INFORMATION MEMORANDUM

Norsk Hydro ASA

(a public limited liability company organized under the laws of Norway)

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This Information Memorandum has been prepared in connection with the acquisition of the remaining 50% of the issued and outstanding shares in Sapa AS

The date of this Information Memorandum is 31 July 2017

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NO SHARES OR OTHER SECURITIES ARE BEING OFFERED OR SOLD IN ANY JURISDICTION PURSUANT TO THIS INFORMATION MEMORANDUM

IMPORTANT INFORMATION

This information memorandum (the "Information Memorandum") has been prepared in accordance with the Oslo Børs Continuing Obligations in connection with Norsk Hydro ASA's ("Hydro" or the "Company") acquisition of 50% of the issued and outstanding shares of Sapa AS (the "Transaction"). All references herein to "Sapa" refer to Sapa AS, and Sapa together with its subsidiaries are collectively referred to as the "Sapa Group". The Company together with its consolidated subsidiaries prior to completion of the Transaction are collectively referred to as the "Group". The Group following completion of the Transaction is referred to as the "Combined Group".

No shares or other securities are being offered or sold to the market in any jurisdiction pursuant to this Information Memorandum.

This Information Memorandum was submitted to Oslo Stock Exchange (the "Oslo Børs") for review before publication in accordance with Section 3.5.5 of the Oslo Børs Continuing Obligations for stock exchange listed companies (the "Continuing Obligations"). This Information Memorandum is not a prospectus and has neither been inspected nor approved by the Norwegian Financial Supervisory Authority (No: "Finanstilsynet") or any other public authority in any jurisdiction in accordance with the rules that apply to a prospectus.

All inquiries relating to this Information Memorandum must be directed to the Company. No other person is authorized to give any information about, or to make any representations on behalf of the Company in connection with the Transaction. If any such information is given or made, it must not be relied upon as having been authorized by the Company. The information contained herein is as of the date hereof and is subject to change, completion and amendment without further notice. The delivery of this Information Memorandum shall not imply that there has been no change in the Company's affairs or that the information set forth herein is correct as of any date subsequent to the date hereof.

The contents of this Information Memorandum are not to be construed as legal, business or tax advice. Each reader of this Information Memorandum should consult with their own legal, business or tax advisor as to legal, business or tax matters. If you are in any doubt about the contents of this Information Memorandum you should consult your stockbroker, bank manager, lawyer, accountant or other professional advisor.

The distribution of this Information Memorandum in certain jurisdictions may be restricted by law. The Company requires persons in possession of this Information Memorandum to inform themselves about, and to observe, any such restrictions. No securities of the Company are being offered or sold pursuant to this Information Memorandum. This Information Memorandum does not constitute an offer to sell, or a solicitation of an offer to buy, any of the Company's shares or any other securities of the Company.

This Information Memorandum is subject to Norwegian law. Any dispute arising in respect of this Information Memorandum is subject to the exclusive jurisdiction of the Norwegian courts with Oslo District Court as legal venue in the first instance.

Investing in the Company's shares involves risks. See Section 1 "Risk factors" below.

1	RISK FACTORS 3
1.1	Risks relating to the Group and its operations 3
1.2	Risk related to Hydro's financial position and key financial exposures 9
1.3	Risks relating to Sapa 10
1.4	Risks relating to the Transaction 12
1.5	Risks relating to the Shares 13
2	RESPONSIBILITY STATEMENT 17

3	GENERAL INFORMATION 18
3.1	Sources of industry and market data 18
3.2	Cautionary note regarding forward-looking statements 18
4	DESCRIPTION OF THE TRANSACTION 20
4.1	Overview 20
4.2	The Parties to the Transaction 20
4.3	Background and reason for the Transaction 20
4.4	The structure of the Transaction and timetable 20
4.5	Conditions to Closing 20
4.6	Representations and warranties and indemnities 21
4.7	Termination 21
4.8	Total consideration, costs and financing 21
4.9	Significance of the Transaction 22
4.10	Agreements to the benefit of board members or management in Hydro or Sapa 22
5	PRESENTATION OF HYDRO 24
5.1	Name, incorporation and registered office 24
5.2	History 24
5.3	Business description 25
5.4	Legal structure of the Group 40
5.5	Management and supervisory bodies 41
5.6	Corporate governance 52
5.7	Description of the Shares and share capital 54
5.8	Litigation and disputes 54
5.9	Major shareholders 54
5.10	Material contracts and dependency on patents and licenses 55
5.11	Recent developments and trend information 55
6	HYDRO SELECTED FINANCIAL INFORMATION 58
6.1	Historical financial information and summary of accounting policies 58
6.2	Significant change 58
6.3	Consolidated historical financial information 58
6.4	Segment information 62
6.5	Auditor 63
7	DESCRIPTION OF SAPA 64
7.1	Name, incorporation and registered office 64
7.2	Business description 64
7.3	Trends 65
7.4	Litigation and disputes 66
7.5	Material contracts 66

7.6	Board of directors and corporate management board 66
7.7	Employees 67
7.8	Financial information of Sapa 67
7.9	Significant change 71
8	UNAUDITED PRO FORMA FINANCIAL INFORMATION 72
8.1	General Information and Purpose of the Unaudited Pro Forma Condensed
	Combined Financial Information 72
8.2	Basis for Preparation 73
8.3	Unaudited Pro Forma Condensed Combined Financial Information 73
8.4	Description of the Pro Forma Adjustments 76
9	LIQUIDITY AND CAPITAL RESOURCES 80
9.1	Cash flow and liquidity 81
9.2	Financing arrangements 81
9.3	Treasury policies 83
9.4	Restrictions on use of capital 84
9.5	Working capital statement 84
10	ADDITIONAL INFORMATION 85
10.1	Documents on display 85
10.2	Incorporation by reference 85
11	DEFINITIONS AND GLOSSARY OF TERMS 87

APPENDICES

APPENDIX A INDEPENDENT PRACTITIONER'S ASSURANCE REPORT ON UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION
APPENDIX B SAPA AS ANNUAL REPORT 2016

1 RISK FACTORS

An investment in the Company's Shares involves inherent risk. Before making an investment decision with respect to the Company's Shares, investors should carefully consider the risk factors and all information contained in this Information Memorandum, including the financial statements and related notes. The risks and uncertainties described in this Section 1 are the principal known risks and uncertainties faced by the Group as of the date hereof. An investment in the Shares is suitable only for investors who understand the risks associated with this type of investment and who can afford to lose all or part of their investment. The absence of negative past experience associated with a given risk factor does not mean that the risks and uncertainties described herein should not be considered prior to making an investment decision in respect of the Shares. If any of the following risks were to materialise, individually or together with other circumstances, they could have a material and adverse effect on the Group and/or its business, financial condition, results of operations, cash flows and/or prospects, which could cause a decline in the value and trading price of the Shares, resulting in the loss of all or part of an investment in the same.

The order in which the risks are presented does not reflect the likelihood of their occurrence or the magnitude of their potential impact on the Group's business, financial condition, results of operations, cash flows and/or prospects. The risks mentioned herein could materialise individually or cumulatively. The information in this Section 1 is as of the date of this Information Memorandum.

1.1 Risks relating to the Group and its operations

Risk management in Hydro is based on the principle that risk evaluation and mitigation is an integral part of all business activities. A core strategy to reduce the risks related to weak economic and unfavorable market developments is the continual improvement of our competitive and cost position as well as maintaining a solid financial position and strong credit worthiness. Hydro's integrated value chain plays a key role in mitigating risk as the earnings volatility in upstream aluminium is typically higher, whereas downstream and Energy businesses generate more stable earnings over time.

Below is a description of factors the Company believes are the material risks which may affect the Group's business operations, financial condition and results of operations from time to time and, and ultimately affect the Company's share price. Some of the mentioned risks might have a positive business impact or represent a business opportunity, whereas the focus in the description below is on downside risk. Examples are included to provide further information about risks specific to Hydro, where deemed relevant for illustration purposes. All of the information in this report should be carefully considered by investors, in particular, the risks described in this Section.

Changes in the regulatory framework or political environment in which Hydro operates could have a material adverse effect on the Company's operating results and financial position

Hydro is subject to a broad range of laws and regulations in the legal jurisdictions in which we operate. These laws and regulations impose stringent standards and requirements and potential liabilities regarding accidents and injuries, the construction and operation of our plants and facilities, payment of taxes, air and water pollutant emissions, the storage, treatment and discharge of waste waters, the use and handling of hazardous or toxic materials, waste disposal practices, and the remediation of environmental contamination, among other things. Changes in such laws and regulations, or changes in the way these laws and regulations are interpreted or enforced, may have a significant negative financial effect for Hydro.

Hydro's operations include extracting and refining bauxite resources and utilizing water resources for the generation of power. Such activities have increasingly been subject to local and regional tax regimes which are separate and in addition to national tax regimes such as corporate income tax. There is a risk that new taxes are introduced, or the current tax levels will be increased, in the future.

In Brazil, the tax system is complex and volatile, with a broad range of direct and indirect taxes levied at the federal, state and municipal levels. Over the past several years, state finances in Brazil have deteriorated, leading to mounting pressure to increase tax revenues.

ICMS is a value added tax collected by Brazilian states on circulation of goods and on services such as transportation and communications. ICMS varies from 7 to 25 percent of the gross value of such goods and services, including ICMS. Hydro's main operations in Brazil are located in the state of Pará, which has historically granted a deferral of the collection point for ICMS on certain goods and services. Furthermore, Brazil has a general ICMS exemption on exports. In 2015, Hydro reached an agreement with the state of Pará, granting a renewed ICMS deferral regime for Hydro Paragominas, Hydro Alunorte and Alumínio Brasileiro S.A (Albras) for a 15 year period. With this regulation, the deferred ICMS tax will not be due on the goods that are destined for export. The agreement is subject to several conditions which Hydro must comply with on an ongoing basis. A discontinuation of the ICMS deferral would adversely affect Hydro's operating results from its Brazilian operations.

Failure to comply with the requirements of the Brazilian Department of Mines with respect to exploration permits and mining concessions may result in a loss of title. Third parties (including, but not limited to, indigenous persons) may dispute title to mineral concessions or the right to conduct mining or exploration activities.

Environmental regulations have continued to tighten in various jurisdictions over the last years due to higher ambitions for national and international environmental targets. In the mining industry, recent major incidents (e.g. Samarco¹ ) have increased public awareness and pressure towards authorities and politicians to impose further restrictions. In this context, Hydro and its joint ventures, face the risk of further tightening of environmental regulation requiring further resources to maintain our operations and avoid restrictions or delay in obtaining new licenses in the future.

On June 5, 2017, Saudi Arabia, United Arab Emirates, Bahrain and Egypt imposed certain measures on Qatar including severing diplomatic ties and cutting off transportation links. Qatalum, a 50/50 Joint Venture between Hydro and Qatar Petroleum, has been immediately affected causing Qatalum to re-arrange its logistics, so far with limited financial consequences. The development of this situation remains highly uncertain. Qatalum and Hydro may be materially adversely affected if the situation significantly escalates further.

Qatalum, was established in 2007 and started its first production in December 2009. Qatalum was at the outset granted a ten-year income tax holiday, expiring in 2020. According to the joint venture agreement it is the generally applicable tax rate that will apply after 2020. A tax reform came into effect from 2010, which introduced a generally applicable corporate income tax rate of 10 percent. A different tax rate may apply to entities with oil and gas operations or where the activities are carried out under an agreement with the government or entities owned by the government, unless the agreement specifies another tax rate. It is Hydro's position that the generally applicable income tax rate, currently at 10 percent, shall apply to Qatalum after the expiry of the tax holiday.

Hydro is, directly and indirectly, exposed to increasingly demanding legislation on reducing greenhouse gas emissions. Hydro has substantial smelter operations located in Europe and other regions as well as alumina refining operations located in Brazil. Aluminium production is an energy-intensive process that potentially leads to significant environmental emissions, especially emissions to air, including CO2. An increasing number of countries have introduced, or are likely to introduce in the near future, legislation with the objective of

^1. The Samarco mine dam failure in Brazil on November 5, 2015.

reducing greenhouse gas emissions. Due to a new climate accord reached at the Paris climate conference in December 2015, there is a general belief that the political framework for regulating emissions of greenhouse gases will accelerate together with a focus on technology improvements leading to lower emissions. A new directive on EU/ETS is now being discussed in the EU. This can affect the level of CO2 price, the level of free allowances for direct emissions and compensation regime for indirect CO2 cost.

Hydro has been an active participant in the development of international frameworks on climate change and greenhouse gas emissions supporting the establishment of a level playing field for global aluminium production. The Company engages in significant R&D activities focused on reducing energy consumption and improving electrolysis efficiency including anode consumption which is the main source of CO2 emissions from the Company's smelter operations.

Hydro is engaged in a systematic dialogue with local, state and federal politicians, industry associations, nongovernmental organizations and local communities regarding the regulatory challenges facing its operations. The focus of the dialogue is on Hydro's contribution to a sustainable aluminium value chain and underlines the need for competitive and predictable framework conditions for the Company's operations.

These efforts may fail or prove to be inadequate to mitigate the risks the Company faces regarding changes in the regulatory framework or political environment in which the Group operates.

Hydro is exposed to a risk of unfavorable macro-economic development, including risk of prolonged periods of low aluminium and alumina prices and oversupply in the global aluminium market

The aluminium industry is pro-cyclical with demand for products closely linked to economic development. This results in significant volatility in the market prices for aluminium products in periods of macroeconomic uncertainty or recession. Macroeconomic development also drives changes in currency values, which have a significant effect on Hydro's cost and competitive position.

Global aluminium oversupply, in addition to high global stock levels, has had a dampening effect on LME prices in recent years. Following improvements in 2014, market conditions deteriorated throughout 2015 and into 2016, impacted by oversupply in China leading to increased exports of primary metal in the form of semi-fabricated products (see also risk factor below on competition from China). This development, together with increased metal availability from warehouses and an overall downward shift of the industry cost curve, has resulted in a decline in all-in metal prices. Despite the improved market performance late 2016 and into 2017, global economic uncertainty continues, potentially affecting demand in key downstream markets. There are regional differences, with Europe in particular experiencing modest growth.

Aluminium products are traded globally. Development in global trade flows, trade framework, tariffs and antidumping legislation are therefore of importance. Global trade framework and protectionism are moving higher on the agenda, following events such as Brexit and the US presidential election, as well as the disputes regarding market economy status (MES) for China under the WTO agreement.

The majority of Hydro's upstream capacity is located in countries with typical "commodity currencies" such as Norway, Brazil, Canada and Australia where strong commodity pricing is mirrored in strong currencies. There is a fairly strong historic correlation supporting this relationship, however with a volatility around the trend. From 2015 the Company's major cost currencies weakened substantially, having significant positive impact on the Company's cost level and competitive position. However, these currencies have periodically been volatile. If Hydro's main cost currencies strengthen going forward, this will increase the Company's operating cost and may weaken the Company's global competitive position relative to production from other regions.

Hydro's core strategy to reduce the risks related to weak economic and unfavorable market developments is the continuous improvement of the Company's business in terms of operational efficiency, cost reductions and enhanced commercial strategies. These efforts help the Company to partly offset the effects of low market prices and raw material cost increases. In order to secure financial liquidity, Hydro concentrates on maintaining a strong balance sheet, capital discipline and a continued focus on working capital. However, the cost reductions and improvements that Hydro targets may prove to be insufficient to achieve a sustainable level of profitability for the Company's business operations in the event of an extended period of low aluminium prices, significant strengthening of Hydro's local currencies, relatively high costs for key raw materials, or weak market demand.

The Group's business is exposed to competition from China, which could have a significant negative impact on market prices and demand for the Group's products

China is the world's largest consumer and producer of aluminium, with more than half of the global production capacity. As a result, changes and developments in aluminium supply and demand in China have a significant impact on global market fundamentals.

Chinese alumina refineries and, consequently, aluminium smelters are dependent on imports of bauxite. Bauxite has traditionally been sourced from the Pacific region, with Malaysia as a major supplier in 2015. In early 2016, Malaysia imposed a bauxite mining moratorium, significantly restricting exports. Throughout 2016, increasing bauxite volumes have become available from Guinea to supply Chinese demand. While the increased export volumes from Guinea have removed the risk of a bauxite supply shortage for China, sourcing from Guinea increases the freight distance and relative costs compared with Pacific supply sources.

In past years, China has followed a policy of promoting a balanced internal market for primary aluminium including incentives to discourage the export of primary metal while encouraging domestic production of more labor- intensive semi-fabricated and finished aluminium products. During 2015 and 2016, overcapacity in China, led to a continued rise in exports of primary aluminium in the form of semi-fabricated products. This affected all-in metal prices outside China which declined significantly. Exports from China have varied considerably, driven, amongst other factors, by periodic arbitrage opportunities between Chinese and international metal prices. However, trend-wise, exports have increased over the last years, but remained at 10-12 percentage of Chinese semis production. Although Chinese central authorities have voiced their concerns regarding the market surplus, and 2015-2016 demonstrated that Chinese players are willing and able to reduce loss making production, measures may be counteracted by local authorities, not implemented or may prove inadequate. An increase in the oversupply of primary metal in China may lead to higher export of rolled and extruded downstream products, affecting demand for Hydro's metal products.

The Group's dedicated improvement programs are the key strategies aimed at maintaining and improving the Group's relative position on the industry cost curve. This is further supported by the Group's focus on producing value-added products and exposure to different parts of the value chain and product segments. However, the targeted cost reductions and improvements may prove to be insufficient to achieve a sustainable level of profitability for the Group's business operations in the event of an extended period of low aluminium prices, stronger local currencies, relatively high costs for key raw materials or weak market demand, or an extended period of significantly increased aluminium products exports from China.

Hydro could be adversely affected by disruptions or major incidents in the Group's operations and may not be able to maintain sufficient insurance to cover all risks related to its operations

Hydro's business is subject to a number of risks and hazards which could result in disruptions to operations, damage to properties and production facilities, personal injury or death, environmental damages, monetary losses and possible legal liability. Some of the Group's operations are located in close proximity to sizable communities. Major accidents could result in substantial claims, fines or significant damage to Hydro's reputation. Breakdown of equipment, power failures or other events leading to production interruptions in the Group's plants could have a material adverse effect on the Group's financial results and cash flows.

In 2013 power outages at Alumina do Norte do Brasil S.A. (Alunorte), the Company's Brazilian alumina refinery, resulted in significant production disruptions, having a negative impact on operating results for the year. In 2016, power outage at the Årdal smelter caused a partial loss of production, some damage to equipment in addition to temporarily increasing the cost position of the plant.

In addition, the potential physical impacts of climate change on the Group's facilities and operations are highly uncertain and may cause disruptions in the Group's operations. Effects of climate changes may include changes in rainfall patterns, flooding, shortages of water or other natural resources, changing sea levels, changing storm patterns and intensities, and changing temperature levels.

In order to reduce the risk of disruptions of the Group's operations and potential consequences, the Company performs regular risk assessments and engages in comprehensive emergency preparedness training for key managers and employees. The scope of risk assessments has been expanded over time. The Company has also focused on increasing the Group's resilience against power outages including automation of substations and power generating facilities and improved back-up facilities. Although Hydro maintains insurance to protect against certain risks in such amounts as it considers reasonable and in accordance with market practice, its insurance may not cover all the potential risks associated with Hydro's operations. These measures may be insufficient to mitigate the risks associated with operational disruptions or major incidents.

Hydro could be negatively affected by investigations, legal proceedings, material CSR incidents or major noncompliance with internal or external regulations.

Hydro could be negatively affected by criminal or civil proceedings or investigations related to, but not limited to product liability, environment, health and safety, alleged anti-competitive or corrupt practices or commercial disputes.

Violation of applicable laws and regulations could result in substantial fines or penalties, costs of corrective work and, in rare instances, the suspension or shutdown of the Group's operations and substantial damage to the Company's reputation. In addition, Hydro is exposed to actual or perceived failures to behave in a socially responsible manner beyond regulatory requirements, as defined by non-governmental organizations or other key stakeholder groups. Such failures could result in significant, negative publicity and potential serious harm to Hydro's reputation. Reactions by key stakeholders and communities in which Hydro operates could also interfere or interrupt the operations of the Group's business.

Hydro has significant operations in Barcarena, Brazil, including the Alunorte alumina refinery and Albras aluminium smelter. Local social conditions are challenging with high levels of unemployment and general poverty. Social unrest in Barcarena could result in operational instability and reduced performance of the affected operations. To improve social conditions in Barcarena, Hydro is working on several projects that aim to have positive impact on the social development of the municipality.

Sapa Profiles Inc. (SPI), a Portland, Oregon-based wholly-owned subsidiary of Sapa AS is under investigation by the United States Department of Justice (DOJ) Civil and Criminal Divisions regarding certain aluminum extrusions that SPI manufactured from 1996 to 2015, including extrusions that were delivered to a supplier to NASA. SPI is cooperating fully in these investigations. The investigations are currently ongoing, and, at this point, the outcome of the investigations and of any identified quality issues, including financial consequences for Sapa, is uncertain. SPI also has been temporarily suspended as a federal government contractor. Based on the information currently known to Hydro, Hydro does not expect any resulting liabilities to have a material adverse effect on its consolidated results of operations, liquidity or financial position.

Hydro's board-sanctioned code of conduct requires adherence with laws and regulations as well as internal steering documents and is systematically implemented and followed up through the Company's compliance system. The compliance system is based on four pillars: prevention, detection, reporting and responding. In addition to financial compliance, priority areas are HSE, anti-corruption and competition law. Hydro's procedure for integrity risk management of business partners includes suppliers and customers, strategic partners and intermediaries/agents and sets requirements for integrity due diligence. Hydro is active in, and has a long tradition for, conducting dialogue with the relevant parties affected by the Group's activities. These include unions, works councils, customers, suppliers, business partners, local authorities and non-governmental organizations. The above mentioned controls and initiatives may, however, be insufficient to mitigate these risks.

Hydro may be unable to achieve or maintain the operational targets necessary to secure the competitiveness of the Group's business

Hydro operates in a highly competitive market where operational excellence in all parts of the value chain is required to reach and maintain a competitive position. This includes each step of the business process from the sourcing of raw materials, to physical operations of each plant, and the commercial optimization of the product portfolio. Failure to build or maintain a high performance culture throughout the organization will reduce the competitiveness of the Group's business and result in the failure to meet the Company's long-term financial targets.

Operational performance may also be inhibited by other factors such as the inability to develop necessary technical solutions; changes or variations in geologic conditions, environmental hazards, weather, climate change or natural phenomena; mining and processing equipment failures and unexpected maintenance problems and interruptions. Driving improvements and performance is heavily dependent on achieving sufficient capacity and skill in the workforce. Substantial parts of the Brazilian operation are located in remote areas where it has been difficult to attract and retain the competence required to achieve the Company's performance goals for these operations. In addition, Hydro's bauxite reserves in Brazil and the estimated quantities of bauxite that Hydro expects can be economically mined and processed are subject to material uncertainties.

The operational performance of Hydro's production assets has been gradually improved over the past several years through the implementation of defined improvement programs. Unrelenting focus on continuous improvement is necessary for Hydro to maintain and further improve the competitiveness of the Group's portfolio. This is reflected in the significant improvements targeted for 2019.

The Group's operations, and in particular its aluminium smelters, are dependent upon large volumes of energy. Securing new, competitive energy sources for the Group's business is a key operational target and the Company's business could be materially adversely affected by the inability to replace, on competitive terms, the Company's long-term energy supply contracts when they expire, or the Company's own electricity production, to the extent that concessions revert to the Norwegian state. Hydro has, over the last years, secured several long-term power supply contracts in Norway. In 2016, an important regulatory change was implemented in Norway that allows for private ownership to waterfalls through companies with liability, often referred to as industrial ownership or ANS/DA, enabling further progress on Hydro's work to re-structure ownership and protect the value of the Company's power assets.

A cornerstone in the Company's work to reach operational targets and secure the competitiveness of the Group's operations is the use of standardized business systems to structure and formalize continuous improvement work. Improvements are also supported by benchmarking to identify and implement best practices between the Company's business areas. Hydro is also engaged in a number of initiatives to identify and secure competitive energy supplies for its operations, and is actively involved in promoting a sustainable energy policy in the regions where the Company operates. However, the Company may not succeed in achieving or maintaining the

operational targets necessary to secure its competitiveness. Hydro may also fail to identify and secure sufficient competitive energy supplies for the Company's operations.

Hydro is exposed to the threat of cyber attacks which may disrupt its business operations, and result in reputational harm and other negative consequences

Hydro's IS/IT infrastructure is a critical element in all parts of the Company's operations, ranging from process control systems at production sites, central personnel databases to systems for external financial reporting. Cyber crime is increasing globally, and Hydro is exposed to threats to the integrity, availability and confidentiality of the Company's systems. Threats may include attempts to access information, computer viruses, denial of service and other electronic security breaches.

Hydro has launched several initiatives to increase the robustness of its IS/IT infrastructure towards malicious attacks by improving system infrastructure and educating employees to develop and improve secure work processes and routines. However, these initiatives may fail to deliver the expected results or prove to be inadequate to prevent cyber attacks or security breaches that manipulate or improperly use the Company's systems or networks.

1.2 Risk related to Hydro's financial position and key financial exposures

Financial position

Hydro's main strategy for mitigating risk related to volatility in cash flow is to maintain a strong balance sheet. Specific key financial ratio levels over the business cycle are targeted, reflecting a solid financial position and strong credit worthiness. These include adjusted net cash (debt) to equity ratio below 0.55 and a ratio of Funds from operations to adjusted net cash (debt) above a level of 0.40. Hydro closely monitors liquidity reserves and its debt instalment profile in order to secure its financial position.

Hydro's liquidity position at the end of June 2017 is considered to be solid. In addition Hydro has an undrawn credit facility of USD 1.7 billion which expires in 2020. Hydro continues to focus on cash flow and credit risk throughout the organization. However, any adverse development of Hydro's financial position may lead to losses for Hydro, lower operating results and/or cash flows.

Commodity prices and currency fluctuations

Hydro's operating results are primarily affected by price developments of the Company's main products: aluminium, alumina, bauxite and power, and of raw materials including commodities such as fuel oil, petroleum coke and coal. In addition, Hydro has a substantial portion of its primary metal capacity based in Norway and its accounting and reporting currency is the Norwegian krone. Primary aluminium prices, alumina and certain product premiums as well as a major part of the raw materials for producing aluminium are denominated in US dollars.

Roughly half of Hydro's capital employed is located in Brazil. Much of Hydro's downstream business is based in Europe and a large portion of the production is sold in Euro while export sales to other regions are typically denominated in US dollars. As a result of these exposures, the relative value of the Norwegian krone, US dollar, Brazilian Real and Euro are of high importance to Hydro's operating results.

Commodity price volatility and currency fluctuations in general have increased significantly in recent years and can have a substantial impact on the Group's operating costs directly and can also have a significant effect on the Group's reported operating results due to realized and unrealized gains and losses on derivative instruments. Underlying results for the Group's trading and hedging operations are also subject to substantial variations in periods of significant fluctuations of spot and forward prices for aluminium.

The Group's main risk management strategy for upstream operations is to accept exposure to price movements, while at the same time focusing on reducing the average cost position of its production assets. In certain circumstances, derivatives may be used to hedge certain revenue and cost exposures.

Downstream and other margin-based operations are to a certain extent hedged to protect processing and manufacturing margins against price fluctuations. An operational hedging system has been established to protect commercial contracts from aluminium price fluctuations.

To mitigate the US dollar exposure, the Company's general policy is to raise funding in US dollars. To reduce the effects of fluctuations in the US dollar and other exchange rates, Hydro may use foreign currency swaps and forward currency contracts. No such contracts are currently in place.

Any revaluation of derivative instruments and contracts classified as derivatives may influence reported earnings. For accounting purposes, derivative financial and commodity instruments are recognized at fair value, with changes in fair value impacting earnings unless specific hedge criteria are met. This may result in volatility in earnings, since the associated gain or loss on the related physical transactions may be reported in earnings in different periods.

1.3 Risks relating to Sapa

Safety risk

Sapa's operations involve hot work processes and other activities that are subject to risks such as fire and machinery breakdown that may result in physical damage to assets, operational disruption, and/or other losses or damage. Continuous focus on preventive maintenance and sharing of best practices through Sapa's operational excellence and HSE communities has enhanced general risk awareness and performance. Based on surveys, actions to reduce risk are continuously taken. Business continuity plans have been implemented and tested annually and adequate insurance has been purchased to reduce the probability and consequences of such incidents.

Sapa pays close attention to safety risk, several operational units are living up to the company's high standards and are demonstrating over time that it is possible to operate with zero injuries. However, there can be no assurance that Sapa is able to prevent accidents or incidents involving injury. Any such accidents or incidents may have a material adverse effect on Sapa's business, financial condition, operating results and/or cash flows.

Market risks

Emerging markets

While most of Sapa's operations and sales are in developed markets like Europe and North America, Sapa is also active and growing in markets that may be considered emerging and transitional, particularly in Asia. Generally, emerging and transitional markets are less advanced and more exposed to political instability, severe inflation, and fluctuation of exchange rates, changes in laws and regulations including volatility in tax regimes, judicial interpretations, and compliance breaches that may impact Sapa's investment. Sapa has developed and implemented directives and procedures for deployment of capital formulated to provide an effective basis for evaluation, control, and monitoring of projects, investments, and major contracts to mitigate the risk. However, any failure in such controls could have a material adverse effect on Sapa's business, financial condition, operating results and/or cash flows.

Product liability claims

Sapa manufactures and sells aluminium products and solutions for a wide range of applications. Depending on the product supplied, which may vary from simple extrusions or components to complex activities like fabrication and surface treatment, the consequences of a non-conformance with quality standards may include significant financial loss or damage. The risks of product claims, quality systems, processes, and controls are implemented and continuously reviewed for improvements. However, any material product liability claims could have a material adverse effect on Sapa's business, financial condition, operating results and/or cash flows.

Environmental risks

Sapa's sites may be exposed to unknown or underestimated inherent contamination or operations may involve the use of pollutants that might adversely affect the environment and breach environmental regulations. Sapa has implemented an HSE management system compliant with the ISO 14001 environmental standard, extensive reporting, benchmarking, sharing of best practice, and insurance coverage to prevent and mitigate this risk.

Credit risks

Sapa is exposed to non-performance of counterparties as most of Sapa's sales are based on credit. These risks are partially mitigated through proactive credit management and monitoring of customer performance as well as insurance coverage.

Currency Risk

Sapa operates mainly in local markets, buying and selling in local currency. To the extent that the operating units buy or sell in currencies other than their functional currency, this exposure is hedged financially against Corporate Treasury, which hedges this exposure externally.

The Sapa Group's functional currency is Norwegian kroner (NOK). Fluctuations in other currencies against NOK, particularly euro (EUR) and the US dollar (USD), will impact Sapa's earnings in NOK through translation of the income statements of foreign subsidiaries to NOK. Sapa does not hedge this risk.

When translating Sapa's investments in foreign subsidiaries to NOK, there is risk that Sapa's equity will be affected by changes in exchange rates. As most of Sapa's assets are denominated in foreign currency, these effects could be substantial. Sapa has to a certain extent hedged this risk by drawing debt in EUR and USD. However, if any of these risks would materialize, it could have a material adverse effect on Sapa's business, financial condition, operating results and/or cash flows.

Risk related to dispute in Sapa Profiles, Inc.

As further discussed in Section 1.1 "Risk relating to the Group and its operations", Sapa Profiles, Inc. Portland (SPI), a Portland, Oregon-based subsidiary of Sapa's Extrusion North America business area, is under investigation by the United States Department of Justice (DOJ) Civil and Criminal Divisions. As stated in that Section, based on information currently known to Hydro, Hydro does not expect any resulting liabilities to have a material adverse effect on the consolidated results of operations, liquidity, or financial position of the Group following completion of the Transaction.

1.4 Risks relating to the Transaction

The Transaction may not be completed or may not be completed in the manner described in this Information Memorandum, if certain conditions to closing are not satisfied

On July 10, 2017, the Company entered into the SPA with Orkla ASA. Completion of the Transaction is subject to the satisfaction or waiver of certain conditions set out in the SPA, see Section 4 "Description of the Transaction". If any of such conditions are not satisfied or waived in the manner contemplated by the SPA, the Transaction may not be completed, or may not be completed in the manner contemplated by this Information Memorandum. If one or more of such conditions cannot be satisfied or waived, the Company could seek to negotiate with Orkla ASA certain amendments to the SPA. Such amendments, if agreed, could materially change the terms and conditions of the Transaction and/or reduce the benefits of the Transaction for the Company. In addition, in order to obtain certain approvals or consents required in connection with the Transaction, the Company may decide, or be obliged, to enter into certain agreements, commitments or undertakings with regulatory authorities or other third parties, the terms of which may reduce the benefits of the Transaction for the Company.

The Group will incur acquisition-related costs in connection with the Transaction

The Company has incurred and will incur transaction costs and expenses in connection with the Transaction. Moreover, management resources may be diverted in an effort to complete the Transaction. If the Transaction is not completed, the Company will have incurred costs for which it will have received little or no benefit. Furthermore, if the Transaction is not completed, the Company may experience negative reactions from the financial markets, the media and its shareholders, potential investors, customers, employees and other stakeholders. Each of these factors may materially and adversely affect the trading price of the Shares and could have a material adverse effect on Hydro's business, financial condition, operating results and/or cash flows.

Even if the Transaction is completed, the Group may face additional risks, reputational damage, financial losses, costs and challenges as a result of integrating Sapa into its existing business

Even if the Transaction is completed, it may not improve, and may even adversely affect, the results of operations of Hydro. The integration of Sapa into Hydro's existing business may expose Hydro to additional risks, reputational damage, costs and financial losses unknown as of the date of this Information Memorandum, or known to Hydro, but not considered to be substantial risks, reputational damage, costs or financial losses at the time. Hydro only has limited recourse against Orkla ASA for risks relating to the Sapa business in accordance with the SPA, se section 4 "Description of the Transaction" for further details.

Hydro's ability to benefit from enhanced business opportunities is dependent on business conditions in future periods that cannot be predicted or measured with certainty.

Hydro cannot be certain that the integration of Sapa into its existing business will result in the expected benefits from anticipated business opportunities, revenue enhancements or growth levels or that such results can be achieved in the timeframe expected. Future business conditions and events may reduce, eliminate or delay Hydro's ability to realize them.

Further, the growth and operating strategies for the Group following completion of the Transaction may not be successful. Hydro may fail to realize the anticipated benefits of the Transaction due to integration and other challenges, including, but not limited, to:

complications consolidating corporate and administrative infrastructures, including information technology, communications and other systems;
difficulties with retaining employees;
inability to coordinate research and development, marketing and other functions;
potential disruption of ongoing businesses or inconsistencies in standards, controls, procedures and policies which could have a material adverse effect on the ability to maintain relationships with customers, suppliers, distributors or creditors;
diversion of management's attention and resources from ongoing business concerns; and
difficulties mitigating contingent and assumed liabilities.

The inability to benefit from business opportunities, experience revenue and overall growth or to meet the expected cost of integrating Sapa, or inability to achieve them within the expected timeframe, could have a material adverse effect on Hydro's business, financial condition, operating results and/or cash flows.

The unaudited pro forma financial information included in this Information Memorandum may not necessarily reflect what the results of operations, financial condition and cash flows of the Group following the Transaction would have been for the same period

The combined operating and financial information for the Group following completion of the Transaction presented in this Information Memorandum has been prepared for the purpose of illustratively presenting, as far as practicable, the financial position and results of operations of the Combined Group. This required the aggregation of financial information of the entities which make up the Group following completion of the Transaction, the elimination of intercompany transactions and balances and other adjustments. See Section 8 "Unaudited pro forma financial information" for details. The unaudited pro forma financial information presented in this Information Memorandum may, accordingly, not reflect what the Combined Group's financial position and results of operations would have been had Hydro and Sapa operated on a combined basis and may not be indicative of what the Combined Group's results of operations and financial position will be in the future.

1.5 Risks relating to the Shares

The market value of the Shares may fluctuate significantly and may not reflect Hydro's underlying asset value or, following completion of the Transaction, the underlying asset value of the Combined Group.

An investment in the Shares may decrease in market value as well as increase. The market value of the Shares can fluctuate significantly and may not always reflect the underlying asset value. A number of factors outside Hydro's control may impact its performance and the price of the Shares. Such factors include, but are not limited to, a change in market sentiment regarding the Shares, the Group, the Transaction, the operating and share price performance of other companies in the industry and markets in which Hydro operates. Changes in market sentiment may be due to speculation about Hydro's business in the media or investment community, changes to Hydro's profit estimates, the publication of research reports by analysts and changes in general market conditions. If any of these factors actually occurs, this may have a material adverse effect on the pricing of the Shares.

Hydro's ability to pay dividends is dependent on the availability of distributable reserves

Norwegian law provides that any declaration of dividends must be adopted by Hydro's general meeting of shareholders. Dividends may only be declared to the extent that Hydro has distributable funds and Hydro's board of directors (the "Board of Directors") finds such a declaration to be prudent in consideration of the size, nature, scope and risks associated with Hydro's operations and the need to strengthen its liquidity and financial position. As Hydro's ability to pay dividends is dependent on the availability of distributable reserves, it is, among other things, dependent upon receipt of dividends and other distributions of value from its subsidiaries and the companies in which Hydro has invested.

As a general rule, the Company's general meeting of shareholders may not declare higher dividends than the Board of Directors and the corporate assembly (the "Corporate Assembly") has proposed or approved. If, for any reason, the general meeting of shareholders does not declare dividends in accordance with the above, a shareholder will, as a general rule, have no claim in respect of such non-payment, and Hydro will, as a general rule, have no obligation to pay any dividend in respect of the relevant period.

Beneficial owners of Shares that are registered in a nominee account will not be able to vote for such Shares unless their ownership is re-registered in their names in the VPS prior to the general meeting

Beneficial owners of Shares that are registered in a nominee account (e.g. through brokers, dealers or other third parties) will not be able to vote for such Shares unless their ownership is re-registered in their names in the VPS prior to the general meetings. Similarly, any holders of the Company's American Depositary Receipts ("ADRs") who wish to vote at a general meeting of shareholders, must withdraw the underlying Shares from the depositary and register such Shares directly in the VPS. Hydro cannot guarantee that beneficial owners of the Shares, or holders of the ADRs, will receive the notice for a general meeting in time to instruct their nominees to either effect a re-registration of their Shares, or to instruct the depositary to effect a withdrawal of their Shares from the ADR program, or otherwise vote their Shares in the manner desired by such beneficial owners or ADR holders.

Any future share issues may have a material adverse effect on the market price of the Shares

Hydro may decide to conduct share issues in the future in order to strengthen its capital base or for other reasons. Any future offering of Shares may be made at a significant discount to the prevailing market price and could have a material adverse effect on the market price of the outstanding Shares.

Shareholders will be diluted if they are unable or unwilling to participate in future share issuances, and will in any event be diluted as a result of the pre-emptive rights of certificate holders in future share issuances against cash and other share issuances in private placements

Unless otherwise resolved by the general meeting, shareholders in Norwegian public limited companies, such as Hydro, have pre-emptive rights proportionate to the aggregate number of Shares they hold with respect to any new Shares issued against consideration in cash. Due to regulatory requirements under foreign securities laws or other factors, foreign investors may be unable to participate in a new issuance of Shares or other securities. Any investor that is unable or unwilling to participate in Hydro's future share issuances will have their percentage shareholding diluted.

Further, in accordance with the Articles of Association of Hydro, the holders of the founder certificates and the subscription certificates are, as a general rule, entitled to participate in any future new issuance of Shares against consideration in cash, with a pre-emptive right to subscribe for 0.83 percent and 2.79 percent, respectively, of the new Shares to be issued. Consequently, existing shareholders that do not over-subscribe or are not allocated Shares pursuant to such over-subscription, will have their percentage of shareholding diluted.

Certain transfer and selling restrictions may limit shareholders' ability to sell or otherwise transfer their Shares

The Shares have been admitted to public trading in Norway and the United Kingdom but Hydro has not registered the Shares under the U.S. Securities Act or securities laws of other jurisdictions, including Canada, Australia and Japan, and it does not expect to do so in the future. The Shares may not be offered or sold in the United States, Canada, Australia, Japan or in any other jurisdiction in which the registration or qualification of the Shares is required but has not taken place, unless an exemption from the applicable registration or qualification requirement is available or the offer or sale of the Shares occurs in connection with a transaction that is not subject to such provisions. In addition, there can be no assurances that shareholders residing or domiciled in the United States or other jurisdictions will be able to participate in future capital increases or subscription rights.

Investors may be unable to recover losses in civil proceedings in jurisdictions other than Norway

Hydro is a public limited company organized under the laws of Norway. The majority of the members of its Corporate Assembly, Board of Directors and Corporate Management Board reside in Norway. As a result, it may not be possible for investors to effect service of process in other jurisdictions upon such persons or Hydro, to enforce against such persons or Hydro judgments obtained in non-Norwegian courts, or to enforce judgments on such persons or Hydro in other jurisdictions.

Norwegian law may limit shareholders' ability to bring an action against the Company

The rights of holders of the Shares are governed by Norwegian law and by the Articles of Association. These rights may differ from the rights of shareholders in other jurisdictions. In particular, Norwegian law limits the circumstances under which shareholders of Norwegian companies may bring derivative actions. For instance, under Norwegian law, any action brought by Hydro in respect of wrongful acts committed against Hydro will be prioritized over actions brought by shareholders claiming compensation in respect of such acts. In addition, it may be difficult to prevail in a claim against the Company under, or to enforce liabilities predicated upon, securities laws in other jurisdictions.

Substantial share ownership is concentrated in the hands of a few shareholders, and future sales of Shares by such shareholders could have a material adverse effect on the market price of the Shares

The Norwegian Government is the Company's largest shareholder, holding 34.26 percent of the total share capital of the Company. Because of this significant shareholding and because many shareholders of listed companies typically do not exercise their voting rights, the Norwegian Government is in a position to exert substantial influence over key decisions concerning the business of the Company, including the future composition of the Board of Directors and the members of the Company's management team (the "Corporate Management Board"). Furthermore, any future sales of Shares by such shareholder could have a material adverse effect on the market price of the Shares.

Shareholders outside of Norway are subject to exchange rate risk

The Company's Shares are priced in NOK, and any future payments of dividends on the Company's Shares are expected to be denominated in NOK. Accordingly, investors outside of Norway are subject to adverse movements in NOK against their local currency as the foreign currency equivalent of any dividends paid on the Shares or received in connection with any sale of the Shares could be adversely affected.

2 RESPONSIBILITY STATEMENT

The members of the Board of Directors of Norsk Hydro ASA confirm that, after having taken all reasonable care to ensure that such is the case, the information contained in this Information Memorandum is, to the best of their knowledge, in accordance with the facts and contains no omission likely to affect its import.

31 July, 2017

The Board of Directors of Norsk Hydro ASA

Dag Mejdell Chairperson

Irene Rummelhoff Deputy chairperson Sten Roar Martinsen Board member

Svein Kåre Sund Board member

Billy Robert Fredagsvik Board member

Liv Monica Bargem Stubholt Board member

Finn Marum Jebsen Board member

Marianne Wiinholt Board member

Thomas Schulz Board member

3 GENERAL INFORMATION

3.1 Sources of industry and market data

In this Information Memorandum, the Company has used industry and market data obtained from independent industry publications, market research and other publicly available information. While the Company has compiled, extracted and reproduced industry and market data from external sources, the Company has not independently verified the correctness of such data. The Company cautions prospective investors not to place undue reliance on the abovementioned data. Unless otherwise indicated in the Information Memorandum, the basis for any statements regarding the Company's competitive position is based on the Company's own assessment and knowledge of the market in which it operates.

The Company confirms that where information has been sourced from a third party, such information has been accurately reproduced and that as far as the Company is aware and is able to ascertain from information published by that third party, no facts have been omitted that would render the reproduced information inaccurate or misleading. Where information sourced from third parties has been presented, the source of such information has been identified, however, source references to websites shall not be deemed as incorporated by reference to this Information Memorandum.

Industry publications or reports generally state that the information they contain has been obtained from sources believed to be reliable, but the accuracy and completeness of such information is not guaranteed. The Company has not independently verified and cannot give any assurances as to the accuracy of market data contained in this Information Memorandum that was extracted from these industry publications or reports and reproduced herein. Market data and statistics are inherently predictive and subject to uncertainty and not necessarily reflective of actual market conditions. Such statistics are based on market research, which itself is based on sampling and subjective judgments by both the researchers and the respondents, including judgments about what types of products and transactions should be included in the relevant market.

As a result, prospective investors should be aware that statistics, data, statements and other information relating to markets, market size, market shares, market positions and other industry data in this Information Memorandum (and projections, assumptions and estimates based on such information) may not be reliable indicators of the Company's future performance and the future performance of the industry in which it operates. Such indicators are necessarily subject to a high degree of uncertainty and risk due to the limitations described above and to a variety of other factors, including those described in Section 1 "Risk Factors" and elsewhere in this Information Memorandum.

3.2 Cautionary note regarding forward-looking statements

This Information Memorandum includes forward-looking statements that reflect the Company's current views with respect to future events and financial and operational performance. These forward-looking statements may be identified by the use of forward-looking terminology, such as the terms "anticipates", "assumes", "believes", "can", "could", "estimates", "expects", "forecasts", "intends", "may", "might", "plans", "projects", "should", "will", "would" or, in each case, their negative, or other variations or comparable terminology. These forwardlooking statements are not historic facts. They appear in the following Sections in this Information Memorandum, Section 4 "Description of the Transaction", Section 5 "Presentation of Hydro" and Section 7 "Description of Sapa", and include statements regarding the Company's intentions, beliefs or current expectations concerning, among other things, financial strength and position of the Company, operating results, liquidity, prospects, growth, the implementation of strategic initiatives, as well as other statements relating to the Company's future business development and financial performance, and the industry in which the Company operates.

Prospective investors in the Shares are cautioned that forward-looking statements are not guarantees of future performance and that the Company's actual financial position, operating results and liquidity, and the development of the industry in which the Company operates, may differ materially from those made in, or suggested, by the forward-looking statements contained in this Information Memorandum. The Company cannot guarantee that the intentions, beliefs or current expectations upon which its forward-looking statements are based will occur.

By their nature, forward-looking statements involve, and are subject to, known and unknown risks, uncertainties and assumptions as they relate to events and depend on circumstances that may or may not occur in the future. Because of these known and unknown risks, uncertainties and assumptions, the outcome may differ materially from those set out in the forward-looking statements.

The information contained in this Information Memorandum, including the information set out under Section 1 "Risk Factors", identifies additional factors that could affect the Company's business, financial condition, results of operations, cash flows, liquidity and performance. Prospective investors in the Shares are urged to read all Sections of this Information Memorandum and, in particular, Section 1 "Risk Factors" for a more complete discussion of the factors that could affect the Company's future performance and the industry in which the Company operates when considering an investment in the Company.

These forward-looking statements speak only as at the date on which they are made. The Company undertakes no obligation to publicly update or publicly revise any forward-looking statement, whether as a result of new information, future events or otherwise. All subsequent written and oral forward-looking statements attributable to the Company or to persons acting on the Company's behalf are expressly qualified in their entirety by the cautionary statements referred to above and contained elsewhere in this Information Memorandum.

4 DESCRIPTION OF THE TRANSACTION

4.1 Overview

On 10 July 2017, Hydro announced that it had entered into the share purchase agreement with Industriinvesteringer AS (100 percent subsidiary of Orkla ASA) dated 10 July 2017 (the "SPA") in relation to the Transaction. Under the SPA, Hydro has agreed to acquire 50% of all issued and outstanding shares of Sapa AS based on an enterprise value of NOK 27 billion (100%).

The following is a brief description of the Transaction and the material terms and conditions of the SPA.

4.2 The Parties to the Transaction

The SPA was entered into between:

1) Hydro Aluminium AS ("HAL"), a private limited company incorporated under the laws of Norway with registration number 917 537 534; and
2) Industriinvesteringer AS, a private limited company incorporated under the laws of Norway with registration number 995 633 604, being a wholly owned subsidiary of Orkla ASA.

The parent companies, Hydro and Orkla ASA, have guaranteed their respective subsidiaries obligations under the SPA.

4.3 Background and reason for the Transaction

Formed as a 50/50 joint venture between Orkla and Hydro in 2013, Sapa is an aluminium solutions provider and the world's largest² extrusion company. This includes aluminium extrusion, precision tubing, remelt and building systems activities in around 40 countries.

The Transaction is confirming Hydro's strategy of being integrated and the combination, in the Company's opinion, will make Hydro the only company in the global aluminium industry that is fully integrated across the value chain and markets. Hydro will have unparalleled strength in technology, R&D, innovation and product development, as well as an unmatched product and service offering towards its more than 30,000 customers throughout the world.

4.4 The structure of the Transaction and timetable

The Transaction is an acquisition by HAL of 100,000,000 shares in Sapa (the "Sapa Shares"), being 50% of all issued and outstanding shares of Sapa AS. The Transaction is expected to be completed in the second half of 2017, with a completion date no later than 31 March 2018 (the "Long Stop Date"), although under certain circumstances, the Long Stop Date may be extended for a limited period of time.

4.5 Conditions to Closing

Completion of the Transaction is subject to satisfaction or waiver of a limited number of conditions, including:

² In terms of market share.

every competition authority having jurisdiction over the Transaction shall have issued all necessary clearances and approvals, or such clearances or approvals shall otherwise have been obtained from the relevant competition authorities by the expiry of any applicable time limits;
completion of the Transaction not being prohibited pursuant to any applicable law or court order, excluding law or court orders the breach of which could reasonably be expected to have an insignificant effect on the party invoking the condition; and
no material breach of any parties' obligations, including all warranties, under the SPA at the time of completion.
As of the date of this Information Memorandum, the Company has concluded that merger clearance from relevant authorities in Brazil, Canada, China, EU and Turkey are required for closing. All necessary approvals are expected to be obtained before the end of 2017. The Company is, at the date of this Information Memorandum, not aware of the Transaction being prohibited pursuant to any applicable law or court order, or any material breach of any parties' obligations, including all warranties, under the SPA.

4.6 Representations and warranties and indemnities

The SPA contains a limited number of warranties, customary for a transaction of this size and nature, including fundamental warranties, warranties on 2016 annual accounts, tax and compliance with laws.

The parties have agreed that Orkla ASA shall indemnify Hydro for 50% of any liability in relation to the Gemini case, referred to in Section 7.4 "Litigation and disputes" for an unlimited period of time. Further Orkla ASA shall indemnify Sapa/Hydro for 60% of any environmental liabilities relating to certain legacy sites until 31 December 2033.

4.7 Termination

Either party may terminate the Transaction if the conditions to completion has not been satisfied or waived prior to the Long Stop Date.

4.8 Total consideration, costs and financing

The parties to the SPA have agreed on an enterprise value of NOK 27 billion for Sapa (100%). The purchase price payable for the Sapa Shares shall be 50 % of the enterprise value, adjusted for net debt, normalized working capital and a normalized capital expenditure level at completion.

The total expenses to be paid in the Transaction, including a fairness opinion and external consultants are estimated to be approximately NOK 25 million.

The Transaction will be financed through cash positions and issuance of bonds in Norwegian and international markets, and will be temporarily funded by committed undrawn credit lines. Following the Transaction, Hydro is committed to retain investment grade rating and a robust balance sheet. Hydro will maintain its dividend policy of returning 40 percent of net income over the cycle, with NOK 1.25 per share seen as a floor in 2017.

4.9 Significance of the Transaction

4.9.1 The Transaction's significance for the earnings, assets and liabilities of the

On a pro forma basis to reflect the Transaction, the Company's revenue for the year ended 31 December 2016 would have increased by 59 per cent from NOK 81,953 million to NOK 130,630 million. Net income for the year ended 31 December 2016 would have increased by 7 per cent from NOK 6,586 million to NOK 7,079 million.

On a pro forma basis to reflect the Transaction, the Company's revenue for the period ended 30 June 2017 would have increased by 57 per cent from NOK 47,617 million to NOK 74,663 million. Net income for the period ended 30 June 2017 would have increased by 11 per cent from NOK 3,401 million to NOK 3,775 million. Total assets as of 30 June 2017 would have increased by 19 per cent from NOK 131,840 million to NOK 157,268 million on a pro forma basis.

For a further description of the pro forma figures and the basis for such figures, see Section 8 "Unaudited pro forma financial information" below.

4.9.2 The Transaction's significance for the future strategy of the Group

Following the Transaction, Hydro will become a global, integrated aluminium company with more than 35,000 employees, and activities in around 40 countries. Hydro's primary metal business area produces 2.1 million mt of primary aluminium per year and, during 2016, Hydro recycled 1.2 million mt of aluminium on a combined basis. Hydro's rolled products business supply's around 1 million mt tons of rolled products annually, has a strong market presence throughout product segments in Europe and views itself as the global leader in lithography and certain foil products. Sapa delivered 1.4 million mt in 2016, has strong market shares in North America and Europe, and is the global leader3 in precision tubing.

Hydro also has solid market presence in metal products across the value-added metal product categories in Europe, North-America and Asia, and is Norway's second-largest producer of renewable hydropower with an installed capacity representing normal annual production of 10 TWh. Bauxite production for 2016 reached 11 million mt, and alumina production totalled 6.3 million mt. With long positions in bauxite and alumina, Hydro is among the global leaders in the third-party bauxite and alumina market outside China.

By being fully integrated across the aluminium value chain and markets, Hydro will be the leading force within the world of global aluminium:

Worldwide production and customer offering, with strong technological capability
The ability and freedom to grow in the most attractive areas of global aluminium
Responsible operations and sustainable solutions for the future low-carbon economy

4.10 Agreements to the benefit of board members or management in Hydro or Sapa

All members of Sapa's corporate management team have retention agreements in place. The CEO's retention agreement is twelve months from closing and the remainder of the corporate management team has an agreement for six months from closing. The total cost of the retention arrangements is estimated to approximately NOK 20 million, and Orkla ASA and Hydro have agreed to share the retention costs. Apart from these agreements, there are no agreements entered into, or planned to be entered into, in connection with the Transaction for the benefit

³ In terms of market share.

of senior employees or members of the Board of Directors of Hydro or senior employees or board of directors of Sapa.

5 PRESENTATION OF HYDRO

5.1 Name, incorporation and registered office

The Company's legal and commercial name is Norsk Hydro ASA. Hydro is a Norwegian public limited company incorporated under the laws of Norway in accordance with the Norwegian Public Limited Companies Act with registration number 914 778 271. The Company was founded on 2 December 1905 and registered with the Norwegian Register of Business Enterprises on 9 March 1988.

The Company has its registered address at Drammensveien 264, N-0283 Oslo, Norway, with telephone number +47 22 53 81 00.

5.2 History

Norsk Hydro ASA, the parent company of the Group, was organized under Norwegian law as a public company in 1905 to utilize Norway's large hydroelectric energy resources for the industrial production of nitrogen fertilizers. Hydro's history, spanning many industries and several continents, has been underpinned by three distinctive strengths: the spirit of entrepreneurship, a dedication to innovation and the careful nurturing of the Company's talents and values.

An emphasis on industrial research and new business alliances enabled Hydro to expand its fertilizer operations following the First World War. In 1928-29, improved fertilizer technology was introduced at Hydro's first industrial sites in Telemark in Southern Norway. Advancements in electricity transmission technology paved the way for the construction of a new fertilizer plant at Herøya, close to Porsgrunn. This provided Hydro with easier access to important raw materials and ideal harbor conditions.

In the three decades following the Second World War, Hydro rebuilt itself into an industrial conglomerate, expanding into a number of new businesses in Norway. In 1951, Hydro began producing magnesium metal and polyvinyl chloride at Porsgrunn. Hydro constructed the Røldal-Suldal hydroelectric power plant to provide energy for its operations at Karmøy, and opened an aluminium reduction and semi-fabricating plant there in 1967.

In order to secure stable access to raw materials and energy for its fertilizer operations, Hydro investigated opportunities to participate in oil and gas production in the middle of the 1960s. After several years, Hydro and its partners discovered oil and gas in the Ekofisk and Frigg fields on the Norwegian Continental Shelf. Hydro's experience in the chemical process industry and abundant natural gas liquids resources provided the foundation for investments in the petrochemicals industry in Norway. In 1978, Hydro commenced production of ethylene and vinyl chloride monomer.

During this time, Hydro also pioneered new labor relations practices aimed at democratizing the workplace and increasing the cooperation between management and employees, leading to a spirit of collaboration which continues to define the Company today.

Hydro expanded globally in the 1980s. Hydro developed its fertilizer operations in Europe and also entered a new era as an oil company, becoming operator of the Oseberg offshore oil field. Research continued to drive its development as Hydro introduced new technologies for deep-water oil and gas production and horizontal drilling. In 1986-87, Hydro acquired the Norwegian state-owned aluminium company, Årdal og Sunndal Verk, and several European aluminium extrusion plants from Alcan and Alcoa, establishing Hydro Aluminium as a major business within Hydro and an important player in the European aluminium industry.

Later, Hydro developed its businesses further through substantial acquisitions, including Saga Petroleum in 1999, VAW Aluminium in 2002 and Spinnaker Exploration Company in 2005. Hydro also invested significant capital towards the expansion of existing alumina and aluminium production facilities, including its fully owned Sunndal primary metal plant in Norway the part-owned Alouette smelter in Canada and three expansions of the Alunorte alumina refinery in Brazil. This was followed by the decision to participate in the construction of the Qatalum smelter in Qatar. In 2007, Hydro completed the first phase of the giant Ormen Lange gas field, considered one of the largest industrial projects ever undertaken in Norway. A significant portion of the expansion of these businesses was financed through the sale of non-core operations.

Throughout this period, Hydro has focused on continuously improving the way it conducts its business. Hydro has improved working conditions and reduced the number of accidents for its employees and contractors. Hydro has also worked to reduce the negative impact of its activities on the communities where it operates and the broader society in general.

The first decade of the new millennium encompassed a major restructuring of Hydro's downstream aluminium operations, the closure of higher cost smelters, and ultimately, the transformation of Hydro into a focused aluminium and energy company. In 2004, Hydro demerged its fertilizer business through the creation of Yara, and it merged its petroleum activities with Statoil to form StatoilHydro in 2007, now called Statoil.

During this period, Hydro invested roughly NOK 18 billion in its aluminium and energy businesses in Norway, including NOK 11 billion in its Norwegian smelter system, NOK 2.2 billion upgrading and expanding its hydropower production operations and NOK 3 billion in research, development and production support relating to both its upstream and downstream aluminium operations. As a result, annual electrolysis production in Norway increased from 760,000 mt to about 900,000 mt, including the shutdown of roughly 250,000 mt of older, higher cost and higher emission capacity.

In 2011, Hydro transformed its business through the acquisition of the aluminium assets of Vale SA, securing its position in bauxite and alumina and lifting the Company to the top tier in the aluminium industry. Combining Vale Aluminium with Hydro has resulted in a stronger company, fully integrated into bauxite, with a long alumina position which is a preferred position in a resource constrained world.

In 2013, Hydro completed the agreement with Orkla ASA to combine their respective extrusion profile, building systems and tubing businesses within a new joint venture company owned 50% by each party. The new company, Sapa, included all of Hydro's extruded products business activities and has significant operations in Europe, North America, South America and Asia.

On 10 July 2017, Hydro announced that it had entered into the share purchase agreement with Orkla ASA to acquire 50% of the issued and outstanding shares of Sapa. See Section 4 "Description of the Transaction" for further information on the acquisition.

5.3 Business description

5.3.1 General

Hydro is a fully integrated aluminium company with attractive equity positions in bauxite, alumina and power, the most important raw materials in the production of primary metal. Hydro is one of the world's largest producers and suppliers of alumina and primary aluminium. Alumina production well in excess of the Company's own requirements gives Hydro a favorable market position. Substantial self-generated hydroelectric capacity in Norway and a dedicated gas-fired plant in Qatalum, provides secure access to energy.

Downstream, Hydro is an industry leader for a range of rolled aluminium products and markets, in particular the building, packaging, lithographic and automotive sectors. Hydro's ambition is to be recognized as the world's foremost aluminium solutions supplier, working in partnership with its customers and driving the Company's business forward. The Sapa joint venture has been a leader in downstream aluminium solutions, with a global reach and local presence within extrusions, building systems and precision tubing.

Hydro's business is divided into six operating segments including Bauxite & Alumina, Primary Metal, Metal Markets, Rolled Products, Energy and Other and eliminations:

Bauxite & Alumina includes Hydro's bauxite mining activities comprised of the Paragominas mine and a 5 percent interest in Mineracao Rio de Norte (MRN)), both located in Brazil, as well as a 92 percent interest in the Brazilian alumina refinery, Alunorte and an 81 percent interest in the joint venture partnership Companhia de Alumina do Para (CAP), for a new alumina refinery close to Alunorte. These activities also include Hydro's long-term sourcing arrangements and alumina commercial operations.

Primary Metal consists of Hydro's primary aluminium production, remelting and casting activities at the Company's wholly-owned smelters located in Norway, and Hydro's share of the primary production in partlyowned companies located in Slovakia, Qatar, Australia, Canada and Brazil.

Metal Markets includes all sales and distribution activities relating to products from Hydro's primary metal plants and operational responsibility for its stand-alone remelters. Metal Markets also includes metal sourcing and trading activities, which sources standard ingot for remelting in Hydro's remelters and primary casthouses from third parties and provides operational risk management through LME hedging activities.

Rolled Products consists of five European rolling mills including a 50 percent interest in the AluNorf rolling mill in Germany. Rolled Products also includes the Rheinwerk primary aluminium smelter in Neuss, Germany.

Energy is responsible for managing Hydro's captive hydropower production, external power sourcing arrangements to the aluminium business and identifying and developing competitive energy solutions for Hydro worldwide.

Other and eliminations includes Hydro's 50 percent share in Sapa, a global leader in extruded aluminium solutions with significant operations in Europe, North America, South America and Asia. Following completion of the Transaction, Sapa will become a wholly-owned subsidiary of Hydro.

Please refer to Section 6.4 "Segment information" for information on revenues derived from each of the Group's main business segments.

5.3.2 Bauxite & Alumina

5.3.2.1 Industry overview

Bauxite rock is composed mainly of aluminium hydroxide bearing ore minerals, with accompanying accessory minerals commonly containing iron oxides and hydroxides, and silica as clay and/or quartz. The three main ore minerals are gibbsite, boehmite, and diaspore. Their relative abundances in a particular bauxite source will determine alumina processing characteristics, and consequently will impact on the design, capital and operating costs of a related alumina refinery. In general, it can be stated that gibbsitic bauxite is preferred, as it can be digested at lower temperature and pressure than boehmitic or diasporic bauxites. Most bauxites occur within a lateritic crust formed by intense tropical weathering, as near-surface blanket deposits. Bauxite is typically extracted from open cut mines, and either processed at nearby refineries, or transported to distant refineries, which can add substantial logistical costs to the production of alumina. About 80 percent of alumina refining outside of China is based on integrated bauxite mines. In China, about 60 percent of alumina refining is based on integrated sources.

China, Australia, Brazil and Guinea accounted for 31, 29, 12 and 10 percent of global bauxite production of 303 million mt in 2016, respectively. The five largest mines outside China represented around 48 percent of the Western World bauxite production of 209 million mt.

Alumina is a significant cost element in the production of aluminium. The alumina market is competitive, but relatively few players hold a long position. China is the largest producing country representing approximately 55 percent of the global demand and capacity.

Bauxite & alumina price developments

In the alumina industry, pricing has been moving away from fixed percentages of the aluminium price to index pricing. Introduced in 2010, the Platts alumina price index reflects the fundamental supply and demand balance as well as general cost developments of the alumina market. The index continues to gain support in the industry and represents the main reference for contracts of various durations. Since 1990, average annual contract prices have risen from a level of around 12 percent of LME aluminium reference prices to above 17 percent in average for 2016. The Platts alumina index started the year at around USD 200 per mt and was close to USD 350 per mt at year end, or around 21 percent of LME aluminum reference price.

Bauxite & alumina prices have been strongly influenced by developments in China, which is heavily dependent on imported bauxite. China's bauxite imports amounted to 52.1 million mt in 2016, 7 percent lower than the previous year. Australia was the largest supplier in 2016, followed by Guinea which exported 11.9 million mt to China as a new mine came into operation. Imports from Malaysia decreased 68 percent to 8 million mt as a bauxite mining moratorium came into effect in January but operators were allowed to export existing stocks. Imports from Brazil surged to 4.4 million mt on the back of curtailments of refinery capacity in the Atlantic basin. During 2016, the price of bauxite imported to China trended down to an annual average of USD 49 per mt CIF China compared to USD 53 per mt CIF China in 2015.

5.3.2.2 Operations

Bauxite from Paragominas is mined in open pits and sorted and crushed into sizes suitable for transportation as slurry through the world's longest pipeline approximately 240 kilometers to Alunorte for refining into alumina. Bauxite from MRN is transported by vessel. Alumina processing begins by removing the water from the bauxite slurry, then mixing the bauxite with caustic soda at high temperature and pressure. The resulting mixture is pumped into a digester, where a chemical reaction dissolves the alumina. This process produces a sodium aluminate solution, which is transferred into tanks to separate impurities through settling and filtration. The cooled sodium aluminate solution is then pumped into precipitators to grow alumina crystals, which are transferred to thickening tanks and further to fluid bed calciners to remove water, producing pure alumina.

Cost and revenue drivers

The main cost drivers for bauxite are labor, maintenance/consumables, electricity and fuel for excavation equipment, representing around 75 percent of the cash cost of mining activities. Labor, the largest cost factor, accounting for about 25 percent, is influenced by Brazilian wage levels and productivity developments. Maintenance/consumables are influenced by inflation and efficiency in operations.

For alumina refining, bauxite, energy and caustic soda represent around 85 percent of cash costs. Energy costs are a mix of fuel, coal and electricity and represent around 30 percent of the total costs. Caustic soda represents around 15 percent of cash costs. In 2016 fuel, coal and electricity prices declined while caustic soda price increased. Bauxite purchases from Paragominas, and under off-take agreements from MRN, are based on prices partly linked to LME prices and alumina market prices. Optimization of the energy mix for Alunorte will be a major factor to achieve the targets related to the Company's new "Better Bauxite & Alumina" improvement ambition, which is further described from page 58 onwards in the Company's annual report for 2016, incorporated by reference hereto.

Historically, Alumina has been primarily sold under medium and long-term contracts at prices referenced to the LME. The realized alumina price, the key revenue driver, has been volatile during 2016 representing between 14.2 and 15.8 percent of LME reference prices for Hydro's combined internal and external sales portfolio. Hydro has been replacing expiring alumina sales contracts with increased sales volumes at index pricing and intends to further increase its share of volumes at index pricing as old, legacy contracts continue to expire.

Bauxite mining

Paragominas is located in the Brazilian state of Pará. The mine has a nominal production capacity amounting to 9.9 million metric tons, 14 percent moisture bauxite on an annual basis, which represents about 4 percent of global capacity. Operations include a mining fleet of about 182 vehicles and 1,372 employees.

Operations at Paragominas commenced in the first quarter of 2007, and began supplying raw material to the Alunorte alumina refinery at the same time. An expansion – Paragominas II – was completed in the second quarter of 2008. The potential for further expansion is estimated up to 15 million mt in total.

The site is connected to a 244-kilometer slurry pipeline with an annual capacity of 15 million mt. It is the only bauxite slurry pipeline in the world, and has significant integration advantages combined with a very low environmental impact.

Paragominas supplies all of its production to Alunorte. In 2016 Hydro acquired the remaining shares for a 100 percent ownership in Paragominas, providing about 71 percent of Alunorte's bauxite requirements. The remainder is sourced from MRN, which Hydro has a 5 percent ownership interest in and off-take agreements with Vale for a further 40 percent of the volume produced by MRN. The MRN mine is one of the three largest and most efficient bauxite mines worldwide and the largest in Brazil.

Alumina refining

Hydro's major alumina asset is its 92 percent interest in the Alunorte alumina refinery. Alunorte has a nominal capacity of approximately 6.3 million mt of alumina. The Alunorte refinery is competitive due to the high quality of its alumina, advantages in scale and technology, relatively low energy consumption and labor costs. The plant has several cost advantages, including an efficient energy mix of heavy fuel oil and coal, competitive caustic soda consumption due to high quality bauxite and a potential for lower transport costs through higher pipeline throughput.

CAP, a potential new alumina refinery to be located in Barcarena, close to Alunorte, has been under evaluation for development in a joint venture between Hydro and Dubal Holding LLC (Hydro's share, 81 percent). The technical design for the refinery was reviewed in 2016 resulting in further planned improvements in performance and costs. The new design has an initial annual capacity of 2.6 million mt, with the potential for future expansions of up to 7.4 million mt. Further progress in this project is mainly dependent on the balance between industry production capacity and market demand.

Commercial operations

Hydro has a long position in bauxite of 3-4 million mt and in alumina of approximately 2-3 million mt. The Company is pricing bauxite on its own fundamentals to reflect the superior Brazilian quality. In addition to Paragominas and its equity interests in MRN bauxite mine, the Company has volume off-take agreements for Vale's 40 percent interest in MRN, which amounted to 7.9 million mt in 2016. The excess bauxite not consumed in Alunorte is sold to third parties.

In addition to Alunorte, Hydro buys alumina from a number of external sources. The main external source is Hydro's contract with Rio Tinto Alcan (RTA) for the supply of 900,000 mt of alumina annually until 2030. In addition, Hydro buys and sells alumina in order to optimize the Company's physical alumina portfolio on a short and medium-term basis.

Technology and innovation

Hydro is working to develop improved beneficiation and refinery processes allowing for the increased utilization of lower-grade bauxite ores. A R&D program to develop solutions to minimize the economic impact of the relatively high kaolinite content of Amazon bauxite is underway. This is expected to result in a significant reduction in operating costs and incrementally increase the amount of economically viable resources.

The Paragominas mine is optimizing its continuous mining technology and improving productivity. The beneficiation plant is optimizing and simplifying its milling and size separation processes, leading to higher throughput and better overall recovery. These initiatives are supporting Paragominas' production levels, above nameplate capacity, and reduced operating costs.

Alunorte is now slightly exceeding nameplate capacity, focusing on maintaining good equipment condition in order to meet critical process design parameters. Alunorte's much improved process stability also contributes to lower fixed costs and lower variable costs, namely energy, bauxite and caustic soda usages. Improved energy efficiency also reduces Hydro's CO2 emissions.

Alunorte uses state of the art dry stacking technology for disposing of bauxite residue, also known as red mud. Hydro is commissioning a more advanced pressure filtration technology, replacing the existing drum filtration, that further reduces moisture content of the bauxite residue disposed, resulting in lower deposited volumes, reducing Hydro's environmental footprint. Hydro also participates in international collaboration projects investigating possibilities to use bauxite residue as a resource.

Employees

Bauxite & Alumina had 3,701 employees in its consolidated activities at the end of 2016, which includes temporary employees, apprentices and employees in leave of absence.

5.3.3 Primary metal

5.3.3.1 Industry overview

The basic raw material for aluminium is bauxite which is refined into alumina. Aluminium smelting is a capitalintensive, technology-driven industry. Energy represents approximately 50 percent of the costs throughout the value chain. As the world's largest consumer and producer of aluminium, China has a significant impact on market fundamentals. In 2016, China represented 53 percent of worldwide aluminium consumption and 54 percent of corresponding production. India and the Middle East are also growing in importance in the production of aluminium.

Aluminium is also derived from remelting and recycling aluminium scrap. Scrap is generated both in the production (pre-consumed) and use (post-consumed) of aluminium products. Recycling of post-consumed scrap requires about 5 percent of the energy required for electrolysis metal. Globally almost 20 percent of aluminium products are made from post-consumed scrap. Around 70-75 percent of all aluminium produced since the Hall Heroult process was discovered in 1886 is still in use.⁴

Aluminium is used in a variety of applications in several industries. The major consumer segments are transportation, building and construction, packaging and foil and electrical applications. The major consuming areas are China, North America, Western Europe, Japan and the rest of Asia.

Demand for aluminium products in mature markets like North America and Europe is normally in line with economic developments, although with greater volatility. However, substitution for steel and other metals by aluminium, in particular for automotive applications, contributes to higher growth levels and is a key fundamental driver underlying increasing demand in aluminium markets. In recent years, total global demand has exceeded the growth in GDP and is expected to continue to do so in the medium term. Increased consumer demand and continued infrastructure investment in China are expected to drive global demand growth in primary metal in the range of of 4 to 6 percent for 2017 and 3 to 4 percent over the coming 10 years, despite an expected lower pace of global economic development compared to the previous decade. Primary demand is expected to grow 2 to 4 percent in the world outside China in 2017, with North America leading the way driven by macroeconomic improvements and increasing market penetration of aluminium components within the transportation market segments.

Although growth in the Chinese economy is slowing, the growth in aluminium consumption continues to outpace other commodities. However, continued capacity increases have resulted in an oversupply in China leading to exports of semi-fabricated products above historical levels.

Structural developments

As a result of smelter production growth, in China in particular, the 10 largest aluminium companies now represent more than 50 percent of global aluminium production. Global production amounted to roughly 60 million mt in 2016. Private companies in China have grown significantly in the last several years, in particular the Hongqiao group, which has become the world's largest aluminium producer. Other private Chinese companies such as Xinfa and the East Hope group have also shown strong growth. Conversely, state owned companies in China, in particular Chalco and State Power Investment Company have reduced their size along with poor economic performance some time back. Outside China, the strongest production growth has been among companies active in the Middle East, in particular the Emirates Global aluminium (EGA) group, which was established by the merger of Dubal and EMAL back in 2014.

Alcoa announced a plan to establish separate businesses for their upstream and downstream operations in 2015. In 2016, after 128 years of operating as a vertically integrated company, Alcoa consequently separated its mining/refining/smelting and power businesses (retaining the name "Alcoa") from its fabrication businesses, now known as "Arconic."

In 2016, Hydro maintained its position as the fifth largest producer outside of China, and still ranked ninth globally in terms of annual primary aluminium production. The largest producer outside China continued to be Rusal followed by Rio Tinto Alcan and Alcoa. The ten largest producers worldwide include five operators in China which mainly focus on supplying the Chinese markets.

⁴ The actual share depends on lifetime assumption for aluminium products in different applications and in different regions of the world.

Aluminium price developments

Primary aluminium is traded on several metal exchanges, but primarily the London Metal Exchange (LME). The Shanghai Futures Exchange (SHFE) has grown in importance for international trade of standard ingots produced in China. Prices quoted on the SHFE include 17 percent value added tax. China has an export tax of 15 percent on primary aluminium, China also has a 13-15 percent VAT tax rebate on the export of semi-fabricated and finished aluminium products. In May 2015, the export tax was eliminated for several alloyed products while being maintained for pure primary aluminum ingots. No changes were made for aluminium and aluminium products during this year's revision of export taxes in January. This development implies that China intends to continue to discourage the export of pure primary aluminum while encouraging the export of higher value added products.

LME aluminium prices are heavily influenced by macroeconomic and market developments. Prices exhibited a historic decline during the financial crisis of 2008/2009 and began falling again during 2013 following a volatile period of improving prices. LME prices were further dampened by the significant accumulation of standard ingot inventories driven by financial investments. At the same time, standard ingot premiums increased significantly due to strong physical demand, partly compensating producers for the low LME prices. Product premiums also increased over this period. LME prices, including standard ingot premiums, peaked, however, towards end of 2014. In 2015, both LME prices and standard ingot premiums fell, influenced by surplus metal from China exported in the form of semi-fabricated products. Increased supply from LME warehouses, due to lower incentives for financial investments, together with a change in warehouse rules, aimed at increasing the availability of metal in the market, also put pressure on market prices. Prices remained at a level that resulted in smelter closures, in particular in the US but also in China.

The decline in premiums has reduced the incentive for Chinese exports which have declined from a peak at end of 2014. However, arbitrage opportunities are expected to continue to occur in the future, and will influence the magnitude of exports of semi-fabricated products from China and hence also metal prices going forward. Throughout 2016, following the effect of capacity closures, as well as cost reductions across main inputs and raw materials such as energy, alumina and carbon, the market has improved. Based on the improved sentiment and already approved plans for new smelter capacity China started to reopen idle plants and also opened new Greenfields towards the end of 2016. Hydro therefore expects more capacity in production 2017. The Chinese government has late in 2016 given signals that land purchase for new projects should be stopped, and that new projects will not be given approvals. China is also working actively to develop new domestic applications for aluminium to reduce the overcapacity, such as applications within transport/railways. See Section 1.1 "Risks relating to the Group and its operations – Our business is exposed to competition from China, which could have a significant negative impact on market prices and demand for our products" for further information on Hydro's exposure to competition from China.

Cost developments

World average production costs (business operating costs) decreased in 2016 primarily due to lower operating costs in China. Outside China, operating costs also fell due to lower costs for alumina, power, labor and carbon among others. Currency movements also affected the relative position of companies on the cost curve. In 2016 developments in China were, in addition, influenced by improved casthouse premiums as a result of the improved market balance of primary metal in the Chinese market.

5.3.3.2 Operations

Hydro's primary aluminium plants have reduction facilities with pot lines and casthouses, where liquid and remelted aluminium is cast to form value-added products such as extrusion ingot, primary foundry alloys, sheet ingot and wire rod, in addition to standard ingot.

Cost and revenue drivers

The main cost drivers for the production of primary aluminium include alumina, power and carbon, which together comprise about 80 percent of the cash costs of electrolysis metal. Approximately two metric tons of alumina are required to produce one metric ton of aluminium, representing about 30 percent of the production cost of primary aluminium. Energy represents on average about 25-30 percent of the operating costs. Carbon anodes consumed in the smelting process account for approximately 15-20 percent of the total production cost of primary aluminium.

Realized aluminium prices are the most important revenue driver. Prices are fixed on average one month prior to production. As a result, and due to the hedging of product inventories, Hydro's realized aluminium prices lag LME spot prices by around 1 to 2 months.

Aluminium smelter system

Hydro's smelter system includes installed capacity in 10⁵ wholly or partly owned plants. In 2016, Hydro produced around 2.1 million mt of primary aluminium, which is around 90 kmt below full capacity, affected by the partial curtailment at the Husnes plant in Norway. Following a restart of the curtailed capacity at Sunndal in 2015, only Husnes continues to have curtailed capacity, of around 50 percent of total capacity.

Internal supply contracts between the Company's hydro power production operations and aluminium metal business covered about half of the energy consumption of Hydro's wholly owned Norwegian smelters in 2016. The remainder was mainly covered by an external supply contract with Statkraft, a Norwegian electricity company. The contract will expire in 2020.

Hydro has entered into various new power supply contracts, adding up to a total annual supply of 4.75 TWh for the period 2021-2030, 1 TWh for the period 2031-39, securing a significant part of the power consumption required by Hydro's Norwegian smelters for these periods.

Electricity for Qatalum is provided by an integrated natural gas-fired power plant supplied with gas by Hydro's joint venture partner, Qatar Petroleum. Albras purchases electricity from the Tucurui hydroelectric power plant under a longterm agreement with Eletronorte. Alouette, Hydro's partowned aluminium plant in Canada, purchased electricity from the supplier Hydro Quebec. In 2016, Alouette signed a new contract with new terms and conditions extending the existing supply of electricity for a 13 year period to 2029. Electricity for the remainder of Hydro's smelter system is covered under medium to long-term contracts.

Technology and innovation

Primary Metal has a significant R&D portfolio in order to strengthen Hydro's competitive position, reduce operating costs and improve the Company's environmental footprints in Hydro's smelters. Development and testing activities throughout 2016 have further confirmed the Company's ability to reach the ambitious productivity and energy consumption targets of its next generation technology platform, HAL4e. The ongoing construction of the Karmøy technology pilot for industrial verification of this technology is expected to be

⁵ Excluding the Neuss smelter which is part of the Rolled Products segment.

finalized in the fourth quarter of 2017. Testing and verifying the HAL4e technology in the Karmøy pilot will give valuable learning, and will as such also give vital input to the further increased productivity and reduced energy consumption development of the existing Primary Metal smelter portfolio. An implementation program is being established in order to accelerate implementation of HAL4e technology elements, physical as well as control system related, in existing plants.

Innovation activities related to digital transformation have been increasing through the last couple of years. Systems and structures are now in place to secure focus and direction towards the long term ambition of developing an autonomous cell and an automated smelter. This development is expected to be an enabler for further improving cell productivity and performance.

Employees

Primary Metal, including Metal Markets⁶ had 4,653 permanent employees in its consolidated activities at the end of 2016 and 726 temporary employees including trainees.

5.3.4 Metal markets

5.3.4.1 Operations

Metal Markets is responsible for all sales and distribution activities relating to products from Hydro's primary metal plants and stand-alone remelters. Hydro operates seven remelters, which recycle mainly scrap, but also standard ingot⁷ into new products. Hydro also markets metal products from its part-owned smelters and third parties, and engage in other sourcing and trading activities, including hedging activities on behalf of all business areas in Hydro.

Cost and revenue drivers

Results are mainly impacted by the operating results of Hydro's stand-alone remelters, margins on sales of third party products and results from ingot and LME trading activities.

Revenues for Hydro's stand-alone remelters are influenced by volumes and product premiums over LME. Costs are driven by the cost of scrap and standard ingot premiums over LME, freight costs to customers and operational costs, including energy consumption and prices.

Hydro's results can be heavily influenced by currency effects⁸ and ingot inventory valuation effects. 9

⁶ While Primary Metal and Metal Markets are reported as separate business areas, they are organized as one unit for operational purposes.

⁷ Aluminium standard ingot is a global aluminium product traded on the London Metal Exchange (LME).

⁸ Currency effects are comprised of the effects of changes in currency rates on sales and purchase contracts denominated in foreign currencies (mainly U.S. dollars and Euro for Hydro's Norwegian operations) and the effects of changes in currency rates on the fair market valuation of dollar denominated derivative contracts (including LME futures) and inventories, mainly translated to Norwegian kroner. These amounts can be very substantial. Hydro manages its external currency exposure on a consolidated basis in order to take advantage of offsetting positions.

⁹ Ingot inventory valuation effects are comprised of hedging gains and losses relating to standard ingot inventories in Hydro's metal sourcing and trading operations. Increasing LME prices result in unrealized hedging losses, while the offsetting gains on physical inventories are not recognized until realized. In periods of declining prices, unrealized hedging gains are offset by write-downs of physical inventories.

Remelting

Hydro has a network of seven stand-alone remelt plants that convert scrap metal and standard ingot into extrusion ingot. Hydro has five plants in Europe and two in the U.S. with a total capacity of about 0.6 million mt, roughly 0.4 million mt of which is located in Europe. Hydro's remelters in Europe are located in Luxembourg, the United Kingdom, Germany, Spain and France. In addition, Hydro operates the scrap shredding and sorting plant St. Peter, Germany with a capacity of some 36 thousand mt of scrap. Total remelt activity, including remelted metal from casthouses integrated with Hydro's primary metal plants and third-party sourcing, has historically represented about half of Hydro's total sales of metal each year, but has been reduced during the past years to adjust to market balance and improve margins. In addition to remelting process scrap returned from customers, we purchase pre and post-consumer scrap from third parties. Standard ingot is procured globally under a combination of short and long-term contracts.

Sourcing and trading

To supplement Hydro's own equity standard ingot production, the Company sources standard ingot for remelting in Hydro's remelters and primary casthouses from third parties. Third-party contracts are also executed in order to optimize Hydro's total portfolio position and to reduce logistics costs. Hydro also sells standard ingot to external customers.

Hydro's main risk management objectives are to achieve an average LME aluminium price on smelter production, matching the average customer pricing pattern, and to secure margins in Hydro's midstream and downstream businesses. Hydro's sourcing and trading operation acts as an internal broker for all LME-hedging transactions by the Company's business units in order to consolidate Hydro's exposure and reduce transaction costs.¹⁰

Markets, products and customers

Most of Hydro's aluminium is sold in the form of value-added casthouse products such as extrusion ingot, sheet ingot, foundry alloys and wire rod. Hydro's product with the highest volume is extrusion ingot, which is sold to extruders producing aluminium profiles. The most important end-use segments include the building and construction industry, transport and general engineering. Hydro's key market region for extrusion ingot is Europe. However, the Asian and U.S. markets are also important markets for Hydro selling units from Qatalum and Tomago. Other important markets for Qatalum include Turkey, the Middle East and Australia/New Zealand.

Foundry alloys are sold to foundries producing cast parts primarily for the automotive industry. With Qatalum tonnage Asia has become our most significant market for this product. Sheet ingot is sold to European rolling mills, with packaging and transportation as the most important end-use segments. Wire rod is sold to wire and cable mills in Europe for power transmission and other electrical applications.

In addition to marketing its own products, Hydro has commercial agreements to market products from part owned smelters including a full marketing responsibility for all of the casthouse production at the smelters in Qatar and Slovakia.

Hydro's regional market teams are key to the Company's customer approach, delivering commercial, technical, logistical and scrap conversion services. Optimized solutions, such as Hydro's customer service programs and online customer portal, add further value and help build and reinforce customer relationships.

¹⁰ These hedging activities, which are designed to mitigate cash exposures, can generate significant underlying accounting effects, partly due to asymmetrical accounting treatment.

Technology and innovation

Innovation and development is carried out in close collaboration between our customers, production units and R&D. Hydro emphasizes three main areas including the quality of its products, the efficiency of its production system and the development of new alloys to enhance the functional characteristics of its products. Hydro's casthouse production process is based on the Company's advanced proprietary casting technology, developed by the fully-owned equipment producer Hycast and our R&D center. In 2016 Hydro implemented new Adjustable Flexible Molds (AFM) casting technology in its casthouses in Årdal and Høyanger to better serve customers in the automotive industry and strengthen Hydro's position as a supplier of advanced sheet ingot. The investment complements Hydro's strategy to build a robust portfolio through differentiation.

Quality improvements are closely linked to Hydro's customer technical service, addressing customer needs while improving own casthouse process. Hydro develops new alloys with distinct properties to support the development of new or enhanced applications within the automotive, building, electronics and other industries. This work begins with developing an understanding of metallurgical processes that form the basis for sample compositions and production methodologies carried out in laboratory or test production facilities. Finally, full scale testing is done often together with customers or end users.

Recycling of post-consumer scrap is an important activity to enable reduced costs and increased capacity utilization as well as contributing to the reduction of the carbon footprint of Hydro's products. Hydro's casting and alloy expertise enables the Company to produce products that can be recycled and used as raw material for high quality semi-finished products. Developing products that optimize the use of recycled material is another focus area. In 2015 Hydro acquired a scrap shedding and sorting operation in St. Peter, Dormagen, Germany. The plant is utilizing advanced sorting technology enabling us to pre-process contaminated scrap before it is remelted in Hydro's dedicated casthouses.

Employees

While Primary Metal and Metal Markets are reported as separate business areas, they are organized as one unit for operational purposes. See Section 5.3.3.2 "Operations – Employees" for further information on employees.

5.3.5 Rolled Products

5.3.5.1 Industry overview

The aluminium rolled products industry is characterized by economies of scale, with significant capital investments required to achieve and maintain technological capabilities and to meet customer qualification standards.

Worldwide consumption amounted to approximately 25 million mt in 2016 in which foil, can and transport were the largest segments. Europe and North America represent around 20 percent of world consumption each. The five largest producers in Western Europe supply about 70 percent of the European market. China is the largest single market, representing around 35 percent of global consumption.

The export of semi fabricated and fabricated aluminium products from China to the rest of the world has steadily increased over the last several years, driven by the utilization of Chinese production overcapacity as well as export tax rebates provided for several semi-fabricated products.

See Section 1.1 "Risks relating to the Group and its operations – Our business is exposed to competition from China, which could have a significant negative impact on market prices and demand for our products" for further information on Hydro's exposure to competition from China.

5.3.5.2 Operations

The rolling process consists of heating up to 600 millimeters (mm) sheet ingot to about 500 degrees Celsius and gradually rolling it into thicknesses of 3-13 mm for further processing. An alternative process, continuous casting, converts molten metal directly into coiled strip, typically 4-8 mm thick. Once cool, the thinner metal is further processed in cold rolling mills, producing various types of products for all markets supplied.

Cost and revenue drivers

Rolled products is a margin driven business based on a conversion price where the LME cost element is passed on to the customer. Contracts are generally medium term. The cost structure includes a high proportion of fixed costs, so results are volume sensitive.

Rolling mills

Following the divestment of the Slim plant in Italy at the end of 2015 Hydro's flat rolled products operations are located in Germany and Norway. Hydro generated approximately 75 percent of its total sales in 2016 in Europe. More than half of Hydro's production was produced in the Grevenbroich/AluNorf rolling system in Germany, one of the most modern and efficient rolling operations in the world. Grevenbroich is the center of Hydro's packaging, lithographic and automotive sheet operations. Hydro's production network mainly comprises of so called "wall-to-wall" processing, including an integrated casthouse combined with both hot and cold rolling mills.

One third of the metal used was sourced internally, based on arm's-length conditions related to LME and applicable premium prices. External supplies of liquid metal, sheet ingots, standard ingots as well as post consumer and preconsumer scrap from our customers accounted for two thirds of Hydro's total requirements in 2016.

Neuss smelter

Neuss is the largest aluminium smelter in Germany, with a primary metal capacity of 235,000 mt per year including one curtailed pot line. Beside the primary capacity Rheinwerk Neuss has a recycling capacity of 50,000 mt which was extended in 2016 by the start of a new, state-of-the-art UBC recycling line with a capacity of 40,000 mt. The plant supplies the near-by AluNorf rolling mill with primary and recycling based sheet ingots for processing and subsequent fabrication of rolled products in Grevenbroich. The Neuss smelter is an important element of this integrated system and provides significant operating synergies.

Markets, products and customers

Hydro's ambition is to leverage its position as a preferred supplier by focusing on quality, product development and innovative solutions, together with excellent customer service and overall cost efficiency. To ensure a strong market orientation, Hydro's sales function is organized centrally along business lines. This is supported by sales offices in Europe, Brazil, the US, and Singapore where the Company's optimizes market contact and sales potential.

Hydro's rolled products business is organized in two business units serving the different market segments in which Hydro operates.

Global products

Lithography: Hydro is a supplier, of lithographic sheet for printing plates, a market characterized by demanding requirements for surface quality, metal characteristics and mechanical properties. Hydro differentiates its products through innovation, consistent high quality, supply chain solutions and extensive service to its customers. Key customers in this segment include Agfa, FujiFilm and Kodak. Hydro's litho production is concentrated at the Grevenbroich plant.

Automotive: Hydro is the second-largest supplier of aluminium sheet and coil to the European automotive market for interior and exterior vehicle body parts, chassis and component applications. Key customers include Audi, BMW, Daimler, PSA and Jaguar Landrover. Production is concentrated within Hydro's Grevenbroich and Hamburg plants. To increase its car body sheet capacity Hydro has opened a new production line in Grevenbroich in 2017.

Heat Exchanger: Hydro produces a wide variety of mainly clad strip and sheet used in the manufacture of heat exchangers for passenger and commercial vehicles as well as other product applications. Hydro is among the top producers in Europe, working with key tier one suppliers such as Mahle, Denso, Modine and Linde to develop specially adapted alloys and optimized production techniques to fit their manufacturing processes.

Foil: Hydro serves customer needs in the rigid and semi-rigid packaging industry, offering plain and converted foil and strip. Hydro provides packaging solutions combining high quality manufacturing with innovation, cost effectiveness and sound ecological characteristics. Hydro also offers a wide range of services relating to its packaging products in terms of consulting and technical support. Hydro are specialists in thingauge foil for flexible packaging, offering foil as thin as 5.0 μ m for the packaging of food as well as for technical applications, including converted qualities with a variety of lacquered, laminated and coated finishing. Tetra Pak, Amcor Flexibles and Constantia Flexibles are key customers. Production of packaging is mainly concentrated in Hydro's Grevenbroich rolling mill.

Beverage can: Hydro is a worldwide supplier of body, end and tab stock in the form of rolled coil for the production of aluminium beverage cans. Hydro's modern and efficient production facilities, technical know-how and experienced development support facilitate the delivery of high-quality materials to meet the specific requirements of can manufacturers. Hydro's Grevenbroich plant is dedicated to the production of Hydro's quality proprietary can-end stock efficiEND®, which promotes productivity and cost-effective manufacturing to major beverage can manufacturers such as Ardagh, Ball and Crown.

Special products

General Engineering: Hydro is a supplier of hot and cold rolled aluminium strip and sheet, offering a comprehensive range of products tailored to meet the individual requirements of a variety of applications in the industrial and consumer products sectors. Products include coil and sheet for wholesalers and end-producers. Hydro operates modern and efficient manufacturing processes, offering quality products and extensive technical support.

Building (coated): Hydro manufacturers coated aluminium strip, with experience in the building market for many decades. Hydro offers to its customers a portfolio of cost-effective solutions from the dedicated production lines in the Company's Holmestrand rolling mill, including product applications for roofing and cladding, roller shutters, ceilings, composites and other specific applications.

Technology and innovation

Based on continuous research and development at Hydro's R&D center in Bonn, Germany, the Company's differentiate its business through innovative products, processes and services that save resources, reduce emissions and increase performance. Customers benefit from this added value, which increases market share and margin contribution. Hydro cooperates with customers to develop innovative solutions, through R&D and the Company's sophisticated technical customer service. Supported by its advanced scrap processing and melting concepts, Hydro plans to increase the volume of recycled material used in its production processes. Hydro also focuses on optimizing its alloys to make aluminium the material of choice in all of its markets.

Rolled Products has established itself as innovative partner to the customers. For the Company's customers in heat exchanger applications for example, Hydro has developed a copper free header material. Header tubes made of flat rolled products are often combined with Multiport Extruded tubes (MPEs). The standard header material is containing copper, which is galvanically not compatible with MPEs and can therefore lead to corrosion and field failures in the worst case. Hydro's new material is significantly enhancing corrosion resistance and gives the Company a unique selling proposition through product innovation.

The new Automotive line in Grevenbroich, Germany, was opened in 2017. One of the major innovations in the design of this line is the included dedicated skin pass mill, dedicated to produce so called EDT (Electron Discharge Texturing) surfaces, needed for optimum formability of automotive body sheets. This line constitutes a step change in the production of state-of-the-art EDT surfaces with highest formability.

Sorting of 5xxx and 6xxx alloys, which are the main alloys in automotive, is a main issue with regards to recycling of automotive scrap. Based on LIBS (Laser-induced breakdown spectroscopy) technology Austin AI, Inc. has developed a solution for sorting these alloys. A cooperation and development agreement has been signed between Austin AI, Inc. and Hydro and a pilot scale sorting line is going to be installed at Hydro's R&D center in Bonn in 2017.

Employees

Rolled Products had 4,044 permanent and 282 temporary employees in its consolidated activities at the end of 2016.

5.3.6 Energy

5.3.6.1 Industry overview

Electricity generation in the Nordic market is mainly based on hydropower (54 percent) and nuclear power (22 percent). Generation in Norway is almost entirely based on hydropower. Total annual Nordic consumption is approximately 400 TWh.

There has been a common Nordic electricity market since the late 1990s. The Nordic electricity market includes the Baltic countries. Nordic system prices are set in day-ahead auctions at the Nord Pool Spot market. The system price is normally the main reference price for financial contracts traded bilaterally and at the Nasdaq OMX. Area prices are calculated for physical delivery to constrain flows when available transmission capacity would otherwise be exceeded. There are five price areas in Norway, four in Sweden and two in Denmark. Finland, Estonia, Lithuania and Latvia constitute one bidding area each.

Prices are influenced by fuel cost (including emission allowance cost), meteorological parameters (precipitation, temperature, and wind) and exchange transmission possibilities with adjoining markets, as well as fluctuations in demand. An increase in intermittent generation from solar and wind power capacity has had a significant effect on price volatility in Continental markets and influenced price developments in the Nordic market.

Implementation of EU energy and climate regulations has and will continue to have a significant influence on energy prices and energy and climate policy in all EU/EEA countries. Emission trading has increased electricity prices by up to 50 percent in periods with high emission allowance cost in Europe, including the Nordic market where electricity is predominantly generated by non-emitting sources. There is, however, an ongoing EU legislative process aimed at reducing emissions and consequently increasing future allowance prices. In order to prevent carbon leakage, the EU established guidelines in 2012 allowing national governments to support industries exposed to global competition. Actual compensation, which is dependent on national implementation, is established in Norway and Germany with conditions corresponding closely to the EU guidelines.

A common electricity certificate market for Norway and Sweden was established in the beginning of 2012 with the objective to support the development of new renewable generation capacity. The certificate system is designed to support an increase in annual renewable generation in the Norwegian/Swedish market of 28.4 TWh by 2020.

5.3.6.2 Operations

Hydro is a global energy player, purchasing and consuming substantial quantities of energy for its smelters, rolling mills and alumina refinery operations. In Norway, Hydro is the largest private-owned power producer with operating and ownership interests in 26 hydroelectric power plants. Installed capacity was approximately 2,000 MW in total at the end of 2016 representing normal annual production of 10 TWh.¹¹ This corresponds to about 40 percent of Hydro's total electricity consumption worldwide. Hydro also purchases above 9 TWh annually in the Nordic market under longterm contracts, mainly from the Norwegian state-owned company Statkraft.

Cost and revenue drivers

Production volumes and market prices are strongly influenced by hydrological conditions. Seasonal factors affect both supply and demand. Hydro's cost base is relatively stable, however, volatile spot volumes and prices may cause significant quarterly revenue variations. The total power portfolio is being optimized in the market and in cooperation with Hydro's smelters.

Norwegian power assets

Hydro's power plants are located in three main areas – Telemark, Sogn and Røldal-Suldal – and managed from a common operations center at Rjukan in Telemark. Hydro also owns the Vigeland power plant in Vennesla, and a 33 percent interest in Skafså Kraftverk ANS in Telemark.

Approximately two-thirds of Hydro's normal annual power production in Norway is subject to reversion to the Norwegian state with Røldal-Suldal (RSK) being the first significant production facility subject to reversion. The Norwegian Parliament amended the Waterfall concession act in June 2016. This implies that private entities are allowed physical hydropower offtake for ownership stakes below 33.4 percent in hydropower companies (ANS/DA model). This will enable Hydro to maintain access to physical power from its assets through restructuring the assets within a one-third ownership position in a company with liability.

¹¹ Annual hydropower production can vary by as much as 20 percent in either direction, depending on variations in hydrological conditions.

In addition to sourcing power for its aluminium operations, Hydro sells about 1 TWh of the electricity related to concession power obligations to the local communities where the power plants are located.

Hydro optimizes power production on a daily basis, according to the market outlook and the hydrological situation within Hydro's water reservoirs. By utilizing the flexibility of the hydropower plant systems and the volatility in the spot market price, Hydro aims to realize a premium above the average spot price. Hydro's total Norwegian power portfolio, including its own production, is balanced in the market on the Nord Pool Spot power exchange. Spot market sales vary significantly between dry and wet years, with an average of 4.0 TWh.

Recently constructed power plants have increased production over the last several years. Two new, smaller power plants, Mannsberg and Midtlæger, were commissioned in late 2016, adding further to Hydro's production capacity.

Employees

Energy had 187 permanent employees in its consolidated activities at the end of 2016 and 14 temporary employees including apprentices.

5.3.7 Sapa

For further information on Sapa, see Section 7 "Description of Sapa".

5.4 Legal structure of the Group

Norsk Hydro ASA is an operational company and the ultimate parent company in the Group. The Group consists of about 80 companies in about 20 countries. Most subsidiaries, including the large operating units in Norway and Germany, are 100 percent owned, directly or indirectly, by Norsk Hydro ASA. Restrictions in the ability to transfer dividend based on reported results and/or equity in the relevant subsidiaries exist in most countries where Hydro operates. In some countries, including Brazil, there are also legal restrictions in the Company's ability to integrate cash holdings in subsidiaries in the Group's cash pool. There are non-controlling interests in some subsidiaries. The more significant ones are described below.

Albras: Hydro holds 51 percent of the shares in the Brazilian aluminium smelter Alumínio Brasileiro S.A. (Albras), which is part of Primary Metal. The non-controlling owner has significant influence on certain decisions in the entity, including operational and investment budgets. The non-controlling interests in Albras amounted to NOK 3,171 million as of December 31, 2016 and NOK 2,683 million as of December 31, 2015. Funds held by the entity are not available to the Group through cash pool arrangements. Dividends need to be approved by the shareholders jointly. The shareholder agreement supports transfer of dividend to the extent possible under statutory regulations. The smelter produces standard ingots, which are sold to its shareholders, or the entities appointed by the shareholders, in proportion to ownership interest at a price based on prevailing aluminium prices at the London Metal Exchange and product premiums.

Slovalco: Hydro holds 55 percent of the total shares and 60 percent of the voting interest in the Slovac smelter Slovalco a.s, which is part of Primary Metal. The non-controlling owner has significant influence on certain decisions in the entity, including operational and investment budgets. The non-controlling interests in Slovalco amounted to NOK 1,080 million as of December 31, 2016 NOK 1,247 million as of December 31, 2015. Funds held by the entity are not available to the Group through cash pool arrangements. Dividends need to be approved by the shareholders jointly. The shareholder agreement supports transfer of dividend to the extent possible under statutory regulations. The smelter produces metal products, of which the majority is sold to Hydro at a price based on prevailing aluminium prices at the London Metal Exchange and product premiums.

Alunorte: Hydro holds about 92 percent of the shares in the Brazilian alumina refinery Alumina do Norte do Brasil S.A. (Alunorte), which is part of Bauxite & Alumina. The non-controlling owners have limited influence on the operational decisions. The non-controlling interests in Alunorte amounted to NOK 1,378 million as of December 31, 2016, and NOK 1,084 million as of December 31, 2015. Funds held by the entity are not available to the Group through cash pool arrangements. Dividends need to be approved by the shareholders jointly. The shareholder agreement supports transfer of dividend to the extent possible under statutory regulations. The refinery produces alumina, which is sold to its shareholders in proportion to ownership interest at a price based on prevailing aluminium prices at the London Metal Exchange, with a fixed minimum and maximum price. For 2017, the minimum price will be based on production cost plus a margin.

5.5 Management and supervisory bodies

5.5.1 Introduction

The main corporate and supervisory governing bodies of the Company are the Corporate Assembly, the Board of Directors and the Corporate Management Board, which includes the President and Chief Executive Officer.

Hydro has developed its governance structure through cooperation between the Corporate Management Board and the other governance bodies to secure compliance with relevant laws and regulations and to reflect business needs. Further development is a continuous process.

5.5.2 Corporate Assembly

5.5.2.1 Overview

The Company's Corporate Assembly is comprised of eighteen members, as stipulated in the Company's articles of association. Twelve are elected by the general meeting of shareholders and six are elected by and among the Company's employees.

In accordance with Norwegian statutory law, the Corporate Assembly:

(i) elects the Board of Directors and determines the remuneration of the members of the Board of Directors;
(ii) nominates the external auditor to be elected by the general meeting of shareholders;
(iii) based on recommendations from the Board of Directors, makes decisions in matters relating to investments that are substantial in relation to Hydro's resources, and when closures and reorganizations will lead to significant changes for the workforce; and
(iv) provides recommendations to the general meeting of shareholders with respect to approval of the Board of Directors' proposal regarding the financial statements and dividend.

The table below sets out the name, position and current term of office for each of the members of the Corporate Assembly:

Name	Position	Member since	Term expires12
Terje Venold	Chairperson (shareholder elected)	2014	2018
Susanne Munch Thore	Deputy chairperson (shareholder elected)	2012	2018
Jorunn Johanne Sætre	Member (shareholder elected)	2014	2018

¹² The members of the Corporate Assembly are elected for a period of two years until the annual general meeting in the year the term expires, typically early May.

Sten-Arthur Sælør	Member (shareholder elected)	2002	2018
Unni Steinsmo	Member (shareholder elected)	2006	2018
Birger Solberg	Member (shareholder elected)	2010	2018
Berit Ledel Henriksen	Member (shareholder elected)	2014	2018
Odd Arild Grefstad	Member (shareholder elected)	2016	2018
Anne-Margrethe Firing	Member (shareholder elected)	2002	2018
Anne Kverneland Bogsnes	Member (shareholder elected)	2008	2018
Nils Bastiansen	Member (shareholder elected)	2014	2018
Shahzad Abid	Member (shareholder elected)	2012	2018
Rolf Arnesen	Member (Group's employee elected)	2013	2019
Steinar Ekren, deputy for elect Barbro Tverfjell Auestad who has taken on other tasks and will no longer meet in the Corporate Assembly	Deputy member (Group's employee elected)	2017	2019
Kolbjørn Havnes	Member (Group's employee elected)	2017	2019
Bjørn Petter Moxnes	Member (Group's employee elected)	2015	2019
Einar Øren	Member (Group's employee elected)	2011	2019
Bjørn Øvstetun	Member (Group's employee elected)	2005	2019

The business address of the members of the Corporate Assembly is c/o Norsk Hydro ASA, Drammensveien 264, N-0283 Oslo, Norway.

5.5.2.2 Brief biographies of the members of the Corporate Assembly

Set out below are brief biographies of the members of the Corporate Assembly, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Group.

Terje Venold, Chairperson (shareholder elected)

Position: Corporate adviser and professional board member

Education: Master of Science in business, BI Norwegian Business School.

Current directorships: Co-owner and chairperson of Karriere i Balanse AS. Member of the board of of Ahlsell AB and Sporveien Oslo AS. Member of the corporate assembly in Statoil.

Susanne Munch Thore, Deputy chairperson (shareholder elected)

Position: Partner. International Law firm Wikborg Rein Advokatfirma AS

Education: Candidatum Juridicum from the University of Oslo. Master's degree (LL.M) from Georgetown University, USA.

Current directorships: Head of the Bar Association's committee for exchange and securities law. Member of the board of directors of Oslo Areal AS and Unifor.

Jorunn Johanne Sætre, Member (shareholder elected)

Position: Manager for Business Development Norway, AGR Education: Degree in Engineering, Bergen University College Current directorships: None

Sten-Arthur Sælør, Member (shareholder elected)

Position: Senior Vice President in Gjelsten Holding AS.

Education: Master of business and economics, BI Norwegian Business School Current directorships: None

Unni Merete Steinsmo, Member (shareholder elected)

Position: President and CEO in SINTEF Education: Master degree in physical chemistry and PhD in materials technology, Norwegian University of Science and Technology (NTNU) in Trondheim Current directorships: None

Birger Solberg, Member (shareholder elected)

Position: CEO Cappelen Holding AS (Ulefos Group) Education: MSc in Civil Engineering, Norwegian University of Science and Technology (NTNU). Current directorships: Chairperson of the board of directors of Labek AS. Deputy chairperson of the board of directors of Store Norske Spitsbergen Kullkompani. Board member in Franzefoss Minerals AS, and Lilleby Eiendom AS

Berit Ledel Henriksen, Member (shareholder elected)

Position: Executive Vice President, Global Head of Energy in DnB's energy division Education: Bachelor of Science in Biology and Mathematics, Dalhousie University, Halifax, Canada. Master of Business Administration, University of Western Ontario, Canada Current directorships: Member of the board of directors of Ferd Holding AS.

Odd Arild Grefstad, Member (shareholder elected)

Position: CEO, Storebrand Group

Education: State authorized public accountant (CPA) and certified financial analyst (AFA), Norwegian School of Economics, Bergen

Current directorships: Chairperson of the board of directors of Finans Norge, AS Værdalsbruket, Storebrand Bank ASA, Storebrand Livsforsikring AS and Storebrand Boligkreditt AS

Anne-Margrethe Firing, Member (shareholder elected)

Position: Executive Adviser, Group Executive Office Nordea Bank AB (publ) Education: Bachelor in business administration, Norwegian School of Economics and Business Administration (NHH) Current directorships: None

Anne Kverneland Bogsnes, Member (shareholder elected)

Position: County director of the Norwegian Labour and Welfare Administration in Hordaland county Education: Degree in Business and Economics, BI Norwegian Business School Current directorships: Chairperson of the board of directors of Bir AS. Board member of Engasjert AS, Ekte Opplevelser AS. Deputy member of the board of directors of Trylleøen AS.

Nils Bastiansen, Member (shareholder elected)

Position: Director, Equities, Folketrygdfondet

Education: Master of Business and Marketing, Handelsakademiet in Oslo. Master of International Management, Thunderbird School of Global Management, Arizona, USA. Authorised financial analyst with a Master of Business Administration in finance, Norwegian School of Economics and Business Administration, Bergen Current directorships: None

Shahzad Abid, Member (shareholder elected)

Position: Independent consultant and advisor

Education: Master of Science, BI Norwegian Business School. Bachelor of Social Science, University of Oslo Current directorships: None

Rolf Arnesen, Member (employee elected)

Position: Union leader , representing "Fellesforbundet". Education: Certificate of Apprenticeship ("fagbrey") in Production technique Current directorships: Board member, Norsk Hydro Feriesteder and Hydros Pension Fund.

Steinar Ekren, deputy to Barbro Tverfjell Auestad, Member (employee elected who has left the Corporate Assembly due to new assignments)

Position: Operator, Hydro Sunndal Education: High school Current directorships: Vice chairperson, Sunndal Chemical Union

Kolbjørn Havnes, Member (employee elected)

Position: Business support manager, Primary Metal Education: Master of Business Administration, University of Wisconsin, USA Current directorships: None

Bjørn Petter Moxnes, Member (employee elected)

Position: Leader ("fagleder") of technology, Hydro Sunndal Education: Master degree in Chemical Engineering, NTNU Trondheim, Norway. Master of Technology Management, Massachusetts Institute of Technology (MIT) and NTNU Current directorships: None

Einar Øren, Member (employee elected)

Position: Technical Supervisor Maintenance Education: Three certificates of apprenticeship in electronics. Supervisor Training Course (Arbeidslederskolen) Current directorships: None

Bjørn Øvstetun, Member (employee elected)

Position: Operator, Hydro, Årdal Education: Certificate of Apprenticeship ("fagbrev") in machine operating Current directorships: Head of the Årdal Chemical Union, Årdal Metallverk. Union Leader, LO Hydro.

5.5.2.3 Shares held by members of the Corporate Assembly

To the best of the Company's knowledge and based on publicly available information, the members of the Corporate Assembly have the following shareholdings in the Company as of July 24, 2017; ¹³ the last practical date before the date of this Information Memorandum:

¹³ Includes both direct and indirect ownership.

Name	Position	No. of Shares	No. of Options
Terje Venold Chairperson		10108	0
Susanne Munch Thore Deputy chairperson		0	0
Jorunn Sætre Member		0	0
Sten-Arthur Sælør Member		0	0
Unni Steinsmo Member		930	0
Birger Solberg Member		0	0
Berit Ledel Henriksen Member		0	0
Odd Arild Grefstad Member		0	0
Anne-Margrethe Firing Member		5820	0
Anne Kverneland Bogsnes Member		0	0
Nils Bastiansen Member		0	0
Shahzad Abid Member		0	0
Rolf Arnesen Member		3249	0
Steinar Ekren Deputy Member		1	0
Kolbjørn Havnes Member		511	0
Bjørn Petter Moxnes Member		512	0
Einar Øren Member		4241	0
Bjørn Øvstetun Member		3925	0

5.5.3 Benefits upon termination

There are no agreements with any members of the Corporate Assembly which provide for benefits upon termination of their membership.

5.5.4 Board of Directors

5.5.4.1 Overview

The Company's Articles of Association provide that the Board of Directors shall consist of nine to eleven members. Six are elected by the Corporate Assembly and three are elected by and among the Company's employees, for a period of up to two years.

In accordance with Norwegian statutory law, the Board of Directors assumes the overall governance of the Company, ensures that appropriate management and control systems are in place and supervises the day-to-day management as carried out by the President and CEO.

The names and positions and current term of office of the Board Members as at the date of this Information Memorandum are set out in the table below.

Name	Position	Board committee	Served since	Term expires14
Dag Mejdell	Chairman	Compensation	2012	2018
		committee (Chair)
Irene Rummelhoff	Board Member	Compensation	2014	2018
		committee (member)
Finn Jebsen	Board Member	Board Audit Committee	2007	2018
		(Chair)
Thomas Schulz	Board Member		2016	2018
Liv Monica Bargem Stubholt	Board Member	Board Audit Committee	2010	2018
		(member)

¹⁴ The members of the Board of Directors are elected for a period of two years until the first meeting of the Corporate Assembly following the annual general meeting in the year the term expires, typically mid-May.

Marianne Wiinholt	Board Member	Board Audit Committee (member)	2016	2018
Billy Fredagsvik	Employee	Board Audit Committee	2007	2019
	Representative	(member)
Sten Roar Martinsen	Employee	Compensation	2005	2019
	Representative	committee (member)
Svein Kåre Sund	Employee		2017	2019
	Representative

The business address of the members of the Board of Directors is c/o Norsk Hydro ASA, Drammensveien 264, N-0283 Oslo, Norway.

5.5.4.2 Brief biographies of the members of the Board of Directors

Set out below are brief biographies of the members of the Board of Directors, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Group.

Dag Mejdell, Chairperson (Non-executive Director)

Dag Mejdell holds a degree in Economics and Business Administration (siviløkonom), a four-year program in economics and business administration consisting of three years at undergraduate level and one year at graduate level from the Norwegian School of Economics (NHH).

Mr. Mejdell started his career in the chemical division in Dyno. He held a number of positions in the company, and advanced to become CFO and later President and CEO of Dyno. When Dyno was delisted in 2000, he became President and CEO of Dyno Nobel ASA, a position he held until he became President and CEO of Posten Norge AS in 2006. . Mr. Mejdell left Posten Norge AS in 2016, and is currently an independent advisor.

Current other directorships: Chairperson of International Post Corporation, Sparebank1 SR Bank ASA, NSB AS, Telecomputing Topco AS and Telecomputing Finco AS, as well as deputy chairperson of SAS AB. He is also chairperson of his wholly-owned investment company Nobel Partners AS.

Irene Rummelhoff, Board Member

Irene Rummelhoff has a Master of Science Degree in Geology/Geophysics, NTNU Norwegian University of Science & Technology.

Ms. Rummelhoff has held a number of positions in Statoil from 1991 onwards giving her broad experiences from one of the world's leading oil companies. She is currently Executive Vice President, New Energy Solutions in Statoil.

Finn Jebsen, Board Member

Mr. Jebsen is Master of Science in business from the Norwegian School of Economics and Business Administration (NHH) and holds a master's degree in Business Administration from the University of California, Los Angeles.

Mr. Jebsen was employed by the Orkla group from 1980 onwards, becoming a member of the group's main management team in 1984. Jebsen was CEO of Orkla from 2001 to 2005. He is currently chair of the board of Kavli Holding AS. He is also board member in A. Wilhelmsen AS, Nel ASA, Norfund, Future Technology AS and the company Fateburet AS (which is controlled by him).

Thomas Schultz, Board Member

Mr. Schultz has a PhD in Mining & Mineral Processing from Rheinisch-Westfälische Universität Aachen RWTH in Germany. He is currently the Group Chief Executive Officer of FL Smidth. Mr. Schultz has currently no other directorships.

Liv Monica Bargem Stubholt, Board Member

Since 2015 Ms. Stubholt has been partner in the Norwegian law firm Selmer DA. Ms. Stubholt was partner in the Norwegian law firm Hjort DA from 2013-2015. She was senior vice president in Kværner ASA until 2013. She was investment director in Aker ASA, chairman of the board and managing director in Aker Clean Carbon AS and acting CEO of Aker Seafoods in the period 2009-2012. Ms. Stubholt has also been on the board of the state-owned Norwegian national main grid company Statnett.

Ms Stubholt is presently chair of the board of the Russian-Norwegian Chamber of Commerce, board member of the German-Norwegian Chamber of Commerce. Chairperson of Klemetsrudanlegget AS, Varangerkraft AS, and RN Nordic Oil AS. Board member of VNG Norge AS, Broadnet AS, Biomega,AS and Solveig Gas Norway AS. Representing Kværner ASA she heads the board of the Russian-Norwegian Chamber of Commerce.

Ms. Stubholt graduated from the law faculty of University of Oslo in 1987, and was partner in the law firm BA-HR in Norway when she entered politics in 2005. From 2005 to 2009 she was first state secretary in the Norwegian Ministry of Foreign Affairs and then later state secretary in the Norwegian Ministry of Petroleum and Energy.

Ms. Stubholt was deputy chair of the EEA Review Committee in Norway, and in 2013 she chaired an industry working group (Konkraft) submitting a report on the competitiveness of the Norwegian offshore yards.

Marianne Wiinholt, Board Member

Ms. Wiinholt is currently the Executive Vice President and Chief Financial Officer of Dong Energy A/S. Ms. Wiinholt is a State Authorised public Accountant. She is currently a board member and the chair of the audit committeee of J. Lauritzen A/S and a board member of Hempel A/S.

Billy Fredagsvik, Employee representative

Mr. Fredagsvik has long experience as a process operator and represents members of the Norwegian Confederation of Trade Unions (LO). From 2005 to 2007 he was a member of the Corporate Assembly. He is educated in mechanics from a trade school.

Sten Roar Martinsen, Employee representative

Mr. Martinsen represents members of the Norwegian Confederation of Trade Unions (LO). He has a certificate of apprenticeship in electrochemistry and has undergone work supervisor training. Martinsen is employed in Hydro as a process operator.

Svein Kåre Sund, Employee representative

Svein Kåre Sund has a Bachelor of Science from HIST in Trondheim, Norway. He is responsible for cathodes in the electrolysis at Hydro, Sunndal. Sund is an employee representative in The Norwegian Society of Engineers and Technologists (NITO) representing the employees through the Central Cooperative Council (Sentralt samarbeidsråd).

5.5.4.3 Shares held by members of the Board of Directors

As of the date of this Information Memorandum, the members of the Board of Directors have the following shareholdings in the Company: 15

Name	Position	No. of Shares
Dag Mejdell Chairperson		35,000
Irene Rummelhoff Board Member		5,000
Finn Jebsen Board Member		53,406
Thomas Schulz Board Member		0
Liv Monica Bargem Stubholt Board Member		0
Marianne Wiinholt Board Member		0
Billy Fredagsvik Employee	Representative	4,587
Sten Roar Martinsen Employee	Representative	5,643
Svein Kåre Sund Employee	Representative	5,208

5.5.5 Benefits upon termination

There are no agreements with any members of the Board of Directors which provide for benefits upon termination of their directorship.

5.5.6 Corporate Management Board

5.5.6.1 Overview

According to Norwegian statutory corporate law, the President and CEO constitutes a formal governing body that is responsible for the daily management of the Company. The division of functions and responsibilities between the President and CEO and the Board of Directors is defined in greater detail in the rules of procedures established by the Board.

The Corporate Management Board, including the President and CEO, has a shared responsibility for promoting Hydro's objectives and securing the Company's property, organization and reputation. Members of the Corporate Management Board are also Executive Vice Presidents (EVPs) with responsibility for the respective business areas and corporate staffs.

Hydro's Corporate Management Board consists of 9 members. The table below sets out the name and position held for each of the members of the Corporate Management Board, as of the date of this Information Memorandum.

¹⁵ Includes both direct and indirect ownership.

Name	Position	Current position since	Employed in Hydro since
Svein Richard Brandtzæg President and Chief Executive	Officer	2009	1985
Eivind Kallevik Executive Vice President,	Chief Financial Officer	2013	1998
Hilde Merete Aasheim Executive Vice President,	Primary Metal	2008	2008 (2005-2007)
Kjetil Ebbesberg Executive Vice President,
Arvid Moss Executive Vice President,	Rolled Products Energy and Corporate Business	2015 2010	2009 (1996-2007) 1991
Anne-Lene Midseim Executive Vice President of	Development CSR (corporate social	2015	1998
Hanne Simensen Executive Vice President of	responsibility) & General Counsel People & HSE (health, safety	2015	1994
Silvio Porto Executive Vice President	and environment) Bauxite & Alumina	2016	2014
Inger Sethov	Executive Vice President Communication & Public Affairs	2015	2005

The business address of the members of the Corporate Management Board is c/o Hydro, Drammensveien 264, N-0283 Oslo, Norway.

5.5.6.2 Brief biographies of the members of the Corporate Management Board

Set out below are brief biographies of the members of the Corporate Management Board, including their relevant management expertise and experience, an indication of any significant principal activities performed by them outside the Group.

Svein Richard Brandtzæg, President and Chief Executive Officer

Brandtzæg started his career as Project Manager in the ÅSV Group before joining Hydro at Karmøy in 1986. In subsequent years he held various positions within Hydro's aluminium business, including Cathode Workshop Manager, Human Resources Training and Education Manager, Technical Manager and Casthouse and Marketing Manager. In 1998-1999 he was Vice President Casthouses before serving as President of Magnesium in 2000- 2001. During the period 2002-2003 he was President of Metal Products and in 2003-2006 President of Rolled Products.

From 2006 to March 2009, Brandtzæg was responsible for the Aluminium Products business area with more than 16,000 employees in the sectors Rolled Products, Extrusion Eurasia, Extrusion Americas, Precision Tubing and the business unit Automotive Structures.

Born in Haugesund, Norway, Brandtzæg graduated from the Norwegian University of Science and Technology (NTNU). He holds a Foundation Program in Business Administration from the Norwegian School of Management in Trondheim, a PhD from NTNU and a postdoc position at the University of Auckland.

Brandtzæg's many positions outside Hydro include being Chair of the Board of the Norwegian University of Science and Technology (NTNU), member of the Board of Directors for the International Council of Mining and Metal (ICMM), member of the European Round Table for Industrialists and member of the Steering Committee of the Bilderberg Meetings.

Eivind Kallevik, Executive Vice President, Chief Financial Officer

Kallevik has worked in Hydro since 1998 and has held a variety of senior positions in the corporate center and in business areas along the value chain, in Norway and internationally. His Hydro career includes core positions within the finance area, including corporate accounting, financial reporting, performance management and treasury.

In 2011, when Hydro took over Vale's aluminium activities in Brazil, Kallevik became head of Finance in Hydro's new Bauxite & Alumina business area, a position he held until he was appointed CFO of Norsk Hydro ASA in 2013.

Prior to Hydro, Kallevik held positions in Christiania Bank within Oil and Gas Financing in New York and Oslo. Kallevik has been a member of the board in Sapa since February 2015. Kallevik holds a Master's degree in Business Administration from the University of San Francisco.

Hilde Merete Aasheim, Executive Vice President, Primary Metal

Prior to Hydro's reorganization of business areas in March 2009, Hilde Merete Aasheim served as Executive Vice President for the Aluminium Metal business area since November 2008.

Aasheim joined Hydro in October 2005 as Executive Vice President for Leadership and Culture (human resources, health, environment, safety and corporate social responsibility).

In January 2007, she stepped out of Hydro's corporate management board to lead the planning of the integration between Hydro's oil and gas activities and Statoil. When the merger closed in October 2007, she became executive vice president of staff functions and corporate services in StatoilHydro.

From 1986 to 2005 she held several senior positions in Elkem. In 2002 she was head of Elkem's Silicon division and member of the corporate management board. Vice Chair of the Qatalum Board since 2009.

From 2015 to May 2017 she was the chairperson in the Federation of Norwegian Industries (Norsk Industri). Aasheim has a master's degree in business economics from the Norwegian School of Economics and Business Administration in Bergen and is also a state authorized public accountant. Aasheim has also work experience from Arthur Andersen & Co.

Kjetil Ebbesberg, Executive Vice President, Rolled Products

Kjetil M. Ebbesberg has worked for Hydro since 1996, including as CFO for Metal Products, Head of BU Foundry Alloys and EVP Metal Markets. Ebbesberg stepped out to the position as CFO for the Norwegian retailer Coop in 2007, before re-joining Hydro in 2009. Ebbesberg comes from the position as Managing Director of Hydro's Holmestrand rolling mill in Norway.

Ebbesberg is currently Chairman of European Aluminium, Vice President of the board of Gesamtverband der Aluminiumindustrie e.V., and board member of Wirtshaft Vereiginung Metalle e.V., German-Norwegian Chamber of Commerce and Multiconsult ASA.

Ebbesberg has an MA degree in business economics from Norwegian School of Economics and Business Administration (NHH), including part studies of MBA at University of Ottawa.

Arvid Moss, Executive Vice President, Energy and Corporate Business Development

Arvid Moss is also responsible for Hydro's Climate Office and for Corporate Business Development, including coordination of strategic initiatives across the business areas.

Moss came to Hydro in 1991 and has held several senior management positions within the Company's aluminium business area, among them as President of Automotive Structures in 1996-2001 and President of the Metal Products sector in 2004-2006.

Over the years, Moss has also been responsible for strategy and business development in the aluminium area as well as on corporate level. He was project leader for the process that ended up in the oil and gas merger agreement with Statoil in December 2006.

In 1989-1990 Moss was State Secretary and Chief of Staff at the Norwegian Prime Minister's office.

In June 2017, Moss was elected chairman/president of the Confederation of Norwegian Enterprise (NHO – Næringslivets Hovedorganisasjon. Arvid Moss graduated at the Norwegian School of Economics and Business Administration.

Anne-Lene Midseim, Executive Vice President of CSR & General Counsel

Anne-Lene Midseim has worked for Hydro since 1998 and previous held positions as Company Secretary, Head of Staffs in Bauxite & Alumina, Head of Corporate Social Responsibility and Legal Counsel. Previous positions include resident legal advisor for the Norwegian Oil for Development Program in East Timor, lawyer with the law firm of Vogt & Co, and Executive Officer at the Norwegian Ministry of Oil and Energy. Midseim holds a law degree from Oslo University. Midseim is a board member of the SAPA Board and she is a member of the election committee of Transparency International Norge.

Hanne Simensen, Executive Vice President of People & HSE

Hanne Simensen has worked in Hydro since 1994, and previously held positions as Head of Energy Markets, Head of Human Resources and Head of Trading in Energy business area. In addition she has held several other positions in different areas of the Company. Simensen holds a master of management degree from BI, including two years international business studies in Germany.

Silvio Porto, Executive Vice President Bauxite & Alumina

Silvio Porto comes from the position as Chief Operational Officer (COO) in Bauxite and Alumina. He joined Hydro in 2014, when he was appointed plant manager for Hydro Paragominas bauxite mine.

Porto has more than 30 years' experience from the aluminium industry with management positions in bauxite mining, alumina refineries and aluminium smelters. He is currently Chairman of the Board of the Aluminum Brazilian Association ( ABAL).

Inger Sethov, Executive Vice President Communication & Public Affairs

Inger Sethov has worked in Hydro Communication since 2005 and as SVP of Communication since 2008. Before joining Hydro, Sethov worked as a correspondent and journalist for Reuters news agency for nine years and before that as a journalist for Dow Jones Newswires and for Fresno Business Journal in California, US. Sethov has a BA in Mass Communciation & Journalism from California State University and has studied international journalism at City University of London.

5.5.6.3 Shares held by members of the Corporate Management Board

As of the date of this Information Memorandum, the members of the Corporate Management Board have the following shareholdings in the Company: 16

¹⁶ Includes both direct and indirect ownership.

Name	Position	No. of Shares	No. of Options
Svein Richard Brandtzæg President and Chief Executive		231,475	0
	Officer
Eivind Kallevik Executive Vice President,		50,535	0
	Chief Financial Officer
Hilde Merete Aasheim Executive Vice President,		82,287	0
	Primary Metal
Kjetil Ebbesberg Executive Vice President,		47,857	0
	Rolled Products
Arvid Moss Executive Vice President,		147,203	0
	Energy and Corporate Business
	Development
Anne-Lene Midseim Executive Vice President of		21,221	0
	CSR & General Counsel
Hanne Simensen Executive Vice President of		19,646	0
	People & HSE
Silvio Porto Executive Vice President		0	0
	Bauxite & Alumina
Inger Sethov	Executive Vice President,	19,184	0
	Communication & Public
	Affairs

5.5.7 Benefits upon termination

In the event the CEO's employment is terminated before age 62 unilaterally by Hydro, the CEO has a contractual right to a notice period of six months, plus severance pay and other remuneration (excluding bonus and LTI payments) for 12 months but not beyond the age of 62. Two members of the Corporate Management Board have a similar arrangement as the CEO, but without the limitation of 62 years. Other Norwegian members of the Corporate Management Board have, as of the beginning of 2017, a contractual right to a notice period of six months, plus six months' severance pay. The CEO's contract and the contracts of the two members of the Corporate Management Board referred to above give the Company the right to reduce severance pay in the event of new regular income. The CEO's employment contract contains provisions on the loss of severance pay if there are grounds for summary dismissal. Other employment contracts include provisions on the loss of severance pay for gross breach of duty or other material breach, and subsequent termination of employment on such grounds. None of the contracts gives the right to severance pay if the employee has initiated the termination of employment. The Company has no specific guidelines for severance packages, but when recruiting for corporate management in recent times, it has followed a practice whereby the total of salary during the notice period and severance pay does not exceed 12 months' salary.

Two other members of the Corporate Management Board, Hilde Merete Aasheim and Arvid Moss, have a similar arrangement as the CEO, but without the limitation of 62 years.

5.6 Corporate governance

The Company complies with the Norwegian Code of Practice for Corporate Governance dated 30 October 2014 with the following exceptions:

Section 6, General meeting of shareholders:

Hydro has three deviations from this section. The entire Board of Directors has generally not participated in the general meeting. Matters under consideration at the general meeting of shareholders have not yet required this. The chairperson of the Board of Directors is always on hand to present the report and answer any questions. Other board members participate as needed. The Board of Directors considers this to be adequate.

The second deviation from section 6 is that the entire nomination committee has generally not participated in the general meeting. Matters under consideration at the general meeting of shareholders have not yet required this. The chairperson of the nomination committee is always on hand to present the nominations and answer any questions. Other committee members participate as needed. The nomination committee considers this to be adequate.

The third deviation from section 6 concerns section 9 in Hydro's articles of association which states that the general meeting is chaired by the chairperson of the corporate assembly, or, in his or her absence, by the deputy chair. This arrangement has been approved by the Company's general meeting.

Section 7, Nomination committee:

The nomination committee has no formal rules on rotation of its members. The nomination committee's mandate expresses, however, the intention to "over the course of time balance the need for continuity against the need for renewal in respect of each governing body". The chairperson of the committee, who is also the chairperson of the corporate assembly, has been a member of the committee since 2012, became acting chairperson in 2014 and was elected chairperson in 2015. The other members were elected to the nomination committee in 2008, 2014 and 2015. . If the chairperson resigns as member of the nomination committee during the electoral period, section 5A of the Company's Articles of Association stipulates that the committee shall elect a new chairperson among its members for the remainder of the new chairperson's electoral period.

5.7 Description of the Shares and share capital

As at the date of this Information Memorandum, the Company's share capital is NOK 2,271,760,107.048 divided into 2,068,998,276 Shares, each with a nominal value of 1.098. There have been no changes to the Company's share capital since February 2011. All the Shares are authorized, issued and fully paid in compliance with the Norwegian Public Limited Companies Act. The Shares are registered in the VPS under ISIN NO 0005052605.

The Company's Shares have been listed on the Oslo Børs since 1909. In addition, the Company's shares have been listed at the London Stock Exchange since 1972 and are currently listed on the Main Market. In the United States the Shares are traded on OTCQX International, the premium over-the-counter market tier, in the form of American Depositary Receipts evidencing American Depositary Shares, which carry the same shareholder rights as ordinary shares. One ADR represents one ordinary Hydro share.

Section 4A of the Articles of Association provides that if the share capital of the Company is increased, and provided that Norwegian law in force at the time so permits, preferential subscription rights shall be reserved in connection with each such capital increase, on the conditions stipulated by the Board of Directors, for up to 0.83 percent of the increase for holders of the 83 unredeemed founder certificates and up to 2.79 percent of the increase for holders of the 4,343 unredeemed subscription certificates. However, these preferential rights shall not apply if the increase is made in order to issue shares to third parties as compensation for their transfer of assets to the Company. The certificates are transferable independently of the shares.

The Board of Directors may refuse the transfer of Shares and may take such other steps as may be necessary to prevent Shares from being transferred in contravention of the restrictions laid down in Norwegian law.

5.8 Litigation and disputes

Sapa Profiles Inc. (SPI), a Portland, Oregon-based wholly-owned subsidiary of Sapa AS, is under investigation by the United States Department of Justice (DOJ) Civil and Criminal Divisions regarding certain aluminium extrusions that SPI manufactured from 1996 to 2015, including extrusions that were delivered to a supplier to NASA. SPI is cooperating fully in these investigations. The investigations are currently ongoing, and, at this point, the outcome of the investigations and of any identified quality issues, including financial consequences on Sapa, is uncertain. SPI also has been temporarily suspended as a federal government contractor. Based on the information known to Hydro at this stage, Hydro does not expect any resulting liabilities to have a material adverse effect on its consolidated results of operations, liquidity or financial position. The parties to the Transaction have agreed that Orkla ASA shall indemnify Hydro for 50% of any liability in relation to this case for an unlimited period of time, see Section 4.6 above.

The Group is engaged in a large number of legal proceedings and disputes around the world. As of the date of this Information Memorandum, neither the Company nor any other company in the Group are, nor have during the course of the last 12 months, except for the dispute described above, been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware), which may have, or have had in the recent past significant effects on the Company and/or the Group's financial position or profitability.

5.9 Major shareholders

As at the date of this Information Memorandum, Hydro has approximately 45,500 shareholders. There are no differences in voting rights between the shareholders.

Shareholders owning 5% or more of the Shares have an interest in the Company's share capital which is notifiable pursuant to the Norwegian Securities Trading Act.

As of the date of this Information Memorandum and to the best of the Company's knowledge, the following shareholders have holdings in excess of the statutory thresholds for disclosure requirements:

The Norwegian Government holds 708,865,253 Shares, equal to 34.26% of the total number of issued Shares in the Company
Folketrygdfondet holds 140,612,900 Shares, equal to 6.80% of the total number of issued Shares in the Company

5.10 Material contracts and dependency on patents and licenses

Other than the Transaction, neither the Company nor any member of the Group has entered into any material contracts outside the ordinary course of business for the two years immediately preceding the date of this Information Memorandum, and no member of the Group has entered into any contracts containing obligations or entitlements that are, or may be, material to the Group as of the date of this Information Memorandum.

The Company has a broad intellectual property portfolio protecting its technology and innovation but is not materially dependent on any patents or licenses, industrial, commercial or financial contracts or new manufacturing processes.

5.11 Recent developments and trend information

Below is a discussion of the main developments pertaining to the markets in which Hydro operates that are likely to have a material effect on the Company's prospects in 2017, as well as other factors impacting Hydro in 2017.

In the first half of 2017, Platts alumina spot prices were relatively robust, averaging USD 318 per mt, the highest half yearly average since H1 2015. Average prices represented 16.9 percent of LME in the first half of the year compared with 15.3 percent in the corresponding period a year ago. Prices started the year close to USD 350 per and declined to a half year low of USD 272 per mt in mid-May before rebounding to USD 307 per mt at the end on the period. The variations were mainly driven by developments in the Chinese alumina industry, where tightness at the beginning of the year was alleviated by increasing domestic alumina production in the first quarter of the year. More recently, aluminium production restrictions and an increased focus on environmental compliance have affected market dynamics. Policy uncertainty in the Chinese aluminium industry is expected to continue in the second half of the year and could have a material impact on the alumina market and prices.

Three-month LME prices ranged between USD 1,689 and USD 1,972 per mt throughout the first half of 2017. The average LME three-month price for the second quarter was USD 1,915, increasing by USD 59 per mt compared to the first quarter of 2017. European average all-in metal prices increased from USD 1,997 per mt in the first quarter of 2017 to USD 2,055 in the second quarter of 2017.

Both European and US standard ingot premiums decreased during the second quarter. European duty paid standard ingot premiums ended the quarter at USD 133 per mt, compared to USD 155 at the beginning of the quarter, and averaged USD 144 per mt in the second quarter compared to USD 147 per mt in the first quarter of 2017. Midwest premiums started the quarter at USD 217 per mt, and ended the quarter at USD 170 per mt, averaging USD 199 per mt compared to USD 214 per mt in the first quarter of 2017.

Shanghai Futures Exchange (SHFE) prices increased in the second quarter compared to the first and at a higher growth rate than the LME. As expected, semis exports have increased so far throughout the second quarter as arbitrage has remained at high levels.

Global primary aluminium consumption increased by 10.3 percent to 16.3 million mt in the second quarter compared to the first quarter of 2017, mainly due to seasonal effects in China. Global demand for primary aluminium grew by 5.9 percent in 2016, and is expected to grow by around 4-6 percent in 2017.

Outside China, demand seasonally increased by 5.8 percent in the second quarter of 2017 compared to the first quarter of 2017, while the year-on-year increase from the second quarter of 2016 was 3.3 percent. Consumption outside China amounted to 7.5 million mt for the second quarter of 2017. Corresponding production amounted to 6.7 million mt, an increase of 0.5 percent compared to the first quarter of 2017. Production outside China experienced a 1.2 percent increase compared to the second quarter of 2016, largely driven by ramp up of new production capacity in India. Demand for primary aluminium outside China grew by around 3.4 percent in 2016, and is expected to grow by 2-4 percent in 2017.

Compared to the first quarter of 2017, Chinese aluminium consumption increased by 14.5 percent, to 8.8 million mt, mainly due to seasonal effects. The year-on-year increase compared to the second quarter of 2016 was 7.6 percent. Corresponding aluminium production increased by 4.1 percent compared to the first quarter of 2017, and increased 15.9 percent compared to the second quarter of 2016. The ramp up of new capacity continues in China, but is expected to moderate for the second half of 2017 driven by supply-side reform related curtailments. Demand for primary aluminium in China is expected to grow by around 6-8 percent in 2017 and production is expected to increase by 10-12 percent.

European demand for extrusion ingot increased in the second quarter of 2017 compared to the same period one year ago. Demand for sheet ingot and primary foundry alloys also continued increasing, mainly due to the positive developments in the automotive industry.

LME stocks have declined further, amounting to 1.4 million mt at the end of the second quarter of 2017, 0.5 million mt down compared to the level at the end of the first quarter of 2017. Estimated unreported global stocks have remained stable.

European demand for flat rolled products increased by around 4 percent during the second quarter compared to the first quarter of 2017 mainly due to seasonality and improved demand in the automotive, beverage can and the general engineering segment.

The demand development in automotive remained solid due to the ongoing substitution of steel by aluminium for automotive body sheet. Building and construction demand improved, in particular in Northern Europe and Spain. Foil demand was flat but showed some positive signs. The demand growth in general engineering was stable driven by sound industrial activity. The European demand for flat rolled products is expected to slightly decline in the third quarter due to seasonality.

Demand for extruded products in Europe and North America increased in the second quarter compared to the first quarter by 9 percent and 3 percent respectively, driven by seasonality.

In North America, total demand for extruded products increased by 3 percent compared to the second quarter last year. The increase was driven by stronger automotive demand and higher activity in the building and construction segment. In Europe, total demand for extruded products in the second quarter increased by 2 percent compared to the same quarter last year. Europe experienced stronger automotive and transportation demand, in addition to an improved building and construction market in key regions.

Nordic spot prices were stable and on average lower in the first quarter compared to the previous quarter. On average, the Nordic hydrological balance improved compared to the previous quarter resulting in somewhat lower prices. Higher continental power prices resulted in net export of power from the Nordic area and gave a certain support to prices. In the second quarter of 2017, Nordic spot prices were stable at close to the level in the previous quarter in April and the beginning of May, supported by a delayed start of the snowmelt period. However, in the last part of May prices came under pressure as the melting season finally started in southern Scandinavia.

The Nordic hydrological balance ended at around 3 TWh below normal for the second quarter, similar to the level at the end of the previous quarter. Water reservoirs in Norway were 68 percent of full capacity at the end of the June, which is close to the normal level. Snow reservoirs were somewhat lower than normal at the end of the June.

Hydro has sold forward around 50 % of its expected aluminium production for the third quarter of 2017 at a price level of around USD 1,900 pr mt.

Other than this, the Group is not aware of any trends, uncertainties, demands, commitments or events that are reasonably likely to have a material effect on its prospects for 2017.

6 HYDRO SELECTED FINANCIAL INFORMATION

The following Section should be read in conjunction with the Group's audited financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014, the auditor's reports in respect of 2016, 2015 and 2014, the Group's unaudited interim financial statement as of, and for the six months ended, 30 June 2017 and 2016, as incorporated by reference in this Information Memorandum, see Section 10.2 "Incorporation by reference".

6.1 Historical financial information and summary of accounting policies

The Company's historical consolidated financial statements have been prepared in accordance with IFRS.

The Company's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014, including an overview of the Company's accounting policies, explanatory notes and auditor's reports, are incorporated by reference hereto, Section 10.2 "Incorporation by reference".

The Company's unaudited condensed consolidated financial statements as of, and for the six months ended, 30 June 2017 and 2016 are incorporated by reference hereto. See Section 10.2 "Incorporation by reference".

6.2 Significant change

There have been no significant changes in the financial or trading position of the Company following 30 June 2017.

6.3 Consolidated historical financial information

The following tables present selected financial information for the Company as of, and for the years ended, 31 December 2016, 2015 and 2014, and as of, and for the six months ended, 30 June 2017 and 2016, which has been derived from the Company's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014, and from the Company's unaudited condensed consolidated financial statements as of, and for the six months ended, 30 June 2017 and 2016.

6.3.1 Hydro condensed consolidated income statements

	Six months ended		Year ended
	30 June		31 December
	2017	2016	2016	2015	2014
In NOK million (except per share amounts)
Revenue	47 617	40 529	81 953	87 694	77 907
Share of the profit (loss) in equity accounted investments	900	493	985	512	415
Other income, net	348	592	1 030	461	751
Total revenue and income	48 865	41 614	83 969	88 667	79 073
Raw material and energy expense	30 669	25 874	52 151	56 330	51 480
Employee benefit expense	5 291	4 823	9 485	9 048	8 089
Depreciation and amortization expense and impairment	2 741	2 459	5 474	5 023	4 771
Other	4 808	4 787	9 848	10 008	9 059

Total expenses	43 510	37 942	76 958	80 409	73 399
Earnings before financial items and tax	5 356	3 672	7 011	8 258	5 674
Financial income	238	336	574	297	347
Financial expense	(1 061)	1 613	1 552	(5 130)	(3 900)
Financial income (expense), net	(823)	1 949	2 126	(4 834)	(3 554)
Income before tax	4 533	5 621	9 137	3 425	2 121
Income taxes	(1 132)	(1 162)	(2 551)	(1 092)	(892)
Net income	3 401	4 459	6 586	2 333	1 228
Net income attributable to non-controlling interests	154	215	199	313	432
Net income attributable to Hydro shareholders	3 247	4 244	6 388	2 020	797
Basic and diluted earnings per share attributable to
Hydro shareholders	1.59	2.08	3.13	0.99	0.39

6.3.2 Hydro condensed consolidated balance sheets

	As of 30 June		As of 31 December
	2017	2016	2016	2015	2014
In NOK million
Assets
Cash and cash equivalents	7 993	9 220	8 037	6 917	9 253
Short-term investments	4 896	2 629	4 611	5 752	1 786
Trade and other receivables	13 465	12 085	10 884	10 797	11 703
Inventories	12 940	11 820	12 381	12 192	12 642
Other current financial assets	290	158	457	502	543
Total current assets	39 584	35 911	36 371	36 160	35 927

Property, plant and equipment	57 610	55 378	58 734	51 174	55 719
Intangible assets	5 577	5 622	5 811	5 121	5 947
Investments accounted for using the equity method	18 800	19 841	19 807	20 150	18 095
Prepaid pension	5 018	3 198	4 195	3 382	2 881
Other non-current assets	5 252	6 798	5 875	6 557	7 703
Total non-current assets	92 256	90 838	94 422	86 384	90 345

Total assets	131 840	126 749	130 793	122 544	126 273
Liabilities and equity
Bank loans and other interest-bearing short-term
debt	3 741	3 593	3 283	3 562	6 039
Trade and other payables	10 472	9 719	10 108	9 375	9 663
Other current liabilities	2 911	3 822	3 716	4 462	3 414

Total current liabilities	17 124	17 135	17 106	17 399	19 116

Long-term debt	3 183	3 474	3 397	3 969	5 128
Provisions	4 452	3 630	4 384	3 264	3 993
Pension liabilities	12 997	13 837	12 871	12 782	12 796
Deferred tax liabilities	2 566	2 477	2 384	1 999	1 676
Other non-current liabilities	3 955	3 154	3 011	3 801	3 622
Total non-current liabilities	27 154	26 572	26 047	25 816	27 215
Total liabilities	44 278	43 707	43 153	43 215	46 332
Equity attributable to Hydro shareholders	82 343	77 285	81 906	74 169	74 030
Non-controlling interests	5 219	5 757	5 733	5 159	5 911
Total equity	87 562	83 042	87 640	79 329	79 941
Total liabilities and equity	131 840	126 749	130 793	122 544	126 273

6.3.3 Hydro condensed consolidated statements of cash flows

	Six months ended 30 June		Year ended 31 December
	2017	2016	2016	2015	2014
In NOK million

Operating activities
Net income	3 401	4 459	6 586	2 333	1 228
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation, amortization and impairment	2 741	2 459	5 474	5 023	4 771
Other adjustments	(1 144)	(3 457)	(2 042)	7 017	(34)
Net cash provided by operating activities	4 998	3 461	10 018	14 373	5 965
Investing activities
Purchases of property, plant and equipment	(2 746)	(2 740)	(6 913)	(5 254)	(3 294)
Purchases of other long-term investments	(61)	(69)	(183)	(212)	166
Purchases of short-term investments	(5 094)	(1 300)	(4 650)	(5 050)	(1 500)
Proceeds from long-term investing activities	535	686	1 115	125	103
Proceeds from sales of short-term investments	4 600	4 550	5 850	1 000	2 250
Net cash provided by (used in) investing activities	(2 766)	1 127	(4 781)	(9 391)	(2 275)
Financing activities
Loan proceeds	4 429	1 904	5 208	2 340	6 880
Principal repayments	(3 825)	(2 820)	(7 525)	(7 042)	(8 226)
Net increase (decrease) in other short-term debt	(235)	574	265	(344)	170
Proceeds from shares issued	18	19	28	35	21
Dividends paid	(2 625)	(2 159)	(2 362)	(2 370)	(1 943)

Net cash used in financing activities	(2 238)	(2 482)	(4 386)	(7 381)	(3 098)
Foreign currency effects on cash and bank
overdraft	(38)	197	269	68	387
Net cash used in discontinued operations	-	-	-	-	(139)
Net increase (decrease) in cash, cash equivalents and bank overdraft	(44)	2 303	1 120	(2 331)	840
Cash, cash equivalents and bank overdraft at
beginning of period	8 037	6 917	6 917	9 248	8 408
Cash, cash equivalents and bank overdraft at end
of period	7 993	9 220	8 037	6 917	9 248

6.3.4 Hydro consolidated statements of changes in equity

						Equity
						attributable
		Additional			Other	to Hydro	Non
	Share	paid-in	Treasury	Retained	components	share	controlling	Total
In NOK million	capital	capital	shares	earnings	of equity	holders	interests	equity
December 31, 2013	2 272	29 049	(1 006)	46 617	(6 950)	69 981	5 283	75 264
Treasury shares reissued to employees		(4)	35			31		31
Dividends				(1 530)		(1 530)	(331)	(1 861)
Items not reclassified to income statement
in subsidiaries sold/liquidated				(12)	12	-		-
Total comprehensive income for the year				797	4 751	5 548	959	6 507
December 31, 2014	2 272	29 045	(972)	45 872	(2 187)	74 030	5 911	79 941

Treasury shares reissued to employees		24	58			82		82
Dividends				(2 042)		(2 042)	(334)	(2 375)
Total comprehensive income for the year				2 020	80	2 099	(418)	1 681
December 31, 2015	2 272	29 068	(913)	45 850	(2 107)	74 169	5 159	79 329
Treasury shares reissued to employees		1	44			45		45
Dividends				(2 043)		(2 043)	(320)	(2 362)
Capital contribution in subsidiaries							4	4
Items not reclassified to income statement
in subsidiaries sold/liquidated				16	(16)	-		-
Total comprehensive income for the year				6 388	3 348	9 735	889	10 624
December 31, 2016	2 272	29 070	(870)	50 210	1 224	81 906	5 733	87 640

Treasury shares issued to employees
		27	60			87		87
Dividends				(2 556)		(2 556)	(474)	(3 029)
Capital contribution in subsidiaries							3	3
Items not reclassified to income
statement in subsidiaries sold				10	(10)
Total comprehensive income for the period				3 247	(342)	2 905	(43)	2 862

June 30, 2017	2 272	29 097	(810)	50 911	872	82 343	5 219	87 562

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6.4 Segment information

6.4.1 Operating segments

The following table presents revenue information for the Group by area of activity as of, and for the years ended, 31 December 2016, 2015 and 2014, which has been derived from the Company's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014.

	External revenue		Internal revenue
	2016	2015	2014	2016	2015	2014
In NOK million
Bauxite & Alumina	12 059	13 534	9 568	7 484	8 356	6 279
Primary Metal	5 529	5 373	6 397	25 333	26 967	21 667
Metal Markets	39 420	42 795	37 981	3 834	4 114	5 048
Rolled Products	22 469	24 293	21 345	163	(132)	109
Sapa	-	-	-	-	-	-
Energy	2 426	1 623	2 492	4 693	3 703	3 810
Other and eliminations	50	77	124	(41 507)	(43 008)	(36 914)
Total	81 953	87 694	77 907	-	-	-

6.4.2 Geographical segments

The following table presents revenue information for the Group by geographical area as of, and for the years ended, 31 December 2016, 2015 and 2014, which has been derived from the Company's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014. Revenue is identified by customer location.

	Revenue
	2016	2015	2014
In NOK million
Norway	2 986	2 310	4 142
Germany	12 490	13 854	12 655
Spain	3 920	3 639	2 791
Great Britain	3 844	3 723	5 272
Poland	3 102	2 843	2 491
Italy	3 075	3 543	2 974
France	2 769	2 885	2 664
The Netherlands	1 905	1 933	1 621
Austria	1 620	1 866	1 490
Denmark	1 443	1 597	1 346

Belgium	1 092	1 212	1 029
Slovakia	466	522	657
Other	4 306	4 238	3 340
Total EU	40 033	41 854	38 330
Switzerland	4 042	4 372	3 505
Turkey	1 363	1 872	1 891
Other Europe	566	1 000	788
Total Europe	48 990	51 407	48 656

USA	7 101	7 343	5 424
Canada	613	637	463
Brazil	3 700	3 108	3 873
Other Americas	1 076	787	544
Qatar	1 682	2 003	1 351
Japan	3 665	4 705	4 652
Singapore	2 870	3 329	3 020
South Korea	1 879	2 145	1 928
China	1 627	1 742	608
Saudi Arabia	1 619	2 347	1 530
Hong Kong	930	1 452	307
Taiwan	685	834	807
Other Asia	4 128	4 123	3 404
Australia and New Zealand	941	1 310	1 051
Africa	448	424	289
Total outside Europe	32 963	36 287	29 251
Total	81 953	87 694	77 907

6.5 Auditor

The Company's auditor is KPMG AS, with registered business address at Sørkedalsveien 6, N-0369 Oslo, Norway.

KPMG AS has audited the Company's separate and consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014 and their reports thereon are incorporated by reference in this Information Memorandum as described in Section 10.2.

In addition, KPMG AS has issued a report prepared in accordance with ISAE 3420 "Assurance Engagements to Report on the Compilation of Pro Forma Financial Information included in a Prospectus" on the Unaudited Pro Forma Condensed Combined Financial Information included in Section 8 of this Information Memorandum.

KPMG AS is a member of Den Norske Revisorforening (The Norwegian Institute of Public Accountants).

7 DESCRIPTION OF SAPA

7.1 Name, incorporation and registered office

Sapa's legal and commercial name is Sapa AS. Sapa is a Norwegian private limited company incorporated under the laws of Norway in accordance with the Norwegian Private Limited Companies Act with registration number 899 286 952. Sapa was founded on 14 October 2012 and registered with the Norwegian Register of Business Enterprises on 9 January 2013.

The Company has its registered address at Biskop Gunnerus' gate 14A, N-0185 Oslo, Norway, with telephone number +47 22 41 69 00.

7.2 Business description

7.2.1 General

Sapa is world leader in downstream aluminium solutions, with a global reach and local presence within extrusions, building systems and precision tubing. Prior to completion of the Transaction, Sapa is and has been a 50/50 joint venture combining the extrusion business of Hydro ASA and Orkla ASA. Sapa employs around 22,400 people in more than 40 countries. The company's headquarters are located in Oslo, Norway.

7.2.2 Industry overview

Over the past several years there has been significant overcapacity in the extrusion industry in Europe and in southern Europe in particular. Combined with weak economic developments, this has led to increased market competition and restructuring activities within the industry including the initial Sapa transaction completed in 2013. Despite these developments, companies with high quality solutions, services and competitive costs, are able to defend margins that lead to sustainable returns.

The North American extrusion industry is more consolidated than Europe. However, margins remain under pressure despite market improvements and further consolidation within the industry. The market consumption of extruded products in South America is relatively low. Brazil represents over half of the South American extrusion market, followed by Argentina. Asia represents the largest consumer region for extruded products reflecting the ongoing investment in infrastructure and high level of construction activity.

Due to the sharp decline in the building market following the financial crisis in 2008, overcapacity in southern Europe and the U.K. has resulted in increasing competition within the European building systems industry. Precision tubing is a global business mainly focused on automotive heat transfer applications. The market is relatively fragmented.

7.2.3 Operations

Sapa is the world's leading supplier of extrusion-based aluminum solutions. Market share, based on volume, at the end of 2016 was 22 percent in Europe and 24 percent in North America. Sapa also has a solid foothold in emerging markets with extrusion capacity in South America and in Asia. Sapa's extrusion operations serve a diverse customer base within the automotive, transportation, building and construction, electrical and engineering market sectors. Sapa operates in value added aluminium solutions, within the areas extruded profiles, building systems and precision tubing. The majority of the Building systems operations are located throughout Europe while Precision Tubing is a global business.

Sapa has an extensive network of production plants that ensures a global reach combined with a local presence. The majority of operations are located throughout Europe and in North America. Sapa also has a solid foothold in emerging markets with extrusion capacity in South America and in Asia.

7.2.4 Markets, products and commercial activities

Approximately one third of Sapa's products go to the building and construction markets, with the remainder split evenly between automotive, transportation, industrial and distribution market segments. Sapa's general extrusion business delivers custom made aluminium extrusions to customers in most industries. Local plants work closely with customers tailoring solutions with aluminium profiles and providing supporting services according to customers' needs. In North America, the extrusion business is organized to optimize capabilities across the continent while providing high-quality local service.

Sapa Building Systems (SBS) offers extensive geographic coverage and superior products in a European market that favors solutions linked to regional building habits and local preferences. Each of the brands represents a distinct system that enables customers to target products to individual markets. Efficient distribution and logistics operations ensure quick and accurate deliveries. SBS is at the forefront in the development of products and solutions for energy-efficient buildings.

Sapa Precision Tubing (PT) produce and sell specialized products used in heat transfer applications, mainly for the automotive market, which represents about 70 percent of the total sales. PT is also active in the general heat transfer applications, a growing market segment, and applications for transporting liquids and gases. PT operates globally and has leading market positions in Europe, North America and South America, and a solid market position in Asia.

7.2.5 Technology and innovation

Sapa's research and development (R&D) teams collaborate closely with customers globally to develop new solutions, implement customer projects and continuous process improvement projects. The goal is to add value to the customers by delivering faster, better and more efficient development support.

Sapa's corporate R&D department, Sapa Technology, concentrates on both long-term developments of valuecreating technologies as well as shorter-term and more practical aspects, such as productivity and cost. One example of long-term developments includes a new dedicated offering to the marine industry, super-large and light friction stir welded panels extruded with the marine-dedicated 5083 aluminium alloy. The new combination will enable shipbuilders to manufacture stronger hull structures while saving costs.

Sapa Technology is located in Finspång, Sweden and opened a new branch in Troy during 2016, located near the center of the automotive industry in the USA, Detroit. These sites are complimented by nearly 40 application centers around the world which focus on specific areas of competence, geographical regions, or industries. Examples include: European Extrusion Product Development, North American Technical Center, Building Systems R&D, and Precision Tubing Technology Center.

7.3 Trends

Sapa has not experienced any changes or trends that are considered significant to the company since 31 December 2016 and to the date of this Information Memorandum.

7.4 Litigation and disputes

The Sapa Group is engaged in a large number of legal proceedings and disputes around the world. As of the date of this Information Memorandum, neither Sapa nor any other company in the Sapa Group are, nor have during the course of the last 12 months, except for the dispute described above, been involved in any governmental, legal or arbitration proceedings (including any such proceedings which are pending or threatened of which the Company is aware), which may have, or have had in the recent past significant effects on the Company and/or the Group's financial position or profitability.

7.5 Material contracts

To the knowledge of the Company, neither Sapa nor any member of the Sapa Group has entered into any material contracts outside the ordinary course of business for the two years immediately preceding the date of this Information Memorandum, and no member of the Sapa Group has entered into any contracts containing obligations or entitlements that are, or may be, material to the Group as of the date of this Information Memorandum.

7.6 Board of directors and corporate management board

7.6.1 Board of directors

The names and positions and current term of office of the board members of Sapa as at the date of this Information Document are set out in the table below.

Name	Position	Served since	Term expires
Peter Arne Ruzicka	Chairperson	2014	2018
Terje Andersen	Board member	2013	2018
Eivind Kallevik	Board member	2013	2018
Anne-Lene Midseim	Board member	2016	2018
Kenneth Peter Herry Hertz	Employee representative	2013	2017
Tor Egil Skulstad	Employee representative	2013	2019

The business address of the members of Sapa's board of directors is c/o Sapa AS, Biskop Gunnerus' gate 14A, N-0185 Oslo, Norway.

7.6.2 Corporate management board

Sapa's corporate management board consists of ten members. The table below sets out the name and position held for each of the members of the corporate management board, as of the date of this Information Memorandum.

Name	Position	Current position since	Employed in Sapa since17
Egil Hogna	President and CEO	2015	2015
Karl Eichinger	CFO	2013	2013
Florian Krumbacher	EVP & Group General Counsel	2015	2014
John Thuestad	EVP & Business Area President	2013	2013
	Extrusion Europe
Charlie Straface	EVP & Business Area President	2015	2013
	Extrusion North America
Erika Ahlqvist	Executive Vice President	2013	2013
	Communication & CSR
Sergio Luiz Vendrasco	EVP & Business Area President	2016	2013
	Precision Tubing
Katarina Nilsson	EVP HR & Organization	2016	2015
Rafael Estallo Fuertes	EVP Business Development	2016	2013
Salvador Biosca	EVP & Business Area President	2016	2013
	Building Systems

The business address of the members of Sapa's corporate management team is c/o Sapa AS, Biskop Gunnerus' gate 14A, N-0185 Oslo, Norway.

7.7 Employees

Sapa employs 22,400 employees in more than 40 countries.

7.8 Financial information of Sapa

7.8.1 Historical financial information

Sapa's historical consolidated financial statements have been prepared in accordance with IFRS. The financial statements have been audited by Ernst & Young AS, Sapa's statutory auditor.

The following tables present selected financial information for Sapa as of, and for the years ended, 31 December 2016, 2015 and 2014, which has been derived from Sapa's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014.

7.8.1.1 Sapa consolidated income statement

		Year ended
	31 December
	2016	2015	2014
In NOK million (except per share amounts)
Revenue	53,327	55,252	46,211
Share of the profit (loss) in equity accounted investments	52	31	10

¹⁷ Based on foundation of Sapa Joint Venture in 2013.

Other income, net	51	114	163
Total revenue and income	53,430	55,397	46,384
Raw material and energy expense	28,800	33,228	27,763
Employee benefits expense	10,497	10,159	8,963
Other operating expense	10,394	10,103	8,470
Depreciation and amortization expense	1,301	1,321	1,263
Impairment of non-current assets	18	58	202
Other expense	-	-	40
Total expense	51,010	54,869	46,701
Earnings before financial items and tax (EBIT)	2,420	528	(317)
Financial income	46	89	47
Financial expense	(98)	(369)	(314)
Financial income (expense), net	(52)	(280)	(267)
Income before taxes	2,368	248	(584)
Income taxes	(583)	3	(38)
Net income after taxes	1,785	251	(622)
Attributable to:
Equity holders of the parent	1,779	246	(626)
Non-controlling interests	6	5	4
Basic and diluted earnings per share	8.90	1.23	(3.13)

7.8.1.2 Sapa consolidated statements of financial position

	As of 31 December
	2016	2015	2014
In NOK million
Assets
Property, plant, and equipment	9,859	10,237	9,410
Intangible assets	1,293	1,407	1,403
Investments accounted for using the equity method	103	79	62
Other non-current assets	218	71	79
Pension asset	404	573	335
Deferred tax assets	845	1,163	926
Total non-current assets	12,722	13,530	12,215
Assets held for sale	114	102	110
Inventories	5,163	5,279	5,767
Trade receivables	6,095	6,292	6,498
Current receivables	939	1,026	955

Other current financial assets	235	129	202
Cash and cash equivalents	671	2,512	1,882
Total current assets	13,217	15,340	15,414
Total assets	25,939	28,870	27,629
Liabilities and equity
Share capital	200	200	200
Share premium	6,241	6,241	6,241
Other reserves	1,006	1,778	670
Retained earnings	6,300	4,603	4,389
Equity attributable to owners	13,747	12,822	11,500
Non-controlling interests	53	49	38
Total equity	13,800	12,871	11,538

Non-current debt	16	2,959	2,890
Other non-current financial liabilities	88	125	309
Other liabilities	21	25	26
Provisions	311	275	260
Pension obligations	1,407	1,528	1,642
Deferred tax liabilities	378	530	276
Total non-current liabilities	2,221	5,442	5,403
Liabilities held for sale	20	30	30
Trade and other payables	7,908	7,772	8,676
Bank loans and other current interest-bearing debt	711	1,190	1,067
Other current financial liabilities	152	406	219
Taxes payable	258	118	112
Provisions	869	1,041	584
Total current liabilities	9,918	10,557	10,688
Total liabilities	12,139	15,999	16,091

Total liabilities and equity	25,939	28,870	27,629

7.8.1.3 Sapa consolidated statements of cash flows

	Year ended 31 December
	2016	2015	2014
In NOK million
Operating activities
Income before taxes	2,368	248	(317)
Depreciation/amortization	1,301	1,321	1,263
Impairment	18	58	318
Other non-cash items	(118)	(129)	(261)

Change in net working capital	(266)	759	110
Interest paid/received, net	(88)	(111)	(247)
Income tax paid	(273)	(297)	(114)
Cash flow from operating activities	2,943	1,849	752

Investing activities
Replacement investments	(619)	(610)	(667)
Expansion and productivity investments	(767)	(858)	(335)
Purchases of other long-term investments	(13)	(15)	(12)
Proceeds from sales of property, plant, and
equipment	29	55	35
Dividends and proceeds from sales of other
investments	25	53	55
Cash flow from investing activities	(1,345)	(1,375)	(924)

Financing activities
Change in interest-bearing liabilities	(3,346)	(63)	195
Cash flow from financing activities	(3,346)	(63)	195

Cash flow for the year
	(1,748)	411	23

Cash and cash equivalents at the beginning of the
year	2,512	1,882	1,697
Exchange-rate difference in cash and cash
equivalents	(94)	219	162

7.8.1.4 Sapa consolidated statements of changes in equity

						Equity
						attributable
					Other	to owners	Non
	Share	Share		Retained	components	of the	controlling	Total
In NOK million	capital	premium	Reserves	earnings	of equity	parent	Interests	equity
December 31, 2013	200	6,241	(285)	5,032	-	11,188	37	11,225
Net income after taxes	-	-	-	(626)	-	(626)	4	(622)
Other comprehensive income for the year,
net of tax	-	-	955	(15)	-	940	3	943
Total comprehensive income for the year
Divestment of non-controlling interests	-	-	-	(641)	-	314	7	321
due to acquisition	-	-	-	(2)	-	(2)	(6)	(8)
December 31, 2014	200	6,241	670	4,389	-	11,500	38	11,538
Net income after taxes	-	-	-	246	-	246	5	251
Other comprehensive income for the year,
net of tax	-	-	823	253	-	1,076	6	1,082
Total comprehensive income for the year	-	-	823	499	-	1,322	11	1,333

71/92
-------	--

December 31, 2015	200	6,241	1,778	4,603	-	12,822	49	12,871
Net income after taxes	-	-	-	1,779	-	1,779	6	1,785
Other comprehensive income for the year, net of tax	-	-	(772)	(82)	-	(854)	(2)	(856)
Total comprehensive income for the year	-	-	(772)	1,697	-	925	4	929
December 31, 2016	200	6,241	1,006	6,300	-	13,747	53	13,800

7.9 Significant change

There have been no significant changes in the financial or trading position of Sapa following 31 December 2016.

8 UNAUDITED PRO FORMA FINANCIAL INFORMATION

8.1 General Information and Purpose of the Unaudited Pro Forma Condensed Combined Financial Information

The unaudited pro forma combined condensed combined financial information has been prepared to give effect to the Transaction agreed pursuant to the SPA, whereby Sapa will become a fully-owned subsidiary of Hydro. Under the SPA, Orkla will sell Hydro its 50 percent ownership interest in Sapa. As consideration for the sale, Orkla shall receive upon completion of the Transaction a cash amount which is determined as an enterprise value with certain adjustments. The amount for the purpose of the unaudited condensed pro forma financial information is estimated at NOK 11.9 billion based on the key figures at the end of June 2017. The Transaction is further described in Section 4 "Description of the Transaction" above.

Purpose of the unaudited condensed pro forma financial information

The unaudited condensed pro forma financial information (the "Unaudited Pro Forma Financial Information") set out below has been prepared by Hydro for illustrative purposes only to show how the Transaction might have affected Hydro's income statements and balance sheet for the periods presented if the Transaction occurred at the earlier dates indicated below. Because of its nature, the Unaudited Pro Forma Financial Information included herein addresses a hypothetical situation and, therefore, does not represent Hydro's actual financial position or results from operations if the Transaction had in fact occurred on those dates, and is not necessarily representative of the results of operations for any future periods.

Such Unaudited Pro Forma Financial Information has been based on certain other assumptions that would not necessarily have applied had Hydro and Sapa been consolidated as of such dates. The Unaudited Pro Forma Financial Information therefore does not reflect the Combined Group's actual financial position and results. Further, the valuation of assets acquired and liabilities assumed will require access to detailed information which is currently not available to Hydro. The final detailed valuation to be reflected in future periods, which is required to be completed 12 months after completion of the Transaction, may differ from the preliminary assumptions included in this Unaudited Pro Forma Financial Information. Consequently, the Unaudited Pro Forma Financial Information must not be considered final or complete as they may be amended in future publications of the unaudited pro forma information.

The Unaudited Pro Forma Financial Information presented herein has been prepared on the assumption that the Transaction was completed on 1 January 2016 for purposes of the income statement for the year ended 31 December 2016, on 1 January 2017 for purposes of the income statement for the six months ended 30 June 2017 and on 30 June 2017 for the purposes of the statements of financial position as of 30 June 2017. All pro forma adjustments to the income statements are expected to have a continuing impact. The gain on Hydro's currently held shares in Sapa, estimated at NOK 1,414 million, will be recognized at the date of the Transaction. In addition, certain changes in equity recognized in other comprehensive income will be recycled as part of the gain. This gain has been excluded from the unaudited pro forma income statement.

The Unaudited Pro Forma Financial Information does not include all of the information required for financial statements under IFRS and should be read in conjunction with the consolidated financial statements of Hydro and Sapa as of and for the year ended 31 December 2016, Hydro's second quarter 2017 report and Sapa's unaudited management report to its shareholders as of the second quarter 2017. See Section 10 "Additional Information". The Unaudited Pro Forma Financial Information has been compiled solely to comply with the requirements in section 3.5.2.6 of the Continuing Obligations issued by Oslo Børs. Accordingly, this pro forma information has not been prepared to comply with the rules and regulations of the U. S. Securities and Exchange Commission.

The Pro Forma adjustments and the resulting Pro Forma Financial Information have not been audited in accordance with Norwegian, International, or other generally accepted auditing standards. However, KPMG AS has issued a report on the pro forma financial information included in Appendix A "Independent Practitioner's Assurance Report on the Compilation of Unaudited Pro Forma Condensed Combined Financial Information Included in an Information Memorandum" to this Information Memorandum. The report is prepared in accordance with ISAE 3420 "Assurance Engagements to Report on the Compilation of Pro Forma Financial Information Included in a Prospectus".

8.2 Basis for Preparation

Hydro's and Sapa's historical consolidated financial statements have been prepared in accordance with IFRS, as adopted by the EU. Sapa's financial statements have been reclassified to comply with the format of Hydro's financial statements without changing the net income or total equity of the entity.

The Unaudited Pro Forma Financial Information is prepared on the basis of the IFRS accounting principles applied by Hydro. Based upon the best information available to management at this time, no differences have been identified that would have resulted in a materially different result of operation or financial position compared to the financial information prepared by Sapa. Additional differences could be identified in the future once Hydro has full access to Sapa's accounting records and more analysis is possible.

8.3 Unaudited Pro Forma Condensed Combined Financial Information

The unaudited pro forma condensed combined statements of income for the six months ended 30 June 2017 and for the financial year ended 31 December 2016, and statements of financial position as of 30 June 2017 for the combined companies, are set out in the tables below. As a result of rounding differences, numbers may not add up to the total.

		Hydro		Pro forma	Pro forma Hydro after
NOK million, except number of shares	Note	actual	Sapa actual	adjustments	adjustments

Assets
Cash and cash equivalents	1	7 993	845	-2 650	6 188
Short-term investments	1	4 896	25	-3 250	1 671
Accounts receivables	2	13 465	9 480	-1 012	21 933
Inventories	3	12 940	5 920	-68	18 792
Other current assets		290	183	0	473
Total current assets		39 584	16 453	-6 980	49 057

Property, plant and equipment	4	57 610	10 112	4 300	72 022
Intangible assets	5,10	5 577	1 290	6 221	13 088
Investments accounted for using the equity method	6	18 800	124	-7 588	11 335
Prepaid pension		5 018	418	0	5 436
Other non-current assets	7	5 252	1 032	47	6 330
Total non-current assets		92 256	12 976	2 979	108 211

Total assets		131 840	29 430	-4 001	157 268

Unaudited pro forma condensed combined balance sheet as of June 30, 2017

					Pro forma
Liabilities and equity		Hydro actual	Sapa actual	Pro forma adjustments	Hydro after adjustments
Bank loans and other interest-bearing short-term debt		3 741	765	0	4 506
Trade and other payables	2	10 472	9 738	-1 012	19 198
Other current liabilities		2 911	1 060	-102	3 869
Total current liabilities		17 124	11 563	-1 114	27 573

Long-term debt	1	3 183	3 285	6 000	12 468
Provisions	7	4 452	328	579	5 359
Pension liabilities		12 997	1 445	0	14 442
Deferred tax liabilities	8	2 566	562	1 435	4 563
Other non-current liabilities		3 955	0	0	3 955
Total non-current liabilities		27 154	5 620	8 014	40 787

Total liabilities		44 278	17 183	6 900	68 361

Equity attributable to Hydro shareholders	9	82 343	12 193	-10 900	83 635
Non-controlling interests		5 219	53	0	5 272
Total equity		87 562	12 246	-10 900	88 908

Total liabilities and equity		131 840	29 430	-4 001	157 268

Total number of outstanding shares (million)		2 045			2 045

Unaudited pro forma condensed combined income statement for year ended December 31, 2016

NOK million, except per share data	Note	Hydro actual	Sapa actual	Pro forma adjustments	Pro forma Hydro after adjustments

Revenue	11	81 953	53 327	-4 650	130 630
Share of the profit (loss) in equity accounted investments	12	985	52	-889	148
Other income, net		1 030	51	-	1 081
Total revenue and income		83 969	53 430	-5 539	131 860

Raw material and energy expense	11	52 151	28 800	-4 648	76 303
Employee benefit expense		9 485	10 990	-	20 475
Depreciation, amortization and impairment	13	5 474	1 319	387	7 179
Other expenses		9 848	9 901	-	19 749
Total expenses		76 958	51 010	-4 261	123 707

Earnings before financial items and tax (EBIT)		7 011	2 420	-1 278	8 153

Financial income	14	574	46	-53	567
Financial expense	14	1 552	-98	-91	1 363
Financial income (expense), net		2 126	-52	-144	1 930

Income (loss) before tax		9 137	2 368	-1 422	10 083
Income taxes	15	-2 551	-583	130	-3 004
Net income (loss)		6 586	1 785	-1 292	7 079

Net income (loss) attributable to non-controlling interests		199	6	-	205
Net income (loss) attributable to Hydro shareholders		6 388	1 779	-1 292	6 875
Basic and diluted earnings per share attributable to Hydro shareholders (in NOK)		3.13	-	-	3.37
Weighted average number of outstanding shares (million)		2 042			2 042

Unaudited pro forma condensed combined income statement for six months ended June 30, 2017

		Hydro		Pro forma	Pro forma Hydro after
NOK million, except per share data	Note	actual	Sapa actual	adjustments	adjustments
Revenue	11	47 617	29 633	-2 588	74 663
Share of the profit (loss) in equity accounted investments	12	900	21	-585	336
Other income, net		348	7	-	355
Total revenue and income		48 865	29 661	-3 173	75 354

Raw material and energy expense	11	30 669	16 776	-2 577	44 869
Employee benefit expense		5 291	5 747	-	11 038
Depreciation, amortization and impairment	13	2 741	660	193	3 595
Other expenses		4 808	4 842	-	9 650
Total expenses		43 510	28 024	-2 383	69 152

Earnings before financial items and tax (EBIT)		5 356	1 637	-789	6 202

Financial income	14	238	16	-26	227
Financial expense	14	-1 061	-92	-46	-1 198
Financial income (expense), net		-823	-76	-72	-971

Income (loss) before tax		4 533	1 561	-861	5 231

Income taxes	15	-1 132	-390	65	-1 457

Net income (loss)		3 401	1 171	-796	3 775

Net income (loss) attributable to non-controlling interests		154	1	-	155
Net income (loss) attributable to Hydro shareholders		3 247	1 170	-796	3 619

Basic and diluted earnings per share attributable to Hydro shareholders (in NOK)		1.59	0.57	-0.39	1.77

8.4 Description of the Pro Forma Adjustments

Basis for the Unaudited Pro Forma Financial Information

Hydro's actual condensed consolidated historic financial information is derived from Hydro's annual audited financial statements for 2016 and Hydro's unaudited interim report as of the second quarter 2017. Sapa's actual condensed consolidated historic financial information is derived from Sapa's annual audited financial statements for 2016 and Sapa's unaudited management report to its shareholders as of the second quarter 2017.

Purchase price estimation

The Unaudited Pro Forma Financial Information has been prepared using the purchase method as regulated in International Financial Reporting Standard 3 Business Combinations (IFRS3). The contingent elements of the consideration will be valued as of the date of completion of the Transaction based on information available at that date.

For the purpose of the pro forma financial information, the contingent elements of the consideration as well as the fair value of Hydro's currently held shares in Sapa have been estimated based on the market conditions and our assessment of the values as of the time of announcement, 10 July 2017.

The purchase price in the Transaction is estimated in the table below.

	NOK million
Cash considerations	11 900
Fair value of previously held shares in Sapa	8 900
Value of Sapa	20 800

Purchase price allocation

The adjusting elements of the purchase price will only be known when the values of those elements as of the date of completion of the Transaction has been determined. The allocation of the purchase price is dependent on detailed knowledge of assets, liabilities, contracts, and other facts only to be sufficiently analyzed at the later date when Hydro gets full access to Sapa's assets, liabilities and accounting records, which will only become available after the completion of the Transaction. As a result, the Unaudited Pro Forma Financial Information has been prepared based upon a preliminary purchase price allocation, a final purchase price allocation has not been prepared at this time. The preliminary purchase price allocation identifies Sapa's main assets, liabilities, and contingent liabilities, and is based on the 30 June 2017 balance sheet of Sapa. The valuation of property, plant and equipment, brand and other intangible assets and contingent liabilities are only preliminary estimates as valuation has not been completed. It is likely that additional adjustments related to other assets and liabilities will be identified, including potential present obligations related to items described in Section 1.4 "Risks relating to Sapa". In the final purchase price allocation, fair values may differ significantly.

The fair value of net assets of Sapa in excess of carrying values is estimated as follows:

Property, plant and equipment	4 300
Intangible assets, including the Sapa brand	2 000
Contingent liabilities	-579
Indemnification assets	47
Deferred tax on the above adjustments	-1 435

	Goodwill (including goodwill previously recognized in Sapa)	5 141
--	-------------------------------------------------------------	-------

Goodwill previously recognized in Sapa amounted to NOK 920 million. The fair value of assets and liabilities is preliminary and is subject to change pending additional information that will become available through the valuation period which ends no later than 12 months after completion of the Transaction.

Depreciation and amortization of property, plant and equipment and intangible assets of NOK 387 million annually is based on preliminary estimates of average remaining useful life of the relevant assets. More accurate estimates on an asset-by-asset basis will be made as part of the final purchase price allocation. Remaining useful life of intangible assets such as brand and trademarks, including whether some intangible assets will be assumed to have indefinite life, will depend on Hydro's strategy for future use of such assets and investments in them. For this Unaudited Pro Forma Financial Information, it is assumed that the Sapa brand and significant trademarks will continue to be used and developed in the future.

No amortization of the goodwill will be charged in future periods, and no amortization of the goodwill has been charged to the pro forma financial information.

The pro forma adjustments described in the following notes represent effects that can be expected to be present in future periods. However, the occurrence and amount of such effects will to some extent depend on future transactions and events.

Notes to the pro forma adjustments

Note 1 – Financing the acquisition

The pro forma adjustment of NOK 2,650 million to cash and cash equivalent reflects that Hydro intends to use existing cash holdings by approximately that amount to finance the share purchase.

The pro forma adjustment of NOK 3,250 million to short-term investments reflects that Hydro intends to sell existing short-term investments by approximately that amount to finance the share purchase.

The pro forma adjustment of NOK 6,000 million to long-term debt reflects that Hydro intends to draw on existing long-term credit facilities by approximately that amount to finance the share purchase.

Note 2 – Accounts receivables and Trade and other payables

The pro forma adjustments of NOK 1,012 million to accounts receivables reflects the elimination of receivables held by Hydro against Sapa related to delivery of aluminium under existing contracts, and the related payables to Hydro held by Sapa.

Note 3 – Inventories

The pro forma adjustments of NOK 68 million to inventory reflects the elimination of Hydro's margin on aluminium sold to Sapa, and assumed to be held in Sapa's inventory as of the end of June, 2017.

Note 4 – Property, plant and equipment

The pro forma adjustments of NOK 4,300 million reflect the increase of carrying value to the estimated fair values of property, plant and equipment. The increase is related to processing assets.

Note 5 – Intangible assets

The pro forma adjustment of NOK 2,000 million reflects the assumed value of brands and trademarks in Sapa.

Goodwill of NOK 4,221 million is described in Note 10 below.

Note 6 – Investments accounted for using the equity method

The pro forma adjustment of NOK 7,588 million to investments accounted for using the equity method represents the derecognition of Hydro's previous investment in Sapa as equity accounted investments following the Transaction. The fair value of this investment was included as part of the estimated value of the acquired business as described in Section 8.4 (Unaudited Pro Forma Condensed Combined Financial Information– Description of the Pro Forma Adjustments–Purchase price estimation) above.

Note 7 – Other long-term liabilities

The pro forma adjustment of NOK 579 million to long-term provisions relates to the assumed fair value of certain contingent liabilities in Sapa. The assumed liabilities relate to historic environmental liabilities and tax exposure.

The pro forma adjustment of NOK 47 million to other non-current assets relates to certain indemnifications related to those liabilities, mainly potential environmental liabilities.

Note 8 – Deferred tax liabilities

The pro forma adjustments of NOK 1,435 million reflect the nominal value of deferred tax liabilities related to the differences between the tax basis and the carrying value included excess values identified in the purchase price allocation of assets and liabilities.

Note 9 – Equity attributable to Hydro shareholders

Pro forma adjustments of NOK 1,414 million represents the revaluation gain on Hydro's currently held shares in Sapa, which is not included in this pro forma income statement. The holding gain will be recognized at completion of the Transaction, and is included as increased equity in this pro forma balance sheet.

Elimination of equity in Sapa of NOK 12,193 million is included in the pro forma adjustments.

Note 10 – Goodwill

Pro forma adjustment of NOK 4,221 million represents the estimated excess purchase price over the fair value of net assets in Sapa. A significant contributor to the estimated goodwill is expected synergies in the Transaction. The amount of goodwill will be affected by any adjustments in the valuation of the purchase price as well as identification and valuation of assets and liabilities as of the completion date for the Transaction.

Note 11 – Revenue and raw material expense

The pro forma adjustment of NOK 4,650 million in 2016 and NOK 2,588 million in the first half of 2017 to revenue represent the elimination of revenue resulting from Hydro's sale of aluminium to Sapa during those periods.

The pro forma adjustment of NOK 4,648 million in 2016 and NOK 2,577 million in the first half of 2017 to Raw material and energy expense represent the elimination of costs resulting from Sapa's purchase of aluminium from Hydro during those periods, adjusted for changes in assumed internal profit in inventory, as described in note 3 – Inventories.

Note 12 – Share of the profit in equity accounted investments

The pro forma adjustments of NOK 889 million in 2016 and NOK 585 million in the first half of 2017 represent Hydro's previously recognized share of net income in Sapa, which in this pro forma financial information is included as consolidated subsidiary following the increased ownership interest after the Transaction.

Note 13 – Depreciation and amortization

Pro forma adjustments of NOK 287 million in 2016 and NOK 143 million in the first half of 2017 represent estimated depreciation charges related to fair value adjustments of property, plant and equipment. The average useful life for these assets is estimated at 15 years.

Pro forma adjustments of NOK 100 million in 2016 and NOK 50 million in the first half of 2017 represent estimated amortization charges related to fair value adjustments of intangible assets. The average useful life for these assets is estimated at 20 years.

Note 14 – Financial income (expense), net

Pro forma adjustments of NOK 53 million in 2016 and NOK 26 million in the first half of 2017 to financial income represent the assumed interest on cash and short-term investments assumed to be used to finance the acquisition of shares, as described in note 1 – Financing the acquisition. The NIBOR interest rate as of June 30, 2017 is considered illustrative for the interest income on these holdings.

Pro forma adjustments of NOK 91 million in 2016 and NOK 46 million in the first half of 2017 to financial expense represent the assumed interest on cash and short-term investments assumed to be used to finance the acquisition of shares, as described in note 1 – Financing the acquisition. The agreed margin over reference rates as of June 30, 2017 and related costs on a committed credit facility is considered illustrative for the interest expense on this borrowing, resulting in an interest rate of 1.5 percent above the commitment fee.

Note 15 – Income taxes

Pro forma adjustments of NOK 130 million in 2016 and NOK 65 million in the first half of 2017 represent the estimated changes in deferred taxes derived from pro forma adjustments described above.

9 LIQUIDITY AND CAPITAL RESOURCES

Hydro's capital management policy is to maximize value creation over time, while maintaining a strong financial position and an investment grade credit rating. During 2016, and the first half year of 2017, net cash provided by continuing operations was more than sufficient to cover operating requirements and capital expenditures as well as dividend payments.

The table below includes information on Hydro's liquidity and debt for the periods indicated. The Group's annual report is incorporated by reference in this Information Memorandum; see Section 10.2 "Incorporation by reference".

	Six months ended			Year ended
Liquidity and financial position	30 June		31 December
	2017	2016	2016	2015	2014
In NOK million
Net cash provided by continuing operating activities	4 998	3 461	10 018	14 373	5 965
Cash and cash equivalents	7 993	9 220	8 037	6 917	9 253
Short-term investments18	4 896	2 629	4 611	5 752	1 786
Liquid assets	12 889	11 849	12 648	12 669	11 040
Bank loans and other interest-bearing short-term
debt	(3 741)	(3 593)	(3 283)	(3 562)	(6 039)
Long-term debt	(3 183)	(3 474)	(3 397)	(3 969)	(5 128)
Net cash (debt)	5 965	4 782	5 969	5 138	(127)
Cash and cash equivalents and short- term
investments in captive insurance company19	(1 054)	(1 127)	(1 103)	(1 129)	(1 091)
Net pension obligation at fair value, net of expected
income tax benefit20	(6 929)	(8 728)	(7 338)	(7 955)	(8 170)
Operating lease commitments, net of expected
income tax benefit21	(507)	(487)	(507)	(1 187)	(1 600)
Short and long-term provisions net of exp. Income
tax benefit, and other liabilities22	(2 621)	(3 197)	(2 619)	(3 040)	(2 598)
Adjusted net cash (debt)	(5 146)	(8 758)	(5 598)	(8 173)	(13 332)
Net debt in EAI23	(7 619)	(7 164)	(6 887)	(8 011)	(7 295)

¹⁸ Hydro's policy is that the maximum maturity for cash deposits is 12 months. Cash flows relating to bank time deposits with original maturities beyond three months are classified as investing activities and included in short-term investments on the balance sheet.

¹⁹ Cash and cash equivalents and short-term investments in Hydro's captive insurance company Industriforsikring AS are assumed to not be available to service or repay future Hydro debt, and are therefore excluded from the measure Adjusted net debt.

²⁰ The expected income tax benefit related to the net pension liability is NOK 1,338 million and NOK 1,445 million, respectively, for 2016 and 2015.

²¹ Operating lease commitments are discounted using a rate of 1.29 percent and 1.33 percent for 2016 and 2015, respectively. The expected tax benefit on operating lease commitments is estimated at 30 percent. Measurement of operating lease commitments is different from measurement under the forthcoming IFRS 16 Leases.

²² Consists of Hydro's short and long-term provisions related to asset retirement obligations, net of an expected tax benefit estimated at 30 percent, and other non-current financial liabilities.

²³ Net debt in equity accounted investments is defined as the total of Hydro's relative ownership percentage of each equity accounted investment's short and long-term interest-bearing debt less their cash positions, reduced by total outstanding loans from Hydro to the equity accounted investment. Net debt per individual equity accounted investment is limited to a floor of zero. Currently, the adjustment is related to Qatalum and Sapa.

	Adjusted net cash (debt) including EAI	(12 764)	(15 922)	(12 485)	(16 184)	(20 882)
--	----------------------------------------	----------	----------	----------	----------	----------

81/92

Adjusted net debt including EAI / Equity

Total Equity	(87 562)	(83 042)	(87 640)	(79 329)	(79 941)
Adjusted net debt including EAI / Equity	0.15	0.19	0.14	0.20	0.26

9.1 Cash flow and liquidity

Hydro manages its liquidity at the corporate level, ensuring sufficient funds to cover group operational requirements.

Hydro's net cash position remained at NOK 6.0 billion at the end of June 2017. Net cash provided by operating activities amounted to NOK 5.0 billion, impacted by dividends paid by Sapa of NOK 1.5 billion and operating capital build-up due to seasonality and higher prices. Net cash used in investment activities, excluding short term investments, amounted to NOK 2.3 billion. During the first six months dividends paid to Norsk Hydro ASA shareholders amounted to NOK 2.6 billion.

Hydro's net cash position increased in the second quarter of 2016 by NOK 0.8 billion to NOK 4.8 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 3.7 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.6 billion. Dividends paid amounted to NOK 2.0 billion in the first half year.

In 2016, net cash provided by operating activities of NOK 10.0 billion was more than sufficient to cover net cash used in investing activities amounting to NOK 6.0 billion, excluding purchases and proceeds from sales of shortterm investments, and dividend payments of NOK 2.4 billion.

Hydro's net cash (debt) changed from NOK 5.1 billion at the end of 2015 to NOK 6.0 billion at the end of 2016. Hydro's adjusted net cash (debt) to equity ratio was 14 percent, well below its targeted maximum ratio of 55 percent. Our funds from operations/adjusted net cash (debt) ratio was 95 percent, well above the targeted minimum of 40 percent over the business cycle.

In 2015, cash provided from continuing operating activities of NOK 14.4 billion was more than sufficient to cover cash effective investments net of sales proceeds amounting to NOK 5.3 billion and dividend payments to majority shareholders of NOK 2.0 billion. Net loan repayments amounted to NOK 5.0 billion, including repayment of short-term debt in Brazil of NOK 4.1 billion.

Hydro's net debt changed from net debt of NOK 0.1 billion at the end of 2014 to net cash of NOK 5.1 billion at the end of 2015. This is also reflected in a decrease in adjusted net debt excluding equity accounted investments. Hydro's adjusted net debt to equity ratio was 20 percent, well below its targeted maximum ratio of 55 percent. Our funds from operations/adjusted net debt ratio was 89 percent, well above the targeted minimum of 40 percent over the business cycle.

9.2 Financing arrangements

The table below shows the Group's short-term financing for the periods indicated.

In NOK million	2016	2015	2014
Bank loans and overdraft facilities	2 510	1 275	5 242
Other interest-bearing short-term debt	294	345	198
Current portion of long-term debt	479	1 943	600
Bank loans and other interest-bearing short-term debt	3 283	3 562	6 039

The table below shows the Group's long-term financing for the periods indicated.

In NOK million	2016	2015	2014
USD	1 305	3 667	3 502
NOK	1 500	1 500	1 500
Total unsecured loans	2 805	5 167	5 002
Finance lease obligations	1 071	745	685
Other long-term debt	-	-	40
Outstanding debt	3 875	5 912	5 727
Less: Current portion	(479)	(1 943)	(600)
Total long-term debt	3 397	3 969	5 128

Hydro has a USD 1.7 billion, revolving multi-currency credit facility with a syndicate of international banks, maturing in November 2020. A commitment fee on undrawn amounts is calculated as a percentage of the loan margin under the facility. Any borrowing under the facility will be unsecured, and the debt agreement contains no financial ratio covenants and no provisions connected to the value of underlying assets. The facility is for general corporate purposes, and provides readily available and flexible long-term funding. There was no borrowing under the facility as of June 30, 2017.

The table below shows the maturity profile of the Group's long term debt (including interest).

Repayments of long-term debt including interest

In NOK million	Unsecured loans	Other	Interest	Total

2017	440	39	177	656
2018	286	41	169	496
2019	1 788	40	159	1 987
2020	291	40	72	403
2021	-	40	62	102
Thereafter	-	871	458	1 329
Total	2 805	1 071	1 097	4 973

9.3 Treasury policies

Hydro's capital management policy is to maximize value creation over time, while maintaining a strong financial position and an investment grade credit rating.

9.3.1 Credit rating

To secure access to capital markets at attractive terms and remain financially solid, Hydro aims to maintain an investment grade credit rating from the leading agencies, Standard & Poor's (current rating BBB) and Moody's (current rating Baa2), both with stable outlook. Hydro targets, over the business cycle, a ratio of Funds from operations of at least 40 percent of Adjusted net debt, and an Adjusted net debt to Equity ratio below 55 percent.

9.3.2 Liquidity management and funding

Hydro manages its liquidity and funding requirements centrally to cover group operating requirements and longterm capital needs. Hydro operates cash pools in several currencies where all wholly-owned subsidiaries participate, to the extent permitted by country legislation. Such cash pool arrangements facilitate netting of cash positions within the Group, thereby reducing the requirement for external financing, and centralizing management of aggregated positions to the parent company. At the end of 2016, NOK 2.6 billion of Hydro's cash position of NOK 8.0 billion was outside such group arrangements, mainly in Brazil and Slovakia.

Hydro has an ambition to access national and international capital markets as primary sources for external long term funding. Hydro made no capital market transactions in 2016.

Hydro has a syndicated USD 1.7 billion revolving credit facility maturing in 2020. The facility was fully undrawn as of June 30, 2017.

9.3.3 Funding of subsidiaries, associates and jointly controlled entities

Normally the parent company, Hydro, incurs debt and extends loans or equity to wholly-owned subsidiaries to fund capital requirements. Hydro's policy is to finance part-owned subsidiaries and investments in associates and joint arrangements according to its ownership share, on equal terms with the other owners. All financing is executed on an arm's length basis. Project financing is used for certain funding requirements mainly to mitigate risk while also considering partnership and other relevant factors.

9.3.4 Shareholder return

Long-term return to shareholders should reflect the financial value created by Hydro over time. Total shareholder return consists of dividends and share price development. Over time, value creation should be reflected to a greater extent by share price development than through dividends. Hydro's policy is to pay out a stable or increasing dividend and in the long term to pay out, on average, 40 percent of net income as ordinary dividend over the cycle to our shareholders. In setting the dividend for a specific year, Hydro will take into consideration expected earnings, future investment opportunities, the outlook for world commodity markets and our financial position. Share buybacks or extraordinary dividends will supplement ordinary dividends during periods of strong financials, due consideration being given to the commodity cycle and capital requirements for future growth. The total payout reflects Hydro's aim to provide its shareholders with competitive returns benchmarked against alternative investments in comparable companies.

In periods when earnings are high, Hydro may consider buying back shares in addition to ordinary or extraordinary dividend payments. This consideration will be made in the light of alternative investment opportunities and the Group's financial situation. In circumstances when buying back shares is relevant, the Board of Directors proposes buyback authorizations to be considered and approved by the Annual General Meeting. Authorizations are granted for a specific time period and for a specific share price interval during which share buybacks can be made.

9.3.5 Financial and commercial risk management

Hydro is exposed to market risks from fluctuations in the price of commodities bought and sold, prices of other raw materials, currency exchange rates and interest rates. Price volatility, which may be significant, can have a substantial impact on Hydro's results. Market risk exposures are evaluated based on a holistic approach in order to take advantage of offsetting positions and to manage risk on a net exposure basis. Natural hedging positions are established where possible and economically viable. Hydro uses financial derivatives to some extent to manage financial and commercial risk exposures. Hydro's main policy to manage market volatility is to keep a strong financial position. Hydro's market risk strategy is materially unchanged compared to previous years. Please see Note 12- Financial and Commercial risk Management in the 2016 Annual report for further details.

9.4 Restrictions on use of capital

As of the date of this Information Memorandum, there are no restrictions on the use of capital resources that have materially affected, or could materially affect, directly or indirectly, the Company's operations.

9.5 Working capital statement

The Company is of the opinion that the working capital available to the Group is sufficient for the Group's present requirements, for the period covering at least 12 months from the date of this Information Memorandum.

10 ADDITIONAL INFORMATION

10.1 Documents on display

Copies of the following documents will be available for inspection at the Company's offices during normal business hours from Monday to Friday each week (except public holidays) for a period of twelve months from the date of this Information Memorandum:

The Company's certificate of incorporation and Articles of Association;
All reports, letters, and other documents, historical financial information, valuations and statements prepared by any expert at the Company's request any part of which is included or referred to in this Information Memorandum; and
The historical financial information of the Company and its subsidiary undertakings for each of the two financial years preceding the publication of this Information Memorandum.

10.2 Incorporation by reference

The information incorporated by reference in this Information Memorandum should be read in connection with the cross-reference list set out in the table below. Except as provided in this Section, no information is incorporated by reference in this Information Memorandum.

The Company incorporates by reference the Company's audited consolidated financial statements as of, and for the years ended, 31 December 2016, 2015 and 2014, and the Company's unaudited financial statements as of, and for the six months ended, 30 June 2017 and 2016, as well as certain other documents specified below.

Section in
Information		Page (P) in reference
Memorandum	Reference document and link	document
Section 6	Hydro – Financial Statements 2016:	PF1 – PF65
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual-report/2016/downloads/annual-report
	2016.pdf
	Hydro – Financial Statements 2015:	PF1 – PF63
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual
	report/2015/downloads/01_annual_report_2015.pdf
	Hydro – Financial Statements 2014:	PF1 – PF63
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual
	report/2014/downloads/01_annual_report_2014.pdf
Section 6	Hydro – Auditor's Report 2016:	PF78 – PF83
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual-report/2016/downloads/annual-report
	2016.pdf
	Hydro – Auditor's Report 2015:	PF76 – PF77
	http://www.Hydro.com/globalassets/1-english/investor

Section in
Information		Page (P) in reference
Memorandum	Reference document and link	document
	relations/annual

	report/2015/downloads/01_annual_report_2015.pdf
	Hydro – Auditor's Report 2014:	PF76 – PF77
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual
	report/2014/downloads/01_annual_report_2014.pdf
Section 6	Hydro – Accounting Principles:	PF7 – PF15
	http://www.Hydro.com/globalassets/1-english/investor
	relations/annual-report/2016/downloads/annual-report
	2016.pdf
Section 6	Hydro – First Quarter Financial Statement 2017:	PF1 – PF27

	http://www.Hydro.com/globalassets/1-english/investor relations/quarterly
	reporting/2017/q1/report_q1_2017_en.pdf

	Hydro – First Quarter Financial Statement 2016:	PF1 – PF24
	http://www.Hydro.com/globalassets/1-english/investor
	relations/quarterly
	reporting/2016/q1/report_q1_2016_en.pdf
Section 8	Sapa – Financial Statements 2016	P49 – P77
	https://www.sapagroup.com/contentassets/b0a41f16c64
	646399740413278eb863c/sapa-annual-report
	2016.pdf?showInContext=1323

11 DEFINITIONS AND GLOSSARY OF TERMS

In the Information Memorandum, the following defined terms have the following meanings:

ADRs:	American Depositary Receipts.
Articles of Association:	The Company's articles of association
Audit Committee:	The Company's audit committee.
Board of Directors:	The Board of Directors of the Company.
CEO:	Chief executive officer of the Company.
Company or Hydro:	Norsk Hydro ASA, a Norwegian public limited company incorporated under the laws of Norway with business registration number 914 778 271.
Combined Group:	The Group following completion of the Transaction.
Continuing Obligations:	Oslo Børs Continuing Obligations for stock exchange listed companies.
Corporate Assembly	The corporate assembly of the Company.
Corporate Governance Code:	The Norwegian Code of Practice for Corporate Governance published on 30 October 2014 by the Norwegian Corporate Governance Board.
Corporate Management Board:	The Company's corporate management board.
Director(s) or Board Member(s):	The members of the Board of Directors.
DOJ:	United States Department of Justice.
EAI:	Enterprise application integration.
EEA:	The European Economic Area.
EU:	The European Union.
EUR:	The lawful common currency of the EU member state who have adopted the Euro as their
	sole national currency (the Euro area).
Forward-looking statements:	Statements made that are not historic and thereby predictive as defined in Section 3.2 of this Information Memorandum. Such statements are identified by forward-looking terms such as "aim", "expect", "believe", "plan", "intend", "estimate", "anticipate", "may", "will" and "could" or similar words or phrases.
GDP:	Gross Domestic Product.
Group:	The Company and its consolidated subsidiaries prior to completion of the Transaction.
HAL:	Hydro Aluminium AS, a private limited company incorporated under the laws of Norway with registration number 917 537 534.
HSE:	Health, safety and environment.
IFRS:	International Financial Reporting Standards, as adopted by the European Union.
Information Memorandum:	This information memorandum dated 31 July 2017.
ISIN:	International Securities Identification Number.
Long Stop Date:	31 March 2018.
LME:	London Metal Exchange.
MRN:	Mineracao Rio de Norte.
Mt.:	Metric tonnes.
NOK:	Norwegian Kroner, the lawful currency of Norway.
Norwegian Public Limited Companies Act:	The Norwegian Public Limited Companies Act of 13 June 1997 No. 45 (No.: "allmennaksjeloven").
Norwegian Securities Trading Act:	The Norwegian Securities Trading Act of 28 June 2007 no. 75
	(No.: verdipapirhandelloven).
Oslo Stock Exchange:	Oslo Børs ASA, or, as the context may require, Oslo Børs, a Norwegian regulated market place operated by Oslo Børs ASA.
Remuneration Committee:	The Company's remuneration committee.
R&D:	Research and development.
Sapa:	Sapa AS, a Norwegian private limited company incorporated under the laws of Norway

	with business registration number 899 286 952.
Sapa Group:	Sapa together with its subsidiaries.
Sapa Shares:	100,000,000 shares in Sapa acquired by HAL under the SPA, being 50% of all issued and outstanding shares of Sapa.
Share(s):	Shares in the share capital of the Company, or any one of them.
SHFE:	Shanghai Futures Exchange.
SPA:	The share purchase agreement entered into on 10 July 2017 with Industriinvesteringer AS (100 percent subsidiary of Orkla ASA) in connection with the Transaction.
Transaction:	The Company's acquisition of 50% of the issued and outstanding shares of Sapa.
Twh:	Terawatt-hours.
UK:	The United Kingdom.
Unaudited Pro Forma Financial Information:	The unaudited condensed pro forma financial information prepared by Hydro for illustrative purposes to show how the Transaction might have affected Hydro's income statements and balance sheet for the periods presented if the Transaction occurred at the earlier dates as set out in Section 8.
U.S. or United States:	The United States of America.
U.S. Securities Act:	The U.S. Securities Act of 1933, as amended.
USD:	United States Dollars, the lawful currency in the United States.
VPS:	The Norwegian Central Securities Depository (No.: Verdipapirsentralen).

APPENDIX A:

INDEPENDENT PRACTITIONER'S ASSURANCE REPORT ON THE COMPILATION OF UNAUDITED PRO FORMA CONDENSED COMBINED FINANCIAL INFORMATION

APPENDIX B:

SAPA AS – ANNUAL REPORT 2016

Annual Report 2016

Sapa in brief	6
CEO statement	10
Vision, goals and strategies	12
Market and competitors	14
Sapa's way of working	18
Company structure and organisation	20
Short financials and other KPIs	22
Innovation	24
Business areas	26
Extrusion	28
Building Systems	32
Precision Tubing	36
Responsibility and governance	38
Environment, health and safety	38
Risk and risk management	41
Board of directors' report	45
Financial statements	49
Notes to the consolidated financial statements	55
Financial statements Sapa AS	77
Notes to the financial statements Sapa AS	80
Auditor's report	86
Corporate governance report	89
Sapa's board of directors	91
Sapa's corporate management team	92
Glossary	94
Sapa's history	96

Better and smarter reuse of aluminum scrap – a win-win for Sapa and Earth

We aim to enable a more circular economy through our remelt facilities, where we sort and remelt used and scrapped aluminium. 58 percent of the metal in our production comes from our own recycling facilities.

Lighter weight, cost efficient, and 100% reusable

Aluminium is very light, thanks to its low density, but extrusions can also be made strong and durable. It all depends on the application and the engineering behind it. Aluminium can be recycled infinitely, with no loss of quality.

Strong, beautiful, and endless possibilities

The extrusion process, combined with proper selection of alloy and quenching, provides an infinite number of applications and product improvements.

Sapa in brief

Sapa is a 50/50 joint venture owned by Orkla ASA and Hydro ASA. Sapa develops, manufactures, and markets value-added profiles, profile-based building systems, and tubing solutions for automotive and heating, ventilation, air conditioning & refrigeration (HVAC&R) applications in lightweight aluminium. Our leading position is maintained through our unique combination of local expertise, a global network, and R&D capabilities.

Our three core areas:

Extrusion

Sapa is the world's leading producer of extruded aluminium profiles. Design solutions featuring aluminium profiles are used in virtually all industries. Sapa's profiles replace other materials and design methods. Aluminium can be a substitute for steel, copper, plastic, or wood. Extrusion is a cost-effective addition to other techniques, such as forging and injection molding.

Building Systems

Building Systems is one of the largest European suppliers of building systems based on aluminium extrusions. Solutions are provided for homes, offices, and industrial buildings, as well as systems for windows, doors, façades, and glass roofs. Sapa's building systems facilitate efficient, high-quality construction work. This leads to lower building and operating costs. Energy efficient solutions often lead to an environmentally favorable solution.

Precision Tubing

Precision Tubing is the leading global supplier of aluminium tubing solutions to the automotive heat-exchanger industry. In addition, Sapa's aluminium tubing solutions are used in heat transfer applications for the automotive, HVAC&R, and solar market segments and utilize tube lines for carrying liquids or gases. The global footprint allows technical support to customers of all sizes and top-quality products combined with unmatched capability. By substituting traditional materials with aluminium, customers can in many cases improve the performance and environmental footprint of their products.

1) The Aluminum Association and European Aluminium decided to recalculate the estimated market sizes for North America and Europe last year. The result is increased market sizes for 2016 and retroactively. On that basis, Sapa's 2015 market shares were: Europe: 22.0 percent and North America: 24.4 percent.

Eight percent of the Earth's crust is aluminium

Enhancing the sustainable value of aluminium

Eight percent of the Earth's crust is aluminium. This means the availability of raw materials is practically unlimited. Material properties such as light weight, high strength, and resistance to corrosion contribute to its environmental qualities. It can be reused for the same purposes over and over again. Unlike many other materials, it does not lose its

unique properties when recycled. Furthermore, recycling requires only 5 percent of the original energy input. In partnership with suppliers, customers, and peers we want to enhance the sustainable value of aluminium by minimizing negative impacts across the value chain and thereby contribute to creating a sustainable future.

A positive trend

Underlying EBIT improvement from NOK 1,407 million (2015) to 2,197 million (2016) driven by broad improvements across the group.
Simplified organization within support and business operations.
Value over volume strategy starting to pay off.
Achieved 15.3 percent underlying pre tax ROCE.
Continued improvement in working capital.
Number of accidents (total recordable injuries) at similar level as 2015.
Successful restructuring efforts in the Building Systems and Precision Tubing business ares.

~53

Net sales: NOK, billion

50%

Percentage of Sapa's production based on remelted1)

Number of countries in which Sapa operates 1.4 Millions of tonnes delivered in 2016

1) For definition, please see page 94.

We serve a broad range of end markets

Our business concept is based on close cooperation with our customers, who are primarily located in Europe, North America, South America, and Asia. We provide extruded aluminium solutions for practically any application. Our largest customer segments are the automotive, building,

engineering, and transport industries, as well as residential and office interiors. We are shaping a lighter future through global reach and local presence. The group is organized into four business areas: Extrusion Europe, Extrusion North America, Building Systems, and Precision Tubing.

Share of Sapa's sales volume

A stronger Sapa

2016 will stand out as the year that Sapa came together to simplify the way we work and clarify our priorities and direction. These efforts have materialized into a new strategy and many exciting innovations. Not least importantly, I would like to thank all of my Sapa colleagues for achieving the best results since the joint venture was established in 2013.

It is particularly gratifying that the growth in earnings is mainly a result of internal improvements and increased efforts in the commercial area. While it is fair to say that we have benefited in some areas from better demand in 2016 than in previous years, overall development in our markets was mostly flat. The progress in financial performance this year was accomplished through several years of hard work integrating and restructuring the company.

New opportunities

A synergy target of NOK 1 billion was set at the inception of the joint venture in 2013. When we reached and surpassed that target ahead of plan at the end of 2015 we had to ask ourselves: can we raise the bar and are there further improvement opportunities to be realized? The answer was yes. We saw that the changes made had opened up new opportunities. We also saw that we could further streamline our organization and make efforts to ensure better collaboration across business units and geographical borders. In response, we have further simplified our support functions and structure across the group, resulting in direct cost savings estimated at more than NOK 150 million annually. But perhaps more importantly, we are realizing other benefits of working more closely together, such as increased cross-selling across business areas and less duplication of efforts.

Strategic progress

During the past year our corporate management team and the organization as a whole have devoted considerable time and effort clarifying our priorities and strategy, which consists of three main elements: 1) Increase the value-add for

Underlying EBIT improvement from NOK 1,407 million (2015) to 2,197 million (2016).

our customers across all products and solutions; 2) Continue to simplify and collaborate across the organization; and 3) Selectively grow our business in the segments where we can do a better job than our competitors.

The progress in these strategic areas is encouraging. During the past year we increased the net value-added of our products by 9 percent per kg. This measure, which is our revenues less the cost of materials and freight, is a good indicator of the value Sapa is able to add to our raw material, aluminium, before delivering it to our customers. The increase year-on-year is attributable to an improvement in our product mix. We are selling more advanced products and solutions and less standard aluminium profiles or tubes. Increasing the value-add involves, for instance, adding process steps like surface treatment or fabrication, making more complex components, and adding services to create solutions better suited to meeting our customers' needs.

Continued investments

Based on the strengthened platform created through simplification and collaboration, we took several initiatives to grow the business where we have competitive advantages, typically linked to our research and application development capabilities.

We have continued our investment program to strengthen our value-add capabilities in selected market areas. Many of our investments made in 2016 were in automation and hightech tools supporting industry-leading productivity and ontime delivery performance. In terms of extrusion presses, we decided to invest in a new precision tubing press in China, an automotive press in Hungary, and upgrading a press to bigand-wide profiles in Belgium. I am also happy to report that

150

The direct cost savings from the new simplification project, estimated at in excess of NOK150 million annually.

we have been able to launch around 70 new products from our Building Systems operations, broadening our value proposition across regions. We also launched a new Sapa alloy for extruded panels for the marine and offshore industry. High strength combined with extremely good corrosion resistance make it an excellent choice of material for solutions at or below the waterline. The unique approach of pressing the material into a large profile is fairly new. In addition, Sapa's friction stir welding capabilities enable the production of large and efficient dimensions. Furthermore, we have focused strongly on our quality work and testing practices and have installed new, state-of-the-art testing equipment at most Sapa sites around the world.

A decent profit

In last year's letter, I outlined that a key target for Sapa in 2016 would be to deliver a pre-tax return on capital employed better than the cost of capital. In 2016 we reached 15.3 percent, which is an increase of 5.8 percentage points over 2015 and well above the cost of capital. Along with an underlying EBIT of NOK 2,197 million, we are now operating at a decent profit level. Equally important is that our profits are made decently. That is why we have released a new and more elaborate Code of Conduct and a compliance training program for all Sapa employees. In 2016 we also broadened our Leadership program to train Sapa managers at all levels in collaborative and leadership skills. We are convinced this will both improve our financial performance and make Sapa an even better place to work.

Shaping the future

We see our purpose as shaping a sustainable future and I am glad that we have also made progress in the sustainability area. We joined the UN Global Compact and the Aluminum Stewardship Initiative and we signed the Business"After an improvement of more than 40 percent in 2015, the total recordable injury rate stabilized at 3.3 injuries per million hours worked in 2016."

worthy pledge. We believe that being part of these organizations and initiatives will help us continue to make a positive contribution to a more sustainable future. Together with progress in other areas of our operation it also makes us a sustainable partner for our customers.

Caring for our employees

Our goal of zero injuries remains a top priority, along with industry-leading quality and compliance. After an improvement of more than 40 percent in 2015, the total recordable injury rate stabilized at 3.3 injuries per million hours worked in 2016. While I am not happy about the lack of further progress in the injury rate, I am pleased that we now have a smaller proportion of injuries with high severity or fatality risk. Nevertheless, we still have serious accidents from time to time and will continue to work assiduously to reach our goal of zero, in terms of improving our work methods, strengthening our personal attitudes, engaging all our employees and others who work with us on EHS improvements, and investing in better equipment.

We have also improved our health programs and personal security systems, all of which are aimed at improving health and safety. I expect to see further improvement in 2017 as a result of the strenuous effort made by all Sapa teams.

A growing need for aluminium

Looking into 2017 and the years to follow our plans in terms of profitability and bottom-line results are to create further sustainable improvements. While we created good value for our shareholders in 2016, there is still a lot of catching up to do after several lean years in the wake of the financial crisis and the subsequent years of restructuring.

We live in interesting times. Many countries are experiencing major political changes these days, but everywhere in the world there is a growing need for lighter, safer, and more energy-efficient solutions that reduce emissions and make our world more sustainable and a better place to live. Our products are an important contribution to that and in 2017 we will continue to work hard to make sure we live up to our purpose: Shaping a sustainable future through innovative aluminum solutions.

Egil Hogna President and CEO, Sapa

A true partner in innovative solutions

Flexibility captures it all – Sapa's values, our expertise, our company culture, and last but not least our raw material, aluminium.

Our purpose: A sustainable world

We are very fortunate to work with a flexible, infinitely recyclable, and lightweight material. Our endless pursuit of new and better ways to overcome our customer's challenges is contributing to lighter and more environmentally friendly

Our vision: Innovative aluminium

Aluminium is in our DNA. It is at the core of everything we do. Having dedicated our work to this versatile material for more than 50 years, learning everything there is to know about its inherent potential, has made us agile, adaptable, and willing to push the frontiers of what is possible. We can honestly say that we are aluminium. The material and the people of Sapa – one and the same. We believe that through combining our profound understanding of the material and

vehicles, more energy efficient buildings, and more easily recyclable products. This is our raison d'être and our purpose: Shaping a sustainable future through innovative aluminium solutions.

its properties with our advanced technology and R&D capabilities, we can engineer solutions that no one else in the industry can.

This is the essence of our vision:

We are aluminium. Excelling in technology and innovation. Today and tomorrow. Sapa – Innovative aluminium solutions.

Our values: Guiding the way

In a rapidly changing world like ours, a global company like Sapa is often confronted with unforeseen challenges, local cultures, and dilemmas. When the answer is not obvious or there are alternative routes to consider, our values often provide direction. Our values are deeply rooted in all parts of our organization. They encourage us to ask ourselves whether a business venture, decision or particular solution reflects our values:

Customer First

We see the world through our customers' eyes. We anticipate their needs and move fast, locally and globally, to deliver excellence.

Trustworthy

We do what we say we will do. We act with integrity, communicate openly, and treat others with respect.

One Company

We know that we work better when we work together. We share our knowledge and energy to ensure that we achieve our collective and individual aims.

Entrepreneurship

We drive the business as if it were our own. We are agile and focused on results when carrying out new initiatives.

Accountability

We take responsibility for our actions. We make decisions and stand behind the results, good or bad.

Our goal: Profitable and sustainable growth

Our overall goal is to deliver profitable growth and results above the cost of capital in all areas of operations. In so doing, Sapa is committed to remaining an environmentally conscious, ethical, compliant and equal opportunity employer.

To achieve this target, we will work on three main levels:

1. Increase the value-add of our products and solutions
1. Further simplify our processes and organization and collaborate better across units
1. Realize selective growth opportunities in high value-add segments

Dedicated management team

To ensure agility and timely decision making, Sapa's organization is based on our commitment to short decision paths and clear mandates for managers of operating units. Group functions have been streamlined to be able to give necessary support to business areas and local units in their business processes, while ensuring that we also effectively use the group's combined resources. In addition to the CEO, the group management team includes all business area presidents and heads of group functions. Read more about the team on pages 92–93.

Broad and highly competitive markets

Sapa's markets are characterized by fragmentation, with numerous local suppliers. Sapa is the market leader and one of the few major players in the industry. However, competition is fierce, with local suppliers that are well-established in their respective markets, making Sapa dependent on its highly skilled sales force and technical resources.

Our deep local knowledge combined with Sapa's global footprint is an unsurpassed advantage in the marketplace, which is demonstrated through Sapa's strong market positions. While local customers do not have an immediate need for a global supplier in terms of footprint match, they will still benefit significantly from the network of Sapa plants because all customers, regardless of where they are located, have Sapa's full network at their disposal.

The Sapa Group is organized around three lines of business: Extrusion, Precision Tubing, and Building Systems. Extrusion North America and Extrusion Europe are the largest business areas with 38 and 37 percent of the group's revenues respectively, followed by Building Systems (13 percent), and Precision Tubing (12 percent). Sapa's broad exposure to many end-markets makes the company less dependent on the development of specific market segments. Sapa's value proposition includes automotive applications such as roof rails and trim, body-in-white, and crash boxes; transportation applications such as bodywork in subway cars, trailer parts, and rolling stock body structures; complex building and construction solutions; and precision tubing applications for the heating, ventilation, air conditioning, and refrigeration (HVAC&R) industry.

Key market development

For extrusion, North America and Europe are still the dominant markets for Sapa, supplemented by a niche strategy in Asia. In 2016, development was relatively flat in both the European and North American markets. The North American market grew by 2.1 percent. The automotive market in North America grew moderately in terms of vehicle sales, but a strong focus on lighter weight and improved fuel efficiency is driving demand for aluminium extrusions. In addition, the building and construction markets are supporting the growth in extrusion demand. In South America, economic development in Brazil and Argentina, the region's two largest economies, is challenging. Brazil is impacted by weakening raw material prices and Argentina by capital restrictions and high inflation. As a countermove, the Brazilian government has initiated an investigation of potential price dumping by Chinese suppliers. The automotive market in Europe performed well, which is a natural consequence of the highestever car production level. The drivers of the growing automotive market are the same as in North America: lighter weight and better fuel efficiency. The building & construction market for aluminium extrusions is the largest market segment for Extrusion Europe. The segment demonstrated positive development in 2016 with an increase of 2 percent, where the improvement was generated in Poland, the Scandinavian countries, and Germany. Market developments in India and Vietnam remained favorable through 2016. After two decades of strong investment-driven GDP growth, the Chinese economy is now entering an era of slower consumption-driven growth. The large government stimulus packages put in place

after 2008 not only helped stimulate demand, but also led to a significant capacity increase in the extrusion industry. With growth now showing somewhat lower rates, especially in the building and construction segment, more extruders will try to enter the higher-end industrial and automotive segments. This makes a clear niche strategy vital for success.

The most important segment for Precision Tubing is automotive, which represent more than 60 percent of the business area's volume. Within the automotive sector, the Greater China market is showing the strongest growth within lightweight vehicle production, making Precision Tubing's general extrusion operation in Suzhou a key asset to Sapa. In addition, the Chinese government is heavily facilitating and promoting E-Mobility infrastructure and technology, which is creating opportunities for new applications in the tubing business. The second largest market for Precision Tubing is HVAC&R, which still represents a significant growth opportunity as the market continues to substitute copper tubing. The Asian and North American markets for HVAC&R remain firm. Following a protracted downturn in the price trend, copper prices rose sharply in late 2016, further fueling substitution incentives. Although the building systems market was recovering after a fall of 4percent in 2015, the two major European markets, France and Germany, suffered from a limited but effective drop of 1.5 and 1.7 percent respectively. South East Europe was still challenged, while the Iberian market increase and the Nordics and UK markets stabilized in 2016. The overall building systems market in Europe is estimated to have contracted about 1.4 percent in 2016.

Aluminium extrusions: On top of the world

Sapa is the world's largest manufacturer of aluminium extrusions. The global extrusion industry is fragmented, with a few major suppliers and numerous smaller local providers. New markets are embracing aluminium extrusions and engineers in these industries require education. Sapa is well-positioned to leverage the global network of production, research and development, and commercial edge to support this development.

Europe

Proximity is usually very important to European customers and Sapa's footprint means we are always nearby and swift to respond to customer demands.

Certain market segments including Automotive, Transportation, and Marine & Offshore require more specialized solutions, which Sapa accommodates through a coordinated market approach using the capabilities of certain Sapa plants and the strength of the network.

Some European competitors that were previously local have moved into other countries. Cortizo, Exlabesa, and Hammerer Industries, for example, now produce in more than just one country. There are 250 extruders and more

than 730 presses in Europe. Despite the overcapacity in Europe we are seeing new extruders in eastern Europe and France entering the market.

North America

In North America, although a large part of the business is local, the structure of certain markets, such as transportation, automotive, and rolling stock, is more often regional or even global. Sapa's plants across North America offer these customers a large footprint for the supply of multiple production facilities and assurance of a steady flow of material.

Automotive and Building & Construction customers in particular find that Sapa plants in North America are conveniently located to supply their manufacturing. The ability to receive extruded aluminium from multiple Sapa locations provides these customers with advantages in their supply chain, along with quick response to their changing needs.

Beyond Sapa and its competitors Kaiser Aluminum and Bonnell Aluminum, the majority of extrusion operations in North America are highly local, independently owned companies.

Building Systems: Sustainable buildings in Europe

The building and construction industry is the largest consumer of aluminium extrusions in Europe and the market remains highly fragmented. The market for building systems is largely local or regional and is on the brink of comprehensive structural changes. With the harmonization of building regulations across the EU, vendors are taking the opportunity to create systems that are not limited by national borders and to coordinate development, production, purchasing, logistics, and marketing. This process is already being conducted intensively within Building Systems. Competitors include Schüco, Corialis, Ponzio, Kawneer, Reynaers, Heroal, and Hueck.

Precision Tubing: A global leader in its niche

Consumption of extruded aluminium round tubes, multiport extrusions, and welded aluminium tubes is generated mainly by thermal management applications in the automotive market. With E-Mobility gradually becoming the go-to technology for future propulsion, additional applications in battery cooling have arisen as potential tubing segments. Another industry that is recognizing the benefits of aluminium is HVAC&R. In light of stricter legislation and tougher standards for energy efficiency and especially refrigerants, coupled with the hike in copper prices at the end of 2016, aluminium represents a viable solution to all of these challenges while reducing costs for our customers.

Aluminium consumption in the automotive industry is forecast to increase around 4 percent by 2018, driven largely by the increase in worldwide production of light vehicles, electric and hybrid cars, and higher penetration of AC in emerging markets. In parallel, the HVAC&R market still represents considerable potential in substituting copper with aluminium at current production volumes. Precision Tubing is the clear market leader in providing aluminium solutions for heat transfer applications. The main competitors include Erbslöh Aluminium, Impol, and Standard-Metallwerke in Europe and Brazeway, Peerless, and Penn Aluminum in the U.S. Competitors in Asia include UACJ, Wanhe, Mitsubishi, Vikas Altech, OKB, Yatal, and CA Auto. Main competitors to Sapa are also found in the copper segment, including Golden Dragon in Asia and the US, and Mueller Industries in Europe.

Leading the way in our industry

Sapa is organized in four business areas: Extrusion Europe, Extrusion North America, Precision Tubing, and Building Systems. The business areas are responsible for their respective value chains, from aluminium extrusion and value-added operations to commercial activities such as sales and product development. During 2016 we put emphasis on simplification as a way to place resources close to the business areas and consequently add more value for customers. As a result, some corporate functions have been moved to the business areas. Collaboration was our second driver, aimed at facilitating knowledge transfer among the business areas. Both initiatives have allowed us to simplify the organization, improve our cost base, and offer more innovative solutions to our customers.

We will continue to focus on innovation across the value chain in 2017 and are committed to continuously improving our operations and delivering new solutions in order to remain competitive.

Sapa is thus more than the "sum-of-its-presses" and offers some distinct competitive advantages to our customers in all business areas:

This is what our global Sapa brand stands for and what makes us unique. It is also what makes us the leader of the aluminium extrusion industry, which is the core of our strategy.

1. Unmatched technological skills

We employ more than 1,000 engineers, who along wellestablished R&D centers in Sweden and the US constitute the backbone of our innovation network, in close proximity to customers. They are driving technical excellence in extrusion and value-add activities to increase the competitiveness of aluminium. They also host our globally renowned Sapa Academies to share knowledge about the untapped potential of aluminium in today's society.

2. Value chain breadth and depth

Our ambition is to become the one-stop-shop for our customers, helping them turn an idea into a "mass-customized" aluminium-based product. Seamless collaboration between the front and back ends of the value chain provides customers with complete solutions and rapid response time.

3. Global reach and local presence – plant network

Sapa has a global standard for operations that ensures quality and reliability across our network of production plants in 25 countries. This also enables flexibility and swift local customer support.

During 2016, we firmed up our high-level strategy and prioritized a few strategic pillars to drive our business forward. All business areas share the same pillars, which are focused on improving margins and delivering growth:

Increase value-add to our customers

We are investing downstream in our value chain and adding value to extruded profiles and tubes by means of surface treatment and fabrication capabilities. This allows us to focus on opportunities where aluminium can replace traditional solutions, providing the customer with a more cost-effective solution and a greener footprint.

In Building Systems, we are going even further by investing in software and hardware capabilities, presenting our customers with the full kit to design and assemble windows, doors, and façades.

2. Simplify and collaborate

We are striving to lead the industry by reducing costs without compromising on quality or safety. Accordingly, we maintain steady focus on improving our cost position in order to be competitive on local terms. We will continue sharing knowledge and best practice while continuously benchmarking our performance.

3. Selective growth

We are further solidifying the platform for growth by selectively adding capacity and skills that will enhance the value proposition to our customers. Sapa's growth ambitions will be achieved organically, supported by smaller investments and acquisitions.

In sum, based on its competitive advantages outlined above, Sapa is in prime position to capitalize on strategic opportunities to increase volume and margins.

Worldwide operations – local businesses

Sapa bases its business concept on close cooperation with customers. Our customers are primarily located in Europe, the Americas, and Asia. The largest markets are the automotive, building, engineering, and transport industries, as well as residential and office interiors.

Customer needs

Sapa provides local, regional, and global customers with aluminium extrusions, heat transfer tubing, and extrusionbased building systems. We offer superior value and target advanced market segments with high demands. Our solutions are developed in collaboration with customers and they are always adapted to the customer's needs.

Worldwide growth

Sapa is the largest worldwide aluminium extrusion company, with approximately 100 sites in 40 countries and sales of NOK 53 billion. Prior to the joint venture in 2013, which brought together the extrusion businesses of Hydro and Sapa, both companies built their operations primarily through mergers and business acquisitions. Sapa has also grown through green-field operations; the Precision Tubing plant in Suzhou is one example. Sapa employs 22,408 people.

Streamlined and dynamic

Sapa's short decision paths ensure that managers of operating units receive support in the business process and efficient access to the group's combined resources. Sapa is continuously adjusting its structure to strengthen its competitiveness in the market. This includes optimizing production through the closure and divestment of plants and operations and synergy-capturing throughout the company.

Four business areas

Sapa has four business areas organized into three core areas: Extrusion, Building Systems, and Precision Tubing. Extrusion is divided into two geographic business areas: Europe and North America. Each business area president also serves as a member of the corporate management team alongside the President & CEO and the heads of the group functions: Finance, Strategy & Innovation, Communication and Corporate Social Responsibility, Human Resources, and Legal. Operating units primarily report in a regional context, with regional managers reporting to their respective business area presidents.

Global and local

Several key support functions work across business areas and regions. Sapa has a centralized function for research and development and business-specific local and regional application development centers. In total, these units employ approximately 1,000 engineers and form the backbone of Sapa's technological skills base. Sales and marketing teams in each region play a central role in development and handling of strategic accounts. Regional teams working in Operational Excellence are aiming for world-class manufacturing through process optimization.

Profitable growth

Sapa's return on capital in 2016 ended at 15.3 percent, above the Group's cost of capital. All business areas contributed to the growth. Consolidated underlying EBIT increased by 56 percent in 2016 compared with 2015 and reached NOK 2.2 billion. The improvements were driven by positive results from Sapa's strategy of growing within more value-added product segments and prioritizing value over volume. There was also a positive contribution from the completed synergy program and continuous improvements.

Extrusion: Strong improvements and value-add focus

For the year as a whole, Sapa's main markets demonstrated positive development. In Europe, the overall extrusion consumption grew by 1.5 percent compared to last year. Corresponding growth in North America was 2.1 percent. However, markets varied significantly between regions and countries. Sapa's flexible production base has supported efficient resource allocation in this respect.

Extrusion Europe continued to deliver on its value-add strategy, improved product mix, and improved cost position. A strong project pipeline in the automotive market contributed positively, driven by the benefits of replacing other materials with aluminium to drive light-weighting and reduced fuel consumption. Underlying EBIT reached NOK 778 million, compared with NOK 475 million last year.

Extrusion North America experienced improved margins at high capacity utilization levels. A continued strong pipeline in the automotive market drove growth, while certain transportation markets saw a flattening and even a decrease in the second half of the year. Underlying EBIT was NOK 927 million, compared with NOK 931 million last year.

Building Systems: Strong growth and improved earnings

Overall markets for Building Systems showed modest growth in 2016, although certain regions still experienced a decrease in demand. The business area delivered strong results for the year, leveraging the turnaround carried out over the past couple of years. The improvement was driven by cost reductions, simplification of the business model, commercial improvements, and margin management. Underlying EBIT was NOK 381 million, compared with NOK 71 million last year.

Precision Tubing: Strong markets and operational improvements

Precision Tubing experienced a broad-based improvement benefitting from the restructuring of the Asian operations and positive end-market development. Underlying EBIT improved in all regions due to overall better margins and higher volumes except in the South American market, which remains depressed. Underlying EBIT reached NOK 376 million, compared with NOK 124 million last year.

Key financials

Sapa	2016	2015	2014
Total revenue, NOK million	53,430	55,397	46,377
Underlying EBITDA, NOK million	3,498	2,729	1,916
Underlying EBIT, NOK million	2,197	1,407	652
Sales volume (kmt)	1,365	1,363	1,399

Extrusion Europe	2016	2015	2014
Total revenue, NOK million	20,351	20,956	18,837
Underlying EBITDA, NOK million	1,271	1,016	763
Underlying EBIT, NOK million	778	475	224
Sales volume (kmt)	577	563	613

Extrusion North America	2016	2015	2014
Total revenue, NOK million	20,306	21,691	16,448
Underlying EBITDA, NOK million	1,335	1,295	1,013
Underlying EBIT, NOK million	927	931	705
Sales volume (kmt)	585	598	577

Building Systems	2016	2015	2014
Total revenue, NOK million	7,230	7,146	6,854
Underlying EBITDA, NOK million	533	220	159
Underlying EBIT, NOK million	381	71	(1)
Sales volume (kmt)	77	77	88

Precision Tubing	2016	2015	2014
Total revenue, NOK million	6,385	6,306	5,076
Underlying EBITDA, NOK million	608	353	371
Underlying EBIT, NOK million	376	124	181
Sales volume (kmt)	150	145	147

See glossary on page 94.

Pushing the boundaries

Sapa is setting the bar for innovation in the aluminium industry. Our innovation model promotes fast decision paths from idea to product to serve our customers in the optimal way. The fine mix between incremental and disruptive innovation inspires all levels of the organization to contribute and remain committed to customer satisfaction.

The coordination of our innovation efforts is managed centrally, strongly supported by an unparalleled global network of R&D and product and application development specialists. More than 1,000 engineers from across all fields of technology are continuously pushing the boundaries of aluminium processing and application. This takes place within traditional markets such as automotive, transportation, and construction, now complemented by a recent breakthrough in marine & offshore. The latter was achieved by the use of new alloys combined with joining technologies, allowing the substitution of either steel applications offering lighter solutions and higher corrosion resistance or other aluminium sheet solutions. In this case, this has achieved significant reductions in operational costs for our customers. Given the recycling attributes of aluminium, our engineers are intensively looking for ways to increase Sapa's focus on the circular economy by designing products made to eventually be disassembled.

An innovative network

Sapa has four R&D centers located in Finspång (Sweden), Troy (USA), Karmøy (Norway), and Toulouse (France), complemented by application centers covering nearly 40 locations across our four business areas and three corrosion labs in China, the U.S., and Norway. We are leveraging this network to engage in open innovation opportunities. We involve leading universities (such as the Norwegian University of Science & Technology, Michigan Technological University, Massachusetts Institute of Technology, and the University of Oxford) and specialized companies to address specific challenges in order to deliver better products to our customers faster.

Building Systems has also opened physical showrooms in selected cities in Europe to promote their latest product development. Product innovation is vital to success in that market, mainly in Europe, where end-users are becoming extremely demanding. The noise-cancelling window described on page 34 is a good example of our innovations.

At Precision Tubing, innovation efforts are focused on developing new aluminium applications for the automotive industry, such as fuel and brake lines, substituting steel

solutions by offering comparable performance but lighter products. R&D in Precision Tubing is also focusing on developing new alloys to achieve higher corrosion resistance in heat exchangers.

All efforts are shared across all business areas to achieve optimal knowledge transfer and enable faster, better impact in other markets where we see similar opportunities.

Investing in innovation

In 2016, Sapa completed the deployment of its newest research and development laboratory in Troy, Michigan. Representing an investment of over USD 3 million, the facility has proven to be a driving force in the use of aluminium by the automotive industry.

The lab, overseen by Sapa North America's Director of Metallurgy & Research David Lukasak, PhD, provides genuine insight into the future of Sapa's innovative aluminium solutions. The staff of fifteen material scientists, metallographers, engineers, and researchers are working daily in close concert with OEMs to develop, test, and refine new applications in the automotive space.

The state-of-the-art lab is equipped to offer a wide range of aluminium expertise and testing capabilities in three main areas:

Welding and Joining

Significant research is being conducted in the areas of advanced welding and joining in aluminium and multimaterial solutions. Special equipment on-site is being utilized to develop novel friction stir welding applications and evaluate other technologies, such as laser welding.

Crash Management

Automotive bumper systems are evaluated on a hydraulic press, which simulates the impact of a vehicle crash. Designed by Sapa, the proprietary aluminium alloys in these systems are integrated into bumper structures to absorb the energy from a crash and ultimately protect the people inside the vehicle.

Material Characterization

With a Scanning Electron Microscope (SEM) and other advanced microscopy tools, Sapa is able to dissect and analyze the properties of new alloys, ensuring that the solutions they create are of the highest quality and meet rigorous standards.

Business areas

Extrusion	30
Building Systems	34
Precision Tubing	37

Extrusion Global reach, local resources

Revenue 2016, Europe Share of Group total

Revenue 2016, North America Share of Group total

Underlaying EBIT, Europe Share of Group total

Underlaying EBIT, North America Share of Group total

Sapa's aluminium extrusion operations deliver soft-alloy products for a range of applications, mainly within the automotive, building, electrical, engineering, distribution, and transportation sectors. Most of our extrusion operations are located in Europe and North America and, as such, are organized within the business areas Extrusion Europe and Extrusion North America. In addition, Sapa has some extrusion operations organized within the Building Systems and Precision Tubing business areas.

Sapa's extensive worldwide network is unique to the extrusion industry, where local customers are generally served by local suppliers and business is characterized by short-term contracts for a large number of small orders from small to medium-sized customers. However, many customers, in the automotive industry for instance, operate on longer-term contracts. A large portion of the products delivered by Sapa include value-adding processes, such as machining and surface coating, and are produced to order.

Europe

Sapa's market share in Europe is 22 percent and the business area employs 10,000 people at 40 locations, of which 8 have remelting facilities. The aluminium remelted in these plants is cast into extrusion ingot and used by our plants to produce new products.

Extrusion Europe's biggest markets are building and construction and automotive, while there are also targeted resources and initiatives towards markets with big potential for aluminium profiles, such as the marine and offshore market. The advantages of aluminium in terms of a high strength-to-weight ratio and corrosion resistance combined with special joining capabilities is part of the reason these markets are increasingly using aluminium extrusion solutions from Sapa.

North America

Sapa's market share in North America is 24 percent and the business area employs 6,500 people in 23 plants, of which 9 have remelting facilities.

The biggest markets for Extrusion North America are automotive, truck and trailer, distribution, and commercial building and construction. With plants across the U.S. and Canada, the business area is the market leader and wellpositioned to serve these markets with dedicated commercial and technical resources.

Versatile and limitless

Extrusion use is increasing as more industries discover the benefits of aluminium in new applications. The metal is substantially lighter than copper and steel. Other advantages are its low density and high strength-to-weight ratio. It is easy to shape into advanced forms, has a smooth surface finish, and is 100 percent recyclable. Equipped with this versatility, the use of extrusions is limited only by the bounds of the imagination. Sapa delivers profiles from 5 millimeters and 30 grams per meter to 750 mm and 70 kilograms per meter. The maximum diameter is 440 millimeters.

Adding value

Sapa adds value in many ways, providing customers with expertise and capacity that frees them to concentrate on their own operations. Surface treatment is one of the ways that Sapa is adding value. The natural appearance of an extrusion is acceptable for many applications and, due to the metal's properties, surface treatment is rarely necessary

for corrosion resistance. However, surface treatment can improve a profile's surface structure, color, hardness, reflectivity, and electrical insulation. Anodizing produces a decorative, soil-repellent and corrosion-resistant surface. Powder coating is used to apply color to aluminium profiles because it withstands high impact and abrasions considerably better than wet coating. It is also suitable for use outdoors due to high UV radiation and corrosion resistance.

Further processing

An objective when designing profiles is to create a shape that requires minimum post-extrusion processing, although further processing is often necessary. One benefit of aluminium's formability is that processing can be inexpensive due to competitive tooling costs. Sapa is well-equipped in the area of high-speed machining. Its CNC-controlled multitask machines have better dynamics and more efficient control systems than conventional machines. Joining is another area of growing importance. Friction stir welding (FSW) is a technology that joins profiles without creating seams and without filler metals or shielding gases. The joints are stronger than fusion-welded joints and the strong joints combined with aluminium's properties makes FSW ideal for rail and offshore applications.

Keeping dry with Aquobex

Aquobex, a manufacturer of flood protection products, contacted Sapa UK in mid-2016 for help with the redesign of a product. They were hoping to incorporate weight savings without losing performance or structural integrity in their K50 flood barrier product.

From concept to solution, the Sapa UK team had two and a half weeks to build the 30-meter prototype unit. The project was a collaborative effort involving Sapa's marketing, finance, sales, design, die shop extrusion, fabrication, and logistics departments.

The success of the project relied heavily on the technical design and manufacturing process, which allowed rapid production while still meeting all of the customer's main objectives (weight under 25 kg, height of 1,200 mm, no tools required to assemble and quick deployment).

The 5 km production order was delivered one week early and under budget. Sapa's showcase of capabilities, expertise, and flexibility in this situation earned us another Aquobex project in the future.

Not only can homes and businesses across the UK stay protected from flooding with this product, but if its posts or panels are damaged in use they can be bought back, remelted, recycled, and made into a new component: the true essence of aluminium.

Although there are similar products on the market, Sapa helped take the Aquobex demountable/temporary and rapidly deployed flood defense system to a new level of design and engineering innovation.

Quality and innovation go hand-in-hand

Sapa has been supplying high-strength, structural aluminium tubing for Ford Motor Company's F-150 pickup truck since 2014. Every truck has nearly six kilos of aluminium supplied by Sapa Extrusion North America's facility in Cressona, Pennsylvania. With over eight million kilos of tubing produced since 2014, Sapa has proven itself a valued supplier and this year was the proud recipient of Ford's prestigious Q1 Award.

This award is only given to suppliers that meet Ford's strict quality and manufacturing disciplines for ongoing performance. Cressona has excelled in these areas, with 100 percent on-time delivery and zero PPM (zero defects per million parts produced). The Q1 Award is the result of years of

teamwork and innovation by Sapa's metallurgists, engineers, and production employees.

The combined success of the F-150 and the Q1 Award opened the door for further collaboration between Sapa and Ford, with Cressona supplying aluminium tubing for the 2017 F-250 and F-350 Super Duty trucks. By utilizing an aluminium body structure, the Ford Super Duty will weigh 159 kilos less than its steel predecessor, increasing max payload capacity by 8 percent. Nearly 400,000 Super Duty trucks will be made next year, proving that aluminium continues to be the lightweight, high-strength solution for automotive.

Building Systems Global locals

Providing world-class, innovative products and solutions of the highest quality is the core of our business. In addition, our local production lines enable us to be the fastest and most flexible supplier of locally adapted yet globally acclaimed aluminium façade and fenestration solutions. By focusing our global competence on our local presence, we truly understand local needs, shifting cultural forces, and the specific demands on our services they entail.

Sapa is at the forefront of development of aluminium-based products and solutions for energy-efficient buildings. We offer systems for curtain walling, doors, and windows, as well as specialized applications like solar shading and building-integrated photovoltaics. Customers range from contractors and specifiers to designers, architects, and metal builders.

Building Systems' operations are organized within three global brands – Technal, Wicona, and Sapa. While most of the 3,000 employees are located in Europe, the business area is developing a global presence, utilizing export links and establishing local manufacturing facilities and footholds in new territories, including India and the Far East. Sapa's market share for Europe is 18 percent and we have employees in 29 countries.

Aluminium building systems are utilized in the residential sector and in offices, industrial facilities, and other commercial buildings. Products are adapted to national and regional regulations, local building customs, and, increasingly, individual projects. Sapa's systems provide cost-effective flexibility thanks to product families with interchangeable components that can be individually adapted.

Sapa offers extensive coverage and service in a European market that favors solutions linked to regional building customs and local culture. Each global brand represents a distinct system that permits customers to tailor the solutions to the needs of their market, ranging from window replacements to complete façades for major structures such as new airports and high-rise buildings. Efficient distribution and logistics operations ensure timely and accurate deliveries.

Appropriate solutions

Sapa develops its architectural aluminium building systems in cooperation with architects and specifiers. The design process begins during the initial dialogue with the customer and ends with the development of high-quality systems that are easy to manufacture and install.

The largest research and application centers in Building Systems are located in France and Germany. Sapa leverages this expertise to create the most appropriate and effective products that meet the project criteria, whether they are based on design esthetics, energy savings, fire resistance, or security. We have delivered solutions for many showcase buildings and are a market leader in the project segment, a position recognized through various industry awards.

Reducing energy demand

No segment consumes more energy than buildings, which account for around 40 percent of global energy demand. This is mainly related to heating, cooling, ventilation, and lighting. Creating more energy-efficient building systems is fundamental to meeting the challenges of climate change and the squeeze on energy resources. Aluminium has many

properties that can be exploited to enable buildings to achieve low energy demand. Aluminium systems can also help buildings become net producers of energy. While the energy needed to construct an aluminium-based solution – the embedded energy – is higher than for most other materials, the embedded energy in a building is small compared to the building's lifetime energy consumption and the energysaving potential.

Creating and developing a sustainable business we believe in, paired with our passionate attitude towards performance and client success will enable us to reach further and create even greater products. Furthermore, at the end of its useful life, nearly all the aluminium used in a building can be recovered, recycled, and reused. Currently, end-of-life recycling rates for aluminium used in buildings is around 90 percent.

While we continue our journey to tackle major global challenges such as climate change, increasing energy demands, and urban expansion we know that our work will not only be judged by our customers and partners, but by our children and generations to come.

Letting in the breeze, leaving out the noise

The United Nations predicts that 60 percent of the world's population will live in urban areas by the year 2030. Heavy traffic, shopping, construction, and neighbors make urban living inherently noisy. Despite the clear benefits of fresh air and ventilation, over 90 percent of city dwellers instinctively close their windows for the sake of peace and quiet, which can lead to increased HVAC costs and poorer indoor air quality.

Over the past three years, Technal's R&D team has worked alongside specialists from the French National Center for Scientific Research (CNRS) and the French engineering firm Gamba Acoustique to develop a unique and patented solution to the problem of noise pollution. By utilizing the latest in passive sound dampening and active digital signal processing technologies, Technal's sliding window concept is able to decrease external noise by roughly 25 dB – equivalent to 300 times less noise indoors.

Technal's active acoustic concept has been enthusiastically received by the construction industry and architects alike, winning numerous awards including the prestigious Batimat silver medal for innovation. As the challenges facing the building and construction industry continue to evolve, Sapa's Technal brand is helping meet demands for sustainable architecture and livable urban spaces.

Precision Tubing Leading the way

Precision Tubing produces and sells aluminium tubing for heat transfer applications, mainly for the automotive market, which represents the vast majority of the total market segment. Precision Tubing also serves industrial customers, a growing market segment, and delivers applications for transporting liquids and gases.

NOK 6,385 million

Precision Tubing supplies extruded aluminium round tubes, micro-port extrusions, and welded aluminium tubes. We offer value to customers through high performance, quality, consistency, flexibility, and overall economy. Our products are adapted for different types of heat exchangers: radiators, condensers, heaters, oil coolers, charge-air coolers, and air- conditioning systems. Beside heat transfer applications, we also supply niche markets such as railway, heavy vehicles, geothermal, and other segments where our technological expertise and innovative products can benefit our customers.

Precision Tubing has a global market share of 35 percent and nearly 2,900 employees in Europe, Asia, and the Americas. Most employees work in the business area's drawn tube and welded tube operations. The business area also heads up Sapa's general extrusion operations in Argentina, Brazil, China, India, and Vietnam. The general extrusion operations mainly supply to other market segments such as building and construction. In these segments the margins are generally at a lower level because there is less value added to the extrusions.

Regional and global

Sapa is the only company with a regional and global presence that is dedicated to supplying aluminium tubing for heat transfer applications. Our key customers include all major Tier 1 manufacturers of automotive heat exchangers. We have leading market positions in Asia, Europe, North America, and South America. Precision Tubing's sales to the automotive sector accounted for half of the total volume in 2016. The global automotive market has experienced a strong recovery, especially in North America, after the contraction that followed the global financial crisis. The HVAC&R segment is continuing to grow and the material substitution from copper to aluminium is gaining speed. Due to the physical properties of aluminium, the gains in performance and efficiency are as significant as the reductions in cost, size, and weight compared to the traditional metal of choice, copper.

Sapa has a global research and applications center with resources in Brazil, China, Denmark, Norway, and the United States. It covers alloy and coating development, brazing technology, corrosion design, simulation, and testing.

Aluminium lightens the load

By 2021, the average new car in the EU will be permitted to emit only 95 grams of carbon dioxide per kilometer driven. To meet these emission targets, the automotive industry is looking for new solutions to reduce vehicle weight. At Sapa, we know that aluminium is the ideal solution for these weight-reduction efforts, so we recently developed the firstever aluminium brake line for automotive applications.

The brake line is produced by Precision Tubing Tønder in Denmark and is made of a high-strength aluminium alloy. The aluminium brake line is more than 50 percent lighter than conventional steel versions. The normal volume of a brake line in a light vehicle is about 12–14 meters. On average, car manufacturers can shed 0.5 kg per vehicle by replacing steel with aluminium. While this may sound like

a small improvement, all weight reductions count on the journey towards more sustainable vehicles.

The Sapa aluminium brake lines have been tested to rigorous OEM specifications including vibration, burst, torque, leakage, coating adhesion, and corrosion resistance, with excellent results.

The full potential of aluminium in cars and trucks is far from realized. Aluminium is often seen only as a lightweight alternative to traditional materials like steel, but aluminium is much more than that. "You can design components that simply cannot be manufactured in steel, with different properties and added functionality," says Business Development Manager Klaus J. Sandfeld.

The EHS journey continues

Sapa believes in Environment, Health and Safety (EHS) excellence and that this will be achieved through the consistent implementation of the Sapa EHS Management System, committed and visible leadership, and the full engagement of all employees in EHS activities.

Sapa's 2016 safety performance deteriorated slightly over 2015 but remains at benchmark levels for an industrial operation.

The number of recordable injuries (TR) increased to 149, which is 17 more workers injured than in 2015. Lost work day (LWD) injuries also increased to 65, which is 14 more than in 2015.

This has taken the Group's 2016 Total Recordable Injury Rate to 3.33 (2015: 2.98) and Lost Work Day injury Rate to 1.45 (2015: 1.15).

The number of locations without recordable injuries increased to 69 from 66 in 2015.

All recordable injuries to both Sapa and contracted workers are rated to their potential severity, as this is often higher than the actual injury sustained. The number of high potential (permanent injury/disability) and fatality potential TR injuries to both Sapa and contractors declined by 25 percent in 2016 from 2015 levels.

Fatality risks alone have been reduced by 30 percent, and we will continue working hard to reduce those risks further.

The visibility of compliance with Sapa standards continued in 2016 with increased use of the self-assessment process which complements the Group EHS audit requirements. All sites are required to report quarterly on a range of EHS topics with the objective of scoring at a "good" level. These reports are followed up by Group EHS and the results fed back to the sites and business area EHS leads.

Sapa uses three score levels:

Poor: the protocol under review is significantly less than required by Sapa
Fair: the protocol achieves legal compliance but falls short of Sapa's increased needs
Good: where all Sapa's needs are met

All sites are required to continually focus on safety programs and in particular the critical programs that carry a high risk of a fatality if not followed. These critical programs include: Energy Isolation, Fall Control and Mobile Equipment, and, where relevant, Confined Space Entry and Molten Metal safety. The Sapa Group achieved 69 percent at a "good" level.

The focus on achieving resilient EHS management systems continued with emphasis on the self-assessment score for risk assessment, legal, objectives, and emergency response. An overall score of 76 percent "good" was achieved

with all sites scoring a minimum of "fair" and in line with expectations.

Employee engagement continues to be a key aspect with increased guidance on how to engage workers effectively. Furthermore, the sharing of good practices implemented is a strategic pillar of the continuous improvement process. The engagement target in 2016 (>75 percent) covers all employees and is not restricted to shop floor workers. A result of 79 percent was achieved.

The increased focus on health and wellbeing continued into 2016 with numerous initiatives implemented to help raise health awareness. One noteworthy example was the introduction of a monthly health calendar, where articles on various health topics are provided for use by locations and individuals. The practical focus on health hazard controls was formalized and good improvements were seen during the year, with 62 percent scoring "good" at self-assessment.

The focus on ergonomics continued with 54 percent scoring "good" at self-assessment. However, this is not to the level required and more competence is required; this will be addressed in 2017.

During 2016 the Global Health Team membership was expanded and met several times during the year. The team further developed Sapa's approach to physical health, mental health, and wellbeing. A new method to occupational exposure assessments has been developed and a focused strategy to work-related stress building upon the work started in 2015 was agreed.

Absenteeism management has improved greatly with all sites having formal management programs and activities to

improve attendance. The absence rate is 2.9 percent and is the same as 2015.

All Sapa operating locations with environmental risks are required to be certified to ISO14001. Two sites are yet to be certified, giving a 98 percent completion rate.

There were no major environmental non-compliances. There were 16 legal environmental non-compliances reported in 2016, the same level as in 2015. There was an increase in environmental noise complaints in 2016 and this will be a key focus area in 2017.

Energy consumed per processed tonne decreased by 0.25 percent in 2016 over 2015 levels. Purchased electricity increased by 6 percent compared to 2015.

Total CO2 produced and CO2 produced per processed tonne increased over 2015 levels.

Sapa produced total waste in 2016 of 108,049 tonnes. This was an increase of 0.7 percent over 2015 figures.

This increase in total waste can be linked to an increase in production and site improvements, including removal of non-hazardous waste such as rubble and debris from building and site renovation.

In 2016, 75 percent of all waste was recycled. This is a 5 percent decrease from 2015 and directly attributable to the increase in waste to landfill.

Health and Safety	2012	2013	2014	2015	2016
Fatalities	0	2	0	0	0
Total recordable injuries	192	179	225	132	149
Total recordable rate (total recordable injuries per 1,000,000 hours worked)	4.48	4.15	5.02	2.98	3.33
Lost work day injuries	90	80	98	52	65
Lost work day rate (lost work day injuries per 1,000,000 hours worked)	2.11	1.86	2.19	1.17	1.45
Absenteeism rate	2.61	2.96	2.69	2.91	2.90

Total recordable injuries

Environment	2012	2013	2014	2015	2016
Total energy consumption (GWh)	3,487	3,527	3,547	3,577	3,662
Total energy consumed per processed tonne of aluminium (MWh)	1.45	1.44	1.43	1.44	1.42
Water for industrial use (m3)	8,462,540	7,725,751	6,248,180	5,097,314	5,847,462
Water input per processed tonne of aluminium (m3)	3.53	3.09	2.52	2.03	2.27
Total waste produced (tonnes)	117,204	113,845	93,396	107,310	108,049
Waste produced per processed tonne of aluminium (kg)	48.9	45.5	37.6	43.3	41.9
Percentage of total waste recycled	76	73	74	80	75
Total waste to landfill (tonnes)	18,893	19,700	19,837	16,922	19,806
CO2 emissions (tonnes)	982,742	1,015,995	997,768	1,015,435	1,059,186
CO2 emissions per processed tonne of aluminium (tonnes)	0.41	0.41	0.40	0.40	0.41

Lost work day injuries

Sapa focuses on the water used during the production processes of a site as a whole. Total water entering locations (water input) increased by 15 percent in 2016 compared with 2015. Water input per processed tonne also increased by 12 percent in 2016 compared with 2015.

Physical security management systems were developed and deployed in 2016 with all sites required to complete threat and security assessments. These assessments are reviewed by the Security Director for accuracy and completeness and follow-up actions are agreed with the sites.

There has been good take-up of the required Travel Safety and Security and the Active Shooter/Armed Aggressor training. This training has been attended by all members of the corporate management team and is being cascaded through the organization.

The Sapa intranet Express is regularly updated on security threats globally and restricted travel measures are implemented where necessary.

The Risk Engineering function was incorporated into EHS midway through 2016 as part of the Sapa simplification process. Risk engineering surveys are conducted at all Sapa sites every three to four years and focus on business risks and controls such as fire, natural disaster, equipment failure, etc., and the provision of appropriate business continuity plans. The Risk Engineering audits will be integrated with the EHS audit during 2017 and 2018 where practically possible. The Risk Engineering process will follow the same principles as EHS with a systematic systems approach with visible leadership and employee engagement. Risk Engineering requirements will be made part of the daily work of locations and will be supported by a new audit/self-assessment tool that was developed and rolled out in 2016.

Risk and risk management

Sapa's objective is to create value for the benefit of shareholders, employees and society at large. Value creation requires solid socially responsible operations and profitable growth over time. One prerequisite for this is control and management of business risks.

It is neither desirable nor possible to eliminate all risks associated with business activities, but growth and value creation opportunities must be considered and balanced against the risk on an ongoing basis. Consequently, Sapa's business areas and units must at all times understand and be aware of the risks they are taking in individual transactions and only accept risks for which they are adequately compensated and which are balanced to ensure we are executing according to Sapa's strategic objectives.

Sapa initiated an update of its enterprise risk management framework to further integrate risk management with core business processes in 2016. One element of the integration is to put risk management on the agenda for all business area reviews.

Sapa's risk framework is described in a corporate Risk Management Directive and the Risk Management Handbook. Risk assessment tools are available throughout the group. In order to effectively measure and manage identified risks, Sapa quantifies risks in terms of probability and consequences in the event that they materialize.

While the main responsibility of risk management resides with the business areas and units, some risks are coordinated by corporate functions. Risks related to metal prices and exchange rates are the responsibility of the business units but are coordinated and hedged by Corporate Treasury. For safety and compliance risks, corporate staff within Legal, Compliance, Corporate Social Responsibility (CSR), Environment, Health, and Safety (EHS), Corporate Finance, and Corporate Audit set standards, initiate training programs, and monitor the risks, although the business areas and operational units remain ultimately responsible.

Corporate Finance monitors the risk management process and consolidates risks identified at the corporate level.

The Board of Directors annually reviews the overall group risk picture and enterprise risk management framework.

Examples of typical risks associated with Sapa's operations are described in the following section.

Operational risks Safety

Sapa has approximately 22,400 employees and operates at more than 100 sites. The work involves large material flows, machining, high temperatures, and other operations that may give rise to dangerous situations and risk of injury to employees or contractors if safe working procedures are not followed. While employee safety is our top priority and our constant target is zero injuries, Sapa experienced a slight increase in TRR in 2016 as a whole, although the trend was positive in the fourth quarter. The actual severity and potential severity of injuries were reduced see page 38–40. Sapa has well-established EHS standards. EHS training, reporting, and benchmarking are ongoing and actions are continuously taken to prevent, impede, or reduce the risk and consequences of workplace accidents. Senior management pays close attention to the risk and several operational units are living up to the standards and demonstrating over time that zero injuries is possible.

Market risks

Sapa provides aluminium solutions for a wide range of applications. The largest customer segments are building and construction, automotive and transportation. A downturn in either of these segments, which are all highly dependent on general economic developments, may impact Sapa seriously. As geographical and end-use market cycles seldom coincide, Sapa's global presence and vast product range reduce our exposure to volatile markets somewhat. Sapa continuously monitors market developments and strives to be flexible while actively managing its exposures to reduce the consequences of inherent volatility.

Emerging market risks

While most of our operations and sales are in developed markets like Europe and North America, Sapa is also active and growing in markets that may be considered emerging and transitional, particularly in Asia. Generally, emerging and transitional markets are less advanced and more exposed to political instability, severe inflation, and fluctuation of

exchange rates, changes in laws and regulations including volatility in tax regimes, judicial interpretations, and compliance breaches that may impact Sapa's investment. Sapa has developed and implemented directives and procedures for deployment of capital formulated to provide an effective basis for evaluation, control, and monitoring of projects, investments, and major contracts to mitigate the risk.

Site risks

Sapa's operations involve hot work processes and other activities that are subject to risks such as fire and machinery breakdown that may result in physical damage to assets, operational disruption, and/or other losses or damage. Continuous focus on preventive maintenance and sharing of best practices through Sapa's operational excellence and EHS communities, along with an intense and comprehensive risk engineering survey program conducted over recent years, have enhanced general risk awareness and performance. Based on surveys, actions to reduce risk are continuously taken. Installation or improvement of fire protection systems is complete or in progress. Business continuity plans have been implemented and tested annually and adequate insurance has been purchased to reduce the probability and consequences of such incidents.

Product claims

Sapa manufactures and sells aluminium products and solutions for a wide range of applications. Depending on the product supplied, which may vary from simple extrusions or components to complex systems involving value-add activities like fabrication and surface treatment, the consequences of a non-conformance with quality standards may include significant financial loss or damage. In order to mitigate the risks of product claims, quality systems, processes, and controls are implemented and continuously reviewed for improvements, to achieve and maintain compliance with required standards, and procedures for contract review and approval, as well as adequate insurance coverage, are implemented.

IT risks

Sapa is dependent on IT systems in all parts of our business. Inaccessibility, unauthorized access, or integrity error in critical systems may negatively impact production and reporting, causing financial loss and damage. Sapa is investing in an updated and robust IT infrastructure and continuously upgrades and improves IT systems to ensure stable operation and adequate security. Sapa is also training its employees in safe behavior in response to the increasing threat of global cybercrime.

The implementation of major IT systems, such as Enterprise Resource Planning (ERP), may involve a risk of business interruption.

Human resources

Sapa is dependent upon the continuous development and successful application of new technologies and requires substantial capacity and expertise in terms of complex management and critical business processes. There is a risk that Sapa will not be able to attract and retain personnel with the right qualifications. A satisfactory level of employee turnover and skills throughout the organization are ensured through engagement surveys and follow-up, good succession planning, and personal development opportunities.

Environmental risks

Sapa's sites may be exposed to unknown or underestimated inherent contamination or operations may involve the use of pollutants that might adversely affect the environment and breach environmental regulations. Sapa has implemented an EHS Management System compliant with the ISO 14001 environmental standard, extensive reporting, benchmarking, sharing of best practice, and insurance coverage to prevent and mitigate this risk.

Credit risks

Security risk

Sapa is committed to safeguarding its employees, business, and assets against harm from intentional acts and has recently established a separate corporate security function within EHS management. Certain regions are more exposed to criminal activities and security risks for Sapa employees and properties and special security precautions are taken for these regions. Sapa has also introduced a better tool for tracking travelers and communicating travel security updates and provides mandatory security training for frequent travelers.

Governance risk

Sapa's global footprint, decentralized organizational structure, and cross-border activities represent inherent governance risks. These are primarily the prevailing general economic, legal, and tax-related conditions in the relevant countries, political unrest, and unanticipated changes in foreign regulatory and legal requirements. In addition, there are risks of trade restrictions and changes in tariffs or customs duties associated with international business. Certain geographical locations also have inherently higher risks related to corporate conduct and corporate social responsibility, including risks related to corruption. Sapa has a Code of Conduct that applies to all employees and has recently been revised and reissued.

Competition law

Violating national or international competition laws may lead to fines and reputational damage. These laws are complex and violations may be made inadvertently. Sapa provides extensive training concerning competition law to relevant employees and management.

Corruption

The risk of being involved in corruption may also lead to fines, penalties, and lost reputation. Comprehensive training programs have been launched, covering all management and key employees worldwide.

Human rights

Working conditions at Sapa or one of its suppliers or partners might be found in breach of international regulations. This would expose Sapa to a risk of legal sanctions and loss of credibility. Sapa takes the risk of human rights violations seriously and training programs and other measures have been implemented. Suppliers are also requested to accept and sign the Sapa Supplier Declaration.

Financial risks

Metal risks

LME price

Aluminium is traded on the London Metal Exchange (LME) and is subject to fluctuations in price that have direct impact on Sapa's costs. As the cost of aluminium constitutes a large share of Sapa's sales value, such fluctuations could have serious impact on consolidated earnings. Each operating unit in Sapa mitigates this risk by keeping a balanced LME position with defined thresholds for temporary long or short positions. A balanced position is attained when the LME exposure in fixed-priced sales to customers equals metal inventories plus fixed-price metal purchases from suppliers. To the extent that such balance is not achieved through physical positions, the operating units make financial hedges with Corporate Treasury, which in turn will balance the group's total exposure through financial hedges with external parties. Net exposure to fluctuations in the LME price is considered low.

Billet premium

When Sapa buys billets for its extrusion plants it has to pay a billet premium in addition to the LME price. Opportunities to financially hedge billet premium exposure are limited and by year-end 2016 Sapa had a long position. The billet premium has historically been fairly stable, but has been more volatile in recent years. Sapa continuously monitors its billet premium exposure and evaluates mitigating actions.

Ingot/scrap premium

Parts of Sapa's metal supply come from purchased aluminium scrap or aluminium ingots that are upgraded to billets in Sapa's own casthouses. Subject to Sapa's long position in these products, Sapa is exposed to a price drop in these premium markets.

Foreign exchange risks

Transaction risk

Translation risk – income statement

The group's functional currency is Norwegian kroner (NOK). Fluctuations in other currencies against NOK, particularly euro (EUR) and the US dollar (USD), will impact Sapa's earn-

Translation risk – statement of financial positions

Pension obligations

While Sapa's contributions to employee pensions are mainly through defined contribution plans, there are a few defined benefit plans remaining in the UK and the US. Sapa is obligated to provide cash contributions should either of the defined benefit plans be considered underfunded due to market-related fluctuation or changes in mortality and inflation. There are investment strategies in place that align the return and risk optimization to mitigate this risk.

Financing risk and liquidity risk

Financing risk is defined as the risk that the refinancing of maturing debt may become difficult or costly to arrange. Liquidity risk refers to the risk of not being able to meet payment obligations as they fall due. Sapa has an equity ratio of more than 50 percent. In June 2013, prior to the commencement of the joint venture, Sapa was granted a credit facility of EUR 700 million with a term of five years. By the end of 2016 the facility was unutilized. Financing and liquidity risks are currently considered low.

Reporting risk

Sapa comprises a number of companies worldwide that report financial data to their parent companies. If inaccurate or misstated data is reported, this could prevent Sapa from providing a fair view of its financial earnings, position, and sustainability activities. All Sapa units are required to report their financial data on a monthly basis in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). Extensive training and mandatory Internal Control Requirements have been implemented to mitigate the risks.

Other financial risks

Sapa Profiles, Inc. Portland (SPI), a Portland, Oregon-based subsidiary of Sapa's Extrusion North America business area, is under investigation by the United States Department of Justice (DOJ) Civil and Criminal Divisions regarding certain aluminium extrusions that SPI manufactured from 1996 to 2015, including extrusions that were delivered to a supplier of NASA. SPI is cooperating fully in these investigations. The investigations are currently ongoing and at this point the outcome of the investigations and of any identified quality issues, including financial consequences for Sapa, is uncertain. SPI has been temporarily suspended as a federal government contractor. Sapa does currently not expect any resulting liabilities to have material adverse impact on its financial position.

Financial report 2016

1 Board of Directors' Report	45
1.1 Information about operations and key events during the year	45
1.2 Going concern	45
1.3 Financial and underlying operating results	45
1.4 Financial result and balance, parent company	46
1.5 Risk factors	46
1.6 Internal control	46
1.7 Research and development	47
1.8 Personnel and EHS	47
1.9 Integrity and human rights	48
1.10 Market overlook	48
1.11 Ownership structure	48
1.12 Distribution of capital	48
2 Financial statements	49
2.1 Consolidated income statement	49
2.2 Consolidated statements of other comprehensive income	50
2.3 Consolidated statements of financial position	51
2.4 Consolidated statements of cash flows	52
2.5 Consolidated statements of changes in equity	53
2.6 Notes to the consolidated financial statements	55
Note 1 – Accounting policies	55
Note 2 – Important estimates and assessments for accounting purposes	56
Note 3 – Financial risk management	58
Note 4 – Revenue information	62
Note 5 – Employee and management remuneration	63
Note 6 – Auditor remuneration	64
Note 7 – Research and development	64
Note 8 – Leases	64
Note 9 – Depreciation and amortization expense	64
Note 10 – Impairment of non-current assets	64
Note 11 – Financial income and expense	65
Note 12 – Income tax expense	65
Note 13 – Earnings per share	65
Note 14 – Property, plant, and equipment	66
Note 15 – Intangibles	67
Note 16 – Goodwill	67
Note 17 – Investments accounted for using the equity method	68
Note 18 – Non-current assets held for sale	69
Note 19 – Inventories	69
Note 20 – Trade receivables and other receivables	69
Note 21 – Equity	69
Note 22 – Interest-bearing debt	70

Note 23 – Provisions	70
Note 24 – Provisions for pension liabilities and similar commitments	71
Note 25 – Deferred tax	72
Note 26 – Trade payables and other payables	73
Note 27 – Financial instruments	73
Note 28 – Other liabilities, claims and contingencies	76
Note 29 – Contractual commitments and other commitments for future investments	76
Note 30 – Related-party information	84
3 Financial statements Sapa AS	77
3.1 Income statements	77
3.2 Balance sheets	78
3.3 Statements of cash flows	79
3.4 Notes to the financial statements Sapa AS	80
Note 1 – Summary of significant accounting policies	80
Note 2 – Employee retirement plans	80
Note 3 – Management remuneration, employee benefits expenses, and auditor fees	81
Note 4 – Property, plant and equipment	82
Note 5 – Intangible assets	82
Note 6 – Financial income and expense	82
Note 7 – Income taxes	82
Note 8 – Investments in subsidiaries	83
Note 9 – Non-current intercompany receivables	84
Note 10 – Related party disclosures	84
Note 11 – Specification of balance sheet items	84
Note 12 – Guarantees	84
Note 13 – Non-current debt	84
Note 14 – Number of shares outstanding, shareholders and equity reconciliation	85

1 Board of Directors' Report

Statement by the board

Sapa was established on September 1, 2013 as a joint venture (Sapa JV) by merging Hydro's Extruded Products division and Sapa's Profiles, Building Systems, and Tubes businesses. Having already reached its synergy and restructuring targets of more than NOK 1 billion by 2015, the board focused in 2016 on developing the company's strategy. The strategy is based on three pillars; increasing the valueadded offerings to the customers, simplification and collaboration, and selective growth.

In 2016, the board continued to closely monitor integration and EHS processes to ensure seamless operations and a prudent approach to financial and operational risk. The latter is accomplished through regular detailed review of the main risks and regular financial updates and planning processes. In addition, the board has ensured that the company's governing structures and policies are being further developed and anchored in the organization. A main focus area for the board in 2016 was the further strengthening of the company's compliance function and activities, as well as establishing, rolling out, and training the global organization in Corporate Social Responsibility. For more information about sustainability efforts, please see Sapa's Sustainability Report at www.sapagroup.com

1.1 Information about operations and key events during the year

Sapa is the world's leading supplier of extrusion-based aluminium solutions and operates within the areas of extruded profiles, building systems, and precision tubing. The company's market shares in soft alloy extrusions at the end of 2016 have been estimated at approximately 22 percent in Europe and approximately 24 percent in North America. Sapa has an extensive production network that combines global reach with local presence, consisting of more than 100 production sites. Most of the facilities are located in Europe and North America. Sapa also has a foothold in emerging markets with extrusion capacity in South America and Asia. Sapa is one of the two largest suppliers of building systems based on aluminium extrusions in Europe and the market leader in aluminium tubing products for heat transfer applications, mainly for the automotive industry. In addition, Sapa's aluminium tubing solutions are used in heat transfer applications for other industries such as HVAC&R and the solar market segments. Sapa's extrusion operations serve a diverse customer base within the automotive, transportation, building and construction, electrical, and engineering market sectors.

Sapa's general extrusion activities are organized into two geographic business areas: Extrusion North America and Extrusion Europe. The majority of Building Systems´ operations are currently located in Europe, while Precision Tubing is a global business. Sapa's plants work closely with their local customers, tailoring aluminium profiles and providing support services according to their needs. At the same time, Sapa optimizes its capacity and capabilities across regions and can serve larger customers from multiple plants depending on customer needs and Sapa's available capacity.

Further and more detailed information about the business areas and markets is provided on pages 22–31.

1.2 Going concern

Sapa Group has a book equity ratio of around 53 percent (45 percent), with total equity of NOK 13,800 million (12,871), and sufficient unutilized credit facilities. Pursuant to §§ 3–3a of the Norwegian Accounting Act, the board of directors confirms that the financial statements have

been prepared under the assumption that the company is a going concern and that this assumption was realistic as of the reporting date.

1.3 Financial and underlying operating results Sapa group Financial and underlying results

Sapa reported EBIT of NOK 2,420 million in 2016, compared with NOK 528 million in 2015. To provide a better understanding of underlying performance, Sapa focuses on underlying EBIT in its financial reporting. Underlying EBIT is defined as EBIT, adjusted for material impairment charges, restructuring costs, unrealized derivative gains or losses, and certain other non-recurring gains or losses. Sapa had an underlying EBIT of NOK 2,197 million in 2016, compared with NOK 1,407 million in 2015. In 2016, shipped volumes totaled 1,365,000 tonnes (1,363,000).

For the year as a whole, Sapa's main markets showed positive developments. In Europe, overall extrusion consumption grew by 1.5 percent compared to last year. The corresponding growth in North America was 2.1 percent. Markets did, however, vary greatly between regions and countries, where Sapa's flexible production base supports efficient resource allocation.

Sapa Extrusion Europe continued to deliver on its value-add strategy, improved product mix, and improved cost position. A strong pipeline of projects in the automotive market contributed positively, driven by the benefits of replacing other materials with aluminium to drive lightweighting and reduced fuel consumption. Underlying EBIT ended at 778 NOK million, compared to 475 NOK million last year.

Sapa Extrusion North America experienced improved margins at high capacity utilization levels. A continued strong pipeline in the automotive market drove growth, while certain transportation markets, in particular the truck and trailer segments, saw a flattening and even negative territory in the second half of the year. Underlying EBIT ended at 927 NOK million, compared to 931 NOK million last year.

Overall markets for Sapa Building System showed modest growth in 2016, although certain regions were still in negative territory. The business area delivered strong results for the year, leveraging the turnaround carried out over the past couple of years. The improvement was driven by cost reductions, commercial improvements, and margin management. Underlying EBIT ended at 381 NOK million, compared to 71 NOK million last year.

Sapa Precision Tubing experienced broad-based improvement benefiting from the restructuring of the Asian operations and positive endmarket development. Underlying EBIT improved due to overall better margins and higher volumes in all regions except the still depressed South American market. Underlying EBIT ended at 376 NOK million, compared to 124 NOK million last year.

Income before tax

Sapa is reporting income before tax of NOK 2,368 million in 2016, compared to NOK 248 million 2015, an improvement of NOK 2,120 million. Net financial items amounted to an expense of NOK 52 million in 2016, compared to an expense of NOK 280 million in 2015. Net financial items include a currency gain of NOK 100 million in 2016, compared to a currency loss of NOK 66 million in 2015.

Net income

Sapa is reporting net income of NOK 1,785 million in 2016, compared with NOK 251 million 2015, an improvement of NOK 1,534 million. The net tax expense was NOK 583 million in 2016, including a current tax expense of NOK 364 million and a deferred tax expense of NOK 219 million. For 2015 net tax expense was positive at NOK 3 million, including current tax expense of NOK 240 million and deferred tax income of NOK 243 million, which was impacted by the recognition of deferred tax assets in the balance sheet related to tax losses carried forward from previous years.

Assets, capital employed, and investments

Total assets decreased by NOK 2,931 million in 2016 to NOK 25,939 million (28,870) at year-end. Capital employed (12M rolling) amounted to NOK 14,397 million (14,811). Investments in non-current assets in 2016 amounted to NOK 1,386 million (1,468), compared with depreciation/amortization totaling NOK 1,301 million (1,321), corresponding to approximately 107 percent (111 percent) of depreciation.

Financing

Sapa is financed through equity and external debt. There is a syndicated multi-currency revolving facility of EUR 700 million, with maturity in 2018, which is treated as a long-term loan. As of December 31, 2016, Sapa had not utilized this facility, leaving EUR 700 million of unutilized committed credit lines. Sapa also has committed and uncommitted credit lines in cash pools equivalent to approximately NOK 1,480 million (1,518). Net interest-bearing debt at the end of 2016 was NOK 118 million (1,750).

Shareholders' equity

Shareholders' equity amounted to NOK 13,800 million (12,871) at the end of 2016. Total comprehensive income for the year increased shareholders' equity by NOK 929 million (1,333). Currency fluctuations were significant during 2016 and translation differences had a negative effect on shareholders' equity of NOK 767 million, compared with a benefit of NOK 810 million in 2015. The equity/assets ratio was around 53 percent (45 percent).

Cash flow

In 2016, cash flow from operating activities amounted to NOK 2,943 million (1,849). Investing activities had a negative effect of NOK 1,345 million (neg: 1,375) on cash flow, while financing activities accounted for a negative impact of NOK 3,346 million (neg: 63). Cash and cash equivalents totaled NOK 671 million (2,512) at year-end.

1.4 Financial result and balance for the parent, Sapa AS

The group parent company Sapa AS has no external revenue. Costs in Sapa AS are charged back to the subsidiaries in accordance with the intra-group service charge principles. Sapa AS is financed through equity and non-current debt. Net profit amounted to NOK 1,212 million (998) and reflects mainly dividends from subsidiaries. Of the net profit, NOK 1,182 (923) million is transferred to retained earnings and NOK 30 (74) million as group relief given.

1.5 Risk factors

Sapa is an industrial corporation exposed to various market and operational risks, as well as financial risks. Sapa is exposed to variations in prices of the products it sells, commodities, and raw materials, trade disputes, liquidity, credit, currency exchange rates, interest rates, and a number of other risks. If any of the risks described in this section materialize, individually or together with other circumstances, they may substantially impair Sapa's business and have material adverse effects on the company's business prospects, financial position, and/or results of operations. The order in which the individual risks are presented below is not intended to provide an indication of the likelihood of their occurrence nor of the severity or significance of individual risks. In addition to the following risks, other risks of which the company is currently unaware, or which it does not currently consider to be material, may materialize and have adverse effects on the company's business, prospects, financial position, or results of operations.

Market and operational risk factors

Market and operational risk factors are described on pages 41 and 42.

Financial risk factors

In Sapa, financial risks are managed in accordance with the financial policies adopted by the board of directors and/or the CEO. These are Sapa's global directives on financial and metal management, on the deployment of capital, accounting and financial reporting, tax and risk management. The directives set the framework and define risk management objectives, responsibilities, and operational requirements.

Sapa's revenues are primarily derived from the sale of extruded profiles and profile-based building systems. The trend in prices and deliveries is heavily dependent on the growth and balance in markets where the Sapa Group conducts operations. Opportunities to financially hedge billet premium exposure are limited and by year-end 2016 Sapa had a "long" position. The billet premium was very volatile in 2014 and 2015, but was more stable in 2016.

The group's presentation currency is NOK. Fluctuations in other currencies against NOK, particularly EUR and USD, will impact Sapa's earnings in connection with the translations of foreign subsidiaries' income statements to NOK. Sapa does not hedge this risk.

When translating Sapa's investments in foreign subsidiaries to NOK, there is a risk that Sapa's equity will be impacted by changes in exchange rates. As most of Sapa's assets are denominated in foreign currency, these effects could be substantial. Sapa has to some degree hedged this risk by drawing debt in EUR and USD.

Further discussion of financial risk in Sapa is provided in Note 3 – Financial risk management and on pages 41–4 3.

1.6 Internal control

Internal control of financial reporting

The board's responsibility for internal governance and control is regulated in the Norwegian Companies Act, the Annual Accounts Act, and the Norwegian Code of Corporate Governance. The board bears the overall responsibility for financial reporting and its formal work plan regulates the internal division of work between the board and its committees.

The Audit Committee has an important task to prepare the board's work to assure the quality of the company's financial reporting. This preparation covers issues relating to internal control and regulatory compliance, verification of recognized values, estimations, assessments, and other activities that may affect the quality of financial statements.

Financial reporting to the board

The board's formal work plan stipulates which reports and information of a financial nature must be submitted to the board at each scheduled meeting. The CEO ensures that the board receives the reports requested to enable the board to continuously assess the financial position of the company and the group.

External financial reporting

The board and the CEO are responsible for ensuring the financial statements are in accordance with IFRS as endorsed by the European Union (EU). Quarterly accounting issue meetings are held with all business areas and the outcomes are reported to the Audit Committee.

Risk management and control activities

In order to minimize the risk of errors in financial reporting, a control framework has been established. Instructions and guidelines related to financial reporting are prepared and updated regularly by the group central finance organization. An important role is played by the business areas' controller organizations, which are responsible for ensuring that financial reporting from each business area is accurate, complete, and delivered in a timely manner. The company's control activities are supported by the business plans prepared by each business area and updated during the year through continuous forecasts.

Sapa has introduced a standardized system for control measures involving processes that are significant to the company's financial reporting. The controls are adapted to the operational process and system structure. Accordingly, each business area prepares a record of the actual controls to be carried out by that business area. The effectiveness of this control framework is assessed through yearly self-assessment.

Activities in 2016

Sapa continued to reduce the number of legal entities (from 153 to 138), which has further simplified the reporting and system structures.

Auditor's involvement

The board meets with Sapa's external auditors in closed sessions at least once a year to receive and consider the auditor's observations. The Audit Committee also meets regularly with the auditors to receive and consider observations on reporting throughout the year and in the Annual Report.

1.7 Research and development

Sapa has four R&D centers located in Finspång (Sweden), Troy (USA), Karmøy (Norway) and Toulouse (France), complemented by application centers covering nearly 40 locations across the four business areas and three corrosion labs in China, the US, and Norway.

Sapa conducts its R&D in a business-oriented way, providing customer-specific solutions to customer applications as well as longerterm technical research aimed at maintaining a leading position within aluminium product development over time. Research and development work in Sapa is usually conducted in project form. This enables the group to utilize its combined know-how through cooperation among specialists with expertise and experience in various fields. Projects are planned and organized in close cooperation with local subsidiaries, either supporting a specific customer project or on a more aggregated level for a region, business area, or even at the corporate level.

Sapa's expenditures in research and development in 2016 totaled NOK 340 million (NOK 320 million).

Further information on Sapa's R&D is provided on pages 24 and 25.

1.8 Personnel and EHS

Sapa is committed to an inclusive work culture and appreciates and recognizes that all people are unique and valuable and must be respected for their individual abilities and views. Sapa does not accept any form of harassment or discrimination, including but not limited to any harassment or discrimination on the basis of gender, religion, race, national or ethnic origin, cultural background, disability, sexual orientation, marital status, or age.

Sapa provides equal employment opportunities and treats all employees fairly and with respect. Sapa's employees and business units only use merit, qualifications, and other professional criteria as basis for employee-related decisions at Sapa, such as recruitment, training, compensation, and promotion. Sapa is also committed to developing programs and actions to encourage a diverse organization based on the principle of equal opportunities.

Sapa complies with Norwegian legal requirements. The total number of employees in Sapa at the end of 2016 was 22,408 (22,798). The share of women was 20 (18) percent on Sapa's corporate management team and 24 (20) percent for women in managerial positions overall. Sapa supports increased diversity of its work force. All employees receive total pay that is fair, competitive, and in accordance with local industry standards. There is no identified gender pay differential for employees earning collectively negotiated wages. Pay conditions in the organization are reviewed on a regular basis. Sapa is currently reviewing salaries at the top three layers in the organization in an extended process to ensure that there are no differences between genders. Positions are being carefully mapped to serve as a basis for further analysis. This work will be ongoing throughout 2017. In addition, Sapa's UK organization is going through a similar process in preparation for extended reporting requirements concerning the gender pay gap.

In 2016, a process was initiated to respond to certain legislative changes for transferring personal data to countries outside the EU following the Safe Harbour ruling by the European Court of Justice. Sapa submitted its application for approval of Sapa's Binding Corporate Rules ("BCR") for compliant transfer of personal data to the Norwegian Data Protection Authority in June 2016.

The group continuously implements measures to prevent, impede, and reduce the risk and consequences of workplace accidents. In 2016, concerted efforts were ongoing to reduce the reported number of accidents through information and training. While the number of lost time and recordable injuries in Sapa was higher than in 2015, it remained very low in a historic context during 2016. The visibility of compliance with Sapa standards continued in 2016 with increased use of the selfassessment process which complements the Group EHS Audit requirements. All sites are required to report quarterly on a range of EHS topics with the objective of scoring at a "good" level. These reports are followed up by Group EHS and the results fed back to the sites and business area EHS leads. All sites are required to continually focus on safety programs and in particular the critical programs that carry a high risk of a fatality if not followed. These critical programs include: Energy Isolation, Fall Control and Mobile Equipment, and, where relevant, Confined Space Entry and Molten Metal safety. The Sapa Group achieved 69 percent at a "good" level.

Sapa's 2016 safety performance deteriorated slightly over 2015, and the development is closely followed by the Board. The number of recordable injuries increased to 149, which is 17 more workers injured than in 2015. Lost work day injuries also increased to 65, which is 14 more than in 2015. This has taken the Group's 2016 Total recordable injury rate to 3.33 (2015: 2.98) and Lost work day injury rate to 1.45 (2015: 1.15).

All Sapa operating sites with environmental risks were required to be certified under ISO 14001 and the completion rate by the end of 2016 was 98 percent. There were 16 legal environmental non-compliances reported in 2015, which is the same level as 2015. None of the noncompliances were considered major. Total energy consumption increased in 2016 by 2.4 percent over 2015 levels. This is linked to an increase in the amount of added value activities, with multiple manufacturing stages. Energy consumption per processed tonne was at on par with 2015 at 1.42.

Total energy consumption increased by 2.4 percent in 2016 over 2015 levels. This has primarily been as a result of an increase in the use of purchased electricity, which is probably linked to an increase in added value operations with multiple manufacturing stages. Energy consumed per processed tonne decreased by 0.25 percent in 2016 over 2015 levels. Purchased electricity increased by 6 percent compared to 2015. Total CO2 produced and CO2 produced per processed tonne increased over 2015 levels.

Sapa produced total waste in 2016 of 108,049 tonnes. This was an increase of 0.7 percent over 2015 figures. This increase in total waste can be linked to an increase in production and site improvements, including removal of non-hazardous waste such as rubble and debris from building and site renovation. In 2016, 75 percent of all waste was recycled.

Further information on Environment, Health, and Safety is available on pages 38–40.

1.9 Integrity and human rights

Sapa's Code of Conduct requires strict adherence to applicable laws and regulations as well as the group's internal policy documents.

Following a thorough review and revision and approval by the Board, the new Code of Conduct was relaunched in 2016. The Code is implemented throughout the company and is followed up through the company's compliance system which includes a whistleblower channel for employees ("AlertLine").

Sapa is committed to respecting and supporting the human rights of all individuals potentially affected by the company's operations. These human rights are defined in the Universal Declaration of Human Rights and related UN documents. Sapa is committed to the principles of nondiscrimination and care for vulnerable individuals and groups.

Sapa also recognizes that business can have an important role in supporting the protection of human rights. The company is committed to the economic and human development of its employees and the communities in which the company operates.

1.10 Market outlook

Aluminium extrusion demand generally follows the economic trend. The global economy is currently indicating a moderate upturn. In Europe, there are signs of increased growth and profitability after a slightly positive 2015, but uncertainty about the economic situation still prevails. Growth in the US economy is expected to continue, but at a lower level. Growth in emerging economies has tapered off in the past year and future growth is difficult to predict.

1.11 Ownership structure

Sapa AS is ultimately owned equally by Norsk Hydro ASA and Orkla ASA.

1.12 Distribution of capital

The board of directors proposes a total distribution to shareholders of NOK 3 billion by Sapa AS from the company's distributable equity, as a repayment of paid in capital. The distribution reflects the robust financial position of the company and its earnings outlook for 2017 and the company will, after the distribution, have adequate equity and liquidity in view of the risks and scope of the business. The distribution of capital will be recognized in the company's accounts in 2017, subject to approval by the Annual General Meeting.

Oslo, April 21, 2017

Peter Ruzicka Terje Andersen Kenneth Hertz Chair Director Director

Eivind Kallevik Anne-Lene Midseim Tor Egil Skulstad Director Director Director

Egil Hogna President and CEO

2 Financial statements

2.1 Consolidated income statement

Amounts in NOK millions. Years ended December 31.	Notes	2016	2015
Revenue	4	53,327	55,252
Share of profit in equity accounted investments	17	52	31
Other income, net		51	114
Total revenue and income		53,430	55,397
Raw material and energy expense		(28,800)	(33,228)
Employee benefits expense	5	(10,497)	(10,159)
Other operating expense	6, 7, 8	(10,394)	(10,103)
Depreciation and amortization expense	9	(1,301)	(1,321)
Impairment of non-current assets	10	(18)	(58)
Total expense		(51,010)	(54,869)
Earnings before financial items and tax (EBIT)		2,420	528
Financial income	11	46	89
Financial expense	11	(98)	(369)
Financial income (expense), net		(52)	(280)
Income before taxes		2,368	248
Income taxes	12	(583)	3
Net income after taxes		1,785	251
Attributable to:
Equity holders of the parent		1,779	246
Non-controlling interests		6	5
Basic and diluted earnings per share, NOK	13	8.90	1.23

2.2 Consolidated statements of other comprehensive income

Amounts in NOK millions. Years ended December 31.	Note	2016	2015
Net income (loss)		1,785	251
Other comprehensive income
Other comprehensive income to be reclassified to profit and loss in subsequent periods
Currency translation differences, net of tax	21	(767)	810
Share of other comprehensive income in equity accounted investments	21	(5)	13
Translation difference, non-controlling interests		(2)	6
Net other comprehensive income to be reclassified to profit and loss in subsequent periods		(774)	829
Other comprehensive income not to be reclassified to profit and loss in subsequent periods
Remeasurement gains (losses) on defined benefit plans	24	(76)	322
Tax attributable to remeasurement gains (losses) on defined benefit plans		(6)	(69)
Net other comprehensive income (loss) not to be reclassified to profit and loss in subsequent periods		(82)	253
Other comprehensive income for the year, net of tax		(856)	1,082
Total comprehensive income for the year, net of tax		929	1,333
Attributable to:
Equity holders of the parent		925	1,322
Non-controlling interests		4	11

2.3 Consolidated statements of financial position

Amounts in NOK millions. Years ended December 31.	Notes	2016	2015
Assets
Property, plant, and equipment	14	9,859	10,237
Intangible assets	15, 16	1,293	1,407
Investments accounted for using the equity method	17	103	79
Other non-current assets	27	218	71
Pension asset	24	404	573
Deferred tax assets	25	845	1,163
Total non-current assets		12,722	13,530
Assets held for sale	18	114	102
Inventories	19	5,163	5,279
Trade receivables	20, 27	6,095	6,292
Current receivables	20, 27	939	1,026
Other current financial assets	27	235	129
Cash and cash equivalents	27	671	2,512
Total current assets		13,217	15,340
Total assets		25,939	28,870
Liabilities and equity
Share capital	21	200	200
Share premium		6,241	6,241
Other reserves	21	1,006	1,778
Retained earnings		6,300	4,603
Equity attributable to owners		13,747	12,822
Non-controlling interests		53	49
Total equity		13,800	12,871

Non-current debt	22, 27	16	2,959
Other non-current financial liabilities	22, 27	88	125
Other liabilities		21	25
Provisions	23	311	275
Pension obligations	24	1,407	1,528
Deferred tax liabilities Total non-current liabilities	25	378 2,221	530 5,442

Liabilities held for sale	18	20	30
Trade and other payables	26, 27	7,908	7,772
Bank loans and other current interest-bearing debt	22, 27	711	1,190
Other current financial liabilities	27	152	406
Taxes payable	25	258	118
Provisions	23	869	1,041
Total current liabilities		9,918	10,557
Total liabilities		12,139	15,999
Total liabilities and equity		25,939	28,870

2.4 Consolidated statements of cash flows

Amounts in NOK millions. Years ended December 31.	Notes	2016	2015
Operating activities
Income before taxes		2,368	248
Depreciation/amortization	9	1,301	1,321
Impairment	10,14	18	58
Other non-cash items		(118)	(129)
Change in net working capital		(266)	759
Interest paid/received, net		(88)	(111)
Income tax paid		(273)	(297)
Cash flow from operating activities		2,943	1,849
Investing activities
Replacement investments	14,15	(619)	(610)
Expansion and productivity investments	14,15	(767)	(858)
Purchases of other long-term investments		(13)	(15)
Proceeds from sales of property, plant, and equipment		29	55
Dividends and proceeds from sales of other investments		25	53
Cash flow from investing activities		(1,345)	(1,375)
Financing activities
Change in interest-bearing liabilities		(3,346)	(63)
Cash flow from financing activities		(3,346)	(63)
Cash flow for the year		(1,748)	411
Cash and cash equivalents at the beginning of the year		2,512	1,882
Exchange-rate difference in cash and cash equivalents		(94)	219
Cash and cash equivalents at the end of the year		671	2,512

There is no significant amount of restricted cash.

2.5 Consolidated statements of changes in equity

Amounts in NOK millions.	Notes	Share capital	Share premium	Reserves	Retained earnings	Equity attributable to owners of the parent	Non controlling interests	Total equity
December 31, 2014		200	6,241	955	4,104	11,500	38	11,538
Net income after taxes		–	–	–	246	246	5	251
Other comprehensive income for the year, net of tax	21	–	–	823	253	1,076	6	1,082
Total comprehensive income for the year		–	–	823	499	1,322	11	1,333
December 31, 2015		200	6,241	1,778	4,603	12,822	49	12,871
Net income after taxes		–	–	–	1,779	1,779	6	1,785
Other comprehensive income for the year, net of tax	21	–	–	(772)	(82)	(854)	(2)	(856)
Total comprehensive income for the year		–	–	(772)	1,697	925	4	929
December 31, 2016		200	6,241	1,006	6,300	13,747	53	13,800

Reserves include currency translation differences and other components of equity in equity accounted investments, see Note 21. Oslo, April 21, 2017

Peter Ruzicka Terje Andersen Kenneth Hertz Chair Director Director

Eivind Kallevik Anne-Lene Midseim Tor Egil Skulstad Director Director Director

Egil Hogna President and CEO

2.6 Notes to the consolidated financial statements

These financial statements relate to Sapa AS ("the Company"), company registration number 899,286,952, and consolidated subsidiaries (Sapa).

The company is a limited liability company incorporated in Oslo, Biskop Gunnerus gate 14, 0185 Oslo, Norway, and is ultimately owned 50 percent by Norsk Hydro ASA and 50 percent by Orkla ASA. The joint venture (JV) was established September 1, 2013 and is a global supplier of aluminium solutions. The group employs approximately 22,400 (22,800) people in more than 40 countries.

Sapa is the world´s leading supplier of extrusion-based aluminium solutions and operates within the areas of extruded profiles, building systems and precision tubing.

1 Accounting policies

Basis of preparation of the consolidated financial statements

The consolidated financial statements for the Sapa group have been prepared in accordance with International Financial Reporting Standards (IFRS) as endorsed by the European Union (EU). The recognition of the items in the financial statements have been carried out in accordance with applicable IFRS standards.

The policies have been applied consistently to all years presented unless otherwise stated. The consolidated financial statements are presented in Norwegian kroner (NOK) and all values are rounded to the nearest million (NOKm), except when otherwise stated. The total amount in tables and statements might not always add up precisely, due to rounding differences. The aim is to have each line item correspond to the source and there might therefore be rounding differences in the total. The consolidated financial statements provide comparative information in respect of the previous reporting period. Sapa´s continuing operations consists of 138 legal entities in more than 40 countries. Most subsidiaries are wholly owned, directly or indirectly, by Sapa AS. There are minority interests in some minor subsidiaries.

Basis of consolidation

The consolidated financial statements comprise the financial statements of Sapa and its subsidiaries as of December 31, 2016. Control is achieved when Sapa is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. Profit or loss and each component of other comprehensive income (OCI) are attributable to the equity holders of the company and to non-controlling interests, even if this results in the non-controlling interests having a deficit balance. The financial statements of the subsidiaries are prepared for the same reporting period as the company. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Sapa's accounting policies. All intra-group assets and liabilities, equity, income, expenses, and cash flows relating to transactions between members of the Sapa group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If Sapa loses control over a subsidiary, it derecognizes the related assets (including goodwill), liabilities, non-controlling interests, and other components of equity, while any result gain or loss is recognized in profit or loss. Any investment retained is recognized at fair value.

Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred measured at acquisition date, fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, Sapa elects whether to measure the non-controlling

In the 2016 financial statements, Sapa has changed its presentation of the notes. In previous years, all accounting principles have been presented together in a separate note in the consolidated financial statement. As from 2016 the accounting principles relating to specific notes are described in conjunction with each note in the aim of providing enhanced understanding of each accounting area, while the general policies are included in the following.

The annual report was approved by the board of directors on April 21, 2017.

interests in the acquiree at fair value or at the proportionate share of the acquirer's identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses.

When Sapa acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances, and pertinent conditions at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree.

Measurement basis applied for preparation of consolidated financial statements

Assets and liabilities are recognized at cost (acquisition value), apart from certain financial assets and liabilities that are measured at fair value. Financial assets and liabilities that are measured at fair value comprise derivative instruments and assets classified as financial assets available for sale. Receivables and liabilities, and revenues and costs, are only netted if this is legally permitted or expressly permitted in an accounting standard.

Current versus non-current classification

Sapa presents assets and liabilities in the statement of financial position based on current/non-current classification. An asset is presented as current when it is:

Expected to be realized or intended to be sold or consumed in a normal operating cycle
Held primarily for the purpose of trading
Expected to be realized within twelve months after the reporting period, or
Cash or cash equivalent unless restricted from being exchanged or used to settle a liability for at least twelve months after the reporting period

All other assets are classified as non-current. A liability is current when:

It is expected to be settled in a normal operating cycle
It is held primarily for the purpose of trading
It is due to be settled within twelve months after the reporting period, or
There is no unconditional right to defer the settlement of the liability for at least twelve months after the reporting period

Sapa classifies all other liabilities as non-current. Deferred tax assets and liabilities are classified as non-current assets and liabilities.

Foreign currencies

Each entity in the group determines its own functional currency, and items included in the financial statements of each entity are measured using their functional currency. The functional currency is the currency of the primary economic environment in which the entity operates. The consolidated financial statements are presented in Norwegian kroner (NOK), which is Sapa's presentation currency.

Transactions in foreign currencies are recorded in the functional currency rate at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies are translated at the functional currency rate of exchange prevailing at the balance sheet date. All differences are recognized in profit and loss.

Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates in effect at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates in effect at the date fair value is determined.

For foreign operations, balance sheet items are translated into NOK at the rate of exchange at the balance sheet date, and income statements are translated at the weighted average exchange rate on a monthly basis. The exchange differences arising on the translation are recorded directly as other comprehensive income. On disposal of a foreign entity, the deferred cumulative amount recognized in equity relating to that particular foreign operation is reclassified to profit and loss. However, as described in "Basis of preparation of the consolidated financial statements" above, Sapa has decided only translation differences arising after the establishment of the JV will be recycled to the income statement.

The most important exchange rates applied in the consolidated financial statements are shown in the table below.

	Average rate		Closing rate as of December 31
	2016	2015	2016	2015
Euros (EUR)	9.0349	9.4634	9.0897	9.6034
Dollars (USD)	8.5690	8.6994	8.6088	8.8082
British pounds (GBP)	10.6915	13.0372	10.5876	13.0609
Chinese yuan (CNY)	1.2372	1.3476	1.2392	1.3561
Indian rupee (INR)	0.1263	0.1308	0.1268	0.1331
Danish krone (DKK)	1.2148	1.2681	1.2225	1.2869
Swedish krona (SEK)	0.9309	1.0244	0.9495	1.0460

Introduction of new and revised IAS/IFRS

A few new, amended or improved standards were applicable from January 1, 2016. The new standards did not have any material impact on the financial statements of Sapa.

New standards published by IASB, but not yet effective: IFRS 9 Financial Instruments

In July 2014, the IASB issued the final version of IFRS 9 Financial Instruments, which reflects all phases of the financial instruments project and replaces IAS 39 Financial Instruments: Recognition and Measurement and all previous versions of IFRS 9. The standard introduces new requirements for classification and measurement, impairment, and hedge accounting. IFRS 9 is effective for annual periods beginning on

or after 1 January 2018, with early application permitted. Retrospective application is required except for hedge accounting, but comparative information is not mandatory. Sapa has decided to early adopt IFRS 9 from January 1, 2017. The main reason to early adopt IFRS 9 is that designation of risk component as hedge items is not permitted under IAS 39, while this will be permitted under IFRS 9. Under IAS 39 hedges of forecasted purchases of aluminium andinventories of aluminium do not qualify for hedge accounting and gains and losses on hedging instruments are accordingly booked directly to the income statement. When IFRS 9 is applied, hedge accounting will be applied for these hedging relationships so that the effective part of gains and losses on hedging derivatives eventually will be included in cost of goods sold. Sapa will apply hedge accounting when hedging commodities with financial derivatives. Except for the hedge accounting no other material impact is expected on the financial statements.

IFRS 15 Revenue from Contracts with Customers

IFRS 15 was issued in May 2014 and establishes a new five-step model that will apply to revenue arising from contracts with customers. Under IFRS 15 revenue is recognized at an amount that reflects the consideration to which an entity expects to be entitled in exchange for transferring goods or services to a customer. The principles in IFRS 15 provide a better structured approach to measuring and recognizing revenue. The new revenue standard is applicable to all entities and will supersede all current revenue recognition requirements under IFRS. Either full or modified retrospective application is required for annual periods beginning on or after January 1, 2018 with early adoption permitted.

Sapa has during 2016 made a first assessment of the impact of IFRS 15 on the future financial statements. Most of Sapa's business consists of sales of tangible products under contracts with a single performance obligation and it is not expected that there will be any significant impact from the implementation related to these sales. In the automotive and component market segment, more revenue arises from long-term contracts and/or from multiple-element arrangements. In this segment, an effect on the timing of revenue recognition is expected, but the impact is not considered to be material for Sapa.

IFRS 16 Leasing

The IFRS 16 standard requires the lessee to account for assets and liabilities for all lease contracts, except for contracts whose duration is less than 12 months and/or where the amount is minor. Accounting for the lessor will be in all essentials unchanged. The new standard will replace IAS 17 Leasing and IFRIC 4, SIC-15 and SIC-27. IFRS 16 is effective for annual periods beginning on or after 1 January 2019, with early application permitted if IFRS 15 is also applied.

Preliminary assessment of IFRS 16 indicates somewhat increased recognized non-current assets and debt, with a corresponding shift of certain amounts from operating expenses, partly to depreciation and amortization, partly to interest expense.

Other new or revised accounting standards are not considered to have a material impact on Sapa´s financial statements.

2 Important estimates and assessments for accounting purposes

Important estimates and assessments for accounting purposes

Certain of our accounting principles require the application of significant judgment by management in selecting the appropriate assumptions for calculating financial estimates that affect the reported amounts of assets, liabilities, revenues, expenses, and information on potential liabilities. By their very nature, these judgments and estimates are subject to an inherent degree of uncertainty. These judgments and estimates are based on historical experience, terms of existing contracts, observation

of trends in the industry, information provided by customers, and, where appropriate, information available from other sources. Although these judgments and estimates are based on management's interpretations of current events and actions, future events may lead to these judgments and estimates being changed and actual results may ultimately differ materially from those judgments and estimates. Such changes will be recognized when new judgments and estimates can be determined. Areas where estimates have considerable significance are mainly:

2 cont.

Amounts in NOK millions. Years ended December 31

2016	Note	Estimate/assumption	Carrying value
Property, plant, and equipment	10, 14	Recoverable amount and estimation of correct remaining useful life	9,859
Inventories	19	Inventory obsolescence	5,163
Pension liabilities	24	Economic and demographic assumptions	1,407
Contingencies, uncertain liabilities and environmental liabilities	23, 28	Uncertanty in timing and amount	1,180
Goodwill	16	Net present value future cash flows	889
Taxes	25	Assessment of future taxable profits

Property, plant, and equipment

The value of property, plant, and equipment largely depends on estimates of future earnings and useful life. In the case of several of the group's tangible assets, changes in assumptions may lead to substantial changes in value. Determination of the recoverable amount involves management estimates on highly uncertain matters, such as commodity prices and their impact on markets and prices for upgraded products, development in demand, inflation, operational expenditures and tax and legal systems. The impairment testing is based on a value in use model and on continued operations excluding expenses related to future development or to upgrading of the plants in a cash generating unit (CGU). The CGUs for fixed assets impairment testing are the market regions, defined as the smallest identifiable groups of assets with largely independent cash flows. The impairment tests are performed when an impairment trigger is present, by considering such factors as results achieved, business plans, financial forecasts, and market data. The period measured pertains to the next three years. Annual growth is assumed to be 2.0 percent (2.0) and a residual value is considered. The discount rate applied is calculated using the estimated cost of capital in the range of 9.7-15.7 percent (10.7–12.7 percent) before tax, based on the weighted average cost of capital (WACC) for the group. WACC is derived based on the risk free rate, market risk premium (equity share) and debt risk premium. The discount rate is adjusted to take into account the country risk and inflation rate. The need for impairment is monitored continuously.

Inventories

If the net realizable value is lower than cost, a valuation allowance is established for inventory obsolescence.

Pensions

Costs and the value of pension commitments for defined benefit pension plans are based on actuarial calculations pursuant to assumptions about the discount rate, expected return on plan assets, future salary increases, inflation, and demographic circumstances.

Contingencies, uncertain liabilities, and environmental liabilities

Liabilities that are uncertain in timing or amount are recognized when a liability arises from a past event and an outflow of cash or other resources is probable and can be reasonably estimated. Contingent liabilities are possible obligations where a future event will determine whether Sapa will be required to make a payment to settle the liability, or where the size of the payment cannot be determined reliably. Contingent liabilities are disclosed unless a future payment is not considered to be significant. Main estimates and judgments relate to warranties, restructuring and environmental obligations. Evaluation of uncertain liabilities and contingencies requires judgment and assumptions regarding the probability of realization and the timing and amount or range of amounts that may ultimately be incurred. Such estimates may vary from the ultimate outcome as a result of differing interpretations of laws and the assessment of damages. Environmental liabilities and asset retirement obligations require interpretations of scientific and legal data, in addition to assumptions about probability and future costs.

Sapa is involved in or threatened with various legal and tax matters arising in the ordinary course of business. Sapa is of the opinion that resulting liabilities, if any, will not have a material adverse effect on its consolidated results of operations, liquidity, or financial position.

Goodwill

Once a year, the group conducts impairment tests of goodwill in accordance with the accounting policies described in Note 10 Impairment of non-current assets. The tests are performed by considering such factors as results achieved, business plans, financial forecasts, and market data. The period measured pertains to the next three years. Annual growth is assumed to be 2.0 percent (2.0). The discount rate applied is calculated using the estimated cost of capital in the range of 9.7–12.6 percent (10.7–12.7 percent) before tax, based on the weighted average cost of capital (WACC) for the group. WACC is derived based on the risk free rate, market risk premium (equity share) and debt risk premium. The discount rate is adjusted to take into account the country risk and inflation rate.

Impairment testing has been based on calculations of the recoverable amount for each cash-generating unit to which goodwill is attributable. The cash-generating unit for goodwill impairment testing is the business area. The impairment test calculation in December 2016 did not indicate any need for impairment in the Sapa Group. The sensitivity analysis demonstrates that reasonable changes in key parameters will not give rise to any additional impairment.

Taxes

The group conducts taxable operations in many countries. Extensive assessments are required to determine income tax provisions. For many transactions and calculations, the final tax rate is not known when the transactions and calculations take place. Deferred tax assets are only recognized when it is probable, within a reasonable period of time, that each company will have a tax situation that permits the use of the deferred tax assets.

The below estimates and judgments have been applied to determine if it's probable that available tax losses can be offset against taxable income. Limitation in utilization of tax loss carryforwards has been considered and also forfeiture if not utilized.

All Sapa entities have been given one of the three following categories and related recognition:

A. Companies/tax groups that have been "traditionally" loss making, but show a somewhat positive income before tax in the last year: No recognition of tax assets.
B. Companies/tax groups with tax losses carried forward but also with proven turnaround with positive income before tax for a few years, and a positive outlook: Allow recognition of tax assets, presupposing domestic rules support it, with an amount corresponding to estimated taxable income for the next three years.
C. Companies/tax groups that have been 'traditionally' profit making and a positive outlook: Recognize tax assets with full amount as long as domestic tax rules support it.

3 Financial risk management

Financial risk management within Sapa

The board and the corporate management team have the overall responsibility for the capital and financial risk management. Financial risk management is centralized to Corporate Treasury (Treasury), which manages all hedging of financial risk.

Sapa's overall financial objective is to secure access to short-term and long-term financing, manage Sapa's liquidity, and to manage the financial risks due to fluctuations in metal prices, currency rates, and interest rates.

The foundation of financial risk management is the Financial and Metal Management Directive. The Directive establishes guidelines and definitions of liquidity, commodity, currency, interest rate, and credit risks, and establishes responsibility and authority for the management of these risks. The Directive states how Sapa AS and its subsidiaries shall identify, manage, measure, and report financing and treasury activities in Sapa.

The Directive sets forth the financial risk mandates and the financial instruments authorized for use in the management of financial risks. All financial derivative instruments are used to manage Sapa's exposure to fluctuations in commodity prices, foreign currency exchange rates, and interest rates. Sapa does not use financial derivative instruments for trading purposes.

The target of Sapa's financial management and funding strategy is to ensure the group to have adequate financial flexibility, both short-term and long-term. The group has an equity ratio of around 50 percent. Sapa targets a robust gearing of its balance sheet suited to ensure long-term flexibility under shifting business conditions. Sapa will within this target consider dividends to its shareholders in line with underlying earnings and estimated future commitments.

The group had syndicated loan of EUR 700 million available, put in place in 2013. The facility has a tenor of 5 years. External borrowing is mainly managed and executed at parent level and internal financing needs are catered for through internal loans, supplemented by certain situations where local external funding is required, which is managed by Treasury. The capital structure of the group's subsidiaries is adapted to commercial needs as well as legal and tax requirements, compliance and considerations. The short-term liquidity of the group companies is primarily managed at group level through cash pools. As long as The group's ownership remains unchanged, no covenants apply.

External borrowing is centralized at the parent level by Treasury and capital needs in subsidiaries are mainly covered by internal loans and through the In-House Bank (IHB) solution. Where internal lending is not possible due to law and local restrictions, all external local loans must be pre-approved by Treasury. Capital structure in subsidiaries is adapted to commercial as well as legal and tax requirements and considerations. The short-term liquidity of group companies is mainly managed at Treasury level through cash pools.

Liquidity risk

Liquidity risk is defined as the risk that Sapa will encounter difficulties in meeting obligations associated with financial liabilities that are settled by delivering cash or other financial assets.

Sapa is externally funded through the credit facility of EUR 700 million with maturity in June 2018. At December 31, 2016 the credit facility was undrawn (EUR 400 million).

The liquidity reserve at year-end was NOK 7,656 million, consisting of bank balances, committed and uncommitted credit lines, and revolving credit facility.

Amounts in NOK millions.	2017	2018	2019–2020	2021 and thereafter
Non-current debt	4	4	4	4
Other non-current financial liabilities	61	–	–	–
Bank loans and other current interest-bearing debt	508	–	–	–
Currency swaps and forward exchange contracts
Outflows	4,677	32	45	73
Inflows	4,681	30	42	70
Commodity contracts
Outflows	124	–	–	–
Inflows	235	2	–	–

	2015 Cash flows
Amounts in NOK millions.	2016	2017	2018–2019	2020 and thereafter
Non-current debt	673	569	1,838	–
Other non-current financial liabilities	96	–	–	–
Bank loans and other current interest-bearing debt	874	–	–	–
Currency swaps and forward exchange contracts
Outflows	3,106	22	18	–
Inflows	3,113	22	18	–
Commodity contracts
Outflows	400	5	–	–
Inflows	113	3	–	–

Also refer to Note 22 for disclosures relating to amounts of financial liabilities and details of the loan transactions.

3 cont.

Centralized cash pooling enables Sapa to manage liquidity surpluses and deficits according to needs on a group and subsidiary level. In addition to the unutilized credit facility, Sapa has uncommitted and committed credit lines in cash pools as follows:

NOK 224 million committed (NOK 186 million)
NOK 705 million uncommitted (NOK 735 million)
NOK 551 million uncommitted overnight facility (NOK 597 million)

The table below shows agreed and undiscounted interest payments and repayments of non-derivative financial liabilities. For derivative liabilities, undiscounted inflows and outflows are shown. Where gross settlements are performed, all amounts are reported on a gross basis. All instruments held at December 31, 2016 for which payments were agreed were included. Amounts in foreign currency were translated at the closing rate. Financial liabilities were assigned to the earliest possible time period when they can be required to be repaid.

Market risk

Market risk is the risk that the fair value of future cash flows will fluctuate because of changes in market prices. Market risk comprises three types of risk for Sapa; commodity risk, currency risk, and interest rate risk. Financial instruments affected by market risk include loans and borrowings, FX, and financial commodity derivatives.

Market risk – Commodity risk

Sapa's operations are affected by fluctuations in market prices on the London Metal Exchange (LME) and in the premiums for aluminium ingots and billets. Sapa's transaction exposure arises from binding sales contracts and forecast sales to the extent a price list or similar arrangements with price commitments are offered by Sapa.

The metal price risk is hedged by purchasing physical aluminium, or by buying financially on the LME, in close conjunction with the establishment of the sales price charged to the customer for Sapa's products.

The average LME prices were as below:

			2016
Average LME price (currency/tonne)	Q1	Q2	Q3	Q4	Year
Aluminium USD/mt	1,516	1,572	1,620	1,710	1,605
Aluminium EUR/mt	1,376	1,392	1,451	1,586	1,451

			2015
Average LME price (currency/tonne)	Q1	Q2	Q3	Q4	Year
Aluminium USD/mt	1,813	1,787	1,621	1,509	1,680
Aluminium EUR/mt	1,611	1,617	1,458	1,377	1,514

The premiums above LME for billets, ingots, and scrap are subject to a less efficient financial market compared to the LME, and Sapa has therefore been unable to efficiently hedge all these positions. However, the same principle applies regarding alignment of sales price and purchase price as stated above for the LME.

As part of the hedging of the premium exposure, the operating companies in North America buy "Mid-West Premium" – a premium above LME for aluminium ingots delivered Mid-West. At year-end 2016 such financial purchases were 75k tonnes outstanding in total.

In Europe similar arrangements are possible, but still in limited use by Sapa. At year-end 2016 such financial purchases based on "Rotterdam Duty Paid Ingot" totaled 22k tonnes.

Sapa has developed a Metal Management Procedure for commodity price risk. The procedure states that Sapa shall not take a position (actively or passively) to speculate on a future value of aluminium. All operating companies are therefore requested to maintain a balanced position by keeping the metal inventories and purchases with a fixed price commitment equal to sales commitments with a fixed price. To the extent such a balanced position cannot be achieved through physical transactions, the operating companies will hedge their position financially by selling forward on the LME. All financial hedges are done through Treasury, which is also responsible for keeping the overall LME position of Sapa balanced.

By the end of 2016 Sapa had the following outstanding LME exposure:

Amounts in tonnes
Inventories		179,016
Sales with fixed price commitment	(378,725)
Sales with price commitment to customer	(50,869)
Purchased physical metal with fixed price	222,365
Financial purchases on LME	131,136
Total future commitments		(76,093)
Financial sales on LME (Inventory hedge)		(93,675)
Net long position		9,248
Sensitivity for a drop in LME	USD / tonne	100
	MUSD	0.9

The combined (financial and physical) net position was 9,248 tonnes (8,496) long by year-end. Any 100 USD/mt drop in LME price would generate a loss of USD 0.92 million (USD 0.85 million).

Although perfect hedges of all LME risks are not possible, the hedging procedures have made the remaining exposure limited.

As the cost of financially selling premium exposure forward is very high, most operating companies have a net long position that will expose them to contracting billet and ingot premiums. Historically these premiums have been stable compared to the LME. However, in 2014 the premiums increased considerably but receded to more normal levels in 2015. During 2016, premiums stayed at low to normal levels and the downside risk was considered limited.

3 cont.

Market risk – Currency risk

Currency risk is the risk that fluctuations in foreign exchange rates will adversely affect Sapa's results, financial position, and/or cash flow. Sapa is exposed to changes in exchange rates in the future flows of payments related to firm commitments and forecast transactions, as well as to loans and investments in foreign currencies, i.e., transaction exposure. Sapa's accounts are also affected by translating the results and net assets of foreign subsidiaries into NOK, i.e. translation exposure.

Transaction exposure

Sapa operates in more than 40 countries, with over 100 production plants having approximately NOK 53 billion in sales (NOK 55 billion). During 2016, 95 percent (95 percent) of the group's sales occurred in countries outside the Nordics.

Transaction exposure mainly arises as a result of the cash flows from operational business in Sapa's subsidiaries worldwide. The group's principal commercial flows of foreign currencies relate to EUR.

Transaction exposure is minimized by financially hedging all contracted price-determined flows in foreign currencies in the next 18 months using forward contracts and currency swap contracts. Order times longer than 18 months are assessed individually in accordance with the group's financial directive.

Translation exposure

Sapa is exposed to translation of currency values into NOK subject to the fact that Sapa's functional and reporting currency is NOK. The major cash flow currencies are EUR and USD. A sensitivity calculation of a 10 percent change in currency rates, EURNOK and USDNOK, subject to the net trade balance per year end would represent a change in value of approximately MNOK 26 to the EUR net trade balance and approximately MNOK 16 to the USD net trade balance.

Currency positions on bank balances are also affected by translation risk exposure. However these positions are being hedged through Treasury operations. For sensitivity analysis purposes a 10 percent change in EURNOK and USDNOK over year end would result in a change of respectively MNOK 10 based on the EUR bank balance and MNOK 6,6 subject to the USD bank balance.

As of the balance sheet date, Sapa's portfolio of currency forward contracts and currency swap contracts for financial hedging represented the currencies shown in the tables below.

		2016			2015
Amounts in NOK millions. Portfolio of currency forwards	Nominal amounts	Market value	Average maturity (months)	Nominal amounts	Market value	Average maturity (months)
DKK	25	25	1.5	(23)	(24)	1.0
EUR	449	445	20.0	(75)	(74)	6.0
GBP	5	5	1.5	0	0	0.0
USD	22	20	2.5	108	114	7.5
Other	0	0	0.0	0	0	0.0
Total	501	495	6.4	10	16	5.0

	2016		2015
Amounts in NOK millions. Portfolio of currency swaps	Nominal amounts	Market value	Nominal amounts	Market value
AED	(12)	(12)	(16)	(17)
CAD	78	80	98	98
EUR	(62)	(61)	(331)	(339)
GBP	3	3	0	0
HKD	(8)	(8)	0	0
MXN	0	0	(74)	(74)
PLN	(21)	(21)	11	11
RON	0	0	15	15
TRY	24	24	39	39
USD	(19)	(19)	299	300
ZAR	(3)	(3)	(3)	(3)
Total	(20)	(17)	38	30

Market risk – Interest rate risk

Interest rate risk is defined as the risk of changes in market interest rates that could have adverse impact on cash flow or the fair value of financial assets and liabilities. For assets and liabilities at a variable interest rate, a change in market interest rates has a direct effect on cash flow. For fixed-interest assets and liabilities, the fair value of the portfolio is affected by changes in interest rates.

Sapa's sources of funding primarily comprise shareholders' equity, cash flow from operating activities and borrowings. At year-end, total net interest-bearing financial liabilities amounted to NOK 728 million (NOK 3,084 million).

The financial directive provides guidelines for interest rates and average maturity of borrowings. All borrowings in the loan portfolio must have a variable rate. A minimum 50 percent of all debt must have a short-term interest period, i.e., less than 12 months.

Long-term financing (the revolving credit facility) is based on a flexible drawdown concept allowing Sapa to manage the funding with short-term interest periods. The final maturity is in 2018.

Credit risk

Credit risk is the risk that one party to a financial instrument will fail to meet its obligation leading to a financial loss for Sapa. Sapa is exposed to credit risk from its operating activities (primarily trade receivables) and certain financing activities, including deposits with banks, foreign exchange transactions, and other financial instruments.

The maximum exposure to credit risk for the group amounted to NOK 8,158 million (NOK 10,030 million) as of the balance sheet date. The exposure is represented by total financial assets that are carried on the balance sheet. Sapa has not granted any financial guarantees expected to have impact on the credit risk. No significant collateral agreements reducing the maximum exposure to credit risk existed as of the balance sheet date.

Amounts in NOK thousands.
Credit risk	2016	2015
Other non-current assets	218	71
Trade receivables	6,095	6,292
Current receivables	939	1,026
Other current financial assets	235	129
Cash and cash equivalents	671	2,512
Total	8,158	10,030

At an operational level, outstanding trade receivables are continuously monitored locally with each area applying the customer credit policy. Trade receivables are subject to credit limit control and approval procedures in all subsidiaries. An impairment analysis is also performed at each reporting date. The group's concentration of credit risk related to trade receivables is mitigated primarily by its many geographically and otherwise diverse customers. Factoring agreements reduce the credit risk to some extent.

With regard to treasury-related activities, Sapa's directive states that only well-established financial institutions are approved as counterparties. Transactions are made within fixed limits and credit exposure per counterparty is continuously monitored. Sapa's cash and cash equivalents are only invested in government securities and in banks approved by the group. The group has made ISDA (International Swaps and Derivatives Association) agreements with all of its counterparties. ISDA is classified as an enforceable netting arrangement. The agreement between the group and the counterparty allows for net settlement of derivatives when both parties elect to settle net.

Also refer to Note 20 for disclosures relating to amounts of financial assets that are past due but not impaired, as well as specification of changes in allowance for doubtful receivables.

4 Revenue information

Accounting policy

Sales revenues for products and services are recognized at the time of delivery in accordance with the terms of delivery. Net sales refer to the sales value with deductions for special sales taxes, returns and discounts. Gains and losses on forward contracts relating to metals and currencies that were entered into for hedging purposes are recognized in profit and loss when incurred, and presented at line in the income statement as the underlying transaction to which the hedging is attributable, was or will be presented.

In Extrusion, extruded aluminium profiles are manufactured for the transport industry and various types of construction solutions, such as machine parts and furniture, interior fittings, and products for the leisure sector. Building Systems supplies building systems for doors, windows, facades, and glass roofs based on aluminium profiles. Precision Tubing produces and delivers welded and extruded tubes primarily for automotive applications. Revenue is distributed by country, according to the locations of Sapa's customers.

Sapa is organized in three primary areas of operations: Extrusion, Building Systems and Precision Tubing.

		Revenues
Amounts in NOK millions. Years ended December 31	2016	2015
Extrusion Europe	19,600	20,031
Extrusion North America	20,298	21,694
Building Systems	7,089	7,042
Precision Tubing	6,338	6,275
Other and eliminations	2	210
Total	53,327	55,252

	Revenues		Capital employed		Investments
Amounts in NOK millions.	2016	2015	2016	2015	2016	2015
Norway	294	289	(545)	(918)	7	10
Germany	5,702	5,816	216	269	77	58
France	5,160	5,211	1,701	1,603	82	148
UK	2,731	3,109	951	1,234	73	63
Italy	1,984	2,068	215	242	44	42
Poland	1,553	1,342	574	506	70	80
Sweden	1,543	1,599	343	157	116	76
Spain	1,374	1,488	528	524	38	29
Belgium	1,000	1,034	775	910	42	36
Netherlands	1,063	1,192	336	357	22	27
Other Europe	5,620	5,306	1,769	1,962	236	165
Total Europe	28,024	28,454	6,863	6,846	807	734
USA	19,253	20,540	5,087	5,601	438	577
Canada	2,052	1,848	246	198	45	15
Mexico	715	908	88	98	15	–
Brazil	688	593	409	356	13	9
Other Americas	330	454	86	52	4	9
China	1,233	1,384	650	832	31	93
Other Asia	900	901	546	571	33	31
Rest of the world	132	170	11	15	–	–
Total outside Europe	25,303	26,798	7,123	7,723	579	734
Total continuing operations	53,327	55,252	13,986	14,569	1,386	1,468

Capital employed comprises working capital, net non-current tangible and intangible assets, net pension assets/ liabilities, deferred taxes, and shares/interests in associated companies.

5 Employee and management remuneration

Accounting policy

Payroll expenses comprise all types of remunerations to employees in Sapa and are expensed when earned. Ordinary pay can be both fixed and hourly wages and are earned and paid periodically. Holiday pay is earned on the basis of ordinary pay and is normally paid in the holiday months of the following year. Bonuses are earned and calculated on the basis of various performance targets. Short term incentives are paid the following year and the long term incentives are paid the third year after bonus is earned. The employees national insurance contribution is calculated and expensed for all pay-related costs, and is paid according to country specific payment terms. Pensions are earned in accordance with specific rules (see Note 24).

Employee benefits expense

The number of employees for 2016 was 22,408 for the total group, of whom 18 percent female. Employee benefits expenses are specified in the adjacent table:

Amounts in NOK millions.	2016	2015
Salaries	8,080	7,804
Social security costs	1,508	1,495
Net pension cost1)	286	276
Other remuneration	623	584
Total	10,497	10,159

1) For detailed information about pension costs see Note 24.

Remuneration to the CEO

	2016
NOK thousands.	Salary1)	STI2)	LTI3)	Benefits4)	Pension benefits5)
January 1–December 31; Egil Hogna	5,111	2,317	2,030	183	1,289

1) Total salary during the year, including vacation pay and travel time compensation.

2) Outcome from the 2016 Short Term Incentive (STI) program. The amount will be paid in 2017.

3) Outcome from the 2016 Long Term Incentive (LTI) program. The LTI amount will be paid in 2019 provided that Egil Hogna is still employed by Sapa as per December 31, 2018. 4) Total of benefits received during the year including such items as taxable portion of insurance premiums, car allowance and electronic communication devices.

5) Total pension cost during the year. The CEO's age of retirement is 67. The CEO's pension benefits include a defined contribution (DC) pension plan where the Company shall contribute 5 percent of salary between 1G & 6G and 8 percent of salary between 6G & 12G. In addition, the CEO earns pension rights based on 27 percent of his salary over 12G in an unfunded pension arrangement. (As of May 2016 1G = NOK 92,576).

Other terms of employment: The mutual period of notice for the CEO and Sapa AS is six months. During the notice period, employment conditions remain unchanged. If notice is given by the Company, the CEO is entitled to severance pay for six months.

Remuneration to the remainder of the corporate management team (CMT)

	2016
NOK thousands.	Salary1)	STI2)	LTI3)	Benefits4)	Pension benefits5)
Total remuneration to 13 CMT members*	39,417	10,858	20,069	3,007	4,898

1) Total salary during the year, including vacation pay, travel time compensation and international assignees' allowances.

2) Outcome from the 2016 Short Term Incentive (STI) program. The amount will be paid in 2017. 3) Outcome from the 2016 Long Term Incentive (LTI) program, to be paid in 2019. Employment by Sapa through December 31, 2018 is required for any LTI payment.

4) Total of benefits received during the year including such items as taxable portion of insurance premiums, car benefits, electronic communication devices and international assignees' benefits.

5) Total pension cost for the period. *) Of whom six were members of the CMT for only part of the year. The data also includes remuneration to a former member of the CMT who left the Company in 2015.

Remuneration to the Board of Directors

Only the employee representative directors are paid fees. In total, NOK 485 thousand was distributed among the employee representative directors during the year. Directors representing the owners are not paid separate compensation for board service.

Remuneration to the CEO

			2015
NOK thousands.	Salary1)	STI2)	LTI3)	Benefits4)	Pension benefits5)
CEO Svein Tore Holsether Jan 1–Aug 31	4,323	1,731	–	141	754
CEO Egil Hogna Sep 1–Dec 31	1,810	673	600	61	390

1) Total salary during the year, including vacation pay and travel time compensation.

2) Outcome from the 2015 Short Term Incentive (STI) program, paid to Svein Tore Holsether in 2015 and paid to Egil Hogna in 2016.

3) Outcome from the 2015 Long Term Incentive (LTI) program. The LTI amount will be paid in 2018 provided that Egil Hogna is still employed by Sapa as per December 31, 2017. 4) Total of benefits received during the year including such items as taxable portion of insurance premiums, car allowance, and electronic communication devices.

5) Total pension cost during the year. The CEO's age of retirement is 67. The CEO's pension benefits includes a defined contribution (DC) pension plan where the company shall contribute 5 percent of salary between 1G & 6G and 8 percent of salary between 6G & 12G. In addition, the CEO earns pension rights based on 27 percent of his salary over 12G in an unfunded pension arrangement. (As of May 2015 1G = NOK 90,068).

Other terms of employment: The mutual period of notice for the CEO and Sapa AS is six months. During the notice period, employment conditions remain unchanged. If notice is given by the company, the CEO is entitled to severance pay for six months.

Remuneration to the Board of Directors

Only employee representative directors are paid fees. In total, NOK 485 thousand was distributed among the employee representative directors in 2015. Directors representing the owners are not paid separate compensation for board service.

6 Auditor remuneration

Amounts in NOK millions.
Years ended December 31	2016	2015
EY
Ordinary audit fee	26	23
Tax services	2	3
Other services1)	4	5
Other
Ordinary audit fee	2	3
Tax services	1	1
Other services1)	0	0
Group total	35	35

1) Other services consists mainly of Human Capital Tax compliance.

7 Research and development

If research and development costs do not meet the criteria for capitalization as described in Note 15, the expenses are recognized in profit and loss as incurred. Total research and development expenditures were NOK 340 million in 2016 (NOK 320 million). A significant proportion of the amount consists of product development, including development of alloys and materials. The amount also includes costs for improving processes for new and existing products to improve production efficiency, providing product development support to customers and local sales teams. New process development accounts for a minor share of costs. The criteria for capitalizing research and development costs have not been met.

8 Leases

Accounting policy

The determination of whether an arrangement is or contains a lease is based on the substance of the arrangement at inception date. Leases are classified as finance leases if the terms of the lease agreement transfer substantially all the risks and rewards incidental to ownership of an asset. All other leases are classified as operating leases.

Finance leases are capitalized at inception of the lease at the fair value of the leased vessel or, if lower, at the present value of the minimum lease payments. The corresponding lease obligation is recognized as a liability in the balance sheet. Lease payments are split between interest cost and reduction of the lease liability. Interest cost is recognized in profit and loss.

Finance leased assets are depreciated over the shorter of the estimated useful life of the asset and the lease term. For operating leases, the payments (time charter hire or bareboat hire) are recognized as an expense on a straight line basis over the term for the lease.

Leases of assets of a limited value, such as private cars and office machinery, are recognized as operational lease contracts.

Future minimum lease payments for buildings, machinery and equipment due under non-cancellable operating leases are as follows:

Amounts in NOK millions.	Less than 1 year	2–5 years	Thereafter	Total
Operating lease obligation 2016	217	486	71	774
Operating lease obligation 2015	294	526	56	876

Operating lease expense for office space, machinery, and equipment for current year amounts to NOK 247 million for 2016 (NOK 392 million).

Finance leasing expense for buildings, machinery and equipment for current year amounts to NOK 1 million for 2016 (NOK 4 million). There are no future lease payments for buildings, machinery, and equipment due under finance leases.

9 Depreciation and amortisation expense

Specification of depreciation and amortisation by asset category
------------------------------------------------------------------	--

Amounts in NOK millions. Years ended December 31.	2016	2015
Buildings and land improvements	(216)	(238)
Machinery and equipment	(978)	(933)
Intangible assets	(107)	(150)
Depreciation and amortization expense	(1,301)	(1,321)

Accounting principles are described in note 14 Property, plant, and equipment and in note 15 Intangibles.

10 Impairment of non-current assets

Accounting policy Impairment testing of goodwill

Goodwill is the residual value consisting of the difference between the purchase consideration and the capitalized value of an acquired company after a purchase consideration allocation has been carried out. Assets with an indeterminable useful life are not amortized but are tested annually to assess whether there is any impairment requirement and whenever events or other changed circumstances indicate that the value of acquired goodwill may have declined; for example, due to changes in the business climate or decisions to divest or discontinue certain operations. To determine whether the value of goodwill has declined, the cash-generating unit to which the goodwill item is attributable must be valued, which takes place by discounting the cash flow of the unit. When assessing the need to impair goodwill, the assets are grouped into cash-generating units and the assessment is made on the basis of future cash flows from these units. By applying this method, the company assesses a number of factors, including earnings achieved, business plans, financial forecasts, and market data. If the recognized value of the asset exceeds its estimated recoverable amount, the asset is impaired to its recoverable amount. Impairment of goodwill is never reversed.

Impairment testing of other non-current assets

If there is an indication that the carrying value of other non-current assets is too high, an impairment test is performed whereby the recoverable amount of individual or naturally interrelated types of assets is determined as the highest of the net realizable value or value in use. Value in use is measured as the future discounted cash flow expected from the asset or the cash-generating unit to which the asset belongs. An impairment loss is recognized for the difference between the carrying value and recoverable amount. An impairment loss is reversed if a positive change occurs in the criteria used to determine the recoverable amount. A reversal is performed at a maximum of an amount that does not exceed the carrying value that would have been recognized, less depreciation/amortization, if no impairment loss had been recognized.

Amounts in NOK millions. Years ended December 31.	2016	2015
Classification by asset category
Impairment losses
Property, plant, and equipment	(18)	(58)
Intangible assets	–	–
Total impairment of non-current assets	(18)	(58)

In 2016, impairment testing was performed when impairment triggers were identified. The impairments are based on an evaluation of the recoverable amounts for each cash-generating unit. Tangible assets in Europe were impaired by a total amount of NOK 18 million as a result

10 cont.

of a restructuring of the European automotive business of Precision Tubing. Combined with some minor reversals of prior year impairments, due to changes in strategy and underlying earnings, total net impairment of property, plant and equipment was NOK 18 million compared to NOK 58 million last year.

An impairment trigger is present in Precision Tubing Brazil due to a material market decline in both the automotive market and the extrusion market, resulting in underutilized production capacity and weak financial results. The region-specific WACC used in the impairment test is 13.5 percent before tax. When calculating the recoverable amount for the cash-generating unit, a principle of converting BRL cash flows to USD and applying a forward US inflation rate has been established. The recoverable amount for the cash-generating unit based on a valuein-use evaluation was higher than carrying value. The impairment test is sensitive to changes in WACC, among else.

A change in WACC of 1 percentage point with no changes to other assumptions would imply a change in net recoverable value as follows:

Amounts in NOK millions.
Years ended December 31.	+1%-point –1%-point
Brazil	(34)	34

An increase in WAAC by 2 percentage points would imply an impairment of NOK 14 million for Brazil.

The cash generating unit Precision Tubing India is in a turnaround phase, where several activities have already been undertaken to reverse the negative profit trend in past years. Some improvements were seen towards the end of 2016. While overall performance is still at unsatisfactory levels in absolute terms, the momentum of the turnaround suggests sound prospects for a viable operation. This indication is however still pending verification. Given this situation, the current assessment is that it is too early in the turnaround to determine any potential impairment need.

11 Financial income and expense

Accounting policy

Financial income comprises interest income and interest expenses, dividends and expenses and revaluations of financial instruments measured at fair value as well as unrealized and realized exchangerate losses and gains. Interest income on receivables and interest expenses on liabilities are calculated by applying the effective interest method.

Interest expenses are charged to earnings in the periods to which they are attributable regardless of how the borrowed funds were utilized. Interest expenses during construction and installation periods are included in costs for qualified investment projects. Interest expenses include transaction costs for loans that have been allocated over the term of the loan, which also applies to any differences between funds received and amounts repaid.

Amounts in NOK millions. Years ended December 31.	2016	2015
Interest income	33	34
Other financial revenue	13	55
Financial income	46	89
Interest expense	(113)	(159)
Interest pensions	(19)	(32)
Net foreign exchange gain (loss)	100	(66)
Other financial costs	(66)	(112)
Financial expense	(98)	(369)
Financial income (expense), net	(52)	(280)

Net gains/(losses) and interest income and expenses for financial instruments are recognized in profit and loss.

12 Income tax expense

Amounts in NOK millions. Years ended December 31.	2016	2015
Income (loss) from continuing operations before taxes
Nordics1)	766	787
Other countries	1,602	(539)
Total	2,368	248
Current taxes
Nordics	(127)	(36)
Other countries	(237)	(204)
Current income tax expense	(364)	(240)
Deferred taxes
Nordics	(67)	(50)
Other countries	(153)	293
Deferred tax benefit (expense)	(219)	243
Components of deferred taxes
Origination and reversal of temporary differences	(234)	484
Benefit/(use of) tax loss carryforwards and change not recognized, carryforward unused tax losses	(64)	10
Change in deferred tax due to change in tax rate and other similar items	2	90
Tax expense (benefit) recognized in other comprehensive income	76	(341)
Deferred tax benefit (expense)	(219)	243
Total tax benefit (expense)	(583)	3

1) Nordic countries are defined as Norway, Sweden, Finland and Denmark.

Reconciliation of nominal statutory tax rate to effective tax rate

Amounts in NOK millions. Years ended December 31.	2016	2015
Income before taxes	2,368	248
Expected income taxes at group tax rate 26.9% (17.5%)	(636)	(43)
Permanent differences	19	110
Change in unrecognized tax assets	62	36
Change in deferred tax due to change in tax rate, other current taxes, and other items	(29)	(100)
Income taxes	(583)	3
Effective tax rate	24.6%	(1.2%)

Accounting principles are described in Note 25 Deferred tax.

13 Earnings per share

	2016	2015
Net income for the year attributable to owners of the parent, NOK m	1,779	246
Average number of shares		200,000,000 200,000,000
Earnings per share NOK	8.90	1.23

Sapa has no potential dilutive instruments/shares.

14 Property, plant, and equipment

Accounting policy

Property, plant, and equipment is recognized at cost, net of accumulated depreciation and accumulated impairment losses, if any. Interest is capitalized only for large-scale investments. When significant parts of plant and equipment are required to be replaced at intervals, the group depreciates them separately based on their specific useful lives. Scheduled depreciation is based on the original cost taking into account applied impairment and any estimated residual value.

Both useful life and residual value are reviewed, at a minimum, at the end of every financial year. Straight-line depreciation is applied over the estimated useful life of the asset.

Amounts in NOK millions.	Land	Buildings	Machinery and equipment	Plant under construction	Total
December 31, 2014	739	2,919	5,037	715	9,410
Purchases	6	72	385	957	1,420
Reclassifications	(17)	149	645	(777)	0
Closing balance sold companies	–	–	(2)	(2)	(4)
Disposals	(24)	(302)	–	(32)	(358)
Depreciation	–	(238)	(933)	–	(1,171)
Impairments, net	(2)	(8)	(18)	(30)	(58)
Foreign currency translation effect	63	244	599	92	998
December 31, 2015	765	2,836	5,713	923	10,237
Accumulated cost	905	6,763	21,792	923	30,383
Accumulated depreciation and impairment	(140)	(3,927)	(16,079)	–	(20,146)
Carrying value December 2015	765	2,836	5,713	923	10,237
Purchases	3	62	283	999	1,347
Reclassifications	1	99	826	(925)	0
Opening balance acquired companies	–	13	–	–	13
Closing balance sold companies	–	–	(1)	–	(1)
Transferred to assets held for sale	(12)	(9)	–	–	(21)
Disposals	(6)	(3)	(12)	–	(21)
Depreciation	–	(216)	(978)	–	(1,194)
Impairments, net	–	(11)	(7)	–	(18)
Foreign currency translation effect	(44)	(138)	(245)	(56)	(483)
December 31, 2016	707	2,632	5,579	940	9,859
Accumulated cost	840	6,554	21,234	940	29,568
Accumulated depreciation and impairment	(134)	(3,921)	(15,654)	–	(19,709)
Carrying value December 2016	707	2,632	5,579	940	9,859
Depreciation periods
Machinery and equipment					3 to 15 years
Buildings					20 to 40 years

Land improvements 15 years

For further information regarding impairments see Note 10.

The company has property mortgages of NOK 207 million (19). Of this, NOK 190 million (0) is related to property in Sapa Profiler AB pledged as collateral for pension liabilities in Sweden.

15 Intangibles

Accounting policy

As a natural part of its business activities, the group carries out research and development. Research costs are expensed as incurred. Development expenditures on an individual project are recognized as an intangible asset when the group can demonstrate:

The technical feasibility of completing the intangible asset so that the asset will be available for use or sale
Its intention to complete and its ability to use or sell the asset
How the asset will generate future economic benefits
The availability of resources to complete the asset

• The ability to measure reliably the expenditure during development • The ability to use the intangible asset generated

Following initial recognition of the development expenditure as an asset, the asset is carried at cost less any accumulated amortization and accumulated impairment losses. Amortization of the asset begins when development is complete and the asset is available for use. It is amortized over the period of expected future benefit. Amortization is recorded in cost of sales. During the period of development, the asset is tested for impairment annually. Intangible assets also include patents, licenses, and IT systems.

				Other
Amounts in NOK millions.	Goodwill	Trade marks	IT programs	intangible assets	Total
December 31, 2014	863	63	294	183	1,403
Purchases	–	14	22	11	47
Disposals	–	–	–	(1)	(1)
Amortizations	–	(10)	(93)	(47)	(150)
Foreign currency translation effect	62	3	21	22	108
December 31, 2015	925	70	244	168	1,407
Accumulated cost	3,819	327	1,217	608	5,972
Accumulated depreciation and impairment	(2,894)	(257)	(974)	(440)	(4,565)
Carrying value December 2015	925	70	244	168	1,407
Purchases	–	–	20	19	39
Reclassifications	–	–	3	(3)	–
Closing balances sold companies	–	–	(1)	–	(1)
Amortizations	–	(15)	(75)	(17)	(107)
Foreign currency translation effect	(36)	(3)	2	(7)	(45)
December 31, 2016	889	52	192	160	1,293
Accumulated cost	3,679	308	1,147	585	5,719
Accumulated depreciation and impairment	(2,790)	(257)	(955)	(425)	(4,426)
Carrying value December 2016	889	52	192	160	1,293
Amortization periods
Trademarks					3 to 5 years

IT programs 3 to 5 years

Other intangible assets 3 to 5 years

For further information regarding impairments see Note 10.

Accounting policy

Goodwill represents the difference between the costs of the acquisition of operations and the fair value of acquired assets, assumed liabilities, and contingent liabilities. Goodwill is measured at cost less any

accumulated impairment losses. Goodwill that has arisen in conjunction with the acquisition of associated companies is included in the carrying value of associated companies. Goodwill is allocated among cash-generating units and undergoes annual impairment testing.

Amounts in NOK millions.	Extrusion Europe	Extrusion North America	Building Systems	Precision Tubing	Total
Cost
December 31, 2014	392	104	270	97	863
Foreign currency translation effect	25	12	18	7	62
December 31, 2015	417	116	288	104	925
Foreign currency translation effect	(23)	(3)	(15)	4	(37)
December 31, 2016	394	113	273	108	889
Accumulated cost	1,418	1,731	334	197	3,679
Accumulated depreciation and impairment	(1,024)	(1,617)	(61)	(88)	(2,790)
Carrying value December 2016	394	113	273	108	889

For further information regarding impairments see Note 10.

17 Investments accounted for using the equity method

Accounting policy

An associate is an entity over which the group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.

A joint venture is a type of joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the joint venture. Joint control is the contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require unanimous consent of the parties sharing control.

The considerations made in determining significant influence or joint control are similar to those necessary to determine control over subsidiaries. The group's investments in its associates and joint ventures are accounted for using the equity method.

Under the equity method, the investment in an associate or a joint venture is initially recognized at cost. The carrying value of the investment is adjusted to recognize changes in the group's share of net

assets of the associate or joint venture since the acquisition date. Goodwill relating to the associate or joint venture is included in the carrying value of the investment and is neither amortized nor individually tested for impairment.

Technal Middle East W.L.L. ("the Company") is a limited liability company incorporated in the Kingdom of Bahrain in August 2010. The Company is an equal joint venture company between Sapa Building Systems S.A. (formerly Technal S.A.), a company incorporated in France, and Bahrain Aluminium Extrusion Company B.S.C. (c), a company incorporated in the Kingdom of Bahrain (name "BALEXCO"). The main activities of the Company are marketing, distribution, providing technical assistance relating to aluminium, architectural systems, and other joinery products made from extrusions and accessories for windows, doors, curtain walls, and other joinery products. The Company also undertakes engineering work.

During 2016 Sapa acquired the remaining shares in Siva Magnor Eiendom AS and now holds 100 percent of the shares.

Specification of associated companies and joint ventures

		Percentage owned by Sapa at year end	Carrying value
Amounts in NOK millions., except ownership	2016		2016	2015
Siva Magnor Eiendom AS	100%	Associate Company	–	1
Technal Middle East W.L.L.	50%	JV	103	78
Total			103	79

A summary of the financial information for the group's associated companies is provided below. The table shows the group's share of profits and shareholders' equity.

Amounts in NOK millions. (unaudited)	2016	2015
Income statement data
Revenues	187	155
Earnings before financial items and tax	53	32
Income before tax	52	31
Net income	52	31
Balance sheet data
Current assets	131	107
Non-current assets	1	1
Assets	132	108
Current liabilities	25	26
Non-current liabilities	4	3
Equity	103	79
Equity and liabilities	132	108

18 Non-current assets held for sale

Accounting policy

If an agreement is made to sell assets that constitute less than a line of business, assets and liabilities are reported on separate lines of the statement of financial position as "Held for sale."

Amounts in NOK millions. Years ended December 31.	2016	2015
Statement of financial position for assets held for sale
Non-current assets	103	73
Current assets	11	29
Assets held for sale	114	102
Non-current liabilities	–	–
Current liabilities	20	30
Liabilities held for sale	20	30

As part of the restructuring projects within Building Systems and Extrusion Europe some assets have been classified as assets held for sale.

19 Inventories

Accounting policy

Inventories are valued at the lower of cost and net realizable value, with obsolescence taken into account. The net realizable value is the estimated sales price in the operating activities less estimated costs for completion and securing a sale. The cost of the inventories is calculated by applying the first-in, first-out method (FIFO) and includes expenses arising from the acquisition of stock items and the transportation of them to their current location and condition. The costs of proprietary goods and work in progress comprise direct manufacturing costs and a reasonable portion of indirect costs based on normal capacity utilization.

Amounts in NOK millions. Years ended December 31.	2016	2015
Raw materials	2,212	2,144
Work in progress	811	852
Finished goods	2,140	2,283
Inventories	5,163	5,279

Inventories

Inventories of aluminium used in the extrusion operations for various types of end products, in addition to those expected to be sold at normal prices within a planned time frame, were impaired to their replacement price. The total impairment loss amounted to NOK 205 million (NOK 260 million). NOK 9 million of the inventory is pledged.

20 Trade receivables and other receivables

Amounts in NOK millions. Years ended December 31.	2016	2015
Trade receivables	6,614	6,947
Allowance for credit losses	(519)	(655)
VAT receivables	194	268
Other receivables	745	758
Trade receivables and other receivables	7,034	7,318

Amounts in NOK millions. Years ended December 31.	2016	2015
Not due	5,328	5,554
Overdue 1–30 days	565	632
Overdue 31–60 days	117	113
Overdue 61–90 days	38	40
Overdue 91–180 days	89	49
Overdue 181–360 days	78	127
Overdue over 361 days	399	432
Total receivables outstanding	6,614	6,947
Specification of allowance for doubtful receivables
Allowances as of January 1	(655)	(755)
Additions for impairment losses	(15)	23
Collected during the year	115	124
Currency translation differences	36	(47)
Allowances as of 31 December	(519)	(655)

Amounts in NOK millions. Years ended December 31.	2016	2015
Trade receivables by invoiced currencies
EUR	2,668	2,861
USD	1,785	1,850
GBP	469	517
SEK	284	309
CAD	136	95
DKK	77	71
BRL	63	38
NOK	64	29
Other	549	522
Trade receivables, net	6,095	6,292

21 Equity

Accounting policy

Sapa JV was formally established on September 1, 2013 through contribution in kind from the owners. The contribution was recorded by use of the pooling method (continuity). Translation differences prior to the combination will not be recycled over the income statement. Historical translation differences for the period up until September 1, 2013 amount to NOK –567 million.

Specification of reserves in the shareholders' equity item

Amounts in NOK millions. Years ended December 31.	2016	2015
Currency translation differences
January 1	1,738	928
Currency translation differences during the year	(776)	807
Reclassified to net income on sale of foreign operations	9	3
December 31	971	1,738

21 cont.

Specification of reserves in the shareholders' equity item

Amounts in NOK millions.
Years ended December 31.	2016	2015
Other components of equity in equity accounted investments
January 1	40	27
Period gain (loss) recognized in other comprehensive income	(5)	13
Reclassified to net income	–	–
December 31	35	40
Attributable to:
Equity holders of the parent	1,006	1,778
Non-controlling interests	–	–
Number of shares
Hydro Aluminium AS, Norway	100,000,000	100,000,000
Orkla Industriinvesteringer AS, Norway	100,000,000	100,000,000
Par value of the shares is NOK 1

22 Interest-bearing liabilities

Interest-bearing liabilities include a syndicated credit facility and bank loans.

As of the balance sheet date the group had the following outstanding borrowings in various currencies:

	2016			2015
Amounts in NOK millions.	Non current	Current	Non current	Current
EUR	8	212	632	122
NOK	4	(1,255)	0	3
SEK	0	1 120	314	0
USD	12	106	1,999	0
Other	80	528	139	1,065
Total interest-bearing liabilities	104	711	3,084	1,190

As of December 31 there were no enforceable covenants based on Sapa's current shareholders.

Also refer to Note 3 for additional information relating to credit risk and financial risk management. Refer to Note 27 Financial Instruments for more information on financial instruments classified by category.

23 Provisions

Accounting policy

Provisions are recognized when the group has a present obligation (legal or constructive) as a result of a past event, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation. When Sapa expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognized as a separate asset, but only when the reimbursement is virtually certain. The expense relating to a provision is presented in the income statement net of any reimbursement.

A provision for the restructuring or closure of a plant is recognized when the group has adopted a detailed and formal restructuring plan and the restructuring has either commenced or been publicly announced. No provisions are made for future operating costs.

Warranty provisions are only recognized when it is probable there will be an outflow of economic resources.

		2016			2015
Amounts in NOK millions. Years ended December 31.	Current	Non current	Total	Current	Non current	Total
Warranties	43	–	43	22	–	22
Restructuring reserves	179	13	192	389	–	389
Environmental reserve	21	89	110	19	103	122
Bonus	512	71	583	463	13	476
Employee-related benefits	19	39	58	14	46	60
Other	95	99	194	134	113	247
Total provisions	869	311	1,180	1,041	275	1,316

Amounts in NOK millions.	Warran ties	Restruc turing reserves	Environ mental reserve Bonus		Employee related benefits Other		Total
Specification of change in provisions
December 31, 2015	22	389	122	476	60		247 1,316
Additions	42	60	28	377	23	53	583
Used during the year	(14)	(210)	(38)	(225)	(24)	(86)	(597)
Reversal of unused provisions	(10)	(27)	(3)	(39)	(4)	(17)	(100)
Reclassified from other provisions	3	(2)	4	–	7	(12)	–
Foreign currency translation	–	(18)	(3)	(6)	(4)	9	(22)
December 31, 2016	43	192	110	583	58		194 1,180
Of which current portion	43	179	21	512	19	95	869
Of which non current portion	–	13	89	71	39	99	311
December 31, 2016	43	192	110	583	58		194 1,180

"Other" includes, among else, legal provisions of NOK 76 million, customer claims of NOK 34 million, and a performance bond of NOK 5 million.

Accounting policy

Post-employment benefits are recognized in accordance with IAS 19 (R) Employee Benefits. The cost of providing pension benefits under defined benefit plans is determined separately for each plan using the projected unit credit method.

Under defined contribution plans, the company pays fixed contributions to a separate legal entity and has no obligation to pay additional contributions. The group's earnings are charged with costs in line with vesting of the benefit.

Under defined benefit pension plans, remuneration is paid to employees and former employees based on salary at the time of retirement and the number of years of service. The group carries the risk for ensuring that the pledged remuneration is paid. The defined benefit plans are either funded or unfunded. In the case of funded plans, assets have been detached primarily in pension foundations.

Pension costs and pension commitments for defined benefit pension plans are calculated according to the projected unit credit method. This method distributes costs for pensions in line with the employees performing services for the company that increase their rights to future remuneration.

The company's pension commitments are calculated every year by an independent actuary. The commitments comprise the present value of expected future payments. The discount rate applied corresponds to the rate for high-quality corporate bonds or government bonds with terms corresponding to the average term of the commitments and currency.

Actuarial gains and losses can arise when the present value of the commitments and the fair value of the plan assets are determined. These losses and gains occur in cases where the actual outcome differs from the previously made assumption, or because the assumption was changed. The accumulated actuarial gains and losses at the end of the preceding year are recognized in other comprehensive income/ loss.

The accounting policies described above are applied only to the consolidated financial statements. The parent company and subsidiaries recognize defined benefit pension plans according to the local regulations and instructions applicable in each country.

Employee post-employment benefits

Post-employment benefits provided by Sapa, such as pensions, healthcare, and other benefits are mainly settled by means of regular payment to independent authorities or bodies that assume pension obligations and administer pensions through defined contribution plans.

The remaining post-employment benefits are defined benefit plans; that is, the obligations remain within Sapa or are secured by proprietary pension foundations. Sapa's defined-benefit plans relate mainly to subsidiaries in Norway, Sweden (mainly through the Swedish ITP pension plan), the US, Germany, France, Italy and the UK.

Assumptions when calculating pensions

Provisions and costs for post-employment benefits, mainly pensions, are dependent on assumptions used by actuaries when calculating such amounts. The appropriate assumptions and actuarial calculations are made separately for the respective countries in the Sapa operations which result in obligations for post-employment benefits. The assumptions include discount rates, inflation, salary growth, retirement rates, mortality rates, and other factors. The actuarial assumptions are annually reviewed by Sapa and modified when deemed appropriate to do so.

The following tables disclose information about defined benefit plans. Sapa recognizes the difference between the obligations and the plan assets in the balance sheet. The disclosures refer to assumptions

applied for actuarial calculations, recognized costs during the financial year, and the value of obligations and plan assets at year-end. The tables also include a reconciliation of obligations and plan assets during the year.

Amounts in NOK millions. Years ended December 31.	2016	2015
Net periodic pension cost
Defined benefit plans
Benefits earned during the year, net of participants' con tributions	(52)	(31)
Interest cost on prior period benefit obligation	(195)	(227)
Expected return on plan assets	176	195
National sec tax of insurance plans	(1)	(1)
Administration cost	(13)	(15)
Curtailments and settlements	(2)	(4)
Net periodic pension cost	(87)	(83)
Defined contribution plans	(218)	(225)
Total net periodic pension cost	(305)	(308)
Changes in other comprehensive income
Changes in actuarial gains (losses)	(76)	322
Total recognized in other comprehensive income	(76)	322
Total recognized in net periodic pension cost and other comprehensive income	(381)	14
Change in defined benefit obligation (DBO)
Defined benefit obligation at beginning of year	6,386	6,002
Benefits earned during the year	52	31
Interest cost on prior period benefit obligation	195	227
Actuarial gain (loss)	678	(455)
Plan amendments	(2)	3
Redeemed obligations	(80)	(93)
Reclassified from other pensions	–	80
Reclassified from other provisions	–	24
Benefits paid	(257)	(280)
Curtailment/settlement gain (loss)	(1)	4
Pensions reclassified to DBO in Belgium	71	–
Foreign currency translation	(783)	843
Defined benefit obligation at end of year	6,259	6,386
Change in pension plan assets
Fair value of plan assets at beginning of year	5,434	4,780
Actual return on plan assets	176	195
Administration cost	(13)	(15)
Actuarial gain (loss)	602	(133)
Company contributions	10	163
Curtailments and settlements – assets	–	–
Benefits paid	(208)	(249)
Pensions reclassified to DBO in Belgium	64	–
Foreign currency translation	(804)	693
Fair value of plan assets at end of year	5,261	5,434
Weighted average investment profile plan assets at end of year
Asset category
Equity securities	36%	34%

Equity securities	36%	34%
Debt securities	59%	59%
Real estate	3%	3%
Other	2%	4%

24 cont.

Amounts in NOK millions. Years ended December 31.	2016	2015
Amounts recognized in the balance sheet consist of
Pension asset	5,261	5,434
Accrued pension liabilities	(6,259)	(6,386)
Other pension liabilities	(5)	(3)
Net amount recognized	(1,003)	(955)
Net pension obligation per country
Country
Norway	(88)	(81)
France	(167)	(168)
Germany	(298)	(273)
Italy	(61)	(67)
Sweden	(413)	(507)
UK	392	565
USA	(273)	(328)
Other	(95)	(96)
	(1,003)	(955)

Pension assets include NOK 392 million pertaining to assets in two trusts in the UK, to which access is restricted. For the overfunded trust in the UK the company has accrued for the tax applicable upon exit based on a tax rate of 35 percent.

	2016	2015
Weighted average assumptions used to determine pension obligation at end of year
Discount rate	2.9%	3.8%
Rate of compensation increase	3.2%	3.2%
Rate of price inflation	2.9%	2.9%
Sensitivity analysis of change in discount rates
Effect on obligation , NOK million
Germany, discount rate decrease 0.5%	14	12
Germany, discount rate increase 0.5%	(28)	(19)
Sweden, discount rate decrease 0.5%	38	45
Sweden, discount rate increase 0.5%	(33)	(39)
UK, discount rate decrease 0.5%	364	333
UK, discount rate increase 0.5%	(317)	(295)
USA, discount rate decrease 0.5%	86	102
USA, discount rate increase 0.5%	(79)	(92)

25 Deferred tax

Accounting policy

Tax payable for current and prior periods is measured at the amount paid or expected to be paid to the tax authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantively enacted at the balance sheet date. Deferred tax is provided using the liability method on temporary differences at the balance sheet date between the tax basis of assets and liabilities and their carrying values for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, except:

where the deferred tax liability arises from the initial recognition of goodwill or of an asset or liability in a transaction that is not a business combination, and at the time of the transaction affects neither the accounting profit nor taxable profit or loss; and
in respect of taxable temporary differences associated with investments in subsidiaries, associates and interests in joint ventures, where the timing of the reversal of the temporary differences can be controlled and it is probable that the temporary differences will not reverse in the foreseeable future.

Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to set off current tax assets against current tax liabilities and the deferred taxes relate to the same taxable entity and the same tax authority, and are the basis for deferred tax assets for the company. Deferred tax assets and deferred tax liabilities are not offset between different tax jurisdictions. Deferred tax assets and liabilities are measured at the tax rates that are expected to apply at the time when the asset is realized or the liability is settled, based on the tax rates and tax laws that have been enacted or substantively enacted at the balance sheet date. Deferred tax assets made probable through prospective earnings, and those that can be utilized against the tax reducing temporary differences are recognized as intangible assets. The carrying value of deferred tax assets is reviewed at each balance sheet date and reduced to the extent that it is no longer probable that sufficient taxable profit will be available to allow all or part of the deferred income tax asset to be utilized. The carrying value of the tax positions in local currency are translated to NOK applying the rate of exchange at year-end.

Tax effects on temporary differences and tax loss carryforwards giving rise to deferred tax assets and liabilities were as follows as of December 31, 2106 and December 31, 2015:

25 cont.

	2016		2015
Amounts in NOK millions. Years ended December 31.	Assets	Liabilities	Assets	Liabilities
Intangible assets	33	(1)	39	(3)
Property, plant, and equipment	121	(763)	144	(721)
Pensions	298	(86)	309	(107)
Inventory valuation	62	(27)	75	(23)
Receivables	57	(3)	67	(22)
Current liabilities	103	(9)	198	(23)
Provisions and similar items	23	(312)	12	(368)
Other	126	(2)	213	(2)
Tax loss carryforwards (gross tax effect)	2,352	–	2,714	–
Subtotal	3,175	(1,203)	3,771	(1,269)
Of which not recognized as tax asset	(1,399)	–	(1,684)	–
Of which other tax deductible temporary differences	(106)	–	(185)	–
Netting	(825)	825	(739)	739
Gross deferred tax assets (liabilities)	845	(378)	1,163	(530)

Total loss carryforwards

At year-end, Sapa had tax loss carryforwards of NOK 8,116 million (9,483) of which NOK 2,428 million (2,569) was recognized as deferred tax assets in the balance sheet. Deferred tax assets are recognized based on expected utilization/future taxable income. Tax assets mainly relate to North America.

The tax loss carryforwards that were not recognized, due to lack of convincing evidence regarding expected utilization, NOK 5,688 million (6,915), are primarily attributable to countries in southern Europe, Benelux, and China.

Amounts in NOK millions.	2016
2017	134
2018	429
2019	306
2020	370
2021	159
After 2021	1,990
Without expiration	4,728
Total tax loss carryforwards	8,116
Of which losses have been recognized	2,428

26 Trade payables and other payables

Amounts in NOK millions. Years ended December 31.	2016	2015
Trade payables	6,404	6,246
Payroll and value-added taxes	1,265	1,277
Accrued liabilities and other payables	239	249
Trade payables and other payables	7,908	7,772
Trade payables by invoiced currencies
EUR	2,934	3,127
USD	1,950	1,857
SEK	303	363
GBP	337	212
DKK	146	129
NOK	64	68
CAD	84	59
BRL	66	43
Other	520	388
Trade payables, net	6,404	6,246

27 Financial instruments

Accounting policy Financial instruments

Financial instruments are measured and recognized in the consolidated financial statements in accordance with IAS 39 Financial Instruments. A financial asset or liability is recognized in the balance sheet when the group becomes a party under the contractual conditions of

the instrument. A financial asset is derecognized from the balance sheet when the contractual rights have been realized, matured or the group loses control of them. A financial liability is derecognized from the balance sheet when the obligation in the agreement has been performed or extinguished in another manner.

Bank balances, loans and trade receivables are measured at amortized cost. Impairment testing is performed continuously based on objective criteria for these assets. Any exchange-rate differences are recognized under net financial items or operating profit depending on the purpose of the holding. Fair value of assets recorded to amortized cost is considered to be approximately equal to amortized cost, due to the maturity structure.

Financial liabilities are initially recognized as funds received less any transaction costs. These liabilities are normally measured at amortized cost.

Derivatives

All derivatives are measured at fair value and recognized in the balance sheet. All derivatives are held for hedging purposes.

For hedging of fair value, changes in the value of the derivative are recognized directly in profit and loss. Changes in value for the hedged item are recognized in a corresponding manner. Hedge Accounting in accordance with IFRS 9 was not applied in 2016, but will be applied from January 1, 2017.

Fair value measurement

A number of the group's accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities. When measuring the fair value of an asset or a liability, the management uses observable market data as far as possible. Fair values are categorized into different levels in a fair value hierarchy based on the inputs used in the valuation techniques as follows:

Notes

Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities.
Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly (i.e., prices) or indirectly observable (i.e., derived from prices).
Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable. For derivative liabilities, non-discounted cash flows must be specified in the maturity analysis performed to provide information relating to liquidity risk.

Currency derivatives are measured at fair value using the observed forward exchange rate for contracts with a corresponding term to maturity at the statement of financial position date.

Commodity derivatives are measured at fair value using marked-tomarket.

Net investment hedges

Changes in value for hedges of net investments in foreign operations are recognized continuously in other comprehensive income. Realized earnings are retained in shareholders' equity until the operation has been divested, at which point the accumulated earnings are recognized in profit and loss. A reporting entity or an entity that is consolidated or accounted for using the equity method in the reporting entity's consolidated financial statements may have a monetary item that is receivable from or payable to a foreign operation. Such items for which settlement is neither planned nor likely to occur in the foreseeable future is, in substance, a part of the reporting entity's net investment in that foreign operation, and is accounted for in accordance with IAS 21:32. Such monetary items may include long-term receivables or loans. They do not include trade receivables or trade payables. Exchange differences arising when monetary items are settled or when monetary items are translated at rates different from those at which they were translated when initially recognized or in previous financial statements are reported in profit or loss in the period, with one exception. [IAS 21:28] The exception is that exchange differences arising on monetary items that form part of the reporting entity's net investment in a foreign operation are recognized, in the consolidated financial statements that include the foreign operation, in other comprehensive income; they will be recognized in profit or loss on disposal of the net investment. [IAS 21:32]

Financial assets in Sapa mainly consist of trade receivables, cash and cash equivalents. The financial liabilities consist mainly of loans and trade payables (and pension obligations). Financial assets, liabilities, and forecast transactions give rise to various kinds of risks which are largely managed through derivative instruments. Refer to Note 3 for more information on risk management.

Derivative instruments are used by Sapa mainly for the purpose of converting corporate level borrowings in a limited number of currencies to the currencies in which the financial assets are denominated, converting future commercial payments receipts to functional currency and hedging the aluminium price to future fixed-price sales obligations and inventories not yet sold.

		2016			2015
Amounts in NOK millions. Market value as per balance sheet.	Currency derivatives	Commodity derivatives	Total	Currency derivatives	Commodity derivatives	Total
Derivative assets	54	181	235	41	88	129
Derivative liabilities	48	65	113	28	377	405
Net gain/loss recognized in profit and loss
Unrealized gain (loss)	(7)	342	335	40	(219)	(179)
Realized gain (loss)	(65)	11	(54)	(43)	51	8

Fair value hierarchy levels

	2016			2015
Amounts in NOK millions.	Level 1	Level 2	Level 3	Level 1	Level 2	Level 3
Currency derivatives		54			41
Commodity derivatives	164		17	88
Total financial assets at fair value by level	164	54	17	88	41
Currency derivatives		48			28
Commodity derivatives	63		2	377
Total financial liabilities at fair value by level	63	48	2	377	28

28 Other liabilities, claims and contingencies

Accounting policy

A contingent liability is a possible obligation whose existence is uncertain and will be confirmed by the occurrence or non-occurrence of a future special event, such as the outcome of legal proceedings. Contingent liabilities are recognized in the financial statements based on estimated outcome, if there is a more than 50 percent probability that the liability has arisen; if the probability is lower, the matter is disclosed in notes to the financial statements unless the probability of disbursement is not considered to be significant.

Amounts in NOK millions. Year ended December 31.	2016	2015
Other liabilities	198	172
Total liabilities	198	172

Other liabilities consist of, among else, endowment insurance in Sweden of NOK 67 million (NOK 71 million) and responsibility for pension liabilities in Norway and Sweden of NOK 89 million (NOK 72 million).

Disputes

30 Related-party information

Accounting policy

Two parties are deemed to be related if one party can influence the decisions of the other. Related-party relationships are a normal feature of commerce and business.

Transactions between Sapa AS and its subsidiaries, which are

The following transactions took place with related parties

Amounts in NOK millions. Year ended December 31.	Year	Sales	Purchase	Receivables	Liabilities
Group
Orkla Group	2015	5	27	–	7
Orkla Group	2016	–	35	–	11
Hydro Group	2015	175	6 116	10	615
Hydro Group	2016	138	4 720	11	516
Associated companies and joint ventures	2015	23	–	–	–
Associated companies and joint ventures	2016	33	–	–	–

not disclosed in this note.

Note 3 to the financial statements for Sapa AS.

During 2016, Norsk Hydro ASA and Sapa AS entered into a new metal supply agreement for Europe in order to continue the long-term cooperation beyond the expiration of the previous metal supply agreement which expired at the end of 2016. The new metal supply agreement is effective as of January 1, 2017. The agreement is open-ended and provides for a volume commitment that can be adjusted year-by-year, thereby giving Sapa the stability and flexibility needed.

Transactions with related parties are conducted on an arm's-length basis, and the new metal supply agreement was approved by the general meeting of Sapa AS in accordance with the Norwegian Limited Liability Companies Act of 1997 section 3–8, cf. section 2–6.

Refer to Note 17 for more information about associated companies and joint ventures.

28 cont.

Claims

Sapa Profiles, Inc. Portland (SPI) is under investigation by the United States Department of Justice (DOJ) Civil and Criminal Divisions regarding aluminium extrusions that SPI manufactured from 1996–2015. SPI is cooperating fully in these investigations. The investigations are currently ongoing, and, at this point, the outcome of the investigations and of any identified quality issues, including financial consequences for Sapa, is uncertain. SPI has been temporarily suspended as a federal government contractor. At this point, it is Sapa's best judgment that they will not have a material impact on its financial position.

29 Contractual commitments and other commitments for future investments

Sapa does not have contractual commitments or other commitments in 2016 for future investments that are not within the course of ordinary business.

Sapa has certain long-term sales commitments that are not disclosed because they are not significant.

Sapa has long-term contractual commitments for metal supply from Norsk Hydro. These commitments are described under related party disclosures.

related parties to Sapa AS, have been eliminated in the group and are

Information regarding compensation to the executive management is disclosed in Note 5 to the consolidated financial statements and

3 Financial statements Sapa AS

3.1 Income statements

Amounts in NOK millions. Years ended December 31.	Notes	2016	2015
Revenues from group companies	1	724	752
Total revenue and income		724	752
Employee benefits expense	2, 3	(201)	(217)
Depreciation and amortization expense	4, 5	(19)	(18)
Other	1, 3	(750)	(700)
Total operating expenses		(969)	(935)
Operating loss		(245)	(183)
Financial income, net	6	1,486	1,555
Income (loss) before tax		1,241	1,372
Income taxes	7	(29)	(374)
Net income		1,212	998
Appropriation of net income and equity transfers
Group relief provided		(30)	(74)
Retained earnings		(1,182)	(923)
Total appropriation		(1,212)	(998)
Other comprehensive income
Net income		1,212	998
Other comprehensive income not to be reclassified to profit and loss in subsequent periods
Remeasurement gains (losses) on defined benefit plans	2	2	3
Net other comprehensive income (loss) not to be reclassified to profit and loss in subsequent periods		2	3
Total comprehensive income for the year, net of tax		1,214	1,001

3.2 Balance sheets

Amounts in NOK millions. December 31.	Notes	2016	2015
Assets
Intangible assets	5	62	79
Property, plant, and equipment	4	4	6
Investments in subsidiaries	8	8,379	7,393
Intercompany receivables	9	10,621	9,962
Total financial non-current assets		19,000	17,355
Total non-current assets		19,067	17,440
Intercompany receivables		445	720
Prepaid expenses and other current assets	11	255	166
Intercompany short-term deposits		1,261	2,615
Cash and cash equivalents	1	750	644
Total current assets		2,711	4,145
Total assets		21,777	21,585
Equity and liabilities
Paid-in capital
Share capital	14	200	200
Share premium	14	14,400	14,400
Retained earnings
Retained earnings		1,995	811
Equity	14	16,595	15,411
Non-current debt	13	–	2,945
Provisions	11	50	–
Intercompany payables		91	–
Pension obligation	1, 2	78	73
Deferred tax liability	7	261	308
Total non-current liabilities		480	3,326
Bank loans and other interest-bearing current debt		263	168
Intercompany payables		3,949	1,922
Other current liabilities	11	490	757
Total current liabilities		4,702	2,847
Total equity and liabilities		21,777	21,585

3.3 Statements of cash flows

Amounts in NOK millions. Years ended December 31.	Notes	2016	2015
Operating activities
Profit/loss before tax		1,241	1,372
Depreciation/amortization	4, 5	19	18
Correction against payable finance items	6	(955)	(1,225)
Change in net working capital		(90)	7
Cash flow from operating activities		215	173
Investing activities
Replacement investments	4, 5	–	(5)
Net change in investments in subsidiaries		217	1,026
Change in other interest-bearing liabilities/receivables		446	(719)
Cash flow from investing activities		663	303
Financing activities
Change in interest-bearing liabilities		(773)	(914)
Cash flow from financing activities		(773)	(914)
Cash flow for the year		105	(438)
Cash and cash equivalents at the beginning of the year		644	1,082
Cash and cash equivalents at the end of the year		750	644

3.4 Notes to the financial statements Sapa AS

1 Summary of significant accounting policies

The financial statements for Sapa AS have been prepared and presented in accordance with the Norwegian Accounting Act and generally accepted accounting practices in Norway. Sapa applies the simplified IFRS regulations approved by the Norwegian Ministry of Finance on November 3, 2014, pursuant to sections 3–9 of the Norwegian Accounting Act.

Activities at the head office include the group's executive management and corporate function staff that largely carry out assignments for the group's other companies, and charge the companies for these services. The revenues from these activities are presented on the line for "Revenues from group companies."

Sapa's Treasury acts as an internal bank and is responsible for the group's external financing, management of the group's liquid assets, and overall management of its currency risk.

Financial statement preparation requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses as well as disclosures of contingencies. Actual results may differ from estimates.

The total amount in tables and statements might not always add up precisely, due to rounding differences. The aim is to have each line item correspond to the source and there might therefore be rounding differences in the total.

Investments in subsidiaries

Investments in subsidiaries are presented according to the cost method. Dividends from subsidiaries are recognized in the year for which the dividend is proposed by the subsidiary to the extent Sapa AS can control the decision of the subsidiary through its shareholdings. Non-cash dividends are recognized at fair value. Investments in subsidiaries, associates, and jointly controlled entities are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may exceed the fair value of the investment. An impairment loss is reversed if the impairment situation is deemed to no longer exist.

Employee retirement plans

The employee retirement plans in Sapa AS are measured as required by IAS 19 (R) Employee Benefits. For additional information, see Note 24 Provisions for pension liabilities and similar commitments in the notes to the consolidated financial statements.

Foreign currency transactions

Realized and unrealized currency gains or losses on transactions are included in Financial income, net. Likewise, unrealized currency gains or losses on assets and liabilities denominated in a currency other than Norwegian kroner (NOK) are also included in Financial income, net.

Cash and cash equivalents

Cash and cash equivalents include cash, bank deposits and all other monetary instruments with a maturity of less than three months at the date of purchase.

Current investments

Current investments include bank deposits, and all other monetary instruments with a maturity between three and 12 months at the date of purchase and current marketable equity and debt securities. Such securities are considered trading securities and are measured at fair value. The resulting unrealized holding gains and losses are included in Financial income, net. Investment income is recognized when earned.

Property, plant, and equipment

Property, plant, and equipment is carried at historical cost less accumulated depreciation and impairment losses. These assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying value may not be recoverable. The impairment of longlived assets is recognized when the recoverable amount determined as the higher of fair value less cost to sell or value in use of the asset or group of assets is less than the carrying value. The amount of the impairment is the difference between the carrying value and the recoverable amount. An impairment loss is reversed if the impairment situation is deemed to no longer exist.

Intangible assets

Intangible assets acquired individually or as a group are recognized at fair value when acquired. Intangible assets are amortized on a straightline basis over their useful life and tested for impairment whenever indications of impairment are present.

Research and development

Research costs are expensed as incurred. Development costs are capitalized as an intangible asset at cost if, and only if, (a) it is probable that the future economic benefit that is attributable to the asset will flow to the enterprise; and (b) the cost of the asset can be measured reliably. To the extent development costs are directly contributing to the construction of a non-current asset, they are capitalized as part of the asset, provided all criteria for capitalization are met.

Derivative instruments

Forward currency contracts and currency options are recognized in the financial statements and measured at fair value at each balance sheet date with the resulting unrealized gain or loss recorded in Financial income, net.

Risk management

For information about risk management in Sapa AS see Note 3 Financial risk management in the notes to the consolidated financial statements.

2 Employee retirement plans

The defined benefit plans of Sapa AS were frozen on September 1, 2013. Benefits under the previous funded tax qualified pension plan are settled with the Norwegian pension provider Storebrand. There are two unfunded supplementary defined benefit plans that are administered on behalf of Sapa AS by Storebrand. One provides early retirement benefits between the ages of 65 and 67 and the other provides lifelong benefits primarily on pensionable salary over 12 times the Norwegian social security base amount (12G). The plans had 24 and 8 deferred participants, respectively, as of December 31, 2016.

Sapa AS has two open pension plans, which are also administered by Storebrand. The first, a funded defined contribution plan, covers pensionable salary up to the tax qualified limit of 12G and it had 89 participants as of December 31, 2016. The funded defined contribution plan provides higher benefits than the minimum requirements for pension plans in Norway. The other open pension plan is an unfunded plan where the eligible employees build up pension rights based on 15 percent, 20 percent or 27 percent of their pensionable salary over 12G, with the addition of investment returns according to the employee's chosen reference fund selected from one of five funds offered by Storebrand. The accumulated balance calculated according to IFRS is included in the DBO on the balance sheet. This plan had 41 participants, including 4 deferred participants as of December 31, 2016.

The defined benefit obligations in Sapa AS have been calculated according to the mortality tables known as K2013. Further, Sapa AS participates in a pension plan that entitles its employees to lifelong benefits starting at the employees' discretion between the age of 62 and 75 years. The benefits are financed through a pooled arrangement by private sector employers ("avtalefestet pensjon, AFP") to which the Norwegian state also contributes. The plan, which came into effect on January 1, 2011, is a defined benefit plan with limited funding and where plan assets are not segregated. The information required to calculate a proportional share of the plan and account for the plan as a defined benefit plan is not available from the plan administrator. Sapa therefore accounts for the plan as if it were a defined contribution plan. The yearly premiums have increased since inception and are anticipated to increase further in order to fulfill the regulatory funding requirement.

Amounts in NOK millions.	2016	2015
Defined benefit plans
Benefits earned during the year	7	9
Interest cost on prior period benefit obligation	2	1
Curtailment/settlement (gain) loss	–	5
Net periodic pension cost	8	15
Defined contribution plans	3	5
Total net periodic pension cost	11	20

Change in defined benefit obligation (DBO)

Amounts in NOK millions.	2016	2015
Defined benefit obligation at beginning of year	(73)	(62)
Benefits earned during the year	(7)	(9)
Interest cost on prior period benefit obligation	(2)	(1)
Actuarial gain (loss)	3	4
Benefits paid	1
Curtailment/settlement gain (loss)	–	(5)
Defined benefit obligation at end of year	(78)	(73)

Assumptions used to determine net periodic pension cost

%	2016	2015
Discount rate	2.60%	2.30%
Expected salary increase	2.50%	2.75%
Expected pension increase	0.90%	0.00%

Assumptions used to determine pension obligation at end of year

%	2016	2015
Discount rate	2.50%	2.60%
Expected salary increase	2.25%	2.50%
Expected pension increase	0.90%	0.90%

3 Management remuneration, employee benefits expenses, and auditor fees

Amounts in NOK millions.	2016	2015
Payroll and related costs:
Salaries	166	173
Social security costs	24	24
Net periodic pension cost (Note 2)	11	20
Total	201	217
Average number of full-time employees	93	89

cont.

Auditor fees

Amounts in NOK millions.	2016	2015
EY
Statutory audit	4	2
Other non-audit services1)	5	5
Tax consultancy services	0	1
Total	9	8

1) Other services consists mainly of Human Capital Tax compliance.

Remuneration to the CEO

NOK thousands.	Salary1)	STI2)	LTI3)	Benefits4)	Pension benefits5)
1 January–31 December; Egil Hogna	5,111	2,317	2,030	183	1,289

2016

1) Total salary during the year, including vacation pay and travel time compensation.

2) Outcome from the 2016 Short Term Incentive (STI) program. The amount will be paid in 2017. 3) Outcome from the 2016 Long Term Incentive (LTI) program. The LTI amount will be paid in 2019

provided that Egil Hogna is still employed in Sapa as per December 31, 2018. 4) Total of benefits received during the year including such items as taxable portion of insurance
premiums, car allowance and electronic communication devices.
5) Total pension cost during the year. The CEO's age of retirement is 67. The CEO's pension benefits include a defined contribution (DC) pension plan where the Company shall contribute 5 percent of salary between 1G & 6G and 8 percent of salary between 6G & 12G. In addition, the CEO earns pension rights based on 27 percent of his salary over 12G in an unfunded pension arrangement. (As of May 2015 1G = NOK 92 576).

Remuneration to the Board of Directors

Only employee representative directors are paid fees. In total, NOK 485 thousand (2015: 485) was distributed among the employee representative directors during the year. Directors representing the owners are not paid separate compensation for board service.

Remuneration to the CEO

	2015
NOK thousands.	Salary1)	STI2)	LTI3)	Benefits4)	Pension benefits5)
CEO Svein Tore Holsether 1.1 – 31.8	4,323	1,731	–	141	754
CEO Egil Hogna 1.9 – 31.12	1,810	673	600	61	390

1) Total salary during the year, including vacation pay and travel time compensation.

2) Outcome from the 2015 Short Term Incentive (STI) program, paid to Svein Tore Holsether in 2015 and paid to Egil Hogna in 2016.

3) Outcome from the 2015 Long Term Incentive (LTI) program. The LTI amount will be paid in 2018

provided that Egil Hogna is still employed by Sapa as per December 31, 2017. 4) Total of benefits received during the year including such items as taxable portion of insurance premiums, car allowance, and electronic communication devices.

5) Total pension cost during the year. The CEO's age of retirement is 67. The CEO's pension benefits include a defined contribution (DC) pension plan where the company shall contribute 5 percent of salary between 1G & 6G and 8 percent of salary between 6G & 12G. In addition, the CEO earns pension rights based on 27 percent of his salary over 12G in an unfunded pension arrangement. (As of May 2015 1G = NOK 90,068).

Other terms of employment: The mutual period of notice for the CEO and Sapa AS is six months. During the notice period, employment conditions remain unchanged. If notice is given by the company, the CEO is entitled to severance pay for six months.

4 Property, plant, and equipment

Operating lease expense amounted to NOK 8.3 for 2016. The company has the following future operating lease commitments under noncancellable leases: 2017: NOK 8.0 million, 2018: NOK 8.0 million and thereafter: NOK 0 million.

Amounts in NOK millions.	Machinery and equipment	Total
Cost December 31, 2015	9	9
Accumulated depreciation December 31, 2016	(5)	(5)
Carrying value December 31, 2016	4	4
Depreciation in 2016	2	2

Depreciation expenses are measured on a straight-line basis over the estimated useful life of the asset, ranging from 4 years for computers and peripheral equipment to 10 years for office fixtures.

5 Intangible assets

Amounts in NOK millions.	Cost	Accumulated amortization	Carrying value
Balance December 31, 2015	117	(38)	79
Amortization for the accounting period		(17)	(17)
Balance December 31, 2016	117	(55)	62

Amortization expenses are measured on a straight-line basis over the estimated useful life of the asset, which is 7 years. Intangible assets include Computer Softwares development cost.

6 Financial income and expense

Amounts in NOK millions.	2016	2015

Dividends from subsidiaries1)	1,257	800
Impairments of investments in subsidiaries	(54)	(840)
Interest from group companies	626	613
Other interest income	3	6
Interest paid to group companies	(4)	(3)
Other interest expense	(85)	(92)
Net foreign exchange gain (loss)	(257)	1,071
Financial income, net	1,486	1,555

1) Sapa AS received NOK 896 millions dividend in kind from Sapa AB Sweden in form of shares in Sapa Yapi Sistem San VE Tic AS, Sapa Components UK Ltd and Sapa UK Ltd. The company also received dividends of NOK 110 millions from Sapa Profiler Magnor AS Norway, NOK 75 millions from Sapa Holding Austria GmbH, NOK 70 millions from Sapa Aluminium Argentina S.A. and NOK 16 millions from Hydro Aluminium S.A. Switzerland. See note 8 for further information about investments in subsidiaries.

7 Income taxes

Taxes

Amounts in NOK millions.	2016	2015
Income (loss) before taxes	1,241	1,372
Change in temporary differences	144	(1,143)
Group contributions received without tax	55	38
Other permanent differences1)	(1,143)	57
Group contributions provided with tax effect	(40)	(102)
Tax loss carryforward used	–	(223)
Total taxable income for the year	257	0
Calculated current tax expense (payable)	(64)	–
Tax effect of group contribution provided	(10)	(28)
Withholding tax on dividend received	(2)	(4)
Change in deferred tax asset	47	(343)
Total tax income (expense)	(29)	(374)

1) Other permanent differences are mainly related to received dividend and impairment of shares.

Deferred tax assets

Amounts in NOK millions, December 31.	2016	2015
Property, plant, and equipment	(2)	(2)
Pension liability	78	73
Other current liabilities	266	254
Unrealized exchange gains (losses) on financial non-current assets	(1,431)	(1,552)
Other current assets	–	(7)
Basis deferred tax	(1,089)	(1,233)
Deferred tax asset	(261)	(308)
Change in deferred tax	47	(344)
Change in deferred tax transferred to comprehensive income	1	1
Change in deferred tax in the income statement	47	(343)

Reconciliation of nominal statutory tax rate to effective tax rate

Amounts in NOK millions.	2016	2015
Income (loss) before taxes	1,241	1,372
Expected income taxes at statutory tax rate	(310)	(370)
Permanent differences and other, net	272	(26)
Change in deferred tax transferred to comprehensive income	1	1
Income taxes	(38)	(395)
Effective tax rate, %	–3%	–29

The company has no tax loss carryforwards. The income tax rate in Norway was 27 percent in 2015, 25 percent in 2016 and will be 24 percent in 2017.

8 Investments in subsidiaries

December 31, 2016			Percentage of shares	Carrying value
Company name	Currency	Country	owned by Sapa AS	(NOK millions)
Sapa AB	SEK	Sweden	100.00	2,564
Sapa Aluminium Holdings UK Ltd	GBP	United Kingdom	100.00	1,954
Sapa Holding Austria GmbH	EUR	Austria	100.00	1,300
Sapa France Holding SAS	EUR	France	37.771)	622
Sapa Profiles KFT	HUF	Hungary	100.00	551
Sapa Denmark A.S	DKK	Denmark	100.00	393
Sapa Aluminium Brasil SA	BRL	Brazil	99.991)	320
Sapa Singapore Holding Pte. Ltd.	SGD	Singapore	100.00	150
Sapa Building Systems España SLU	EUR	Spain	100.00	124
Sapa Extrusion Raeren SA	EUR	Belgium	100.00	120
Sapa Yapi Sistem San VE Tic AS	TRY	Turkey	100.00	95
Sapa Profiler Magnor AS	NOK	Norway	100.00	74
Sapa Aluminium Argentina S.A.	ARS	Argentina	95.002)	48
Sapa Building System FZE	AED	United Arab Emirates	100.00	41
Sapa Precision Tubing Seneffe SA	CHF	Belgium	100.00	10
Sapa Building Systems AG	EUR	Switzerland	100.00	7
Sapa Extrusion Expa SA	EUR	Belgium	99.991)	6
Sapa Building Systems OÜ	EUR	Estonia	100.00	1
Sapa Holdings Spain S.L	EUR	Spain	0.451)	0
Hydro Aluminium S.A.	CHF	Switzerland	100.00	0
Total				8,379

1) The rest of the shares are owned by Sapa AB. 2) The rest of the shares are owned by Sapa Aluminium Brasil SA.

Sapa Yapi Sistem San VE Tic AS was received as a dividend in kind from Sapa AB in 2016. Sapa AS also received the shares in Sapa Components UK Ltd (GPC) and Sapa UK Ltd (GSH) in 2016 from Sapa AB as dividends in kind. The shares in GPC and GSH were immediately contributed to Sapa Aluminium Holdings UK Ltd (HHL).

Hydro Aluminium SA (Pty) Limited was liquidated in 2016. Only directly owned subsidiaries are included in the above table. Sapa AS also has indirect ownership of 119 other subsidiaries with profit/loss and equity that is significant to the evaluation of the above companies.

December 31, 2015 Company name	Currency	Country	Percentage of shares owned by Sapa AS	Carrying value (NOK millions)
Sapa AB	SEK	Sweden	100.00	2,564
Sapa Holding Austria GmbH	EUR	Austria	100.00	1,300
Sapa Aluminium Holdings UK Ltd	GBP	United Kingdom	100.00	1,064
Sapa France Holding SAS	EUR	France	37.771)	622
Sapa Profiles KFT	HUF	Hungary	100.00	551
Sapa Denmark A.S	DKK	Denmark	100.00	393
Sapa Aluminium Brasil SA	BRL	Brazil	99.991)	320
Sapa Singapore Holding Pte. Ltd.	SGD	Singapore	100.00	150
Sapa Building Systems España SLU	EUR	Spain	100.00	124
Sapa Extrusion Raeren SA	EUR	Belgium	100.00	120
Sapa Profiler Magnor AS	NOK	Norway	100.00	74
Sapa Aluminium Argentina S.A.	ARS	Argentina	95.002)	48
Sapa Building System FZE	AED	United Arab Emirates	100.00	41
Sapa Precision Tubing Seneffe SA	EUR	Belgium	100.00	10
Sapa Building Systems AG	CHF	Switzerland	100.00	7
Sapa Extrusion Expa SA	EUR	Belgium	99.991)	6
Sapa Building Systems OÜ	EUR	Estonia	100.00	1
Sapa Holdings Spain S.L	EUR	Spain	0.451)	0
Hydro Aluminium S.A.	CHF	Switzerland	100.00	0
Hydro Aluminium SA (Pty) Limited	ZAR	South Africa	100.00	0
Total				7,393

1) The rest of the shares are owned by Sapa AB.

2) The rest of the shares are owned by Sapa Aluminium Brasil SA.

Sapa Extrusion Chrzanow Sp zoo (PCH) owned by Sapa AS was merged into Sapa Aluminium Sp zoo (PLS) with legal effect from January 1, 2015. Sapa AS contributed the shares it received in PLS for PCH as well as its shares in Sapa Extrusion Ornago S.P.A. to Sapa AB in 2015. Impairment testing resulted in an impairment of investments in Sapa Aluminium Brazil SA of NOK 170 million and in Sapa Profiles KFT of NOK 250 million.

Only directly owned subsidiaries are included in the above table. Sapa AS also has indirect ownership of 131 other subsidiaries with profit/loss and equity that is significant to the evaluation of the above companies.

9 Non-current intercompany receivables

Non-current intercompany receivables in various currencies

Amounts in NOK millions. Years ended December 31.	2016	2015
USD	7,223	7,298
EUR	2,541	1,774
DKK	782	888
GBP	73	–
ZAR	1	1
Total non-current intercompany receivables	10,621	9,962

Maturity of non-current intercompany receivables including interest

Amounts in NOK millions.
Years ended December 31.	Principal	Interest	Total
2018	655	587	1,242
2019	864	566	1,430
2020	1,299	540	1,839
2021	580	513	1,093
2022	–	506	506
2023	–	506	506
2024	7,132	486	7,619
2025	–	6	6
2026	91	1	92
Total	10,621	3,711	14,332

10 Related party disclosures

The following transactions took place with related parties:

Amounts in NOK millions. Group	Period	Sales to related parties	Purchases from related parties	Receivables from related parties, Dec. 31	Liabilities to related parties, Dec. 31
Hydro Group	2015	–	9	–	0
Hydro Group	2016	–	3	–	0
Orkla Group	2015	–	(0)	–	–
Orkla Group	2016	–	1	–	–

Sapa AS has transactions with group companies including charges for the group's executive management and corporate function staff and Treasury internal bank as described in Note 1. The related-party transactions were made on terms equivalent to those that prevail in arm's-length transactions.

11 Specification of balance sheet items

Amounts in NOK millions. Years ended December 31.	2016	2015
Prepaid expenses	11	36
Trade receivables	3	2
Tax receivables	12	16
Unrealized gain on FX and commodity derivatives	229	112
Total prepaid expenses and other current assets	255	166
Employee-related expense accrued (long term incentives)	50	–
Total non-current provisions	50	–
Trade payables, external	58	75
Employee-related taxes withheld	9	9
Employee-related expense accrued	236	238
Accrued interest expense – Derivatives	–	6
Other accrued expenses	5	29
Unrealized loss on FX and commodity derivatives	109	391
Income tax payable	64	–
Other current liabilities	9	9
Total other current liabilities	490	757

12 Guarantees

Sapa AS provides guarantees arising in the ordinary course of the business including letters of credit, bank guarantees, and parent guarantees on behalf of our subsidiaries.

Amounts in NOK millions.	2016	2015
Parent guarantees	1,400	2,936
Other guarantees	204	202
Total guarantees not recognized	1,604	3,137

Guarantees in the table above reflect the maximum contractual amount that Sapa AS could be liable for in the event of certain defaults or the realization of specific uncertainties.

13 Non-current debt

As of 31 December 2016, non-current debt amounted to NOK 0 million. For further information, see Note 22 Interest-bearing debt in the notes to the consolidated financial statements.

Non-current debt payable in various currencies

Amounts in NOK millions. Years ended December 31	2016	2015
USD	–	1,999
EUR	–	632
SEK	–	314
Total non-current debt (credit facility)	–	2,945

Of the EUR 700 million syndicated credit facility, EUR 700 million remained unutilized at year-end.

14 Number of shares outstanding, shareholders, and equity reconciliation

Name	Number of shares
Hydro Aluminium AS, Norway	100,000,000
Industriinvesteringer AS, Norway	100,000,000

The par value of the shares is NOK 1.

Proposed dividend of NOK 15 per share (not provided for), for a total distribution of NOK 3,000 million from share premium. The dividend is a return of capital and is subject to approval by the Annual General Meeting.

Statements of changes in equity

Amounts in NOK millions.	Share capital	Share premium	Retained earnings	Equity attributable to owners of the parent	Total equity
December 31, 2014	200	14,400	(115)	14,485	14,485
Total comprehensive income for the year			1,001	1,001	1,001
Group contribution provided with tax effect			(74)	(74)	(74)
December 31, 2015	200	14,400	811	15,411	15,411
Total comprehensive income for the year			1,214	1,214	1,214
Group contribution provided with tax effect			(30)	(30)	(30)
December 31, 2016	200	14,400	1,995	16,595	16,595

The Sapa Group was established with Sapa AS as the new parent on September 1, 2013 with an increase in share capital of NOK 200 million and a share premium of NOK 14.400 million. The number of shares is 200 million, each with a par value of NOK 1.

Auditor's report

To the Annual Shareholders' Meeting of Sapa AS

Report on the audit of the financial statements Opinion

We have audited the financial statements of Sapa AS comprising the financial statements of the Parent Company and the Group.

The financial statements of the Parent Company comprise the balance sheet as at 31 December 2016, the income statement, other comprehensive income and statements of cash flows for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

The consolidated financial statements comprise the statements of financial position as at 31 December 2016, income statement, statements of other comprehensive income, statements of cash flows and statements of changes in equity for the year then ended and notes to the financial statements, including a summary of significant accounting policies.

In our opinion,

the financial statements are prepared in accordance with the law and regulations;
the financial statements present fairly, in all material respects, the financial position of the Parent Company as at 31 December 2016, and of its financial performance and its cash flows for the year ended in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway;
the consolidated financial statements present fairly, in all material respects the financial position of the Group as at 31 December 2016 and of its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards as adopted by the EU.

Basis for opinion

We conducted our audit in accordance with laws, regulations, and auditing standards and practices generally accepted in Norway, including International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's responsibilities for the audit of the financial statements section of our report. We are independent of the Company in accordance with the ethical requirements that are relevant to our audit of the financial statements in Norway, and we have fulfilled our ethical responsibilities as required by law and regulations. We have also complied with our other ethical obligations in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other information

Other information consists of the information included in the Company's annual report other than the financial statements and our auditor's report thereon. The Board of Directors and President & CEO (management) is responsible for the other information. Our opinion on the financial statements does not cover the other information, and we do not express any form of assurance conclusion thereon.

In connection with our audit of the financial statements, our responsibility is to read the other information, and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.

Responsibilities of management for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with the Norwegian Accounting Act and accounting standards and practices generally accepted in Norway for the financial statements of the parent company and International Financial Reporting Standards as adopted by the EU for the financial statements of the Group, and for such internal control as management determines is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the financial statements, management is responsible for assessing the Company's ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting, unless management either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Auditor's responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor's report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these financial statements.

As part of an audit in accordance with law, regulations and generally accepted auditing principles in Norway, including ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

identify and assess the risks of material misstatement of the financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control
evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.
conclude on the appropriateness of management's use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Company's ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor's report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor's report. However, future events or conditions may cause the Company to cease to continue as a going concern.
evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation.
obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Report on other legal and regulatory requirements Opinion on the Board of Directors' report

Based on our audit of the financial statements as described above, it is our opinion that the information presented in the Board of Directors' report concerning the financial statements, the going concern assumption and proposal for the allocation of the result is consistent with the financial statements and complies with the law and regulations.

Opinion on registration and documentation

Based on our audit of the financial statements as described above, and control procedures we have considered necessary in accordance with the International Standard on Assurance Engagements (ISAE) 3000, «Assurance Engagements Other than Audits or Reviews of Historical Financial Information», it is our opinion that management has fulfilled its duty to ensure that the Company's accounting information is properly recorded and documented as required by law and bookkeeping standards and practices accepted in Norway.

Oslo, 21 April 2017 Ernst & Young AS

Jan Wellum Svensen State Authorised Public Accountant (Norway)

Corporate governance report

Sapa is a limited company organized under Norwegian law with a governance structure based on Norwegian corporate law. We have developed our governance structure through cooperation between our corporate management board and our superior governance bodies to secure compliance with relevant laws and regulations and reflect business needs. Further development is a continuous process. Even though Sapa is not listed on any Norwegian regulated marketplace, Sapa follows the main principles of the Norwegian Code of Practice for Corporate Governance (NUES) relevant to a non-listed company, which will be described in the following.

Steering documents and the Code of Conduct

Sapa's steering documents and the Code of Conduct represent our framework for leadership, organization, and culture and are the foundation of our governance system. Sapa's governance system is based on delegation of responsibility from the board of directors to the president and CEO, business areas, and corporate functions. In order to maintain uniformly high standards, we set common requirements in the form of global steering documents, including constituting documents, global directives, and global procedures. Constituting documents are approved by Sapa's board of directors, while global directives are approved by the president and CEO. These documents address a number of areas including health, security, safety, and the environment (EHS), ethics and social responsibility, strategy and business planning, finance, risk management, and organizational and employee development. This information is made available to all Sapa employees.

For legal entities where Sapa holds less than 100 percent of voting rights, Sapa's representatives on the board of directors are required to act in compliance with Sapa's Code of Conduct and endeavor to implement the code. Sapa's Code of Conduct is a constituting document and applies to all Sapa employees, as well as directors and subsidiaries. The code was established in 2013 and recently updated in 2016. Please see the Sustainability Report for more information about Sapa's Code of Conduct, whistleblowing procedure (AlertLine), and compliance program. At Sapa, compliance is defined as adherence to applicable laws and regulations as well as Sapa's steering documents. Guidelines and training programs have been established to assist line management to adhere to Sapa's compliance requirements. Special

emphasis is put on reducing the risk of noncompliance within finance, anti-corruption, competition, and health, security, safety, and the environment.

Business planning and risk management

Sapa's overall goal is to create shareholder value through satisfied customers and motivated and skilled employees. We have defined two main processes to ensure that shortterm and long-term targets are achieved. The portfolio, strategy, and business planning process involves strategic and operative planning and results monitoring. Planning, which reflects our ambitions and values, is the basis for the strategies and actions that constitute the business plans at all levels of our organization. We have defined key performance indicators for each unit, including financial, human resources, ethical, and EHS objectives, in addition to unitspecific operating targets. The people process is designed to assess and develop our human resources and is an integral part of our annual business planning. Its aim is to promote the potential of individual employees and our organization as a whole. Risk management is also an integrated part of our planning and reporting process. Risk management deals with all aspects of value creation including strategy, finance, commercial matters, organization, EHS, reputation, corporate responsibility, and regulatory and legal matters. Sapa's board of directors regularly reviews and evaluates the overall risk management systems and environment within Sapa. We carry out risk assessments for defined exposure areas. Exposure to certain risks, particularly those threatening life and health, has been consistently reduced to very low levels. See also pages 35–37 for a more detailed discussion of Sapa's financial risk management.

Controls and procedures

Sapa's Internal Control over Financial Reporting (ICFR) framework is primarily designed to provide reasonable assurance to the management and board of directors regarding the preparation and fair presentation of the financial statements.

Preapproval of audit services

The board has a preapproval policy governing the engagement of primary auditors to provide audit and non-audit services to Sapa AS or any entity within the group. Under this preapproval policy, the board has defined and preapproved subcategories of audit and non-audit services. The board's preapproval policy covers all additional services for which the fee exceeds EUR 5,000. Within the scope of the preapproval policy, all services and amounts for auditrelated, tax, and other non-audit related services within the monetary frames have been preapproved.

Transactions with related parties

Pursuant to the company's Articles of Association, transactions or agreements exceeding a certain threshold amount, as well as any disputes between the company and a shareholder or an affiliate of a shareholder, are subject to the approval of the general meeting of shareholders. The shareholder in question will not be entitled to vote on the approval of the transaction at the general meeting of shareholders.

Transparency and communication

Sapa's corporate culture is built on the principles of transparency and accountability. Our ability to operate efficiently in both the Norwegian market and internationally requires consistent and professional communication. All our communication therefore reflects the principles of transparency, trustworthiness, and accountability.

Sapa's board of directors

Corporate governance report

1 Peter A. Ruzicka (b 1964)

Chairman of the Board Sapa AS, President & CEO of Orkla ASA

MBA from BI Norwegian Business School (formerly Oslo Handelshøyskole), Degree in Retail Management (handelsøkonom) from BI Norwegian Business School.
Managing Director Canica AS, 2006– 2014; CEO Jernia ASA, 2003–2006; CEO Ahold Czech Republic, 2000– 2002; Deputy CEO ICA AB, 1998– 2000; CEO Hakon Gruppen AS, 1995– 2000; Regional Director Hakon Øst, 1994–1995; Chain Director RIMI Norge AS, 1992–1994, Marketing Director RIMI Norge AS, 1991–1992; Company Director Hakon Gruppen AS, 1990– 1991.

Employee representative • Employee representative on the board since 2013, elected by IF Metall, Sweden. Has been a representative on the Sapa board for 16 years. Employed since 1988.

Executive Vice President,

Tor Egil Skulstad (b 1967) Employee representative

• Employee representative on the board since 2013, elected by Fellesforbundet, Norway. Fellesforbundet representative since 2006. Employed since 2002.

Chief Financial Officer of Hydro ASA • Master's Degree in Business Adminis-

tration from University of San Francisco. • Kallevik has worked at Hydro since 1998 and has held a variety of senior positions in the corporate center and in business areas along the value chain, in Norway and internationally. His Hydro career includes core positions within finance, including corporate accounting, financial reporting, performance management, and treasury.

Executive Vice President, CSR, Compliance and General Counsel of Hydro ASA

• Law degree from Oslo University. • Midseim has worked at Hydro since 1998 and previously held positions as Company Secretary, Head of Staffs in Bauxite and Alumina, Head of Hydro's Corporate Social Responsibility, and Legal Counsel. Previous positions include resident legal advisor for the Norwegian Oil for Development program in East Timor, lawyer with the law firm of Vogt & Co, and Executive Officer at the Norwegian Ministry of Oil and Energy.

CEO and Head of Orkla Investments • Norwegian School of Business Administration.

• Executive Vice President and Chief Financial Officer (CFO), 2005–2014; Senior Vice President Corporate Finance Orkla ASA, 2000–2005; CFO Orkla Brands, 1997–2000; Commercial Director Lilleborg AS Home Care Division, 1992–1997; Chief Accountant A/S Denofa og Lilleborg Fabrikker, 1989–1992; Management Consultant Deloitte Touche, 1986–1989; Nevi Finans AS, 1983–1986.

7 Terje Fredriksen (b 1972)

• Board observer since September 2015, elected by Tekna. SAPA Operational Excellence Europe: Senior Project Engineer, Operational Support, 2013–. Various positions within automotive product development and extrusion die/ process technology, Hydro and Benteler, 1997–2013. MSc, Machine Design & Material Science, NTNU Trondheim, 1996.

Board Observer • Board observer since 2013. Employee representative elected by IF Metall, Sweden. Has been an alternate employee representative on the Sapa Board since 2011. Employed since 1988.

Sapa's corporate management team

1 Egil Hogna (b 1971)

President & CEO

MBA Business Administration, INSEAD. MSc Industrial Management, Norwegian Institute of Technology.
SVP, Head of Downstream, Yara International ASA, 2009–2015. CFO, Yara International ASA, 2008–2009. SVP, Mediterranean France, Yara International ASA, 2007–2008. SVP Business Intelligence, Yara International ASA 2006. VP Investor Relations, Yara International ASA 2003–2006. VP, Supply Chain & Perf. Mgmt., Hydro Aluminium, 2002–2003. Corporate Controller, Norsk Hydro ASA, 1999–2001. Consultant, McKinsey & Company, 1994–1999.
Member of Sapa Executive Board since 2015.

2 Karl Eichinger (b 1959)

CFO • Vienna University of Economics and Business Administration.
VP Finance Sapa Extrusion Europe, 2013, MD Hydro Aluminium Extrusion Deutschland GmbH, 2012–2013, Sector President Extrusion Eurasia, Hydro Aluminium s.a., 2009–2012, CFO Hydro Aluminium S.A., 2005–2009, Director Business Controlling and Procurement, Hydro Aluminium s.a., 2002–2005, Financial Director, Hydro Aluminium Nenzing, 1996–2002.
Member of Sapa Executive Board since 2013.

3 Florian Krumbacher (b 1966)

EVP & Group General Counsel

Cand Jur, University of Munich. PhD, University of Regensburg. LLM, London School of Economics.
Renewable Energy Corporation ASA, Oslo, Chief Legal Officer, 2010–2013, ADVA Optical Networking SE, Munich, Group General Counsel, 2000–2010, Compaq Computer, Munich, Legal Counsel, 1999–2000, Thommessen Advokatfirma, Oslo, Attorney-at-Law, 1998–1999, Linklaters, Munich, Rechtsanwalt, 1995–1998.
Member of the Sapa Executive Board since 2015.

4 John Thuestad (b 1960)

EVP & Business Area President Extrusion Europe • MSc, Norwegian School of Technology

MBA, Carnegie Mellon University, Pittsburgh • Business Area President Sapa Profiles 2012–2013, Executive Vice President, Alcoa, 2007–2012, CEO & President, Elkem ASA, 2005–2007, President, Elkem Aluminium ANS, 2000–2005, CEO, Norzink, 1997–2000, Managing Director, FUNDO AS, 1997, Managing Director, JV – Rio Tinto and Boliden, 1994–1997, Management positions at Elkem,1984–1994.
Member of Sapa Executive Board since 2012.

5 Charlie Straface (b 1959)

EVP & Business Area President Extrusion North America • BS Metallurgical Engineering, Lafayette College, Easton Pa. MBA, University of Tennessee, Executive Program,
Knoxville Tn. • Vice President/General Manager Sapa Industrial & National Director of Sales Distribution, Sapa Industrial Extrusions North America, 2011–2015. General Manager, Sapa Industrial Extrusions North America, 2008–2011. General Manager Industrial Products, Alcoa Aluminum, 2005–2008. Vice President of Operations, Alcoa Aluminum, 2004–2008. Vice President ABS (Alcoa Business System), Quality and Technology, Alcoa Aluminum, 2001–2004. Operations Manager Alcoa Lafayette, Indiana Operation, Alcoa Aluminum, 1991– 2000. Hot Rolling/Ingot Prep Area Supervisor, Alcoa Tennessee Operations, Alcoa Aluminum, 1985–1990. Product Metallurgist, Alcoa Aluminum 1981–1985.
Member of Sapa Executive Board since 2015.

6 Erika Ahlqvist (b 1973)

Executive Vice President Communication & CSR • BSc Business Administration, University of Gothenburg,
MBA, Copenhagen Business School.
VP Communication, Sapa AB, 2011–2013, Communications & HR Director Sapa AB, 2010–2011, Senior HR Manager, Orkla Brands, 2008–2009, Key Account Manager Procordia AB, 2004–2008, managerial positions at Orkla Foods International, Orkla Foods AS, and Abba Seafood AB, 1997–2004.
Member of Sapa Executive Board since 2010.

7 Sergio Luiz Vendrasco3) (b 1963)

EVP & Business Area President Precision Tubing

Graduated in Materials Engineering Federal University of São Carlos,MSc Sciences and Materials Engineering, Federal University of São Carlos, MBA Getúlio Vargas Foundation.
Business Sector President, Hydro Precision Tubing, 2015, Vice President Precision Tubing South America 2013– 2015, Vice President Precision Tubing North America, 2011–2013, Managing Director, Hydro Aluminium Precision Tubing North America, 2004–2010, Managing director, Hydro Aluminium Acro, Brazil1997–2005, Managerial positions at Alcoa Alumíno Brazil.
Member of Sapa Executive Board since 2016.
3) Vendrasco has been appointed Business Area President for Precision Tubing in March 2016, replacing Salvador Biosca.

8 Katarina Nilsson4) (b 1971)

EVP HR & Organization

Master of Laws, Lund University, 1997–2001, BA (Hons) Chinese and Geography, School of Oriental and African Studies, University of London, 1991–1992, 1994–1996,
Chinese studies, Beijing Normal University, 1992–1993. • VP Legal, HR & CSR, BA Precision Tubing, Sapa, 2015– 2016, VP Legal Asia, BA Extrusion Asia, Sapa, 2015, Chairman, Swedish Chamber of Commerce in China, 2013–2016 Vice Chairman, Swedish Chamber of Commerce in China, 2011–2013 Resident Partner, Advokatfirman Vinge Shanghai & Hong Kong, 2011–2014, Managing Associate, Advokatfirman Vinge, Hong Kong, 2007–2010 Associate, Advokatfirman Vinge, Sweden, 2004–2007, Court Clerk (Swe: tingsnotarie), District Court of Helsingborg, 2002–2003, Program Assistant, Raoul Wallenberg Institute of Human Rights and Humanitarian Law, Lund, 2001.
4) Nilsson has been appointed EVP HR & Organization in September 2016, replacing Lene Trollnes.

9 Rafael Estallo Fuertes5) (b 1966)

EVP Business Development

MBA, Master in Business Administration, I.E.S.E. Universidad de Navarra, Master in Science in Forestry Engineering, Universidad Politecnica Madrid.
VP Business Development, Sapa Precision Tubing, 2013–2016, VP Welded Tubes East, Sapa Precision Tubing, 2015, Sector President Extrusion Eurasia, Hydro Aluminium, 2012–2013 VP Sales & Marketing Extrusion Eurasia, Hydro Aluminium, 2011–2012, Managing Director, Hydro Aluminium Extrusion Spain, 2005–2011 Chairman of the Spanish Extruders Association (ANEXPA), 2016–2010, Sales Director, Hydro Aluminium La Roca, 1999–2005, Finance Director, Hydro Aluminium La Roca, 1998–1999, Logistic Director, Poliglas, S.A (Uralita), 1996–1998, Manager (American Consulting Company), A.T. Kearney, 1992–1996.
5) Fuertes has been appointed EVP Business Development in September 2016, replacing Tolga Egrilmezer.

10 Salvador Biosca6) (b 1952)

EVP & Business Area President Building Systems • BSc Industrial Engineering, Polytechnic University of Barcelona, MBA Barcelona Esade Business School.
Business Sector President, Hydro Precision Tubing, 2006–2013, Head of Hydro Automotive Structures, 2008–2009, Head of Hydro Extrusion South, 2005– 2006, Managing Director, Hydro Aluminium La Roca, 1997–2005, managerial positions at Hydro Aluminium La Roca, Riego Wright, and Nissan Motor Company, 1977–2005.
Member of Sapa Executive Board since 2013.
6) Biosca has been appointed Business Area President for Building Systems in February 2016, replacing Karsten Lundgaard.

Glossary

Absenteeism rate

Calculated as number of absence hours in percentage of summed absence hours and hours worked.

Billet

A solid round block of aluminium, which was casted to fit into the container of an extrusion press. See "Extrusion billet."

Body-in-white

This refers to the stage in automotive design or manufacturing in which a car body's metal components have been fitted together by either welding or other connection technologies.

Casthouse

The facility where casthouse products, such as foundry alloys, logs, sheet ingots, remelt ingots, and wire rod are made. Within Sapa only aluminium logs are casted. The logs are either directly delivered to the extrusion plants or cut to billets prior to delivery.

Charge air cooler

A device used to cool engine air after it has passed through a turbocharger, but before it enters the engine.

EHS

Environment, Health and Safety.

Extrusion

A process used to create objects of a fixed cross-sectional profile. Sapa only extrudes aluminium. In an extrusion press the pre heated aluminium is with high force pushed through a die (a specialized tool to cut or shape material using a press) and forms the extrusion shape.

Extrusion billet

The raw material intended and suitable for extruding, typically of solid circular crosssection, sometimes with a central hollow or a flattened cross-section, cut to length from a casted aluminium log.

Friction stir welding (FSW)

A welding process that uses a tool, which rotates with high speed between the two profiles. This generates friction heat, which locally melts and joins the two facing surfaces. No additional metal is added.

Ingot

Aluminium cast product intended used as pre material for the casthouse. It gets loaded into the melting oven together with scrap. The molten aluminium gets casted into logs. See "Extrusion billet."

Heat exchanger

A device used to transfer heat between one or more fluids or gases, widely used in space heating, air conditioning, refrigeration, as well as many other applications.

HVAC&R

Heating, ventilation, air conditioning & refrigeration.

KMT

Kilo Metric Ton, or kilotonne, equal to 1,000 tonnes. See "Tonne."

LTV

Lock/Tag/Verify. Lockout/tagout to protect workers from unexpected machine start-ups or releases of stored energy through complete isolation of equipment, which must be verified as de-energized before maintenance or repair work begins.

LWDR

Lost Work Day Rate. A mathematical calculation that describes the number of lost workdays per 100 full-time employees in a given time frame.

Micro-port extrusion

Also called micro-channel tube. A highly refined product whose properties make it ideal for use in energy-efficient heat exchangers.

Nacelle

Cover housing that contains all the generating components in a wind turbine.

Profile

A wrought product that is long in relation to its cross-sectional dimensions, which is of a form other than that of sheet, plate, rod, bar, tube, wire or foil.

Recordable Injuries

Work-related fatalities, as well as injuries and illnesses that result in one or days away from work, restricted work or transfer to another job, loss of consciousness, or medical treatment beyond First Aid.

Remelted

Remelted material is based on scrap from own processes, other companies' process scrap, ingots, and so called post-consumer scrap.

Scrap

Input material for the casthouse, it mainly consists of aluminium resulting from collection and/or recovery of metal arising as a production by-product or products after use, to be used for production of wrought and cast alloys and other production processes. Also, "new scrap," arising from various production stages of aluminium products before the product is sold to the final user.

Tonne

Metric ton, equal to 1,000 kg, approximately 2,204.6 lbs.

TRI

Total Recordable Injuries. See "Recordable Injuries."

TRR

Total Recordable Rate. A measure of the rate of recordable cases, normalized by 100 workers per year. This calculated as the number or recordable injuries times 200,000 (100 workers working 2,000 hours per year) divided by total hours actually worked in the year.

Capital employed

Working capital, net non-current tangible and intangible assets, current and non-current provisions, operational derivatives, net pension assets/liabilities and "other," which includes deferred tax surplus values and shares/interests in associated companies.

Items excluded from underlying EBIT(DA)

In order to provide a better understanding of underlying performance, certain defined items have been excluded from EBIT and EBITDA. Such items are mainly related to unrealized derivatives positions, impairment, restructuring expenses, effects of disposal of business and operating assets, as well as other nonrecurring items.

Operating cash flow

Calculated as the sum total of underlying EBITDA, change in working capital, change in provisions including net pension assets, capital expenditure, change in operational derivatives and cash effect of restructuring and nonrestructuring items excluded from underlying EBIT and other, including sales/transfers of non-current assets.

Operating revenues

External revenues from sale of products and services and internal revenues from sale of products, net of claims. Not including sales of assets and share of profit/loss in asssociates/JCE. Elimination is performed at the parent entity.

Items excluded from underlying EBIT

Amounts in NOK millions	2016	2015
Unrealized derivative effects on LME related contracts	(332)	189
Significant rationalisation charges	91	673
Impairment charges	18	58
Other effects	–	(41)
Items excluded from underlying EBIT	(223)	879

Unrealised derivative effects on LME related contracts include unrealized gains and losses on contracts measured at market value were hedge accounting is not applied. These LME related contracts are used for operating hedging purposes related mainly to supplier contracts.

Reported EBIT

Earnings before interest and tax including non-recurring items and restructuring costs.

ROCE/ROACE

Return on average capital employed is defined as underlying EBIT for the last twelve months less 30 percent tax divided by average capital employed during the last twelve months.

Underlying EBIT

Underlaying EBIT is defined as EBIT plus impairment losses, restructuring costs and unrealized hedging losses/gains.

Working capital (operating)

Sum of inventories, accounts receivable, accounts payable, and other current noninterest bearing receivables and payables.

Working capital (according to IFRS)

Sum of inventories, accounts receivable, accounts payable, other current non-interest bearing receivables and payables, operational derivatives, current and non-current provisions, and net pension assets.

Sapa's history

"More than 50 percent of our people joined Sapa through structural growth."

Sapa AS PB 81 Sentrum, 0101 Oslo, Norway Visiting address: Biskop Gunnerus gate 14 (Posthuset), 11th floor, 0185 Oslo Telephone: +47 2241 6900 www.sapagroup.com

			2016
Amounts in NOK millions.	Financial assets and financial liabilities carried at fair value through profit and loss	Held-to maturity investments	Loan receivables and trade receivables	Other financial liabilities	Total carrying value	Total fair value
Other non-current assets	–	–	218	–	218	218
Trade receivables	–	–	6,095	–	6,095	6,095
Current investments	939	–	–	–	939	939
Other current financial assets	235	–	–	–	235	235
Cash and cash equivalents	–	–	671	–	671	671
Total assets	1,174	–	6,984	–	8,158	8,158
Non-current debt	–	–	–	104	104	104
Other non-current financial liabilities	–	–	–	–	–	–
Trade and other payables	–	–	7,908	–	7,908	7,908
Bank loans and other current interest-bearing debt	–	–	–	711	711	711
Other current financial liabilities	152	–	–	–	152	152
Total liabilities	152	–	7,908	816	8,876	8,876

AI assistant

Norsk Hydro ASA — M&A Activity 2017

3684_rns_2017-08-01_7534b6ae-334a-41f6-8255-6a3e42b76226.pdf

INFORMATION MEMORANDUM

IMPORTANT INFORMATION

APPENDICES

1 RISK FACTORS

1.1 Risks relating to the Group and its operations

Changes in the regulatory framework or political environment in which Hydro operates could have a material adverse effect on the Company's operating results and financial position

Hydro is exposed to a risk of unfavorable macro-economic development, including risk of prolonged periods of low aluminium and alumina prices and oversupply in the global aluminium market

The Group's business is exposed to competition from China, which could have a significant negative impact on market prices and demand for the Group's products

Hydro could be adversely affected by disruptions or major incidents in the Group's operations and may not be able to maintain sufficient insurance to cover all risks related to its operations

Hydro could be negatively affected by investigations, legal proceedings, material CSR incidents or major noncompliance with internal or external regulations.

Hydro may be unable to achieve or maintain the operational targets necessary to secure the competitiveness of the Group's business

Hydro is exposed to the threat of cyber attacks which may disrupt its business operations, and result in reputational harm and other negative consequences

1.2 Risk related to Hydro's financial position and key financial exposures

Financial position

Commodity prices and currency fluctuations

1.3 Risks relating to Sapa

Safety risk

Market risks

Emerging markets

Product liability claims

Environmental risks

Credit risks

Currency Risk

Risk related to dispute in Sapa Profiles, Inc.

1.4 Risks relating to the Transaction

The Transaction may not be completed or may not be completed in the manner described in this Information Memorandum, if certain conditions to closing are not satisfied

The Group will incur acquisition-related costs in connection with the Transaction

Even if the Transaction is completed, the Group may face additional risks, reputational damage, financial losses, costs and challenges as a result of integrating Sapa into its existing business

The unaudited pro forma financial information included in this Information Memorandum may not necessarily reflect what the results of operations, financial condition and cash flows of the Group following the Transaction would have been for the same period

1.5 Risks relating to the Shares

The market value of the Shares may fluctuate significantly and may not reflect Hydro's underlying asset value or, following completion of the Transaction, the underlying asset value of the Combined Group.

Hydro's ability to pay dividends is dependent on the availability of distributable reserves

Beneficial owners of Shares that are registered in a nominee account will not be able to vote for such Shares unless their ownership is re-registered in their names in the VPS prior to the general meeting

Any future share issues may have a material adverse effect on the market price of the Shares

Shareholders will be diluted if they are unable or unwilling to participate in future share issuances, and will in any event be diluted as a result of the pre-emptive rights of certificate holders in future share issuances against cash and other share issuances in private placements

Certain transfer and selling restrictions may limit shareholders' ability to sell or otherwise transfer their Shares

Investors may be unable to recover losses in civil proceedings in jurisdictions other than Norway

Norwegian law may limit shareholders' ability to bring an action against the Company

Substantial share ownership is concentrated in the hands of a few shareholders, and future sales of Shares by such shareholders could have a material adverse effect on the market price of the Shares

Shareholders outside of Norway are subject to exchange rate risk

2 RESPONSIBILITY STATEMENT

The Board of Directors of Norsk Hydro ASA

3 GENERAL INFORMATION

3.1 Sources of industry and market data

3.2 Cautionary note regarding forward-looking statements

4 DESCRIPTION OF THE TRANSACTION

4.1 Overview

4.2 The Parties to the Transaction

4.3 Background and reason for the Transaction

4.4 The structure of the Transaction and timetable

4.5 Conditions to Closing

4.6 Representations and warranties and indemnities

4.7 Termination

4.8 Total consideration, costs and financing

4.9 Significance of the Transaction

4.9.1 The Transaction's significance for the earnings, assets and liabilities of the

4.9.2 The Transaction's significance for the future strategy of the Group

4.10 Agreements to the benefit of board members or management in Hydro or Sapa

5 PRESENTATION OF HYDRO

5.1 Name, incorporation and registered office

5.2 History

5.3 Business description

5.3.1 General

5.3.2 Bauxite & Alumina

5.3.2.1 Industry overview

Bauxite & alumina price developments

5.3.2.2 Operations

Cost and revenue drivers

Bauxite mining

Alumina refining

Commercial operations

Technology and innovation

Employees

5.3.3 Primary metal

5.3.3.1 Industry overview

Structural developments

Aluminium price developments

Norsk Hydro ASA M&A Activity 2017