Hydro's underlying income from continuing operations declined to NOK 1,335 million in the second quarter of 2008 from NOK 1,442 million in the previous quarter and NOK 2,152 million in the second quarter of 2007, mainly due to the weakening US dollar and an industry-wide rise in upstream input costs which more than offset the positive effect of higher Aluminum prices.
Second quarter underlying results for Aluminum Products increased substantially from the first quarter of 2008, driven by a significant improvement in the company's Rolled Products business. Lower spot prices for electricity in Norway negatively affected Hydro's Energy business during the quarter.
"Hydro experienced a drop in its second-quarter results due to the rising input costs affecting the entire industry," said Hydro President and CEO Eivind Reiten. "While these pressures will likely remain for some time we continue to show strong operational performance. Particularly encouraging is the progress in our Rolled Products and Extrusion segments," Reiten said.
Global Aluminum prices remained strong during the quarter, with forward markets reaching record levels towards the end of the three-month period. However, compared with the second quarter last year, Hydro's realized prices when measured in Norwegian kroner declined due to a weakening US dollar.
Underlying EBIT in the second quarter was NOK 1,619 million, down from NOK 2,032 million in the previous quarter and NOK 2,886 million in the second quarter of 2007.
Underlying EBIT for Aluminum Metal declined in the quarter compared to the first quarter of 2008, mainly due to higher operating costs from rising input costs for alumina, freight and carbon, as well as increasing oil and gas prices. Disclosed realized Aluminum prices when measured in Norwegian kroner rose compared with the first quarter of 2008, partly offsetting the rising operational costs, but declined substantially compared with the second quarter of 2007 due to the strong depreciation of the US dollar against Norwegian kroner.
Hydro's joint venture with Qatar Petroleum on the 585,000-tonne Qatalum smelter project, in which Hydro owns 50 percent, was about 26 percent complete by the end of the second quarter. "We are pleased to see the Qatalum project remains on target for the planned start-up around year-end 2009," Reiten said.
Aluminum Products delivered strong underlying results for the quarter. Hydro's Rolled Products business delivered significantly higher underlying results, with firm margins and increased shipments mainly in the packaging products and foil segments. Volumes improved for Hydro's Extrusion operations despite a weakening European market and a US market that remained at depressed levels. Underlying second quarter results in the US operations improved substantially compared with the same period last year due to significant cost reduction efforts. In April and July Hydro acquired new businesses in Spain, strengthening its position in the extrusion and building systems markets.
Underlying EBIT for Energy declined significantly in the second quarter from the strong first quarter of 2008, primarily due to lower spot prices in Southern Norway. The negative price effects were partly offset by higher production volumes and lower production costs. Hydro made additional investments in its Solar business during the quarter and celebrated the opening of the new NorSun wafer plant in Årdal, Norway, in which Hydro owns 18.4 percent.
Cash from operating activities was NOK 3.7 billion in the first half of 2008, down from NOK 5.1 billion in the same period last year, reflecting a similar development as for underlying EBIT.
Key financial information