Norsk Hydro ASA — Earnings Release 2016

Feb 9, 2017

Norsk Hydro: Fourth quarter 2016: Higher alumina and aluminium prices lift results

Norsk Hydro: Fourth quarter 2016: Higher alumina and aluminium prices lift results

Hydro's underlying earnings before financial items and tax rose to NOK

1,829 million in the fourth quarter from NOK 1,477 million in

the third quarter. Higher realized alumina and aluminium prices lifted results

for the quarter, partly offset by seasonally higher costs and lower aluminium

product sales. Hydro expects continued healthy demand for aluminium and

aluminium products, forecasting global primary demand growth at 3-5 percent in

* Underlying EBIT of NOK 1 829 million

* Higher realized all-in aluminium and alumina prices

* Record production at Alunorte and Paragominas

* Weak Rolled Products results on lower sales and margins, increased costs

* NOK 1.4 billion Better improvements in 2016 vs NOK 1.1 billion target

* Karmøy Technology Pilot and new automotive line on time and budget

* Proposed dividend for 2016 of NOK 1.25 per share

* 2017 global primary demand growth outlook of 3-5%, global market largely

balanced

"Demand for aluminium remains firm and prices have increased, contributing to a

solid quarter for Hydro. I am particularly pleased to see more and more car

producers choosing aluminium for light-weighting and climate purposes. I am

eager to see our new Rolled Products automotive line in Germany ramping up this

year to meet the rapidly growing automotive demand," says President and CEO,

Svein Richard Brandtzæg.

"We have made better-than-expected progress in our Better improvement

efforts, delivering 1.4 billion NOK in improvements in 2016. These efforts will

continue with full force in 2017, making Hydro's operations more robust across

the value chain and the company well positioned for a better, bigger and greener

future," says Brandtzæg.

Underlying EBIT for the Bauxite & Alumina business area increased significantly

compared to the third quarter, due to higher realized alumina prices, driven by

a higher alumina index and aluminium prices on the London Metal Exchange. Both

the Paragominas bauxite mine and the Alunorte alumina refinery reached record

yearly production in 2016 of 11.1 million mt and 6.3 million mt, respectively.

There was also a significant positive effect from the settlement of a

compensation arrangement related to the acquisition of Paragominas in 2011,

which was realized in combination with acquisition of the remaining shares

in Paragominas.

"I am very pleased to see the record safety results for Hydro in 2016. Combined

with record yearly production results at both the Paragominas bauxite mine and

the Alunorte alumina refinery in Brazil, these results demonstrate our long-term

commitment to operational excellence," says Brandtzæg.

Underlying EBIT for the Primary Metal business area decreased slightly in the

fourth quarter. Lower volumes and seasonally higher fixed costs were largely

offset by higher realized aluminium prices.

"The Karmøy Technology Pilot, aiming to verify the world's most energy and

climate-efficient aluminium production, is well under way. We expect the first

metal to be produced at the new plant during the fourth quarter 2017," says

Brandtzæg.

Underlying EBIT for Metal Markets improved in the fourth quarter, mainly due

to improved results from sourcing and trading activities, partly offset by

somewhat lower results from remelters.

Underlying EBIT for the Rolled Products business area was significantly lower

compared to the third quarter of 2016, primarily due to seasonally lower

volumes, reduced margins, higher maintenance activities and higher costs. In

addition, depreciation increased somewhat due to the start-up of the new

automotive line in Grevenbroich, Germany, in the fourth quarter. The USD

strengthening against the Euro contributed positively and the Neuss aluminium

plant result improved due to an increase in the all-in metal price.

Underlying EBIT for the Energy business area increased compared to the previous

quarter, mainly due to higher prices, lower area cost and improved contribution

from commercial activities, partly offset by lower production. Production costs

were lowered by seasonally lower property taxes, but partly offset by higher

transmission cost and higher maintenance activity. Area cost declined later in

the quarter in line with better transmission capacity and improved hydrology in

Mid-Norway.

Underlying EBIT for the Sapa joint venture decreased compared to the previous

quarter, mainly due to seasonally lower market demand.

For the full year, underlying EBIT decreased to NOK 6,425 million compared with

NOK 9,656 million in 2015, mainly due to a decrease in realized alumina prices

and all-in metal prices, partly compensated by positive currency effects, lower

raw material costs and ongoing improvement efforts. In 2016, Bauxite & Alumina

achieved record production at both Paragominas and Alunorte, Sapa performance

continued to improve, while Rolled Products delivered a weaker result, driven by

lower margins and higher costs.

Hydro made good progress on its "Better" improvement ambition targeting NOK 2.9

billion of annual improvements by 2019. For 2016, NOK 1.4 billion of annual

improvements was delivered, exceeding the 1.1 billion target.

Hydro's net cash position increased during the fourth quarter by NOK 0.6 billion

to NOK 6.0 billion at the end of the quarter. Net cash provided by operating

activities amounted to NOK 4.2 billion. Net cash used in investment activities,

excluding short term investments, amounted to NOK 2.4 billion.

For 2016, Hydro's Board of Directors proposes an increased dividend of NOK 1.25

per share, demonstrating the company's commitment to provide a predictable and

competitive cash return to shareholders, and taking into account the volatility

in the aluminium industry. The proposed payment represents a 40% percent pay-out

ratio of reported net income for the year reflecting Hydro's operational

performance for 2016 and strong financial position.

Hydro's Board of Directors has revised the company's dividend policy to reflect

the ambition to pay a stable or increasing dividend. Hydro's policy is in the

long term to pay out, on average, 40 percent of reported net income as dividend

over the cycle.

Reported earnings before financial items and tax amounted to NOK 1,964 million

in the fourth quarter. In addition to the factors discussed above, reported EBIT

included net unrealized derivative gains of NOK 106 million and positive metal

effects of NOK 68 million. Reported earnings also included a charge of NOK 285

million reflecting partial write-down of capitalized costs due to a design

review of the part-owned projected CAP alumina refinery and a compensation

of NOK 254 million relating to the completion of outstanding contractual

arrangements with Vale, both in Brazil. In addition, reported earnings included

a charge of NOK 32 million relating to a change in interest rate used in

the calculation of environmental liabilities linked to idled

sites in Germany, and a net gain of NOK 23 million in Sapa (Hydro's share net of

tax) relating to unrealized derivative gains, rationalization charges and net

foreign exchange gains.

In the previous quarter reported earnings before financial items and tax

amounted to NOK 1,376 million including net unrealized derivative gains of

NOK 100 million and positive metal effects of NOK 48 million. Reported EBIT also

included a charge of NOK 124 million relating to the demolition of the Kurri

Kurri site and an impairment charge of NOK 140 million relating to the decision

to divest the Hannover site. In addition, reported earnings included a net gain

of NOK 15 million in Sapa (Hydro's share net of tax) relating to unrealized

derivative gains, rationalization charges and net foreign exchange gains.

For the full year 2016, reported earnings before financial items and tax

amounted to NOK 7,011 million including net unrealized derivative

gains and positive metal effects of NOK 553 million in total. Reported earnings

also included charges of NOK 192 million relating to the demolition of the Kurri

Kurri site, impairment charges of NOK 426 million relating to the part-owned

projected CAP alumina refinery and the Hannover site, a net gain of NOK 314

million relating to the sale of certain assets in Grenland, in addition to a

negative adjustment relating to the sale of the Slim rolling mill in the fourth

quarter of 2015. Other positive effects of NOK 223 million reflects the

compensation relating to the completion of outstanding contractual arrangements

with Vale and the charge of NOK 32 million relating to re-measurement of

environmental liabilities in Germany. In addition, reported earnings included

a net gain of NOK 113 million for Sapa (Hydro's share net of tax), relating to

unrealized derivative gains, rationalization charges and net foreign exchange

gains.

In the previous year, reported earnings before financial items and tax amounted

to NOK 8,258 million including net unrealized derivative

gains and negative metal effects of NOK 454 million in total. Reported earnings

also included charges of NOK 285 million relating to the termination of the

Vækerø Park lease contract and net losses on divestments of NOK 365 million,

including losses of NOK 434 million related to the sale of the Slim rolling

mill and gains of NOK 69 million in total related to sale of other assets. In

addition, reported earnings included a net charge of NOK 331 million for Sapa

(Hydro's share net of tax) relating to unrealized derivative

losses, rationalization charges and net foreign exchange losses, together with a

compensation of NOK 37 million relating to insurance proceeds in Qatalum.

Net income amounted to NOK 1,008 million in the fourth quarter including a net

foreign exchange loss of NOK 26 million mainly reflecting the strengthening Euro

versus Norwegian kroner affecting liabilities in Euro in Norway and embedded

currency derivatives in power contracts.

In the previous quarter net income was NOK 1,119 million including a net foreign

exchange gain of NOK 358 million mainly reflecting the strengthening Norwegian

kroner versus Euro affecting liabilities in Euro in Norway and embedded currency

derivatives in power contracts.

In 2016 net income amounted to NOK 6,586 million including a net foreign

exchange gain of NOK 2,266 million. The net foreign exchange gain in 2016 was

mainly comprised of unrealized currency gains on US dollar debt in Brazil and

embedded derivatives in power contracts denominated in Euro. The net foreign

exchange gain also included gains on internal debt denominated in Euro.

In the previous year income amounted to NOK 2,333 million including a net

foreign exchange loss of NOK 4,397 million. The net foreign exchange loss in

2015 was mainly comprised of currency losses on US dollar debt in Brazil and

embedded derivatives in power contracts denominated in Euro. The net foreign

exchange loss also included losses on US dollar debt in Norway.

Key financial

information

% change

NOK million, Fourth Third % change Fourth prior

except per quarter quarter prior quarter year Year Year

share data 2016 2016 quarter 2015 quarter 2016 2015

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Revenue 21 250 20 174 5 % 20 374 4 % 81 953 87 694

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Earnings

before

financial

items and tax

(EBIT) 1 964 1 376 43 % 725 >100 % 7 011 8 258

Items excluded

from

underlying

EBIT (135) 101 >(100) % 841 >(100) % (586) 1 398

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Underlying

EBIT 1 829 1 477 24 % 1 566 17 % 6 425 9 656

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Underlying

EBIT :

Bauxite &

Alumina 711 153 >100 % 532 34 % 1 227 2 421

Primary Metal 601 637 (6) % 407 48 % 2 258 4 628

Metal Markets 152 117 30 % 152 - 510 379

Rolled

Products 6 211 (97) % 204 (97) % 708 1 142

Energy 359 285 26 % 353 2 % 1 343 1 105

Other and

eliminations (1) 75 >(100) % (83) 99 % 380 (19)

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Underlying

EBIT 1 829 1 477 24 % 1 566 17 % 6 425 9 656

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Earnings

before

financial

items, tax,

depreciation

and

amortization

(EBITDA) 3 563 2 792 28 % 2 128 67 % 12 485 13 282

Underlying

EBITDA 3 143 2 753 14 % 2 969 6 % 11 474 14 680

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Net income

(loss) 1 008 1 119 (10) % 541 86 % 6 586 2 333

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Underlying net

income (loss) 968 958 1 % 1 296 (25) % 3 875 6 709

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Earnings per

share 0.52 0.53 (2) % 0.23 >100 % 3.13 0.99

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Underlying

earnings per

share 0.47 0.46 2 %   0.59 (21) % 1.83 2.98

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Financial

data:

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Investments 3 541 1 914 85 % 2 556 39 % 9 137 5 865

Adjusted net

interest-

bearing debt (5 598) (8 072) 31 % (8 173) 32 % (5 598) (8 173)

Underlying

Return on

average

Capital

Employed

(RoaCE)           5.1 % 9.2 %

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Key

Operational

information

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Bauxite

production

(kmt) 3 063 2 777 10 % 2 959 4 % 11 132 10 060

Alumina

production

(kmt) 1 635 1 635 - 1 577 4 % 6 341 5 962

Primary

aluminium

production

(kmt) 526 526 - 521 1 % 2 085 2 046

Realized

aluminium

price LME

(USD/mt)   1 647   1 612 2 %   1 555 6 %   1 574   1 737

Realized

aluminium

price LME

(NOK/mt)   13 659   13 375 2 %   13 125 4 % 13 193 13 813

Realized

USD/NOK

exchange rate 8.29 8.30 - 8.44 (2) % 8.38 7.95

Rolled

Products sales

volumes to

external

market (kmt) 213 231 (7) % 229 (7) % 911 948

Sapa sales

volumes (kmt) 155 170 (9) % 156 - 682 682

Power

production

(GWh) 2 551 2 946 (13) % 2 882 (11) % 11 332 10 894

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Investor contact

Contact Stian Hasle

Cellular +47 97736022

E-mail Stian.Hasle@hydro.com

Press contact

Contact Halvor Molland

Cellular +47 92979797

E-mail 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.

This information is subject to the disclosure requirements pursuant to section

5-12 of the Norwegian Securities Trading Act.