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Norway's aluminum producer Norsk Hydro reported higher than expected earnings on Wedneday boosted by higher aluminium and alumina prices. $NHYDY has the environmental scandal in Brazil overhanging however.

 Norsk Hydro

Earnings

Norsk Hydro net profit rose 19 percent for the first quarter to almost 2.1 billion Norwegian kroner (US$265 million, EUR 217 million. Revenue soared 75 percent year-on-year to nearly 40 billion kroner. Operating profits rose 38 percent year-on-year to 3.15 billion kroner, but were 11 percent lower that Q4 2017.

Norsk Hydro ASA ADR

Market Reaction $6.48 + 0.105 +1.65% Apr 25, 2018 4:00 p.m. EDT

The sharp fall quarter to quarter stems from the scandal after Norsk Hydro was accused of contaminating a river in Brazil with bauxite residue.

Parra River Brazil Contamination

Norsk Hydro says it found no evidence of such a spill occuring. However the company has apologised for discharging untreated rainwater into the Para River.

Brazilian authorities imposed two fines of 10 million reais (EUR2.5 million, around US$3 million) on Norsk Hydro. The authorities also ordered the company to halve  production at Alunorte, the world's largest aluminium plant. Furthermore the company was told to suspend the use of the river basin.

This led Norsk Hydro's earnings before interest and tax for its bauxite and alumina activity to collpase  60 percent from the last quarter, to 741 million kroner.

Alumina is the main component of aluminium, the disruptuon now threatens the Norsk Hydro's supply chain.  Norsk Hydro is currently in talks with the Brazilian authorities but there is no indication when it will be able to operate at full capacity, if ever at the Alunorte plant again.

The company can thank the Trump administration for a surge in aluminum prices after firstly the U.S. imposed tariffs on China steel and aluminum exports and then secondly when the United States imposed sanctionon Russian metals giant Rusal with sanctions.

Prices have fallen after the US Treasury on Monday said it would lift its sanctions on Rusal if tycoon Oleg Deripaska gives up control of the company.

"The US sanctions on Rusal have caused great uncertainty in the world's aluminium markets and will impact trade flows and availability of metal and raw materials throughout the aluminium value chain," 

"The Brazilian authorities' embargo on Alunorte adds to the uncertainty in the aluminium industry,"  Norsk Hydro CEO Svein Richard Brandtzaeg said in a statement. 

Sapa Takeover

Hydro completed the acquisition of Orkla’s 50 percent ownership in Sapa that it didn't own on October 2, 2017, giving Hydro full ownership of Sapa. That completed the $3.2 billion deal from July. Sapa’s results for the first nine months are reported as a 50 percent owned joint venture accounted for under the equity method.

Outlook

Hydro reiterated it expected global aluminium demand to rise 4 percent to 5 percent in 2018 and said that the market was expected to be largely balanced.

Cash Position

Hydro's net cash position decreased from NOK 7.7 billion to a net debt position of NOK 4.1 billion at the end of the quarter.

  • Net cash provided by operating activities amounted to NOK 6.4 billion.
  • Net cash used in investment activities, excluding short term investments, amounted to NOK 14.1 billion.

For 2017, Hydro's Board of Directors proposes a dividend of NOK 1.75 per share reflecting Hydro's strong operational performance for 2017 and solid financial position. This is up from NOK 1.25 per share paid out for 2016, which is still to be considered a floor. The proposed payment represents a 41 percent pay-out ratio of reported net income for the year and demonstrates the company's commitment to provide a competitive cash return to shareholders, also taking into account the volatility in the aluminium industry.

Source: Norske Hydro

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