Building on its strong position in a world with limited resources, Hydro will be proactive in securing the performance of the company's existing business and exploiting new opportunities including to:
- Achieve industry leadership in safety performance and renew emphasis on corporate responsibility
- Respond to market developments to secure operating results
- Continuously improve the operations and cost position of bauxite mining and alumina refining
- Further improve the cost position of the smelter portfolio
- Secure stable production and first-quartile cost position of Qatalum and optimize the commercial value of full production volumes
- Improve returns for downstream operations
- Maintain capital discipline
Hydro will take the steps necessary to secure its operating results and sound financial position in 2012 and safe operations continues to be of paramount importance. Zero tolerance for fatal accidents continues, and Hydro is aiming for a 25 percent reduction in total recordable injuries per million hours worked or a TRI rate of 2.9 for 2012. Following the significant business expansion in 2011, Hydro has revised several important corporate responsibility strategies that will be on the top of the board's agenda for implementation in 2012. These include reducing the company's environmental footprint, helping customers reduce their footprint and improving the environmental qualities of aluminium as a material. Hydro's overall CSR strategy is built upon four pillars: integrity and anti-corruption, community and stakeholder engagement, human rights, and supply chain and product stewardship. Five priorities for Hydro's people strategy include: performance culture, competence management, leadership pipeline, diversity and mobility.
Further improving the capacity utilization and efficiency of the company's new Bauxite & Alumina operations will be a key priority in 2012. Hydro will concentrate on increasing the effectiveness of its production systems, raising productivity and pursuing a more systematic execution and follow-up of maintenance activities. Hydro's aim is to achieve targeted increases in production levels and to significantly enhance the performance within these core activities.
Hydro will continue to emphasize improving the efficiency of its smelter portfolio while constantly addressing the cost challenges facing its Primary Metal business. Hydro's USD 300 per mt cost improvement program is on track, delivering cumulative saving of USD 200 per mt by the end of 2011.
Improving returns for Hydro's downstream operations will be an important issue on the company's agenda in 2012. Key strategies include differentiation through innovation and service as well as continuous cost reduction to secure margins while protecting market shares. Hydro plans to build upon its European extrusion operations and its world-class rolling mills, focusing on the high-end product markets. Strong cost control will be a key objective in general and the company will continue efforts to turn around activities in southern Europe, working towards a leaner organization, and securing significant and lasting reductions in operating costs.
Hydro aims to provide its shareholders competitive returns compared to alternative investments in peer companies, and is maintaining its dividend policy of paying 30 percent of net income in ordinary dividends over the business cycle. The company will continue to focus on securing its financial position through exercising capital discipline to secure an optimal level of operating capital, and to maintain a sustainable level of capital expenditures safeguarding the company's operating portfolio. Strong cash generation and preserving Hydro's investment grade credit rating will be key priorities.
Shaping the future
Hydro is well prepared for the opportunities ahead in an industry with attractive long-term fundamentals. However, the current economic environment represents a significant challenge in obtaining a satisfactory return on capital for the industry as a whole and for Hydro. In order to secure the viability of its operations over time, Hydro intends to focus on initiatives and business opportunities that continually improve its cost position.
Hydro's long alumina equity position places it in a market where we can benefit from mechanisms that will evolve the price of the company's core products to better reflect the cost fundamentals of the industry. Hydro's long-term ambition is to increase its capacity of low-cost alumina, reinforcing its position as a leading global supplier. Potential projects include CAP, an alumina refinery in Barcarena, close to Alunorte, and the possible expansion of the Paragominas mine.
The Qatalum smelter has been developed with the possibility to more than double the plant's annual capacity in the future. There is also a possibility to expand the low-cost Alouette smelter in Canada. Hydro intends to maintain its technological leadership which contributes to lower operating costs, reduced emissions and ensures attractiveness as a partner for world-class projects. Selective growth of the company's downstream operations in emerging markets including Brazil and China will be a priority going forward.
Hydro intends to develop the value of its Norwegian energy assets and to use Hydro's competence to secure competitive energy sources for its global activities. Hydro is committed to maintaining the viability of the company's global smelter portfolio, which is heavily dependent on securing adequate supplies of competitively priced energy. Securing long-term, competitive power sources is of critical importance to sustaining the viability of Hydro's smelter portfolio in Norway. Identifying opportunities for long-term, competitive energy sources to protect and develop the company's portfolio, taking into consideration license reversion in Norway and emission legislation in general, continues to be an important priority for Hydro.
