Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (February 2005)
72 slides from Norsk Hydro Asa's investor presentation, February 2005
Slide 1: Investor Presentation – February 2005
Investor Presentation – February 2005
Slide 2: Forward-looking statements/use of non-GAAP financial measures
Forward-looking statements/ use of non-GAAP financial measures In order to utilize the “safe harbor” 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
Slide 3: Energy and aluminium - two strategic industries
Energy and aluminium - two strategic industries z Global industries z Increasing demand for energy z Positive growth outlook for aluminium Ref. no: Investor Relations • Page: 3
Slide 4: Consistently delivering profitable growth
Consistently delivering profitable growth Oil and gas production Aluminium production 1 000 boe/day 1 000 tonnes 750 2000 1500 500 1000 250 500 0 0 1998 2003 2008E 1998 2003 2009E Ref. no: Investor Relations • Page: 4
Slide 5: Highlights 2004
Highlights 2004 z Hydro reshaped z Strong operational performance z Improved macro environment z Solid financials Ref. no: Investor Relations • Page: 5
Slide 6: Positive safety development
Positive safety development 25 20 15 10 5 0 1997 1998 1999 2000 2001 2002 2003 2004 Lost time injuries Restricted work cases Medical treatment cases Reported injuries per million hours, Hydro employees Ref. no: Investor Relations • Page: 6
Slide 7: Strong commodity prices – weak dollar
Strong commodity prices – weak dollar Aluminium price Oil price USD/tonne USD/bbl NOK indexed USD 2000 45 NOK indexed USD 40 1800 35 1600 30 25 1400 20 1200 15 1000 10 1999 2000 2001 2002 2003 2004 2005 1999 2000 2001 2002 2003 2004 2005 Ref. no: Investor Relations • Page: 7
Slide 8: Income from continuing operations
Income from continuing operations Per quarter NOK million Gains from divestments 3 638 3 100 3 135 2 991 2 480 2 342 2 224 2 005 1 851 1 809 1 417 241 2002 2003* 2004 Accumulated 7 100 8 656 11 477 Including the effect of change in accounting principles for 1st quarter 2003 amounting to a positive e
Slide 9: Record high cash earnings
Record high cash earnings Adjusted EBITDA NOK million 13 546 13 211 12 266 12 094 11 045 9 820 9 935 9 451 7 955 8 197 7 199 6 775 2002 2003 2004 Accumulated 31 749 38 628 51 117 Ref. no: Investor Relations • Page: 9
Slide 10: Return on capital significantly improved
Return on capital significantly improved RoaCE, percent 13.0 8.4 7.2 2002 2003 2004 RoaCE: Earnings after tax excluding financial items, divided by average capital employed Ref. no: Investor Relations • Page: 10
Slide 11: RoaCE by business area
RoaCE by business area Oil & Energy Aluminium 23.4% Adjustment for write-down of German plants Actual 16.2% 11.6% 7.0 % 4.7 % 2.7 % 3.5 % 2002 2003 2004 2002 2003 2004 Ref. no: Investor Relations • Page: 11
Slide 12: Normalized RoaCE
Normalized RoaCE Percent z Assumptions: - Oil price $25/bbl - Aluminium price $1500/tonne 7.9 - NOK/USD 7 6.6 - EUR/NOK 8 6.2 z Volumes and margins are not normalized z Restructuring charges and gain/loss on divestments are eliminated from normalized figures 2002 2003 2004 Ref. no: Investor Relation
Slide 13: Strong financial position
Strong financial position Debt/equity ratio z Maintain current credit rating 0.67 - S&P: A 0.60 - Moodys: A2 z Secure financial preparedness for 0.44 potential strategic opportunities 0.38 0.34 z Strong balance sheet allows for variance in earnings due to cyclicality Î Target debt/equity ratio 0.5 0
Slide 14: Capital and exploration expenditure
Capital and exploration expenditure NOK billion Oil & Energy Exploration Aluminium Other 24 20 NOK 20-25 bn z 2004 investments as planned 19.5 z 2005 increase due to higher activity level - Projects on track - Robust against cost inflation 2004 plan 2004 2005 plan Ref. no: Investor Relations • Page:
Slide 15: Proposed dividend NOK 20 per share
Proposed dividend NOK 20 per share 20 10.5 11.0 9.5 10.0 7.5 8.0 1998 1999 2000 2001 2002 2003 2004 proposal Ref. no: Investor Relations • Page: 15
Slide 16: Total Shareholder Return
Total Shareholder Return 2004 2000-2004 Hydro 46% Hydro 139% Statoil 44% Total 100% BG 34% BG 70% ExxonMobil 28% ChevronTexaco 44% ChevronTexaco 26% ExxonMobil 43% Total 26% Alcan 30% BP 24% Shell 23% Shell 20% RoyalDutch 14% BP 15% Alcan 6% RoyalDutch 12% Alcoa -16% Alcoa -17% -20% 0% 20% 40% 60% -
Slide 17: Oil & Energy – highlights
Oil & Energy – highlights z 2004 production target achieved z High oil & gas prices z Ormen Lange on track z Operatorship in Gulf of Mexico z Q4 exploration – 4 wells completed, all discoveries Ref. no: Investor Relations • Page: 17
Slide 18: Oil & Energy – operating income
Oil & Energy – operating income NOK million Exploration and Production Energy and Oil Marketing Eliminations 8 621 7 818 7 521 7 184 6 175 5 994 5 820 5 551 5 384 5 322 4 622 3 707 3 686 3 652 3 184 3 170 2001 2002 2003 2004 Accumulated 19 177 15 947 21 143 31 144 Ref. no: Investor Relations • Page:
Slide 19: Petroleum production per quarter
Petroleum production per quarter 1 000 boe/day 615 596 591 569 Oil Gas 540 552 173 514 482 484 489 166 147 176 451 448 452 143 156 427 419 123 104 112 116 385 88 430 442 93 115 110 422 415 91 397 396 391 74 378 364 372 373 334 328 336 338 311 2001 2002 2003 2004 Accumulated 421 480 530 572 Ref. no:
Slide 20: Production costs per barrel
Production costs per barrel NOK/boe 25.3 25.6 24.1 24.1 23.9 24.0 22.9 23.2 22.9 22.3 21.1 21.0 20.1 19.8 17.4 17.1 2001 2002 2003 2004 Accumulated 24.1 22.6 20.7 20.7 Ref. no: Investor Relations • Page: 20
Slide 21: Continued strong production growth
Continued strong production growth 1 000 boe/day 8% average annual growth* 800 700 600 500 400 300 200 100 0 1998 1999 2000 2001 2002 2003 2004 2005E 2006E 2007E 2008E Oil NCS Oil Int Gas 8% CAGR* *Compound Annual Growth Rate, 2001 baseline Ref. no: Investor Relations • Page: 21
Slide 22: New fields on stream 2004 – 2007
New fields on stream 2004 – 2007 Hydro share boe/day Dalia 22 000 W International Kharyaga 10 000 W W Murzuq 5 000 (A+D fields) W W Rosa 13 000 W Ormen Lange W 70 000 W Oseberg W W 14 000 NCS operator Vestflanken W Oseberg South J 7 000 W 7 500 W Njord gas phase W Oseberg East Drilling solutions 6 5
Slide 23: Strong production growth based on attractive project portfolio
Strong production growth based on attractive project portfolio Oil price giving 10% real rate of return post tax** Oseberg S Operator IOR NCS Njord Operator NCS Oseberg International Oseberg E Partner operated NCS Troll Tune Phase 2 Oseberg S J C Vilje* Oseberg S J Njord Gas Export Libya - B-field L
Slide 24: Core competences
Core competences E&P value chain Explore Design Execute Operate • Advanced seismic • Advanced wells • Large and complex • Commissioning and acquisition, projects start-up • Reservoir management processing and • Modifications • Offshore operations interpretation • Sub-sea development • Satellite tie-
Slide 25: An experienced world-scale offshore producer
An experienced world-scale offshore producer 1000 boe/day Production 2003 1000 900 800 700 Offshore operator production oil and gas, boe/day * 0 500 000 1 000 000 1 500 000 2 000 000 600 Statoil Shell 500 Petrobras 400 BP Hydro Operator 300 ExxonMobil Equity Woodside 200 Chevron Texaco TotalFinaElf
Slide 26: An efficient top quartile offshore operator
An efficient top quartile offshore operator 2001 2002 2003 Hydro Hydro Hydro Top quartile (TQ) 0 10 20 30 40 50 0 10 20 30 40 50 0 10 20 30 40 50 60 Total TQ gap (%) Total TQ gap (%) Total TQ gap (%) Source: McKinsey 2003, operators in Norway and UK Ref. no: Investor Relations • Page: 26
Slide 27: Sources of longer term production growth
Sources of longer term production growth z Existing portfolio Illustrative levels - Develop assets in portfolio - Increase oil/gas recovery Acquiring z Exploration resources - Improved predictability - Increased focus Exploration z Acquiring resources - Results emerging Existing - Capital discipline
Slide 28: Existing portfolio
Existing portfolio Additional potential from technical resources Kharyaga Russia Canada Hebron Murzuq B Dahra/Garian Annapolis Libya GoM Lorien Norway Acasia Tulipa Angola Anturio Rosa/Lirio/Cravo Orquidea/Violeta z Discoveries to be developed z Plans for optimized production - Oseberg - Troll - Orm
Slide 29: Acquiring resources
Acquiring resources z Assessing the deal flow: - Medium and small players with high exposure and Norwegian limited technology Continental Shelf - National Oil Companies in need of assistance to develop Russia operator capabilities North America - Majors optimizing their portfolios North Africa - Fin
Slide 30: Aluminium – highlights
Aluminium – highlights z Improved metal markets z Mixed development in downstream sectors z Planning new world-class plant in Qatar z Aluimprover on track – cost estimate reduced z Write-down of German metal plants Ref. no: Investor Relations • Page: 30
Slide 31: Aluminium – operating income
Aluminium – operating income NOK million Metals Rolled Products Extrusion and Automotive Other and eliminations 1629 1269 858 833 711 709 653 564 530 495 412 230 345 (146) (997) (1951) 2001 2002 2003 2004 Accumulated 185 1 698 2 456 1 805 Ref. no: Investor Relations • Page: 31
Slide 32: Western World demand expected to grow in the coming years
Western World* demand expected to grow in the coming years 1 000 tonnes 40 000 % growth per segment 35 000 4.1 Other 3000 30 000 2800 3000 4.1 Durables 2700 2800 2400 25 000 2500 5600 2400 5300 2.8 Electrical and 5000 20 000 4800 engineering 6500 6300 2.7 B&C 5600 5900 15 000 5400 5700 2.3 Packaging
Slide 33: Energy drives primary restructuring
Energy drives primary restructuring Net exports, 1 000 tonnes 4 000 3 000 2 000 1 000 Asia* Europe USA 0 China Canada South Australia and CIS ROW** -1 000 America New Zeeland -2 000 -3 000 -4 000 2000 2005E 2012E -5 000 * Excluding China ** Rest of the world, including the Middle East Source: CRU, H
Slide 34: A unique and differentiated portfolio
A unique and differentiated portfolio 2004 and 2009E** 1 000 tonnes Equity Medium/long term contracts Alumina * 715 885 2000E Equity Electrolysis metal 1600 2000E Equity 3rd party Remelt Metal products 1600 350 1720 4300-5000E Rolled Extrusion & Automotive Downstream 940 686 1800-2000E * Aluminium e
Slide 35: Strengthening strategic positions
Strengthening strategic positions Improve alumina relative cost position Improve aluminium relative cost position Strengthen leadership position in Europe: Metal Selective growth outside Europe: Metal Products, Products, Extrusion, Rolled Products and Automotive Extrusion, Rolled Products and Automo
Slide 36: Increasing equity alumina at lower cost
Increasing equity alumina at lower cost Cash cost USD/tonne 220 200 180 160 World weighted 140 average 2003: USD 134/tonne 2000: Hydro average USD 165/tonne 120 100 2006*: Hydro average 80 USD 120/tonne 60 0 5 10 15 20 25 30 35 40 45 Cumulative production, million tonnes per year * After sale of alu
Slide 37: Improving relative cost position 2003-2009
Improving relative cost position 2003-2009 Cash cost USD/tonne To be closed z Høyanger SØ, 22 kt 2 000 z Årdal SØ, 50 kt z Karmøy SØ,122 kt Hydro ’09 Hydro ’03 1 500 Total average USD 1 097/tonne 1 000 New capacity z Alouette, 60 kt 500 z Sunndal, 250 kt z Qatar, 280 kt 0 0 20 40 60 80 100 Cumulativ
Slide 38: Qatar – project description
Qatar – project description z Heads of agreement signed z Annual capacity - 570 000 tonnes - Expansion potential up to 1 200 000 tonnes z Investments - Smelter and casthouse: USD 2 – 2.5 billion Excellent location - Power plant: USD 0.7-0.8 billion z Hydro ownership - 49 % in smelter and power stati
Slide 39: Attractive power contract portfolio for Hydro
Attractive power contract portfolio for Hydro Germany a challenge Self generation and long term contracts Norway Australia Canada Slovakia Germany Timeline 2005 2010 2015 2020 Ref. no: Investor Relations • Page: 39
Slide 40: Aluminium downstream activities
Aluminium downstream activities Rolled Total revenue: NOK 44 bn Products z Europe 79% z North America 13% Extrusion z Others 8% Automotive 43% 38% 19% Ref. no: Investor Relations • Page: 40
Slide 41: Rolled Products: Building a stronger business
Rolled Products: Building a stronger business z Growth in high margin segments - New litho line in 2005 - Foil mills upgraded - Increased heat exchanger volume z Delivered on improvement programs - Cost reduction and demanning - Turnaround of underperforming units - Modernization of Slim plant (Ital
Slide 42: Rolled Products: Increasing focus on higher margin segments
Rolled Products: Increasing focus on higher margin segments Shipments Operating income 2004: 941 000 tonnes NOK 626 million Foil Foil 16% 22% Litho 32% Litho 16% Strip 68% Strip *Jan-Sep 2004: 710 000 tonnes 46% Ref. no: Investor Relations • Page: 42
Slide 43: Extrusion: Global growth from leading position in Europe
Extrusion: Global growth from leading position in Europe z Consolidating leadership in Europe z Closing performance gap in USA z Expanding in emerging and low cost markets z Growing value added business z Realizing system benefits Ref. no: Investor Relations • Page: 43
Slide 44: Automotive: Building on strengths and fixing underperformance
Automotive: Building on strengths and fixing underperformance z Precision Tubing - Strong financial performance - New plants in China and Mexico 2005 z Structures - Improving financial performance from low level - Focusing product portfolio - Restructuring ongoing z Castings - Improved financial per
Slide 45: A unique portfolio: Higher capital turnover
A unique portfolio: Higher capital turnover Revenues / gross investments EBITDA / Revenues Factor Percent 1.4 25 Pechiney 1.2 Hydro 20 Aluminium 1.0 Alcoa Alcan 15 0.8 Hydro Aluminium 0.6 Alcoa 10 Alcan 0.4 5 Pechiney 0.2 0.0 0 1998 1999 2000 2001 2002 2003 2004* 1998 1999 2000 2001 2002 2003 2004*
Slide 46: Hydro’s gas story
Hydro’s gas story www.hydro.com
Slide 47: Natural gas importance increasing
Natural gas importance increasing 2004 production SEC reserves 1,000 boe/day million boe Gas 155 Oil Gas 905 Oil 1171 417 Ref. no: Investor Relations • Page: 47
Slide 48: Hydro’s gas position – strongest among peers
Hydro’s gas position – strongest among peers Reserve life (years) 0 5 10 15 20 25 30 Hydro Statoil BHPB Repsol Shell BP Eni BG Total ChevronTexaco Occidential ConocoPhillips ExxonMobil Amerada Hess PetroCanada Marathon Source: Deutsche Bank, Major Oils 2004 Ref. no: Investor Relations • Page: 48
Slide 49: Strong growth in equity gas production
Strong growth in equity gas production bcm 16 14 12 10 8 6 4 Existing long term 2 commitments (expected take) and uncommitted volumes 0 2003 2004 2005 2006 2007 2008 Ref. no: Investor Relations • Page: 49
Slide 50: Infrastructure positions give high flexibility
Infrastructure positions give high flexibility NCS St.Fergus Em den Bacton Zeebrügge Dunkirk Ref. no: Investor Relations • Page: 50
Slide 51: Strong long term demand for gas
Strong long term demand for gas Europe* -Gas supply and demand UK Gas production and demand 800 120 700 600 100 500 80 bcm bcm 400 60 300 40 200 100 20 0 0 2002 2005 2008 2011 2014 2017 2020 2023 1995 2000 2005 2010 2015 2020 2025 Norway Other Production Production Demand Contracted Assumed prolonga
Slide 52: Strong market prices for equity gas
Strong market prices for equity gas Forward prices gas USD/MMbtu p/th 7 40 6 35 30 5 25 4 20 3 15 2 10 Ormen Lange cost to UK 1 5 0 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 NBP German import** Note: German import price estimate Sources: Argus 19 Nov 2004; GO and LSFO forwards 19 Nov 2004 Ref.
Slide 53: Piped gas to Europe – competitive in the future
Piped gas to Europe – competitive in the future Cost of Gas delivered to NBP (UK) Norway CNS* Ormen Lange Algeria LNG Yamal-Nenets West of Shetlands Qatargas 2 (LNG) 0,00 0,50 1,00 1,50 2,00 2,50 3,00 3,50 $/mmbtu *New Norway Central North Sea Source: Wood Mackenzie (November 2002); Hydro Ref. no: I
Slide 54: Additional analytical information
Additional analytical information
Slide 55: Indicative price and currency sensitivities 2005
1) Indicative price and currency sensitivities 2005 Based on 2004 prices and currency NOK million Before tax After tax Change Oil price per barrel 1,150 310 1 USD Aluminium price per tonne 800 560 100 USD USD Oil & Energy 7,250 1,960 1 NOK USD Aluminium 2,500 1,750 1 NOK USD before financial items 9
Slide 56: Consolidated income statements
Consolidated income statements NOK million 2004 2003 Operating revenues 155 425 133 761 Operating income 31 847 21 625 Equity in net income of non-consolidated investees 628 620 Financial income (expense), net 136 154 Other income, net 169 (1 253) Income from continuing operations before tax and min
Slide 57: Operating income
Operating income Individual operating segment NOK million 2004 2003 Exploration and Production 28 363 18 500 Energy and Oil Marketing 2 650 2 668 Eliminations 131 (25) Oil & Energy 31 144 21 143 Metals 830 2 293 Rolled Products 626 132 Extrusion and Automotive 277 98 Other and eliminations 72 (67) A
Slide 58: Normalized RoaCE
Normalized RoaCE Per business area Oil & Energy Aluminium 13.0% Adjustment for write-down of German plants Normalized 11.4% 9.2% 5.0 % 4.1 % 2.9 % 1.5 % 2002 2003 2004 2002 2003 2004 Ref. no: Investor Relations • Page: 58
Slide 59: Dividend policy
Dividend policy z A steady development in line with the Buyback and dividend growth in the company’s results NOK million Dividend Buyback z 30% payout ratio over time 1684 z Buyback of shares – a supplement 1155 when high earnings 1599 555 - New authorization of 10 million shares 763 approved 1 Dece
Slide 60: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit Oil price Hurdle Average z Hurdle rate 10% real IRR after tax USD-04/bbl Forward 45 Historical z Mid-cycle price assumptions 40 - Oil $25 per barrel 35 - Aluminium $1500 per tonne - USD/NOK 7 30 - Aligned with business
Slide 61: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit Aluminium price Hurdle Average USD-04/tonne Forward z Hurdle rate 10% real IRR after tax 2 200 Historical z Mid-cycle price assumptions - Oil $25 per barrel 2 000 - Aluminium $1500 per tonne - USD/NOK 7 1 800 - Aligned
Slide 62: Investment criteria
Investment criteria Capital discipline – basis for future profits z Strategic fit USD/NOK Historical Average z Hurdle rate 10% real IRR after tax Hurdle 10 z Mid-cycle price assumptions - Oil $25 per barrel 9 - Aluminium $1500 per tonne - USD/NOK 7 8 - Aligned with business planning assumptions 7 z
Slide 63: Production per field
Production per field 2004 2003 Total Oil Gas Total Oil Gas 1,000 boe/day 1,000 boe/day million CF/day 1,000 boe/day 1,000 boe/day million CF/day Oseberg fields 115.7 95.3 104.3 115.1 103.0 59.6 Troll 74.9 32.1 247.6 80.0 37.0 248.1 Snorre fields 58.1 56.2 10.7 67.5 65.0 12.8 Grane 46.3 46.3 - 5.5 5.
Slide 64: Operating costs per barrel
Operating costs per barrel NOK/boe 99.7 100 90.1 83.8 82.1 80 60 40 20 0 2001 2002 2003 2004 Exploration 9.1 20.3 8.1 6.0 Net transportation * 8.5 9.0 6.8 8.3 Other cost/income 2.0 1.4 1.8 0.7 Deprec. and aband. 46.4 46.4 46.4 46.4 Production cost 24.1 22.6 20.7 20.7 Total 90.1 99.7 83.8 82.1 Mill b
Slide 65: Automotive: Leading market positions in focus areas
Automotive: Leading market positions in focus areas Market positions 2003 % of total market incl. steel/cast iron solutions 80 Europe 65 NAFTA 60 40 35 17 20 14 4 5 6 1 0 Precision Bumper Cylinder Engine tubing beams heads blocks Ref. no: Investor Relations • Page: 65
Slide 66: Aluminium price development 2004
Aluminium price development 2004 3 months LME price 2 000 1 900 1 800 1 700 Steep increase in LME at end of both quarters 1 600 Realized losses on LME Reduced customer pricing contracts in a period of due to price increase declining prices 1 500 Jan-04 Apr-04 Jul-04 Oct-04 Jan-05 Ref. no: Investor R
Slide 67: Aluminium – operational data
Aluminium – operational data Q4 Q3 Q2 Q1 Q4 Q3 Volumes and prices 2004 2004 2004 2004 2003 2003 Primary production (1 000 tonnes) * 446 441 418 415 388 381 Total metal products sales excluding trading 639 648 676 688 483 506 (1 000 tonnes) LME realized (USD/tonne) including hedges 1 691 1 677 1 657
Slide 68: Inventories – primary aluminium
Inventories – primary aluminium 1 000 tonnes IAI (Producers' inventories) LME (London Metal Exchange) 5 000 4 000 3 000 2 000 1 000 0 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 Sources: IAI and LME. Ref. no: Investor Relations • Page: 68
Slide 69: Operating income – Adjusted EBIT – Adjusted EBITDA
Operating income – Adjusted EBIT – Adjusted EBITDA Fourth quarter 2004 Depr. Operating Non-cons Interest Selected Other Adj. Adj. NOK million income investees income fin. items income EBIT and EBITDA amort. Exploration and Production 7 116 2 5 1 - 7 124 2 701 9 825 Energy and Oil Marketing 1 072 (11
Slide 70: Pensions
Pensions NOK million 2004 2003 2002 Total Pension Obligations (25 399) (23 456) (19 422) Pension Plan Assets 16 504 14 669 12 116 Funded status of the plans (8 895) (8 787) (7 306) Net accrued pension recognized on balance sheet (1 371) (852) (265) Unrecognized prior service costs and net loss (7 52
Slide 71: Financial solidity – calculation
Financial solidity – calculation 31 31 31 31 31 31 Amounts in NOK million December December December December December December 1999 2000 2001 2002 2003 2004 [A] Cash and cash equivalents 7 435 21 766 27 148 5 965 15 249 14 366 [B] Other liquid assets 2 535 2 490 2 421 2 647 1 581 10 970 [C] Bank lo
Slide 72: Ref. no: Investor Relations • Page: 72
Ref. no: Investor Relations • Page: 72