Hydro Annual Report 2011b

Liquidity and capital resources
The table below includes information on Hydro's liquidity, debt, investments and financial position and performance for the
years indicated. See note 35 to the consolidated financial statements for more information on Hydro's capital management
practices, which include borrowing facilities, share buybacks and definitions and amounts relating to adjusted interest-bearing
debt, adjusted equity and funds from operations. See the shareholder information section of this report for more information
on Hydro's dividend policy, share buybacks and funding and credit rating.
Liquidity and financial position
NOK million, except ratios and RoaCE
FINANCIAL AND OPERATING PERFORMANCE
Liquidity and capital resources 101
Net cash provided by operating activities 7 277 6 363
Cash and cash equivalents 8 365 10 929
Short­term investments 1)
1 780 1 321
Liquid assets 10 145 12 250
Bank loans and other interest­bearing short­term debt (4 248) (940)
Long­term debt (4 190) (328)
Net interest bearing (debt) assets 1 707 10 982
Adjusted net interest­bearing (debt) assets 2)
(19 895) (6 427)
Adjusted net interest­bearing debt to adjusted equity ratio 2)
0.24 0.11
Investments 3)
48 025 6 231
Capital employed 83 460 46 460
Return on average capital employed (RoaCE) 11.8 % 3.8 %
Adjusted funds from operations / Adjusted net interest­bearing debt 0.42 1.18
1) Hydro's policy is that the maximum maturity for cash deposits is 12 months. Cash flows relating to bank time deposits with original maturities beyond
three months are classified as investing activities and included in short-term investments on the balance sheet. See note 18 to the consolidated financial
statements for more information on short-term investments.
2) Mainly comprised of net unfunded pension obligations after tax, the present value of operating lease obligations and interest-bearing debt held by equity
accounted investees. See note 35 to the consolidated financial statements for more information on adjusted net interest-bearing debt and adjusted equity.
3) Additions to property, plant and equipment (capital expenditures) plus long-term securities, intangible assets, long-term advances and investments in
equity accounted investments. For 2011, investments include NOK 43 376 million related to the acquisition of Vale Aluminium.
Cash flow and liquidity
Hydro manages its liquidity at the corporate level, ensuring sufficient funds to cover group operational requirements.
In 2011, cash provided by operating activities of NOK 7.3 billion was more than sufficient to cover operating requirements
and investments of NOK 4.3 billion 1), as well as dividend payments of NOK 1.8 billion. Sales of non-strategic assets amounted
to NOK 1.4 billion representing an additional source of cash, in addition to net loan proceeds of NOK 0.9 billion. In addition
to operating and investment activities, the main use of cash was a net payment of NOK 5.8 billion made in connection with
the Vale Aluminium acquisition.
Available credit facilities and the commercial paper market were used to cover fluctuations in cash flow during the year.
Net interest bearing assets declined from NOK 11.0 billion at the end of 2010 to NOK 1.7 billion at the end of 2011, mainly
due to the net payment of NOK 5.8 billion discussed above and debt assumed of NOK 5.7 billion, both related to the Vale
transaction. The increase in adjusted net interest bearing debt reflected the decline in net interest bearing assets as well as an
increase in net pension liabilities and liabilities assumed from the Vale Aluminium acquisition.
Hydro's adjusted net interest bearing debt to adjusted equity ratio was well below its targeted maximum ratio of 0.55. Our
adjusted funds from operations/adjusted net interest bearing debt ratio was above our targeted minimum of 0.40.
Volatility in market prices of aluminium, raw materials and exchange rates, as well as working capital developments, represent
factors which add uncertainty to the development of Hydro's cash position. Furthermore, due to uncertain economic
conditions, future production and sales volumes are difficult to predict and thereby add additional uncertainty. See the section
on risk review, including risk factors and market and commercial risk, in this report for additional information, including
sensitivities to aluminium prices and currency-rate fluctuations.
Year
2011
Year
2010