Aluminium producer Norsk Hydro to raise capex, cut more costs

OSLO, Dec 15 (Reuters) - Aluminium maker Norsk Hydro (NHY.OL) 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.

The company also predicted booming demand for lower-carbon aluminium, produced with fewer emissions, as industrial customers seek to reduce their CO2 footprint.

Hydro said it planned to increase annual cost-cuts 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 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 its 2022 adjusted net income to shareholders in the form of dividends and share buy-backs, compared to the 80% cash dividend for 2021.

Shares in Hydro were down 0.9% at 1229 GMT, lagging a 0.2% rise in the Oslo benchmark index (.OSEBX).

Like other industrial companies in Europe, Hydro has been struggling with higher costs.

It has cut output in Europe by 100,000 tonnes, including permanently closing production at its Slovalco plant in Slovakia in September. On Thursday Chief Financial Officer Pal Kildemo said Hydro expected to suspend an extra 30,000 tonnes in output.

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 expects weaker profits next year, largely due to market prices. Benchmark aluminium prices have tumbled 40% from an all-time peak touched in March.

Adjusted earnings before interest, tax, depreciation and amortisation (EBITDA) in 2023 is forecast at 28.9 billion crowns, compared to 41.5 billion for the 12 months through the third quarter.

Demand plunged in Europe as recession loomed and inflation shot up, said Paul Warton, head of Hydro's extrusions division. Extrusions, semi-fabricated products, accounted for a fifth of Hydro's adjusted EBITDA in 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.

The Norwegian company on Thursday announced a deal with Mercedes-Benz (MBGn.DE) to supply the German carmaker with low-carbon aluminium from 2023.

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Thomson Reuters

Oversees news coverage from Norway for Reuters and loves flying to Svalbard in the Arctic, oil platforms in the North Sea, and guessing who is going to win the Nobel Peace Prize. Born in France and with Reuters since 2010, she has worked for The Guardian, Agence France-Presse and Al Jazeera English, among others, and speaks four languages.

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