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Third quarter of 2017: Cost of raw materials and foreign exchange weaken results

Hydro's adjusted earnings before interest and taxes dropped to NOK 2.446 billion in the third quarter, compared to the previous NOK 2.930 billion. The decline largely reflects the increase in raw material costs and negative exchange effects.

  • Adjusted EBIT of NOK 2.446 billion
  • Negative effect of results due to the cost of raw materials and the depreciation of the US dollar
  • Poor results at Produtos Laminados due to continuous operational challenges and negative exchange rate effect
  • Acquisition of Sapa concluded on October 2 and integration progressing as planned
  • “Better” improvement program up to date for NOK 2.9 billion target in 2019, despite delay in 2017
  • Karmoy's pilot project advances according to schedule and budget, production expectation in the fourth quarter of 2017
  • Positive market reaction on closings in China, forecast of a broadly balanced global market in 2017

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“We raised our estimate of global demand for 2017 to 5-6%, which indicates the strong and continued demand for aluminum. There is a positive reaction in the aluminum market given, in particular, to the reduction of primary aluminum production in China, a reduction that contributed to the market balance in the quarter ”, said Hydro President and CEO, Svein Richard Brandtzæg.

"This quarter marks a new chapter in our history, with the addition of the Extruded Products business area as the fifth business area at Hydro. Today, we have the strength of 35,000 employees, we are present in 150 locations worldwide and we have 30,000 customers distributed across the aluminum value chain. Our presence is global, while we are close to our customers and all the communities in which we operate, "said Brandtzæg. < / p>

"Now, we have the best possible platform to take advantage of opportunities, make use of innovations, develop products and keep growing”, he continued.

Adjusted EBIT for the Bauxite & amp; Alumina was lower than in the second quarter. Higher prices for bauxite and caustic soda, negative exchange effects and higher depreciation, especially at Hydro Paragominas, were partially offset by an improvement linked to consumption. In addition, the start of filter operations for the new presses led to additional costs for the alumina refinery.

Adjusted EBIT in the Primary Metal business area also declined in the third quarter, due to negative exchange effects, with the strengthening of the Norwegian krone against the US dollar, seasonally lower sales volumes and higher carbon costs. This decline was, however, partially offset by lower fixed costs and lower alumina.

Adjusted EBIT for Metal Markets fell in the third quarter, largely due to the negative inventory valuation and less positive exchange rate effects. The result of the refusers also fell in the same quarter due to lower sales volumes in Europe.

Adjusted EBIT for the Rolled Products business area improved slightly in the third quarter, compared to the second quarter of 2017. The improvement was mainly caused by the allocation of resources for employee compensation in the second quarter. The improvement was, however, partially affected by the negative development of the exchange rate and seasonal issues, such as the closing of certain plants during the summer. The result of the Neuss refiner was, on the contrary, at the same level as the previous quarter.

Adjusted EBIT for the Energy business area showed a high, compared to the previous quarter, thanks in large part to the improvement in commercial results and higher production. However, it was partially affected by the higher equity taxes in the period.

SAPA's adjusted EBIT also declined compared to the second quarter of 2017, due to the typical seasonality of the extrusion businesses.

Due to the performance challenges that the Rolled Products area has been facing, the progress of the “Better” improvement program has been delayed. However, although the NOK 500 million target is not expected to be reached by the end of the year, the delay should not impact the company's ability to reach the NOK 2.9 billion target by the end of 2019.

The net cash position increased by NOK 1.7 billion, totaling NOK 7.7 billion at the end of the quarter. Net cash from operating activities totaled NOK 3.0 billion. Net cash used in investing activities, excluding short-term investments, amounted to NOK 1.3 billion.

Earnings reported before interest and taxes amounted to NOK 2.323 billion in this third quarter. In addition to the factors discussed above, reported EBIT included unrealized net derivative gains of NOK 23 million and negative metal effects of NOK 151 million.

Net income totaled NOK 2.184 billion in the third quarter, including a reduction in tax costs and corresponding interest income of NOK 125 million in total, as a result of a tax process concluded in September 2017. Net income also includes net foreign exchange gains of NOK 520 million, largely unrealized, reflecting a weakening of the US dollar against the real and affecting the dollar debt in Brazil, while the weakening of the euro against the crown in future rates resulted in an unrealized gain on derivatives embedded in euro energy contracts.


(in English):


< th class = "width-1"> Change prior year quarter
NOK million, except per share data Third quarter 2017 Second quarter 2017 Change prior quarter Third quarter 2016 First 9 months 2017 First 9 months 2016 Year 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) & gt; 100% 101 21% (18) (451) (586)
Underlying EBIT 2,446 2,930 (17)% 1,477 66% 7,660 4,596 6,425
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Underlying EBIT:
Bauxite & amp; Alumina 413 662 (38)% 153 & gt; 100% 1,831 516 1,227
Primary Metal 1,298 1,486 (13)% 637 & gt; 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 & gt; 100% 426 380 380
Underlying EBIT 2,446 2,930 (17)% 1,477 66% 7,660 4,596 6,425
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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
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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
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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
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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)
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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 aluminum production (kmt) 527 523 1% 526 0% 1,566 1,559 2,085
Realized aluminum price LME (USD / mt) 1,921 1,902 1% 1,612 19% 1,859 1,552 1,574
Realized aluminum 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

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