Norsk Hydro: Fourth quarter 2019: Firm response in weak markets

Hydro’s underlying earnings before financial items and tax was NOK 560 million in the fourth quarter, a slight increase from NOK 534 million in the same quarter last year. This mainly reflected positive effects from increased production in Brazil, lower raw material costs and positive currency effects, mostly offset by a decrease in the realized aluminium and alumina prices.Underlying EBIT of NOK 560 millionChallenging markets weighing on resultsBNOK 1 in improvement program delivered in 2019, above target of BNOK 0.5Cash release ahead of target in 2019Increasing sales of low-carbon productsProposed dividend for 2019 of NOK 1.25 per share“We have taken firm measures in a weak market. Our improvement program as well as cash release ambition are ahead of plan. Our improvement efforts will continue with full force, in line with our agenda towards lifting profitability and driving sustainability,” says President and CEO Hilde Merete Aasheim.“The increasing pull for low-carbon products and solutions is an encouraging trend and we are well positioned for a low-carbon future. Since we launched CIRCAL one year ago, we have signed 60 new low-carbon building projects around the world,” says Aasheim.Underlying EBIT for Bauxite & Alumina decreased compared to the fourth quarter of last year, from NOK 493 million in Q4 2018 to negative NOK 75 million in Q4 2019. The results were driven by a decrease in the realized alumina sales price, partly offset by positive effects from increased production following the lifting of the production embargo on May 20, 2019, and positive currency effects.Underlying EBIT for Primary Metal increased from negative NOK 677 million in Q4 2018 to positive NOK 155 million in Q4 2019, mainly due to lower raw material cost and positive currency effects, partly offset by lower all-in metal prices.Underlying EBIT for Metal Markets declined from NOK 275 million in Q4 2018 to NOK 132 million in Q4 2019 due to lower results from the remelters and negative currency effects.Underlying EBIT for Rolled Products increased, from negative NOK 113 million in Q4 2018 to positive NOK 34 million in Q4 2019. The result from the rolling mills was stable. The Neuss smelter result increased, driven by lower raw material costs and insurance compensation, partly offset by lower all-in metal prices.Underlying EBIT for Extruded Solutions decreased compared to the same quarter last year, from NOK 202 million in Q4 2018 to NOK 85 million in Q4 2019. Results in all business units were lower than the same quarter last year, mainly driven by lower volumes due to the declining market, partially offset by higher margins. Results were positively impacted by insurance compensation of NOK 187 million related to the cyber-attack in March 2019.Underlying EBIT for Energy decreased significantly from NOK 500 million in Q4 2018 to NOK 296 million in Q4 2019. The decrease was mainly due to lower production and somewhat lower prices, partly offset by higher commercial results.Hydro’s underlying EBIT for 2019 was NOK 3,359 million, down from NOK 9,069 million in 2018. The weaker results reflect lower realized aluminium and alumina prices, partly offset by the positive effects from increased production in Brazil, lower raw material costs and positive currency effects.The federal court in Belém, Brazil, lifted the final embargo on Alunorte’s new bauxite residue disposal area (DRS2) on September 26, 2019, allowing Alunorte to resume activities of installation and commissioning at DRS2, ending a 19-month embargo period which had restricted activities at the plant. Alunorte, with an annual production capacity of 6.3 million mt, has reached 90 percent utilization of its capacity in the fourth quarter. Commissioning of an additional press filter started in November. With 9 fully operational press filters we expect a capacity utilization of 100 percent by the end of 2020.The cyber-attack on Hydro on March 19, 2019, affected our entire global organization, with Extruded Solutions having suffered the most significant operational challenges and financial losses. The financial impact of the cyber-attack is estimated to be around NOK 650-750 million for the full year. Hydro has robust cyber insurance in place with recognized insurers. Hydro has recognized NOK 187 million insurance compensation in the fourth quarter with the majority reflected in Extruded Solutions result. Further compensation will be recognized when deemed virtually certain.As outlined on Hydro’s Investor Day, new improvement programs have been launched across the company, representing NOK 7.3 billion in EBIT improvements by end of 2023 compared to 2018. The improvements include the restart of curtailed capacity of the Brazilian assets with the effect of NOK 2.7 billion. At the end of the fourth quarter NOK 1.0 billion in improvements was realized, ahead of the NOK 0.5 billion target for 2019.Hydro’s net debt position decreased from NOK 14.5 billion to NOK 11.8 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 5.7 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 2.9 billion.For 2019, 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 demonstrates the company’s commitment to provide a predictable dividend to shareholders. Hydro has a dividend policy of 40 percent payout ratio of reported net income over the cycle with NOK 1.25 per share considered as a floor. The average five-year payout ratio is 68 percent.Hydro’s reported EBIT amounted to negative NOK 399 million in Q4 2019, compared to NOK 178 million in Q4 2018. For the full-year 2019, Hydro’s reported EBIT amounted to NOK 499 million, compared to NOK 8 522 million in 2018.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 contacts
Stian Hasle
+47 97736022
Stian.Hasle@hydro.comOlena Lepikhina
+47 96853035
Olena.Lepikhina@hydro.comPress contact
Halvor Molland
+47 92979797
Halvor.Molland@hydro.comCautionary 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 the Norwegian Securities Trading ActAttachmentsQ4 2019 ReportQ4 2019 Presentation