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Hydro aims to lift cash flows and returns with extensive improvement and restructuring efforts across its business areas, while highlighting sustainability as a basis for the company’s positioning. These will be the key topics at the Hydro Investor Day 2019.
At this year’s event, Hydro will present its strategic direction, including new improvement efforts, updated capital allocation framework and clear targets for profitability and sustainability. The ambitions are underpinned by a capital returns target of 10% RoaCE over the cycle, as well as an ambition to reduce already competitive CO2 emissions in own production and processes by further 30% by 2030. Moreover, there will be an update on the Alunorte situation, Rolled Products restructuring and market outlook.
“We are launching new improvement efforts across the company, representing NOK 6.4 billion in EBIT improvements over the next five years, in addition to NOK 0.9 billion targeted in Rolled Products over the same time period. The improvements include the curtailment reversal of the Brazilian assets. The efforts also include simplification of staff functions and a revised operating model to support our profitability and sustainability agenda,” says Hilde Merete Aasheim, President and CEO.
Hydro’s strategic priorities are to have cost-competitive assets, based on operational excellence, strong market positions, capitalizing on innovation and differentiating on sustainable products and processes. By actively managing its portfolio and strictly allocating capital in line with the strategic priorities, Hydro aims to ensure a more stable earnings profile, while also strengthening sustainability positions throughout the value chain. Furthermore, to effectively allocate capital, Hydro has identified strategic modes for each business area ranging from “sustain and improve” in the upstream business areas Bauxite & Alumina and Primary Metal, to “selective growth” in Extruded Solutions and Energy, while Rolled Products is under strategic review and restructuring.
“We have a strong foundation in place to achieve our ambitions. Going forward, we will be focusing on what we can influence ourselves to achieve the set targets, both when it comes to profitability and sustainability. We have the right people, technology and capabilities. Now it’s time to execute in order to improve the robustness of the company, being a profitable industry leader based on innovation and sustainability,” says Aasheim.
Ramping up production in Brazil
The Federal Court lifted the embargo on Alunortes new bauxite residue disposal (DRS2) under the civil lawsuit on September 20. Alunorte is still subject to an embargo on DRS2 imposed by the same court in a parallel criminal lawsuit, but Alunorte is expecting an extension of the civil decision to the criminal case shortly.
In the meantime, ramp-up at Alunorte and Paragominas is progressing well, aiming to produce at 75-85% capacity for the rest of 2019. With an additional press filter in operation at the end of the year, production will be further optimized towards full capacity in 2021. Albras is expected to complete the ramp-up in 2019 with all the electrolysis cells to be restarted by the end of Q3. On a per tonne basis, fixed costs in Bauxite&Alumina and Primary Metal are expected to return to the pre-curtailment levels once the ramp-up is fully completed.
“This is an important step forward. Returning Alunorte, Paragominas and Albras to full production and achieving operational excellence is an important part of our business moving forward. We have a good, ongoing dialog with the relevant stakeholders, and are now awaiting the court’s decision,” says Aasheim.
Strategic review and restructuring in Rolled Products
Hydro has initiated a strategic review and comprehensive restructuring of the Rolled Products business area to mitigate the declining profitability the business has faced over the last years. The aim is to significantly turn this development around by lifting organizational and operational efficiency as well as shifting the product portfolio away from declining markets and towards growth markets like automotive and can. The target is a NOK 0.9 billion improvement by 2023. These improvements will be realized, while also continuing the strategic review of the Rolled Products business.
“We have initiated strong measures in restructuring the Rolled Products business area. We see that our products are well perceived by customers and we have to turn this competitive advantage into increased profitability,” says Aasheim.
New climate strategy
Hydro is launching a new climate strategy aiming to cut emissions in sourcing and own processes by 30% by 2030.
“Cutting our emissions is an important part of our goal to drive sustainability. In 2013, we set an ambitious target to become the first carbon neutral aluminium company from a lifecycle perspective by 2020. Now, when our 2020 target is within reach, we are setting a new ambition for cutting our own emissions by 30% by 2030,” says Aasheim.
Hydro’s new certified low-carbon product brands CIRCAL and REDUXA are setting a new standard for low-carbon and recycled aluminium, thereby commercializing the company’s sustainability position. The initial customer feedback and subsequent orders have underlined the potential for these types of products that represent exciting opportunities moving forward.
Financials
Hydro is committed to driving long-term value for our shareholders. To strengthen the focus on profitability the company has introduced a 10% RoaCE target for the total company, while all business areas aim to deliver RoaCE above their differentiated cost of capital.
Hydro will continue to prioritize a strong balance sheet and an investment grade credit rating, as well as delivering competitive returns to shareholders. Hydro will maintain shareholder focus with a dividend policy of returning 40% of net income over the cycle, with a dividend floor of NOK 1.25 per share.
Ensuring disciplined capital allocation is key to deliver on return requirements, with growth projects to be aligned with strategic priorities, and sustaining capex to be maintained at competitive and affordable levels.
Sustaining capex for 2019 and 2020 combined is estimated at around NOK 12.5-13.5 billion, representing around 1 BNOK reduction compared to the previous guidance for the same period. The reduction represents short-term optimization, while further measures to ensure long-term competitive sustaining capex are in process. Total capex for 2019-2020 is estimated at NOK 19.5 billion.
The company set out a target to release net operating capital by NOK 4 billion by end of 2020 compared to end of 2018, of which the majority will be released by end 2019.
Investor contacts
Stian Hasle
At this year’s event, Hydro will present its strategic direction, including new improvement efforts, updated capital allocation framework and clear targets for profitability and sustainability. The ambitions are underpinned by a capital returns target of 10% RoaCE over the cycle, as well as an ambition to reduce already competitive CO2 emissions in own production and processes by further 30% by 2030. Moreover, there will be an update on the Alunorte situation, Rolled Products restructuring and market outlook.
“We are launching new improvement efforts across the company, representing NOK 6.4 billion in EBIT improvements over the next five years, in addition to NOK 0.9 billion targeted in Rolled Products over the same time period. The improvements include the curtailment reversal of the Brazilian assets. The efforts also include simplification of staff functions and a revised operating model to support our profitability and sustainability agenda,” says Hilde Merete Aasheim, President and CEO.
Hydro’s strategic priorities are to have cost-competitive assets, based on operational excellence, strong market positions, capitalizing on innovation and differentiating on sustainable products and processes. By actively managing its portfolio and strictly allocating capital in line with the strategic priorities, Hydro aims to ensure a more stable earnings profile, while also strengthening sustainability positions throughout the value chain. Furthermore, to effectively allocate capital, Hydro has identified strategic modes for each business area ranging from “sustain and improve” in the upstream business areas Bauxite & Alumina and Primary Metal, to “selective growth” in Extruded Solutions and Energy, while Rolled Products is under strategic review and restructuring.
“We have a strong foundation in place to achieve our ambitions. Going forward, we will be focusing on what we can influence ourselves to achieve the set targets, both when it comes to profitability and sustainability. We have the right people, technology and capabilities. Now it’s time to execute in order to improve the robustness of the company, being a profitable industry leader based on innovation and sustainability,” says Aasheim.
Ramping up production in Brazil
The Federal Court lifted the embargo on Alunortes new bauxite residue disposal (DRS2) under the civil lawsuit on September 20. Alunorte is still subject to an embargo on DRS2 imposed by the same court in a parallel criminal lawsuit, but Alunorte is expecting an extension of the civil decision to the criminal case shortly.
In the meantime, ramp-up at Alunorte and Paragominas is progressing well, aiming to produce at 75-85% capacity for the rest of 2019. With an additional press filter in operation at the end of the year, production will be further optimized towards full capacity in 2021. Albras is expected to complete the ramp-up in 2019 with all the electrolysis cells to be restarted by the end of Q3. On a per tonne basis, fixed costs in Bauxite&Alumina and Primary Metal are expected to return to the pre-curtailment levels once the ramp-up is fully completed.
“This is an important step forward. Returning Alunorte, Paragominas and Albras to full production and achieving operational excellence is an important part of our business moving forward. We have a good, ongoing dialog with the relevant stakeholders, and are now awaiting the court’s decision,” says Aasheim.
Strategic review and restructuring in Rolled Products
Hydro has initiated a strategic review and comprehensive restructuring of the Rolled Products business area to mitigate the declining profitability the business has faced over the last years. The aim is to significantly turn this development around by lifting organizational and operational efficiency as well as shifting the product portfolio away from declining markets and towards growth markets like automotive and can. The target is a NOK 0.9 billion improvement by 2023. These improvements will be realized, while also continuing the strategic review of the Rolled Products business.
“We have initiated strong measures in restructuring the Rolled Products business area. We see that our products are well perceived by customers and we have to turn this competitive advantage into increased profitability,” says Aasheim.
New climate strategy
Hydro is launching a new climate strategy aiming to cut emissions in sourcing and own processes by 30% by 2030.
“Cutting our emissions is an important part of our goal to drive sustainability. In 2013, we set an ambitious target to become the first carbon neutral aluminium company from a lifecycle perspective by 2020. Now, when our 2020 target is within reach, we are setting a new ambition for cutting our own emissions by 30% by 2030,” says Aasheim.
Hydro’s new certified low-carbon product brands CIRCAL and REDUXA are setting a new standard for low-carbon and recycled aluminium, thereby commercializing the company’s sustainability position. The initial customer feedback and subsequent orders have underlined the potential for these types of products that represent exciting opportunities moving forward.
Financials
Hydro is committed to driving long-term value for our shareholders. To strengthen the focus on profitability the company has introduced a 10% RoaCE target for the total company, while all business areas aim to deliver RoaCE above their differentiated cost of capital.
Hydro will continue to prioritize a strong balance sheet and an investment grade credit rating, as well as delivering competitive returns to shareholders. Hydro will maintain shareholder focus with a dividend policy of returning 40% of net income over the cycle, with a dividend floor of NOK 1.25 per share.
Ensuring disciplined capital allocation is key to deliver on return requirements, with growth projects to be aligned with strategic priorities, and sustaining capex to be maintained at competitive and affordable levels.
Sustaining capex for 2019 and 2020 combined is estimated at around NOK 12.5-13.5 billion, representing around 1 BNOK reduction compared to the previous guidance for the same period. The reduction represents short-term optimization, while further measures to ensure long-term competitive sustaining capex are in process. Total capex for 2019-2020 is estimated at NOK 19.5 billion.
The company set out a target to release net operating capital by NOK 4 billion by end of 2020 compared to end of 2018, of which the majority will be released by end 2019.
Investor contacts
Stian Hasle
