As part of the effort to “get better”, Hydro will increase the improvement goals by a further 2.9 billion NOK by 2019. The goal of becoming bigger is to be achieved with selected growth projects, including the pilot plant in Karmøy, Norway. With the goal of becoming “greener”, the company is well on the way to achieving climate neutrality from a life cycle perspective. An updated overview of "Better, Bigger, Greener" will be presented at the Capital Market Day.
As a fully integrated, technology-oriented aluminum company, Hydro launched Better, Bigger, Greener and a number of strategic goals at Capital Markets Day 2014. Better, bigger, greener defines strategic priorities for each business area with the overarching goal of creating sustainable value for shareholders:
• & nbsp; Better: Operational and commercial improvements and technological pioneering role
• & nbsp; Bigger: Quality optimization and selective growth to improve the relative position in the industry.
• & nbsp; Greener: Lower greenhouse gas emissions and Efforts to make the sustainability agenda a competitive factor
|Ambitions at Capital Markets Day 2014||time limit||progress *|
|Improve safety results, TRI to & lt; 2 reduce||2020||3.1|
|Realization of NOK 1.5 billion through ongoing improvements||2016||NOK 0.8 billion|
|Replace expiring energy contracts for Norwegian smelters||2020||4.1 TWh|
|Increase the production of Paragominas to 9.9 million Jato||2015||9.9 million Jato|
|Increase the production of Alunorte to 6.2 million Jato||2015||5.9 million Jato|
|conversion from & gt; 85% of alumina sales on index pricing||2020||35% PAX|
|Expand technological pioneering role: technology from the Karmøy pilot||2016||investment decision|
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|Increase capacity for body panels (body-in-white) to 200,000 Jato||2017||according to plan;|
|Production of & gt; 40,000 Jato in the UBC recycling plant||2015||completed|
|Capacity expansion of 100,000 tpy at the company's own smelters||2025||~ 10 000 Jato|
|Securing and developing bauxite resources for decades to come||long term||MRN LoI (letter of intent)|
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|Climate neutrality in a life cycle perspective||2020||according to plan|
|Increase recycling of old scrap to over 250,000 tonnes||2020||135,000 Jato|
|Further achieve the goal of reforestation 1: 1||2017||according to plan|
* Status in early December 2015
In the period from 2011 to the end of 2015, operational and commercial improvements contributed NOK 4.5 billion, with NOK 0.8 million being realized in 2015. Due to the good results of the improvement work, Hydro has now defined a new goal "Better", with which an increase in value of NOK 2.9 billion is to be achieved in the entire value chain from 2016 to 2019, of which NOK 1.1 billion in the course of the course of 2016. The new ambition builds on the previous improvement programs and includes an expansion of the production capacity in the Primary Metal plants through technological developments, an optimization of the Rolled Products portfolio to achieve higher margins and an increase in production through robust operation at Bauxite & amp ; Alumina.
"The market conditions have deteriorated compared to the previous year, which underlines the importance of our corporate culture for continuous improvement", says Svein Richard Brandtzæg, CEO of Hydro. “Hydro uses the times of weak market conditions for improvements. Now that we have completed the ongoing optimization programs that have led to a leaner organization, the identification of new potential has become more difficult. However, technological progress, the elimination of bottlenecks and the exchange of best practices beyond the boundaries of the business areas offer further opportunities for improvement. "
The "From B to A" program to save NOK one billion at Bauxite & amp; Alumina & nbsp; has now been completed and the new Better Bauxite and Alumina ambition has been launched with the aim of making improvements over another NOK billion. Paragominas produces more than its intended capacity, and production at Alunorte has stabilized and can now increase to 6.6 million tons per year. In addition to the improvement efforts, further value creation is achieved by selling larger quantities of alumina with index-based pricing. The ICMS framework, which has been established for the next 15 years, as well as a potential acquisition of Vale's 40 percent stake in the MRN bauxite mine are important milestones on the way to long-term value creation in Brazil.
Although Primary Metal has made significant improvements since 2009, our technological edge enables us to add NOK 1 billion in added value. The technology pilot in Karmøy, Norway, where a construction decision is awaited in 2016, will verify the world's most energy-efficient smelting technology for aluminum. Spin-off effects of this technology can improve the productivity of the current portfolio beyond the effectiveness of operations and lead to an increase in productivity of 200,000 tons per year by 2025. In addition, Primary Metal, with its starting point in high product quality and commercial competence, focuses on increasing the sale of innovative products that enable higher margins.
The improvement program of Rolled Products "Climb" was completed a year earlier than planned and has now been replaced by a new objective, which should lead to an added value of NOK 0.9 billion. The most important contributions are made through operational improvements and continuous product innovation. This has led to a shift in the product mix, to a product segment with higher margins, such as products for body-in-white in the automotive industry. A reduction in metal costs through higher recycling capacity with the newly completed production plant for used beverage cans also contributes to the good results.
The conditions for long-term electricity supplies determine competitiveness in all business areas. In the past few years, Energy has contributed to cutting costs in metal production by purchasing 4.1 TWh of electricity at moderate prices in Norway and another 2.6 TWh globally. As an energy provider, Energy continues to work on increasing the earnings potential through operational and commercial optimization. With regard to the general conditions, the Norwegian authorities have made a proposal that enables Hydro to retain industrial ownership of the Røldal-Suldal (RSK) power plants within the current consolidation model, which is the best solution in the long term.
Sustainability is a competitive factor for Hydro and it gives the right to do business. Hydro is well on the way to becoming the first climate-neutral aluminum company before 2020, from a life cycle perspective. This requires higher energy efficiency and a reduction in emissions in the production processes, as well as an improvement in Hydros energy mix. It also means strengthening the recycling position through advanced separation technology, developing easy-to-recycle alloys, increasing recycling of old scrap, and also developing new aluminum products and applications that enable customers to reduce their environmental footprint. & Nbsp; < / p>
According to calculations, global demand for aluminum will increase by around four percent in 2015 and by around four to five percent in 2016. The main factors in the aluminum market are still favorable, which can be attributed to the many good properties of the metal, including the low weight, good formability and good recycling properties. The global aluminum market is expected to grow by two to three percent over the next ten years, not least driven by environmental regulations.
“The development of demand looks promising, but the situation on the supply side offers a less pleasing picture in the short term. While an undersupply of 1.5-2 million tons is expected outside of China, China will produce about 2-2.5 million tons more aluminum in 2016 than the country consumes in the same period, leading to a global supply surplus of up to leads to a million tons, ”says Brandtzæg. “Exports of semi-finished goods that are likely to be remelted have been observed due to the Chinese surplus, taking advantage of downstream export incentives. Coupled with a falling cost curve, caused by lower fuel prices and weaker currencies, this led to a sharp drop in prices and lower product premiums in 2015. The LME price development is less than the 90th percentile and at current prices it can be expected that around 50 percent of the global smelter capacity will lead to negative cash flow. This suggests production cuts that are necessary to reach a balanced market in the medium term.
“Efficient risk management and careful financial management are crucial in our industry, which is characterized by cyclical fluctuations, which in turn confirms the latest development. A strong financial balance is the best tool to protect against uncertainty in the market, along with continuously improving our relative position. Today Hydro is one of the best quartiles among aluminum and alumina producers, with a strong balance sheet. This allows us to offer our shareholders a safe, reliable dividend and enables us to strategically use weaker periods of the cycle and strengthen our potential for further added value, ”says Brandtzæg.
Hydro attaches great importance to a disciplined capital allocation at all times. Our long-term maintenance investments (CAPEX) remain below depreciation of NOK 3.5 - 4.0 billion a year, slightly higher than the previous level of NOK 3.5 billion, which suggests long-term inflationary pressures and portfolio upgrades leaves. & nbsp;