Fixed and variable costs were lower for the quarterhaving a positive influence on underlying results of roughly NOK 370million

Fixed and variable costs were lower for the quarterhaving a positive influence on underlying results of roughly NOK 370million and NOK 500 million respectively. Due to lower future salesvolumes as a result of production curtailments, Hydro decided to realizea portion of hedge contracts (LME) resulting in a gain of approximatelyNOK 160 million. Realized LME prices declinedsignificantly measured in both US dollars and Norwegian kroner impactingunderlying EBIT by roughly NOK 1,500 million. The charge for the quarter, however, was morethan offset by the effect of lower costs of goods sold due to the earlierwrite-downs, amounting to a net positive impact of about NOK 110 million.Underlying EBIT for Primary Aluminium declined for the quarter heavilyimpacted by the sharp decline in LME prices, lower product premiums andlower sales of casthouse products. Underlying results for the first quarter includedinventory write-downs of about NOK 485 million as LME prices remain belowour cost of production. So far we have not experienced any significantdefaults and are carefully monitoring the situation.Aluminium MetalAluminium Metal delivered an underlying loss of NOK 476 million for thequarter, a substantial decline from underlying EBIT of NOK 435 million inthe previous quarter which included inventory write-downs amounting toNOK 700 million. The present weak and deteriorating economic conditions,combined with challenging financial markets, increase the risk ofdefaulting counterparties.

If it becomes necessary to permanently close plants that havebeen curtailed on a temporary basis, additional substantial closure costswould be necessary.Hydro is in process of reviewing the size and structure of itsadministrative staff functions which are expected to result in reducedmanning levels with corresponding rationalization costs in the comingquarters.Our business activities expose us to the risk that one or morecounterparties may default on their obligations, resulting in directfinancial loss, an unexpected increase in market exposure or higheroperating costs. These are reported as items excludedfrom underlying EBIT and will mainly have cash effects in futurequarters. Hydro expects acontinued weak result in the second quarter of 2009.In fourth quarter 2008 and first quarter 2009 Hydro made provisions forfuture rationalization and closure costs relating to the plant shut-downsof roughly NOK 400 million in total. The cost of repairand effects of the business interruption are covered by insurance,however, offsetting effects of the reimbursement will likely occur inlater quarters than the negative effects of production losses.At the end of first quarter, Hydro had sold 87 percent of its primaryaluminium production for the second quarter of 2009 forward and expectsto realize an average price of USD 1,426 per mt. As a result, Hydro’s power production in 2009, and in particularin the second quarter, will be negatively impacted. As a result, power production and financial results forEnergy are expected to be significantly lower in the second quarter of2009 compared to previous quarters.During a maintenance shutdown in March, Hydro detected serious damage inthe Suldal I power station at the Roldal-Suldal hydroelectric facility inNorway.

Measures to significantly reducecosts and manning throughout our downstream activities are continuingwhich will enable us to partly mitigate the effects of the significantlylower market demand as the on-going recession in Europe and the USdevelops.Hydro’s water and snow reservoirs were lower than normal at the end ofthe first quarter, and considerably lower than the corresponding periodsin 2008 and 2007. We expect a more substantial impact fromthe price declines in future quarters. No substantial improvement in demand for metal productsis expected in the coming months and there continues to be significantuncertainty regarding the timing of an eventual recovery.Outlook for HydroPrices of key raw materials used in the production of primary metal havefallen in the past several months and Hydro has taken active steps tocapitalize on this development. There are indications that the rateof increase in LME inventories is slowing as announced curtailments areput into effect.

All major end-use markets have been impacted includingautomotive, building and general engineering.Aluminium prices are expected to remain low in the medium-term, butforward visibility continues to be limited and there is significantuncertainty regarding developments. In response, announced capacity curtailmentshave reached a global level of 3.4 million mt annually excluding China.The market for metal products (extrusion ingot, sheet ingot, foundryalloys and wire rod) in Europe and North America has continued to declinefollowing the dramatic weakening of these markets in the previousquarter. At suchlevels, prices are lower than the cash cost of a substantial portion ofglobal smelter production. Prices started thequarter at USD 1,536 per mt and closed at USD 1,405 per mt. The remainder related to losses on intercompany balancesdenominated in Euro.Market developments and outlookThe severe downturn in the global economy has led to a continued declinein demand for aluminium following a sharp fall in demand in the previousquarter and rapidly increasing inventory levels. Reported Lossfrom continuing operations amounted to NOK 5,845 million in the fourthquarter including net foreign exchange losses of NOK 4,629 million.Approximately half of the losses related mainly to Hydro’s US dollarhedging program.

Reported EBIT amounted to a loss of NOK 3,106million for the fourth quarter of 2008 including charges of roughly NOK3,980 million, comprised of impairment losses of NOK 2,150 million,write-downs of roughly NOK 300 million relating to our minority interestsin solar businesses, net unrealized derivative losses of about NOK 770million and other net negative effects of roughly NOK 760 million.Reported Loss from continuing operations amounted to NOK 280 million inthe first quarter including net foreign exchange gains of about NOK 1,480million mainly relating to intercompany balances denominated in Euro.These gains have no cash effect and are offset in equity by translationof the corresponding subsidiaries during consolidation. Hydro had a net cash positionamounting to NOK 1.7 billion at the end of the quarter.Hydro had stand-by credit facilities of NOK 12.7 billion at the beginningof the year, and further strengthened its financial position by securingnew financing during the first quarter, including a new EUR 750 millionsyndicated three-year revolving credit facility. Power productiondeclined, but was seasonally high for the quarter.Net cash used in operating activities was NOK 1.1 billion for thequarter, compared with net cash provided by operating activities of NOK2.9 billion in the previous quarter. Spot prices declined from theexceptionally high level in the fourth quarter of 2008. Significantcost reductions only partly offset the market effects.Energy had an underlying EBIT of NOK 416 million, down from the recordresults of the previous quarter. Results in Bauxite and Aluminafell sharply due to lower realized alumina prices, and CommercialProducts continued to be impacted by weak sales volumes and lowproduction in Hydro’s remelters.Aluminium Products incurred an underlying loss of NOK 257 million in thefirst quarter due to a further market deterioration from alreadydepressed levels, resulting in sales volumes dropping further from theprevious quarter and margins coming under increased pressure.