Impairments affect Hydro’s fourth quarter results

Faced with challenging alumina market conditions and Australian power price insecurity, Norsk Hydro ASA will report total impairment losses of approximately NOK 5.9 billion in its fourth quarter results.

Hydro will write down the value of:

• Goodwill in Bauxite & Alumina (B&A), Brazil
• Property, plant and equipment related to the Alunorte alumina refinery and Paragominas bauxite mine
• Deferred tax assets in Alunorte
• Property, plants and equipment related to the Tomago aluminium plant, Australia

The impairments are regarded as adjusting items in Hydro’s Alternative Performance Measure Adjusted Net Income and will not reduce the dividend for 2023.

“The bauxite and alumina operations are a key enabler for Hydro to pioneer the green aluminium transition by significantly reducing the upstream carbon footprint. In the short and medium term, we see challenging alumina markets and weak cash flow generation in B&A coming from market volatility in times of geopolitical turmoil, impacting the current valuation of the assets,” says President and CEO Hilde Merete Aasheim.

“Longer term, we expect a higher share of greener earnings in B&A, as we reduce the carbon emissions from our operations, while growing our greener product portfolio sold at premium pricing. These expected earnings are not included in current valuation for impairment testing purposes, in line with accounting rules,” says Aasheim.

Bauxite & Alumina

The estimated impairment loss in the B&A segment is approximately NOK 3.8 billion.

The impaired cash generating unit consists of the Alunorte alumina refinery, the Paragominas bauxite mine and related activities. The weaker alumina market with lower margins and higher fixed costs is expected to remain over a longer period than what was expected when the unit was tested for impairment at the end of 2022. In the end 2022 test, the value in use was deemed equal to the unit’s carrying amount.

The impairment will mainly affect the carrying value of goodwill and property, plant, and equipment. For Alunorte, the impairment is related to fair value adjustments from Hydro’s acquisition of the company.

Related deferred tax assets previously recognized have also been reviewed. Hydro has concluded that the unused tax positions may not be recoverable for deduction in future results and will therefore impair tax assets of about NOK 1.4 billion in the fourth quarter. 

Aluminium Metal

The estimated impairment loss in the Aluminium Metal segment is approximately NOK 0.6 billion.

The impaired cash generating unit is the partly owned Tomago aluminium plant in Australia, where Hydro owns 12.4 percent, whose current power price agreement expires in 2028. The value in use is deemed lower than the carrying amount due to insecurity about future power price agreements in combination with a weaker aluminium market.

The impairment will mainly affect the carrying value of property, plant and equipment.