Underlying EBIT of NOK 1 501 million for Q1
• Lower realized alumina and all-in aluminium prices
• Record low implied alumina and all-in primary costs
• Seasonally stronger downstream results
• BNOK 2.9 Better improvement ambition progressing according to plan
• 2016 global primary metal market largely balanced

"Downstream operations have delivered the strongest first quarter since Sapa was established in 2013, driven by seasonally higher volumes in Rolled Products and Sapa, as well as stronger margins on value -added extrusion products," says President and CEO Svein Richard Brandtzæg.

Underlying EBIT for Bauxite & Alumina decreased compared to fourth quarter mainly due to lower realized alumina prices and lower sales volumes. The negative price development was partly offset by positive currency effects from a weaker Brazilian Real, lower fuel prices and lower depreciation following catch up effects on reassessment of useful life of certain assets in 2015. Production in Alunorte and Paragominas fell slightly after reaching record production levels in the fourth quarter of 2015. ¹⁾

"I am happy to see our 2.9 billion Better ambition launched last year is progressing according to plan, contributing to our first-quartile position on the global cost curves. This is underpinned by continued high production in Bauxite & Alumina, as well as stronger performance in our primary aluminium joint ventures," says Brandtzæg.

Underlying EBIT for Primary Metal declined in the first quarter due to lower realized prices, higher fixed costs and additional cost related to ICMS tax on sales of surplus power in Brazil in the previous periods. This was partly offset by a stronger USD, a decline in alumina costs and positive effects on premiums in Qatalum following a negative time lag adjustment in the fourth quarter of 2015.

Underlying EBIT for Metal Markets increased somewhat in the first quarter mainly due to positive currency effects and improved results in remelters. This was partly offset by weaker results from sourcing and trading activities.

Adjusted for the divestment of the Slim rolling mill²⁾, sales volumes were seasonally higher in Rolled Products in the first quarter. This together with reduced alumina cost for the Neuss smelter, supported improved profitability compared to the fourth quarter of 2015.  Reduced net margins partly offset the positive effects.

Underlying EBIT for Energy increased compared to the previous quarter due to higher production, partly offset by higher production cost. The cost increase was mainly driven by transmission costs and property taxes.³⁾

Underlying EBIT for Sapa increased mainly due to seasonally higher demand and stronger margins.

During the first quarter, Hydro progressed according to plan on its "Better" improvement ambition targeting NOK 2.9 billion of annual improvements by 2019.

Operating cash flow amounted to NOK 0.1 billion for the first quarter, including a working capital build up of NOK 1.8 billion. Net cash used for investment activities amounted to NOK 1.3 billion. Hydro's net cash position decreased during the first quarter by NOK 1.2 billion to NOK 3.9 billion at the end of the quarter.

Reported earnings before financial items and tax amounted to NOK 1,693 million in the first quarter. In addition to the factors discussed above, reported EBIT included net unrealized derivative gains of NOK 224 million and negative metal effects of NOK 43 million. Reported earnings also included a negative adjustment of NOK 15 million related to the sale of the Slim rolling mill in the fourth quarter of 2015. In addition, reported earnings included a net gain of NOK 26 million for Sapa (Hydro's share net of tax), mainly relating to unrealized derivative gains.

In the previous quarter reported earnings before financial items and tax amounted to NOK 725 million including net unrealized derivative gains and negative metal effects of negative NOK 139 million in total. Reported earnings also included charges of NOK 285 million relating to the termination of the Vækerø Park lease contract (head-office building) and net losses on divestments of NOK 365 million including losses of NOK 434 million related to the sale of the Slim rolling mill and gains of NOK 69 million in total related to sale of other assets. In addition, reported earnings included a net charge of NOK 53 million for Sapa (Hydro's share net of tax), including NOK 88 million relating to restructuring charges, NOK 73 million relating to unrealized derivative gains and NOK 38 million related to net foreign exchange losses.

Net income amounted to NOK 2,382 million in the first quarter including a reduction in tax expense and related interest income of NOK 700 million in total following settlement of a tax case in April 2016. See note 4 to the interim financial statements in Hydro's first quarter report for further information. Net income also included a net foreign exchange gain of NOK 1,032 million mainly reflecting the strengthening BRL versus US dollars affecting US dollar liabilities in Brazil, as well as the strengthening Norwegian kroner versus Euro affecting liabilities in Euro in Norway and embedded currency derivatives in power contracts. In the previous quarter net income was NOK 541 million including a net foreign exchange gain of NOK 48 million mainly reflecting marginal currency fluctuations and effects for the period, as well as significantly reduced US dollar intercompany debt.

Fig.
1. Since Hydro acquired Vale's aluminium business in 2011.
2. Slim rolling mill divestment was completed by December 17, 2015.
3. From 2015 property tax is charged to the period it becomes an unconditional payment obligation (in Norway when invoiced). This leads to periodic variations within the year without affecting the annual property tax level.