Investors Reports and presentations Annual reports Annual Report 2020 Letter to shareholders Emerging stronger from an extraordinary year The pandemic put us all to the test. It challenged our operations, our employees, our customers and the world around us. Yet, Hydro managed an extraordinary 2020 carefully, emerging stronger and well positioned to deliver on our agenda to become a profitable and more sustainable industry leader. President & CEO Hilde Merete Aasheim's letter to shareholders in Hydro's 2020 annual report. I’m grateful and impressed by how our organization kept the wheels turning, delivering on the improvement ambitions and positioning Hydro for the future, while always putting health and safety first. Our No. 1 priority is to ensure our employees come home from work safely. I am happy that our safety performance overall improved in a difficult year. The rate of recordable injuries per million work hours improved to 2.7 in 2020 from 3.0 in 2019. We had no fatalities in our operations, and we have maintained a strong focus on high-risk incidents. We can never rest in our safety work. The ultimate target is an injury-free work environment. Sadly, we are mourning the loss of eight good colleagues to the Coronavirus in 2020. Our thoughts go to their loved ones, their families, friends and colleagues. Lifting profitability, driving sustainability At our investor day in September 2019, we set a new and ambitious agenda for the company to lift profitability and drive sustainability. Earnings had simply been too low for too long. We launched several initiatives, including a new ambitious improvement program, a strategic review of the Hydro Rolling business area, a new capital allocation framework, and we set a clear target for profitability to deliver a return on capital of at least 10 percent over the cycle. We also set new sustainability ambitions, including a target to reduce our own CO2 emissions by 30 percent by 2030. We have made significant progress toward all these ambitions. We have accelerated our improvement efforts in 2020. Our extended program targets NOK 8.5 billion by 2025 across all business areas and staffs. I am happy that we exceeded our improvement target and achieved savings of NOK 4.2 billion for 2020, amounting to about half of the overall 2025 ambition. In March 2021, we reached another milestone with the finalization of the strategic review of the Rolling business and with a conclusion to sell the business to the U.S.-based private equity firm KPS Capital Partners. The agreement, expected to be finalized in the second half of 2021, marks another step toward making Hydro a profitable and more sustainable industry leader – to the benefit of our employees, our customers and our shareholders. Amid all the challenges, I am impressed by how unexpected events spur a willingness in our organization to go the extra mile. We take inspiration from our ability to mobilize as we face another important transformation: The green transition. Hydro 2025 In 2020, we established a new strategic direction toward 2025, building on our profitability and sustainability agenda. We will pursue our strategic ambition by capturing opportunities where our capabilities match the global megatrends such as sustainability, electrification and urbanization. We have a great starting point, with a unique position within renewable energy-based low-carbon aluminum as well as recycled aluminium, and with strong capabilities in renewable energy, built up throughout our 115-year history. Based on our capabilities and the megatrends, our strategic direction toward 2025 is based on two pillars: It’s about strengthening our position in low-carbon aluminium, while exploring new growth opportunities in areas such as recycling, renewable energy and batteries. Our ability to deliver on our strategic ambition rests on our ability to ensure robustness and profitability in all business areas, freeing up cash and allocating fresh capital where we see potential for greatest return. 1) Strengthening our position in low-carbon aluminium We will strengthen our position in low-carbon aluminum, and we have a good starting point, as 70 percent of the electricity used in Hydro’s primary production is based on renewable power. We’re sustaining and improving our facilities, ensuring robustness and competitiveness, while reducing our climate footprint across the value chain from bauxite, alumina and aluminium production to recycling, aluminium extrusions and solutions. We reached an encouraging milestone in 2020 by verifying our Karmøy Technology Pilot in Norway, where we produce primary aluminium with 15 percent lower specific energy consumption and significantly lower greenhouse gas emissions compared with the world average. Many of the same technology elements were implemented in the upgrade at the Husnes aluminium plant in Norway, which is ramping up to full capacity after running at half capacity since the financial crisis in 2009. Lowering our emissions enables us to further develop our low-carbon aluminium products, and we are seeing promising traction in the market for Hydro REDUXA and Hydro CIRCAL. We expect sales for Hydro REDUXA and Hydro CIRCAL to continue to grow, as customers and consumers are demanding and increasingly willing to pay for low-carbon and circular products and solutions. 2) Diversify and grow in recycling, renewable energy and batteries As part of our new strategic direction, we will also grow in new areas, including recycling, renewable energy and batteries. The world needs to produce more for less, making recycling a great potential for us. We will build capability to double post-consumer scrap volumes through organic and inorganic growth, with several promising projects in the pipeline. We also want to build on our competence, portfolio and more than 100 years of renewable energy development to become an international renewable energy developer. We aim to go from being an energy off-taker of power to an international renewable energy developer and increase our captive production in wind, solar and hydropower in partnership with others. By merging parts of our hydropower production assets into the new hydropower company, Lyse Kraft DA, in 2020, we secured a crucial part of Hydro’s renewable energy sourcing for the future. Hydro is now Norway’s third-largest power operator. We also see potential in the batteries sector. With capabilities and experience in materials, electrochemistry, energy and manufacturing, and a long-term relationship with European automotive producers, we have a unique opportunity to take a lead role in the rapidly growing battery sector. In 2020 we started construction of a pilot plant for the recycling of electric vehicle batteries, via HydroVolt, a 50/50 joint venture with Swedish Northvolt with a promising future. With the new strategy toward 2025, Hydro has gone from being one long value chain within aluminum, to now pursuing a strategy built on two pillars: low-carbon aluminium and renewable energy. This is how we will create value going forward. Leading the way Based on our DNA as a responsible industrial company for more than a century, Hydro is engaging with a range of international organizations, working to improve industry standards for human rights, transparency and responsible production. Hydro is a signatory to the UN Global Compact and a committed member of the Aluminium Stewardship Initiative (ASI). We are progressing on our work to strengthen local community relations, communities and business partners through education and empowerment where we operate. We also have high expectations to our pioneer tailings dry-backfill method at our Paragominas bauxite mine in Brazil, that will eliminate the need to establish new tailing dams. As a global energy and aluminium company, Hydro is committed to leading the way by creating more for less. With a new strategic direction, we embark on the next chapter in Hydro's history of building industries that matter and creating value by taking a lead role in the green transition. Building on the same foundation that has made us 115 years old, we will continue to build businesses that matter for generations to come. 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