• Underlying EBIT of NOK 1 366 million
• Final Alunorte embargo lifted
• Results down on lower aluminium and alumina prices
• Positive effects from higher upstream production and lower raw material costs
• New improvement program on track for 2019 target
• Increased market uncertainty and reduced demand expectations

“It is encouraging to see costs coming down in our upstream business, combined with forceful restructuring and optimization measures downstream. Amid challenging markets, it is more important than ever to focus our efforts on what we control ourselves. I am therefore pleased to report progress on our new and ambitious improvement programs, which is an important enabler for our profitability and sustainability agenda,” says President and CEO Hilde Merete Aasheim.

Underlying EBIT for Bauxite & Alumina decreased compared to the third quarter of last year, from NOK 685 million in Q3 2018 to NOK 481 million in Q3 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.

“A milestone was reached in September, when the final embargoes on Alunorte were lifted, allowing us to resume installation and commissioning activities at the new and modern bauxite residue deposit area, DRS2. Ramp-up is proceeding successfully, and we expect to reach 85-95 percent capacity utilization in 2020. Full capacity is expected from 2021,” says Aasheim.

Underlying EBIT for Primary Metal declined from positive NOK 861 million in Q3 2018 to negative NOK 39 million in Q3 2019, mainly due to lower all-in metal prices and lower earnings on power sales in Brazil, somewhat offset by lower raw material cost and positive currency effects.

Underlying EBIT for Metal Markets improved from negative NOK 3 million in Q3 2018 to positive NOK 362 million in Q3 2019 due to increased results from the remelters, higher results in the sourcing and trading activities and positive currency effects.

Underlying EBIT for Rolled Products increased compared to the third quarter of 2018, from NOK 82 million in Q3 2018 to NOK 166 million in Q3 2019. The result from the rolling mills was stable, positive currency effects were offset by inflationary cost increases and depreciation. 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 increased compared to the same quarter last year, from NOK 497 million in Q3 2018 to NOK 559 million in Q3 2019. Higher margins were partly offset by increased costs and lower volumes mainly due to the softening market. Extrusion North America results increased driven by higher margins, while Extrusion Europe results were lower driven by a decline in most market segments.

Underlying EBIT for Energy decreased significantly from NOK 652 million in Q3 2018 to NOK 254 million in Q3 2019. The decrease was mainly due to lower production and lower prices.

The federal court in Belem, Brazil, lifted the final embargo on Alunorte’s new bauxite residue disposal area (DRS2) on September 26, allowing Alunorte to resume activities of installation and commissioning at DRS2, ending a 19-month embargo period which has restricted activities at the plant. Alunorte, with an annual production capacity of 6.3 million mt, reached 83 percent utilization of its capacity in the third quarter.

As outlined on Hydro’s Investor Day, new improvement programs have been launched across the company, representing NOK 6.4 billion in EBIT improvements over the next five years, in addition to NOK 0.9 billion targeted in Rolled Products over the same time period.  The improvements include the curtailment reversal of the Brazilian assets with the effect of NOK 2.7 billion. At the end of the third quarter the improvement programs are progressing according to plan. 

Hydro has initiated a strategic review and comprehensive restructuring of the Rolled Products business area to mitigate the declining profitability the business has faced over the last years. The aim is to significantly turn this development around by lifting organizational and operational efficiency as well as shifting the product portfolio away from declining markets and towards growth markets like automotive and can. The improvement target is NOK 0.9 billion by 2023. A provision for restructuring costs of NOK 1,145 million was recognized in the third quarter and this has been excluded from underlying EBIT.

The cyberattack on Hydro on March 19, affected the entire global organization, with Extruded Solutions having suffered the most significant operational challenges and financial losses. The financial impact of the cyberattack is estimated to around NOK 550-650 million in the first half year with limited financial effects for the third quarter. Hydro has a robust cyber insurance in place with recognized insurers. Hydro has recognized NOK 33 million insurance compensation in the third quarter. Further compensation will be recognized when deemed virtually certain.

Hydro's net debt position decreased from NOK 15.1 billion to NOK 14.5 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 3.5 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 2.0 billion.

Hydro's reported EBIT amounted to NOK 222 million in Q3 2019, compared to NOK 2 057 million in Q3 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.

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.