Norsk Hydro ASA · OSL:NHY
Norsk Hydro ASA — Investor Day (January 2002)
51 slides from Norsk Hydro ASA's investor day presentation, Jan 8, 2002
Slide 1: Capital Markets Day Hydro Agri
Capital Markets Day Hydro Agri Executive Vice President Thorleif Enger Norsk Hydro ASA Oslo, 8 January 2002
Slide 2: Agri Turnaround goals exceeded
2 Agri Turnaround goals exceeded Cost reductions Demanning No. of ‘000 NOK people 3000 2400 - 2700 2718 4000 3613 2500 3500 2700 - 3000 2000 3000 2500 1500 1350 2000 1000 1500 1200 1000 500 500 0 0 Goal Oct. Revised goal Actual 3Q01* Goal Oct. Revised goal Actual 3Q01 1999 Dec. 2000 1999 Dec. 2000 *
Slide 3: Agri Turnaround goals exceeded
Agri Turnaround goals exceeded Since 1999, our agri business has been through one of the toughest turna- rounds in our company's history, with a manning reduction of about 35% and a corresponding reduction in fixed costs. We announced in October 1999 our strategy for a turnaround program to be compl
Slide 4: Many closures and divestments of non-core businesses since 1999
3 Many closures and divestments of non-core businesses since 1999 ● Plants ● Fertilizer marketing organizations ■ Immingham fertilizer production ■ Hungary ■ Landskrona fertilizer production ■ Ukraine ■ Montoir nitrate production ■ Bulgaria ■ Hurel Arc ■ Slovakia ■ Socadour ■ Rumania ■ Socofer La Pa
Slide 5: Many closures and divestments of non-core businesses since 1999
Many closures and divestments of non-core businesses since 1999 There was a large over-capacity of nitrate fertilizers in Europe. Hydro initia- ted an industry restructuring by closing down 1 million tonnes of product. So far the total capacity reduction is around 3 million tonnes of product. Restru
Slide 6: Large productivity improvements
4 Large productivity improvements European plants Production per employee Fixed costs per tonne* tonnes NOK 5,000 300 4,500 4,000 250 3,500 3,000 200 2,500 2,000 150 1994 1996 1998 2000 P2002 1994 1996 1998 2000 P2002 1995 1997 1999 E2001 1995 1997 1999 E2001 * Excluding non-recurring items 33047_2
Slide 7: Large productivity improvements
Large productivity improvements A steady rise in production per employee in Europe was further accelerated by the Turnaround program. Fixed costs per tonne fertilizer have fallen significantly since 1999. Our competitiveness has improved dramatically and further improvements are planned for 2002. Th
Slide 8: Seizing business opportunities at the bottom of the business cycle
5 Seizing business opportunities at the bottom of the business cycle Ownership share in parentheses ● Trevo, Brazil (91%) ● Kynoch, South Africa (100%) ● Philphos marketing agreement, Philippines (0%) ● SQM marketing agreement, Chile (0%) ● Qafco IV expansion and marketing agreement (25%) An asset l
Slide 9: Seizing business opportunities at the bottom of the business cycle
Seizing business opportunities at the bottom of the business cycle At the bottom part of the business cycle, when businesses can be acquired at favourable prices, we have also seized the opportunity for asset light growth focused on high potential emerging markets. Whenever possible, we attempt to g
Slide 10: Strong leadership and focus on main value drivers
6 Strong leadership and focus on main value drivers ● Productivity ■ Productivity improvements will be our trademark ● Portfolio ■ We own assets by design, not by default ● Growth ■ Asset light strategy with focus on supply/demand balance 33047_2 - 01.2002 - * 6 - Hydro Media
Slide 11: Strong leadership and focus on main value drivers
Strong leadership and focus on main value drivers As already illustrated, Hydro Agri creates value by focusing on three main value drivers: Continuous productivity improvement, active portfolio management and asset light growth. We have ambitious growth targets but focus on asset light opportunities
Slide 12: Shareholder value - the best fertilizer performers have done well
7 Shareholder value - the best fertilizer performers have done well Average annual Total Shareholder Return* across the business cycle (1991-2000) PCS 23.4 Agrium** 17.8 Dow Chemicals 12.5 DuPont 11.5 Kali & Salz 3.9 Kemira** 3.3 0 5 10 15 20 25 Annual TSR (%) * TSR = Share price appreciation + divi
Slide 13: Shareholder value - the best fertilizer performers have done well
Shareholder value - the best fertilizer performers... The best fertilizer companies have delivered competitive shareholder returns over time, well above some of the major chemical companies. Excellent performance over time is rewarded by the stock market. The market's current poor perception of the
Slide 14: Top quartile Hydro Agri performance in 2001
8 Top quartile Hydro Agri performance in 2001 Gross return on assets* Jan. - Sep. 2001 Kali & Salz 12.2 Hydro Agri 10.8 Kemira 10.6 DuPont 9.2 Agrium 8.8 PCS 8.7 IMC 6.9 Dow Chemicals 2.9 0 2 4 6 8 10 12 14 Percent * Gross return on assets is similar to CROGI and defined as EBITDA divided by Total a
Slide 15: Top quartile Hydro Agri performance in 2001
Top quartile Hydro Agri performance in 2001 In a very competitive industry, Hydro Agri has steadily been strengthening its results since our Turnaround program started in 1999. In the first three quarters of 2001, we find ourselves in the top quartile of our peer group and we have steady momentum to
Slide 16: Fundamental forces drive growth
9 Fundamental forces drive growth ● World population growing Nutrient Sources 9 8 ● Land availability limited 7 tonne/hectare 6 ● Mineral fertilizer only 5 sustainable major source 4 Fertilizer 3 of nutrient 2 Manure 1 Soil 0 1950 1960 1970 1980 1990 2000 2010 2020 Expected growth 2-3% per year Sour
Slide 17: Fundamental forces drive growth
Fundamental forces drive growth Although the annual industry growth is not very high, it has been remarkably stable over several decades. A rising world population, combined with a declining amount of arable land per person requires more food production from a limited land base. Increased use of fer
Slide 18: Our agri business is a unique combination of size and global presence
10 Our agri business is a unique combination of size and global presence Hydro Agri All fertilizer products Non-European sales reduce seasonality 7 25 6 Mill. tonnes products 20 Mill. tonnes fertilizer product sales 2000 5 sold 2000 15 4 3 10 2 5 1 0 0 First Second Third Fourth m o lz C S dr riu PC
Slide 19: Our agri business is a unique combination of size and global presence
Our agri business is a unique combination of size and global presence Hydro is number one in fertilizer sales compared with other fertilizer companies. Almost half of our sales take place outside of our home market Europe. This puts Hydro in a unique position in the industry and make our profits les
Slide 20: Hydro Agri sales are well balanced among the three important nutrients
11 Hydro Agri sales are well balanced among the three important nutrients 2000 sales Percent 137.7 Mill. tonnes* 8.0 Mill. tonnes* 100 Potash (K) Potash (K) 80 Phosphate (P) Phosphate (P) 60 40 20 Nitrogen (N) Nitrogen (N) 0 Global fertilizer Hydro sales consumtion Average global Hydro market share
Slide 21: Hydro Agri sales are well balanced among the three important nutrients
Hydro Agri sales are well balanced among the three important nutrients Compared with the global fertilizer consumption, Hydro's sales are well balanced between the three primary nutrients. As nitrogen is the most impor- tant and hence the largest plant nutrient in terms of consumption, our sales als
Slide 22: Sourcing strategy for overseas growth
12 Sourcing strategy for overseas growth Overseas volume increasing, Third party sourcing increasing Europe stagnating 25 14 12 20 10 Mill. tonnes Mill. tonnes Third party/ 15 JV products 8 Europe 6 10 4 Overseas Hydro produced products 5 2 0 0 1991 1993 1995 1997 1999 2001E 1991 1993 1995 1997 1999
Slide 23: Sourcing strategy for overseas growth
Sourcing strategy for overseas growth While fertilizer consumption in Europe is stagnating, many overseas markets continue their strong growth. This is reflected in our sales profile (left graph). In 2001, our sales in Europe were affected by a significant reduction in fertilizer consumptions caused
Slide 24: Strong leverage based on purchasing power
13 Strong leverage based on purchasing power Hydro Agri's fertilizer purchasing is similar to the entire imports of large countries 9.7 Brazil 9.2 China 6.5 France 4.0 India Hydro Agri 7.4 0.0 2.0 4.0 6.0 8.0 10.0 12.0 Mill. tonnes fertilizer * Products included are Urea, AN, CAN, AS, DAP, MAP, TSP,
Slide 25: Strong leverage based on purchasing power
Strong leverage based on purchasing power Our extensive sourcing from other producers gives us a purchasing power which ensures that Hydro gets the best fertilizer prices. This makes it less important whether we produce basic fertilizer products ourselves or source them from others. Many of our fert
Slide 26: Hydro Agri, the global leader in
14 Hydro Agri, the global leader in ● Ammonia - the basis for all nitrogen fertilizer ● Nitrates - the most important fertilizer in Europe ● Balanced fertilization (NPK) - serving value-added segments ● Speciality fertilizers - serving high margin cash crop markets ● Industrial applications - mainly
Slide 27: Hydro Agri, the global leader in
Hydro Agri, the global leader in * Hydro has the highest market share in traded (non-captive) ammonia which is used to make nitrogen fertilizers. * Hydro has the highest market share in nitrates, the most important type of fertilizer in Europe. * Hydro's cash costs in NPK production are lower than f
Slide 28: Hydro is the leading ammonia player
15 Hydro is the leading ammonia player Production capacity Trade Mill. tonnes Mill. tonnes 6 5.2 5 5 4.5 3.8 3.8 4 4 3 3 1.6 1.5 1.5 2 2 0.5 0.7 0.65 1 1 0 0 0 Hydro* Agrium PCS Kali+Salz IMC Hydro PCS Agrium IMC Trammo Mitsui Shipping capacity Maritime storage capacity ‘000 mts ‘000 mts 175 159 140
Slide 29: Hydro is the leading ammonia player
Hydro is the leading ammonia player On all relevant parameters, Hydro is the largest ammonia player, including when looking beyond the traditional fertilizer industry. This is important due to ammonia's critical role as raw material for fertilizer production. Further- more, having extensive producti
Slide 30: Hydro is the leader in nitrate production
16 Hydro is the leader in nitrate production Total production capacity 2000 Average production cost 2000 Mill. tonnes Indexed cost nitrate per tonne 5 4.6 120 100 4 100 84 3 80 60 2 1.4 40 1 0.6 20 0.4 0 0 0 Hydro European m z ro C S al iu PC IM yd industry excl. S gr i+ H A al Hydro K Source: Nitre
Slide 31: Hydro is the leader in nitrate production
Hydro is the leader in nitrate production In nitrates, the most important fertilizer in Europe, Hydro is the largest and most cost effective producer. While the European nitrate industry suffered under structural over capacity until 1999/2000, industry closures of 3 million tonnes, to which Hydro co
Slide 32: Leading market position in speciality fertilizers
17 Leading market position in speciality fertilizers Calcium Nitrate (CN) Potassium Nitrate (PN) Market Market share (%) share (%) 100 50 88 41 41 80 40 60 30 20 18 40 20 10 12 0 0 Hydro Others SQM/ Haifa Others Hydro Calcium Nitrate and Potassium Nitrate constitute approximately 65% of total specia
Slide 33: Leading market position in speciality fertilizers
Leading market position in speciality fertilizers There is high potential for value creation in speciality products for high value cash crops. Hydro has strong market positions in the two main fertili- zers, Calcium Nitrate and Potassium Nitrate, which together constitute the bulk of the speciality
Slide 34: Strong position in selected industrial applications
18 Strong position in selected industrial applications ● Leading supplier of CO2 in Europe ● Strong position in the high growth segment for environmental products ● Leading supplier of technical ammonium nitrate to the civil explosives industry ● Strong financial performance over time 33047_2 - 01.2
Slide 35: Strong position in selected industrial applications
Strong position in selected industrial applications Hydro Agri's Gas and Chemicals business is a successful niche player and has enjoyed stable and good profitability and healthy growth over a number of years. In addition to being the leading supplier of CO2 and technical nitrate products in Europe,
Slide 36: KFK: Step change in creating shareholder value
19 KFK: Step change in creating shareholder value ● KFK in an aggressive turnaround mode ■ Large improvements being implemented in existing feed and grain business ■ New farm management strategy being rolled out, shifting focus to higher margin segments ● Hydro's ownership position ■ Strong support
Slide 37: KFK
KFK KFK has launched an ambitious turnaround program for their core activities. In addition, a new farm management strategy has been designed to provide step change in value creation and total shareholder returns. As KFK is no longer a core business to Hydro, ownership will be reduced. Both for Hydr
Slide 38: Hydro Agri's global leadership strategies
20 Hydro Agri's global leadership strategies Ammonia ■ Grow business by playing on strengths Nitrates ■ Maintain market share in Europe Balanced fertilization ■ Growth in cash crop market (NPK) Speciality fertilizers ■ Develop alliance with SQM Selected industrial applications ■ Develop new products
Slide 39: Hydro Agri's global leadership strategies
Hydro Agri's global leadership strategies We will continue to develop each of our areas of strength and get full leverage of our size wherever we are present. Still, we have a pragmatic attitude to our portfolio and we will continue to apply an up-or-out policy to assets which do not perform. We wil
Slide 40: Ambitious financial targets
21 Ambitious financial targets ● Have an average profitability across the cycle which is ■ higher than Hydro's general requirement of 10% CROGI ■ in the best quartile of chemical industry peers ■ leading among agri companies ● Pursue an asset light growth strategy ● Make good profits at bottom of bu
Slide 41: Ambitious financial targets
Ambitious financial targets During the past three years, Hydro Agri has demonstrated its ability to execute a challenging turnaround with an impressive financial recovery, leading to top quartile industry performance. Going forward, Hydro Agri will strengthen its leading position and continue to gro
Slide 42: Hydro Agri: Key messages
22 Hydro Agri: Key messages ● Agri Turnaround targets exceeded ● Unique business model based on global strengths ● Strong platform for future value creation ● Good industry performers deliver competitive shareholder returns 33047_2 - 01.2002 - * 22 - Hydro Media
Slide 43: Hydro Agri: Key messages
Hydro Agri: Key messages We have met our Turnaround targets and compare favourably with our peers in 2001 and we believe that we now have a strong platform for the future. We continue to have a strong belief in the fertilizer industry and believe that Hydro Agri will create considerable value for ou
Slide 44: APPENDIX
23 APPENDIX 33047_2 - 01.2002 - * 23 - Hydro Media
Slide 45: Fertilizer prices
24 Fertilizer prices CAN Germany Ammonia Bulk delivered warehouse Fob Caribbean USD/tonne USD/tonne 250 250 200 200 150 150 100 100 50 50 0 0 1993 1994 1995 1996 1997 1998 1999 2000 2001 1993 1994 1995 1996 1997 1998 1999 2000 2001 DAP Urea Bulk fob US Gulf Bulk fob Middle East USD/tonne USD/tonne 2
Slide 46: There are positive short term market trends
25 There are positive short term market trends ● World cereal consumption is now higher than production, leading to reduced stocks ● Cereal and international fertilizer prices are below historic averages but increasing ● This should lead to increased demand and higher prices for fertilizers 33047_2
Slide 47: Cereal consumption now higher than production, calling for increased fertilizer demand
26 Cereal consumption now higher than production, calling for increased fertilizer demand Wheat Maize Mill. tonnes Mill. tonnes 620 940 Consumption Consumption 600 920 900 580 880 560 860 Production Production 540 840 1996 1997 1998 1999 2000 2001 1996 1997 1998 1999 2000 2001 Rice Stocks Mill. tonn
Slide 48: Grain prices correlate with fertilizer prices and indicate price increase in next years
27 Grain prices correlate with fertilizer prices and indicate price increase in next years USD/bushel grain USD/tonne urea 6 300 5 250 4 200 3 150 2 100 1 50 0 0 1980 1982 1984 1986 1988 1990 1992 1994 1996 1998 2000 2002E 2004E Corn Chicago cash Urea fob Middle East Predicted urea price trend Sourc
Slide 49: Energy and ammonia are the basis for mineral fertilizer
28 Energy and ammonia are the basis for mineral fertilizer Finished products: ■ Urea ■ Nitrate Air Ammonia ■ NPK ■ Speciality fertilizers ■ Industrial products Potash Phosphate Dolomite P, K Phosphate and potash mines Oil and Gas Reservoir 33047_2 - 01.2002 - * 28 - Hydro Media
Slide 50: Hydro Agri structure
29 Hydro Agri structure EVP Hydro Agri Thorleif Enger Chief Operating Finance & Strategy Human Resources KFK Officer Hallgeir Storvik Harald Aasheim Jan Stranges Daniel Clauw 33047_2 - 01.2002 - * 29 - Hydro Media
Slide 51: Safe harbour statement
30 Safe harbour statement 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 conditi