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Norsk Hydro CEO Discusses Q3 2010 Results - Earnings Call Transcript

Norsk Hydro CEO Discusses Q3 2010 Results - Earnings Call Transcript

Norsk Hydro ASA (

NHY

)

Q3 2010 Earnings Call

October 27, 2010 10:00 am ET

Executives

Stefan Solberg - Head of IR

Jørgen Rostrup - EVP and CFO

Analysts

Rob Clifford - Deutsche Bank

Heath Jansen - Citigroup

Jonathan Schroer - Unicredit

Presentation

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Operator

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Previous Statements by NHY
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Good day and welcome to the Hydro third quarter presentation. At this time, I'd like to turn the call over to your host today, Mr. Stefan Solberg, Head of Investor Relations.

Stefan Solberg

Good afternoon, ladies and gentlemen, and welcome to Hydro's earnings presentation and conference call for the third quarter 2010. We released our earnings today at 7:30 Central European Time, and the presentation material we will use on this call and the third quarter report is available on our website, hydro.com.

Today's presentation will be given by Executive Vice President and Chief Financial Officer, Jørgen Rostrup. After the presentation, there will as usual be an opportunity to ask questions.

Before we start, I would like to direct your attention to the cautionary notes in relation to forward-looking statements that are provided in the presentation material.

And with this short introduction, I'm pleased to turn it over to Jørgen Rostrup who will take you through the presentation.

Jørgen Rostrup

Thanks, Stefan, and thanks to everyone for listening into our conference call regarding the third quarter. I will carry it out in a normal fashion. We will first look at some highlights, market and other issues and then in the end run through the numbers with you.

I think it's fair to say that we are in a fairly exciting period of time for Hydro, and we've tried to outline three elements on the first slide. That is a kind of setting that you've seen a little bit before we enter into the more facts of the quarter.

Obviously, the transforming transaction, as we call it, the Vale asset acquisition, bauxite and alumina and some smelter volumes, is of key importance. We have an ambition to close it within this quarter. And obviously there is a lot of work, but also a lot of enthusiasm and excitement around this transaction and the prospect now of closing it shortly.

Then obviously resuming production and ramping up the production in Qatalum after the very unfortunate power outage in Qatar is of key importance. We are satisfied with the handling of the difficulties that we have had and the progress since the incident in mid-August. We are on schedule, I can say, to ramp up within first quarter of 2011. So we will keep you posted on that. But so far, we are on that schedule as earlier confirmed.

Then there is a third element, which you probably see in the numbers, but would also go throughout our work is the cost improvement work that we are carrying out. We have quite ambitious plans for the upstream area, and we are also successful I believe in holding costs back in the downstream area, while ramping up volumes after the difficult markets in 2008 and 2009. And you will see that through the numbers in the presentation.

For the third quarter, we have the following headlines. First of all, underlying EBIT is just short of NOK1 billion. We are still experiencing fairly tight markets, and our view is that we have seen a somewhat stronger market the first nine months of the year than earlier communicated. So we believe that the year in total will end up at 17% increase in demand versus the 2009 level, which should bring us on the metal side outside China on a yearly consumption for 2010 around 24 million tonnes.

Then if you look at the results, upstream area is somewhat weaker due to results in alumina area in Qatalum. Alumina was expected, and we guided on that in second quarter. Obviously, Qatalum came as a surprise to us with the power outage in August.

Midstream has a stable performance quarter-on-quarter, significantly positively affected by currency effects due to euro sales. Downstream is seasonally weaker, but we still see effects both of the cost measures that we have taken there, and we also see a robust markets going forward. But the seasonality is there and will be there also for fourth quarter. Energy was stable at a low level. So their numbers are low, but as expected from our side, we now have a much better reservoir situation.

If we then take a look at the market and start with the downstream market, we have a 3% downward adjustment in sales third quarter compared to second quarter. This is spread around the different product groups in our system and in our two main areas, rolled products and extruded products according to the slide in front of you.

I think it's fair to say that we see several robust markets in rolled products and particularly the foil business where the thin gauge foil has been quite good. Also, the can market has been very good in the period. But then we see some weaknesses in other markets. In particular, the construction business has been soft, but it is in our view all due to what we could expect was the normal seasonal development.

In extrusion, it's more a mixed picture, partly because of the markets and also then because of our capacities. In South America, we see one new quarter with very healthy markets and no seasonal effects coming through in our numbers, partly because of the good markets, but also because we are running there actually on full capacity. On the other hand, we see softening in extruded products and in particular in building system and also in extrusion Eurasia and North America.

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