- Fourth quarter underlying loss before financial items of NOK 651 million
- Higher realized aluminium prices, but weak alumina and trading results
- Downstream result improves for continued operations, boosted by Building Systems
- Stable demand for aluminium products, seasonal decline partly offset by restocking
- Energy result up on higher production and spot power prices
- Qatalum production started in December, on schedule for full production by fourth quarter 2010
- Divestment of Automotive Structures and Inasa rolling mill completed
- Demand for aluminium expected to grow modestly in first half 2010 against second half 2009
- Proposed dividend of NOK 0.50 per share
"The fourth quarter was marked by the on-time start-up of Qatalum, one of the world's most cost-effective smelters, as a solid example of Hydro's exceptional project management skills. We have seen global aluminium markets gradually improving since reaching bottom early last year, and we expect modest growth in demand in the first half of 2010. Still, the market situation continues to be demanding, and we remain cautious in our outlook for 2010," President and Chief Executive Officer Svein Richard Brandtzæg said.
Despite solid corrective measures throughout 2009, Hydro's results remain weak, calling for continuous focus on operational performance and cost control. "Our upstream cost position is too high. We have therefore launched new measures to improve operational performance at our smelters, and we will continue to adapt our organisation and operations to the changing market conditions," Brandtzæg added.
Hydro completed the sales of Automotive Structures and the Inasa rolling mill in Spain in the fourth quarter. Reported results for the quarter included an after tax loss of roughly NOK 400 million relating to these transactions.
Higher realized aluminium prices contributed to an improvement in underlying results for Hydro's upstream activities in the fourth quarter. The positive effect of higher aluminium prices were offset by negative developments within the alumina business. Weak operating results for Hydro's sourcing and trading activities also had a negative impact on quarterly underlying results.
Excluding increased losses for Automotive Structures, which was divested at the end of the year, underlying results for Rolled Products and remaining Extruded Products continued to improve in a normally seasonally weaker quarter. Overall demand for aluminium products was relatively stable, with seasonal declines partly offset by inventory restocking by customers.
Underlying EBIT for Energy rose from the third to the fourth quarter of 2009, mainly due to higher spot power prices and increased production.
2009 – curtailments and cost reduction
In upstream activities, Hydro curtailed high-cost primary aluminium and alumina capacity in 2009, and made substantial reductions in remelt operations. Downstream, Hydro's focused cost reduction efforts have enabled Hydro to cover a substantial portion of the loss due to the market downturn helping these operations to return to profitability during the second half of 2009. Results in Energy declined in 2009 compared to 2008, mainly due to lower power production.
"2009 was marked by continuous adjustments to meet the unprecedented challenges resulting from the financial and economic downturn. We took firm control of our cost position and repositioned our company for future growth," Brandtzæg said.
Net cash generated from operating activities amounted to NOK 2.0 billion in the fourth quarter, compared with NOK 1.6 billion in the previous quarter. Investments amounted to NOK 2.4 billion in the quarter including about NOK 1.2 million relating to Qatalum. Hydro had a net cash position of NOK 2.0 billion at the end of 2009.
For the full-year 2009, Hydro incurred an underlying loss before financial items and tax of NOK 2,555 million, compared with an underlying EBIT of NOK 6,009 million in 2008, as results were strongly affected by the global economic downturn that caused an 18 percent drop in overall sales volumes from 2008.
2009 underlying EBIT was heavily influenced by the sharp fall in aluminium prices that started towards the end of 2008 continued into 2009. Hydro acted quickly in response to the collapse in global aluminium markets, and both fixed and variable costs were reduced significantly throughout the company during the year.
Hydro's Board of Directors proposes to pay a dividend of NOK 0.50 per share for 2009 reflecting the company's strong commitment to provide a cash return to its shareholders. The decision is based on increased market and earnings visibility compared to the beginning of the 2009 and Hydro's cash position.
|Key financial information|
|NOK million, except per share data||Fourth
|% change prior quarter||Fourth
|% change prior year quarter||Year
|Revenue||16,427||16,795||(2) %||20,665||(21) %||67,409||88,455|
|Earnings before financial items and tax (EBIT)||(938)||719||>(100) %||(3,106)||70 %||(1,407)||1,194|
|Items excluded from underlying EBIT||287||(1,512)||3,975||(1,148)||4,815|
|Underlying EBIT||(651)||(793)||18 %||868||>(100) %||(2,555)||6,009|
|Underlying EBIT :|
|Primary Metal||(717)||(760)||6 %||93||>(100) %||(2,556)||2,732|
|Metal Markets||(20)||(15)||(32) %||242||>(100) %||(83)||703|
|Rolled Products||57||51||12 %||93||(39) %||26||651|
|Extruded Products||68||95||(28) %||(332)||>100 %||(67)||338|
|Energy||295||217||36 %||649||(55) %||1,240||1,865|
|Other and eliminations||(334)||(381)||12 %||124||>(100) %||(1,114)||(279)|
|Underlying EBIT||(651)||(793)||18 %||868||>(100) %||(2,555)||6,009|
|Income (loss) from continuing operations||(587)||1,001||>(100) %||(5,845)||90 %||416||(3,267)|
|Underlying income (loss) from continuing operations||(791)||(1,222)||35 %||(184)||>(100) %||(3,066)||3,579|
|Earnings per share from continuing operations||(0.47)||0.83||>(100) %||(4.99)||91 %||0.25||(3.04)|
|Underlying earnings per share from continuing operations||(0.64)||(1.01)||37 %||(0.29)||>(100) %||(2.64)||2.62|
|Investments||2,371||2,126||11 %||2,749||(14) %||5,947||9,012|
|Adjusted net interest-bearing debt||(15,645)||(19,044)||18 %||(15,440)||(1) %||(15,645)||(15,440)|
|Key operational information|
|Primary aluminium production (kmt)||332||330||1 %||442||(25) %||1,396||1,750|
|Realized aluminium price LME (USD/mt)||1,804||1,523||18 %||2,654||(32) %||1,698||2,638|
|Realized aluminium price LME (NOK/mt)||10,452||9,480||10 %||16,905||(38) %||10,764||14,699|
|Realized NOK/USD exchange rate||5.80||6.22||(7) %||6.37||(9) %||6.34||5.57|
|Rolled Products sales volumes to external market (kmt)||211||205||3 %||213||(1) %||794||965|
|Extrusion products sales volumes to external market (kmt)||101||104||(3) %||103||(2) %||401||488|
|Automotive products sales volumes to external market (kmt)||25||24||7 %||18||43 %||87||105|
|Power production (GWh)||1,929||1,682||15 %||2,813||(31) %||7,897||11,361|
About Hydro's reporting
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 income from continuing operations. See "Items excluded from underlying EBIT and income from continuing operations" for more information on these items.
Effective from the end of March, Hydro has reorganized its business, dividing each of the former Aluminium Metal and Aluminium Products into two and increasing the number of operating segments from three to five including Primary Metal, Metal Markets, Rolled Products, Extruded Products and Energy. From the beginning of the second quarter, Hydro is presenting its financial results in accordance with the new structure. Prior periods presented in our report have been reclassified in accordance with the new structure.
Reported EBIT and income from continuing operations
Reported EBIT for Hydro amounted to a loss of NOK 938 million for the fourth quarter including net negative effects of NOK 287 million comprised of net unrealized derivative gains of NOK 429 million, positive metal effects of NOK 157 million, losses on divestments of NOK 684 million, and other negative effects of NOK 51 million. Reported EBIT also included impairment charges of NOK 138 million relating to solar activities including a write down of our shares in Norsun by NOK 135 million. In the previous quarter, reported EBIT amounted to NOK 719 million including net positive effects of NOK 1,512 million comprised of net unrealized derivative gains of NOK 1,562 million, positive metal effects of NOK 141 million, other positive effects of NOK 95 million and impairment charges of NOK 286 million.
Losses from continuing operations was NOK 587 million in the fourth quarter including net foreign exchange gains of NOK 312 million mainly relating to intercompany balances denominated in Euro. These gains have no cash effect and are offset in equity by translation of the corresponding subsidiaries during consolidation. Income from continuing operations was NOK 1,001 million in the third quarter including net foreign exchange gains of NOK 992 million mainly relating to intercompany balances denominated in Euro.
Market developments and outlook
Aluminium prices continued to increase during the fourth quarter similar to price developments for other commodities in general. LME three month prices traded between USD 1,800 - 1,900 per mt in the beginning of the quarter increasing to around USD 2,250 per mt by the end of the year.
In China, demand for primary aluminium continued to grow strongly. Correspondingly, production increased during the quarter and it is believed that most of the previous curtailed capacity has been restarted. With additional new capacity coming on stream, production in China reached an all time high of around 16.5 million mt in the quarter on an annual basis.
Outside China, demand for primary aluminium in the fourth quarter was relatively stable amounting to around 21.7 million mt on an annual basis. Demand for primary aluminium is expected to improve in 2010 but the magnitude of the increase is uncertain. In the fourth quarter production outside China was 23.9 million mt annualized compared to a total production of about 26.4 million mt in 2008. Most of the capacity that was curtailed has not been restarted. The market surplus experienced in 2009 is expected to continue in 2010 but at a somewhat lower level.
LME stocks were stable at around 4.6 million mt during the quarter. Industry analysis indicates that there has been an increase of unreported stocks also throughout the fourth quarter. Much of metal in stock is owned by financial investors, taking advantage of low interest rates, inexpensive warehousing and the contango in the aluminium forward market.
The slightly positive development of demand for metal products (extrusion ingot, sheet ingot, foundry alloys and wire rod) in the third quarter continued in the fourth quarter. However, the consumption of metal products in both Europe and North America remains significantly below the levels experienced in 2007 and 2008 and there are no apparent indications of a strong recovery to pre-crisis consumption levels.
Demand in the normally seasonally lower flat rolled products market in Europe was slightly higher in the quarter compared to the previous quarter. Order intake improved toward the end of the year and we expect market demand to grow in the first quarter of 2010 and continue growing moderately into the second quarter. In North America, demand was stable following an improvement in the third quarter and is expected to continue to improve in the first quarter of 2010.
European demand for extruded aluminium products increased slightly compared to the previous quarter indicating some level of customer restocking during the normally seasonally lower fourth quarter. However, demand remained at a low level. Demand in North America has followed a normal seasonal pattern throughout the year. However the fourth quarter was the first time demand increased compared to same quarter of the previous year since 2006 when the market deterioration began. Market demand in South America continued to be positive, mainly in Brazil. The overall outlook for the European and US extrusion markets continues to be weak, but demand is expected to stabilize.
Nordic electricity spot prices increased during the fourth quarter in parallel with deteriorating hydrological conditions. In the middle of January 2010, water reservoir levels in Norway were 11 percentage points lower than normal and 6 percentage points lower than the same period in 2009. Snow accumulation levels were about 50 percent of normal. Colder weather beginning in the middle of December lifted spot prices further and the Nordic system spot price levels increased by around 80 percent by the end of January compared to the beginning of October. Prices are expected to remain at a fairly high level throughout the first quarter of 2010.
Additional factors impacting Hydro
Hydro has sold forward more than 90 percent of its primary aluminium production for the first quarter of 2010 at a price level of around USD 2,000 per mt. The higher realized prices will improve Hydro's results in the first quarter of 2010. However, the overall impact of LME price improvements for Hydro will be influenced by developments in the US dollar/Norwegian kroner currency exchange rates.
During 2009 Hydro has curtailed production capacity and reduced production at several plants. If it becomes necessary to permanently close plants that have been curtailed on a temporary basis, additional substantial closure costs will be incurred.
Qatalum is expected to continue incurring operating losses during the ramp-up of production at the site. The losses will decline as production volumes increase during the year.
Hydro's water and snow reservoirs were lower than normal in the middle of January and also lower than the corresponding period in 2009. Despite the decreased reservoir levels, Hydro's power production is expected to be at seasonally high levels during the first quarter of 2010, partly due to Suldal I being back in operation.
The tight power supply situation in Mid-Norway (NO3) has at times in December and January caused significantly higher spot prices in this area than the Nordic system spot prices. Since the Sunndal smelter is located in Mid-Norway while Hydro's captive hydro power is produced and sold in Southern Norway (NO1/NO2), such differences in area prices may lead to significant area costs for Energy.
The present weak economic conditions increase the risk of counterparties defaulting on their obligations. So far we have not experienced any significant defaults and are carefully monitoring the situation.
Primary Metal incurred an underlying loss for the fourth quarter somewhat lower than the loss incurred in the previous quarter. Underlying results improved for our smelting operations but the positive effects were partly offset by negative developments within our bauxite and alumina business.
Higher aluminium prices improved underlying EBIT for our smelters by roughly NOK 320 million compared with the third quarter. However most of our operations continued to operate at a loss. The change in inventory write-downs resulted in a positive effect of about NOK 40 million for the fourth quarter on an isolated basis compared with NOK 125 million in the third quarter.
Variable costs at our smelters were stable compared to the third quarter of 2009. Higher alumina costs due to the increase in LME prices were offset by lower carbon cost as a result of lower prices for petroleum coke, and somewhat lower power costs.
Seasonally lower sales volume impacted the results marginally in the fourth quarter.
The underlying loss from our equity accounted smelters increased by about NOK 60 million mainly due to costs relating to the build up of the operating organization at Qatalum which increased to NOK 174 million for the quarter compared with NOK 125 million in the third quarter.
Underlying EBIT for Alunorte, our equity accounted alumina refinery, amounted to NOK 29 million in the fourth quarter, up from NOK 10 million in the third quarter. The improvement resulted from higher alumina prices due to the increasing LME price, partly offset by realized hedging losses. Production was down somewhat during the quarter. Variable costs were relatively stable with the effects of lower caustic prices being offset by increasing energy costs. The temporary measures put in place in March to address Alunorte's challenging financial situation in 2009 continued to have a positive effect.
Underlying results from our alumina commercial activities declined despite higher external volumes and good margins. The decline was mainly caused by unrealized losses on LME forward positions.
The fourth quarter underlying loss in Metal Markets was mainly due to negative results from our sourcing and trading activities compared with good operating results in the previous quarter. The net impact of currency effects was largely neutral for the quarter compared with negative effects of roughly NOK 150 million in the third quarter.
Underlying results from our remelter operations increased from the third quarter, which was influenced by seasonal maintenance shutdowns. The improvement primarily resulted from increased production and sales volumes from our European remelters, but also better results from our two remelters in the US.
Total metal sales from own production and third party contracts declined moderately from the third quarter, mainly due to somewhat lower sales of foundry alloys in Asia and Europe and sheet ingots in Europe.
Our metal sourcing and trading operations incurred operating losses for the quarter following three quarters with strong results. The fourth quarter was also negatively impacted by hedging losses related to standard ingot inventories. Offsetting unrealized gains on physical inventories are not recognized in underlying results.
Underlying EBIT for Rolled Products improved somewhat compared to the third quarter mainly due to slightly higher volumes and ongoing cost reduction measures. Normal seasonal volume declines were more than offset by increased demand for certain product segments combined with some restocking effects.
Shipments of industrial and automotive applications increased further during the quarter while shipments into the construction sector recovered from declines experienced in the previous quarter. Shipments declined for packaging (beverage can) and foil applications. Margins measured in Euro were stable compared to the levels achieved during the year.
Underlying results for Extruded Products declined for the quarter. Results increased for our extrusion operations driven by an improved performance from our building systems business. The positive effects were more than offset by increased losses within our automotive structures business which was divested at the end of the year.
Volumes for our European extrusion business decreased slightly from the previous quarter. Normal seasonal declines were partly offset by restocking of customer inventories. Margins improved compared to the third quarter but remained lower than the fourth quarter of the previous year. Underlying results for our building systems business exhibited a strong seasonal improvement with higher volumes and firm margins compared to the previous quarter. In addition, results were positively impacted by certain one-time effects including R&D grants as well as other items. A normal seasonal decline reduced the underlying results for our American operations compared to the third quarter but margins remained firm.
The underlying loss for our automotive operations was mainly related to our divested automotive structures business which was negatively impacted by lower margins and higher cost compared to the previous quarter. Results for our precision tubing operations continued to be positive and improved somewhat during the quarter due to stronger demand.
Underlying EBIT for Energy increased from the previous quarter due to higher spot prices and increased production as a result of lower maintenance during the normally higher price winter season. However, production levels continued to be impacted by the outage of the Suldal I power station.
Other and eliminations
Underlying EBIT for Other and eliminations amounted to a charge of NOK 334 million in the fourth quarter compared with a charge of NOK 381 million in the third quarter and an income of NOK 124 million in the fourth quarter of 2008. Underlying EBIT includes the elimination of internal gains and losses on inventories purchased from group companies which amounted to a charge of NOK 39 million in the fourth quarter compared with a charge of NOK 131 million in the third quarter and an income of NOK 369 million in the fourth quarter of 2008.
Hydro's solar activities incurred an underlying loss of NOK 40 million in the fourth quarter compared with NOK 18 million in the third quarter and NOK 57 million in the fourth quarter of 2008.
Items excluded from underlying EBIT and income from continuing operations
To provide a better understanding of Hydro's underlying performance, the items in the table below have been excluded from EBIT and income from continuing operations.
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 income from continuing operations|
|Unrealized derivative effects on LME related contracts||(728)||(1,406)||1,984||(2,630)||1,120|
|Unrealized derivative effects on power contracts||318||(54)||(1,481)||(198)||768|
|Unrealized derivative effects on currency contracts||(19)||(102)||265||(345)||314|
|Metal effect, Rolled Products||(157)||(141)||407||588||235|
|Significant rationalization charges and closure costs||65||30||109||518||109|
|Impairment charges (PP&E and equity accounted investments)||138||286||2,464||438||2,464|
|Loss provisions (power contracts)||-||-||257||-||257|
|Pension plan amendment||-||(52)||-||(52)||-|
|(Gains)/losses on divestments||684||-||(29)||684||(453)|
|Items excluded from underlying EBIT||287||(1,512)||3,975||(1,148)||4,815|
|Net foreign exchange (gain)/loss||(216)||(992)||4,629||(2,774)||5,491|
|Calculated income tax effect||(275)||280||(2,943)||441||(3,460)|
|Items excluded from underlying income from continuing operations||(204)||(2,224)||5,661||(3,481)||6,846|
During the quarter, currency gains on intercompany balances amounted to NOK 312 million mainly due to a weaker Euro against the Norwegian kroner. These gains have no cash effect and are offset in equity by translation of the corresponding subsidiaries during consolidation. Other net currency losses amounted to NOK 96 million which mainly related to Hydro's working capital.
In the previous quarter, currency gains on intercompany balances denominated in Euro amounted to NOK 1,101 million due to weaker Euro against the Norwegian kroner.
The increase in interest expense in fourth quarter mainly related to accrued interest on tax claims.
At end of the fourth quarter of 2009 cash and cash equivalents amounted to NOK 2.5 billion down from NOK 2.9 billion at the end of the previous quarter.
Income tax expense amounted to a positive amount of NOK 183 million in the quarter compared with a charge of NOK 707 million in the third quarter of 2009 and a positive amount of NOK 1,748 million in the fourth quarter of 2008. Income tax expense amounted to a charge of NOK 951 million for 2009 compared with a positive amount of 565 million for 2008.
For the full year 2009, income tax expense was roughly 70 percent of pre-tax income. The high tax rate resulted mainly from the effects of power sur-tax and losses from equity accounted investments which are recognized net of tax.
Contact: Halvor Molland
Cellular: +47 92979797
- Investor contact
Contact: Stefan Solberg
Cellular: +47 91727528