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Fourth quarter of 2016: higher alumina and aluminum prices contribute to better results

Hydro's adjusted earnings before interest and taxes increased to NOK 1.829 billion in the fourth quarter of 2016, compared to NOK 1.477 billion in the previous quarter. Higher alumina and aluminum prices improved the quarter's results, which were partly affected by lower sales of aluminum products and higher seasonal costs. Hydro expects demand for aluminum and aluminum products to remain positive, forecasting a 3 to 5% growth in global primary aluminum demand for 2017.

  • Adjusted EBIT of NOK 1.829 billion
  • Higher all-in prices for alumina and aluminum
  • Record production at Hydro Alunorte and Hydro Paragominas
  • Poor results in the Rolled Products area with lower margins and sales and higher costs
  • Better program exceeds NOK 1.1 billion target and reaches NOK 1.4 billion in 2016
  • Technology project in Karmoy and the new automotive line move forward as expected and within budget
  • Proposed dividend for 2016 of NOK 1.25 per share
  • Growth prospects for primary aluminum demand at a global level of 3 to 5%, with a global market largely in balance

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“Aluminum demand remains firm and prices are higher, contributing to a solid quarter for Hydro. I am particularly pleased to see that car producers are increasingly adopting aluminum, as it is lightweight and climate-friendly. I look forward to seeing the new Laminated Products automotive line in Germany start operations this year, thus responding to the growing demand from the automotive sector, ”said Hydro President and CEO Svein Richard Brandtzæg.

"The progress of the Better improvement program was better than expected, reaching NOK 1.4 billion in 2016. Our efforts will continue equally strong in 2017, making Hydro's most robust operations in the entire value chain and positioning the company even better for a better, bigger and greener future ”, he added.

Adjusted EBIT for the Bauxite & amp; Alumina had a significant increase, compared to the third quarter, thanks to the higher alumina prices that were achieved due to the alumina index and aluminum prices being more favorable on the London Stock Exchange. Both the Hydro Paragominas bauxite mine and the Hydro Alunorte alumina refinery broke annual production records in 2016, reaching 11.1 and 6.3 million tons, respectively. There was also a significantly positive effect resulting from a liquidation related to the acquisition of Hydro Paragominas in 2011, which was carried out when the company's remaining shares were acquired.

"It is a great satisfaction to see that Hydro's safety results for 2016 were record-breaking. Together with the record annual production of the Hydro Paragominas bauxite mine and the Hydro Alunorte refinery, the results demonstrate our long-term commitment to operational excellence, ”said Brandtzæg.

Adjusted EBIT for the Primary Metal business area declined slightly in the fourth quarter, but lower sales volume and higher seasonal fixed costs were largely offset by prices higher aluminum profiles.

"The technology project at Karmoy, which aims to test the world's most energy-efficient aluminum production in terms of energy and climate, proceeds as planned. We hope to produce the first metal at the new plant in the fourth quarter of 2017 ”, informed the CEO.

Adjusted EBIT for Metal Markets was higher in the fourth quarter,
especially due to improved results in the areas of supply and trade, which were, in turn, partially affected by a somewhat lower result from the refusers.

In the Rolled Products business area, adjusted EBIT was substantially lower compared to the third quarter of 2016, mainly due to seasonally lower sales volumes, reduced margins, a higher number of maintenance activities and higher costs. In addition, depreciation was somewhat higher in the period, due to the start of activities of the new automotive line in Grevenbroich, Germany. The strengthening of the US dollar against the euro contributed positively and the results of the aluminum plant in Neuss improved due to the higher all-in price.

Adjusted EBIT for the Energy business area increased compared to the previous quarter, largely due to higher prices, lower area costs and a greater contribution from commercial activities, which were partly affected by reduced production. Production costs were lower because of seasonally lower equity taxes in the quarter. However, these costs were partly affected by increased transmission costs and more maintenance activities. Towards the end of the quarter, area costs decreased, thanks to better transmission capacity and better hydrological conditions in central Norway.

Adjusted EBIT for the Sapa joint venture was lower in the fourth quarter than in the previous quarter, mainly due to the seasonally lower market demand.

For the year as a whole, adjusted EBIT decreased to NOK 6.425 billion, compared to NOK 9.656 billion in 2015. This fall is due, in particular, to a fall in realized prices alumina and the all-in metal, which was in turn partially offset by the positive exchange rate effects, lower raw material costs and ongoing improvement work. In 2016, the Bauxite & amp; Alumina achieved record production in both Hydro Paragominas and Hydro Alunorte, Sapa continued to improve its performance, while the Rolled Products area showed weaker results due to lower margins and higher costs.

The Better improvement program, which aims to achieve NOK 2.9 billion improvements by 2019, has been progressing satisfactorily. In 2016, we achieved NOK 1.4 billion improvements, exceeding the NOK 1.1 billion target for the year.

Hydro's net cash improved by NOK 0.6 billion in the fourth quarter, to NOK 6 billion at the end of the quarter. Net cash from operating activities totaled NOK 4.2 billion. The net cash used for investments, excluding short-term investments, amounted to NOK 2.4 billion.

For 2016, Hydro's Board of Directors proposes a higher dividend of NOK 1.25 per share, demonstrating the company's commitment to a predictable and competitive financial return for shareholders and leading taking into account the volatility of the aluminum industry. The proposed dividend represents a proportion of 40% of the net revenue reported for the year and reflects Hydro's operating performance in 2016 and its solid financial position.

The Board of Directors revised the company's dividend policy to reflect the company's ambition to pay stable or better dividends. Hydro's current policy is to pay, over the long term, an average dividend of 40% of net income reported above the cycle.

Earnings reported before interest and taxes totaled NOK 1.964 billion in the fourth quarter. In addition to the factors mentioned above, reported EBIT includes unrealized derivative gains of NOK 106 million and positive effects of NOK 68 million metal. Reported profits also include a cost of NOK 285 million related to the partial depreciation of capitalized costs from a review of construction plans for CAP, Hydro's projected alumina refinery partially owned, and a compensation of NOK 254 million related to completion of pending contract with Vale, both in Brazil. In addition, reported profits also include a cost of NOK 32 million referring to a change in the interest rate used to calculate environmental liabilities related to disused facilities in Germany and a net profit of NOK 23 million from non-derived gains realized costs, rationalization costs and net foreign exchange gains at Sapa (Hydro's quota after taxes).

In the previous quarter, reported earnings before interest and taxes totaled NOK 1.376 billion, including unrealized derivative gains of NOK 100 million and positive effects of NOK 48 million metal. Reported EBIT also includes a cost of NOK 124 million related to the demolition of the Kurri Kurri plant and a depreciation cost of NOK 140 million related to the decision to divest at the Hannover plant. Reported profits also include a net gain of NOK 15 million from SAPA (Hydro's after-tax quota) related to unrealized derivative gains, rationalization costs and net foreign exchange gains.

For the year 2016 as a whole, earnings reported before interest and taxes totaled NOK 7.011 billion, including unrealized derivative gains and positive effects of the metal in the order of NOK 553 million in all . Reported profits also include costs of NOK 192 million related to the demolition of the Kurri Kurri plant, depreciation costs of NOK 426 million related to the projected alumina refinery CAP (partially owned by Hydro) and the plant in Hannover, a net profit of NOK 314 million from the sale of certain assets in Grenland, in addition to a negative adjustment for the sale of the Slim rolling plant in the fourth quarter of 2015. Other positive effects of NOK 223 million reflect the compensation related to the conclusion of pending contractual clauses with Vale and a cost of NOK 32 million related to the new environmental liability calculations in Germany. Reported profits also include a net gain of NOK 113 million from Sapa (Hydro's after-tax quota), linked to unrealized derivative gains, rationalization costs and net foreign exchange gains.

In the previous year, reported earnings before interest and taxes amounted to NOK 8.258 billion, including unrealized derivative gains and negative effects of NOK 454 million metal in all. Reported profits also included costs of NOK 285 million related to the termination of the Vaekeroe Park rental agreement and net losses from divestments of NOK 365 million, including the loss of NOK 434 million from the sale of the Slim rolling plant and gains of NOK 69 million in total related to the sale of other assets. In addition, reported earnings included a net cost of NOK 331 million from Sapa (Hydro's after-tax quota) linked to unrealized derivative losses, rationalization costs and net exchange losses, along with a NOK 37 million related compensation. insurance payment at Qatalum.

In the fourth quarter of 2016, net income totaled NOK 1.088 billion, including net foreign exchange losses of NOK 26 million that mainly reflected the strengthening of the euro against the Norwegian krone, affecting commitments euro in Norway and foreign exchange derivatives included in energy contracts.

In the previous quarter, net profit was NOK 1,119 billion, including net foreign exchange gains of NOK 358 million, which mainly reflected the strengthening of the Norwegian krone against the euro, influencing euro commitments in Norway and foreign exchange derivatives integrated into energy contracts.

In 2016, net income totaled NOK 6.586 billion, including net foreign exchange gains of NOK 2.266 billion. The net foreign exchange gain for 2016 consisted, above all, of unrealized foreign exchange gains on US dollar debt in Brazil and derivatives integrated into euro energy contracts. The net foreign exchange gain also includes gains from domestic euro debt.

In the previous year, net income totaled NOK 2.333 billion, including net foreign exchange losses of NOK 4.377 billion. The net foreign exchange loss in 2015 was largely the result of foreign exchange losses on US dollar debt in Brazil and derivatives integrated into energy contracts in euro. The net foreign exchange loss also included losses on US dollar debt in Norway.
Key financial information Fourth quarter 2016 Third quarter 2016 % change prior quarter Fourth quarter 2015 % change prior year quarter Year 2016 Year 2015
NOK million, except per share data
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 & gt; 100% 7.011 8,258
Items excluded from underlying EBIT (135) 101 & gt; (100)% 841 & gt; (100)% (586) 1.398
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Underlying EBIT 1.829 1,477 24% 1.566 17% 6.425 9,656
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Bauxite & amp; Alumina 711 153 & gt; 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 & gt; (100)% (83) 99% 380 (19)
Underlying EBIT 1.829 1,477 24% 1.566 17% 6.425 9,656
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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
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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
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Earnings per share 0.52 0.53 (2)% 0.23 & gt; 100% 3.13 0.99
Underlying earnings per share 0.47 0.46 2% 0.59 (21)% 1,83 2.98
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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) & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; 5.10% 9.20%
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 aluminum production (kmt) 526 526 - 521 1% 2.085 2.046
Realized aluminum price LME (NOK / mt) 13,659 13,375 2% 13.125 4% 13.193 13,813
Realized NOK / USD exchange rate 8.29 8.3 - 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 50% (kmt) 155 170 (9)% 156 - 682 682
Power production (GWh) 2,551 2.946 (13)% 2.882 (11)% 11,332 10,894
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