Hydro to review strategy after 1Q earnings plunge

Norsk Hydro will review its strategy for improvements after earnings fell sharply in the first quarter on lower aluminium prices, higher costs and the production embargo at the Alunorte alumina refinery.

Underlying earnings before interest and taxes (ebit) dropped to NOK 559mn ($64.3mn) in January-March, down by 83pc on the year. The cyber attack on Hydro's systems that caused production stoppages in March had an estimated financial cost of NOK 300mn-350mn in the first quarter.

The primary metal division made an ebit loss of NOK 771mn in the first quarter, reflecting low prices and high costs, down from NOK 823mn in January-March 2018. Hydro produced 485,000t of primary metal in the first quarter, down by 5.6pc on the year, while sales dropped by 7.6pc to 534,000t.

New chief executive Hilde Merete Aasheim told Argus in May that she would focus on boosting profits and driving improvements.

"We remain optimistic about the long-term prospects for aluminium," Aasheim said, following publication of the results. "However, due to current market uncertainty and industry-wide profitability challenges, we will lift our improvement ambitions, perform a strategic review of rolled products and ensure stricter financial discipline and higher earnings."

Aasheim is targeting the rolled products segment because of its particularly poor profitability. The division made an underlying ebit of NOK 138mn in the first quarter, down by 39pc on the year. Sales volumes reached 246,000t, up slightly from 245,000t a year earlier.

Aasheim said last month that rolled product profits have been too low for some time. "That is not sustainable, and we are now reviewing this and will spend time to look into details," she said.

Hydro's bauxite and alumina earnings fell in the first quarter because of the embargo at Alunorte — where output was constrained by 50pc after Hydro admitted to unlicensed discharges of untreated water during heavy rains in April 2018. This also led to Hydro missing targets under its improvement programme. Ebit in the bauxite and alumina division fell by 80pc on the year to NOK 153mn in the first three months of 2019. Alumina sales fell by 31.5pc to 1.42mn t.

Alunorte was cleared for a return to full production on 20 May, when a federal court granted the final approval.

Elsewhere, Hydro's extruded products business made an ebit of 593mn in January-March, down by 19pc on the year, while sales volumes fell by 8pc to 333,000t. The drop in earnings was a direct consequence of March's cyber attack, Hydro said.