Focus for the future

Transcription

1 N O R S K H Y D R O S E C O N D Q U A R T E R Focus for the future

2 NORSK HYDRO OIL AND GAS 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 2000: 16 October 2000 The results will be released at 0930 hours CET. The company reserves the right to revise these dates. 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) nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Year 1,750 6,729 7,032 Operating income 13,761 2,864 7, Non-consolidated investees (271) (983) (1,006) Net financial expense (1,989) (385) (1,551) Other income 139 1,098 1,350 2,507 5,912 6,394 Income before tax 12,306 3,765 7,873 (1,226) (3,470) (3,589) Income tax expense (7,059) (1,746) (4,337) 1,260 2,451 2,775 Net income 5,226 1,969 3, Earnings per share Norsk Hydro's net income in the first half of 2000 was NOK 5,226 million (USD million), or NOK per share (USD 2.35). The corresponding figures in 1999 were NOK 1,969 million (USD million) and NOK 8.60 per share (USD 1.10). The substantial improvement was primarily the result of a significantly higher crude oil price and increased oil production, as well as higher margins and business volume in Light Metals and Energy. In addition, Plant Nutrition showed positive results mainly due to cost reductions and improved margins. Operating income in the first six months of NOK 13,761 million (USD 1,617.6 million) was NOK 10,897 million above earnings in the first half of Net income in the second quarter was NOK 2,775 million (USD million), or NOK per share (USD 1.21). This represents an increase of 120% over the same period of Earnings for non-consolidated investees in the first half of 2000 increased by 110% to NOK 395 million. The progress was due to better profitability for Hydro's affiliates in Light Metals and Agriculture. Other income represents the gain on the sale of Fundo as, an aluminium wheel manufacturer, and KFK's sale of BS Pet Products AS, an animal feed operation. Cash flow from operations in the first half of this year was NOK 13.8 billion, an increase of 83%. The improvement was mainly due to improved earnings. Efforts to realize Hydro's established improvement targets are progressing according to plan. Measures carried out in the first half of 2000 improved operating income by about NOK 1.0 billion. This is in addition to the NOK 1.3 billion which was realized in Hydro's investments in the first half of 2000 totaled NOK 7.4 billion, of which approximately 51% were made in the oil and gas operations. EBITDA for core areas and the introduction of CROGI as a return measure 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. Hydro will continue to discuss operating income in addition to EBITDA. In the first half of 2000 EBITDA was NOK 21,345 million, an increase of NOK 12,505 million compared to the first half of the prior year. Of this increase, NOK 5,967 million occurred in second quarter of 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. Hydro's CROGI in 1999 was 8.4%. The target for 2002 is 10%. 3

4 HYDRO OIL AND ENERGY EBITDA nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 1,875 6,406 7,041 Exploration and Production 13,447 3, Energy 1, Oil Marketing (1) - 1 Eliminations 1 8 2,228 6,982 7,697 Total Hydro Oil and Energy 14,679 4,190 Operating income nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 1,001 4,230 4,863 Exploration and Production 9,093 1, Energy Oil Marketing (1) Eliminations (1) 9 1,233 4,720 5,417 Total Hydro Oil and Energy 10,137 2, nd qtr 1st qtr 2nd qtr 1st half 1st half Oil and gas production (thousands boe/d) Oil price (USD/bbl) Oil price (NOK/bbl) Gas Price (NOK) Exploration expense (NOK million) Exploration and Production EBITDA for Exploration and Production was NOK 13,447 million in the first half of 2000, about four times higher than in the same period of last year. Operating income was slightly more than five times higher than earnings in the first half of The improvement in operating income in the second quarter of 2000, compared to last year, increased at virtually the same proportional rate. The favorable change was due to significantly higher oil and gas prices, and a 53% increase in production. The increase in production was mainly due to the acquisition of Saga Petroleum in July Hydro's oil and gas production in the second quarter averaged 408,000 barrels of oil equivalents per day (boe), which was 52% higher than average production in the second quarter of Of its total production, Hydro had average oil production of 322,000 barrels per day. Second quarter production as a whole decreased by 30,000 boe compared to the first quarter of 2000, reflecting seasonally low volumes for gas, maintenance and shutdowns on the Snorre, Vigdis and Njord fields. The average price of crude oil in the second quarter was USD 27.4 per barrel, compared to USD 15.4 per barrel in the corresponding period of Stated in Norwegian kroner, the oil price doubled. Average realized gas prices were 80% above prices in the second quarter of last year. Exploration expense in the second quarter was NOK 279 million, compared to NOK 196 million in the corresponding period of last year. Lower capitalization as a result of fewer commercial discoveries accounted for the increase. Exploration activity in the second quarter was at the same level as in the same quarter of 1999, which did not include Saga Petroleum. Hydro entered into an agreement to sell its assets on the British Continental Shelf for USD 540 million, excluding net operating capital. The portfolio comprises interests in the Britannia, Alba and Gryphon fields and in exploration licenses. Hydro expects the transaction to provide a gain of about NOK 500 million. At the same time, the sale will create a tax-related loss that is expected to reduce current tax by approximately NOK 450 million. The exact figures will be dependent upon the exchange rate at the time the transaction is consummated. The transaction is subject to the approval of relevant authorities, which is anticipated in the third quarter of

5 Energy EBITDA and operating income for Energy in the first half of 2000 was NOK 1,058 million and NOK 986 million, respectively. Operating income in the first half of 1999 was impacted by writedowns and charges of NOK 123 million. Excluding these charges, EBITDA and operating income increased by around 90%, or approximately NOK 500 million, compared to the first half of In the second quarter of 2000, EBITDA and operating income improved by slightly more than NOK 300 million compared to the same period of last year. Higher refining margins, combined with better results from the international trade of crude oil and liquefied natural gas, helped improve performance for Hydro's oil marketing and refining activities. Earnings increased in the first half of this year by NOK 250 million, of which NOK 200 million occurred in the second quarter. Operating income for natural gas sales in Europe was higher in the second quarter of 2000 than in the same quarter of last year. The favorable change reflected increased activity and improved margins. Electricity production in the second quarter of 2000 was somewhat higher than production in the same period of last year. However, spot market prices were unchanged. Electricity contracts from 1999 improved earnings. In total, this improved results by about NOK 110 million in the first half of The improvement in earnings in the second quarter alone was approximately NOK 60 million compared to last year. Reservoir levels are well above average in seasonal terms. As a result, electricity production is expected to increase over the remainder of Oil Marketing EBITDA and operating income for Oil Marketing, which is responsible for the retail marketing of gasoline and other refined oil products in Sweden, was NOK 173 million and NOK 59 million, respectively, in the first half of The corresponding figures in 1999 were NOK 183 million and NOK 62 million. Reduced earnings were due to lower realized margins, due mainly to high oil prices during the period. Hydro's share of net income in the retail marketing company, Hydro Texaco, in the first half of this year was NOK 52 million. This was somewhat above last year's figure. HYDRO LIGHT METALS EBITDA nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 334 1,342 1,085 Aluminium Metal Products 2, Aluminium Extrusion Other Light Metals (6) (14) 1 Eliminations (13) (17) 849 1,803 1,659 Total Hydro Light Metals 3,462 1,622 Operating income nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 177 1, Aluminium Metal Products 1, Aluminium Extrusion Other Light Metals (7) (13) - Eliminations (13) (18) 447 1,286 1,029 Total Hydro Light Metals 2,

6 Aluminium Metal Products EBITDA for Aluminium Metal Products was NOK 2,427 million in the first half of 2000, an increase of NOK 1,794 million compared to the first half of last year. In the second quarter, EBITDA advanced by NOK 751 million. Operating income in the first half of this year was NOK 1,886 million, of which NOK 800 million was recorded in the second quarter. The improvement in the first six months and in the second quarter of 2000 was primarily due to higher realized metal prices, a higher USD exchange rate, and good results for metal trading activities. Aluminium prices on the London Metal Exchange (LME) weakened by USD 150 per tonne during the course of the second quarter to an average of USD 1,502 per tonne. However, due to time lags in the pricing of aluminium, the full effect of the decrease was not reflected in realized prices in the second quarter, which were somewhat higher than in the previous quarter. In the first half of 2000, average realized prices for Hydro's production of primary metal was slightly below USD 1,540 per tonne. At the end of 1999, Hydro had contracts in place for about one third of its expected primary metal production in 2000 at prices slightly below USD 1,430 per tonne. Through a price-hedging program and sales contracts, Hydro has pre-sold an additional 50% of its remaining expected primary aluminium production in 2000 at a price of approximately USD 1,460 per tonne. The main part of the pre-sold metal is tied to sales contracts, while the remainder is connected to the pricehedging program carried out in the first half of Measured against current market prices, the program for 2000 will have a negative effect on the remainder of the year. At the end of the first six months, Hydro estimated this loss to be about NOK 150 million. Changes in the LME price can result in significant fluctuations due to marked-to-market adjustments of the sales contracts. Earnings for metal trading activities were high in the first six months and substantially above the weak level realized in the corresponding period of Earnings in the second quarter were lower than in the first quarter of 2000, but remained high. The improved performance reflected aluminium and alumina contracts signed in 1999, which increased Hydro's trading activities in the current year. Aluminium Extrusion EBITDA for Aluminium Extrusion was in the first half of this year NOK 703 million, an improvement of 34%, but EBITDA for the second quarter was NOK 392 million, an advance of 45% compared to the same period of Operating income was NOK 378 million in the first half of 2000 and NOK 190 million in the second quarter. The improvement in the first six months was largely due to higher volumes, while margins weakened slightly. Results for Extrusion Europe in the first half of 2000 continued to rise over its already strong standard, reflecting a high activity level and improved productivity. Heat Transfer, the business unit that produces automotive components, experienced a slight setback in performance compared to the previous year. Building Systems in Europe showed significant improvement in a market characterized by increased construction activity. Aluminium Extrusion's results for the first half of 2000 included the results from March through June of Wells Aluminum Corporation, which experienced a decrease in new orders during the second quarter. Hydro acquired the US company in the first quarter of Other Light Metals EBITDA and operating income for Aluminium Rolled Products in the first half of 2000 were both lower than in the same period of last year, mainly due to favorable one-time effects in the second quarter of Sales volumes in the first six months increased in comparison to last year, while realized margins were unchanged. Automotive Structures in the first half of this year had a negative EBITDA and an operating loss that were comparable to last year's results. The demand for bumper beams and aluminium body structures for cars remains strong, and many new products are ready to be launched. However, a continued lack of economies of scale and high costs related to preproduction accounted for the weak performance. Magnesium's performance, both in EBITDA and operating income, weakened compared to the first half of Sales volumes were higher, but lower market prices led to a reduction in realized margins. A growing amount of exported metal from China is more than offsetting the strong demand for magnesium and is the main source of the price pressure. 6

7 HYDRO AGRI EBITDA nd qtr 1st qtr 2nd qtr NOK million 1st half 1. half Plant Nutrition 1, Gas and Chemicals KFK Eliminations ,041 1,276 Total Hydro Agri 2,317 1,300 Operating Income nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Plant Nutrition 735 (26) Gas and Chemicals (8) 9 KFK Eliminations Total Hydro Agri Plant Nutrition Plant Nutrition had EBITDA of NOK 1,628 million in the first half of 2000, more than double last year's result of NOK 737 million. Operating income was NOK 735 million, compared to an operating loss of NOK 26 million in the first six months of EBITDA in the second quarter was NOK 861 million, an increase of NOK 447 million compared to the corresponding period of last year. Operating income rose by NOK 340 million to NOK 376 million in the second quarter of EBITDA in the first six months of 2000 included non-recurring charges of NOK 350 million, compared to NOK 169 million in the same period of last year. Non-recurring charges in the second quarter alone were NOK 215 million, against NOK 54 million in Consequently, the underlying improvement in EBITDA in the first half of 2000 was NOK 1,072 million. This year's non-recurring charges of NOK 350 million included a restructuring charge of NOK 135 million in demanning costs for nitrate fertilizer plants and NOK 108 million in closure costs for complex (NPK) fertilizer plants in France. The remaining charges of NOK 107 million were largely workforce-reduction costs connected to management functions and the reversal of losses on contracts. Furthermore, operating income in the second quarter of 2000 was impacted by a writedown of property, plant and equipment of NOK 56 million. In addition to the costs incurred in the first six months, Hydro expects further costs of about NOK 250 million over the remainder of The improvement in performance was due to a combination of cost-reduction initiatives and favorable market effects. Fixed costs in the first half of 2000 were reduced by approximately NOK 500 million compared to the first half of last year. Since 1998, the accumulated savings in fixed costs in Hydro's plant nutrition activities have totaled NOK 950 million. The work to achieve further cost reductions in Hydro's plant nutrition activities is on schedule with relation to the goals set in the Hydro Agri Turnaround program. Hydro has reduced its workforce by about 1,200 people since January The favorable price effect in the first half of the current year amounted to approximately NOK 820 million, while production costs, made up primarily of energy costs, where about NOK 360 million above last year's level. Energy costs in the third quarter of 2000 will probably be somewhat higher than they were in the second quarter. As a result of restructuring measures in the European market that will result in a reduction of nitrate fertilizer capacity of about 3 million tonnes compared with 1999 capacity, the market balance for nitrate fertilizer in Europe is improving. To illustrate, the price of calcium ammonium nitrate has increased by around DEM 100 per tonne since the latter half of The execution of the announced closures should provide the basis for a sustainable market balance. The international fertilizer markets continued to improve in the second quarter. Ammonia and urea prices increased substantially, and China's possible membership in the World Trade Organization is expected to increase the country's fertilizer imports in the future. 7

8 Due to the normal seasonal variations, fertilizer volumes in the second half of 2000 are expected to be considerably less than volumes in the first half of the year. Hydro's share of net income in affiliated companies increased from NOK 97 million in the first half of 1999 to NOK 119 million in the first half of the current year. Significant improvement for the nitrogen companies, Tringen and Qafco, more than compensated for a weakening in earnings for the phosphate company, Farmland Hydro. Total investments in the first half of 2000 amounted to NOK 169 million, or approximately 10% of EBITDA. On July 6, Hydro signed an agreement to acquire 58% of the shares in Adubos Trevo S.A., a Brazilian fertilizer company, with production capacity of 1.7 million tonnes. The company is expected to bring economies of scale to Hydro's fertilizer activities in Latin America as well as synergies to Hydro's existing production and distribution network. Gas and Chemicals EBITDA for Gas and Chemicals in the first half of 2000 of NOK 402 million was 8% higher than last year, while operating income was virtually unchanged in comparison with earnings in the first half of A strong increase in the price of ammonia, which pressured margins for nitrogen-based products, was offset by cost reductions and favorable onetime effects that totaled NOK 66 million. The pre-tax gain on the sale of Hydelko KS and Hydro's share of the Hydrogas- Messer joint venture in the second quarter of 2000 accounted for most of the improvement in EBITDA. A/S Korn- og Foderstof Kompagniet KFK KFK had EBITDA of NOK 244 million in the first half of 2000, which was NOK 56 million above EBITDA in the same period of last year. In the second quarter alone, EBITDA improved by 19% to NOK 175 million. Operating income in the first half of the current year was NOK 1 million, compared to NOK 34 million in the first half of A pre-tax gain of NOK 89 million on the sale of BS Pet Products AS, an animal feed operation, favorably affected EBITDA in the second quarter of Results for KFK's fish feed activities were below earnings from last year, when margins were particularly good. A decline in KFK's operating income compared to the first half of 1999 reflected higher costs for animal feed operations caused by higher oil prices and other factors. Petrochemicals nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half (30) EBITDA nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half (96) Operating income 263 (165) EBITDA for Petrochemicals increased by NOK 296 million in the first half of 2000 compared to the same period last year. In the first half of 1999, EBITDA included a pre-tax gain of NOK 149 million on the sale of Mabo AS. Operating income rose by NOK 428 million compared to the first half of The progress was mainly due to a 76% increase in the price of S-PVC compared to last year. However, the effects of the price increase were partially offset by higher raw materials costs for natural gas liquids and purchased ethylene. Prices for caustic soda weakened by 11% compared to the first half of last year. In the second quarter of 2000, EBITDA and operating income declined by NOK 102 million and NOK 107 million, respectively. The maintenance shutdown at the production facilities in Rafnes, Norway, negatively impacted earnings by approximately NOK 185 million due to production losses and higher maintenance costs. A strike delayed the shutdown by 14 days, and problems related to start-up led to a longer stop in production than originally anticipated. The price of S-PVC leveled out toward the end of the second quarter. Further price pressure during the second half of 2000 is expected. 8

9 Other activities nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half 1, EBITDA 333 1, nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Operating income Other activities include Hydro Seafood, Pronova, Hydro Technology and Projects, and the casualty insurance company, Industriforsikring. Hydro Seafood's salmon farming activities showed improved EBITDA and operating income in the first half of 2000, due primarily to higher prices. Hydro has reached an agreement to sell Hydro Seafood. The transaction is expected to be completed during the third quarter of Finance nd qtr 1st qtr 2nd qtr NOK million 1st half 1st half Year Net interest expense 1, , Net foreign exchange loss (8) Net (gain) loss on securities 107 (187) (379) (42) 72 4 Other, net 76 (8) ,006 Net financial expense 1, , NOK/USD exchange rate1) ) As of the end of the period. Net financial expense in the first half of 2000 was NOK 1,989 million, compared to NOK 385 million last year. In the first half of the current year, net financial items was affected by a currency loss of NOK 647 million, primarily due to a higher USD exchange rate. Capitalized interest on plant under construction totaled NOK 335 million in the first half of this year, compared to NOK 363 million in the previous year. Capitalized interest was NOK 193 million in the second quarter of 2000 and NOK 181 million in the same period of last year. Net interest bearing debt of NOK 41.8 billion has declined by NOK 1.2 billion since the end of Hydro will pay off a bank loan of USD 400 million in the third quarter of Taxes The provision for current and deferred taxes in the first half of 2000 was NOK 7,059 million, equivalent to 57% of pre-tax income, primarily current tax. The corresponding figure for the same period of last year was NOK 1,746 million, equivalent to 46% of pre-tax income. The higher effective tax rate was due to increased earnings from oil activities. Oslo, 17 July 2000 The Board of Directors 9

10 Income statements Second quarter First half Year NOK million, except per share data Operating revenues 36,539 24,487 70,931 48, ,433 Depreciation, depletion and amortization 3,282 1,935 6,455 3,919 10,494 Other operating costs 26,225 20,802 50,715 41,867 84,204 Operating income 7,032 1,750 13,761 2,864 7,735 Equity in net income of non-consolidated investees Financial expense, net (1,006) (271) (1,989) (385) (1,551) Other income ,098 1,350 Income before taxes and minority interest 6,394 2,507 12,306 3,765 7,873 Income tax expense (3,589) (1,226) (7,059) (1,746) (4,337) Minority interest (30) (21) (21) (20) (90) Income before cumulative effect of change in accounting principle 2,775 1,260 5,226 1,999 3,446 Cumulative effect of change in accounting principle (30) (30) Net income 2,775 1,260 5,226 1,969 3,416 Earnings per share before change in accounting principle Earnings per share Average number of outstanding shares 261,718, ,994, ,712, ,038, ,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 are unaudited. Quarterly results NOK million except per share data * 1st qtr 2nd qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 34,392 36,539 24,163 24,487 25,096 28,687 Operating income 6,729 7,032 1,114 1,750 2,139 2,732 Net income 2,451 2, , Earnings per share USD million except per share data * 1st qtr 2nd qtr 1st qtr 2nd qtr 3rd qtr 4th qtr Operating revenues 4, , , , , ,629.8 Operating income Net income Earnings per share * Amounts have been converted to USD for convenience using the average exchange rate (NOK/USD) in effect during the quarters as follows:

11 Balance sheets NOK million, except per share data Assets Current assets Cash and cash equivalents 9,718 6,131 7,435 Other liquid assets 2,362 2,209 2,535 Receivables 37,304 24,934 32,398 Inventories 16,227 13,448 16,327 Total current assets 65,611 46,722 58,695 Non-current assets Property, plant and equipment, less accumulated depreciation, depletion and amortization 101,198 64, ,498 Other assets 19,584 30,470 16,226 Total non-current assets 120,782 95, ,724 Total assets 186, , ,419 Liabilities and Shareholders Equity Current liabilities Bank loans and other interest bearing short-term debt 6,588 5,278 7,361 Current portion of long-term debt 4,178 2, Other current liabilities 31,019 20,354 28,725 Total current liabilities 41,785 27,640 36,993 Long-term liabilities Long-term debt 40,730 29,497 42,228 Deferred tax liabilities 31,433 19,220 30,357 Other long-term liabilities 7,619 5,264 7,021 Total long-term liabilities 79,782 53,981 79,606 Minority shareholders interest in consolidated subsidiaries 1,406 1,194 1,323 Shareholders equity 63,420 59,148 59,497 Total liabilities and shareholders equity 186, , ,419 Shareholders equity per share Total number of outstanding shares 261,948, ,046, ,705,562 11

12 STATEMENTS OF CASH FLOWS Year NOK million Operating activities: Net income 5,226 1,969 3,416 Adjustments: Depreciation, depletion and amortization 6,455 3,919 10,494 Other adjustments 2,136 1, Net cash provided by operating activities 13,817 7,545 14,744 Investing activities: Purchases of property, plant and equipment (5,190) (5,976) (13,029) Saga Petroleum ASA - (3,338) 719 Purchases of other long-term investments (3,187) (324) (907) Net sales (purchases) of short-term investments (43) 4 32 Proceeds from sales of property, plant and equipment ,956 Proceeds from sales of other long-term investments 423 2,276 2,863 Net cash used in investing activities (7,029) (7,123) (8,366) Financing activities: Loan proceeds 965 9,675 21,707 Principal repayments (3,640) (4,249) (19,626) Ordinary shares purchased - - (1,599) Ordinary shares issued 16-3 Dividends paid (2,094) (1,718) (1,718) Net cash provided by (used in) financing activities (4,753) 3,708 (1,233) Foreign currency effects on cash flows Net increase in cash and cash equivalents 2,283 4,195 5,499 Cash and cash equivalents at beginning of period 7,435 1,936 1,936 Cash and cash equivalents at end of period 9,718 6,131 7,435 12

13 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. 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. 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 nd qtr 1st qt. 2nd qtr NOK million 1st half 1st half Year 2,228 6,982 7,697 Hydro Oil and Energy 14,679 4,190 13, ,803 1,659 Hydro Light Metals 3,462 1,622 3, ,041 1,276 Hydro Agri 2,317 1,300 1,141 1, Other 887 1,728 3,464 5,029 10,349 10,996 Total 21,345 8,840 21,944 1,935 3,173 3,282 - Depreciation 6,455 3,919 10, Write-down Amortization of goodwill of non-consolidated investees Interest expense 1,750 1,017 2, Net foreign exchange loss (gain) Other financial items ,507 5,912 6,394 Income before tax and minority interest 12,306 3,765 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. 13

14 INDIVIDUAL INDUSTRY SEGMENTS Operating revenues Second quarter First half Year NOK million Exploration and Production 8,399 2,694 16,423 5,120 17,406 Energy 9,230 3,795 18,257 7,081 18,102 Oil Marketing ,835 1,120 2,652 Eliminations (6,320) (2,526) (12,508) (4,424) (12,068) Hydro Oil and Energy 12,266 4,529 24,007 8,897 26,092 Aluminium Metal Products 6,520 4,024 12,225 8,158 17,281 Aluminium Extrusion 4,285 3,056 7,968 6,096 12,081 Other Light Metals 2,204 2,026 4,398 4,039 7,716 Eliminations (1,671) (1,197) (3,312) (2,422) (4,857) Hydro Light Metals 11,338 7,909 21,279 15,871 32,221 Plant Nutrition 8,348 7,203 16,991 14,974 26,799 Gas and Chemicals 1,222 1,156 2,388 2,317 4,718 KFK 2,827 2,743 5,052 4,872 9,756 Eliminations (594) (378) (996) (885) (1,615) Hydro Agri 11,803 10,724 23,435 21,278 39,658 Petrochemicals 1,502 1,203 3,070 2,411 5,346 Other Activities 1,152 1,003 2,189 2,173 3,847 Segments 38,061 25,368 73,980 50, ,164 Corporate 1,017 1,020 1,946 2,012 3,959 Eliminations (2,539) (1,901) (4,995) (3,992) (8,690) Total 36,539 24,487 70,931 48, ,433 External revenues Second quarter First half Year NOK million Exploration and Production 2, ,282 1,391 6,996 Energy 7,543 2,865 14,715 5,258 13,865 Oil Marketing ,831 1,119 2,648 Hydro Oil and Energy 11,165 3,983 21,828 7,768 23,509 Aluminium Metal Products 4,863 2,828 8,892 5,685 12,072 Aluminium Extrusion 4,282 3,027 7,964 6,042 11,974 Other Light Metals 2,108 1,963 4,214 3,911 7,442 Hydro Light Metals 11,253 7,818 21,070 15,638 31,488 Plant Nutrition 7,738 6,840 15,935 14,053 24,776 Gas and Chemicals 1,164 1,099 2,289 2,200 4,521 KFK 2,771 2,705 4,964 4,802 9,558 Hydro Agri 11,673 10,644 23,188 21,055 38,855 Petrochemicals 1,493 1,165 3,051 2,341 5,221 Other Activities ,633 1,528 2,793 Segments 36,461 24,338 70,770 48, ,866 Corporate Total 36,539 24,487 70,931 48, ,433 14

15 Internal revenues Second quarter First half Year NOK million Exploration and Production 5,733 2,142 11,141 3,729 10,410 Energy 1, ,542 1,823 4,237 Oil Marketing Eliminations (6,320) (2,526) (12,508) (4,424) (12,068) Hydro Oil and Energy 1, ,179 1,129 2,583 Aluminium Metal Products 1,657 1,196 3,333 2,473 5,209 Aluminium Extrusion Other Light Metals Eliminations (1,671) (1,197) (3,312) (2,422) (4,857) Hydro Light Metals Plant Nutrition , ,023 Gas and Chemicals KFK Eliminations (594) (378) (996) (885) (1,615) Hydro Agri Petrochemicals Other Activities ,054 Segments 1,600 1,030 3,210 2,300 5,298 Corporate ,785 1,692 3,392 Eliminations (2,539) (1,901) (4,995) (3,992) (8,690) Total Operating income (loss) Second Quarter First half Year NOK million Exploration and Production 4,863 1,001 9,093 1,715 5,840 Energy Oil Marketing Eliminations (1) - (1) 9 9 Hydro Oil and Energy 5,417 1,233 10,137 2,169 6,962 Aluminium Metal Products , ,357 Aluminium Extrusion Other Light Metals Eliminations - (7) (13) (18) (43) Hydro Light Metals 1, , ,179 Plant Nutrition (26) (2,239) Gas and Chemicals KFK Eliminations (14) Hydro Agri (1,671) Petrochemicals 78 (96) 263 (165) 113 Other Activities Segments 7,172 1,899 13,932 3,098 7,829 Corporate (137) (151) (164) (231) (101) Eliminations (3) 2 (7) (3) 7 Total 7,032 1,750 13,761 2,864 7,735 15

16 EBITDA Second quarter First half Year NOK million Exploration and Production 7,041 1,875 13,447 3,442 11,971 Energy , ,148 Oil Marketing Eliminations 1 (1) Hydro Oil and Energy 7,697 2,228 14,679 4,190 13,579 Aluminium Metal Products 1, , ,016 Aluminium Extrusion ,071 Other Light Metals Eliminations 1 (6) (13) (17) (44) Hydro Light Metals 1, ,462 1,622 3,760 Plant Nutrition , (119) Gas and Chemicals KFK Eliminations (15) Hydro Agri 1, ,317 1,300 1,141 Petrochemicals 173 (30) Other Activities 186 1, ,474 2,029 Segments 10,991 4,998 21,239 8,738 21,364 Corporate Eliminations (73) 4 (81) 5 14 Total 10,996 5,029 21,345 8,840 21,944 Depreciation, depletion and amortization Second Quarter First half Year NOK million Exploration and Production 2, ,272 1,713 6,072 Energy Oil Marketing Hydro Oil and Energy 2, ,387 1,940 6,426 Aluminium Metal Products Aluminium Extrusion Other Light Metals Hydro Light Metals ,504 Plant Nutrition ,246 Gas and Chemicals KFK Hydro Agri ,853 Petrochemicals Other Activities Segments 3,250 1,906 6,398 3,861 10,370 Corporate Eliminations (3) (2) (3) (1) (5) Total 3,282 1,935 6,455 3,919 10,494 16

17 Additions property, plant & equipment and intangible assets First quarter Second quarter First half NOK million Exploration and Production 1,909 1,904 3,813 Energy Oil Marketing Hydro Oil and Energy 1,936 1,955 3,891 Aluminium Metal Products Aluminium Extrusion 1, ,468 Other Light Metals Hydro Light Metals 2, ,566 Plant Nutrition Gas and Chemicals KFK Hydro Agri Petrochemicals Other Activities Segments 4,494 2,838 7,332 Corporate Hydro Group 4,530 2,875 7,405 17

18 Operating income - EBIT 1) - EBITDA 2) Second quarter 2000 NOK million Operating Non-cons. Interest Selected Other Depr. income investees income financial income EBIT and EBITDA items Amort. Exploration and Production 4, ,913 2,128 7,041 Energy Oil Marketing Eliminations (1) (1) 2 1 Hydro Oil and Energy 5, ,503 2,194 7,697 Aluminium Metal Products ,085 Aluminium Extrusion Other Light Metals (5) Eliminations Hydro Light Metals 1, , ,659 Plant Nutrition Gas and Chemicals (1) KFK 9-21 (8) Eliminations Hydro Agri (7) ,276 Petrochemicals 78 (1) Other Activities (34) Segments 7, ,720 3,271 10,991 Corporate (137) Eliminations (3) - (10) (59) - (72) (1) (73) Total 7, (29) 139 7,692 3,304 10,996 Operating income - EBIT 1) - EBITDA 2) First half 2000 NOK million Operating Non-cons. Interest Selected Other Depr. income investees income financial income EBIT and EBITDA items Amort. Exploration and Production 9, ,175 4,272 13,447 Energy ,058 Oil Marketing Eliminations (1) (1) 2 1 Hydro Oil and Energy 10, ,290 4,389 14,679 Aluminium Metal Products 1, , ,427 Aluminium Extrusion Other Light Metals (5) Eliminations (13) (13) - (13) Hydro Light Metals 2, , ,462 Plant Nutrition ,628 Gas and Chemicals (1) KFK 1-35 (8) Eliminations Hydro Agri (6) 89 1, ,317 Petrochemicals 263 (5) Other Activities (63) Segments 13, ,801 6,438 21,239 Corporate (164) Eliminations (7) - - (72) - (79) (2) (81) Total 13, (36) ,851 6,494 21,345 1) EBIT: Earning Before Interest and Tax. 2) EBITDA: Earing Before Interest, Tax, Depreciation and Amortization. 18

19 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 16.3 billion, was financed by a share issue of NOK 11.6 billion and a cash payment of NOK 4.6 billion. The acquisition resulted in a total excess value for Hydro of NOK 12.6 billion and this was allocated to oil and gas production licenses to be depreciated by the unit of production method. The excess value could be adjusted when a final decision is taken by the Norwegian authorities regarding Saga s tax position. 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 six months ended 30 June, 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 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 Six Months Ended 30 June, June, 1999 Pro Forma in NOK millions, except per share data Combined (3) Operating revenues (1) 51,184 Operating income (2) 2,036 Income before cumulative effect of change in accounting principle 962 Net income 932 Earnings per share Before cumulative effect of change in accounting principle 3.60 Cumulative effect of change in accounting principle (0.10) Earnings per share 3.50 Average number of outstanding shares 266,596,650 The unaudited pro forma combined financial information for the six months ended 30 June, 1999 is prepared using the same methodology as in the Offer to Purchase dated 10 June, Amortization of excess value of PP&E of NOK 901 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 six months ended 30 June, 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 thesix months ended 30 June,