Second quarter 2015: Record downstream earnings, upstream down on weaker prices

Hydro's underlying earnings before financial items and tax declined to NOK 2,667 million in the second quarter from NOK 3,208 million in the first quarter of 2015, mainly reflecting lower aluminium prices and premiums. Stronger sales volumes lifted downstream results to the highest level since Hydro became a pure aluminium company in 2007.

July 21, 2015
Image of Brandtzæg on stage
Hydro President and CEO Svein Richard Brandtzæg.
  • Underlying EBIT of NOK 2,667 million
  • Record downstream results on seasonally stronger sales
  • Lower realized alumina and all-in aluminium prices
  • New ICMS tax-framework in place
  • Long-term power sourcing secured for Rheinwerk
  • Continued challenging global market balance
  • 2015 global primary aluminium demand growth ~5%

"Results this quarter are affected by weaker prices, but I am pleased to see demand growing and aluminium taking over as the preferred metal in more and more applications, contributing to record results in our downstream operations," says President and CEO Svein Richard Brandtzæg.

Underlying EBIT for Bauxite and Alumina decreased in the second quarter reflecting lower LME-linked alumina prices, a decline in alumina index prices and lower index based sales volumes.

"We are pleased to have agreed on a long-term ICMS framework for Hydro’s operations in Pará, which is fundamental to our ambition to develop robust and viable operations in Pará and to be an enabler for sustainable growth in the region," says Brandtzæg.

Primary Metal underlying EBIT declined in the second quarter, mainly due to lower realized aluminium prices and premiums.

Underlying EBIT for Metal Markets declined in the second quarter impacted by higher negative currency and inventory valuation effects. Sourcing and trading operations continued to incur underlying losses, reflecting the further fall in standard ingot premiums. Results from remelt operations improved mainly due to higher margins.

"Improved results in Rolled Products and Sapa are partially offsetting the effect of a challenging upstream market. The rapidly changing market conditions demonstrate the importance of our company-wide improvement programs, where the combined efforts strengthen our bottom line," says Brandtzæg.

Rolled Products delivered improved underlying EBIT mainly driven by seasonally higher shipments and somewhat better operating margins. Results were negatively influenced by a decrease in the contribution from the Rheinwerk smelter and negative currency developments.

Underlying EBIT for Energy declined compared to the first quarter, mainly due to seasonally lower production also influenced by the delayed spring thaw in the Norwegian mountains.

Underlying EBIT for Sapa increased compared to the previous quarter, due to seasonally higher sales volumes, strong North American market development, as well as improvement programs progressing ahead of plan across the organization. The second quarter results were also negatively affected by sharply falling metal premiums in North America.

Operating cash flow amounted to NOK 4.2 billion for the second quarter. Cash used for investment activities amounted to NOK 1.2 billion. Dividends paid during the quarter amounted to NOK 2.0 billion. Hydro's net cash position amounted to NOK 0.7 billion at the end of the second quarter.

Reported earnings before financial items and tax amounted to NOK 2,698 million in the second quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative gains and positive metal effects of NOK 132 million in total and a compensation of NOK 37 million relating to insurance proceeds. Reported earnings also included a charge of NOK 139 million (Hydro's share) for Sapa net of tax, including NOK 106 million relating to restructuring charges.      

In the previous quarter reported earnings before financial items and tax amounted to NOK 3,206 million including net unrealized derivative gains and positive metal effects of NOK 72 million in total. Reported earnings also included a charge of NOK 74 million (Hydro's share) for Sapa mainly relating to unrealized derivative losses.     

Net income amounted to NOK 2,064 million in the second quarter including a net foreign exchange gain of NOK 346 million due to unrealized currency gains on US dollar debt mainly in Brazil. In the previous quarter, net income was NOK 1,072 million including a net foreign exchange loss of NOK 1,587 million mainly due to the strengthening of the USD.

Key financial information
NOK million, except per share data Second quarter 2015 First 
% change prior quarter Second quarter 2014 % change prior year quarter First half 2015 First half 2014 Year 2014
Revenue 22,436 23,290 (4)% 18,272 23% 45,726 36,553 77,907
Earnings before financial items and tax (EBIT) 2,698 3,206 (16)% 620 >100% 5,904 1,442 5,674
Items excluded from underlying EBIT (31) 2 >(100)% (75) 59% (29) (126) 18
Underlying EBIT 2,667 3,208 (17)% 544 >100% 5,875 1,316 5,692
Underlying EBIT:
Bauxite & Alumina 482 780 (38)% (269) >100% 1,261 (557) (55)
Primary Metals 1,448 2,012 (28)% 420 >100% 3,459 732 3,937
Metal Markets (89) 24 >(100)% 100 >(100)% (65) 241 634
Rolled Products 315 292 8% 177 78% 607 358 698
Energy 179 382 (53)% 169 6% 560 603 1,197
Other and eliminations 333 (281) >100% (52) >100% 51 (61) (717)
Underlying EBIT 2,667 3,208 (17)% 544 >100% 5,875 1,316 5,692
Underlying EBITDA 3,880 4,437 (13)% 1,653 >100% 8,317 3,514 10,299
Net income (loss) 2,064 1,072 93% 269 >100% 3,136 730 1,228
Underlying net income (loss) 1,830 2,206 (17)% 318 >100% 4,036 705 3,728
Earnings per share 0.94 0.46 >100% 0,09 >100% 1.40 0.28 0.39
Underlying earnings per share 0.83 0.95 (12)% 0.13 >100% 1.78 0.29 1.55
Financial data:
Investments 1,192 802 49% 740 61% 1,993 1,286 3,625
Adjusted net interest-bearing debt (11,000) (13,478) 18% (13,551) 19% (11,000) (13,551) (13,587)
 Key Operational information
Alumina production (kmt) 1,437 1,451 (1)% 1,526 (6)% 2,888 2,954 5,933
Primary aluminium production (kmt) 509 497 2% 488 4% 1,005 972 1,958
Realized aluminium price LME (USD/mt) 1,803 1,897 (5)% 1,762 2% 1,851 1,755 1,850
Realized aliminium price LME (NOK/mt) 13,923 14,383 (3)% 10,660 31% 14,160 10,682 11,624
Realized NOK/USD exchange rate 7.72 7.58 2% 6.05 28% 7.65 6.09 6.28
Metal products sales, total Hydro (kmt) 830 767 8% 833 - 1,597 1,701 3,274
Rolled Products sales volumes to external market (kmt) 243 227 7% 245 (1)% 471 488 946
Power production (GWh) 2,103 3,071 (32)% 2,248 (6)% 5,173 5,212 10,206


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