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the portfolio, delivering on the pathway to net-zero, and sustainable value
creation.
Key highlights
- Expecting 20 percent annual demand growth for low-carbon aluminium in coming
years
- Growing in recycling through increased 140kt use of post-consumer scrap to
620-770kt in 2027, stretching EBITDA target by an additional NOK 1 billion,
to NOK 3.1 - 3.5 billion
- Lowering environmental footprint, targeting 30 percent reduction of Scope 3
emissions by 2030 on metal delivered to the market
- Lifting sales of low-carbon products, increasing ambitions by NOK 0.5
billion to NOK 3 billion in commercial ambitions by 2027
- Stretching and increasing improvement program by NOK 3.5 billion to NOK 11
billion by 2027
- Increasing annual rehabilitation targets and aiming to pilot new technology
to reutilize bauxite residues in other industries
- Aiming to distribute 50 - 70 percent of adjusted net income for 2022
“Health, safety and the wellbeing of people is on the top of Hydro’s strategic
priorities. To date, 2022 has been a record year when it comes to a low number
of total recordable safety incidents and high risk incidents,” says President
and CEO Hilde Merete Aasheim.
In 2019, Hydro set a clear ambition to lift profitability and drive the
sustainability agenda. Hydro has taken important steps to increase robustness
and position the company for growth and value creation.
“This positions us well in strong, as well as in weaker and more uncertain
markets. I am also excited to see the high expected growth for low-carbon
aluminium, which makes our strategy of strengthening our position in low-carbon
aluminium and growing in new energy even more relevant today,” says Aasheim.
Customers decarbonize, increasing demand for greener aluminium
Greener aluminium with a lower-carbon footprint is seen as an important enabler
for the green transition. Hydro’s customers across industry sectors such as
transportation, construction, packaging and electrical are setting ambitious
decarbonization targets. Low-carbon and circular aluminium is a key lever to
reduce Scope 3 emissions for these industries.
The demand for aluminium towards 2030 in Hydro’s main markets is set to grow at
around 3 percent per year, and low-carbon aluminium demand is expected to
outpace the rest of the market, with a current estimate of 20 percent compound
annual growth rate (CAGR) from 2022 to 2030. External consultants expect low-
carbon and recycled aluminium will make up a majority of the EU and American
market in 2030.
Hydro continues to work in strategic customer partnerships to shape the market
for low and near-zero carbon aluminium. The objective is to contribute to
reducing the climate impact of our customers by utilizing the full potential of
aluminium as a low-carbon solution.
Hydro announced today a new strategic partnership with Mercedes-Benz. In 2023,
Hydro will deliver REDUXA 3.0 (defined as below 3.0 kg CO2 / kg Al from mine to
metal) to a range of Mercedes-Benz models, ultimately reducing the material
carbon footprint.
Key progress on decarbonization path
Hydro’s primary aluminium produced on renewable energy is around 80 percent and
has four to five times lower emissions than the world global primary average,
placing it among the most carbon efficient aluminium in the world.
Hydro has the ambition of achieving net-zero carbon emissions by 2050. Key
initiatives expected to be in place before 2030 include a combination of process
improvements, switching from fossil fuel combustion to renewable energy and
changing fuel source to less carbon intensive sources.
The fuel switch project to replace oil with liquid natural gas at the Alunorte
alumina refinery is expected to be in operation in 2023. In addition, Hydro will
install three electrical boilers, using renewable energy to replace fossil
fuels. The first boiler is already operational, and the second and third boilers
are expected to be operational in 2024.
The company is pursuing three decarbonization paths to further reduce the carbon
footprint of aluminium.
To secure the value of existing smelters, Hydro is developing carbon capture and
storage (CCS) solutions that can be retrofitted into existing aluminium plants.
Hydro continues to collaborate with technology provider Verdox. The first test
was successfully completed and a second test is planned to start in early 2023.
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 aims
to deliver the first zero-carbon primary aluminium from the HalZero process by
2026.
Recycling more post-consumer aluminium, is a third and faster pathway to zero-
carbon aluminium. Using 100 percent post-consumer scrap, Hydro will be able to
produce near-zero carbon products at a competitive abatement cost. In 2022,
Hydro produced its first near-zero aluminum based on recycling of 100 percent
post-consumer scrap.
Key steps to strengthen position in low-carbon aluminium
The 2025 strategy leverages Hydro’s competitive advantages to seize
opportunities within the current megatrends, and positions the company to
capture value from growing demand for greener and circular aluminium.
Reduced costs and improved operational excellence within Hydro’s asset base
remain a competitive advantage. Hydro’s operations in Bauxite & Alumina and
Aluminium Metal are in the 30th and 17th cost percentile respectively. Following
the fuel switch project, which is expected to be finalized in 2023, the alumina
refinery Alunorte’s cost position is expected to improve to the 20th percentile.
The improvement program and commercial initiatives are important to maintain
Hydro’s competitive cost curve positions. Hydro will further increase the
improvement target for 2025 from the original target of NOK 8.5 billion to NOK
10 billion by 2025, and NOK 11 billion by 2027.
Low-carbon aluminium enables customers to meet their carbon reduction goals.
Over the past year, Hydro has seen an increased demand for its low-carbon brand
products Hydro CIRCAL and Hydro REDUXA, and has capacity to respectively triple
and double sales in the mid-term, following five times growth since 2020.
In 2022, positive traction for greener products, improved product mix, higher
margins and market share growth, have supported the 2025 commercial ambition of
NOK 2.5 billion. Towards 2027, Hydro aims to further increase the commercial
ambition by NOK 500 million up towards NOK 3 billion, with NOK 1.4 billion to be
delivered in the coming years.
Extrusions, defined as a strategic growth area, has successfully improved their
business over the last years and is on track to realize its 2025 target EBITDA
of NOK 8 billion, despite the current market volatility.
Extrusions continues to position itself for future growth through key
investments. In 2022, Extrusions added around 50kt of new capacity through
investments across the portfolio. Last week, Hydro announced its acquisition of
Hueck building systems and extrusion business. The acquisition will strengthen
Hydro’s presence in Germany and other European markets, and create a solid
platform for further growth of the combined businesses.
Recycling is an important enabler to strengthen Hydro’s position in low-carbon
aluminium. Key investments into additional recycling capacity have been
announced so far in 2022, increasing capacity by 335 kt including the proposed
acquisition of Alumetal S. A. Hydro is well on track to deliver on the 2020
recycling ambition to double post-consumer scrap by 2025. Hydro now aims to
further increase the recycling EBITDA growth target towards 2025 by NOK 500
million, and additional NOK 500 million by 2027, through lifting the ambition to
recycle PCS by 140kt, requiring an increased capital allocation towards
recycling in the range of NOK 2-2.5 billion.
Continues to execute on the new energy areas
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 production, investment in battery value
chain and production of 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 is currently in the execution stage with four projects and the
contracted revenues (PPAs) from these secured projects amount to approximately
USD 2.7 billion. The EBITDA contribution in 2026 from these projects is
estimated to around NOK 400 - 450 million. The process to raise capital for
Hydro Rein is still ongoing.
Over the past year, Hydro has matured a more focused battery strategy
concentrating on exploring opportunities within sustainable battery materials
mainly in Europe. Hydro’s battery unit aims to achieve 3x value uplift on
invested equity on average for its investments. The Hydrovolt recycling
operations in Norway have started commercial production and received interest
from both EU and OEMs in Europe. In addition, Hydro Batteries has a 30 percent
share in Vianode, a company jointly owned with Elkem and Altor, producing
synthetic graphite. Full scale production is expected to start in 2024.
Hydro’s green hydrogen unit, Hydro Havrand, seeks to develop, own and operate
production sites for green hydrogen based on renewable energy to reduce
emissions in hard to abate sectors. Hydro Havrand leverages Hydro’s 4GW large
internal potential fuel switch from gas offtake, and Hydro’s broad energy
expertise as a springboard to mature its portfolio and capture global
opportunities. Hydro Havrand has commenced projects at Hydro’s Høyanger smelter
in Norway. The company is working to support Vetlanda’s extrusions facility in
Sweden to introduce green hydrogen into industrial processes and develop a
potential hydrogen supply for the Alunorte refinery in Brazil.
Climate, environment and social ambitions
In 2021, Hydro launched a new climate ambition, confirming the target of cutting
own carbon emissions by 30 percent by 2030, and setting new ambitions of
becoming net-zero in terms of Scope 1 and 2 carbon emissions by 2050 or earlier.
Hydro continues to strengthen its sustainability position with launching new
Scope 3 ambitions where the company aims to reduce upstream Scope 3 emissions
per tonne aluminium delivered to the market by 30 percent. The target combines
the metal delivered from Aluminium Metal and Extrusions. On total upstream Scope
3 emissions, Hydro aims to reduce emissions by 15 percent by 2030. The new Scope
3, 2030 targets, will mainly be achieved by lowering footprint of purchased
metal.
Last year, Hydro set out new ambitions focusing on biodiversity and reducing our
environmental footprint with ambitions on waste recovery, including a target to
eliminate landfilling of recoverable waste by 2040. Work continues with Wave
Aluminium to potentially build a pilot plant at Hydro Alunorte to process 50kt
of bauxite residue per year, extracting metals from bauxite residue.
Hydro is also well on track with the 1:1 reforestation ambition. In 2023, we
will also rehabilitate 100 hectares in our legal reserve. This is degraded land
not impacted by Hydro operations. This comes in addition to the rehabilitation
activities in the mining operations under the 1:1 ambition. Hydro is firmly
committed to the ambition of achieving no net-loss of biodiversity in new
projects in Hydro.
Hydro’s social ambition is to improve the lives and livelihoods wherever the
company has operations. During the last few years, Hydro has made significant
social investments in Brazil, building social centers in Pará and a technical
school in Barcarena as one-off infrastructure investments.
Strong financial performance in 2022 and financial priorities
Hydro’s free cash flow generation from the fourth quarter 2021 to the third
quarter 2022 was NOK 12.9 billion, supported by strong markets. In light of
Hydro’s solid balance sheet and strong financials, the Board of Directors aims
to propose to distribute 50-70 percent of 2022 adjusted net income to its
shareholders, as a combination of dividends and share buybacks. Final
distribution for 2022 will be proposed by the Board at the fourth quarter
release in February 2023, and subject to approval by the Annual General Meeting
in May 2023.
Hydro’s strategic agenda continues to guide capital allocation, and disciplined
capital allocation remains a key financial focus to support execution of the
2025 strategy. For 2022, Hydro expects NOK 11.6 billion in investments. The
updated capex guidance for 2023, excluding M&A and Hydro Rein, is NOK 13.5
billion, which includes a NOK 2.1 billion carry-over from 2022, and NOK 1.7
billon in fx and inflation effects. For 2024-2026, the guidance is NOK 12.5
billion, reflecting fx and inflation, in addition to strengthened growth
ambitions within Recycling and Extrusion. The long-term sustaining capex is
estimated at NOK 7.0 billion.
Hydro will continue to ensure efficient levels of working capital and has
targeted a release of NOK 8 billion through fourth quarter 2022 and 2023,
reflecting current market prices.
Hydro is consistently recognized by leading global ESG raters and have improved
several ESG ratings during 2022. For the Morningstar rating Sustainalytics,
which measures ESG risk level, Hydro is now rated as low ESG risk, as one of
only three companies among the 200 companies in diversified metals.
Supporting Hydro’s new capital structure ambitions of NOK 25 billion adjusted
net debt, including a target to keep our gross debt level relatively stable,
Hydro established a Euro Medium Term Note (EMTN) program to streamline future
bond issuances, allowing rapid utilization of our new sustainable financing
framework. Recently Hydro utilized both sustainable financing framework and the
EMTN program in a recent issuance of NOK 3 billion sustainability linked bonds,
fixed and floating with 6 year tenor.
“We believe our sustainability position in an industry context is becoming a
strong differentiator, also from a cost of capital advantage. In 2022, we
launched our sustainable financing framework, incorporating both Green and
Sustainability Linked Financing Frameworks. Last month Hydro issued the first
sustainability linked bond issues in the Norwegian corporate investment grade
market,” says Executive Vice President and CFO Pål Kildemo.
Hydro’s ambition to deliver at least 10% RoaCE over the cycle, with all business
areas delivering RoaCE above their minimum targets, remains in place. The
updated capital allocation and improvement efforts, 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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