Annual report 2003 Hydro’s Annual Report 2003 Net income CROGI Dividend per share NOK million % NOK 16,000 14 12 14,000 12 10 12,000 10 10,000 8 8 8,000 6 6 6,000 4 4 4,000 2,000 2 2 0 0 0 99 00 01 02 03 99 00 01 02 03 99 00 01 02 03* NOK 10,687 million 9.8% NOK 11.00 * Proposed dividend Key figures 2003 2002 2001 2000 1999 Results NOK million Operating revenues 171,782 167,040 152,999 156,467 111,955 Operating income before financial items and other income 24,258 19,841 21,083 28,466 7,735 EBITDA 1) 43,253 35,658 37,757 46,609 21,944 Net income 2) 10,687 8,765 7,892 13,981 3,446 Financial data Investments 3) NOK million 18,900 45,716 16,328 16,565 53,025 Net interest bearing debt/equity 4) 0.38 0.60 0.34 0.44 0.67 Cash flow from operations NOK million 24,578 21,785 26,172 25,626 14,744 Rate of return CROGI % 5) 9.8 8.5 9.4 12.5 8.5 Normalized CROGI % 6) 9.0 9.0 8.5 9.5 - NOK per share Earnings 2) 41.50 34.00 30.50 53.40 13.90 Dividends 11.00 7) 10.50 10.00 9.50 8.00 Shareholders' equity 343.10 294.10 290.30 274.00 227.30 Share price Oslo Stock Exchange 31.12. 410.50 310.50 376.00 373.00 336.00 Number of employees (average over the year) 44,602 42,615 36,867 37,575 38,706 TRI 8) 7.0 10.0 9.5 13.7 12.9 Absence due to sickness % 3.0 3.3 3.2 3.9 3.8 Greenhouse gas (million tonnes CO2 equivalents) 26.8 27.6 27.8 28.7 28.1 Hydro's share price on Operating revenues Lost-time injuries Oslo Stock Exhange per million hours worked NOK Other activities 8 600 Aluminium 7 500 Agri 6 400 5 300 4 3 200 2 100 1 0 0 Oil & Energy 99 00 01 02 03 99 00 01 02 03 Hydro Hydro-employees Total: NOK 171,782 million Contractors Oslo Stock Exhange Benchmark index Figures for 2002 and 2003 include VAW 2003 Highlights > Good financial results. > 60,000 tonnes new primary aluminium capacity came on stream > Hydro’s fertilizer business to be listed at Sunndal, Europe’s largest and as independent company: Yara. most modern metal plant. > Oil and gas production increased > New aluminium remelt plant by 50,000 barrels to 530,000 barrels commenced operations in USA. per day. > Number of injuries were reduced > The Grane and Fram fields on the by more than 30 percent. Norwegian continental shelf came on stream. > Divestment program in 2002 and 2003 for sale of non-core businesses > Plan for development and operation worth NOK 10 billion completed. of the extensive Ormen Lange gas field submitted to the Norwegian authorities. 1) EBITDA: Earnings before Interest, Tax, Depreciation and Amortization. Se page 60 for more details. 2) Excluding the cumulative effect of accouning changes. 3) Investment in property, plant and equipment, long-term securities, intangibles, long-term advances and investments in non-consolidated investees. 4) Interest-bearing debt + Net pension liability (tax adjusted) + Operating lease commitments (discounted) - cash and cash equivalents - Other liquid assets divided by Shareholders' Equity + Minority interest 5) CROGI: Cash Return on Gross Investment. Se page 61 for more details. 6) Se page 61 for more details. 7) Proposed dividend. The final dividend is to be decided at the Annual General Meeting. Hydro shares are traded ex-dividend from 7 May 2004 in New York and from 12 May in Oslo. 8) Number of total recordable injuries per million hours worked. Hydro is a leading energy and aluminium company with operations in more than 40 countries. We are one of the world’s leading producers of offshore oil and gas and the third largest aluminium supplier. Our 36,000 employees create value by developing solutions enabling our customers – and local communities worldwide – to become more viable. Content This is Hydro 2 Letter to shareholders 4 The way forward 8 Oil & Energy 16 Aluminium 20 Agri 24 Other Activities 26 Society, People, Environment 28 Management 40 Corporate Governance 42 The Hydro share 46 Board of Directors 48 Annual Report 50 Financial Information 56 Financial review 57 Consolidated financial statements US GAAP 88 Consolidated financial statements N GAAP 90 Notes to the consolidated financial statements 93 Financial statements Norsk Hydro ASA 131 Independent auditor's report 137 Corporate assembly 138 Non-GAAP financial measures 139 IFRS/IAS in Hydro 151 Operational data 152 Organization 156 Hydro’s Annual Report 2003 1 Hydro’s way forward In 2003, we achieved our business goals and our financial performance was strong. We implemented major changes, took significant strategic steps and defined the way forward as a strong company with two core business areas: Oil & Energy and Aluminium. Our fertilizer business will be listed as an independent company under the new name, Yara. In Hydro, we intend to build on our tradition of creating value by combining commercial focus with socially responsible business operations. This annual report, while examining closely the most important events and results of the past year, also looks forward. It describes how we intend to leverage our competitive strengths to reach new objectives and live up to our mission to create a more viable society. Hydro’s Annual Report 2003 This is Hydro 2 This is Hydro Hydro’s mission is to create a more viable society through the innovative and efficient development of natural resources and products. It is an ambition we have set out to achieve by concentrating on two core areas, Oil & Energy and Aluminium. Our businesses, and the value they create, help customers and society prosper and develop towards a more sustainable future. Oil & Energy Aluminium Our petroleum and energy business plays a vital role in meeting Our integrated aluminium business helps meet the need for a material Europe’s increasing energy needs. Hydro is an integrated European that is growing in importance for a viable society. Aluminium poss- energy company and a major participant in the Nordic and European esses first class recycling properties, and our products contribute to energy market. We develop, produce and deliver oil, gas and wind more efficient buildings, better packaging, as well as safer and more power, play an active role in developing new energy and new energy environmentally sound transport. carriers in the form of wind power and hydrogen, and conduct exten- sive operations in energy transport and trading. Oil & Energy has With 27,000 employees in 28 countries throughout the world, we 3,500 employees and operates in Angola, Canada, Russia, Libya, the hold a leading position in a number of areas. As a supplier of Gulf of Mexico, Iran, Norway and several other countries in Europe. bumpers, engine blocks and precision-drawn aluminium tubing, we are a world leader and hold a strong position as a supplier to the In the North Sea, Hydro operates 15 oil and gas installations. We pro- building industry, particularly in Europe, and to the printing industry. duced 530,000 barrels of oil equivalents per day in 2003. We are one Innovation, commercial finesse, a global approach, coupled with of the leading deep-water operators in the world, possessing unique our ability to make continuous improvements, are all important expertise in advanced well technology, multilateral drilling and in major elements as we develop our aluminium business. development projects. Hydro’s Annual Report 2003 This is Hydro 3 Our background The Hydro Way > Hydro was established in 1905 to pro- The way we work is distinguished by a set The Hydro Way is based upon a common duce nitrogen fertilizer using Norwegian of institutional talents that are shared by set of values: hydroelectric power. Hydro’s fertilizer everyone, across business areas and made an important contribution for geographic bounderies: > Courage almost 100 years to increased food pro- duction in a world where hunger is a > An ability to develop source > Respect critical problem. businesses > Cooperation > Hydro’s globally encompassing aluminium > A drive to optimize business builds on more than 80 years’ > Determination experience. > An instinct to commercialize > Foresight > We were one of the pioneers developing > A passion for social commerce the Norwegian petroleum industry, right from the outset in the 1960s. Hydro’s Annual Report 2003 Letter to shareholders 4 Hydro’s Annual Report 2003 Letter to shareholders 5 Distinct direction ahead The year 2003 marked a crossroads in our almost 100 year development. A comprehensive strategic review concluded that Hydro should move forward as one strong company with Oil & Energy and Aluminium as its core areas, while Agri goes on to realize its ambitions as a separate, listed fertilizer company. A solid platform for adding further value has been established in all three areas, for the greatest benefit of our shareholders, employees, customers, and for society. In January 2004, Hydro’s shareholders approved the recommendation to demerge Agri, which will continue operating as the listed company, Yara. We are parting with the enterprise that formed the basis of Hydro’s development 100 years ago – harnessing energy for the production of fertilizer. On an emotional level, this decision to part may seem difficult – for Hydro’s employees and shareholders alike – but it is completely in line with our strength throughout the years, which is the willingness and ability to restructure in order to meet new challenges and secure our long-term competitive position.