Oslo (2008-02-19):
Summary of 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 income from continuing operations, 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.

Within a strong year for Hydro, underlying income from continuing operations in the fourth quarter fell to NOK 1,425 million from NOK 1,981 million in the third quarter and NOK 1,960 million in the fourth quarter of 2006, mainly due to lower aluminium prices, weakening markets for downstream operations and unfavorable currency developments.
 
Hydro achieved solid results for the full-year 2007, supported by firm global demand and high aluminium prices, with underlying income from continuing operations rising to NOK 7,847 million from NOK 7,811 million in 2006.
 
Hydro's Board of Directors proposed a total dividend of NOK 5.00 per share for 2007. In addition the board proposed a share buyback authorization amounting to approximately NOK 4 billion, providing flexibility to pursue business opportunities in an uncertain financial environment. In total, this represents a potential cash return to shareholders of approximately NOK 10 billion.
 
The proposed dividend for the fiscal year 2007 is divided into an ordinary dividend of NOK 1.50 per share and an extraordinary dividend of NOK 3.50 per share. Combined with the proposed share buyback authorization, the extraordinary dividend will contribute to a more efficient capital structure for Hydro.
 
"The year 2007 was an exceptional year for Hydro, with sweeping structural changes resulting in a streamlined aluminium company well-positioned for further growth," Hydro President and CEO Eivind Reiten said. "Hydro now has the necessary financial muscle, asset base and market positions to take full advantage of attractive business opportunities."
 
Hydro's oil and gas activities were merged with Statoil to create StatoilHydro on 1 October 2007, marking a fundamental milestone and transforming Hydro into a world-class aluminium company, with solid positions in each of its three business areas - Aluminium Metal, Aluminium Products and Energy.

Underlying results for Aluminium Metal, Hydro's upstream aluminium business, declined from the previous three-month period, mainly due to lower realized aluminium prices measured in Norwegian kroner. Hydro's joint venture with Qatar Petroleum on the 585,000-tonne Qatalum smelter project, in which Hydro holds 50 percent, was about 9 percent completed by the end of 2007, on track for the planned completion by the end of 2009.
 
Aluminium Products, Hydro's downstream operations, delivered weak underlying results in the fourth quarter. Rolled Products underlying results were negatively affected by unfavorable currency developments, lower volumes - especially in the high value-added market sectors - as well as higher costs. Strong underlying results from Hydro's European extrusion activities were offset by a continued decline in volumes in U.S. operations and losses in Automotive Structures.
 
Hydro's Energy business delivered firm underlying results in the fourth quarter, mainly due to a sharp rise in spot power prices, while solar power activities showed good progress.
 
"Although Hydro delivers strong full-year results in 2007, we are not satisfied with the fourth-quarter results," Reiten said. "Lower realized aluminium prices and weaker markets for our Aluminium Products business have had a negative impact on the results."
 
The demand for primary aluminium continued to grow in the fourth quarter. For the full-year 2007, primary aluminium demand rose by 3.5 million tonnes, or 10 percent, from 2006, driven mainly by strong growth in China. After a dip in aluminium prices in late 2007, prices strengthened again in early 2008 following production curtailments in China, South Africa and South America. Hydro expects these disruptions to impact primary metal supply at least during the first half of the year.
 
Hydro expects a moderate slowdown in market growth for semi-fabricated products in Europe in 2008 compared with 2007. In the United States, the market for semi-fabricated products declined during 2007. Overall, Hydro expects a fairly flat development in its core downstream markets in 2008 compared to 2007, depending on the direction of the global economy. 

Aluminium Metal

Underlying earnings before financial items and tax

Underlying EBIT for Aluminium Metal amounted to NOK 1,364 million in the fourth quarter of 2007, declining 30 percent from the strong results in the third quarter of 2007 and 22 percent from the fourth quarter of 2006, mainly due to lower realized aluminium prices.
 
Our realized aluminium prices declined compared with the third quarter of 2007 measured both in US dollars and, to a greater extent, measured in Norwegian kroner, due to the weakening US dollar, reducing operating results by NOK 818 million. Our primary aluminium production was relatively unchanged compared both with the third quarter 2007 and the fourth quarter of 2006.
 
Underlying results for our Bauxite and Alumina operations fell in the fourth quarter, compared with both the previous quarter and the fourth quarter of 2006, influenced by a decline in the underlying results of Alunorte, our most important alumina investment. Results for Alunorte were impacted by lower alumina prices, mainly due to the decline in LME prices and higher energy costs. During the quarter, Alunorte commenced the start-up of new coal-fired boilers which is an important step towards improving the plant's energy supply mix. Fourth-quarter production at Alunorte rose 6 percent compared with the previous quarter and 4 percent compared with the same period last year.
 
Underlying results for our Commercial operations were somewhat higher in the quarter, compared with the third quarter of 2007 but declined compared with the fourth quarter of the previous year. Underlying results were affected by losses in our North American remelt operations due to difficult market conditions, with volumes at severely depressed levels. Our remelt operations in Europe have delivered solid underlying results in recent years and results for the quarter have increased compared to both the previous quarter and the fourth quarter of last year. In addition, results for other activities within our commercial products operations increased compared to third quarter, while underlying results from our sourcing and trading operations declined significantly in the quarter.

Aluminium Products

Underlying earnings before financial items and tax

Underlying EBIT for Aluminium Products amounted to NOK 74 million for the fourth quarter, down by NOK 214 million from the third quarter of 2007 and NOK 186 million from the fourth quarter of 2006. Underlying results for the fourth quarter of 2006 included operating profits from the divested Castings and Magnesium operations of around NOK 70 million.
 
Compared to the third quarter of 2007, underlying results for our Rolled Products business were negatively impacted by lower volumes, mainly within our high added-value foil and lithographic market segments, unfavorable currency developments, and seasonally higher maintenance and general cost increases, mainly energy.
 
Overall volumes declined by 5 percent for our Extrusion operations compared with the third quarter of 2007, mainly driven by a 12 percent decline in volumes for our US operations. Margins remained strong for our European Extrusion and Building Systems operations, partly offsetting the decline in shipments.
 
Underlying EBIT for our remaining Automotive business was negatively impacted by losses in our Automotive structure operations. Shipments for our Automotive structures were stable in the fourth quarter compared with the third quarter of 2007 and increased somewhat compared to the fourth quarter of 2006. However, results were impacted by costs related to future business with the start-up of new production lines and costs relating to new contracts. Improved results for our Precision Tubing operations made a small contribution to underlying EBIT for the fourth quarter.

Energy

Underlying earnings before financial items and tax

Underlying EBIT for our Energy operations amounted to NOK 341 million in the fourth quarter, up substantially from the third quarter of 2007 and somewhat higher compared with the fourth quarter of 2006. The increase from the third quarter of 2007 was mainly due to the significantly higher spot prices in the Nordic electricity market, which more than offset the effects of lower production. Compared with the fourth quarter of 2006, results were impacted by weaker results from equity accounted investments. The effect of somewhat lower power prices was more than offset by increased production.
 
Hydro's power production in Norway amounted to 2.3 TWh in the fourth quarter of 2007, down 30 percent from the record high production in the third quarter of 2007. Production increased by 27 percent compared to the fourth quarter of 2006. Net spot sales amounted to 0.7 TWh, up from 0.4 TWh in the same quarter last year, but down from 2.0 TWh in the third quarter of 2007.
 
Primarily due to variations in hydrology, Hydro is managing surplus and shortages in its Norwegian power portfolio in the spot market. The balance of the power portfolio varies both within different periods of the year and from year to year, driven by hydrological conditions and industrial consumption as well as contractual commitments and market developments. In 2007, net spot sales, which represent the net of volumes sold and purchased, have been higher than normal due to record-high inflows and increased hydropower production.
 
Direct power production costs, which include operations and maintenance, transmission costs, property taxes and concession fees, decreased by 15 percent from third quarter of 2007, primarily due to higher maintenance activity in the third quarter. Compared with the fourth quarter of 2006, direct power production costs increased by 7 percent.
 
Results for our Solar business, including share of profit/loss in equity accounted investments, amounted to a loss of NOK 49 million in the fourth quarter of 2007, compared with a loss of NOK 14 million in the third quarter of 2007.

Items excluded from underlying EBIT and income from continuing operations

To provide a better understanding of Hydro's underlying performance, the items in the table below have been excluded from EBIT (earnings before financial items and tax) and income from continuing operations. More information can be found in the quarterly report.
 
EBIT for Hydro amounted to NOK 338 million in the quarter, compared with NOK 2,013 million in the previous quarter and a loss of NOK 664 million in the fourth quarter of 2006. In addition to our operating performance, the items included in the table above have a substantial effect on our EBIT for the periods presented and are explained below.
 
Income from continuing operations amounted to NOK 527 million in the quarter, compared with NOK 2,792 million in the previous quarter and NOK 324 million in the fourth quarter of 2006. In order to present Income from continuing operations on a basis comparable with our underlying operating performance, we have calculated the income tax effect of items excluded from underlying EBIT based on Hydro's effective tax rate for the corresponding periods presented. We have also excluded unrealized gains and losses on all foreign denominated contracts included in our balance sheet for the periods presented. The amounts included in the table below mainly relate to forward currency contracts used to hedge net future cash flows from operations, sales contracts and working capital mainly by selling US dollars and Euro where hedge accounting is not applied. We have also excluded certain tax credits which are deemed to be non-recurring in nature.

Finance

Tax

Income tax expense amounted to a positive amount of NOK 58 million in the fourth quarter compared with a charge of NOK 765 million in the third quarter of 2007 and a positive amount of NOK 692 million in the fourth quarter of 2006. Income tax expense for the fourth quarter and third quarter of 2007 included positive effects from a reduction of statutory tax rates in Germany amounting to about NOK 50 million and about NOK 250 million respectively. Income tax expense in the fourth quarter of 2006 included positive effects from the recognition of tax assets not previously recognized amounting to about NOK 500 million.
 
Income tax expense amounted to NOK 3,075 million for the year 2007, which was approximately 25 percent of income from continuing operations before tax. The corresponding amount for the year 2006 amounted to NOK 1,952 million also representing approximately 25 percent of income from continuing operations before tax.

Outlook

Metal

Key economic indicators continue to signal somewhat slower growth in all major regions. European industrial production growth is expected to slow throughout 2008. The economic outlook for North America remains weak. China continues its rapid development, although growth in industrial production shows signs of moderate easing in recent months, with an expected annual growth rate of 16 percent in 2008, down from 18 percent in 2007.
 
Growth in China's apparent consumption of primary aluminium is expected to continue at a very strong pace in 2008, but is forecast to decline to about 24 percent from an annual growth rate of 38 percent in 2007. Growth in Chinese production of primary metal is expected to reach 24 percent in 2008, down from an annual growth rate of 35 percent in 2007. However, recent power shortages in China have hit aluminium production in several regions, which may cause 2008 production growth rates to slow further.
 
Adjusting for net imports of scrap metal, and including net exports of rolled and extruded products as well as other fabricated products, China exported an estimated 750,000 mt of aluminium on a net basis in 2007. Chinese production of semi-fabricated aluminium products is increasing rapidly, up an estimated 45 percent in 2007 from 2006.
 
There is a growing expectation that China will become a net importer of primary metal over time. China is expected to concentrate on the more value added, labor-intensive production of semi-finished and fabricated products for export. This would be in line with previously announced Chinese policy, which has been confirmed through the imposition of duties on exports of primary metal and simpler forms of semi-finished products.
 
Primary aluminium consumption in the rest of the world is expected to grow by about 2 percent from 2007 to 2008. Annual growth in consumption in Europe is expected to be about 2 percent in 2008, while consumption in the US is expected to remain unchanged following a decline of almost 7 percent in 2007. Production in the rest of the world is estimated to grow at an annual rate of around 6 percent in 2008, compared to an annual growth rate of 4 percent in 2007.

Demand for extrusion ingot in Europe in the first half of 2008 is expected to be in line with the last quarter of 2007, with continued slowing of demand in the building and construction sectors. Demand for sheet ingot is expected to remain robust, although there are signs of slower growth in 2008. Demand for foundry alloys is expected to remain firm in the beginning of 2008. Market demand for casthouse products in the US is expected to remain weak.

Products

Market demand for flat rolled products in Europe is expected to recover slightly from the seasonally lower second half of 2007, but shows signs of softening later in 2008. Demand from the automotive and engineering market segments is expected to be stable, while demand from the construction market segment is weakening. Demand in the US market is expected to remain depressed. This, together with a weak US dollar, could lead to increased imports and put pressure on European margins.
 
The overall outlook for the European extrusion market indicates a softer demand going into 2008, driven by the weakening construction market segment, in particular in Southern Europe. A weaker construction market in Germany is expected to be offset by the continued strong engineering and transportation market segments.
 
The outlook for the US extrusion market remains poor. Continuing deterioration in the housing market and the ongoing turmoil in the financial and credit markets have increased the level of uncertainty and the risk for further deteriorating economic developments. Margin developments have remained stable, but are expected to come under increasing pressure the longer the current downturn continues. South American markets are expected to post another strong year, with consumption in Brazil and in Argentina expected to grow around 7 percent.
 
The outlook for the automotive market is mixed, with a softening expected in the US market while the outlook for the European market remains flat. Automotive markets in Asia and South America are expected to continue to grow. Increased pressure on fuel economy and emissions reductions, including potential new environmental legislation, is expected to increase the use of aluminium in automotive systems and solutions.

Energy

Both production capacity and spot prices in the Nordic electricity market are heavily influenced by hydrological conditions. Capacity constraints in the transmission grid may also expose Hydro to regional prices that sometimes differ from the Nordic system price.
 
Average water reservoir levels in Norway were reported at 77 percent of full capacity at the end of the fourth quarter, which is 5 percentage points higher than the normal level for this time of year. Hydro's water reservoir levels were 13 percent above the normal level at the end of the fourth quarter.
 
Effective from 1 January 2008, the second phase of the EU greenhouse gas emission allowance trading scheme (ETS) was implemented. The new regulations will likely increase power producers' CO2 emission costs compared to 2007 levels, thereby contributing to higher power prices.
 
Partly through common pricing of CO2 emission rights and through increased interconnector transmission capacity, Nordic power prices are expected to be increasingly influenced by power prices and generation fuel costs on the European Continent. However, hydrological conditions and local supply and demand factors, such as temperature and weather conditions, will continue to have a strong influence on price formation in the Nordic region.
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Certain statements contained in this announcement constitute “forward-looking information” within the meaning of Section 27A of the US Securities Act of 1933, as amended, and Section 21E of the US Securities Exchange Act of 1934, as amended. In order to utilize the “safe harbors” within these provisions, we are providing the following cautionary statement.

Certain statements included within this announcement contain (and oral communications made by us or on our behalf may contain) forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions, investments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro’s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by “expected”, “scheduled”, “targeted”, “planned”, “proposed”, “intended” or similar statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream Aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro’s key markets and competition; and legislative, regulatory and political factors. For a detailed description of factors that could cause our results to differ materially from those expressed or implied by such statements, please refer to the risk factors specified under “Risk review – Risk factors” on page 134 of our Annual Report 2006 (including Form 20-F) and subsequent filings on Form 6-K with the US Securities and Exchange Commission.

No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.