Release Date: July 23, 2024
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
Positive Points
- Norsk Hydro ASA (NHYDY, Financial) reported an EBITDA of NOK5.8 billion for the second quarter, with a free cash flow of approximately NOK2.8 billion.
- The partnership with Macquarie Asset Management on the Hydro Rein joint venture was finalized, setting up Hydro Rein for self-financing growth.
- Demand for Hydro's premium recycled product, Hydro CIRCAL, remained strong, with several new investment decisions supporting growth strategy.
- A milestone agreement with Porsche was announced, positioning Norsk Hydro ASA (NHYDY) as a key player in the green aluminum market.
- The company is well-positioned to capture long-term opportunities in the aluminum market, particularly in low-carbon and recycled aluminum, with expected demand growth of 20% per year towards 2030.
Negative Points
- The company faced a tragic safety incident with a contractor fatality, highlighting ongoing safety challenges.
- The aluminum market remains slow, with low recycling margins affecting downstream results.
- Extrusion demand remains weak, driven by a slowdown in the building and construction segments in Europe and North America.
- Recycling margins are at an all-time low due to tight scrap availability, impacting profitability.
- Fixed costs have increased, driven by inflationary pressures and project development costs, affecting overall financial performance.
Q & A Highlights
Q: How are the second half '24 margin conditions for Extrusions shaping up compared to the same period in 2023?
A: Eivind Kallevik, CEO, stated that while there was a slight margin deterioration in Q2, the strategy for maintaining margins remains strong. Some slight challenges may persist into Q3 and Q4, but they are not expected to be material.
Q: Given the current margin environment, what will drive the decision to restart smelters in Norway, and can you provide any guidance on timing?
A: Eivind Kallevik, CEO, mentioned that the decision to restart smelters will depend on monitoring market conditions, particularly extrusion ingot and metal premiums. The company will update the market when a decision is made.
Q: Do you still see the 2025 EBITDA target of NOK8 billion achievable despite the soft extrusion market?
A: Eivind Kallevik, CEO, acknowledged that achieving the NOK8 billion target by 2025 will be challenging without a market recovery. However, it remains achievable, albeit potentially at a slower pace.
Q: Can you break down the NOK350 million to NOK450 million lower raw material costs guidance for B&A?
A: Trond Olaf Christophersen, Acting CFO, explained that the decrease is mainly due to the fuel switch. Other raw material costs include caustic soda, coal, and gas, but the fuel switch is the primary driver.
Q: How is the Rio force majeure impacting Norsk Hydro's business from a logistical and financial perspective?
A: Eivind Kallevik, CEO, stated that there has been no impact so far. The company received the force majeure notice but continues to receive expected alumina volumes. No consequences are anticipated at this point.
Q: When do you expect to launch the new buyback program?
A: Trond Olaf Christophersen, Acting CFO, indicated that the company is considering it and will announce the start of execution following the decision at the general assembly.
Q: What was the impact of the fuel switch this quarter, and how do you see it progressing?
A: Eivind Kallevik, CEO, noted that the fuel switch contributed slightly less than $20 million in Q2, with expectations to increase to $40 million in Q3 and $60 million in Q4, aligning with the LNG conversion plan.
Q: Do you expect the production cuts cited by Porsche to impact second half '24 extrusions?
A: Eivind Kallevik, CEO, does not anticipate any significant impact on Hydro's operations from Porsche's production cuts.
For the complete transcript of the earnings call, please refer to the full earnings call transcript.
