Letter to shareholders

After challenging years, the fundamentals in the aluminium market show some improvement - and our ambitious improvement strategy yields significant results turning Hydro into a strong player well positioned for a better, bigger and greener future.

It is a healthy development that aluminium demand exceeds production and has started eating into the large inventories in the world outside China. It was very satisfying that higher all-in metal prices and lower costs enabled Hydro to report its best ever quarterly result in 4th quarter of 2014 since becoming a pure play aluminium company in 2007, with record contributions from Primary Metal and Bauxite & Alumina.

Better

The lowered cost of producing a ton of aluminium is not simply a result of shortsighted “cost-cutting”, but a lasting result of systematic and determined improvement programs. As earnings outlook has improved, now is the time to prove the strength of our improvement culture: Stepping-up when you have to is one thing, but true culture is reflected through advancements also when not driven by external distress.

3.7 billion NOK of annual improvements has so far been achieved in the combined improvement programs since 2009. 1.5 BNOK is yet to be realized within the next two years, and we are committed to deliver.

The proposal of the Board of Directors to raise dividend from 0.75 to 1.00 NOK per share reflects our operational performance for 2014, a strong financial position and improved earnings outlook for 2015 – and is in line with our commitment to return cash to shareholders.

Bigger

Improvements will be supplemented with selective growth and portfolio high-grading measures as well as further technological advancements aiming to establish Hydro as a leading industry player, and maturing some of the most competitive projects in the world when the time is right. Demand for aluminium is the fastest growing of any metal in the world. Low weight, strength and recyclability make it the material of choice to respond to the global challenge of sustainable economic growth.

The world is expected to need 35 percent more aluminium in 2020 than in 2014. We want to develop as a company to meet this customer demand. When doing so, we see it as our responsibility, and our unique opportunity, to minimize our direct impact on the environment and at the same time maximize the benefits of aluminium in use.

Greener

Our mission of “creating a more viable society by developing natural resources and products in innovative and efficient ways”, is directly translated into developing advanced technological processes, products and solutions not all can master, to the benefit of all.

For us in Hydro, aluminium is not merely a commodity. Aluminium is where natural resources come together with our intellectual capabilities. Building on the inherent properties of aluminium, we add know-how and technological edge in order to find solutions to the major challenges of our time – like saving energy and reducing greenhouse gas emissions.

Carbon neutral by 2020

Our strategic choice of being the world’s first metal and mining company to become carbon neutral from a lifecycle perspective is not only an attempt to reap the benefits of the current light-weighting trend driven by tightening emission standards, but a strategy to make aluminium a part of the long term solution to climate change.

Our innovative solutions are aiming to improve fuel efficiency through lighter vehicles, enable zero-energy buildings and develop light-weight, resource-efficient packaging that preserves food and demands less energy for transport.

Already today we serve the largest and most important car producers in Europe, some of the most demanding industrial customers in the world, in their efforts to make lighter cars that consume less fuel and emit less CO2. Intimate knowledge of aluminium properties at the atomic level allow us to develop tailor made solutions with and for the customers, turning expertise through the entire value chain into optimal solutions to the end user.

The close link between advanced aluminium solutions and earning a higher return on our metal, imply a win-win situation for Hydro and the society.

“Green is the new Black”

Since the launch of our climate strategy in 2013, we have made several commercially motivated decisions that are also in line with this strategy:

  • The increased production at Sunndal and the integration of Husnes bring our share of metal produced on clean hydropower to over 70 percent
  • Increasing our own production of hydropower, we have now reached 10 TWh annually.
  • Investment in a new automotive sheet line in Germany, raising our production capacity for aluminium car body sheets to 200,000 tonnes a year, and the implementation of new casting technology in Norway, enable us to meet the demands of the automotive industry.
  • Our new recycling line for cans at the Neuss plant in Germany will more than double its annual recycling capacity from 50,000 tonnes to more than 100,000 tonnes
  • Enova, a public enterprise funding new energy and climate-related technology development, supports our plans to pilot the world’s most energy-efficient primary aluminium technology at Karmøy, Norway in 2017.

To strive for Greener is not an alternative to a black bottom line, on the contrary it goes perfectly hand in hand. In aluminium I may argue that Green is the new Black.


Responsibility is not a cost, it saves cost

In the same way I see a clear business case in behaving responsibly. Hydro has signed on to the UN Global Compact, participates in the World Business Council for Sustainable Development and the International Council on Mining and Metals (ICMM), and was included on the Dow Jones Sustainability Indices and FTSE4Good list for 2014.

Safe operations remain Hydro's first priority, and I am encouraged by the improvement last year; no fatalities, fewer major accidents and 27 percent less high risk incidents than in 2013. We recorded a lower total recordable injury rate for both own employees and contractors, with a TRI of 3.2. To improve our safety efforts, we continue to improve our ability to identify hazards before they occur.

One safety milestone at Alunorte, the world’s largest alumina refinery, celebrating 365 days without lost time injuries among own employees, illustrates that zero is possible.

Positioning for a new 100 years

Our current willingness to invest again – selectively – not only reflects the relief of an improving market, but even more our determination to position Hydro to capture the market opportunities of tomorrow. Several challenges of our time can be solved with clever use of aluminium.

In 2015 we will celebrate Hydro Høyanger aluminium plant’s 100th anniversary – and mark the beginning of the next hundred years of turning pure, renewable hydropower into energy in solid state, in the form of aluminium.

I am confident that our 13,000 people strong Hydro organization has the competence and experience – the commercial instinct, the drive to optimize, the curiosity to innovate and the passion to make a difference – to make Hydro as important in the aluminium industry as I believe aluminium is important to the world and society.

 


Updated: October 11, 2016