Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Q2 2006 Earnings Presentation
71 slides from Norsk Hydro Asa's earnings presentation, July 2006
Slide 1: Second quarter 2006
Second quarter 2006 www.hydro.com
Slide 2: Highlights – second quarter
Highlights – second quarter z Continued strong earnings z Record-high oil and aluminium prices z Solid earnings for aluminium upstream and Extrusion z Good cost control in a challenging market z Strong financial position 2
Slide 3: Income from continuing operations
Income from continuing operations* By quarter 5 869 NOK million Gains from divestments 5 394 4 183 4 186 3 638 3 693 3 577 3 135 2 991 2 481 2 224 2 005 1 851 1 809 2003 2004 2005 2006 Accumulated 8 656 11 477 15 638 11 263 * Changes in accounting principles for 4th quarter 2005 resulted in a negati
Slide 4: Consolidated income statements
Consolidated income statements NOK million Q2 2006 Q1 2006 Q2 2005 Operating revenues 51 435 55 416 42 119 Operating income 14 640 17 867 11 255 Non-consolidated investees 372 316 246 Financial income (expense), net 919 759 (558) Other income (loss), net - - 233 Income before tax and minority intere
Slide 5: Adjusted EBITDA
Adjusted EBITDA NOK million 22 769 19 337 17 108 17 000 15 852 15 533 13 546 13 210 12 266 12 094 11 045 9 935 9 451 8 197 2003 2004 2005 2006 Accumulated 38 628 51 116 65 493 42 106 5
Slide 6: Oil & Energy – key figures
Oil & Energy – key figures Operational data Q2 2006 Q1 2006 Q2 2005 Oil and gas production (1 000 boe/day) 537 610 539 Realized oil price, USD/bbl 67.90 60.60 49.80 Realized oil price, NOK/bbl 422.20 403.50 317.90 Realized gas price, NOK/Sm³ 1.79 2.16 1.31 Exploration expense, NOK million 618 1 407
Slide 7: Aluminium activities – key figures
Aluminium activities – key figures Operational data Q2 2006 Q1 2006 Q2 2005 Realized aluminium price, USD/mt 2 368 2 146 1 842 Realized NOK/USD 6.38 6.87 6.61 Realized aluminium price, NOK/mt 15 107 14 743 12 176 Primary aluminium production, 1 000 mt 451 449 457 Operating income, NOK million Q2 200
Slide 8: Operating income
Operating income NOK million Q2 2006 Q1 2006 Q2 2005 Exploration and Production 11 654 13 102 9 049 Energy and Oil Marketing 1 170 967 660 Eliminations 344 57 (262) Oil & Energy 13 168 14 126 9 447 Aluminium Metal 1 620 2 040 1 166 Aluminium Products 301 452 210 Other Activities 221 114 109 Corporat
Slide 9: Adjusted net debt/equity ratio
Adjusted net debt/equity ratio 0.50 0.38 0.31 0.21 0.11 2003 2004 2005 2006 30-jun-06 30 June Interest-bearing debt + net pension liability (tax adjusted) + operating lease commitments (discounted) – cash and cash equivalents – short- term investments divided by shareholders’ equity + minority inter
Slide 10: Oil & Energy – highlights
Oil & Energy – highlights z Record oil price realized – USD 67.9 per boe z Oil and gas production – 537 000 boed z 8 new discoveries z Additional rig capacity secured z Ormen Lange/Langeled on track – 75 percent complete* * 30 June 2006 10
Slide 11: Petroleum production per quarter
Petroleum production per quarter 1 000 boe/day Oil Gas 615 610 596 591 584 589 569 552 539 541 537 514 484 489 166 173 147 176 156 178 142 184 208 442 123 154 112 116 430 422 169 415 406 405 402 396 391 385 399 372 373 368 2003 2004 2005 2006 Average 530 572 563 573 11
Slide 12: Oil & Energy – operating income
Oil & Energy – operating income NOK million Eliminations 14 126 Energy and Oil Marketing 13 168 Exploration and Production 12 624 11 537 9 842 9 447 8 621 7 818 7 521 7 184 6 175 5 994 5 322 3 652 2003 2004 2005 2006 Accumulated 21 143 31 144 43 451 27 294 12
Slide 13: Production costs per barrel
Production costs per barrel NOK/boe Gas injection cost Production cost excluding gas injection 29.7 25.3 7.1 20.7 20.7 5.4 0.7 2.8 22.6 20.0 17.9 19.9 2003 2004 2005 2006 YTD Production in million boe 194 209 206 104 13
Slide 14: High exploration activity
High exploration activity z 60 wells planned in 2006 - Norway 20-25, US GoM 15-20, Libya 10-15, Other 5-10 z 25 wells completed in first half 2006 - 6 wells drilling by end of Q2 z 14 discoveries in first half 2006 – 56% success rate z Activity of NOK 2.6 billion in first half 14
Slide 15: Oil & Energy – prospects
Oil & Energy – prospects z High oil and gas prices z 2006 production target: 585 000 boed z Extensive exploration activity 15
Slide 16: Aluminium Metal – highlights
Aluminium Metal – highlights z Strong financial performance z Realized aluminium price USD 2 368 per mt z Production maintained despite closures at Hamburg and Høyanger z Alunorte 2 alumina expansion completed z Agreement to divest industrial site in Stade 16
Slide 17: Aluminium price
Aluminium price USD per metric tonne LME (3 month avg.) 3 000 LME forward Primary aluminium USD per London Metal Exchange metric tonne 2 800 Q2 2006 average 2 681 Q2 2006 end 2 630 2 600 2 400 Q1 2006 average 2 444 Q1 2006 end 2 471 2 200 2 000 Average 2005 1 900 1 800 1 600 1 400 1 200 2000 2002 20
Slide 18: Aluminium Metal – operating income
Aluminium Metal – operating income NOK million Sourcing & Trading (S&T) 2 040 z Primary production 451 000 mt Unrealized LME effects 203 1 620 480 Aluminium Metal (excl. unrealized LME effects and S&T) 181 z High aluminium prices 1 588 1 166 1 068 12 1 357 174 458 z Increased raw material and 1 061
Slide 19: Aluminium Metal – prospects
Aluminium Metal – prospects z Continued high aluminium prices z China increasingly important driver of market fundamentals - China net exporter of Aluminium - Alumina prices declining due to new Chinese alumina capacity z 80% of expected third quarter production sold at 2 450 USD/mt z Low contributi
Slide 20: Aluminium Products – highlights
Aluminium Products – highlights z Extensive portfolio review z Improved earnings but returns remain unsatisfactory z Impressive results and good order intake for Extrusion z Increased sales volumes, but weak margins for Rolled Products and Automotive z Magnesium casthouse in Porsgrunn closed 20
Slide 21: Aluminium Products – operating income
Aluminium Products – operating income NOK million Rolled Products Extrusion z Rolled Products NOK 225 million Automotive Other and eliminations - Increased volumes - Metal effect NOK 149 million in Q2 452 (NOK 349 million in Q1 2006) 279 371 210 301 z Extrusion NOK 148 million - Increased volumes -
Slide 22: Aluminium Products – prospects
Aluminium Products – prospects z Positive market outlook z Good order intake and solid margins for Extrusion z Divestment of extrusion plant in Ellenville, US z Extremely challenging magnesium market - Consider exit of magnesium business 22
Slide 23: Hydro – priorities
Hydro – priorities z Capture value from strengthened international portfolio z Repositioning Aluminium Metal z Restructuring and portfolio adjustments Aluminium Products z Further strengthening of oil and gas resource base z Firm cost control and first-class project execution in a resource constrain
Slide 24: 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 25: Use of non-GAAP financial measures/ Cautionary note in relation to 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 26: Additional information
Additional information
Slide 27: Adjusted income – Second quarter 2006
Adjusted income Second quarter 2006 NOK million Reported income Adjustments Adjusted income Exploration and Production 11 654 39 11 693 Energy and Oil Marketing 1 170 (252) 918 Eliminations 344 (344) - Oil & Energy 13 168 (557) 12 611 Aluminium Metal 1 620 213 1 833 Aluminium Products 301 49 350 Oth
Slide 28: Infrequent and other special items
Infrequent and other special items Second quarter 2006 NOK million Unrealized (gains)/losses oil and gas derivatives, Spinnaker Exploration and Production 163 Unrealized (gains)/losses on gas contracts Exploration and Production (124) Unrealized (gains)/losses on gas contracts Energy and Oil marketi
Slide 29: Adjusted income – Second quarter 2005
Adjusted income Second quarter 2005 NOK million Reported income Adjustments Adjusted income Exploration and Production 9 049 97 9 146 Energy and Oil Marketing 660 29 689 Eliminations (262) 262 - Oil & Energy 9 447 388 9 835 Aluminium Metal 1 166 (458) 708 Aluminium Products 210 104 314 Other activit
Slide 30: Infrequent and other special items
Infrequent and other special items Second quarter 2005 NOK million Unrealized (gains)/losses on gas contracts Exploration and Production 97 Unrealized (gains)/losses on gas contracts Energy and Oil marketing 29 Unrealized (gains)/losses on gas and power contracts Oil & Energy eliminations 262 Unreal
Slide 31: Operating income – Adjusted EBIT – Adjusted EBITDA
Operating income – Adjusted EBIT – Adjusted EBITDA Second quarter 2006 Depr. Operating Non-cons. Interest Selected Adjusted Adjusted NOK million income investees income fin. items EBIT and EBITDA amort. Exploration and Production 11 654 2 9 8 11 673 2 859 14 532 Energy and Oil Marketing 1 170 73 16
Slide 32: Adjusted EBITDA
Adjusted EBITDA NOK million Q2 2006 Q2 2005 Exploration and Production 14 532 11 347 Energy and Oil Marketing 1 448 881 Eliminations 344 (262) Oil & Energy 16 325 11 967 Aluminium Metal 2 301 1 736 Aluminium Products 879 756 Other Activities 337 590 Corporate and eliminations (505) 483 Total 19 337
Slide 33: Variance analysis Hydro
Variance analysis Hydro NOK million 1H 2006 2Q 2006 2006 42 106 19 337 2005 31 385 15 533 Variance adjusted EBITDA 10 721 3 804 - Prices and currency, Exploration and Production (E&P) 9 575 4 025 - Margin incl. currency effects ¹) 2 470 970 - Volume 1 940 690 - Fixed costs (445) 20 - Depreciation (1
Slide 34: Consolidated balance sheets
Consolidated balance sheets NOK million 30 June, 2006 31 March, 2006 30 June, 2005 Cash and cash equivalents 7 725 20 762 11 120 Short-term investments 12 669 3 850 13 815 Receivables and other current assets 46 165 47 292 36 565 Inventories 15 985 15 230 13 660 Non-current assets 155 487 156 584 13
Slide 35: Statement of cash flows
Statement of cash flows Six months ended Six months ended NOK million 30 June 2006 30 June 2005 Operating activities: Net income 11 263 7 270 Depreciation, depletion and amortization 8 224 7 062 Other adjustments 3 655 (2 580) Net cash provided by operating activities 23 142 11 752 Investing activit
Slide 36: Additional information – Oil & Energy
Additional information – Oil & Energy
Slide 37: High oil price driven by supply concerns
High oil price driven by supply concerns OPEC spare capacity at low levels Million bbl/day USD per bbl 6 80 60 4 40 2 20 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 2009 OPEC spare capacity Brent dated Brent forward Sources: Pira, Reuters, Platts 37
Slide 38: Oil & Energy Adjusted EBITDA
Oil & Energy Adjusted EBITDA NOK million 17 398 16 325 15 191 14 766 Eliminations Energy and Oil Marketing 12 416 Exploration and Production 11 967 11 583 10 503 9 928 9 764 9 139 8 668 7 745 6 274 2003 2004 2005 2006 Accumulated 31 826 41 777 54 339 33 722 38
Slide 39: Average realized gas prices
Average realized gas prices NOK/Sm3 1.03 1.09 1.52 1.99 2.16 1.85 1.79 1.47 1.36 1.31 1.20 1.06 1.10 1.07 0.99 1.03 1.01 0.98 2003 2004 2005 2006 39
Slide 40: Average prices and exchange rates
Average prices and exchange rates Oil Oil Gas 500 75 USD/boe NOK/boe NOK/USD NOK/Sm3 NOK/boe USD/boe 2004 37.3 251.3 6.74 1.09 400 Q1 2005 46.4 291.7 6.29 1.47 50 Q2 2005 49.8 317.9 6.39 1.31 Q3 2005 60.4 390.6 6.47 1.36 300 Q4 2005 55.6 368.8 6.63 1.85 2005 53.1 342.2 6.44 1.52 200 Q1 2006 60.6 403
Slide 41: Operating costs per boe
Operating costs per boe 120.5 NOK/boe 100.4 94.9 83.8 82.1 2006 YTD excl. 2003 2004 2005 2006 YTD Hydro GoM Exploration 8,1 6,0 8,9 19,5 10,2 Net transportation 6,8 8,3 9,4 12,2 12,4 Other cost/income 1,7 0,7 3,0 3,0 2,7 Deprec.& aband. 46,4 46,4 48,2 56,1 45,7 Gas for injection 0,7 2,8 5,4 7,1 7,3
Slide 42: Oil production per field
Oil production per field Boe/day Share Q2 '06 Q1 '06 Q2 '05 Hydro Q2 '06 Hydro Q1 '06 Hydro Q2 '05 Oil and NGL/Condensate Grane 38.00% 222 215 151 84 82 57 Oseberg incl C 34.00% 129 137 134 44 47 46 Ekofisk 6.65% 358 342 363 24 23 24 Oseberg South 34.00% 68 70 59 23 24 20 Snorre 17.65% 106 159 170 1
Slide 43: Gas production per field
Gas production per field Boe/day Share Q2 '06 Q1 '06 Q2 '05 Hydro Q2 '06 Hydro Q1 '06 Hydro Q2 '05 Gas Troll A 9.78% 495 546 427 48 53 42 Sleipner Area 9.42% 193 260 261 18 25 25 Tune 40.00% 46 50 45 18 20 18 Åsgard 9.60% 162 179 177 16 17 17 Kvitebjørn 15.00% 107 113 60 16 17 9 US Gulf of Mexico 1)
Slide 44: New fields on stream 2006 - 2008
New fields on stream 2006 - 2008 Field Hydro peak production (boe/day) Peak year 2004 2005 2006 2007 2008 International Lorien 4 000 2006 Dalia 24 000 2007 Rosa 13 000 2008 Eastern Gulf development* 12 500 2008 Oseberg Vestflanken 12 000 2007 Oseberg South J Sentral 2 000 2009 Operato
Slide 45: Exploration activity
Exploration activity Expensed and capitalized costs NOK million 1 500 1 250 1 000 750 500 250 Expensed 0 Capitalized - 250 - 500 2003 2004 2005 2006 Expensed Expensed old wells Refund insurance Iran Seismic Spinnaker 45
Slide 46: Exploration effort paying off
Exploration effort paying off z Discoveries - Norway – 7 in 2005 - Peon, Astero, Troll Brent Barents - Oseberg Sør B and J Sea - Stetind, Vigdis M5 - Denmark – 1 in 2005 - Hejre - Norway – 3 first half 2006 Norwegian Sea - PL 050 Apollo - PL 134 Morvin Stetind - PL 193 Valemon z New acreage secured
Slide 47: Capturing US Gulf of Mexico potential
Capturing US Gulf of Mexico potential z Production Q2: 20 000 boed - Lorien on stream late April – 4 000 boed*, a deepwater field z 15-20 exploration wells in 2006 - First half: 7 exploration wells completed, 5 discoveries – 71% success rate z 443 leases – 60% deepwater z Seismic data – covering mos
Slide 48: Secured prices for Spinnaker production
Secured prices for Spinnaker production 80 Oil - WTI (USD/bbl) 16 Gas - Henry Hub (USD/mmbtu) 70 14 Secured price 12 60 45.00 - 71.45 Secured minimum 10 50 price 7.5 8 40 6 30 4 20 2 10 0 2000 2002 2004 2006 2008 2000 2002 2004 2006 2008 Source: Ecowin Oil, WTI Crude Oil, Spot, USD, (Nominal) Source
Slide 49: UK gas prices – NBP forward curves
UK gas prices – NBP forward curves Pence/therm 125 100 75 50 25 Jul-05 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 End Q2 2005 End Q1 2006 End Q2 2006 49
Slide 50: Nordic power market – forward curves
Nordic power market – forward curves NOK/MWh 500 400 300 200 Jan-06 Jul-06 Jan-07 Jul-07 Jan-08 Jul-08 Jan-09 Jul-09 Jan-10 End Q1 2006 End Q2 2006 50
Slide 51: Variance analysis Oil & Energy
Variance analysis Oil & Energy NOK million 1H 2006 Q2 2006 2006 33 722 16 325 2005 24 383 11 967 Variance adjusted EBITDA 9 339 4 358 Prices and currency 9 575 4 025 - Oil 6 900 3 610 - Gas 2 445 635 - Currency 360 (280) - Options (130) 60 - Margin 1 655 1 320 - Volume 615 (70) - Fixed costs (120) (
Slide 52: Variance analysis Exploration and Production
Variance analysis Exploration and Production NOK million 1H 2006 2Q 2006 2006 30 632 14 532 2005 22 804 11 347 Variance adjusted EBITDA 7 828 3 185 Prices and currency 9 575 4 025 - Oil 6 900 3 610 - Gas 2 445 635 - Currency 360 (280) - Options (130) 60 - Volume 740 75 - Depreciation (1 155) (565) -
Slide 53: Variance analysis Energy and Oil Marketing
Variance analysis Energy and Oil Marketing NOK million 1H 2006 2Q 2006 2006 2 689 1 448 2005 2 101 881 Variance adjusted EBITDA 588 567 - Margin 730 715 - Volume (125) (145) - Fixed costs (120) (55) - Depreciation (55) (5) - Other - - Variance operating income 431 510 - Non-consolidated investees 63
Slide 54: Additional information – Aluminium
Additional information – Aluminium
Slide 55: Primary aluminium production per quarter
Primary aluminium production per quarter 1 000 mt 1 472 1 720 1 826 900 457 461 464 441 446 444 449 451 415 418 381 388 360 343 2003 2004 2005 2006 Slovalco consolidated from Q1 2004 55
Slide 56: Primary aluminium market
Primary aluminium market USD per tonne days Aluminium inventories (days of consumption) 2 600 80 Aluminium price (LME 3 month) 2 200 60 1 800 40 1 400 1 000 20 1997 1998 1999 2000 2001 2002 2003 2004 2005 2006 56
Slide 57: Current Position – Power Market
Current Position – Power Market EEX Power market development. Baseload contract one year ahead. Avg. spot prices for the year Eur/Mwh 70 z Forward prices come down from all 60 time high above 60€/Mwh 50 45.98 z Forward power 51.50 prices dropped due 40 to adjustment in CO2 prices 29.49 30 28.52 20 2
Slide 58: 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 59: Aluminium – operational data
Aluminium – operational data Q2 Q1 Q4 Q3 Q2 Q1 Q4 Q3 Q2 Volumes and prices 2006 2006 2005 2005 2005 2005 2004 2004 2004 Primary production (1 000 mt) * 451 449 464 461 457 444 446 441 418 Total metal products sales excluding trading 856 869 736 741 835 802 735 752 776 (1 000 mt) LME realized (USD/mt
Slide 60: Inventories – primary aluminium
Inventories – primary aluminium IAI and LME 1 000 tonnes LME (London Metal Exchange) 5 000 IAI (Producers' inventories) 4 000 3 000 2 000 1 000 0 1990 1995 2000 2005 Q1’06 Q2’06 Sources: IAI and LME 60
Slide 61: Variance analysis Aluminium
Variance analysis Aluminium NOK million 1H 2006 2Q 2006 2006 6 724 3 131 2005 4 889 2 453 Variance adjusted EBITDA 1 835 678 - Margin 1 455 880 - Volume 860 325 - Fixed costs (310) 65 - Depreciation 120 95 - Trading and hedging ¹) (240) (190) - Unrealized LME effects 590 (125) - Restructuring costs
Slide 62: Variance analysis Aluminium Metal
Variance analysis Aluminium Metal NOK million 1H 2006 2Q 2006 2006 5 076 2 301 2005 3 372 1 736 Variance adjusted EBITDA 1 704 565 - Margin 1 675 1 125 - Volume 25 (25) - Fixed costs 65 115 - Depreciation (10) 5 - Trading & price hedging ¹) (240) (190) - Unrealized LME effects 370 (275) - Infrequent
Slide 63: Variance analysis Aluminium Products
Variance analysis Aluminium Products NOK million 1H 2006 2Q 2006 2006 1 805 879 2005 1 562 756 Variance adjusted EBITDA 243 123 - Margin (105) (230) - Volume 835 350 - Fixed costs (375) (50) - Depreciation 130 90 - Trading & price hedging ¹) - - - Unrealized LME effects 220 150 - Infrequent items (4
Slide 64: Variance analysis Rolled Products
Variance analysis Rolled Products NOK million 1H 2006 2Q 2006 2006 964 361 2005 859 464 Variance adjusted EBITDA 105 (103) - Margin 355 (20) - Volume 130 50 - Fixed costs (320) (95) - Depreciation 35 20 - Infrequent items (55) (40) - Other - - Variance operating income 147 (83) - Non-consolidated in
Slide 65: Variance analysis Extrusion
Variance analysis Extrusion NOK million 1H 2006 2Q 2006 2006 379 398 2005 427 185 Variance adjusted EBITDA (48) 213 - Margin (60) 50 - Volume 375 125 - Fixed costs (25) 40 - Depreciation 25 30 - Restructuring costs - - - Infrequent items (455) (115) - Other (5) (5) Variance operating income (143) 12
Slide 66: Variance analysis Automotive
Variance analysis Automotive NOK million 1H 2006 2Q 2006 2006 321 131 2005 359 271 Variance adjusted EBITDA (38) (140) - Margin (410) (260) - Volume 325 175 - Fixed costs (30) 5 - Depreciation 70 40 - Infrequent items 85 (60) - Other (5) - Variance operating income 38 (101) - Non-consolidated invest
Slide 67: Additional information – Polymers
Additional information – Polymers
Slide 68: Variance analysis Polymers
Variance analysis Polymers NOK million 1H 2006 2Q 2006 2006 471 297 2005 472 145 Variance adjusted EBITDA (1) 152 - Margin (390) (275) - Volume 465 440 - Fixed costs (15) 10 - Depreciation (15) (5) - Other - - Variance operating income 47 169 - Non-consolidated investees (62) (24) - Interest income
Slide 69: Investor Relations in Hydro
Investor Relations in Hydro
Slide 70: Investor Relations in Hydro
Investor Relations in Hydro t +47 22 53 32 73 Idar Eikrem Senior Vice President idar.eikrem@hydro.com m +47 950 28 363 t +47 22 53 24 55 Gudmund Isfeldt Investor Relations Officer gudmund.isfeldt@hydro.com m +47 480 01 180 t +47 22 53 35 39 Stefan Solberg Investor Relations Officer stefan.solberg@hy
Slide 71: Hydro is a Fortune energy and aluminium supplier
Hydro is a Fortune 500 energy and aluminium supplier with 33,000 employees in 40 countries. We are a leading offshore producer of oil and gas, the world's third largest aluminium supplier and a leader in the development of renewable energy sources. Our mission is to strengthen the viability of the c