Hydro Annual Report 2011b

• Secure stable production and first-quartile cost position of
Qatalum and optimize the commercial value of full
production volumes
• Improve returns for downstream operations
• Maintain capital discipline
Hydro will take the steps necessary to secure its operating results
and sound financial position in 2012 and safe operations continues
to be of paramount importance. Zero tolerance for fatal
accidents continues, and Hydro is aiming for a 25 percent
reduction in total recordable injuries per million hours worked
or a TRI rate of 2.9 for 2012. following the significant business
expansion in 2011, Hydro has revised several important corporate
responsibility strategies that will be on the top of the board’s
agenda for implementation in 2012. These include reducing the
company’s environmental footprint, helping customers reduce
their footprint and improving the environmental qualities of
aluminium as a material. Hydro’s overall CSR strategy is built
upon four pillars: integrity and anti-corruption, community
and stakeholder engagement, human rights, and supply chain
and product stewardship. five priorities for Hydro’s people
strategy include: performance culture, competence management,
leadership pipeline, diversity and mobility.
further improving the capacity utilization and efficiency of the
company’s new Bauxite & Alumina operations will be a key priority
in 2012. Hydro will concentrate on increasing the effectiveness
of its production systems, raising productivity and
pursuing a more systematic execution and follow-up of maintenance
activities. Hydro’s aim is to achieve targeted increases in
production levels and to significantly enhance the performance
within these core activities.
Hydro will continue to emphasize improving the efficiency of its
smelter portfolio while constantly addressing the cost challenges
facing its Primary Metal business. Hydro’s USD 300 per mt cost
improvement program is on track, delivering cumulative saving
of USD 200 per mt by the end of 2011.
Improving returns for Hydro’s downstream operations will be
an important issue on the company’s agenda in 2012. Key strategies
include differentiation through innovation and service as
well as continuous cost reduction to secure margins while protecting
market shares. Hydro plans to build upon its European
extrusion operations and its world-class rolling mills, focusing
on the high-end product markets. Strong cost control will be a
key objective in general and the company will continue efforts
to turn around activities in southern Europe, working towards a
leaner organization, and securing significant and lasting reductions
in operating costs.
Hydro aims to provide its shareholders competitive returns
compared to alternative investments in peer companies, and is
maintaining its dividend policy of paying 30 percent of net
income in ordinary dividends over the business cycle. The com-
BoArD oF DIreCtors’ report
Investor information
11
pany will continue to focus on securing its financial position
through exercising capital discipline to secure an optimal level of
operating capital, and to maintain a sustainable level of capital
expenditures safeguarding the company’s operating portfolio.
Strong cash generation and preserving Hydro’s investment grade
credit rating will be key priorities.
Shaping the future
Hydro is well prepared for the opportunities ahead in an industry
with attractive long-term fundamentals. However, the current
economic environment represents a significant challenge in
obtaining a satisfactory return on capital for the industry as a
whole and for Hydro. In order to secure the viability of its operations
over time, Hydro intends to focus on initiatives and business
opportunities that continually improve its cost position.
Hydro’s long alumina equity position places it in a market where
we can benefit from mechanisms that will evolve the price of the
company’s core products to better reflect the cost fundamentals
of the industry. Hydro’s long-term ambition is to increase its
capacity of low-cost alumina, reinforcing its position as a leading
global supplier. Potential projects include CAP, an alumina
refinery in Barcarena, close to Alunorte, and the possible expansion
of the Paragominas mine.
The Qatalum smelter has been developed with the possibility to
more than double the plant’s annual capacity in the future.
There is also a possibility to expand the low-cost Alouette smelter
in Canada. Hydro intends to maintain its technological leadership
which contributes to lower operating costs, reduced emissions
and ensures attractiveness as a partner for world-class
projects. Selective growth of the company’s downstream operations
in emerging markets including Brazil and China will be a
priority going forward.
Hydro intends to develop the value of its Norwegian energy
assets and to use Hydro’s competence to secure competitive
energy sources for its global activities. Hydro is committed to
maintaining the viability of the company’s global smelter portfolio,
which is heavily dependent on securing adequate supplies
of competitively priced energy. Securing long-term, competitive
power sources is of critical importance to sustaining the viability
of Hydro’s smelter portfolio in Norway. Identifying opportunities
for long-term, competitive energy sources to protect and
develop the company’s portfolio, taking into consideration
license reversion in Norway and emission legislation in general,
continues to be an important priority for Hydro.
Investor information
Hydro’s share price closed at NOK 27.74 at the end of 2011.
The return for 2011 was negative, amounting to NOK 14.87
per share, or 35 percent.
Hydro’s board of directors proposes to pay a dividend of NOK
0.75 per share for 2011 reflecting the company’s strong com-