President & CEO Eivind Kallevik and Chair Rune Bjerke's letter to stakeholders in Hydro's 2024 annual report.

The green transition is progressing and aluminium demand from sectors supporting it remains robust. To realize the low-carbon circular economy is not easy, but we consider the green transition a fundamental megatrend. Hydro will make bold moves and is determined to accelerate the green aluminium transition.

Our people are our top priority

Hydro’s most important asset is our 32,000 employees. Their health and safety are our single most important priority. Over the years we have made significant improvements maintaining a consistently low incident rate. In 2024, average Total Recordable Injuries (TRI) per million hours worked was 2.0 compared to 2.4 in 2023. This is the lowest level ever reported in Hydro. Despite our work on fatality prevention procedures and life saving behaviors we experienced a slight increase in the number of high-risk incidents. Tragically, we suffered a fatality at Albras in Brazil in July. We use all high-risk and life changing incidents to learn and change the way operations are performed. Succeeding with Hydro’s 2030 strategy relies on our ability to accelerate and grow while at the same time removing risks and driving our level of incidents to zero.

The wellbeing of our employees is fundamental to our success. Achieving our strategic ambition of pioneering the green aluminium transition requires significant efforts across the organization. While machines, technology, and solutions can be bought, our people remain the key differentiator. Their competence, engagement and wellbeing are essential to Hydro’s competitive advantage.

To strengthen this foundation, we launched a new people strategy in November 2024. This strategy supports Hydro’s overall ambitions by placing leadership, growth, innovation, and belonging at the center - ensuring our employees are well supported and equipped to drive our agenda forward. Additionally, we have a clear roadmap for diversity, equality, and inclusion, reinforcing our commitment to a strong and inclusive work environment. A good work environment leads to better results, and we work systematically to make this a reality.

Growth in challenging markets

In 2024, challenging market conditions created headwinds in meeting our EBITDA targets. We delivered an adjusted EBITDA of NOK 26,318 million, and corresponding adjusted return on average capital employed (ARoaCE) of 8.5 percent, below our target of 10 percent over the cycle. We delivered NOK 10.1 billion from our improvement program since 2018, surpassing the NOK 9.5 billion target set last year. Our commercial initiatives have generated NOK 2.6 billion in value. These initiatives and improvement programs enhance Hydro’s competitive edge and support earnings resilience across economic cycles.

Improved earnings allow for competitive shareholder returns. Since 2019, we have distributed NOK 35.7 billion to shareholders, with a proposal to pay out another NOK 4.5 billion for 2024, representing 50 percent of adjusted net income.

We have worked actively on capital allocation over the past years. Hydro’s strategic agenda continues to guide capital allocation and capital discipline remains a key financial priority towards 2030. Sales of our greener products continued to grow in 2024 despite a sluggish market. We have remained steadfast in our commitment to position Hydro for the long term and have invested almost 40 percent of our total capex over the last year in growth and return-seeking initiatives to continue to execute on our strategic ambition of pioneering the green aluminium transition.

Reaching strategic milestones

The four main pillars of our strategy towards 2030 are stepping up growth investments in Recycling and Extrusions, stepping up ambitions within renewable power generation, executing on the decarbonization road map, and contributing to a nature positive and just transition, while shaping the market for greener aluminium through partnerships.

In 2024, we revisited our strategy to ensure it remains fit for purpose in changing markets. While the core elements remain, we did make adjustments to address challenging market conditions in the battery materials and green hydrogen sectors. As a result, these areas are no longer considered strategic growth priorities, and no further capital will be allocated to them. The strategy adjustments ensure more focused capital allocation to more profitable growth opportunities. Adaptability is key, and we will continue to refine our strategy to stay competitive in a shifting market landscape.

We are committed to execute on our strategy. Important milestones driving the green aluminium transition have been reached in all parts of the value chain and we are well positioned to reach our ambitions for 2030.

Stepping up growth investments in Recycling and Extrusions

Since late 2023, recycling margins have been under pressure driven by both weak end product demand combined with tight scrap markets driven by low economic activity in key segments for scrap generation. Despite short-term challenges, our conviction in the long-term opportunities remains unchanged. We expect growing demand for more sustainable materials, and we see that many customers increasingly value both reliability and responsible value chains.

As customer demand for recycled material is increasing, Hydro is ready to meet this demand with our unique capabilities along the complex recycling value chain. Most importantly, Hydro has developed advanced sorting technology, HySort. This technology, in combination with a diversified product portfolio, allows us to upcycle more complex types of post-consumer aluminium scrap into the highest value products, including advanced and low-carbon recycled offerings.

In 2024, we continued to invest in our core competitive advantages in recycling. On the sorting side, we started commercial HySort operations in Hydro’s Alusort JV with Padnos in Michigan and decided to invest NOK 180 million in a scrap sorting facility at the recycling plant in Wrexham, UK. We continued to further high-grade our product portfolio as we opened our new recycling plant in Székesfehérvár, Hungary, and made the decision to invest EUR 180 million in an advanced specialty recycling plant in Torija, Spain.

In Extrusions we see current market downturns, but we are continuously improving, modernizing, and optimizing the flexibility of our globally leading extrusion network. Staying competitive requires improvement efforts across the network. These efforts are centered around automation, operational enhancements, and procurement excellence.

Managing short-term volatility enables Extrusions to continue positioning for long-term growth with the customers, and three new original equipment manufacturer (OEM) contracts were added to the portfolio during the fourth quarter, accumulating contracts worth EUR 3.5-3.8 billion since the beginning of 2023.

Extrusions is experiencing market share growth through our greener offerings in the marketplace. Hydro CIRCAL has been a tremendous success in the market. This is particularly evident in Hydro Building Systems which has been instrumental in shaping the market for premium recycled materials with our Hydro CIRCAL offerings and now raising the bar for delivering projects containing Hydro CIRCAL 100R.

In addition, we are investing in press and fabrication consolidation. We are confident that these investments will reinforce our competitive edge, enabling Hydro to deliver more value and meet the expectations of the most advanced customers. Execution towards 2030 is driven by increasing improvement efforts and targeted commercial initiatives. Additionally, we see further potential for uplift from planned growth projects.

Executing on our ambitions within renewable power generation

Access to affordable renewable energy has been fundamental for our business for more than 120 years and it is at the core of succeeding with our ambition of pioneering the green aluminium transition. We are working on several routes to secure power at competitive prices for our aluminium operations. Within our hydropower portfolio, important projects in 2024 are the Illvatn pumped storage plant in Sogn and one together with our partner Lyse where we have applied for a concession to upgrade and expand the hydropower plants in Røldal-Suldal, both in Norway.

Together with partners we are developing onshore wind projects close to our Norwegian smelters. Likewise, in the Nordics and in Brazil assets are partly owned by the joint venture Hydro Rein as well as Albras, Alunorte and Paragominas. The aim is to conclude renewable power purchase agreements (PPA) between these projects and our industrial activities, all the time observing prevailing market conditions.

Hydro Rein is an important contributor to Hydro’s renewable growth ambition, and we are pleased to have Macquarie as our joint venture partner since late June 2024. Hydro Rein will be instrumental in supporting Hydro with the energy we need to reduce CO2 emissions.

Advancing our social initiatives and the decarbonization roadmap

We have already reached our 2025 decarbonization targets and in 2024 we hit key milestones on the path to our 2030 and 2050 targets. One of the key drivers of this is the successful implementation of the switch from heavy fuel oil to natural gas at Alunorte, Brazil. In addition to reducing Alunorte’s CO2 intensity, the fuel switch has a substantial positive effect on the plant’s cost position, yielding some USD 160-190 millions in cost savings per year based on forward and spot prices. With the fuel switch and the installation of 120 MW of electrical boilers in 2024, Bauxite and Alumina has reduced its emissions by almost 30 percent against the baseline.

We continue to pursue multiple initiatives to reduce our greenhouse gas emissions within smelting, casting and recycling. In 2024, we started construction of a pilot to test hydrogen at our Høyanger recycling plant, we made an investment decision to build a plasma pilot, based on direct electrification of the casting process, at our R&D center in Sunndal, Norway, and we started to utilize biogas at our casthouse in Sunndal.

Our strategy outlines our ambition to contribute to the global nature positive goal, and we have made progress in several key areas. We are advancing the roadmap for achieving No Net Loss of Biodiversity at our bauxite mine in Paragominas, Brazil. While Brazil remains a focal point, there is also work to be done in other regions. This year, we announced our first no net loss project outside of Brazil, centered around the Illvatn hydropower pumped storage project in Norway.

On our pathway in the green aluminium transition, our goal is that it happens in a fair and just way for the people impacted. Our Just Transition framework is implemented across the company. In 2024, we continued to improve our management of human rights due diligence in our own operations, our value chain and affected communities. We also launched the Just Transition Program globally which has led to more than 30 new projects. The aim of the program is to engage employees and strengthen local support to initiatives emphasizing equal opportunities, local resilience, and education.

Collaboration is an important mean on our way to a just transition. One example is our customer Mercedes-Benz, which signed on as the first commercial partner in the Corridor Project in Brazil. In collaboration with leading NGOs, we are working to deliver social, nature, and climate benefits to the region surrounding the Bauxite Pipeline between Paragominas and Alunorte.

Historic events in the industry have shown that inferior tailings facility management can in the worst-case compromise public safety. The safety of our tailings operations are of utmost importance. We are therefore pleased that in December 2024, we achieved external verification of our Bauxite & Alumina tailings facilities in Brazil, including all Hydro’s facilities in the highest consequence classes, in conformance with the Global Industry Standard on Tailings Management (GISTM) and our International Council on Mining and Metals (ICMM) commitment.

Shaping the market for greener aluminium in partnership with our customers

End-consumers are increasingly concerned about the embedded emissions of the products they purchase. As a result, our customers are responding by shifting their attention towards how aluminium is produced. We expect demand for low-carbon aluminium to outpace overall market demand towards 2030. Our close cooperation with our customers ensures we stay aligned with evolving demand, supported by a decarbonization agenda which is already delivering results. We also work closely with industry associations to ensure standardization and continuous improvements across the whole industry.

Collaborating with customers to develop an early market for our leading products is a crucial element of our strategy. Over the past years, we have entered into strategic partnerships with some of the world’s leading companies. In 2024 we have made big steps towards increasing partnerships.

In July, we signed a long-term agreement that opens for Hydro to deliver low-carbon aluminium for Porche’s vehicle production in the years to come. This business model is a game changer in the aluminium industry, demonstrating how low-carbon aluminium is increasingly perceived as a scarce and valuable resource in the market. We also partnered up with Brompton which launched their line of city bikes with wheel rims made entirely from post-consumer aluminium scrap, in the shape of Hydro CIRCAL 100R. In addition, together with the VELUX Group, we are exploring a potential long-term commercial agreement as they seek reliable access to low-carbon aluminium. We are also working closely with Volvo Group, exploring opportunities for Volvo to adopt low-carbon aluminium, and we have partnered with Siemens Mobility and a national railway company to enable a closed loop recycling solution, integrating post-consumer recycled aluminium into new trains. Further, we are engaged in early stage discussions about material substitution, including moving from copper and steel to aluminium.

Positioned to succeed towards 2030

Aluminium demand is set to increase significantly towards 2050, driven by electrical vehicles, renewable energy, and infrastructure, creating opportunities for Hydro's low-carbon and recycled products. Hydro continue to thrive in a decarbonizing world with certified, traceable, and low-carbon solutions. Hydro is well positioned for its journey towards the 2030 strategy, and we constantly adapt to an evolving geopolitical and macro-economic landscape. Going forward our dedicated employees will continue to push on executing growth, value creation and sustainability through collaboration.

Over the last 15 years, we’ve delivered more than NOK 17 billion in improvements. In November, we launched a new improvement program which is designed to be even more effective and visible on the bottom line. This program is built on three pillars: commercial excellence, procurement improvement and operational improvement. The total target is NOK 6.5 billion by 2030. This program will enable us to continue to invest in our growth ambitions in recycling, extrusions, and renewable energy, while continuing to deliver attractive shareholder returns.

We experience a growing demand of sustainable materials, and partnerships help us position to accelerate greener earnings uplift. Hydro continues to be robust while improving efficiency and sustainability through technology and innovation. We are on track towards the ambitions in our 2030 strategy pioneering the green aluminium transition powered by renewable energy.