Hydro Annual Report 2011b

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F50 FINANCIAL STATEMENTS Note 34 - Shareholders' equity The number of shares for the year 2010 until the rights issue was completed on July 16, 2010 and all previous presented periods were adjusted for the implicit rebate in the subscription price compared to the theoretical ex-rights price at closing on June 24, 2010, i.e. immediately before trading of the subscription rights. The adjustment represented a factor of 1.055 to the number of outstanding shares for all periods. Hydro's outstanding founder certificates and subscription certificates entitle the holders to participate in any share capital increase, provided that the capital increase is not made in order to allot shares to third parties as compensation for their transfer of assets to Hydro. These certificates represent dilutive elements for the earnings per share computation. Change in Other components of equity The table below specifies the changes in Other components of equity for 2011 and 2010. Amounts in NOK million 2011 2010 Currency translation differences January 1 (708) 223 Currency translation differences during the year (2 408) (928) Reclassified to Net income on sale of foreign operations (856) (3) December 31 (3 972) (708) Unrealized gain (loss) on securities January 1 304 282 Unrealized gain (loss) on availableforsale securities (411) 175 Reclassified to Net income on sale or impairment of availableforsale securities (90) Tax benefit (expense) 151 (63) December 31 45 304 Cash flow hedges See note 41 Derivative instruments and hedge accounting January 1 15 73 Period gain (loss) recognized in Other comprehensive income 185 (69) Reclassification of hedging gain (loss) to Net income (107) (12) Tax benefit (expense) (20) 23 December 31 74 15 Other components of equity in equity accounted investments January 1 (170) 64 Period gain (loss) recognized in Other comprehensive income (291) (225) Reclassified to Net income 2 (9) December 31 (459) (170) Total other components of equity attributable to Hydro shareholders as of December 31 (3 856) (418) Total other components of equity attributable to minority interests as of December 31 (456) (140) Note 35 - Capital management Hydro's capital management policy is to maximize value creation over time, while maintaining a strong financial position and an investment grade credit rating. Credit rating To secure access to capital markets at attractive terms and remain financially solid, Hydro aims to maintain an investment grade credit rating from the leading agencies, Standard & Poor's (current rating BBB) and Moody's (current rating Baa2). Hydro targets, over the business cycle, a ratio of Adjusted funds from operations of at least 40 percent of Adjusted net interestbearing debt, and an Adjusted net interest-bearing debt to Adjusted equity ratio below 55 percent.
FINANCIAL STATEMENTS Note 35 - Capital management F51 Liquidity management and funding Hydro manages its funding requirements centrally to cover group operating requirements and long-term capital needs. During 2011 net cash provided by operations was sufficient to cover operating requirements and capital expenditures excluding acquisitions. Funds raised in the Norwegian commercial paper market and from short-term bank facilities were used to cover short term requirements throughout the year. Hydro has an ambition to access national and international capital markets as primary sources for external long-term funding. In 2010, Hydro raised NOK 10 billion in a rights issue in connection with the Vale Aluminium acquisition, contributing to liquidity holdings sufficient to cover a related cash payment amounting to USD 1.1 billion in February 2011. Hydro also issued new shares to Vale at closing, representing 22 percent of outstanding shares and assumed US dollar debt as part of the transaction. Funding of subsidiaries, associates and jointly controlled entities Normally the parent company, Norsk Hydro ASA, incurs debt and extends loans or equity to wholly-owned subsidiaries to fund capital requirements. Hydro's policy is to finance part-owned subsidiaries and investments in associates and jointly controlled entities according to its ownership share, on equal terms with the other owners. All financing is executed on an arm's-length basis. Project financing is used for certain funding requirements mainly to mitigate risk while also considering partnership and other relevant factors. Shareholder return Shareholder return consists of dividends and share price development. Hydro aims to provide its shareholders with a competitive return compared with alternative investments in similar companies. Our policy is to distribute an average of 30 percent of net income in the form of ordinary dividends over the business cycle. Dividends for a particular year are based on expected future earnings and cash flow, future investment opportunities, the outlook for world markets and Hydro's current financial position. Share buybacks or extraordinary dividends may be used to supplement ordinary dividends during periods of strong financial results after considering the status of the business cycle and capital requirements for future growth. Hydro's capital management measures Hydro's management uses the Adjusted net interest-bearing debt to Adjusted equity ratio to assess the group's financial standing and outlook. Net interest-bearing debt is defined as Hydro's short- and long-term interest-bearing debt adjusted for Hydro's liquidity positions. Adjusted net interest-bearing debt is adjusted for liquidity positions regarded unavailable for servicing debt; other obligations which are considered debt-like in nature; and adjustments for the indebtedness of Hydro's equity accounted investments. The adjustments are considered relevant because they affect Hydro's ability to service existing debt and to incur additional debt. See table below for additional information related to the definition and measurement of this ratio. The ability to generate cash compared to financial liabilities is an important measure of risk exposure and financial stability. Hydro's management uses Adjusted funds from operations and a ratio of Adjusted funds from operations to Adjusted net interest-bearing debt as capital management measures. Adjusted funds from operations is defined as Net income adjusted for non-cash items such as depreciation, amortization and impairments, and deferred taxes. Adjustments are also made for Hydro's share of depreciation, amortization and impairments in its equity accounted investments as well as for unrealized effects on derivative contracts and certain other non-cash items. Adjusted net interest-bearing debt, Adjusted equity and Adjusted net interest-bearing debt to Adjusted equity ratio are presented in the following table.
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Annual Report - 2011
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Annual Report - 2011 HyDRO’S REPO
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Aluminium market price weakens LME
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cost renewable energy production, w
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Corporate Management Board AnnuAl r
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• Secure stable production and fi
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Key financial information NOK milli
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for foundry alloys continued to be
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• Using viable energy sources •
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Share of non-Norwegian leaders Perc
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Capital employed - - upstream focus
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petitive supply of standard alumini
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Further improved bauxite and alumin
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Alumina production Million mt 7 6 5
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and Hydro - but both have also rest
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Operations Hydro’s primary alumin
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Plant Country Employees (per Dec. 3
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Active risk management We have deve
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Contribution margin to profit EUR p
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Flat rolled products consumption We
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Build on the high performance of ou
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European extrusion consumption (tot
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Operations Hydro is a global energy
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expected remediation costs relating
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Direct greenhouse gas emissions fro
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The Qatalum aluminium plant, in whi
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postponed in 2011 due to the market
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Water management Enough clean water
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The annual business planning proces
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Total payments (taxes, fees, etc.)
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Qatalum, where Hydro holds a 50 per
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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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Page 140 and 141: F2 FINANCIAL STATEMENTS Consolidate
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Page 220: Hydro is a global supplier of alumi
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Hydro Annual Report 2011b

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