Hydro is shifting gear to capture opportunities created
by increased demand for low-carbon aluminium. Towards 2030, Hydro
will step up growth in aluminium recycling and extrusions, and in
its ambitions within renewable power 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
HagenMartine.Rambol.Hagen@hydro.com +47 91708918
Media contact: Halvor MollandHalvor.Molland@hydro.com +47
92979797
- NHY Capital Markets Day 2023
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