Norsk Hydro ASA — Earnings Release 2021

Oct 26, 2021

Norsk Hydro: Third quarter 2021 - Records results, 2021 improvement target delivered

Norsk Hydro: Third quarter 2021 - Records results, 2021 improvement target delivered

Norsk Hydro ASA posted third-quarter adjusted EBITDA of NOK 7,219 million,

compared with NOK 3,100 million for the same quarter last year. Higher all-in

metal and alumina prices, in addition to improved upstream volumes contributed

positively to adjusted EBITDA, partly offset by higher raw material costs.

* Strong markets and higher volumes driving record result in Aluminium Metal

* Robust operations in Bauxite & Alumina

* 2021 improvement target achieved

* Lower production volumes mitigated by price area differences in Energy

* Investments in Recycling and Extrusions supporting Hydro 2025 strategy

"I am happy to see our organization delivering record quarter results in a

strong aluminium market and reaching our full-year improvement target already

during third quarter. Extrusions is delivering ahead of plan, while robust

operations in Brazil have been a key lever within the improvement program, where

Alunorte has produced at nameplate capacity for the third consecutive quarter,"

says President and CEO Hilde Merete Aasheim.

Hydro's top priority remains the health and safety of our people and the

communities where we operate. Hydro continues to implement guidelines in

accordance with national regulations in handling of the pandemic. During the

quarter, Hydro was able to lift Covid-related restrictions at workplaces in

several countries with high degrees of vaccination and low infection rates.

The aluminium market was in deficit during the third quarter. In China, energy

supply constraints and consumption limitations resulted in supply cuts. Outside

of China, demand continued to rise in key segments like building and

construction, while several disruptions impacted supply. As a result, global

inventories were reduced during the quarter, and the primary aluminium market

for 2021 is expected to be in a deficit.

"World leaders will soon meet at COP26 to accelerate action towards the Paris

agreement. Aluminium has a strong place in efforts reducing global carbon

emissions in support of the green shift. We see increased demand for aluminium

used in customers' solutions to curb emissions. Demand for our low-carbon

aluminium offerings continues to increase, while we also are taking strong

measures to reduce our own emissions. The fuel-switch project underway at

Alunorte will make a solid contribution towards our 30 percent emission

reduction target by 2030," says Aasheim.

These market conditions elevated the London Metal Exchange cash price for

aluminium and aluminium premiums to near-record highs, supporting the record

high result in Aluminium Metal of NOK 4,263 million in adjusted EBITDA for the

third quarter.

The alumina market also tightened during the quarter. Energy constraints in

China and production disruptions in the Atlantic region impacted the global

supply of alumina. As a result, the Atlantic alumina market traded at a premium

compared to the Pacific. Alumina prices on the Platts alumina index rose from

USD 285 per tonne at the start of the quarter to over USD 480 per tonne by mid-

October.

In general, the prices of raw material used in producing alumina and aluminium

rose during the quarter. The market prices for caustic soda, fuel oil, coal, pet

coke, and pitch continued to increase, which began during the second half of

2020. Energy prices also rose globally during the quarter. Further, energy

consumption restrictions have triggered supply cuts for alloying metals such as

magnesium and silicon.

During the third quarter, dry hydrological conditions resulted in lower power

production volumes in Energy. As a result, Energy became a net spot purchaser of

power. The dry conditions also contributed to high spot prices in southern

Norway, which peaked at over NOK 1,200 per MWh in September. The negative impact

of purchasing in the spot market was largely mitigated by a gain from price area

differences.

Hydro has set out a clear strategic direction toward 2025 and aims to strengthen

its position in low-carbon aluminium, while exploring growth

opportunities in new energy. Sustainability is one of our competitive advantages

and a key enabler for successfully delivering on our 2025 strategy.

Hydro reached its 2021 improvement target of NOK 5.1 billion already during the

third quarter. Strong performance in Extrusions is the main driver for achieving

the target ahead of schedule. The overall 2025 improvement program of NOK 7.4

billion, compared to a baseline of 2018, remains on track.

Robust operations in Brazil have been a key lever within the improvement

program. During the third quarter, Alunorte produced at nameplate capacity for

the third consecutive quarter at an annualized rate of 6.3 million tonnes of

alumina. Hydro has also strengthened its position in Brazil from a

sustainability standpoint during the third quarter.

Switching from heavy fuel oil to liquid natural gas at Alunorte is expected to

reduce CO2 emissions by 600,000 tonnes. This project is a key enabler of Hydro's

2030 goal to reduce CO2 emissions by 30 percent. During the third quarter, Hydro

executed definitive commercial terms with New Fortress Energy to supply natural

gas to Alunorte for a term of 15 years.

In addition, Hydro aims to reforest mined out areas at Paragominas bauxite mine

in Brazil at a 1:1 ratio. This means that for every one hectare made available

in the year, one hectare will be recovered within two years after availability.

During the third quarter, Hydro's Brazil-Norway Biodiversity Research Consortium

confirmed that reforested areas of Paragominas have attracted native bird

species, a good indicator of reforestation quality. During the quarter, Hydro

has also committed an additional BRL 100 million (NOK ~160 million) in the

development of multipurpose social centers for local communities in northern

Brazil.

Extrusions is a selective growth area for Hydro and aims to achieve a commercial

uplift of NOK 1.2 billion by 2025, with automotive being a key contributor.

During the quarter, Precision Tubing announced investment in a new automotive

press in Suzhou, to deliver crash management systems and other automotive safety

components to the growing e-mobility sector in China. The press will increase

capacity by around 12,000 tonnes. In general, electric vehicle sales are growing

worldwide, with higher aluminium intensity than vehicles with internal

combustion engines.

"Electrification of the transport sector is a driver for aluminium demand. By

2035 it is expected that more than 50 percent of vehicles sold will be electric,

and battery electric vehicles have around 40 percent more aluminium than a

typical combustion vehicle. Hydro is well positioned to capture this longer-term

demand in automotive," says Aasheim.

Hydro also has ambitions to double its recycling of post-consumer scrap (PCS) by

2025. Recently, Extrusions announced that it will upgrade its recycler in The

Dalles, Oregon, United States. This upgrade will allow The Dalles to process an

additional 10,000 tonnes of PCS each year and increase overall recycled

aluminium output by 27,000 tonnes. This upgrade will also reduce energy

consumption and result in lower CO2 emissions and metal costs at the site. The

investment at The Dalles comes on top of the previously announced recycling

investments in 2021 which provide 185,000 tonnes of additional cast-house

products, based on an additional intake of 65,000 tonnes of PCS.

In all new energy areas, Hydro continued to develop profitable projects and

partnerships during the quarter. In Batteries, Hydro's 50/50 joint venture with

Northvolt, Hydrovolt, has ramped up its facility in Norway and is expected to

begin recycling batteries by year end. Hydrovolt's order book is full for 2022.

Compared to the second quarter 2021, Hydro's adjusted EBITDA increased from NOK

6,598 million to NOK 7,219 million in the third quarter 2021. Higher all-in

metal and alumina prices and currency contributed positively to adjusted EBITDA.

This improvement was partly offset by costs upstream, lower volumes and margins

in Extrusions and lower Energy production.

Adjusted EBITDA for the first nine months of 2021 increased compared to the same

period last year. Higher all-in metal and alumina prices, improved volumes

upstream, improved margins and volumes in Hydro Extrusions, and better results

from Hydro Energy, contributed positively to adjusted EBITDA. These positive

elements were partly offset by higher raw material costs upstream and negative

currency effects, in addition to increased operational costs in Bauxite &

Alumina relating to the decommissioning of a crane used to unload bauxite from

ships.

Net income from continuing operations amounted to NOK 1,127 million in the third

quarter. In addition to the factors described above, Net income from continuing

operations included a net foreign exchange loss of NOK 622 million and a NOK

3,005 million unrealized loss on LME-related contracts.

Hydro's net debt position decreased from NOK 3.6 billion to NOK 1.2 billion at

the end of the quarter. Net cash provided by operating activities excluding

changes in short-term and long-term collateral and excluding purchases of money

market funds amounted to NOK 3.2 billion. Net cash used in investment

activities, excluding short term investments, amounted to NOK 0.5 billion.

Adjusted net debt remained largely stable compared to the second quarter, ending

the third quarter at NOK 10.5 billion. The decrease in net debt was more than

offset by an increase in collateral requirements amounting to NOK 6.3 billion at

the end of the quarter, mainly relating to strategic and operational hedging

positions.

Hydro held NOK 18.8 billion in cash and cash equivalents, NOK 1.0 billion in

time deposits and NOK 1.4 billion in money market funds, included in short-term

investments, at the end of the third quarter. Time deposits and money market

funds are normally available at short notice. The revolving credit facility of

USD 1.6 billion was fully available at the end of the quarter.

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. Net debt, adjustments to EBITDA, EBIT and net income (loss)

are defined and described as part of the alternative performance measures (APM)

section in the quarterly report.

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.

This information is subject to the disclosure requirements pursuant to Section

5-12 the Norwegian Securities Trading Act

Investor contact

Line Haugetraa

+47 41406376

Line.Haugetraa@hydro.com

Press contact

Halvor Molland

+47 92979797

Halvor.Molland@hydro.com