OSLO (Reuters) - Norsk Hydro (NHY.OL), one of the world’s largest aluminium producers, aims to get its cost-cutting efforts back on track after major operational setbacks in the last year-and-a-half, its chief executive said on Tuesday.
The company’s new goal is to boost earnings by 6.4 billion crowns (569.01 million pounds) over the next five years, said CEO Hilde Merete Aasheim, who took the helm of the Norwegian company in May.
Following a spill at one of its plants in Brazil, Hydro last year abandoned plans to cut costs by 3 billion crowns from 2015 until 2019. It has since been hit by a major cyber attack that paralysed networks and dented profit.
“Hydro aims to lift cash flows and returns with extensive improvement and restructuring efforts across its business areas,” the company said in a statement ahead of a capital markets event in Oslo.
Aasheim is set to restructure Hydro’s rolled-products business, aiming to cut costs at the division by an additional 0.9 billion crowns in over the next five years, the company said.
Earlier this month, Hydro announced plans to end production of some rolled products in Germany and said it could lay off more than 700 workers in a bid to increase profitability.
The company also presented a new target of 10% return on average capital employed, while reiterating an annual dividend target of 40% of net income, with a dividend floor of NOK 1.25 per share.
Capital expenditure for 2019 and 2020 combined is estimated at around 12.5 billion-13.5 billion crowns, some 1 billion crowns lower than previously guided for the same period.
Hydro’s new profitability targets are strong, brokerage DNB Markets, which hold a Buy recommendation, said in a note to clients, while adding that the planned reduction in working capital is largely in line with expectations.
Brazilian alumina refinery Alunorte has been a major headache for the company over the past two years.
Hydro’s profits were hit by a production embargo at the refinery after a February 2018 spill, which in turn led to production curtailments at Alunorte’s bauxite source Paragominas and Hydro’s part owned subsidiary Albras primary aluminium plant.
The embargo meant Alunorte operated at half of its capacity after regulators and courts restricted output.
A Brazilian federal court completely lifted the embargo in May, allowing Alunorte to resume full output. Another federal court recently lifted one of two embargoes on a new bauxite residue deposit called DRS2. The current one in use, DRS1, will be full next year.
Alunorte reached 80-85% capacity utilisation in June, and the Paragominas and Albras units could subsequently ramp up production.
On Tuesday, Hydro said Alunorte would aim to run at 75-85% of capacity for the rest of 2019, moving towards full capacity in 2021.
“The ramp-up at Alunorte seems to be moving somewhat slower than we had anticipated,” said DNB in its note.
The Alunorte refinery, the largest of its kind outside China, transforms bauxite from mines into alumina, the key material used for making aluminium at smelters. It’s installed capacity can output enough to sustain annual aluminium production of more than 3 million tonnes.
Editing by Kim Coghill, Sherry Jacob-Phillips, Kirsten Donovan