Operating income in the second quarter was NOK 4,619 million, a decline of 9 percent compared with 2002.
Income before cumulative effect of change in accounting principal for the first half of the year was NOK 4,525 million (NOK 17.50 per share), compared with NOK 4,972 million (NOK 19.30 per share) in the corresponding period of the previous year. Earnings for the second quarter and first half of 2002 included unrealized currency gains of NOK 2.5 billion and NOK 2.4 billion, respectively, resulting from the effect of a significant weakening of the US dollar against the Norwegian kroner and Euro on the company’s US net dollar debt position.
The US dollar is the primary currency impacting all three business areas. The decline against the Norwegian kroner, compared with the corresponding period of last year, has impacted the results for the quarter.
Greater priority to profitability than growth
"The quarterly results confirm that the positive operational trend continues in all of Hydro’s core areas," says President and CEO Eivind Reiten.
"Oil and gas production and significant expansion projects are proceeding according to schedule. Within Aluminium it is encouraging to note that total costs in connection with our extensive improvement programs are lower than previously estimated and are proceeding according to plan. The aluminum market continues to be demanding and we do not expect any help from the market for the remainder of this year. Profitability continues to be given greater priority than growth.
"The preparations to establish Agri as an independent listed company are well underway and we are aiming to introduce Agri on the Oslo Stock Exchange in the course of the first half of 2004. The Hydro group will thereafter concentrate entirely on developing Oil and Energy and Aluminium," he adds.
In the quarter Hydro achieved an average oil and gas production of 484,000 barrels of oil equivalent per day (boed), a level similar to that of the second quarter last year. Oil prices have been high, averaging USD 25.5 per barrel, though lower than in the second quarter of last year when measured in Norwegian kroner. Exploration activity has been lower than in the previous year. Hydro is still favorably positioned to reach an average oil and gas production of 510,000 boed for the year.
The improvement programs being carried out in Hydro’s aluminium business are developing in a positive manner, while estimated expenses linked to these measures have been adjusted downwards by NOK 170 million. Market conditions remain demanding, especially for the extrusion and automotive area. The business area has made significant investments in order to further improve its relative cost position in primary production, including projects at Sunndal in Norway and Alouette in Canada, and has recently signed a long-term alumina agreement with Comalco.
Agri goes public
Hydro Agri is delivering good results in a market characterized by buoyant prices for nitrogen fertilizer. However, high energy costs and a weaker US dollar against the Nowegian kroner and Euro countered the effect of the positive price trend. Agri further strengthened its market positions in Europe and Latin America, and is well equipped to meet the new fertilizer season in Europe.
Norsk Hydro’s Board of Directors decided in June to begin preparations for establishing Hydro Agri as an independent listed company with its headquarters in Oslo, Norway. The process of combining the operations that currently comprise the Hydro Agri business area into a separate, new company structure has been initiated.
Because of its market positions, production plants, as well as commercial and technical expertise in the industry, the new company will assume a leading position within the global fertilizer industry. Different options regarding the spin-off and listing of the new company are being considered. The preparations for stock exchange introduction are being given a high priority, and the process is expected to be completed in the course of the first half of 2004.
Taxes, investments, cash flow
The provision for current and deferred taxes for the first half-year of NOK 5,262 million, represents approximately 54 percent of income before tax. The tax provision has been influenced by amendments to the Norwegian tax regulations relating to the future costs of removing oil and gas installations from the Norwegian continental shelf after production has ceased. Because of this amendment, other income includes a non-cash negative non-recurring effect of NOK 2,207 million, while the tax provision includes a positive non-recurring effect of NOK 2,380 million. Excluding these effects, the tax provision represents 64 percent of net income before tax for the first half of 2003 and 61 percent for the second quarter.
Investments in the second quarter 2003 totaled NOK 4,223 million. Slightly more than half of the investments relate to the oil and gas business area.
Cash flow from operations in the first half of 2003 was NOK 12.4 billion compared to NOK 9.8 billion the previous year. The increase compared to the previous year was mainly due to higher earnings from oil and gas operations and from the aluminium business area.