How To Calculate Norsk Hydro'S First Quarter 1997 Results

Transcription

1 Norsk Hydro First quarter 1997

2 Norsk Hydro First quarter 1997 Consolidated results (US GAAP) th qtr NOK million 1st qtr 1st qtr 1,754 Operating income 3,145 3, Non-consolidated investees ,874 Income before tax 3,202 3,327 (629) Income tax expense (1,667) (1,465) 776 Tax effect of changes in tax law 2,013 Net income 1,540 1, Earnings per share Norsk Hydro's net income in the first quarter was NOK 1,540 million (USD million). This was a decline of 18% compared to the first quarter of Net income increased by 24% compared to the fourth quarter of 1996, excluding the effect of the change in the tax law for hydro-electric power plants. Earnings per share in the first quarter of 1997 were NOK 6.70 (USD 1.01).

3 Norsk Hydro First quarter 1997 First quarter operating income was NOK 3,145 million (USD million), which was virtually unchanged from operating income for the first quarter of Oil and Gas had a significantly better result than last year. Operating income for Agriculture and Petrochemicals was somewhat lower, while Light Metals showed a marked decline. Compared to the fourth quarter of 1996, first quarter operating income showed an improvement of 79%. This was due to higher earnings in Agriculture, Oil and Gas and Light Metals. In the fourth quarter of 1996, the results for Oil and Gas were negatively impacted by the NOK 600 million charge for impairment and other losses related to the Frigg area. Earnings for non-consolidated investees fell compared to the first quarter of 1996 by 52% to NOK 83 million. The drop is attributable to the weaker results for Hydro Texaco's retail gasoline activities and the fertilizer affiliates located outside Europe. "Other income" in the first quarter of NOK 78 million represents a gain on the sale of a portion of Hydro's interest in a partly-owned power plant.

4 Norsk Hydro First quarter 1997 Hydro's investments during the quarter totaled NOK 2.4 billion. This was 33% less than in the same period in 1996, when an investment of NOK 1.2 billion to extend concessions for four power plants in Norway was made. OUTLOOK FOR 1997 In the international fertilizer market, new capacity is expected to put downward pressure on the prices of urea and ammonia. Crude oil inventories have risen in recent months. Inventory levels, in combination with increased OPEC and non-opec production, create uncertainty for future oil prices. The aluminium market reflects an increase in demand. New industry production capacity, and the potential start-up of idled capacity, may offset the effect of increased demand. Hydro's water and snow reservoirs have improved in the course of the first quarter. Hydro's hydro-electric production is, therefore, expected to be in line with a normal year.

5 Norsk Hydro First quarter 1997 The international marketplace for PVC and VCM continues to show solid growth. However, due to new production capacity coming on line in the USA and Asia, no appreciable change in product margins is expected. AGRICULTURE th qtr NOK million 1st qtr 1st qtr 386 Operating income First quarter operating income for Agriculture of NOK 856 million was 4% less than in the same quarter of The decline was due to somewhat lower fertilizer prices in Europe and increased costs for raw materials. Operating income rose by 122% compared to the fourth quarter of last year. The change reflects the seasonal increase in demand with a stronger concentration of sales in the spring. Geneall

6 Norsk Hydro First quarter 1997 Total deliveries of fertilizer to the Western European market have been somewhat lower thus far in the 1996/97 fertilizer season than they were in the corresponding period last season. High inventories at the start of the season are the main reason for the decline. During the first quarter of 1997, deliveries were also lower than during the same period last year. However, market activity increased towards the end of the quarter. Total imports from the former Soviet Union and from Central Europe have remained at roughly the same level for this season as the previous season. European fertilizer prices were somewhat lower in the first quarter than in the corresponding period last year. This can be attributed to lower deliveries and high production as a result of improved operational efficiency among the European manufacturers. For Hydro, the effect of the lower prices has been compensated by higher sales volumes. Hydro's total fertilizer sales to the European markets increased by 30% in the first quarter compared to the same quarter last year. Most of the increase is due to the acquisition of the Italian fertilizer operations from ENI.

7 Norsk Hydro First quarter 1997 Hydro's fertilizer plant utilization was high throughout the quarter. High oil and gas prices have resulted in an increase in the raw materials costs for ammonia production. Earnings for Hydro's fertilizer trading operations outside of Europe were at the same level as in the first quarter last year. International fertilizer prices showed a downward trend throughout the first quarter. Ammonia prices fell from a very high level at the end of Urea prices also weakened in the first quarter, partly as a result of low demand from China. In the case of the most important phosphate-based fertilizer, DAP, prices stabilized at the end of the quarter. Start-up of a new urea plant in Qatar, of which Hydro owns 25%, began at the end of the quarter. Hydro's Industrial Chemicals operations had a somewhat weaker result for the quarter compared to the same quarter last year, as a result of the lower margins for chemicals and industrial gas products.

8 Norsk Hydro First quarter 1997 OIL AND GAS th qtr NOK million 1st qtr 1st qtr 1,340 Operating income 1,924 1, Exploration expense Oil and gas production (mill. toe) Oil price (USD/bbl) Oil price (NOK/bbl) Operating income for Oil and Gas in the first quarter increased by 29% to NOK 1,924 million compared to the same period in The improvement was primarily due to higher oil prices and a positive cost development. Operating income increased by 44% compared to the fourth quarter last year, when the result was negatively affected by the write-down and provision for losses in the Frigg area, totaling NOK 600 million. Hydro's oil and gas production was 3% higher than in the first quarter of The increase was due to gas deliveries from Troll, which started on 1 October Production from the Vigdis oil field commenced in January Hydro has interests of 7.7% and 8.4%, respectively, in these fields.

9 Norsk Hydro First quarter 1997 The average crude oil price was USD 21.4 per barrel in the first quarter, an advance of 13% compared to the same period last year. Stated in Norwegian kroner, the increase was 16%. Average gas prices were also higher than in the equivalent period of Exploration costs of NOK 114 million were charged to expense which was somewhat lower than in the same period last year. The Gas Sales Committee (GFU) entered into agreements for sale of gas to buyers in Italy and the Czech Republic. When the deliveries build up to the peak level around the year 2004, sales under these agreements are expected to total billion Sm 3 of gas annually. Hydro's share of the sales volume will be dependent upon which fields are allocated contracted volumes by the Norwegian authorities. Hydro's Refining and Marketing activities showed a decline in results in the first quarter compared to the same period last year because of the lower prices for refined products.

10 Norsk Hydro First quarter 1997 LIGHT METALS th qtr NOK million 1st qtr 1st qtr 105 Operating income Operating income for Light Metals was NOK 396 million in the first quarter of 1997 compared to NOK 689 million for the same period last year. The decrease was due principally to lower aluminium prices. Compared to the fourth quarter of 1996, earnings were considerably improved due to better results for aluminium, magnesium and energy operations. First quarter operating income for primary aluminium production was weaker than in the comparable period of 1996 as a result of lower realized aluminium prices. Prices on the London Metal Exchange (LME) increased 12% compared to the price level in the fourth quarter of last year. However, the price increase is not fully reflected in the first quarter results because of time lags in realized prices. Hydro's total production of aluminium was at the same level as in the first quarter of last year.

11 Norsk Hydro First quarter 1997 The result for trading activities improved from the earnings for the first quarter of last year. This was due partly to the increased volumes from tolling contracts in the USA. Operating income for extruded and rolled products showed improvement compared to the first quarter of Increased demand and higher production were the main factors that accounted for the increase. Realignment and further development of production processes for automotive components continue to adversely affect results. Raufoss Automotive was acquired on 1 April as a part of the continued development in the automotive sector. Magnesium's operating income in the first quarter weakened compared to the first quarter of last year, reflecting lower prices for pure magnesium. The effect of lower prices was partially offset by higher sales volumes. Demand for magnesium alloys continued to grow in 1997, and this has contributed to high capacity utilization in Hydro's production facilities. First quarter results for Energy were lower than in the first quarter of last year due to somewhat lower prices and lower production. In the first quarter of 1996, earnings were also positively impacted by the settlement of a price dispute related to previous years income. Operating income in the first quarter was substantially higher than in the fourth quarter of 1996, as a result of increased production.

12 Norsk Hydro First quarter 1997 PETROCHEMICALS th qtr NOK million 1st qtr 1st qtr 79 Operating income Petrochemicals' operating income in the first quarter was NOK 59 million compared to NOK 87 million in the same quarter of last year. Performance was hurt by lower caustic soda prices, increased raw materials costs and reduced production due to the phase-in of new production capacity. Slightly higher PVC prices and lower fixed costs had a positive impact on first quarter results. The international PVC and VCM markets continue to display regional variations in demand. Demand has been higher in Asia and the USA than in western Europe, where activity in the building industry was relatively low. The strong growth in the global demand for PVC has contributed to the increased production of the by-product caustic soda. Since production increases have surpassed the growth in demand, the price of caustic soda has been under pressure.

13 Norsk Hydro First quarter 1997 OTHER ACTIVITIES th qtr NOK million 1st qtr 1st qtr (156) Operating income (90) (46) Other activities include unallocated costs for corporate functions and shared services, as well as certain subsidiaries including a wholly-owned marine biochemistry company, Pronova; Hydro Seafood s fish farming operations; and Industriforsikring, a captive industrial insurance company.

14 Norsk Hydro First quarter 1997 FINANCE th qtr NOK million 1st qtr 1st qtr 350 Net interest expense Net foreign exchange loss (138) Net gain on securities (165) (266) 14 Other, net Net financial (income) expense 104 (38) 6.45 NOK/USD exchange rate 1) ) As of the end of the period. Net financial expense in the first quarter amounted to NOK 104 million compared to an income of NOK 38 million in the first quarter of The change is mainly attributable to the higher net realized and unrealized gains on marketable equity securities in the first quarter of Capitalized interest on plant under construction was NOK 134 million in the first quarter of 1997 compared with NOK 153 million in the corresponding period last year.

15 Norsk Hydro First quarter 1997 Net cash flow from operations amounted to NOK 2.1 billion in the first quarter of 1997, compared with NOK 2.6 billion in the first quarter of The reduction was due to a larger increase in working capital requirements and lower net income than in the same quarter of The long-term debt to equity ratio of 0.40 at the end of the first quarter remained at the previous year s level.

16 Norsk Hydro First quarter 1997 TAXES The provision for current and deferred taxes in the first quarter was NOK 1,667 million, equivalent to 52% of pre-tax income. The corresponding figure for the first quarter of 1996 was NOK 1,465 million, equivalent to 44% of pre-tax income. The higher effective tax rate this year is due to the higher relative proportion of income attributable to offshore oil and gas activities. Current tax is estimated to represent about 84% of total taxes in the first quarter. This compares to 86% for the entire year of 1996, excluding the effect of the 1996 change in the tax law for hydro-electric power production facilities. Oslo, 21 April 1997 The Board of Directors

17 Norsk Hydro First quarter 1997 INCOME STATEMENTS First quarter Year NOK million except per share data Operating revenues 23,249 21,380 84,840 Depreciation, depletion and amortization 1,659 1,665 6,725 Other operating costs 18,445 16,599 67,462 Provision for impairment and losses 1,000 Operating income 3,145 3,116 9,653 Equity in net income of non-consolidated investees Financial income (expense), net (104) 38 (219) Other income Income before taxes and minority interest 3,202 3,327 10,277 Income tax expense (1,667) (1,465) (4,829) Tax effect of changes in tax law 776 Minority interest 5 6 (20) Net income 1,540 1,868 6,204 Earnings per share Comments * All figures are based on generally accepted accounting principles in the United States (US GAAP), unless otherwise stated. * Interim figures are unaudited. * Earnings and shareholders equity per share have been calculated based on the average number of outstanding shares of 229,072,674.

18 Norsk Hydro First quarter 1997 INDIVIDUAL INDUSTRY SEGMENTS Operating revenues First quarter Year NOK million Agriculture 10,704 9,414 37,858 Oil and Gas 4,742 4,107 17,764 Light Metals 6,193 6,120 22,026 Petrochemicals 1,293 1,362 5,522 Other activities 1,323 1,299 5,525 Intersegment sales (1,006) (922) (3,855) Total 23,249 21,380 84,840 Operating income First quarter Year NOK million Agriculture ,667 Oil and Gas 1,924 1,497 5,631 Light Metals ,253 Petrochemicals Other activities and costs not identified with a segment (90) (46) (185) Total 3,145 3,116 9,653

19 Norsk Hydro First quarter 1997 QUARTERLY RESULTS NOK million except per share data 1st qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 23,249 21,380 21,568 20,173 21,719 Operating income 3,145 3,116 2,633 2,150 1,754 Net income 1,540 1,868 1, ,013 Earnings per share USD million except per share data * 1st qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 3, , , , ,369.8 Operating income Net income Earnings per share * Amounts have been converted to USD for convenience using the average exchange rate (NOK/USD) in effect during the quarters as follows:

20 Norsk Hydro First quarter 1997 BALANCE SHEETS NOK million except per share data ASSETS Current assets Cash and cash equivalents 4,028 4,074 3,538 Other liquid assets 2,975 3,140 2,953 Receivables 22,183 19,955 19,497 Inventories 12,225 10,876 13,194 Total current assets 41,411 38,045 39,182 Non-current assets Property, plant and equipment, less accumulated depreciation, depletion and amortization 52,381 49,422 52,053 Other assets 14,335 13,849 14,229 Total non-current assets 66,716 63,271 66,282 Total assets 108, , ,464

21 Norsk Hydro First quarter 1997 LIABILITIES AND SHAREHOLDERS EQUITY NOK million except per share data Current liabilities Bank loans and other interest bearing short-term debt 4,122 3,336 3,610 Current portion of long-term debt 1,313 1,716 1,346 Other current liabilities 19,428 17,682 18,795 Total current liabilities 24,863 22,734 23,751 Long-term liabilities Long-term debt 17,546 16,281 17,330 Deferred tax liabilities 17,231 17,614 16,887 Other long-term liabilities 4,711 4,735 4,765 Total long-term liabilities 39,488 38,630 38,982 Minority shareholders interest in consolidated subsidiaries 1,126 1,204 1,184 Shareholders equity 42,650 38,748 41,547 Total liabilities and shareholders equity 108, , ,464 Shareholders equity per share

22 Norsk Hydro First quarter 1997 STATEMENTS OF CASH FLOWS First quarter Year NOK million Operating activities: Net income 1,540 1,868 6,204 Adjustments: Depreciation, depletion and amortization 1,659 1,665 6,725 Provision for impairment and losses 1,000 Other adjustments (1,090) (902) (2,477) Net cash provided by operating activities 2,109 2,631 11,452 Investing activities: Purchases of property, plant and equipment (2,159) (3,169) (10,958) Purchases of other investments (112) (202) (2,223) Net sales of short-term investments Proceeds from sales of property, plant and equipment Other proceeds ,305 Net cash provided by (used in) investing activities (2,124) (2,472) (11,355) Financing activities: Loan proceeds ,307 Principal repayments (122) (875) (2,346) Dividends paid (1,374) Net cash provided by (used in) financing activities 506 (821) (1,413) Foreign currency effects on cash flows (1) (60) 58 Net increase (decrease) in cash and cash equivalents 490 (722) (1,258) Cash and cash equivalents at beginning of period 3,538 4,796 4,796 Cash and cash equivalents at end of period 4,028 4,074 3,538

23 Norsk Hydro First quarter 1997 OPERATING INCOME - NORWEGIAN ACCOUNTING PRINCIPLES Norsk Hydro prepares its financial statements in accordance with the accounting principles generally accepted in Norway and with US GAAP. In the report, operating revenues and operating income according to Norwegian accounting principles are shown in the table below. All other figures in the report are presented in accordance with US GAAP. The general comments concerning developments in the operations of industry segments are applicable to both sets of accounting principles, unless otherwise stated. The main differences between Norwegian and United States accounting principles (US GAAP) are that exploration costs for oil and gas activities and interest during construction are expensed as incurred under Norwegian accounting principles. Under US GAAP, drilling costs for exploratory wells are capitalized pending a determi-nation of whether proved reserves have been found. If commercially exploitable reserves are not proved, the drilling costs are expensed. The capitalized drilling costs are depreciated when production begins. Interest on plant under construction is capitalized under US GAAP and is depreciated along with the facilities. First quarter Year NOK million Operating revenues 23,249 21,380 84,840 Depreciation 1,483 1,456 5,852 Other operating costs 18,514 16,656 67,886 Provision for impairment and losses 822 Operating income 3,252 3,268 10,280

24 Expansion in fertilizer offsets lower prices Positive trend for Oil and Gas continued Increased activity for Light Metal s downstream operations 2 Situation for hydro-electric production returns to normal Start-up of Hydro s idle aluminium capacity and new PVC capacity at quarter s end

25 Consolidated income statements 3 1st quarter NOK million Operating revenues 23,249 21,380 Operating income 3,145 3,116 Equity in net income of non-consolidated investees Financial income (expense) (104) 38 Other income (expense) 78 Income before taxes and minority interest 3,202 3,327 Tax (1,667) (1,465) Minority interest 5 6 Net Income 1,540 1,868 Earnings per share - NOK

26 Operating income 4 NOK million 4,000 3,500 3,000 2,500 2,000 1,500 1, ,915 1,900 1,537 1,616 3,556 2,719 2,405 2,024 3,116 2,633 2,150 1,754 3, * Accumulated 6,968 10,704 9,653 3,145 *) Excluding reversal of previously accrued restructuring charges of NOK 184 million in 3rd qtr. 1994

27 Operating income By business segment 5 1st quarter NOK million Agriculture Oil and Gas 1,924 1,497 Light Metals Petrochemicals Other activities and costs not identified with a segment (90) (46) Total 3,145 3,116

28 Variance analysis - Group Operating income 6 NOK million 1st quarter ,145 1st quarter ,116 Variance 29 Explanation: - Improved prices Oil and Gas Increased volume Lower margins for land-based activities (450) - Other (220)

29 Operating income By business segment 7 1st qtr. 4th qtr. NOK million Agriculture Oil and Gas 1,924 1,340 Light Metals Petrochemicals Other activities and costs not identified with a segment (90) (156) Total 3,145 1,754

30 Net income 8 NOK million 2,500 2,000 2,130 1,947 1,868 2,013 1,500 1,658 1,381 1,414 1,540 1,000 1,049 1,097 1, , * 1995* 1996** 1997 Accumulated 3,909 7,150 6,204 1,540 *) Before effect of changes in accounting principles in 1st qtr. 1994; NOK 127 mill. and 1st qtr. 1995; NOK (17) million. **) After tax law change: Hydro-electric power; NOK 776 million

31 Long-term debt / shareholders' equity Long-term debt divided by shareholders' equity plus minority interest

32 Operating income - Agriculture 10 NOK million 1, Accumulated 1,564 2,742 2,

33 Variance analysis - Agriculture Operating income 11 NOK million 1st quarter st quarter Variance (33) Explanation: - Fertilizer volume Fertilizer margin (260) - Other (50)

34 Variance analysis - Agriculture Operating income 12 NOK million 1st quarter th quarter Variance 470 Explanation: - Fertilizer volume Fertilizer margin (170) - Other 100

35 Ammonia price Western Europe C&F 13 USD/tonne st qtr Sources: Green Markets, British Sulphur, Fertecon

36 Price development - urea/dap 14 USD/tonne DAP Bulk FOB US Gulf UREA Bulk FOB Middle East st qtr Sources: Green Markets, British Sulphur, Fertecon

37 European fertilizer price index 15 Index (average =100) st qtr. 1997

38 Operating income - Oil and Gas 16 NOK million 2,000 * * 1,924 1,500 1, , * 859 1,089 1,497 1,448 1,340 1, Accumulated 3,241 3,275 5,631 1,924 *) Frigg-area: Impairment and other losses NOK 755 million in 2nd qtr. 1995, NOK 400 million in 3rd qtr and NOK 600 million in 4th qtr. 1996

39 Variance analysis - Oil and Gas Operating income 17 NOK million 1st quarter ,924 1st quarter ,497 Variance 427 Explanation: - Price and foreign exchange effects Depreciation 50 - Increased production 40 - Field costs / transportation 20 - Exploration and field evaluation 20 - Reduced earnings Refining and marketing (50)

40 Price development - crude oil Average per quarter USD/bbl NOK/bbl st qtr USD/bbl NOK/bbl 1st quarter 1997: NOK/bbl 21.4 USD/bbl

41 Petroleum production Own reserves, per quarter 19 1,000 toe 3,500 3,000 2,500 2,861 2,842 2,562 3,264 2,998 2,877 2,949 3,341 3,369 3,321 3,442 3,359 3,489 2,000 1,500 1, Annual production st qtr (mill. toe) Oil Gas

42 Operating costs per barrel oil equivalents 20 NOK/bbl * 1996* 1st qtr Net operating costs Exploration Field and production costs Depreciation and abandonment Transportation costs *) Excl. impairment Frigg-area

43 Exploration activity and costs 21 NOK million /94 2/94 3/94 4/94 1/95 2/95 3/95 4/95 1/96 2/96 3/96 4/96 1/97 Expensed share Capitalized share Activity Previously capitalized wells expensed

44 Operating income - Light Metals 22 NOK million 1,500 1,341 1, * Accumulated 1,451 3,655 1, *) Excluding reversal of restructuring charges of NOK (184) million in 3rd qtr. 1994

45 Variance analysis - Light Metals Operating income 23 NOK million 1st quarter st quarter Variance (293) Explanation: - Downstream activities 70 - Aluminium trading and tolling 40 - Primary metal margin (230) - Contract settlement Energy (50) - Other (120)

46 Variance analysis - Light Metals Operating income 24 NOK million 1st quarter th quarter Variance 291 Explanation: - Hydro-electric production Metal volume 70 - Primary metal margin 40 - Other 30

47 Price development - primary aluminium 3-month LME price, monthly average 25 USD/tonne 2,500 2,000 1,500 1, st qtr. 1997

48 Inventories - primary aluminium Registered inventories in the western world 26 1,000 tonnes 5,000 4,000 3,000 2,000 1, Jan Feb Mar (E) 1997 IPAI (Producers' inventories) LME (London Metal Exchange) Sources: IPAI and Reuter

49 Primary aluminium shipments and industrial production Western world 27 Change from previous year (%) (E) Primary aluminium shipments Industrial production Sources: CRU, WBMS and Hydro

50 Extrusion plant bookings 28 Index (1st qtr = 100)

51 Magnesium Western world supply and demand 29 1,000 tonnes /93 2/93 3/93 4/93 1/94 2/94 3/94 4/94 1/95 2/95 3/95 4/95 1/96 2/96 3/96 4/96 Western production Import FSU and China Western demand Sources: IMA and Hydro

52 Price development magnesium Pure and alloy 30 Index 1st qtr = st qtr Pure Alloy

53 Water reservoir levels in Norway 31 Percent Maximum level Minimum level Median Week Reservoir levels 1996 Reservoir levels 1997

54 Operating income - Petrochemicals 32 NOK million Accumulated 898 1,

55 Price development - caustic soda Contract prices Northwest Europe 33 DEM/tonne st qtr Source: Harriman

56 Price development - PVC S-PVC (pipe grade) CIF, Northwest Europe 34 DEM/kg st qtr Source: Platt s

57 : How to use this guide Several navigation tools have been built into this guide to help you find the you need. The area on the right side of each page includes the main navigation buttons with the following functions: Information: Press this button and you will get added on the subject. : Press this button and you will return to the original text screen. : Press this button for general. Press this button and you will always get to the start of the document. Press this button for one page. Press this button for one page forward. RED HIGHLIGHTED TEXT: Click on the highlighted text for additional.