Third quarter 2017: Results down on increased raw material costs and currency

Hydro's underlying earnings before financial items and tax decreased to NOK 2,446 million in the third quarter, down from NOK 2,930 million in the second quarter. The decrease mainly reflects higher raw material costs and negative currency effects.

October 25, 2017
Q3 2017
  • Underlying EBIT of NOK 2,446 million
  • Negative result effects from raw material costs and USD depreciation
  • Weak Rolled Products results on continued operational issues and negative currency effect
  • Acquisition of Sapa completed on October 2, integration progressing according to plan
  • Better improvement program on track for 2019 target of NOK 2.9 billion, despite 2017 setback
  • Karmøy Technology Pilot on time and budget, expected start-up Q4 2017
  • Positive market sentiment on announced Chinese closures, global market expected largely balanced in 2017

 

"We have lifted our global demand estimate for 2017 to 5-6%, indicating a continued strong demand for aluminium. There is a positive market sentiment for aluminium, mainly driven by curtailments of primary production in China, which have supported the market balance in the quarter," says President and CEO Svein Richard Brandtzæg.

"This quarter marks a new chapter in our history, adding Extruded Solutions as a fifth business area in Hydro. We are now 35,000-people strong, with 150 sites all over the world and 30,000 customers throughout the entire value chain of aluminium. We have a global reach as well as being very close to our customers and all the communities we serve," says Brandtzæg.

"We now have the best-possible platform for further growth and opportunities, innovation and product development," says Brandtzæg.

Underlying EBIT for Bauxite & Alumina decreased compared to the second quarter. Higher bauxite and caustic prices, negative currency effects and increased depreciation, primarily in Paragominas, were partly offset by improved consumption factors. The ongoing ramp-up process of the new press filter operation caused additional cost at the alumina refinery.

Underlying EBIT for Primary Metal declined in the third quarter due to negative currency effects, as the NOK strengthened against the USD, in addition to seasonally lower volumes and higher carbon costs. This was partly offset by lower alumina and fixed costs.

Underlying EBIT for Metal Markets declined in the third quarter, mainly due to negative inventory valuation and less positive currency effects. Results from remelters declined in the third quarter driven by lower sales volumes in Europe.

Underlying EBIT for Rolled Products in the third quarter improved slightly compared to the second quarter of 2017. The increase was primarily due to an accrual for employee compensation recognized in the second quarter. This was partly offset by negative currency developments and seasonal effects including summer shutdown in certain plants. The Neuss smelter result was on same level compared to prior quarter.

Underlying EBIT for Energy increased compared to the previous quarter, mainly due to improved commercial results and higher production, partly offset by periodically higher property tax.

Underlying EBIT for Sapa decreased compared to the previous quarter, in line with general seasonality in the extrusion business.

Due to the ongoing performance challenges in Rolled Products, progress on Hydro's "Better" improvement program is behind plan. While Hydro does not expect to reach the year end target of NOK 500 million, the delay is not expected to impact the ability to reach the 2019 target of NOK 2.9 billion.

Hydro's net cash position increased by NOK 1.7 billion to NOK 7.7 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 3.0 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.3 billion.

Reported earnings before financial items and tax amounted to NOK 2,323 million for the third quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative gains of NOK 23 million and negative metal effects of NOK 151 million.

Net income amounted to NOK 2,184 million in the third quarter 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 includes 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.

 

NOK million, except per share dataThird quarter 2017Second quarter 2017Change prior quarterThird quarter 2016Change prior year quarterFirst 9 months 2017First 9 months 2016Year 2016
Key financial information
Revenue 22,799 24,591 (7) % 20,174 13 % 70,416 60,703 81,953
Earnings before financial items and tax (EBIT) 2,323 2,946 (21) % 1,376 69 % 7,678 5,047 7,011
Items excluded from underlying EBIT 123 (16) >100 % 101 21 % (18) (451) (586)
Underlying EBIT 2,446 2,930 (17) % 1,477 66 % 7,660 4,596 6,425
 
Underlying EBIT:
Bauxite & Alumina 413 662 (38) % 153 >100 % 1,831 516 1,227
Primary Metal 1,298 1,486 (13) % 637 >100 % 3,684 1,657 2,258
Metal Markets 91 244 (63) % 117 (22) % 359 358 510
Rolled Products 95 84 12 % 211 (55) % 285 701 708
Energy 368 284 30 % 285 29 % 1,075 983 1,343
Other and eliminations 181 170 7 % 75 >100 % 426 380 380
Underlying EBIT 2,446 2,930 (17) % 1,477 66 % 7,660 4,596 6,425
 
Earnings before financial items, tax, depreciation and amortization (EBITDA)
amortization (EBITDA) 3,766 4,335 (13) % 2,792 35 % 11,863 8,922 12,485
Underlying EBITDA 3,889 4,319 (10) % 2,753 41 % 11,845 8,331 11,474
 
Net income (loss) 2,184 1,562 40 % 1,119 95 % 5,585 5,578 6,586
Underlying net income (loss) 1,785 2,214 (19) % 958 86 % 5,580 2,906 3,875
 
Earnings per share 1.00 0.73 37 % 0.53 88 % 2.59 2.61 3.13
Underlying earnings per share 0.82 1.04 (21) % 0.46 80 % 2.61 1.37 1.83
 
Financial data:
Investments 1,424 1,420 0 % 1,914 (26) % 4,216 5,596 9,137
Adjusted net cash (debt) (2,976) (5,146) 42 % (8,072) 63 % (2,976) (8,072) (5,598)
 
Key Operational information
Bauxite production (kmt) 3,043 2,943 3 % 2,777 10 % 8,386 8,069 11,132
Alumina production (kmt) 1,605 1,576 2 % 1,635 (2) % 4,704 4,706 6,341
Primary aluminium production (kmt) 527 523 1 % 526 0 % 1,566 1,559 2,085
Realized aluminium price LME (USD/mt) 1,921 1,902 1 % 1,612 19 % 1,859 1,552 1,574
Realized aluminium price LME (NOK/mt) 15,496 16,265 (5) % 13,375 16 % 15,510 13,049 13,193
Realized USD/NOK exchange rate 8.07 8.55 (6) % 8.3 (3) % 8.35 8.41 8.38
Rolled Products sales volumes to external market (kmt) 236 239 (1) % 231 3 % 716 697 911
Sapa sales volumes (kmt) 170 180 (6) % 170 0 % 527 527 682
Power production (GWh) 2,509 2,369 6 % 2,946 (15) % 7,746 8,781 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: October 25, 2017