= UPDATE: Norsk Hydro 2Q Net Pft Falls 73%; Beats Forecasts

By Anna Molin

Of DOW JONES NEWSWIRES

Norwegian aluminum and power supplier Norsk Hydro ASA (NHY.OS) Wednesday said it saw further cutbacks in the second half, even though it reported an unexpected second-quarter net profit following a pick up in demand for aluminum in China despite low prices.

The company faces mounting pressure from weak aluminum prices and poor demand, and has already shut down capacity to address oversupply in the industry. It said demand for aluminum increased in China but remained largely unchanged in the rest of the world.

The company said second-quarter net profit fell 73% to 211 million Norwegian kronor ($33.3 million), down from a net profit of NOK786 million in the same period a year ago but above an average of five analysts' forecasts in a Dow Jones Newswires poll for a NOK298.25 million net loss.

"The results reflect the weak global economic environment and historically low aluminum prices," Norsk Hydro said. "Underlying results from Hydro's downstream operations improved, supported by a seasonal increase in demand and cost cutting measures that were implemented at an early stage in the market downturn."

Norsk Hydro said it had seen some positive effects from cost and capacity cuts, and expected fixed costs to fall further. It cut 250 to 300 jobs in the quarter and said it has set aside about NOK450 million for future rationalizations and closure costs since the fourth-quarter of 2008. It remains cautious on the outlook for the aluminum market in the second half and expects prices and third-quarter results to stay weak.

At the end of the quarter, the company said it had sold more than 90% of its primary aluminum production for the third quarter at a price level of around $1,475 per metric ton.

It also said water and snow reservoir levels were lower than normal and, together with the outage of the Suldal I power plant, was expected to result in lower power production for the third quarter compared to the second. It expects the Suldal I power plant to be back in operation at the beginning of 2010, with the outage resulting in production being moved from the fourth quarter into 2010.

The company said it has not experienced any significant defaults from counterparties so far.

Its closely watched loss before interest and tax for the period was at NOK618 million, down from a profit of NOK1.62 billion a year ago.

Revenue fell 29% to NOK17.12 billion from NOK23.98 billion.

Analysts on average had forecast an underlying Ebit loss of NOK875.5 million and revenue of NOK14.50 billion.

DnB NOR analyst Gudmund Halle Isfeldt, who has a buy rating and NOK46 target price, said Norsk Hydro surprised on the upside both in terms of operating cash flow at NOK2 billion and underlying Ebit.

"It's focusing on restructuring and is succeeding in pulling costs down. (Norsk Hydro's) doing the right thing in a very difficult environment," he added.

Shares in Norsk Hydro have lost 48% of their value in the past 12 months, underperforming a 27% drop in the Oslo index. They closed Tuesday at NOK32.85, valuing the company at NOK40.74 billion.

Company Web site: www.hydro.com

-By Anna Molin; Dow Jones Newswires; +46 8 545 130 91; anna.molin@dowjones.com

(END) Dow Jones Newswires

07-22-09 0232ET

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