Impairments affect Hydro's fourth quarter results

1/28/2009, 7:58 AM (Source: GlobeNewswire)
Norsk Hydro ASA will write down the value of certain fixed assets and
inventories by approximately NOK 3.5 billion with effect for its
fourth quarter results. The impairments are a result of deteriorating
market conditions and high input costs. Hydro continues to implement
significant corrective measures to meet the unprecedented market
situation with reduced production, lower investments and major cost
improvement initiatives.

"We're continuously evaluating the demanding market situation and
adjusting our operations accordingly. The measures that we are
implementing will reinforce our competitive position in the global
aluminium industry and enable us to emerge as a stronger company
after the financial crisis," says Hydro President and CEO Eivind
Reiten.

Impairments
About NOK 1,400 million of the impairment of fixed assets is within
the Aluminium Metal business area, primarily linked to the Neuss
primary aluminium plant in Germany and the part-owned Alpart alumina
refinery in Jamaica. Both Neuss and Alpart are negatively affected by
the weak aluminium price, in combination with high energy and other
raw material costs.

The Aluminium Products business area is also affected by the
short-term weak demand outlook, primarily affecting Extrusion in the
United States and Automotive, resulting in an impairment of about NOK
750 million on fixed assets.

Given the decline in market value for companies engaged in the solar
industry, Hydro will write down the value of three minority
investments made in the solar business by around NOK 300 million
affecting Hydro's Energy business area.

Hydro values inventories at the lower of cost or net realizable
value. Following the weaker market during the quarter, and
particularly the decline in the aluminium price, Hydro will write
down the value of inventories by approximately NOK 1 billion. The
majority of this is attributable to Aluminium Metal.

The total estimated impairment amount for fixed assets and
inventories after deferred tax is about NOK 3 billion. There will be
no cash effect related to the impairment of fixed assets.

Currency losses and unrealized derivative effects
Net foreign exchange loss for the quarter, reported as financial
items, related to USD is estimated at NOK 2.6 billion. Hydro's policy
is to routinely sell USD forward against the NOK as a hedge against
the significant USD exposure in Hydro's revenues. During the quarter
the USD and EUR have both strengthened about 18 percent against the
NOK.

As a result of the stronger EUR, Hydro also expects to incur NOK 2.4
billion in an unrealized loss on intercompany balance sheet financial
items. This unrealized loss has no cash effect and is fully recouped
when the EUR accounts are translated to NOK at higher EUR/NOK
currency rate at the end of the quarter. Consequently Hydro's total
equity measured in NOK is unaffected by the unrealized loss
recognized in earnings during the quarter

In addition Hydro expects substantial unrealized effects, positive
and negative, in the quarter on power and LME related derivative
contracts due to declining aluminium prices, coal prices and other
commodity prices.


Corrective measures to meet unprecedented market situation
Hydro meets the unprecedented market downturn with forceful
corrective measures:

* Hydro has decided to reduce primary aluminium production by
170,000 tonnes annually, corresponding to 10 percent of its
primary aluminium production capacity by the end of first quarter
2009. The reduction will be accomplished by the permanent closure
of the Karmøy Søderberg line in Norway and reduced production at
the Neuss and Søral smelters in Norway and Germany, respectively.

* Additional primary aluminium production reductions are being
considered, mainly at the Neuss smelter presently operating at an
annualized production rate of 200,000 tonnes, and which has the
highest cash cost in Hydro's smelter portfolio.

* Production of remelted aluminium has been reduced by 500,000
tonnes on an annual basis corresponding to an about 45 percent
reduction.

* Alumina production at Alpart has been reduced by 50 percent
corresponding to 290,000 tonnes alumina annually for Hydro's
share.

* Capital expenditures in 2009, excluding Qatalum, will be reduced
by 30 percent from the previously estimated NOK 5 billion to NOK
3.5 billion through postponement of non-critical projects,
minimum sustaining investments and no growth investments in the
solar business. Investments in the world-class Qatalum smelter
under construction in Qatar, including debt financing in the
joint venture with Qatar Petroleum, is expected to be NOK 8
billion in 2009. Qatalum remains on budget and on target for
start-up around the end of 2009.

* Reduced primary aluminium production, closure of primary
aluminium production capacity, shift- and personnel reduction in
Aluminium Products and overall efficiency improvements at the
plant level will result in significant manning and cost
reductions during 2009.

* Beyond initiatives at plant level Hydro will review the size and
structure of all staff functions during the first half 2009. This
will entail reductions in staff and support function numbers and
consequently indirect costs.

* Company wide initiatives have been established to capitalize on
falling commodity prices. The main area of potential cost
reduction is petroleum coke where market prices have dropped
significantly.


Hydro is scheduled to release its fourth quarter result on February
18 at 07:30 CET.

Investor contact
Contact Stefan Solberg
Telephone +47 22539280
Cellular +47 91727528
E-mail Stefan.Solberg@hydro.com

Press contact
Contact Halvor Molland
Telephone +47 22532421
Cellular +47 92979797
E-mail Halvor.Molland@hydro.com


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of management's plans, objectives and strategies for Hydro, such as
planned expansions, investments or other projects, (c) targeted
production volumes and costs, capacities or rates, start-up costs,
cost reductions and profit objectives, (d) various expectations about
future developments in Hydro's markets, particularly prices, supply
and demand and competition, (e) results of operations, (f) margins,
(g) growth rates, (h) risk management, as well as (i) statements
preceded by "expected", "scheduled", "targeted", "planned",
"proposed", "intended" or similar statements.

Although we believe that the expectations reflected in such
forward-looking statements are reasonable, these forward-looking
statements are based on a number of assumptions and forecasts that,
by their nature, involve risk and uncertainty. Various factors could
cause our actual results to differ materially from those projected in
a forward-looking statement or affect the extent to which a
particular projection is realized. Factors that could cause these
differences include, but are not limited to: our continued ability to
reposition and restructure our upstream and downstream aluminium
business; changes in availability and cost of energy and raw
materials; global supply and demand for aluminium and aluminium
products; world economic growth, including rates of inflation and
industrial production; changes in the relative value of currencies
and the value of commodity contracts; trends in Hydro's key markets
and competition; and legislative, regulatory and political factors.

No assurance can be given that such expectations will prove to have
been correct. Hydro disclaims any obligation to update or revise any
forward-looking statements, whether as a result of new information,
future events or otherwise.


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