Microsoft PowerPoint - Norsk Hydro Investor Presentation October ...

Investor presentation – October 2005 www.hydro.com 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 with respect to the financial condition, results of operations and business of the Company and certain of the plans and objectives of the Company with respect to these items. By their nature, forward-looking statements involve risk and uncertainty because they relate to events and depend on circumstances that will occur in the future. The actual results and developments may differ materially from those expressed or implied in the forward-looking statements due to any number of different factors. These factors include, but are not limited to, changes in costs and prices, changes in economic conditions, and changes in demand for the Company's products. Additional information, including information on factors which may affect Hydro's business, is contained in the Company's 2004 Annual Report on Form 20-F filed with the U.S. Securities and Exchange Commission. 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 comparable GAAP financial measure and a reconciliation between the non-GAAP and GAAP measures. This information can be found in Hydro’s earnings press releases, quarterly reports and other written communications, all of which have been posted to Hydro’s website (www.hydro.com). Page 2 Cautionary Note The United States Securities and Exchange Commission permits oil and gas companies, in their filings with the SEC, to disclose only proved reserves that a company has demonstrated by actual production or conclusive formation tests to be economically and legally producible under existing economic and operating conditions. We use certain terms in this presentation material, such as expected recoverable resources, that the SEC’s guidelines strictly prohibit us from including in filings with the SEC. Investors are urged to consider closely the disclosure in our Form 20-F, SEC File No. 1-9159, available from us at our Corporate Headquarter: Norsk Hydro, N-0240 Oslo, Norway. You can also obtain this form from the SEC by calling 1-800-SEC-0330. Page 3 Energy and aluminium - two strategic industries Global industries Increasing demand for energy Positive growth outlook for aluminium Page 4 Consistently delivering profitable growth Oil and gas production 1 000 boe/day 1 000 tonnes Aluminium production 750 2 000 1 500 500 1 000 250 500 0 1998 2003 2008E 0 1998 2003 2010E Page 5 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 Page 6 Highlights Record high earnings High oil price and good cost control Encouraging exploration results Agreement to acquire Spinnaker Exploration Company Mixed Aluminium results Solid financials Page 7 High oil price driven by supply concerns OPEC spare capacity at low levels Million bbl/day 5 4 3 USD per bbl 60 50 40 30 2 20 1 0 1999 2000 2001 2002 2003 2004 2005 2006 2007 2008 10 0 OPEC spare capacity Sources: Pira, Reuters, Platts Brent dated Brent forward Page 8 Primary aluminium market Aluminium inventories (days of consumption) 2 200 2 000 USD per tonne 1 800 1 600 1 400 1 200 1 000 1997 Aluminium price (LME 3m) 70 65 60 55 45 40 35 30 25 20 1998 1999 2000 2001 2002 2003 2004 2005 days 50 Page 9 Financial overview 2004 Operating revenues – NOK 155bn Other 2% EBITDA – NOK 51bn Aluminium 17% Aluminium 51% Oil & Energy 47% Oil & Energy 82% Other 1% Capital Employed – NOK 86bn Other 7% Oil & Energy 42% Aluminium 51% Page 10 Income from continuing operations* By quarter 4 183 NOK million 3 100 2 342 Gains from divestments 3 638 2 991 3 135 3 693 3 577 2 480 2 224 1 851 1 809 2 005 1 417 241 2002 Accumulated 2003 2004 2005 7 100 8 656 11 477 11 453 * Including the effect of change in accounting principles for 1st quarter 2003 amounting to a positive effect of NOK 281 million Page 11 Adjusted EBITDA NOK million 13 546 12 266 12 094 11 045 9 820 7 955 7 199 6 775 9 935 8 197 9 451 13 211 15 852 15 533 17 108 2002 2003 2004 2005 Accumulated 31 749 38 628 51 117 48 493 Page 12 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 Page 13 RoaCE by business area Oil & Energy 23.4% Aluminium 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 Page 14 Normalized RoaCE Percent Assumptions: - 7.9 6.6 6.2 - Oil price $25/bbl Aluminium price $1 500/tonne NOK/USD 7 EUR/NOK 8 Volumes and margins are not normalized Restructuring charges and gain/loss on divestments are eliminated from normalized figures 2002 2003 2004 Page 15 Strong financial position Debt/equity ratio Maintain current credit rating 0.67 0.60 - S&P: A Moodys: A2 0.44 0.38 0.34 Secure financial preparedness for potential strategic opportunities Strong balance sheet allows for variance in earnings due to cyclicality Target debt/equity ratio 0.5 0.11 0.04 1999 2000 2001 2002 2003 2004 2005 Q3 Page 16 Capital and exploration expenditure NOK billion Oil & Energy Exploration Aluminium 24 Other 20 19.5 NOK 20-25 bn 2004 investments as planned 2005 increase due to higher activity level - Projects on track Robust against cost inflation 2004 plan 2004 2005 plan Page 17 Dividend NOK 20 per share for 2004 20.0 9.5 7.5 8.0 10.0 10.5 11.0 1998 1999 2000 2001 2002 2003 2004 Page 18 Total Shareholder Return 2004 Hydro Statoil BG ExxonMobil ChevronTexaco Total BP Shell RoyalDutch Alcan Alcoa -20% 0% 6% -16% 20% 40% 60% 34% 28% 26% 46% 44% 2000-2004 Hydro Total BG ChevronTexaco ExxonMobil 44% 43% 30% 23% 15% 12% -17% 0% 50% 100% 150% 70% 100% 139% 26% 24% 20% 14% Alcan Shell BP RoyalDutch Alcoa -50% Source: Goldman Sachs Page 19 Oil & Energy – highlights Record result – high oil price and good cost control Successful exploration – 7 discoveries in third quarter Ormen Lange/Langeled on track – 49% complete First operatorship in Libya Agreement to acquire Spinnaker Exploration Company Page 20 Hydro and Spinnaker – a perfect fit Strategic acquisition and strong international expansion Attractive and broad portfolio Significant high-margin production High-quality deepwater development opportunities Substantial exploration potential World-class competence joining forces Page 21 Exploration success Norway 7 discoveries Astero Troll Brent M5 Peon Oseberg B Sør Oseberg J Stetind 12 discoveries 2005 – 7 discoveries in third quarter Russia Norway Denmark 1 discovery Hejre Canada Iran 1 discovery Anaran GoM Iran Libya Libya 1 discovery Angola NC 186 I1 Angola 2 discoveries Perpetua 2 Lirio 2 Page 22 Oil & Energy – operating income NOK million 12 625 Exploration and Production Energy and Oil Marketing Eliminations 9 842 8 621 9 447 7 818 7 184 6 175 5 384 3 707 3 686 3 652 5 322 5 994 7 521 3 170 2002 Accumulated 2003 2004 2005 15 947 21 143 31 144 31 914 Page 23 Petroleum production per quarter 1 000 boe/day Oil 448 104 110 378 338 Gas 482 452 88 596 540 143 397 552 484 156 112 396 372 116 430 373 489 166 615 569 173 147 123 442 422 391 514 591 584 539 541 142 399 176 178 154 415 406 364 385 2002 Average 2003 2004 YTD 2005 480 530 572 554 Page 24 Production costs per barrel NOK/boe 30 25.6 25.6 20.1 20.1 Production cost Gas for injection 28.4 26.3 24.0 22.3 25 23.2 23.2 22.9 1.7 21.2 23.9 23.9 21.1 19.8 19.8 21.1 20 17.4 2.8 14.6 15 17.1 1.1 16.0 21.0 1.2 19.8 4.9 8.0 4.2 19.8 4.7 17.6 19.6 2.5 17.1 21.4 20.4 10 5 0 2002 2003 2004 YTD 2005 Weighted average 22.6 20.7 20.7 24.6 Page 25 Continued strong production growth 1 000 boe/day 800 700 600 500 400 300 200 100 0 1998 1999 2000 2001 Oil NCS *Compound Annual Growth Rate, 2001 baseline 8% average annual growth* 2002 2003 2004 Gas 2005E 2006E 2007E 2008E 8% CAGR* Oil Int Page 26 Performance We’re on top of our projects Projects worth USD 15 billions from 1998 delivered on time and cost Latest oil development on NCS delivered ahead time and below cost Ormen Lange 49% completed and on track Page 27 New fields on stream 2005 - 2007 Field Hydro Plateau Plateau (boe/day) Year 2003 2004 2005 2006 2007 International Lorien Kharyaga Dalia Rosa Oseberg South J Oseberg Vestflanken 10 000 10 000 24 000 13 000 7 000 14 000 6 500 11 000 9 000 7 500 12 500 70 000 18 000 7 000 31 500 2 500 3 000 6 000 11 000 2007 2007 2007 2008 2006 2007 2008 2007 2007 2008 2009 2009 2015 2006 2007 2007 2011 2008 2016 Development PDO submittal Start production Operator NCS Non-operator NCS Oseberg East Drilling solution Fram Øst Vilje Njord gas phase Oseberg Delta Ormen Lange Visund gas phase Urd (Norne satellites) Kristin Ringhorne East Rimfaks/Skinfaks IOR Volve Tyrihans 2009 Page 28 Strong production growth based on attractive project portfolio Oil price giving 10% real rate of return post tax* Oseberg S Njord Oseberg Oseberg E Troll Ormen Lange Tune Phase 2 Oseberg S J C Vilje Oseberg S J Njord Gas Export Libya - B-field Libya - Great Mabruk Angola - Rosa Norne Satellites Åsgard Q-project Skinfaks/Rimfaks Operator IOR NCS Operator Development Phase Operator NCS International Partner operated NCS 0 5 10 15 20 25 *Calculations based on USD/NOK exchange rate 8 Brent USD/bbl Page 29 Core competences E&P value chain Explore • Advanced seismic acquisition, processing and interpretation Design • Advanced wells • Reservoir management • Sub-sea development • Flow assurance • Floating production Execute • Large and complex projects • Modifications • Satellite tie-ins Operate • Commissioning and start-up • Offshore operations • Optimised production • HES Cave 5 branch production well Ormen Lange Oseberg Field Centre Page 30 An efficient offshore operator Secures field life and adds reserves 2001 2002 Hydro Hydro Hydro Hydro 2003 2004 0 10 20 30 Source: McKinsey 2004, operators in Norway and UK Page 31 An experienced world-scale offshore producer Benchmark 2003 1 000 900 800 700 600 500 400 Statoil Shell Petrobras BP Hydro ExxonMobil Woodside Chevron Texaco TotalFinaElf Agip-Eni 1 000 boe/day production Offshore operator production oil and gas, boe/day * 0 500 000 1 000 000 1 500 000 2 000 000 200 100 0 Equity 300 Operator *Deeper than 100m 22 14 Source: Infield; McKinsey On & offshore: World-ranking (excl. national oil companies) Page 32 Three paths to future growth Existing portfolio - Increased recovery Develop technical resources Acquisitions Exploration Exploration - Increase predictability Exploit infrastructure position Entry in new regions Existing portfolio Acquisitions - Utilize our competence Capital discipline Short term Long term Page 33 Existing portfolio Additional potential from technical resources Canada Hebron Annapolis Murzuq B Dahra/Garian Kharyaga Libya Russia GoM Lorien Acasia Tulipa Anturio Rosa/Lirio/Cravo Orquidea/Violeta Norway Angola Discoveries to be developed Plans for optimized production Page 34 Creating value by integrating new technologies M bbl 1 500 1358 1328 1225 1164 1408 1447 Troll 300 = 1 900 mill. bbl Resources Production 1 000 945 649 500 353 277 208 385 1986 1987 1988 1989 1990 1991 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004 2005 Test prod. Petrojarl Horizontal well PDO Troll B PDO H-wells Gas Test prod. Province Gas province Prod start PDO I-Wells Troll B PDO Prod. Start Troll Pilot T-wells Troll C PDO P2 wells PDO Troll C Increased well density Page 35 NCS Existing portfolio Oseberg IOR Page 36 Exploration strategy paying off Discoveries Norway and Denmark Stetind Discoveries Norway 2005 - Astero Peon Troll Brent Oseberg South - B South Oseberg South - J Central Peon Stetind Vigdis M5 Hejre (Denmark) Vigdis Astero Troll Brent Oseberg Sør B Oseberg Sør J Hejre Page 37 Acquiring resources Assessing the deal flow: - - - Medium and small players with high exposure and limited technology National Oil Companies in need of assistance to develop North operator capabilities America Majors optimizing their portfolios Financially oriented players wanting to realize values Norwegian Continental Shelf Russia North Africa West Africa Middle East Applying Hydro’s competencies to create value - World-class developer World-class operator Page 38 Aluminium – highlights Higher LME prices driven by increased raw material costs Results reflecting seasonal effects downstream - Weak results in Extrusion and Automotive Primary aluminium production up 5 percent - Alouette expansion – producing at full capacity Page 39 The industry provides attractive opportunities Fast-growing regional markets 2004 - 2020 Fast-growing customsegments 2004 - 2020 High growth in smelting 2004 - 2020 Aluminium demand Mtpy Demand increase Percent Aluminium production increase Mtpy 35 Transportation CAGR Electrical 4.6 Consumer durables 3x Packaging Engineering 5x China 2004 2020 Source: Demand model; McKinsey metals and mining practice; team analysis 28 7 World Construction 3-6% CAGR Demand increase Shut downs New capacity Page 40 Aluminium A unique and differentiated portfolio 2004 and 2010E** 1 000 tonnes Equity Medium/long term contracts Alumina * 786 934 Equity Electrolysis metal 1 720 3rd party Remelt Equity Metal products 1 720 Extrusion & Rolled 185 1 733 Automotive Other Downstream 941 626 75 •Aluminium equivalents (2 tonnes alumina per tonne aluminium) ** Including Qatar Page 41 Aluminium A unique and differentiated portfolio 2004 and 2010E** 1 000 tonnes nes Equity Medium/long term contracts a Alumina * 786 934 2 000 Equity tal Electrolysis metal 1 720 2 000 Equity 3rd party Remelt Metal products cts 1 720 Extrusion & Rolled 185 1 733 4 300-5 000 Automotive Other am Downstream 941 626 75 1 800-2 000 •Aluminium equivalents (2 tonnes alumina per tonne aluminium) ** Including Qatar Page 41 Aluminium – operating income NOK million Metals Extrusion and Automotive Rolled Products Other and eliminations 1 629 1 341 1 269 858 842 711 653 345 412 230 (1 951) 564 530 709 1 337 2002 Accumulated 2003 2004 2005 1 698 2 456 1 805 3 520 Page 42 Energy drives primary restructuring Net exports, 1 000 tonnes 4 000 3 000 2 000 1 000 0 -1 000 -2 000 -3 000 -4 000 -5 000 * Excluding China ** Rest of the world, including the Middle East Source: CRU, Hydro Aluminium Asia* Europe USA China Canada South America Australia and New Zeeland CIS ROW** 2000 2005E 2012E Page 43 Strengthening strategic positions Improve alumina relative cost position Improve aluminium relative cost position Strengthen leadership position in Europe: Metal Products, Extrusion, Rolled Products and Automotive Selective growth outside Europe: Metal Products, Extrusion, Rolled Products and Automotive Page 44 Increasing equity alumina at lower cost Cash cost USD/tonne 220 200 180 160 140 120 100 80 60 25 30 35 40 45 Cumulative production, million tonnes per year * After sale of alumina plant in Germany. Bauxite to Alunorte at cost. Source: CRU 2003 : Major Western World Refineries (43 mill tons, i.e 80% of world production) Hydro Aluminium estimates 0 5 10 15 20 World weighted average 2003: USD 134/tonne 2000: Hydro average USD 165/tonne 2006*: Hydro average USD 120/tonne Page 45 Improving relative cost position 2003-2009 Cash cost USD/tonne 2 000 1 500 Hydro ’03 Total average USD 1 097/tonne 1 000 500 0 0 20 40 60 80 100 Cumulative production (%) Assumptions: Aluminium price USD 1 500, USD/NOK 7.0, Cumulative production 27.8 million tonnes Source: CRU, Hydro Aluminium Page 46 Improving relative cost position 2003-2009 Cash cost USD/tonne 2 000 To be closed Høyanger SØ, 22 kt Årdal SØ, 50 kt Karmøy SØ,122 kt Hydro ’03 Total average USD 1 097/tonne 1 000 New capacity 500 Alouette, 60 kt Sunndal, 250 kt 0 0 Qatar, 280 kt 20 40 60 80 100 1 500 Hydro ’10 Cumulative production (%) Assumptions: Aluminium price USD 1 500, USD/NOK 7.0, Cumulative production 27.8 million tonnes Source: CRU, Hydro Aluminium Page 46 Qatar – project description Heads of agreement signed Annual capacity - 570 000 tonnes Expansion potential up to 1 200 000 tonnes Investments - Smelter and casthouse: USD 2 - 2.5 billion Power plant: USD 0.7 - 0.8 billion Excellent location Hydro ownership - 49% in smelter and power station 51% in casthouse Hydro to market total tonnage Production start-up end 2009 HAL Technology Page 47 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 Page 48 Aluminium downstream activities Rolled Products Extrusion Total revenues 2004: NOK 44 bn Europe 79% North America 13% Others 8% Automotive 43% 38% 19% Page 49 Rolled Products: Building a stronger business Growth in high margin segments - New litho line in 2005 Foil mills upgraded Increased heat exchanger volume Delivered on improvement programs - Cost reduction and demanning Turnaround of underperforming units Modernization of Slim plant (Italy) Optimize plants’ product mix High capacity utilization through strong market position Page 50 Rolled Products: Increasing focus on higher margin segments Shipments 941 000 tonnes Foil 16% Litho 32% Operating income 2004: NOK 626 million Foil 22% Litho 16% Strip 68% *Jan-Sep 2004: 710 000 tonnes Strip 46% Page 51 Extrusion: Global growth from leading position in Europe Consolidating leadership in Europe Closing performance gap in USA Expanding in emerging and low cost markets Growing value added business Realizing system benefits Page 52 Automotive: Building on strengths and fixing underperformance Precision Tubing - Strong financial performance New plants in China and Mexico 2005 Structures - Improving financial performance from low level Focusing product portfolio Restructuring ongoing Castings - Improved financial performance New diesel engine line in Dillingen Production shifting towards low cost countries Leeds closure to be finalized in 2005 Page 53 A unique portfolio: Higher capital turnover Revenues / gross investments Factor 1.4 1.2 1.0 0.8 0.6 0.4 5 EBITDA / Revenues Percent 25 Hydro 20 Aluminium Alcoa 15 Alcan Alcoa 10 Alcan Hydro Aluminium 0.2 0.0 2000 2001 2002 2003 2004 2005 1H 0 2000 2001 2002 2003 2004* 2005 1H Source: Company reports. Hydro-estimates. Proxy figures where needed to get comparative figures * Reported figures annualized Page 54 Hydro’s gas story www.hydro.com Natural gas importance increasing 2004 production 1 000 boe/day SEC reserves million boe Gas 155 Oil 417 Gas 1171 Oil 905 Total: 209 million boe Total: 2 076 million boe Page 56 Hydro’s gas position – strongest among peers Hydro Statoil ExxonMobil ENI BP Chevron Total Royal Dutch Shell BG ConocoPhilips Amerada Hess Marathon PetroCanada 0 5 10 15 20 25 Reserve life (years) Source: CSFB, Global Integrated Oils Page 57 Strong growth in equity gas production bcm 15 10 5 Existing long term commitments (expected take) and uncommitted volumes 0 2003 2004 2005 2006 2007 2008 Page 58 Infrastructure positions give high flexibility NCS St.Fergus Bacton Emden Zeebrügge Dunkirk Page 59 Strong long term demand for gas Europe* -Gas supply and demand 800 700 600 500 400 300 200 100 0 2002 2005 2008 2011 2014 2017 2020 2023 Norway Contracted Demand Other Production Assumed prolongations UK Gas production and demand 120 100 80 bcm 60 40 20 0 1995 bcm 2000 2005 2010 2015 Demand 2020 2025 Production * Demand in 22 European countries. Excludes Turkey, FSU and Balkan Source: Global Insight Supply and Demand Report June 2004, MPE Facts 2004 Page 60 Strong market prices for equity gas Forward prices gas USD/MMbtu p/th 7 6 5 4 3 2 1 0 2000 2001 2002 2003 2004 2005 2006 2007 2008 40 35 30 25 20 15 10 5 0 Ormen Lange cost to UK NBP Note: German import price estimate German import** Sources: Argus 19 Nov 2004; GO and LSFO forwards 19 Nov 2004 Page 61 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 Page 62 Additional analytical information www.hydro.com Indicative price and currency sensitivities 2005 Based on 2004 prices and currency NOK million Oil price per barrel Aluminium price per tonne USD Oil & Energy USD Aluminium USD before financial items USD financial items 2) USD Net income Before tax 1 150 800 7 250 2 500 9 750 (3 100) 6 650 After tax 310 560 1 960 1 750 3 710 (1 705) 2 005 1) Change 1 USD 100 USD 1 NOK 1 NOK 1 NOK 1 NOK 1 NOK 1) 2) Based on average 2004 prices and expected business volumes for 2005: Oil 38 USD/bbl, Aluminium 1 700 USD/tonne and NOK/USD 6.5 USD sensitivity calculated based on long-term debt denominated in USD and net USD amounts sold forward on long-term forward currency contracts. Cash positions denominated in USD, short-term debt denominated in USD and net USD amounts sold forward on short-term forward currency contracts are excluded. Page 64 Consolidated income statements NOK million Operating revenues Operating income Non-consolidated investees Financial income (expense), net Other income, net Income from continuing operations before tax and minority interest Income tax expense Minority interest Income from continuing operations Net income Earnings per share from continuing operations – NOK Earnings per share – NOK 3rd quarter 2005 44 612 12 973 237 157 13 367 (9 182) (2) 4 183 4 183 16.60 16.60 3rd quarter 2004 38 176 8 047 287 307 8 641 (6 083) (78) 2 480 2 480 9.80 9.80 For calculation of EPS, 3rd quarter 2005: 250 904 886 shares, 3rd quarter 2004: 254 138 918 shares Page 65 Oil & Energy – operating income Operating income, NOK million Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy 3rd quarter 2005 11 799 466 360 12 625 2nd quarter 2005 9 049 660 (262) 9 447 3rd quarter 2004 7 559 272 (310) 7 521 Operational data Oil and gas production (1 000 boe/day) Realized oil price, USD/bbl Realized oil price, NOK/bbl Realized gas price, NOK/Sm³ Exploration expense, NOK million 3rd quarter 2005 541 60.40 390.60 1.36 199 2nd quarter 2005 539 49.80 317.90 1.31 240 3rd quarter 2004 514 41.70 286.20 1.07 298 Page 66 Aluminium – operating income Operating income, NOK million Metals Rolled Products Extrusion and Automotive Other and eliminations Aluminium 3rd quarter 2005 823 182 47 (210) 842 2nd quarter 2005 715 308 59 255 1 337 3rd quarter 2004 1 016 167 (8) (317) 858 Operational data Realized aluminium price, USD/tonne Realized aluminium price, NOK/tonne Primary aluminium production, kt 3rd quarter 2005 1 770 11 550 461 2nd quarter 2005 1 842 11 955 457 3rd quarter 2004 1 667 11 736 441 Page 67 Operating income Individual operating segment NOK million Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Metals Rolled Products Extrusion and Automotive Other and eliminations Aluminium Other activities Corporate and eliminations Total 3rd quarter 2005 11 799 466 360 12 625 823 182 47 (210) 842 (188) (306) 12 973 2nd quarter 2005 9 049 660 (262) 9 447 715 308 59 255 1 337 109 362 11 255 3rd quarter 2004 7 559 272 (310) 7 521 1 016 167 (8) (317) 858 263 (595) 8 047 Page 68 Consolidated balance sheet NOK million Cash and cash equivalents Short-term investments Receivables and other current assets Inventories Non-current assets Total assets Short-term interest-bearing debt Current portion of long-term debt Other current liabilities Long-term interest-bearing debt Other long-term liabilities Deferred tax liabilities Minority interest Shareholders' equity Total liabilities and shareholders' equity Shareholders' equity per share, NOK 30.09.2005 16 607 16 760 38 851 14 225 131 771 218 214 4 324 397 51 406 20 456 19 462 29 206 1 357 91 606 218 214 365.30 30.09.2004 30 246 1 632 37 251 12 458 132 770 214 357 3 326 549 46 962 26 718 16 962 33 248 1 792 84 800 214 357 335.10 31.12.2004 14 366 10 970 32 219 12 851 129 837 200 243 3 785 568 41 724 19 487 17 703 29 515 1 571 85 890 200 243 342.40 Page 69 Statement of cash flow NOK million Operating activities: Net income Depreciation, depletion and amortization Other adjustments Net cash provided by operating activities Investing activities: Purchases of property, plant and equipment Purchases of other long-term investments Purchases of short-term investments Proceeds from sales of property, plant and equipment Proceeds from sales of other long-term investments Proceeds from sales of short-term investments Net cash used in investing activities Financing activities: Loan proceeds Principal repayments Ordinary shares purchased Ordinary shares issued Dividend paid Net cash used in financing activities Foreign currency effect on cash Net cash provided by discontinued operations Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of period Cash and cash equivalents at end of period Nine months ended 30 September 2005 Nine months ended 30 September 2004 11 453 10 598 3 334 25 385 (11 819) (444) (15 162) 1 256 747 9 545 (15 877) 677 (1 663) (1 177) 56 (5 021) (7 128) (139) 2 241 14 366 16 607 8 922 10 788 4 664 24 374 (11 243) (554) (10) 475 1 143 11 (10 178) 101 (4 028) (1 684) 29 (2 811) (8 393) (4) 9 574 15 373 14 873 30 246 Page 70 Net income* By quarter NOK million Gains from divestments 4 218 3 765 3 280 2 840 2 482 2 132 2 324 2 397 2 480 2 224 3 638 3 693 3 577 4 183 513 2002 Accumulated 8 765 2003* 2004 2005 10 968 12 560 11 453 * Including the effect of change in accounting principles for 1st quarter 2003 amounting to a positive effect of NOK 281 million Page 71 Normalized RoaCE Per business area Oil & Energy 13.0% 11.4% 9.2% Aluminium Adjustment for write-down of German plants Normalized 5.0 % 4.1 % 2.9 % 1.5 % 2002 2003 2004 2002 2003 2004 Page 72 Dividend policy A steady development in line with the growth in the company’s results - Buyback and dividend NOK million Dividend Buyback 2004 dividend above normal level due to the very strong financial position 981 30% payout ratio over time 5021 Buyback of shares – a supplement when high earnings - 1684 1599 763 2094 1604 1718 1718 1155 555 2711 2811 2470 2576 New authorization of 10 million shares approved 1 December 1997 1998 1999 2000 2001 2002 2003 2004 2005 Page 73 Investment criteria Capital discipline – basis for future profits Strategic fit Hurdle rate 10% real IRR after tax Mid-cycle price assumptions - Oil price USD-04/bbl 45 Hurdle Average Forward Historical 40 35 30 25 20 15 10 1990 1995 2000 2005 2010 2015 2020 Oil $25 per barrel Aluminium $1 500 per tonne USD/NOK 7 Aligned with business planning assumptions Testing robustness at $20 / $1 400 Page 74 Investment criteria Capital discipline – basis for future profits Strategic fit Hurdle rate 10% real IRR after tax Mid-cycle price assumptions - Aluminium price USD-04/tonne 2 200 Hurdle Average Forward Historical Oil $25 per barrel Aluminium $1 500 per tonne USD/NOK 7 Aligned with business planning assumptions 2 000 1 800 1 600 1 400 1 200 1990 1995 2000 2005 2010 2015 2020 Testing robustness at $20 / $1 400 Page 75 Investment criteria Capital discipline – basis for future profits Strategic fit Hurdle rate 10% real IRR after tax Mid-cycle price assumptions - USD/NOK 10 9 8 7 6 5 1990 Historical Average Hurdle Oil $25 per barrel Aluminium $1 500 per tonne USD/NOK 7 Aligned with business planning assumptions Testing robustness at $20 / $1400 1994 1998 2002 2006 2010 Page 76 The Ormen Lange development concept Nyhamna plant Hydro’s technologies and expertise make a difference 49 percent complete Multiphase transport Gas export Steep and uneven terrain Seabed development (850-1100m deep) Page 77 Key facts Ormen Lange and Langeled project Total field & pipeline investments Production start Ormen Lange Operations start Langeled Recoverable gas reserves Recoverable condensate Gas production Condensate production Water depth Profitable NOK 66 bn (10 bn USD) 2003 October 2007 October 2006 397 Bcm (14 TCF) 28.5 Mcm 21.4 Bcm/yr (2.100 mmcfd) 40.000 bbl/d 850 – 1 100 metres Above $13/bbl > 10% IRR after tax Page 78 21 billion barrels left to discover Barents Sea: 6.2 billion barrels High risk – high potential Oil-play potential Norwegian Sea: 7.7 billion barrels High risk – medium/high potential North Sea: 7.5 billion barrels Moderate risk – smaller structures High value per barrel Source: NPD Page 79 Canada Mature area opportunities in highly profitable portfolio Existing portfolio Hibernia and Terra Nova optimization Hebron development solution Exploration Near infrastructure led exploration Mature current licence portfolio Assess risk/volume in immature basins Acquiring resources Increase technical resources in the Grand Banks area Page 80 Angola Diversified opportunities in profitable growth portfolio Existing portfolio Girassol and Jasmim optimizations Dalia/Rosa development projects 3rd production hub selection Exploration Commercialize Block 4 discovery Alternative potential in Block 34 New opportunities with Sonangol P&P Significant mid-sized prospect potential Acquiring resources Additional opportunities based on proven reserves Page 81 Russia Legacy asset opportunities through long-term commitment Existing portfolio Further development of Kharyaga Exploration Pursuing business opportunities Acquiring resources Shtokman Co-operation with Gazprom on the development concept Page 82 Libya Existing exploration potential in long-term core area Existing portfolio Mabruk developments Murzuq developments Exploration Exploration drilling Co-operation with Wintershall EPSA exploration round V Acquiring resources Actively pursuing additional value creating growth opportunities Page 83 Iran Exploring for oil in key petroleum province Exisiting portfolio Anaran and Khorramabad exploration acreage Azar Well Exploration Well testing Azar 2 - positive results Basis for long term development in Iran Page 84 Gulf of Mexico Commercial mindset and deep-water competence Existing portfolio Telemark development (operator) Lorien development (non operator) Exploration Successful lease sales Operator blocks Acquiring resources Actively pursing additional value creating growth opportunities Lorien Telemark Page 85 Production per field – 3Q 2005 Boe/day (oil including NGL and condensate) Share % 38.00 34.00 17.65 34.00 6.65 10.00 9.00 9.60 9.78 15.00 9.78 13.28 5.00 25.00 9.42 8.10 15.00 13.28 20.00 20.00 40.00 34.00 3Q 04 115 000 163 000 191 000 83 000 311 000 186 000 240 000 185 000 133 000 89 000 165 000 57 000 207 000 46 000 55 000 105 000 0 67 000 31 000 25 000 16 000 32 000 Hydro 3Q 04 43 836 55 451 33 709 28 210 20 667 18 568 21 601 17 717 12 961 13 367 16 165 7 565 10 325 11 608 5 170 8 496 0 8 955 6 142 5 075 6 237 10 822 3Q 05 195 000 151 000 168 000 79 000 345 000 192 000 208 000 186 000 131 000 79 000 106 000 74 000 187 000 31 000 82 000 95 000 49 000 54 000 35 000 30 000 15 000 18 000 Hydro 3Q 05 73 951 51 347 29 660 26 726 22 914 19 206 18 683 17 900 12 779 11 908 10 376 9 885 9 346 7 803 7 728 7 706 7 414 7 160 7 051 6 053 5 994 5 983 21 309 398 883 141 795 540 678 Grane Oseberg incl C Snorre Oseberg South Ekofisk Girasol/Jasmin Gullfaks inclu. Sat C Åsgard Troll B Terra Nova Troll C Vigdis Hibernia Fram Sleipner Area Norne Kvitebjørn Tordis Njord Brage Kharyaga Oseberg East Other Oil Gas Total production Page 86 Production per field Total 1,000 boe/day Oseberg fields 115.7 Troll 74.9 Snorre fields 58.1 Grane 46.3 Åsgard 37.7 Sleipner fields 32.8 Tune 33.4 Gullfaks fields 28.6 Ekofisk fields 28.5 Fram Vest 12.3 Norne 11.3 Visund 6.2 Brage 6.1 Girassol 19.0 Terra Nova 16.5 Hibernia 10.2 Kharyaga 6.7 Other fields 27.7 Total 572.0 2004 Oil Gas 1,000 boe/day million CF/day 95.3 104.3 32.1 247.6 56.2 10.7 46.3 21.3 92.4 10.4 122.9 6.1 144.8 23.0 32.0 24.0 23.4 12.3 10.1 7.2 6.2 5.7 2.1 19.0 16.5 10.2 6.7 16.0 65.0 417.4 852.4 Total 1,000 boe/day 115.1 80.0 67.5 5.5 40.6 35.2 30.8 26.0 28.2 2.9 13.2 6.6 7.3 19.5 20.1 10.1 5.5 16.1 530.2 2003 Oil Gas 1,000 boe/day million CF/day 103.0 59.6 37.0 248.1 65.0 12.8 5.5 24.2 91.6 12.0 127.0 7.8 122.0 21.2 26.8 23.9 23.0 2.9 12.2 5.9 6.6 7.0 1.9 19.5 20.1 10.1 5.5 10.2 33.9 393.7 752.6 Page 87 Operating costs per boe NOK/boe 100 80 60 40 20 0 Exploration Net transportation Other cost/income Deprec.& aband. Gas for injection Prod. cost 99.7 83.8 82.1 87.3 2002 20.3 9.0 1.4 46.4 0.4 22.2 2003 8.1 6.8 1.7 46.4 0.7 20.0 2004 6.0 8.3 0.7 46.4 2.8 17.9 YTD 2005 4.9 9.3 2.3 46.1 5.1 19.5 Production million boe 175 194 209 151 Page 88 Exploration activity and costs NOK million 1 500 1 200 900 600 300 0 - 300 2002 Activity Expensed old wells Expensed share 2002 2003 2004 Refund insurance Iran 2005 Capitalized share Cost reduction Angola Page 89 Average realized gas prices NOK/Sm 1.50 1.20 1.07 0.98 0.89 0.86 0.99 1.03 1.01 1.06 1.10 0.98 1.07 3 1.47 1.31 1.36 1.00 0.50 0.00 2002 2003 2004 2005 Page 90 UK gas prices – NBP forward curves Pence/th 95 85 75 65 55 45 35 25 15 Jan-04 Jan-05 Jan-06 Jan-07 Jan-08 Jan-09 End Q4 2003 End Q1 2005 End Q3 2004 End Q2 2005 End Q4 2004 End Q3 2005 Page 91 Nordic power market – forward curves NOK/MWh 400 350 300 250 200 150 2005 End Q2 2004 End Q1 2005 End Q3 2004 End Q2 2005 End Q4 2004 End Q3 2005 2006 2007 2008 Page 92 Western World* demand expected to grow in the coming years 1 000 tonnes 40 000 35 000 3 000 30 000 25 000 20 000 15 000 10 000 5 000 0 2001 2003 2005E 2007E 2 400 2 400 4 800 5 600 5 000 8 000 2 700 2 500 5 000 5 900 5 100 2 800 2 800 5 300 6 300 5 400 3 000 5 600 6 500 5 700 % growth per segment 4.1 4.1 2.8 2.7 2.3 4.3 8 400 9 300 10 100 Other Durables Electrical and engineering B&C Packaging Transportation * World excluding Central and Eastern Europe, China, Russia, Ukraine, North Korea Sources: BrookHunt; Hydro Aluminium Page 93 Primary aluminium production Primary production (1 000 tonnes) * Karmøy Årdal Neuss Sunndal Kurri-Kurri Høyanger Søral (49.9% ownership interest) Stade Slovalco** Other 2004 278 222 223 306 155 76 82 69 157 152 2003 271 215 221 210 156 74 79 69 178 2002 273 206 173 153 122 73 67 48 138 Total * ** Full consolidation of Slovalco from 2004 Slovalco introduced 100% from 2004 1 720 1 473 1 253 Page 94 Aluminium – operational data Volumes and prices Primary production (1 000 tonnes) * Total metal products sales excluding trading (1 000 tonnes) LME realized (USD/tonne) including hedges USD/NOK realized including hedges ** LME realized (USD/tonne) excluding hedges USD/NOK realized excluding hedges ** Rolled Products external shipment (1 000 tonnes) Extrusion and Automotive external revenues (NOK million) Extrusion order intake (indexed, 1996=100) * ** Q3 2005 461 741 1 770 6.53 1 796 6.44 244 6 146 194 Q2 2005 457 835 1 842 6.49 1 886 6.27 243 6 909 223 Q1 2005 444 802 1 783 6.58 1 812 6.35 239 6 511 210 Q4 2004 446 735 1 678 6.65 1 707 6.61 231 6 580 184 Q3 2004 441 752 1 667 7.04 1 691 6.87 234 6 572 205 Q2 2004 418 776 1 647 7.10 1 669 6.89 235 6 476 232 Q1 2004 415 786 1 525 7.13 1 530 6.90 240 7 459 223 Full consolidation of Slovalco from 2004 Difference between realized exchange rate and spot rate at the transaction date is reported as currency gain/loss and not included in EBITDA (except currency hedges where hedge accounting is applied) Page 95 Inventories – primary aluminium 1 000 tonnes 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 2005* Sources: IAI and LME, 2005* as of end-August IAI (Producers' inventories) LME (London Metal Exchange) Page 96 Operating income – Adjusted EBIT – Adjusted EBITDA Full year 2004 NOK million Operating income Noncons. investees Interest income Selected fin. items Other income Adj. EBIT Depr. and amort. Adj. EBITDA Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Metals Rolled Products Extrusion and Automotive Other and eliminations Aluminium Other activities Corporate and eliminations Total 28 363 2 650 131 31 144 830 626 277 72 1 805 312 (1 414) 31 847 4 73 (2) 75 281 (13) 113 381 170 2 628 46 35 81 5 3 15 23 130 739 973 3 (3) 1 1 107 (1) (5) 101 108 (20) 190 59 59 110 169 28 416 2 814 130 31 360 1 223 615 400 72 2 310 830 (693) 33 807 9 752 664 2 10 418 38 168 3 478 132 41 778 5 396 1 361 1 827 72 8 656 1 363 (680) 51 117 4 173 746 1 427 6 346 533 13 17 310 Page 97 Operating income – Adjusted EBIT – Adjusted EBITDA Third quarter 2005 NOK million Operating income Noncons. investees Interest income Selected fin. items Other income Adjusted EBIT Depr. and amort. Adjusted EBITDA Exploration and Production Energy and Oil Marketing Eliminations Oil & Energy Metals Rolled Products Extrusion and Automotive Other and eliminations Aluminium Other activities Corporate and eliminations Total 11 799 466 360 12 625 823 182 47 (210) 842 (188) (306) 12 973 58 (1) 57 129 (6) 11 134 46 237 3 7 10 2 4 6 26 185 227 3 1 4 38 (1) (1) 36 56 5 101 - 11 805 532 359 12 696 990 177 61 (210) 1 018 (60) (116) 13 538 2 316 178 2 494 438 166 326 930 141 5 3 570 14 121 710 359 15 190 1 428 343 387 (210) 1 948 81 (111) 17 108 Page 98 Pensions NOK million Total Pension Obligations Pension Plan Assets Funded status of the plans Net accrued pension recognized on balance sheet Unrecognized prior service costs and net loss 2004 (25 399) 16 504 (8 895) (1 371) (7 524) 2003 (23 456) 14 669 (8 787) (852) (7 935) 2002 (19 422) 12 116 (7 306) (265) (7 041) Funded status of the plans Termination benefits and other pension plans Total net unfunded pension obligation Total net periodic pension cost (8 895) (1 161) (10 056) 2 121 (8 787) (1 184) (9 971) 2 073 (7 306) (1 111) (8 417) 1 322 Weighted-average assumptions at end of year Discount rate Expected return on plan assets Rate of compensation increase 2004 5.2% 6.3% 3.1% 2003 5.9% 7.0% 3.5% 2002 6.7% 7.9% 3.5% Page 99 Financial solidity – calculation Amounts in NOK million [A] [B] [C] [D] [E] [F]=[A]+[B] +[C]+[D]+[E] [G] [H] [I]=[G]+[H] [J] [K]=[F]+[I]+[J] [L] [M] [N]=[L]+[M] [O] [P] [Q]=[N]+[O]+[P] Cash and cash equivalents Short-term investments Bank loans and other interest-bearing short-term debt Current portion of long-term debt Long-term debt Net interest-bearing debt Net pension liabilities at fair value Expected income tax benefit 30% Net pension liabilities tax adjusted Operating lease commitments discounted at 4.8% (2004: 10%) Adjusted net interest-bearing debt Net pension liabilities not recognized without equity effect Expected income tax benefit 30% Equity adjustment off-balance sheet pension liabilities Minority interest Shareholders' equity Adjusted shareholders’ equity and minority 31 December 2001 27 148 2 421 (8 458) (1 966) (37 853) (18 708) (2 133) 640 (1 493) (5 072) (25 272) (2 767) 830 (1 937) 1 051 74 793 73 907 31 December 2002 5 965 2 647 (7 306) (1 958) (30 902) (31 554) (10 107) 3 032 (7 075) (4 924) (43 552) (6 994) 2 098 (4 896) 1 143 75 867 72 114 31 December 2003 15 249 1 581 (5 569) (1 242) (28 568) (18 549) (11 973) 3 592 (8 381) (4 916) (31 846) (7 862) 2 358 (5 504) 660 88 080 83 236 31 December 2004 14 366 10 970 (3 785) (568) (19 487) 1 496 (10 056) 3 017 (7 039) (3 500) (9 043) (6 341) 1 902 (4 439) (1 571) (85 890) (83 022) 30 September 2005 16 607 16 760 (4 324) (397) (20 456) 8 189 (10 879) 3 264 (7 615) (4 062) (3 488) (6 340) 1 902 (4 438) (1 357) (91 606) (88 525) [R]=[K] / [Q] Adjusted debt / equity ratio 0.34 0.60 0.38 0.11 0.04 Page 100 Page 101