Norsk Hydro ASA

OSE:NHY

Earnings Call Transcript 2021-Q1

[Operator]

Thank you. Good morning, and welcome to Hydro's Q1 2021 Presentation and Conference Call. We will start off with a presentation followed by a Q&A session. Our CEO, Hilde Merete Aasheim, will start the presentation, followed by our CFO, Pal Kildemo. The presentation slides, we will walk through, can be seen on the webcast. The link to the webcast as well as the slides can be found on hydro.com. [Operator Instructions]. If there are any media inquiries for one-on-ones with Hilde or Pal, after the presentation, please contact our Head of Media, Halvor Molland. With that, I turn the microphone over to you, Hilde.

[Hilde Merete Aasheim]

Thank you, Melina, and good morning, and welcome from me as well. Let me start with the highlights for the quarter. Next slide, please. I'm pleased to see earnings and returns picking up across most of our operations on higher margins and volumes, but also on continued low costs, especially in Extrusions. For Q1, we report an EBITDA of NOK 5.2 billion, while free cash flow came in at negative NOK 0.8 billion, mainly driven by seasonal working capital build. In the first quarter of 2021, we saw a strong global recovery driven by the reopening of economies and substantial fiscal stimulus. As a result, we saw a decreasing oversupply in primary aluminum market, and analyst now expect a largely balanced market for 2021. Hydro Extrusions achieved a record result this quarter, driven by strong volume growth, improved margins and continued cost savings from improvement program initiatives. Hydro Energy also experienced a record quarter, driven by higher power prices, production volumes and the expiry of legacy power contracts. I'm also pleased to see that our improvement program is ahead of plan and continues to be a focus area throughout the whole organization. A milestone in this first quarter was the announcement that Hydro entered into an agreement to sell its Rolling business to KPS Capital Partners, completion of the transaction is expected to take place in the second or third quarter of 2021. The sale of Rolling will strengthen our ability to deliver on the 2025 strategy. Another important milestone this quarter is that we have made the investment decision for the fuel-switch project at the Alunorte refinery in Brazil. The fuel-switch project is an important enabler toward reaching our climate targets to reduce our CO2 emissions by 30% by 2030. Hydro has set out a clear strategic direction towards 2025, where we aim to strengthen our position in low-carbon aluminum while exploring new growth opportunities in renewable energy. The new growth initiatives within Hydro Energy are progressing well. And last month, we announced our interest for hydrogen. We see a large potential for hydrogen replacing natural gas at our plants. And by that, reducing our climate footprint. We will explore the potential for developing and operating hydrogen facility to meet the internal demand as well as serving in external market, leveraging the company's industrial and renewable power expertise. Let's turn to the next page, please. Health and safety is our top priority in Hydro, both for our employees and the communities where we operate. An injury-free environment is our ultimate goal, and we are continuously working to avoid any incidents to happen. Hydro's operations have been operating largely as normal during the quarter with strict COVID initiatives to support employees and prevent infections. I'm very impressed about how our organization and employees have handled the COVID situation. We have been able to keep the wheels turning while dealing with the most challenging global health crisis in the century. Currently, Brazil is among the countries being impacted to the hardest. And Hydro is providing a lot of support to our own employees as well as the local communities in Brazil in their efforts to handle the pandemic. Please turn to the next page, please. Then have a look at the financial highlights for the quarter. Since we signed an agreement to sell Rolling in March, we have excluded rolling in the majority of consolidated numbers throughout the presentation. As I said, adjusted EBITDA came in at NOK 5.2 billion, up from NOK 3.8 billion in the same quarter of last year, reaching the highest level we have seen since Q4 2017. Our free cash flow decreased mainly due to working capital build from seasonalities and high activity levels. We are pleased to see a positive trend in the 12 months rolling ROACE from 3.7% at Q4 2020 to 5.4% at Q1. For the quarter alone, the ROACE was 13%. And if I use spot assumptions, we are currently around 15%. We set an ambitious 10% ROACE target over the cycle in 2019 and we are well on our way to deliver on this now. Upstream costs increased some in the quarter, both in B&A and aluminum metal, mainly driven by higher prices for raw materials. Volumes in Extrusions increased by 16% from Q4 levels and 11% from Q1 2020. Lastly, and I'm very happy to see that our improvement program is on track and looking to exceed full year expectations, driven mainly by continued low-cost levels in Extrusions. Turning to next page. Our stronger results are supported by the global recovery, which is well underway, driven by the reopening of economies and substantial fiscal stimulus, the IMF is now expecting the global economy to grow by 6% in 2021, the strongest expansion ever recorded. On the back of this, global aluminum demand is expected to grow by over 9% in 2021, supported by the reallocation of consumption from the service to the industry sector and metal intensive infrastructure stimulus packages. In Q1 2021, primary aluminum markets in the world ex. China has been in a deficit, driven by stronger-than-expected demand recovery, and China import in this quarter. China experienced a surplus of aluminum in Q1 2021 due to seasonally low demand during Chinese New Year, but it is expected to turn into a deficit market over the upcoming months, on continued strong demand. While demand is strong in both China and world ex China, there are substantial production additions expected in both regions. Projects in the Yunnan province in China are being ramped up, leading to 7% expected production growth in China this year. Both Harbor and CRU expect strong demand growth in 2021, both in China and world ex China. Overall, analysts are expecting largely balanced market for 2021. Please then turn to the next slide, please. The strengthening markets are driven by existing but also new trends supporting demand for aluminum. Sustainability and climate change are increasingly important in the aluminum industry. From the demand side, aluminum is expected to play a bigger role in the green transition through, for example, higher aluminum content in electrical vehicles, but also higher end product adaption due to recyclability. In this context, we are very pleased to see this primary aluminum based on renewable power and recycling will qualify under the new taxonomy criteria communicated by the European Commission last week. On the supply side, it becomes clear that the aluminum industry has to transform in order to reduce its carbon footprint. In the future, it will not likely become increasingly difficult to get financing for methods not based on low-carbon energy sources, potentially lifting the CapEx for new project. Also important in this context is the development in China. The Chinese government has set targets for peak carbon emissions in 2030 and net 0 emissions in 2060. There is a growing pressure on the provinces to decrease energy consumption, which has led to production cuts for the aluminum industry in Inner Mongolia, and other regions may potentially also become impacted going forward. Further supply restrictions will transform the Chinese market into a deficit market for primary and reduce the risk of sustained overcapacity in the next decade. Please turn to the next page. The strong recovery in demand is very visible in our Extrusion sales volume. The markets are performing ahead of industry forecast for the quarter, with CRU estimating at 6% demand increase compared to the same quarter last year in both Europe and North America. While the forecast going into the quarter were 2% and 7%, respectively. The strong performance in Q1 is partially due to seasonality. However, underlying demand has continued to improve, especially for the industrial and automotive segment, even though the latter segment is impacted by semiconductor shortage, especially in North America. Hydro Extrusions sales outperformed the market, delivering 11% growth compared to the first quarter 2020. All market segments are currently showing strong demand, impacting both volumes and margins. Automotive and transport showed the strongest growth, but the heat exchanger market and billing and construction are also showing an increase versus same period last year. CRU estimate that the demand for Extrusion will increase around 36% in North America and 30% in Europe in the second quarter of 2021, compared to last year. But we expect our volumes to grow even more than the overall market due to strong current momentum in some of our key segments. Now let's turn to the next page. First quarter marked a record quarter for Hydro Extrusions, delivering an adjusted EBITDA of NOK 1.7 billion compared to previous record quarters of around NOK 1.4 billion. The positive performance was driven by strong volume growth, improved margins and continued cost savings from improvement program initiatives, in particularly relating to procurement and SG&A costs. The restructuring work done in the previous years is also contributing significantly to the bottom line in 2021. The quarter also saw a strong rebound in automotive sales in Europe and solid growth in the industrial segment and residential building and construction. Strong production levels at recycling units also positively impacted results and was a key source of internal billet supply given the tight billet market in both Europe and North America. Going forward, we see the strong momentum continuing and as long as we can get our hands on the metal needed to meet customer orders, we should see a strong increase in results also in the second quarter. Then let's turn to the next page, please. If we then move over to the specific update, we have set a clear specific direction for the company towards 2025 and aim to strengthen our position in low-carbon aluminum, while exploring new growth opportunities, in renewable energy. The first pillar builds on our strength, and we continue to improve our position as a low-carbon aluminum producer based on solid cost-efficient asset base and a strong market position. We continue our efforts to differentiate on the sustainable footprint of our product offering, including Hydro CIRCAL and Hydro REDUXA, and we are also progressing on growing our recycling capacity. In Pillar 2, we are looking beyond aluminum to diversify our portfolio with new energy. Since our Capital Markets Day in December 2020, we have introduced hydrogen as the third energy growth area. For EU and the industry to meet their climate ambition, we see a substantial potential for industrial hydrogen consumption. Taking a developer and operator role in hydrogen sector represent an opportunity for Hydro, reduce industrial CO2 emission and develop a profitable and sustainable business based on hydrogen. Let me start by giving an update on our first pillar. Turning to the next page, please. In order to strengthen our low-carbon aluminum position, a strong growth and improvement focus is essential. And I'm pleased to see that the improvement program is continuing with full speed. In addition to the continued low-cost levels in Extrusions, the ramp-up of volumes in our upstream operations business is coming at full speed in this summer, improving operational parameters and an ambitious procurement efforts across the company are contributing positively. The total improvement target has been adjusted for the sale of Rolling. And the updated target of NOK 7.4 billion to be delivered by 2025. It is a front-loaded program and it's targeting an accumulated NOK 5.1 billion improvement to be delivered at the end of 2021. The commercial ambition has been adjusted to NOK 1.5 billion. While markets and earnings are improving significantly, we will continue to focus on continued improvement, securing our position on the cost growth, while at the same time, focusing on how we go to market, growing our market share and expanding our margins. Please turn to the next page, please. This quarter, we saw strong demand for our low-carbon aluminum products, Hydro CIRCAL, and Hydro REDUXA. With the volume of Hydro REDUXA, saw in the first quarter, an approximately 60% of the total Hydro REDUXA volumes growth in 2020. One example that we are pleased with is that Hydro REDUXA will be used for Google's new office building at Hudson Square in New York City. The 1.3 million square foot office will contain 450 tonnes of Hydro REDUXA. The aluminum billet for the new Google office is produced at our Hydro’s Sunndal plant in the Western Norway. So now this is the largest of our 5 Primary production plants in Norway where 700 highly qualified employees produced more than 400,000 tonnes of primary aluminum based on hydro power per year. The Sunndal billet are then shipped to our Extrusion plants in Hydro Atessa in Italy, where they are extruded into profile and customized, we commonly call it a double-skin facade, before finally, assembly and installation is done by our project partners. The Google Hudson Square project show how our global value chain and areas of competencies are linked, helping our customers to meet their sustainability ambitions. Then let's turn to the next page, please. Sustainability is the basis for our future positioning and embedded in our strategy of lifting profitability and driving sustainability. We are continuing our efforts to drive change in key areas, including social responsibility, environment and climate. With our social responsibility strategy, we aim to make a positive difference by strengthening our business partners and the local communities where we operate. We target the fundamental drivers of long-term development. We contribute to education and capacity building for 500,000 people by the end of 2030. The start of 2021, we have passed 100,000 people, meaning that we are well on track for our 2030 targets. The biggest share comes from our efforts in Brazil. In the environment, I'm very excited about our latest developments related to our tailings storage facilities in our mining operation in Paragominas. We have invested in an industry pioneer project to eliminate the need for new tailings storage facilities. The methodology eliminates the need for continuous constructions or upgrade of new permanent tailings storage and will enable us to operate more safe with reduced footprint and more safely deliver on our 1:1 rehabilitation target. The operating license to implement this new concept was received in December 2020. And it has now been fully adopted into operations at the Paragominas mine. What I also find very exciting is that the project is estimated to also have CapEx savings of around BRL 2 billion over the next 10 to 15 years. Our climate strategy, 30 by 2030, targets a 30% reduction of all greenhouse gas emissions throughout the aluminum value chain by 2030. We will do this through greener sourcing, greener production and reducing the carbon footprint on the products we deliver to our customers. An important milestone project to reach our climate goal is the fuel-switch project at Alunorte in Brazil. I will talk more about that on the next slide. But we're also working beyond the 2030 targets. Currently, we are working on several technology and innovation paths to see how we can get to a net 0 situation by 2050. We are exploring our different pathways for the electrolysis, such as carbon capture and storage, biomass anodes and a new carbon-free chlorine process. Our new opportunities in hydrogen will also contribute positively, together with our existing ambitions using more renewable energy. Please turn to the next page. Today, we are pleased to announce that an investment decision has been made for Alunorte fuel-switch project, which is one important enabler to deliver on our 2030 CO2 reduction target of 30%. While replacing a large portion of the current fuel oil consumption at the refinery with LNG, we expect to unlock a potential of 600,000 tonnes of CO2 emissions reductions. The CapEx expected for the project is BRL 1.1 billion. Hydro is supporting use of LNG and natural gas in the state of Pará. And our access to LNG will not only enable more sustainable operations for Hydro, but also give access to natural gas for other industries and consumers in the region.Earlier in April, we saw the New Fortress Energy signed an MoU for the delivery of liquid natural gas to Alunorte, with expected first delivery next year. In 2021, we're also planning the first pilot installation of 3 electrical boilers in Alunorte, with a potential of 400,000 tonnes of CO2 reduction.And we further work on potential for eliminating coal as power source in the remaining boilers by 2030, which has the potential of up to 2 million tonnes of CO2 reduction. With the fuel-switch project, the CO2 footprints of producing Hydro REDUXA will go from today's below 4-kilo CO2 per produced kilo aluminum to 3-kilo.And with the further electrification of the boilers at the refinery, then the CO2 footprint producing REDUXA could be yet low at 2-kilo CO2 per produced kilo of aluminum. Before I leave the sustainability area, I would like to comment on the lawsuit filed against Hydro in February in the Netherlands by a Brazilian group called CAINQUIAMA.The lawsuit filed against Hydro is related to allegation against our local operations in Barcarena in Brazil over sustained harm to local environment and health. The matters are already being discussed before Brazilian courts and authorities. We do not see that there is a link between the allegations made in the lawsuit and our operations in Barcarena. Even if we do not recognize the allegations, the lawsuit still illustrates the scrutiny and very high expectations to Hydro, which emphasize the importance of our sustainability agenda, and which is our license to operate.Let's turn to the next page. Recycling will play a vital role and make a part in the transition towards the low-carbon economy. Recycling has a great potential for Hydro, both from sustainability and profitability perspective. As communicated at Hydro's Capital Markets Day in December, we have an ambition to grow the current recycling business substantially to double our use of post-consumer scrap by 2025.Recycling is already an important part of Hydro's value proposition, creating a solid foundation for further growth. Currently, we have 25 recyclers in operation in the business areas of aluminum metal and Extrusions combined, of which 11 is in the U.S. and 14 in Europe. The capacity of these plants combined is approximately 2 million tonnes annually. It consists of recycling of both process and post-consumer scrap.By the way, recycling of process scrap does not cut the green transition. And Hydro advocates for common standards that will ensure that the use of recycled aluminum in the marketplace actually contributes to reduced emissions. The most important contribution to the circular economy and reduced emissions is to ensure used scrap comes back into use.This is at the core of Hydro's recycling strategy. We see an EBITDA uplift potential of NOK 700 million to NOK 1,100 million in our project pipeline after excluding the rolling numbers. We have already several products now underway, including recycling of post-consumer scrap as our Norwegian smelters, with an initial ambition of adding up to 10% to our Primary production capacity in Norway through scraps coming back after use.The project pipeline for investment decision and other early phase projects, including greenfield projects, larger brownfield projects, and we're also evaluating M&A opportunities. These initiatives will have a total CapEx spend of NOK 3 billion to NOK 4.5 billion, up to 2025.Let me then move to an update on our second specific pillar, new energy. Turning to the next page, please. Hydro has unique capabilities that set us apart from other industrial players due to our own existing renewable power position and industrial competence as well as large internal demand for renewable power. We have now expanded our portfolio to also include hydrogen in addition to already announced areas such as renewable growth and batteries.Please turn to the next page. Hydro REIN is our newly established and dedicated company for development of new renewable projects. REIN sets the customer-centric and market-driven approach to process development, finding the best combination of sources and submarkets, increased value for projects and customers. In Brazil, that means combining wind and solar projects to create a balanced portfolio. For example, the project that REIN is looking at together with Macquarie is a 620-megawatt hybrid wind and solar project.In the Nordic, REIN is assessing opportunities for wind, primarily in Norway and Sweden at this stage. But this includes also the opportunity to enter into offshore wind, a segment we consider to have significant growth potential and that we expect will come -- it become a key part of the future global energy mix.We are progressing well towards the target of having an investment decision in at least 1 gigawatt gross in-store capacity in 2021. And to date, REIN has screened more than 20 gigawatts of projects in Brazil and 7 gigawatts in the Nordics.MoUs are now in place on projects totaling about 1.4 gigawatts gross installed capacity in Brazil, including a new MoU signed in April for the 300-megawatt solar project in Southeast Brazil.Usual companies have an aggregate repowering need of 10 terawatt hours by 2025 or which is about 9 terawatt hours in Brazil and 1 terawatt hour in the Nordics. And our ambition is for REIN to supply as much of that need as possible based on competitive renewable projects. To do that, REIN will capitalize on Hydro's more than 100 years of experience in power systems from production, operation and trading through industrial sourcing and consumption. But REIN also relies on partnering with industry leaders such as the partners that we already have and we used with.In addition to developing renewable capacity, Hydro REIN will help Hydro and external customers to see the energy transition through delivering industrial scale energy solutions and services to both improve energy efficiency, reduce emissions and to reduce costs.This includes services related to sourcing of renewable energies, on-site generation, storage solutions and energy efficiency measures. As communicated at the Hydro Capital Market Day in December 2020, Hydro is evaluating to raise external capital and pursue a separate stock listing for Hydro REIN. Now let's move to our second area within new energy, which is the batteries. Please turn to the next page, please. The battery team is progressing as planned towards building a portfolio of our 3 companies. Corvus Energy where Hydro owns 21%, delivers battery systems to the marine sector. Recently, the company started the development and production of large-scale maritime-certified hydrogen fuel cell system within -- with Toyota as a key partner. Corvus has also recently signed a joint venture agreement with Sumitomo Corporation, a 50-50 ownership for marketing and sales of Corvus Energy battery system and fuel cell system in Asian markets, mainly in Japan. HydroVolt, the EV battery recycling project is progressing well as they've now been financed with a combination of assets and Enova support, resulting in limited need for equity at this stage. Our [ partnered ] approach and technology within EV battery setting has an exciting rollout potential into Europe, and we also see synergies with Hydro's existing aluminum recycling business in Europe.The joint battery initiative between Panasonic, Hydro and Equinor is progressing as planned with our market investigations, business case building and site selection process for the potential Norwegian battery sale plan. The local interest for hosting a plant has been very positive, and we are working with relevant government project on-prem petitions. However, one of obstacle has occurred lately related to the rule of origin for Norwegian-made EV batteries, created by the new trade agreements between the EU and U.K. following Brexit.We are pleased to note the strong support from the Norwegian government to seek solutions to this challenge. We have built an extensive pipeline across the battery value chain, with 2 investments in operations and ambitions of NOK 2.5 billion to NOK 3 billion of investments by 2025 returning a pro rata of NOK 600 million to NOK 700 million. We are evaluating several other opportunities along the battery value chain. Overall, Hydro is seen as a very attractive partner and there's a good access to potential projects.Let's then now move to our newest growth area, hydrogen. Please turn to the next page. Hydrogen will play a key role in the energy mix towards 2050 and the global transition to carbon neutrality. Clean hydrogen produced from renewable sources enables industry, long distance transport and other hardware-based sectors to move away from fossil fuel. We see a substantial potential for industrial hydrogen consumption which helped to reduce our CO2 emissions.By producing and offering clean hydrogen, which does not emit CO2 when used, we can enable Hydro and other industrial companies to succeed in the industry transition. We are now establishing a separate hydrogen company to take a leading role as a developer and operator in the hydrogen sector, switching from gas to hydrogen at several of our own sites as well as developing and serving the external markets.Our new hydrogen business will leverage Hydro's large global footprint of industrial assets and Hydro's world-leading position in sourcing renewable power. We have a large hydrogen potential in industrial heating in our own portfolio, equaling approximately 4 gigawatts of hydrogen production in long term.Switching from gas to hydrogen in Hydro's downstream and primary aluminum sites alone, which cuts 1 million tonnes of CO2 emissions. This would enable us to offer our customers aluminum with even lower footprint today and contributing to our target of reducing Hydro's CO2 emissions even further.To start with, we look at switching from gas to hydrogen at some of our aluminum plants in Norway and Europe. We believe the global efforts to decarbonize, attractive political support teams, higher CO2 prices and lower technology costs, makes this the right time to move into green hydrogen based on renewable power at attractive costs.Establishing a separate hydrogen company will give the organization speed and flexibility around financing, resources, partnerships and projects. And we are evaluating an equity raise in the hydrogen company to support the growth agenda.We have set out to explore hydrogen potential based on our long-term captive demand with Hydro REIN as a potential vehicle to develop renewable power and the ability to leverage Hydro Energy, market and system support as well as Hydro's operational capabilities. And with that, I would like to hand over to you, Pal, to take us through the financials in more detail.

[Pal Kildemo]

Thank you, Hilde, and good morning from my side as well. I hope that you and yours are all keeping safe and well. Before we move into the details of the quarter, I would like to just make some comments on changes in our performance measures for 2021. We reviewed our key financial metrics used for performance follow-up and managing capital during 2020.The goals of the review were to achieve clear communication aligned with industry and peer practice and also simplify where possible. Input from you, the key users of our reporting material was highly prioritized in this process.This process resulted in a decision to focus on EBITDA and adjusted EBITDA as the main performance measures going forward, moving from EBIT and underlying EBIT. We are moving from items excluded to adjusted items as this line also includes elements included in the results, such as currency elements from our strategic hedging contracts, and from the embedded derivatives on a long-term energy sourcing contract moving into aluminum metal, which are now being realized from 2021 and upwards.In addition, on the 5th of March 2021, we announced an agreement to sell our Rolling business to KPS Capital Partners. And following the agreement, operating results for the Rolling business are presented net of financial items and tax as income or loss from discontinued operations and separated from Hydro's reported EBITDA and adjusted EBITDA in the first quarter reporting.Next slide, please. Let me then move over to the high-level result overview. Hydro's adjusted EBITDA for the first quarter of 2021 was NOK 5.182 billion, compared with NOK 3.810 billion for the same quarter last year, an increase of NOK 1.4 billion.On the positive side, we see higher all-in metal prices, higher energy prices, volumes and new contracts in energy and improved margins and volumes in Extrusions, which all contributed positively to the results. These positive elements were partly offset by higher raw material costs, mainly fuel oil, energy, alumina and carbon, and in addition, we had negative currency effects on the strengthening NOK versus the dollar and additional maintenance-related costs in bauxite and alumina.Next slide, please. If we then take a look at the key financials for the quarter, then the revenues are stable at around NOK 32 billion for the first quarter. Adjusted EBITDA came in at NOK 5.2 billion, as explained on the previous slide. And the largest adjustment to EBITDA of a total NOK 1.1 billion are related to unrealized losses on LME-related contracts of NOK 1.2 billion.This is mainly related to our strategic hedging positions entered into over the latter quarters. This is offset by net foreign exchange gains and a positive gain on a listing of a small thermal storage company that we hold and presenting.In addition, we had around NOK 200 million adjusted from EBIT, driven by restructuring-related impairments in Extrusions and accelerated depreciation related to the announced closure of the Aluchemie carbon anode plant.Financial income for the quarter amounted to NOK 424 million related to positive currency effects on the embedded derivatives in the energy sourcing contract as the NOK has strengthened compared to the euro, which is partly offset by interest expenses.Our tax expense was NOK 776 million for the quarter or about 29% of income before tax, in line with our long-term guidance of around 30%. Overall, this provides a net income from continuing operations of NOK 1.9 billion, up from negative NOK 1.7 billion the same quarter last year.Adjusted net income from continued operations was positive NOK 2.4 billion, up from NOK 0.8 billion in Q1 '20. And consequently, adjusted earnings per share from continuing operations was NOK 1.15 per share, up from NOK 0.39 per share in Q1 '20.Now let's move into the business areas. Next slide, please. If we start with Bauxite & Alumina, then adjusted EBITDA decreased slightly from NOK 1.102 billion in Q1 '20 to NOK 999 million in Q1 '21. The quarter saw a positive effect of a higher realized alumina price, currency effects of weaker BRL against the dollar and higher alumina sales.These 3 categories, in total, impacting results around NOK 700 million. This was more than offset by higher raw material prices, impacting results around NOK 200 million, mainly related to fuel oil.In addition, the higher costs related to the ship unloader event Q4 and higher sourcing cost for alumina impacted results in total of around NOK 600 million negative for the quarter. Despite high COVID contention rates in Brazil and the ship unloader event, our preventive measures has resulted improved production in the quarter for both bauxite and alumina with Paragominas producing at 11.4 million tonnes annualized speed and Alunorte at 6.2 million tonnes annualized.So in sum, all of these factors resulted in a higher implied alumina costs per tonne in Q1 '21, of $243 million, which is $7 million above Q1 '20, while overall margins ended up at similar levels year-over-year.Compared to the fourth quarter, we have seen a slight decrease in costs and a $20 increase in margin. If we look into Q2, then Alunorte is expected to continue to operate at around nameplate capacity. We also expect costs associated with the crane in repair to come down to around NOK 100 million for the quarter, but this is more than offset by higher prices for fuel oil and also maintenance of Paragominas, reducing bauxite volumes and listing maintenance.Next slide, please. If we then move further upstream to aluminum metal, then adjusted EBITDA increased from NOK 1.197 billion in Q1 '20 to NOK 1.754 billion in Q1 '21. We experienced a $235 higher realized LME and higher premiums and sale volume. In total, this contributed with a NOK 1.5 billion effect. This was partly offset by a weaker NOK against the dollar of around NOK 600 million, and higher alumina, carbon and power prices of around NOK 400 million.It is also worth mentioning that we have booked a positive NOK 120 million risk-adjusted CO2 compensation, which reflects 2 months of eligible sales volume. Although not all elements are approved by the relevant authorities at the end of March, based on the elements approved, we have concluded that estimates reflecting the uncertainty in final approved can be recognized.A full year of production is currently estimated to result in CO2 compensation of between NOK 700 million and NOK 1 billion. When it comes to the outlook for Q2, we have, by the end of March, sold approximately 65% of our Primary production forward at a price level of around $2,108 per tonne.This includes pricing from our strategic hedging program. On the premium side, we have secured around 59% at around $333 per tonne. And we expect the premium level to rise to between $275 to $325 per tonne. We are currently seeing strong development in the market premium, which will translate into further increases in premiums for the third and fourth quarter given our current booking setup.Given the market prices for raw materials, we also expect smaller increases in raw materials for the second quarter, mainly carbon. This will partly be compensated by higher Tier 2 compensations, reflecting 3 and not 2 months for the second quarter. In addition, due to the continued ramp-up at our Husnes line B and also improvements in production at Husnes Line A, at Albras and at Sunndal, we expect primary aluminum production to increase by around 20,000 tonnes in the coming quarter.Next slide, please. For metal markets, the adjusted EBITDA ended up at NOK 78 million, down NOK 209 million from NOK 296 million in last quarter. The results decreased mainly due to lower realized sales premiums in recycling and negative currency and inventory valuation effects.If we exclude the currency and inventory valuation effect, the result for the quarter was NOK 161 million, which is up from NOK 119 million in Q1 '20, driven by stronger results in our commercial operations.Looking into the second quarter, we expect stronger results from our recyclers, but also remember that, as always, results from our commercial operations are by nature volatile. Next slide, please. If we then move downstream, adjusted EBITDA for Extrusions significantly increased from NOK 1.242 billion in Q1 '20 to NOK 1.744 billion in Q1 '21. We reduced fixed costs significantly following the COVID outbreak, and we still keep these costs low as the markets improve, also supported by significant improvement work and the restructuring undertaken last year.The results were also positively impacted by higher volumes, driven by strong demand, increased margins and also lower variable costs. It is also good to see that Extrusions are now back above their long-term cost of capital on a 12-month rolling basis, after a couple of years of being right below, and the continued improvement in the coming year should ensure that Extrusions continue generating economic value.Looking into the second quarter, we expect a continued strong demand and continuation of low fixed costs. I will also repeat Hilde's earlier guidance, in that, we should see a strong second quarter as our volumes are expected to grow more than what market analysts are currently estimating for the market as a whole.Next slide, please. We end the business area review with Energy, which delivers an adjusted EBITDA of NOK 841 million, increasing from NOK 505 million in the first quarter of 2020. The quarter saw a seasonally high production at higher prices due to below-normal temperatures and low wind power output compared to the same quarter last year, that is of NOK 422, quarter to date. However, uncertainty is still large and will depend on the hydrological balance going forward and when the spring thaw takes place. Next slide, please. We now move from the business areas to the development in net debt. Overall, our net debt position increased by NOK 1.2 billion. We started Q1 with NOK 7.8 billion in debt. Then we had an adjusted EBITDA of NOK 5.2 billion. Net operating capital increased by NOK 2.4 billion, driven by the normal seasonal increase, but also strong customer demand in addition to increasing prices.Other operating cash flow adjustments amounted to NOK 2.3 billion, mainly driven by tax payments, bonus payments, interest expenses as well as also negative collateral effects from our hedging positions, given the very -- current, very strong pricing environment. As a result, we generated a net cash flow from operations of positive NOK 0.5 billion in Q1.Then we had investments coming in at NOK 1.3 billion. And then we had other effects of NOK 0.7 billion, which are mainly driven by positive currency effects on debt. And finally, net cash used in discontinued operations amounted to negative NOK 1.1 billion, impacted by increasing net operating capital in our Rolling unit.At the end of the quarter, we ended with NOK 9 billion in net debt. If we also comment on adjusted net debt, then remember that the adjusted net debt definition reflects Hydro's debt and liabilities only and does not include the previous adjustment for Hydro's share of net debt in equity accounted investments.If we look at adjusted net debt at the end of the first quarter '21, then it decreased by around NOK 10.3 billion compared to Q4 2020. I've just explained NOK 1.2 billion through the net debt increase, but net pension liabilities decreased by NOK 10 billion, mainly due to reclassification of liabilities in Rolling and liabilities in the disposal group.Higher discount rates in Norway as well as positive returns on pension plan assets in Norway also contributed positively. Other liabilities decreased by NOK 1.2 billion, mainly due to reclassifications of asset retirements and restructuring liabilities in Rolling.And with that, the total adjusted net debt at the end of the first quarter of '21 amounted to NOK 12.3 billion, which is a reduction of 45% compared to Q4 '20 and 63% compared to the high level seen at the end of Q1 2020.Next slide, please. Let me then end with an update on our strategic hedging program. Since the last quarterly presentation, Bauxite & Alumina has extended the dollar/BRL hedge to cover 2023 as well, resulting in a 30% hedge for the years '21 to '23. In addition, another 100,000 tonnes per year of aluminum hedges have been placed for the years '22, '23, at price level seen in the middle of April.The total aluminum hedge amounts to 250,000 tonnes for 2021 and 350,000 tonnes for '22 and '23. Raw material costs have been partly secured using financial derivatives or fixed pricing on physical raw material contracts.In addition, an amount of dollar/NOK hedges are in place. And with that, I give the word back to you, Hilde. Next slide, please.

[Hilde Merete Aasheim]

Thank you, Pal. Let's then conclude today with our key priorities going forward. Health and safety will always be top priority, both for our employees and the communities where we operate. We will continue to capture opportunities from strong markets to grow both volumes and margins. The improvement program is an important enabler to deliver on our strategic selection and will continue with full force. Our cost program and commercial ambitions have strong momentum and is well anchored in the organization. We will execute on the 2025 strategy to strengthen our position in low-carbon aluminum and grow in recycling and expand and diversify in new energy areas, including renewable growth, batteries and hydrogen. And finally, we will reaffirm our ambitions -- we reaffirm our ambitious target for climate and environment as sustainability is one of our competitive advantages and a key enabler for successfully delivering on our 2025 strategy.

[Line Haugetraa, Head of Investor Relations]

Thank you, Hilde. Then operator, we are ready for questions.

[Operator]

[Operator Instructions] We take our first question today.

[Liam Fitzpatrick, Head of European Metals and Mining]

It's Liam Fitzpatrick from Deutsche Bank. First question or 2, just on your new growth areas. I guess just a high-level question, trying to understand your thinking. There's a lot to absorb in this release.And there's now 3 or 4 different growth avenues that you're considering. So the question is, do you think you're taking on too much, given that the last 2 years has really been about cutting costs and simplifying the business? So interested in your thoughts on that. And then more specifically on hydrogen, can you give any sort of details on how much equity ownership you want to keep of this new hydrogen company that you're setting up. Is the plan to keep over 50% ownership? And can you give any kind of feel for the level of investments we could see if you do proceed with some of the projects that you're considering over the next 1 to 2 years? And one final operational-based one, if I can. Just on the Extrusions business, which has had a very strong quarter. How much of this uplift that we're seeing in Q1 and that you're guiding to Q2 is driven by lower costs, which will ultimately come back once travel restrictions -- and travel resumes?

[Hilde Merete Aasheim]

So if I can start on your comment to the growth areas and your question to, is this too much? That is obviously a question that is -- that we ask ourselves. But here, that is one of the reasons why we have been very carefully in establishing separate entities, refencing the initiative as well as realizing that the new entities within new energies has a lot to learn from each other.And we also see that these new initiatives also create a lot of excitement in the rest of the organization, while when we see that, as you said, we have been in a cost focus mode for many years. We see that this creates opportunities for our people to move in the company.And so yes, it's a lot on the agenda, but I believe that with the way we have set this up in separate organizational entities with mobilizing the people from our own organization, but also coming from outside because we realize that in some areas, we also need to -- we need expertise from outside. I feel confident that we have the right focus and let's say, the good basis for developing these renewable energy areas.When it comes to the -- perhaps you can comment on the equity. When it comes to the hydrogen area, that is the newest, and there's still a lot that we need to mature in terms of how we will set this up. We will organize it as a separate entity.We will bring in partners and -- but at this stage, it's still early days in, let's say, the financing of it. When it comes to the Extrusions and the cost situation, yes, Extrusions has done a fantastic job when it comes to working on the cost base, both during the -- during 2019 and 2020, but now also focusing on to preserve as much as possible overcasting gains through the SG&A initiatives, but also, obviously, getting effect of the restructuring that was done in the 2 last years.So we are cautiously optimistic in the sense of preserving as much of the gains that has been made. And -- but then also continues to focus on an efficient cost base of the site.

[Pal Kildemo]

Just to supplement Hilde on the equity ownership and capital expenditure side for both REIN and the hydrogen ventures, we are targeting majority of the ownership. And then for both of these entities, we are working to set up a model which limits the cash pull from the Hydro company. So both of these ventures, although given the ownership side, CapEx, et cetera, will be consolidated into Hydro's balance or what is done on the top level, not what is on in special purpose vehicle.We still aim to do it through a more or less cash-neutral setup with Hydro. The new growth initiatives, which will have a cash impact on Hydro in the short to medium-term is the batteries or battery initiative.

[Operator]

we now move on to our next questioner.

[Jason Robert Fairclough]

It's Jason Fairclough at Bank of America. And Pal, just up front, I wanted to thank you for your revised approach on the reporting metrics. This is going to be very helpful for comparability with peers. Right. So look, 2 quick questions from me. First, in terms of the market, China is exporting less aluminum by the looks of things. So we're going to have tight markets outside China.Could you talk about what price would see you consider adding Primary supply or what is the incentive price for you to build a new smelter? And then second, just in terms of the brands, the low carbon and the recycling. So volumes are picking up. But can you talk about whether this is actually a premium product yet?

[Pal Kildemo]

Thanks, Jason. I can start on the upstream side. At the moment, we are not discussing increasing primary aluminum capacity within our portfolio. That being said, the integrated margin level for the Norwegian operations, is at a level would make smelter investment more robust than they have been for a very long period in time.But at the moment, we are running a sustained and improved focus on our upstream business areas. Also driven by the fact that we've seen investment costs in other parts of the world being much lower than in the western part of the world. So we will continue to follow development and see how it plays out, but there's not a price level that figures up to make investments in the short term. Then on low carbon products?

[Hilde Merete Aasheim]

Yes. I can comment on that. Well, the low carbon products are still in the early phase. And what we have been doing is that we have targeted market segments that appreciate the low carbon, such as the building system and with the example that I gave from the Google office.And here, we see a willingness to pay a premium. But this is how we have to work to expand the interest and to -- and for the awareness of how the metal is produced and with the carbon footprint. So this is an ongoing work that we have to do, but we see that there is a trend out there, and these products get more and more traction.

[Jason Robert Fairclough]

Could I just have a follow-up? In terms of adding volumes, can you just remind us, do you have any opportunities to increased Primary Metal production? Are there -- is there mothballed capacity? Or do you have low capital intensity brownfield expansion potentially at any of the smelters?

[Hilde Merete Aasheim]

Right now, we are in the ramping up of the Husnes smelter in Norway. It's a line that was closed in the financial crisis, but then -- and we which will be up in full capacity during the summer this year. Other than that, we have some capacity out in Slovalco. But that's just a minor portion.That's some -- at this point, we are almost at -- operating at full capacity in the smelter portfolio.

[Pal Kildemo]

So additions will be more related to, to creep initiatives by getting more out of existing capacity on top of what Hilde mentioned...

[Hilde Merete Aasheim]

And recycling.

[Pal Kildemo]

And recycling.

[Operator]

We now move on to our next questioner.

[Ioannis Masvoulas, Equity Analyst]

This is Ioannis Masvoulas from Morgan Stanley. The first question from my side, just following up on Jason's question around potential for aluminum growth within the portfolio. It sounds like a lot of it is going to come by recycling. And it's fair to say that over the past 6 months, you have been focusing a lot on diversifying away from primary aluminum into all the green growth areas you have been talking about today.If we were to fast forward to, let's say, 2030 could you share with us your vision on how the earnings contribution from your B&A and smelting activities could change over the time frame relative to the 40% to 50% EBITDA share we've seen in the past years. And I'll stop here for the first question.

[Hilde Merete Aasheim]

I think we have -- when it comes to the -- we have shown some potential in terms of both EBITDA and growth when it comes to both the renewable energy batteries as well as now the new hydrogen but still the low-carbon aluminum part will be -- will constitute a large part of the company.And that is why we have these 2 pillars in the strategy to continue to grow on the low carbon with particularly growing in recycling and then to develop these new opportunities with the potentials that we have illustrated.

[Ioannis Masvoulas, Equity Analyst]

Okay. Great. And just a couple more from my side. Just on the hedging side, especially for Primary Metal. I guess that gives you more cash flow visibility as you look to reallocate capital in some of the growth areas. Could you remind us what's the upper range of percentage of volume that you are willing to hedge over the next few years? And separately, just on Bauxite & Alumina, looks like the crane damage continues to pose some additional costs into Q2. Do you expect further costs into the second half? And how likely is insurance compensation given the size of the overall growth we've seen since Q4 last year?

[Pal Kildemo]

Thank you, Ioannis. I can answer those questions. If we start with the cash flow. No, if we start with the last one, on the crane incident, then this impact the quarter have a bit more than what we had expected. And this is also driven by the fact that the solution to reduce costs have taken somewhat longer to get in than what we planned for.And so into Q1 -- Q2, we will be expecting another NOK 100 million or so but on a total level, so quite a reduction from what we saw in the first quarter. And then in Q3 and Q4, we will have smaller figures, probably around half of that again.So it's starting to become less significant. And what will change the situation is getting in place, a new solution because we're running more a temporary solution today. And we're still evaluating which process we'll go with there, thinking a bit longer-term also. Insurance compensation is difficult to comment on, at that current stage, and I don't want to set any expectations in either directions, but this is handled as an Extrusions case. So we will revert there when we have some more clarity.If I start with the hedging and with the hedging question, then we are reaching the ceiling for what we believe is a targeted level for the integrated margin hedge. We have said that we're moving up to 20%, 25%. That's where we believe we have a good balance between protecting and making the company somewhat more robust in the low case scenario, while still leaving the majority of the portfolio open for positive price movement.

[Operator]

We now move on to our next questioner.

[Amos Charles Fletcher, Director]

It's Amos Fletcher from Barclays here. I just had a couple of questions. The first one was around the net debt level. I just wanted to get a feeling for do you have in your minds a net level below which you would seek to return surplus cash flow, sort of over and above the dividend policy? And then the second question is just on batteries. Just looking at your projections for potential CapEx and potential EBITDA. Could you just give us some sort of detail on where that EBITDA is coming from and sort of, I guess, a little bit of a sort of buildup behind the numbers that you've given there in terms of NOK 600 million, NOK 700 million pro rata by 2025?

[Pal Kildemo]

Yes. I can start here with the net debt level. Basically, we are approaching a level, which is well within our targeted levels that we updated at the Investor Day in 2020. We don't have a trigger, which will result in the payout of extraordinary dividend or similar. But as we move forward now with the strategic process, allocating capital to the different areas, evaluating the possibilities that we see going forward. We will make an evaluation towards the dividend process at the end of next year or our Board will do so to set the level for 2021 as a whole, and there we need to ensure that there is a good balance between strength of balance sheet, available capital for investments and return to shareholders.And given the current earnings environment, and our policy of a minimum of 50% over the cycle, there is, of course, a good room for a significant increase in dividend into next year. And the second question was on...

[Hilde Merete Aasheim]

Batteries.

[Pal Kildemo]

Batteries, yes. We -- all of these new growth areas that we operate in. We are working in the mode where we have quite a large pipeline of alternatives. So we are maturing more ambitions than we believe we will end up with at the end of the day to ensure that, that certain value creation is generated. So splitting it up per contributor is a bit difficult because some might fall out in some time, some might progress, some might be larger than what we expect currently.But the overall ambition has a long pipeline, which allows for some flexibility in which projects we pursue. So if you look at the 2025 ambition of NOK 2.5 billion to NOK 3 billion of investments, delivering an EBITDA of between NOK 600 million and NOK 700 million, then the list is much longer than these levels. On the current initiatives which we have visualized, of course, the largest contributors in this setup, as we see it today, is the joint venture we have with Panasonic and Equinor. Also Corvus is of a growing scale and the HydroVolt initiative has quite some potential if we ramp up further than what we have in the current plan. So these 3 are, of course, heavy contributors. But then we have 4 or 5 initiatives or more that are not covered by this overview. And if some of these investments slow a bit down and we see that the business case doesn't stand up, we might reprioritize a bit within the portfolio. So we will keep you updated on a semi-annual basis through these strategic reviews on which projects are progressing well or not. And so far, corporate energy, we see development, as Hilde mentioned, HydroVolt is going as planned. And then we have some obstacles now in the joint venture with respect to rules of origin, but we will see if we can -- are able to cater for that risk over the coming year or not.

[Amos Charles Fletcher, Director]

Okay. So I guess that pro rata EBITDA, is that based on a target return on capital employed? Or is there sort of more to it than that as it were?

[Pal Kildemo]

Yes. Of course, all of these have a targeted return on capital employed and we screen based on the best returning candidate. The same approach we run in recycling and the REIN venture and hydrogen also.

[Operator]

We now move on to our next question.

[Daniel Edward Major, Director and Analyst]

Dan Major from UBS. First question, a follow-up from Jason slightly, just to clarify on the numbers around the green premiums. If I look at Page 11, you allocate 20% to the NOK 1.5 billion commercial ambition to new products, including greener brands.Is it fair to assume that, that is effectively capturing your estimate of the financial upside from greener brands? Is that what we should read from that chart?

[Pal Kildemo]

No, because that only covers the greener premiums that aluminum metal receives on their product. And then, that there might be an additional effect when Extrusions null them further out in the market. So as you know, between these 2 business areas, there's less differentiation possibilities in Primary than there is in Extrusion as it is more project based.So as Hilde mentioned earlier, we are targeting premiums on the majority of our volumes. But for some of them, we will also target volumetric increases. And as this market moves forward, you will see that gradually reflected to a larger extent in our realized premiums overview at the end of the day. But of course, at the end of the day, this is also a negotiation on a customer-by-customer basis. And as such, we don't want to disclose the exact details of these premium components.

[Daniel Edward Major, Director and Analyst]

Okay. Next question is on the indirect carbon compensation that you are beginning to accrue through the P&L. When do you expect to see that reflected in the cash flow statement?

[Pal Kildemo]

I guess that is more towards 2022. The setup is currently so, that you get paid in a year after you produced the material and consume the carbon in a way.

[Daniel Edward Major, Director and Analyst]

Okay. And just to be -- so it's an accounting question. So that, I guess, will be reflected, you build a payable -- I'm sorry, receivable on the balance sheet. And then because you will add that -- is that correct?

[Pal Kildemo]

Yes. So we will incorporate now and then we'll reverse this next year, and then you get the cash flow in.

[Daniel Edward Major, Director and Analyst]

Okay. And that's about -- it would be about NOK 700 million to NOK 1 billion of cash flow that you'd received as a one-off payment in early 2022, I guess?

[Pal Kildemo]

That will come in, in 2022, yes.

[Daniel Edward Major, Director and Analyst]

Okay. Great. And just final question on Extruded. You obviously mentioned around kind of growth rates relative to market expectations, but on a year-on-year basis, where we're talking, obviously, quite a skewed base. If we just purely look sequentially relative to Q1, is it fair to assume you'd see higher volumes, higher EBITDA?

[Pal Kildemo]

Yes, that's a good question. And I understand the challenge in using the second quarter last year as the baseline and numbers become so big with respect to volume growth. I just want to stress that we expect higher volume growth than what the market is seeing, as of this 36% and 30%, which CRU refers to, we will most likely end up a bit above that. And then I think your second question is very relevant. If you look at historical developments and seasonality in our Extrusion operations, we often come in higher in the second quarter than the first quarter. And as the market is playing out now with more normalization, et cetera, we expect to see that trend also in the current year.The only risk element I would like to flag in that context, which could result in a different picture is if we see some challenges on the supply side. As you know, markets are very tight currently, and supply chains are tight. So if we get any form of global hiccup, which happens from time to time in the aluminum industry, then that could impact what we get of earnings in second quarter.But if thing goes as planned, we should expect to see a seasonally stronger second quarter than first quarter.

[Operator]

We now move on to our next questioner.

[Liam Fitzpatrick, Head of European Metals and Mining]

It's Liam Fitzpatrick again from Deutsche Bank. Two very quick questions, hopefully. Just on premiums, the Q2 guide, given what we're seeing in terms of regional premiums looks low. Can you just give a bit of color there? Should we expect that premiums will move higher again as we look into Q3? And then just coming back to the CO2 point.So you haven't changed the guidance of up to NOK 1 billion EBIT uplift. But since you provided that guidance, the CO2 price has gone up by over 50%. And my understanding was that there was a positive direct correlation there. Can you just give a bit of color in terms of how that's impacted your guidance?

[Pal Kildemo]

Yes. On the premium side, then it is true. We expect higher premiums in the third and fourth quarter if market remains where they are now. And most likely, in most situations, as we have already booked quite a lot into the third and fourth quarter. So there is quite a lag on the realized premiums. You know there's some full year contracts, some shorter contracts, and then you get the total situation of 3 to 4 months or so.So we expect an increase in Q2, further in Q3, further in Q4. And if spot prices remain where they are now, you should see stronger premiums into next year also. In a historical context, our billet premiums are very high now, approaching $900, for example, for extrusion ingot.And the second question was on CO2, yes. No, within that, the range is also development in the CO2 price and we are at current price levels, so you're probably towards the higher end of that range than the lower end of that range.

[Operator]

We now take our next questioner.

[Jatinder Goel, Research Analyst]

Jatinder Goel from Exane BNP Paribas. Just a question on wind, solar and hydrogen. You've got a big hydropower portfolio as well, but its external exposure is limited because most of it gets used internally. Just to understand, on your wind, solar and hydrogen because you have this opportunity to electrify in Brazil and also switch from gas to hydrogen in many of your operations as you indicated. What would be the eventual external exposure of wind, solar and hydrogen once you get to your stated ambition? How much will be used internally versus externally of your attributable share from these 2 businesses?

[Pal Kildemo]

Yes. I think it's still a bit early days, Jatinder. But to give some color on the total landscape, if you start with bauxite or Brazil and the repowering efforts that we're running there, then for the smelter and the Bauxite & Alumina operations, they both rely on external power as is the case today. And then as we progress on developing hydro or solar and wind projects down there, then a larger share will be based on a percentage of equity production depending a bit on, one, our ownership in the Topco and, two, the ownership of the Topco to the special purpose vehicle. And then how much of the external sourcing these plants end up consuming.And then you have a similar situation across the Nordics and through the hydrogen portfolio, so we don't have the full details in place there yet as we are developing on a portfolio basis, negotiating contracts, negotiating ownerships. So we will have to update that as the pipeline becomes more concrete, and we have a better view on what ownership we will have in the different operations.But it will not, of course, be 100% or even a percentage reflecting an ownership in these Topcos because these will be built up in special purpose vehicles where the Topco also has a smaller ownership stake than 100%.

[Jatinder Goel, Research Analyst]

Sure. That's very helpful. Just to get the thinking clearly, is the idea to go into these businesses to make more money for the businesses by going and serving the outside world? Or is it more to home improve and make your own operations exposed to greener energy over the medium term?

[Hilde Merete Aasheim]

I think the internal demand creates a substance to the projects and that we can build capability based on the internal demand. And then while we are doing that, we are also -- we can also approach the external markets. So it is both.

[Operator]

At this stage, we have no further questions in the queue.

[Line Haugetraa, Head of Investor Relations]

Thank you. Thank you, operator. Then I would just wish to thank you all for joining our call today. And please don't hesitate to call us or send us an e-mail in Investor Relations if you have further questions. Thank you, and have a good day.