Norsk Hydro: Fourth quarter 2017: Results up on higher aluminium and alumina prices

Hydro's underlying earnings before financial items and tax increased to NOK 3,555 million in the fourth quarter from NOK 2,446 million in the third quarter. The increase mainly reflected higher realized alumina and aluminium prices, partly offset by raw material and fixed costs.

· Underlying EBIT of NOK 3 555 million
· Higher realized all-in aluminium and alumina prices, partly offset by increased costs
· Downstream results down on seasonality, first quarter fully consolidating Extruded Solutions
· Energy up on increased production volumes
· Better improvement program on track for increased 2019 target of NOK 3.0 billion, despite 2017 setback
· Karmøy Technology Pilot producing first metal, ramping up during first half 2018
· Proposed dividend for 2017 of NOK 1.75 per share, up from NOK 1.25 per share for 2016
· 2018 global primary demand growth outlook of 4-5%, market largely balanced

"2017 marks the start of new chapter in Hydro's history. With the Sapa acquisition, Hydro is now the world's leading integrated aluminium company, with 35,000 employees in 40 countries serving 30,000 customers globally. I am pleased with the strong, full-year and quarterly results, supported by higher aluminium and alumina prices. I am also pleased to see the Better improvement program on track to reach the increased 2019 target of NOK 3.0 billion," says President and CEO Svein Richard Brandtzæg.

"The technology pilot start-up at Karmøy marks the start of the world's most climate and energy-efficient aluminium technology. Several elements from the new technology will be tailored for use at Hydro's existing aluminium plants worldwide. The technology is not only good news for Karmøy, but for all of Hydro's aluminium plants," says Brandtzæg.

Underlying EBIT for Bauxite & Alumina increased significantly compared to the third quarter mainly due to higher realized alumina prices, driven by a higher alumina index and LME. Both the bauxite mine in Paragominas and the alumina refinery at Alunorte reached record yearly production of 11.4 million mt and 6.4 million mt respectively for 2017.

"We maintain the view of a balanced market outlook for primary aluminium, with a 2018 global demand growth outlook of 4-5%, driven by solid demand for aluminium from automotive and construction markets," says Brandtzæg.

Underlying EBIT for Primary Metal improved in the fourth quarter due to higher realized aluminium prices, partly offset by higher raw material prices and fixed costs.

Underlying EBIT for Metal Markets improved in the fourth quarter, mainly due to higher results from sourcing and trading activities, in addition to positive currency effects and increased results from the remelters.

Underlying EBIT for Rolled products in the fourth quarter was on same level as the third quarter of 2017. Increasing margins driven by product mix and positive inventory effects were offset by seasonal reduction in sales volumes and year end maintenance costs. The Neuss smelter result decreased in the fourth quarter due to increasing alumina and raw material prices.

Underlying EBIT for Extruded Solutions decreased compared to the pro forma underlying EBIT in the third quarter primarily due to seasonally lower volumes, partly offset by increased margins.

The new Extruded Solutions business area was formed at the beginning of the fourth quarter following Hydro's acquisition of the remaining 50 percent Sapa shares. The business areas' financial results are fully consolidated from the closing date October 2, 2017. Extruded Solutions' underlying EBIT includes certain effects of the acquisition such as increased depreciation and amortization following fair value adjustments related to long-lived assets.

Underlying EBIT for Energy increased compared to the previous quarter, mainly due to higher production and prices, partly offset by lower commercial results. The high production during the fourth quarter was driven by high inflow as well as preparation for maintenance in the first quarter.

For the full year 2017 Hydro's underlying EBIT increased to NOK 11,215 million from NOK 6,425 million for 2016. The increase reflects higher all-in metal price and alumina sales price, partly offset by increased raw material costs, fixed costs and negative currency effects.

Due to performance challenges in Rolled Products and slower than expected progress of improvements at Albras in Primary Metal, progress on Hydro's "Better" improvement program is behind plan. While Hydro did not reach the 2017 target of NOK 500 million, the delay is not expected to impact the increased 2019 target of NOK 3.0 billion.

Hydro's net cash position decreased from NOK 7.7 billion to a net debt position of NOK 4.1 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 6.4 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 14.1 billion.

For 2017, Hydro's Board of Directors proposes a dividend of NOK 1.75 per share reflecting Hydro's strong operational performance for 2017 and solid financial position. This is up from NOK 1.25 per share paid out for 2016, which is still to be considered a floor. The proposed payment represents a 41% percent pay-out ratio of reported net income for the year and demonstrates the company's commitment to provide a competitive cash return to shareholders, also taking into account the volatility in the aluminium industry.

Reported earnings before financial items and tax amounted to NOK 4,511 million for the fourth quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative losses of NOK 231 million, positive metal effects of NOK 146 million, a charge of NOK 210 million, of which NOK 181 million linked to an environmental liability at the Kurri Kurri site, and NOK 29 million related to rationalization costs in Extruded Solutions. In addition a charge of NOK 245 million related to a customs case in Germany and a gain of NOK 33 million in relation to remeasurement of environmental liabilities in Germany. Reported earnings also included a net gain of NOK 2,171 million relating to previously owned shares in Sapa and an inventory valuation expense of NOK 707 million related to the Sapa transaction.

In the previous quarter reported earnings before financial items and tax amounted to NOK 2,323 million, including net unrealized derivative gains of NOK 23 million and negative metal effects of NOK 151 million. Reported earnings also included a net gain of NOK 6 million in Sapa (Hydro's share net of tax) relating to unrealized derivative gains.

For the full year 2017, reported earnings before financial items and tax amounted to NOK 12,189 million. Reported EBIT included net unrealized derivative losses of NOK 466 million and positive metal effects of NOK 419 million. Reported earnings also included a net loss of NOK 19 million in Sapa (Hydro's share net of tax) relating to unrealized derivative losses and net foreign exchange losses. Net income also included a charge of NOK 210 million, of which NOK 181 million is linked to an environmental liability at the Kurri Kurri site and NOK 29 million is related to rationalization costs in Extruded Solutions. In addition a charge of NOK 245 million related to a customs case in Germany and a gain of NOK 33 million in relation to remeasurement of environmental liabilities in Germany. Reported earnings also included a net gain of NOK 2,171 million and an inventory valuation expense of NOK 707 million, both related to the Sapa transaction.

In the previous year, reported earnings before financial items and tax amounted to NOK 7,011 million including net unrealized derivative gains and positive metal effects of NOK 553 million in total. Reported earnings also included charges of NOK 192 million relating to the demolition of the Kurri Kurri site, impairment charges of NOK 426 million relating to the part-owned projected CAP alumina refinery and the Hannover site, a net gain of NOK 314 million relating to the sale of certain assets in Grenland, in addition to a negative adjustment relating to the sale of the Slim rolling mill in the fourth quarter of 2015. Other positive effects of NOK 223 million reflects the compensation relating to the completion of outstanding contractual arrangements with Vale and the charge of NOK 32 million relating to remeasurement of environmental liabilities in Germany. In addition, reported earnings included a net gain of NOK 113 million for Sapa (Hydro's share net of tax), relating to unrealized derivative gains, rationalization charges and net foreign exchange gains.

Net income amounted to NOK 3,600 million in the fourth quarter including net foreign exchange losses of NOK 696 million, mainly unrealized, reflecting the strengthening of EUR forward rates against NOK resulting in an unrealized loss on the embedded derivatives in power contracts denominated in EUR while the strengthening of USD against BRL affected US dollar debt in Brazil.

In the previous quarter net income amounted to NOK 2,184 million including a reduction in tax expense and related interest income of NOK 125 million in total following a closed tax case in September 2017. Net income also included net foreign exchange gains of NOK 520 million, mainly unrealized, reflecting a weakening of USD against BRL affecting US dollar debt in Brazil, while the weakening of EUR forward rates against NOK resulted in an unrealized gain on the embedded derivatives in power contracts denominated in EUR.

Net income for 2017 amounted to NOK 9,184 million. This includes a net foreign exchange loss of NOK 875 million reflecting a strengthening of USD against BRL 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.

For the previous year net income amounted to NOK 6,586 million. This included a net foreign exchange gain of NOK 2,266 million reflecting the strengthening BRL versus US dollars affecting US dollar liabilities in Brazil, as well as the strengthening Norwegian kroner versus Euro affecting liabilities in Euro in Norway and embedded currency derivatives in power contracts. Net income also included a reduction in tax expense and related interest income of NOK 700 million in total following settlement of a tax case in April 2016.

Key financial information

NOK million, except per share data
Fourth quarter 2017 Third quarter 2017 Change prior quarter Fourth quarter 2016 Change prior year quarter Year 2017 Year 2016
Revenue 38,803 22,799 70 % 21,250 83 % 109,220 81,953
Earnings before financial items and tax (EBIT) 4,511 2,323 94 % 1,964 >100 % 12,189 7,011
Items excluded from underlying EBIT (956) 123 >(100) % (135) >(100) % (974) (586)
Underlying EBIT 3,555 2,446 45 % 1,829 94 % 11,215 6,425
Underlying EBIT :
Bauxite & Alumina 1,872 413 >100 % 711 >100 % 3,704 1,227
Primary Metal 1,377 1,298 6 % 601 >100 % 5,061 2,258
Metal Markets 185 91 >100 % 152 22 % 544 510
Rolled Products 95 95 - 6 >100 % 380 708
Extruded Solutions 284 284
Energy 457 368 24 % 359 27 % 1,531 1,343
Other and eliminations (715) 181 >(100) % (1) >(100) % (289) 380
Underlying EBIT 3,555 2,446 45 % 1,829 94 % 11,215 6,425
Earnings before financial items, tax, depreciation and
amortization (EBITDA)
6,481 3,766 72 % 3,563 82 % 18,344 12,485
Underlying EBITDA 5,524 3,889 42 % 3,143 76 % 17,369 11,474
Net income (loss) 3,600 2,184 65 % 1,008 >100 % 9,184 6,586
Underlying net income (loss) 2,816 1,785 58 % 968 >100 % 8,396 3,875
Earnings per share 1.71 1.00 72 % 0.52 >100 % 4.30 3.13
Underlying earnings per share 1.33 0.82 62 % 0.48 >100 % 3.95 1.84
Financial data:
Investments 24,632 1,424 >100 % 3,541 >100 % 28,848 9,137
Adjusted net cash (debt) (17,968) (2,976) >(100) % (5,598) >(100) % (17,968) (5,598)
Underlying Return on average Capital Employed (RoaCE) 9.6 % 5.1 %
Key Operational information Fourth quarter 2017 Third quarter 2017 Change prior quarter Fourth quarter 2016 Change prior year quarter Year 2017 Year 2016
Bauxite production (kmt) 3,049 3,043 - 3,063 0 % 11,435 11,132
Alumina production (kmt) 1,693 1,605 5 % 1,635 4 % 6,397 6,341
Primary aluminium production (kmt) 528 527 - 526 - 2,094 2,085
Realized aluminium price LME (USD/mt) 2,092 1,921 9 % 1,647 27 % 1,915 1,574
Realized aluminium price LME (NOK/mt) 17,066 15,496 10 % 13,659 25 % 15,888 13,193
Realized USD/NOK exchange rate 8.16 8.07 1 % 8.29 (2) % 8.30 8.38
Rolled Products sales volumes to external market (kmt) 224 236 (5) % 213 5 % 940 911
Extruded Solutions sales volumes (kmt) 318 170 87 % 155 >100 % 845 662
Power production (GWh) 3,089 2,509 23 % 2,551 21 % 10,835 11,332

Investor contact
Contact Stian Hasle
Cellular +47 97736022
E-mail Stian.Hasle@hydro.com


Press contact
Contact Halvor Molland
Cellular +47 92979797
E-mail Halvor.Molland@hydro.com


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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Source:Norsk Hydro Asa