Hydro had underlying earnings before financial items and tax of NOK 1,646 million in the Q3 down from NOK 1,906 million in the Q2. The quarter was marked by higher production performance in Bauxite & Alumina while seasonal declines and higher raw material costs had a negative impact on underlying results. Energy posted record Q3 results.
1. Underlying EBIT NOK 1,646 million
2. Further improved bauxite and alumina production performance
3. Raw material cost pressure
4. Solid contribution from energy business
5. Qatalum at full production
6. Streamlining of portfolio through divestments
7. Seasonal sales decline and softening market
8. Increased macro uncertainty
Underlying EBIT for Bauxite & Alumina increased compared to the second quarter primarily due to improved production performance and better results for commercial activities. Underlying EBIT for Primary Metal declined compared to the second quarter due to lower sales volumes and higher raw material costs, partly offset by higher realized aluminium prices. Ramp-up of production at Qatalum, the 50/50 JV between Qatar Petroleum and Hydro, was completed and the plant reached full capacity contributing to increased production for the quarter.
Hydro's midstream operations delivered lower underlying results compared to the previous quarter which was influenced by significant positive ingot inventory valuation and currency effects. Lower underlying results from remelt operations impacts third quarter results negatively.
Underlying EBIT for Hydro's downstream business was weak, impacted by seasonal declines and softer markets. The ongoing rationalization measures in Building Systems have started to show effect and the program will continue at full speed in the coming quarters. Energy continued to deliver solid underlying results, its best-ever third quarter, due to high production throughout the quarter and relatively high prices in July and August.
Hydro completed the divestment of its non strategic ownership interest in the Norwegian power production company SKS Produksjon AS. The divestment resulted in a tax free gain of NOK 658 million in the Q3. In addition Hydro signed an agreement to divest its 35% stake in the Alpart alumina refinery on Jamaica with expected closing in the Q4.
Mr Svein Richard Brandtzaeg president & CEO of Hydro said that "Our efforts to improve operational performance in Bauxite & Alumina are showing solid results with Paragominas and Alunorte reporting increased quarterly production. We are strengthening our focus on the ongoing ambitious cost improvement programs, however, raw material cost pressures in the aluminum industry continue."
Mr Brandtzaeg said that "With current macro uncertainty, market visibility is low. We are keeping our 2011 outlook aluminum demand growth outside China of 7% but based on signs of weakening markets towards the end of the year, growth may come in on the low side."
He said that "I am pleased to see the Qatalum plant reaching full production. Now running at nameplate capacity our focus is to optimize operations to capture its full potential."
