Capital Markets Day 2008: Hydro's financial strength provides solid growth platform

Hydro is reinforcing its position as a leading aluminium company with industry-leading captive power position, world-class upstream growth projects and strong operational performance. Hydro’s solid financial position makes it well-equipped to weather short-term market uncertainties and volatility, while taking advantage of promising business opportunities.

September 25, 2008
“Our financial muscle and cash flow provide a solid platform for Hydro’s growth strategy,” said President and CEO Eivind Reiten at the company’s Capital Markets Day in Oslo on September 25.

“In today’s demanding financial and commodity markets, we have the necessary financial strength to comfortably carry through our sizeable organic growth program and to consider new business opportunities, confirming our tradition of value creation,” said Reiten.

In line with its growth strategy, Hydro announced on Thursday a final agreement with Brazilian mining group Vale to construct a new alumina refinery in northern Brazil, further strengthening Hydro’s future alumina supply.

“A stake in a major alumina refinery in this resource-rich area is another strategically important step in our aim for solid positions across the aluminium value chain,” Reiten said.

Hydro also announced that its giant Qatalum smelter project in Qatar is on target for production start around year-end 2009 and within the $5.6 billion investment budget. The Qatalum project, a joint venture with long-time partner Qatar Petroleum, was 36 percent complete at the end of August, despite a demanding construction market in the Gulf area.

Hydro confirmed its sizeable organic investment program of NOK 12-13 billion per year for 2008 and 2009, of which 75 percent is seen in the upstream business.

Solid long-term outlook for the aluminium market

Hydro said long-term fundamentals for the aluminium industry remained solid, with world aluminium demand outpacing global economic growth, reflecting continued strong development in China. The short-term outlook is more uncertain with financial market turmoil expected to negatively affect short to medium-term economic growth.

“We see aluminium as a metal of choice, with unique qualities in terms of durability, light weight and recyclability. In a long-term perspective, we see substantial growth for the metal and for aluminium products produced by Hydro,” Reiten said.

Hydro said it is eying attractive opportunities in the renewable energy sector and expects to strengthen its position in the solar energy sector, drawing on the company’s broad metallurgical and industrial competence combined with superior project management skills.

“Hydro has the metallurgical competence and industrial experience to play an important role in the further development of solar power, and we will evaluate opportunities as they arise in this promising industry,” Reiten said.

Focus on operational performance, technology and growth

The aluminium industry is experiencing increasing costs for most input factors, reflecting recent years’ rising energy and commodity prices and inflationary pressures. Hydro is intent on maintaining its favorable position on the industry cost curve and will meet these challenges through continued improved operational performance and a further strengthening of Hydro’s technology leadership.

The new HAL4e smelter technology will be key to Hydro’s smelter growth strategy. Hydro plans to use the new technology operating at amperage well above 400 kA in its next smelter projects. New smelter projects under evaluation by Hydro could potentially add up to 1.5 million tonnes of primary aluminium production capacity.

Under the agreement with Vale to construct a new alumina refinery in northern Brazil, Hydro will hold a 20-percent share. The refinery is expected to start production in 2011 with a capacity of 1.86 million tonnes of alumina in the first phase. The new refinery has potential for future capacity expansions to reach up to 7.4 million tonnes per year, which would make it the world’s largest alumina refinery.

In the Aluminium Products business area, Hydro sees continued growth through selective acquisitions in its high-return Building Systems and Extrusion segments, while margin management and cash generation remain on top of the agenda for Rolled Products.

Unique energy position

Hydro has a unique energy position, with around one third of its electricity need covered by captive hydropower generation. With the exception of one plant in Germany, the remaining power demand is sourced on competitive long-term contracts. When the first phase of Qatalum is fully operational, Hydro’s captive power coverage will rise to almost 50 percent.

Following a sustained period of increased precipitation in Norwegian mountains, Hydro has revised its estimated average annual power production in Norway to 9.4 TWh, up from 9.0 TWh. Furthermore, Hydro wants to pursue expansion opportunities in its captive power production system further and sees a potential of an additional 0.5-1.0 TWh of hydropower production in Norway.

Hydro also confirmed its dividend policy of 30 percent of net income over time, supplemented by extraordinary dividends and share buy-backs during periods of strong cash-flow and solid financials. Hydro’s present NOK 4 billion share buy-back authorization runs until May 2009.

Investor contact

Stefan Solberg
Phone: +47 22539280
Cellular: +47 91727528
E-mail: Stefan.Solberg@hydro.com


Updated: October 11, 2016