“We’re continuously evaluating the demanding market situation and adjusting our operations accordingly. The measures that we are implementing will reinforce our competitive position in the global aluminium industry and enable us to emerge as a stronger company after the financial crisis,” says Hydro President and CEO Eivind Reiten.

Impairments
About NOK 1,400 million of the impairment of fixed assets is within the Aluminium Metal business area, primarily linked to the Neuss primary aluminium plant in Germany and the part-owned Alpart alumina refinery in Jamaica. Both Neuss and Alpart are negatively affected by the weak aluminium price, in combination with high energy and other raw material costs.

The Aluminium Products business area is also affected by the short-term weak demand outlook, primarily affecting Extrusion in the United States and Automotive, resulting in an impairment of about NOK 750 million on fixed assets.

Given the decline in market value for companies engaged in the solar industry, Hydro will write down the value of three minority investments made in the solar business by around NOK 300 million affecting Hydro’s Energy business area.

Hydro values inventories at the lower of cost or net realizable value. Following the weaker market during the quarter, and particularly the decline in the aluminium price, Hydro will write down the value of inventories by approximately NOK 1 billion. The majority of this is attributable to Aluminium Metal.

The total estimated impairment amount for fixed assets and inventories after deferred tax is about NOK 3 billion. There will be no cash effect related to the impairment of fixed assets.

Currency losses and unrealized derivative effects
Net foreign exchange loss for the quarter, reported as financial items, related to USD is estimated at NOK 2.6 billion. Hydro’s policy is to routinely sell USD forward against the NOK as a hedge against the significant USD exposure in Hydro’s revenues. During the quarter the USD and EUR have both strengthened about 18 percent against the NOK.

As a result of the stronger EUR, Hydro also expects to incur NOK 2.4 billion in an unrealized loss on intercompany balance sheet financial items. This unrealized loss has no cash effect and is fully recouped when the EUR accounts are translated to NOK at higher EUR/NOK currency rate at the end of the quarter. Consequently Hydro’s total equity measured in NOK is unaffected by the unrealized loss recognized in earnings during the quarter

In addition Hydro expects substantial unrealized effects, positive and negative, in the quarter on power and LME related derivative contracts due to declining aluminium prices, coal prices and other commodity prices.

Corrective measures to meet unprecedented market situation
Hydro meets the unprecedented market downturn with forceful corrective measures:

• Hydro has decided to reduce primary aluminium production by 170,000 tonnes annually, corresponding to 10 percent of its primary aluminium production capacity by the end of first quarter 2009. The reduction will be accomplished by the permanent closure of the Karmøy Søderberg line in Norway and reduced production at the Neuss and Søral smelters in Germany and Norway, respectively.
  
  
• Additional primary aluminium production reductions are being considered, mainly at the Neuss smelter presently operating at an annualized production rate of 200,000 tonnes, and which has the highest cash cost in Hydro’s smelter portfolio.
  
  
• Production of remelted aluminium has been reduced by 500,000 tonnes on an annual basis, corresponding to a reduction of about 45 percent.
  
  
• Alumina production at Alpart has been reduced by 50 percent, corresponding to 290,000 tonnes of alumina annually for Hydro’s share.
  
  
• Capital expenditures in 2009, excluding Qatalum, will be reduced by 30 percent from the previously estimated NOK 5 billion to NOK 3.5 billion through postponement of non-critical projects, minimum sustaining investments and no growth investments in the solar business. Investments in the world-class Qatalum smelter under construction in Qatar, including debt financing in the joint venture with Qatar Petroleum, are expected to be NOK 8 billion in 2009. Qatalum remains on budget and on target for start-up around the end of 2009.
  
  
• Reduced primary aluminium production, closure of primary aluminium production capacity, shift and personnel reductions in Aluminium Products and overall efficiency improvements at the plant level will result in significant manning and cost reductions during 2009.
  
  
• Beyond initiatives at plant level Hydro will review the size and structure of all staff functions during the first half of 2009. This will entail reductions in staff and support function numbers and consequently indirect costs.
  
  
• Company wide initiatives have been established to capitalize on falling commodity prices. The main area of potential cost reduction is petroleum coke where market prices have dropped significantly.

Hydro is scheduled to release its fourth quarter result on February 18 at 07:30 CET.

Investor contact
Contact     Stefan Solberg
Telephone   +47 22539280
Cellular    +47 91727528
E-mail      Stefan.Solberg@hydro.com

Press contact
Contact     Halvor Molland
Telephone   +47 22532421
Cellular    +47 92979797
E-mail      Halvor.Molland@hydro.com 

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Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management’s plans, objectives and strategies for Hydro, such as planned expansions, investments or other projects, (c) targeted production volumes and costs, capacities or rates, start-up costs, cost reductions and profit objectives, (d) various expectations about future developments in Hydro’s markets, particularly prices, supply and demand and competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk management, as well as (i) statements preceded by “expected”, “scheduled”, “targeted”, “planned”, “proposed”, “intended” or similar statements.

Although we believe that the expectations reflected in such forward-looking statements are reasonable, these forward-looking statements are based on a number of assumptions and forecasts that, by their nature, involve risk and uncertainty.  Various factors could cause our actual results to differ materially from those projected in a forward-looking statement or affect the extent to which a particular projection is realized.  Factors that could cause these differences include, but are not limited to: our continued ability to reposition and restructure our upstream and downstream aluminium business; changes in availability and cost of energy and raw materials; global supply and demand for aluminium and aluminium products; world economic growth, including rates of inflation and industrial production; changes in the relative value of currencies and the value of commodity contracts; trends in Hydro’s key markets and competition; and legislative, regulatory and political factors.

No assurance can be given that such expectations will prove to have been correct.  Hydro disclaims any obligation to update or revise any forward-looking statements, whether as a result of new information, future events or otherwise.