Norsk Hydro : Fourth quarter 2014: Record results on improved markets and performance

Norsk Hydro ASA's underlying earnings before financial items and tax (EBIT) increased to NOK 2,886 million in the fourth quarter, up from NOK 1,490 million in the third quarter of 2014. Bauxite & Alumina and Primary Metal delivered their highest quarterly results since 2007.
  • Record high quarterly underlying EBIT of NOK 2,886 million
  • Proposed 2014 dividend NOK 1 per share
  • Revised dividend policy: 40 % of net income over the cycle
  • Higher realized all-in metal and alumina prices, supported by currency movements
  • Improved operating performance at Alunorte and Paragominas
  • Karmøy technology pilot investment decision made

Higher realized aluminium prices, product premiums and realized alumina prices had significant positive impact on the quarter together with the substantial strengthening of the US dollar compared to the NOK and BRL.

Underlying EBIT for Bauxite and Alumina improved significantly in the fourth quarter reflecting higher realized alumina prices, higher sales volumes and lower operating costs at Alunorte together with positive currency developments. Bauxite production increased in the quarter reaching 10.2 million mt on an annualized basis.

"I am pleased to see the highest quarterly results we have reported since we became a pure play aluminium company in 2007. For the second quarter in a row, we also see a solid improvement in operating costs at Alunorte and Paragominas, as well as increased production levels, reflecting robust operations," says President and CEO, Svein Richard Brandtzæg. "In line with our commitment to return cash to our shareholders, the Board of Directors proposed to raise the annual dividend from NOK 0.75 per share to NOK 1 per share, and at the same time revised the dividend policy from 30% to 40% of net income over the cycle" Brandtzæg continues.

Underlying EBIT for Primary Metal improved substantially in the fourth quarter influenced by a further increase in realized aluminium prices and product premiums. The strengthening USD compared to the NOK and BRL also had a significant positive impact on underlying results for the quarter.

"I am very pleased that we have decided to go ahead with the Karmøy technology pilot project, following the approval from ESA last week. The technology pilot will demonstrate Hydro's next generation technology aiming to produce aluminium at the world's lowest energy consumption and CO2 footprint per tonne of metal," says Brandtzæg.

"We will continue our improvement efforts in 2015, both on the commercial and operational side. As earnings outlook has improved, now is the time to really show the strength of our improvement culture," says Brandtzæg.

Metal Markets delivered higher underlying EBIT compared to the previous quarter influenced by positive currency effects and improved results from remelt operations, partly offset by lower results from sourcing and trading activities.

Underlying EBIT for Rolled Products declined compared with the third quarter of 2014 mainly due to seasonally lower sales volumes. Margin pressure continued, however, this was mostly offset by currency gains on export sales. Positive contributions from the Rheinwerk smelter due to higher all-in metal1) prices had a positive effect on underlying results for the quarter.

Compared to the third quarter, underlying EBIT for Energy increased due to higher production.

Underlying EBIT for Sapa declined compared to the third quarter, mainly due to seasonally lower demand.

Operating cash flow amounted to NOK 4.4 billion for the fourth quarter. Cash used for investment activities amounted to NOK 0.8 billion net of sales proceeds. Hydro's net debt position amounted to NOK 0.1 billion at the end of the fourth quarter also influenced by unrealized currency losses, payment of dividends to minority interests and a payment to Vale representing the first of two tranches for the remaining Paragominas shares.

For the full year, underlying EBIT more than doubled to NOK 5,692 million compared with NOK 2,725 million in 2013 influenced by the significant increase in all-in metal prices1) together with the strengthening US dollar compared to the NOK and BRL. Following several years of challenging market conditions, the global aluminium market has improved with substantially higher all-in metal prices together with a better demand and supply balance for primary aluminium with a market deficit of around one million mt in the world outside China. Significant operational and commercial improvements implemented throughout the value chain have strengthened Hydro's ability to create value in an environment of improving market fundamentals.

Hydro's Board of Directors proposes to pay a dividend of NOK 1 per share for 2014 reflecting the company's commitment to provide a cash return to its shareholders. The dividend reflects our operational performance for 2014, strong financial position and improved earnings outlook for 2015. Hydro's Board of Directors has revised the company's dividend policy from an average of 30 percent to 40 percent of net income over the cycle to our shareholders.

Reported earnings before financial items and tax amounted to NOK 2,295 million in the fourth quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative losses and positive metal effects of negative NOK 72 million in total. Reported earnings also included impairment charges of NOK 145 million related to the rolling mill in Slim, Italy. In addition, reported EBIT included NOK 337 million (Hydro's share) relating to Sapa mainly for impairment and restructuring charges, and net other charges of NOK 36 million.

In the previous quarter reported earnings before financial items and tax amounted to NOK 1,937 million including net unrealized derivative gains and positive metal effects of NOK 476 million in total. Reported earnings also included other charges of NOK 30 million.

Loss from continuing operations amounted to NOK 168 million in the fourth quarter including a net foreign exchange loss of NOK 2,252 million. In the previous quarter, income from continuing operations amounted to NOK 665 million including a net foreign exchange loss of NOK 1,001 million.

1) The all-in metal price refers to the LME aluminium price plus premiums.




Key financial information 

NOK million, except per share data
Fourth quarter 2014 Third quarter 2014 % change prior quarter Fourth quarter 2013 % change prior year quarter Year 2014 Year 2013
Revenue 21656 19698 10 % 16570 31 % 77907 64877
Earnings before financial items and tax (EBIT) 2295 1937 19 % (14) >100 % 5674 1663
Items excluded from underlying EBIT 591 (447) >100 % 485 22 % 18 1063
Underlying EBIT 2886 1490 94 % 471 >100 % 5692 2725
Underlying EBIT :              
Bauxite & Alumina 528 (26) >100 % (379) >100 % (55) (1057)
Primary Metal 1989 1216 64 % 484 >100 % 3937 1422
Metal Markets 221 171 29 % 190 17 % 634 594
Rolled Products 96 243 (60) % 100 (3) % 698 615
Energy 360 234 54 % 383 (6) % 1197 1653
Other and eliminations (308) (349) 12 % (306) (1) % (717) (502)
Underlying EBIT 2886 1490 94 % 471 >100 % 5692 2725
Underlying EBITDA 4170 2615 59 % 1619 >100 % 10299 7306
Underlying income (loss) from discontinued operations - - - - - - 220
Net income (loss) (168) 665 >(100) % (758) 78 % 1228 (839)
Underlying net income (loss) 1979 1043 90 % 140 >100 % 3728 1610
Earnings per share (0.18) 0.29 >(100) % (0.39) 53 % 0.39 (0.45)
Underlying earnings per share 0.83 0.43 96 % 0.02 >100 % 1.55 0.65
Financial data:              
Investments 1449 889 63 % 1057 37 % 3625 3761
Adjusted net interest-bearing debt (13587) (14061) 3 % (10128) (34) % (13587) (10128)
Key Operational information              
Alumina production (kmt) 1501 1478 2 % 1452 3 % 5933 5377
Primary aluminium production (kmt) 499 487 2 % 492 1 % 1958 1944
Realized aluminium price LME (USD/mt)   1997   1906 5 %   1802 11 %   1850   1902
Realized aluminium price LME (NOK/mt)   13355   11909 12 %   10916 22 %   11624   11160
Realized NOK/USD exchange rate 6.69 6.25 7 % 6.06 10 % 6.28 5.87
Metal products sales, total Hydro (kmt)   780   811 (4) %   777   -   3305   3164
Rolled Products sales volumes to external market (kmt) 213 244 (13) % 226 (5) % 946 941
Power production (GWh) 2823 2170 30 % 2411 17 % 10206 10243




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Contact Pål Kildemo
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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.

This information is subject to the disclosure requirements pursuant to section 5-12 of the Norwegian Securities Trading Act.


Q4 Presentation Q4 Report