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Second quarter of 2012: weak markets and results, improvement targets raised

Hydro reported adjusted earnings before financial items and taxes of NOK 549 million in the second quarter, compared to NOK 557 million in the previous quarter. Weak quarterly earnings reflect low aluminum prices and a difficult macroeconomic environment, while ambitious improvement programs helped reduce operating costs, which had a positive impact in the quarter.

  • Adjusted EBIT of NOK 549 million
  • Low aluminum prices
  • Corrective actions and operational improvements
  • Results positively influenced by lower ones
  • Operating costs Closure of the Kurri Kurri aluminum smelter resulted in costs of NOK 1.5 billion
  • Expected two percent increase in aluminum demand outside of China in fiscal year 2012

"The weak macroeconomic environment remains a challenge in our main markets, leading to low aluminum prices and a weak second quarter for Hydro," said CEO Svein Richard Brandtzæg.

“Weak markets and low aluminum prices require difficult corrective actions, including capacity adjustments and operational improvements. We are continuing our efforts unabated and are currently implementing programs across the Group that will result in total hydro-income increases of around NOK two to three billion for Hydro over the next two to three years. These programs are critical to Hydro's future development and strengthen the competitive position in a challenging time for the industry, "said Brandtzæg.

bauxite & amp; Alumina again posted a weak adjusted EBIT in the quarter, which is due to low LME prices, the pricing of long-term contracts and rising energy costs.

Adjusted EBIT for Primary Metal increased compared to the first quarter, mainly due to slightly higher aluminum prices and lower operating costs. Adjusted earnings for Qatalum were higher, primarily due to the final insurance benefit linked to the 2010 power outage.

Hydro’s midstream business posted lower adjusted results compared to the previous quarter, driven by negative currency effects. Apart from currency effects, adjusted EBIT was stable in the two quarters.

Hydro's adjusted EBIT improved compared to the first quarter, mainly due to seasonally higher sales in the Extruded Products business and generally lower operating costs. But the quarterly results are still affected by the difficult overall economic situation in Europe.

Energy posted lower adjusted EBIT in the second quarter than in the previous quarter due to lower production and lower prices.

Cash flow from operations in the quarter was NOK 0.8 billion. Cash flow for investing activities was NOK 0.8 billion. A dividend of CZK 1.7 billion was paid out in the quarter. Hydro's net debt was NOK 0.4 billion at the end of the second quarter.

Hydro had a reported loss before financial items and taxes of NOK 720 million in the second quarter, which includes unrealized gains from derivative financial instruments of NOK 300 million, cost of rationalization and closures of NOK 408 million, Depreciation of NOK 1,175 million and positive metal effects of NOK 9 million.

In June, Hydro decided to shut down the remaining production at the Kurri Kurri aluminum smelter in Australia after the first production line was shut down in January. The reported second quarter EBIT includes NOK 1,154 million depreciation and NOK 332 million cost of rationalization and closure related to this shutdown. Rationalization and restructuring measures in the Extruded Products business area that affected Building Systems and Extrusion Eurasia resulted in depreciation and rationalization costs of NOK 106 million.

Hydro reported a net loss of NOK 1,712 million in the second quarter, including a currency loss of NOK 883 million. Hydro had reported an after-tax profit of NOK 585 million in the previous quarter, which included a currency gain of NOK 410 million.

Key financial information
NOK million, except per share data Second
quarter
2012
First
quarter
2012
% change prior quarter Second
quarter
2011
% change prior year quarter First
half
2012
First
half
2011
Year
2011
& nbsp;
Revenue 21,604 21,748 (1)% 24,728 (13)% 43,351 45,867 91,444
& nbsp;
Earnings before financial items and tax (EBIT) (720) 665 & gt; (100)% 2,111 & gt; (100)% (54) 7,967 9,827
Items excluded from underlying EBIT 1,269 (108) & gt; 100% (206) & gt; 100% 1,161 (4,613) (3,694)
Underlying EBIT 549 557 (1)% 1.906 (71)% 1,106 3,354 6.133
& nbsp;
Underlying EBIT: & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp;
bauxite & amp; Alumina (188) (144) (31)% 272 & gt; (100)% (332) 427 887
Primary Metal 240 30 & gt; 100% 765 (69)% 271 1,348 2,486
Metal Markets 44 87 (50)% 244 (82)% 131 387 441
Rolled Products 204 151 35% 232 (12)% 355 463 673
Extruded Products 53 14 & gt; 100% 96 (44)% 68 201 151
Energy 362 556 (35)% 363 - 918 936 1,883
Other and eliminations (166) (137) (21)% (65) & gt; (100)% (303) (408) (389)
Underlying EBIT 549 557 (1)% 1.906 (71)% 1,106 3,354 6.133
& nbsp;
Underlying EBITDA 1,777 1,870 (5)% 3,229 (45)% 3,648 5,643 11,152
& nbsp;
Net income (loss) (1,712) 585 & gt; (100)% 1,546 & gt; (100)% (1,127) 6.701 6,749
Underlying net income (loss) 268 256 5% 1,166 (77)% 524 2,000 3,947
& nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; & nbsp;
Earnings per share (0.78) 0.25 & gt; (100)% 0.69 & gt; (100)% (0.54) 3.41 3.41
Underlying earnings per share 0.12 0.13 (5)% 0.52 (77)% 0.25 0.97 1.89
& nbsp;
Financial data
Investments 777 898 (13)% 1,085 (28)% 1,674 42,710 48,025
Adjusted net interest-bearing debt (21,125) (19,231) (10)% (20,777) (2)% (21,125) (20,777) (19,895)
& nbsp;
Key operational information
Alumina production (kmt) 1,491 1,464 2% 1,448 3% 2,955 2,220 5,264
Primary aluminum production (kmt) 502 514 (2)% 505 (1)% 1,016 921 1,982
Realized aluminum price LME (USD / mt) 2,167 2,155 1% 2,509 (14)% 2,161 2,441 2,480
Realized aluminum price LME (NOK / mt) 12,637 12.404 2% 13.803 (8)% 12,523 13,724 13,884
Realized NOK / USD exchange rate 5.83 5.75 1% 5.50 6% 5.79 5.62 5.60
Metal products sales, total Hydro (kmt) 857 872 (2)% 877 (2)% 1,728 1,649 3.303
Rolled Products sales volumes to external market (kmt) 228 227 - 242 (6)% 455 487 929
Extruded Products sales volumes to external market (kmt) 137 133 3% 142 (4)% 270 278 536
Power production (GWh) 2,513 3,190 (21)% 1,830 37% 5.703 4.138 9,582
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