Norsk Hydro: 2022 record results, Q4 down on lower prices

14 Feb 2023 07:00 CET

Hydro's adjusted EBITDA for the fourth quarter of 2022 was NOK 7,184 million,
compared with NOK 9,011 million for the same quarter last year, resulting in an
Adjusted RoaCE of 22 percent for 2022. Lower all-in metal and alumina prices,
and higher raw material costs were partly offset by positive currency effects
and a gain from the sale of excess power.

* Strong results and aluminium margins, lower upstream prices and higher costs
* Focus on cash release and margin management in weaker markets
* Improvement program and commercial ambition delivered above target for 2022
* Good progress on decarbonization agenda
* 53 percent cash dividend payment and new NOK 2 billion share buyback program

Hydro experienced record results for the full year 2022, with an Adjusted EBITDA
of NOK 39.7 billion. This is a 42 percent increase from 2021. Higher realized
all-in metal and alumina prices, record high results in both Extrusions and
Energy, and positive currency effects were offset by higher fixed and raw
material costs upstream.

"Having concluded a strong fourth quarter of 2022, I am very satisfied to see
Hydro completing a year of record results both financially and safety wise.
This demonstrates the results of our improvement efforts and strong margin
management throughout the whole organization," says President and CEO Hilde
Merete Aasheim.

Health and safety is Hydro's top priority for both employees and the communities
where Hydro operates. An injury free environment is the ultimate goal, and Hydro
is continuously working to avoid incidents. The 2022 total recordable injury
rate (TRI) was 2.4, which is a strong improvement from 3.3 in 2021, and the
lowest TRI level ever reported in Hydro.

"Looking into 2023, we see a more unpredictable landscape, yet with a more
positive outlook in terms of inflationary pressure and macroeconomic development
than just few months ago. In the longer-term we expect demand for our greener
offerings to outpace the general demand growth for aluminium," says Aasheim.

The war in Ukraine, energy crisis in Europe and high inflation continues to
impact economic growth. Monetary policy tightening, combined with high energy
prices and disruptions from China's zero-Covid policy, put downward pressure on
global growth in the fourth quarter. Forecasts of GDP growth for 2023 have been
adjusted upwards to around 3 percent as inflation concerns ease and
macroeconomic environment improves in line with the reopening of the Chinese
economy.

"Hydro is in a unique position to capitalize on the long-term growth in demand
for low-carbon and recycled aluminium. Our organization has delivered robust
improvements exceeding our 2022 target, giving us tailwind to steer safely
through short-term unpredictability, while continuing to invest and position the
company towards capitalizing on the growth opportunities we see in the market
towards 2030," says CFO Pål Kildemo.

Nordic power prices are on average higher in the fourth quarter compared to the
same period last year, but declined significantly compared to the third quarter
of 2022.  Significant price area differences in the Nordic region have
continued, however they were considerably lower compared to the third quarter.
Adjusted EBITDA for Energy decreased compared to the same quarter last year,
mainly due to loss on internal fixed price contract, lower production and lower
gain on price area differences, partly offset by higher prices.

The average Platts alumina index (PAX) decreased in the fourth quarter of 2022
to USD 317 per mt, compared to USD 338 per mt in the third quarter 2022.
Adjusted EBITDA for Bauxite & Alumina decreased significantly compared to the
fourth quarter of 2021, mainly driven by lower alumina sales prices, and higher
caustic and energy prices, partly offset by positive currency effects.

The three-month aluminium price increased in the fourth quarter of 2022,
starting the quarter at USD 2,162 per mt and ending at USD 2,378 per mt.
Uncertainty remains for certain aluminium production facilities as high global
energy prices and volatile market conditions continue to put pressure on smelter
margins. As a result, many producers in Europe and the US have curtailed parts
of their production. For 2022, external sources are estimating a global deficit
of primary aluminium of around 0.3 million mt, and a surplus of around 0.1
million mt for 2023.

Hydro is addressing the volatile market landscape, and completed the curtailment
of 130 thousand tonnes of primary aluminium production at Hydro Husnes and Hydro
Karmøy in response to reduced market demand for aluminium billets in Europe in
the fourth quarter. Adjusted EBITDA for Aluminium Metal improved slightly in the
fourth quarter of 2022, compared to the fourth quarter of 2021, mainly due to
positive contribution from power sales and positive currency effects, partly
offset by lower all-in metal prices, lower sales volumes, and higher raw
material cost and fixed cost.

European demand for extrusions in the fourth quarter of 2022 is estimated to
have decreased 16 percent, compared to the same quarter last year, and 9 percent
compared to the third quarter of 2022, partly driven by seasonality. North
American extrusion demand is estimated to have decreased 8 percent during the
fourth quarter of 2022, compared to the same quarter last year, and decreased
14 percent compared to the third quarter of 2022. CRU estimates that the
European and North American demand for extruded products will decrease 18
percent and 4 percent respectively for the first quarter of 2023. Adjusted
EBITDA for Extrusions increased in the fourth quarter, compared to the same
quarter last year, due to increased results from the recyclers driven by higher
sales premiums. This was partly offset by lower sales volumes, and higher fixed
and variable costs.

Hydro continues to position the company to capture value from growing demand for
greener and circular aluminium. Greener aluminium with a lower-carbon footprint
is an important enabler for the green transition. The demand for aluminium
towards 2030 in Hydro's main markets is set to grow at around 3 percent per
year, and low-carbon aluminium demand is expected to outpace the rest of the
market, with a current estimate of 20 percent compound annual growth rate (CAGR)
from 2022 to 2030. We expect low-carbon and recycled aluminium will make up a
majority of the EU and American market in 2030.

Addressing the growing demand for greener aluminium, Hydro announced a new
strategic partnership with Mercedes-Benz in the fourth quarter. In 2023, Hydro
will deliver REDUXA 3.0 (defined as below 3.0 kg CO2 / kg Al from mine to metal)
to a range of Mercedes-Benz models, ultimately reducing the material carbon
footprint.

Recycling is a key strategic growth area and an important enabler to strengthen
Hydro's position in low-carbon aluminium. Hydro is well on track to deliver on
the 2020 recycling ambition to double post-consumer scrap by 2025. The announced
acquisition of the Polish recycler Alumetal is currently in Phase II with the
European Commission. The provisional deadline for a Phase II decision is the end
of May 2023. At the Capital Markets Day in the fourth quarter, Hydro further
increased the recycling EBITDA growth target towards 2025 by NOK 500 million,
and an additional NOK 500 million by 2027, through lifting the ambition to
recycle PCS by an additional 140kt, requiring an increased capital allocation
towards recycling in the range of NOK 2-2.5 billion.

Extrusions is another important growth area and Hydro continues to position
itself for future growth through key investments. In the fourth quarter, Hydro
announced its acquisition of Hueck building systems and extrusion business. The
acquisition will strengthen Hydro's presence in Germany and other European
markets, and create a solid platform for further growth of the combined
businesses. The transaction is expected to close in late first quarter.

In order to deliver on Hydro's 2025 strategy, a strong commitment to reduce
costs and improve operational excellence is critical. Hydro has delivered above
the improvement program target for 2022, and at the company's Capital Markets
Day, Hydro announced further increasing its improvement target for 2025, from
the original target of NOK 8.5 billion to NOK 10 billion by 2025, and NOK 11
billion by 2027. Positive traction for greener products, improved product mix,
higher margins and market share growth, support the 2025 commercial ambition of
NOK 2.5 billion. Towards 2027, Hydro aims to further increase the commercial
ambition by NOK 500 million up towards NOK 3 billion, with NOK 1.4 billion to be
delivered in the coming years.

In the fourth quarter, Hydro continued to strengthen its sustainability position
by launching new Scope 3 ambitions where the company aims to reduce upstream
Scope 3 emissions per tonne aluminium delivered to the market by 30 percent.  On
total upstream Scope 3 emissions, Hydro aims to reduce emissions by 15 percent
by 2030. The new Scope 3, 2030 targets will mainly be achieved by lowering the
footprint of purchased metal.  In 2023, Hydro will rehabilitate an additional
100 hectares in its legal reserve, which comprises degraded land not impacted by
Hydro operations, and aims to pilot new technology to reutilize bauxite residues
in other industries.

The transition to a lower-carbon society also provides opportunities for Hydro's
new energy areas. In the fourth quarter, Hydro, Eviny and Zephyr announced a
partnership to explore an onshore wind project located in the area between
Høyanger and Sunnfjord in Norway. The renewable power will be used by existing
industry and enable new industrial development in the region.

In the fourth quarter, Hydro Havrand announced a 5 MW green hydrogen pilot
project at Hydro's Høyanger smelter in Norway.  Hydro Havrand is maturing the
project, which is pending funding support from Enova.

Hydro's renewable energy company, Hydro Rein, is delivering on its portfolio
strategy. The EBITDA contribution in 2026 from the four projects currently in
construction is estimated to around NOK 400 - 450 million. In the fourth
quarter, Hydro Rein and Commerz Real entered into an agreement on forming a
joint venture to acquire and develop two early phase solar projects in Jylland,
Denmark. Construction is expected to commence in 2024, with production starting
in early 2026, and the ambition is to grow the portfolio to 1 GW. The process to
raise capital for Hydro Rein is still ongoing.

Capex for 2022 was NOK 11.5 billion. Capex for 2023, excluding Mergers &
Acquisitions and Hydro Rein, is estimated to be NOK 13.6 billion. This includes
a NOK 2.2 billion carry over from 2022, and NOK 1.7 billion in currency and
inflation effects compared to 2022. For 2024-2026, the guidance is NOK 12.5
billion, reflecting currency and inflation, in addition to strengthened growth
ambitions within Recycling and Extrusions. The long-term sustaining capex is
estimated at NOK 7.0 billion.

In the fourth quarter, Hydro utilized its sustainable financing framework and
EMTN program in the issuance of NOK 3 billion sustainability linked bonds, fixed
and floating with 6-year tenor. This was the first sustainability linked bond
issued in the Norwegian corporate investment grade market.

In light of Hydro's solid balance sheet and strong financials, the Board of
Directors propose to distribute NOK 13.5 billion in shareholder distribution
which represents 61.6 percent of 2022 adjusted net income, as a combination of
NOK 5.65 per share of cash dividends and NOK 2 billion of share buybacks. The
final shareholder distribution for 2022 is subject to approval by the Annual
General Meeting on May 10, 2023.

Hydro's existing share buyback program, initiated on September 23, 2022, covers
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 February 6, 2023, Hydro has purchased 13,494,000 own shares and owns a
total of 29,946,403 shares, corresponding to 1.45 percent of Hydro's share
capital. The redemption and cancellation of shares held by the Norwegian state
is subject to approval by the Annual General Meeting on May 10, 2023.

Other key financials

Compared to the third quarter, Hydro's adjusted EBITDA decreased from NOK 9,721
million to NOK 7,184 million in the fourth quarter 2022. Lower realized all-in
metal and alumina prices were partly offset by increased production volumes from
Energy. In addition, results for the third quarter 2022 were positively impacted
by a revision of the prior periods CO2 compensation.

Net income from continuing operations amounted to NOK 158 million in the fourth
quarter. In addition to the factors described above, net income from continuing
operations included a net foreign exchange gain of NOK 356 million, a NOK 2,538
million unrealized loss on power and raw material contracts, and a NOK 486
million unrealized loss on LME related contracts.

Income tax expense amounted to NOK 1,519 million for the fourth quarter of
2022, about 91 percent of income before tax. The quarter was mainly impacted by
the reassessment of recoverability of deferred tax assets resulting in a net
charge of about NOK 1,400 million related to tax losses carried forward.

Hydro's net debt declined from NOK 3.1 billion at the end of the third quarter
to a net cash position of NOK 1.3 billion at the end of the fourth quarter. Net
cash provided by operating activities of NOK 8.4 billion included an increase of
NOK 1.5 billion in collateral requirements. Net cash used in investment
activities, excluding short term investments, amounted to NOK 4.2 billion.

Adjusted net debt decreased from NOK 7.8 billion to NOK 6.0 billion, largely
driven by turning the third quarter net debt position to a net cash position in
fourth quarter, partly offset by increased collateral of 1.3 billion and a
decrease in pension assets of 1.2 billion. The collateral requirements amounted
to NOK 2.6 billion at the end of the quarter, mainly relating to strategic and
operational hedging positions.

Investor contact:
Line Haugetraa
+4741406376
line.haugetraa@hydro.com

Media contact:
Halvor Molland
+47 92979797
Halvor.Molland@hydro.com

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.

More information:
Access the news on Oslo Bors NewsWeb site

582268_Norsk Hydro - Q4 2022 Report.pdf
582268_Norsk Hydro - Q4 Investor presentation.pdf