Norsk Hydro: Changing the aluminium game - Strengthening position
in challenging markets
Hydro’s adjusted EBITDA for the fourth quarter of 2023 was NOK
3,737 million, down from NOK 7,184 million for the same quarter
last year.
Full year 2023 adjusted EBITDA amounted to NOK 22,258 million,
compared with NOK 39,664 million in 2022. Lower aluminium and
alumina sales prices, lower Extrusions and recycling volumes,
higher fixed costs, and lower contributions from sale of power
negatively impacted results, partly offset by lower raw material
costs, higher Extrusions margins and currency.
- Weaker results in challenging markets, managing short term
volatility and freeing up cash
- Exceeding 2023 improvement targets and commercial
ambitions
- Growing in recycling by increasing capacity and post-consumer
scrap upscaling
- Delivering on decarbonization roadmap across the value chain,
pushing boundaries with Hydro CIRCAL
- Proposed cash dividend of 59 percent of adjusted net income
(NOK 2.5 per share) and NOK 2 billion share buyback program
“Challenging markets led to a weaker result in the fourth
quarter of 2023. We are managing the short-term volatility through
continued execution on our improvement programs and commercial
ambitions. This enables us to continue our positioning in pursuit
of the long-term value creation opportunities for
aluminium,” says President and CEO, Hilde Merete
Aasheim.
All business areas, except Bauxite & Alumina, delivered
returns above their cost of capital in challenging markets during
2023. The adjusted RoaCE for 2023 ended at 7.1 percent, heavily
influenced by challenging alumina market conditions, as well as
high growth and return-seeking investments in the year. Over the
last 5 years, the adjusted RoacE has been 11 percent, above Hydro’s
target of 10 percent over the cycle.
Due to expected challenging alumina markets in the short and
medium term, as well as long-term power price insecurity for the
partly owned Tomago aluminium plant in Australia, Hydro reported a
total impairment loss of approximately NOK 4.9 billion in the
fourth quarter results. However, during the last couple of months
the alumina market has tightened, and PAX price increased on the
back of refinery curtailments and concerns around bauxite shipments
from Guinea.
In the aluminium market, demand growth for residential building
and construction, and industrial segments has continued to remain
negative due to macro-economic headwinds, while demand for
automotive has been performing better as the share of electric
vehicle registrations over total auto registrations has increased.
At the same time, lower trailer build rates in North America have
started to negatively impact demand in the transport segment. A
weakening extrusion ingot market is further putting pressure on
product premiums and several remelters are faced with negative
margins, consequently.
“With a solid balance sheet, strong improvement drive and
targeted measures to free up cash from working capital which
surpassed previous guidance, we propose shareholder distributions
in line with our policy,” says Aasheim.
Hydro responds with mitigating measures to handle short-term
market volatility. Within recycling and Hydro Extrusions, current
production flexibility and adaption abilities are utilized to
maneuver falling demand. Hydro is reducing inventories to release
cash, realizing a working capital release of NOK 3 billion in the
fourth quarter, and NOK 7 billion cash effective release for the
full year of 2023. Hydro’s robustness is also strengthened as the
improvement program and commercial ambitions are ahead of the
target, with an accumulated delivery of NOK 11.6 billion by
2023.
These initiatives and Hydro’s solid balance sheet, enable
shareholder distributions above previous guidance, as the Board of
Directors propose to distribute NOK 7 billion in shareholder
distribution, which represents approximately 81.5 percent of the
2023 adjusted net income, as a combination of NOK 2.5 per share of
cash dividends, 59 percent of adjusted net income, and NOK 2
billion of share buybacks. The final shareholder distribution for
2023 is subject to approval by the Annual General Meeting (AGM) on
May 7, 2024.
During the fourth quarter, an important milestone towards the
2025 strategy was the completion of the USD 1.11 billion
transaction for the sale of 30 percent of the Brazilian alumina
refinery Hydro Alunorte and Hydro’s 5 percent interest in the
bauxite producer Mineracão Rio do Norte (MRN). With the transaction
taking place on December 1, 2023, Hydro will be more balanced in
relation to the demand of alumina from the aluminium smelter
portfolio. The transactions enable capital reallocation into
strategic growth areas, strengthening Hydro’s earnings resilience
in a rapidly changing global landscape.
Towards 2030, Hydro is stepping up growth investments in
Extrusions and recycling, and heightening ambitions in renewable
power generation to ensure affordable renewable energy throughout
the aluminium value chain at attractive returns. In addition, Hydro
remains committed to forcefully executing its decarbonization and
technology roadmap, actively contributing to nature conservation
and a just transition, and collaboratively shaping the market for
greener aluminium in partnership with customers. During the fourth
quarter, several strategic steps have been taken toward delivering
on the ambitious 2030 targets.
Achieving a recycling EBITDA of NOK 5-8 billion by 2030 means
building, expanding and upgrading recycling facilities. The
greenfield recycler Hydro Cassopolis in Michigan, U.S. was
officially opened on November 16, aiming to supply aluminium and in
particular Hydro CIRCAL, to the automotive and the U.S. market.
Further, the investment into another greenfield recycler in Torija,
Spain was approved, with an estimated investment of EUR 180
million. The final building decision is expected in the second half
of 2024. The two recyclers will in total contribute with an
additional 240,000 tonnes annual recycling capacity, including
110,000 tonnes post-consumer scrap capacity (PCS).
By the end of 2023, Hydro has 560 kt post-consumer scrap
consumption capacity, achieving the 2025 target of 520-670 kt. As
part of this achievement, the recently announced joint venture with
Padnos enables more upcycling of 20,000 tonnes annual PCS, by
industrializing Hydro’s proprietary sorting technology, HySort,
bringing this advanced aluminium sorting technology to the U.S. By
2030, Hydro targets an annual PCS capacity between 850-1,200 kt,
pending capital availability.
An enabler to produce more low-carbon aluminium is access to
renewable power, and several projects to deliver on this agenda
have been initiated in recent months. In Energy, Hydro and Lyse
have applied for a license for five new hydropower plants in
Røldal-Suldal to add an additional gross 800 GWh annual power
production and 650 MW output. Hydro Rein is signing a cooperation
agreement with Årdal Energi to develop renewable projects in Årdal.
The parties will collaborate to identify energy solutions
contributing to new green industry in Årdal, as well as strengthen
existing industry.
In November, Hydro was notified about a company reorganization
of Markbygden Ett AB, where Hydro Energi AS has a long-term power
purchase agreement (PPA) since 2017 for an annual baseload of 1.65
TWh. During the fourth quarter, the external power sourcing volumes
in Energy were affected by non-delivered volumes of 0.5 TWh, and a
non-delivery of 1.3 TWh in total for 2023. Hydro continues to seek
compensation for the non-delivered volumes.
During the fourth quarter, Hydro has made several steps towards
carbon reduction goals. Targeting a 30 percent reduction in carbon
emissions by 2030, is primarily driven by fuel switching and boiler
electrification at the Alunorte alumina refinery, allowing Alunorte
to supply one of the lowest-carbon smelter grade Alumina available.
The floating storage and regasification unit (FSRU) with natural
gas to replace heavy fuel oil at Alunorte is just days away from
the arriving at the harbor in Barcarena. 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, as
announced at the Capital Markets Day in November.
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. The construction of a new
HalZero test facility in Porsgrunn, Norway was officially approved
during the fourth quarter. At the 2023 Climate Change Conference in
Dubai on December 5, Hydro received recognition for the HalZero
technology from the COP28 UAE Presidency as an Energy Transition
Changemaker for pioneering the green aluminium transition.
To further strengthen the commitment to decarbonization targets
and the green aluminium transition, Hydro joined forces with the
world’s leading global companies through the First Movers Coalition
(FMC) in December. Hydro will take the FMC Aluminium sector
commitment via its Extrusions business, committing to at least 10
percent (by volume) of all primary aluminium procured externally
annually, being near-zero emissions by 2030. Hydro has also, as one
of only two suppliers in the aluminium industry, qualified as an
FMC supplier with Hydro REDUXA 3.0.
At COP28, Hydro also announced a strategic partnership with
Volvo Group to enable the global transport manufacturer to reach
its 2040 target of delivering net-zero vehicles. As partners in the
FMC, the two companies further pledged to support each other’s
journeys towards zero-emission value chains.
Delivering low-carbon products creates value for Hydro’s
customers and enables premium pricing with bottom line effects for
the company. As part of the roadmap towards 2030, Hydro will
continue to develop its product offering both within primary and
recycled aluminium, and drive down product footprint. As of January
2024, Hydro can deliver Hydro CIRCAL recycled aluminium with a
documented carbon footprint of 1.9 kg of CO2e per kg aluminium,
down from previous 2.3 kg of CO2e per kg, through advances in
sourcing, sorting and traceability of post-consumer aluminium
scrap.
Based on the greener 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 a 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.
Results and market development per business
area
Fourth quarter adjusted EBITDA for Bauxite & Alumina
increased compared to the fourth quarter of 2022, mainly driven by
lower raw material prices, partly offset by currency effects, lower
bauxite production and fixed costs. PAX traded in a narrow range
between USD 326 per mt and USD 339 per mt until the last week of
the quarter, when PAX increased driven by higher Chinese alumina
prices due to Chinese refinery curtailments and concerns around
bauxite shipments from Guinea following an explosion at the
country’s main fuel depot in Conakry. PAX ended the quarter at USD
350 per mt. Compared to the fourth quarter of 2022, the average
Platts alumina index was USD 16 per mt higher.
Adjusted EBITDA for Energy in the fourth quarter decreased
compared to the same period last year. Lower prices, lower gain on
price area differences, and lower trading and hedging results were
partly offset mainly by higher production and no fourth quarter
loss from a 12-month internal fixed price purchase contract from
Aluminium Metal. Average Nordic power prices in the fourth quarter
2023 ended significantly below prices in the same quarter last
year, but above prices in the previous quarter. Increased prices
compared to the previous quarter, can primarily be explained by
below normal inflow and wind, as well as seasonally higher demand.
Price area differences between the south and the north of the
Nordic market region declined compared to the previous quarter, and
were significantly lower than the same quarter last year.
Adjusted EBITDA for Aluminium Metal decreased in the fourth
quarter of 2023 compared to the fourth quarter of 2022, mainly due
to lower all-in metal prices and reduced contribution from power
sales, partly offset by reduced raw material cost, adjusted CO2
compensation and positive currency effects. Global primary
aluminium consumption was up 2 percent compared to the fourth
quarter of 2022, driven by a 3 percent increase in China. The
three-month aluminium price increased throughout the fourth quarter
of 2023, starting the quarter at USD 2,321 per mt and ending at USD
2,384 per mt.
Adjusted EBITDA for Metal Markets improved in the fourth quarter
2023 compared to the same quarter last year. Lower results from
recyclers due to reduced premiums in a weakening extrusion ingot
market were offset by stronger results from sourcing and trading
activities, and positive inventory valuation and currency
effects.
Extrusions adjusted EBITDA for the fourth quarter 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
extrusion demand is estimated to have decreased 14 percent in the
fourth quarter of 2023 compared to the same quarter last year, but
increasing 3 percent compared to the third quarter of 2023, as
market demand has started to stabilize, although at moderate
levels. Demand growth for residential building and construction,
and industrial segments have continued to remain negative due to
macro-economic headwinds, while demand for automotive has been
performing better as the share of electric vehicle registrations
over total auto registrations has increased. North American
extrusion demand is estimated to have decreased 9 percent during
the fourth quarter of 2023, compared to the same quarter last year,
and 7 percent compared to the third quarter of 2023. Demand
continues to be weak in the residential building and construction
sector, while demand is still positive in the automotive segment.
At the same time, lower trailer build rates have started to
negatively impact demand in the transport segment.
Other key financials
Compared to the third quarter, Hydro’s adjusted EBITDA decreased
from NOK 3,899 million to NOK 3,737 million in the fourth quarter
2023. Lower realized aluminium and alumina prices combined with
lower Extrusions and recycling volumes were partly offset by lower
raw material costs and positive currency effects.
Full year 2023 adjusted EBITDA amounted to NOK 22,258 million,
compared with NOK 39,664 million in 2022. Lower aluminium and
alumina sales prices, lower Extrusions and recycling volumes,
higher fixed costs, and lower contributions from sale of power
negatively impacted results, partly offset by lower raw material
costs, higher Extrusions margins and currency.
Net income (loss) from continuing operations amounted to NOK
(2,771) million in the fourth quarter of 2023. Net income (loss)
from continuing operations included an impairment loss of NOK 4,421
million, a NOK 1,227 million unrealized derivative gain on LME
related contracts, a net foreign exchange gain of NOK 250 million,
a NOK 172 million loss from unrealized derivative power and raw
material contracts, and NOK 171 million in rationalization charges
and closure costs.
Hydro’s net debt decreased from NOK 13.8 billion to NOK 8.2
billion during the fourth quarter of 2023. The net debt decrease
was mainly driven by proceeds from sale of shares in Alunorte to
Glencore, combined with EBITDA contribution and net operating
capital release, partly offset by NOK 4.9 billion investments.
Adjusted net debt decreased from NOK 20.4 billion to NOK 18.0
billion, mainly due to the decrease in net debt of NOK 5.7 billion,
which was partially offset by an increase in pension liabilities
and financial liabilities from the sale of shares in Alunorte to
Glencore.
On January 31, 2024, Hydro finalized the open market repurchase
of the 2023-2024 buyback program as announced on September 22,
2023. The total program comprises 32,192,623 shares, of which
21,163,019 shares were repurchased in the market at a weighted
average price of NOK 62.13. The remaining 11,029,604 shares will be
purchased from the Norwegian state, keeping their ownership
interest of 34.26 percent unchanged. The 32,192,623 shares will be
cancelled following approval by the annual general meeting in
May.
Investor contact:Martine Rambøl Hagen+47
91708918Martine.Rambol.Hagen@hydro.com
Media contact:Halvor Molland+47
92979797Halvor.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.
- Q4 report 2023
- NHY Presentation Q4 2023
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