On 24 March 2004, Hydro’s agri business was transferred to Yara International ASA in a demerger transaction. Results of the transferred operations relating to periods prior to the demerger are reported under “Income from discontinued operations”. The following discussion excludes those activities.

Strong operating results reflected exceptionally high oil prices on top of an 8 percent increase in oil and gas production for 2004. Volume increases made possible by expanded aluminium production capacity together with strengthening metal prices also contributed to the results. However, the substantial decline in the US dollar weakened the competitiveness of the Company’s European aluminium operations. Increasing energy prices, combined with the decline of the US dollar, led to a write down of Hydro’s German smelters by approximately NOK 1.5 billion after tax in December of 2004.

Income from continuing operations for the fourth quarter of 2004 amounted to NOK 3,638 million (NOK 14.40 per share) compared with NOK 2,991 million (NOK 11.60 per share) in the fourth quarter of 2003. Operating income for the fourth quarter was NOK 6,234 million compared to NOK 6,366 million in the fourth quarter of 2003.

The Board proposes to the Annual General Assembly of shareholders a dividend of NOK 20.00 per share for 2004 compared with NOK 11.00 per share for 2003.

Solid financial position

"As a result of good market conditions and significant operational improvements throughout 2004, Hydro enters the company's 100th year with a solid financial position. Important highlights for 2004 include the demerger of the agri business, ambitious business development in our remaining core business areas and the implementation of necessary restructuring in the aluminium activities. Value creation has been strong, and it is a great pleasure to announce an extraordinary high dividend for our shareholders in our centennial year," says President and CEO Eivind Reiten.
 
"The expansion of the aluminium plant in Sunndal in Norway has been completed and the Ormen Lange development is on track and on budget. I am proud to see that Hydro's organization is recognized for good project management and reliable project execution. Our intention is to make the development of a world class aluminium metal plant in Qatar our next large project," says Reiten.

"Hydro is well positioned for continued profitable growth. Priorities going forward will include adding new oil and gas resources to our portfolio, continued improvements of our operations in aluminium to improve our competitive position and continuous research and innovation to add value throughout all our business activity," says Reiten.

Oil & Energy

Operating results for Oil & Energy reflected continued high oil prices during the quarter. The averaged realized oil price was US dollar 41.8 per barrel in the fourth quarter of 2004, an increase of 44 percent compared to the fourth quarter of the previous year. Measured in Norwegian kroner, the average realized price increased 31 percent for the quarter.

For the year as a whole, oil and gas production reached record levels averaging 572,000 barrels of oil equivalents (boe) per day, compared with 530,000 boe per day in 2003. Oil and gas production declined slightly for the quarter averaging 591,000 boe per day during the fourth quarter compared to 596,000 boe per day in the fourth quarter of the previous year. Unscheduled shutdowns of the partner operated fields Snorre and Vigdis on the Norwegian Continental Shelf (NCS) and the Terra Nova field in Canada resulted in a total production loss of approximately 20,000 boe per day for the quarter.

Operating income for Energy and Oil Marketing increased in the fourth quarter primarily as a result of unrealized gains relating to the valuation of gas purchase and sales contracts for future delivery. Operating income for Energy and Oil marketing for the whole of 2004 was relatively unchanged from the previous year.

Development activities relating to the Ormen Lange gas field are proceeding according to plan and the project was 20 percent complete at the end of 2004.

Aluminium

Aluminium incurred an operating loss of NOK 1,951 million for the quarter as a result of the write down relating to the Company’s primary aluminium plants in Germany. An amount of NOK 2,042 million was included in operating income relating to the write down while NOK 268 million was included in results for non-consolidated investees. The operating loss for the quarter also included NOK 500 million of costs relating to manning reductions in Norway.
 
Aluminium operating results were positively influenced by volume increases combined with strengthening aluminium prices. Hydro’s average realized aluminium prices increased to US dollar 1,691 per tonne in the fourth quarter, roughly 14 percent compared to the fourth quarter of 2003. However, measured in Norwegian kroner, realized prices increased by about six percent. For 2004 as a whole, Hydro realized average aluminium prices of US dollar 1,638 per tonne compared to US dollar 1,440 per tonne in the previous year. Average realized aluminium prices measured in Norwegian kroner increased 9.5 percent for the year as a whole. Upstream volumes increased mainly as a result of new capacity and improved capacity utilization.

Progress continued on the implementation of the Aluimprover cost-reduction program. The program is expected to be completed in the first quarter of 2005 and result in annual cost reductions of NOK 350 million – 400 million. The total estimated cost of the program has been reduced by NOK 200 million to NOK 600 million.

In December, Hydro signed a “Heads of Agreement” with Qatar Petroleum to evaluate the development of one of the world’s largest aluminium plants in Qatar.

Cash flow, investments, taxes

Cash flow from operations in 2004 was NOK 27.7 billion, compared to NOK 22.8 billion in 2003.

Investments amounted to NOK 19.5 billion for the whole of 2004. Around half of the amount invested related to oil and gas operations. The amount contains certain items that have no cash effect in the near term. The most significant of these include NOK 1,275 million relating to the consolidation of the aluminium producer Slovalco and NOK 922 million relating to a change in the estimate for future assets retirement obligations.
 
The provision for current and deferred taxes for 2004 was NOK 21,197 million, approximately 65 percent of pre-tax income. In the fourth quarter of 2004, Norwegian tax legislation was amended to eliminate tax on the sale of shares in companies registered within countries in the European Economic Area. As a result, Hydro has reversed deferred tax liabilities relating to such share holdings amounting to approximately NOK 900 million, reducing the average tax rate by around 2.5 percent for 2004.

Outlook for the coming months

Oil prices are expected to remain high for the coming months. Price developments underlying future valuations of gas and power contracts are expected to remain volatile. Snorre and Vigdis on the NCS and the Terra Nova field in Canada have resumed production and are expected to contribute to the Company’s production target for 2005 of 575,000 boe per day. Exploration activities will increase in the coming months.

In the beginning of February 2005, primary aluminium (three-month LME) was trading at roughly US dollar 1,800 per tonne. Total Western world shipments for 2004 are estimated at 22 million tonnes. Growth rates of 3.5-4 percent are expected in 2005. Western world production is expected to increase by about 700,000 tonnes in the coming year, while Chinese exports of primary aluminum are expected to slow. Continued moderate volume growth is expected in the European downstream markets. Margins for standardized products are expected to remain under pressure while margins for specialized products are expected to remain relatively firm. Costs relating to the Aluimprover project are expected to impact the first quarter of 2005 by approximately NOK 170 million.