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2025 on low-carbon aluminium and new energy, these will be key topics at Hydro’s
Capital Markets Day 2021.
During 2021, Hydro has continued to deliver on its 2025 strategy, including
further strengthening its low-carbon aluminium position as well as maturing
business opportunities within new energy solutions. Hydro has long been
recognized as a leader in sustainability, and the new sustainability ambitions
launched at the Capital Markets Day will be a key driver for Hydro’s competitive
positioning going forward.
Hydro has the ambition of achieving net zero carbon emissions by 2050 or earlier
and is pursuing three decarbonization paths to reduce the carbon footprint of
aluminium to net zero. Hydro will have the first commercial volumes of near zero
carbon product (defined as less than 0.5kg Co2 per kg aluminium) available in
2022 based on using 100% complex post-consumer scrap.
Strong operational and financial performance in 2021
“We set a clear ambition in 2019 to lift profitability and drive the
sustainability agenda after several years of weak development, and I am pleased
with the strong operational and financial performance during 2021. We kept the
wheels turning during the pandemic and our organization has lifted profitability
across all our business areas and delivered the full-year improvement program
target ahead of time,” says President and CEO Hilde Merete Aasheim.
Hydro’s profitability and sustainability agenda continues to guide capital
allocation. During the year, Hydro concluded the strategic review and divestment
of Hydro Rolling, releasing capital that will be allocated to profitable growth
opportunities in Recycling and Extrusions, and further strengthened the balance
sheet. In addition, strong results have contributed to greater cash generation
in 2021.
In light of Hydro’s robust balance sheet and strong financials, the Board of
Directors aims to propose to distribute 70-80% of 2021 adjusted net income to
its shareholders, as a combination of ordinary dividends and either
extraordinary dividends, or a combination of extraordinary dividends and share
buybacks. Final distribution for 2021 will be proposed by the Board at the Q4
release in February 2022, and subject to approval by the Annual General meeting
in May 2022.
Customers decarbonize, increasing demand for greener aluminium
The transition to a lower-carbon society is expected to increase demand for
aluminium. The demand for aluminium semis outside China is estimated to rise 4%
annually until 2030, with similar overall growth rates in key sectors like
automotive and building and construction. Recycled aluminium production is
expected to grow 5% annually until 2030 and become a larger share of total
aluminium production.
Greener aluminium with a lower carbon footprint is seen as an important enabler
for the green transition. Hydro’s customers across many sectors such as
automotive, packaging, building and construction and electronics are setting
ambitious decarbonization targets and low-carbon and circular aluminium is a key
lever to reduce Scope 3 emissions for these industries. A differentiation of the
market is expected, where demand for greener and circular aluminium will outpace
the demand for aluminium from non-renewable energy sources.
“We will reduce emissions in society at large by providing more climate-friendly
solutions. The EU has defined key areas to deliver on climate objectives and
enable green transition. Cleaner energy, more energy-efficient buildings, green
mobility and longer-lasting products that can be recycled are examples. All
areas drive the need for more aluminium and more renewable energy, and we are
ready to contribute. In the use phase, aluminium contributes to reducing climate
emissions from transport, increasing the range of electric cars and making
buildings more energy efficient,” says Aasheim.
“In addition, we produce close to 10TWh of renewable hydropower annually, and we
are developing wind projects and solar projects, as well as green hydrogen
projects, that can replace the use of fossil-based natural gas,” says Aasheim.
Hydro’s decarbonization path
Hydro is launching a new climate ambition, confirming the target of cutting own
carbon emissions by 30% by 2030 and setting new ambitions of becoming net zero
in terms of Scope 1 and 2 carbon emissions by 2050 or earlier.
Hydro’s roadmap to net zero by 2050 for the upstream business includes planned
activities to replace fuel oil with natural gas and electrify boilers at the
Alunorte alumina refinery in Brazil where we also plan to pilot using hydrogen
for calcination. Achieving near zero emissions throughout the full value chain
also requires an energy shift toward an even higher renewable share of the
smelter portfolio as well as use of renewable fuel like hydrogen, direct
electricity or biogas in the casthouses and recyclers.
Hydro is pursuing three technology pathways towards near-zero aluminium.
To secure the value of existing smelters, Hydro is developing carbon capture and
storage (CCS) solutions that can be retrofitted into aluminium plants in
operation. Hydro has evaluated more than 50 CCS technologies and developed plans
for testing and piloting the most promising up to industrial scale. The most
likely outcome will be a combination of off-gas capture and direct air capture
to eliminate 100% of the emissions, with industrial-scale pilots planned before
2030.
Another pathway more suited for greenfield smelters is Hydro’s proprietary
HalZero technology. This is a technology based on converting alumina to
aluminium chloride prior to electrolysis in a process where chlorine and carbon
are kept in closed loops, resulting in a fully decarbonized process. Hydro has
been working on lab-scale development of this technology for five years and has
now developed a concrete roadmap for piloting this to industrial scale before
2030.
A third and faster pathway to zero-carbon aluminium is by recycling more post-
consumer aluminium. Using 100% complex post-consumer scrap, we will be able to
produce a near zero carbon product at a competitive abatement cost. This will be
made possible by Hydro’s patented aluminium sorting technology and alloying
expertise, in combination with replacing natural gas with hydrogen or electrical
heating at recyclers and casthouses. Already in 2022, near-zero aluminum based
on recycling of 100% complex post-consumer scrap, should be commercially
available. Production volumes will depend on customer demand for this material.
“Since we launched our low-carbon products Hydro CIRCAL and Hydro REDUXA, the
market has embraced low-carbon aluminium, as it enables our customers to meet
their abatement goals. I view this development as a great opportunity to further
position Hydro. This shows that when the market starts to pull for greener
products, the decarbonization challenge turns into commercial opportunities and
incentivizes us to invest in innovative solutions to reduce our carbon footprint
further,” says Aasheim.
Environment and social ambitions
Hydro is setting new sustainability ambitions in the areas of environment and
social responsibility. Within environment, the ambitions include protecting
biodiversity and reducing the environmental footprint. For biodiversity, Hydro
has set an ambition to achieve no net loss of biodiversity for all new projects
in Hydro, in addition to the existing 1:1 rehabilitation target. With regards to
waste, the existing 2030 targets for increased utilization of bauxite residue
and reduced landfilling of spent pot lining are supplemented with ambitions to
eliminate the need for new permanent bauxite residue storage by 2050 and to
eliminate landfilling of all other recoverable waste by 2040.
Hydro’s social ambition is to improve the lives and livelihoods wherever we
operate. The existing target of empowering 500,000 people with education and
skills development by 2030 is supplemented with business-specific targets to
support just transition, and ensure responsible business practices throughout
Hydro’s supply chain, providing traceability and transparency of key
sustainability data for Hydro’s products.
Strengthening position in low-carbon aluminium
Hydro’s 2025 strategy aims to strengthen Hydro’s position in low-carbon
aluminium and explore growth opportunities in new energy. The strategy leverages
Hydro’s competitive advantages to seize opportunities within the current
megatrends and positions Hydro to capture value from growing demand for greener
and circular aluminium.
Reduced costs and improved operational excellence within Hydro’s asset base
remain a priority. Hydro’s operations in Bauxite & Alumina and Aluminium Metal
are already in the first quartile of their respective cost curves. Hydro has
increased its current improvement program by NOK 1.1 billion to a new 2025
improvement target of NOK 8.5 billion. The 2025 target includes around NOK 5.7
billion which has been delivered through Q3 2021.
In addition, Hydro has increased its commercial improvement ambition from NOK
1.5 billion to NOK 2.5 billion by 2025. These are market-driven initiatives
where Hydro will leverage its solutions and partnerships to increase market
shares in key segments, in addition to growing margins. The commercial potential
also comes from leveraging Hydro’s sustainability position to shape demand for
Hydro’s greener product portfolio. Over the past year, Hydro has seen increased
demand for its low-carbon brand products Hydro CIRCAL and Hydro REDUXA, and
expects to double sales of these products by 2025.
Over the past year, Hydro Extrusions has restructured its portfolio and
implemented cost savings and productivity programs to improve profitability.
Hydro Extrusions is now positioning itself for future growth through key
investments. In 2021, Extrusions added over 200,000 tonnes of new capacity
through investments across the portfolio.
At the 2020 Capital Markets Day, Hydro set a strategic ambition to double its
recycling of PCS. Hydro currently has a portfolio of 25 recyclers with an annual
capacity of 1.8 million tonnes. The 2025 ambition to double PCS recycling will
provide EBTIDA uplift of NOK 0.7 billion to 1.1 billion. Key investments into
additional post-consumer scrap recycling capacity of 85,000 tonnes have been
announced so far in 2021, increasing total casthouse production by 305,000
tonnes. Volumes from some of these projects are expected in 2022.
Growing in new energy
The transition to a lower-carbon society also provides opportunities for Hydro’s
new energy areas. Over the past year, Hydro has continued to execute on its
strategy to grow in new energy areas that can decarbonize high-emitting
industries, including renewable energy, batteries, and green hydrogen. Hydro
continues to develop profitable projects and partnerships in these areas.
Hydro’s renewable energy company, Hydro REIN, is executing its portfolio
strategy and has matured several large-scale projects in Brazil and the Nordics.
Hydro REIN has invested in a 260MW wind power plant in Stor-Skälsjön, Sweden,
with Eolus. Hydro REIN has several projects in late-stage development in Brazil.
Hydro REIN aims to supply Hydro’s 10TWh repowering needs by 2025, while also
serving customers outside Hydro, in addition to providing energy solution
services for Hydro sites and external customers. Hydro REIN anticipates an IPO
during 2022.
Hydro’s green hydrogen unit, Hydro Havrand, will develop green hydrogen based on
renewable energy to cut emissions in hard to abate sectors. Hydro Havrand
leverages Hydro’s 4GW potential offtake and energy expertise as a springboard to
mature its portfolio and capture global opportunities. Hydro Havrand has
commenced projects at Hydro’s Årdal, Norway, smelter and Vetlanda, Sweden,
extrusions facility to introduce green hydrogen into industrial processes.
Hydro’s battery unit continues to build a sustainable and competitive battery
business. Hydro’s 50/50 joint venture with Northvolt, Hydrovolt, is on track to
commence operations at the start of 2022. Hydro’s battery unit has built a
pipeline of investment opportunities within recycling, cell and pack solutions,
and anodes. Hydro’s battery unit aims to achieve 3x value uplift on invested
equity on average for its investments with an aim to invest NOK 2.5 billion to
NOK 3 billion by 2025.
Financial priorities
“Hydro remains committed to driving long-term value for our shareholders. We
have lifted profitability across all our business areas and improved our
returns, resulting in a RoaCE of about 13% over the last year. On the back of
this, the Board of Hydro aims to propose an annual shareholder distribution of
70-80% of adjusted net income for 2021,” says CFO Pål Kildemo.
Hydro’s cash generation from Q4 2020 to Q3 2021 was NOK 9.5 billion, supported
by strong markets and good improvement program performance. This, with the
reduced pension liabilities and cash proceeds from the divestment of Hydro
Rolling, contributes to the reduction of adjusted net debt and net debt
positions, from NOK 23 billion and NOK 8 billion, respectively, to NOK 11
billion and NOK 1 billion.
Disciplined capital allocation remains a key financial focus to support
execution of the 2025 strategy. For 2021, Hydro expects NOK 7 billion in
investments. The updated capex guidance for 2022 is NOK 11 billion, which
includes a roll-over from 2021. For 2023-2025, the guidance is NOK 10 billion.
Hydro will continue to ensure efficient levels of working capital.
“We believe our sustainability position in an industry context is becoming a
strong differentiator, also from a cost of capital perspective. Hydro expects a
strong taxonomy position relative to peers. Our initial analyses, based on half-
yearly 2021 figures, indicate an eligible share of revenue of 40-50%, with
aligned share between 22 and 27%, and for CAPEX we estimate an eligible share of
around 50% with an aligned range between 30 and 35%, increasing to 40-50% in the
2022-2025 period,” says Kildemo.
Hydro’s ambition to deliver at least 10% RoaCE over the cycle, with all business
areas delivering RoaCE above their cost of capital, remains in place. The 2025
strategy strengthens the robustness of the profitability roadmaps for each
business area.
Contact details:
Investor contact:
Line Haugetraa
+47 41406376
Media contact:
Halvor Molland
+47 92979797
The information is such that Hydro is required to disclose in accordance with
the EU Market Abuse Regulation. The information was submitted for publication
from Hydro Investor Relations and the contact persons set out above.
Certain statements included in this announcement contain forward-looking
information, including, without limitation, information relating to (a)
forecasts, projections and estimates, (b) statements of Hydro management
concerning plans, objectives and strategies, such as planned expansions,
investments, divestments, curtailments or other projects, (c) targeted
production volumes and costs, capacities or rates, start-up costs, cost
reductions and profit objectives, (d) various expectations about future
developments in Hydro’s markets, particularly prices, supply and demand and
competition, (e) results of operations, (f) margins, (g) growth rates, (h) risk
management, and (i) qualified statements such as “expected”, “scheduled”,
“targeted”, “planned”, “proposed”, “intended” or similar. Although we believe
that the expectations reflected in such forward-looking statements are
reasonable, these forward-looking statements are based on a number of
assumptions and forecasts that, by their nature, involve risk and uncertainty.
Various factors could cause our actual results to differ materially from those
projected in a forward-looking statement or affect the extent to which a
particular projection is realized. Factors that could cause these differences
include, but are not limited to: our continued ability to reposition and
restructure our upstream and downstream businesses; changes in availability and
cost of energy and raw materials; global supply and demand for aluminium and
aluminium products; world economic growth, including rates of inflation and
industrial production; changes in the relative value of currencies and the value
of commodity contracts; trends in Hydro’s key markets and competition; and
legislative, regulatory and political factors. No assurance can be given that
such expectations will prove to have been correct. Hydro disclaims any
obligation to update or revise any forward-looking statements, whether as a
result of new information, future events or otherwise.
This information is subject to the disclosure requirements pursuant to Section
5-12 the Norwegian Securities Trading Act
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