OSLO (Reuters) - Norwegian aluminium producer Norsk Hydro reported a four-fold jump in first-quarter operating profit on Wednesday that beat expectations, boosted by cost cuts and a weaker local currency, sending its shares more than 7% up.
The company, however, warned the COVID-19 pandemic was hitting global demand for the metal used in construction, packaging and transportation, as lockdowns to contain the coronavirus’ spread brought economic activity to a virtual halt.
Hydro’s underlying earnings before interest and tax rose to 2.25 billion Norwegian crowns ($217 million) in the January-March period, from 559 million crowns a year ago, exceeding the 1.17 billion crowns expected by analysts in a poll.
The company’s shares rose 7.2% at 1007 GMT but are still down 24% year-to-date, underperforming an 18% decline in Norway’s benchmark stock index.
“COVID-19 did not have any significant impact in the first quarter ... But predicting what happens next is difficult and the visibility is low,” Chief Executive Hilde Merete Aasheim told Reuters.
Hydro’s Extrudes Solutions business, which turns slabs of metal into finished aluminium components for construction and other industries, is currently running around 60% of normal output, she added.
Demand for aluminium had been expected to soften even before the impact of the pandemic and is now seen declining sharply, thus lifting the global output surplus in 2020 to between 1.5 million and 5 million tonnes from 1 million tonnes seen earlier, Hydro said.
The company has curtailed some of its remelting capacity, which recycles scrap metal and is fairly cost efficient to stop and start, while giant primary smelters that turn raw materials into aluminium have been unaffected.
The company earlier this month announced, however, it would delay the long-planned restart of a production line at the company’s Husnes primary plant in Norway, which was mothballed during the financial crisis in 2009.
Hydro on April 2 said it was slashing costs and investments, and postponed a decision on whether to pay a dividend for 2019, which will help protect the company’s credit rating from further downgrades.
Moody’s currently rates Hydro a Baa3, its lowest investment grade level, with a negative outlook.
“An investment grade rating is important for us to gain competitive access to capital,” Chief Financial Officer Paal Kildemo told a news conference.
The company has promised to pay a minimum annual dividend of 1.25 crowns per share, but this remains dependent on the rating, he added.
While operating earnings were boosted by a weak Norwegian crown against the euro and dollar, currency moves also caused financial losses linked to power contracts in Norway and dollar-denominated debts in its Brazilian operation, Hydro said.
Reporting by Victoria Klesty and Terje Solsvik; Editing by Aditya Soni and Emelia Sithole-Matarise