U.S. News

Alcan Profit Slips on Strong Canada Dollar Effect


Alcan, the target of a $38.1 billion takeover by Rio Tinto, said Tuesday its quarterly profit fell 2.5%, largely on costs stemming from a stronger Canadian dollar.

In what may be its last earnings statement as a publicly traded company, Alcan said it earned $438 million, or $1.18 a share, in the second quarter, down from a profit of $455 million, or $1.21 a share, a year earlier.

Fully diluted profit per share was $1.17 versus $1.20.

Excluding $193 million of cost effects from the robust Canadian dollar and $28 million of gains, profit was $603 million, or $1.62 a share.

That's up from $556 million, or $1.48 a share a year earlier, when currency effects were a negative $100 million.

Analysts had expected Alcan to earn $1.70 a share before exceptional items, according to Reuters Research.

Revenue rose 8.2% to $6.6 billion from $6.1 billion, mainly on higher aluminum prices and favorable pricing, product mix and volumes, Alcan said.

"At the aluminum industry level, extremely strong Chinese demand growth should underpin ongoing favorable conditions," said Dick Evans, president and chief executive.

Alcan forecast world primary aluminum consumption to rise by about 10.1% this year, compared with 6.9% in 2006, "driven by exceptionally high demand in China and representing the fastest rate of global consumption increase since at least 1980."

New Capacity

Production from new capacity and restarts is expected to increase world supply by about 11.2%, compared with 6.4% in 2006. Alcan expects a modest surplus in the world market this year of about 200,000 tonnes, compared with a deficit of 162,000 tonnes last year.

Looking to its four key businesses, Alcan expects third-quarter profit in its bauxite and alumina group to rise slightly from a record $205 million in the second quarter, buoyed by higher shipments and bauxite profits.

For primary metal, Alcan forecast that profit would dip from $744 million in the second quarter, following the divestiture of its 85% stake in the Vlissingen smelter in the Netherlands.

Profit for engineered products is forecast to be lower in the third quarter than $149 million in the second quarter due to summer holiday closures in Europe.

At its packaging business, which Rio Tinto plans to sell once the takeover is complete, Alcan expects third-quarter profit to be comparable to the second quarter's $126 million.

Rio Tinto's cash offer of $101 a share for Alcan is set to expire Sept. 24, and is subject to approval by government and antitrust authorities in North America and Europe.

The companies expect the transaction to close in the fourth quarter of this year.

Alcan, which was courted in recent months by six prospective bidders, including Alcoa, has recommended the July 12 offer from Rio Tinto, which would create the world's largest aluminum group.

Evans would head the companies' combined aluminum business out of Montreal.