Hydro Annual Report 2011b

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12 BoArD oF DIreCtors’ report Financial and underlying operating results Share price development in 2011 NOK 55 50 45 40 35 30 25 20 Jan. Feb. Mar. Apr. May Jun. Jul. Aug. Sept. Oct. Nov. Dec. Hydro Oslo Børs Benchmark Index S&P 500 Index mitment to provide a cash return to its shareholders. The dividend reflects our operational performance for 2011 and a strong financial position, and takes into consideration the uncertain market outlook. financial and underlying operating results Financial results for 2011 EBIT for Hydro amounted to NOK 9,827 million compared with NOK 3,184 million in 2010. EBIT included negative effects of NOK 211 million from unrealized gains and losses relating to LME, power, currency and raw material derivative contracts, and metal effects in our Rolled Products business area. In 2010, the corresponding effects amounted to a negative NOK 166 million. The magnitude of these recurring effects depends on changes in market values, which have been significant. Other significant items impacting EBIT include gains and losses and other costs and charges that are typically nonrecurring for individual plants or operations. These included rationalization and impairment charges amounting to NOK 1,607 million and NOK 317 million for 2011 and 2010, respectively, together with divestment gains of NOK 1,184 million in 2011 and NOK 74 million in 2010. These also included effects relating to the vale Aluminium acquisition amounting to NOK 4,328 million in 2011 and other items amounting to a net positive effect of NOK 242 million in 2010. Net financial expense for the year amounted to NOK 1,288 million compared with net financial income of NOK 522 million in 2010. These amounts included net foreign currency losses of NOK 971 million in 2011 and net foreign currency gains of NOK 513 million for 2010. The currency gains in 2010 related primarily to intercompany balances denominated in Euro. The gains have no cash effect and are offset in equity by translation of the corresponding subsidiaries during consolidation. Corresponding net currency gains in 2011 amounted to NOK 27 million. Income taxes amounted to a charge of NOK 1,790 million in 2011, compared with a charge of NOK 1,588 million in 2010. for 2011, income tax expense was 21 percent of pre-tax income. The low tax rate results from tax-free gains on the sales of the shareholding in SKS Produksjon and Alpart, and the tax-free gain from the revaluation of Hydro’s previous ownership interests in Alunorte, and CAP recognized in the first quarter. The effect was somewhat offset by impairment charges having no tax effect and the write down of deferred tax assets recognized in the fourth quarter. Net income amounted to NOK 6,749 million in 2011, compared with NOK 2,188 million in 2010. Underlying operating results To provide a better understanding of Hydro’s underlying performance, the following discussion of operating performance excludes certain items from EBIT (earnings before financial items and tax) and net income, such as unrealized gains and losses on derivatives, impairment and rationalization charges, effects of disposals of businesses and operating assets, as well as other items that are of a special nature or are not expected to be incurred on an ongoing basis. Underlying EBIT improved for Bauxite & Alumina mainly due to the inclusion of the acquired bauxite and alumina activities from vale from March 1, 2011. Pro forma underlying EBIT for Bauxite & Alumina 1) declined to NOK 969 million in 2011 from NOK 1,225 million in 2010 which included insurance proceeds from the settlement of a claim for business interruption. Bauxite production improved throughout the year. Alumina production at Alunorte increased slightly. Realized alumina prices improved compared to 2010 driven by higher LME prices, but positive effects were mostly offset by increased raw material costs. Underlying EBIT for Primary Metal improved significantly in 2011 driven by higher realized aluminium prices, higher volumes and improved earnings for Qatalum following completion of ramp-up of the plant. Positive developments were partly offset by substantially higher raw material costs. Inclusion of the Albras smelter from March 1, 2011 also had a positive effect on underlying EBIT. Excluding Albras, higher realized aluminium prices together with higher premiums contributed about NOK 2.5 billion to underlying EBIT compared with 2010. LME linked alumina costs increased together with higher costs for carbon and power. fixed costs for our 1) To provide a presentation of Hydro’s performance on a comparable basis, this additional information relating to developments in underlying EBIT for Bauxite & Alumina is presented including the results of the acquired Vale assets for the full calendar quarter when the acquisition was completed in 2011 and for 2010. See note 5 to the consolidated financial statements later in this report for more information on the acquisition.
Key financial information NOK million, except per share data BoArD oF DIreCtors’ report Financial and underlying operating results Revenue 91 444 75 754 Earnings before financial items and tax (EBIT) 9 827 3 184 Items excluded from underlying EBIT 1) (3 694) 167 Underlying EBIT 6 133 3 351 Underlying EBIT : Bauxite & Alumina 887 633 Primary Metal 2 486 617 Metal Markets 441 321 Rolled Products 673 864 Extruded Products 151 444 Energy 1 883 1 416 Other and eliminations (389) (945) Underlying EBIT 6 133 3 351 Underlying EBITDA 11 152 6 420 Net income (loss) 6 749 2 118 Underlying net income (loss) 3 947 1 852 Earnings per share 2) 3.41 1.33 Underlying earnings per share 2) 1.89 1.14 Financial data: Investments 48 025 6 231 Adjusted net interest-bearing debt 3) (19 895) (6 427) Key Operational information 4) 1) See section Items excluded from underlying EBIT and net income in Hydro’s Annual Report – 2011 for more information on these items. 2) Earnings per share and Underlying earnings per share are computed using net income and underlying net income attributable to Hydro shareholders, and using the weighted average number of ordinary shares outstanding, adjusted for the discount element in the rights issue completed in July 2010. There were no significant diluting elements. 3) Calculation is based on amounts as of the end of the periods presented. See note 35, Capital Management in Hydro’s consolidated financial statements for a discussion on net interest-bearing debt definitions. 4) Operating statistics include proportionate share of production and prices in equity accounted investments. 5) Including the effect of strategic LME hedges (hedge accounting applied). 6) Excluding ingot trading volumes. Year 2011 Year 2011 Year 2010 13 Year 2010 % change prior year Alumina production (kmt) 5 264 1 976 >100 % Primary aluminium production (kmt) 1 982 1 415 40 % Realized aluminium price LME (USD/mt) 5) 2 480 2 113 17 % Realized aluminium price LME (NOK/mt) 5) 13 884 12 674 10 % Realized NOK/USD exchange rate 5.60 6.00 (7) % Metal Markets sales volumes to external market (kmt) 6) 2 091 1 717 22 % Rolled Products sales volumes to external market (kmt) 929 945 (2) % Extruded Products sales volumes to external market (kmt) 536 529 1 % Power production (GWh) 9 582 8 144 18 %
Page 1 and 2: Annual Report - 2011
Page 3 and 4: Annual Report - 2011 HyDRO’S REPO
Page 5 and 6: Aluminium market price weakens LME
Page 7 and 8: cost renewable energy production, w
Page 9 and 10: Corporate Management Board AnnuAl r
Page 11: • Secure stable production and fi
Page 15 and 16: for foundry alloys continued to be
Page 17 and 18: • Using viable energy sources •
Page 19 and 20: Share of non-Norwegian leaders Perc
Page 21 and 22: Capital employed - - upstream focus
Page 23 and 24: petitive supply of standard alumini
Page 25 and 26: Further improved bauxite and alumin
Page 27 and 28: Alumina production Million mt 7 6 5
Page 29 and 30: and Hydro - but both have also rest
Page 31 and 32: Operations Hydro’s primary alumin
Page 33 and 34: Plant Country Employees (per Dec. 3
Page 35 and 36: Active risk management We have deve
Page 37 and 38: Contribution margin to profit EUR p
Page 39 and 40: Flat rolled products consumption We
Page 41 and 42: Build on the high performance of ou
Page 43 and 44: European extrusion consumption (tot
Page 45 and 46: Operations Hydro is a global energy
Page 47 and 48: expected remediation costs relating
Page 49 and 50: Direct greenhouse gas emissions fro
Page 51 and 52: The Qatalum aluminium plant, in whi
Page 53 and 54: postponed in 2011 due to the market
Page 55 and 56: Water management Enough clean water
Page 57 and 58: The annual business planning proces
Page 59 and 60: Total payments (taxes, fees, etc.)
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Effective organization Hydro had 22
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Cooperating for safety at Slovalco
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from a 10-year perspective, we redu
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In 2011, we established an electron
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sold or demerged during the year ha
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vIABIlItY perForMAnCe Auditor’s R
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Current income tax tax vIABIlItY pe
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Environment Greenhouse gases gases
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Total waste vIABIlItY perForMAnCe F
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81 FInAnCIAl AnD operAtInG perForMA
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FINANCIAL AND OPERATING PERFORMANCE
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Market developments and outlook Mar
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Items excluded from underlying EBIT
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Items excluded from underlying EBIT
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Financial income (expense), net Yea
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Primary Metal Operational and finan
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Liquidity and capital resources The
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3) Including provisions for pension
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108 RISK REVIEW Risk factors Risk f
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110 RISK REVIEW Risk factors or var
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112 RISK REVIEW Risk factors leadin
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Share price development in 2011 Sha
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Major shareholders and voting right
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Key figures for the Hydro share Key
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Tittel Hydro present Based in Norwa
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Corporate directives and code of co
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Pre-approval of audit services The
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Billy Fredagsvik, employee represen
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Hans-Joachim Kock Key experience: H
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Description Developments and events
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Topic Comments References Transacti
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Topic Comments References 8 Corpora
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Topic Comments References 13 Inform
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F2 FINANCIAL STATEMENTS Consolidate
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F8 FINANCIAL STATEMENTS Note 1 - Si
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F10 FINANCIAL STATEMENTS Note 1 - S
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F16 FINANCIAL STATEMENTS Note 3 - B
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F18 FINANCIAL STATEMENTS Note 4 - C
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F20 FINANCIAL STATEMENTS Note 5 - A
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F22 FINANCIAL STATEMENTS Note 6 - F
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F24 FINANCIAL STATEMENTS Note 7 - O
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F26 FINANCIAL STATEMENTS Note 7 - O
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F28 FINANCIAL STATEMENTS Note 9 - R
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F30 FINANCIAL STATEMENTS Note 10 Bo
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F32 FINANCIAL STATEMENTS Note 11 -
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F56 Financial assets, classified as
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F64 FINANCIAL STATEMENTS Financial
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F66 FINANCIAL STATEMENTS Financial
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F70 FINANCIAL STATEMENTS Note 2 - E
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F72 FINANCIAL STATEMENTS Note 4 - P
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F74 FINANCIAL STATEMENTS Note 9 - R
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F76 FINANCIAL STATEMENTS Responsibi
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F78 FINANCIAL STATEMENTS Auditor's
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PENDIX A2 Appendix A1 APPENDIX Term
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Hydro is a global supplier of alumi
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Hydro Annual Report 2011b

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