Strategy and targets

miners

Hydro's mid-term strategic goals:

Better

Ambitions 

Target  Timeframe 

2017
progress

Status

Improve safety performance, strive for injury free environment TRI1)<2 2020 2.9 2)  amber bullet
Realize ongoing improvement efforts Better BNOK 3.0 2019  1.8 BNOK  amber bullet
Secure new competitive sourcing contracts in Norway post 2020 4-6 TWh 2020 2.65 TWh 3)  green bullet
Lift bauxite production at Paragominas 11.0 mill mt/year 2018 11.4 mill mt/yr  green bullet
Lift alumina production at Alunorte 7 mill mt/year 2018 6.4 mill mt/yr  green bullet
Shift alumina sales to PAX-based pricing >85% PAX 4) 2020 ~65% PAX 5)  green bullet
Extend technology lead with Karmøy technology pilot Start production 2H 2017 First metal Jan 2018 6)  red bullet

Bigger

Ambitions  Target  Timeframe 

2016
progress

Status

Realize technology-driven smelter capacity creep  200,000 mt/year  2025  32,000 mt  amber bullet

Lift equity bauxite production

 19 mill mt/year 7)  Long-term  NA  amber bullet

Increase automotive Body-in-White capacity

200,000 mt/year 8)  2017 Delayed ramp-up  red bullet

Complete ramp-up of UBC recycling line

 Ramp-up completed  2017 Delayed ramp-up  red bullet

Greener

Ambitions Target Timeframe

2016
progress

Status

Become carbon-neutral from a life-cycle perspective 

Zero 2020 On track green bullet

Increase recycling of post-consumer scrap

 >250,000 mt/year  2020 148,000 mt amber bullet
Deliver on reforestation ambition
1:1 Continuous On track 9) red bullet

All targets and progress reflect Hydro excluding Extruded Solutions


Bauxite and alumina

In February 2018, extreme rainfall in Pará, Brazil, lead to regional flooding. Due to concerns over possible water contamination from Alunorte during this flooding, authorities have taken several measures against the alumina refinery. These include orders to reduce production by 50 percent and halt operations at its DRS2 bauxite residue deposit, which is currently under commissioning, as well as suspending operations on one of two tailing dams at the Paragominas bauxite mine. Hydro issued a force majeure notice towards its alumina and alumina hydrate customers due to the production cuts and current lack of clarity into what measures it would take to return to normal operations. 

Measures are being implemented to resolve the situation at Alunorte, including establishing an internal taskforce to conduct a review of Alunorte and commissioning an independent external review of Alunorte. Hydro has also decided to initiate a NOK 500 million investment to the water treatment system at Alunorte. This aims at increasing the water treatment capacity by 50 percent and improving the robustness of the plant to withstand future extreme weather conditions. So far, no spills or leakages have been detected from Alunorte’s bauxite residue deposits after the extreme rain event.

Safe and sustainable business practices

Important HSE initiatives for the coming year include process safety, increased risk awareness, safeguarding the environment, best practice sharing and improved training.

An example of initiatives is the planned project for improved handling of municipal waste in Barcarena in Brazil. The project aims to improve the working conditions for those currently involved in waste collection as well as more secure waste handling in the community. Following the extreme rainfalls in Barcarena in February 2018, we collaborate with local institutions on humanitarian relief to assist communities in Barcarena within health and water. For neighboring communities Vila Nova, Burajuba and Bom Futuro, Hydro commits to working with local partners and investing in proper water supply. Hydro further commits to work with community, civil society and government to clarify the sources of water pollution and other water-related issues in the Barcarena region.

In 2017, Hydro signed a Memorandum of Understanding (MoU) with Shell Brasil Petróleo LTDA, and also a Letter of Intent (LoI) with the state of Pará with the aim to replace a major part of our current fuel oil consumption at the Alunorte alumina refinery with more climate and cost efficient natural gas. A technical concept for the replacement of fuel oil with natural gas will be developed during 2018.

Improve the commercial value of our product portfolio

We will continue to optimize our global bauxite and alumina positions including sourcing arrangements aimed at reducing logistical costs and improving margins. We also intend to continue increasing our share of alumina sales volumes at index pricing as old legacy LME indexed contracts gradually expire.

Expand our bauxite and alumina capacity

Hydro has attractive positions, enabling the potential expansion of low-cost alumina refining. These include the CAP joint venture for a potential new alumina refinery and possible expansion of the Paragominas mine. Further development of these projects is mainly dependent on ongoing developments in the balance between industry production capacity and market demand.  The production levels at Paragominas and Alunorte alumina remained high in 2017. Further, a debottlenecking project is planned to increase the capacity at the Alunorte alumina refinery to 7.0 mill mt/yr by 2021. 

Ambitions going forward

The key priority going forward will be to finalize and follow up the internal and external reviews of the refinery and its water treatment system, as well as realizing the announced investment to the water treatment system at Alunorte, and return operations to normal in a safe manner.

Reducing our impact on the local environment is also an important objective going forward, including continuing to reduce the gap between clearing for mining operations and rehabilitation.

worker

Primary Metal

A key ongoing strategic focus for Primary Metal is the continuous improvement of the efficiency of our smelter system, while constantly addressing the cost challenges facing our business. We have a strong commitment to ensuring a safe work environment and a highly motivated and engaged work force. In order to secure the viability of our operations over time, we intend to focus on business opportunities that enhance our cost position. We will also maintain our technological leadership, which contributes to lower operating costs, reduced emissions, and ensures our attractiveness as a partner for world-class projects within an industry with sound long-term fundamentals.

Maintain our focus on safe, sustainable business operations

Primary Metal focus on key activities to ensure safe and efficient operations including systematic HSE training of operators and managers, and regular risk assessment of operator tasks and the work environment. We monitor and continually strive to reduce greenhouse gas emissions and waste to landfill. As part of our strategic workforce planning, we aim to recruit competent resources to secure future requirements for managers and technical specialists.

Further improve our average smelter-cost position

Primary Metals core strategy has been the continuous improvement of our smelter portfolio. We are targeting annual improvements for our entire smelter portfolio of NOK 1 billion under the "Better Primary Metal" improvement ambition by the end of 2019, compared to baseline 2015. This includes increasing production capacity at our existing smelters through proven technological developments in addition to continuous operational improvements, and fixed and variable cost reductions. During 2017, Primary Metal launched targeted Industry 4.0 initiatives, focusing on advanced analytics, automation, robotics, and digital and predictive maintenance. These efforts aim at enabling further improvements from digital initiatives.

Optimize our position in alumina, power, carbon and other key raw materials

Primary Metal source the majority of its alumina from Bauxite and Alumina’s equity position and Energy’s captive power position with roughly two-thirds of our electricity usage based on hydro-power. We are continually working to secure competitive power arrangements as long-term contracts expire. We will also continue to focus on the procurement and supplier portfolio for carbon and other key raw material requirements.

Advance our operational excellence and technological leadership

Primary Metal focus on extracting measurable benefits from the application of our Aluminium Metal Business System (AMBS), a methodology designed to ensure best practices and operating efficiencies across our portfolio. AMBS is a key enabler underlying our improvement efforts and incremental increases in our production volumes. Primary Metal is also developing new proprietary smelting technology with the aim to improve our cost competitiveness, strengthen our environmental standards and support our long-term growth ambitions. This includes the 75,000 mt Karmøy technology pilot plant utilizing our next generation technology, HAL4e, targeting an energy consumption of 12.3 kWh/kg. Experience gained from the pilot is expected to contribute to further incremental capacity increases in our existing portfolio and productivity improvements.

Focus on selective growth projects

Primary Metals growth ambitions are directed toward projects with the potential to improve Hydro's cost position and smelter portfolio, and at the same time, maintain a strong focus on sustainable development. The Karmøy pilot project started metal production in January 2018. The pilot plant can serve as basis for a potential future expansion of primary production in Norway. During 2017, Hydro made an investment decision to upgrade and start up the second production line at Hydro Husnes in Norway in 2020, increasing production by around 95 000 mt. In February 2018, Hydro made a binding offer to acquire Rio Tinto’s 100 percent share of Icelandic aluminium plant ISAL. The offer also includes the Dutch anode facility Aluchemie and Swedish aluminium fluoride plant Alufluor. Completion of the transaction is subject to approval from relevant competition authorities, and is expected in the first half of 2018.

Ambitions going forward

Hydro has the ambition to continuously strengthen its smelter portfolio maintaining a strong emphasis on sustainable cost development. We will continue to focus on lean smelter operations, operational excellence and safety. The ongoing development of next-generation technology, HAL4e, will provide a strong technological basis for continued organic growth, increased efficiency and lower emissions.

worker

Metal Markets

Hydro's flexible and extensive multi-sourcing system enables us to rapidly adjust our remelt and recycling production to market demand. We intend to continue capitalizing on this flexibility to secure our market position and create additional value on top of LME for our production capacity. We will also exploit this competitive advantage to optimize our casthouse utilization and margin contribution. By increasing sourcing and recycling of post-consumer scrap we will improve our profitability and contribute to reaching our ambition to become carbon-neutral in 2020. Hydro will convert our industry-leading climate position into products for the low-carbon circular economy and have during 2017 launched its first certified sustainable products. Global optimization of Qatalum sales volumes continues to be key priority.

Metal Markets mid-term strategic goals are included within Primary Metals mid-term strategic goals.

Focus on margin management

Optimizing product premium margins in our primary casthouses and stand-alone remelters will continue to be at the top of our agenda. This includes shifting production toward higher premium alloys, optimizing remelting activities in response to market developments, shorter duration premium pricing and global optimization of product sales towards stronger markets. We will continue implementing key product strategies including strengthening our technical resources and enhancing our market team and key account approach.

Grow recycling capabilities

We have built a strong position in the metal products markets to optimize the capacity of our integrated casthouses and stand-alone remelters offering value-added products to the marketplace. Our ambition is to take a strong position in aluminium recycling to improve our cost base and reduce our carbon footprint. To increase our recycling capacity we acquired a scrap shredding and sorting company in St. Peter, Dormagen, Germany in 2015 and have introduced additional recycling capacity in our Clervaux, Luxembourg facility during 2015 and 2016. In 2017 we have invested in a new batch homogenising facility in Commerce, US, enabling the plant to serve new customers and use new raw materials. An investment in a new melting furnace in Luce has also been initiated and will be completed in 2018. We plan to further increase our capability and capacity to use post-consumer and other types of contaminated scrap and identify new sources of raw materials. With implementation of our global scrap network we will improve communication and cooperation between the regions, generating synergies in our operations. We also plan to continue to increase sales of recycling friendly alloys from our remelters, supported by the launch of our new 75R certified low-carbon aluminium product in 2017.

Risk management

We will continue to secure the value of our commercial portfolio by hedging price risk exposures within our group upstream and downstream businesses, mainly resulting from time lags between our manufacturing process and the pricing of products to our customers.

Ambitions going forward

Our vision is to be the preferred partner for casthouse products and services. We will strengthen our focus on enhancing product premium margins by utilizing the flexibility of our multi-sourcing system to manage our global product portfolio in an optimal way. We will continue our strong focus on safety and risk management, and maintain firm discipline on operating costs and capital expenditures.

worker

Rolled Products

Maintaining our strong market position and increasing returns continue to be key priorities in our Rolled Products business operations. Differentiation through innovation in products, processes and services is an important means to grow our market share and margin contribution. Measures aimed at increasing efficiency and reducing costs will continue together with efforts to reinforce safe operations and sustainable business practices.

Building on our strong market position

Differentiation is a key element of our strategy, striving for solutions to best serve our customers. In close cooperation with our customers we continue to work on quality and service improvements. In lithographic sheet for example, we continue to lift the competitive bar by enabling more performance for less process cost. Our new material HPSplus, the next generation of lithographic sheet, provides high bending fatigue strength and superior surface finish, and is reducing process cost on our customers’ side at the same time. Having signed multi-year contracts with major European can makers and contracting all-time high volumes, we are now becoming No 2 in European beverage can. In special products, we strengthened our position in Europe through high-grading our product portfolio, supported by our local technical customer service and our central research and development center.

Based on expected strong demand growth in the automotive Body-in-White market segment, we have invested in a new production line in Grevenbroich, Germany. While construction of the new production line was completed within budget and time frame, the product qualification and ramp-up phase is delayed due to various technical issues.

Ramp-up of the new Used Beverage Can (UBC) Recycling Line at our Rheinwerk smelter in Neuss, Germany, is progressing. Equipment design issues have adversely affected production performance in 2017. After design modifications the line is expected to reach targeted output speed of >40 000 mt/yr liquid aluminium by year-end 2018. The UBC line will support our target of being carbon neutral by 2020. 

Strengthen our performance in Environment, Health and Safety

Rolled Products is a key contributor to Hydro’s overall carbon-neutrality ambition: We aim to lead in sustainable solutions by products and processes with overall improved CO2 footprint along the value chain.

Through the reduction of energy consumption in Rheinwerk smelter and an energy efficiency program for our rolling mills we are reducing emissions and increasing resource efficiency. The targeted increase in volumes sold to the automotive market as well as numerous other flat rolled products in use contribute to maximizing ‘use-phase benefits’. As one of several activities, our new UBC line contributes to increasing recycling of post consumed scrap.

We will continue our efforts to improve safety performance through risk reduction and stronger leadership and engagement supported by appropriate training.  

Achieve targeted improvements

Our improvement ambition Better Rolled Products had been defined to generate annual revenue and cost improvements of NOK 900 million by 2019 compared to revenue and cost levels at the end of 2015. The delays in the new automotive and UBC lines as well as performance issues in some of our plants adversely affected our improvement ambition in 2017. The "Better Rolled Products" improvement ambition has been delayed by one year, now targeting NOK 900 million by 2020, the revised 2019 target is NOK 700 million.  

Ambitions going forward

Renew, a cultural enhancement program to lift cooperation and engagement to enable us to achieve our Better – Bigger – Greener targets was launched in 2015 and continued in 2017. We are committed to a safe working environment and to eliminating accidents in our operations. We aim to increase the returns of our business operations by concentrating on operational excellence, based upon our Rolled Product Business System (RPBS). Focus is put on production reliability and quality to support productivity and cost. Improved reliability will reduce waste in all processes and plants, benefiting both cost and customers. Our customer and market focus is a key success factor in high-grading the product portfolio to achieve higher margin contribution per hour on bottle-neck equipment. We intend to develop and improve our market share by leveraging our preferred supplier position in the market. With a focus on our strong position within lithography, foil, beverage can, automotive and special products, we will continue to emphasize the quality of our products and services to our customers. We may pursue selective growth opportunities and will keep our focus on innovation and technology to sharpen our competitive edge.


worker with extrusion dies

Extruded Solutions

Strategy

Extruded Solutions ambition is to become the one-stop-shop for its customers, helping them turn an idea into a “mass-customized” aluminium-based product. Seamless collaboration between the front and back ends of the value chain provides customers with complete solutions and rapid response time. 

Extruded Solutions is organized around three lines of business: Extrusion, Precision Tubing, and Building Systems. Extrusion North America and Extrusion Europe are the largest business units, each with 38 percent of the business area’s revenues, followed by Building Systems 13 percent, and Precision Tubing 11 percent. Extruded Solutions broad exposure to many end-markets reduces its dependence on the development of any specific market segments. Extruded Solutions products includes; automotive applications such as roof rails and trim, body-in-white, and crash boxes; transportation applications such as bodywork in subway cars, trailer parts, and rolling stock body structures; complex building and construction solutions; and precision tubing applications for the heating, ventilation, air conditioning, and refrigeration (HVAC&R) industry.

Global reach and local presence - plant network 

Extruded Solutions has a global standard for operations that ensures quality and reliability across our network of production plants in 25 countries. This also enables flexibility and swift local customer support.

2017 results

  • All business units continued to improve financial results in 2017.
  • Increased share of value add-business
  • A continued shift of the portfolio towards higher margin products, like roof rails and trim for the automotive sector.
  • Opening of the Bedwas plant in Wales to serve demands from a growing UK automotive industry and deliver to the new London Zero emission-capable taxi.
  • Growth in e-mobility.
  • Technal, Wicona and Sapa are now Extruded Solutions building system brands.
  • Opening of new presses in Hungary and China
  • Acquisition of Arconic extrusion plants in Brazil
  • Swift integration between Sapa and Hydro, including head office merger in Oslo
  • One fatal accident in 2017. TRI increased to 3.4 from 3.3 in 2016.

2018 targets

Our overall goal is to deliver profitable growth and results above the cost of capital in all areas of operations. In so doing, Extruded Solutions is committed to remaining an environmentally conscious, ethical, compliant and equal opportunity employer. To achieve this target, we will work on three main levels:

  1. Increase the value-add of our products and solutions
  2. Further simplify our processes and organization and collaborate better across units
  3. Realize selective growth opportunities in high value-add segments

Extruded Solutions strategy will be aligned with the Hydro strategy process in 2018.

Focus on selective growth projects

Extruded solutions will continue to consider opportunities towards more value add activities, investments and acquisitions to strengthen its position in specific segments or markets, the recent agreement to acquire two extrusion plants in Brazil provides a solid platform for further growth as the local market recovers.

Ambitions going forward

Extruded solutions has started the process of aligning its strategic ambitions adopting the company's aspirations to become Better, Bigger, Greener. Extruded Solutions is already well aligned with the rest of the organization when it comes to:

  • Raising performance and improving customer offering
  • Expanding the use of aluminum and strengthening Hydro’s platform for growth
  • Leading the transition towards sustainable solutions

As the leader in the extrusion industry, we set high ambitions not only to raise the benchmark within our company, but also to influence the rest of the industry. With that in mind, we will be striving to become Better in the following areas:

  • Employer of choice with world-class safety, compliance and people development standards
  • Higher value creation through innovation and collaboration
  • Strong profitability and value through commercial, service, and operational excellence

When it comes to Bigger, we will continue to:

  • Develop leading positions in select profitable markets
  • Expand value-added capabilities to strengthen our offerings to customers
  • Drive the transition to aluminum in new and existing applications through material substitution

Our Greener  ambitions will enable us to be the world’s most recognized sustainable company in the extrusion industry with our push towards:

  • Promoting recyclability of aluminum applications by engaging with customers in early stages of product development (e.g. design-for-disassembly)
  • Reducing carbon footprint throughout our value chain in extruded solutions
  • Supporting communities through CSR initiatives

 

worker

Energy

Hydro is one of the largest power plant operators in Norway, with more than 100 years of experience in hydropower production. We intend to develop the value of our Norwegian assets and to use our extensive energy competence to secure competitive energy for our global activities. Operational excellence and on-going improvement continue to be a key priority to secure cost effective, safe and reliable production.

Maintain and develop our captive power capacity

Our ambition is to continually increase Hydro's share of captive power from renewable sources, and further explore opportunities within our existing concession areas in Norway. Securing and increasing the value of our energy assets is a key priority, based on our normal equity power production of 10 TWh. 

The Norwegian Parliament amended the Waterfall concession act in June 2016. The amendment implies that private entities are allowed physical hydropower offtake for ownership stakes below 33.4 percent in hydropower companies (ANS/DA model). This will enable Hydro to maintain access to physical power from our assets subject to reversion through restructuring the assets within a one-third ownership position in a company with liability. See Government regulation - Energy regulation and taxation for further information on this matter. The change was an important step towards securing robust industrial ownership for our Røldal-Suldal (RSK) assets. In 2017, the process continued by further maturing options for RSK.

Optimize power asset management and operational excellence

We are continuously developing our expertise in optimizing power production and market operations. Our objective is to minimize the cost of industrial sourcing and maximize the value of our production assets, including active participation in power markets. We have made significant cost and safety improvements in our hydropower plant operations during the last decade, and we will continue to pursue further performance improvements. Safe, reliable, environmentally conscious operations remain among our top priorities going forward.

Sourcing competitive energy for our global operations

Access to competitive energy is a major success factor in our value chain. We have large energy exposures on nearly every continent. Hydro is engaged in a number of initiatives to identify and secure competitive energy supplies for Hydro's operations. In 2017, we entered our second contract based on wind-power with Markbygden ETT AB to source 1.65 TWh of renewable energy for a 19-year period beginning 2021. This contract will help enable continued competitive aluminium production in Norway. Utilization of wind power will contribute to strengthen Hydro’s renewable base in Norway.

In 2017 Norsk Hydro Energia Ltda is in its third year of operation continuing as a vehicle for power market operations in Brazil. We are actively involved in promoting a responsible energy policy in the regions where we operate.

In 2017 Hydro acquired 25.9 % of the shares in Corvus Energy, a Canadian company that connects lithium-ion based battery solutions and control systems. Corvus is a leading provider of solutions for electrifying ships. As an aluminium producer, we are using significant amounts of energy, and it is therefore important for us to follow the rapid technological development closely, also within energy storage.


1)    TRI, total recordable injuries per million hours worked, includes own employees and contractors.
2)    The safety development in 2017 included two fatalities.
3)    1.65 Twh power sourcing in 2017.
4)    Based on annual sourced volumes of 2.3 million mt.
5)    Based on sourcing volumes of 2.5 million mt for 2017.
6)    The Karmøy Technology Pilot is on track to ramp-up to full production during 1H 2018 as planned, but did not meet the target of first metal by year-end 2017.
7)    Provided the acquisition of a 40% stake in MRN from Vale.
8)    Refers to nominal capacity.
9)    Target revised in 2017 to 1:1 rehabilitation of areas available for rehabilitation. From 2018 the target will also cover two hydrological seasons. The revised definition takes into account the nature of the mining cycle. The time lag is necessary to ensure quality rehabilitation to restore biodiversity.

Green light: green bullet Ambition on track and on target; Amber lightamber bullet Ambition behind plan, but on target; Red light: red bullet Ambition might not meet the target 

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017

  • Annual report 2017


Updated: February 22, 2018