NORSK HYDRO PRELIMINARY FINANCIAL REPORT Focus for the future

Transcription

1 NORSK HYDRO PRELIMINARY FINANCIAL REPORT 2000 Focus for the future

2 NORSK HYDRO OIL AND ENERGY LIGHT METALS AGRICULTURE PETROCHEMICALS OTHER ACTIVITIES Exploration and Production Norway 1) Exploration and Production International 1) Aluminium Metal Production Aluminium Extrusion Plant Nutrition Gas and Chemicals Petrochemicals Industrial Insurance Hydro Seafood Energy Aluminium Rolled Products 2) KFK Pronova Oil Marketing Automotive Structures 2) Magnesium 2) 1) Reported as one segment for financial reporting 2) Reported as Other Light Metals for financial reporting Norsk Hydro prepares its financial statements in accordance with the generally accepted accounting principles in Norway and the United States. The comments of the company s Board of Directors concerning developments in the operations of industry segments are applicable to both sets of accounting principles, unless otherwise stated. The differences in net income under Norwegian accounting principles and USGAAP are not material. Quarterly results 2001: 23 April July October 2201 The results will be released at 0930 hours CET. The company reserves the right to revise this date. Hydro on the Internet Hydro's web site on the Internet provides information about the company and its activities, financial status and annual reports. The information is updated on a regular basis, offering news, press releases, results and presentations. Visit us at Norsk Hydro ASA, Bygdøy Allé 2, N-0240 Oslo, Norway Telephone: Fax: corporate@hydro.com 2

3 Consolidated results (US GAAP) 2,732 6,729 7,032 7,462 7,243 Operating income 28,466 7, Non-consolidated investees Interest income and other financial income 1,747 1, ,413 1,609 Other income 3,161 1,350 3,460 7,159 7,692 9,528 9,667 Earnings before interest and tax (EBIT) 34,046 10,928 (1,386) (1,247) (1,298) (1,240) (120) Interest expense and foreign exchange (loss) gain (3,905) (3,055) 2,074 5,912 6,394 8,288 9,547 Income before taxes and minority interest 30,141 7,873 (1,215) (3,470) (3,589) (4,372) (4,747) Income tax expense (16,178) (4,337) 813 2,451 2,775 3,896 4,859 Net income 13,981 3, Earnings per share Norsk Hydro's net income for 2000 was NOK million (USD 1,572.5 million) or NOK (USD 6.02) per share compared with NOK 3,416 million (USD million) or NOK (USD 1.80) per share in The substantial improvement is due to a combination of better market conditions and positive effects resulting from Hydro's implementation of its strategy announced in the Autumn of 1999 to focus on three core areas. The acquisition of Saga Petroleum in July 1999 increased Hydro's oil production considerably. This, together with the steep rise in oil and gas prices during 2000 is reflected in the significantly improved result, despite the high average rate of taxation (approximately 65%) on earnings derived from Hydro's oil and gas activities. Extensive restructuring within Hydro Agri has resulted in lower costs. At the same time, market conditions improved during the course of the year. Increased margins and volumes in Light Metals and Energy also contributed to the overall improvement despite relatively weak results in the Light Metals area for the fourth quarter. The results for both 2000 and 1999 include after- tax gains from the divestment of operations amounting to approximately NOK 2,800 million (USD million) or NOK (USD 1.20) per share for 2000 and NOK 1,040 million (USD million) or NOK 4.20 (USD 0.54) per share for Operating revenues increased by approximately 40% in 2000 to NOK 157 billion compared with NOK xx billion in the previous year. The increase is principally due to higher prices and volumes in certain of Hydro's business segments and the effects of the high US dollar exchange rate. The fourth quarter net income was NOK 4,859 million (USD million) or NOK (USD 2.01) per share compared with NOK 813 million (USD million) or NOK 3.10 (USD 0.39) per share during the same period last year. The result was positively influenced by the sale of Hydro Seafood which resulted in an after- tax gain of approximately NOK 1,040 million (USD million) or NOK 4.00 (USD 0.43) per share. Hydro s Board of Directors will propose to the annual general meeting of shareholders a dividend of NOK 9,50 for The estimated adjustment to the tax basis (RISK) is 32,20 per share for th qtr Operating Non-cons inv., Other Deprec. EBITDA Operating Non-cons inv., Other Deprec. EBITDA income interest income and income interest income and & certain Amort. & certain Amort. fin. items fin. items 5, ,076 7,986 Hydro Oil and Energy 21, ,288 30, (1) Hydro Light Metals 3, ,715 5, Hydro Agri 1, ,848 3,982 (295) (74) 1, ,391 Petrochemicals and , ,744 other Activities 1, ,208 Corporate 1,468 1, ,741 and Eliminations 7, ,609 3,210 12,877 Total 1) 28,466 2,419 3,161 12,563 46,609 EBITDA for 2000 was NOK 46,609 million, representing an increase of NOK 24,665 million compared with Operating income for 2000 was NOK 28,466 million, an improvement of NOK 20,731 million compared with the previ- 3

4 ous year. Operating income for the fourth quarter alone represents an improvement of NOK 4,511 million compared with the corresponding period in In the fourth quarter of 2000 Norsk Hydro changed the way it allocates pension costs to it's Norwegian operations. Costs are now charged based on pension benefits accruing evenly over the employees service period. Previously, costs were determined based on the number of years of service resulting in a concentration of the total cost toward the end of the service period. The change resulted in non-recurring charges to the segments with a corresponding credit reflected in Corporate Activities. Part of these costs have been charged to external parities resulting in a positive effect to the Company's fourth quarter operating income of NOK 470 million. This change will result in slightly higher overall costs for the individual segments over the next several years but will not have any significant effect on the group's consolidated results. EBITDA for the fourth quarter 2000 was NOK 12,877 million including a pre-tax gain of NOK 1,609 million from the sale of Hydro Seafood as well as the positive one-time effect resulting from the change in pension cost allocations. Excluding these items, current results reflect an underlying improvement of approximately 50% compared with fourth quarter of the prior year. Earnings from non-consolidated investees increased by NOK 333 million to NOK 672 million in 2000 compared to The fourth quarter result also reflects an improvement compared to the corresponding period in The improvement is attributable to better earnings within both the Light Metals and Agri segments. Hydro's investments in 2000 totaled NOK 16.6 billion. Approximately 50% of this was within Hydro's Exploration and production operations. CROGI ( Cash Return on Gross Investment) in 2000 was 12.3% compared with 8.4% for Based on normalized prices 1), CROGI was approximately 9% in 2000, while the target for 2001 is 9.5% and 10% for ) Normalized prices -see description of CROGI on page 14. HYDRO OIL AND ENERGY EBITDA 4,935 6,406 7,041 7,388 7,821 Exploration and Production 28,656 11, Energy 1,745 1, (60) Oil Marketing (2) 30 Eliminations ,314 6,982 7,697 7,976 7,986 Total Hydro Oil and Energy 30,641 13,579 Operating Income 2,624 4,230 4,863 5,258 5,757 Exploration and Production 20,108 5, Energy 1, (49) Oil Marketing (1) - (1) 1 27 Eliminations ,900 4,720 5,417 5,766 5,901 Total Hydro Oil and Energy 21,804 6,962 4th qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Oil and gas production (thousands boe/d) Oil price (USD/bbl) Oil price (NOK/bbl) Gas Price (NOK/sm 3 ) Exploration expense (NOK million) 1,682 1,202 4

5 Exploration and Production EBITDA for Exploration and Production in 2000 was NOK 28,656 million, nearly two and a half times higher than in This positive improvement mainly reflects significantly higher oil and gas prices, together with a 21% increase in oil and gas production resulting primarily from the acquisition of Saga Petroleum. EBITDA for 2000 includes a NOK 387 million gain resulting from the disposal of Saga's UK oil and gas operations in the third quarter. EBITDA in the fourth quarter of 2000 was NOK 7,821 million, representing an improvement of approximately 60% compared to the corresponding period last year. The increase was primarily due to higher prices for oil and gas as well as higher production volumes. Earnings were negatively impacted by NOK 366 million resulting from the change in method for allocating pension costs. Hydro's oil and gas production in 2000 was 413,000 barrels of oil equivalents per day compared to 340,000 barrels of oil equivalents per day in Average production in the fourth quarter was 440,000 barrels of oil equivalents per day, 3% higher than in the equivalent quarter of 1999 and 20% higher than in the third quarter of The increase from the third quarter 2000 primarily related to increased sales under existing contracts with European customers. Fourth quarter gas consumption was somewhat lower than expected due to mild weather on the European Continent. The average price of crude oil in the fourth quarter of 2000 was USD 28.9 per barrel, compared to USD 23.3 per barrel in the same period of Stated in Norwegian kroner, the oil price increased by 45%. Average realized gas prices were 90 % higher than in the equivalent period of 1999, amounting to NOK 1.17 /Sm3. Earnings were impacted by NOK 1,682 million in exploration costs in 2000, compared to NOK 1,202 million in the previous year. The increase is attributable to lower capitalization of cost due to fewer commercial discoveries. Exploration costs for 1999 included Saga Petroleum activities for the second half of the year only. Exploration activities in the fourth quarter of 2000 were somewhat higher than in the equivalent quarter last year. Hydro expensed NOK 169 million relating to previously capitalized wells which are no longer considered commercially viable on the Norwegian continental shelf in the fourth quarter of Hydro's oil and gas reserves amounted to 2,040 million barrels of oil equivalents at the end of 2000, compared to 2,085 million barrels of oil equivalents the previous year. Adjusted for reserves that were purchased, sold or swapped in the period, Hydro achieved a total reserve replacement of approximately 111 % in The sale of the UK portfolio resulted in a reduction in reserves of 77 million barrels of oil equivalents. The positive reserve replacement is attributable to the maturation of technical resources relating to reserves in Dahlia (Angola), Fram West, Kharyaga (Russia), and Vale and the revision of recoverable reserves in the rest of the portfolio. Energy EBITDA for Energy in 2000 was NOK 1,745 million, an increase of approximately 60% compared to 1999, excluding a non-recurring adjustment of NOK 85 million relating to the change in allocation of pension costs. The increase reflected improved income in all business areas. In periods of changing prices, earnings are affected by sales of existing inventories at prices different than historical cost. The above results include a negative price effect on existing inventories of approximately NOK 6 million. In 1999, rising oil prices throughout the year resulted in a positive effect of approximately NOK 160 million. In the fourth quarter of 2000 EBITDA was somewhat better when compared to the same period in the previous year before the effects of the change in pension cost allocation. The fall in oil prices during the quarter negatively impacted earnings by approximately NOK 145 million relating to inventory losses compared to inventory gains of approximately NOK 28 million for the same period in High refinery margins contributed to an improvement in operating income of NOK 336 million within oil trading and refining activities during the year. Earnings from gas sales to the EU improved by NOK 162 million compared to the previous year as a result of increased activities and improved margins. 5

6 Electricity production in 2000 was 11.5 TWH compared to 10.4 TWH in Production in 2000 was 33% higher than prior year production based on normal precipitation levels. Higher production of electricity has resulted in a somewhat lower price compared to Earnings were NOK 122 million higher than in Reservoirs are at present below normal due to lower precipitation in certain energy production regions. Oil Marketing EBITDA for Oil Marketing in 2000 was NOK 211 million compared to NOK 451 million in Reduced earnings are attributable to lower realized margins, mainly due to high oil prices in the period. EBITDA for the fourth quarter 2000 was negative in the amount of NOK 60 million resulting from an inventory loss due to the fall in oil prices during the quarter. At the beginning of the quarter, the price of oil was USD 28.5 per barrel, while at the end of the quarter it was USD 22.8 per barrel. The negative impact on earnings in connection with the reduction in the inventory value was around NOK 100 million for the fourth quarter of Included in EBITDA is Hydro's share of the net income in the retail marketing company, Hydro Texaco, of NOK 20 million in 2000, which was NOK 99 million lower than in 1999, mainly due to lower realized margins and inventory losses. HYDRO LIGHT METALS EBITDA 688 1,342 1,085 1, Aluminium Metal Products 3,744 2, Aluminium Extrusion 1,307 1, (53) Other Light Metals (13) (14) 1 (1) (19) Eliminations (33) (44) 1,073 1,803 1,659 1, Total Hydro Light Metals 5,501 3,760 Operating Income (Loss) 524 1, Aluminium Metal Products 2,821 1, Aluminium Extrusion (11) (196) Other Light Metals (143) 216 (12) (13) - (1) (19) Eliminations (33) (43) 687 1,286 1, Total Hydro Light Metals 3,336 2,179 Aluminium Metal Products EBITDA for Aluminium Metal Products in 2000 was NOK 3,744 million, an increase by more than twofold compared to 1999 excluding a one-time pension effect of NOK 365 million in the fourth quarter of The increase in EBITDA is mainly attributable to higher metal prices realized when measured in Norwegian kroner, improved results within metal trading activities, and increased sales volumes. EBITDA for the fourth quarter of 2000 was NOK 251 million which was approximately NOK 437 million lower than in the corresponding period last year and NOK 815 million lower than in the third quarter of The decline in the quarter was mainly due to the above mentioned one-time pension effect, lower sales volumes and slightly higher fixed costs. In addition, EBITDA for the fourth quarter was negatively impacted by NOK 100 million from the price hedging program, while for the corresponding period of 1999 EBITDA was positively affected by approximately NOK 40 million. 6

7 Aluminium price on the London Metal Exchange (LME) strengthened by USD 180 per tonne in the course of 2000 to an average of USD 1,567 per tonne. In 2000 the average realized aluminium price for Hydro was approximately USD 1,530 per tonne versus USD 1,380 per tonne in In the fourth quarter of 2000, the average price realized by Hydro was USD 1,535 per tonne compared to USD 1,440 per tonne for the corresponding period in the previous year. In connection with the expansion project at the Sunndal Metal plant, Hydro launched a separate price hedging program in the fourth quarter of 2000 to secure the price of part of the primary metal production from the new plant for the period At the end of the fourth quarter, approximately 90,000 tonnes had been sold forward at a price of just over USD 1,550 per tonne. In addition, Hydro has secured the US dollar exchange rate for the same tonnage at the level of about NOK 9.20 per USD. The hedged gains and losses will impact earnings upon delivery under the contracts during The intent of the price hedging program is to ensure a stable cash flow and a good rate of return on the expansion project. Earnings for metal trading activities in 2000 were substantially above the previous year. However, earnings for the fourth quarter were considerably lower than the results in the previous three quarters which included significant positive results on alumina trading activities. Hydro's tolling partner in the US, Goldendale Aluminium Company, decided to reduce production in 2001 from 160,000 tonnes to around 40,000 tonnes due to high power prices. Hydro will supply current customers with metal from the company's new remelt plant in Henderson, Kentucky and from other metal sources. Aluminium Extrusion EBITDA for Hydro Aluminium Extrusion in 2000 showed an improvement of 22% compared with 1999, while the figure for the fourth quarter was at approximately the same level as in the corresponding period last year. The improvement is primarily due to higher volumes and productivity, while the margin per tonne in excess of metal cost showed a slight reversal. Extrusion Europe achieved record results despite weak fourth quarter results. Heat Transfer experienced a slight downturn compared with the previous year as a result of lower margins. Activities within the building system sector in Europe also achieved record results despite a slight downturn in the fourth quarter. The building systems activities also demonstrated significant advances outside of Europe during The fourth quarter results were negatively affected by the difficult market situation for general extrusion in the US and cost reduction measures implemented at Hydro Aluminum Wells. Other Light Metals EBITDA for Hydro Aluminium Rolled Products was lower in 2000 than in the previous year. EBITDA in the fourth quarter was also markedly lower than in the corresponding period last year. The low 2000 result was due to one-time effects and increased gas prices. Market conditions in Europe for rolled products were acceptable. Production and shipments were higher in both 2000 and in the fourth quarter of 2000 than in the corresponding periods of the prior year. EBITDA for Hydro Automotive Structures demonstrated a marked improvement in 2000 compared with the previous year. The improvement was primarily due to the gain from the sale of Hydro's 40% share in Sapa Autoplastics in the second half of Excluding the sale and other one-time effects, EBITDA was at the same level as in EBITDA in the fourth quarter of 2000 was somewhat lower than in the corresponding period of the prior year. A dedicated effort is being made to raise operating margins to a more desirable level by means of productivity improvement measures. Hydro Magnesium had a considerably lower EBITDA in 2000 than in the previous year. EBITDA for the fourth quarter of 2000 was significantly lower than the corresponding period last year. Production and sales volumes achieved in 2000 were higher, while margins realized were markedly lower, mainly due to lower market prices. Demand for magnesium remains strong, however the increased exports from China have been the primary contributor to the price pressure experienced in the market. 7

8 HYDRO AGRI EBITDA (685) Plant Nutrition 2,841 (119) Gas and Chemicals (9) KFK (4) (10) 10 Eliminations 43 (15) (309) 1,041 1, Total Hydro Agri 3,982 1,141 Operating Income (Loss) (1,610) Plant Nutrition 990 (2,239) (3) Gas and Chemicals (8) 9 57 (102) KFK (44) 233 (2) (10) 11 Eliminations 44 (14) (1,447) Total Hydro Agri 1,303 (1,671) Plant Nutrition Hydro Plant Nutrition achieved an EDITDA in 2000 of NOK 2,841 million, an improvement of NOK 2,960 million compared to In the fourth quarter of 2000, EBITDA was NOK 697 million compared to a negative amount of NOK 685 million in EBITDA for 2000 was charged with nonrecurring costs of NOK 731 million, compared with NOK 979 million in Nonrecurring costs of NOK 314 million were charged in the fourth quarter compared with NOK 592 million in the fourth quarter of The change in method of allocating pension cost resulted in a non-recurring charge of NOK 239 million in the fourth quarter 2000, while NOK 75 million related to costs in connection with Hydro Agri turnaround. The improvement in EBITDA for 2000 resulted from cost improvements of approximately NOK 1,350 million, reductions in nonrecurring costs of approximately NOK 250 million and improved margins. Price increases have exceeded increases in variable costs despite the substantial increase in energy costs resulting from high oil and gas prices. However, margins remain lower than historical levels for a complete business cycle. Manning has been reduced by around 2,500 persons since the beginning of 1999, excluding additions relating to Adubos Trevo in Brazil and Kynoch in South Africa which were acquired later. Market improvements reflect the improved market balance resulting from the reduction of nitrate fertilizer capacity in Europe. High gas prices in the US towards the end of the year helped to improve the international market prices for ammonia. In addition, capacity reductions resulting from the high gas prices also increased the market price for urea. In Europe, increased gas prices have also affected nitrate fertilizer, raising prices from the very low level experienced at the beginning of the previous fertilizer season to levels exceeding margins currently obtained on urea, which is more in line with normal historic levels. Total deliveries of fertilizer to the most important markets in Western Europe increased in 2000 for the third consecutive year. The increase from 1999 to 2000 was mainly relating to imports which rose from a historically low level in 1999 to a more normal level in West European producers maintained their volumes despite lower production capacity. Hydro increased deliveries somewhat but market share fell slightly as a result of increased imports. Prices for the most important nitrate products increased by 30-40% from 1999 to 2000, while the increase in the fourth quarter 2000 compared with the fourth quarter 1999 varied between 50 and 70% according to the market location. Hydro's sales to markets outside Europe have achieved positive growth over the last several years. This favorable trend has continued in Average prices for ammonia and urea increased by 50 and 40%, respectively, between 1999 and 2000 to a level of USD 179 per tonne in Western Europe for ammonia and USD 110 per tonne fob for the Middle East for urea. At the end of January 2001, these prices had increased to USD 252 and USD 137, respectively, per tonne. The increase is primarily attributable to the high gas prices in the US and the improved market balance as a result of the strong demand for urea in recent years. The market price for ammonia is expected to be significantly affected by future gas prices in the US, while urea prices will also depend on the speed at which the market absorbs new production capacity in Venezuela, Argentina and Egypt. 8

9 Phosphate fertilizer prices were under pressure in Even the most efficient production plants in the US experienced only moderate operating results. In the fourth quarter Hydro decided to withdraw from a project to build a phosphoric acid and NPK production facility in Jordan. Gas and Chemicals EBITDA for Gas and Chemicals was NOK 712 million for 2000 compared to NOK 760 million in 1999, representing a 6% reduction. For the fourth quarter EBITDA was NOK 121 million compared to NOK 259 million in the equivalent quarter of The negative variance in the fourth quarter was primarily attributed to lower margins, in addition to change in the method of allocating pension costs in Norway. The margins for nitrogen chemicals were significantly reduced throughout the year due to the strong increase in ammonia and gas prices. The division has been able to offset the drop in margins through a considerable reduction in fixed costs. The gas operation presented positive results on the whole, apart from Asia where it has taken longer than anticipated to establish desirable returns. A/S Korn- og Foderstof Kompagniet KFK EBITDA for KFK in 2000 was NOK 386 million, a reduction of NOK 129 million compared to EBITDA in the fourth quarter was negative NOK 9 million, representing a reduction of NOK 130 million compared to the equivalent period of the previous year. The lower result is primarily connected to lower margins within animal and fish feed. Animal feed margins were lower due to intense competition in an industry with excess capacity in addition to increased raw material and energy costs. The increase in the price of raw materials reflects substantial demand increases for products representing protein substitutes for bone meal due to the growing concern over BSE. Increased competition and low prices are the main reason for the drop in fish feed margins. Sales of fish feed have increased by around 20%. KFK announced a major rationalization program in January 2001 which will involve a work force reduction of around 10% in addition to the closure of 28 sales outlets, 2 feed factories and a seed factory. A provision of NOK 25 million was made in the fourth quarter mainly in connection with demolition costs. Expenses of around NOK 40 million in connection with the work force reduction will be charged to the accounts in The program is expected to result in a reduction of annual fixed costs of around NOK 140 million. Petrochemicals (68) EBITDA (188) Operating income (loss) EBITDA in 2000 was NOK 662 million. EBITDA for 1999 included a NOK 383 million gain from the disposal of Mabo AS and Hydro Coatings. Excluding these gains as well as a nonrecurring cost in connection with the change in pension cost allocation of NOK 103 million and other nonrecurring costs of around NOK 70 million in 2000, underlying performance improved by around NOK 360 million compared with The improved results were primarily due to an increase in the price of S-PVC by approximately 41% compared to the previous year. This was slightly offset by increased material costs for natural gas liquids and purchased ethylene. 9

10 In the fourth quarter of 2000 EBITDA was a negative amount of NOK 68 million. Excluding the nonrecurring cost relating to pension costs of NOK 103 million and other nonrecurring costs of approximately NOK 90 million, there was an underlying negative development in operating results of NOK 170 million compared to the fourth quarter of This decline was mainly attributed to lower margins as a result of higher raw materials costs in addition to a somewhat lower sales volume. After discussions with potential purchasers and partners, Norsk Hydro has concluded that it is currently not appropriate to reduce its ownership interest in its Petrochemicals operation. The activity will continue to be operated in such a way to secure its industrial potential until a solution is found that provides sufficient value for Norsk Hydro and its shareholders. Other activities ,459 EBITDA 2,082 2, (107) Operating income Other activities include Hydro Seafood, Pronova and Hydro Technology and Projects and the casualty insurance company Industriforskiring. EBITDA for Other activities was substantially influenced by gains from the sale of operations. The divestment of the Hydro Seafood operation in the fourth quarter of 2000 generated a pre-tax profit of NOK 1,609 million. EBITDA for 1999 included pre-tax earnings of NOK 1,025 million on the sale of Pronova Biopolymers. The sale of Hydro Seafood to Nutreco Holding includes Seafood's operations situated outside of the UK. The sale of Hydro Seafood's British subsidiary, Golden Sea Produce Ltd. (GSP), was not sanctioned by the British competition authorities. In accordance with the agreement with Nutreco, GSP will be sold to a third party in such a way that Hydro will receive the initial price agreed with Nutreco. The result relating to this part of the overall disposal will be recorded when the sale has been concluded. The expected pre-tax gain is approximately NOK 340 million. The Company expects a total pre-tax gain on the transaction of approximately NOK 1,950 million. The gain is somewhat lower than previously announced as a result of the inclusion of the results of Seafood's operations in the consolidated Group results for the period from the announcement until the sale was concluded. EBITDA for Corporate Activities in 2000 includes earnings on the divestment of Hydro's ownership stake in Dyno which generated a profit of NOK 954 million. In addition, EBITDA was heavily influenced by a positive one-time effect relating to the change in method of allocating pension costs, in the total amount of NOK 1,824 million. Earnings were also influenced by higher costs relating to the Company's new shared services' unit, Hydro Business Partner, including costs in connection with rationalization (approximately NOK 70 million for manning reductions) and the relocation of certain services. 10

11 Finance Interest income 1,803 1, (7) (29) 81 (101) Dividends received / net gain (loss) on securities (56) Interest income and other financial income 1,747 1,504 (987) (1,027) (1,057) (941) (1,020) Interest expense (4,045) (3,406) Capitalized interest 1, (558) (266) (381) (432) 424 Net foreign exchange gain (loss) (655) (304) (27) (96) (53) (61) (24) Other (234) (184) (1,386) (1,247) (1,298) (1,240) (120) Interest expense and foreign exchange gain (loss) (3,905) (3,055) (731) (983) (1,006) (733) 564 Net financial (expense) income (2,158) (1,551) 1) As of the end of the period. Net financial items in 2000 were NOK 2,158 million compared to NOK 1,551 million in the previous year. In 1999 net financial items were affected by a charge of NOK 377 million in connection with losses on Saga crude oil options, of which NOK 74 million was charged to the fourth quarter of The result for 2000 was affected by a charge for net currency loss of NOK 655 million mainly as a result of the higher US dollar rate. Net financial income for the fourth quarter were NOK 564 million compared with net financial expense of NOK 731 million in the corresponding period of last year. The result for the fourth quarter 2000 included a net currency gain of NOK 424 million, versus a net currency loss of NOK 558 million in the corresponding period last year. Capitalized interest on plant under construction amounted to NOK 1,029 million in 2000 versus NOK 839 million in the previous year. For the fourth quarter these amounts were respectively, NOK 500 million and NOK 186 million. Net interest bearing debt at the end of 2000 was NOK 29.7 billion, a reduction of NOK 13.4 billion from the end of the previous year. Hydro's debt/equity ratio, calculated as long-term debt divided by equity plus minority interest, was 0.55 for Adjusted for any excess cash and cash equivalents over a normal level, the debt/equity ratio was approximately 0.4, which was better than just before the Saga acquisition. Hydro has a long-term target of a debt/equity ratio of 0.5 Taxes The provision for current and deferred taxes for 2000 amounted to NOK 16,178 million which corresponded to 54% of pre-tax income, primarily current tax. The corresponding figure for 1999 was NOK 4,337 million, equivalent to 55% of pretax income. The tax percentages for 2000 and 1999 were influenced by the gains on the sales of operations included in "Other income" which are taxed at a lower rate. Excluding the effects of these gains, the tax percentage would have been approximately 59% for 2000 and 62% for The reduction in tax percent is due to somewhat lower share of total income relating to oil and gas activities compared to 1999 despite the positive market conditions. In particular, the improvement in the Agri business area results in a relatively lower share of total income for oil and gas. Oslo, 12 February 2001 The Board of Directors 11

12 Income statements Fourth quarter Year NOK million, except per share data Operating revenues 41,268 32, , ,955 Depreciation, depletion and amortization 3,239 3,373 12,538 10,494 Other operating costs 30,786 26, ,857 93,726 Operating income 7,243 2,732 28,466 7,735 Equity in net income of non-consolidated investees Interest income and other financial income ,747 1,504 Other income 1, ,161 1,350 Earnings before interest expense and tax (EBIT) 9,667 3,460 34,046 10,928 Interest expense and foreign exchnge gain/loss (120) (1,386) (3,905) (3,055) Income before taxes and minority interest 9,547 2,074 30,141 7,873 Income tax expense (4.747) (1,215) (16,178) (4,337) Minority interest 59 (46) 18 (90) Income before cumulative effect of change in accounting principle 4, ,981 3,446 Cumulative effect of change in accounting principle (30) Net income 4, ,981 3,416 Earnings per share before change in accounting principle Earnings per share Average number of outstanding shares 261,031, ,383, ,620, ,045,270 All figures are based on generally accepted accounting principles in the United States (US GAAP), unless otherwise stated. Hydro s accounting policies are included in the 1999 Annual Report. Interim figures and year-end figures for 2000 are unaudited. Quarterly results NOK million except per share data * 1st qtr 2nd qtr 3rd qtr 4th qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 38,366 39,142 38,085 41,268 25,517 26,295 27,849 32,294 Operating income 6,729 7,032 7,462 7,243 1,114 1,750 2,139 2,732 Net income 2,451 2,775 3,896 4, , Earnings per share , USD million except per share data * 1st qtr 2nd qtr 3rd qtr 4th qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 4, , , , , , , ,086.2 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:

13 Balance sheets NOK million, except per share data Assets Current assets Cash and cash equivalents 21,766 7,435 Other liquid assets 2,491 2,535 Receivables 39,503 32,398 Inventories 18,738 16,327 Total current assets 82,498 58,695 Non-current assets Property, plant and equipment, less accumulated depreciation, depletion and amortization 95, ,498 Other assets 19,534 16,226 Total non-current assets 114, ,724 Total assets 197, ,419 Liabilities and Shareholders Equity Current liabilities Bank loans and other interest bearing short-term debt 9,088 7,361 Current portion of long-term debt 2, Other current liabilities 33,429 28,725 Total current liabilities 44,726 36,993 Long-term liabilities Long-term debt 40,174 42,228 Deferred tax liabilities 32,089 30,357 Other long-term liabilities 7,422 7,021 Total long-term liabilities 79,685 79,606 Minority shareholders interest in consolidated subsidiaries 1,419 1,323 Shareholders equity 71,227 59,497 Total liabilities and shareholders equity 197, ,419 Shareholders equity per share Total number of outstanding shares 259,986, ,705,562 13

14 EBITDA* and reconciliation to income before taxes and minority interest The transition to the new steering model, Value-Based Management, has moved Hydro's focus to cash flow-based indicators, before and after taxes. EBITDA, defined as income (loss) before tax, interest expense, depreciation, amortization, writedowns and certain other financial items, is an approximation of cash flow from operations before tax. It is being used as a measure to assess performance in Hydro's operational areas and business segments. Accordingly, EBITDA is a measure that includes results from non-consolidated investee companies and gains and losses on sales of activities classified as "Other Income (Loss)" in the income statement. It excludes depreciation, writedowns and amortization, as well as amortization of goodwill in non-consolidated investee companies. EBITDA should not be construed as an alternative to operating income and income before taxes as an indicator of the company's operations in accordance with generally accepted accounting principles. Nor is EBITDA an alternative to cash flow from operating activities in accordance with generally accepted accounting principles. Hydro's definition of EBITDA can differ from that of other companies. Hydro has also introduced cash return on gross investment (CROGI) as an annual rate of return measure. CROGI is defined as gross cash flow after taxes, divided by gross investment 1). Gross cash flow is defined as EBITDA less taxes, while gross investment is defined as total assets plus accumulated depreciation, amortization and writedowns, less shortterm interest-free debt 2). CROGI ( Cash Return on Gross Investment) in 2000 was 12.3% compared with 8.4% for Based on normalized prices CROGI in 2000 was approximately 9%, while the target for 2001 is 9.5% and for 2002, 10%. The normalized prices used are: an oil price of USD 18 per barrel, an aluminium price (LME) of 1500 per tonne, a fertilizer price of CAN DEM and a US dollar exchange rate of The EBITDA figures by core business area are presented in the table below, in addition to the reconciliation from EBITDA to income before taxes and minority interest EBITDA ,314 6,982 7,697 7,976 7,986 Hydro Oil and Energy 30,641 13,579 1,073 1,803 1,659 1, Hydro Light Metals 5,501 3,760 (309) 1,041 1, Hydro Agri 3,982 1,141 1, ,999 3,599 Other 6,485 3,464 7,314 10,349 10,996 12,387 12,877 Total 46,609 21,944 3,373 3,173 3,282 2,844 3,239 - Depreciation 12,538 10, Write-down Amortization of goodwill (29) of non-consolidated investees Interest expense 3,016 2, (424) - Net foreign exchange loss (gain) Other financial items ,074 5,912 6,394 8,288 9,547 Income before tax and minority interest 30,141 7,873 EBITDA information by segment in each of the core business areas, as well as an explanation of the financial performance of each segment, is included in the presentation of the business areas. *EBITDA: Earnings Before Interest, Taxes, Depreciation and Amortization. 1) Deferred tax assets are not included in gross investment. 2) Deferred taxes and taxes payable are not deducted from gross investment. 14

15 INDIVIDUAL OPERATING SEGMENTS Operating revenues Fourth quarter Year NOK million Exploration and Production 10,282 7,017 35,494 17,406 Energy 12,182 7,314 44,591 20,365 Oil Marketing 1, ,094 2,652 Eliminations (8,281) (4,493) (29,056) (12,068) Hydro Oil and Energy 15,422 10,694 55,123 28,355 Aluminium Metal Products 8,484 7,411 33,534 24,540 Aluminium Extrusion 4,090 3,131 15,881 12,081 Other Light Metals 1,955 1,944 8,226 7,716 Eliminations (1,613) (1,206) (6,511) (4,857) Hydro Light Metals 12,916 11,280 51,130 39,480 Plant Nutrition 9,139 6,112 33,744 26,799 Gas and Chemicals 1,219 1,223 4,776 4,718 KFK 2,754 2,407 10,638 9,756 Eliminations (731) (318) (2,192) (1,615) Hydro Agri 12,381 9,424 46,966 39,658 Petrochemicals 1,657 1,573 6,270 5,346 Other Activities ,886 3,847 Segments 43,166 33, , ,686 Corporate 2, ,158 3,959 Eliminations (4,145) (2,532) (11,672) (8,690) Total 41,268 32, , ,955 External revenues Fourth quarter Year NOK million Exploration and Production 2,868 3,061 9,436 6,996 Energy 9,897 6,031 36,749 16,127 Oil Marketing 1, ,088 2,648 Hydro Oil and Energy 14,004 9,946 50,273 25,771 Aluminium Metal Products 7,022 5,927 27,157 19,332 Aluminium Extrusion 3,978 3,093 15,763 11,974 Other Light Metals 1,869 1,860 7,887 7,442 Hydro Light Metals 12,869 10,880 50,807 38,748 Plant Nutrition 8,139 5,602 31,187 24,776 Gas and Chemicals 1,161 1,191 4,569 4,521 KFK 2,687 2,344 10,412 9,558 Hydro Agri 11,987 9,137 46,168 38,855 Petrochemicals 1,629 1,551 6,211 5,221 Other Activities ,972 2,793 Segments 41,111 32, , ,388 Corporate Total 41,268 32, , ,955 15

16 Internal revenues Fourth quarter Year NOK million Exploration and Production 7,414 3,956 26,058 10,410 Energy 2,285 1,283 7,842 4,237 Oil Marketing Eliminations (8,281) (4,493) (29,056) (12,068) Hydro Oil and Energy 1, ,850 2,583 Aluminium Metal Products 1,462 1,484 6,377 5,209 Aluminium Extrusion Other Light Metals Eliminations (1,613) (1,206) (6,511) (4,857) Hydro Light Metals Plant Nutrition 1, ,557 2,023 Gas and Chemicals KFK Eliminations (731) (318) (2,192) (1,615) Hydro Agri Petrochemicals Other Activities ,054 Segments 2,055 1,661 6,944 5,298 Corporate 2, ,728 3,392 Eliminations (4,145) (2,532) (11,672) (8,690) Total Operating income (loss) Fourth quarter Year NOK million Exploration and Production 5,757 2,624 20,108 5,840 Energy , Oil Marketing (49) Eliminations 27 (1) 27 9 Hydro Oil and Energy 5,901 2,900 21,804 6,962 Aluminium Metal Products ,821 1,357 Aluminium Extrusion Other Light Metals (196) 3 (143) 216 Eliminations (19) (12) (33) (43) Hydro Light Metals ,336 2,179 Plant Nutrition 190 (1,610) 990 (2,239) Gas and Chemicals (3) KFK (102) 69 (44) 233 Eliminations 11 (2) 44 (14) Hydro Agri 96 (1,447) 1,303 (1,671) Petrochemicals (188) Other Activities (107) Segments 5,728 2,462 26,998 7,829 Corporate 1, ,478 (101) Eliminations 0 21 (10) 7 Total 7,243 2,732 28,466 7,735 16

17 EBITDA Fourth quarter Year NOK million Exploration and Production 7,821 4,935 28,656 11,971 Energy ,745 1,148 Oil Marketing (60) Eliminations Hydro Oil and Energy 7,986 5,314 30,641 13,579 Aluminium Metal Products ,744 2,016 Aluminium Extrusion ,307 1,071 Other Light Metals (53) Eliminations (19) (13) (33) (44) Hydro Light Metals 473 1,073 5,501 3,760 Plant Nutrition 697 (685) 2,841 (119) Gas and Chemicals KFK (9) Eliminations 10 (4) 43 (15) Hydro Agri 819 (309) 3,982 1,141 Petrochemicals (68) Other Activities 1, ,082 2,029 Segments 10,669 6,835 42,868 21,364 Corporate 2, , Eliminations Total 12,877 7,314 46,609 21,944 Depreciation, depletion and amortization Fourth quarter Year NOK million Exploration and Production 2,011 2,204 8,046 6,072 Energy Oil Marketing Eliminations Hydro Oil and Energy 2,075 2,267 8,288 6,426 Aluminium Metal Products Aluminium Extrusion Other Light Metals Hydro Light Metals ,645 1,504 Plant Nutrition ,286 1,246 Gas and Chemicals KFK Hydro Agri ,897 1,853 Petrochemicals Other Activities Segments 3,185 3,336 12,397 10,370 Corporate Eliminations (3) (2) (6) (5) Total 3,239 3,373 12,538 10,494 17

18 Additions property, plant & equipment and intangible assets First Second Third Fourth quarter quarter quarter quarter Year NOK million Exploration and Production 1,909 1,904 1,938 2,571 8,322 Energy Oil Marketing Eliminations Hydro Oil and Energy 1,936 1,955 1,977 2,669 8,537 Aluminium Metal Products ,505 2,561 Aluminium Extrusion 1, ,962 Other Light Metals Hydro Light Metals 2, ,958 5,077 Plant Nutrion ,093 Gas and Chemicals KFK Hydro Agri ,881 Petrochemicals Other Activitites Segments 4,494 2,838 3,459 5,561 16,352 Corporate Eliminations (25) (25) Sum 4,530 2,875 3,511 5,651 16,567 CROGI Percent Exploration and Production 12.1 % 9.9 % 7.3 % 9.4 % 14.5 % Energy 7.3 % 11.4 % 8.0 % 12.1 % 17.5 % Oil Marketing 10.1 % 3.6 % 5.8 % 13.0 % 5.5 % Hydro Oil and Energy 11.6 % 9.8 % 7.3 % 9.7 % 14.4 % Aluminium Metal Products 6.5 % 9.0 % 11.8 % 9.2 % 14.5 % Aluminium Extrusion 10.2 % 11.4 % 10.7 % 11.9 % 13.0 % Other Light Metals 3.1 % 3.6 % 4.4 % 4.7 % 3.6 % Hydro Light Metals 6.3 % 7.5 % 9.1 % 8.1 % 10.6 % Plant Nutrition 11.0 % 7.0 % 3.7 % (0.3 %) 7.0 % Gas and Chemicals 11.8 % 13.3 % 13.8 % 14.3 % 12.6 % KFK 6.6 % 7.2 % 5.7 % 6.8 % 4,9 % Hydro Agri 10.5 % 7.5 % 4.9 % 2.1 % 7.4 % Petrochemicals 5.9 % 7.8 % 6.4 % 7.3 % 5.9 % Other Activities 10.8 % 7.4 % 2.1 % 22.7 % 27.7 % Corporate 1.9 % 1.2 % 2.7 % 0.9 % 3.4 % Total 10.3 % 8.5 % 7.7 % 8.4 % 12.3 % 18

19 Operating income - EBIT 1) - EBITDA 2) Fourth quarter 2000 NOK million Operating Non-cons. Interest Selected Other Depr. income investees income financial income EBIT and EBITDA items Amort. Exploration and Production 5, ,810 2,011 7,821 Energy 166 (9) Oil Marketing (49) (47) (90) 30 (60) Eliminations Hydro Oil and Energy 5,901 (44) ,910 2,076 7,986 Aluminium Metal Products (42) Aluminium Extrusion Other Light Metals (196) (183) 130 (53) Eliminations (19) (19) - (19) Hydro Light Metals (41) Plant Nutrition (6) Gas and Chemicals (3) (4) (4) KFK (102) (78) 69 (9) Eliminations (1) 10 Hydro Agri (5) Petrochemicals (188) (180) 112 (68) Other Activities (107) 2 32 (116) 1,609 1, ,459 Segments 5, (157) 1,609 7,513 3,156 10,669 Corporate 1, , ,146 Eliminations (3) 62 Total 7, (101) 1,609 9,667 3,210 12,877 Operating income - EBIT 1) - EBITDA 2) Year 2000 NOK million Operating Non-cons. Interest Selected Other Depr. income investees income financial income EBIT and EBITDA items Amort. Exploration and Production 20, ,610 8,046 28,656 Energy 1,614 (6) , ,745 Oil Marketing Eliminations Hydro Oil and Energy 21, ,353 8,288 30,641 Aluminium Metal Products 2, , ,744 Aluminium Extrusion ,307 Other Light Metals (143) 16 8 (5) 72 (52) Eliminations (33) (33) - (33) Hydro Light Metals 3, ,786 1,715 5,501 Plant Nutrition (4) - 1,606 1,235 2,841 Gas and Chemicals (1) KFK (44) Eliminations (1) 43 Hydro Agri 1, (3) 89 2,134 1,848 3,982 Petrochemicals Other Activities (135) 1,609 1, ,082 Segments 26, (96) 2,207 30,448 12,420 42,868 Corporate 1, , , ,733 Eliminations (10) (4) 8 Total 28, ,803 (56) 3,161 34,046 12,563 46,609 1) EBIT: Earning Before Interest and Tax. 2) EBITDA: Earning Before Interest, Tax, Depreciation and Amortization. 19

20 SAGA TRANSACTION On 10 June, 1999, Hydro and Statoil jointly commenced a joint voluntary offer under Norwegian law to acquire all of the outstanding ordinary shares of Saga other than those shares held by U.S. Persons (as defined in Regulation S under the Securities Act of 1933). The consideration offered consisted of one Hydro share for each three Saga shares with an additional cash payment in NOK in an amount which ensured that the aggregate consideration per Saga share had a value of NOK 135. All of Saga s ordinary shares were acquired representing a total value of NOK 20.2 billion. An agreement between Hydro and Statoil required the transfer of interests in certain of Saga s oil and gas production licenses with a total market value of NOK 8.4 billion to Statoil with effect from 1 July, The consideration received in exchange for such interests consisted of Statoil s shares in Saga together with a cash payment of NOK 4.5 billion, which was paid in December Hydro's acquisition of the Saga ordinary shares, amounting to NOK 16,2 billion. was finalized by a share issue of NOK 11.6 billion and a cash payment of NOK 4.6 billion. The identified excess values were allocated to oil and gas production licenses to be depreciated by the unit of production method. In the fourth quarter, Norwegian authorities issued a decision regarding Saga's tax position. The excess values refered to above have been adjusted accordingly. After adjustments, Hydro's excess values in oil and gas production licenses at acquisition date, are NOK 11.6 billion. Saga's activities were consolidated in Hydro's accounts with effect from 1 July, Unaudited Pro Forma Combined Financial Information The following unaudited pro forma combined financial information combines Hydro s and Saga s results for the year ended 31 December, 1999 giving effect to the transaction as if it had occurred on 1 January, The pro forma information is presented according to the purchase method of accounting. The adjustment to the allocation of purchase price described above is included in the pro forma information. The accounting policies of Hydro and Saga are substantially comparable, and consequently, no adjustments to the unaudited pro forma financial information were made to conform the accounting policies of the combining companies. The information presented below should be read in conjunction with the other related Saga transaction information presented in this report. Unaudited Pro Forma Combined Financial Information For the Year Ended 31 December, December, 1999 Pro Forma in NOK millions, except per share data Combined (3) Operating revenues (1) 104,864 Operating income (2) 6,663 Income before cumulative effect of change in accounting principle 2,096 Net income 2,066 Earnings per share Before cumulative effect of change in accounting principle 7.90 Cumulative effect of change in accounting principle (0.10) Earnings per share 7.80 Average number of outstanding shares 265,173,957 The unaudited pro forma combined financial information for the year ended 31 December, 1999 is prepared using the same methodology as in the Offer to Purchase dated 10 June, Saga s historical net income for the year ended 31 December, 1999 includes NOK 1,495 million in losses on price hedging contracts. Amortization of excess value of PP&E of NOK 1,691 million is included in operating income. (1) Certain of Saga income statement amounts have been reclassified to conform with the financial statement presentation of Hydro. (2) According to the Hydro-Statoil Agreement, certain of Saga s oil and gas production licenses were transferred to Statoil. Operating income reflects the estimated revenues and expenses for the year ended 31 December, 1999, after production licenses have been transferred to Statoil. (3) Reflects the adjustments to revalue the assets and liabilities of Saga to fair value. The total consideration has been allocated to the assets and liabilities of Saga based on management s best estimates. The figures reflect the adjustments for the amortization of excess value of PP&E and income tax expense for the year ended 31 December,