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spk01: everyone, and welcome to Hydro's fourth quarter 2023 presentation and Q&A. So we will start off with our CFO, Paul Kildemo, presenting our Q4 and annual results, followed by a Q&A session. If you want to ask any questions during the Q&A session, please write your questions in the chat that you should see to the right on your screen. You can start writing in your questions already now, and I will read them out loud when we come to the Q&A session. But before that, I leave the microphone over to Paul Kildemo. Thank you.
spk02: Thank you, Martina. And good morning and welcome from me as well. It is a pleasure to present both our fourth quarter and full year results with you today. And as normal, we'll kick it off with the key highlights. For the fourth quarter, we reported an adjusted EBITDA of 3.7 billion, 200 million down from the third quarter, on the back of lower sales prices and volumes, partly offset by lower raw material costs and adjusted CO2 compensation. Our reported free cash flow came in at negative 1.5 billion. However, this excludes the proceeds from the Alunorto transaction, which would lift the figure to knock 6.9 billion positive. As macro uncertainty continues and demand weakened in the fourth quarter, we have had strong focus on cash release and margin management. And our dedicated efforts on reducing inventories have paid off. And I'm happy to announce that we have released an additional 3 billion of working capital in the fourth quarter, ending the year with a 7 billion working capital release for 2023, supporting our proposed shareholder distributions. Our robust position is also supported through continuous improvements. And we are happy to report that for 2023, we delivered 400 million above the improvement program target of 8.4 billion, a total of 8.8 billion. The positive traction for greener products, our improved product mix and higher margins and market share growth, and also the addition of energy commercial initiatives in the program resulted in a delivery of 2.8 billion in commercial initiatives, which is also above our annual target. At our Capital Markets Day, which we had in the end of November, we announced that we are stepping up growth in recycling and extrusions to take a lead in the market opportunities emerging from the green transition. And in particular within recycling, we have announced several undertakings supporting our growth ambitions to increasing capacity and securing scrap. By the end of 2023, We have already achieved our 2025 targets, and we are progressing well towards our 2030 ambitions. And as the value of reducing our footprint increases, it is good to report further progress on our carbon reduction goals. The floating storage and regasification unit, the FSRU, with natural gas to replace heavy fuel oil at Alunortje, is now just days away from the harbour in Barkarena. And this is one of several key developments this quarter. On the back of robust financials and all the improvement initiatives undertaken, the Board has proposed a cash dividend distribution of 59% of adjusted net income from continuing operations to hydro shareholders, amounting to 5 billion kroner, or 2.5 kroners per share. A new 2 billion krona share buyback program will also be proposed, which results in a total distribution of 81.5%, which is well above our 50 to 60% guidance at our Capital Markets Day in November, but in line with our overall policy. And this is enabled by a strong operational capital release. Finally, during 2023, all business areas, except for bauxite and alumina, delivered returns above their cost of capital, despite more challenging markets. And over the last five years, the adjusted ROACHA has been 11%, which is above our target of 10% over the cycle. However, for 2023, the adjusted ruacha ended at 7.1% for the year, which is influenced by high growth and return-seeking investments in the year, as well as challenging alumina market conditions. And the same challenging aluminum market conditions in the short term, but also our expectations for the medium term, as well as long-term power price insecurity for our partly owned Tomago aluminium plant in Australia, resulted in a total impairment of approximately 4.9 billion for the quarter. And on that latter note, let us move over to the aluminum market. It has been quite an eventful quarter on the alumina market side. The Platts alumina index has traded in a narrow range between $326 per metric ton and $339 per metric ton until the last weeks of December, when the Pax rallied upwards and ended the quarter at $350 per metric ton. This increase was driven by higher Chinese aluminum prices due to temporary Chinese refinery curtailments, as well as concerns around bauxite shipments from Guinea, which follows an explosion at the main country's fuel depot in Conakry on the 18th of December. Domestic bauxite supply in Shanxi and Henan provinces in China has been limited by various environmental and safety audits of some mines, which has forced some refineries to cut production, thus also supporting the tightening of the market and pushing prices upwards. Temporary alumina production restrictions because of heavy pollution also occurred, which cuts supplies further. By some estimates, more than 2 million tons of refinery capacity has been curtailed recently. If we then look into the next quarter, and in light of the recent events, the POCS has continued to move upwards from the end of December and has now stabilized around $370 per metric ton. For some time now, we have said that the alumina price has not reflected the marginal cost of production, and 2024 started with the announcement of a sizable industry curtailment, which will take place from Q2 2024. This will tighten the global alumina market, which could be slightly undersupplied this year, according to CRU. The impact of the fuel shortage in Guinea on bauxite production and shipments remains an uncertainty and could provide a risk to Chinese aluminum production for the year. If we then move over to the aluminum market, this continues to be impacted by the general macroeconomic uncertainties, and we continue to see a large sample space of macro outcomes for 2024. The three-month LME price increased through the fourth quarter of 2023, starting at $2,321, ending up at $2,384, which was impacted by the sanctions against Russia implemented by the UK, as well as the rumors regarding possible further sanctions by the EU. These events led to market players dumping even more Russian metal in the LME warehouses, driving the share of Russian aluminium to an all-time high, also confirmed by reporting yesterday, at 90%. And we continue to believe that it is challenging that the LME market is based on Russian metal with a large share of self-sanctioning among producers and customers. And we continue to call upon the EU, the US and other G19 nations to expand sanctions beyond tariffs. If we look at the global balance, external sources estimate that the surplus for 2023 for World X China was 1.6 million tons, while China was in 1.2 million ton deficit, leading to a net total global surplus of around half a million tons. We expect this balance to tighten during 2024 in the base case, with current estimates for World X China of 1.4 million tonnes in surplus and deficit in China of 1.3 million tonnes, which suggests a largely balanced market for aluminium. The part of the market which is most negatively impacted is building and construction. And we've seen demand falling around 50% in 2023. And we know that BNC accounts for 20% of global semis demand and an even higher share of global extrusion demand. And the result of this is a demand for billets have declined dramatically, with around 15% decline in 23 versus 22, and also an expectation for 7% decline in the first half of 2024 in Europe and North America. So the drop in billet demand translates to a fall in extrusion ingot premiums, which creates margin pressure for recycling operations. If we take a simplified proxy for recycling margins, it is to look at the margin between the billet and the standard ingot, where the weak market demand has driven down product premiums since the end of 22, with the e-extrusion ingot declining proportionally against the standard ingot, leading to a very large margin squeeze. The current margin level of approximately $100 per ton can be compared only with the level that we experienced in the beginning of the COVID pandemic. And we can also see clearly that the current margin is significantly below the average margin in the period from 2010 to 23. And even if we normalize for the exceptional 2022, we are still at least $100 per ton below that level. And as recyclers are often the swing capacity in the billet markets, a lot of recycling capacity is being curtailed, including our own, with current capacity utilization level of 57%. This also compares only with the levels of the same period during the pandemic, when we had frozen supply chains and demand dropped drastically. This level is also significantly below our average utilization ratio since 2020 at around 91%. Although we do remelt some standard ingot to billet or use as sweetener, we use primarily process and post-consumer scrap, with the latter to an increasing extent, around 440,000 tons in 2023. And on the graph on the right below here, you can also see the scrap price development since the end of 22. And while the clear trader scrap has declined more in line with the full price in price for billets, the old rolling scrap, for example, has remained flat and even slightly higher over the time period. And this is a result of the reduced activity, especially in building and construction, which, as I mentioned, is down 50% in 2023, leading to lower scrap generation and also more sticky scrap prices, depressing the fur margins further. This is also impacted by scrap finding its way out of Europe, for example. When we look into 2024, we expect continued squeezed margins until we see an increased activity in the building and construction sector, and also demand increases as a result of this. So in this market environment, we continue managing the short-term market uncertainty by adjusting to the demand developments with the same levers that we have utilized over the latter quarters. However, the key highlight for this quarter is the strong focus on inventory reductions with, together with seasonal and transitional divestment effects, partly offset by higher CO2 compensation, freed up around 3 billion in operating capital, which brings the full year figure to around 7 billion. And while we expect a significant increase in the first quarter on seasonality, we will continue the strong focus on inventory and capacity management. And we intend to keep the level of working capital stable at around 28 billion at the end of 2024, which is in line with our guidance from our Capital Markets Day in November. We just managed to take the operating capital out a bit earlier than what we estimated there. Being resilient starts with having a robust position on the cost curve. And we have a long track record of increasing and delivering on targeted improvement programs. We set a target for 8.5 billion for 2025 back in 2020, and we have delivered 300 million above this target already now in 2023. Across the different business areas, fixed cost reductions and procurement savings have been the strongest drivers for achievements during the last year. And by rolling out best practices, investing in tools and raising capabilities, procurement alone has contributed with 200 million in 2023. And an additional 1.4 billion is targeted by 2030, which means that procurement is our largest improvement category going forward. From our improvement target in 2023, we also have 5.2 billion in additional ambitions, which will be delivered towards 2030. And here, the main levers are also procurement, which will contribute along with operational excellence and fixed cost improvements. This also includes around 3 billion in digital initiatives, with 1 billion of these not transferred to the traditional cost buckets, which you see here. We have ramped up our internal digital transformation office to ensure higher speed and increased value realisation from digital enablers across commercial, fixed cost and operational parameters. Within commercial initiatives, we have pursued market and customer driven growth opportunities, including developing the greener premium market in 2023. Also here, we are delivering above our target with a total of 2.9 billion contribution in 2023, primarily driven by the fact that we've included hydro energy's commercial improvements in the program, which contribute with 400 million for the year. Lastly, and most excitingly, as announced on the Capital Market Days in November, we have our ambition for greener premiums with a potential of 2 billion by 2030, given the current green premium pricing environment. And with all of this, we target an additional 3.3 billion in commercial improvements by 2030. So our robust positioning enables us to balance the short-term challenges, but at the same time not lose sight of the longer-term opportunities and to further enhance positioning and resilience in the world which is in transition. And as we announced that our capital market stays in November, we are shifting gears to capture opportunities in this new reality. Towards 2030, we are stepping up growth investments in extrusion and recycling and heightening ambitions in renewable power generation to ensure that we have affordable, renewable energy throughout the aluminium value chain at attractive returns. In addition, we remain committed to forcefully executing on our decarbonisation and technology roadmap actively contributing to nature conservation and a just transition, and collaboratively shaping the market for greener aluminium in partnership with customers. During the fourth quarter, we have taken several strategic steps towards delivering on these ambitious 2030 targets. We have made a lot of progress the last quarter on the targeted recycling EBITDA of 5 to 8 billion by 2030, including building, expanding and upgrading recycling facilities. The Greenfield Recycler Hydrocarsopolis in Michigan, U.S. was officially opened on the 16th of November, aiming to supply aluminum and hydrocylcal to the automotive and the U.S. market. We expect to produce 120,000 metric tons of aluminum extrusion per year at the site, consuming around 40,000 tons of post-consumer scrap. And while being the third greenfield recycling plant we have built in the United States, this is the first designed to produce HydroCircal. Based on a similar blueprint, we have also made an investment decision for another greenfield recycler in Torija, Spain. This has an estimated investment cost of around 180 million euros. And the new recycling plant is designed to produce 120,000 tons of low-carbon recycled aluminium per year and will consume a bit more than Karlsopolis, 70,000 tons of post-consumer scrap, giving it an even higher Zircal capacity. If we include invested and installed post-consumer scrap capacity on top of 2023 usage of 444,000 tons, we are well within our set out 2025 targets of 520 to 670,000 tons of post-consumer scrap, which is strongly supported by Kasopolis, but especially the 2023 transaction of the Polish recycling company Arlumetal. For Alumetal, the integration process is well underway to deliver on a target of 10 to 15 million euros in annual synergies towards 2027, especially by utilizing the best of both Hydros and Alumetal's sorting technologies to utilize cheaper scrap types as well as widening the product offering in the low carbon and scrap-based foundry alloy market. A further contribution towards post-consumer scrap targets is the recently announced joint venture with Padnos, which enables an upcycling of an additional 20,000 tonnes annual PCS by industrialising Hydro's preparatory sorting technology, HiSort, bringing this advanced aluminium sorting technology to the US. Together, Hydro and Padnos plan to install a high-sort sorting machine at Padnos' existing sorting hub in Granville, Michigan. Despite the margin pressure for recycling in recent months, and especially supported by the Arlo Metall transaction, the 2023 EBITDA amounted to $2.9 billion, delivering well within the 2025 target of $2.6 to $3 billion. During the fourth quarter, we have also executed well on our carbon reduction goals across the whole value chain. Targeting 30% reduction in carbon emissions by 2030 is primarily driven by fuel switching and boiler electrification at the Alunorcha alumina refinery, moving Alunorcha to one of the lowest carbon smelter grade alumina qualities available. The FSRU, carrying natural gas to replace heavy fuel oil at Alunortje, is only days away from arriving at our harbour in Barkerena. While decarbonising alumina gives large impact in the short term, our two technology paths to zero for primary aluminium could change the industry in the long term. We have approved the construction of a test facility at Haerea in Norway for our carbon-free Hall Zero electrolysis technology. And we are proud to be recognized as an energy transition changemaker for pioneering the green aluminum on the climate change conference in Dubai, COP28. From smelting, we move to casting and recycling, which requires high temperatures and is an energy-intensive process, which today is hard to achieve without fossil energy in the form of natural gas. However, in January, we announced testing of emission-free plasma technology in the cast house at Sundar. New plasma technology could enable electrification of the process using the same renewable energy that powers our primary smelters, and we aim to cast the first aluminium with near zero emissions from the casthouse at Sundal in the fourth quarter of 2025. This is one of three pathways to zero in the casthouse, where we are also piloting both hydrogen and biomethane as other alternatives. We were also very pleased to announce that as of January 24, we can deliver hydro-circal recycled aluminium with a documented carbon footprint of 1.9 kilos of CO2 per kilo aluminium, which is down from previous 2.3 kilos. This is achieved through advances in sourcing, sorting and traceability of post-consumer aluminium scrap, increasing the uplift potential for our greener aluminium portfolio. To further strengthen the commitment to decarbonisation targets and shaping the market for greener aluminium at premium pricing, we have joined forces with the world's leading global companies through the First Mover Coalition in December at COP28. We will take the FNC aluminium sector commitment via our exclusion business, committing to at least 10% by volume of all primary aluminium procured externally annually, being near zero emissions by 2030. We have also qualified as a member of the First Mover Coalition New Green Supplier Database with our Hydro Reduxa 3.0 with a footprint of 3 tons of CO2 per ton of aluminium compared to the global average of 16.7. And we are one of only two companies in the aluminium industry that is part of this database today. Also at COP28, we announced a strategic partnership with the Volvo Group to enable the global transport manufacturer to reach its 2040 target of delivering net-zero vehicles. And all of this will contribute to our 2 billion in greener premium earning uplift potential as we further develop and offer industry-leading products. The world is demanding greener aluminium, and we will continue to deliver and capitalise on this opportunity. And an enabler to produce more low-carbon aluminium is access to renewable power, and we have a project portfolio with robust return potential within hydro energy. We and Lyse have applied for consentions for five new hydropower stations in Røldalsulda. An upgrade and expansion of the current plants could give a gross 800 gigawatt hours increased annual power production and 650 megawatts increased capacity. If this is successful, we are looking at a NOx 7 to 8 billion investment potential on a 100% basis to more than double today's capacity and building to potentially start in 2027 at the earliest. Hydro Rhine has also recently signed a cooperation agreement with Ordal Energi in Norway to develop renewable projects in Ordal. And when it comes to Hydro Rhein, then Macquarie Asset Management are still in the process of raising capital for the transaction, and the expectation is for closing in the second quarter. On the regulatory side, in December 2023, the Norwegian Parliament reached an agreement on the implementation of a resource rent tax on onshore wind power. The effective tax rate is set to 25% with effects from the 1st of January, 24, which is down from the previous suggested 35%. And the level here is a crucial contributor for triggering sufficient investments to ensure adequate supply of power for our industry and the green transition. Let's then dive into the detailed results. We will start with the full year results, and there we saw a significant decline in adjusted EBITDA of NOK 7.4 billion. The major driver behind the decline is lower upstream prices, where the challenging overall economic conditions and weaker demand has impacted both aluminium and alumina prices. And these, in combinations, impacted the results negatively by around 16.2 billion. On the positive side, we saw lower raw material costs driving the results upwards by 2.1 billion in line with the global trend in commodity prices. Furthermore, we saw stronger extrusion margins contributing positively with 1.6 billion. However, those were more than offset by lower recycling margins and knocked 3.1 billion effect of lower volumes again, both in extrusions and recycling. We also saw an increase of overall fixed costs across all BAs of 1.6 billion, mainly driven by inflation, and also the new business units in hydro energy. Our currency exposure supported the results by around 3.5 million, driven mainly by a weakening knock against the dollar on the year as a whole. And the last bucket in the bridge here is, as always, a combination of many things. But the most significant is the negative Slavalko effects related both to power sales and the curtailment in total 3.4 billion. And furthermore, we have several pluses and minuses like upstream volumes and commercial results netting each other out, leaving around 800 million negative in other and elimination effects. When looking at the results for the fourth quarter versus the third quarter, we see similar trends as for the year as a whole. The realized prices are again a major driver behind the lower EBITDA with around 700 million per krona impact. The lower downstream and midstream volumes impacted the results negatively by another 500 million, and the quarter was also impacted negatively by increasing fixed and other costs of around 700 million. And the major areas impacted by the cost increase were aluminium metal and B&A, in line with our guidance from last quarter. On the positive side, we saw a raw material cost release of around 600 million and positive currency effects of 300 million. And the major drivers behind the cost release were driven by carbon cost release in aluminium metal and mainly costly cost release in bauxite and alumina. In other, the CO2 compensation stands out due to the negative correction we had last quarter and the additional approximate 200 million allocation by the Norwegian government in the fourth quarter. This, in combination with the correction made in Q3, gets us to around 800 million. And also, the last quarter, we're impacted by the Tear Pass Peace Houses, and we need to adjust this out as it doesn't come again, and this gives a positive effect of 500 million. The final 400 million is mainly related to the lower commercial results in metal markets and the other, an elimination line. And this leads us again to the 3.7 billion EBITDA for Q4. If we then move to the key financials for the quarter, then compared both with last year and last quarter, we saw an increase in revenue of 6% to NOC 46.7 billion. And the positive revenue developments are mainly driven by positive realized and unrealized effects related to HEDO's strategic hedging program. For the quarter, there was around 940 million effects adjusted out of EBITDA, which includes mainly unrealized derivative effects from the higher LME price at the end of the quarter, impacting our strategic hedging positions of around 1.2 billion, which were partially offset by unrealized derivative effects on power and raw material contracts and some other smaller effects, bringing us again to the 3.7 billion in EBITDA. If we move down the table, then we recorded adjusted depreciation and amortization and impairments of around 6.9 billion in the quarter, which results in reported negative EBIT of 2.2 billion. The depreciation expense is around 2.5 billion, and the remaining 4.4 is the impairment of non-current assets related to BNA and aluminium metals. The impairment is adjusted out of the results, giving an adjusted EBIT of 1.2 billion. Financial expenses of 260 million for the fourth quarter includes 150 million in currency gain, primarily reflecting a gain on dollar borrowing in Brazil due to the weaker dollar against PRL, which is offset by a higher interest expense. Then we also have an income tax expense for the quarter amounting to 258 million. And the quarter was mainly impacted by power surtax and the fact that the goodwill impairment does not impact the tax expense, as well as losses in countries where the fair tax assets are not recognized. Overall, this provides a negative net income of 2.7 billion, down from positive 158 million in the same quarter last year, and down from the negative 625 million in the third quarter. Adjusted net income was 754 million, and consequently, adjusted earnings per share was 0.5. Let's then move into the business areas and start with bauxite and alumina. Adjusted EBITDA for bauxite and alumina increased from 101 million in the fourth quarter last year to 401 million in the fourth quarter this year. And this was driven mainly by lower caustic and energy prices. This was partly offset by the stronger BRL against the dollar, somewhat lower bauxite production in the quarter, and higher fixed and other costs. Compared to the third quarter of 2023, the adjusted EBITDA increased from 93 million, mainly driven by lower caustic prices, at around NOK 300 million. This was quite a bit above what we guided for last quarter, and that was due to lower fuel oil prices than expected. In addition, there were positive currency effects, and we don't have any fourth quarter peace house expense. and these elements were slightly offset by weaker alumina margins in our commercial operations. Fixed and other costs increased compared to the third quarter at guided levels around 300 million due to plant and also some delayed maintenance which took place in the fourth quarter. For the first quarter, Alunorche is expected to be producing around nameplate capacity. The increased alumina price will have a positive impact on our results in the first quarter, and we expect the raw material development into the first quarter to be largely stable, and the same also applies for fixed and other costs. If we then move on to aluminium metal, then this quarter's adjusted EBITDA decreased from 4.8 billion in fourth quarter 2022 to 1.9 billion this quarter. The decrease is mainly driven by lower all-in metal prices, reduced contributions from power sales and lower sales volumes, and partly offset by reduced raw material costs, adjusted CO2 compensation and positive currency effect. The CO2 compensation effect year over year is amounting to a positive 500 million, but part of this positive effect is the additional allocation of 200 million after the final fiscal budget was presented in December 2023. Compared to the third quarter of 2023, adjusted EBITDA for aluminium metal increased from 1.4 billion due to lower raw material costs, adjusted CO2 compensation and positive currency effects, partly offset by lower oil and metal prices and higher fixed costs. The raw material cost release was around 400 million, and this was at the lower end of our guidance. However, we continue to see that release stretch into the next quarter, mainly impacted by carbon cost and our contract structure on carbon. Fixed costs were a bit higher than initially guided, around 200 million, but we expect parts of that to be reversed into the next quarter. So this resulted in a net cost release of around 200 million, somewhat lower than what we guided. And this brings us on to guiding for the next quarter, because while the LME has peaked slightly since Q4, we continue to see pressure on value-added premiums for the coming quarters. For the first quarter, we have booked 67% of primary production at $2,255 per ton, and this includes the effects of our strategic hedging program. We have booked 46% of premiums affecting Q1 at $373 per ton, and we expect to realize premium in the range of $275 to $325 per ton. With respect to the CO2 compensation, our guidance for 2024 remains the same as from the Capital Markets Day, and we expect a total CO2 compensation booking for 2024 of around 3.2 billion, implying 750 to 850 million per quarter. The cash inflow for this is as always expected in the first half of the following year, 2025. We also expect further reduction in raw material costs driven by carbon, partly offset by alumina, giving a total raw material cost reduction of 100 million. And we will continue to monitor the demand developments, but currently we do not foresee any restarts of curtailed primary volumes next quarter. If we then move to metal markets, then adjusted EBITDA for metal markets increased in the fourth quarter from a negative 91 million last year to negative 38 million this year. This is mainly due to increased results from sourcing and trading activities, positive inventory valuation and large currency effects. These, however, were partly offset by lower recycling results, around 300 million lower compared to the record-strong results in 2022. The premiums decreased in a weakening extrusion ingot market, while the ingot and scrap price reductions were comparatively lower than what we saw on the billet side throughout the year. In addition, we have negative effects related to the ramp-up of Kasopolis and some minor run-offs in Alumentar. Excluding the currency and inventory valuation effects, the result for the quarter was 36 million, negative 36 million, down from 160 million in Q4 2022. And compared to the third quarter of 2023, adjusted EBITDA for metal markets decreased from 568 million, mainly due to the lower results from recyclers, decreased results from sourcing and trading activities, which also includes impairments, which will be reversed through hedges in the next quarter, as well as negative currency effects, which were partly offset by positive inventory valuation effects. The outlook for the next quarter continues to be challenging, as we expect the recycling margins continue to be squeezed on fallability premiums and low scrap availability, keeping margins low. We also continue to expect negative effects from the ramp up of Cosopolis until we start selling volumes and getting the revenue side to compensate for the cost side. We expect the recycling margins to improve towards normalized levels with time, but this is to be tied to the improvements in the building and construction markets, which are not expected to come in the first half of this year. Normally, we see that standalone remelters are the marginal price setters for the Extrusion Ingol premium. However, currently, it is the primary cost houses setting the price. And with $100 per ton spread above standard ingot, this is not a sustainable situation for standalone remelters. An average historical spread, adjusting for higher energy prices and other inflation, is probably closer to $250 to $300 per metric ton. But we don't just sit and wait for better margins. We continue to closely manage the metal margin. We are digging deeper into the scrap pile. We are utilizing dirtier scrap types and we are securing access to scrap as well as differentiating our product portfolio and market segments, driving the greener premium to increase our counter cyclicality in this business area. All those measures have proven their effectiveness so far, and we expect that next quarter will be no expectation. This we will continue to drive for the coming years. For our commercial area, we expect positive contributions from sourcing and trading activities for the next quarter and a reversal of impairments from the fourth quarter as we account for positive hedging effects. If we then move to the end of the value chain, then the extrusion demand also remained challenging in both Europe and North America in the fourth quarter. European extrusion demand is estimated to have decreased 14% in the fourth quarter of 2023 compared to the same quarter last year, but increased 3% compared to the third quarter of 2023 as market demand has started to stabilize, although at low levels. Demand growth for residential building and construction and industrial segments have continued to remain negative due to macroeconomic headwinds, while demand for automotive has been performing relatively better, supported by increased share of electrical vehicles as share of total auto registrations. Overall, European extrusion demand is estimated to have decreased by 17% in 2023 compared to 2022. If we look into the first quarter of 24, then CRU estimates that the European demand will decrease 10% compared to the same quarter last year due to continued softness in building and construction and more moderate automotive demand. The demand is expected to continue to stabilize over the next two quarters and pick up from the second half of 24. However, 24 as a whole is expected to be flat year over year in Europe. If we move over to North America, then exclusion demand is estimated to have decreased 9% during the fourth quarter of 2023, compared to the same quarter last year, and 7% compared to third quarter of 2023. Also here, demand continues to be weak in the residential building and construction sector, while demand is still positive in the automotive segment. At the same time, though, lower trailer build rates have started to negatively impact demand in the overall transport sector. So for 2023, the extrusion demand is estimated to have decreased by 13% compared to 22% in North America. And CRU estimates that the demand for extruded products in North America will decrease also 10% in the first quarter of 2024 compared to the same quarter last year, mainly due to continued weak development in BNC and the transport segment. Also in North America, Q1 and Q2 are expected to decline year over year, and they pick up to materialize from the third quarter. If we look to our volumes, then hydro extrusion sales volumes declined 11% in Q4 compared to the same quarter previous year. Our transport volumes have been negatively impacted by weaker shipments to the truck and trailer markets in the US. And this quarter, we also see that automotive sales have been moving into negative growth territory in both Europe and the US, driven by moderating productions at some OEMs. Growth for sales volumes in BNC and industrial segments is still negative, but overall volumes and orders have started to stabilize on the low level. HVAC and R volumes in precision tubing is experiencing strong growth supported by the transition from copper to aluminium. And for the first quarter of 24, we expect lower volumes or slightly lower volume developments for our North American extrusion business compared to the market as a whole, also due to our truck and trailer exposure. Whereas in Europe, we expect to be largely in line with CRU expectations. Now, with that in mind, let's take a look at the fourth quarter results for exclusions. And here, I am pleased to report that despite the 11% fall in sales volumes year over year, we keep our adjusted EBITDA largely stable as we are able to offset the lower volumes and higher variable costs with higher sales margins. We are also helped by some positive currency and metal effects in the quarter. If we compare to the third quarter, adjusted EBITDA for exclusion decreased due to seasonally lower sales volumes and higher variable and fixed cost, but also here partly compensated for by stronger sales margins. If we look into the first quarter for exclusions, we should look towards the same quarter last year to capture the seasonal developments in exclusion. But compared to last year, we expect somewhat continued strong margins, But we expect the margin development year over year to be lower compared to what we have seen in previous quarters year over year. And as we have touched upon, we expect continued market uncertainty, soft extrusion markets in both Europe and North America, which results in lower sales volumes compared to last year. And also for extrusion, remelt margins continue to be under pressure. And we combine this with higher fixed and variable costs, we expect that the negatives for Q1 will more than offset by the positives in the first quarter by quite a bit. The final business area is energy, where the adjusted EBITDA for the third quarter decreased to 805 million compared to 1.5 billion same quarter last year. The main drivers behind the weaker results were lower prices and lower gain on price area differences, partly offset by higher production and no loss on internal contracts. The difference in the price area gain year over year was approximately 250 million. If we compare results to the third quarter, then adjusted EBITDA increased by 43 million from 762 million, mainly due to no loss from the AM buyback contract. We also had higher production and net spot sales, partially offset by lower price area differences of around 150 million. In the fourth quarter, our external power sourcing volumes continued to be affected by a disrupted delivery of volume from a long-term power purchase in Markbygden, Sweden, and the non-delivered volumes were half a terawatt in the quarter, amounting to 1.3 terawatt hours year-to-date. We will continue to see compensation for the non-delivered volumes and keep you updated if something changes here. If we look into the next quarter, then as always, we should be aware of the inherent price and volume uncertainty in energy. Power prices in southern Scandinavia are expected to decrease. However, the below normal snow reservoirs might limit some of the downside. Furthermore, we expect lower price area differences, resulting in 50 to 150 million. And last quarter, these results were at around 308 million. Let's then move to one of my favorite slides for the quarter. The net debt decreased by 4.2 billion from the third quarter. And based on the starting point of 13.8 billion in net debt from Q3, the positive contributions for third quarter were the generation of 3.7 billion in adjusted EBITDA, as well as the total release of net operating capital of 2.7 billion. Under other operating cash flow, we have a negative NOC 3.1 billion, mainly driven by cash outflow for taxes of NOC 3.5 billion, partially offset by dividends from equity-accounted investments of around 400 million. On the investment side, we have net cash effective investments of 4.8 billion, resulting in a total for 23 of 21.1 billion, where CapEx payables bridges the gap to our annual guidance from CMD of 22.5 billion. We expect the difference this year to be spent in 2024, but of course, for the year as a whole, that will pen the status of payables at the end of the year. As a result, we have a negative free cash flow from operations of 1.5 billion in Q4, which excludes the Alunorto transaction as it is fully consolidated in our books and comes in as a minority sale share with 8.4 billion. We have also finalized the market share of our 23-24 share buyback program, and the outflow relates to those transactions for Q4 of around 900 million. Finally, we also have around 400 million in new leases related primarily to our execution operations. If we then move to adjusted net debt, we start by adjusting for the following items. Hedging collateral and others has been stable since Q3 and comprise mainly of 1 billion in collateral related to short-term operational hedging positions and half a billion of committed cash on escrow accounts for Albra's investments in self-producer energy projects in Brazil. During the fourth quarter of 2023, net pension assets of 0.3 billion have turned into net pension liabilities of 0.9 billion. This is mainly explained by a $0.7 billion increase in defined pension benefits assets, coupled with a $0.7 billion increase in long-term defined pension benefit liabilities. And finally, we have further increase in other liabilities of 2.1 billion since Q3 2024, mainly due to financial liabilities of 2.2 billion towards Glencore following the sale of shares in Alenorcha, which includes earn-in, deal delay and other developments on indemnities, of which around 800 million are short-term liabilities expected to be paid in 2024. With these adjustments, we end up with an adjusted net debt position of 18 billion at the end of the fourth quarter. So a healthy working capital release in combination with a robust balance sheet enable us to deliver on our ambition to deliver solid distributions to our shareholders. At our capital markets day, we guided for a total shareholder distribution of 50 to 60% of adjusted net income. This was based on an estimated adjusted net income for a year and our ambition to distribute up to 25 billion in adjusted net debt. This also reflects that we're coming from a more mid-cycle earnings. With the additional working capital releases, we are enabled to extend the distribution further to 81.5% of adjusted net income from continuing operations. And in line with this, the Board of Directors has proposed a distribution to shareholders of 7 billion, where the distribution will be split between an ordinary dividend of 2.5 kroners per share and a share buyback program of 2 billion kroner. The dividend represents a 59% cash distribution, a year-end yield of around 3.7%, and a five-year average payout ratio of 74% of adjusted net income. As always, the final distribution for 2023 is subject to approval by the Annual General Meeting on May 7, 2024. Let me then round off the total presentation with some final reflections on our priorities going forward. The health and safety of our people and the people who work for us is our number one priority always. We are in the midst of a more uncertain and volatile macro environment, and we will continue to address this, meeting the challenging markets with firm mitigating measures and a more robust and resilient portfolio following the strategic measures that we have undertaken in the latter years. At the same time, we are not losing sight of the long-term opportunities for low-carbon aluminium. And to meet the increasing demand for low-carbon aluminium, we are determined to push forward and deliver on our growth ambitions for recycling and extrusion, all while advancing our renewable energy portfolio and enabling and delivering on our decarbonisation and technology roadmaps. Every day, we see potential for further value creation in the low-carbon aluminium space, as our customers' appetite for greener aluminium at premium pricing continues to grow. And by joining forces on the road to zero emissions, we are not just shaping the market, we are changing the aluminium game. And with that said, I would like to say thank you and hand over the word to you, Martina.
spk01: Thank you so much, Paul. Then we are ready for a Q&A session. As a friendly reminder, if you want to ask a question, you can write your question in the chat that you see to the right on your screen. I think we already have quite a lot of questions in the chat, so let's get started. First question is from Liam Deutsche Bank. Two questions here. One, please provide some guidance on extrusions EBITDA for quarter one in comparison to the same quarter last year. And two, at spot premiums, where do you expect Q2 realized premiums to move to above quarter one levels? Question mark.
spk02: So if we start with the question on extrusions, it's a challenging market environment to guide in because our ability to see beyond the short term is limited. As we have seen in earlier times, we have big falls in demand. As I mentioned in my presentation, we expect to be able to continue to improve margins in the first quarter, but to a much lower extent than what we've seen year over year in the previous quarters. And this will be more than compensated by a lot of other more negative elements. Remelt will decrease quite a bit in the first quarter. As you know, in North America, we typically have annual contracts. So there you get more large impact from a fourth to a first quarter. Whereas Europe, we've seen a general decline in recycling contribution also in extrusions. We expect our volumes to fall in line with what we've seen in the marketplace so far. So around the 10% mark, a bit worse in North America, maybe a bit better in Europe. And we're not able to shift volumes to the same extent as we've been earlier. Although automotive demand is still strong, it's not so strong that we're seeing a lot of additional capacity. And then, exclusions is labor-intensive operation, so we will see an increase in fixed costs and variable costs into the first quarter. And all of these elements are expected to offset the improvement we see on the margin sides quite significantly. The second question is on the realized premiums. As I went through, we guide for around $275 to $325 per ton for the first quarter. This carries with you some of the higher premium level that you saw in the fourth quarter. If you run premiums at spot levels today, you are actually in the middle of that range and quite flat from our guidance in first quarter. But this is developing by the day, as you've probably seen. Exclusion billet premiums have picked up a bit lately, but it remains to be seen what is driven by supply chain constraints and what is driven by low inventories and what is driven by any signs of movements in demand.
spk01: And then we have a question from Sri, RBC. Given the recycling business is close to break-even, have you considered curtailing further capacity, and how should we think about 2024 recycling EBITDA?
spk02: This is perhaps even a more challenging question than what we believe about extrusion next year, because we are in careful to say, but slightly unprecedented territory when it comes to the margins we are seeing now. Apart from COVID, we don't see many periods where building and construction demand falls 50% year over year. So as you correctly referred to, Sri, doesn't make sense to run a lot of standalone remelters in the current market. And that is what typically happens when billet premiums fall. You curtail that capacity, which is easier to swing with the market demand. So when you look at the current premium spreads and spot prices, there's not a lot of recycling earnings in Hydro as a whole. I think you could easily see a scenario at spot pricing where you're moving between the, let's say, 500 to 1.2 billion krona mark price. But as I mentioned earlier, these levels are not sustainable over time, and we expect the margins to pick up again once demand returns in building and construction. So we will continue to adjust capacity in line with demand. As you saw from our slide, we have 57% capacity utilization, which is low, and we will not run reseclers if it doesn't make economic sense. What is good in our portfolio is that given our strategy on scrap sourcing, moving deeper and deeper into the scrap pile, given our strategy on building the greener premium portfolio, our recycling portfolio stands better than the industry in average. So we are able to continue to have at least cash positive margins longer than the industry in average. So this we will continue to follow up and adjust on a daily basis.
spk01: And then we have a question from Janice Morgan Stanley. How do you see metal markets recycling profitability in Q1? And can you provide any indication on working capital for Q1 2024?
spk02: Unfortunately, recycling profitability in Q1 doesn't look much stronger than what we've seen in Q4 as it stands today. The margins continue to be low. We haven't seen that spread move a lot. And we have somewhat higher ramp-up costs in Kassopolis in the first quarter than in the fourth quarter. So I expect them to be around what we saw in fourth quarter. you know this is short-term markets so things can can change quite quickly if the sentiment becomes more positive especially because inventories are at the level where they are now but this is at least the the base case and then we have another question from us rpc which project segment segments are you considering to deploy the one billion knock optional capex in 2024 Well, as the year progresses, we will see how our earnings develop in general. The market environment hasn't been stronger than what we discussed at Capital Markets Day. So we would need to see a good pickup from what we see today in order to allocate more capital. But in general, the capital is earmarked towards our strategic growth area, where recycling and extrusions sits on the bulk of that.
spk01: And then we have another question from Janne S. Morgan Stanley. Can you quantify the Cassapolis ramp-up cost in Q4 and Q1?
spk02: I would say around the 40 to 60 million kroner mark.
spk01: And then we have another question from Sri RBC. After three months of decrease, aluminium premiums in Europe, Rotterdam, have moved up 30% month-on-month in January. Are you seeing any green shots in the month?
spk02: This is the most common question I ask the sales organization, and I hope to get the answers to in the positive way. If we saw strong green shoots or something worth mentioning, I would have said so already. There are always stories of green shoots here and there, but I don't want to tie that to a shift in sentiment or anything else until It materialized to a larger extent than what we're seeing now. So there are suddenly high spot purchases at very good premiums because inventories are low. And we are seeing a better market situation in North America than, for example, Europe. North America is surprising us a bit on the upside, whereas Europe is surprising us a bit on the downside. But at the moment, it's too early to call a good shift.
spk01: And then we have a question from Anindya Mohinta. Can you please give us a clear CAPEX guidance on 2024? It looks like you're guiding at 17 billion of CAPEX in 2024. Is that a fair assumption?
spk02: Well, the only thing that has changed since our capital markets day is that the one billion in potential additional topics is looking less likely. And we have spent around 1 billion plus less cash-wise this year than what we've guided that, which would flow into next year on a cash basis. So no change in guidance from our capital markets today, only periodization of COPEX.
spk01: And then we have a question from Cameron, Bank of America. On the green premium ambition by 2030, could you talk us through how you're getting to the 2 billion knock figure? And what are the assumed tons that are involved in this calculation?
spk02: Yes, I can. So if you... Look at this ambition. It consists of our targets to grow our Zircal portfolio and our Reduxa portfolio. And today, a large part of the greener premiums comes from a combination of these two. In Reduxa, we produce 4.0, and as you see from competitors or other price providers, the premium on the 4.0 typically sits between $10 and $50, referring to external sources. But we will transition that premium as we move from 4.0 into 3.0, where for this exercise, we have assumed the CO2 price at the end of the year as a basis for premium on 3.0. And the volume of that is around 800,000 tons or so, which is the certified capacity we have today. We could have even more production of Reduxa 3.0, but we would need to certify additional plants. So if the market becomes really strong, you could say that's a conservative estimate volume wise. On Zircal, it's the same basis. Now we are below two tons of CO2 per ton of aluminium on Zircal at 1.9. The difference from the reference market for is around two tons of CO2, multiplying that with the CO2 price you saw before. And then you get a couple of hundred dollars of premium there. So it is these and the volumes that brings us to the two billion.
spk01: And then we have another question from Liam Deutsche Bank. How will the fuel switch impact P&A costs in Q2 and Q3?
spk02: Yeah, as you saw from our release today, the ship has taken a bit longer to come to Barkarena than what we estimated at Capital Markets Day. It took a bit longer to get out of the shipyard in Singapore. It was extra controls and other elements that needed to be in place to ensure that this is fully in shape for delivering natural gas to us for the coming decades. And the impact of this is that the effect in Q1 is quite limited. We expected the boat to come the next couple of days. I was hoping to have it this morning, but it might be tomorrow or the day after. And then we will immediately start the ramp up process, which will gradually impact your own results. But as you know, we're so late in the quarter that it won't impact it a lot. So in Q2, you'll start getting more of an effect out of this. I can't guide on a specific figure because this will depend a bit on the profile and as we go along. But as you know, the full year effect of the fuel switch compared to the cost level we saw in 2023 is somewhere around the $150 range. $150 million benchmark, depending if you use spot or forward. And if you take a fourth of that and include, estimate some form of ramp-up profile, it should give you some indication of what we can get into.
spk01: And then we have a question from Jeppe Arktik. What segments are driving the expected improvements in demand for second half 24 within extrusion in North America and Europe?
spk02: Well, the segment that you need to pick up in order to to see positive developments year over year is really the building and construction segment. So our own and industry expectations is that this will be tied to the general macroeconomic developments with hopefully interest rates starting to move lower, sentiment starting to improve and appetite for again driving demand in building and construction impacting us positively. But this still remains to be seen. As I started the presentation with, there is a big sample space here. If that pickup doesn't come, then the year becomes more challenging. But this is our base case as we speak today, at least.
spk01: And then we have another question from Jannes Morgan Stanley. Consensus assumes a 350 million knock year-over-year decline in Q1 extrusions EBITDA. Is that a reasonable assumption?
spk02: I won't comment on the specific consensus or the absolute figure. What I'll say is that we have a lot of very good sell-side analysts, which tends to capture the biggest effects impacting results going forward.
spk01: And then we have a question from Jensen Ong. Are there expectations of green premiums for lower emission alumina and from direct output or sales of products from the Halicero technology?
spk02: Well, if I had John, the EVP of Bauxite and Alumina here, he would definitely say yes, but I do also. As you know, the The enabler for the change in footprint in the short to medium term is really driven by bauxite and alumina. And if you look at the global emission curve for smelters, what really separates the best from the others when you take out the energy source is the footprint of the refinery. This is where the value creation takes place until we succeed with the technology developments that we talked about earlier today. So as you might remember from our capital markets day, we will be ensuring that this price is reflected in our bauxite and aluminum operations also. So profitability is materializing where the improvements are taking place. We don't have a large external position in Illumina at the moment, but on what we have, we will, of course, work to ensure that this becomes a market practice also. And for our technology pilots, which will materialize over time into larger industrial scale pilots, we of course expect this to also contribute with greener premiums as then you are really moving into a tight market. 4.0 market is not that tight. The 3.0 market is quite tight. But when you move towards the 0.5 and 0, it becomes very tight. As we've also discussed earlier, the premiums we get on products like 100R is very high.
spk01: And then we have a question from Matt Goldman Sachs, Torija in Spain. CapEx looks to have increased to Euro 180 million from the initial 130 to 140 million provided last year. Is the full CapEx amount captured in your 2024 guidance? Yes.
spk02: It's included in 2024 guidance and this is what we expect to be spent. We've had some inflationary elements since the original estimate. As I mentioned earlier, we've also decided to invest to be able to produce a higher level of Zircal than we, for example, have at Kosopolis, which impacts the investments. So all changes ex-exflation are driven by elements which have a good return on capital profile.
spk01: And on the same project, can you also please clarify between the project being approved and final building decision expected in second half 2024? And do you see a need to market improvement or is cost escalating labor availability potentially limiting our ability to execute the build?
spk02: As it stands today, we don't see that as a risk. You can never say never. And our whole portfolio will always be evaluated based on the market outlook at any given point in time, not the spot market, but the medium-term market outlook. And if the world looks very differently than what we see today, there are no absolutes. But as we see the market today, this project makes sense to move forward to final bill decisions.
spk01: And then we have a couple of questions from Dan from UBS. Can you remind us where the split of the 5 to 8 billion NOC EBITDA target from recycling is between metal markets and extrusions? And what was the total recycling EBITDA in 2023 and therefore incremental growth by 2023?
spk02: Yeah, so I cannot, unfortunately, because it's not set where that will take place. We We have the great pleasure of having an organization that is continuously looking for the highest returning projects. And we have a quite active capital allocation process. So both extrusions and the metal markets are working on the best alternatives and we will allocate capital where we see that we get the best return. In some cases, that might be in extrusion in some years, and in some cases, that might be in metal markets. And that's why we give a guiding on a total level. For 2023, we have included the total recycling EBITDA in our pack. I can't remember, was it 2.6 or 2.9? 2.9 billion.
spk01: And then we have another question from Dan. You provide guidance for commercial results at 250 to 400 million NOK. Is that a reasonable medium-term normalized target?
spk02: Yeah, that is a reasonable medium-term normalized target when excluding currency and inventory valuation effects. As it stands today, our biggest commercial improvement ambitions sits in energy, to some extent B&A. So the metal markets one is our best estimate going forward, yes.
spk01: And then we have another question from Jensen Ong. On aluminium metal post-consumer scrap procurement for the recycling business, do you anticipate stronger competition from Asian markets for similar operations?
spk02: Well, one of the things we see impacting the market now is competition for scrap. And as the world transitions and the customer demand for recycled metal, low carbon footprint metal, the fight will more and more shift to the upstream part, as we are seeing already. And that is why we've been very active working on moving upwards in the recycling value chain through the investment that we did, for example, with Alumetal, both moving closer to the scrap suppliers, but also broadening the product span through recycling. recycled foundry alloys, not purely the extrusion side where we're most exposed today. And that is also what you're seeing us do in North America with the Padnos joint venture. And we will be continuing to look to develop our strength on the scrap side in extrusion. That is what is so good in the Hydro family now is that we're We have a very good position on the marketing side. We have the greener product portfolio. We have the supplements of the primary recycling and extrusion in the end. And now together with Aldermetal and other partners, we are also building our competence and capabilities on the scrap side. So this will be a key part of our strategy going forward.
spk01: Then we have another question from Jannis Morgan Stanley. Is the 2024 Exclusions EBITDA of 8 billion NOC targets still achievable, or would this require a significant improvement in demand?
spk02: Well, it's a 2025 target. So for 2024, I do not believe we will make 8 billion. As we said on Capital Markets Day, This target needs the base case scenario to materialize for 2024. If we do not see the pickup starting to come in the middle of this year, it will be more and more challenging to reach the 8 billion 2025 target.
spk01: And then we have another question from Dan from UBS. It's always a lot of short-term variables in energy. Is 3 to 4 billion NOK still a reasonable medium-term target for energy EBITDA?
spk02: It all depends on what you believe about energy prices going forward. But yes, this is still our best estimate. We see a bit tighter price area spreads now, as you're probably referring to, and we expect them to widen again in a more normalized market environment. We are also working to strengthen our earnings primarily through the commercial operations. So we still have comfort in this earnings level going forward. And remember that the last years have been very negatively impacted, or at least the last year, by the internal buyback contract with aluminium metal. And we are also getting some effects from the market-making contract now.
spk01: What is the expected IRR on potential hydro investments in Norway? Would these projects generate IRR above the average group work? If not, why would you invest in them?
spk02: Well, the IRR on the renewable portfolio needs to be competitive in a hydro context. or as a starting point. That being said, we are also working hard to ensure that we get long term power for our smelters and the impact of not getting power at competitive costs and having to source at market cost is significantly more negative for the group as a whole than a 1% IRR difference on a renewable project, for example. So we continue to chase high demands, but there's two backdrops for the renewable growth portfolio. One is profitability in energy. The other one is profitability in aluminium metal. And we need to see that from a total level.
spk01: And then very last question from Hans-Erik Nordea on aluminium scrap availability in Europe. Can you comment on how exports out of Europe is developing?
spk02: Yeah, at the moment, they have been developing a bit negatively that there have been more scrap going out. This is one of the reasons why we're working very hard to secure our scrap sources. But on the overall level, this, of course, impacts the scrap prices in general. So there are big movements here. And this is something we will continue to ensure that we become more robust on going forward.
spk01: Very good. And then we need to round it off there. So thank you, everyone, for joining us today. And don't hesitate to contact us in Investor Relations if you have any further questions. And I wish you all a continuous nice day. Thank you so much.
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