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2016-10-25

Norsk Hydro : Third quarter 2016: Higher aluminium prices, more than offset by currency and seasonality

Hydro's underlying earnings before financial items and tax declined to NOK
1,477 million in the third quarter, down from NOK 1,618 million in the second
quarter. The decrease mainly reflected seasonally lower metal sales and
negative currency effects, partly offset by higher realized aluminium prices.

· Underlying EBIT of NOK 1 477 million

· Higher realized aluminium prices, offset by currency developments

· Record-high alumina production of 6.5 million mt

· Seasonally lower metal sales

· Trial production started at new automotive line in Germany

· Better
improvement program on track for 2019 target of NOK 2.9 billion

· Global primary aluminium demand growth expected at 4-5% in 2016

"Demand growth for aluminium remains healthy. We are sticking to our forecast
for global aluminium demand growth of 4-5 percent for 2016 and expect to land
in the higher range of this estimate for the full year," says President and
CEO Svein Richard Brandtzæg. "This comes on the back of higher-than-expected
demand in China and slower restarts of curtailed capacity", says Brandtzæg.

"I'm pleased to see the positive operational development in our bauxite and
alumina production. Both Paragominas and Alunorte produced above nameplate
capacity in the third quarter, with Hydro Alunorte alumina production
reaching a record-high production level. This is a demonstration of long-term
dedication by a highly competent and committed organization in Brazil. We
have succeeded in lifting the bar and will continue these efforts to
stabilize production at or above nameplate capacity," says Brandtzæg.

Underlying EBIT for Bauxite&Alumina decreased compared to second quarter.
While the realized alumina price remained stable, alumina sourcing costs
increased somewhat. Further reduction in raw material consumption and reduced
bauxite costs were offset by negative currency effects, as the Brazilian Real
continued to strengthen against the USD. Annualized production volume at
Hydro Alunorte reached a record 6.5 million mt per year, exceeding name-plate
capacity of 6.3 million mt per year. Hydro Paragominas also increased the
production after lower production last quarter due to ball mill maintenance.

Underlying EBIT for Primary Metal declined in the third quarter. Lower
premiums and volumes, in addition to slightly higher raw material costs and
negative currency effects, were largely offset by higher realized aluminium
prices and lower fixed costs. The second quarter was positively influenced by
an insurance refund of NOK 50 million related to a power outage in Årdal in
January 2016, in addition to a positive effect of NOK 75 million related to a
reversal of ICMS tax accrual on sales of surplus power in Brazil in previous
periods.

Underlying EBIT for Metal Markets improved in the third quarter mainly due to
less negative currency and inventory evaluation effects, in addition to
improved results from sourcing and trading activities. Results from remelters
declined mainly due to seasonally lower volumes.

Underlying EBIT for Rolled Products was lower compared to the second quarter
of 2016, mainly due to seasonally lower volumes and changes in the product
mix. The Neuss smelter result was higher due to an increase in the all-in
metal price.

Underlying EBIT for Energy declined compared to the previous quarter due to
higher production cost and higher area cost, partly offset by higher
production. The higher production cost was driven by seasonally higher
property taxes, while area cost increased mainly due to export restrictions
out of Southern Norway during the quarter.

Underlying EBIT for Sapa decreased compared to the previous quarter, mainly
due to seasonally lower market demand.

During the third quarter Hydro made progress in accordance with plan on its
"Better
" improvement ambition targeting NOK 2.9 billion of annual improvements by
2019.
Hydro's net cash position increased during the third quarter by NOK 0.6
billion to NOK 5.4 billion at the end of the quarter. Net cash provided by
operating activities amounted to NOK 2.3 billion. Net cash used in investment
activities, excluding short term investments, amounted to NOK 1.5 billion.

Reported earnings before financial items and tax amounted to NOK 1,376 million
in the third quarter. In addition to the factors discussed above, reported
EBIT included net unrealized derivative gains of NOK 100 million and positive
metal effects of NOK 48 million. Reported earnings also included a charge of
NOK 124 million related to the demolition of the Kurri Kurri site and an
impairment charge of NOK 140 million related to the decision to divest the
Hannover site. In addition, reported earnings included a net gain of NOK 15
million in Sapa (Hydro's share net of tax), relating to unrealized derivative
gains, rationalization charges and net foreign exchange gains.

In the previous quarter reported earnings before financial items and tax
amounted to NOK 1,978 million including net unrealized derivative gains of
NOK 32 million and positive metal effects of NOK 17 million. Reported EBIT
also included a charge of NOK 67 million related to environmental commitments
in Kurri Kurri, a gain of NOK 342 million for the sale of certain assets in
Grenland, including Herøya Industrial Park, and a negative adjustment of NOK
13 million related to the sale of the Slim rolling mill in the fourth quarter
of 2015. In addition, reported EBIT included a net gain of NOK 49 million in
Sapa (Hydro's share net of tax), relating to unrealized derivative gains and
net foreign exchange gains.

Net income amounted to NOK 1,119 million in the third quarter including a net
foreign exchange gain of NOK 358 million mainly reflecting 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 2,077 million including a net
foreign exchange gain of NOK 904 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.

--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
| Key financial information NOK Third quarter 2016 Second quarter 2016 %change prior quarter Third quarter 2015 %change prior year quarter First 9 months 2016 First 9 months 2015 Year 2015 |
|million, except per share data |
| |
| Revenue 20,174 20,391 (1) % 21,594 (7) % 60,703 67,320 87,694 |
| Earnings before financial items 1,376 1,978 (30) % 1,630 (16) % 5,047 7,533 8,258 |
|and tax (EBIT) |
| Items excluded from underlying 101 (360) >100 % 586 (83) % (451) 557 1,398 |
|EBIT |
| Underlying EBIT 1,477 1,618 (9) % 2,215 (33) % 4,596 8,090 9,656 |
| |
| Underlying EBIT : |
| Bauxite&Alumina 153 174 (12) % 628 (76) % 516 1,889 2,421 |
| Primary Metal 637 702 (9) % 762 (16) % 1,657 4,221 4,628 |
| Metal Markets 117 75 57 % 291 (60) % 358 227 379 |
| Rolled Products 211 242 (13) % 331 (36) % 701 938 1,142 |
| Energy 285 301 (5) % 191 49 % 983 752 1,105 |
| Other and eliminations 75 125 (40) % 12 >100 % 380 63 (19) |
| Underlying EBIT 1,477 1,618 (9) % 2,215 (33) % 4,596 8,090 9,656 |
| |
| Earnings before financial 2,792 3,222 (13) % 2,808 (1) % 8,922 11,154 13,282 |
|items, tax, depreciation and |
|amortization (EBITDA) |
| Underlying EBITDA 2,753 2,862 (4) % 3,394 (19) % 8,331 11,711 14,680 |
| ...

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