• Bereinigtes EBIT in Höhe von 1 906 Millionen NOK
• Jahreszeitlich bedingte starke Märkte
• Bessere Produktionsleistung bei Bauxite und Tonerde
• Höhere realisierte Preise für Tonerde und Aluminium, Rohstoffkosten weiterhin unter Druck
• Starker Beitrag aus dem Energiegeschäft
• Midstream besser aufgrund höherem Absatz
• Stabile Ergebnisse downstream
• Qatalum dürfte am Ende des 3. Quartals die volle Produktion erreichen
• Das 300 Dollar Verbesserungsprogramm pro Tonne von Primary Metal läuft nach Plan

„Ich bin erfreut, dass die Produktionsleistung im Geschäftsfeld Bauxite & Alumina nach der Übernahme des Aluminiumgeschäfts von Vale im Februar gestiegen ist. Gleichzeitig stehen die Kosten entlang der Wertschöpfungskette weiter im Fokus. Die konsequente Aufmerksamkeit auf die operative Leistung und das Margenmanagement haben das Ergebnis in einem jahreszeitlich bedingten starken Quartal unterstützt und stärken uns auf dem weiteren Weg“, sagt Konzernchef Svein Richard Brandtzæg
 
„Wir sind weiterhin optimistisch, wenn es um die Aussichten für die Aluminiumnachfrage geht, aber die gestiegene Unsicherheit der letzten Zeit aufgrund der instabilen makroökonomischen Verhältnisse und der höheren Staatsverschuldung kann in den kommenden Monaten zu größeren Schwankungen führen“, so Brandtzæg.
 
Das bereinigte EBIT für Bauxite & Alumina erhöhte sich im Quartal aufgrund der Effekte der übernommenen Bauxit- und Tonerdeaktivitäten von Vale und besserer Produktionsergebnisse.
 
Das bereinigte EBIT für Primary Metal verbesserte sich ebenfalls im Vergleich zum ersten Quartal, hauptsächlich aufgrund der höheren erzielten Aluminiumpreise und dem höheren Absatz, was allerdings teilweise durch höhere Rohstoffpreise ausgeglichen wurde.  Die Inbetriebnahme der Prodution bei Qatalum, dem 50/50 Joint Venture zwischen Qatar Petroleum und Hydro, ging im zweiten Quartal weiter. Bis Ende des dritten Quartals dürfte die volle Produktion erreicht werden.
 
Das bereinigte EBIT für Metal Markets stieg im zweiten Quartal gegenüber dem ersten, dank höherem Absatz und positiver Lagerbewertungseffekte.
 
Das bereinigte EBIT von Rolled Products entsprach dem des ersten Quartals. Niedrigere Produktionskosten glichen den Effekt des leicht rückläufigen Absatzes und der niedrigeren Margen aus. Die Betriebskosten pro Tonne sanken aufgrund der niedrigeren Strom- und Logistikkosten.
 
Das bereinigte EBIT von Extruded Products lag im zweiten Quartal unter dem des ersten Quartals. Der Absatz war jahreszeitlich bedingt in den meisten Geschäftssektoren höher, aber niedrigere Margen und höhere Kosten glichen des Effekt des höheren Absatzes mehr als aus.
 
Energy erzielte solide bereinigte Ergebnisse, die aber nicht so hoch waren wie im ersten Quartal, und zwar aufgrund der jahreszeitlich bedingten geringeren Stromerzeugung und  den niedrigeren Preisen.
 
Der Cash Flow aus laufender Geschäftstätigkeit trug im Quartal zu einer Reduktion der Nettoverschuldung um 1,4 Milliarden Kronen bei, einschließlich eines Anstiegs des Eigenkapitals.  Der Cash Flow der Investitionstätigkeit betrug im Quartal 1,1 Milliarden Kronen. Die im Quartal ausgezahlte Dividende belief sich auf 1,6 Milliarden Kronen. Am Ende des Quartals betrug die Nettoverschuldung von Hydro 2,9 Milliarden Kronen.

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Key financial information
NOK million, except per share data	Second quarter 2011	First quarter 2011	% change prior quarter	Second quarter 2010	% change prior year quarter	First half 2011	First half 2010	Year 2010
Revenue	24,728	21,138	17 %	19,779	25 %	45,867	37,924	75,754
Earnings before financial items and tax (EBIT)	2,111	5,855	(64) %	1,157	82 %	7,967	2,142	3,184
Items excluded from underlying EBIT	(206)	(4,408)		(47)		(4,613)	(344)	167
Underlying EBIT	1,906	1,448	32 %	1,110	72 %	3,354	1,798	3,351
Underlying EBIT:
Bauxite & Alumina	272	155	75 %	288	(5) %	427	450	633
Primary Metal	765	583	31 %	382	>100 %	1,348	212	617
Metal Markets	244	143	71 %	31	>100 %	387	96	321
Rolled Products	232	232	-	309	(25) %	463	532	864
Extruded Products	96	105	(9) %	201	(53) %	201	318	444
Energy	363	573	(37) %	177	>100 %	936	766	1,416
Other and eliminations	(65)	(344)	81 %	(278)	77 %	(408)	(575)	(945)
Underlying EBIT	1,906	1,448	32 %	1,110	72 %	3,354	1,798	3,351
Underlying EBITDA	3,229	2,415	34 %	1,877	72 %	5,643	3,317	6,420
Net income (loss)	1,546	5,154	(70) %	598	>100 %	6,701	1,523	2,118
Underlying net income (loss)	1,389	1,244	12 %	530	>100 %	2,633	931	1,852
Earnings per share	0.69	2.89	(76) %	0.40	75 %	3.41	1.08	1.33
Underlying earnings per share	0.61	0.65	(5) %	0.34	79 %	1.26	0.61	1.14
Financial data:
Investments	1,085	41,625	(97) %	1,261	(14) %	42,710	3,028	6,231
Adjusted net interest-bearing debt	(20,777)	(20,490)	(1) %	(18,191)	(14) %	(20,777)	(18,191)	(6,427)
Key operational information
Alumina production (kmt)	1,448	773	87 %	518	>100 %	2,221	992	1,976
Primary aluminium production (kmt)	505	415	22 %	362	40 %	921	701	1,415
Realized aluminium price LME (USD/mt)	2,509	2,358	6 %	2,200	14 %	2,441	2,099	2,113
Realized aluminium price LME (NOK/mt)	13,803	13,607	1 %	13,302	4 %	13,724	12,401	12,674
Realized NOK/USD exchange rate	5.50	5.77	(5) %	6.05	(9) %	5.62	5.91	6.00
Metal Markets sales volumes to external market (kmt)	533	467	14 %	457	17 %	1,000	871	1,717
Rolled Products sales volumes to external market (kmt)	242	245	(1) %	242	-	487	473	945
Extruded Products sales volumes to external market (kmt)	142	136	5 %	141	1 %	278	269	529
Power production (GWh)	1,830	2,308	(21) %	1,621	13 %	4,138	4,402	8,144

Pro forma underlying financial and operating results

Key financial information
NOK million	Second quarter 2011	First quarter 2011	% change prior quarter	Second quarter 2010	% change prior year quarter	First half 2011	First half 2010	Year 2010
Revenue	24,728	22,815	8 %	22,761	9 %	47,543	43,549	87,272
Earnings before financial items and tax (EBIT)	2,111	1,604	32 %	1,429	48 %	3,715	2,447	3,696
Items excluded from underlying EBIT	(206)	(66)		(60)		(272)	(380)	445
Underlying EBIT	1,906	1,538	24 %	1,369	39 %	3,444	2,067	4,141
Underlying EBITDA	3,229	2,881	12 %	2,702	19 %	6,110	4,681	9,450
Net income (loss) attributable to Hydro shareholders	1,405	782	80 %	540	>100 %	2,187	1,319	2,220
Key operational information
Alumina production (kmt)	1,448	1,336	8 %	1,521	(5) %	2,784	2,915	5,805
Primary aluminium production (kmt)	505	490	3 %	475	6 %	995	922	1,867

Hydro's underlying earnings before financial items and tax amounted to NOK 1,906 million in the second quarter, up from pro forma underlying EBIT of NOK 1,538 million in the first quarter.
 
Underlying EBIT for Bauxite & Alumina improved somewhat compared to pro forma first quarter underlying EBIT, mainly due to improved production performance, increased alumina prices and higher sales volumes. The improvement was partly offset by higher raw material costs and losses related to the Vale transaction hedge.
 
Underlying EBIT for Primary Metal included about NOK 90 million related to Albras in the second quarter compared with around NOK 50 million in the pro forma underlying EBIT for the first quarter. The increase for Albras was mainly due to higher LME prices and higher casthouse sales volumes.

About Hydro's reporting

Underlying EBIT

To provide a better understanding of Hydro's underlying performance, the following discussion of operating performance excludes certain items from EBIT (earnings before financial items and tax) and net income. See "Items excluded from underlying EBIT and net income" later in this report for more information on these items.

Acquisition of Vale's aluminium business

On February 28, 2011 Hydro completed the take-over of the majority of Vale's aluminium business in Brazil. Effective from the first quarter of 2011, we are including a new operating segment, Bauxite & Alumina, in our reporting structure in addition to our other five operating segments. In addition to the assets acquired from Vale, Hydro's bauxite and alumina activities previously included in the Primary Metal segment have been transferred to the new Bauxite & Alumina segment and prior periods have been restated. Primary Metal includes the Albras aluminium plant in addition to Hydro's pre-transaction primary aluminium production activities. Effective from the first quarter of 2011, elimination of internal gains and losses on alumina previously included in the Primary Metal segment is included in Other and Eliminations, and prior periods have been restated.
 
The following discussion on reported and underlying operating results includes the acquired bauxite and alumina activities from Vale from March 1, 2011. Amounts relating to previous periods have not been restated to reflect the reported and underlying results of the acquired assets.

Pro forma information related to acquisition of Vale's aluminium business

To provide a presentation of Hydro's performance on comparable basis, certain pro forma financial and operating information is also presented in this report based on including the results of the acquired Vale assets for the full calendar quarter and for all previous periods presented in this report. See "Second quarter report 2011" for more information on the acquisition and the pro forma information included in our second quarter report.

Reported EBIT and net income

Reported EBIT for Hydro amounted to NOK 2,111 million in the second quarter including net unrealized derivative gains of NOK 266 million, positive metal effects of NOK 28 million and other net negative effects of NOK 87 million comprised of rationalization and closure costs, impairment charges and gains on divestments.
 
In the previous quarter, reported EBIT for Hydro amounted to NOK 5,855 million including net unrealized derivative losses of NOK 96 million, positive metal effects of NOK 176 million and net transaction related gains attributable to the acquisition of Vale aluminium amounting to NOK 4,328 million. This amount included revaluation gains on Hydro's pre-existing interest in Alunorte and the CAP joint venture.
 
Net income for the second quarter amounted to NOK 1,546 million including net foreign exchange gains of NOK 334 million. In the first quarter net income amounted to NOK 5,154 million including net foreign exchange losses of NOK 30 million.

Market developments and outlook

Alumina

Global demand for alumina outside China was slightly higher in the second quarter compared to the first quarter mainly due to ramp-up of new and restart of a limited amount of curtailed primary aluminium production capacity. Annualized alumina production outside China amounted to about 53 million mt.
 
Alumina demand and production in China continued to increase in the second quarter compared to the previous quarter, mainly due to commissioning of new primary aluminium production and alumina projects.
 
Platts alumina spot prices have been trading around USD 400 per mt during the quarter, representing a range of roughly 15-15.5 percent of LME.

Primary aluminium

LME prices averaged somewhat higher in the second quarter compared to the first quarter. Prices started the quarter at a level around USD 2,620 per mt and ended around USD 2,540 per mt influenced by global economic developments. Due to a weakening USD, LME prices measured in NOK and EUR were relatively stable compared to the first quarter.
 
Demand and supply of primary aluminium in the world outside China increased slightly during the second quarter compared to the first quarter, amounting to an annualized consumption and production of 26.2 million mt and 26.5 million mt respectively. We maintain our estimate of demand growth of approximately 7 percent for 2011. A manageable market surplus is still expected due to the ramp up of additional production capacity.
 
Consumption in China increased significantly in the first half of 2011. In the second quarter annualized consumption amounted to 20.2 million mt. The Chinese primary aluminium market is expected to be largely balanced for 2011.
 
LME stocks were relatively stable in the second quarter compared to the first quarter amounting to around 4.5 million mt compared with 4.6 million mt in the first quarter. A large portion of the metal in warehouses continue to be owned by several large financial investors.
 
Demand for metal products (extrusion ingot, sheet ingot, primary foundry alloys and wire rod) remained stable with no significant change from the previous quarter in most regions. However, demand for extrusion ingot in southern Europe has softened as a result of the weaker regional economic developments.

Rolled products

European demand for rolled products in the second quarter of 2011 maintained the healthy level achieved in the previous quarter. Demand in the automotive segment continued to be influenced by the ongoing substitution of steel materials and the strong demand for premium cars in China. Demand in the building and construction segment was seasonally higher compared to the first quarter of 2011 but remained weak in southern Europe. Robust demand continued for the beverage can segment. Consumption of thin gauge foil remained healthy but softened somewhat mainly due to reduced customer inventories. Demand in the general engineering segment was stable.
 
Market demand in the third quarter of 2011 is expected to decline due to seasonality. End-use demand is expected to maintain a healthy level for all product segments with the exception of some softening in building and foil market segments. Chinese imports into Europe are expected to remain at a high level.

Extruded products

European demand for extruded aluminium products increased seasonally in the second quarter of 2011. Demand remained weak within the building and construction sector, in particular in southern Europe. Demand in the engineering and transport segment continued to improve in most European markets. However, margins remained under pressure as European extruders have shifted capacity from the weak building and construction sector to serve other market segments.
 
Extrusion shipments in North America improved slightly compared with the first quarter of 2011, and were also higher than the second quarter of 2010 primarily due to improved demand in the transport and automotive segments. Imports into the US have fallen significantly compared to the second quarter of 2010 as a result of duties on Chinese imports. Extrusion demand in South America continued on a level similar to the same quarter of last year.
 
Demand within precision tubing continued to be strong in the quarter, driven by demand for premium cars. Developments were positive in the North American automotive segment.
 
European extrusion markets are expected to be seasonally weaker in the third quarter. Recovery in the building and construction segment is expected to remain slow in southern Europe, where demand for building systems remains weak. However, building permit statistics indicate somewhat firmer markets in France and Germany. Demand is expected to increase in North America with firm transport and automotive segments. However, there are indications of slower pace in the market recovery. The outlook for South America remains positive, although at lower growth rates.

Energy

Nordic electricity spot prices decreased during the second quarter as the hydrological situation improved strongly. Spot prices fell sharply in April as unusually warm weather started the snow melt earlier than normal. Prices declined further as high precipitation resulted in increased production and normal reservoir levels.
 
Water reservoir levels in Norway increased to about 67 percent at the end of the second quarter. This is close to normal and more than 13 percentage points higher than the same period in 2010. Increasing consumption expected after the summer period and uncertainty regarding the effect of the shutdown of nuclear capacity in Germany is expected to continue to provide some support to spot prices in the third quarter.

Additional factors impacting Hydro

Hydro remains optimistic regarding the future prospects for aluminium. However, a more volatile macroeconomic environment and issues relating to sovereign debt may result in increased demand fluctuations in the coming months.
 
Hydro has sold forward around 85 percent of its expected primary aluminium production for the third quarter at a price level of around USD 2,575 per mt. This excludes expected volumes from Qatalum.
 
Hydro has hedged the majority of the net aluminium price exposure in the business acquired from Vale until the end of 2011. For the second half 2011 the hedged volumes for Bauxite & Alumina amount to about 180,000 mt of aluminium, priced at about USD 2,400 per mt.
 
In June 2011, Hydro started up 15,000 mt of curtailed production capacity at its Sunndal smelter. Depending on continued satisfactory market conditions, Hydro's ambition is to start up the remaining curtailed production at the Sunndal smelter by the end of 2011 representing 85,000 mt of annual production capacity. The timing for a full restart will be decided later.
 
Hydro's combined water and snow reservoirs were back to normal levels at the end of June and significantly higher than the end of the corresponding period last year. High precipitation in May and June strongly improved the reservoir balance. Production in third quarter 2011 is expected to be seasonally higher than in second quarter.

On July 25, 2011, Hydro entered into an agreement to divest its non-strategic 20.86 percent ownership in the Norwegian power production company SKS Produksjon AS located in northern Norway to Salten Kraftsamband AS for a cash consideration of NOK 1 billion for the shares. The transaction is expected to be completed on July 26, 2011, and Hydro expects to recognize a gain of about NOK 650 million in its third-quarter result, with no material tax expense implications.

Bauxite & Alumina

Underlying EBIT improved significantly compared to first quarter, mainly due to the inclusion of the acquired bauxite and alumina activities from Vale from March 1, 2011.

Primary Metal

Underlying EBIT for Primary Metal improved compared to the first quarter mainly due to higher realized aluminium prices and higher volumes, partly offset by increased raw material costs. Underlying results included the results of the Albras smelter for the full second quarter.
 
Higher realized aluminium prices and premiums had a net positive effect on underlying results amounting to about NOK 130 million for the quarter. Volume increases added roughly NOK 70 million. The positive developments were partly offset by higher raw material costs of roughly NOK 70 million. Our USD 300 per mt cost improvement program targeted to reach USD 175 per mt by the end of 2011 continued according to plan with strong cost discipline throughout the organization.
 
Production and sales volumes increased compared to the first quarter mainly due to the inclusion of Albras for the full quarter. Increased volumes from Qatalum also had a positive influence on volume developments.
 
Underlying results for Qatalum were positively impacted by higher realized aluminium prices in addition to higher volumes in the second quarter. Underlying results for the first quarter included NOK 145 million of insurance proceeds relating to the power outage at the plant in August 2010. No insurance proceeds were included in the second quarter. Ramp-up of the plant progressed further in the quarter. By the end of June, 502 out of 704 production cells were in operation and additional cells were started in July. The first power plant steam turbine was taken over for permanent operation in early July. Qatalum is expected to reach full capacity by the end of the third quarter 2011.

Metal Markets

Underlying EBIT for Metal Markets increased in the second quarter compared to the first quarter of 2011 impacted by improved operational performance and positive ingot inventory valuation effects.
 
Underlying EBIT excluding currency and ingot inventory valuation effects improved for the quarter. About NOK 30 million of the increase related to higher volumes for our remelt operations and increased sales and improved margins on third-party products. Results from our sourcing and trading activities also increased compared with the previous quarter.

Total metal product sales excluding ingot trading increased mainly due to higher deliveries from Qatalum and Albras.

Rolled Products

Underlying EBIT for Rolled Products was unchanged compared to the first quarter. Lower operating costs offset the effects of somewhat lower sales volumes and operating margins. Operating cost per mt declined due to lower energy costs and logistic costs.
 
Automotive shipments declined in the quarter. Lower thin gauge foil and lithography sales volumes resulted from customer destocking activities. General engineering and can beverage volumes were somewhat higher supported by firm demand.

Extruded Products

Underlying EBIT for Extruded Products decreased in the second quarter compared with the previous quarter. Sales volumes were seasonally higher in most business sectors, but lower margins and higher costs more than offset the effect of higher volumes.
 
Lower margins and higher costs resulted in further deterioration of results for our building systems operations. Due to continued weak demand in southern Europe, additional rationalization measures have been initiated in the second quarter and will be further expanded in the third quarter. Costs relating to these measures excluded from underlying EBIT amounted to NOK 15 million in the second quarter.
 
Underlying EBIT improved slightly for our European extrusion operations due to seasonally higher volumes. Our Precision Tubing business delivered continued strong underlying results during the second quarter, although lower compared to the previous quarter. Underlying EBIT improved further for our North American extrusion business, and the South American extrusion operations continued to deliver solid underlying results.

Energy

Energy delivered solid underlying results in the second quarter, although at a lower level than the previous quarter mainly due to seasonally lower power production.

Other and eliminations

Underlying EBIT for Other and eliminations in the second quarter was positively impacted by improved underlying results for other business activities and somewhat lower costs. Eliminations comprises mainly unrealized gains and losses on inventories purchased from group companies which fluctuates with product flows and margin developments throughout Hydro's value chain.

Items excluded from underlying EBIT and net income

To provide a better understanding of Hydro's underlying performance, the items in the table below have been excluded from EBIT and net income.
 
Items excluded from underlying EBIT are comprised mainly of unrealized gains and losses on certain derivatives, impairment and rationalization charges, effects of disposals of businesses and operating assets, as well as other items that are of a special nature or are not expected to be incurred on an ongoing basis.

Items excluded from underlying net income
NOK million	Second quarter 2011	First quarter 2011	Second quarter 2010	First half 2011	First half 2010	Year 2010
Unrealized derivative effects on LME related contracts	(35)	79	389	43	136	489
Derivative effects on LME related contracts (Vale Aluminium)	(89)	42	(320)	(47)	(320)	(166)
Unrealized derivative effects on power contracts	(162)	(40)	211	(202)	483	609
Unrealized derivative effects on currency contracts	-	(1)	12	(1)	35	(50)
Unrealized derivative effects on raw material contracts	20	16	-	36	-	(156)
Metal effect, Rolled Products	(28)	(176)	(206)	(204)	(520)	(560)
Significant rationalization charges and closure costs	75	-	18	75	(1)	130
Impairment charges (PP&E and equity accounted investments)	56	-	-	56	61	187
Pension	-	-	(151)	-	(151)	(151)
Insurance compensation	-	-	-	-	-	(91)
(Gains)/losses on divestments	(44)	-	-	(44)	(67)	(74)
Transaction related effects (Vale Aluminium)	-	(4,328)	-	(4,328)	-	-
Items excluded from underlying EBIT	(206)	(4,408)	(47)	(4,613)	(344)	167
Net foreign exchange (gain)/loss	(334)	30	(59)	(305)	(527)	(513)
Calculated income tax effect	383	467	38	850	279	80
Items excluded from underlying net income	(157)	(3,911)	(68)	(4,068)	(592)	(266)

See "Second quarter report - 2011" for footnotes.

Finance

Net financial income (expense) amounted to positive NOK 194 million in the second quarter compared to negative 93 million in the previous quarter.
 
Interest expense increased in the second quarter compared to the first quarter due to debt assumed relating to the Vale transaction.
 
Net currency gains of NOK 334 million in the second quarter mainly related to gains on financial positions denominated in USD. Of the total, approximately NOK 90 million related to intercompany balances.
 
Other financial expense included accretion expenses amounting to about NOK 45 million for the second quarter on liabilities recognized at net present value including the Paragominas put/call arrangement.

Tax

Income tax expense amounted to a charge of NOK 759 million in the second quarter compared to a charge of NOK 608 million in the previous quarter and a charge of NOK 462 million in the second quarter of 2010.
 
For first half of 2011 income tax expense was 17 percent of pre-tax income. The low tax rate results from a tax-free gain on the revaluation of Hydro's previous ownership interests in Alunorte and the CAP joint-venture recognized in the first quarter.

Pro forma information

Underlying EBIT and EBITDA
Per business area	Second quarter 2011		First quarter 2011		Second quarter 2010		Year 2010
	EBIT	EBITDA	EBIT	EBITDA	EBIT	EBITDA	EBIT	EBITDA
Bauxite & Alumina	272	756	237	725	448	912	1,225	3,061
Primary Metal	765	1,313	592	1,137	481	1,026	816	3,006
Metal Markets	244	269	143	168	31	59	321	428
Rolled Products	232	339	232	342	309	419	864	1,318
Extruded Products	96	222	105	237	201	337	444	987
Energy	363	392	573	600	177	214	1,416	1,540
Other and eliminations	(65)	(62)	(344)	(328)	(278)	(265)	(945)	(889)
Underlying EBIT / EBITDA	1,906	3,229	1,538	2,881	1,369	2,702	4,141	9,450

Bauxite & Alumina

Underlying EBIT for Bauxite & Alumina increased compared to pro forma underlying results in the first quarter mainly due to higher alumina prices7) together with production improvements and higher sales volumes. The positive developments were partly offset by higher raw material costs and losses related to the Vale transaction hedge.
 
Higher realized alumina prices driven by increased LME prices together with higher sales volumes had a positive influence on underlying EBIT. Alumina and bauxite production improved compared to the first quarter due to improved operational stability during the period. Production increased 12 percent and 8 percent for our bauxite and alumina operations respectively. Raw material costs including oil, coal and caustic were somewhat higher reflecting increasing raw material prices compared to the previous period. Bauxite costs remained relatively flat compared to first quarter. Operating costs per mt at Paragominas improved slightly, partly as a result of higher production.
 
Underlying results from our commercial operations improved compared to the first quarter influenced by higher volumes and improved alumina prices.

Primary Metal

Underlying EBIT for Primary Metal improved compared to pro forma first quarter underlying operating results mainly due to higher realized aluminium prices and higher casthouse sales volumes partly offset by increased raw material costs.