Norsk Hydro ASA will write down the value of certain fixed assets by approximately NOK 1.3 billion, affecting its fourth-quarter 2011 results. The impairments are a result of a weakening in certain markets and low prices, in combination with raw material and currency pressures. Hydro continues to implement significant corrective measures to address the challenges in the affected businesses.
"Over the past quarters, we have seen a worsening in some markets, especially in southern Europe, where we have a significant exposure in our extrusion business. In addition, the global primary aluminium industry is facing strong headwinds from the combination of low metal prices and high cost of raw materials, reflecting imbalances in the markets," said Hydro's President and CEO Svein Richard Brandtzæg.
"The measures that we are implementing across the value chain will improve our competitive position, in an industry with shorter-term challenges," Brandtzæg said.
The current financial situation in combination with a weak outlook implies a reduction to the value of the assets in Hydro's Australian aluminium plant, Kurri Kurri, by approximately NOK 1.0 billion. Hydro announced on January 18, 2012, a decision to curtail one of three potlines at Kurri Kurri, as a response to the demanding situation and to reduce further losses. The impairment confirms a challenging financial situation at Kurri Kurri, and the situation is continuously being monitored.
Remaining book value of fixed assets in Kurri Kurri is NOK 1.2 billion.
Kurri Kurri is negatively influenced by a strengthened Australian dollar in addition to the industry-wide challenges related to low metal prices and high raw material costs. The uncertainty with regards to future power supply and cost is further challenging the long-term viability of the plant.
The European extrusion industry has been significantly affected by the Eurozone debt crisis, while some markets outside Europe are experiencing a more balanced development. Lower demand, especially in Southern Europe, in combination with customer destocking and margin pressure is significantly influencing the result of Hydro's extrusion business. At present, there are no signs of near-term improvement in these markets.
Hydro will in the fourth quarter of 2011 write down assets within Building Systems in Spain, Portugal and Italy by approximately NOK 230 million, which is about half of the carrying value.
The ongoing initiatives in Building Systems, including closing down plants, production lines and warehouses, aim to reduce the cost base by EUR 40 million (around NOK 300 million), by the end of 2012. As a result of these restructuring efforts, about NOK 80 million of restructuring charges will be realized in the fourth quarter of 2011.
Other portfolio adjustments
As announced on September 16, 2011, Hydro has divested its 35 percent interest in Alpart alumina refinery in Jamaica to UC Rusal. The transaction was closed during fourth quarter, resulting in an after-tax gain of NOK 465 million.
The strategic importance of Hydro's solar investments has been reduced after Hydro became a fully integrated aluminium company with the acquisition in 2011 of Brazilian Vale's aluminium business. Challenging markets with overcapacity resulting in lower prices have led to reduced values of the solar assets. Hydro will in the fourth quarter of 2011 write down the value of these investments by NOK 115 million, resulting in an insignificant residual book value.
Taxes and reporting effects
None of the impairment charges referred to above will result in any corresponding tax asset in the accounts. In addition, fourth quarter results will include a write-down of recognized deferred tax assets in Australia, Italy and Spain of about NOK 300 million.
All of the effects mentioned will be excluded from underlying income.
Hydro will release its fourth quarter result on February 16 at 07:00 (CET).