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Fourth quarter of 2017: Higher alumina and aluminum prices improve results

Hydro's adjusted earnings before interest and taxes increased to NOK 3.55 billion in the fourth quarter of 2017, compared to NOK 2.44 billion in the third quarter. The increase reflects, in large part, the higher realized price of alumina and aluminum, partially affected by raw materials and fixed costs.

  • Adjusted EBIT of NOK 3.55 billion.
  • Alumina and aluminum prices all-in realized higher, but partially affected by increased costs.
  • downstream results seasonally lower; first quarter with Extruded Products Solutions fully consolidated.
  • Increase in the volume of production in Energy.
  • Improvement program Better advances as planned for the revised target of NOK 3 billion for 2019, despite a setback in 2017.
  • Karmoy's pilot project produces its first metal, accelerating production during the first half of 2018.
  • Proposed dividend for 2017 of NOK 1.75 per share, compared to NOK 1.25 per share in 2016.
  • Forecast of 4-5% growth in global demand for primary aluminum in 2018, a market that is largely in balance.

"The year 2017 marks the beginning of a new chapter in Hydro's history. With the acquisition of Sapa, Hydro became the world's leading integrated aluminum company, with 35,000 employees in 40 countries and serving 30,000 customers globally. I am very pleased with the strong annual and quarterly results, which were favored by the higher prices for alumina and aluminum. I am also pleased to see that the improvement program Better is on track to reach the NOK 3 billion target in 2019, said Hydro President and CEO Svein Richard Brandtzæg.

"The start of operations of the technology pilot project in Karmoy marks the beginning of the most efficient aluminum technology in the world in terms of climate and energy. Several elements of the new technology will be adapted for use at Hydro’s aluminum factories around the world. This technology isn’t good news just for Karmoy, but for all Hydro’s aluminum factories, ”said Brandtzæg. & nbsp; & nbsp;

Adjusted EBIT for the Bauxite & amp; Alumina had a significant increase compared to the third quarter, especially because of the higher alumina prices, which were triggered by a higher alumina index and the London Stock Exchange. In 2017, both the Hydro Paragominas bauxite mine and the Hydro Alunorte aluminum refinery achieved record annual production of 11.4 million and 6.4 million tons respectively. & Nbsp; & nbsp;

"We maintain the expectation of a balanced market for primary aluminum, with a forecast of a 4-5% increase in primary aluminum demand in 2018, driven by the solid demand for aluminum in the automotive markets and construction, ”said Brandtzæg.

Adjusted EBIT in the Primary Metal business area improved in the fourth quarter, thanks to higher realized alumina prices, which were partially affected by the increase in raw material prices and costs fixed.

Adjusted EBIT for Mercados de Metal also improved in the fourth quarter, in general due to the improvement in the results of commercial and acquisition activities, in addition to the positive currency effect and better results in the refineries.

The adjusted EBIT of the Rolled Products business area in the fourth quarter of 2017 was, in turn, at the same level as the third quarter. The increase in margins generated by the product mix and the positive inventory effects were impacted by the seasonal reduction in sales volume and maintenance costs at the end of the year. The results of the Neuss smelting plant fell in the fourth quarter because of the increase in the prices of alumina and raw materials. & Nbsp; & nbsp;

Adjusted EBIT for the Extruded Products business area decreased compared to the pro forma adjusted EBIT for the third quarter, especially due to the lower seasonal volume that was partially offset by increased margins. < / p>

The new business area, Extruded Products Solutions, was created at the end of the fourth quarter, after Hydro acquired the remaining 50% of Sapa's shares. The financial results of the area were fully consolidated with the closing date of October 2, 2017. The adjusted EBIT of Soluções em Extrudados includes some effects of the acquisition, such as higher depreciation and amortization due to the fair value adjustments of the assets of long-lasting.

Compared to the previous quarter, the adjusted EBIT of the Energy business area increased, largely thanks to higher prices and production, although partially impacted by low commercial results. High production during the fourth quarter was driven by a high influx and preparation for maintenance scheduled for the first quarter of 2018.

For 2017 as a whole, Hydro's adjusted EBIT increased from NOK 6.42 billion (in 2016) to NOK 11.21 billion. The increase reflects the rise in prices for all-in metal and alumina sales prices, which were partially impacted by raw material costs, fixed costs and negative exchange effects. & Nbsp; & nbsp; < / p>

Due to performance challenges at Laminated Products and slower than expected progress at the Metal Primary Albras plant, the progress of the Better improvement program is lagging behind - but although Hydro did not reach its target of NOK 500 million for 2017, the delay should not impact the increased target of NOK 3 billion for 2019.

Hydro's net cash position was reduced from NOK 7.7 billion to a net debt position of NOK 4.1 billion at the end of the quarter. Net cash from operating activities totaled NOK 6.4 billion. Net cash used in investing activities, excluding short-term investments, totaled NOK 14.1 billion.

For 2017, the Board of Directors proposes a dividend of NOK 1.75 per share, reflecting Hydro's strong operating performance in 2017 and its solid financial position - and an increase in relation to NOK 1.25 per share paid in 2016, which remains a minimum amount. The proposed payment represents 41% of the net revenue reported for the year and demonstrates the company's commitment to providing a competitive financial return to shareholders, even taking into account the volatility of the aluminum industry. & Nbsp;

Reported earnings before interest and taxes amounted to NOK 4.51 billion in the fourth quarter. In addition to the factors presented above, the reported EBIT included NOK 231 million in net losses from unrealized derivatives, NOK 146 million in positive effects from the metal, a charge of NOK 210 million, of which NOK 181 million is related to an environmental responsibility in the plant of Kurri Kurri, and NOK 29 million related to rationalization costs at Solutions in Extruded Products, in addition to a charge of NOK 245 million related to non-compliant customs declarations and a gain of NOK 33 million related to the reassessment of environmental responsibilities, both in Germany . Reported profit also included a net gain of NOK 2.17 billion from shares we previously had in Sapa and an inventory valuation expense of NOK 707 million related to the Sapa transaction.

In the previous quarter, reported earnings before interest and taxes amounted to NOK 2.32 billion, including net unrealized derivative gains of NOK 23 million and negative effects of NOK 151 million metal. Reported profit also included a net gain of NOK 6 million at Sapa (Hydro's share net of taxes), related to unrealized derivative gains. & Nbsp;


For the year 2017 as a whole, reported earnings before interest and taxes amounted to NOK 12.18 billion. Reported EBIT included net unrealized derivative losses of NOK 466 million and positive effects of NOK 419 million. In addition, reported earnings included a net loss of NOK 19 million at Sapa (Hydro's share net of taxes) linked to unrealized derivative losses and net foreign exchange losses. Net revenue also included a charge of NOK 210 million, of which NOK 181 million is related to an environmental liability at the Kurri Kurri plant and NOK 29 million related to rationalization costs at Soluções em Extrudados, in addition to a charge of NOK 245 million referring to incorrect customs declarations in Germany and a gain of NOK 33 million related to the reassessment of environmental responsibilities, also in Germany. Reported profit also included a net gain of NOK 2.17 billion and an inventory valuation expense of NOK 707 million, both related to the Sapa transaction.

In the previous quarter, reported earnings before interest and taxes totaled NOK 7.01 billion, including unrealized net derivative gains and positive effects of NOK 553 million in total. Reported profit also included charges of NOK 192 million related to the demolition of the Kurri Kurri plant, amortization costs of NOK 426 million linked to the projected joint venture CAP alumina refinery and the Hannover plant, a net gain of NOK 314 million from the sale of certain assets in Grenland, in addition to a negative adjustment in the sale of the Slim rolling mill in the fourth quarter of 2015. Other positive effects of NOK 223 million reflect a compensation linked to the conclusion of contractual arrangements with Vale and the charge NOK 32 million relating to the reassessment of environmental liabilities in Germany. Reported profit also included a net gain of NOK 113 million for Sapa (Hydro's share net of taxes) related to unrealized derivative gains, rationalization charges and net foreign exchange gains.

Net revenue amounted to NOK 3.6 billion in the fourth quarter, including net foreign exchange losses of NOK 696 million, largely unrealized, which reflect the strengthening of the euro in future rates in in relation to the Norwegian krone and which resulted in an unrealized loss of derivatives embedded in energy contracts denominated in euros, while the strengthening of the US dollar against the real affected dollar debts in Brazil.

In the previous quarter, net revenue was NOK 2.18 billion and included a reduction in tax expenses with interest income of NOK 125 million in total, as a result of the end of a tax process in September 2017. In addition, net revenue included exchange gains of NOK 520 million, essentially unrealized, resulting from the weakening of the US dollar against the real, which impacted dollar debts in Brazil, at the same time as the weakening of future rates in euro against the US dollar resulted in an unrealized gain on derivatives embedded in euro energy contracts.

Net revenue for 2017 totaled 9.18 billion, including a net foreign exchange loss of NOK 875 million due to the strengthening of the US dollar against the real, which affected dollar debts in Brazil , while the strengthening of the euro in future rates against the Norwegian krone caused an unrealized loss in derivatives embedded in euro energy contracts.

For the previous year, net revenue amounted to NOK 6.58 million, including a net foreign exchange gain of NOK 2.26 billion due to the strengthening of the real against the US dollar, which impacted dollar liabilities in Brazil, as well as the strengthening of the Norwegian krone against the euro, which, in turn, affected euro liabilities in Norway and the foreign exchange derivatives embedded in energy contracts. In addition, net revenue contained a reduction in tax expenses with interest income of NOK 700 million in total from the settlement of a tax proceeding in April 2016.

In the third quarter, net revenue totaled NOK 2.18 billion, including a reduction in tax expenses with interest income of NOK 125 million in total as a result of a tax process closed in September 2017. Net revenue also included net foreign exchange gains of NOK 520 million, practically unrealized, which reflected the weakening of the US dollar against the real and influenced dollar debts in Brazil, while the weakening of the euro in future rates, compared to the Norwegian krone, resulted in an unrealized gain on derivatives embedded in euro energy contracts.

(in English):

Key financial information Fourth quarter 2017 Third quarter 2017 % change prior quarter Fourth quarter 2016 % change prior year quarter Year 2017 Year 2016
NOK million, except per share data
Revenue 38,803 22,799 70% 21,250 83% 109,220 81,953
Earnings before financial items and tax (EBIT) 4,511 2,323 94% 1,964 & gt; 100% 12,189 7,011
Items excluded from underlying EBIT (956) 123 & gt; (100)% (135) & gt; (100)% (974) (586)
& nbsp;
Underlying EBIT 3,555 2,446 45% 1,829 94% 11,215 6,425
& nbsp;
Bauxite & amp; Alumina 1,872 413 & gt; 100% 711 & gt; 100% 3,704 1,227
Primary Metal 1,377 1,298 6% 601 & gt; 100% 5,061 2,258
Metal Markets 185 91 & gt; 100% 152 22% 544 510
Rolled Products 95 95 0% 6 & gt; 100% 380 708
Extruded Solutions 284 & nbsp; & nbsp; & nbsp; & nbsp; 284 & nbsp;
Energy 457 368 24% 359 27% 1,531 1,343
Other and eliminations (715) 181 & gt; (100)% (1) & gt; (100)% (289) 380
Underlying EBIT 3,555 2,446 45% 1,829 94% 11,215 6,425
& nbsp;
Earnings before financial items, tax, depreciation and amortization (EBITDA) 6,481 3,766 72% 3,563 82% 18,344 12,485
Underlying EBITDA 5,524 3,889 42% 3,143 76% 17,369 11,474
& nbsp;
Net income (loss) 3,600 2,184 65% 1,008 & gt; 100% 9,184 6,586
Underlying net income (loss) 2,816 1,785 58% 968 & gt; 100% 8,396 3,875
& nbsp;
Earnings per share 1.71 1.00 72% 0.52 & gt; 100% 4.30 3.13
Underlying earnings per share 1.33 0.82 62% & nbsp; 0.48 & gt; 100% & nbsp; 3.95 & nbsp; 1.76
& nbsp;
Financial data:
Investments 24,632 1,424 & gt; 100% 3,541 & gt; 100% 28,848 9,137
Adjusted net cash (debt) (17,968) (2,976) & gt; (100)% (5,598) & gt; (100)% (17,968) (5,598)
Underlying Return on average Capital Employed (RoaCE) & nbsp; & nbsp; & nbsp; & nbsp; & nbsp; 9.6% 5.1%
Key Operational information
Bauxite production (kmt) 3,049 3,043 0% 3,063 0% 11,435 11,132
Alumina production (kmt) 1,693 1.605 5% 1,635 4% 6,397 6,341
Primary aluminum production (kmt) 528 527 0% 526 0% 2,094 2,085
Realized aluminum price LME (USD / mt) 2,092 1,921 9% 1,647 27% 1,915 1,574
Realized aluminum price LME (NOK / mt) & nbsp; 17,066 & nbsp; 15,496 10% & nbsp; 13,659 25% & nbsp; 15,888 & nbsp; 13,193
Realized USD / NOK exchange rate & nbsp; 8.16 & nbsp; 8.07 1% & nbsp; 8.29 (2)% & nbsp; 8.30 & nbsp; 8.38
Rolled Products sales volumes to external market (kmt) 224 236 (5)% 213 5% 940 911
Extruded Solutions sales volumes (kmt) 318 170 87% 155 & gt; 100% 845 662
Power production (GWh) 3,089 2,509 23% 2,551 21% 10,835 11,332

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