Hydro's Capital Markets Day 2013 was focused on the improvement efforts being implemented throughout the value chain, encompassing all business areas, plants and units in an all-Hydro drive to continuously lift the bar.
Hydro's main ambitions are to:
- Deliver on dedicated improvement programs in all business areas
- Capitalize on attractive positions across the value chain
- Maintain a strong financial position
- Lift unsatisfactory returns to a competitive level
Improvement programs are now being implemented in all business areas, tailored to the specifics within each step of the value chain from bauxite to rolled products and based on well-established production systems for each area. In line with the company culture of continuous improvements, Primary Metal has established a new program for its joint-venture smelters and is concluding its USD 300 program, while Bauxite & Alumina has re-confirmed the overall 2015 improvement targets for its "From B to A" program following setbacks earlier this year.
"We are of course very pleased to deliver the USD 300 program as planned, but even more importantly at this stage is our ability to re-confirm the overall ambition to deliver NOK 1 billion in improvements from the 'From B to A' program, just months after the production setbacks we experienced earlier this year," says President and CEO Svein Richard Brandtzæg.
"We are already seeing our efforts and actions paying off, lifting the average production for the first two months of the fourth quarter at Alunorte to an annualized level of 5.6 million metric tons."
Primary Metal has now delivered the USD 300-per-mt improvement program, significantly strengthening the competitive position and the viability of Hydro's fully owned Norwegian smelters. The company has also established a separate program for its joint-venture smelters, targeting average improvements equivalent to USD 180 per mt to be delivered by the end of 2016.
Based on a strong customer focus, Rolled Products is continuing its drive to become the global leader within innovation. The business area aims to increase value creation by high-grading its product portfolio, further strengthen its position as a preferred partner among its customers and raise competitiveness through innovation. The market for rolled products is gaining momentum from substitution, where the penetration in automotive is generating solid demand growth.
Energy has successfully delivered several growth projects, which together with the Vigeland acquisition, improved operational performance, and increased precipitation has lifted normal production in Energy from 9.5 TWh to 10.0 TWh per year. Energy continues to support the other business areas in sourcing of energy, as in the process leading up to the signing earlier this year of a new power contract for the joint-venture smelter Slovalco.
"In a cyclical business such as aluminium, it is highly important to maintain a financial robustness to meet the low point of the cycle from a position of strength and flexibility. The current price level for many of our products remains challenging, and does not generate sustainable returns," Brandtzæg says.
"The aluminium price is weighing on both Bauxite & Alumina and Primary Metal, although strong premiums offset some of the effect in Primary, showing how important our ability to maintain a solid financial position has been over the last years."
World aluminum demand outside China is estimated to grow 2% in 2013 and 2-4% in 2014. 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.
While energy-intensive to produce the first time, aluminium's strong user-phase qualities and ability to be infinitely recycled without any quality degradation makes aluminium the material of choice for a wide range of products and applications from a climate perspective. Hydro aims to capture the full potential of aluminium's climate qualities, and has an ambition to become climate neutral from a life-cycle perspective by 2020, based on production-phase energy-efficiency improvements, user-phase benefits and increased recycling capacity to bring more metal back to the loop.
Capital expenditures (capex) in 2014 are expected to be around NOK 4.3 billion, up from an estimated NOK 3.1 billion in 2013. Sustaining capex is estimated to increase from NOK 2.9 billion in 2013 to NOK 3.9 billion in 2014, partly driven by accounting effects in Rolled Products and higher than average pot relining in Primary Metal. Longer-term sustaining capex is estimated at NOK 3.5 billion. Growth capex for 2014 is expected to amount to NOK 0.4 billion.
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.