Norsk Hydro: Fourth quarter 2018: Results down on volumes and raw material costs

Hydro's underlying earnings before financial items and tax decreased to NOK 534 million in the fourth quarter, down from NOK 3 555 million in the same quarter last year. The results mainly reflect the effects of the production curtailment at Alunorte and increased raw material costs.

• Underlying EBIT of NOK 534 million
• Alunorte, Paragominas and Albras producing at 50%
• Significantly increased raw material costs
• Downstream results down on margin and volume
• Strong Energy result on high prices
• Better improvement program hit by the Alunorte situation – 2018 target not met, will not reach 2019 target
• Proposed dividend for 2018 of NOK 1.25 per share
• 2019 global primary market expected in deficit, continued macro uncertainty

"Our results are reflecting the challenging situation we face in Brazil and higher raw material costs,” says President and CEO Svein Richard Brandtzæg, adding that the Alunorte alumina refinery has made progress towards resuming normal production, but that the timing remains uncertain.

"Even though 2018 has been a challenging year for Hydro, we have also taken several significant steps to strengthen our future competitiveness, including the integration of the Extruded Solutions business area, reaching full production at the Karmøy technology pilot, securing our future power sourcing needs in Norway and improving the performance at our new automotive line in Germany,” Brandtzæg says.

"For 2019, we expect the global primary aluminium market to be in deficit, although increasing macro uncertainty could lead to softening demand growth,” he says.

Underlying EBIT for Bauxite & Alumina decreased significantly compared to the fourth quarter of last year, from NOK 1 872 million in 2017 to NOK 493 million in 2018. The results were driven by the effects of reduced production at both Alunorte and Paragominas and higher raw material prices, partly offset by higher realized alumina sales prices and positive currency effects.

Underlying EBIT for Primary Metal declined from NOK 1 377 million in the fourth quarter 2017 to a loss of NOK 677 million in the same period of 2018, mainly due to higher alumina and carbon costs, as well as lower sales volumes.

Fourth-quarter underlying EBIT for Metal Markets improved from NOK 185 million in 2017 to NOK 275 million in 2018, mainly due to increased results from the remelters and positive contributions from currency and inventory valuation effects, partly offset by lower results within sourcing and trading activities.

Underlying EBIT for Rolled Products decreased significantly compared to the fourth quarter of 2017, from NOK 95 million in 2017 to a loss of NOK 113 million in 2018. Improved performance from Automotive line 3 and positive currency effects were more than offset by lower sales volumes and margins in addition to increased personnel, energy and maintenance costs. Results for the Neuss smelter decreased, as the positive effects of the new power contract were more than offset by increasing raw material prices and lower positive inventory effects.

Underlying EBIT for Extruded Solutions decreased from NOK 284 million in the fourth quarter 2017 to NOK 202 million in 2018. The positive effect of higher margins was offset by increased production costs in connection with the ramp-up of new product lines in Europe and negative effects from a lower Midwest Premium and section 232 tariffs in North America. Additional costs due to the integration and restructuring of the two recently acquired extrusion plants in Brazil also had a negative effect on the quarter.

Underlying EBIT for Energy increased from NOK 457 million in the fourth quarter 2017 to NOK 500 million in the fourth quarter 2018. The increase was mainly due to significantly higher prices, partly offset by lower production and negative effects from the repricing of an internal power contract with the Neuss smelter.

Hydro’s underlying EBIT for 2018 was NOK 9 069 million, down from NOK 11 215 million in 2017. The weaker results reflect negative effects relating to the production curtailment at Alunorte and increased raw material costs, partly offset by a higher all-in metal price and alumina sales price as well as the positive contribution from the full consolidation of Extruded Solutions. The 2018 results were positively impacted by strong Energy results and improved downstream margins and volumes.

Mainly due to the situation in Brazil, Hydro's "Better" improvement program did not reach the 2018 target of NOK 500 million. For the same reason, Hydro will not be able to meet its "Better” target for 2019.

Hydro's net debt position increased from NOK 6.5 billion to NOK 8.7 billion at the end of the fourth quarter. Net cash provided by operating activities amounted to NOK 0.9 billion. Net cash used in investment activities, excluding short-term investments, amounted to NOK 2.6 billion.

For 2018, Hydro's Board of Directors proposes a dividend of NOK 1.25 per share, reflecting Hydro's robust financial situation, taking into account a demanding year for the company and the volatility in the aluminium industry. The proposed payment represents a 58% percent pay-out ratio of reported net income for the year and demonstrates the company's commitment to provide a competitive cash return to shareholders. Hydro has a dividend policy of a 40% payout-ratio of reported net income over the cycle, with NOK 1.25 per share considered as a floor.

Hydro’s reported EBIT amounted to NOK 335 million for the fourth quarter 2018, compared to NOK 4 511 million in fourth quarter 2017. 
 
For the full-year 2018, Hydro’s reported EBIT amounted to NOK 8 679 million, compared to NOK 12 189 million in 2017.

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.

Investor contact
Stian Hasle
+47 97736022
Stian.Hasle@hydro.com

Press contact
Halvor Molland
+47 92979797
Halvor.Molland@hydro.com

Cautionary note
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.

Attachments

• Q4 2018 Report
• Q4 2018 Presentation