Earnings Transcript for NHYKF - Q2 Fiscal Year 2023

Martine Rambøl Hagen: [Starts Abruptly] second quarter 2023 presentation and Q&A. So we will start off with a presentation by our CFO, Pål Kildemo, followed by a Q&A session. If you want to ask questions later on in the Q&A sessions, we have a chat that you should see to the right on your screen where you can write your name into the chat and we will use that as a cue for asking questions. I will revert to more instructions on that later on. But before that, we have a presentation. And then I leave the microphone to you, Pål.

Pål Kildemo: Thank you, Martine. And good morning and welcome from me as well. It is a pleasure to present our second quarter results with you today. And I would like to start with the key highlights. For the second quarter, we report an EBITDA of NOK 7.1 billion, robust results, but slightly down from the first quarter as lower realized prices and volumes were partly offset by lower raw material costs and higher extrusion margins. As the global economic uncertainty continues and short term demand outlook weakens in the second quarter, we have continued the strong focus on margin management and cash release, with free cash flow coming in at NOK 3.7 billion. We are also pleased that despite lower prices and volumes, we report a 12-month rolling RoaCE of around 14%, which continues to be well above our overall profitability goal of 10% over the cycle. We experienced especially strong margin management and resilience also this quarter in extrusions where we continue to deliver solid results and margins despite cost pressures and demand weakening in most sectors. This contributes to us being well on the way of delivering on our NOK 8.4 billion improve target for 2023, mainly supported by strong deliveries in extrusions and aluminum metal year-to-date. Our commercial ambitions are also progressing well and are ahead of plan year-to-date. We were very pleased to close the acquisition of Alumetal, significantly strengthening our recycling position in Europe. And with the greener aluminum market expected to outpace the general demand growth for aluminum, our position in low carbon and recycled aluminum is enabling us to capture new opportunities, and we are working on growing our volumes supported by strategic partnerships with customers across industries, which we have signed many of in the quarter. Finally, during the second quarter, we undertook a review of our CapEx portfolio for 2023. And we have raised the annual guidance from NOK 16.5 billion, which includes Alumetal and the Hueck transaction to NOK 20.5 billion. This is primarily driven by currency translation effects and inflation and somewhat more return seeking investments. The second quarter of 2023 has seen a continuation of the economic uncertainty that has developed in the post pandemic period. Headline inflation has come down, while core inflation has proven persistent, driven by services and tight labor markets. Central banks continue to raise interest rates with both the Fed and the ECB indicating rates will have to be higher for longer, however, expecting that the peak will soon be reached. This impacts the global aluminum markets where the development has been negative since we reported our first quarter result, with demand expectations for primary aluminum declining year-over-year. In addition, some Chinese suppliers returning as smelters in Yunnan are in the process of restarting previously curtailed production. While it is expected that 1.2 tonnes to 1.3 million tonnes will be restarted immediately, a total of 1.9 million tonnes has the potential to restart. At the same time, we know that the dry season is around the corner, which may lead to new curtailments. The combination of these elements is leading to the global primary balance weakening in recent months. And both CRU and HARBOR are now estimating a 2023 global oversupply of 0.6 tonne and 0.5 million tonne respectively. In Europe, margins of European smelters have not improved in recent months, rather the opposite. And we have had some smaller curtailments take place in the second quarter. Lower LME and premiums, coupled with continued high energy prices, leave all spot exposed smelters in the red, making restarts unlikely. In addition to weaker demand outlook, there is another element impacting the LME price negatively. We have seen a significant growth in share of Russian metal in LME warehouses. And since the war started, the share of available Russian aluminum in the LME has increased from under 10% to now 80%. And this confirms fears in the market that stranded Russian metal will end up in LME warehouses, impacting pricing dynamics. We are concerned that the further acceptance of Russian aluminum in LME may put the global aluminum index set by LME at risk. We remain concerned that the continued situation where some market participants may take advantage of buying discounted reduction metal can lead to a misrepresentation in the overall price discovery and in defining a fair value for all participants. We therefore believe that it might be appropriate also for LME to revisit its position in light of the most recent market developments, and we have sent a letter to them stating just this. Russian metal also continues to flow into the EU, putting further pressure on regional premiums. While there has been decisive action from the EU against many products and commodities with Russian origin, aluminum has been excluded so far. While EU production has decreased by 50% over the last two years, Russian production remains unchanged and even increased since the invasion of Ukraine started. Weaker European demand coupled with strong supply, amongst others, from Russia being one of the largest exporters to Europe in the first four months of 2023, as have taken place since last year, and led to a strong decrease in European premiums. Similarly, in the alumina market, since first quarter 2022 and the shutdown of the Nikolaev refinery in Ukraine and Australian alumina export ban to Russia, Russia lost some 30% or 250,000 tonnes per month alumina supply to maintain primary aluminum production levels. To fill this gap, Russia first turned to imports from China. The Chinese alumina export incentive price is an average $100 per tonne above PAX. Hence to reduce the cost of alumina, Russia has a strong incentive to source alumina from any refinery outside of China. And according to trade and shipping data, alumina shipments from Jamaica to Russia have increased year-to-date, and this could also partially explain why some high cost refineries continue operation according to CRU. If we finished the market section by moving downstream, then in the second quarter, Hydro Extrusions saw a 13% decrease in sales volumes compared to second quarter 2022. As in the last quarter, we see lower volumes in all segments bar automotive and HVAC&R, which largely support the automotive growth through our precision tubing business. There are unfortunately few signs of improvements in building and construction markets. Whereas we continue to expect strong automotive markets, but mostly based on current demand, as the effect of supply chain catch-up volumes is coming to an end. For the market, then European demand for extrusions in the second quarter of 2023 is estimated to have decreased 22% compared to the same quarter last year, but increased to 1% compared to the first quarter of 2023, which also saw weak demand. Demand for residential building and construction and industrial segments have remained weak in the second quarter, while demand for automotive is growing steadily. Some subsegments such as solar are also showing robust growth. CRU estimates that the European demand for extruded products will decrease 19% in the third quarter of 2023 compared to the same quarter last year due to continued softness in building and construction and industrial segments. Overall, extrusion demand is estimated to decrease by 17% in 2023 compared to 2022, with transportation expected to grow with 4% and electrical supported by solar with 17%. North American extrusion demand is expected to have decreased 15% during the second quarter of 2023 compared to the same quarter last year and 1% compared to the first quarter of 2023. Demand is particularly weak in the residential building and construction sector as higher interest rates are impacting the housing markets, while the automotive segments continues to improve. CRU estimates that the North American demand for extruded products will decrease 7% in the third quarter of 2023 compared to the same quarter last year, mainly due to continued weak development in building and construction and industrial segments. Overall, extrusion demand is estimated to decrease by 8% in 2023 compared to 2022. For 2023, we expect slightly better volume development in our European extrusion business than the markets as a whole and largely in line with the market in North America. Markets are more challenging, but we continue to deliver solid results and mitigate risks. We do this through increasing the robustness by improving margins, operational excellence and also reducing costs. As LME loses ground, we are starting to see our strategic hedging program coming into play. The program contributes to mitigate downside risk and secure a part of our margins, which is a key enabler to maintain a solid position in a declining market environment. And as a reminder, we have 230,000 tonnes of LME sales left in 2023 at $2,200; 440,000 tonnes in 2024 at $2,400; and 300,000 tonnes in 2025 at $2,500. In addition, I am pleased to say that we are on track to deliver on our full year targets for both improvement program and our commercial ambitions. This enables us to continue pursuing the long term opportunities regardless of the short term uncertainties and Q2 has been another quarter with good progress on our Hydro 2025 strategy. I will in the next few slides explain a bit more about how we have strengthened our position in low carbon aluminum and also how we are continuing the growth in renewable energy with Hydro Rein. Let's start with our improvement program and commercial ambitions. These are core to our company and represents a strong improvement culture that has been key to our story from 2008. We are well on our way to delivering on our NOK 11 billion 2027 ambition, which is up NOK 3.2 billion from 2022 whereof NOK 0.6 billion is coming in 2023. Despite some shortfalls in Bauxite & Alumina due to the delayed switch from fuel oil to natural gas, we are expecting to deliver on the overall 2023 target as B&A are working hard to compensate shortfall, but also due to stronger-than-expected delivery in Extrusions where, for example, Hydro Building Systems is doing a very good job. And just as important as the improvement programs is working on the top line with our commercial ambitions, which target extrusions 3 billion in 2027. Here Bauxite & Alumina are ahead of their plan driven by the sale mix in their portfolio. And in addition, I am as always pleased with our greener products total sales margin target, which is delivering ahead of plan. Our improvement program and commercial ambitions are strongly supported by extrusions. And despite falling markets, Hydro Extrusions continue to display margin robustness through dedicated improvement efforts and will continue to work towards mitigating the falling demand. On the top line, our commercial ambitions are ahead of target as we are growing in the most attractive segments like automotive and solar, while striving to maintain margins on the portfolio as a whole. This is enabled by our product quality and on-time delivery, but also by our greener product offering as our customers are increasing the demand for low carbon content, either through a higher share of renewable base metal or through circularity requirements. This also comes with an increasing share of long-term contracts with automotive customers. And over the last quarter, we have generated €2 billion worth of automotive contracts with premium car producers. We also see that the share of EBITDA in extrusions is growing in fabrication compared to extrusions in general. Improvements are also partly achieved through restructuring and reducing SG&A costs, we're Extrusion is constantly reviewing the portfolio to improve their competitiveness by cutting costs, improving efficiency and boosting profits. All business units within Extrusions have launched projects to streamline SG&A cost through lifting synergies and utilizing digitalization to optimize processes. Focus is to use a systematic approach for improvement and eliminate unnecessary work in a constantly changing environment. As I mentioned, extrusions building system is an example well ahead of the current improvement target, mainly related to increasing operational performance through measures of productivity, capacity utilization, scrap reduction, production time and similar. Another pillar to reduce costs in Extrusions is through procurement savings, where several steps and reductions have been achieved within packaging and logistics, to mention some. And also here, ahead of targeted ambitions. And we now clearly see that these efforts bear fruits compared to our peer group, with last official reporting showing us closing the EBITDA per tonne gap to our peers despite our broad general extrusions portfolio. And it also underpins our trust in the ability to deliver on our NOK 8 billion adjusted EBITDA target in 2025 despite tougher markets. Extrusions is one of our strategic growth areas in Hydro and recycling is another where we have an ambition to more than double the use of post-consumer scrap by 2025, which is scrap that has gone a full lifecycle and comes with zero emissions. On June 30, we completed our tender offer for the Polish recycler, Alumetal, with more than 97% of the shares. The acquisition strengthens our recycling position in Europe and widens our product offering in the low carbon and scrap base foundry alloy market and increases our use of post-consumer scrap by 150,000 tonnes annually. In addition, we will increase our competence in the recycling of aluminum scrap materials and Alumetal will strengthen its competitive position by entering the structures of one of the largest and leading global aluminum companies in the world. Alumetal contributes with a 12-month rolling EBITDA of around NOK 700 million as of first quarter 2023. And we expect Hydro's CapEx and depreciation to increase a bit and this is a result of the transaction which was settled on July 7. Further progress was also made to deliver on our recycling strategy. We signed an agreement to purchase land in Torija, Spain with the aim of constructing a state-of-the-art aluminum recycling plant, producing 120,000 tonnes annually. The facility will further strengthen our capabilities to produce low carbon aluminum and assure more scrap is kept in Europe, and the total project investment is currently estimated to be between €130 million and €140 million and included already in our midterm guiding. Within the business area Extrusions, recycling facilities in Navarra and Sjunnen are ramping up recycling capacity with 20,000 tonnes each through casthouse expansions. And also, the first metal was delivered from [indiscernible], which is estimated to be fully operational in next quarter with close to 24,000 tonnes annually. These are all important steps in increasing our recycling capacity by 1 million tonnes until 2027, whereof of roughly half is expected to come from post-consumer scrap. Based on round rate out to 2023, we have delivered around 60% of our post-consumer scrap ambition. But with the approved projects in the pipeline, we will deliver above 2025 ambition and well underway on our 2027 target. This all contributes to our EBITDA uplift targets of NOK 3 billion in 2025 and NOK 3.5 billion in 2027. We are growing in extrusions and we are growing in recycling as low carbon aluminum is gaining ground across the globe. This is important in these two areas, but it's also important for Hydro as a whole and something we work on every day across the value chain in every business area. This is our biggest differentiator and this will be one of the key enablers for increased value generation in the years to come. This quarter, we have taken several steps across the value chain to meet the increasing demand for greener products. To gain share, we need to enable greener aluminum and we need to sell at the premium. On the enabling side, we successfully produced the world's first batch of recycled aluminum using green hydrogen as an energy source, produced at our extrusion plant in Navarra in Spain. This is an important milestone in verifying green hydrogen as an emission free fuel to address the hard-to-abate industry emissions. Our known recycling pathways to net zero are also progressing with our own HalZero carbon free electrolysis process for new smelter capacity and technologies for decarbonizing existing smelters through carbon capture and storage, with both targeting proven concepts and first volumes in 2025. When it comes to enabling our market to ensure low carbon aluminum continues to gain ground, then in May, we partnered up with Saint-Gobain Glass to decarbonize building façades by integrating the low carbon solutions offered by both of the companies. The partnerships includes investments in urban mining that recycles end-of-life aluminum and glass. So here we close the loop through installing the windows, taking back building scraps, and then creating new windows out of this. We will also contribute with low carbon aluminum, CIRCAL 100, to produce the Cleanest Dirt Bike Ever together with CAKE and Vattenfall, where we also support the design and engineering of the bike to make use of other alloys. And also in the bike trend, we signed a letter of intent with the UK based bicycle company, Brompton, to deliver low carbon aluminum to reduce footprint and weight for their economic folding bicycles. The partnership aims to set the standard for both decarbonizing bicycle production and also encouraging end-of-life bike recycling. Our customers are also recognizing our industry leadership in greener aluminum. And on the 19th of June, we received the Mercedes-Benz Sustainability Award after we managed delivering the first batch of Hydro Reduxa 3.0 earlier this year. It passed testing at Mercedes-Benz, which included a visit to our Brazilian assets, focusing on the total spectrum of ESG, including doing work to ensure human rights. Hydro Reduxa 3.0 will be introduced in large scale production already this year, starting with the EQS and EQE series of electric cars. A successful transition to a lower carbon society is dependent on policy initiatives, like the European Green Deal, which will lay the groundwork for the decarbonization of EU industries. There are several initiatives on both climate, energy, sustainability and taxonomy that are important for the green markets that Hydro are targeting. Several will also support and foster the development of our greener business. We see that political direction of the Green Deal and its industrial parts are aligned with our growth strategy in all business areas. And our climate footprint enables us to differentiate our products from the competition on sustainability. One very important aspect of the Green Deal is circularity and what it means for recycling of aluminum. And as you know, increased recycling capacity is a strategic growth area for us. Right now, we see the issue of recycling of scrap popping up in several areas of the Green Deal. And this makes it even more important to get the right policy for the right kinds of recycling. Not all recycling is equal for our planet. There are two types of recycled aluminum. And to understand if your recycled aluminum is better for the environment than primary production, you need to know where the material originally comes from. You have pre-consumer scrap or industrial scrap, which is always in circulation in the aluminum value chain, and this has the same carbon footprint as the original primary metal. But then you have post-consumer scrap, which has gone full life cycle. And when you recycle it, you avoid creating new emissions through the production of primary metal. So the metal comes with no emission in itself. And we are very concerned with the latest draft of the Commission's implementing regulation for CBAM. Because the regulation has a loophole that could undermine its effectiveness as a carbon leakage and climate instrument. The loophole could lead to large scale greenwashing of carbon intensive imports, undermining the production of low carbon materials in Europe. It concerns remelted processed scrap that is imported to Europe. Under current version of the implemented regulation, such products will be classified as carbon free. This means that CBAM carbon costs for aluminum will not mirror the ETS carbon costs for EU industries where all emissions are paid for. It provides an unfair advantage for imports that undermines CBAM as a carbon leakage instrument for Europe. And considering that more than 25% of all aluminum becomes processed scrap at some point, we think there is a good chance that much of this will be remitted and destined for Europe as it will avoid CBAM pricing. This is a loophole that could threaten the European aluminum industry, not just the primary industry, but also downstream companies. And we see the only solution is that the EU Commission should attribute the same emissions to recycled content based on industrial and processed scrap as for primary aluminum. This is the only way to fix the loophole. And we have done extensive outreach to raise awareness of this issue. Moving over to the second pillar of our strategy, which is to diversify and grow in new energy. There is a need for more renewable energy. And Hydro Rein is maturing and growing the portfolio to meet this demand. This quarter has seen good progress on the construction of Stor Skälsjön, Mendubim, Feijao and Boa Sorte where all projects report on schedule and within budget. At the same time, the development portfolio is growing. And in the second quarter, Hydro Rein announced agreements with GreenGo Energy to acquire and develop four solar projects in the Nordics, which will together deliver 528 megawatts annual capacity starting from 2026. Two of these are in southern Sweden in price area SE4, which will deliver 118 megawatts with production to start in 2028. And the two most recent in Jylland, Denmark delivering 410 megawatt on the old capacity and production to start from 2026. In addition, based on an overall assessment of the opportunities in the portfolio and capital allocation priorities, Hydro Rein decided not to participate in a previously announced competition to develop a large scale bottom fixed offshore wind farm in the Norwegian North Sea. We also actively continue to evaluate financing alternatives for Hydro Rein and dialogues are evolving with more visibility on the financing opportunities expected during the second half of 2023. Renewable developments will strengthen our long-term power portfolio, but so will also PPAs. And Hydro Energy signed a long term power purchase agreement with Statkraft for the full supply of 6.6 terawatt hours of renewable power over a 15-year period. That PPA will secure parts of the Norwegian aluminum smelters with renewable energy until 2038. Let's then dive into the detailed results. Looking at the results and developments for Q2 versus Q1, we saw a decline in adjusted EBITDA of around NOK 0.4 billion. We have been negatively impacted by NOK 400 million in lower realized aluminum and alumina prices, and then NOK 200 million for each of the following

A - Martine Rambøl Hagen: [Operator Instructions]. I think we will start with Liam from Deutsche Bank. So, question from Liam online. Can you provide an update on the stake sale process? Is a deal getting close?

Pål Kildemo: Well, we are working actively on the stake sale process. And every quarter that progresses brings the deal somewhat closer as we are still in active dialogue. So we expect to be able to provide more color on the transaction and the likelihood of that in the second half of this year.

Liam Fitzpatrick: Just to confirm that, Pål, you expect to announce something in the second half of this year?

Pål Kildemo: We expect to get more information in the second half of this year. We are still in an active process. And the further this active process goes, the more likely that transaction becomes.

Liam Fitzpatrick: Obviously, the commentary in the release sounds that things are progressing more than what you wrote last quarter. And you had approved some additional investments, which I think you said you wouldn't do until you brought in a partner. So are you still sticking to the view that you won't progress any major investments on the Rein side until you bring in external capital?

Pål Kildemo: Yes. And I think we're clear on that. We will continue to build the development portfolio of Hydro Rein. This is what the company will be doing going forward. But we won't approve any final investment decision on projects for being constructed until we have clarity on the capital raise.

Liam Fitzpatrick: While I'm on, if I could ask one other just on extrusions. I think the guidance there seems still quite firm despite the weak market backdrop. Just to clarify your comments, though, you're basically suggesting that results should be fairly similar to what we saw in the third quarter of last year. Is that fair?

Pål Kildemo: What I'm saying is, as the market looks today, I think looking at the deviation between Q2 and Q2 for the quarter that we've just had given an indication of Q3 versus Q3. So, as you remember from this quarter, yes, volumes are down, costs are coming up, but this is largely offset by the continued strong and even increasing gross margins and we expect the same development into next quarter.

Martine Rambøl Hagen: Next question is from Sri from RBC. I will read your question. Can you please provide color on the NOK 2 billion high return seeking CapEx guidance? How much of this is related to Alumetal and Hueck? And are there any new approved projects?

Pål Kildemo: If you look at the increase and the capital reallocation that we have undertaken in the quarter, then the majority of this sits in return seeking projects upstream. I would say around NOK 1 billion or so to support our decarbonization agenda and ensure we have low cost of energy. These are very good return projects. The rest is primarily related to Hueck and Alumetal in rounding CapEx and also the slightly higher CapEx ex-currency that we have paid for Alumetal through the last rounds of increasing our bid to ensure that we could get the amount of ownership that we wanted.

Martine Rambøl Hagen: The next question we have from Daniel Major from UBS.

Daniel Major: First questions is a follow-up from Liam's on Rein. I think at your Capital Markets Day in December, you gave a guidance for NOK 2.5 billion of spend on Rein, which was NOK 2.1 billion this year, NOK 0.5 billion approximately next year. That number is obviously lifted for this year. What is the current rate of expected cash burn in 2024 based on the projects you've currently approved?

Pål Kildemo: Well, we haven't increased any cash burn for other projects apart from the ones we approved. So that would be the translation effects on the existing projects. I would have to get back to you on that, Daniel, how much that is in 2024.

Daniel Major: The next question on the CapEx. You've not provided updated guidance 2024, 2025. I think your base CapEx, i.e. excluding Rein and M&A in your previous guidance was NOK 12.5 billion. Is it fair to assume a similar quantum of increase in the medium term CapEx that you've seen in the base CapEx for this year, so NOK 2 to NOK 3 billion.

Pål Kildemo: All else equal, we would expect the same movements in currency to impact the CapEx for next year. We haven't done a reallocation of projects for 2024. And beyond, that will be part of the ongoing business plan process where we will give an updated guidance to the market at our Capital Markets Day. So as a starting point, yes, we have a currency exposure, which moves with the translation effects. And we haven't signaled that we would take out any projects as of now at least, so that's a correct expectation.

Daniel Major: One more, if I may. You created a new cash return framework a couple of years ago, or last year with the NOK 25 billion target. You then modified that target to reflect pending M&A transactions. If we look at where we are now, you've obviously got the kind of additional spend from Rein and the M&A, but you've also got the NOK 8 billion expected receipt from the Glencore transaction. Should we be assuming NOK 25 billion is the number. So, whatever we have at the end of the year, there's no adjustments to be made.

Pål Kildemo: There's no adjustments to it. And as a starting point, we shouldn't be making adjustments to it either, as we've gone through earlier. The reason we did it last year was because adverse action just continued to prolong due to competition authority process. So as we see it now, you have this year's operating cash flow, you have the proceeds from the Alunorte transaction, and then you have the situation in Q3 and Q4, how does the earnings play out? When you add all of that together, you're left with an adjusted net debt position at the end of the year. And the difference between that and the NOK 25 billion should be the distribution to shareholders. I should also mention that in the situation where we are not able to – or in a situation where earnings, for example, declined further, you should still expect us to also pay our 50% target in all scenarios. So we pay 50% of adjusted net income. If there's more cash available up to the NOK 25 billion adjusted net debt, then we distribute that also, either as dividends or share buybacks.

Martine Rambøl Hagen: Next question is from Duncan Simmons [ph]. I will read the question. Lately, there has been some discussions that automotive markets are softening in Europe by other suppliers. Would it be possible to discuss any perspectives you have on this as a key supplier to the segment?

Pål Kildemo: This is, I guess, what one of the big topics that the market in general, but also we have high focus on, how long does the automotive market keep the strength that it has seen. And I think, as you mentioned there, there's two things which have impacted automotive markets. It's the supply chain effects and the backlog that you've been filling, and then it's the green transition, higher amount of electrical vehicles, et cetera. We now see that the backlog from the supply chain issues has come down. Now the lead time on buying a new car is quite low. We also see some signs of some factories, et cetera, maybe having a bit longer summer break or the like. But in our contracts, what we see now, we still expect strong growth in automotive in the third and fourth quarter, driven also a bigger switch to electrical vehicles where we are higher exposed. And I also mentioned on the call, we have, over the last quarters, signed up €8 billion in long term contracts with automotive producers. And this is more or less purely to the electrical vehicle segment. So there's a huge shift which will benefit aluminum more than the automotive market in in general.

Martine Rambøl Hagen: Next question is from Ioannis.

Ioannis Masvoulas: A few questions from my side. The first one on aluminum metal, it looks like costs are running above expectations for a second quarter in a row, quite meaningfully above. So is Q2 the right cost base for this business? Or are there any one-offs to keep in mind?

Pål Kildemo: No, it's an interesting deviation there because the raw material costs that we expected to come out and development of fixed cost mature pretty much what we indicated the last quarter. Of course, when you look at the total all in cost that we put in our material, it will be impacted by such elements that we get less value on the power sales that we sell to energy than we did in the last quarter and also premium developments impacts the all-in implied costs. So underlying costs, on the black materials, they have gone in the right direction, as we guide. But we expect costs to come further down in the third quarter also. So, Q2 is not representing what we see in the market today.

Ioannis Masvoulas: Second question on, going back to the CapEx, and it's interesting because, in the past, when you had FX or inflationary pressures, you used to look for ways to save some money from other projects and keep your CapEx in check. This didn't happen this year. If anything, you're probably spending a bit more on an underlying basis. This is a reflection of – you're essentially deploying some of the anticipated Alunorte cash proceeds already or not.

Pål Kildemo: Yes, that is the case. As I as I mentioned, you should not expect us to deploy more of those proceeds into return seeking projects or the like. The CapEx increase that we've seen now is a combination of two elements. It's the translation effects. And yes, you are right that, in some years, we've been able to compensate that because the speed of project execution has not been so fast as expected. This year, we're running projects about higher speed because we've been growing for a couple of years in a row. So it's more continuous than they're starting off at the start of the year. So there's less flexibility in that context. And that translation effects comes directly in. But the other element is, as you mentioned, we have reallocated some of the proceeds from the coming closing of the Alunorte transaction into other return seeking initiatives. And we don't expect to reallocate more of those proceeds. So the rest that goes into the annual dividend distribution process where we have an ambition to pay out distributions up to the NOK 25 billion adjusted net debt level.

Ioannis Masvoulas: Just one last question for my side to clarify on B&A costs. Could you repeat the benefit you expect from raw materials and the movement in fixed costs? And then the power sales in Aluminum Metal, how much are you expecting in Q3?

Pål Kildemo: The B&A cost relief is around NOK 300 million to NOK 400 million. If you only look at caustic and energy, I think we're around the NOK 500 million to NOK 600 million. But we have some higher bauxite costs in next quarter. Part of it is due to maintenance activities, maybe 30% to 50% of that. A part of it is also due to different bauxite qualities when you mine. And that NOK 300 to NOK 400 million where maybe NOK 50 million to NOK 100 million is more one-off. But then on the fixed cost side and other costs, we expect those to increase by around the same magnitude for the quarter. We will lower this quarter on fixed and other costs than what we have guided for. And part of that was more of one-off in nature. So we also said that these would increase by around NOK 300 to NOK 400 million, where maybe NOK 100 million plus of that is more one-off in nature.

Ioannis Masvoulas: And power sales? You mentioned NOK 500 million, I think.

Pål Kildemo: Yeah, that's probably – you're correct.

Martine Rambøl Hagen: We have two questions from Sri as I will read them out. First one is on working capital, second one on the overall sustaining CapEx. We can start with working capital. So with falling aluminum and raw material prices and strengthening of the NOK, is the working capital release guidance revised in 2023? And then, on the sustaining CapEx part, of the NOK 1 billion, is this structural? Or is there annual revision also on the medium term sustaining CapEx guidance?

Pål Kildemo: Two good questions. And I think if we start with the operating capital, our guidance now on NOK 2 billion release for the year as a whole was based on figures as of balance sheet date, the 30th of June. And we have, in that situation, yes, we have seen falling LME prices, but we also have the currency rate that has depreciated quite against the dollar. Since then, you've seen some increase in LME, but not to the same extent that you've seen the currency depreciate or strengthen against the dollar. So all else equal, you should expect the release to be higher than NOK 2 billion if you use current spot assumptions. And the second one was on the NOK 1 billion in sustaining CapEx. Yes, that increase is purely related to the movements in currency. So, as we commented on earlier, if the currency remains at the level that we've had year-to-date, then you should expect a similar increase in next year and the coming years. Now we've seen some strengthening of the kroner, so it will probably – if it maintains at that level, calm a bit down. But since we have a lot of our CapEx in dollar, euro, BRL and other currencies and only 20% to 30% in kroner, that figure will move up and down with currency rates. So, that's also our earnings. So, you should be compensated on that side for the higher CapEx, all else equal.

Martine Rambøl Hagen: Next question we have from Alan Spence. I will read the question. So can you please specify the currency rate assumptions under the NOK 16.5 billion guidance and the new NOK 20.5 billion guidance?

Pål Kildemo: I think when we had our Capital Markets Day, the BRL against the kroner was around NOK 1.9. The dollar was around NOK 9.5. The Euro was around NOK 10. And what we've had – that's year-to-date figures – is more around the NOK 2.1 for the BRL, between NOK 10.5 and NOK 11 for the dollar, around NOK 11.5 for euro. And then on the other smaller currencies, we've said around 10% there also because it's mainly the weakening of the kroner that impacts this picture.

Martine Rambøl Hagen: We have another question from Daniel. Daniel, I think you're still on the line. So, then we move over to Amos. So, why did you stop the buyback in Q?

Pål Kildemo: Well, the buyback will continue. Basically, it's more or less the process of getting it approved on the Capital Markets Day and then tendering it among banks and then coming up with a new program and then it will restart again after the summer. So, no other special reason than that.

Martine Rambøl Hagen: And then we have two questions from Bengt.

Bengt Jonassen: Could you please repeat the gain on the power saves from Aluminum Metal to the energy and quarter-over-quarter impact? And then also follow-up on the acquisition of Alumetal, where it will be reporting?

Pål Kildemo: The acquisition of Alumetal, we will be reporting in Metal Markets segment, together with our other recycling operations. And we expect that to happen from there. The third quarter, of course, we closed in the start of July, but the earnings in that period will be so small that we can consolidate it for the whole period. And when we look at the Q3 outlook on the energy gained in Aluminum Metal, we expect those to be around NOK 500 million to NOK 600 million lower than in the second quarter. Basically now, we have very little left. I think it's 190 gigawatt hours between Aluminum Metal and Energy. So we will now be spot exposed to the power markets from aluminum metal unless they enter a new contract

Martine Rambøl Hagen: Question here from John Sandeen [ph]. How much premium do you expect for green [indiscernible] in 2024?

Pål Kildemo: At the moment, we are actually entering into quite a lot of contracts, which have a green premium element in them. And we are growing the portfolios of greener sales year by year. But I think we'll get back to this at the Capital Markets Day where we hope we can give a bit better overview of the greener premium potential for the coming years going forward.

Martine Rambøl Hagen: The other question from Morten Normann. So, for Q3, you have sold 67% at $2,127 per tonne, which seems surprisingly low given the preannounced hedging and the current price. Can you please explain?

Pål Kildemo: I would have to dive a bit more into detail to see where the deviations lie. Usually, when there's a deviation between what you get externally by running, I don't know, one to two month lag and what we have internally is if there's been big volatility intra-quarter, which impacts the exact shipping patterns than we have and the like. This has been a quarter where there's been quite some volatility within a range. I would expect it to be that, but let's look into it and we can get back to you a bit later.

Martine Rambøl Hagen: We have a question from Ioannis. So how much traction is the push for LME to disqualify Russian metal?

Pål Kildemo: Well, at the moment, it is ourselves that have written a letter because we think that this is a worrying situation and then we will have to see how they respond to that. But this is something we do on our own behalf.

Martine Rambøl Hagen: So it seems to be no more questions on the line. So I think we will run it off there. So thank you all so much for joining us today. And if you have any further questions, please reach out to investor relations in Hydro and we will get back to you. And I wish you all a continuous nice day and summer and the weekend when the time comes. Thank you so much.