Norsk Hydro: First quarter 2017: Higher prices lift results, increased raw material costs

Friday, 28. April 2017 07:02

Hydro's underlying earnings before financial items and tax rose to NOK 2,284 million in the first quarter, from NOK 1,829 million in the fourth quarter. The increase mainly reflected higher realized all-in metal and alumina prices, somewhat offset by higher raw material costs. 

·   Underlying EBIT of NOK 2 284 million
·   Higher realized all-in aluminium and alumina prices
·   Raw material cost pressure
·   Rolled Products result affected by operational issues
·   Better program on schedule for 2017 target of NOK 500 million
·   Karmøy Technology Pilot on time and budget for Q4 2017 start-up
·   Product qualification at Automotive Line 3 in progress - ramp-up during 2017
·   2017 global primary demand growth outlook of 4-6%, global market largely balanced

"We are raising our expected 2017 global primary demand growth outlook from 3-5 percent to 4-6 percent, and we expect a largely balanced global market. Hydro is well positioned in this marketplace," says President and CEO, Svein Richard Brandtzæg.

"Demand for aluminium in lightweighting and sustainable solutions continues to grow, confirming our confidence in Hydro's integrated value chain, based on low-carbon aluminium production," Brandtzæg says.

"Good financial and operational performance do not stand alone. It has to go hand in hand with safety performance. In April, we experienced the most tragic kind of accident - a fatality. We must never lose focus on our most important task: to ensure that everyone comes home safely every day."

Underlying EBIT for Bauxite & Alumina increased compared to the fourth quarter. Higher realized alumina prices, driven by a higher alumina index and LME were partly offset by lower sales volumes, an increase in fuel oil and caustic prices, and negative currency effects as the BRL strengthened against the USD. Planned maintenance programs at Paragominas and Alunorte reduced the bauxite and alumina production volume for the quarter. The fourth quarter was positively influenced by NOK 151 million relating to outstanding contractual arrangements with Vale. 

Underlying EBIT for Primary Metal increased in the first quarter due to higher realized all-in metal prices and higher volumes. This was partly offset by significantly higher alumina costs.

Underlying EBIT for Metal Markets declined significantly in the first quarter due to lower results from sourcing and trading activities in addition to negative inventory valuation effects and currency effects. 

Underlying EBIT for Rolled Products increased compared with the fourth quarter 2016. Seasonally higher sales volumes were partly offset by various operational issues primarily related to the start-up of production after year end maintenance and implementation of new equipment.

"We are opening our new 150,000 tonnes per year, state-of-the-art production line for automotive products in Germany on May 4, raising Hydro's total automotive capacity to 200,000 tonnes per year. Aluminium parts for the automotive industry will lightweight millions of new cars, helping the manufacturers to meet the lower emission targets and reducing global climate emissions," says Brandtzæg.

Underlying EBIT for Energy increased compared to the previous quarter. Higher production and lower area cost were somewhat offset by lower prices and higher production cost. Production costs increased mainly due to seasonally higher property taxes, these costs were partly offset by lower transmission cost. 

Underlying EBIT for Sapa increased compared to the previous quarter, in line with general seasonality in the industry.

Hydro made progress on its "Better" improvement program, while slightly behind plan, Hydro still expects to reach both the year-end target of NOK 500 million and the 2019 target NOK 2.9 billion.

Hydro's net cash position decreased during the first quarter by NOK 0.1 billion to NOK 5.9 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 0.7 billion, impacted by operating capital build-up due to seasonality and higher prices. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.2 billion.

Reported earnings before financial items and tax amounted to NOK 2,410 million in the first quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative losses of NOK 192 million and positive metal effects of NOK 286 million. Reported earnings also included a net gain of NOK 32 million in Sapa (Hydro's share net of tax) relating to unrealized derivative gains, and net foreign exchange gains.

In the previous quarter reported earnings before financial items and tax amounted to NOK 1,964 million including net unrealized derivative gains of NOK 106 million and positive metal effects of NOK 68 million. Reported earnings also included a charge of NOK 285 million reflecting partial write-down of capitalized costs due to a design review of the part-owned projected CAP alumina refinery and a compensation of NOK 254 million relating to the completion of outstanding contractual arrangements with Vale, both within Bauxite & Alumina. In addition, reported earnings included a charge of NOK 32 million relating to a change in interest rate used in the calculation of environmental liabilities linked to idled sites in Germany, and a net gain of NOK 23 million in Sapa (Hydro's share net of tax) relating to unrealized derivative gains, rationalization charges and net foreign exchange gains.

Net income amounted to NOK 1,838 million in the first quarter. This includes a net foreign exchange gain of NOK 218 million mainly reflecting the strengthening of BRL against USD affecting USD debt in Brazil, while the weakening of EUR forward rates against NOK gives an unrealized gain on the embedded derivatives in power contracts denominated in EUR.

In the previous quarter net income was NOK 1,008 million including a net foreign exchange loss of NOK 26 million mainly reflecting the strengthening Euro versus Norwegian kroner affecting liabilities in Euro in Norway and embedded currency derivatives in power contracts.

Key financial information

NOK million, except per share data
First quarter 2017 Fourth quarter 2016 Change prior quarter First quarter 2016 Change prior year quarter Year 2016
Revenue 23,026 21,250 8 % 20,138 14 % 81,953
Earnings before financial items and tax (EBIT) 2,410 1,964 23 % 1,693 42 % 7,011
Items excluded from underlying EBIT (126) (135) 7 % (192) 35 % (586)
Underlying EBIT 2,284 1,829 25 % 1,501 52 % 6,425
Underlying EBIT :            
Bauxite & Alumina 756 711 6 % 189 >100 % 1,227
Primary Metal 900 601 50 % 318 >100 % 2,258
Metal Markets 24 152 (84) % 167 (85) % 510
Rolled Products 106 6 >100 % 248 (57) % 708
Energy 423 359 18 % 398 6 % 1,343
Other and eliminations 74 (1) >100 % 181 (59) % 380
Underlying EBIT 2,284 1,829 25 % 1,501 52 % 6,425
Earnings before financial items, tax, depreciation and amortization (EBITDA) 3,762 3,563 6 % 2,908 29 % 12,485
Underlying EBITDA 3,637 3,143 16 % 2,716 34 % 11,474
Net income (loss) 1,838 1,008 82 % 2,382 (23) % 6,586
Underlying net income (loss) 1,580 968 63 % 822 92 % 3,875
Earnings per share 0.86 0.52 66 % 1.12 (23) % 3.13
Underlying earnings per share 0.75 0.47 60 %   0.39 92 %   1.83
Financial data:            
Investments 1,372 3,541 (61) % 1,970 (30) % 9,137
Adjusted net cash (debt) (5,358) (5,598) 4 % (9,206) 42 % (5,598)
Underlying Return on average Capital Employed (RoaCE)         5.3 %
Key Operational information            
Bauxite production (kmt) 2,400 3,063 (22) % 2,682 (11) % 11,132
Alumina production (kmt) 1,523 1,635 (7) % 1,517 0 % 6,341
Primary aluminium production (kmt) 516 526 (2) % 514 0 % 2,085
Realized aluminium price LME (USD/mt)   1,757   1,647 7 %   1,497 17 %   1,574
Realized aluminium price LME (NOK/mt)   14,798   13,659 8 %   12,950 14 %   13,193
Realized USD/NOK exchange rate 8.42 8.29 2 % 8.65 (3) % 8.38
Rolled Products sales volumes to external market (kmt) 241 213 13 % 229 5 % 911
Sapa sales volumes (kmt) 178 155 15 % 174 2 % 682
Power production (GWh) 2,869 2,551 12 % 3,160 (9) % 11,332

Investor contact
Contact Stian Hasle
Cellular +47 97736022

Press contact
Contact Halvor Molland
Cellular +47 92979797

Cautionary note
Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expansions, investments, divestments, curtailments 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, and (i) qualified statements such as "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar.

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 businesses; 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.

This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.



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