Norsk Hydro ASA (NHY)

Q2 2010 Earnings Call

July 27, 2010 10:00 am ET

Executives

Stefan Solberg - IR

Svein Richard Brandtzaeg - CEO

Jørgen Rostrup - EVP and CFO

Analysts

Rob Clifford - Deutsche Bank

Presentation

Stefan Solberg - Investor Relations

Good afternoon everyone and welcome to the Hydro earnings presentation for the second quarter 2010 and welcome to those who are here to at the presentation center and those of you who are following us on the web. Hi, my name is Stefan Solberg, I am head of IR in Hydro.

We released our earnings today at 7.30 at Central European Time and the presentation we will use today and the second quarter report is available on our website hydro.com. Today’s presentation will be given by President and CEO, Svein Richard Brandtzaeg; and Chief Financial Officer, Jørgen Rostrup.

After the presentation, there will be an opportunity to ask questions. Those of you following of the web can ask questions via the web.

Before we start, I would like to direct your attention to the cautionary note in relation to forward-looking statements, which we have provided in the presentation material.

And with this brief introduction, I'm pleased to handover to Svein Richard Brandtzaeg, who will take us through the first part of the presentation. Mr. Richard?

Svein Brandtzaeg

First of all, if you take your first slide and the highlights from this quarter it's very much related to increased volumes, increased demand of aluminum, beyond what is normal for the seasonal valuation for the second quarter. The second quarter of the year is normally a good quarter, upstream and downstream, and we have seen development this quarter that goes beyond debt.

That gives also some guiding to the third and fourth quarter and we will come back to that. We haven’t had solid operations to the whole quarter that did production and give production result that also contributed to the value creation from the business. That’s then result, it's never much influenced by good alumina result and also the higher LME compared to the first quarter. The downstream result is very much influenced. Good volumes, good demand, good margins and firm management.

Energy is delivering result far below than what some of you had expected. The result is of course lower production due to the fact that precipitation of snow in Norway was the lowest, in 100 years. So this is that what we are [fragmenting] now. The time and we announced the volume aluminum deal this quarter and we will also come back to that and we are also finished that the right this year of 10 billion Norwegian kroner in connection with this big deal.

This is a delicate detail and aluminum markets in the downstream old products we saw 5% in average increased volumes compared to the first quarter. A good demand in foils which covers the flexible packaging. 1% increase in litho about the fact that there is capacity implementation in lithography integrated production and there we are serving the big customer to (inaudible) and one of other main suppliers.

In packing and building 6% definitely not influenced on increased tank production. It has been reviewed it is not surprising when there are similar report, so can it increase 11% this quarter.

Automotive, heat exchanger and general engineering, also had a good development this quarter, driven very much by automotive markets that increased the demand with 86%.

In extrusion in average 10% increase in volumes, 12% in extrusion in Europe driven very much by customers I would say Germany is the driving factor. In billing system we had a good development also compared to the weak first quarter which is not surprising, the winter time its always great being slower development in billing system and this quarter it has been developing positively.

In the extrusion ingots there has been strong demand in Brazil, South America, Argentina also is good and in US we see that the markets now is coming under right track recovery from a low level which goes strongly in the right direction.

Precision Tubing 2% not probably impressive growth, but also in Precision Tubing we have the same situation as in litho it is close to full capacity utilization in the different production unit sale.

So all in all, good development 74% increase compared to the first half last year and in the total 7% increase demand compared to the previous quarter. You can then take some (inaudible) from what we call the 2010 agenda where we decided to come out of the crisis as a stronger company.

We have done quite strong cost management during the last I would say 16 - 18 months and we are able now to deliver higher volumes and keep the cost down. So in the case with the whole products 36% of the volume effect go directly to the bottom line. Another example from extrusion 23% increased volumes, compared to the first half of last year and only 5% increase cost in [Hydro] production, so 78% of the volume effect and extrusion goes directly to the bottom line. And that is reflected by the fact that we have good margin development in both foil products and extrusion and delivering good return.

As with sales it's of course very much reflected in the downstream development, the extrusion goes to the internal business. Half of it goes externally, so of course it came along from 12% increase compared to the previous quarter, 4% increase in shipping is affecting the increase in all products in general that was 5% and 11% primarily loss is reflected and the fact that automotive business is developing very positively in several parts of the market.

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