Fourth quarter 2013: Alunorte improvements, seasonality and lower power production

Hydro's underlying earnings before financial items and tax (EBIT) fell to NOK 483 million in the fourth quarter 2013 from NOK 659 million in the third quarter, mainly due to seasonal effects and lower hydropower production. For the full year, underlying EBIT rose to 2,737 million from 1,297 million in 2012, helped by cost savings, strong performance at the Qatalum aluminium plant combined with higher product premiums, and despite lower aluminium prices.

February 12, 2014
  • Underlying EBIT NOK 483 million
  • USD 300-program completed, yielding NOK 1.5 billion improvements
  • Alunorte production rising, offset by ICMS tax charges
  • Primary Metal lifted by Qatalum insurance proceeds
  • Downstream seasonality, lower power production
  • Proposed 2013 dividend NOK 0.75 per share
  • Expect 2-4% aluminium demand growth outside China in 2014

"Extensive improvement programs backed our results for 2013, despite market uncertainty and low aluminium prices. Although the uncertainty remains, we are entering 2014 on a positive note, as we expect demand for aluminium to slightly exceed production this year, in the world outside China," says Hydro President and CEO Svein Richard Brandtzæg.

Fourth-quarter underlying EBIT for the Bauxite & Alumina business area was lifted by improved production at the Alunorte alumina refinery in Brazil, following several disruptions in 2013, offset by claims relating to ICMS taxes.

"I am pleased to report that production at Alunorte is back at production levels seen in 2012, providing stable supplies of top-quality alumina. Stable and sound operations at Alunorte remain a key priority in 2014," says Brandtzæg. "However, stable and predictable framework conditions are absolutely critical to Hydro wherever we operate and a prerequisite for making long-term commitments. We are in dialog with Brazilian authorities, and doing our utmost to ensure that this is also the case in Brazil."

The USD 300 cost improvement program, targeting Hydro's fully owned aluminium plants, was concluded at the end of the year, yielding around NOK 1.5 billion in annual improvements at the end of 2013 compared to 2009 cost levels.

"After four years of hard work, it is a milestone for Hydro to have delivered the industry's most ambitious improvement program. We are pursuing opportunities with unabated strength in all parts of our operations to further improve our robustness," says Brandtzæg.

Underlying EBIT for the Primary Metal business area improved in the fourth quarter compared to the third, mainly due to insurance proceeds relating to a fire in a cooling tower at the Qatalum plant in Qatar in 2012. Qatalum showed stable production above nameplate capacity throughout the year, ensuring a first-decile aluminium smelter cost position.

Metal Markets delivered higher underlying EBIT during the quarter due to higher margins and improved results from sourcing and trading activities.

Rolled Products' underlying EBIT declined in the fourth quarter, mainly due to seasonal volume declines and higher maintenance activity.

Underlying EBIT for Energy declined in the fourth quarter compared to the third quarter, mainly due to lower power production compared with unusually high production in the previous quarter.

Underlying EBIT for Sapa, the 50-50 extruded products joint venture, declined in the quarter, reflecting a seasonally weaker quarter and charges related to impairment of inventories and accounts receivables.

Operating cash flow was NOK 2.5 billion for the fourth quarter. Net cash used for investment activities amounted to NOK 0.9 billion. Hydro's net cash position increased by NOK 1.2 billion, and amounted to around NOK 0.7 billion at the end of the fourth quarter.

Reported earnings before financial items and tax amounted to negative NOK 3 million in the fourth quarter. Reported EBIT included net unrealized derivative losses and negative metal effects amounting to NOK 151 million in total.

Reported earnings also included a loss of NOK 69 million from divestment of a rolling mill in Malaysia, charges of NOK 392 million relating to Hydro's head office lease arrangement, penalties of NOK 109 million relating to the settlement of tax claims in Brazil and charges of NOK 172 million primarily related to rationalization activities in Sapa. In addition, reported earnings included pension curtailment gains of NOK 390 million relating to the transition to defined contribution plans in Norway.

Hydro's Board of Directors proposes to pay a dividend of NOK 0.75 per share for 2013 reflecting the company's strong commitment to provide a cash return to its shareholders. The dividend reflects our operational performance for 2013 and a strong financial position, also taking into consideration the uncertain market outlook.

Key financial information
NOK million, except per share data Fourth
% change prior quarter Fourth
% change prior year quarter Year
Year 2012
Revenue 16,571 16,146 3% 15,585 6% 64,880 64,181
Earnings before financial items and tax (EBIT) (3) 597 >(100)% 704 >(100)% 1,674 571
Items excluded from underlying EBIT 485 62 >100% (532) >100% 1,063 725
Underlying EBIT 483 659 (27)% 172 >100% 2,737 1,297
Underlying EBIT:              
Bauxite & Alumina (379) (370) (2)% (73) >(100)% (1,057) (791)
Primary Metal 484 337 44% 58 >100% 1,422 335
Metal Markets 190 111 70% 70 >100% 594 210
Rolled Products 111 182 (39)% 70 59% 627 637
Energy 383 485 (21)% 322 19% 1,653 1,459
Other and eliminations (306) (87) >(100)% (275) (11)% (502) (553)
Underlying EBIT 483 659 (27)% 172 >100% 2,737 1,297
Underlying EBITDA 1,578 1,753 (10)% 1,250 26% 7,119 5,827
Underlying income (loss) from discontinued operations - 57 (100)% (54) 100% 220 (5)
Net income (loss) (758) 321 >(100)% 87 >(100)% (839) (1,331)
Underlying net incomme (loss) 140 393 (64)% (24) >100% 1,610 408
Earnings per share (0.39)  0.11  >(100)%  0.06  >(100)%   (0.45) (0.65) 
Underlying earnings per share 0.02 0.14 (83)% (0.01) >100% 0.65 0.21
Financial data:              
Investments 971 948 2% 1,107 (12)% 3,586 3,382
Adjusted net interest-bearing debt (9,503) (10,732) 11% (8,304) (14)% (9,503) (8,304)
Key operational information
Alumina production (kmt) 1,452 1,316 10% 1,397 4% 5,377 5,792
Primary aluminium production (kmt) 492 491 - 485 2% 1,944 1,985
Realized aluminium price LME (USD/mt) 1,802 1,822 (1)% 1,940 (7)% 1,902 2,080
Realized aluminium price LME (NOK/mt) 10,916 10,938 - 11,069 (1)% 11,160 12,047
Realized NOK/USD exchange rate 6.06 6.00 1% 5.71 6% 5.87 5.79
Metal products sales, total Hydro (kmt) 777 792 (2)% 731 6% 3,164 3,254
Rolled Products sales volumes to external market (kmt) 226 234 (3)% 226 - 941 909
Power production (GWh) 2,411 2,838 (15)% 2,448 (1)% 10,243 10,307


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