Aluminium producer Norsk Hydro to raise capex, cut more costs

It is also reducing returns to shareholders, with the company's board proposing to distribute 50-70% of the 2022 adjusted net income to shareholders in the form of dividends and share buy-backs, compared to the 80% cash dividend for 2021. Hydro said areas of growth for the group include ramping up sales of low-carbon aluminium to industrial customers and setting up a plant to recycle electric vehicle batteries.

Aluminium maker Norsk Hydro will cut more costs and raise its capital expenditure next year, while distributing a smaller portion of its earnings as dividend, it said on Thursday, as it contends with rising inflation. On the positive side, Hydro predicted booming demand for lower-carbon aluminium, produced with fewer emissions, as industrial customers seek to reduce their CO2 footprint.

Hydro said it aimed to cut its annual costs by a further 3.5 billion crowns ($358.7 million) to a total of 11 billion crowns by 2027, compared to its previous target of cutting by an accumulated 8.5 billion crowns between the years 2019 and 2025. Cost cuts are coming from "thousands of initiatives" throughout the business to improve productivity and cut fixed costs, Chief Executive Hilde Merete Aasheim told a capital markets day.

The group expects capital expenditure of 13.5 billion crowns in 2023, including a 2.1 billion carry-over from 2022 and 1.7 billion in currency and inflation effects, having forecast 11 billion in capex for 2022 a year ago. It is also reducing returns to shareholders, with the company's board proposing to distribute 50-70% of the 2022 adjusted net income to shareholders in the form of dividends and share buy-backs, compared to the 80% cash dividend for 2021.

Hydro said areas of growth for the group include ramping up sales of low-carbon aluminium to industrial customers and setting up a plant to recycle electric vehicle batteries. It is also building and operating solar and wind farms both to power its plants and to sell to customers.

Shares in Hydro were down 3.1% at the opening of trading, lagging a 0.7% drop in the Oslo benchmark index Like other industrial companies in Europe, the Norwegian producer has been struggling with higher costs. It has cut output in Europe, including permanently closing production at its Slovalco plant in Slovakia in September.

About half of Europe's aluminium production, which requires large amounts of power, has been shut down as a result of a surge in energy costs since Russia's invasion of Ukraine. Hydro said it saw demand for low-carbon aluminium growing by 20% every year until 2030, against 3% for aluminium overall, as customers from automakers to construction companies and packaging firms look to cut their CO2 emissions.

The Norwegian company on Thursday announced a deal with Mercedes-Benz to supply the German carmaker with low-carbon aluminium from 2023. ($1 = 9.7584 Norwegian crowns)