Rough markets remind me of the Norwegian saying, claiming that there is no such thing as bad weather as long as you are dressed to withstand it. One can do little about the weather – or the market fluctuations. The crucial task is to equip to endure it.
I am happy to report that Hydro’s improvement efforts has continued independently with undiminished intensity, giving benchmark results and improved ability to stay the course.
These are not primitive cost-cuts, but operational enhancements with lasting effects – and they are supplemented with new improvement ambitions. To renew is in our DNA. Continuous renewal has brought Hydro passed our 110-year milestone, and is our key to a bright future within the fast-developing world of global aluminium.
Steady demand growth
There is nothing wrong with the demand for our products. Light, formable, corrosion resistant and infinitely recyclable, aluminium enters into ever-new applications and the demand continues to show steady growth.
Aluminium substitution in the auto industry is the obvious example, as advanced aluminium sheets take the place of welded steel, saving weight, emissions and process costs. But also within copper, and especially cabling, the potential is great. Within heating, ventilation, air-condition and refrigeration, aluminium solutions continue to make their way, and the light metal is also becoming a cost-efficient and preferred alternative in long-distance transmission lines.
The combination of tougher customer demands and stricter legislations on the back of global megatrends such as the drive for more climate friendly solutions, is paving the way for innovative solutions in aluminium.
The challenge is that the global supply has grown even more than demand over the last years. China has added new capacity even though domestic growth rates are leveling off. But lower costs, driven by lower energy prices and depreciating currencies, as well as improved efficiency enable us to live with a price level that would hurt just a couple of years ago. And long-term demand forecasts continue to convince us that aluminium is still the metal for the future.
Better, Bigger, Greener
Building on our platform of a solid asset base, superior products, a strong financial position, leading technology, customer satisfction, commercial capabilities and a highly competent workforce, our aspiration is to realize our full potential by building a Better, Bigger and Greener Hydro for the future.
A strong balance sheet is our best tool to respond to market volatility, in addition to continuously improving our relative industry position. Today, Hydro is a first quartile aluminium and alumina producer with a strong balance sheet. This allows us to offer a safe and reliable dividend to shareholders, and enable us to strategically utilize the lower parts of the cycle to increase our value creation potential.
We are improving our relative position by lifting bauxite production in Paragominas, by stabilizing and debottlenecking alumina production at Alunorte and in moving alumina sales over to index pricing.
Energy has made significant progress in replacing expiring power contract for our fully-owned aluminium plants in Norway, and by successfully completing the Rjukan upgrade project we are ensuring continued, and safe, power production from Rjukan for many decades to come.
In Primary Metal, we continue to strengthen our technology lead by realizing the Karmøy technology pilot. We have now started the construction to realize the world’s most energy and climate efficient primary aluminium technology, with spin off effects for the rest of the portfolio.
"From B to A" and the "Climb" programs are successfully completed. We have in total delivered NOK 4.5 billion in improvements since 2011. That does not mean improvements have come to an end. We are always seeking the next milestone. On our Capital Markets Day in December we launched a new ambition aiming to realize new improvements of another NOK 2.9 billion by 2019.
There is no “Better” aspiration without improving on safety. We believe in the close link between safety performance and operational performance, and are proud to be close to industry benchmark – yet, not content. The number of high-risk incidents continued to fall in 2015. Although Hydro reduced its rate of total recordable injuries (TRI) per million work hours by 6 percent to 3.0, one of our best results ever, we are still a little behind our own ambition. In addition, an esteemed Hydro colleague became victim of the German-wings tragedy during business travel. Our goal is to be below 2.0 by 2020, setting a new industry standard on safety.
In Rolled Products we have been actively high-grading our portfolio through our growth projects in automotive and recycling, serving high margin segments and reducing our metal cost. We also acquired the world’s most advanced scrap sorting technology to strengthen our recycling position. In Primary Metal we are making a systematic approach to realize 200,000 t/y creep in our fully-owned and joint-venture smelters at a highly attractive cost pr tonne. By considering to acquire Vale's 40 percent stake in MRN, we may take an important step towards securing ownership of long-term bauxite supply.
Two years ago, we announced our goal of becoming carbon-neutral from a life-cycle perspective by 2020. We are still alone in our industry with such an ambitious climate target – and we are on track. We are lifting our capacity for post-consumer scrap, and are aiming to rehabilitate as much forest as we clear at a 1:1 ratio by 2017. We are doing this because it is the right thing to do, but also because we believe we are building a competitive advantage.
Committed to comply – eager to set standards
Health, safety and environment, corporate social responsibility, compliance and anti-corruption are of critical importance to our performance. Much evidence back up our conviction that there is a strong correlation between financial and extra-financial performance. Hydro has been working on compliance for several decades, both in terms of culture and internal control systems, recognizing that we need to be alert in any environment at any time. This job is never completed.
Hydro has signed on to the UN Global Compact, takes part in the World Business Council for Sustainable Development and the International Council on Mining and Metals, and is included on the Dow Jones Sustain-ability Indices and FTSE4Good list. We recently asked for a third-party assessment on our position compared to global best-practice, and were happy to see that our corporate culture and tone from the top was ranked among the very best. Proposals to further reduce risks associated with compliance and to ensure that the system is working as intended, are followed up.
Belief in the future
Tougher customer demands and stricter legislation inspire lighter, smarter and greener alternatives. We are ready to make aluminium a key part of the solution due to its superior design flexibility, usability and infinite recyclability. In combination with a highly competent work force – with the willingness and ability to improve every day – Hydro is equipped to endure bad weather. And if the weather changes, that will do no harm to our good mood.