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lower aluminium and alumina sales prices as well as lower volumes in Extrusions,
partly offset by positive currency effects and lower raw material costs.
Highlights for the quarter:
- Robust results and strong extrusion margins, despite weaker markets and
price pressure
- Improvement program and commercial ambitions on track for 2023 targets
- Alumetal acquisition significantly strengthens recycling position in Europe
- Good progress on low-carbon aluminium partnerships
- Increased 2023 capex guidance on currency translation, inflation and return-
seeking investments
“The results reflect a weaker market, but also the effect of our continuous
improvement initiatives throughout the organization. These improvement efforts
are key to ensuring robustness and strengthening our value creation when markets
are declining,” says President and CEO, Hilde Merete Aasheim.
Health and safety remain Hydro’s top priority for both employees and the
communities where the company operates. The total recordable injury rate (TRI)
is stable at a low level of 2.3 at the end of the quarter.
Demand for primary aluminium is declining in the short-term, while Chinese
supply is returning, leading to the global primary balance weakening in recent
months. In challenging markets, Hydro continues to deliver solid results and
mitigate risks by improving margins, operational excellence and reducing costs.
Continuous improvements strengthen the position on cost curves and ensure
robustness. Hydro is on track to deliver on the full year improvement program
target of NOK 8.4 billion. Standing strong and delivering in short-term
uncertainties provides a solid foundation for pursuing long-term opportunities.
Hydro is making progress towards achieving the 2027 accumulated improvement and
commercial targets of NOK 14 billion combined.
“Commercial excellence continues to give good rewards, improving the robustness
of our margins in a period with large declines in volumes across Europe and
North America. A stronger market position through our greener aluminium product
offering separates us from our peers and makes us attractive for partnerships,”
says Aasheim.
During the second quarter, European and North American demand for extrusions
have decreased significantly compared to the same quarter last year. Despite
falling markets, Hydro Extrusions continues to deliver margin robustness through
dedicated improvement efforts, by proactively adjusting costs and gaining market
share, margin uplift, and benefiting from greener product offering. These
efforts have shown strong results compared to our peers and strengthen the
roadmap to deliver NOK 8.0 billion adjusted EBITDA for Hydro Extrusions in 2025.
A key pillar within the Hydro 2025 strategy to strengthen the position in low-
carbon aluminium is recycling. Hydro has an ambition to more than double the use
of post-consumer scrap by 2025 compared to the 2020 baseline, which is scrap
that has gone a full lifecycle and comes with zero emissions. On June 30, Hydro
completed its tender offer for the Polish recycler Alumetal S.A with more than
97 percent of the shares. The acquisition strengthens Hydro’s recycling position
in Europe, and widens its product offering in the low-carbon and scrap based
foundry alloy market. It contributes with 150,000 tonnes of annual post-consumer
scrap towards the 2025 target of using 670,000 tonnes post-consumer scrap
annually. Alumetal delivered a 12-month rolling EBITDA of NOK 700 million as of
the first quarter of 2023. The share purchase was settled on July 7.
Additional progress was made to deliver on Hydro’s recycling strategy. Hydro
signed an agreement to purchase land in Torija, Spain, with the aim of
constructing a state-of-the-art aluminium recycling plant, producing 120,000
tonnes annually. The facility will further strengthen Hydro’s capabilities to
produce low-carbon aluminium and ensure more scrap is kept in Europe. Also, the
recycling facilities in Navarra and Sjunnen are ramping up recycling capacity
with 20,000 tonnes each, and the first metal was delivered from HyForge
Rackwitz. These are all important steps in increasing Hydro’s recycling capacity
by 1 million tonnes by 2027, where roughly half is expected to come from post-
consumer scrap.
Hydro is gaining further ground on low-carbon aluminium, and achievements have
been made across the value chain to meet the increasing demand for greener
products. Hydro partnered with Saint-Gobain Glass to recycle and decarbonize
building facades by integrating the low-carbon solutions offered by both
companies. The partnership includes investments in urban mining, a method that
recycles end-of-life aluminium and glass. Another example is Hydro will
contribute with its low-carbon aluminium CIRCAL 100R to produce the cleanest
dirt bike ever, together with Cake and Vattenfall. Hydro has also signed a
letter of intent with the UK based bicycle company, Brompton, to deliver low-
carbon aluminium to reduce footprint and weight for their iconic folding
bicycles.
Hydro’s customers are recognizing Hydro’s industry leadership in greener
aluminium, and on June 19, Hydro received the Mercedes-Benz sustainability award
after delivering the first batch of Hydro REDUXA 3.0 earlier this year. It
passed testing at Mercedes-Benz and will be introduced in large scale production
this year, starting with the EQS and EQE series of electric cars.
“Our customers increasingly care about more than the price and quality of
aluminium products, including where and how it is produced. All parts of our
sustainability agenda, from our net-zero ambition to our social developments in
Brazil and around the world, are key criteria for our most advanced customers.
They ask for transparency and traceability throughout the aluminium value chain,
and I am happy that a major customer like Mercedes-Benz acknowledges our efforts
with granting us their sustainability award,” says Aasheim.
During the second quarter of 2023, the world’s first batch of recycled aluminium
using green hydrogen as an energy source was successfully produced at Hydro’s
extrusion plant in Navarra, Spain. This is an important step in verifying green
hydrogen as an emission free fuel to address the hard to abate industry
emissions.
The transition to a lower-carbon society is dependent on policy initiatives like
the European Green Deal. There are several initiatives on both climate, energy,
sustainability and taxonomy that are important for the development of a greener
economy. The political direction is aligned with Hydro’s growth strategy across
the value chain. ?One important aspect of the Green Deal is circularity and what
it means for recycling of aluminium.? According to a secondary technical
legislation under adoption, the Carbon Boarder Adjustment Mechanism (CBAM) will
label aluminium based on remelted industrial scrap as “carbon free,” with zero-
carbon cost on import. This allows for greenwashing of carbon intensive products
and undermines the competitiveness of European producers subject to ETS, the EU
market for low-carbon products and Green Deal objectives. This needs to be
addressed and updated before the CBAM is finally introduced to ensure the CBAM
does not cause the problem it seeks to address, but rather solves it.
There is a need for more renewable energy, and Hydro Rein is maturing and
growing the portfolio to meet this demand. The second quarter has seen good
progress on the construction of Stor-Skälsjön, Mendubim, Feijao and Boa Sorte.
At the same time the development portfolio is growing, and in the second
quarter, Hydro Rein announced agreements with GreenGo Energy to acquire and
develop four solar projects in the Nordics, which will together deliver 528 MW
annual capacity, starting from 2026. Based on an overall assessment of the
opportunities in its portfolio and capital allocation priorities, Hydro Rein
decided not to participate in a previously announced competition to develop a
large scale, bottom fixed offshore wind farm in the Norwegian North Sea. Hydro
actively continues to evaluate financing alternatives for Hydro Rein and
dialogues are constructively evolving.
Hydro Energy signed a long-term power purchase agreement (PPA) with Statkraft
for the supply of 6.6 TWh of renewable power over a 15-year period. The PPA will
secure parts of the Norwegian aluminium smelters with renewable energy until
2038, which continues to enable Hydro to produce aluminium in Norway with a
carbon footprint of about 75 percent less than the global average.
On April 27, Hydro signed an agreement with Glencore, who will acquire 30
percent of the Brazilian alumina refinery Hydro Alunorte and Hydro’s 5 percent
ownership in the Brazilian bauxite producer Mineracão Rio do Norte (MRN). Hydro
announced that proceeds from the transaction would be used for strategic growth
and shareholder distribution.
In the second quarter, Hydro undertook a review of the capex portfolio for 2023
and has raised the annual guidance from NOK 16.5 billion (including the Alumetal
and Hueck transactions), to NOK 20.5 billion, where NOK 2.7 billion is driven by
currency translation effects and inflation, and around NOK 1.5 billion is
related to the higher Alumetal bid, running capex in Alumetal and Hueck, and
other return-seeking investments. Estimated capex for Hydro Rein in 2023 has
increased from NOK 2.5 billion to NOK 3 billion, also driven by currency
translation. No further increased capital allocation is planned for 2023.
Results and market development
European smelters see declining margins due to low LME, premiums, and high
energy prices, with more curtailments announced in the second quarter and
restarts less likely. High interest rates are continuing to put pressure on
demand. Demand is weakest in the building and construction sector, and general
engineering, while automotive is still holding up in most regions.
Russian metal in LME warehouses has increased to a record high 80 percent from
under 10 percent since before the war in Ukraine started, causing concern, as a
large part of industry participants, including Hydro, are self-sanctioning
Russian products. Due to lack of sanctions from the EU, Russian metal is
increasingly being exported into Europe with added pressure on regional
premiums. Since the shutdown of the Nikolaev refinery in Ukraine and the
Australian alumina export ban to Russia, Russian aluminium producers are
continuing alumina imports from China, and from other new sources outside China.
Second quarter 2023 adjusted EBITDA for Bauxite & Alumina decreased, compared to
the second quarter of last year. Lower alumina sales prices were partly offset
by lower raw material prices and lower port costs as replacement of a
decommissioned crane was completed. The average Platts Alumina Index (PAX)
started the quarter at USD 362 per mt and drifted lower throughout the period,
ending at the quarter low of USD 330 per mt, driven by declining Chinese alumina
prices. Compared to the second quarter of 2022, the average Platts Alumina Index
was 8 percent lower.
Adjusted EBITDA for Aluminium Metal decreased in the second quarter of 2023,
compared to the second quarter of 2022, mainly due to lower all-in metal prices,
partly offset by positive currency effects, increased CO2 compensation, lower
raw material costs, and positive contribution from power sales. Global primary
aluminium consumption was up 2 percent compared to the second quarter of 2022,
driven by a 6 percent seasonal increase in China. The three-month aluminium
price decreased throughout the second quarter of 2023, starting the quarter at
USD 2,397 per mt and ending at USD 2,151 per mt.
Adjusted EBITDA for Metal Markets decreased in the second quarter of 2023,
compared to the same quarter last year. Results from the recyclers decreased
compared to a record strong 2022 second quarter, driven by lower sales volumes
and weakening margins. Increased results from sourcing and trading activities
were more than offset by negative inventory valuation and currency effects.
Extrusions adjusted EBITDA for the second quarter of 2023 is slightly lower than
the same quarter last year, driven by lower sales volumes, and higher fixed and
variable costs, positively offset by increased sales margin and currency
effects.
European demand for extrusions in the second quarter of 2023 is estimated to
have decreased 22 percent, compared to the same quarter last year, but increased
1 percent compared to the first quarter of 2023, which also saw weak demand.
Demand for residential building and construction, and industrial segments have
remained weak in the second quarter, while demand for automotive is growing
steadily. Some subsegments, such as solar, are also showing robust growth.
North American extrusion demand is estimated to have decreased 15 percent during
the second quarter of 2023, compared to the same quarter last year, and 1
percent compared to the first quarter of 2023. Demand is particularly weak in
the residential building and construction sector as higher interest rates are
impacting the housing market, while the automotive segment continues to
strengthen.
Adjusted EBITDA for Hydro Energy in the second quarter of 2023 is on a similar
level, compared to the same period last year. Higher production was offset
mainly by lower gain on price area differences, lower prices, and loss on a 12-
month internal fixed price purchase contract from early October 2022.
Nordic power prices were on average lower in the second quarter of 2023,
compared to the previous quarter, and significantly lower than in the same
quarter last year. The decrease is a result of lower continental spot power
prices on the back of lower gas and coal prices, and seasonality. Significant
price area differences in the Nordic region have continued through the second
quarter of 2023. The price area differences were slightly higher compared to the
previous quarter, but still significantly lower than the same quarter last year.
Other key financials
Compared to the first quarter, Hydro’s adjusted EBITDA decreased from NOK 7,525
million to NOK 7,098 million in the second quarter 2023. Lower realized
aluminium and alumina prices were partly offset by lower raw material costs and
higher margins.
Net income from continuing operations amounted to NOK 5,056 million in the
second quarter of 2023. In addition to the factors described above, net income
from continuing operations included a NOK 3,010 million unrealized derivative
gain on LME related contracts, a net foreign exchange?gain of NOK?264?million
and a NOK 148 million loss from unrealized derivative power and raw material
contracts.
Hydro’s net debt increased from NOK 1.7 billion to NOK 11.3 billion during the
second quarter of 2023. The net debt increase was mainly driven by a NOK 11.5
billion dividend to shareholders and increased investments, partly offset by a
strong EBITDA contribution and a net operating capital release.
Adjusted net debt increased from NOK 8.5 billion to NOK 15.9 billion, largely
due to the increase in net debt of NOK 9.6 billion, partly offset by reduced
collateral of NOK 1.7 billion and a reduction in net pension liabilities of NOK
0.9 billion.
Reported earnings before financial items and tax (EBIT) and net income include
effects that are disclosed in the quarterly report. Adjustments to EBITDA, EBIT
and net income (loss) are defined and described as part of the alternative
performance measures (APM) section in the quarterly report.
Investor contact:
Martine Rambøl Hagen
+47 91708918
Martine.Rambol.Hagen@hydro.com
Media contact:
Halvor Molland
+47 92979797
Halvor.Molland@hydro.com
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. Except where required by law,
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 considered to be inside information pursuant to the EU
Market Abuse Regulation and is subject to the disclosure requirements pursuant
to Section 5-12 the Norwegian Securities Trading Act.
Kilde
