Norsk Hydro Second quarter 1999

Transcription

1 Norsk Hydro Second quarter 1999

2 Norsk Hydro Second quarter 1999 Consolidated results (US GAAP) nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 1,927 1,114 1,750 Operating income 2,864 4, Non-consolidated investees (114) (271) Net financial income (expense) (385) Other income 1,098 2,901 1,258 2,507 Income before tax 3,765 4,831 (1,068) (520) (1,226) Income tax expense (1,746) (1,992) 1, ,260 Net income 1,969 2, Earnings per share Norsk Hydro's financial results in the first half of 1999 were influenced by weak prices on most of Hydro's main products. Net income was NOK 1,969 million (USD million), or NOK 8.60 per share (USD 1.10). This was a decrease of 30% compared to Operating income of NOK 2,864 million (USD million) was 32% below that in the first half of last year. information start In the second quarter, Hydro's net income fell 31% compared to last year to NOK 1,260 million (USD million). Earnings per share were NOK 5.50 (USD 0.70). Second quarter operating income was 9% lower than in the same quarter of Considerably weaker results for Hydro Agri Europe, Hydro Aluminium Metal Products and Petrochemicals, as well as increased corporate costs, were only partly offset by the progress in several of Hydro's other business areas. Earnings in the second quarter of 1999 were significantly impacted by the sale of Pronova Biopolymer. A pre-tax gain on the sale of NOK 949 million was reported in "Other income." Net financial expense in the second quarter of 1998 included a pre-tax gain of NOK 1.1 billion on the sale of Hydro's shares in Saga Petroleum ASA (Saga).

3 Norsk Hydro Second quarter 1999 Through the Agenda 99 cost-efficiency program, Hydro has targeted an improvement in earnings of NOK 1 billion this year and an additional NOK 1.5 billion on a yearly basis by the year This will be achieved partly through the reduction of approximately 1,500 employees and consultants. The program's initiatives are on schedule. Measures carried out to date will improve operating income annually by nearly NOK 600 million and reduce the workforce by 700 people. Earnings for non-consolidated investees decreased by 47% compared to the second quarter of The decline was mainly due to reduced operating income for Hydro's fertilizer affiliates. Investments in the first half of 1999, excluding Hydro's investment in shares in Saga, totaled NOK 6.3 billion. This was 21% percent above investments in the same period of the previous year. information start In June, shareholders of 75.4% of the shares in Saga accepted a takeover bid made by Hydro and Statoil. Including Statoil's 19.4% interest in Saga, this provides Hydro with ownership control of the company and enables it to begin integrating the organizations of Hydro and Saga. European Commission competition authorities announced that they have no objection to the acquisition. Norwegian authorities are expected to approve the transaction in mid-august The purchase of 75.4% of the shares in Saga represents an investment of NOK 15.2 billion. This is being accomplished by the issuance of 37,523,976 shares at a price of NOK per share, equivalent to a 16% increase of Hydro's share capital, and a cash payment of NOK 3.6 billion. As part of a mandatory offer, Hydro will pay NOK 135 per share to the shareholders of the remaining 5.2% of the shares in Saga. The acceptance deadline is set for 5 August. The agreement between Hydro and Statoil, as part of the takeover bid, is expected to be carried out by the end of According to the agreement, Statoil will receive Saga's interests in

4 Norsk Hydro Second quarter 1999 certain oil and gas fields worth approximately NOK 8.4 billion in exchange for its 19.4% share in Saga. In addition, Statoil will pay Hydro a cash settlement of about NOK 4.5 billion. As a result of the capital increase in Norsk Hydro ASA from the above transaction, the Norwegian state's ownership interest in Hydro has been reduced from 51% to 43.8%. Pro forma information combining the financial statements of Hydro and Saga in the first half of 1999 is found on page 24. Saga will be consolidated in Hydro's accounts with effect from the third quarter of Hydro is retooling its Agriculture operations to improve market strength and to increase the organization's ability to solve its more pressing challenges. Hydro Agri International and Hydro Agri Europe, which have been regional-based, are thus being replaced by the global divisions Hydro Agri Markets and Hydro Agri Production, with activities divided according to operational boundaries. EXPLORATION AND PRODUCTION information start nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half ,001 Operating income 1,715 1, Exploration expense Oil and gas production (thousands boe/d) Oil price (USD/bbl) Oil price (NOK/bbl) Operating income for Exploration and Production of NOK 1,715 million in the first half of 1999 was at the same level as for the corresponding period of Second quarter earnings were 44% better than last year.

5 Norsk Hydro Second quarter 1999 The average crude oil price in the second quarter was slightly above USD 15 per barrel, which was 20% higher than in the same quarter of last year. Due to time lags in the pricing of natural gas, as compared to crude oil, average natural gas prices were 29% lower. Crude oil prices exceeded USD 18 per barrel toward the end of the quarter. Hydro's oil and gas production in the second quarter averaged 269,000 barrels of oil equivalent per day, which was 3% higher than last year. Operating costs per barrel for fields and transport installations in 1999 have been reduced by about 10% compared to the 1998 level. However, costs are somewhat higher than in the years preceding Exploration expense was NOK 196 million in the second quarter, compared to NOK 281 million in the second quarter of last year. Exploration activities on the Norwegian shelf were considerably lower. Promising discoveries were made in Angola and Canada. Hydro was awarded interests in seven new licenses in the North Sea and two licenses offshore Nova Scotia, Canada. REFINING AND MARKETING information start nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Operating income for Refining and Marketing was NOK 217 million in the first half of 1999 compared to NOK 48 million in the first six months of last year. The improvement was mainly due to increasing crude oil prices.

6 Norsk Hydro Second quarter 1999 Earnings from the international trade of crude oil, liquefied natural gas and refined oil products were better than earnings in the second quarter of last year. The company's share of earnings in the retail marketing company, Hydro Texaco, was NOK 47 million in the first half of 1999 compared to NOK 14 million in the same period last year. HYDRO ENERGY nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Operating income for Hydro Energy in the first half of this year was 28% below that in the corresponding period of last year. The decline was principally due to writedowns and charges of NOK 123 million related to Hydro's decision to end its involvement in a project to produce peat-based briquettes in Ireland. Electricity production from Hydro's power stations in Norway increased 11% to 5.1 TWh in the first half of However, realized electricity prices were somewhat lower than prices in the corresponding period of last year. Reservoir levels were above average in seasonal terms. information start

7 Norsk Hydro Second quarter 1999 HYDRO AGRI EUROPE nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 182 (16) (70) Operating income (loss) (86) 431 Hydro Agri Europe had an operating loss of NOK 86 million in the first half of 1999, compared to operating income of NOK 431 million last year. The division's second quarter loss of NOK 70 million was NOK 252 million lower than earnings in the second quarter of The reduction was primarily caused by more difficult market conditions with weaker nitrogen fertilizer prices. This year's results included a first quarter charge of NOK 75 million related to the shutdown of a phosphoric acid plant in Rotterdam, and a charge of NOK 65 million in the second quarter for doubtful receivables in Central Europe. Total fertilizer deliveries to Western Europe in the second quarter were somewhat higher than in the corresponding period of the previous fertilizer season. Overall consumption in the 1998/99 fertilizer season is expected to be about 2% lower than the prior season. This reduction is in line with expectations, due in part to the increase in set-aside acreage in the European Union. Hydro has maintained its market position in Western Europe. information start Nitrogen fertilizer prices in Western Europe in the second quarter were 5-15% lower than in the same period of last year. Complex fertilizer prices have been more stable, but have fallen slightly. Fixed production costs stated in local currencies decreased slightly compared to the second quarter of The implementation of new integrated information systems was completed in the second quarter of Only activities related to the stabilization of the systems remain.

8 Norsk Hydro Second quarter 1999 HYDRO AGRI INTERNATIONAL nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 95 (63) 106 Operating income (loss) Hydro Agri International reported operating income of NOK 43 million in the first half of 1999, a decrease of 67% compared to the first half of last year. Second quarter results increased by 12% in comparison with Earnings declined for non-consolidated investees in the second quarter and in the first half of 1999 as a whole, reflecting depressed ammonia and urea prices. The international markets for nitrogen fertilizer continue to be impacted by low prices and surplus capacity. This affects Hydro Agri International mainly through the affiliated companies, Qafco in Qatar and Tringen in Trinidad. Trading activities are margin-based operations and, therefore, less exposed to price level variations. Earnings in South America improved during the second quarter, while earnings in Asia and Africa weakened slightly. Fertilizer operations had a positive result in each of the regions in the second quarter and in the first half of 1999 as a whole. INDUSTRIAL CHEMICALS information start nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Earnings for Industrial Chemicals rose by 42% in the first half of 1999 compared to the first half of last year. Operating income in the second quarter was NOK 108 million, an increase of 61% compared to last year.

9 Norsk Hydro Second quarter 1999 Hydro Chemicals showed improvement, reflecting better margins for nitrogen-based products and positive results from new products. Hydrogas' results weakened in the second quarter. The reduction was primarily due to a stop in industrial gas supplies from the plant in Porsgrunn, Norway. Increased costs related to the start-up in new markets were partly offset by higher sales. A/S KORN- OG FODERSTOF KOMPAGNIET KFK nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 43 (32) 66 Operating income (loss) KFK, the Danish feedstuff producer, had operating income of NOK 34 million in the first half of 1999, which matched earnings in the same period of last year. Operating income of NOK 66 million in the second quarter was NOK 23 million higher than last year's corresponding figure. The increase was mainly due to improved profitability in KFK's fish feed operations. Second quarter results within grain trading and animal feed activities decreased. information start HYDRO ALUMINIUM METAL PRODUCTS nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Operating income for Hydro Aluminium Metal Products in the first half of 1999 was NOK 307 million, a decrease of 67% compared to the same period last year. The decline was primarily due to lower metal prices. Second quarter earnings fell by 62% compared to last year.

10 Norsk Hydro Second quarter 1999 Aluminium prices on the LME rose during the second quarter. Due to the time lag in pricing, the increase had a limited effect on realized prices. Average realized prices in the second quarter were slightly more than USD 1,300 per tonne, a decline of 14% compared to last year. Hydro has contracted the prices of about 80% of its production for the second half of 1999 at an average of USD 1,400 per tonne. However, aluminium price volatility can result in significant fluctuations in the marked to market adjustments for LME positions recorded to operating income. Earnings for trading activities in the second quarter were somewhat lower than in the corresponding period last year. HYDRO ALUMINIUM EXTRUSION nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Operating income for Hydro Aluminium Extrusion increased by 28% in the first half of 1999 compared to the first half of last year. Earnings in the second quarter increased by 58% compared to the same period last year. information start The progress was due to increased sales volumes and somewhat better margins. Operations in Southern Europe showed strong improvement, while Hydro's activities in building systems were negatively impacted by a weak German market. The business unit Heat Transfer, which experienced a setback in earnings in 1998, improved substantially both in the first and second quarter of 1999 compared to the same period last year.

11 Norsk Hydro Second quarter 1999 PETROCHEMICALS nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 54 (69) (96) Operating income (loss) (165) 177 Petrochemicals had an operating loss of NOK 165 million in the first half of 1999, compared to operating income of NOK 177 million in the same period last year. In the second quarter, Petrochemicals had an operating loss of NOK 96 million, compared to operating income of NOK 54 million in the same period last year. The change was primarily due to a decline in prices for S-PVC of about 28% stated in Norwegian kroner. The effect of this decline was only partially offset by a 12% increase in the production of S-PVC. OTHER ACTIVITIES nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income information start Other activities include Hydro Aluminium Rolled Products, Hydro Raufoss Automotive, Hydro Magnesium, Hydro Seafood, Pronova, Hydro Technology and Projects, and the casualty insurance company, Industriforsikring. Operating income for Hydro Aluminium Rolled Products in the first half of 1999 was considerably better than in the same period last year, reflecting higher sales volumes and better margins.

12 Norsk Hydro Second quarter 1999 Earnings for Hydro Raufoss Automotive in the first half of this year remained negative, and were slightly worse than results in the same period of last year. Several production facilities showed improvement, but this was offset by weak sales volumes and financial performance of bumper production at Raufoss, Norway. Magnesium achieved good progress in earnings. Market conditions are favorably affected by continued strong growth in the automotive industry's demand for magnesium. Hydro's production of primary metal in the first half of this year was 11% above last year's level. Hydro Seafood's salmon farming activities showed improved performance. In 1998, operations in Scotland suffered large losses due to a salmon disease outbreak. In 1999, the company recorded positive results through the first six months of the year, with improvement of more than NOK 60 million in the second quarter compared to the corresponding period last year. An increase in unallocated corporate costs was mainly due to expenses for consulting services related to various corporate projects. information start

13 Norsk Hydro Second quarter 1999 FINANCE nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Net interest expense Net foreign exchange loss (1,030) (179) (8) Net gain on securities (187) (1,195) (59) 34 (42) Other, net (8) (20) (824) Net financial expense (income) 385 (440) NOK/USD exchange rate 1) ) As of the end of the period. Net financial expense in the first half of 1999 was NOK 385 million, compared to income of NOK 440 million in the same period last year. In 1998, net financial items were strongly affected by a pre-tax gain of NOK 1.1 billion related to the sale of shares in Saga Petroleum. Capitalized interest on plant under construction totaled NOK 363 million in the first half of 1999, compared to NOK 270 million last year. This year's amount was relatively high due to several large investments in Exploration and Production that were in the latter stages of completion. information start In the second quarter, net financial items showed an expense of NOK 271 million, compared to income of NOK 824 million in the same period last year. Excluding the gain on the sale of its shares in Saga Petroleum, Hydro had net financial expense of NOK 307 million in the second quarter of last year. Net cash flow from operations amounted to NOK 7.5 billion in the first half of 1999, compared to NOK 5.3 billion in the first half of The increase was primarily due to reduced working capital requirements.

14 Norsk Hydro Second quarter 1999 TAXES The provision for current and deferred taxes in the first six months of 1999 was NOK 1,746 million, equivalent to 46% of pre-tax income. The corresponding figure for the first half of 1998 was NOK 1,992 million, equivalent to 41% of pre-tax income. The higher effective tax rate in 1999 was due to the higher relative proportion of income attributable to Exploration and Production's oil and gas activities. The tax rate this year was impacted by the recognition of tax benefits from previous years' losses in parts of Hydro's overseas operations and the effect of a gain on the sale of Pronova Biopolymer. In the second quarter, the tax provision was NOK 1,226 million, compared to NOK 1,068 million in the same period of Oslo, 19 July 1999 The Board of Directors information start

15 Norsk Hydro Second quarter 1999 INCOME STATEMENTS Second quarter First half Year NOK million Operating revenues 24,487 25,362 48,650 51,122 97,468 Depreciation, depletion and amortization 1,935 1,839 3,919 3,808 7,508 Other operating costs 20,802 21,596 41,867 43,116 84,130 Operating income 1,750 1,927 2,864 4,198 5,830 Equity in net income of non-consolidated investees Financial expense, net (271) 824 (385) 440 (409) Other income 949 1,098 Income before taxes and minority interst 2,507 2,901 3,765 4,831 5,831 Income tax expense (1,226) (1,068) (1,746) (1,992) (1,979) Minority interest (21) (18) (20) (16) (98) Income before cumulative effect of change in accounting principle 1,260 1,815 1,999 2,823 3,754 Cumulative effect of change in accounting principle (30) Net income 1,260 1,815 1,969 2,823 3,754 Earnings per share before change in accounting principle Earnings per share information start 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 1998 Annual Report. Interim figures are unaudited. Earnings and shareholders equity per share up to and including have been calculated based on the average number of outstanding shares of 229,072,674. Earnings per share for the first half year 1999 has been calculated based on the average number of outstanding shares of 230,038,803. Shareholders equity per share at June 30, 1999 has been calculated based on the total number of outstanding shares of 264,046,537. Hydro has in the first quarter of 1999 implemented SOP (Statement of Position) 98-5 from the AICPA (American Institute of Certified Public Accountants) requiring all start-up costs to be expensed as incurred. Previously capitalized costs have been expensed in the first quarter this year.

16 Norsk Hydro Second quarter 1999 BALANCE SHEETS NOK million ASSETS Current assets Cash and cash equivalents 6,131 3,782 1,936 Other liquid assets 2,209 2,800 2,493 Receivables 24,934 25,457 25,388 Inventories 13,448 13,883 15,494 Total current assets 46,722 45,922 45,311 Non-current assets Property, plant and equipment, less accumulated depreciation, depletion and amortization 64,771 59,942 63,632 Other assets 30,470 12,934 15,080 Total non-current assets 95,241 72,876 78,712 Total assets 141, , ,023 information start LIABILITIES AND SHAREHOLDERS EQUITY Current liabilities Bank loans and other interest bearing short-term debt 5,278 3,921 5,150 Current portion of long-term debt 2, ,587 Other current liabilities 20,354 20,388 19,890 Total current liabilities 27,640 25,215 26,627 Long-term liabilities Long-term debt 29,497 22,777 24,105 Deferred tax liabilities 19,220 17,924 18,423 Other long-term liabilities 5,264 5,044 5,311 Total long-term liabilities 53,981 45,745 47,839 Minority shareholders interest in consolidated subsidiaries 1,194 1,190 1,266 Shareholders equity 59,148 46,648 48,291 Total liabilities and shareholders equity 141, , ,023 Shareholders equity per share

17 Norsk Hydro Second quarter 1999 STATEMENTS OF CASH FLOWS First half Year NOK million Operating activities: Net income 1,969 2,823 3,754 Adjustments: Depreciation, depletion and amortization 3,919 3,808 7,508 Other adjustments 1,657 (1,318) (2,762) Net cash provided by operating activities 7,545 5,313 8,500 Investing activities: Purchases of property, plant and equipment (5,976) (4,903) (12,321) Purchases of long-term investments (3,662) (406) (1,550) Net sales (purchases) of short-term investments 4 6 (16) Proceeds from sales of property, plant and equipment Proceeds from sales of other long-term investments 2,276 1,906 2,001 Net cash used in investing activities (7,123) (3,260) (11,612) information start Financing activities: Loan proceeds 9,675 4,832 7,614 Principal repayments (4,249) (3,932) (3,579) Dividends paid (1,718) (1,718) (1,718) Net cash provided by (used in) financing activities 3,708 (818) 2,317 Foreign currency effects on cash flows Net increase (decrease) in cash and cash equivalents 4,195 1,344 (502) Cash and cash equivalents at beginning of period 1,936 2,438 2,438 Cash and cash equivalents at end of period 6,131 3,782 1,936

18 Norsk Hydro Second quarter 1999 INDIVIDUAL INDUSTRY SEGMENTS Operating revenues Second Quarter First half Year NOK million Exploration and Production 2,694 2,635 5,120 5,605 10,637 Refining and Marketing 3,209 2,720 5,833 6,102 11,101 Hydro Energy ,633 1,434 3,068 Hydro Agri Europe 4,619 4,961 10,258 11,078 18,632 Hydro Agri International 3,915 4,505 7,093 7,846 14,856 Industrial Chemicals 1,156 1,167 2,317 2,301 4,716 KFK 2,743 2,752 4,872 5,054 10,143 Hydro Aluminium Metal Products 4,024 4,521 8,158 9,210 18,235 Hydro Aluminium Extrusion 3,056 3,090 6,096 6,138 12,088 Petrochemicals 1,203 1,487 2,411 3,037 6,028 Other Activities 3,030 2,953 6,211 5,900 11,630 Corporate 1, ,012 1,820 4,346 Eliminations (6,926) (7,028) (13,364) (14,403) (28,012) Total 24,487 25,362 48,650 51,122 97,468 information start

19 Norsk Hydro Second quarter 1999 External revenues Second Quarter First half Year NOK million Exploration and Production ,391 1,700 3,612 Refining and Marketing 3,145 2,600 5,687 5,833 10,609 Hydro Energy ,372 Hydro Agri Europe 3,493 3,619 7,973 8,570 13,898 Hydro Agri International 3,347 3,909 6,080 6,723 12,595 Industrial Chemicals 1,099 1,116 2,200 2,201 4,457 KFK 2,705 2,685 4,802 4,943 9,877 Hydro Aluminium Metal Products 2,828 3,006 5,685 6,043 12,375 Hydro Aluminium Extrusion 3,027 3,045 6,042 6,060 11,944 Petrochemicals 1,165 1,442 2,341 2,958 5,851 Other Activities 2,692 2,605 5,440 5,177 10,238 Corporate Total 24,487 25,362 48,650 51,122 97,468 information start

20 Norsk Hydro Second quarter 1999 Internal revenues Second Quarter First half Year NOK million Exploration and Production 2,142 1,686 3,729 3,905 7,025 Refining and Marketing Hydro Energy ,696 Hydro Agri Europe 1,126 1,342 2,285 2,508 4,734 Hydro Agri International ,013 1,123 2,261 Industrial Chemicals KFK Hydro Aluminium Metal Products 1,196 1,515 2,473 3,167 5,860 Hydro Aluminium Extrusion Petrochemicals Other Activities ,392 Corporate ,692 1,533 3,706 Eliminations (6,926) (7,028) (13,364) (14,403) (28,012) Total information start

21 Norsk Hydro Second quarter 1999 Operating income (loss) Second Quarter First half Year NOK million Exploration and Production 1, ,715 1,699 2,565 Refining and Marketing Hydro Energy Hydro Agri Europe (70) 182 (86) 431 (725) Hydro Agri International Industrial Chemicals KFK Hydro Aluminium Metal Products ,854 Hydro Aluminium Extrusion Petrochemicals (96) 54 (165) Other Activities Corporate (151) (23) (231) (77) (236) Eliminations (19) 38 Total 1,750 1,927 2,864 4,198 5,830 information start

22 Norsk Hydro Second quarter 1999 Depreciation, depletion and amortization Second Quarter First half Year NOK million Exploration and Production ,713 1,783 3,505 Refining and Marketing Energy Hydro Agri Europe ,132 Hydro Agri International Industrial Chemicals KFK (1) Hydro Aluminium Metal Products Hydro Aluminium Extrusion Petrochemicals Other Activities Corporate Eliminations (1) (1) (2) (2) (6) Total 1,935 1,839 3,919 3,808 7,508 information QUARTERLY RESULTS NOK million except per share data * 2nd qtr 1st qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 24,487 24,163 25,760 25,362 22,172 24,174 Operating income 1,750 1,114 2,271 1, Net income 1, ,008 1, Earnings per share start

23 Norsk Hydro Second quarter 1999 USD million except per share data * 2nd qtr 1st qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 3, , , , , ,223.1 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: SAGA TRANSACTION On May 10, 1999, the Board of Directors of Norsk Hydro ASA (Hydro) publicly announced an unsolicited stock bid in the form of an Exchange Offer for all of the outstanding shares, nominal value NOK 15 each of Saga Petroleum ASA (Saga), based on an exchange ratio of one newly-issued ordinary share of Hydro for every three shares of Saga. On May 27, 1999, Hydro and Den norske stats oljeselskep a.s. (Statoil) entered into an agreement (Hydro-Statoil Agreement) whereby Hydro and Statoil would jointly make an offer for all of the outstanding equity securities of Saga. The Hydro-Statoil Agreement requires the transfer of interests in certain of Saga s oil and gas production licenses to Statoil based on fair market value. On June 10, 1999, Hydro and Statoil jointly commenced an offer to acquire all of the outstanding shares of Saga against a consideration of one Hydro share for each three Saga share with an additional NOK amount which ensured that the aggregate consideration per Saga share had a value of NOK 135. Shareholders representing 75.4% of the shares in Saga accepted the offer made by Hydro and Statoil. information start Unaudited Pro Forma Combined Financial The following unaudited pro forma combined financial information combines Hydro s and Saga s results for the six-month period ended 30 June, 1999 giving effect to the transaction as if it had occurred on 1 January, 1999 and for the year ended 31 December, 1998 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 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 to the other related Saga transaction information presented in this report.

24 Norsk Hydro Second quarter 1999 Unaudited Pro Forma Combined Financial For the Six Months Ended 30 June, 1999 and Year Ended 31 December, June, December, 1998 Pro Forma Pro Forma in NOK millions, except per share data Combined (3) Combined (3) Operating revenues (1) 51, ,972 Operating income (2) 2,448 2,274 Income before cumulative effect of change in accounting principle 1,189 1,220 Net income 1,159 1,220 Earnings per share (4) Before cumulative effect of change in accounting principle Cumulative effect of change in accounting principle (0.10) - Earnings per share information start The unaudited pro forma combined financial information for the six-month period ended June 30, 1999 is prepared using the same methodology as in the Offer and Prospectus dated 10 June, Saga s historical net income for the six months ended 30 June, 1999 includes NOK 420 million in losses on price hedging contracts and NOK 432 million for an unrealized loss on long-term USD debt. In addition amortization of excess value of PP & E of NOK 461 million is included in operating income. Further information on the pro forma financial information for 1998 is available in the Offer and Prospectus dated June 10, (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 will be transferred to Statoil. Operating income reflects the estimated revenues and expenses for the production licenses to be transferred to Statoil for the six months ended 30 June, 1999 and year ended 31 December, 1998.

25 Norsk Hydro Second quarter 1999 (3) Reflects the preliminary 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 six months ended 30 June, 1999 and year ended 31 December, (4) The number of shares outstanding was 266,596,650 for the six months ended 30 June, 1999 and 263,735,823 for the year ended 31 December, Total number of new shares issued was 37,523,976 of which 2,550,113 was issued on 1 July, information start

26 2 0DLQLVVXHVVHFRQGTXDUWHU Saga acquisition strengthens position in strategic core area Strong increase in oil price Weak results in Agri and Petrochemicals Realizing substantial gain on sale of non-core business Agenda 99 on track

27 3 1HWLQFRPH By quarter NOK million 2,500 2,000 1,500 1, * 1997* Accumulated 6,204 5,205 3,754 1,969 *) After effect of changes in tax law 4th qtr. 1996: NOK 776 million and 4th qtr. 1997: NOK 106 million

28 4 &RQVROLGDWHGLQFRPHVWDWHPHQWV NOK million 2nd quarter nd quarter 1998 Operating revenue 24,487 25,362 Operating income 1,750 1,927 Transfer back Equity in net income of non-consolidated investees Financial income (expense) Other income (expense) Income before taxes and min. interest Tax Minority interest Accounting changes 79 (271) 949 2,507 (1,226) (21) ,901 (1,068) (18) - Net income 1,260 1,815 Earnings per share - NOK

29 5 2SHUDWLQJLQFRPH By quarter NOK million 4,000 3,500 3,000 2,500 2,000 1,500 1, Accumulated 9,653 10,702 5,830 2,864

30 6 2SHUDWLQJLQFRPH By business segment NOK million 2nd quarter nd quarter 1998 Change Exploration and Production Refining and Marketing Hydro Energy Hydro Agri Europe Hydro Agri International Industrial Chemicals KFK Hydro Aluminium Metal Products Hydro Aluminium Extrusion Petrochemicals Other Activities 1, (70) (96) (22) (252) (284) 61 (150) 113 Corporate Eliminations (151) 19 Total 1,750 1,927 (177) (23) 13 (98) 6

31 7 9DULDQFHDQDO\VLVJURXS Operating income NOK million st half vs. 1st half 2,864 4,198 2nd q. vs. 2nd q. 1,750 1,927 Variance (1,334) (177) - Prices, Exploration and Production - Margin - Volume - Fixed costs - Other (340) (1,250) 430 (20) (155) 180 (660) (150)

32 8 $JHQGD Improve financial performance NOK 1.0 billion in 1999 NOK 1.5 billion in 2000/2001 NOK 2.5 billion NOK million 1000 Improvement progress Goal 1999 Short term measures to reach long term goals: 800 Cost cutting 600 Other Transfer back Reduce manning by 1500 by July 2000* Reduce investments Disposals and alliances *URXSZRUNIRUFHUHGXFWLRQVDVRI-XQHLQFOFRQVXOWDQWV st quarter 1st half Petrochemicals Hydro Aluminium Extrusion Hydro Aluminium Metal Products Hydro Agri Europe

33 9 2LODQG*DV Strengthened E&P position through Saga acquisition -up of Oseberg East, Visund and Åsgard PDO for Tune submitted Promising oil finds in Angola and Canada New licensing awards in Norway and Canada Higher earnings due to increased oil price

34 10 ([SORUDWLRQDQG3URGXFWLRQ Operating income NOK million 2,000 1,500 1,000 Transfer back * Accumulated 5,213 6,363 2,565 1,715 *) Frigg-area: Impairment and other losses NOK 400 million in 3rd qtr and NOK 600 million in 4th qtr. 1996

35 11 9DULDQFHDQDO\VLV([SORUDWLRQDQG3URGXFWLRQ Operating income NOK million st half vs. 1st half 1,715 1,699 2nd q. vs. 2nd q. 1, Variance Prices and currency - Oil - Gas - Currency - Volume - Field costs - Depreciation - Other 10 (450) 100 (340) (25) (260) (50) 85

36 12 2SHUDWLQJFRVWVSHUEDUUHORLOHTXLYDOHQWV NOK/bbl oe Exploration/other Field and production costs 40 Depreciation and abandonment Transfer back * 1996* * 1st half 99 Net operating costs Transportation cost *) Excl. impairment Frigg area in 1995 and 1996 and write-down Sincor in 1998.

37 13 3ULFHGHYHORSPHQW²FUXGHRLO Average per quarter USD/bbl 25 NOK/bbl Transfer back kv USD/bbl NOK/bbl 2nd quarter 1999: NOK/bbl 15.4 USD/bbl

38 14 3HWUROHXPSURGXFWLRQ Own reserves, per quarter 1,000 bbl oe/day Average per year: Gas Oil

39 15 5HILQLQJDQG0DUNHWLQJ Operating income NOK million Transfer back Accumulated

40 16 +\GUR(QHUJ\ Operating income NOK million Transfer back (100) (200) Accumulated

41 17 $JUL Continued low prices gave loss in Hydro Agri Europe Agenda 99 on schedule Industrial Chemicals - satisfactory result Hydro Agri International fairly good despite low fertilizer prices KFK - improved earnings in fishfeeds

42 18 +\GUR$JUL(XURSH Operating income NOK million 1, (200) Transfer back (400) (600) (800) Accumulated (725) (86)

43 19 9DULDQFHDQDO\VLV+\GUR$JUL(XURSH Operating income NOK million st half vs. 1st half (86) 431 2nd q. vs. 2nd q. (70) 182 Variance (517) (252) - Margin - Volume - Fixed costs - Other (340) (10) 15 (180) (290) (85)

44 20 3ULFHGHYHORSPHQW²'$3DQGXUHD USD/tonne DAP Bulk FOB US Gulf 200 Transfer back UREA Bulk FOB Arab Gulf nd q. Sources: Green Markets, British Sulphur and Fertecon

45 21 $PPRQLDSULFH Western Europe C&F USD/tonne Transfer back nd q. Sources: Green Markets, British Sulphur and Fertecon

46 22 (XURSHDQIHUWLOL]HUSULFHV AN United Kingdom Bagged ex warehouse AN France Bulk delivered wholesalers GBP/tonne 150 FRF/tonne 1, , nd q nd q. CAN Germany Bulk delivered wholesalers NPK France Bulk delivered wholesalers DEM/tonne 300 FRF/tonne 1,200 Transfer back 250 1, nd q nd q. Sources: British Sulphur and Fertecon

47 23 +\GUR$JUL,QWHUQDWLRQDO Operating income NOK million Transfer back (50) Accumulated

48 24 9DULDQFHDQDO\VLV+\GUR$JUL,QWHUQDWLRQDO Operating income NOK million st half vs. 1st half nd q. vs. 2nd q. Variance (88) Margin - Volume - Fixed costs - Other (125) 25 (10) 20 (40)

49 25 $JULUHRUJDQL]DWLRQ Objective Response to unsatisfactory results in recent years Sharpened global focus of Hydro's Agri business Improvements beyond Agenda 99 Transfer back New divisional structure Hydro Agri Markets Hydro Agri Production Hydro Gases and Chemicals

50 26 /LJKW0HWDOV Strengthening upstream position Alumina project: Alunorte, Brazil Metal sourcing: Remelter in Kentucky, USA Aluminium Metal dominated by low aluminium prices Strong result in Aluminium Extrusion Progress for Magnesium and Aluminium Rolled Products

51 27 +\GUR$OXPLQLXP0HWDO3URGXFWV Operating income NOK million Transfer back 0 (100) Accumulated 635 1,197 1,

52 28 9DULDQFHDQDO\VLV+\GUR$OXPLQLXP0HWDO3URGXFWV Operating income NOK million st half vs. 1st half nd q. vs. 2nd q Variance (625) (284) - Margin - Volume - Fixed costs - Trading & price hedging - Other (560) (100) (265) (70)

53 29 $OXPLQLXPSULFH 3 months LME price USD/mt 1,700 1,600 1,500 1,400 Transfer back 1,300 1,200 1,100 3q. 97 4q. 97 1q. 98 2q. 98 3q. 98 4q. 98 1q. 99 2q. 99 Quarterly average

54 30 +\GUR$OXPLQLXP([WUXVLRQ Operating income NOK million Transfer back Accumulated

55 31 9DULDQFHDQDO\VLV+\GUR$OXPLQLXP([WUXVLRQ Operating income NOK million st half vs. 1st half nd q. vs. 2nd q Variance Margin - Volume - Fixed costs - Other (20) 140 (50) (5) (15) 95 (20) -

56 32 2UGHULQWDNH Hydro Aluminium Extrusion Index (1st quarter 1996=100)

57 3HWURFKHPLFDOV Operating income 33 NOK million Transfer back (50) (100) Accumulated (165)

58 34 9DULDQFHDQDO\VLV3HWURFKHPLFDOV Operating income NOK million st half vs. 1st half (165) 177 2nd q. vs. 2nd q. (96) 54 Variance (342) (150) - Margin - Volume - Fixed costs - Other (360) 40 (30) 10 (120) 10 (20) (20)

59 35 3ULFHGHYHORSPHQW²39& S-PVC (pipe grade) CIF, Northwest Europe DEM/kg Transfer back nd q. Source: ICIS

60 36 6DJDDFTXLVLWLRQWUDQVDFWLRQEDFNJURXQG Changing environment: Increasingly competitive global E&P sector Unsatisfactory results in Norway Recent oil price uncertainty Required response: Reduce costs through consolidation and rationalization Increase productivity and recovery Transfer back Strategic action Optimization of participant portfolios

61 37,QFUHDVHGVWUHQJWKLQ+\GUR( 3 A strategic core area Proforma reserves 1998 Proforma production Saga - new International 165 Saga - new Norway 417 Hydro Norway 1,316 Hydro International 92 Million bbl oe Increase in reserves by 41 percent 1,000 bbl oe/day Saga- new Hydro International Hydro Norway Immediate production increase by 48 percent in 1999

62 38 1HWFDVKIORZDIWHUWD[DQGLQYHVWPHQWV Assuming full tax position NOK million (1999) 3,500 3,000 2,500 2,000 1,500 1, Oil price 12 USD/bbl NOK million (1999) 3,500 3,000 2,500 2,000 1,500 1, Oil price 16 USD/bbl Saga - after Hydro-Statoil Agreement Saga Portfolio Transferred cash flow to Statoil Saga - after Hydro-Statoil Agreement Saga Portfolio Transferred cash flow to Statoil

63 40 2SHUDWLQJLQFRPH By business segment NOK million 1st half st half 1998 Change Exploration and Production Refining and Marketing Hydro Energy Hydro Agri Europe Hydro Agri International Industrial Chemicals KFK Hydro Aluminium Metal Products Hydro Aluminium Extrusion Petrochemicals Other Activities 1, (86) (165) 278 1, (89) (517) (88) 61 0 (625) 67 (342) 139 Corporate Eliminations (231) 10 (77) (19) (154) 29 Total 2,864 4,198 (1,334)

64 41 &RQVROLGDWHGLQFRPHVWDWHPHQWV NOK million 1st half st half 1998 Operating revenue 48,650 51,122 Operating income 2,864 4,198 Equity in net income of non-consolidated investees Financial income (expense) Other income (expense) 188 (385) 1, Income before taxes and min. interest Tax Minority interest Accounting changes 3,765 (1,746) (20) (30) 4,831 (1,992) (16) - Net income 1,969 2,823 Earnings per share - NOK

65 42 &RQVROLGDWHGEDODQFHVKHHWV NOK million Cash and cash equivalents Other liquid assets Receivables and inventories Non-current assets 6,131 2,209 38,382 95,241 3,782 2,800 39,340 72,876 1,936 2,493 40,882 78,712 Total assets 141, , ,023 Short-term interest bearing debt Other short-term liabilities Long-term interest bearing debt Deferred tax liabilities Other long-term liabilities Minority interest Shareholders' equity 7,286 20,354 29,497 19,220 5,264 1,194 59,148 4,827 20,388 22,777 17,924 5,044 1,190 46,648 6,737 19,890 24,105 18,423 5,311 1,266 48,291 Total liabilities and shareholders' equity 141, , ,023 Shareholders' equity per share, NOK

66 43 (TXLW\LQQHWLQFRPHRIQRQFRQVROLGDWHGLQYHVWHHV Operating income NOK million 2nd quarter nd quarter 1998 Refining and Marketing Hydro Energy Hydro Agri International Hydro Aluminium Metal Products Corporate Other (28) 12 (25) Transfer back Total

67 44 1HWILQDQFLDOH[SHQVH NOK million Interest (income) expense Capitalized interest 2nd qtr (182) 2nd qtr (152) Net interest expense Transfer back Foreign exchange (gain) loss Dividends paid Net (gain) loss on securities Other 41 (71) (8) (88) (1,030) 29 Net financial (income) expense 271 (824)

68 45 'HSUHFLDWLRQ Per division NOK million 2nd quarter nd quarter 1998 Exploration and Production Refining and Marketing Hydro Energy Hydro Agri Europe Hydro Agri International Industrial Chemicals KFK Hydro Aluminium Metal Products Hydro Aluminium Extrusion Petrochemicals Other Activities Corporate Eliminations 31 (1) 31 (1) Total 1,935 1,839

69 46 /RQJWHUPGHEWVKDUHKROGHUVHTXLW\ Long-term debt divided by shareholders` equity plus minority interest

70 47 1HWLQWHUHVWEHDULQJGHEW NOK million 30,000 28,907 30,651 25,000 20,000 20,840 16,712 18,748 23,375 15,000 10,000 5, Interest bearing debt less cash and cash equivalents

71 48 3URGXFWLRQSHUILHOG 2nd quarter Daily average bbls/day Daily average bbls/day Hydro's share Hydro's production 2nd qtr Field 1st qtr nd qtr Percent Bbls/day Oil (incl. NGL/cond.) Oseberg Oseberg East Gullfaks Ekofisk Snorre* Brage Troll Oil Njord Vigdis Norne Other fields 403, , , , , ,000 21,000 44, , ,700 16, , , ,800 78, ,700 67,100 93, , ,249 1,997 32,607 17,219 18,084 17,645 15,798 15,098 7,888 11,210 25,000 Total oil 210,795 Gas 57,900 Total production 268,695 * Hydro's share was changed from 8.27 percent. Hydro's lifting share was percent 1st quarter of 1999.

72 49 ([SORUDWLRQDFWLYLW\DQGFRVWV NOK million Expensed share /96 3/96 2/97 4/97 1/98 3/98 2/96 4/96 1/97 3/97 2/98 4/98 1/99 Activity Previously capitalized wells expensed Repayment 2/99 Capitalized share

73 50 /LIWLQJFRVWVSHUEDUUHO Exploration and Production, Hydro's portfolio NOK per boe YTD 99

74 51 23(&FXWEDFNSODQ Opec production excluding Iraq Mill. bbls per day Quota Riyadh pact Amsterdam plan Den Haag plan J 97 F M A M J J A S O N J 98 D F M A M J J A S O N J 99 D F M A M J Crude oil, excl. NGL. Source: IEA and S&A

75 52 *OREDORLOVWRFNV Usable commercial stocks of crude and products Days of forward consumption Jan Feb Mar Apr May June July Aug Sep Oct Nov Dec Jan Excludes FSU and China Excludes strategic / non-commercial stocks Source: EIG "Oil Market Intelligence"

76 53 9DULDQFHDQDO\VLV5HILQLQJDQG0DUNHWLQJ Operating income NOK million st half vs. 1st half nd q. vs. 2nd q. Variance Margin - Volume - Other (20) 110 (5) (10)

77 54 9DULDQFHDQDO\VLV+\GUR(QHUJ\ Operating income NOK million st half vs. 1st half nd q. vs. 2nd q Variance (89) (22) - Margin - Volume - Other (50) 60 (100) (20) 20 (20)

78 55.RUQRJ)RGHUVWRI.RPSDJQLHW Operating income NOK million Transfer back (50) * 1999 Accumulated (10) *) Includes change in depreciation method 4th quarter 1998, NOK 240 million

79 56 9DULDQFHDQDO\VLV.RUQRJ)RGHUVWRI.RPSDJQLHW Operating income NOK million st half vs. 1st half nd q. vs. 2nd q. Variance Margin - Volume - Fixed costs - Other (25) 50 (35) 10 (45) 75 (20) 15

80 57,QGXVWULDO&KHPLFDOV Operating income NOK million Transfer back Accumulated

81 58 9DULDQFHDQDO\VLV,QGXVWULDO&KHPLFDOV Operating income NOK million st half vs. 1st half nd q. vs. 2nd q. Variance Margin - Volume - Fixed costs (20)

82 1RUVN+\GUR²6HFRQGTXDUWHU 59 1LWURJHQFRQVXPSWLRQDQGLPSRUWV Western Europe Mill. tonnes Import as % of consumtion 0 89/90 90/91 91/92 92/93 93/94 94/95 95/96 96/97 97/98 98/99e 13% 20% 19% 21% 22% 24% 23% 21% 21% 21% Consumption Imports from central Europe and FSU Imports from rest of the world

83 60 3ULFHGHYHORSPHQW²PDJQHVLXP Pure and alloy Index (1st qtr = 100) Pure Alloy nd q.

84 61 3ULFHGHYHORSPHQW²9&0 Spot prices FOB Northwest Europe for export to Asia USD/tonne 1, nd q. Source: ICIS

85 62 3ULFHGHYHORSPHQW²FDXVWLFVRGD Contract prices Northwest Europe DEM/tonne nd q. Source: Harriman

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