Norsk Hydro ASA

Earnings Release • Oct 24, 2023

Norsk Hydro: Positioning for the long-term, navigating challenging markets

Norsk Hydro: Positioning for the long-term, navigating challenging markets

Hydro's adjusted EBITDA for the third quarter of 2023 was NOK 3,899 million,

down from NOK 9,721 million for the same quarter last year. This resulted in an

adjusted RoaCE of 8.5 percent over the last twelve months.

* Weaker results in challenging and uncertain markets, firm mitigating actions

in place

* Delivering on strategic growth agenda in Extrusions and recycling, capturing

value from Alumetal

* Executing on decarbonization roadmap across the value chain, delivered first

Hydro REDUXA 3.0 to Mercedes-Benz

* EU regulatory framework supporting strategy, disappointing Norwegian

national budget

* Hydro Rein capital raise finalized, partnering with Macquarie Asset

Management for renewables growth

Lower aluminium and alumina sales prices, lower Extrusions and recycling

volumes, reduced CO2 compensation, and a provision for a multi-year social

donation in Brazil, negatively impacted results, partly offset by lower raw

material costs.

On October 15, a third party contractor was fatally injured while deconstructing

an old transformer in Hydro's joint venture, Qatalum, in Qatar. On October 18, a

contractor passed away at Hydro's Alunorte alumina refinery in Brazil while

performing a maintenance operation.

"I am deeply saddened that two young men who came to work in our plants did not

come home safe to their families. Our heartfelt condolences go to the family and

the affected colleagues," says President and CEO, Hilde Merete Aasheim.

In the third quarter of 2023, economic growth faced challenges due to rapid

monetary tightening, pressuring household spending and business investments.

Demand for primary aluminium continued to decline into the third quarter, while

Chinese demand is stronger than expected on strong demand in the renewables and

EV segments. Global demand has remained weak for residential building and

construction, and industrial segments, while demand for automotive has been more

stable. However, in North America, trailer and automotive build rates have

slowed, and could be further impacted by the United Auto Workers (UAW) strike.

"Hydro is responding to declining markets with firm mitigating measures. Within

Hydro Extrusions and recycling, we are using our production flexibility and

adaption abilities to maneuver in weaker markets," says Aasheim.

Hydro continues the strong focus on cash release and working capital reduction

with a year-to-date release of more than NOK 4 billion. Hydro's improvement

program has progressed significantly during the quarter and commercial ambitions

are ahead of the target for 2023. The strategic hedging program is further

supporting margins, with 440,000 tonnes currently hedged at an LME of USD 2,500

per tonne in 2024, and 300,000 tonnes hedged at an LME of USD 2,400 per tonne in

The 2024 Norwegian national budget proposal, revealed on October 6, surprised

with significant changes to industrial and power development conditions. The CO2

Compensation Scheme, designed to safeguard European industrial competitiveness,

may see the CO2 price floor rise from 200 to 375 NOK per tonne, impacting Hydro

negatively with NOK 1 billion annually. Additionally, a 35 percent resource rent

tax on wind power profits is proposed for 2024. This tax could hinder investment

in renewable capacity expansion. These changes are being negotiated and await

parliamentary approval.

"We are surprised and disappointed the government has once again chosen to

weaken the competitiveness of the industry by cutting the established CO2

compensation scheme. This is unfortunate and it undermines the predictability of

Norwegian industrial policy," says Aasheim.

On October 24, Hydro signed an agreement with Macquarie Asset Management who

will acquire 49.9 percent of Hydro's renewable energy company, Hydro Rein. This

transaction marks an important milestone for the execution of Hydro's strategic

pillar of growing in renewable energy, while keeping this capital light. Through

this partnership, Hydro and Macquarie will form a joint venture (JV) where Hydro

will own 50.1 percent of the company. Macquarie intends to invest equity of USD

332 million to obtain a 49.9 percent ownership of Hydro Rein. The transaction

values Hydro Rein on a debt free basis at USD 333 million, per June 30, 2023.

Including the capital provided by Macquarie, no further equity injections from

Hydro are planned for, and Hydro Rein has an ambition to be self-funded for

growth.

"Despite market volatility and geopolitical turmoil, the long-term outlook for

aluminium is promising. Toward 2030, Hydro expects significant growth for

aluminium, driven by electric vehicles, energy effective buildings as well as

aluminium in infrastructure to support the energy transition," says Aasheim.

According to its 2025 strategy, Hydro continues to strengthen the position in

low-carbon aluminium and to grow in attractive market segments. Hydro Extrusions

has inaugurated three new presses in Suzhou, China, Trzcianka, Poland, and

Nenzing, Austria. These new facilities strengthen the portfolio of cutting edge

extrusion capacity aimed at industries like automotive, electric vehicles, and

building and construction. The growth strategy of Hydro Extrusions is aimed at

expanding with the market, particularly focusing on segments where Hydro has a

competitive edge. The expansion of production capacity, in combination with

ongoing sustainability efforts, enhances resilience and contributes to

Extrusions NOK 8 billion EBITDA target.

Hydro aims to add 1 million tonnes of new recycling capacity to the portfolio by

2027, primarily in Europe and North America, to meet the growing demand for

recycled aluminium. Hydro announced the opening of the HyForge casting line in

Rackwitz on September 14, expanding capacity to supply the automotive industry

with low-carbon recycled aluminium from post-consumer scrap. This investment

directly responds to the automotive sector's increasing need for low-carbon,

lightweight aluminium parts. Additionally, the greenfield recycling plant in

Cassopolis, Michigan, is progressing as planned. Equipment is currently being

commissioned and the first metal is expected to be produced by November. The

plant is expected to be in full operation by the second quarter next year after

a gradual ramp-up during the first quarter.

On July 7, the share purchase for the Polish recycler Alumetal S.A was settled,

resulting in 275,000 additional tonnes of annual recycling capacity, a solid

recycling position in Europe, as well as advanced sorting and casting

capabilities. During the third quarter, a NOK 200 million investment was

announced to modernize and expand the Alumetal recycling plant in K?ty, Poland,

expanding the capacity with approximately 30,000 tonnes of foundry alloys for

the automotive market. In addition to the K?ty investments, several synergy

potentials are identified, with an identified potential EBITDA uplift ranging

from EUR 10 to 15 million by 2027.

Hydro is determined to contribute to economic and social development in the

communities where the company operates. The TerPaz program in the state of Pará,

Brazil, where Hydro has made a commitment to contribute to build six peace

houses, will nurture social inclusion and opportunities in cultural,

educational, economic, and human rights areas. TerPaz is an important initiative

to reduce lethal violent crimes, and a commitment to donate approximately NOK

500 million for the next three years is recognized during the third quarter to

support this agenda.

For shareholders, Hydro initiated a new share buyback program on September

22, 2023. The program covers a purchase of up to 100,000,000 shares with a

maximum value of NOK 2,000 million, inclusive of the proportional redemption of

shares owned by the Norwegian State. As of October 17, 2023, Hydro has purchased

3,719,484 own shares and owns a total of 18,816,362 shares, corresponding to

0.92 percent of Hydro's share capital.

Results and market development

Third quarter 2023 adjusted EBITDA for Bauxite & Alumina decreased compared to

the third quarter of last year. Lower alumina sales prices, currency, and the

TerPaz peace house expenses were partly offset by lower raw material prices. The

average Platts alumina index (PAX) traded in a narrow range between USD 325 per

mt and USD 345 per mt throughout the quarter, ending the quarter at USD 338 per

mt. In China, alumina prices rose throughout the quarter driven by smelter

capacity restarts in the Yunnan province and lower alumina production due to

domestic bauxite shortages. Compared to the third quarter of 2022, the average

Platts alumina index was stable.

Adjusted EBITDA for Aluminium Metal decreased in the third quarter of 2023

compared to the third quarter of 2022, mainly due to lower all-in metal prices,

reduced CO2 compensation, and lower contribution from power sales, partly offset

by positive currency effects, and reduced alumina and carbon cost. Global

primary aluminium consumption was up 2 percent compared to the third quarter of

2022, driven by a 3 percent increase in China. The three-month aluminium price

increased throughout the third quarter of 2023, starting the quarter at USD

2,158 per mt and ending at USD 2,347 per mt.

Adjusted EBITDA for Metal Markets increased in the third quarter compared to the

same quarter last year. Strong results from sourcing and trading activities were

partly offset by lower results from recyclers, and negative inventory valuation

and currency effects.

Extrusions adjusted EBITDA for the third quarter of 2023 is slightly lower than

the same quarter last year, driven by lower sales volumes, and higher fixed and

variable costs, positively offset by increased sales margin and currency

effects. European demand for extrusions in the third quarter of 2023 is

estimated to have decreased 20 percent compared to the same quarter last year

and 21 percent compared to the second quarter of 2023, driven by seasonality.

Demand for residential building, and construction and industrial segments has

remained weak in the third quarter, while demand for automotive has been more

stable, supported by increased share of electric vehicle registrations over

total auto registrations. The solar segment has been negatively impacted by

supply chain bottlenecks and lower installations. North American extrusion

demand is estimated to have decreased 17 percent during the third quarter of

2023 compared to the same quarter last year and 6 percent compared to the second

quarter of 2023. Demand continues to be weak in residential building, and

construction and industrial sectors. In the transport segment, lower trailer

build rates have started to negatively impact demand. Automotive build rates

have also recently slowed and could be impacted by the UAW strike against the

three unionized US automakers.

Adjusted EBITDA for Hydro Energy in the third quarter is higher than the same

period last year. Higher production and lower recognized tax cost in Hydro's

equity accounted investment company Lyse Kraft DA, as a result of the legal

restructuring in 2022, were partly offset by lower gain on price area

differences, lower prices, and loss on a 12-month internal fixed price purchase

contract from Aluminium Metal from early October 2022. Nordic power prices in

the third quarter were on average lower than the previous quarter and

significantly lower than in the same quarter last year. The lower prices can

primarily be explained by an improved Nordic hydrological balance and declining

fuel prices. Price area differences between the south and north of the Nordic

market region declined somewhat from the previous quarter and were significantly

lower than the same quarter last year.

Other key financials

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

7,098 million to NOK 3,899 million in the third quarter 2023. Lower realized

aluminium and alumina prices combined with lower Extrusions and recycling

volumes were partly offset by lower raw material costs.

Net loss from continuing operations amounted to NOK 625 million in the third

quarter of 2023. In addition to the factors described above, net income from

continuing operations included a NOK 2,000 million unrealized derivative loss on

LME related contracts, a net foreign exchange gain of NOK 214 million, and a NOK

110 million loss from unrealized derivative power and raw material contracts.

Hydro's net debt increased from NOK 11.3 billion to NOK 13.8 billion during the

third quarter of 2023. The net debt increase was mainly driven by NOK 7.5

billion investments, partly offset by EBITDA contribution and net operating

capital release.

Adjusted net debt increased from NOK 15.9 billion to NOK 20.4 billion, primarily

due to the increase in net debt of NOK 2.5 billion, and an increase in

collateral for hedging contracts and investments commitments.

Reported earnings before financial items and tax (EBIT), and net income include

effects that are disclosed in the quarterly report. 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.

Investor contact:

Martine Rambøl Hagen

+47 91708918

Martine.Rambol.Hagen@hydro.com

Media contact:

Halvor Molland

+47 92979797

Halvor.Molland@hydro.com

The information was submitted for publication from Hydro Investor Relations and

the contact persons set out above. 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. Except where required by law,

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 considered to be inside information pursuant to the EU

Market Abuse Regulation and is subject to the disclosure requirements pursuant

to Section 5-12 the Norwegian Securities Trading Act.