Norsk Hydro : Third quarter 2014: Lower Alunorte costs and higher all-in metal price lift results

Norsk Hydro ASA's underlying earnings before financial items and tax (EBIT) rose to NOK 1,490 million in the third quarter from NOK 544 million in the second quarter. Results are backed by lower costs at the Alunorte alumina refinery, higher all-in metal prices and higher alumina prices.

• Underlying EBIT NOK 1,490 million
• Higher realized all-in metal and alumina prices
• Lower operating costs at Alunorte
• Expected 3-4 percent demand growth for primary aluminium World ex-China
• World ex-China primary aluminium demand continues to exceed production

"All-in metal prices continued to rise in the quarter, reflecting the tighter market we saw in last quarter and the continuing market balance deficit," said President and CEO Svein Richard Brandtzæg. "Demand for aluminium is rising, and we now see demand growth of 3-4 percent in the world ex-China for 2014, helped by metal substitution in the automotive market."

Underlying EBIT for Bauxite & Alumina improved significantly in the third quarter reflecting higher realized alumina prices and lower operating costs at Alunorte, in Brazil. Realized alumina prices, however, were negatively impacted by a lower share of alumina sales at index prices.

"I am pleased to see the 'From B to A' improvement program progressing according to plan and that improvement efforts in Bauxite & Alumina are showing bottom line results. Operating costs at Alunorte are going down and we have the momentum to reach our targets," said Brandtzæg. Underlying EBIT for Primary Metal improved substantially in the third quarter influenced by higher realized aluminium prices and increased product premiums. Positive developments were partly offset by higher raw material costs and seasonally lower sales volumes.

Metal Markets delivered higher underlying EBIT compared to the previous quarter influenced by improved results from sourcing and trading activities and positive ingot inventory valuation effects. Underlying EBIT for Rolled Products was significantly higher compared with the second quarter of 2014 mainly due to positive contributions from the Rheinwerk smelter, in Germany, reflecting higher all-in metal prices. Margin pressure increased but was partly offset by seasonally lower operating costs. Volumes were stable.

Compared to the second quarter, underlying EBIT for Energy increased, mainly due to higher hydropower prices in our production areas and lower area price differences.

Underlying EBIT for Sapa declined compared to the second quarter, partly influenced by seasonally lower sales volumes in Europe.

Operating cash flow amounted to NOK 1.1 billion for the third quarter including increased working capital of NOK 0.9 billion. Net cash used for investment activities amounted to NOK 0.9 billion. Hydro's net debt position amounted to NOK 2.1 billion at the end of the third quarter.

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

In the previous quarter reported earnings before financial items and tax amounted to NOK 620 million including net unrealized derivative gains and positive metal effects of NOK 154 million in total. Reported earnings also included charges of NOK 87 million (Hydro's share) in Sapa primarily related to rationalization activities.

Income from continuing operations amounted to NOK 665 million in the third quarter including a net foreign exchange loss of NOK 1,001 million. In the previous quarter, income from continuing operations amounted to NOK 269 million including a net foreign exchange loss of NOK 101 million.

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