Third quarter 2014: Lower Alunorte costs and higher all-in metal price lift results

Norsk Hydro ASA's underlying earnings before financial items and tax (EBIT) rose to NOK 1,490 million in the third quarter from NOK 544 million in the second quarter. Results are backed by lower costs at the Alunorte alumina refinery, higher all-in metal prices and higher alumina prices.

October 22, 2014
  • Underlying EBIT NOK 1,490 million
  • Higher realized all-in metal and alumina prices
  • Lower operating costs at Alunorte
  • Expected 3-4 percent demand growth for primary aluminium World ex-China
  • World ex-China primary aluminium demand continues to exceed production

"All-in metal prices continued to rise in the quarter, reflecting the tighter market we saw in last quarter and the continuing market balance deficit," said President and CEO Svein Richard Brandtzæg. "Demand for aluminium is rising, and we now see demand growth of 3-4 percent in the world ex-China for 2014, helped by metal substitution in the automotive market."

Underlying EBIT for Bauxite & Alumina improved significantly in the third quarter reflecting higher realized alumina prices and lower operating costs at Alunorte, in Brazil. Realized alumina prices, however, were negatively impacted by a lower share of alumina sales at index prices.

"I am pleased to see the 'From B to A' improvement program progressing according to plan and that improvement efforts in Bauxite & Alumina are showing bottom line results. Operating costs at Alunorte are going down and we have the momentum to reach our targets," said Brandtzæg.

Underlying EBIT for Primary Metal improved substantially in the third quarter influenced by higher realized aluminium prices and increased product premiums. Positive developments were partly offset by higher raw material costs and seasonally lower sales volumes.

Metal Markets delivered higher underlying EBIT compared to the previous quarter influenced by improved results from sourcing and trading activities and positive ingot inventory valuation effects.

Underlying EBIT for Rolled Products was significantly higher compared with the second quarter of 2014 mainly due to positive contributions from the Rheinwerk smelter, in Germany, reflecting higher all-in metal prices. Margin pressure increased but was partly offset by seasonally lower operating costs. Volumes were stable.

Compared to the second quarter, underlying EBIT for Energy increased, mainly due to higher hydropower prices in our production areas and lower area price differences.

Underlying EBIT for Sapa declined compared to the second quarter, partly influenced by seasonally lower sales volumes in Europe.

Operating cash flow amounted to NOK 1.1 billion for the third quarter including increased working capital of NOK 0.9 billion. Net cash used for investment activities amounted to NOK 0.9 billion. Hydro's net debt position amounted to NOK 2.1 billion at the end of the third quarter.

Reported earnings before financial items and tax amounted to NOK 1,937 million in the third quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative gains and positive metal effects of NOK 476 million in total. Reported earnings also included other charges of NOK 30 million.

In the previous quarter reported earnings before financial items and tax amounted to NOK 620 million including net unrealized derivative gains and positive metal effects of NOK 154 million in total. Reported earnings also included charges of NOK 87 million (Hydro's share) in Sapa primarily related to rationalization activities.

Income from continuing operations amounted to NOK 665 million in the third quarter including a net foreign exchange loss of NOK 1,001 million. In the previous quarter, income from continuing operations amounted to NOK 269 million including a net foreign exchange loss of NOK 101 million.

 

Key financial information
NOK million, except per share data Third
quarter
2014
Second 
quarter
2014
% change prior quarter Third
quarter
2013
% change prior year quarter First 9
months

2014
First 9
months
2013
Year
2013
 
Revenue 19,698 18,272 8% 16,145 22% 56,251 48,306 64,877
 
Earnings before financial items and tax (EBIT) 1,937 620 >100% 596 >100% 3,379 1,677 1,663
Items excluded from underlying EBIT (447) (75) >(100) 62 >(100)% (573) 577 1,063
Underlying EBIT 1,490 544 >100% 658 >100% 2,806 2,254 2,725
 
Underlying EBIT:
Bauxite & Alumina (26) (269) 90% (370) 93% (583) (678) (1,057)
Primary Metal 1,216 420 >100% 337 >100% 1,948 938 1,422
Metal Markets 171 100 72% 111 54% 412 404 594
Rolled Products 243 177 37% 181 34% 601 515 615
Energy 234 169 39% 485 (52)% 838 1,270 1,653
Other and eliminations (349) (52) >(100)% (87) >(100)% (409) (195) (502)
Underlying EBIT 1,490 544 >100% 658 >100% 2,806 2,254 2,725
 
Underlying EBITDA 2,615 1,653 58% 1,801 45% 6,129 5,687 7,306
 
Underlying income (loss) from discontinued operations - - - 57 (100)% - 220 220
 
Net income (loss) 665 269 >100% 321 >100% 1,396 (81) 839
Underlying net income (loss) 1,043 318 >100% 393 >100% 1,748 1,470 1,610
 
Earnings per share 0.29 0.09 >100% 0.11 >100% 0.57 (0.06) (0.45)
Underlying earnings per share 0.43 0.13 >100% 0.14 >100% 0.72 0.63 0.65
 
Financial data:
Investments 889 740 20% 975 (9)% 2,176 2,704 3,761
Adjusted net interest-bearing debt  (14,061)  (13,551)  (4)%  (10,732)  (31)%  (14,061)  (10,732)  (10,128)
 
Key operational information
Alumina production (kmt) 1,478 15,26 (3)% 1,316 12% 4,432 3,925 5,377
Primary aluminium production (kmt) 487 488 - 491 (1)% 1,459 1,452 1,944
Realized aluminium price LME (USD/mt) 1,906 1,762 8% 1,822 5% 1,803  1,932 1,902
Realized aluminium price LME (NOK/mt) 11,909 10,660 12% 10,938 9% 11,075 11,233 11,160
Realized NOK/USD exchange rate 6.25 6.05 3% 6.00 4% 6.14 5.81 5.87
Metal products sales, total Hydro (kmt) 811 843 (4)% 792 2% 2,525 2,387 3,164
Rolled Products sales volumes to external market (kmt) 244 245 - 234 5% 732 715 941
Power production (GWh) 2,170 2,248 (3)% 2,838 (24)% 7,382 7,831 10,243

 


Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management's plans, objectives and strategies for Hydro, such as planned expansions, investments 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, as well as (i) statements preceded by "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar statements.

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 aluminium business; 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: October 11, 2016