Norsk Hydro ASA (Hydro) has reported revenues of NOK88.6 billion for the year-end 2008, compared with the revenues of NOK94.3 billion in the previous year-end. It has also reported loss from continuing operations of NOK3.27 billion for the year-end 2008, compared with the income from continuing operations of NOK9.16 billion in the previous year-end.
Hydro’s underlying EBIT was NOK868 million in the fourth quarter, including inventory write-downs of about NOK700 million. Underlying EBIT amounted to NOK1,490 million in the third quarter and 1,699 million in the fourth quarter of 2007. Hydro’s results for the quarter reflect the ongoing financial crisis, which has led to a dramatic drop in aluminium prices as a result of a sharp fall in global demand.
Underlying EBIT for the full-year 2008 fell to NOK6,009 million from the solid result of NOK10,153 million in 2007, as higher raw material costs affecting the entire industry had a substantial impact on Hydro’s results in addition to the economic downturn in the fourth quarter.
Hydro has made wide-ranging adjustments in response to the severe drop in aluminium markets, and has announced reductions in its primary aluminium production of 23 %, representing about 400,000 tonnes per year of high-cost production capacity, which will improve the average cost of Hydro’s smelter system. Around 140,000 tonnes of the total will be shut down by the end of the first quarter of 2009, with the remainder to be shut down by the end of the second quarter of 2009.
Production of remelted metal at Hydro’s casthouses has been cut by 45 %, or around 500,000 tonnes per year, and alumina production at the part-owned Alpart refinery in Jamaica has been reduced by 50 %. Hydro has also taken out significant capacity in its downstream operations through shift-reductions and implemented cost-cutting measures throughout the company.
Due to demanding markets and low forward visibility in both the aluminium and financial markets, Hydro’s Board of Directors proposes to forgo a dividend payment for 2008. With Hydro’s substantial investment program resulting from the Qatalum project and the high cost of raising capital in financial markets, the Board regards it as prudent to conserve the company’s cash resources to reduce funding requirements.
Underlying EBIT for Aluminium Metal declined significantly from both the previous quarter and the fourth quarter of 2007. Results were impacted by inventory write-downs of about NOK700 million relating to primary aluminium and remelting operations following the historic fall in aluminium prices during the quarter. Underlying results were positively affected by higher realized prices measured in Norwegian kroner, due to the strengthening of the US dollar during the quarter.
Underlying results for bauxite and alumina operations improved from the third quarter despite sharply lower realized alumina prices in US dollars. Production increased at the part-owned Alunorte refinery following start-up of the expansion in the third quarter and the plant operated at close to full capacity throughout the fourth quarter. Energy costs for Alunorte declined due to a significant drop in oil prices and improved energy mix.
Hydro’s joint venture with Qatar Petroleum on the 585,000-tonne Qatalum smelter, in which Hydro owns 50 %, was about 60 % complete by the end of the year, on schedule and within budget frame for start-up around year-end 2009 and ramp-up to full production during 2010. Once on stream, Qatalum will be one of the most cost-efficient smelters in the world.
Aluminium Products incurred an underlying loss for the quarter, down significantly from both the third quarter of 2008 and the fourth quarter 2007, as results were hit by a sharp drop in demand. Volumes were relatively stable for the building systems business, and overall extrusion margins remained at a satisfactory level despite the significant market decline. Underlying results for US operations remained at depressed levels. Automotive incurred substantial losses compared to both the third quarter of 2008 and fourth quarter of the previous year.
Energy delivered record underlying results both for the quarter and the year, mainly due to high power production and continued strong spot prices. Hydro’s solar operations recorded an underlying loss in the quarter.
Net cash provided by operating activities was NOK2.9 billion for 2008, down from NOK14.3 billion in 2007. Hydro had a net cash position amounting to NOK3.5 billion at the end of 2008.
Hydro has acted quickly and decisively in response to the unprecedented drop in aluminium markets toward the end of last year, president and chief executive officer Eivind Reiten said. We have a very demanding year ahead of us, and we will continue to take proactive measures to meet the unprecedented market conditions, he said.
Improving Hydro’s competitive position will be our key focus in 2009, Reiten said. Progressing Qatalum according to plan will be a top priority, moving Hydro’s smelter system down the industry cost curve and ensuring that we emerge as a stronger company when markets normalize.
Hydro is a Norway based company.