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Capital Markets Day 2020 – Seizing opportunities where capabilities match megatrends

Hydro’s strategic direction toward 2025 will focus on two key areas: strengthening the company’s position in low-carbon aluminium and growing in recycling and new energy. These will be the key topics at Hydro’s Capital Markets Day 2020.

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At this year’s Capital Markets Day, Hydro will present its strategic direction toward 2025 and provide an update on the key profitability and sustainability targets announced in 2019.

“We have generated cash, cut costs and delivered extensive operational improvements across the company, providing a solid foundation for our growth agenda. Now, we’re raising the bar, setting a new ambitious improvement target for 2025, combined with a clear strategy to make Hydro a profitable and sustainable industry leader,” says President and CEO Hilde Merete Aasheim.

Delivering on the improvement agenda

Hydro has during 2020 focused on keeping the wheels turning, maintaining a healthy and safe work environment. Despite a challenging market, Hydro has aimed at positioning the company for the future. Hydro’s improvement program remains on track to deliver its 2020 target of NOK 4.1 billion, with all business areas over delivering on their cost ambitions for the year. The improvement program, accompanied with a net operating capital release and reduction in CAPEX, have contributed to greater cash generation in 2020. The strategic review of Rolled Products is progressing.

A key driver of Hydro’s 2020 improvement has been the ramp-up and increased operational robustness of the Bauxite & Alumina operations in Brazil. Alunorte is on track to deliver alumina volumes at around 90 percent of nameplate capacity in Q4 2020. Hydro has also played an important part in the local community in Brazil during the Covid-19 pandemic this year.

“Our Brazilian organization has made good progress in increasing the asset integrity and robustness, while maintaining focus on health and safety during the global pandemic,” says Aasheim.

Hydro’s overall climate ambition to reduce CO2 emissions by 30 percent by 2030 remains on track. Hydro is committed to replace fuel oil with natural gas as energy source for the Alunorte refinery, which will contribute significantly to the climate reduction target. The next step will be to electrify coal boilers at Alunorte. Hydro has signed intentional agreements to develop solar and wind power projects to deliver renewable energy at attractive cost.

Strengthening position in low-carbon aluminium

Toward 2025, Hydro will strengthen its position in low-carbon aluminium. Several of the global megatrends are supporting increased demand for aluminium. According to CRU, the demand for aluminium in the vehicle sector is expected to grow by 6.2 million tonnes by 2030 at a 5.2 percent annual growth rate. CRU expects the demand for aluminium can stock to grow by 3 million tonnes at 4.1 percent annual growth rate by 2030. Total semis demand is expected to grow by 32 million tonnes by 2030, at 3 percent annual growth rate, according to CRU.

Reduced cost and improved operational excellence within Hydro’s asset base remain a priority. Hydro has updated its original improvement program and will extend it by two years with a new improvement target of NOK 8.5 billion. The 2025 target includes the NOK 4.1 billion achieved in 2019 and 2020.

In addition, Hydro has set a commercial improvement ambition of NOK 2.0 billion coming from its current portfolio. These are market driven initiatives where Hydro will leverage its innovative solutions and customer collaboration. The commercial potential also comes from leveraging Hydro’s sustainable footprint to shape demand for Hydro’s greener product portfolio. Over the past year, Hydro has seen increased demand for low-carbon brand products Hydro CIRCAL and Hydro REDUXA, and greater demand is expected also in 2021.

Diversifying into strategic growth areas

The second pillar of the 2025 strategy diversifies and expands Hydro’s portfolio into new areas: recycling, renewables, and batteries. Growing into these areas positions Hydro to take advantage of growth from key megatrends such as sustainability, electrification and urbanization.

“We will grow in areas where our capabilities match the megatrends, first and foremost in recycling, renewable energy and batteries. Our capabilities and unique low-carbon position are enablers for growth in these areas. Our current recycling portfolio is a solid foundation for further growth, and Extruded Solutions is shaping demand through innovative solutions in combination with a strong and diversified asset base,” says Aasheim.

Hydro currently has a portfolio of 29 recyclers and an annual capacity of 2.6 million tonnes for recycled scrap. The 2025 ambition includes a doubling of Hydro’s current post-consumer scrap utilization, which could provide an EBITDA uplift of NOK 1 – 1.5 billion. A strategy has been established across the recycling value chain within Primary Metal, Rolled Products and Extruded Solutions.

In renewables, Hydro has created a new unit – Renewable Growth – which will leverage Hydro’s industrial footprint and energy competence to take positions in renewable energy projects, primarily in the Nordics and Brazil. Renewable Growth targets investments in more than 1 GW.

Hydro has also established a new Battery unit as part of Hydro Energy. Hydro has already undertaken several successful investments in the battery value chain in recent years. The strategy toward 2025 includes additional investment with battery partners in attractive areas of the value chain, resulting in pro-rata EBITDA potential of NOK 600 million to 700 million from the invested companies.

Financial priorities

“Hydro remains committed to driving long-term value for our shareholders, and I am pleased with the cash generation over the past, challenging year. Looking forward, we have reconfirmed and stretched the roadmaps to satisfactory profitability for each of our business areas within the 2025 timeframe,” says CFO Pål Kildemo.

During the Covid-19 downturn, Hydro prioritized its balance sheet and protecting the investment grade credit rating. Once conditions stabilized, Hydro paid its 2019 dividend of NOK 1.25 per share, in line with Hydro’s dividend policy.

Stringent capital allocation remains a key financial focus, to support execution of the 2025 strategy. Hydro reduced CAPEX in 2020, in response to Covid-19 to NOK 7 billion, managing to reduce NOK 2.5 billion in expected spend. Expected CAPEX for 2021-2025 is NOK 9 – 9.5 billion, which is NOK 0.5 billion lower than the long-term estimate provided one year ago, despite large reductions in 2020. In addition, Hydro has a long-term sustaining CAPEX ambition of NOK 6 – 6.5 billion annually. Hydro will continue to ensure efficient levels of working capital, following the reduced levels of inventories over the latter years.

Hydro’s ambition to deliver at least 10% RoaCE over the cycle, with all business areas delivering RoaCE above their cost of capital, remains in place. The 2025 strategy develops a roadmap to profitability for each business area which facilitates reaching this target.

Contact

Line Haugetraa

Line Haugetraa

Head of Investor Relations

halvor molland

Halvor Molland

Senior vice president, Media Relations

Capital Markets Day 2020 presentation