Norsk Hydro ASA — Earnings Release 2018

Jul 24, 2018

Norsk Hydro: Second quarter 2018: Results down on volumes and costs, higher realized prices

Norsk Hydro: Second quarter 2018: Results down on volumes and costs, higher realized prices

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

2,713 million in the second quarter, down from NOK 2,930 million for the same

quarter last year. The effects of the production curtailment at Alunorte and

increased raw material costs were partly offset by higher all-in metal price and

a higher realized alumina price as well as improved results from downstream

and Energy.

·   Underlying EBIT of NOK 2 713 million

·   Alunorte, Paragominas and Albras producing at 50%, affecting results

negatively

·   Increased costs, mostly offset by higher realized all-in aluminium and

alumina prices

·   Downstream results up on volume and margin

·   Higher prices and volume increases result from Energy

·   Better improvement program hit by Brazil situation, not expected to reach

2018 target

·   Karmøy Technology Pilot at full production

·   2018 global primary market expected in deficit - continued market

uncertainty on US tariffs, Rusal sanctions and Brazil situation

"We see the global primary aluminium market in a stronger deficit in

2018, based on lower-than-expected production growth, and maintain a global

primary aluminium demand growth of 4-5 percent in 2018. The market uncertainty

continue on US tariffs, US sanctions on Rusal and the Brazil situation," says

President and CEO Svein Richard Brandtzæg.

Underlying EBIT for Bauxite & Alumina decreased compared to the second quarter

of last year. The results were driven by reduced production at both Alunorte and

Paragominas and higher raw material prices partly offset by higher realized

alumina sales prices.

"We are continuing our dialogue with Brazilian authorities, aiming to resume

normal operation at Alunorte as soon as possible. The process to resolve the

situation in Brazil is challenging and has taken longer than expected. We have

implemented measures that enable Alunorte to operate safely also going

forward, but the timing for resuming full production remains uncertain," says

Brandtzæg.

Underlying EBIT for Primary Metal declined compared to the second quarter last

year due to higher raw material and fixed costs and negative currency

effects, partly offset by higher all-in metal prices.

"All 60 cells are now in operation at the Karmøy technology pilot and we are now

producing aluminium with the world's most energy-efficient technology. Several

of the elements from the technology can be used in existing plants to lower

energy consumption and improve productivity," says Brandtzæg.

Underlying EBIT for Metal Markets remained stable compared to the second quarter

of last year. Increase in sales volumes and margins from the remelters,

and higher results from sourcing and trading activities were offset

by lower inventory valuation and currency effects.

Underlying EBIT for Rolled Products increased significantly compared to

the second quarter of 2017. Increasing margins, higher sales volumes, improved

production performance as well as an accrual for employee compensation in 2017

were partly offset by negative currency effects. Results from the Neuss

smelter increased mainly due to positive effects from all-in metal price

development and new power contracts, partly offset by increasing raw material

prices.

Underlying EBIT for Extruded Solutions increased compared to the pro forma

underlying EBIT in the second quarter 2017, driven by improved sales volumes and

margins. The result was also positively influenced by the increase in the

Midwest premium.

Underlying EBIT for Energy increased compared to the same quarter in the

previous year. The increase was due to significantly higher prices, higher

production and improved commercial results, partly offset by negative effects

from the repricing of an internal power contract with the Neuss smelter.

Due to the situation in Brazil, Hydro's "Better" improvement program is not

expected to reach the 2018 target of NOK 500 million.

Hydro's net debt position increased from NOK 3.6 billion to NOK 7.5 billion at

the end of the quarter. Net cash provided by operating activities amounted to

NOK 1.5 billion. Net cash used in investment activities, excluding short term

investments, amounted to NOK 1.6 billion. During the second quarter dividends

paid to Norsk Hydro ASA shareholders amounted to NOK 3.6 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 below table. Items excluded from underlying EBIT and underlying net income

(loss) are defined and described as part of the APM section in the quarterly

report.

Key financial

information

Change

NOK million, Second Second prior First Change First  First

except per quarter quarter year quarter prior half half Year

share data 2018 2017 quarter 2018 quarter 2018 2017 2017

-------------------------------------------------------------------------------------

Revenue 41,254 24,591 68 % 39,971 3 % 81,225 47,617 109,220

Earnings before

financial items

and tax (EBIT) 2,986 2,946 1 % 3,301 (10) % 6,287 5,356 12,189

Items excluded

from underlying >(100)

EBIT (274) (16) % (155) (77) % (428) (141) (974)

-------------------------------------------------------------------------------------

Underlying EBIT 2,713 2,930 (7) % 3,147 (14) % 5,859 5,214 11,215

-------------------------------------------------------------------------------------

Underlying EBIT

:

Bauxite &

Alumina 364 662 (45) % 741 (51) % 1,104 1,418 3,704

Primary Metal 755 1,486 (49) % 823 (8) % 1,578 2,386 5,061

Metal Markets 237 244 (3) % 178 34 % 415 268 544

Rolled Products 212 84 >100 % 232 (9) % 444 191 380

Extruded

Solutions 957     734 30 % 1,691   284

Energy 417 284 47 % 278 50 % 695 707 1,531

Other and >(100) >(100)

eliminations (229) 170 % 161 % (68) 245 (289)

-------------------------------------------------------------------------------------

Underlying EBIT 2,713 2,930 (7) % 3,147 (14) % 5,859 5,214 11,215

-------------------------------------------------------------------------------------

Earnings before

financial

items, tax,

depreciation

and

amortization

(EBITDA) 4,860 4,335 12 % 5,193 (6) % 10,052 8,097 18,344

Underlying

EBITDA 4,586 4,319 6 % 5,038 (9) % 9,624 7,956 17,369

-------------------------------------------------------------------------------------

Net income

(loss) 2,073 1,562 33 % 2,076 0 % 4,149 3,401 9,184

-------------------------------------------------------------------------------------

Underlying net

income (loss) 2,096 2,214 (5) % 2,201 (5) % 4,298 3,795 8,396

-------------------------------------------------------------------------------------

Earnings per

share 1.03 0.73 42 % 1.02 1 % 2.05 1.59 4.30

-------------------------------------------------------------------------------------

Underlying

earnings per

share 1.02 1.04 (2) %   1.06 (4) %   2.07   1.79   3.95

-------------------------------------------------------------------------------------

Financial data:

-------------------------------------------------------------------------------------

Investments 1,620 1,420 14 % 1,319 23 % 2,939 2,792 28,848

Adjusted net >(100)

cash (debt) (20,209) (5,146) % (16,890) (20) % (20,209) (5,146) (17,968)

-------------------------------------------------------------------------------------

Change

Key Operational Second Second prior First Change First  First

information quarter quarter year quarter prior half half Year

2018 2017 quarter 2018 quarter 2018 2017 2017

-------------------------------------------------------------------------------------

Bauxite

production

(kmt) 1,348 2,943 (54) % 2,326 (42) % 3,675 5,343 11,435

Alumina

production

(kmt) 829 1,576 (47) % 1,277 (35) % 2,106 3,099 6,397

Primary

aluminium

production

(kmt) 492 523 (6) % 514 (4) % 1,006 1,039 2,094

Realized

aluminium price

LME (USD/mt) 2,183 1,902 15 % 2,140 2 % 2,161 1,828 1,915

Realized

aluminium price

LME (NOK/mt)   17,292   16,265 6 %   16,929 2 %   17,103 15,517   15,888

Realized

USD/NOK

exchange rate   7.92   8.55 (7) %   7.91 0 %   7.92   8.49   8.30

Rolled Products

sales volumes

to external

market (kmt) 251 239 5 % 245 2 % 496 480 940

Extruded

Solutions sales

volumes (kmt) 373 180 >100 % 362 3 % 735 357 845

Power

production

(GWh) 2,550 2,369 8 % 2,433 5 % 4,983 5,238 10,835

-------------------------------------------------------------------------------------

Items excluded

from underlying

EBIT and net

income Second Second First First First

quarter quarter  quarter half half Year

NOK million 2018 2017 2018 2018 2017 2017

---------------------------------------------------------------------

Unrealized

derivative

effects on LME

related

contracts (306) 92 (114) (419) 110 220

Unrealized

derivative

effects on

power and raw

material

contracts 92 (25) (87) 5 148 246

Metal effect,

Rolled Products (60) (138) 47 (14) (424) (419)

Significant

rationalization

charges and

closure costs - - - - - 210

Other effects -   -   -   -   -   212

Transaction

related effects

(Sapa) -   -   -   -   - (1,463)

Items excluded

in equity

accounted

investments

(Sapa) - 56 - - 25 19

---------------------------------------------------------------------

Items excluded

from underlying

EBIT (274) (16) (155) (428) (141) (974)

---------------------------------------------------------------------

Net foreign

exchange

(gain)/loss 306 918 333 639 699 875

Calculated

income tax

effect (8) (250) (54) (62) (164) (564)

Other

adjustments to

net income - - - - - (125)

---------------------------------------------------------------------

Items excluded

from underlying

net income 24 652 125 148 394 (788)

---------------------------------------------------------------------

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.

This information is subject to the disclosure requirements pursuant to section

5-12 of the Norwegian Securities Trading Act.