Norsk Hydro: First quarter 2022 - Strategic growth and record results

Norsk Hydro: First quarter 2022 - Strategic growth and record results

03 May 2022 07:00 CEST

Hydro's adjusted EBITDA for the first quarter of 2022 was NOK 11,165 million, up
from NOK 5,182 million for the same quarter last year, resulting in a 12-month
rolling Adjusted RoaCE of 23 percent. Higher all-in metal and alumina prices,
record high quarterly results from Hydro Energy and Hydro Extrusions,
contributed positively to earnings, but were partly offset by higher fixed costs
and raw material costs upstream.

- Tight markets with strong prices and high volatility
- Record results in Aluminium Metal, Energy and Extrusions
- Strong growth in volumes of greener products, first near-zero aluminium
produced in Clervaux
- Significant growth in recycling
- Hydro Rein growing portfolio beyond 1 GW

"Hydro is delivering both strong financial results and good progress on our
strategic objectives of strengthening our position in low-carbon aluminium and
growing in new energy. We see strong growth in demand for our low-carbon
offerings, Hydro REDUXA and Hydro CIRCAL. This is strengthening our competitive
position in a marketplace where we anticipate that aluminium, and especially
greener aluminium, will be in high demand," says President and CEO Hilde Merete
Aasheim.

Russia invaded Ukraine on February 24, 2022. Hydro has no employees, operations
or investments in Russia, and will not enter new contracts linked to Russian
counterparts. Hydro has reduced its contractual commitments and is further
reducing the remaining commitments for 2022. Hydro condemns the Russian invasion
of Ukraine and supports sanctions by the European Union and the international
community.

The Russian invasion of Ukraine, slower Chinese growth, global supply-chain
shortages, high energy prices, and concerns around inflation continue to add
uncertainty in the first quarter of 2022. The invasion further impacted GDP
growth rates, with Europe being the most exposed to the resulting economic and
social impact. Global supply-chain shortages continue to impact growth, and
China's current zero Covid policy is causing short term disruptions. During the
first quarter, various key markets have reported their highest inflation rates
for the past 20 years.

"Dedicated efforts by Hydro's 31,000 employees the past years delivering on our
improvement program have also continued into Q1. This makes Hydro well
positioned and more resilient in the face of a more unpredictable global
environment," says Aasheim.

Hydro has made important progress on the 2025 strategy during the start of
2022, both strengthening position in low-carbon aluminium and growing in new
energy areas.

Hydro's sustainability ambitions are key drivers for future competitive
positioning. The ambition to achieve net zero carbon emissions by 2050 or
earlier is pursued through three decarbonization paths to reduce the carbon
footprint of aluminium to net zero.

"Developing state-of-the-art sustainable products is a key part of our
positioning towards delivering on increasing demand for greener aluminium.
Demonstrating our capabilities in recycling, Hydro produced the first 130 tonnes
of Hydro CIRCAL 100R at the Clervaux plant in Luxembourg. The volume is based on
100 percent post-consumer scrap with a footprint <0.5 kg CO2/kg Al. Work is
ongoing to optimize production and discussions have been initiated with
customers on first commercial application," says Aasheim.

In line with Hydro's target to double sales volumes for greener products over
the next five years, Hydro has increased sales of Hydro CIRCAL and Hydro REDUXA
by 83 percent compared to the first quarter last year, and continues to work
closely with customers to create products with a smaller environmental impact.

Recycling is one of Hydro's main growth areas towards 2025. On April 29, 2022,
Hydro announced a tender offer for the acquisition of 100 percent of the shares
of Alumetal S.A, a company listed on the Warsaw Stock Exchange, for PLN 68.4 per
share in cash (the "offer price"), representing an aggregate equity purchase
price of approximately PLN 1.066 billion (approx. EUR 232 million).

"With this transaction Hydro is making an important step in delivering on the
2025 strategic agenda. Following the acquisition of Alumetal, Hydro will
increase the use of post-consumer aluminium of 150,000 tonnes per year, which
together with recently announced recycling projects, will enable Hydro to meet
its ambition to double recycling of post-consumer aluminium by 2025," says
Aasheim.

The transaction implies an Enterprise Value of approximately PLN 1.332 billion
(approximately EUR 290 million) based on latest reported net debt as of FY2021
and dividends payable of PLN 106 million (approximately EUR 23 million), with
dividend payment date on July 27, 2022. With the transaction, Hydro will
strengthen its recycling position in Europe and widen its product offering in
the low-carbon and scrap-based foundry alloy market.

Hydro also continues to make progress on greenfield recycling projects. In
April, construction was initiated on the Cassopolis recycling plant in Michigan.
The plant will be the first large-scale production of low-carbon Hydro CIRCAL
extrusion ingot in North America. Total recycling capacity for the plant is
120,000 metric tons per year. The plant will strengthen Hydro's ability to
supply car makers and other industries in the U.S.

In addition to the climate targets, Hydro has made progress on the ambition to
protect biodiversity and reduce its environmental footprint. Hydro has several
initiatives to reduce waste from our processes. In April, Hydro signed a MOU
with Wave Aluminium to build a pilot plant for testing a pioneering and
disruptive industrial technology, successfully developed in batch testing scale,
for converting residue from alumina refining to recoverable and saleable
minerals. If successful, this could significantly reduce the need for residue
deposits going forward.

Hydro's social ambition to improve the lives and livelihoods where the company
operates is progressing. In light of the ongoing tragedy in Ukraine, Hydro in
Poland has organized group transport to and from the Ukrainian border for those
of 400 employees from Ukraine who want to bring their families to Poland. The
extrusion plants have also offered temporary accommodations for the families
arriving in Poland, and employees are volunteering to support the many who are
fleeing Ukraine. A two-week fundraising campaign initiated by Hydro's unions in
support of UNICEF's activities helping families and children in Ukraine raised
NOK 1 million. With an additional donation from Hydro, the total amount raised
was NOK 10 million.

The Russian invasion of Ukraine has resulted in energy prices continuing at
elevated levels in European markets, supported by increased fears of disruption
to gas flows. In response, the European Commission published its "RePowerEU"
plan, which aims at making Europe independent of Russian fossil fuels before
2030. Independence from Russian gas is expected to strengthen EU demand for
renewable energy and hydrogen, supporting Hydro's ambition to grow in new
energy.

Hydro continued to mature and develop business opportunities in these areas and
Hydro Rein reached important milestones towards contract certainty for the first
GW of renewable power. Hydro Rein has partnered with Atlas Renewable Energy to
develop and build a 435 MW solar project, Boa Sorte, in Minas Gerais, Brazil.
Total investments are estimated to USD 320 million (100% basis) and Hydro Rein
will have a 33.3% ownership in the joint venture. Construction is planned to
start in fourth quarter 2022, and operations will commence in fourth quarter
2023.

The Albras primary aluminium plant has signed a power purchase agreement with
the Boa Sorte solar power plant for annual supply of about 93 MW power in the
period 2025-2044, denominated in USD. The agreement represents 90 percent of the
expected power production at Boa Sorte (P50) and covers 12 percent of Albras'
annual power consumption.

Hydro Rein, together with partner Eolus, sold 75 percent of the 260 MW wind
power project Stor-Skälsjön to MEAG. The transaction enables Hydro to optimize
capital allocation and the return on our investment while retaining a
significant stake (25%) in the project, consistent with our long-term ownership
and portfolio strategy.

Hydro continues to build its battery portfolio through industrial partnerships.
In April, Hydro, Elkem and Altor announced a partnership to accelerate the
growth of Vianode, a Norwegian producer of sustainable battery materials.
Vianode's range of synthetic graphite products offers unique performance
characteristics and are produced with up to 90 percent lower CO2 emissions than
today's standard materials. An investment decision for a potential first-phase
plant at Herøya, Norway, is expected in the first half of 2022. Total
investments in the first-phase plant and preparations for a potential full-scale
plant are estimated at be around NOK 2 billion. Hydro will have 30 percent
ownership in Vianode.

Hydrovolt, the joint Hydro-Northvolt battery recycling facility in Fredrikstad,
is conducting test operations, which have performed well, and will start
commercial production in May. The plant is one of the most technologically
advanced battery recycling plants globally and the largest facility in Europe.

The quarter was dominated by tight markets with strong prices and high
volatility. The Platts alumina index (PAX) increased throughout the first
quarter. The Russian invasion of Ukraine caused the Mykolaiv alumina refinery to
shut down and combined with Australia banning bauxite and alumina exports to
Russia, has disrupted 3 to 4 million tonnes of global alumina trade flows.

The three-month aluminium price increased during the quarter, starting at USD
2,808 per mt and ending at USD 3,491 per mt. The price was volatile, with a
price range between USD 2,808 per mt and USD 3,849 per mt, as the Russian
invasion of Ukraine increased the fear of sanctions on Russian producers and
significant disruptions to metal flows. Also, rising gas and power prices have
led to an increase in production costs in Europe, followed by several smelter
curtailments.

Nordic power prices were significantly higher compared to same quarter last year
and relatively stable compared to the fourth quarter. Power prices in Southern
Norway increased as weak hydrology and export capacity to UK and the continent
continues to support higher prices. The continental power prices increased
further due to rising gas and coal prices, influenced by fear of supply
disruptions due to the Russian invasion of Ukraine. Prices in the northern part
of the Nordic market were low due to strong hydrology, high wind power
production and limited transmission capacity towards the South. Hence,
significant price area differences in the Nordic region have continued during
the first quarter.

Hydro continues to increase the range of green and sustainable financing
products. In the first quarter, Alunorte signed a USD 200 million
sustainability-linked loan and interest rate swap, to finance the fuel switch
project. The pricing of the loan and the swap is linked to the performance of
the Alunorte greenhouse gas emission reduction target. The sustainability-linked
swap is the first to be executed in the Brazilian market.

On April 27, 2022, Norsk Hydro ASA signed a USD 1,300 million short-term
revolving multi-currency credit facility. The facility, which is available for
general corporate purposes, carries a 12-month maturity with two six-month
extension options at Hydro's discretion. The entire amount is available as a
sub-facility swingline to cover short-term liquidity needs.

Compared to the fourth quarter 2021, Hydro's adjusted EBITDA increased from NOK
9,011 million to NOK 11,165 million in the first quarter 2022. Higher all-in
metal and alumina prices, improved margins and volumes from Extrusions and
better results from Energy contributed positively to adjusted EBITDA. This
improvement was partly offset by higher raw material costs.

Net income from continuing operations amounted to NOK 6,411 million in the first
quarter. In addition to the factors described above, Net income from continuing
operations included a net foreign exchange gain of NOK 2,379 million, a NOK
1,418 million unrealized gain on power and raw material contracts and a NOK
4,448 million unrealized loss on LME related contracts.

Hydro's net cash position increased from NOK 3.2 billion to NOK 5.1 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 3.0 billion. Net cash used in investment
activities, excluding short-term investments, amounted to NOK 1.2 billion.

Adjusted net debt increased from NOK 7.0 billion to NOK 7.7 billion, largely
driven by an increase in collateral requirements, partly offset by an
improvement in the net cash position and a decrease in pension obligations. The
collateral requirements amounted to NOK 9.7 billion at the end of the quarter,
mainly relating to strategic and operational hedging positions.

Hydro held NOK 21.2 billion in cash and cash equivalents and NOK 1.5 billion in
time deposits, included in short-term investments, at the end of the quarter.
Time deposits are normally available at short notice. The revolving credit
facility of USD 1.6 billion was fully available at the end of the quarter.

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.

Cautionary note
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. 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 subject to the disclosure requirements pursuant to Section
5-12 the Norwegian Securities Trading Act

More information:
Access the news on Oslo Bors NewsWeb site

560893_Q1 2022 presentation.pdf
560893_Q1 2022 report.pdf

Source

Norsk Hydro ASA

Provider

Oslo Børs Newspoint