Hydro's adjusted EBITDA for the third quarter of 2023 was NOK 3,899 million,
down from NOK 9,721 million for the same quarter last year. This resulted in an
adjusted RoaCE of 8.5 percent over the last twelve months.
* Weaker results in challenging and uncertain markets, firm mitigating actions
in place
* Delivering on strategic growth agenda in Extrusions and recycling, capturing
value from Alumetal
* Executing on decarbonization roadmap across the value chain, delivered first
Hydro REDUXA 3.0 to Mercedes-Benz
* EU regulatory framework supporting strategy, disappointing Norwegian
national budget
* Hydro Rein capital raise finalized, partnering with Macquarie Asset
Management for renewables growth
Lower aluminium and alumina sales prices, lower Extrusions and recycling
volumes, reduced CO2 compensation, and a provision for a multi-year social
donation in Brazil, negatively impacted results, partly offset by lower raw
material costs.
On October 15, a third party contractor was fatally injured while deconstructing
an old transformer in Hydro's joint venture, Qatalum, in Qatar. On October 18, a
contractor passed away at Hydro's Alunorte alumina refinery in Brazil while
performing a maintenance operation.
"I am deeply saddened that two young men who came to work in our plants did not
come home safe to their families. Our heartfelt condolences go to the family and
the affected colleagues," says President and CEO, Hilde Merete Aasheim.
In the third quarter of 2023, economic growth faced challenges due to rapid
monetary tightening, pressuring household spending and business investments.
Demand for primary aluminium continued to decline into the third quarter, while
Chinese demand is stronger than expected on strong demand in the renewables and
EV segments. Global demand has remained weak for residential building and
construction, and industrial segments, while demand for automotive has been more
stable. However, in North America, trailer and automotive build rates have
slowed, and could be further impacted by the United Auto Workers (UAW) strike.
"Hydro is responding to declining markets with firm mitigating measures. Within
Hydro Extrusions and recycling, we are using our production flexibility and
adaption abilities to maneuver in weaker markets," says Aasheim.
Hydro continues the strong focus on cash release and working capital reduction
with a year-to-date release of more than NOK 4 billion. Hydro's improvement
program has progressed significantly during the quarter and commercial ambitions
are ahead of the target for 2023. The strategic hedging program is further
supporting margins, with 440,000 tonnes currently hedged at an LME of USD 2,500
per tonne in 2024, and 300,000 tonnes hedged at an LME of USD 2,400 per tonne in
2025.
The 2024 Norwegian national budget proposal, revealed on October 6, surprised
with significant changes to industrial and power development conditions. The CO2
Compensation Scheme, designed to safeguard European industrial competitiveness,
may see the CO2 price floor rise from 200 to 375 NOK per tonne, impacting Hydro
negatively with NOK 1 billion annually. Additionally, a 35 percent resource rent
tax on wind power profits is proposed for 2024. This tax could hinder investment
in renewable capacity expansion. These changes are being negotiated and await
parliamentary approval.
"We are surprised and disappointed the government has once again chosen to
weaken the competitiveness of the industry by cutting the established CO2
compensation scheme. This is unfortunate and it undermines the predictability of
Norwegian industrial policy," says Aasheim.
On October 24, Hydro signed an agreement with Macquarie Asset Management who
will acquire 49.9 percent of Hydro's renewable energy company, Hydro Rein. This
transaction marks an important milestone for the execution of Hydro's strategic
pillar of growing in renewable energy, while keeping this capital light. Through
this partnership, Hydro and Macquarie will form a joint venture (JV) where Hydro
will own 50.1 percent of the company. Macquarie intends to invest equity of USD
332 million to obtain a 49.9 percent ownership of Hydro Rein. The transaction
values Hydro Rein on a debt free basis at USD 333 million, per June 30, 2023.
Including the capital provided by Macquarie, no further equity injections from
Hydro are planned for, and Hydro Rein has an ambition to be self-funded for
growth.
"Despite market volatility and geopolitical turmoil, the long-term outlook for
aluminium is promising. Toward 2030, Hydro expects significant growth for
aluminium, driven by electric vehicles, energy effective buildings as well as
aluminium in infrastructure to support the energy transition," says Aasheim.
According to its 2025 strategy, Hydro continues to strengthen the position in
low-carbon aluminium and to grow in attractive market segments. Hydro Extrusions
has inaugurated three new presses in Suzhou, China, Trzcianka, Poland, and
Nenzing, Austria. These new facilities strengthen the portfolio of cutting edge
extrusion capacity aimed at industries like automotive, electric vehicles, and
building and construction. The growth strategy of Hydro Extrusions is aimed at
expanding with the market, particularly focusing on segments where Hydro has a
competitive edge. The expansion of production capacity, in combination with
ongoing sustainability efforts, enhances resilience and contributes to
Extrusions NOK 8 billion EBITDA target.
Hydro aims to add 1 million tonnes of new recycling capacity to the portfolio by
2027, primarily in Europe and North America, to meet the growing demand for
recycled aluminium. Hydro announced the opening of the HyForge casting line in
Rackwitz on September 14, expanding capacity to supply the automotive industry
with low-carbon recycled aluminium from post-consumer scrap. This investment
directly responds to the automotive sector's increasing need for low-carbon,
lightweight aluminium parts. Additionally, the greenfield recycling plant in
Cassopolis, Michigan, is progressing as planned. Equipment is currently being
commissioned and the first metal is expected to be produced by November. The
plant is expected to be in full operation by the second quarter next year after
a gradual ramp-up during the first quarter.
On July 7, the share purchase for the Polish recycler Alumetal S.A was settled,
resulting in 275,000 additional tonnes of annual recycling capacity, a solid
recycling position in Europe, as well as advanced sorting and casting
capabilities. During the third quarter, a NOK 200 million investment was
announced to modernize and expand the Alumetal recycling plant in K?ty, Poland,
expanding the capacity with approximately 30,000 tonnes of foundry alloys for
the automotive market. In addition to the K?ty investments, several synergy
potentials are identified, with an identified potential EBITDA uplift ranging
from EUR 10 to 15 million by 2027.
Hydro is determined to contribute to economic and social development in the
communities where the company operates. The TerPaz program in the state of Pará,
Brazil, where Hydro has made a commitment to contribute to build six peace
houses, will nurture social inclusion and opportunities in cultural,
educational, economic, and human rights areas. TerPaz is an important initiative
to reduce lethal violent crimes, and a commitment to donate approximately NOK
500 million for the next three years is recognized during the third quarter to
support this agenda.
For shareholders, Hydro initiated a new share buyback program on September
22, 2023. The program covers a purchase of up to 100,000,000 shares with a
maximum value of NOK 2,000 million, inclusive of the proportional redemption of
shares owned by the Norwegian State. As of October 17, 2023, Hydro has purchased
3,719,484 own shares and owns a total of 18,816,362 shares, corresponding to
0.92 percent of Hydro's share capital.
Results and market development
Third quarter 2023 adjusted EBITDA for Bauxite & Alumina decreased compared to
the third quarter of last year. Lower alumina sales prices, currency, and the
TerPaz peace house expenses were partly offset by lower raw material prices. The
average Platts alumina index (PAX) traded in a narrow range between USD 325 per
mt and USD 345 per mt throughout the quarter, ending the quarter at USD 338 per
mt. In China, alumina prices rose throughout the quarter driven by smelter
capacity restarts in the Yunnan province and lower alumina production due to
domestic bauxite shortages. Compared to the third quarter of 2022, the average
Platts alumina index was stable.
Adjusted EBITDA for Aluminium Metal decreased in the third quarter of 2023
compared to the third quarter of 2022, mainly due to lower all-in metal prices,
reduced CO2 compensation, and lower contribution from power sales, partly offset
by positive currency effects, and reduced alumina and carbon cost. Global
primary aluminium consumption was up 2 percent compared to the third quarter of
2022, driven by a 3 percent increase in China. The three-month aluminium price
increased throughout the third quarter of 2023, starting the quarter at USD
2,158 per mt and ending at USD 2,347 per mt.
Adjusted EBITDA for Metal Markets increased in the third quarter compared to the
same quarter last year. Strong results from sourcing and trading activities were
partly offset by lower results from recyclers, and negative inventory valuation
and currency effects.
Extrusions adjusted EBITDA for the third quarter of 2023 is slightly lower than
the same quarter last year, driven by lower sales volumes, and higher fixed and
variable costs, positively offset by increased sales margin and currency
effects. European demand for extrusions in the third quarter of 2023 is
estimated to have decreased 20 percent compared to the same quarter last year
and 21 percent compared to the second quarter of 2023, driven by seasonality.
Demand for residential building, and construction and industrial segments has
remained weak in the third quarter, while demand for automotive has been more
stable, supported by increased share of electric vehicle registrations over
total auto registrations. The solar segment has been negatively impacted by
supply chain bottlenecks and lower installations. North American extrusion
demand is estimated to have decreased 17 percent during the third quarter of
2023 compared to the same quarter last year and 6 percent compared to the second
quarter of 2023. Demand continues to be weak in residential building, and
construction and industrial sectors. In the transport segment, lower trailer
build rates have started to negatively impact demand. Automotive build rates
have also recently slowed and could be impacted by the UAW strike against the
three unionized US automakers.
Adjusted EBITDA for Hydro Energy in the third quarter is higher than the same
period last year. Higher production and lower recognized tax cost in Hydro's
equity accounted investment company Lyse Kraft DA, as a result of the legal
restructuring in 2022, were partly offset by lower gain on price area
differences, lower prices, and loss on a 12-month internal fixed price purchase
contract from Aluminium Metal from early October 2022. Nordic power prices in
the third quarter were on average lower than the previous quarter and
significantly lower than in the same quarter last year. The lower prices can
primarily be explained by an improved Nordic hydrological balance and declining
fuel prices. Price area differences between the south and north of the Nordic
market region declined somewhat from the previous quarter and were significantly
lower than the same quarter last year.
Other key financials
Compared to the second quarter, Hydro's adjusted EBITDA decreased from NOK
7,098 million to NOK 3,899 million in the third quarter 2023. Lower realized
aluminium and alumina prices combined with lower Extrusions and recycling
volumes were partly offset by lower raw material costs.
Net loss from continuing operations amounted to NOK 625 million in the third
quarter of 2023. In addition to the factors described above, net income from
continuing operations included a NOK 2,000 million unrealized derivative loss on
LME related contracts, a net foreign exchange gain of NOK 214 million, and a NOK
110 million loss from unrealized derivative power and raw material contracts.
Hydro's net debt increased from NOK 11.3 billion to NOK 13.8 billion during the
third quarter of 2023. The net debt increase was mainly driven by NOK 7.5
billion investments, partly offset by EBITDA contribution and net operating
capital release.
Adjusted net debt increased from NOK 15.9 billion to NOK 20.4 billion, primarily
due to the increase in net debt of NOK 2.5 billion, and an increase in
collateral for hedging contracts and investments commitments.
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.
Investor contact:
Martine Rambøl Hagen
+47 91708918
Martine.Rambol.Hagen@hydro.com
Media contact:
Halvor Molland
+47 92979797
Halvor.Molland@hydro.com
The information was submitted for publication from Hydro Investor Relations and
the contact persons set out above. 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. No assurance can be given that
such expectations will prove to have been correct. Except where required by law,
Hydro disclaims any obligation to update or revise any forward-looking
statements, whether as a result of new information, future events or otherwise.
This information is considered to be inside information pursuant to the EU
Market Abuse Regulation and is subject to the disclosure requirements pursuant
to Section 5-12 the Norwegian Securities Trading Act.