• Underlying EBITDA NOK 3,476 million
• Strong cash flow generation
• Global recovery reducing aluminium oversupply
• Volume growth downstream exceeding the market
• Exceeded improvement program target for 2020
• Lyse Kraft DA transaction completed
• Proposed dividend of NOK 1.25 per share for 2020, revised policy for 2021

“The pandemic made 2020 a challenging year for all. Health and safety of our people and the communities where we operate is top priority. Hydro is following recommendations from local and international health authorities, updating contingency plans to avoid disruptions, and securing deliveries to customers,” says President and CEO Hilde Merete Aasheim.

During the fourth quarter 2020, global industrial production continued to recover from its contraction earlier in the year, while GDP remained largely flat. The aluminium market ended 2020 with a surplus of around 3 million tonnes, lower than estimates of around 5 million tonne surplus earlier in 2020.

“I am impressed by our organization managing to keep the wheels turning in a year marked by the pandemic, at the same time delivering on our improvement targets. We exceeded our cost improvement target and achieved savings of NOK 4.2 billion for 2020, amounting to about half of the overall 2025 ambition and supporting the positive cash flow generation in the fourth quarter,” says Aasheim.

“Hydro’s volume growth outpaced the market development in both Rolling and Extrusions in the fourth quarter 2020, driven by recovery in key segments such as automotive, can, building and construction. Within Aluminium Metal, Hydro’s mix of value-added versus standard products recovered to historic levels of around 70 percent value-added. Hydro’s operations have been operating largely as normal during the quarter. The Covid-19 situation, however, continues to cause market uncertainty,” says Chief Financial Officer, Pål Kildemo.

Hydro restarted aluminium production at line B at the Husnes primary plant in Norway in November 2020, after running the plant for more than a decade at half capacity. The NOK 1.5 billion upgrade project will add 95,000 tonnes of electrolysis capacity and includes technology elements implemented at the Karmøy technology pilot in Norway, lifting operational and environmental performance to world-class standards. The decision to restart line B at Hydro Husnes is based on market improvements, combined with expectations that Norway will continue to utilize the EU’s emissions trading system (ETS) for 2021-2030.

On December 31, 2020, Hydro and Lyse merged parts of their respective hydropower production assets to create a new hydropower company. The new company – Lyse Kraft DA – has a normal annual power production capacity of 9.5 TWh, of which Hydro will own 25.6 percent and Lyse 74.4 percent. Following the transaction, Hydro is Norway’s third-largest operator of renewable power, with a combined renewables production of 13.6 TWh in a normal year. Based on equity shares, Hydro’s annual power production is 9.4 TWh in a normal year. A gain resulting from the transaction of NOK 5.3 billion was recognized in the fourth quarter; the gain was excluded from underlying EBIT.

Hydro announced during Capital Markets Day 2020 an extension and higher ambition to the original improvement program, now aiming to achieve improvements of NOK 8.5 billion by 2025. In addition, Hydro announced commercial ambitions within its current aluminium portfolio of NOK 2 billion through pursuing market and customer-driven opportunities.

Hydro also announced new ambitions within the key strategic growth areas of recycling, renewables and batteries, representing larger shifts in Hydro’s portfolio toward 2025. In recycling, Hydro has an ambition to more than double post-consumer scrap utilization, and to generate an EBITDA uplift of NOK 1 billion to NOK 1.5 billion, through NOK 3.5 billion to 5 billion in potential investments. In batteries, Hydro has an ambition to generate an EBITDA uplift of NOK 600 million to 700 million, through potential investments of NOK 2.5 billion to 3 billion in battery projects. In renewables, Hydro aims to invest into more than 1 GW of renewable power projects in 2021.

Hydro's net debt position decreased from NOK 9.9 billion to NOK 7.8 billion at the end of the quarter. Net cash provided by operating activities amounted to NOK 5.4 billion. Net cash used in investment activities, excluding short term investments, amounted to NOK 1.9 billion. 

Hydro's reported EBIT amounted to NOK 6,770 million in Q4 2020, compared to negative NOK 399 million in Q4 2019.

Net income amounted to NOK 7,277 million in the fourth quarter, mainly due to a NOK 5,308 million gain on the Lyse transaction. Net income also included a net foreign exchange gain of NOK 1,479 million which primarily reflects a stronger NOK versus EUR, affecting the embedded derivatives in Norwegian power contracts and other liabilities denominated in EUR.

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. Items excluded from underlying EBIT and underlying net income (loss) are defined and described as part of the alternative performance measures (APM) section in the quarterly report.

Hydro’s Board of Directors proposes to pay a dividend of NOK 1.25 per share for 2020, for approval by the Annual General Meeting on May 6, 2021. The proposed payment demonstrates the company’s commitment to provide a predictable dividend to shareholders. In 2020, Hydro had a dividend policy of 40 percent payout ratio of reported net income over the cycle with NOK 1.25 per share considered as floor. This policy has been revised, from 2021 onwards, reflecting Hydro’s ambitions to lift performance and cash returns to shareholder over the cycle. The revised dividend policy is to pay out a minimum of 50 percent of underlying net income over the cycle with a NOK 1.25 per share dividend floor.

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.