Norsk Hydro's CEO Discusses Q4 2011 Earning Results - Earnings Call Transcript
Norsk Hydro ASA (
)
Q4 2011 Earnings Call
February 16, 2012 10:00 am ET
Executives
Rikard Lindqvist - Head, IR
Svein Richard Brandtzæg - President & CEO
Jørgen Rostrup - EVP & CFO
Analysts
Rob Clifford - Deutsche Bank
Jason Fairclough - Bank of America Merrill Lynch
Owen Scarrott - Goldman Sachs
Tim Jarratt - Redburn Partners
Thorsten Zimmermann - HSBC
Presentation
Rikard Lindqvist
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[Abrupt Start] Fourth quarter results presentation. I would like to welcome those of you who joined us here live in London, but also those joining us on webcast.
Here to present is President and CEO Svein Richard Brandtzæg and CFO Jørgen Rostrup. After the session there will be a Q&A where those of who joined us here and those on webcast will be able to ask questions to Svein Richard and Jørgen. Let me just draw your attention to the cautionary notes in relation to forward-looking statement that is shown on the screen and provided material. Then I’ll leave the floor to you, Svein Richard.
Svein Richard Brandtzæg
Thank you very much, Rikard. The headline for the quarter is first of all that we saw a weakening in the demand of aluminum which again underlines the importance of the repositioning and the cost reduction measures that we have already introduced and with your additional introducing. We had first quarter with steel production in Qatalum and we’ve also good production in both Alunorte,
but record production in the bauxite mine Paragominas.
Result NOK 1.1 billion, both NOK 0.5 billion below the third quarter result and NOK 0.5 billion above the fourth quarter of 2010. But the result is influenced by lower volumes and lower metal prices due to weaker markets and lower seasonal demand which is expected but demand was lower than the normal seasonal demand in the fourth quarter.
Again Energy delivered very solid results and EBIT result from energy in 2011 is a record high result. The Board of Directors had a meeting yesterday where they decided to propose to the general annual meeting a dividend of NOK 0.75.
If you take a look at the Downstream business, we saw a weakening in old products of about 6% here in the quarter since the third quarter and definitely foil and general engineering had hit downwards, also automotive and heat exchanger, while we had a stable development in can from the third quarter.
In Extrusion, the Extruded products in Europe especially hard hit but also downward development in North America and also in precision tubing.
Stable in South America and also stable in building system, but in building system it was stable at a very low level.
In total, 8% down in the fourth quarter compared to the third quarter. If you take a comparison between 2011 and 2010, the picture is a bit different then if you only take a quarterly look at it. There was a change in the product mix since 2010, a good development in can and automotive and heat exchanger while we had lower volumes in foil and general engineering compared to 2010, 2% down since the previous year.
In Extrusion Eurasia we had positive development in most segments except building systems and the fact that building system volumes went down 12% is one of the main reasons why we are delivering a weak result in extruded products which is not satisfactory.
This is volumes, that has been lost in the high margin market, while we have increased in low margin markets. Also some of our competitors in building and construction are also moving also moving into other segments, which put the pressure on the margins in the other segments. In total, 1% lower volume in 2011 compared to 2010.
So, this means we are continuing to adapt to the market as we’ve done previously. So, we’re restructuring the portfolio in extrusion with the closure of extruded in Karmøy
and also in Prague fabrication, mothballing capacity in Spain and in Portugal.
In building system, we announced already in the capital markets that we’re delivering a cost program, reducing the cost with €30 million, but we have increased the ambition level
now to €40 million by the end of 2012.
And this is both Iberia and Italy, where the market is especially weak. We’re closing down six production plants and nine distribution centers, which done will reduce the fixed costs. We’re reducing the manning and in general turning around the building system business according to the situation.
We also initiated a cost reduction volume in extrusion in Europe due to the weakening of in this quarter
and had speed out of the year of about €20 million in extrusion in Europe. This year we also
began reducing capacity, reducing shifts, taking of manning and cash preservation.
But we’re also building up the capacity in emerging markets. We’re investing in China in our plant in Suzhou which is a two hours drive from Shanghai in China where we have a precision tubing plant. We are adding 7000 tons precision tubing capacity for the heat ventilation, air condition and refrigerator market and automotive market in China and on top of that we are building also a press for the high end extrusion market in China.
In addition, we are also building a new press in our plant in Itú, outside São Paulo in Brazil and in Portugal, we are almost doubling the capacity in emerging markets within 2014 which means that the growth in that part of the globe will about 20% higher in next three years.
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