Hydro focused its Capital Markets Day 2012 on the improvement efforts being made throughout the company, aiming to create a global leader in aluminium. Hydro is expecting world aluminium demand outside China of 2-4% in 2013 and solid global long-term growth of 4-6% annually over the next 10 years.
In its value proposition, Hydro's targets are to:
- Deliver on ambitious improvement efforts along the value chain to improve relative industry position
- Capitalize on raw material positions through internal improvements and commercialization of bauxite and alumina markets
- Maintain financial strength and flexibility to mitigate weak and volatile markets
- Ensure competitive shareholder return with the ambition to maintain absolute dividend level for 2012
"Hydro has delivered significant improvements, portfolio restructuring and transforming transactions in the five years since becoming a streamlined aluminium company, shaping Hydro into a company rich in both resources and opportunities and with strong positions throughout the value chain," says President and CEO Svein Richard Brandtzæg.
In response to the uncertain economic environment, Hydro is presenting significant improvement efforts in all business areas. The USD 300 per tonne improvement program in Primary Metal, launched in 2009, is developing in line with the 2013 completion target. Improvement efforts are also in place in all joint venture smelters to improve operations and cost positions of Hydro's part-owned smelters, now accounting for more than half of Hydro's primary aluminium production.
In Bauxite & Alumina, the recently launched "From B to A" improvement program is aiming at annual improvements of NOK 1 billion, while the ambitious improvement program in Extruded Products is continuing with full force, even after the announcement of the planned Sapa joint venture.
"It is encouraging to see the operational improvements now gaining momentum in Bauxite & Alumina, with Paragominas showing a production increase of around 40 percent since our takeover in March 2011. While LME-linked contracts and rising costs on raw materials are putting pressure on earnings, the 'From B to A' program will further improve operations and strengthen the relative position of Bauxite & Alumina," says President and CEO Svein Richard Brandtzæg.
"The Sapa transaction will create value from day one for Hydro, establishing a global champion and increasing the global reach of Hydro's extruded products business. While Extruded Products is facing challenging markets, we are certain that the planned joint venture will have the capabilities necessary to first meet the current headwinds and then to capitalize on the brighter long-term outlook for aluminium applications," says Brandtzæg.
Qatalum, the 50/50 joint venture between Qatar Petroleum and Hydro, is producing above its annual nameplate capacity of 585,000 tonnes. Qatalum is a state-of-the-art smelter located in a logistically advantageous region. The smelter is in a first-quartile position, with a cash cost of USD 1,450-1,500 with today's market conditions.
The current high levels of macroeconomic uncertainty and a multi-speed world economy are weighing on consumer sentiment, which in turn has led to weaker aluminium prices and softer end-user markets. Still, Hydro maintains its view that the long-term outlook for aluminium remains positive due to its strong capabilities.
World aluminum demand outside China is estimated to grow 2% in 2012 and 2-4% in 2013. Aluminium fundamentals remain promising due to the metal's many positive qualities, including its light weight and recyclability, and the global aluminium market is expected to show solid long-term growth of 4-6% annually over the next 10 years.
"Although aluminium has seen the fastest-growing demand among base metals, we have also seen a strong growth in new capacity, resulting in low prices and inadequate returns. Ensuring competitive shareholder return is important for Hydro, also in times of weak and uncertain markets. Based on what we see today, our ambition is to maintain the absolute dividend level for 2012," says Brandtzæg.
Capital expenditures (capex) in 2013 are expected to be around NOK 3 billion, down from an estimated NOK 4.2 billion in 2012. Sustaining capex are being further reduced from about NOK 3.5 billion in 2012 to about NOK 3.0 billion in 2013. The reduction in 2013 is partly due to Extruded Products being reclassified as discontinued operations. Limited growth capex is expected in 2013.
Hydro is also presenting three earnings potential scenarios. The scenarios are based on sensitivities for selected aluminium prices and NOK/USD exchange rates, using the last four quarters underlying EBITDA as baseline. All three scenarios indicate EBITDA significantly above sustaining capital expenditures, illustrating Hydro's cash generation ability.
Certain statements included within this announcement contain forward-looking information, including, without limitation, those relating to (a) forecasts, projections and estimates, (b) statements of management's plans, objectives and strategies for Hydro, such as planned expansions, investments 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, as well as (i) statements preceded by "expected", "scheduled", "targeted", "planned", "proposed", "intended" or similar statements.
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 aluminium business; 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.