Norsk Hydro Asa · OSL:NHY
Norsk Hydro Asa — Investor Presentation (February 2007)
134 slides from Norsk Hydro Asa's investor presentation, February 2007
Slide 1: Investor presentation – February 2007
Investor presentation – February 2007 www.hydro.com
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
Slide 3: Table of contents
Table of contents A brief review - Q4 results 2006 4-18 Investor presentation - Executive summary 19-30 - Strategy ‘new’ Hydro 31-86 - Oil & Energy 87-92 - Hydro priorities 93-94 Additional Information - Finance 95-106 - Aluminium 107-120 121-132 - Oil & Energy Investor Relations in Hydro - Contact
Slide 4: A brief review – Fourth quarter 2006 results
A brief review – Fourth quarter 2006 results 4
Slide 5: Highlights 2006
Highlights 2006 z Strategic decision to merge oil and gas activities with Statoil z Record 2006 results z Q4 hit by US Gulf of Mexico write-downs and unrealized effects z Strong results in Aluminium z Significant restructuring and repositioning of Aluminium z Continued strong market conditions 5
Slide 6: Consolidated income statements
Consolidated income statements NOK million Q4 2006 Q3 2006 Q4 2005 Operating revenues 45 715 50 090 44 509 Operating income 4 573 15 278 10 360 Non-consolidated investees 54 231 (79) Financial income (expense), net 847 (741) (579) Other income (loss), net 53 - 758 Income continuing operations before
Slide 7: Operating income
Operating income NOK million Q4 2006 Q3 2006 Q4 2005 Exploration and Production 4 517 12 078 10 690 Energy and Oil Marketing 590 851 1 403 Eliminations 540 382 (556) Oil & Energy 5 647 13 311 11 537 Aluminium Metal 849 1 854 12 Aluminium Products (499) (202) (1 124) Other Activities 707 235 (98) Cor
Slide 8: Oil & Energy – highlights
Oil & Energy – highlights z Realized oil price: USD 57.8 per bbl in Q4 z Oil and gas production: 595 000 boe in Q4, 573 000 boe in 2006 z 5 new discoveries in Q4 z Ormen Lange/Langeled on track – 91 percent complete end of 2006 z US Gulf of Mexico impairment of NOK 3.4 billion after tax 8
Slide 9: Oil & Energy – key figures
Oil & Energy – key figures Operational data 2006 Q4 2006 Q4 2005 Oil and gas production (1 000 boe/day) 573 595 589 Realized oil price, USD/boe 63.10 57.80 55.60 Realized oil price, NOK/boe 404.00 369.20 368.80 Realized gas price, NOK/Sm³ 1.93 1.97 1.85 Exploration expense, NOK million 4 986 2 093 1
Slide 10: High exploration activity in 2006
High exploration activity in 2006 z 51 wells completed z 26 discoveries - Norway: 6, US GoM: 8, Libya: 7, Other:5 z 5 wells drilling by end of year z Activity of NOK 5.9 billion 10
Slide 11: Oil & Energy – prospects
Oil & Energy – prospects z 2007 production target of 605 000 boed z Ormen Lange start-up z Peregrino plan for development and operation first half 2007 z High exploration activity z Proposed merger of Hydro’s oil and gas activities with Statoil 11
Slide 12: Aluminium activities – key figures
Aluminium activities – key figures Operational data 2006 Q4 2006 Q4 2005 Realized aluminium price, USD/ton 2 352 2 430 1 851 Realized aluminium price, NOK/ton 15 371 15 793 12 145 Primary aluminium production, 1 000 tons 1 799 450 464 Operating income, NOK million 2006 Q4 2006 Q4 2005 Aluminium Meta
Slide 13: Aluminium Metal – highlights
Aluminium Metal – highlights z Financial performance at record level in 2006 - EBITDA NOK 9.1 billion - Operating income NOK 6.4 billion - RoaCE 18.7 percent z Increased raw material and energy costs z Realized aluminium price USD 2 430 per ton in Q4 z Q4 negatively impacted by unrealized effects on
Slide 14: Aluminium Metal – operating income
Aluminium Metal – operating income Adjusted for special items 1 833 NOK million 1 701 1 585 1 476 1 241 1 132 822 708 2005 2006 Adjusted operating income 3 903 6 595 Reported operating income 2 694 6 362 14
Slide 15: Aluminium Metal – prospects
Aluminium Metal – prospects z Continued high aluminum prices z 80 percent of expected Q1 production sold at 2 540 USD/ton - Including full effect of strategic hedges z Qatalum progressing toward investment decision mid-2007 15
Slide 16: Aluminium Products – highlights
Aluminium Products – highlights z Weak results, restructuring continues z Exit of automotive business ongoing - Divestment of Castings and Meridian signed - Structures sales process continues - Magnesium closure costs NOK 384 million in Q4 z Improved volumes and margins in Rolled Products and Extrus
Slide 17: Aluminium Products – operating income
Aluminium Products – operating income Adjusted for special items NOK million 279 269 244 253 z Rolled Products 243 234 - Volumes improving, seasonal 197 reduction in Q4 compared to Q3 - Slight increase in margins z Extrusion - Margin and volume improvement z Automotive - Continued weak margins and v
Slide 18: Aluminium Products – prospects
Aluminium Products – prospects z Portfolio restructuring to be completed in 2007 z Strong margins in Extrusion continues z Improved margins in Rolled Products z European market for Rolled Products, Extrusion and Building Systems to remain strong 18
Slide 19: Investor presentation - Executive summary
Investor presentation - Executive summary 19
Slide 20: Financial overview 2006
Financial overview 2006 NOK billion Revenues*: 201 Adj. EBITDA: 77 Operating income: 52 3% 4% 2% 2% 12 % 12 % 25 % 49 % 22 % 83 % 86 % Net Income: 17 Investments: 27 Capital Employed: 96 5 %2 % 6% 5% 7% 16 % 32 % 53 % 86 % Oil & Energy 63 % 25% Aluminium Metal Aluminium Products Other * Divisional e
Slide 21: Consolidated income statements
Consolidated income statements NOK million 2006 2005 Operating revenues 200 719 171 231 Operating income 52 224 46 237 Non-consolidated investees 962 593 Financial income (expense), net 1 785 (1 889) Other income, net 53 990 Income from continuing operations before tax and minority interest 55 024 4
Slide 22: Income from continuing operations
Income from continuing operations By quarter* 5 820 NOK million 5 344 4 798 US GoM impairment 4 176 4 183 Gains from divestments 3 638 3 661 3 522 3 135 2 991 2 481 2 224 2 005 1 851 1 809 1 261 2003 2004 2005 2006 Accumulated 8 656 11 477 15 542 17 224 * Automotive Casting only reported as disconti
Slide 23: Adjusted EBITDA
Adjusted EBITDA 22 610 NOK million 20 427 19 185 17 002 16 820 15 733 15 379 14 997 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 64 933 77 219 23
Slide 24: Earnings per share
Earnings per share NOK* 14.00 12.54 9.02 6.50 5.50 4.56 2001 2002 2003 2004 2005 2006 * Continuing operations. Recalculated to reflect 5 for 1 share split 10 May 2006 24
Slide 25: RoaCE by business area
RoaCE by business area Oil & Energy Aluminium Metal Aluminium Products 26.2% 23.4% 18.7% 17.4% 16.2% 7.7% 7.9% 3.3% 3.7% 1.7% -3.2% -1.3% 2003 2004 2005 2006 2003 2004 2005 2006 2003 2004 2005 2006 25
Slide 26: Return on capital employed – RoaCE
Return on capital employed – RoaCE 16.6% 14.9% 12.9% 8.4% 2003 2004 2005 2006 26
Slide 27: Adjusted net debt/equity ratio
Adjusted net debt/equity ratio 0.50 0.38 0.31 0.22 0.11 2003 2004 2005 2006 2006 Interest-bearing debt + net pension liability (tax adjusted) + operating lease commitments (discounted) – cash and cash equivalents – other liquid assets divided by shareholders’ equity + minority interest 27
Slide 28: Dividends
Dividends NOK/share 5.00 4.40 4.00 2.10 2.20 1.90 2.00 2000 2001 2002 2003 2004 2005 2006 Recalculated to reflect 5 for 1 share split effective 10 May 2006 28
Slide 29: Payout to shareholders 2000-2006
Payout to shareholders 2000-2006: NOK 37 billion NOK million 3 949 Dividend Buyback 1 589 1 684 6 100 5 500 5 021 1 155 555 763 2 576 2 711 2 811 2 470 2000 2001 2002 2003 2004 2005 2006 3 243 3 711 2 711 3 366 6 685 7 089 10 049 Dividend allocated to the year for which the dividend was paid. The (a
Slide 30: Dividend policy
Dividend policy 30% payout ratio over time 1 Year 5 year Target 44 % z Dividend policy for “new” Hydro to be defined by Board of Directors in 2007 35 % 36 % 33 % 31 % z High commodity prices have supported current 26 % payout per share level 18 % 2000 2001 2002 2003 2004 2005 2006 30
Slide 31: Strategy for 'new' Hydro
Strategy for “new’’ Hydro 31
Slide 32: Strong results for 'new' Hydro businesses in 2006
Strong results for “new” Hydro businesses in 2006 Operating Adjusted Operating NOK billion Depreciation Investments revenues EBITDA income Aluminium Metal 68.4 9.1 (1.7) 6.4 2.0 Aluminium Products 49.8 1.7 (1.7) (0.1) 1.3 Power 10.8 1.3 (0.1) 1.2 0.04 Polymers 6.9 1.5 (0.4) 1.0 0.5 32
Slide 33: Transaction background
Transaction background z The Boards of Hydro and Statoil have agreed to recommend a merger of Hydro’s oil & gas activities with Statoil to form a new oil and gas company z For Hydro’s shareholders this means: - They will hold 32.7 percent of the new company and receive 0.8622 shares in the new compa
Slide 34: Net debt development
Net debt development z Net interest bearing debt - Hydro’s oil and gas activities: NOK 1 billion at year end 2006 - “New’’ Hydro: NOK 0.5 billion at year end 2006 - Hydro’s oil and gas activities to fund proposed 2006 dividend NOK 6.1 billion - NOK 5.00 per share - “New’’ Hydro to fund repurchase of
Slide 35: Key milestones
Key milestones z 18 December 2006 Transaction announced z 20 February 2007 2006 preliminary results z March 2007 Prospectus (F-4) to SEC z 8 May 2007 Annual General Meeting z Second quarter 2007 Extraordinary General Meeting z Third quarter 2007 Expected closing 35
Slide 36: Hydro going forward
Hydro going forward z One of the world's three leading integrated aluminium companies z Norway's second largest power producer z 22 000 employees of which 7 000 in Norway z Annual turnover more than NOK 100 billion z Operating income 2006 NOK 8.5 billion* z Operations in more than 30 countries * Exc
Slide 37: Development in market capitalization
Development in market capitalization NOK billion Hydro Yara "New'' Hydro Oil & Energy 158 88 82 54 2000 2007* * 16 February 2007 close. Aluminium and Oil & Energy based on transaction equation adjusted for dividend payments 37
Slide 38: Competitive share price development
Competitive share price development 1 January 2002 to 31 December 2006 1 January 2006 to 16 February 2007 Hydro 314 % Hydro 56% Statoil 302 % BG Group 40% BG Group 231 % ExxonMobil 34% ENI 172 % Alcan 34% ConocoPhillips 139 % Chevron 25% RepsolYPF 137 % Alcoa 18% Total 105 % ENI 15% ExxonMobil 95 %
Slide 39: Strategy for long-term growth
Strategy for long-term growth z Building on a leading, global position in aluminium metal production z Pursuing new, attractive opportunities in alumina and primary aluminium z Leveraging strong platforms in Extrusion, Precision Tubing, Building Systems and Rolled Products z Power production is a st
Slide 40: Strong aluminium industry position
Strong aluminium industry position Integrated Emerging Market Mining & Metal Manufacturing 3 900 Primary Rolled Extrusions Other 3 790 3 320 3 094 Production in 1 000 tonnes in 2005 2 435 1 826 1 331 1 050 1 003 854 850 870 841 614 519 498 409 240 214 201 155 100 100 100 29 Alcoa¹ Alcan Hydro United
Slide 41: Competitive return on capital
Competitive return on capital RoaCE 16% Peer range * Aluminium 14% 12% 10% 8% 6% 4% 2% 0% 2003 2004 2005 2006 * Alcoa and Alcan Source: Bloomberg return on capital methodology. 12 month rolling Q1 2003-Q4 2006. Hydro figures are approximations to Bloomberg methodology. 41
Slide 42: Strong Aluminium cash flow
Strong Aluminium cash flow NOK billion Accumulated EBITDA 2003-2006 Accumulated investments 2003-2006 34.0 15.2 23.2 7.7 15.2 18.8 15.5 11.8 6.5 5.6 2003 2004 2005 2006 42
Slide 43: Aluminium value chain 2006
Aluminium value chain 2006 Million tons Bauxite* 0.5 1.4 25% Bauxite equity coverage z Equity production 2.2 million tons annually z MRN: 0.9 mill tons - Brazil z Alpart: 1.3 mill tons - Jamaica Alumina** 1.0 0.8 55% Alumina equity coverage z Equity production: 1.9 million tons annually Aluminium z
Slide 44: Aluminium Metal
Aluminium Metal 44
Slide 45: Aluminium Metal
Aluminium Metal z Strong focus on return on capital z Restructuring on track z Operational excellence and production creep z Long-term profitable growth z Financials 2006 - Operating revenues* NOK 68.4 billion - Adjusted EBITDA NOK 9.1 billion - Investments NOK 2.0 billion * Including internal sales
Slide 46: China driving the demand for primary aluminium
China driving the demand for primary aluminium 4 percent annual growth rate 2005-2020 Million ton 70 China Other 60 35% 50 34% 31% 40 22% 30 13% 20 65% 66% 69% 78% 10 87% 0 2000 2005 2010E 2015E 2020E Source: CRU 2006 46
Slide 47: Aluminium price remains historically high
Aluminium price remains historically high USD per ton Primary aluminium LME USD/ton 3 000 LME (3-month avg.) LME forward Q4 2006 average 2 725 2 500 Q4 2006 end 2 803 Q3 2006 average 2 528 2 000 Q3 2006 end 2 584 1 500 Q2 2006 average 2 682 Q2 2006 end 2 630 1 000 Q1 2006 average 2 444 Q1 2006 end 2
Slide 48: Upstream aluminium positioned for growth
Upstream aluminium positioned for growth Bauxite Alumina Primary aluminium Casthouse products z 25 percent equity bauxite position z 55 percent equity alumina position at low cash cost z 1.7 million tons annually primary production in 2007, target 2 million tons annually 2010 z Global leader in cast
Slide 49: Restructuring executed – improved cost position
Restructuring executed – improved cost position z Restructuring on track – closing 180 000 tonnes z Restructuring costs below NOK 1 billion z Improving average cash cost 40-50 USD/tonne 49
Slide 50: Further capacity creep in existing plants
Further capacity creep in existing plants Increased primary production in tons per year* 200 000 z Low capital expenditures per ton - Debottle-necking 150 000 - Increased amperage z Strong profitability 100 000 z EBITDA contribution in 2006 - NOK 500 million 50 000 0 2002-2006E 2006-2010E * All preb
Slide 51: Production volumes 2005-2010
Production volumes 2005-2010* 1 000 tons 2 000 1 825 1 799 1 730 2005 2006 2007E 2010E * Including closed or to-be-closed capacity of Hamburg, Stade and Søderberg at Årdal, Høyanger. Qatalum in full production from mid-2010. 51
Slide 52: Repositioning enhances smelter portfolio
Repositioning enhances smelter portfolio Smelter geography Smelter size Europe Above 300 000 tons Outside Europe Below 300 000 tons 2 000 2 000 1 825 1 825 17% 33% 29% 43% 780 780 100% 83% 67% 100% 71% 57% 2000 2005 2010E 2000 2005 2010E All figures in 1 000 tons per year 52
Slide 53: Industry costs rising – Hydro's position improved
Industry costs rising – Hydro’s position improved Significant shift in industry cost curve* Cost (USD/ton) z Alumina 2 500 Hydro’s 2006 position 2006 - Two thirds of cost increase 2 250 Hydro’s 2003 position - Coming down from peak 2 000 2003 1 750 2006 average 1 640 z Energy 1 500 1 547 - Oil and g
Slide 54: Increase in smelting cost
Increase in smelting cost Cost per tonne for Hydro’s smelter capacity Index 2005=100* z Cost development 2005-2006 - NOK 1.2 billion total power cost increase** 150 Other - New contracts and increased Alumina grid cost Norway and Germany Power - Alumina cost increase - 60 percent equity position - 4
Slide 55: Long-term power contracts ensure predictable cost levels
Long-term power contracts ensure predictable cost levels going forward Contract portfolio 14 TWh Norway* z Power supply and price secured 3.5 TWh Australia z Norway: gradual increase in power price until 2010 as new contracts Canada 1.6 TWh replace old 1.0 TWh Slovakia z Germany: moderately increasi
Slide 56: Alunorte alumina refinery – key asset in repositioning
Alunorte alumina refinery – key asset in repositioning z Targeting 6.5 million ton production by 2009 z Hydro stake 34 percent of world’s largest refinery z First-quartile investment costs and highly competitive conversion costs z Platform for pursuing new opportunities in Brazil and other bauxite r
Slide 57: Qatalum project – profitable mega-smelter in key region
Qatalum project – profitable mega-smelter in key region z 585 000 tons annually – expansion potential to 1.2 million tons annually z First quartile operating cost – captive gas power z 50/50 joint venture between Hydro and Qatar Petroleum z Final cost estimate and build decision summer 2007 57
Slide 58: Qatalum – profitable mega smelter in key region
Qatalum – profitable mega smelter in key region World production 2006, 1 000 tons z 50/50 Hydro/Qatar Petroleum Cost 2006* (USD/tons) 2 500 z 585 000 ton per year, expansion potential to 1.2 million tons 2 000 z Low operating cost – captive power 1 500 1 000 Qatalum 1st quartile z High efficiency an
Slide 59: Competence and technology provide basis for growth
Competence and technology provide basis for growth z Distinct project management skills z Proprietary technology opens doors for new business opportunities z Next-generation smelter cell technology being developed z Value-added primary products attractive to partners 59
Slide 60: Primary production will grow in new areas
Primary production will grow in new areas Metal opportunities Bauxite/ Alumina opportunities Business development office location 60
Slide 61: Aluminium Products
Aluminium Products 61
Slide 62: Aluminium Products
Aluminium Products z Strong momentum in restructuring - Solid platform for good returns in Extrusion - Rolled Products improving, market still challenging z Strong record in delivering innovative aluminium solutions z Financials 2006* - Operating revenues NOK 49.8 billion - Adjusted EBITDA NOK 1.7 b
Slide 63: Adjusted profitability 2006 and capital employed
Adjusted profitability 2006 and capital employed RoaCE Signed divestments Remaining Capital Employed ~NOK 16.6 billion 10% Capital employed - total NOK 19 billion Extrusion1) Rolled Products Automotive2) Magnesium 1) Including Extrusion Europe, Extrusion Overseas, Building Systems and Precision Tubi
Slide 64: Restructuring Aluminium Products
Restructuring Aluminium Products z Closures - Magnesium Porsgrunn, Magnesium Canada, extrusion capacity UK z Divestments NOK 4.3 billion - Aluminium Castings, enterprise value NOK 3.7 billion - Meridian magnesium casting, enterprise value NOK 0.6 billion z Divestments in process - Automotive Structu
Slide 65: High-grade portfolio of downstream assets
High-grade portfolio of downstream assets Building Systems Extrusion Precision Tubing z Proven business model in Extrusion - Close to customer, innovative solutions, added value activities z Global leader in Precision Tubing - Well positioned for global customers z Building Systems leading brands -
Slide 66: Extrusion – key figures 2006
Extrusion – key figures 2006 Revenues by region* Volume split* NOK 22.7 billion 605 000 tons Other Precision 6% Tubing North 11 % America 21 % Extrusion Europe Americas Extrusion 73 % 24 % Europe 52 %** Building Systems 13 % * Revenues include Extrusion and Precision Tubing, internal sales not elimi
Slide 67: Extrusion peer group comparison – relative size
Extrusion peer group comparison – relative size 1 000 tons North America Europe 755 285 558 403 470 300 300 250 275 210 155 145 120 100 50 55 Alcoa Hydro Sapa Indalex Alcan Kaiser Bonnell Corus (now Metra Aleris) Figures show soft alloys, internal estimates 2005 Market size sources are CRU and EAA 6
Slide 68: Extrusion peer group comparison – market shares
Extrusion peer group comparison – market shares Europe North America Market size 2.7 million tons Market size 2 million tons Hydro 14 % Alcoa 24% Alcoa Other 10 % 38% Sapa Other 9% Indalex 60 % 14% Metra Alcan 2% 5% Sapa Hydro 3% Bonnell 8% 6% Kaiser 7% Figures show soft alloys, internal estimates 2
Slide 69: Rolled Products - portfolio evaluation concluded
Rolled Products - portfolio evaluation concluded z Well invested z Leading rolled products assets in Europe z Excellent market position z Strong organization z Main challenges: European industry structure and China 69
Slide 70: Rolled Products – key figures 2006
Rolled Products – key figures 2006 Revenues by region Volume split NOK 23 billion 1 million tons Other 12 % Litho North 17 % America 8% Foil 16 % Europe 80 % Strip 67 % 70
Slide 71: Rolled Products peer group comparison - relative size
Rolled Products peer group comparison - relative size 1 000 tons 4 000 Total Other North America Europe 3094 3 000 470 2 156 2 000 1 000 1 000 0 Novelis - Hindalco * Alcoa** Hydro *12 Feb 07: Hindalco agreement to acquire Novelis for USD 6bn: Chart incl. Hindalco rolled products production of 221 00
Slide 72: Rolled Products peer group comparison - market shares
Rolled Products peer group comparison - market shares European market North American market 4.4 million tons 5.3 million tons 470 Hydro Hydro 1% 1% 16% 16 % 23% Novelis 23 % 59% 25% 76% Other Novelis 59 % 25 % Other 76 % Market sources are CRU and EAA 72
Slide 73: Power
Power 73
Slide 74: Power – a solid foundation
Power – a solid foundation z Environmentally friendly z Norway’s second largest hydroelectric power producer - Average annual production 9 TWh (7-11 TWh) ~ 7.5 % of Norway’s total production - Low production costs and investments z Financials 2006 - Operating revenues NOK 10.8 billion - Adjusted EBI
Slide 75: Hydroelectric power production and concessions
Hydroelectric power production and concessions z Installed capacity 1 860 MW z Average annual production of 9 TWh - 2.7 TWh with no reversion - 3.6 TWh subject to reversal in 2044-2057* - 2.7 TWh subject to reversal in 2022 * Includes the Fortun plants (1.6 TWh) where the current concession expires
Slide 76: Well-developed production assets
Well-developed production assets Hydro installations Top ten Hydro power stations Production Tyin Consumption Skagen Vemork Såheim Suldal I Røldal Sunndal Sogn Suldal II Telemark Høyanger Årdal Svelgfoss Sogn Røldal-Suldal Karmøy Telemark Share Salten Other Røldal/ Suldal Mæl Grenland GWh/yr 0 500 1
Slide 77: Production plants
Production plants Fortun Rjukan Tyin SKS Produksjon AS Neverdalsåga Røldal-Suldal* Svelgfoss Vrangfoss Eidsfoss Skafså 100% owned Partly owned Hydro has a contractual right to a share of annual production * Røldal Suldal: Hydro interest 95.21 percent 77
Slide 78: The power portfolio is flexible
The power portfolio is flexible z Long-term purchase contracts of power until 2020 (~7 TWh) z The market value of the power portfolio is optimized continuously z Actual spot exposure will vary from hour to hour based on own production z ~2 TWh exposed to prevailing spot prices 78
Slide 79: Hydroelectric power provides stable income long term
Hydroelectric power provides stable income long term 2006 2005 2004 2003 Power production - TWh 8.3 10.8 8.1 7.5 Operating revenues* - NOK million 10 750 6 499 4 341 5 074 EBITDA - NOK million 1 306 1 233 819 1 078 Depreciation - NOK million 120 120 108 105 Operating income - NOK million 1 173 1 109
Slide 80: Hydro Polymers
Hydro Polymers 80
Slide 81: Hydro Polymers - Europe's fourth largest PVC producer
Hydro Polymers - Europe’s fourth largest PVC producer z Solid turnaround delivered z Production sites in Norway, Sweden and the UK – 1 200 employees z Competitive upstream integration in ethylene z Global vinyl positioning through JV’s in China, Qatar and Portugal z Positive outlook z List or sell P
Slide 82: From raw materials to industrial products
From raw materials to industrial products Salt & oil Caustic PVC PVC Recycled soda resin compound PVC 82
Slide 83: European PVC capacity per company
European PVC capacity per company 1 000 tons 1 340 1 195 905 625 620 450 400 360 200 190 100 EVC Solvin AtoFina Hydro Vinnolit LVM Shinetsu Vestolit Cires Aragonesas Hellenic Polym ers Petrol 83
Slide 84: Business locations
Business locations NORETYL QVC RAFNES SUZHOU HUASU PORSGRUNN CIRES STENUNGSUND HELSINGBORG AYCLIFFE 84
Slide 85: High quality assets
High quality assets z Chlorine production at Rafnes was successfully upgraded in two steps during 2005 and 2006 - Investments of NOK 1.7 billion z The Rafnes’ chlorine process is based on the best available membrane technology z The investment has made the Hydro Polymers operation self-supplied with
Slide 86: Hydro Polymers – key figures
Hydro Polymers – key figures 2000 25% EBITDA 23% 1750 EBITDA margin 1 543 20% 1500 1250 14% 15% 1000 10% 9% 774 8% 10% 750 564 500 400 321 5% 250 0 0% 2002 2003 2004 2005 2006 NOK million 2006 2005 2004 2003 Operating revenues 6 870 5 512 5 356 4 382 EBITDA 1 543 564 774 400 Depreciation 404 346 326
Slide 87: Oil & Energy – Executive summary
Oil & Energy – Executive summary 87
Slide 88: Profitable production growth
Profitable production growth 1 000 boe/day 1 000 Historical performance Target Expected z 2007 target 605 000 boed 800 z 2010 expected 700 000 boed 700 - Capacity constraints lead to project delays 605 600 563 573 z Growth from high-quality portfolio z Improved growth prospects beyond 2010 400 200 0
Slide 89: New fields on stream 2007 - 2010
New fields on stream 2007 - 2010 Hydro share Start year Field name at peak rate Country Type Operator 2007 Ormen Lange 70 000 Norway Gas/Cond Hydro Rosa 14 000 Angola Oil Total Independence Hub Area 12 500 US GoM Gas Hydro, Dominion, Anadarko Vilje 10 000 Norway Oil Hydro Njord Gas 7 800 Norway Gas
Slide 90: Discoveries
Discoveries Exploration 2006 2005 Q4 2006 Q3 2006 Q2 2006 Q1 2006 Exploration wells completed 51 22 13 13 14 11 Discoveries 26 14 5 7 8 6 Success rate – percent 51% 64% 39% 54% 57% 55% Discoveries by area Norway 1) 6 7 2 1 3 0 US Gulf of Mexico 2) 8 7* 1 2 2 3 Libya 3) 7 3 0 1 3 3 Canada 4) 2 0 1 1
Slide 91: Proved reserves of oil and gas
Proved reserves of oil and gas SEC definition Reserves 31 December 2005 – million boe 2 046 Reserve revisions 45 New reserves 34 Production 2006 (209) Reserves 31 December 2006 – million boe 1 916 Reserve replacement ratio and reserve life Reserve replacement ratio 2006 38% Reserve replacement ratio
Slide 92: Production costs per barrel
Production costs per barrel NOK/boe 32.2 7.9 25.3 20.7 20.7 5.4 24.3 20.0 2.8 19.9 17.9 2003 2004 2005 2006 Production in million boe 194 209 206 209 92
Slide 93: Hydro - priorities
Hydro - priorities 93
Slide 94: Hydro – priorities
Hydro – priorities z Execute proposed demerger of oil and gas activities and ensure successful integration planning with Statoil z Launch “new” Hydro z Strong return on capital z Operational excellence z Qatalum capital investment decision mid-2007 z Solid financial position 94
Slide 95: Additional information
Additional information 95
Slide 96: Preliminary carve-out statements
Preliminary carve-out statements First nine months ended NOK billion 30 September 2006 Operating revenues 81.8 Depreciation, depletion and amortization 3.1 Other operating cost 70.4 Operating income 8.3 Non-consolidated investees 0.7 Financial income (expense), net (0.1) Income before tax and minori
Slide 97: 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 98: Consolidated balance sheets
Consolidated balance sheets NOK million 31 December 2006 30 September 2006 31 December 2005 Cash and cash equivalents 6 760 16 490 10 463 Short-term investments 15 020 12 699 3 865 Receivables and other current assets 42 731 46 490 41 411 Inventories 16 497 16 310 14 553 Current assets held for sale
Slide 99: Statement of cash flows
Statement of cash flows NOK million 2006 2005 Operating activities: Net income 17 391 15 638 Depreciation, depletion and amortization 22 164 15 752 Other adjustments (828) (4 382) Net cash provided by operating activities 38 727 27 008 Investing activities: Purchases of property, plant and equipment
Slide 100: Pensions
Pensions NOK million 2006 2005 Defined benefit plans: Benefits earned during year, net of participants’ contributions 1 118 830 Interest cost on prior period benefit obligation 1 289 1 292 Expected return on plan assets (1 080) (1 003) Recognized net loss 1) 439 283 Amortization of prior service cos
Slide 101: Adjusted income 2006
Adjusted income 2006 NOK million Reported income Adjustments Adjusted income Exploration and Production 41 352 4 993 46 345 Energy and Oil Marketing 3 578 50 3 628 Eliminations 1 323 (1 323) - Oil & Energy 46 253 3 720 49 973 Aluminium Metal 6 362 232 6 594 Aluminium Products (83) 1 064 981 Other ac
Slide 102: Special items impacting income statement 2006
Special items impacting income statement 2006 NOK million Unrealized (gains)/losses on oil and gas derivatives, Spinnaker Exploration & Production (222) Impairment loss Gulf of Mexico Exploration & Production 5 240 Unrealized (gains)/losses on gas contracts Exploration & Production (25) Unrealized (
Slide 103: Special items impacting income statement 2006
Special items impacting income statement 2006 NOK million Net impact operating income Hydro 4 661 Non-cons. investees - unrealized currency (gains)/losses Alunorte Aluminium Metal (94) Non-cons. investees - unrealized (gains)/losses on LME contracts Alunorte Aluminium Metal 143 Non-cons. investees -
Slide 104: Adjusted income 2005
Adjusted income 2005 NOK million Reported income Adjustments Adjusted income Exploration and Production 40 594 627 41 221 Energy and Oil Marketing 3 575 41 3 616 Eliminations (719) 719 - Oil & Energy 43 451 1 387 44 838 Aluminium Metal 2 694 1 210 3 904 Aluminium Products (370) 1 043 673 Other activ
Slide 105: Special items impacting income statement 2005
Special items impacting income statement 2005 NOK million Unrealized (gains)/losses on oil and gas derivatives, Spinnaker Exploration & Production 440 Unrealized (gains)/losses on gas contracts Exploration & Production 187 Unrealized (gains)/losses on gas contracts Energy and Oil Marketing 41 Unreal
Slide 106: Special items impacting income statement 2005
Special items impacting income statement 2005 NOK million Net impact operating income Hydro 2 337 Non-cons. investees - unrealized currency (gains)/losses Alunorte Aluminium Metal (106) Non-cons. investees - unrealized (gains)/losses on LME contracts Alunorte Aluminium Metal 9 Non-cons. investees -
Slide 107: Aluminium – Additional information
Aluminium – Additional information 107
Slide 108: Primary aluminium 2006 production
Primary aluminium 2006 production Global market 35 million tons Geography Company Other Alcoa North America 18 % 12 % 16 % Alcan 10 % Latin America 7% Western Europe Rusal 13 % Other Middle East 9% 56 % 6% Hydro CIS 13 % 6% China BHP Billiton 4 27 % % Chalco 3 % 2005 primary aluminium production: 32
Slide 109: Primary aluminium production per quarter
Primary aluminium production per quarter 1 000 tons 1 472 1 720 1 826 1 799 457 461 464 441 446 444 449 451 449 450 415 418 381 388 360 343 2003 2004 2005 2006 Slovalco consolidated from Q1 2004 109
Slide 110: Hydro primary aluminium production 2003-2006
Hydro primary aluminium production 2003-2006 1 000 tons Smelter site Country Interest 2006 2005 2004 2003 Sunndal Norway 100.0% 357 362 306 210 Karmøy Norway 100.0% 288 277 278 271 Årdal Norway 100.0% 232 233 222 215 Neuss Germany 100.0% 226 225 223 221 Slovalco 1) Slovakia 20.0% 158 159 157 27 Kurr
Slide 111: Aluminium – operational data
Aluminium – operational data Q4 Q3 Q2 Q1 Q4 Q3 Q2 Q1 Volumes and prices * 2006 2006 2006 2006 2005 2005 2005 2005 Primary production (1 000 tons) 450 449 451 449 464 461 457 444 LME 3 month average 2 726 2 528 2 682 2 444 2 069 1 846 1 796 1 893 LME realized (USD/ton) including hedges 2 430 2 462 2
Slide 112: Aluminium Metal hedge programs
Aluminium Metal hedge programs 1) 2006 2007 2008 2009 2006-2008 program – volume ton 2) 130 000 163 800 167 100 - 2006-2008 program – LME price USD/ton 2 152 2 300 2 200 - 2003-2007 program (Sunndal) – volume ton 3) 96 900 108 900 - - 2003-2007 program (Sunndal) – LME price USD/ton 1 505 1 500 - - 2
Slide 113: Alumina 2006 production
Alumina 2006 production Global market 69 million tons Geography Company Africa Eastern Europe1 % 1% Other Asia Western 4 % Europe Alcoa/WMC 7% Australia 20 % CIS 29 % 10 % UC Rusal 6% North America 7% Chinese owned 19 % China Latin America 21 % Hydro 3 % 20 % Alcan CVG 3 % 8% Rio Tinto 6 % BHP Billi
Slide 114: Alumina spot price
Alumina spot price Percentage of aluminium LME 3-month price* USD/ton Percent 800 Spot alumina price % of LME 3-month aluminium price 30 600 20 400 10 200 0 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 * Jan 2007: Alumina spot approximately 350 USD/ton Source: LME, Metal Bulletin, Macquarie Resear
Slide 115: Increasing alumina equity coverage for Hydro
Increasing alumina equity coverage for Hydro Relative to primary aluminium Alumina equity coverage (bars) Equity alumina production (line) Percent million tons 100% 4.0 75% 75% 3.0 2.8 55% 50% 2.0 43% 1.9 23% 25% 1.2 1.0 0.5 0% 0.0 1998 2002 2006 2010E 115
Slide 116: Bauxite equity coverage for Hydro
Bauxite equity coverage for Hydro Relative to primary aluminium Bauxite equity coverage (bars) Equity bauxite production (line) Percent million tons 100% 4.0 75% 3.0 55% 2.4 50% 2.2 2.2 2.0 1.8 27% 26% 25% 25% 1.0 0% 0.0 2000 2005 2006 2010E * Equity production: (i) Mineracao Rio do Norte (MRN) Braz
Slide 117: Main smelter cost elements
Main smelter cost elements Alumina and power – approximately 60 - 70% World average cost structure* Hydro average cost structure* Other Other 13 % 13 % Casthouse Alumina Casthouse 33 % 4% Alumina 7% Carbon 40 % 10 % Carbon 9% Labor 7% Labor 10 % Power Power 26 % 28 % * CRU 2005, Site Operating Cost
Slide 118: Rising smelter cost for the aluminium industry
Rising smelter cost for the aluminium industry USD per ton 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) 118
Slide 119: Global smelter site operating cost position
Global smelter site operating cost position Weighted average, percent 7 13 10 28 100 9 Technology Regulatory Economy of scale 33 Contracts & Efficient work Tax frames processes Local cost level Alumina Carbon *) Power Labor **) Other ***) Cast-house Site costs operating cost Global market National/
Slide 120: Global alumina business operating cost position
Global alumina business operating cost position Weighted average, percent 4 11 12 Sustaining Costs 30 100 4 9 30 Bauxite Caustic Power Energy Labor Equipment Other Alumina * Business Soda operating cost * Alumina business operating cost USD 178/tonne in 2005 Source: 2005 CRU, Nominal US$. Note: By-p
Slide 121: Oil & Energy – Additional information
Oil & Energy – Additional information 121
Slide 122: Oil and gas production per quarter
Oil and gas production per quarter 1 000 boe/day Oil Gas 615 610 596 591 584 589 595 569 552 539 541 537 548 514 484 489 166 173 147 176 178 184 208 197 156 154 142 168 123 169 112 116 430 442 422 415 396 391 406 399 405 402 398 372 373 385 381 368 2003 2004 2005 2006 Average 530 572 563 573 122
Slide 123: Average realized gas prices
Average realized gas prices NOK/Sm3 1.03 1.09 1.52 1.93 2.16 1.97 1.85 1.79 1.73 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 123
Slide 124: Average prices and exchange rates
Average prices and exchange rates 450 NOK/boe USD/boe 80 Oil Oil Gas USD/boe NOK/boe NOK/USD NOK/Sm3 400 70 Q1 2005 46.4 291.7 6.29 1.47 350 60 Q2 2005 49.8 317.9 6.39 1.31 300 50 Q3 2005 60.4 390.6 6.47 1.36 250 Q4 2005 55.6 368.8 6.63 1.85 40 Ave. 2005 53.1 342.2 6.44 1.52 200 30 150 Q1 2006 60.6
Slide 125: Operating costs per boe
Operating costs per boe 154.1 160 NOK/boe 140 120 106.1 94.9 100 83.8 82.1 80 60 40 20 0 2003 2004 2005 2006 2006 excl HGoM Exploration 8.1 6.0 8.9 23.9 12.5 Net transportation 6.8 8.3 9.4 12.4 12.7 Other cost/income 1.7 0.7 3 2.7 2.6 Deprec.& aband. 46.4 46.4 48.2 83.1 46.7 Gas for injection 0.7 2.
Slide 126: Flexibility - increased value of gas portfolio
Flexibility - increased value of gas portfolio Norwegian Continental Shelf Strong reserve base Excellent Operator Basin Master St.Fergus Access to Infrastructure NBP* Easington*** Emden Bacton TTF** Zeebrugge/Hub Dunkerque PEG**** Gas Market Presence Long-term sales Spot sales Downstream marketing S
Slide 127: The growth story continues beyond 2010
The growth story continues beyond 2010 Maximum lifting and secure best value Gas production 1 000 boe/day 400 z Increased gas production from 300 existing reserve base z Good progress in development 200 of discoveries z High exploration activity 100 0 2000 2005 2010E 127
Slide 128: Ormen Lange/Langeled 91 percent complete
Ormen Lange/Langeled 91 percent complete z Norway’s largest industrial project. Largest gas development in Europe z Total investments: NOK 66 billion (2003 NOK) z Hydro 18 percent equity z Supply 20 percent of UK gas demand z Langeled South gas export to UK began 1 October 2006 z Ormen Lange start-u
Slide 129: International portfolio
International portfolio Russia Norway Denmark Canada Iran Libya US Gulf of Mexico Brazil Angola Current E&P activity Frontier E&P activity 129
Slide 130: Exploration performance
Exploration performance 26 discoveries in 2006 – 6 in Norway 51% success rate Norway Canada Denmark Iran Libya US Gulf of Mexico Angola 130
Slide 131: Exploration activity and cost
Exploration activity and cost NOK million 2 400 2 200 2 000 1 800 1 600 1 400 1 200 1 000 Expensed share 800 600 400 200 0 - 200 - 400 - 600 - 800 Capitalized -1 000 2002 2003 2004 2005 2006 share Expensed Expensed old wells Refund insurance Iran Seismic Spinnaker Acquisition costs 131
Slide 132: Oil and gas reserves and resources
Oil and gas reserves and resources* Million boe 4 000 CMD 2005 3 000 2 000 z Added total ~350 mboe in new resources in 2006 1 000 z Few sanctioned fields in 2006 z 2006 estimated production 209 mboe z Total reserve/resource base up 120 mboe 0 Proven reserves Additional expected 2006E Production Adde
Slide 133: Investor Relations in Hydro
Investor Relations in Hydro 133
Slide 134: Investor Relations in Hydro
Investor Relations in Hydro t: +47 22 53 84 83 Ada Christiane Rieker Vice President m: +47 951 82 718 e: ada.christiane.rieker@hydro.com t: +47 22 53 24 55 Gudmund Isfeldt Investor Relations Officer m: +47 480 01 180 e: gudmund.isfeldt@hydro.com t: +47 22 53 92 80 Stefan Solberg Investor Relations O