OTC Markets Group (OTCM): Tell us about Norsk Hydro.
Stian Hasle: Norsk Hydro is a more than 100 years old, resource-rich, fully integrated aluminium company, headquartered in Norway, with operations in all major activities along the aluminium industry’s value chain.
Our operations include one of the world’s largest bauxite mines and the world’s largest alumina refinery, both located in the northern part of Brazil. We have primary metal production facilities in Norway, Germany, Slovakia, Canada, Australia, Brazil and Qatar, and we are a leading worldwide supplier of value-added casthouse products, such as extrusion ingots, sheet ingots and foundry alloys. In 2016, we had metal product sales of close to 3 million mt from casthouses integrated with our primary smelters and from an extensive network of specialized remelt facilities close to customers in Europe and the U.S.
On the downstream side, Hydro is involved in rolling and extrusion. We are an industry leader supplying a range of downstream markets, in particular the packaging, lithographic, building, automotive and transport sectors. Further, through the Sapa joint venture transaction we have transformed our extrusion operations and generated substantial synergies.
With more than 100 years of experience in hydropower, Hydro is the second-largest operator of power production in Norway. We have substantial, self-generated power capacity to support our production of primary metal, and are engaged in a number of initiatives to secure competitive power supplies for our aluminium operations.
OTCM: What were your major accomplishments in 2016?
Mr. Hasle: In 2016, Hydro made significant progress towards all main aspects of the company’s overall strategic direction: “Better, Bigger, Greener.”
2016 was a year without fatalities for Hydro and a TRI rate of 2.6 (work-related injuries per million work hours) made 2016 our best year ever, both for our own employees and contractors. Hydro’s safety performance remains among the best in the industry.
2016 was also a year of strong operational performance across the business areas. Hydro’s industry-leading improvement initiatives continued to deliver significant operational and commercial results, and we are ahead of plan in our improvement program “Better, ” targeting NOK 2.9 billion of annual improvements by 2019 vs. 2015. For 2016, NOK 1.4 billion of annual improvements were delivered, exceeding the 1.1 billion target.
For Bauxite & Alumina, 2016 became a year of particularly strong operational progress, with an all-time low implied alumina cost and record production levels, above nameplate capacity, for both the Paragominas bauxite mine and the Alunorte alumina refinery (both in Brazil).
Last year, Hydro invested in future-oriented projects that we expect to be successful seen from a strategic, financial and environmental point of view. During 2017, three important symbols of the new era will be in full operation:
- The Karmøy Technology Pilot in Norway, which will produce the world’s most climate- and energy-efficient primary aluminium.
- The Automotive Line 3 in Grevenbroich, Germany, making Hydro the second largest supplier of lightweight car parts in Europe.
- The UBC recycling line in Neuss, Germany, based on “cutting-edge” technology, which has already started bringing millions of used beverage cans back into the circular economy as new, first-rate aluminium products.
In 2016, Hydro entered into long-term power contracts for the Norwegian smelters and Neuss in Germany. An important regulatory change was also implemented in Norway allowing private ownership of waterfalls through companies with liability, often referred to as industrial ownership or ANS/DA, enabling further progress on Hydro’s work to restructure ownership and protect the value of our power assets.
Hydro also made good progress in its target on becoming climate neutral from a lifecycle perspective by 2020, and is on track to reach that target. Main drivers are: increased recycling, reduced indirect and direct emissions from production processes, and targeting sales to industries where aluminium provides the largest use-phase benefits, like automotive.
OTCM: How does Norsk Hydro differentiate itself from its competitors and what is your growth strategy for 2017?
Mr. Hasle: As the only Western company in the aluminium industry, Hydro pursues a model of full value chain integration. We firmly believe this contributes to the ability to generate added value and to serve leading customers by ensuring operational excellence, driving improvements, and extending our lead in technology and innovation.
Hydro has strong positions across the value chain, and one of the most competitive positions on the global cost curves for both the bauxite and alumina and primary metal portfolio. We also have a strong hydro power base in Norway, adding to our competitiveness both with regards to cost and climate/sustainability. Of the power needed for our metal production around 1/3 is sourced through equity power and 2/3 are based on hydropower, giving us one of the most sustainable positions in the aluminium industry.
Another important advantage for Hydro is that we have a solid balance sheet with a net cash position of NOK 6 bn at the end of 2016. Having financial muscles and flexibility is crucial for navigating successfully through market cycles, allowing us to concentrate on performance and pursuing attractive opportunities which may appear.
As mentioned above, growth in 2017 will come through increased primary metal output by 75,000 mtpa through the Karmøy Technology pilot, increased exposure to the fast-growing automotive market through the new 150,000 mtpa automotive line in Germany and increased recycling through the 40,000 mtpa UBC line in Germany. In addition, we are constantly looking at creeping production throughout the value chain and de-bottlenecking where we see it is needed.
OTCM: Norsk Hydro celebrates 8 years on OTCQX this year. How have you used the OTCQX as part of your U.S. IR program?
Mr. Hasle: In general, we are happy to have our shares traded on a platform which increases our exposure to the U.S. and enables U.S. investors to invest directly in Norsk Hydro stock via a U.S. traded instrument. Being present on OTCQX provides us with a quality stamp that is important in assisting us in targeting the right investor base. At Hydro, we focus on reaching out to investors around the world through several different activities: conferences, roadshows, webcasts, annual capital markets day, etc. And being on the OTCQX is one part of the overall strategy of expanding our investor base and presenting ourselves to a wider community.
We are also looking forward to participating in the OTCQX Virtual Investor Conference events sometime during 2017 to further improve our visibility in the U.S.
OTCM: What else do you want U.S. investors to know about Norsk Hydro?
Mr. Hasle: One important thing to mention is that aluminium, the metal we are producing and selling, has been the fastest growing metal for several decades. We expect that trend to continue, much supported by the global megatrends and properties of the metal making it important both in investment-heavy and consumer-driven economies. And we believe Hydro is in a very good position to capitalize on this strong growth through our first-class assets and commercial capabilities.
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