 Improving from a strong position ! Capitalising on our legacy ! Openness & flexibility ! Proactive employee and community dialogue ! Equality and respect ! Responsible business practices ! Pushing further on key issues ! Performance orientation ! Norwegian company, international employer 40338_3_h
Slide 5: People Policy for culture change
5 People Policy for culture change n g t h e n H y dro’s c y is to stre o f o u r P e o ple P o li e r s e a n d energetic T h e m ain objective o b e a d y n a mic, div n , p e r f o r m a nce “ iv e n e s s . W e w an t t u t e s t o in novatio competit o ne contr ib e r e e v e r y n wh s results
Slide 6: Key tools supporting change
6 Key tools supporting change ! Systematic leadership development and performance management ! Active use of compensation policy ! Open internal job market ! Professional change management 40338_3_h 2002 * 6 Hydro Media
Slide 7: Capitalising on our management model
7 Capitalising on our management model ! Demanding corporate owner ! Portfolio, Performance, People ! Business Areas - accountable, competing for capital ! Reducing costs and increasing service through Hydro Business Partner 40338_3_h 2002 * 7 Hydro Media
Slide 8: Aligned management compensation
8 Aligned management compensation ! Base pay ! Performance bonus ! 25% of base ! Tied to improvement targets ! Options ! 25% of base ! 3+2 years ! 12% - 20% TSR ! Ownership requirements 40338_3_h 2002 * 8 Hydro Media
Slide 9: Real change at the top
9 Real change at the top ! Generation change, New challenges and Performance drive ! 4 of 6 CMB members new since 1999 ! 12 of 16 sector managers new since 1999 ! More international ! 44% non-Norwegian sector heads vs. 12% in 1999 ! More women ! 1 sector head, 9 CMB reports, vs. 0 in 1999 ! Younger
Slide 10: Hydro Oil & Energy
Capital Markets Day 2002 Hydro Oil & Energy z Growth z Performance Executive Vice President Tore Torvund Oslo, December 9, 2002
Slide 11: Twin paths to create value
2 Twin paths to create value z Exploration and Production opportunities z Positioning in the European energy market 40374 - 11.2002 - * 2 - Hydro Media
Slide 12: Major energy player in Europe
3 Major energy player in Europe* z Norway 52% of proven oil reserves 27% of proven gas reserves 31% of hydroelectric power production 1% of population z Norsk Hydro Operate 1.2 million boe/day on NCS Hydroelectric power generation 8.5 TWh Largest energy consumer in Europe * EU15+Norway
Slide 13: Competitive production growth
4 Competitive production growth 1 000 boe/day 700 R * 8% 600 CAG 500 400 300 200 100 0 1998 1999 2000 2001 2002E 2003E 2004E 2005E 2006E Norwegian fields International SAGA acquisition SDFI acquisition * Compound Annual Growth Rate, 2001 baseline 40374 - 11.2002 - * 4 - Hydro Media
Slide 14: New fields on stream 2003-2006
5 New fields on stream 2003-2006 Hydro share boe/day Development Jasmim 4 000 International activity PDO Submittal PDO Approval/ Dalia 20 000 Sanctioning Rosa/Lirio 12 000 Start Production Kharyaga 2+3 18 000 (phase 1-3) Murzuq A-field 4 000 NCS Operator Grane 77 000 Fram Vest 15 000 Visund gas phas
Slide 15: Continued focus on cost discipline
6 Continued focus on cost discipline Outlook 2003-20061 z Investments: NOK 12 billion/year z Operating cost level2: Maintain at today’s level z Grane on track for 2003 Q3 start-up Budget reduced by 1) Excl. Exploration NOK 1 billion 2) Field Production costs + depreciation and abandonment + ne
Slide 16: Ormen Lange – planned production 2007
7 Ormen Lange – planned production 2007 O rm e n z Reserves: 375 bcm La n g e z Gas Production 15-20 billion Sm3/year z Hydro share 18% z PDO planned 2003 z Deepest water development on NCS to date z Investment Field NOK 35-40 billion Pipelines NOK 5-17 billion
Slide 17: Access to attractive acreage
8 Access to attractive acreage International Alliances: Potential projects: E&P strategy: Canada Canada Petro-Canada Hebron & Annapolis z Priority to oil prospects Angola Angola Sonangol Further z Based on NCS developments operator competencies Iran Iran NIOC Anaran z Alliance with Libya Libya regio
Slide 18: Exploration options with low future commitments
9 Exploration options with low future commitments NOK million Exploration activities outside Norway 2 000 Gulf of Mexico Canada: Flemish Canada: Scotian Shelf 1 000 Iran: Anaran Options Angola: Block 34 & 25 Canada: Grand Banks Libya: Murzuk Angola: Block 17 0 1996 1997 1998 1999 2000 2001 2002E 200
Slide 19: Discoveries made in 2002
10 Discoveries made in 2002 Country Exploration well Hydro Discovery share Canada Annapolis 25% Gas Hibernia & Terra Nova 5-15% Evaluation ongoing Libya Block 190 B1 (P-17) 20% Oil Block 186 D2 (DEL-1) 20% Oil Block 186 D3 (DEL-2) 20% Oil Angola Block 17 10% Evaluation ongoing Norway PL 050 (34/10-4
Slide 20: Substantial exploration in 2003
11 Substantial exploration in 2003 Major exploration wells NOK million Location Hydro Status share 2 500 USA – 25% 2 wells Q1, Gulf of Mexico new options 2 000 Canada – Delineation Annapolis 25% well Q4 1 500 Canada – 33% 2 wells Q1-2 Flemish Pass Iran – 100% 2 wells Q1 1 000 Anaran Angola – 30% 1 w
Slide 21: European Energy Market – offers new opportunities
12 European Energy Market – offers new opportunities Abolishment of GNC Norwegian gas Shtokman positioning Russian gas Long run marginal Liberalization process cost delivered to UK (NBP) Øre/Sm3 100 Industry 80 60 restructuring 40 20 0 Ormen Yamal- Qatargas 2 Lange Nenets Source: Wood Mackenzie (Dec
Slide 22: Strong and flexible gas position in Europe
13 Strong and flexible gas position in Europe Åsgard z Strong growth in equity Ormen Lange production z Ormen Lange – large Troll uncommitted volumes Oseberg z Access to several landing Sleipner points St.Fergus z Diversified customer portfolio Emden Bacton Sluiskil Zeebrügge 40374 - 11.2002 - * 13
Slide 23: Energy markets towards integration
14 Energy markets towards integration Supply Supply Gas E&P E&P Pipes Pipes Trading Trading Wholesale Wholesale Retail Retail Converging gas and power markets Power Supply Power generation Wires Wires Trading Wholesale Retail Hydro participates selectively in the gas and power value chains 40374 - 1
Slide 24: Commercial track record
15 Commercial track record Contribution margin – Trading NOK million z Active player at gas hubs 700 since market opening 600 500 400 z Nordpool experience in power trading 300 200 100 z Active portfolio management 0 -100 1999 2000 2001 YTD Q3 2002 Power Crude Oil & Oil Products Gas Liquids Natural
Slide 25: Hydro Oil & Energy
Capital Markets Day 2002 Hydro Oil & Energy z Growth z Performance Executive Vice President Tore Torvund Oslo, December 9, 2002
Slide 26: Strong production growth
17 Strong production growth 1 000 boe/day 510 500 470 455 430 421 ● 12% production growth 400 2001-2002 including SDFI 300 ● Production target for 2003 510 000 boe/day 200 100 0 2001 2002E 2002E 2002E 2003E January incl. December SDFI Oil Norw. shelf Oil int. Gas 40374 - 11.2002 - * 17 - Hydro Media
Slide 27: Both oil and gas production are growing
18 Both oil and gas production are growing 1 000 boe/day 700 A GR* 8% C 600 500 400 300 200 100 0 2001 2002E 2003E 2004E 2005E 2006E Oil Gas * Compound Annual Growth Rate, 2001 baseline 40374 - 11.2002 - * 18 - Hydro Media
Slide 28: F&D costs tracking down towards target
19 F&D costs tracking down towards target F&D costs excl. sale & purchase 250 20 17.5 Reserve Replacement (%) 200 F&D costs (USD/boe) 15 150 12.5 100 10 7.5 50 5 0 2.5 -50 0 1995 1996 1997 1998 1999 2000 2001 2002E2003E Res. replacement F&D (3-year roll) F&D target Reserves changed from P80 to P90 i
Slide 29: Strong performance in operations
20 Strong performance in operations Company Platform Troll C Troll B Oseberg A Oseberg East Top 25% Snorre/Vigdis Oseberg C Njord Oseberg South Visund Brage Average 0 10 20 30 40 50 0 20 40 60 80 100 NOK/boe NOK/boe Benchmark of Norway and UK Central North Sea Source: McKinsey, June 2002 40374 - 11.
Slide 30: Financial and operating targets for 2003
21 Financial and operating targets for 2003 z Production target 510 000 boe/day z Operating cost NOK 82/boe (excl. exploration) z F&D costs USD 5/boe (3 year average) z Reserves Replacement Ratio 140% (3 year average) z CAPEX level NOK 11.5 billion z Exploration level NOK 1.9 billion 40374 - 11.2002
Slide 31: Key Messages
22 Key Messages z Strong organic E&P growth CAGR of 8% extended through 2006 More projects to come on stream 2007 onwards z Substantial exploration portfolio to be tested 2003 Exploration strategy to be evaluated prior to new commitments z Building strength in liberalizing European energy mark
Slide 32: Safe harbour statement
23 Safe harbour statement In order to utilize the "Safe Harbour" provisions of the United States Private Securities Litigation Reform Act of 1995, Hydro is providing the following cautionary statement: This presentation contains certain forward-looking statements with respect to the financial condit
Slide 33: Hydro Aluminium
Capital Markets Day Hydro Aluminium Executive vice president Jon-Harald Nilsen Senior vice president Arvid Moss Oslo, December 9, 2002
Slide 34: What we said and what we have done
2 What we said and what we have done Focus areas 2002 Actions taken 2002 ! Successful integration of ! All formal structures in place VAW and Technal ! Realisation of significant ! Improvement and synergy short term improvement programs on track potentials ! Successful restructuring ! Porsgrunn prim
Slide 35: Europe: Moderate growth
3 Europe: Moderate growth Est. European rolled products shipments Est. European extrusion shipments Annual Annual change change (%) 8 (%) 8 Hydro 6 6 Hydro 4 4 4,5 4,0 3,9 2 2 2,3 2,5 0,5 0 0 -2 -3,2 -2 -3,9 -4 -4 1995-2000 2001 2002E 2003E 1995-2000 2001 2002E 2003E Source: EAA 40591_h -12.2002- *3
Slide 36: US: Low growth, recovery expected in 2003
4 US: Low growth, recovery expected in 2003 Est. US rolled products shipments Est. US extrusion shipments Annual Annual change change (%) 4 (%) 8 4,0 2 2,9 4 1,6 4,5 0 4,6 0 0 Hydro -2 -4 -4 -8 -6 -12 -8 -8,9 -16 -21 -10 -20 -12 -24 1995-2000 2001 2002E 2003E 1995-2000 2001 2002E 2003E Source: CRU 4
Slide 37: China: Primary metal balance
5 China: Primary metal balance 1000 tonnes 7 000 Production 6 000 Consumption 5 000 4 000 The Chinese challenges: ! Alumina deficit 3 000 ! Energy deficit ! Distance to market 2 000 ! Small plants/Søderberg – environmental issues 1 000 ! Financing 0 98 99 00 01 02 03 04 05 06 07 08 09 10 19 19 20 20
Slide 38: Creating value in Hydro Aluminium
Creating value in Hydro Aluminium
Slide 39: Rapid acquisition and integration processes
7 Rapid acquisition and integration processes Industry examples: Time from Hydro Aluminium announcement to closing Days ! Broad experience and diversity in the management teams Hydro/ 67 VAW Hydro/ 86 ! Kept momentum in day-to-day business Technal ! Successful execution of value capturing Alcan/ 140
Slide 40: Aluminium improvement program on track
8 Aluminium improvement program on track Workforce reduction Cost reductions Employees Magnesium Aluminium NOK million Magnesium Aluminium 1 800 3 000 1 600 2 500 1 400 1 200 2 000 1 000 1 500 800 600 1 000 400 500 200 0 0 YTD Q2 YTD Q3 Target 2002 Target 2003 YTD Q2 YTD Q3 Target 2002 Target 2003 T
Slide 41: Aluminium improvement program Raised targets
9 Aluminium improvement program Raised targets Cost reductions NOK million 3 000 2 500 2 000 1 500 1 000 500 0 YTD Q2 YTD Q3 Target 2002 Target 2003 Target 2004 Magnesium Aluminium New cost reductions 40591_h -12.2002- *9 - Hydro Media
Slide 42: Primary Metal: Cost Curve Position 2001
10 Primary Metal: Cost Curve Position 2001 2 000 Elbewerk 1 800 Hamburg Høyanger Rheinwerk Årdal 1 600 Sunndal 2004 Søral Karmøy Slovalco Cost USD/tonne Kurri Kurri 2005:Total 0.7 1 400 Alouette million tonnes Tomago (Limited increase) Hydro 2005:Total 1.0 1 200 million tonnes (+0.3 mill tons) 1 000
Slide 43: Metal Products
11 Metal Products Increased volume and lower cost in operations 100= Cost & Production Rackwitz ~23 000 tonnes per year volume 1998 250 226 227 224 182 200 Production volume 150 (index 1998=100) 100 50 100 88 89 84 77 Nominal cash cost EUR/tonne 0 (index 1998=100, Energy normalized) 1998 1999 2000 2
Slide 44: Extrusions: Increased press productivity
12 Extrusions: Increased press productivity Extrusion Europe & South America Extrusion North-America Kg/hour (index,1986=100) Kg/hour (index, European 1986=100) Productivity in acquired Productivity in acquired 180 companies at acq. point 180 companies at acq. point HAEX average HALNA average 160 16
Slide 45: Rolled Products
13 Rolled Products: Increased volume. Improved industry structure Volume Estimated market shares 2001 1 000 tonnes per year 100% = 3.2 million tonnes per year 1 000 Other Alcoa 900 14 % 14 % Total 800 700 Pechiney 17 % 600 Alcan 500 27 % Corus 400 9% Hydro Auto Aluminium 300 Litho 19 % 200 100 Foil
Slide 46: Value chain priorities: The path going forward
Value chain priorities The path going forward
Slide 47: The new strategic platform
15 The new strategic platform More downstream …. .. and Primary Metal in new areas 1000 tonnes Before VAW After Hydro VAW Electrolysis Canada metal 790 590 Oceania 14 3 Extrusion Downstream 510 120 60 740 100% 83 Europe Europe Rolled In addition to Rolling, leap forward in two areas Technal: Quantum
Slide 48: A different business: Higher capital turn, more margin
16 A different business: Higher capital turn, more margin business Sales / Gross Investments EBITDA / Sales 1,4 25 Alcoa Alcan 1,2 Pechiney Alcoa 20 Hydro 1 Alcan Pechiney Hydro 15 0,8 Percent 0,6 10 0,4 5 0,2 0 0 1997 1998 1999 2000 2001 '02 YT 1997 1998 1999 2000 2001 '02 YT Sept Sept Source: Annu
Slide 49: Key steps in Hydro Aluminium's strategy
17 Key steps in Hydro Aluminium’s strategy 1. Global upstream 2. Europe mid- and downstream 3. Outside Europe, mid- and downstream 4. Global automotive 40591_h -12.2002- *17 - Hydro Media
Slide 50: Improved smelter structure
18 Hydro Aluminium: Improved smelter structure Percent of annual production, 2001 Total production 1 384 3 538 2 033 946 1 152 1 850 696 tonnes per year 10 27 28 35 35 42 36 > 500 ktpy 78 250-500 ktpy 84 100-250 ktpy 56 24 62 49 51 0-100 ktpy 46 15 18 22 16 15 15 16 10 8 HAL HAL Alcoa Alcan Pechiney
Slide 51: The leading player in Europe
19 The leading player in Europe Key strengths Market shares Europe Metal (casthouse) Products Hydro 25 ! Unique business model ! High recognition in market Alcan ! Low cost to market Rolled Products ! Strong market positions in Hydro 19 specialized products ! High technology standard Alcan ! 50% par
Slide 52: Key strengths
20 Key strengths ■ Innovative business solutions ■ Excellence in customer cooperation ■ Industry benchmark in operation of key technologies 40591_h -12.2002- *20 - Hydro Media
Slide 53: Priorities ahead
21 Priorities ahead ■ Deliver improvement programs and value capturing as planned ■ Further enhance value of HAL-VAW integration ■ Win market share based on strengths ■ Improve relative cost position for smelter system ■ Continue active portfolio management ■ Meet 10% CROGI target 2004 (normalized p
Slide 54: Additional information
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Slide 55: Norsk Hydro organization
23 Norsk Hydro organization Norsk Hydro (Corporate) Hydro Hydro Hydro Oil & Energy Aluminium Agri Strategy & Bus. Dev CFO HR Flexible Primary Metal Metal Products Rolled Products Automotive Extrusion North America packaging* (Oslo) (Oslo) (Cologne) (Cologne) (Lausanne) (Baltimore) (Bonn) Metal segme
Slide 56: HAL is now among the top three integrated aluminium companies
24 HAL is now among the top three integrated aluminium companies Global: Companies ranked by 2001 primary production 1000 tonnes 4 000 Primary 3599 3 500 Rolled products 3 000 Extrusion 2412 2459 2504 2 500 2043 2 000 1400 1 500 975 871 1 000 833 790 750 774 696 540 500 352 131 90 0 Alcoa Rusal Alca
Slide 57: Moderate growth in primary shipments
25 Moderate growth in primary shipments- 6 % drop in 2001 Change over previous year Primary Al. apparent consumption and IP Western World 15 % 10 % 5% 0% -5 % Weighted IP W.W Al shipments W.W. -10 % 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Updated: November 2002 Source: CRU,
Slide 58: Hydro Agri
Capital Markets Day Hydro Agri Executive Vice President Thorleif Enger Oslo, December 9, 2002
Slide 59: Hydro Agri perspectives
2 Hydro Agri perspectives ● From Turnaround to industry leadership ■ Debunking myths ■ Our ability to deliver ● Hydro Agri’s unique business model and areas of global strength ● Opportunities ahead 36207_5H - 12.2002 - * 2 - Hydro Media
Slide 60: Strongly improved performance
3 Strongly improved performance CROGI % 14 12 10 8 6 4 2 0 1999 2000 2001 Actual CROGI Normalised CROGI 36207_5H - 12.2002 - * 3 - Hydro Media
Slide 61: Debunking myths
4 Debunking myths Concerns Industry facts Hydro Agri today Industry Competitive returns Leading player attractiveness European Improved outlook Regional balance performance Nitrogen Position not product Leading position attractiveness important Nitrogen cyclicality Equal other Cyclicality mitigated
Slide 62: Industry attractiveness – Competitive returns
5 Industry attractiveness – Competitive returns Average annual total shareholder return* across the business cycle (1990-2001) PCS 20.5 Agrium** 11.9 Kali & Salz 11.7 Dow Chemicals 11.5 DuPont 11.2 0 5 10 15 20 25 Annual TSR (%) * TSR = Share price appreciation + dividends to shareholders Source: BC
Slide 63: West European performance – Improved outlook
6 West European performance – Improved outlook (1999-2002) ● Total closures of 5 million tonnes of capacity (incl. IFI) ● Hydro Agri actions ■ Closed/sold 11 plants ■ Closed 12 sales offices ■ Sold around 25 businesses Greatly simplified Hydro Agri business 36207_5H - 12.2002 - * 6 - Hydro Media
Slide 64: Good regional balance and global presence
7 Good regional balance and global presence All fertilizer products Agri sales tonnes NorthAmerica Europe 25 2 million 9.8 million Million tonnes products 20 sold 2001 * 15 Asia 10 2.9 million Latin 5 America 2.8 million Africa 0 2.1 million m ro lz S C iu PC IM Sa yd gr i+ H A al K Hydro Overseas A
Slide 65: Position more important than product
8 Nitrogen attractiveness – Position more important than product Gross return on assets* 1998 YTD 3Q 2002 Agrium 17.9 Hydro Agri 14.3 Kali & Salz 15.2 Kali & Salz 11.8 PCS 14.0 Kemira 9.3 Kemira 13.0 IMC 7.6 IMC 12.2 Agrium 6.9 Hydro Agri 6.5 PCS 6.2 0 5 10 15 20 0 5 10 15 20 Percent Predominantly N
Slide 66: Hydro Agri cyclicality mitigated
9 Hydro Agri cyclicality mitigated ● Plants are not cost based swing producers ● Global market presence and product flexibility provide hedging ● Growth overseas and in speciality/ industrial applications is less exposed Target: NOK 3 billion EBITDA at bottom of business cycle 36207_5H - 12.2002 - *
Slide 67: Drivers of Hydro Agri value
10 Drivers of Hydro Agri value Drivers Effect on Gas price USA ➨ Ammonia price Ammonia price Urea price Income ➨ Grain prices ➨ Urea price European market balance ➨ Nitrate margin Market segmentation ➨ Value added margins Oil price ➨ Gas costs Europe Production volume Cost ➨ Unit cash cost Productiv
Slide 68: Reduced fixed costs and working capital
11 Reduced fixed costs and working capital Accumulated fixed cost reductions * Net working capital days** NOK million Days 3 000 120 2 500 100 2 572 105 2 362 97 99 2 000 80 87 1 500 1 730 60 1 000 40 500 20 493 0 0 1999 2000 2001 Act. 3Q 1999 2000 2001 Act. 3Q 2002 2002 * Total fixed cost reduction
Slide 69: Large productivity improvements
12 Large productivity improvements European plants Production per employee Fixed cost per tonne * (NOK) Tonnes 5 000 300 4 500 4 000 3 500 250 3 000 2 500 2 000 200 94 95 96 97 98 99 00 20 1 E 94 95 96 97 98 99 00 20 1 E 0 02 0 02 19 19 19 19 19 19 20 20 19 19 19 19 19 19 20 20 * Excluding non-recur
Slide 70: Trevo (Brazil) takeover: From bankruptcy to healthy business
13 Trevo (Brazil) takeover: From bankruptcy to healthy business Tonnes Percent 1 600 10 1 400 9 8 1 200 7 1 000 6 800 5 600 4 3 400 2 200 1 0 0 1997 1998 1999 2000 2001 2002 Sales Volume Market Share 36207_5H - 12.2002 - * 13 - Hydro Media
Slide 71: Top performance
14 Top performance Gross return on assets* YTD 3Q 2002 Hydro Agri 14.3 Air Products 13.2 Kali & Salz 11.8 BASF 11.4 DuPont 9.9 Kemira 9.3 IMC 7.6 Agrium 6.9 Dow Chemicals 6.8 PCS 6.2 0 2 4 6 8 10 12 14 16 Percent * Gross return on assets defined as EBITDA (excluding Source: company quarterly reports
Slide 72: We have a unique fertilizer position
15 We have a unique fertilizer position ● The largest player ● The only truly global company ● Balanced product portfolio (N,P,K) ● Strong sourcing power ● Unique brands 36207_5H - 12.2002 - * 15 - Hydro Media
Slide 73: Our six areas of global strength
16 Our six areas of global strength Ammonia ● Leading position Nitrates ● Leading position Balanced fertilization ● Leading position (high value crops) (NPK) Speciality fertilizers ● Leading position with SQM (cash crops) Selected industrial applications ● Leading West European position Distribution
Slide 74: Positive market outlook
17 Positive market outlook ● Growth in fertilizer consumption ■ Cereal stocks diminishing rapidly ■ Increasing grain prices last months ■ Historically, fertilizer prices correlate well with grain prices ● Limited new capacity globally next 2-3 years ● Global supply/demand balance looks good 36207_5H
Slide 75: World urea supply/demand balance
18 World urea supply/demand balance Million tonnes USD/mt 5.0 235 4.0 215 3.0 195 2.0 175 1.0 155 0.0 135 -1.0 115 -2.0 95 -3.0 75 -4.0 55 -5.0 35 2002E 2003E 2004E 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 Consumption growth minus added capacity Price fob Middle East Source: CRU, Ferte
Slide 76: Possible opportunities and threats
19 Possible opportunities and threats Opportunities ● Increased exports to China and India ● Russian WTO membership expected to establish gas prices reflecting real costs ■ Reduce Government impact ■ Intermediate EU antidumping measures linked to gas price Threats ● Improved US cost position ● Impor
Slide 77: Future growth opportunities
20 Future growth opportunities ● Organic growth ■ Continued productivity improvements in our plants ■ Scale and synergy effects in our global logistics and marketing network ● Potential opportunities ■ North America (nitrogen) ■ Low cost ammonia capacity (Trinidad, Middle East...) ■ Distribution cha
Slide 78: Key messages
21 Key messages ● Market outlook positive ● Unique business position ● Global leadership in key strategic areas ● Industry leadership after Turnaround ● Strong platform for profitable growth 36207_5H - 12.2002 - * 21 - Hydro Media
Slide 79: Additional Information
Additional Information
Slide 80: Hydro Agri – indicative sensitivities
23 Hydro Agri – indicative sensitivities EBITDA CROGI NOK million % points Urea + 10 USD/t 170 0.33 CAN + 10 USD/t * 500 0.97 Oil price + 1 USD/bbl - 110 - 0.21 Currency + 0.1 NOK/USD 60 0.12 * Reference price for nitrogen sales in Europe CAN prices are influenced by urea Underlying assumptions: Oil
Slide 81: Position and strength reduce the impact of cyclicality on results
24 Position and strength reduce the impact of cyclicality on results EBITDA Backcast, 2001 Base year NOK million 9 000 8 000 7 000 6 000 5 000 4 000 3 000 2 000 1 000 0 1996 1997 1998 1999 2000 2001 "Agri 2001" EBITDA Agri EBITDA Actual "Agri 2001" average Actual average Backcast is estimated perfor
Slide 82: Qafco – a successful ammonia/urea investment
25 Qafco – a successful ammonia/urea investment Return on Equity (ROE) ● Qatar Fertilizer Company, one of the most cost efficient 35% nitrogen plants in the world. 30% ● Hydro ownership 25% 25% ● Hydro marketing agreement of 0.6 million tonnes 20% (1.4 million tonnes)* urea p.a. 15% 10% 5% 0% 1993 1
Slide 83: Market leadership – and balanced sales
26 Market leadership – and balanced sales 2001 sales 135.8 million tonnes* 7.5 million tonnes* 100% Potash (K) Potash (K) 80% Phosphate (P) Phosphate (P) 60% 40% 20% Nitrogen (N) Nitrogen (N) 0% Global fertilizer Hydro sales consumption Average global Hydro market share ~ 6% * Nutrient tonnes Source
Slide 84: Growth in non-European markets
27 Growth in non-European markets Est. 2002 Agri sales overseas Sourcing higher than sales in Europe Million tonnes 14 25 12 20 10 Europe 15 J/V and key suppliers 8 6 Overseas 10 4 Own production 5 2 0 0 1991 1993 1995 1997 1999 2001 1991 1993 1995 1997 1999 2001 36207_5H - 12.2002 - * 27 - Hydro Me
Slide 85: Increased focus on growth markets
28 Increased focus on growth markets 100% 80% Growth markets European fertilizer 60% operations 40% 20% 0% EBITDA Capital base 36207_5H - 12.2002 - * 28 - Hydro Media
Slide 86: Historical and average fertilizer prices
29 Historical and average fertilizer prices Ammonia CAN Germany Fob Caribbean Bulk delivered warehouse USD/tonnes USD/tonnes 250 250 200 200 150 150 100 100 50 50 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 Urea DAP Bulk fob Middle East Bul
Slide 87: European nitrate prices influenced by global urea price
0 100 200 300 400 500 600 700 Jan. -88 USD/mt N Jul. -88 Jan. -89 Jul. -89 CAN Ger Jan. -90 Jul. -90 Jan. -91 Jul. -91 Jan. -92 Jul. -92 Jan. -93 Urea fob ME Jul. -93 Jan. -94 Jul. -94 Jan. -95 Jul. -95 Jan. -96 Jul. -96 Jan. -97 Jul. -97 Jan. -98 Jul. -98 Jan. -99 Jul. -99 Jan. -00 influenced by th
Slide 88: Fertilizer prices linked to grain prices
31 Fertilizer prices linked to grain prices - USD/bushel corn USD/tonne urea 6 300 5 250 4 200 3 150 2 100 1 50 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002E 2004E Corn Chicago cash Urea fob ME Predicted urea price trend Source: Blue-Johnson, CBT 36207_5H - 12.2002 - * 31 - Hydro
Slide 89: Grain prices increasing
32 - grain prices increasing USD/mt Wheat ( fob US Gulf ) Corn ( fob US Gulf ) 250 200 150 100 50 0 Jul. 97 Jan 98 Jul. Jan 99 Jul. Jan 00 Jul. Jan 01 Jul. Jan 02 Jul. Source: International Grain Council 36207_5H - 12.2002 - * 32 - Hydro Media
Slide 90: Ammonia Value Chain (2001)
33 Ammonia Value Chain (2001) Ammonia use Third Party Urea purchase 26% 1.0 deficit Ammonia and Nitrate 1.4 integrated 53% ATS* production plants 3.8 pool 2.5 (own production + JV Trinidad) surplus NPK 2.1 18% Ammonia sale Industrial Application 3% * Ammonia Trade & Shipping 36207_5H - 12.2002 - * 3
Slide 91: Fertilizer Value Chain (2001)
34 Fertilizer Value Chain (2001) Production Global Supply Distribution & Sales Chain Optimization Own Products 10.8 Europe Key Accounts Business ● Sourcing Units (10) 1.2 19.6 20.2 JV Products ● Allocation & ● Logistics Front Offices (60+) Spot sales Third Party 7.6 Products 36207_5H - 12.2002 - * 3
Slide 92: Product Value Chain
35 Product Value Chain Finished Products Intermediate Raw materials products Main Other Ammonia/nitric Natural Gas/Air (N) Urea acid ● Nitrates ● Compounds NPK Rock (P) Phosphoric acid DAP ● Straights ● Blends Salts (K) - MOP 36207_5H - 12.2002 - * 35 - Hydro Media
Slide 93: References for analysis of fertilizer markets
36 References for analysis of fertilizer markets ● News, price references and short term developments ( 1 - 2 months ) ■ The Market www.decyfer.com ■ Fertilizer Week www.britishsulphur.com ■ Fertecon www.fertecon.com ■ FMB www.fmb-group.co.uk ■ Green Markets (USA) http://greenmarkets.pf.com ● Medium
Slide 94: Hydro Agri structure
37 Hydro Agri structure EVP Hydro Agri Thorleif Enger Chief Operating Finance & Strategy Human Resources Treka Officer Hallgeir Storvik Harald Aasheim Jan Stranges Daniel Clauw 36207_5H - 12.2002 - * 37 - Hydro Media
Slide 95: Financial Issues
Capital Markets Day 2002 Financial Issues Executive Vice President and CFO John Ottestad Oslo, December 9, 2002
Slide 96: Creating shareholder value
2 Creating shareholder value Portfolio Shareholder Performance value People 40338_2 - 12. 2002 - *2 - Hydro Media
Slide 97: CROGI – our key measure of return
3 CROGI – our key measure of return z CROGI – cash return on gross investment EBITDA less tax Gross invested capital z CROGI at normalized prices Indicator for average performance over the cycle Target 10% z CROGI as a management tool Measures effects of internal improvement efforts Gives th
Slide 98: CROGI development
4 CROGI development Normalized % Realized Target z Normalized assumptions: 14 12.5 NOK/USD 8.00 12 NOK/EUR 7.60 Brent bbl $18 10 9.4 8.7 8.5 9 CAN27 tonne $113 8 8 7.8 LME 3M tonne $1 500 6 Restructuring charges and gain/loss on divestments 4 excluded in normalized 2 CROGI 0 z Volumes an
Slide 99: CROGI per business area
5 CROGI per business area Actual and normalized prices 16% Oil & Energy Aluminium Agri Normalized 14% 12% 10% 8% 6% 4% 2% 0% 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 1997 1998 1999 2000 2001 40338_2 - 12. 2002 - *5 - Hydro Media
Slide 100: Capital expenditures
6 Capital expenditures NOK billion 25 20 Exploration 15 Other Agri 10 Aluminium Oil & Energy 5 0 2002 CMD 2002 estimate 2003 plan 2002: VAW and SDFI acquisitions not included 40338_2 - 12. 2002 - *6 - Hydro Media
Slide 101: Acquisitions 2002
7 Acquisitions 2002 z VAW Aluminium – a transforming transaction Cash and debt: NOK 20.4 billion Pension liabilities: NOK 3.2 billion z SDFI – strengthening position in core areas Cash: NOK 3.5 billion z Technal – creating world leader in building systems Cash and debt: NOK 870 million z All
Slide 102: Divestments
8 Divestments NOK billion 20 z On track to reach divestment 18 target of NOK 10 billion by 1999-2001 2002-2003 end of 2003 16 14 z Signed deals in 2002 12 KFK grain and feedstuff 10 Flexible Packaging 8 Other 6 4 z 2001 EBITDA for divested 2 assets approximately NOK 600 million (pro forma) 0 t
Slide 103: Debt / equity
9 Debt / equity Ratio 0.71 0.7 0.6 0.5 0.41 0.43 0.4 0.28 0.3 0.2 0.1 0 1999 2000 2001 30.09.02 Net interest-bearing debt divided by shareholders' equity plus minority interest 40338_2 - 12. 2002 - *9 - Hydro Media
Slide 104: Commodity and currency exposure
10 Commodity and currency exposure z Aluminium Full exposure to market prices Exception: Sunndal expansion metal partly sold forward * z Oil and fertilizers Full exposure to market prices z Currency Funding used to hedge income * Subject to hedge accounting, full details in Annual Report 200
Slide 105: Indicative P&L sensitivities 2003
11 Indicative P&L sensitivities 2003 NOK million Price sensitivity Pre tax After tax OIL price sensitivity, O&E 1 300 350 $1 increase OIL price sensitivity, Agri (110) (80) $1 increase OIL price sensitivity 1 190 270 $1 increase LME price sensitivity, Aluminium 830 580 $100 increase CAN price sensit
Slide 106: Pension costs
12 Pension costs z Estimated 2002 pension cost NOK 1.6 billion, compared to NOK 1.5 billion last year z 2003 pension cost is expected to increase due to Increased pension obligations Reduction in expected return on pension plan assets Amortization of unrecognised prior service cost and net los
Slide 107: Financial priorities
13 Financial priorities z Operational performance z Capital discipline z Meet NOK 10 billion divestment target z Maintain financial strength 40338_2 - 12. 2002 - *13 - Hydro Media
Slide 108: Additional information
Additional information
Slide 109: Main financial targets
15 Main financial targets z Annual performance Cash return on gross investment – CROGI Nominal after tax, normalized prices 10% z Investment criteria Real IRR after tax 10% (Oil $14/bbl, Aluminium $1 400/tonne, USD/NOK 8.00) z Dividend Share of net income, average over cycle 30% z Solidity Net inter
Slide 110: Pensions
16 Pensions 31.12.2001 NOK million 2002 development Obligations - funded plans 14 306 z Pension obligations increase - unfunded plans 3 314 17 620 Compensation increase higher than assumed Pension Plan Assets – funded plans 16 876 Reduction in long-term interest Funded status of the plan (744) r
Slide 111: Estimated pension cost 2002
17 Estimated pension cost 2002 NOK million 1. Service costs 600 2. Interest costs on obligations: 17 620 * 7% 1 230 3. Expected return on assets: 16 876 * 8% (1 350) 4. Amortizations (of gain/loss and prior service costs) 200 5. Curtailment loss and other 70 Net periodic pension costs 750 Terminatio
Slide 112: Norsk Hydro ASA Capital Markets Day 2002
Norsk Hydro ASA Capital Markets Day 2002 President and CEO Eivind Reiten Oslo, December 9, 2002
Slide 113: Today's main messages
2 T o d a y ’s m a i n m e s s a g e s ! We deliver on our commitments ! 2003 plans show performance improvements under unchanged market conditions ! Active portfolio management to continue ! Attractive potential in all three Business Areas 40338_1 - 12.2002 - *2 - Hydro Media
Slide 114: Key levers for value creation
3 K ey levers for value c reat ion Portfolio Value Performance creation People 40338_1 - 12.2002 - *3 - Hydro Media
Slide 115: We deliver: Active portfolio management
4 We d e l i v e r : A c t i v e p o r t f o l i o m a n a g e m e n t ! Strategic acquisitions " VAW Aluminium " Technal " SDFI ! Divestments – more than NOK 6 billion " KFK assets " Flexible Packaging " Oil and gas assets ! Major investment projects on track " Grane, Sunndal, Alunorte, Qafco 40338
Slide 116: Strengthening the core businesses
5 St r e n g t h e n i n g t h e c o r e b u s i n e s s e s DFFII D SSD Dyynno GGAA BBi o SSAA ioop poo llyy m me errs M s Go S Seeaaffo Oil Oil and and UK U Oiill KO oood Others d Others Energy nd aan Gaass dG Energy un Allu A orrttee no Aluminium Aluminium Agri Agri Trevo a ck l e xP K F yn oc KK
Slide 117: We deliver: Maintained financial strength
6 We d e l i v e r : M a i n t a i n e d f i n a n c i a l s t r e n g t h Ratio 0.71 0.7 0.6 0.5 0.43 0.41 0.4 0.28 0.3 0.2 0.1 0 1999 2000 2001 30.09.02 Net interest-bearing debt divided by shareholders' equity plus minority interest 40338_1 - 12.2002 - *6 - Hydro Media
Slide 118: We deliver: CROGI target
7 We d e l i v e r : 2 0 0 2 CROGI t a r g e t Normalized CROGI 10% Target 9% 9% Normalized to reflect 8% 8% long-term commodity 7% prices and a stable 6% exchange rate – 5% not normalized for 4% volumes and margins 3% 2% 1% 0% 2000 2001 2002 * Cash Return on Gross Investments 40338_1 - 12.2002 - *7
Slide 119: We deliver: Safety performance
8 We d e l i v e r : Sa f e t y p e r f o r m a n c e Reported injuries per million hours, Hydro employees 45 40 35 30 25 20 15 10 5 0 1996 1997 1998 1999 2000 2001 Q1 Q2 Q3 Oct Target end 2002 VAW 40338_1 - 12.2002 - *8 - Hydro Media
Slide 120: Share price performance
9 Sh a r e p r i c e p e r f o r m a n c e 460 440 420 400 380 360 340 NHY 320 300 280 260 240 220 OSEBX 200 180 2001-01-09 2001-04-09 2001-07-08 2001-10-06 2002-01-04 2002-04-04 2002-07-03 2002-10-01 2002-12-30 Source: Reuters 40338_1 - 12.2002 - *9 - Hydro Media
Slide 121: Challenging market environment
10 Ch a l l e n g i n g m a r k e t e n v i r o n m e n t ! Delayed global economic recovery " Europe weak – particularly Germany " US recovery with doubtful strength " Political uncertainty may slow down recovery further ! High, but volatile oil prices, weak aluminium market, fertilizer prices belo
Slide 122: Oil and Energy: Strong production growth
11 Oi l a n d En e r g y : St r o n g p r o d u c t i o n g r o w t h ! 2002 production target being met; new target for 2003 is 510 000 barrels per day ! Target of 8% average annual growth confirmed and extended one more year to 2006 ! On track to meet F&D cost target of 5 dollars per barrel in 200
Slide 123: Aluminium: Value creation through better performance
12 Alum inium : Value c reat ion t hrough bet t er perform anc e ! Creating a world class company by successfully integrating two strong organizations ! Extensive improvement efforts lead to higher cost reduction targets " End 2003 target up from EUR 200 to 250 million ! Major investment projects on
Slide 124: Agri: The industry leader
13 Agri: The indust ry leader ! Building on position as global leader in selected industry segments ! Continue productivity improvements ! Remain alert to opportunities created by industry consolidation 40338_1 - 12.2002 - *13 - Hydro Media
Slide 125: CROGI target for 2003
14 CROGI t a r g e t f o r 2 0 0 3 Normalized CROGI 10% Target 9% 9% ! Higher oil and gas 8% production 8% 7% ! Aluminium improvement 6% programme 5% 4% ! Agri leveraging strong 3% market positions 2% ! Divestment of under- 1% performing assets 0% 2000 2001 2002 2003 * Cash Return on Gross Investmen
Slide 126: Moving forward
15 Moving forw ard ! Delivering on 2002 return target; higher target set for 2003 ! Significant potential in all three Business Areas " Oil and Energy: Several years of high production growth " Aluminium: Improved performance as world class player " Agri: Leveraging strong market positions ! Continu