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generation. Hydro will execute on its decarbonization roadmap, and contribute to
nature positive and a just transition, while shaping the market for greener
aluminium. These are key topics for Hydro’s Capital Markets Day 2023.
Key highlights
- Expecting up to NOK 2 billion greener earnings uplift by 2030
- Stepping up growth in Extrusions to NOK 10-12 billion EBITDA in 2030
- Stepping up growth in Recycling to NOK 5-8 billion EBITDA in 2030, partially
driven by increasing post-consumer scrap to 850-1,200 kt by 2030
- Increasing CO2 reduction target until 2030, maintaining 30% target despite
portfolio changes, and stepping up nature positive efforts through
initiatives on biodiversity, waste handling and land use
- Increasing improvement program to NOK 14 billion in 2030, including
additional potential from digitalization, and increasing commercial
ambitions to NOK 6.1 billion in 2030, including the full potential for
greener premium earnings uplift
- Updating 2024 and medium-term capex guiding to 15 billion annually from
currency, inflation and 2023 carry-over, and adding annual flexibility up to
NOK 1-2 billion, while estimating a NOK 2 billion net operating capital
release in 2024
- Aiming to distribute 50-60 percent of adjusted net income to shareholders
for 2023, in-line with capital structure target
“Based on our leading position we are now shifting gear. Towards 2030 we are
stepping up growth ambitions in Extrusions, recycling and renewable power
generation aimed at capturing market opportunities emerging from the green
transition,” says President and CEO Hilde Merete Aasheim.
In 2020, Hydro set out a forceful agenda towards 2025 to develop a more robust,
higher-earning and more sustainable company. Hydro has delivered on this
strategy through improved earnings and sustainability performance, and a more
robust portfolio, positioning the company for strategic resilience in a world in
transition.
“Hydro is uniquely positioned to pioneer the green aluminium transition. With
our cutting-edge material and aluminium competence ranging from bauxite to
extruded solutions, combined with our in-house competence in developing and
operating renewable energy, and a concrete roadmap to zero, we are ready to
change the game for aluminium,” says Aasheim
Since 2020, the business environment has rapidly changed with geopolitical
tensions affecting global trade, cooperation, and energy prices. Amid current
market challenges, strong demands for key materials like aluminium, steel, and
copper are expected due to the green transition. The shift to electric vehicles,
escalating demand for solar and wind infrastructure, and stricter energy-
efficiency regulations in construction, underscore the increasing need for
aluminium. Achieving a sustainable green transition depends on producing these
materials with the lowest possible carbon footprint and minimal impact on nature
and communities, while adapting to new risks and opportunities.
In the 2030 strategic direction, Hydro is stepping up growth investments in
Extrusions and recycling to capitalize on the green transition opportunities.
Ambitions in renewable power generation are elevated to ensure affordable
renewable energy in the aluminum value chain at attractive returns. In addition,
Hydro will continue to focus on a forceful execution of its decarbonization and
technology roadmap, contributing to nature conservation and a just transition,
and shaping the market for greener aluminum in partnership with customers.
Stepping up growth investments in Recycling and Extrusions
In recycling, the recent acquisition of the Polish recycler Alumetal and
investment in HyForge in Rackwitz, Germany enriches product outlets by utilizing
different scrap types to cater for the growing market for recycled aluminium. In
addition, the greenfield recycler Hydro Cassopolis in Michigan, US was
officially opened on November 16, aiming to supply aluminium and Hydro CIRCAL to
the automotive and US market. By the end of this year, Hydro is ramping up to
540 kt post-consumer scrap capacity (PCS), already achieving the 2025 target set
out in last year’s Capital Markets Day of 520-670 kt.
Hydro is stepping up growth in aluminium recycling to meet the increasing demand
for low-carbon, recycled products. Looking ahead to 2030, the ambition is to
further increase PCS usage towards 850 kt to 1,200 kt, compared to the 2027
target of 770 kt. Investments include expanding and upgrading recycling
facilities, and strengthening the position in scrap sourcing and advanced
sorting capabilities. Hydro aims to further diversify the portfolio of cast
house products, in collaboration with customers, to unlock the potential for
increased use of recycled materials in new segments. Depending on market
developments and capital availability, this is estimated to give a recycling
EBITDA in the range of NOK 5-8 billion in 2030.
Hydro Extrusions has improved profitability through innovative solutions in non-
commoditized segments, positioning for a targeted NOK 8 billion delivery in
2025 in normalized markets, to be further stretched towards 2030. With expanded
capacity, new presses, and a focus on greener offerings, Hydro Extrusions aims
to seize emerging market opportunities and increase its global market share.
Depending on market growth and capital availability, the ambition is an EBITDA
range between NOK 10 and 12 billion by 2030.
Stepping up ambitions within renewable power generation
There is an urgency to develop more renewable power combined with heightened
competition and risk of price increase. Despite global climate goals, the pace
of new capacity development is lagging. Solar and wind power is expected to play
an increasingly prominent role in the grid, creating more volatility in
generation and loads. The green aluminium transition will not be possible
without more renewable energy at an affordable price. Hydro’s inhouse
capabilities to scale up renewable power production provide a competitive
advantage to take a leading role in this development.
Towards 2030, Hydro is seizing the opportunity to extract value from the
volatile energy landscape, by maximizing the flexibility of intermittent power
sources and enhancing market operation management. Hydro Rein has actively been
pursuing attractive renewable energy prospects, catering to Hydro and a broader
customer base, primarily in the Nordics and in Europe. Through the recently
announced joint venture partnership with Macquarie, Hydro Rein is now positioned
to further accelerate and deliver attractive risk-adjusted equity returns of 10
to 20 percent. The 2030 EBITDA from Hydro Energy, including a pro-rata
contribution from Hydro Rein, is expected at NOK 4.7 billion normalized.
Execute on decarbonization and technology road map and step up to contribute to
nature positive and a just transition
Hydro is making significant strides towards carbon reduction goals, targeting a
30 percent reduction in its carbon emissions by 2030, primarily driven by fuel
switching and boiler electrification at the Alunorte alumina refinery. Despite
Hydro’s lower ownership share in Alunorte, reducing the impact of these efforts
in Hydro’s numbers, Hydro is committed to maintain a 30 percent reduction target
by 2030, effectively stretching its ambitions. To deliver on this stretch
target, Hydro will explore initiatives like decarbonizing casthouses with green
hydrogen, biofuels or direct electrification, and using bio-materials for anode
production. In total, the portfolio changes and existing decarbonization
programs will result in a 47 percent reduction in greenhouse gas exposure by
2030 compared to 2018. The two technology paths to zero, HalZero for new
capacity and carbon capture for existing smelters, are progressing according to
plan, toward industrial scale by 2030.
Greener is more than low carbon, and Hydro has clear commitments to
biodiversity, waste management, and non-greenhouse gas emissions, aligned with
the Global Biodiversity Framework. The goal of no net loss of biodiversity for
the Hydro Paragominas bauxite mine is expanded to include historic impacts from
2020 for the existing footprint. This involves improved onsite biodiversity
management and investments in biodiversity offsets around the mining operation.
For a successful implementation, Hydro is partnering with IPAM and IMAZON to
jointly pursue sustainable development in Paragominas. Hydro will partner with
the World Economic Forum’s Alliance for Clean Air to create an inventory of air
emissions in our supply chain. This collaborative effort aims to define
baselines and establish targets to reduce the embedded footprint of our aluminum
products, championing collective action on air pollution across the value chain.
A just transition framework is developed to positively contribute to respect and
promote human rights, support positive local development, invest in education,
and ensure responsible supply chains. Through continuous due diligence, local
initiatives and partnerships, Hydro is committed to improve lives and
livelihoods in the local communities where the company operates.
Shape the market for greener aluminium in partnership with customers
Hydro has a unique ability to utilize the integrated value chain to deliver low
carbon aluminium products, complete with traceability and transparency at every
step from mine to component. Hydro is leveraging on this position through
establishing strategic partnerships with selected high-profile customers and has
already spearheaded partnerships with leading players in the automotive industry
like Mercedes-Benz, Porsche and Polestar.
Delivering low carbon products creates value for Hydro’s customers and enables
premium pricing with bottom-line effects for the company. With the roadmap Hydro
has set out towards 2030 to drive down product footprint further, both within
primary and recycled aluminium, Hydro will transform its product offering from
Hydro REDUXA 4.0 to Hydro REDUXA 3.0. Further growth in recycling and increasing
content of post-consumer scrap enables for a broader and more high-premium Hydro
CIRCAL portfolio.
Based on the premiums Hydro is receiving today and the capacity available in
2030, there is a potential for NOK 2 billion in greener premium earnings uplift
as Hydro further develops and offers industry leading products. This potential
will depend on a range of factors and how the market develops; but with current
starting point and roadmap towards zero, Hydro is dedicated to creating value
for customers, creating value for Hydro, all while driving down CO2 emissions in
a responsible way.
Strengthened resilience and greener value creation
Hydro’s earnings from the fourth quarter 2022 to the third quarter 2023 was NOK
25.7 billion compared to a record high NOK 39.7 billion in 2022, driven lower by
weaker economic growth. However, strengthened resilience and a robust capital
structure has supported strategic capital allocation, with 60 percent of capital
spending allocated towards return seeking and strategic growth during 2023. In
line with the dividend policy and capital structure targets, Hydro aims to
distribute 50-60 percent of 2023 adjusted net income to its shareholders. Final
distribution for 2024 will be proposed by the Board of Directors at the fourth
quarter release in February 2024, and subject to approval by the Annual General
Meeting in May 2024.
Hydro has strengthened its position by delivering NOK 8.6 billion improvements,
by lifting operational excellence, optimizing fixed costs and through
procurement initiatives. All business areas are on podium positions within their
industry, with first quartile positioning in Aluminium Metal and Bauxite &
Alumina, closing the gaps to peers in Extrusions, and with an EBITDA uplift of
NOK 2 billion in Energy. Hydro will continue to improve, and the improvement
program is stretched with an additional NOK 3 billion to NOK 14 billion in 2030.
Commercial initiatives have further contributed to earnings resilience, by
pursing market and customer-driven growth opportunities and developing the
greener premium market. Hydro estimates to deliver NOK 2.9 billion by year-end,
including commercial improvements in Energy, and is well ahead of the 2025
target of NOK 2.5 billion already in 2023. The commercial ambition is further
stretched to NOK 6.1 billion towards 2030, including the full greener premium
earnings potential of NOK 2 billion.
Hydro’s strategic agenda continues to guide capital allocation, and capital
discipline remains a key financial priority towards 2030. For 2023, Hydro
expects NOK 22.5 billion in investments, including Hydro Rein, NOK 1 billion
lower than guided at Q2. The updated capex guidance for 2024, is NOK 15 billion,
which includes NOK 400 million carry-over from 2023, and NOK 2 billon in fx and
inflation effects. For 2025-2028, the guidance is NOK 15 billion, reflecting fx
and inflation, in addition to strengthened growth ambitions within recycling and
Extrusion. Depending on market development and growth capacity, there is
potential for accelerated growth investments of NOK 1-2 billion per year,
enabling the top of the EBITDA growth target ranges. The long-term sustaining
capex is estimated at NOK 8.0 billion.
Hydro will continue to ensure efficient levels of working capital and has
targeted a release of NOK 2 billion through 2024, reflecting current market
prices.
The proposed capital allocation, improvement targets and commercial ambitions,
strengthens Hydro’s competitive position and increases earnings resilience
through the economic cycles, enabling further growth and attractive shareholder
distributions.
Investor contact:
Martine Rambøl Hagen
Martine.Rambol.Hagen@hydro.com
+47 91708918
Media contact:
Halvor Molland
Halvor.Molland@hydro.com
+47 92979797
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