Second quarter 2012: Weak markets and results, improvement ambitions stepped up

• Underlying EBIT NOK 549 million
• Low aluminium prices
• Corrective measures and operational improvements
• Results positively influenced by lower operating costs
• Closure of Kurri Kurri aluminium plant, NOK 1.5 billion in charges
• 2012 aluminium demand growth outlook around 2 percent outside China

"The weak macro-economic environment continues to be a challenge in our main markets, leading to low aluminium prices and a weak second quarter for Hydro," Hydro's President and CEO Svein Richard Brandtzæg said.

"Weak markets and low aluminium prices require tough corrective measures, including capacity adjustment and operational improvements. We are continuing our efforts with unabated strength, and we are now finalizing programs across Hydro which in total will yield improvements in the range of NOK 2-3 billion over the next two-three years. These programs are vital for Hydro's future development, strengthening our competitive position in a demanding industry picture," Brandtzæg said.

Bauxite & Alumina continued to deliver a weak underlying result for the quarter due to low LME prices, pricing of long-term contracts and increasing energy costs.

Underlying EBIT for Primary Metal increased compared to the first quarter mainly due to somewhat higher aluminium prices and lower operating costs. Underlying results for Qatalum were higher, mainly due to the final insurance settlement relating to the power outage in 2010.

Hydro's midstream operations delivered lower underlying results compared to the previous quarter due to negative currency effects. Excluding currency effects, underlying EBIT was stable between the quarters.

Underlying EBIT improved for Hydro's downstream businesses from the first quarter due to seasonally higher volumes for Extruded Products and lower operating costs in general. However, results for the quarter continued to be affected by the challenging macro-economic situation in Europe.

Energy delivered lower underlying EBIT in the second quarter compared to the previous quarter, due to lower production and lower prices.

Operating cash flow amounted to NOK 0.8 billion for the quarter. Net cash used for investment activities amounted to NOK 0.8 billion. Dividends paid in the quarter amounted to NOK 1.7 billion. Hydro's net debt position was NOK 0.4 billion at the end of the second quarter.

Hydro incurred a reported loss before financial items and tax of NOK 720 million in the second quarter including net unrealized derivative gains of NOK 300 million, rationalization and closure costs of NOK 408 million, impairment charges amounting to NOK 1,175 million and positive metal effects of NOK 9 million.

In June, Hydro decided to close the remaining production at its Kurri Kurri Aluminium plant in Australia following the curtailment of one production line in January. Reported EBIT for the second quarter included NOK 1,154 million of impairment charges and NOK 322 million of rationalization and closure costs relating to the closure. Rationalization and restructuring initiatives in Extruded Products, involving Building Systems and Extrusion Eurasia, resulted in impairment charges and rationalization costs of NOK 106 million.

Hydro incurred a reported net loss amounting to NOK 1,712 million in the second quarter including net foreign exchange losses of NOK 883 million. In the previous quarter, Hydro had reported net income of NOK 585 million including net foreign exchange gains of NOK 410 million.