- Macro uncertainty amid Covid-19, strong measures in response
- Positive cost developments, weaker prices and downstream volumes
- Record-low production costs at Alunorte
- Improvement initiatives running at full speed
- Positioning Hydro for the future
Hydro’s underlying EBIT for the second quarter was NOK 949 million, compared with NOK 875 million for the same quarter last year. The ramp-up of Alunorte’s production and reduced costs, including record low production cost at Alunorte, contributed positively to the second quarter results. These positive elements were partly offset by reduced realized alumina and aluminium prices in addition to reduced downstream volumes.
“We are maneuvering through a very demanding period, and I’m pleased by our ability to protect people and operations, keeping the wheels turning while preserving cash. At the same time, we are positioning the company for the future,” says President and CEO Hilde Merete Aasheim.
“We aim to strengthen Hydro’s position as a leading sustainable industrial company, through our low-carbon aluminium, represented by Hydro CIRCAL and Hydro REDUXA. We will also aim to grow and diversify our portfolio where Hydro’s capabilities match the megatrends, such as recycling, renewable energy and batteries,” says Aasheim.
Hydro has taken forceful actions in response to the uncertain situation, including strict precautionary actions to ensure health and safety, extensive social and community support, financial measures to protect liquidity and operational measures to adjust capacity, curtail production and cut costs.
“As we have observed the epicenter of Covid-19 move from Europe to the Americas, sustaining our operations in Brazil is a top priority. We have taken extensive precautionary measures to ensure the health and safety of our people and maintain stable operations. Operations at Paragominas, Alunorte, and Albras are running as normal, and risks are being assessed and managed on an ongoing basis,” says Aasheim.
“We will continuously evaluate further measures as the situation develops,” says Aasheim.
The Covid-19 situation continues to cause significant market uncertainty, with global GDP and industrial production falling during the quarter, leading to a reduction in aluminium demand. Although uncertainty remains high, several countries, and especially China, are showing signs of recovery towards the end of the second quarter.
The global fall in demand and government-imposed restrictions have directly affected certain operations in Hydro. Extruded Solutions, Rolled Products and recycling facilities were impacted the most, with capacity utilization starting to improve towards the end of the quarter. Extruded Solutions and Rolled Products are operating at reduced capacity utilization. Metal Markets recycling facilities were operating under a combination of full curtailments or reduced capacity utilization during the quarter but were largely back to normal operations by the end of the quarter.
Bauxite & Alumina, Primary Metal and Energy have been operating largely as normal during the quarter.
Hydro’s improvement efforts, targeting NOK 4.1 billion by 2020 and NOK 7.3 billion by 2023, are moving forward with full speed, focusing on the cost levers Hydro can control in these uncertain times. Although results are being negatively impacted by the Covid-19 induced market effects, we are seeing positive contributions from cost improvement initiatives across the portfolio, as well as the ramp-up of the Brazilian operations. Alunorte remains on target to reach name-plate capacity by the end of 2020. These efforts have supported the positive cash flow generation in the quarter, a key priority in light of the current uncertain market environment.
Extruded Solutions recognized an impairment of NOK 1.5 billion in the second quarter, reflecting weaker growth expectations in key market segments driven by the negative macroeconomic effects of Covid-19. Primary Metal’s majority-owned primary aluminium plant, Slovalco, recognized an impairment of NOK 0.5 billion in the second quarter, reflecting the continued weak market environment combined with Slovalco’s relatively high cost position.
Hydro had strong liquidity at the end of the second quarter 2020 and held NOK 15.4 billion in cash and cash equivalents, including NOK 7 billion raised in the bond market, and NOK 4.2 billion in short-term deposits, included in short-term investments. The revolving credit facility of USD 1.6 billion was fully available at the end of the quarter.
Hydro's net debt position decreased from NOK 15.2 billion to NOK 13.2 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 2.2 billion. Net cash used in investment activities, excluding short-term investments, amounted to NOK 1.2 billion.
In addition to the factors discussed above, reported earnings before financial items and tax (EBIT) and net income include effects that are disclosed in the attached quarterly report. Items excluded from underlying EBIT and underlying net income (loss) are defined and described as part of the alternative performance measures (APM) section in the quarterly report.
Certain statements included in this announcement contain forward-looking information, including, without limitation, information relating to (a) forecasts, projections and estimates, (b) statements of Hydro management concerning plans, objectives and strategies, such as planned expansions, investments, divestments, curtailments 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, and (i) qualified statements such as "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar.
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 businesses; 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.