Norsk Hydro
oslo : NHY

October 27, 2011 01:35 ET

Norsk Hydro: Third quarter 2011: Improved production performance, higher raw material costs

OSLO, NORWAY--(Marketwire - Oct 27, 2011) -

Hydro had underlying earnings before financial items and tax (EBIT) of NOK 1,646 million in the third quarter, down from NOK 1,906 million in the second quarter. The quarter was marked by higher production performance in Bauxite & Alumina, while seasonal declines and higher raw material costs had a negative impact on underlying results. Energy posted record third-quarter results.

* Underlying EBIT NOK 1,646 million

* Further improved bauxite and alumina production performance

* Raw material cost pressure

* Solid contribution from energy business

* Qatalum at full production

* Streamlining of portfolio through divestments

* Seasonal sales decline and softening market

* Increased macro uncertainty

"Our efforts to improve operational performance in Bauxite & Alumina are showing solid results, with Paragominas and Alunorte reporting increased quarterly production. We are strengthening our focus on the ongoing ambitious cost improvement programs, however, raw material cost pressures in the aluminium industry continue," said Hydro's President and CEO Svein Richard Brandtzæg.

"With current macro uncertainty, market visibility is low. We are keeping our 2011 outlook aluminium demand growth outside China of seven percent, but based on signs of weakening markets towards the end of the year, growth may come in on the low side," Brandtzæg said.

Underlying EBIT for Bauxite & Alumina increased compared to the second quarter primarily due to improved production performance and better results for commercial activities.

Underlying EBIT for Primary Metal declined compared to the second quarter due to lower sales volumes and higher raw material costs, partly offset by higher realized aluminium prices. Ramp-up of production at Qatalum, the 50/50 joint venture between Qatar Petroleum and Hydro, was completed and the plant reached full capacity contributing to increased production for the quarter.

"I am pleased to see the Qatalum plant reaching full production. Now running at nameplate capacity, our focus is to optimize operations to capture its full potential," Brandtzæg said.

Hydro's midstream operations delivered lower underlying results compared to the previous quarter, which was influenced by significant positive ingot inventory valuation and currency effects. Lower underlying results from remelt operations impacts third quarter results negatively.

Underlying EBIT for Hydro's downstream business was weak, impacted by seasonal declines and softer markets. The ongoing rationalization measures in Building Systems have started to show effect, and the program will continue at full speed in the coming quarters.

Energy continued to deliver solid underlying results, its best-ever third quarter, due to high production throughout the quarter and relatively high prices in July and August.

Hydro completed the divestment of its non-strategic ownership interest in the Norwegian power production company SKS Produksjon AS. The divestment resulted in a tax free gain of NOK 658 million in the third quarter. In addition Hydro signed an agreement to divest its 35 percent stake in the Alpart alumina refinery on Jamaica, with expected closing in the fourth quarter.

Operating cash flow amounted to NOK 3.4 billion for the quarter including a decrease in net operating capital of NOK 0.8 billion. Cash provided from divestments offset cash used in investment activities for the quarter. At the end of the quarter Hydro's net debt position was NOK 0.1 billion.

Key financial information


                                                 % change      First
NOK million,     Third   Second % change  Third    prior Firs  9   9
except per     quarter  quarter    prior quarter   year months months Year
share data        2011     2011  quarter   2010  quarter  2011  2010 2010
---------------------------------------------------------------------------


Revenue    23 829   24 728    (4) %   18 424     29 %  69 695 56 348 75 754



Earnings
before
financial
items and tax
(EBIT)      2 222    2 111      5 %      274  > 100 %  10 189  2 417  3 184

Items
excluded from
underlying
EBIT        (576)    (206) >(100) %      690 > (100) % (5 189)    347   167
---------------------------------------------------------------------------
Underlying
EBIT        1 646    1 906   (14) %      965     71 %   5 000  2 763  3 351
---------------------------------------------------------------------------


Underlying
EBIT :

Bauxite &
Alumina       302      272     11 %       71  > 100 %     729    521    633

Primary Metal 653      765   (15) %      318  > 100 %   2 002    531    617

Metal Markets  93      244   (62) %      163   (43) %     480    259    321

Rolled
Products      124      232   (46) %      227   (45) %     588    759    864

Extruded
Products       40       96   (58) %      102   (61) %     241    420    444

Energy        506      363     40 %      169  > 100 %   1 442    934  1 416

Other and
eliminations (73)     (65)   (13) %     (85)     14 %   (482)  (661)  (945)
---------------------------------------------------------------------------
Underlying
EBIT        1 646    1 906   (14) %      965     71 %   5 000  2 763  3 351
---------------------------------------------------------------------------


Underlying
EBITDA      2 985    3 229    (8) %    1 720     74 %   8 628  5 037  6 420
---------------------------------------------------------------------------


Net income
(loss)        797    1 546   (48) %     (63)  > 100 %   7 498  1 460  2 118
---------------------------------------------------------------------------
Underlying
net income
(loss)      1 071    1 168    (8) %      545     96 %   3 071  1 476  1 852
---------------------------------------------------------------------------


Earnings per
share        0.49     0.69   (29) %   (0.07)  > 100 %    3.84   0.93   1.33
---------------------------------------------------------------------------
Underlying
earnings per
share        0.50     0.52    (4) %     0.33     53 %    1.47   0.94   1.14
---------------------------------------------------------------------------


Financial
data:
---------------------------------------------------------------------------
Investments 1 125    1 085      4 %    1 591   (29) %  43 836  4 618  6 231

Adjusted net
interest-                                                 (18     (8     (6
bearing debt(18 389) (20 777)  11 %  (8 280) > (100) %   389)   280)   427)
---------------------------------------------------------------------------


Key
Operational
information


---------------------------------------------------------------------------
Alumina
production
(kmt)       1 553    1 448      7 %      491  > 100 %   3 774  1 483  1 976

Primary
aluminium
production
(kmt)         522      505      3 %      355     47 %   1 443  1 055  1 415

Realized
aluminium
price LME                                                   2      2
(USD/mt)    2 592    2 509      3 %    2 179     19 %     494    125  2 113

Realized
aluminium
price LME
(NOK/mt)   14 225   13 803      3 %   13 503      5 %  13 906 12 753 12 674

Realized
NOK/USD
exchange rate 5.49    5.50        -     6.20   (11) %    5.58   6.00   6.00

Metal Markets
sales volumes
to external                                                        1
market (kmt)  527      533    (1) %      429     23 %   1 527    300  1 717

Rolled
Products
sales volumes
to external
market (kmt)  228      242    (6) %      239    (5) %     714    712    945

Extruded
Products
sales volumes
to external
market (kmt)  137      142    (4) %      134      2 %     415    402    529

Power
production
(GWh)       2 737    1 830     50 %    1 479     85 %   6 875  5 881  8 144
---------------------------------------------------------------------------

Pro forma underlying financial and operating results

There are no differences between Hydro's actual and proforma underlying financial and operating results for the third and second quarter comparative periods in 2011. Please see the Profoma information section later in this report for a discussion on developments compared to earlier periods.

Key financial                                 % change
information   Third  Second  % change   Third    prior First 9 First 9
            quarter quarter     prior quarter     year  months  months Year
NOK million    2011    2011   quarter    2010  quarter    2011    2010 2010
---------------------------------------------------------------------------


Revenue    23 829  24 728     (4) %  21 133     13 %  71 372  64 682 87 272



Earnings
before
financial
items and tax
(EBIT)      2 222   2 111       5 %     289   >100 %   5 937   2 735  3 696

Items excluded
from
underlying
EBIT        (576)   (206)               941            (847)     561    445
---------------------------------------------------------------------------
Underlying
EBIT        1 646   1 906    (14) %   1 230     34 %   5 090   3 296  4 141
---------------------------------------------------------------------------


Underlying
EBITDA      2 985   3 229     (8) %   2 555     17 %   9 094   7 237  9 450
---------------------------------------------------------------------------


Net income
(loss)
attributable
to Hydro
shareholders  997   1 405    (29) %     157   >100 %   3 183   1 475  2 220
---------------------------------------------------------------------------


Key
operational
information


---------------------------------------------------------------------------
Alumina
production
(kmt)       1 553   1 448       7 %   1 442      8 %   4 337   4 357  5 805

Primary
aluminium
production
(kmt)         522     505       3 %     469     11 %   1 518   1 391  1 867
---------------------------------------------------------------------------

About Hydro's reporting

Underlying EBIT

To provide a better understanding of Hydro's underlying performance, the following discussion of operating performance excludes certain items from EBIT (earnings before financial items and tax) and net income. See "Items excluded from underlying EBIT and net income" later in this report for more information on these items.

Acquisition of Vale's aluminium business

On February 28, 2011 Hydro completed the take-over of the majority of Vale's aluminium business in Brazil. Effective from the first quarter of 2011, we are including a new operating segment, Bauxite & Alumina, in our reporting structure in addition to our other five operating segments. In addition to the assets acquired from Vale, Hydro's bauxite and alumina activities previously included in the Primary Metal segment have been transferred to the new Bauxite & Alumina segment and prior periods have been restated. Primary Metal includes the Albras aluminium plant in addition to Hydro's pre-transaction primary aluminium production activities. Effective from the first quarter of 2011, elimination of internal gains and losses on alumina previously included in the Primary Metal segment is included in Other and Eliminations, and prior periods have been restated.

The following discussion on reported and underlying operating results includes the acquired bauxite and alumina activities from Vale from March 1, 2011. Amounts relating to previous periods have not been restated to reflect the reported and underlying results of the acquired assets.

Pro forma information related to acquisition of Vale's aluminium business To provide a presentation of Hydro's performance on comparable basis, certain pro forma financial and operating information is also presented in this report based on including the results of the acquired Vale assets for the full calendar quarter and for all previous periods presented in this report. See "Second quarter report 2011" for more information on the acquisition and the pro forma information included in our second quarter report.

Reported EBIT and net income

Reported EBIT for Hydro amounted to NOK 2,222 million in the third quarter including net unrealized derivative gains of NOK 6 million, negative metal effects of NOK 77 million, rationalization and closure costs of NOK 28 million and gains on divestments of NOK 674 million.

In the previous quarter, reported EBIT for Hydro amounted to NOK 2,111 million including net unrealized derivative gains of NOK 266 million, positive metal effects of NOK 28 million and other net negative effects of NOK 87 million comprised of rationalization and closure costs, impairment charges and gains on divestments.

Net income for the third quarter amounted to NOK 797 million including net foreign exchange losses of NOK 1,248 million. In the second quarter net income amounted to NOK 1,546 million including net foreign exchange gains of NOK 334 million.

Market developments and outlook

Bauxite and alumina

Global demand for alumina outside China was slightly higher in the third quarter compared to the second quarter mainly due to the ramp-up of new production capacity. Annualized alumina production outside China amounted to about 54 million mt.

Alumina demand and production in China continued to increase in the third quarter compared to the previous quarter, mainly due to commissioning of new primary aluminium production and alumina projects.

Platts alumina spot prices have been trading around USD 370 per mt during the quarter, representing a range of roughly 15.3-15.8 percent of LME.(1))

1) Due to existing sales contracts, Hydro has limited volumes available for sale for the next few years. As a result, short-term alumina market developments have limited influence on Hydro's earnings for this period.

Primary aluminium

LME prices fell in the third quarter compared to the second quarter. Prices started the quarter at a level around USD 2,500 per mt and ended around USD 2,200 per mt. Prices measured in NOK and EUR have declined to a lesser extent due to a strengthening of the USD during the quarter.

Demand for primary aluminium in the world outside China declined during the third quarter compared to the second quarter, amounting to an annualized consumption of 25.7 million mt. Supply of primary aluminium has continued to increase as new projects come on stream. Annualized production amounted to 26.5 million mt in the third quarter. Although market sentiment has weakened during the quarter due to growing economic uncertainty, we continue to foresee an overall market growth of about 7 percent in 2011.

Consumption of primary aluminium in China decreased slightly in the third quarter following a historically high level in the previous quarter. Annualized consumption in the third quarter amounted to 19.7 million mt. The primary aluminium market in China is expected to be largely balanced for 2011.

LME stocks increased slightly from 4.5 million mt in the second quarter to 4.6 million mt in the third quarter. A large portion of the metal in warehouses continue to be owned by several large financial investors.

Demand for metal products (extrusion ingot, sheet ingot, primary foundry alloys and wire rod) in Europe weakened compared to the previous quarter. Germany and the Benelux countries are performing better than most countries in Southern Europe but the overall market sentiment has deteriorated as a result of the weaker macroeconomic outlook.

Rolled products

European demand for rolled products decreased in the third quarter of 2011 compared to the previous quarter due to seasonality in general and destocking by distributors in the general engineering market segment in particular.

Demand for rolled products within the automotive segment remained healthy in the third quarter, benefiting from high car exports to China. Overall consumption within the building and construction segment was slightly below the volumes seen in the second quarter. Low demand in the southern part of Europe and the UK was mostly compensated by sound demand in Germany and the Benelux countries. Consumption in the beverage can segment was firm compared to the second quarter of 2011. The European market for thin gauge foil softened mainly due to seasonality and high inventory levels. Chinese imports continued at high levels overall and within the general engineering segment in particular.

Consumption for rolled products is expected to be impacted by further destocking mainly within the general engineering market segment, and seasonal declines in general during the fourth quarter. Demand within the automotive segment is forecasted to decline due to declining demand for cars in Europe. However, demand for premium cars in China is expected to remain on a high level. Consumption of thin gauge foil is expected to remain stable at a low level.

Extruded products

European demand for extruded aluminium products declined seasonally in the third quarter of 2011, but was higher than the same quarter of 2010. Demand remained weak within the building and construction sector, and in Southern Europe in particular. Demand within the engineering and transport segments remained strong in most European markets. Margins continued to be under pressure in Europe.

Demand for extruded products in North America was slightly lower on a seasonal basis compared with the second quarter of 2011, and was also somewhat lower than the third quarter of 2010 despite high demand in the transport and automotive segments. Imports into the US have fallen significantly compared to the third quarter of 2010 as a result of duties on Chinese products. Demand in South America continued on a level similar to the same quarter of last year. As a result, margins are under pressure due to increased production capacity in a market experiencing lower growth than anticipated.

Demand in the precision tubing segment continued to be strong for the season, driven by demand for premium cars, but growth is slowing down.

Further seasonal declines are expected in the European and US extrusion markets in the fourth quarter. Currently we see no recovery in the building and construction segment in Southern Europe and we expect continued low demand for building systems in this region. Automotive production in Europe is expected to decline in the fourth quarter due to reduced demand for cars in Europe. However, the market for premium cars in China is expected to remain firm. Demand is expected to remain stable in North America supported by transport and automotive segments. The market outlook for South America remains positive.

Energy

Nordic electricity spot prices were volatile throughout the third quarter. Spot prices were relatively high in July and August, while in September, prices declined to low levels due to high precipitation.

Water reservoir levels in Norway increased to 86 percent of capacity at the end of the third quarter. This is around normal level and 18 percentage points above the corresponding period of the prior year.

As consumption increases towards the winter season, Nordic spot prices are expected to gradually increase.

Additional factors impacting Hydro

Hydro has sold forward around 85 percent of its expected primary aluminium production for the fourth quarter at a price level of around USD 2,475 per mt. This excludes expected volumes from Qatalum. Hydro has also hedged the majority of the net aluminium price exposure in the business acquired from Vale until the end of 2011. For the final quarter of 2011 the hedged volumes for Bauxite & Alumina amount to about 90,000 mt of aluminium, priced at about USD 2,400 per mt.

Hydro's water reservoirs increased to a level well above normal in the third quarter and significantly higher than the corresponding period in 2010. As a result, production is expected to remain high through the forth quarter 2011.

During the third quarter Hydro signed an agreement to divest its share of the Alpart alumina refinery in Jamaica. The transaction is expected to be completed in the fourth quarter with a gain of about NOK 400 million.

Bauxite & Alumina

Underlying EBIT for Bauxite & Alumina increased compared to the second quarter primarily due to improved production performance and better results for our commercial activities.

Primary Metal

Underlying EBIT for Primary Metal declined compared to the second quarter due to lower sales volumes and higher raw material costs. Higher realized aluminium prices partly offset the negative developments. Please also see the section on Pro forma information - Primary Metal later in this report.

Higher realized aluminium prices partly offset by lower premiums had a net positive effect on underlying results amounting to about NOK 150 million for the quarter. Volume declines had a negative effect of about NOK 90 million. Higher raw material costs relating to alumina and coke in particular, had a negative impact of roughly NOK 150 million. Our USD 300 per mt cost improvement program targeted to reach USD 175 per mt by the end of 2011 continued according to plan.

Production volumes increased compared to the second quarter mainly due to additional volumes from Qatalum which reached full production capacity on September 21.

Underlying results for Qatalum improved, mainly due to the higher production volumes.

Metal Markets

Underlying EBIT for Metal Markets decreased compared to the previous quarter which was influenced by significant positive ingot inventory valuation and currency effects. Excluding currency and ingot inventory valuation effects, underlying EBIT declined for the quarter mainly due to seasonally lower volumes for remelt operations, together with lower margins. Underlying results from sourcing and trading activities were also somewhat lower.

Total metal product sales excluding ingot trading exhibited an expected seasonal decline due to the summer holidays but was also influenced by weaker demand.

Rolled Products

Underlying EBIT for Rolled Products was significantly lower compared to the second quarter mainly due to seasonally lower sales volumes and softening demand. Lower margins also contributed to the decline partly offset by lower personnel and other operating costs.

Volume declines for general engineering and thin gauge foil were mainly driven by customer destocking activities. Automotive shipments were seasonally lower. Can beverage volumes increased, supported by firm demand.

Extruded Products

Underlying EBIT for Extruded Products decreased significantly in the third quarter compared with the previous quarter due to seasonally lower sales volumes and lower margins partly offset by lower fixed costs.

Lower volumes and margins resulted in further weakening of the results for our building systems operations. Rationalization measures have started to have a positive impact however, and fixed costs declined during the quarter. Additional rationalization measures have been implemented in the third quarter and will be further expanded in the fourth quarter.

Underlying EBIT for our extrusion operations and precision tubing business declined mainly due to seasonally lower volumes and lower margins.

Energy

Energy delivered solid underlying results due to high production throughout the quarter and relatively high prices in July and August. Production levels were influenced by high precipitation during the quarter.

Other and eliminations

Eliminations comprises mainly unrealized gains and losses on inventories purchased from group companies which fluctuates with product flows, volumes and margin developments throughout Hydro's value chain.

Items excluded from underlying EBIT and net income

To provide a better understanding of Hydro's underlying performance, the items in the table below have been excluded from EBIT and net income.

Items excluded from underlying EBIT are comprised mainly of unrealized gains and losses on certain derivatives, impairment and rationalization charges, effects of disposals of businesses and operating assets, as well as other items that are of a special nature or are not expected to be incurred on an ongoing basis.

Items excluded from underlying net
income(1)                       Third  Second   Third First 9 First 9
                              quarter quarter quarter  months  months  Year
NOK million                      2011    2011    2010    2011    2010  2010
---------------------------------------------------------------------------


Unrealized derivative effects on
LME related contracts(2)           50    (35)     515      94     651   489

Derivative effects on LME related
contracts (Vale Aluminium)(3)    (32)    (89)      99    (79)   (221) (166)

Unrealized derivative effects on
power contracts (4)              (25)   (162)    (25)   (227)     458   609

Unrealized derivative effects on
currency contracts(5)               -       -    (65)     (1)    (30)  (50)

Unrealized derivative effects on
raw material contracts(6)           1      20       -      37       - (156)

Metal effect, Rolled Products(7)   77    (28)      52   (127)   (468) (560)

Significant rationalization
charges and closure costs(8)        28      75       -     104     (1)   130

Impairment charges (PP&E and
equity accounted investments)(9)    -      56     114      56     175   187

Pension(10)                         -       -       -       -   (151) (151)

Insurance compensation(11)          -       -       -       -       -  (91)

(Gains)/losses on divestments(12)(674)    (44)      -   (718)    (67)  (74)

Transaction related effects (Vale
Aluminium) (13)                     -       -       - (4 328)       -     -
---------------------------------------------------------------------------
Items excluded from underlying
EBIT                            (576)   (206)     690 (5 189)     347   167
---------------------------------------------------------------------------
Net foreign exchange (gain)/loss
(14)                             1 248   (334)     246     944   (281) (513)

Calculated income tax effect(15) (399)    162   (328)   (181)    (49)    80
---------------------------------------------------------------------------
Items excluded from underlying net
income                            273   (378)     608 (4 427)      16 (266)
---------------------------------------------------------------------------

1)Negative figures indicate a gain and positive figures indicate a loss.

2) Unrealized gains and losses on contracts used for operational hedging purposes where hedge accounting is not applied, as well as for LME derivatives in equity accounted investments and elimination of changes in fair value of certain internal physical aluminium contracts.

3) Realized and unrealized derivative effects on LME contracts related to the hedge of the net aluminium price exposure in Vale Aluminium not subject to hedge accounting. Realized effects recognized as of March 1, 2011 are included in underlying EBIT.

4) Unrealized gains and losses on embedded derivatives in power contracts for own use and financial power contracts used for hedging purposes.

5) Relates to currency effects in equity accounted investments (Alunorte) prior to February 28, 2011.

6) Unrealized gains and losses on embedded derivatives in raw material contracts for own use.

7) Timing differences resulting from inventory adjustments due to changing aluminium prices during the production, sales and logistics process, as well as inventory write-downs for Rolled Products.

8) Costs that are typically non-recurring for significant individual plants or operations, for example termination benefits, plant removal costs and clean-up activities in excess of legal liabilities.

9) Impairment charges reflect write-downs of assets or groups of assets to estimated recoverable amounts in the event of an identified loss in value.

10) Recognition of pension plan amendments, curtailments and settlements.

11) Insurance compensation for damaged assets recognized as income (includes equity accounted investments).

12) Net gain or loss on divested businesses and individual major assets.

13) Effects related to the acquisition of Vale Aluminium on February 28, 2011 include the revaluation gain of Hydro's pre-transaction stake in Alunorte and CAP, gains and losses related to settlement of pre-existing contracts and agreements, as well as the fair value adjustment of inventory of finished goods sold.

14) Realized and unrealized gains and losses on foreign currency denominated accounts receivable and payables, funding and deposits, and forward currency contracts purchasing and selling currencies that hedge net future cash flows from operations, sales contracts and working capital.

15) In order to present underlying net income on a basis comparable with our underlying operating performance, we have calculated an income tax effect of items excluded from underlying income before tax. In third quarter we have changed the calculation method in order to better reflect non taxable items excluded from underlying income before tax. Prior periods in 2011 have been restated.

Finance

Net financial income (expense) amounted to negative NOK 1,363 million in the third quarter compared with positive NOK 194 million in the previous quarter.

Net currency losses of NOK 1,248 million in the third quarter mainly related to losses on debt denominated in USD. Of the total, approximately NOK 330 million related to intercompany balances.

Tax

Income tax expense amounted to a charge of NOK 62 million in the third quarter compared to a charge of NOK 759 million in the previous quarter and a charge of NOK 119 million in the third quarter of 2010.

For the first nine month of 2011 income tax expense was 16 percent of pre-tax income. The low tax rate results from a tax-free gain on the sale of the shareholding in SKS Produksjon AS in the third quarter and the tax-free gain from the revaluation of Hydro's previous ownership interests in Alunorte and the CAP joint-venture recognized in the first quarter.

Pro forma information

             Third quarter    Second quarter   Third quarter
                  2011             2011             2010        Year 2010

Underlying EBIT
and EBITDA     Underlying       Underlying       Underlying     Underlying

per business
area        EBIT    EBITDA   EBIT    EBITDA   EBIT    EBITDA   EBIT  EBITDA
---------------------------------------------------------------------------


Bauxite &
Alumina       302        775   272        756   348        813 1 225  3 061

Primary Metal 653      1 206   765      1 313   306        850   816  3 006

Metal Markets  93        118   244        269   163        189   321    428

Rolled Products 124      235   232        339   227        338   864  1 318

Extruded
Products       40        165    96        222   102        236   444    987

Energy        506        543   363        392   169        201 1 416  1 540

Other and
eliminations (73)       (57)  (65)       (62)  (85)       (72) (945)  (889)
---------------------------------------------------------------------------
Underlying EBIT
/ EBITDA    1 646      2 985 1 906      3 229 1 230      2 555 4 141  9 450
---------------------------------------------------------------------------

Bauxite & Alumina

Underlying EBIT for Bauxite & Alumina increased compared to the second quarter primarily due to improved production performance and better results for our commercial activities.

Both alumina and bauxite production increased compared to the second quarter due to improved operational stability. Operating costs at the Paragominas mine improved somewhat as a result of the higher production volumes while operating costs at Alunorte increased somewhat driven by higher raw material prices.

Realized alumina prices declined slightly having a negative impact on underlying EBIT for the quarter. Caustic and bauxite costs increased somewhat compared to the second quarter.

Underlying results from our Commercial operations improved compared to second quarter, mainly as a result of good margins on our contract portfolio.

Primary Metal

Underlying EBIT for Primary Metal declined compared to the second quarter due to lower sales volumes and higher raw material costs. Higher realized aluminium prices partly offset the negative developments.

*********

Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management's plans, objectives and strategies for Hydro, such as planned expansions, investments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro's markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty. Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized. Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro's key markets and competition; and legislative, regulatory and political factors.

No assurance can be given that such expectations will prove to have been correct. Hydro disclaims any obligation to update or revise any forward- looking statements, whether as a result of new information, future events or otherwise.

This information is subject of the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.

Q3 Report: http://hugin.info/106/R/1558311/481353.pdf

Q3 Presentation: http://hugin.info/106/R/1558311/481354.pdf

This announcement is distributed by Thomson Reuters on behalf of Thomson Reuters clients. The owner of this announcement warrants that:

(i) the releases contained herein are protected by copyright and other applicable laws; and

(ii) they are solely responsible for the content, accuracy and originality of the information contained therein.

Source: Norsk Hydro via Thomson Reuters ONE

[HUG#1558311]

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