Results reflect continued weak markets, volumes rise on restocking
(Thomson Reuters ONE) - * Third quarter underlying loss before financial items of NOK 793 million* Stable demand at low level, positively influenced by restocking* Upstream results remain weak due to low aluminium prices and weakening US dollar* Downstream results improve on higher volumes and continued cost savings* Capacity adjustments and cost reduction program delivered as planned* Agreement to divest automotive structures business signed on October 26* Qatalum 90 percent complete end-September, on schedule for start-up around year-endHydro had an underlying loss before financial items and tax of NOK793 million in the third quarter, compared with a loss of NOK 618million in the previous quarter, reflecting the frail global economy,low aluminium prices and a weakening US dollar. Downstream resultscontinued to improve, supported by higher volumes and cost savingmeasures."In response to the market downturn, we have completed a substantialprogram of capacity reductions and cost-cutting measures that arehelping to reposition our company," President and Chief ExecutiveOfficer Svein Richard Brandtzæg said."Still, we remain cautious about the outlook for global aluminiumdemand and are concerned about the weakening US dollar. In view ofthese challenges, we will consider additional restructuring andcost-saving measures," he said."Our main priority in the coming months is to bring Qatalum on streamaccording to plan, which will improve Hydro's cost position androbustness," he added.Underlying results in Primary Metal were strongly affected bycontinued low aluminium prices, resulting in substantial losses.Operational improvements and stable production following thecompletion of previously announced capacity curtailments contributedto a further decline in fixed costs. Results in Hydro's aluminaoperations improved due to rising alumina prices and strongerperformance.Metal Markets' underlying results declined, heavily affected by theweakening US dollar during the quarter. Sales volumes increasedmoderately.Underlying EBIT for Hydro's downstream operations, Rolled Productsand Extruded Products, continued to improve on rising volumes as wellas declining costs due to cost-cutting measures. Demand improvedslightly from the previous quarter as customers started to replenishinventories, but remained well below year-ago levels. Margins werestable during the quarter.Hydro has entered into an agreement to divest its automotivestructures business to the German Benteler Automobiltechnik GmbH. Theagreement represents a solid, long-term industrial solution forHydro`s automotive structures activities, and is in line with Hydro'sstrategy to focus its extruded activities on profiles solutions andbuilding systems. The transaction is expected to be cash neutral forHydro, and an estimated after-tax loss of NOK 250 million will berecognized in next quarter's results.Underlying EBIT for the Energy business area declined from the secondquarter of 2009, mainly due to lower spot prices. Production wasseasonally low.The joint venture with Qatar Petroleum to build Qatalum, which willbe one of the most cost-effective smelters in the world, isapproaching completion. About 90 percent finished at the end of thequarter and on schedule for start-up around the turn of the year.Net cash generated from operating activities amounted to NOK 1.6billion in the third quarter, compared with net cash generated byoperating activities of NOK 2.0 billion in the previous quarter.Investments amounted to NOK 2.1 billion in the quarter, rising fromthe previous quarter as Qatalum is being financed by equitycontributions from the owners in the second half of the year.Investments relating to the Qatalum project in the third quarter wereabout NOK 1.5 billion. Hydro had a net cash position of NOK 2.4billion at the end of the quarter.Key financial %information Third Second % Third change First First quarter quarter change quarter prior 9 9 YearNOK million, 2009 2009 prior 2008 year months months 2008except per share quarter quarter 2009 2008dataRevenue 16 337 17 123 (5) % 21 765 (25) % 50 313 67 275 88 643Earnings beforefinancial items 719 410 75 % 2 414 (70) % (469) 4 300 1 194and tax (EBIT)Items excluded (1from underlying (1 512) (1 029) (924) 435) 840 4 815EBITUnderlying EBIT (793) (618) (28) % 1 490 >(100) (1 5 141 6 009 % 904)Underlying EBIT:Primary Metal (760) (895) 15 % 906 >(100) (1 2 639 2 732 % 839)Metal Markets (15) 196 >(100) (41) 64 % (63) 461 703 %Rolled Products 51 (28) >100 % 170 (70) % (31) 558 651Extruded 95 (26) >100 % 152 (38) % (136) 670 338ProductsEnergy 217 281 (23) % 493 (56) % 945 1 216 1 865Other and (381) (146) >(100) (191) (100) % (781) (403) (279)eliminations %Underlying EBIT (793) (618) (28) % 1 490 >(100) (1 5 141 6 009 % 904)Income (loss) (3from continuing 1 001 282 >100 % 233 >100 % 1 003 2 578 267)operationsUnderlyingincome (loss) (1 222) (572) >(100) 1 075 >(100) (2 3 763 3 579from continuing % % 274)operationsEarnings pershare from 0.83 0.17 >100 % 0.06 >100 % 0.72 1.93 (3.04)continuingoperationsUnderlyingearnings per >(100)share from (1.01) (0.53) (89) % 0.75 % (2.00) 2.91 2.62continuingoperationsFinancial data:Investments 2 126 765 >100 % 2 443 (13) % 3 576 6 264 9 012Adjusted net (19 >(100) (5 (15interest-bearing ##### 236) 1 % (5 455) % ##### 455) 440)debtKeyOperationalinformationPrimaryaluminium 330 338 (3) 439 (25) 1 064 1 309 1 750production % %(kmt)Realizedaluminium 1 4 % 2 (47) 1price LME 523 1 468 848 % 667 2 632 2 638(USD/mt)Realizedaluminium 9 9 (1) (37) 10price LME 480 598 % 15 114 % 851 13 976 14 699(NOK/mt)Realized (5)NOK/USD 6.22 6.54 % 5.22 19 % 6.51 5.31 5.57exchange rateRolledProducts (15)sales volumes 205 187 10 % 240 % 583 752 965to externalmarket (kmt)Extrusionproducts (14)sales volumes 104 99 5 % 122 % 300 385 488to externalmarket (kmt)Automotiveproducts (13)sales volumes 23 21 8 % 26 % 61 87 105to externalmarket (kmt)Power (7) (37)production 1 682 1 809 % 2 677 % 5 968 8 548 11 361(GWh)Reported EBIT and income from continuing operationsReported EBIT for Hydro amounted to NOK 719 million for the thirdquarter including net positive effects of NOK 1,512 million comprisedof net unrealized derivative gains of NOK 1,562 million, positivemetal effects of NOK 141 million, other positive effects of NOK 95million and impairment charges of NOK 286 million. In the previousquarter, reported EBIT amounted to NOK 410 million including netpositive effects of NOK 1,030 million comprised of net unrealizedderivative gains of NOK 1,310 million, other positive effects of NOK60 million, negative metal effects of NOK 225 million, andrationalization charges and closure costs of NOK 117 million.Income from continuing operations was NOK 1,001 million in the thirdquarter including net foreign exchange gains of NOK 992 millionmainly relating to intercompany balances denominated in Euro. Thesegains have no cash effect and are offset in equity by translation ofthe corresponding subsidiaries during consolidation. Income fromcontinuing operations was NOK 282 million in the second quarterincluding net foreign exchange gains of about NOK 88 million.Market developments and outlookThe third quarter was marked by a strong positive development inaluminium prices. During the quarter, LME three month prices rangedfrom around USD 1,800 - USD 1,950 per mt. The US dollar weakened inthe quarter, mitigating the effect of the market price improvement inNorwegian kroner.Demand for aluminium increased in China as government actions andinitiatives relating to the financial crisis reached full effectduring the quarter. Demand for 2009 as a whole is expected to beslightly higher than in 2008. Outside China demand increased slightlyfrom the low levels seen in the first half of the year. Nosubstantial further improvement is expected for the remainder of theyear and there continues to be significant uncertainty regarding thetiming and strength of an eventual recovery.LME stocks stabilized at around 4.6 million mt in the third quarteralthough analysts reports indicate that unreported stocks have beenincreasing throughout the quarter.In response to the falling demand, capacity curtailments reached aglobal level of around 3 million mt annually in the first half of2009 excluding China. Current production has stabilized around 23.8million tonnes compared to a total production of about 26.4 millionmt in 2008 excluding China. No further curtailments were announced inthe third quarter.The underlying demand for metal products (extrusion ingot, sheetingot, foundry alloys and wire rod) in Europe and North Americaimproved slightly during the third quarter 2009 compared to theprevious quarter but there is still uncertainty regarding the timingof any significant recovery.Demand for flat rolled products in Europe continued its upward trendin the third quarter after apparently reaching bottom in the previousquarter. Consumption and shipments are expected to continue on thesame level as third quarter for the final quarter of the year, with anormal seasonal decline towards year end. European demand forextruded aluminium products was seasonally lower compared to theprevious quarter. Demand in North America continued to improve fromthe previous quarter following a long period of declining markets.Demand in both regions was significantly lower than the third quarterof 2008. The overall outlook for the European and US extrusionmarkets continue to be weak, but stable across most market segments.However, we expect seasonally lower demand in the fourth quarter ofthe year.Nordic spot prices for electricity declined during the third quarterfollowing a period of high precipitation that has restored thehydrological balance in Norway close to normal after a long period ofsignificant deficit. Demand increased in the quarter due to restartof industrial activities and increased demand for heating, but wasabout 7 percent lower for the first nine months of 2009 compared tothe same period of last year. Colder temperatures in October havesupported prices by reducing inflow into reservoirs and increasingdemand.Outlook for HydroHydro has taken active steps to capitalize on falling prices for keyraw materials. However we expect that raw material prices willstabilize at present levels for the remainder of 2009.At the end of third quarter, Hydro had sold more than 90 percent ofits primary aluminium production for the fourth quarter of 2009forward at a price level of around USD 1,800 per mt. A continuing orincreasingly weaker US dollar will have a negative impact on realizedaluminium prices measured in Norwegian kroner. Hydro expects acontinued weak result in the fourth quarter of 2009.In fourth quarter 2008 and first half of 2009 Hydro made provisionsfor future rationalization and closure costs relating to the plantshut-downs of roughly NOK 450 million in total. These are reported asitems excluded from underlying EBIT. If it becomes necessary topermanently close plants that have been curtailed on a temporarybasis, additional substantial closure costs would be incurred.Charges related to the build up of the operating organization atQatalum will increase further in the fourth quarter compared to thethird quarter as final preparations for start-up of the plant arecompleted.Hydro's reservoir levels were higher than normal at the end of thethird quarter and also higher than the corresponding period in 2008.The increased reservoir levels, together with lower maintenanceactivity is expected to result in somewhat higher power production inthe fourth quarter compared to the third quarter of 2009. Spot pricesare expected to continue on low level. Power production in the fourthquarter is expected to be significantly lower than the correspondingperiod in 2008 mainly due to the outage at Suldal I power station.Our business activities expose us to the risk that counterparties maydefault on their obligations, resulting in direct financial loss, anunexpected increase in market exposure or higher operating costs. Thepresent weak economic conditions increase the risk of defaultingcounterparties. So far we have not experienced any significantdefaults and are carefully monitoring the situation.Primary MetalUnderlying EBIT improved slightly for Primary Metal in the thirdquarter but results continued to be heavily impacted by low realizedaluminium prices. Realized prices increased measured in US dollarsbut declined measured in Norwegian kroner impacting underlyingresults by roughly NOK 40 million compared to the second quarter. Thechange in inventory write-downs resulted in a positive effect ofabout NOK 125 million for the third quarter on an isolated basis.Variable costs at our smelters were stable compared to the secondquarter of 2009. Underlying results were positively influenced bysomewhat lower carbon costs.Fixed costs at the smelters declined further by about NOK 100 milliondue to the curtailments and the manning reductions that took place inthe first half of 2009 in addition to lower maintenance activities.Underlying income from our equity accounted smelters was relativelyunchanged from the second quarter. Charges related to the build up ofthe operating organization at Qatalum increased to about NOK 125million from roughly NOK 90 million in the previous quarter as theplant prepares for start-up.Underlying EBIT for Alunorte, our equity accounted alumina refinery,amounted to NOK 10 million, a substantial improvement compared withunderlying losses of NOK 69 million in the previous quarter. Theincrease resulted mainly from higher alumina prices due to theincrease in LME prices combined with an improved operationalperformance and higher production volumes. Temporary measures toaddress the challenging financial situation in Alunorte introduced inMarch continued to have a positive impact on underlying results forthe quarter.5)Alumina commercial activities had another strong quarter, mainly dueto higher LME prices and despite lower external sales volumes.Metal MarketsMetal Markets incurred an underlying loss for the quarter heavilyimpacted by negative currency effects of roughly NOK 150 million dueto the weakening of the US dollar against Norwegian kroner.Underlying results for the second quarter included limited netcurrency effects. The negative third quarter result was alsoinfluenced by significantly lower contributions from resale of thirdparty metal products.Production from Metal Markets' remelter operations increased from thesecond quarter, notwithstanding seasonally lower volumes during thesummer holiday period. Our European remelters operated at nearly fullcapacity towards the end of the quarter, reflecting improved productdemand in our main markets. Remelter production also increased in theUS, but the market situation in North America continues to be weak.Total metal product sales increased compared with the second quarter,reflecting a moderate improvement in demand for extrusion ingots,foundry alloys and sheet ingots in our main markets in Europe, Asiaand North America.Operating margins continued to be strong for our metal sourcing andtrading activities but underlying results were significantly impactedby the negative currency effects discussed above.Rolled ProductsUnderlying EBIT for Rolled Products improved further in the thirdquarter but continued to be impacted by the weak economy. Thepositive result for the quarter was mainly due to higher volumestogether with the effects of ongoing cost reduction measures.Shipments increased for most major product areas. Shipments ofindustrial, packaging and automotive applications all experienced arecovery contributing to the improved result, while shipmentsdeclined for construction applications. Margins measured in Eurodeclined slightly compared to the second quarter but were stablecompared to the level achieved during the first half year.Extruded ProductsUnderlying results for Extruded Products improved for the quartermainly due to higher volumes and lower costs as a result of the costcutting measures that were implemented at an early stage of themarket downturn.Volumes increased slightly for our European extrusion business fromthe low levels experienced in the previous quarter. Expected seasonaldeclines were more than offset by customer restocking activities.Margins remained under pressure. Underlying results of our BuildingSystems business continued to be positive with firm margins comparedto both the previous quarter and the third quarter of the previousyear. Underlying results for our American operations improvedcompared to the second quarter. Higher volumes and cost cuttingmeasures resulted in a small positive contribution for the quarter.Margins remained firm compared to the previous quarter.Our Automotive operations had an underlying profit for the quarterimproving from the losses incurred in the previous quarter due tohigher volumes and the ongoing cost reduction measures. Results wereimpacted, however, by the continued weak automotive market.EnergyUnderlying EBIT for Energy declined from the second quarter of 2009mainly due to lower spot prices. Production continued to beseasonally low and was also impacted by the outage of the Suldal Ipower station. However, the effect of the lost production from Suldalwas offset by proceeds from business interruption insurance.Other and eliminationsUnderlying EBIT for Other and eliminations amounted to a charge ofNOK 381 million in the third quarter compared with a charge of NOK146 million in the second quarter and a charge of NOK 191 million inthe third quarter of 2008. The increase in the quarter mainly relatedto charges for the elimination of unrealized gains and losses oninventories purchased from group companies.Hydro's solar activities incurred an underlying loss of NOK 18million in the third quarter compared with NOK 29 million in thesecond quarter and NOK 18 million in the third quarter of 2008.Items excluded from underlying EBIT and income from continuingoperationsTo provide a better understanding of Hydro's underlying performance,the items in the table below have been excluded from EBIT and incomefrom continuing operations.Items excluded from underlying EBIT are comprised mainly ofunrealized gains and losses on certain derivatives, impairment andrationalization charges, effects of disposals of businesses andoperating assets, as well as other items that are of a special natureor are not expected to be incurred on an ongoing basis.Items excluded fromunderlying income Third Second Third First 9 First 9from continuing quarter quarter quarter months months Yearoperations 2009 2009 2008 2009 2008 2008NOK millionUnrealizedderivative effects (1 406) (1 223) 35 (1 902) (864) 1 120on LME relatedcontractsUnrealizedderivative effects (54) 118 (1 038) (516) 2 249 768on power contractsUnrealizedderivative effects (102) (204) 150 (325) 50 314on currencycontractsMetal effect, Rolled (141) 225 (38) 746 (171) 235ProductsSignificantrationalization 30 117 - 453 - 109charges and closurecostsImpairment charges(PP&E and equity 286 4 - 300 - 2 464accountedinvestments)Loss provisions - - - - - 257(power contracts)Pension plan (52) - - (52) - -amendmentInsurance (73) (66) - (139) - -compensation(Gains)/losses on - - (34) - (423) (453)divestmentsItems excluded from (1 512) (1 029) (924) (1 435) 840 4 815underlying EBITNet foreign exchange (992) (88) 2 015 (2 559) 862 5 491(gain)/lossCalculated income 280 262 (248) 716 (517) (3 460)tax effectItems excluded fromunderlying income (2 224) (854) 843 (3 277) 1 185 6 846from continuingoperationsFinanceDuring the quarter, currency gains on intercompany balances amountedto about NOK 1,101 million mainly due to a weaker Euro against theNorwegian kroner. These gains have no cash effect and are offset inequity by translation of the corresponding subsidiaries duringconsolidation. Other net currency losses amounted to NOK 109 millionwhich mainly related to Hydro's working capital.In the previous quarter, currency losses on intercompany balancesdenominated in Euro amounted to about NOK 177 million due to strongerEuro against the Norwegian kroner.At end of the third quarter of 2009 cash and cash equivalentsamounted to NOK 2.9 billion down from NOK 4.9 billion at the end ofthe previous quarter.TaxIncome tax expense amounted to NOK 707 million in the quartercompared with NOK 273 million in the second quarter of 2009 and NOK201 million in the third quarter of 2008. Income tax expense amountedto NOK 1,134 million and NOK 1,183 million for the first nine monthsof 2009 and 2008 respectively.For the first nine months of 2009, income tax expense was roughly 53percent of pre-tax income. The high tax rate resulted mainly from theeffects of power sur-tax, results from equity accounted investmentswhich are recognized net of tax and the effect of certain operatinglosses having no tax effect.Press contactContact Erik BrynhildsbakkenTelephone +47 22538301Cellular +47 41751271E-mail Erik.Brynhildsbakken(at)hydro.comInvestor contactContact Stefan SolbergTelephone +47 22539280Cellular +47 91727528E-mail Stefan.Solberg(at)hydro.com *********Certain statements included within this announcement containforward-looking information, including, without limitation, thoserelating to (a) forecasts, projections and estimates, (b) statementsof management's plans, objectives and strategies for Hydro, such asplanned expansions, investments or other projects, (c) targetedproduction volumes and costs, capacities or rates, start-up costs,cost reductions and profit objectives, (d) various expectations aboutfuture developments in Hydro's markets, particularly prices, supplyand demand and competition, (e) results of operations, (f) margins,(g) growth rates, (h) risk management, as well as (i) statementspreceded by "expected", "scheduled", "targeted", "planned","proposed", "intended" or similar statements.Although we believe that the expectations reflected in suchforward-looking statements are reasonable, these forward-lookingstatements are based on a number of assumptions and forecasts that,by their nature, involve risk and uncertainty. Various factors couldcause our actual results to differ materially from those projected ina forward-looking statement or affect the extent to which aparticular projection is realized. Factors that could cause thesedifferences include, but are not limited to: our continued ability toreposition and restructure our upstream and downstream aluminiumbusiness; changes in availability and cost of energy and rawmaterials; global supply and demand for aluminium and aluminiumproducts; world economic growth, including rates of inflation andindustrial production; changes in the relative value of currenciesand the value of commodity contracts; trends in Hydro's key marketsand competition; and legislative, regulatory and political factors.No assurance can be given that such expectations will prove to havebeen correct. Hydro disclaims any obligation to update or revise anyforward-looking statements, whether as a result of new information,future events or otherwise.http://hugin.info/106/R/1350207/325662.pdfhttp://hugin.info/106/R/1350207/325664.pdfThis announcement was originally distributed by Hugin. The issuer is solely responsible for the content of this announcement.
Datum: 27.10.2009 - 07:31 Uhr
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