Norsk Hydro: Fourth quarter 2016: Higher alumina and

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News Desk 2018
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Norsk Hydro: Fourth quarter 2016: Higher alumina and aluminium prices lift results

Hydro's underlying earnings before financial items and tax rose to NOK 1,829 million in the fourth quarter from NOK 1,477 million in the third quarter. Higher realized alumina and aluminium prices lifted results for the quarter, partly offset by seasonally higher costs and lower aluminium product sales. Hydro expects continued healthy demand for aluminium and aluminium products, forecasting global primary demand growth at 3-5 percent in 2017. 

  • Underlying EBIT of NOK 1 829 million
  • Higher realized all-in aluminium and alumina prices
  • Record production at Alunorte and Paragominas
  • Weak Rolled Products results on lower sales and margins, increased costs
  • NOK 1.4 billion Better improvements in 2016 vs NOK 1.1 billion target
  • Karmøy Technology Pilot and new automotive line on time and budget
  • Proposed dividend for 2016 of NOK 1.25 per share
  • 2017 global primary demand growth outlook of 3-5%, global market largely balanced

"Demand for aluminium remains firm and prices have increased, contributing to a solid quarter for Hydro. I am particularly pleased to see more and more car producers choosing aluminium for light-weighting and climate purposes. I am eager to see our new Rolled Products automotive line in Germany ramping up this year to meet the rapidly growing automotive demand," says President and CEO, Svein Richard Brandtzæg.

"We have made better-than-expected progress in our Better improvement efforts, delivering 1.4 billion NOK in improvements in 2016. These efforts will continue with full force in 2017, making Hydro's operations more robust across the value chain and the company well positioned for a better, bigger and greener future," says Brandtzæg.

Underlying EBIT for the Bauxite & Alumina business area increased significantly compared to the third quarter, due to higher realized alumina prices, driven by a higher alumina index and aluminium prices on the London Metal Exchange. Both the Paragominas bauxite mine and the Alunorte alumina refinery reached record yearly production in 2016 of 11.1 million mt and 6.3 million mt, respectively. There was also a significant positive effect from the settlement of a compensation arrangement related to the acquisition of Paragominas in 2011, which was realized in combination with acquisition of the remaining shares in Paragominas.

"I am very pleased to see the record safety results for Hydro in 2016. Combined with record yearly production results at both the Paragominas bauxite mine and the Alunorte alumina refinery in Brazil, these results demonstrate our long-term commitment to operational excellence," says Brandtzæg.

Underlying EBIT for the Primary Metal business area decreased slightly in the fourth quarter. Lower volumes and seasonally higher fixed costs were largely offset by higher realized aluminium prices. 

"The Karmøy Technology Pilot, aiming to verify the world's most energy and climate-efficient aluminium production, is well under way. We expect the first metal to be produced at the new plant during the fourth quarter 2017," says Brandtzæg.

Underlying EBIT for Metal Markets improved in the fourth quarter, mainly due to improved results from sourcing and trading activities, partly offset by somewhat lower results from remelters. 

Underlying EBIT for the Rolled Products business area was significantly lower compared to the third quarter of 2016, primarily due to seasonally lower volumes, reduced margins, higher maintenance activities and higher costs. In addition, depreciation increased somewhat due to the start-up of the new automotive line in Grevenbroich, Germany, in the fourth quarter. The USD strengthening against the Euro contributed positively and the Neuss aluminium plant result improved due to an increase in the all-in metal price.

Underlying EBIT for the Energy business area increased compared to the previous quarter, mainly due to higher prices, lower area cost and improved contribution from commercial activities, partly offset by lower production. Production costs were lowered by seasonally lower property taxes, but partly offset by higher transmission cost and higher maintenance activity. Area cost declined later in the quarter in line with better transmission capacity and improved hydrology in Mid-Norway. 

Underlying EBIT for the Sapa joint venture decreased compared to the previous quarter, mainly due to seasonally lower market demand.

For the full year, underlying EBIT decreased to NOK 6,425 million compared with NOK 9,656 million in 2015, mainly due to a decrease in realized alumina prices and all-in metal prices, partly compensated by positive currency effects, lower raw material costs and ongoing improvement efforts. In 2016, Bauxite & Alumina achieved record production at both Paragominas and Alunorte, Sapa performance continued to improve, while Rolled Products delivered a weaker result, driven by lower margins and higher costs.

Hydro made good progress on its "Better" improvement ambition targeting NOK 2.9 billion of annual improvements by 2019. For 2016, NOK 1.4 billion of annual improvements was delivered, exceeding the 1.1 billion target.

Hydro's net cash position increased during the fourth quarter by NOK 0.6 billion to NOK 6.0 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 4.2 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 2.4 billion. 

For 2016, Hydro's Board of Directors proposes an increased dividend of NOK 1.25 per share, demonstrating the company's commitment to provide a predictable and competitive cash return to shareholders, and taking into account the volatility in the aluminium industry. The proposed payment represents a 40% percent pay-out ratio of reported net income for the year reflecting Hydro's operational performance for 2016 and strong financial position.

Hydro's Board of Directors has revised the company's dividend policy to reflect the ambition to pay a stable or increasing dividend. Hydro's policy is in the long term to pay out, on average, 40 percent of reported net income as dividend over the cycle.

Reported earnings before financial items and tax amounted to NOK 1,964 million in the fourth quarter. In addition to the factors discussed above, reported EBIT included 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 in Brazil. 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.

In the previous quarter reported earnings before financial items and tax amounted to NOK 1,376 million including net unrealized derivative gains of NOK 100 million and positive metal effects of NOK 48 million. Reported EBIT also included a charge of NOK 124 million relating to the demolition of the Kurri Kurri site and an impairment charge of NOK 140 million relating to the decision to divest the Hannover site. In addition, reported earnings included a net gain of NOK 15 million in Sapa (Hydro's share net of tax) relating to unrealized derivative gains, rationalization charges and net foreign exchange gains.  

For the full year 2016, 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 re-measurement 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. 

In the previous year, reported earnings before financial items and tax amounted to NOK 8,258 million including net unrealized derivative gains and negative metal effects of NOK 454 million in total. Reported earnings also included charges of NOK 285 million relating to the termination of the Vækerø Park lease contract and net losses on divestments of NOK 365 million, including losses of NOK 434 million related to the sale of the Slim rolling mill and gains of NOK 69 million in total related to sale of other assets. In addition, reported earnings included a net charge of NOK 331 million for Sapa (Hydro's share net of tax) relating to unrealized derivative losses, rationalization charges and net foreign exchange losses, together with a compensation of NOK 37 million relating to insurance proceeds in Qatalum.

Net income amounted to NOK 1,008 million in the fourth quarter 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.

In the previous quarter net income was NOK 1,119 million including a net foreign exchange gain of NOK 358 million mainly reflecting the strengthening Norwegian kroner versus Euro affecting liabilities in Euro in Norway and embedded currency derivatives in power contracts.

In 2016 net income amounted to NOK 6,586 million including a net foreign exchange gain of NOK 2,266 million. The net foreign exchange gain in 2016 was mainly comprised of unrealized currency gains on US dollar debt in Brazil and embedded derivatives in power contracts denominated in Euro. The net foreign exchange gain also included gains on internal debt denominated in Euro. 

In the previous year income amounted to NOK 2,333 million including a net foreign exchange loss of NOK 4,397 million. The net foreign exchange loss in 2015 was mainly comprised of currency losses on US dollar debt in Brazil and embedded derivatives in power contracts denominated in Euro. The net foreign exchange loss also included losses on US dollar debt in Norway.

Key financial information

NOK million, except per share data
Fourth quarter 2016 Third quarter 2016 % change prior quarter Fourth quarter 2015 % change prior year quarter Year
2016
Year 2015
               
Revenue 21 250 20 174 5 % 20 374 4 % 81 953 87 694
Earnings before financial items and tax (EBIT) 1 964 1 376 43 % 725 >100 % 7 011 8 258
Items excluded from underlying EBIT (135) 101 >(100) % 841 >(100) % (586) 1 398
Underlying EBIT 1 829 1 477 24 % 1 566 17 % 6 425 9 656
               
Underlying EBIT :              
Bauxite & Alumina 711 153 >100 % 532 34 % 1 227 2 421
Primary Metal 601 637 (6) % 407 48 % 2 258 4 628
Metal Markets 152 117 30 % 152 - 510 379
Rolled Products 6 211 (97) % 204 (97) % 708 1 142
Energy 359 285 26 % 353 2 % 1 343 1 105
Other and eliminations (1) 75 >(100) % (83) 99 % 380 (19)
Underlying EBIT 1 829 1 477 24 % 1 566 17 % 6 425 9 656
               
Earnings before financial items, tax, depreciation and amortization (EBITDA) 3 563 2 792 28 % 2 128 67 % 12 485 13 282
Underlying EBITDA 3 143 2 753 14 % 2 969 6 % 11 474 14 680
               
Net income (loss) 1 008 1 119 (10) % 541 86 % 6 586 2 333
Underlying net income (loss) 968 958 1 % 1 296 (25) % 3 875 6 709
               
Earnings per share 0.52 0.53 (2) % 0.23 >100 % 3.13 0.99
Underlying earnings per share 0.47 0.46 2 %   0.59 (21) % 1.83 2.98
               
Financial data:              
Investments 3 541 1 914 85 % 2 556 39 % 9 137 5 865
Adjusted net interest-bearing debt (5 598) (8 072) 31 % (8 173) 32 % (5 598) (8 173)
Underlying Return on average Capital Employed (RoaCE)           5.1 % 9.2 %
               
Key Operational information              
               
Bauxite production (kmt) 3 063 2 777 10 % 2 959 4 % 11 132 10 060
Alumina production (kmt) 1 635 1 635 - 1 577 4 % 6 341 5 962
Primary aluminium production (kmt) 526 526 - 521 1 % 2 085 2 046
Realized aluminium price LME (USD/mt)   1 647   1 612 2 %   1 555 6 %   1 574   1 737
Realized aluminium price LME (NOK/mt)   13 659   13 375 2 %   13 125 4 %   13 193   13 813
Realized USD/NOK exchange rate 8.29 8.30 - 8.44 (2) % 8.38 7.95
Rolled Products sales volumes to external market (kmt) 213 231 (7) % 229 (7) % 911 948
Sapa sales volumes (kmt) 155 170 (9) % 156 - 682 682
Power production (GWh) 2 551 2 946 (13) % 2 882 (11) % 11 332 10 894

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.

Attachments:

http://www.globenewswire.com/NewsRoom/AttachmentNg/e2dda9ad-5d01-4261-8f13-785fbaa5ac30

Attachments:

http://www.globenewswire.com/NewsRoom/AttachmentNg/9c35b29a-7ead-4ede-b480-a1c15c99b480

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