Issue: Dec 2009


Hydro steps up upstream repositioning efforts



by Steve Barclay

Hydro is intensifying efforts to improve its competitive position by launching new cost-reduction measures, following a year of demanding markets and decisive corrective actions. Hydro\'s improvement efforts have resulted in positive downstream earnings, while upstream activities remain challenged by the weak aluminium market and a strong Norwegian krone.

"Hydro has reacted swiftly to the ongoing crisis by implementing a string of firm and efficient actions, which have improved our position considerably. But the weak demand for aluminium and aluminium products, combined with the strong Norwegian currency, call for even tougher measures to cut costs throughout the company and improve the upstream cost position," says Hydro CEO Svein Richard Brandtzaeg.

The Norwegian-based aluminium and energy company remains optimistic about the long-term prospects for aluminium, as the light-weight and endlessly recyclable metal is seen as a crucial part of the solution to the world\'s climate challenges. In product application, aluminium makes cars lighter and buildings more energy-efficient, paving the way for business opportunities across Hydro\'s value chain.

"Our long-term view on aluminium is encouraging. Aluminium will play an increasingly important role in an energy-constrained world. Hydro\'s technological edge and leading metallurgical competence provide a solid platform to take advantage of promising upstream and downstream growth opportunities," Brandtzaeg says.

Hydro\'s Capital Markets Day includes the following highlights:

* Hydro is launching a new cost-improvement program to reduce cash
operating costs by USD 100 per tonne primary aluminium in 2012
compared to the 2009 level. 90 percent of the improvement is
expected to be realized by end-2011. The improvement excludes
Qatalum and impact of raw material prices.
* Qatalum remains on target for start-up at the turn of the year
09/10 and will reach full production during fourth quarter 2010.
The earnings contribution from Qatalum is expected to be somewhat
negative in 2010 at the current aluminium price and affected by
build-up costs and full depreciation.
* Hydro has entered into an agreement to divest its Spanish 30,000
tonnes rolling mill Inasa in a cash-neutral transaction.
* Total capital expenditures in 2010 are expected to be NOK 5.3
billion, down from NOK 10.2 billion in 2009. This includes
project-financed investments in Qatalum of NOK 4.2 billion in
2009. Sustaining capital expenditures are being further reduced
from about NOK 3.0 billion in 2009 to about NOK 2.5-3.0 billion
in 2010.
* Hydro prioritizes highly the maintenance of an investment grade
credit rating. At the end of third quarter, Hydro had a net cash
position of NOK 2.4 billion mainly supported by significant
operating capital reductions during the first nine months.
* The current market imbalance for primary aluminium in the world
outside China is expected to continue into 2010, but at a lower
level. Hydro is well prepared to capture business opportunities
should markets change significantly.
* Long-term prospects for aluminium remain encouraging, supported
by high aluminium consumption in urbanization and infrastructure
development, aluminium as part of the solution to the climate
challenge and aluminium recyclability qualities. Aluminium semis
consumption is expected to average 6.5 percent the next 10 years,
led by the transportation and construction sectors.

Hydro\'s Capital Markets Day presentation material is available on www.hydro.com.

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