First quarter 2016: Higher downstream results offset by lower prices

Hydro's underlying earnings before financial items and tax declined to NOK 1,501 million in the first quarter, down from NOK 1,566 million in the fourth quarter of 2015. The decline mainly reflected lower realized aluminium and alumina prices, partly offset by positive currency effects, lower raw material costs and seasonally stronger downstream results.

April 27, 2016
Image of CEO Svein Richard Brandtzæg on stage

Underlying EBIT of NOK 1 501 million for Q1
• Lower realized alumina and all-in aluminium prices
• Record low implied alumina and all-in primary costs
• Seasonally stronger downstream results
• BNOK 2.9 Better improvement ambition progressing according to plan
• 2016 global primary metal market largely balanced


"Downstream operations have delivered the strongest first quarter since Sapa was established in 2013, driven by seasonally higher volumes in Rolled Products and Sapa, as well as stronger margins on value -added extrusion products," says President and CEO Svein Richard Brandtzæg.

Underlying EBIT for Bauxite & Alumina decreased compared to fourth quarter mainly due to lower realized alumina prices and lower sales volumes. The negative price development was partly offset by positive currency effects from a weaker Brazilian Real, lower fuel prices and lower depreciation following catch up effects on reassessment of useful life of certain assets in 2015. Production in Alunorte and Paragominas fell slightly after reaching record production levels in the fourth quarter of 2015. 1)

"I am happy to see our 2.9 billion Better ambition launched last year is progressing according to plan, contributing to our first-quartile position on the global cost curves. This is underpinned by continued high production in Bauxite & Alumina, as well as stronger performance in our primary aluminium joint ventures," says Brandtzæg.

Underlying EBIT for Primary Metal declined in the first quarter due to lower realized prices, higher fixed costs and additional cost related to ICMS tax on sales of surplus power in Brazil in the previous periods. This was partly offset by a stronger USD, a decline in alumina costs and positive effects on premiums in Qatalum following a negative time lag adjustment in the fourth quarter of 2015.

Underlying EBIT for Metal Markets increased somewhat in the first quarter mainly due to positive currency effects and improved results in remelters. This was partly offset by weaker results from sourcing and trading activities.

Adjusted for the divestment of the Slim rolling mill2), sales volumes were seasonally higher in Rolled Products in the first quarter. This together with reduced alumina cost for the Neuss smelter, supported improved profitability compared to the fourth quarter of 2015.  Reduced net margins partly offset the positive effects.

Underlying EBIT for Energy increased compared to the previous quarter due to higher production, partly offset by higher production cost. The cost increase was mainly driven by transmission costs and property taxes.3)

Underlying EBIT for Sapa increased mainly due to seasonally higher demand and stronger margins.

During the first quarter, Hydro progressed according to plan on its "Better" improvement ambition targeting NOK 2.9 billion of annual improvements by 2019.

Operating cash flow amounted to NOK 0.1 billion for the first quarter, including a working capital build up of NOK 1.8 billion. Net cash used for investment activities amounted to NOK 1.3 billion. Hydro's net cash position decreased during the first quarter by NOK 1.2 billion to NOK 3.9 billion at the end of the quarter.

Reported earnings before financial items and tax amounted to NOK 1,693 million in the first quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative gains of NOK 224 million and negative metal effects of NOK 43 million. Reported earnings also included a negative adjustment of NOK 15 million related to the sale of the Slim rolling mill in the fourth quarter of 2015. In addition, reported earnings included a net gain of NOK 26 million for Sapa (Hydro's share net of tax), mainly relating to unrealized derivative gains.

In the previous quarter reported earnings before financial items and tax amounted to NOK 725 million including net unrealized derivative gains and negative metal effects of negative NOK 139 million in total. Reported earnings also included charges of NOK 285 million relating to the termination of the Vækerø Park lease contract (head-office building) 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 53 million for Sapa (Hydro's share net of tax), including NOK 88 million relating to restructuring charges, NOK 73 million relating to unrealized derivative gains and NOK 38 million related to net foreign exchange losses.

Net income amounted to NOK 2,382 million in the first quarter including a reduction in tax expense and related interest income of NOK 700 million in total following settlement of a tax case in April 2016. See note 4 to the interim financial statements in Hydro's first quarter report for further information. Net income also included a net foreign exchange gain of NOK 1,032 million mainly 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. In the previous quarter net income was NOK 541 million including a net foreign exchange gain of NOK 48 million mainly reflecting marginal currency fluctuations and effects for the period, as well as significantly reduced US dollar intercompany debt.

Fig.
1. Since Hydro acquired Vale's aluminium business in 2011.
2. Slim rolling mill divestment was completed by December 17, 2015.
3. From 2015 property tax is charged to the period it becomes an unconditional payment obligation (in Norway when invoiced). This leads to periodic variations within the year without affecting the annual property tax level.  

 

NOK million, except per share dataFirst quarter 2016Fourth  quarter 2015% change prior quarterFirst quarter 2015% change prior year quarterYear 2015
Key financial information
Revenue 20,138 20,374 (1) % 23,290 (14) % 87,694
Earnings before financial items and tax (EBIT) 1,693 725 >100 % 3,206 (47) % 8,258
Items excluded from underlying EBIT (192) 841 >(100) % 2 >(100) % 1,398
 
Underlying EBIT 1,501 1,566 (4) % 3,208 (53) % 9,656
 
Bauxite & Alumina 189 532 (64) % 780 (76) % 2,421
Primary Metal 318 407 (22) % 2,012 (84) % 4,628
Metal Markets 167 152 10 % 24 >100 % 379
Rolled Products 248 204 22 % 292 (15) % 1,142
Energy 398 353 13 % 382 4 % 1,105
Other and eliminations 181 (83) >100 % (281) >100 % (19)
Underlying EBIT 1,501 1,566 (4) % 3,208 (53) % 9,656
 
Underlying EBITDA 2,716 2,969 (9) % 4,437 (39) % 14,680
 
Net income (loss) 2,382 541 >100 % 1,072 >100 % 2,333
Underlying net income (loss) 822 1296 (37) % 2206 (63) % 6,709
 
Earnings per share 1,12 0.23 >100 % 0,46 >100 % 0.99
Underlying earnings per share 0,39 0.59 (34) % 0,95 (59) % 2.98
 
Financial data:
Investments 1,970 2,556 (23) % 802 >100 % 5,865
Adjusted net interest-bearing debt (9,206) (8,173) (13) % (13,478) 32 % (8,173)
 
 Key Operational information
Bauxite production (kmt) 2,682 2,959 (9) % 2,135 26 % 10,060
Alumina production (kmt) 1,517 1,577 (4) % 1,451 5 % 5,962
Primary aluminium production (kmt) 514 521 (1) % 497 4 % 2,046
Realized aluminium price LME (USD/mt) 1,497 1,555 (4) % 1,897 (21) % 1,737
Realized aluminium price LME (NOK/mt) 12,950 13,125 (1) % 14,383 (10) % 13,813
Realized USD/NOK exchange rate 8,65 8,44 3 % 7,58 14 % 7,95
Rolled Products sales volumes to external market (kmt) 229 229 - 227 1 % 948
Sapa sales volumes (kmt) 174 156 12 % 177 (1) % 682
Power production (GWh) 3,160 2,882 10 % 3,071 3 % 10,894

 


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