Norsk Hydro’s Q3 Financials Weighed Down by Rise in Raw Material Costs

Norsk Hydro’s Q3 Financials Weighed Down by Rise in Raw Material Costs

Norsk Hydro A.S.A. reported results for the third quarter of 2017 yesterday. The firm’s financial numbers were off for the quarter, while production in key segments was generally level.

Net income in the quarter totaled NOK2.2 billion, up 40 percent quarter-on-quarter from last quarter’s total of NOK1.6 billion, and up 95 percent year-on-year from last year’s third-quarter total of NOK1.1 billion. Underlying net income fell 19 percent quarter-on-quarter, from NOK2.2 billion last quarter to NOK1.8 billion in the just-ended quarter. However, underlying net income rose year-on-year by 86 percent from a third-quarter total of NOK958 million.

Hydro recorded NOK22.8 billion in revenue in the quarter, a 7-percent fall quarter-on-quarter from last quarter’s total of NOK24.6 billion, but a 13-percent increase year-on-year from last year’s third-quarter revenue of NOK20.2 billion.

Underlying EBITDA for the quarter came in at NOK3.9 billion, a 10-percent drop quarter on quarter from Q2’s total of NOK4.3 billion, but up 41 percent year-on-year from last year’s third-quarter underlying EBITDA of NOK2.8 billion.

Underlying EBIT for the quarter totaled NOK2.4 billion, down 17 percent quarter-on-quarter from last year’s total of NOK2.9 billion, but better by 66 percent than last year’s third-quarter total of NOK1.5 billion. Energy was the bright spot in the quarter, turning in a 30-percent improvement over last quarter with NOK368 million.

Year-on-year, the most-improved segments were bauxite and alumina with an underlying EBIT of NOK413 million, primary metal with underlying EBIT of NOK1.3 billion, and other and eliminations with an underlying EBIT of NOK2.4 billion. Hydro laid bauxite’s struggles at the feet of factors including higher bauxite and caustic prices, negative currency effects, and increased depreciation, especially in Paragominas. Underlying EBIT for primary metals suffered due to currency fluctuations and seasonal drops in volume, coupled with an increase in carbon costs.

On the production front, Hydro reported harvesting 3,043 thousand metric tons of bauxite ore (3 percent above last quarter and 10 percent above last year’s third quarter), refining 1,605 thousand metric tons of alumina (2 percent above last quarter and 2 percent less than last year’s third quarter), and smelting 527 thousand metric tons of primary aluminium (1 percent better than the previous quarter, and essentially level with numbers from last year’s third quarter).

President and CEO Svein Richard Brandtzæg saw positives in both the quarter’s numbers and the aluminium market overall.

“We have lifted our global demand estimate for 2017 to 5-6%, indicating a continued strong demand for aluminium. There is a positive market sentiment for aluminium, mainly driven by curtailments of primary production in China, which have supported the market balance in the quarter.

“This quarter marks a new chapter in our history, adding Extruded Solutions as a fifth business area in Hydro. We are now 35,000-people strong, with 150 sites all over the world and 30,000 customers throughout the entire value chain of aluminium. We have a global reach as well as being very close to our customers and all the communities we serve.”

Norsk Hydro, which was founded in 1905, financed by the Swedish Wallenberg family and French banks, began its life named Norsk hydro-elektrisk Kvælstofaktieselskab (literally, “Norwegian hydro-electric nitrogen limited”) by Sam Eyde. The Norwegian government owns approximately 40% of the company at the present time. Norsk Hydro is one of the largest aluminium companies in the world, with plants in Rjukan, Raufoss, Vennesla, Karmøy, Høyanger, Årdal, Sunndalsøra, and Holmestrand. Norsk also has several plants abroad, including in Germany and Brazil.