Second quarter 2017: Results up on higher aluminium prices

Hydro's underlying earnings before financial items and tax increased to NOK 2,930 million in the second quarter from NOK 2,284 million in the first quarter, mainly driven by higher aluminium prices and favourable currency developments. Lower realized alumina prices and increased raw material costs had a negative impact on results.

July 25, 2017
Q2 2017
  • Underlying EBIT of NOK 2 930 million
  • Higher realized aluminium prices, somewhat offset by lower realized alumina prices and higher raw material costs
  • Weak Rolled Products results primarily due to reduced margins linked to product mix and operational issues
  • Record quarterly result in Sapa
  • Better program on track for 2017 target of NOK 500 million
  • Agreement to acquire Sapa, closing expected in second half 2017
  • Karmøy Technology Pilot on time and budget, expected start-up Q4 2017
  • 2017 global primary demand growth outlook 4-6%, global market largely balanced

“Higher aluminium prices in the quarter are lifting results, and I am pleased to see Sapa delivering record results, continuing the strong trend,” says President & CEO, Svein Richard Brandtzæg. “Hydro will confirm its position as the world’s leading integrated aluminium company with the agreement to acquire Orkla’s 50 percent interest in world-leading extrusion company Sapa. The transaction reinforces our strategic direction to become better, bigger and greener, with a solid asset base, unique competencies and capabilities along the full value chain,” says Brandtzæg. Closing is expected in the second half of 2017, pending regulatory approvals.

Underlying EBIT for Bauxite & Alumina decreased from the first quarter. Lower realized alumina prices, driven by a weaker alumina index and higher raw material consumption weighed on results, while higher sales volumes contributed positively. The Alunorte alumina refinery and the Paragominas bauxite mine had higher production in the second quarter following planned maintenance in the first quarter. The ongoing ramp-up process of the new press filter operation to remove and recycle caustic soda from bauxite residue caused additional cost at the alumina refinery.

Underlying EBIT for Primary Metal increased in the second quarter due to higher realized all-in metal prices, partly offset by higher raw material costs.

Underlying EBIT for Metal Markets improved significantly in the second quarter, mainly due to positive inventory valuation and currency effects, in addition to better results from sourcing and trading activities. Results from remelters also improved in the second quarter driven by increased sales volumes and contribution margins.

“We see a global primary aluminium deficit in the quarter. This is driven by increasing deficit outside China. For the full year, we are maintaining our 4-6 percent annual aluminium demand growth outlook for 2017 and expect a largely balanced, global aluminium market,” says Brandtzæg.

Underlying EBIT for Rolled Products decreased in the quarter compared to the first quarter of 2017. The decrease was primarily due to reduced average margins driven by product mix, and an accrual for employee compensation mainly relating to previous years. The operational issues in the first quarter were partly resolved, reducing the negative cost effects on the second quarter results. The Neuss aluminium plant benefited from the all-in metal price development and lower alumina cost.

Underlying EBIT for Energy decreased compared to the previous quarter, mainly due to seasonally lower production and prices.

Underlying EBIT for Sapa increased compared to the previous quarter, delivering record quarterly result, in line with general seasonality in the industry but also related to improved performance.

Hydro continued to make 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 of NOK 2.9 billion.

Hydro's net cash position increased by NOK 0.1 billion to NOK 6.0 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 4.3 billion, including dividends received from Sapa of NOK 1.5 billion and operating capital build-up due to seasonality and higher prices. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.1 billion. During the second quarter dividends paid to Norsk Hydro ASA shareholders amounted to NOK 2.6 billion.

Reported earnings before financial items and tax amounted to NOK 2,946 million for the second quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative losses of NOK 66 million and positive metal effects of NOK 138 million. Reported earnings also included a net loss of NOK 56 million in Sapa (Hydro's share net of tax) relating to unrealized derivative losses and net foreign exchange losses.

Net income amounted to NOK 1,562 million in the second quarter. This includes a net foreign exchange loss, mainly unrealized, of NOK 918 million reflecting a weakening of BRL against USD affecting US dollar debt in Brazil, while the strengthening of EUR forward rates against NOK resulted in an unrealized loss on the embedded derivatives in power contracts denominated in EUR.

NOK million, except per share dataSecond quarter 2017First quarter 2017Change prior quarterSecond quarter 2016Change prior year quarterFirst half 2017First half 2016Year 2016
Key financial information
Revenue 24,591 23,026 7% 20,391 21% 47,617 40,529 81,953
Earnings before financial items and tax (EBIT) 2,946 2,410 22% 1,978 49% 5,356 3,672 7,011
Items excluded from underlying EBIT (16) (126) 87% (360) 96% (141) (552) (586)
Underlying EBIT 2,930 2,284 28% 1,618 81% 5,214 3,119 6,425
Underlying EBIT:
Bauxite & Alumina 662 756 (12)% 174 >100% 1,418 363 1,227
Primary Metal 1,486 900 65% 702 >100% 2,386 1,020 2,258
Metal Markets 244 24 >100% 75 >100% 268 241 510
Rolled Products 84 106 (21)% 242 (65)% 191 491 708
Energy 284 423 (33)% 301 (6)% 707 699 1,343
Other and eliminations 170 74 >100% 125 37% 245 306 380
Underlying EBIT 2,930 2,284 28% 1,618 81% 5,214 3,119 6,425
Earnings before financial items, tax, depreciation and amortization (EBITDA) 4,335 3,762 15% 3,222 35% 8,097 6,131 12,485
Underlying EBITDA 4,319 3,637 19% 2,862 51% 7,956 5,578 11,474
Net income (loss) 1,562 1,838 (15)% 2,077 (25)% 3,401 4,459 6,586
Underlying net income (loss) 2,214 1,580 40% 1,126 97% 3,795 1,949 3,875
Earnings per share 0.73 0.86 (16)% 0.95 (24)% 1.59 2.08 3.13
Underlying earnings per share 1.04 0.75 38% 0.52 >100% 1.79 0.91 1.83
Financial data:
Investments 1,420 1,372 4% 1,711 (17)% 2,792 3,681 9,137
Adjusted net cash (debt) (5,146) (5,358) 4% (8,758) 41% (5,146) (8,758) (5,598)
Key Operational information
Bauxite production (kmt) 2,943 2,400 23% 2,609 13% 5,343 5,292 11,132
Alumina production (kmt) 1,576 1,523 3% 1,554 1% 3,099 3,071 6,341
Primary aluminium production (kmt) 523 516 1% 518 1% 1,039 1,032 2,085
Realized aluminium price LME (USD/mt) 1,902 1,757 8% 1,546 23% 1,828 1,522 1,574
Realized aluminium price LME (NOK/mt) 16,265 14,798 10% 12,826 27% 15,517 12,887 13,193
Realized USD/NOK exchange rate 8.55 8.42 2% 8.30 3% 8.49 8.47 8.38
Rolled Products sales volumes to external market (kmt) 239 241 (1)% 238 0% 480 467 911
Sapa sales volumes (kmt) 180 178 1% 183 (2)% 357 358 682
Power production (GWh) 2,369 2,869 (17)% 2,674 (11)% 5,238 5,835 11,332

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.

Updated: July 25, 2017