- Continued tight markets across aluminium value chain
- Record results upstream and in Hydro Energy for Q4
- 2021 improvement program target exceeded by 25%
- 2025 strategy execution progressing as planned
- 80% cash dividend payment on strong financials
Higher all-in metal and alumina prices, improved volumes upstream, and record-high quarterly results from Hydro Energy contributed positively to adjusted EBITDA in the fourth quarter. These positive elements were partly offset by higher fixed and raw material costs upstream and negative currency effects.
Adjusted EBITDA for the full year 2021 increased by NOK 14.9 billion compared to 2020. For 2021, higher all-in metal and alumina prices, improved volumes upstream, improved margins and volumes in Hydro Extrusions, and better results from Hydro Energy contributed positively to adjusted EBITDA. These positive elements were partly offset by higher raw material and fixed costs upstream and negative currency effects. The improvement program reached NOK 6.3 billion in 2021, exceeding the original annual improvement target of NOK 5.1 billion. On the back of the strong markets, Hydro also delivered NOK 1.5 billion of commercial improvements by the end of 2021.
“Our customers are becoming increasingly focused on the actual footprint of the products they use and are asking for more low-carbon aluminium. We see this in our order books, where sales of Hydro CIRCAL – produced with 75 % post-consumer scrap – have doubled over the last year. This year, we are pioneering near-zero aluminium with 100% post-consumer aluminium, and we are in a dialogue with customers to supply aluminium with a near-zero carbon footprint already this year,” says President and CEO Hilde Merete Aasheim.
“Hydro’s 2025 strategy aims at increasing production of low-carbon aluminium and growing in renewable energy. I am satisfied that Hydro REIN is maturing its portfolio in the Nordics and Brazil in a timely way. This is in line with our ambition of delivering new volumes of renewable energy and hydrogen to drive down embedded emissions in our own production, and helping other industries decarbonize, too,” says Aasheim.
Hydro achieved an adjusted return on average capital employed of 18.6 percent in 2021, significantly higher than the 3.7 percent achieved in 2020, and above the ambition to deliver 10 percent over the cycle. The main driver was the strong aluminium demand and pricing environment, following strong macroeconomic conditions due to the Covid-19 rebound.
“In addition to a strong market, we have continued our improvement effort throughout the whole company. I am very pleased that we exceeded the 2021 improvement target by 25%. This is truly a combined effort from our 31,000 employees who have stayed dedicated and focused on results during a challenging Covid year, and is a strong demonstration of our culture of continuous improvement. Hydro’s top priority remains the health and safety of our people and the communities where we operate,” says Aasheim.
The global economy has rebounded to pre-crisis levels; however, the pace of growth slowed in the fourth quarter amid the emergence of the Omicron variant, continued global supply-chain shortages, high energy prices, and concerns about inflation. There is increasing uncertainty about the outlook, as post-recovery demand and policy supports continue to have an impact, driving supply chain shortages and inflationary pressures on key inputs, including energy, raw materials, and transportation costs.
Rising gas and power prices have led to an increase in production costs in Europe, followed by the curtailment of several European smelters, including Hydro’s primary aluminium plant Slovalco in Slovakia. Capacity at Slovalco was reduced from 80% to 60% by mid-February 2022, which constitutes an annual reduction of 35,000 tonnes of production.
“While Hydro Energy on the one hand is benefitting from high energy prices and Norwegian price area differences, Aluminium Metal was forced to curtail parts of production in the Slovalco primary plant due to high electricity prices with no signs of improvement in the short term. The current energy situation in Europe demonstrates the need to increase the pace and determination of the energy transition to secure a stable supply of affordable renewable energy for society and industry going forward,” says Aasheim.
Nordic power prices were significantly higher in the fourth quarter compared to the previous quarter. The high prices were due to colder than normal weather conditions and high and increasing continental power prices. Higher production and increased gains from price area differences significantly increased adjusted EBITDA for Hydro Energy for the quarter. The higher production resulted in net spot sales in the fourth quarter compared to a net spot purchase in the third quarter. Significant price area differences in the Nordic region continued during the fourth quarter and have prevailed into early 2022.
At Hydro’s Capital Markets Day in December 2021, the company announced new improvement targets and new sustainability ambitions to strengthen profitability and sustainability. Hydro continues to deliver on its 2025 strategy, including further strengthening its low-carbon aluminium position and maturing business opportunities within new energy solutions. The company increased its improvement program target from NOK 7.4 billion to NOK 8.5 billion and commercial ambition from NOK 1.5 billion to NOK 2.5 billion.
Hydro has long been recognized as a leader in sustainability, and the new sustainability ambitions launched at Capital Markets Day will be a key driver for Hydro’s competitive positioning. Hydro has the ambition of achieving net-zero carbon emissions by 2050 or earlier and is pursuing three decarbonization paths to reduce the carbon footprint of aluminium to net zero. Hydro will have the first commercial volumes of near-zero carbon products (defined as less than 0.5kg CO2 per kg aluminium) available in 2022 based on using 100% complex post-consumer scrap.
The decarbonization path for existing primary smelters is based on carbon capture and storage technology. In the fourth quarter, Hydro invested in the carbon capture company Verdox, which will deliver cost-efficient aluminum carbon capture technology and direct air capture technology for piloting from 2025, and with the aim of achieving industrial-scale production by 2030. Hydro invested USD 20 million and will have a minority ownership position.
Hydro has also made a final build decision to invest BRL 1.3 billion at the Alunorte alumina refinery, Brazil, to carry out a fuel-switch project to replace heavy fuel oil with natural gas. The project is expected to be in operation in 2023. The fuel switch will reduce the refinery’s annual CO2 emissions by 700,000 tonnes and is a key enabler to reach Hydro’s climate ambition to reduce emissions by 30% by 2030.
In addition to the climate targets, Hydro has strengthened its ambitions to protect biodiversity and reduce its environmental footprint, while seeking to improve the lives and livelihoods where the company operates. In the fourth quarter, The Global Child Forum ranked Hydro at the top of global metals & mining companies on children’s rights.
Recycling is one of Hydro’s main growth areas, and in the fourth quarter several investment decisions were announced supporting the strategic ambition to grow the current recycling business substantially across the recycling value chain, and to double post-consumer scrap usage.
In Michigan, U.S., Hydro will invest in the construction of a new aluminium recycling plant producing 120,000 tonnes of aluminium extrusion ingot per year. In Norway, Hydro will invest NOK 105 million to establish Høyanger Recycling, a dedicated aluminium recycling facility located by the Hydro Høyanger primary aluminium smelter. In Hungary, Hydro will build a new aluminium remelt facility, and the new facility will be built at Hydro’s aluminium extrusion plant in Szekesfehervar with an annual capacity of 90,000 tonnes. Lastly, Hydro decided to further invest in the Deeside recycling plant in the UK to increase the plant’s aluminium recycling capacity to 70,000 tonnes per year, providing UK customers with low-carbon aluminium such as Hydro CIRCAL.
Over the next five years, Hydro expects another doubling of sales volumes for greener products, Hydro CIRCAL and Hydro REDUXA. In 2022, volumes for Hydro CIRCAL are expected to increase 25% compared to 2021. Additionally, Hydro is positioning its smelter portfolio to meet expected demand for Hydro REDUXA. In 2022, Hydro REDUXA volumes are expected to increase 30% compared to 2021. In Norway, Hydro will invest NOK 750 million in Hydro Sunndal to strengthen its robustness and position as Europe’s largest aluminium plant and supplier of low-carbon aluminium. Hydro Sunndal will continue to be a leading producer of Hydro REDUXA low-carbon aluminium to the automotive and building & construction segments.
Hydro Extrusions continues its efforts to restructure, optimize and commercially position its portfolio. In the fourth quarter, Hydro announced the divestment of its general extrusion operations in Kuppam, India, to Hindalco Industries Limited for USD 33 million on a cash-free and debt-free basis. The sale was completed in early February 2022. Hydro Extrusions is also investing NOK 390 million in a new extrusion press at its aluminium manufacturing plant in Suzhou, China, which will serve China’s growing automotive and electric vehicle market.
In the new energy area, Hydro continued to mature business opportunities. In the fourth quarter, Hydro REIN and Eolus entered into a partnership to jointly develop up to 672 MW of Swedish wind power. As part of the transaction, Hydro REIN will acquire 50% of the portfolio from Eolus, which will retain the remaining 50%.
Hydro Havrand, Hydro’s green hydrogen company, and Shell New Energies Holding Europe B.V. have agreed to explore the potential for joint projects producing hydrogen from renewable electricity. The ambition is to use hydrogen to help decarbonize Hydro’s and Shell’s own operations, and to supply customers in heavy industries, the maritime sector and road transport.
In Batteries, Hydro became the largest owner of the maritime battery company, Corvus Energy, through a private placement, increasing its ownership share to 22.7%.
Net income from continuing operations amounted to NOK 8,525 million in the fourth quarter. In addition to the factors described above, net income from continuing operations included a net foreign exchange gain of NOK 823 million, a NOK 2,744 million unrealized gain on power and raw material contracts and a NOK 744 million unrealized gain on LME-related contracts.
Hydro’s net debt position decreased from NOK 1.2 billion to a net cash position of NOK 3.2 billion at the end of the quarter. Net cash provided by operating activities excluding changes in short-term and long-term collateral and excluding purchases of money market funds amounted to NOK 7.5 billion. Net cash used in investment activities, excluding short-term investments, amounted to NOK 2.8 billion.
Adjusted net debt decreased from NOK 10.5 billion to NOK 7.0 billion, largely driven by an improvement in the net cash position and a decrease in collateral requirements. The collateral requirements amounted to NOK 5.3 billion at the end of the quarter, mainly relating to strategic and operational hedging positions.
Hydro held NOK 22.9 billion in cash and cash equivalents, NOK 1.0 billion in time deposits and NOK 1.4 billion in money market funds, included in short-term investments, at the end of the fourth quarter. Time deposits and money market funds are normally available at short notice. The revolving credit facility of USD 1.6 billion was fully available at the end of the quarter.
The 2021 Financial statements and Annual report is available in Norwegian and English on our webpage.
In addition to the factors discussed above, reported earnings before financial items and tax (EBIT) and net income include effects that are disclosed in the quarterly report. Adjustments to EBITDA, EBIT and net income (loss) are defined and described as part of the alternative performance measures (APM) section in the quarterly report.
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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.
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