Norsk Hydro ASA
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Hydro takes action to strengthen robustness amid Covid-19
release time :2020-04-07 09:26:16 page view:138

Apr. 7, 2020 - The Covid-19 situation is a challenge to the global economy and continues to cause significant uncertainty for Hydro's operations and business areas. Hydro is taking firm measures to ensure a safe work environment, contribute to communities, maintain operations and safeguard liquidity, including amending previously communicated dividend proposal and implementing capex freeze.

Current mitigating actions include:
Temporary curtailments and temporary lay-offs
Hydro freezes 25% of remaining 2020 capex
Postponed Husnes, Norway, aluminium plant restart
Cost cuts and additional cost discipline across the company
Corporate Management Board salary freeze and no bonus for 2020

Board resolution to amend dividend proposal of NOK 1.25 per share and instead propose that Board is authorized to resolve distribution of dividend at later stage if conditions allow for it

Hydro is following recommendations from local and international health authorities to limit the spread and impact of Covid-19. Mitigating actions include alternating shifts, segregation of units, travel restrictions, social distancing and personal hygiene measures to protect employees and local communities.

In addition to internal health and safety measures. Hydro is supporting local communities in their efforts and is also supplying material and products to customers with key roles in the handling of the Covid-19 pandemic.

Mitigating financial actions

In connection with the release of the fourth quarter 2019 financial report, it was communicated that the Board would propose to the General Meeting a dividend of NOK 1.25 per share to be paid in May 2020. Due to significant uncertainty related to Covid-19 and its impact on Hydro’s operations, markets and financials, the Board has resolved not to propose to the General Meeting a dividend of NOK 1.25 per share as previously announced. Instead, the Board will propose to the General Meeting that it is granted a power of attorney to distribute a dividend based on the 2019 annual accounts. The power of attorney is to be used if the Board, at its discretion, deems that market conditions and Hydro’s financial situation allow for it. The power of attorney will be restricted to a maximum dividend payment of NOK 2.6 billion, corresponding to NOK 1.25 per share, and will expire at the date of the annual General Meeting in 2021.

Although Hydro has a solid balance sheet and liquidity, with NOK 12.3 billion in cash by the end of Q4 2019, as well as an undrawn USD 1.6 billion revolving credit facility, in the current situation the Board believes that not paying the dividend in May, and requesting an authorization for a potential later payment, is a proper measure to safeguard the company's liquidity in uncertain times. The Board’s decision to amend the previously communicated dividend proposal does not entail any change in the general dividend policy, with 40 percent payout ratio of reported net income over the cycle with NOK 1.25 per share considered as a floor.

To further safeguard liquidity, Hydro has decided to freeze around 25 percent of remaining capital expenditure in 2020 by NOK 2 billion until we have more visibility, resulting in the updated capex estimate for 2020 being NOK 7.5-8 billion, until further notice.

To adapt to the fast-deteriorating market, Hydro has also decided to postpone the restart of 95,000 tonnes of capacity at the Husnes aluminium plant in Norway. The ramp-up was originally planned to start in the first half of 2020 but is now postponed to Q3 2020 at the earliest, pending market developments and outlook into the second half of the year.

Hydro is also taking measures to reduce cost across the company, including forced vacations, delaying projects, and temporary layoffs. In total, Hydro has had to temporarily lay off around 1,400 employees as government-imposed restrictions and deteriorating demand have led to closures and reduced production at several plants.

The Corporate Management Board has decided to refrain from salary increase in 2020 as well as bonus payments for 2020, contributing to the collective effort to reduce cost in the current challenging situation.

Hydro’s improvement program efforts are moving forward with full speed, with increased focus on the cost levers we can pull in these uncertain times. However, it will be hard to reach the overall target for 2020 due to the expected shortfall of volumes as well as market developments. The overall improvement target of NOK 7.3 billion for 2023 still stands.

Operational update

The Covid-19 situation is increasingly affecting the global economy as well as aluminium demand, leading to closures and reduced production across many Hydro sites. The impact is currently most visible within Extruded Solutions with an increasing number of sites being temporarily closed or producing at very low levels. In Primary Metal, deteriorating demand has led to temporarily closures of recycling facilities and the postponement of Husnes ramp-up.

Bauxite & Alumina: Operations mostly running as normal. High market uncertainty.
Energy: Operations mostly running as normal. High market uncertainty.
Primary Metal: Primary production operations mostly running as normal. Husnes ramp-up postponed to Q3 2020 at the earliest. Recycler Azuqueca in Spain temporarily idled this week, while recyclers Luce, France, and Clervaux, Luxembourg, were temporarily idled last week. High market uncertainty.
Rolled Products: Operations mostly running as normal, but impact expected as customers closing production, particularly in automotive sector.
Extruded Solutions: An increasing number of sites currently impacted by the situation with reduced production on several sites. Around 35% of the sites are running at approximately normal levels, around 40% are running at reduced levels and around 25% of the sites are either closed or running at very low levels

Norsk Hydro ASA

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