Norsk Hydro ASA

OSE:NHY

Earnings Call Transcript 2018-Q3

[Inger Sethov]

[Audio Gap] also to all of you following us on the webcast this morning. We are going to present the results for the third quarter 2018. And the results will, as normal, be presented by our CEO, Svein Richard Brandtzæg; and CFO, Eivind Kallevik. And after that, we will have time for questions here in Oslo and also from the audience.So, Svein Richard?

[Svein Richard Brandtzæg]

Thank you very much, Inger. And let me start with the highlights from the third quarter of this year.The underlying result was NOK 2.7 billion, up from NOK 2.4 billion in the same quarter last year. So we are now comparing our results with the same quarter in 2017.We are producing at 50% in Alunorte, and Paragominas and also Albras in Brazil, which affects the volumes, of course, but also some cost inefficiencies.We have signed a technical and social agreement with authorities in Brazil in the quarter, and I will come back to the Brazil situation later in my presentation.The main factors that are affecting the underlying results in the third quarter this year is higher all-in aluminum prices, 17% higher than the same quarter last year, and also higher alumina prices, which were 50% -- more than 50% higher than the third quarter in 2017. This was more than offset by higher raw material cost. Especially, the alumina cost was high, but there were also some higher fixed costs.Energy delivered a solid result due to higher prices and good production. We also had stable results in our Austin operations, same level as the third quarter 2017.Obviously, we are focusing very much on improving our businesses, and the Better program is on top of the priority list. And we are also obtaining several good improvements along the value chain, but due to the situation in Brazil, we will not be able to deliver on the target, which is NOK 0.5 billion in 2018.With regards to the global market, we are now in a deficit situation. There's also some uncertainties related to the U.S. tariffs, the Rusal sanctions and also the situation in Alunorte.We are taking down the expectation for growth for primary aluminum this year, from 4% to 5% to 3% to 4%. But we also see that the expectation on production and then the growth of production has been taken down from 2% to 3% to 1%.Before going into more details on the market and the results, let me then move over to Brazil and the situation we have in Alunorte and our operations in Brazil.With regard to the embargos, to give you an update there, we have an embargo on 50% production from SEMAS. That was confirmed by the court. That limited production to 50% capacity, but also, the court decided that they could not use the DRS2, the new area for storage of bauxite residues. This was on the request of Ministèrio Pùblico.IBAMA, upholds the embargo on the new bauxite residual area, DRS2, but gave us an exceptional authorization to use the press filter, together with the new -- or the old area for storage of bauxite residue, DRS1, on October 5. That means that we can now continue to use the old bauxite residue area, DRS1, together with the press filter. On operations, as I said, we are operating at 50% capacity in Alunorte. The Paragominas is directly connected to Alunorte, so we are also operating at 50% capacity in our bauxite mine, Paragominas. And as Albras only have one source of alumina, the aluminum smelter beside Alunorte, we are operating also Albras at 50%.We have now secured sourcing of alumina for the smelters for the rest of the year, and we have done third-party sourcing for the smelters for the volumes that we are not having from Brazil.With regard to the disruption in production in the beginning of the month, it will have limited financial implications as we came back to 50% production very quickly after the decision to close the operations in the beginning of the month after the report came from the experts in geotechnical -- the geotechnical advisers.Just to give you an overview of the situation, this map shows the old area for storage of bauxite residue, DRS1, and also the new area, DRS2, which is -- I would say, together with the press filter, the only sustainable way to store bauxite residues in -- for Alunorte. The press filters and drum filters you see in the location, and the bauxite residue is transported from the press filter to the DRS1 today, but we have also a transport system over to DRS2 that is ready to use. And again, this is the future operations for Alunorte to use the press filter together with DRS2.If you then move over to the disposal system, there has been quite a lot of discussion between -- or regarding the old and the new bauxite residue areas, the DRS1 and the DRS2. We are planning for the depletion of DRS1 quite some time ago. That's why we decided already in 2014 to invest in the most technically advanced and the most environmentally friendly way to handle bauxite residues. So we invested in the press filter, together with the new bauxite residue deposit area, DRS2.It was planned to ramp up the DRS2 and the press filter at -- in parallel with the ramping down the drum filter and the DRS1. But the embargo on the press filter and the DRS2 stopped the commissioning and the learning curve that we were expecting to have for some months, leading to, also, more drum filter residue going into DRS1, which also accelerated the depletion of DRS1.The initial assessment was positive with regard to extending the lifetime of DRS1. However, the findings in the external report that came in October 3 made the management of Alunorte to decide to stop the production because there were clear conclusions in that report that the combination of drum filter and the DRS1 was coming to an end.If you then look further on the DRS2 and the press filter, as I said, the combination between DRS2 and press filter is very sustainable and the only sustainable solution for long-term operations for Alunorte. The press filter is creating a dryer, what we call filter cake, and also stackable material. It's more -- much more environmental friendly and also gives a much smaller environmental footprint than the combination of drum filter and DRS1.We have 8 filters in place -- 8 press filters in place already. The first part of commissioning period showed that this could be a limiting factor, so we are now installing a ninth filter that will be in operation in the quarter 2 or quarter 3 next year.So the fact that DRS2 and the press filter was part of the embargo that interrupted the commissioning of the press filter, we -- this -- and stopped the learning curve and -- with all new equipments, we know that it's necessary to have optimization and fine-tuning, and that was lost for the last 8 months. Now we are back in operation at the press filter. So the postponed commissioning of the press filter and the fact that we could not use anymore the drum filter and DRS,1, could imply a dry delay in the ramp up of Alunorte.The agreements that we have signed in -- up in Brazil with the authorities can be divided in 2 parts. It's a technical part: the TAC which consists of studies and audit that we are going to do. It's also a strengthening of the water treatment system. It's also food cards for the neighbors and settlements of fines. So it's all different elements that it's going to be delivered on, some of them is already delivered.On the social agreement, that is about building, housing and infrastructure and to make that to the state of power that will handle this for the population, and that will have a cost of BRL 150 million.We are -- have organized the follow-up of this as a special workforce as an organization that is following that up. And we are committed to deliver, of course, on both agreements that we have signed with the Ministèrio Pùblico, Government of Pará and ourselves.With regard to the process going forward now, we are fully committed, as I said, to deliver on the agreements. We are now constructing a new water reservoir in Brazil, in Alunorte, to make Alunorte even more robust. And we're also constructing a new water treatment system that will be finished in the second quarter. The water reservoir system will be finalized in the end of this year.We also have the sustainable Barcarena Initiative that we have talked about previously that we are committed to deliver on. That will go on over several years. And we continue constructive dialogue with the Government of Pará, the Ministèrio Pùblico and SEMAS, and that is ongoing as we speak, and we are now establishing a common platform where we can then agree to lift the embargo.We're also working constructively with the authorities on legal and political process that is ongoing. And the big question when we are going to lift or when we expect to lift the embargo is a question I cannot answer exactly now, but we are working hard to make sure that we can lift this embargo as soon as possible. But I cannot give you any time line when the embargo will be lifted.If you then move over to the market, we have had 4.1% higher demand in the third quarter this year compared to the third quarter last year, 5.4% in China and 2.5% outside China. If you look at the situation in the quarter itself with regard to supply and demand, it was quite balanced in China and with a deficit of about 0.5 million tonnes outside China.So on the right side, if you'd add that, the numbers, and look at the 12 months' rolling situation, we are now in a substantial deficit in the global primary aluminum market. And as I said, we are taking down the growth expectation for this year, from 4% to 5% to 3% to 4%. We expect that the global inventories now are going down. We have seen about 300,000 tonnes lower inventories. But the total inventories are still at around 11 million tonnes if you add up the registered inventories and also the unregistered inventories.If you take a closer look at the supply-demand balance, there are some changes since the previous quarter. What we have not changed is the growth figures for China, which is still 4% to 5% -- 4% to 6%. Growth outside China has been taken down from 3% to 4% to 2% to 3%. That is what we expect now for the year 2018, but we're also taking down the growth of production in China, from 2% to 3% to 0 to 1%; and also, the growth outside China to 1% to 2% from 2% to 3%. So all in all, when we add this up, we will see a deficit this year of about 1.5 million to 2 million tonnes globally.If we then move over to the pricing, the Primary Metal prices, the LME and the Shanghai prices. There are quite some deviations between these prices, which also incentivized exports out of China. And we see now both a 7% higher export out of China in the -- since the previous quarter and 27% higher export compared to the third quarter last year.The market price went down from $2,257 per tonne in the previous quarter to $2,068 per tonne in the third quarter. The LME varied between $2,050 and $2,100 per tonne. The realized price was $2,194 per tonne, up from $2,183 in the previous quarter and $1,921 per tonne in the third quarter last year.If we look at the standard ingot premiums, in the U.S. market, $435 per tonne. And we saw oil price around $143 per tonne in the quarter. Now it's more at $134 per tonne in the European market.If we look at the alumina prices, also, here big variations, quite volatile in the quarter, varying from $445 per tonne up to $640 per tonne in the quarter. The realized alumina price was $460 per tonne, up from $430 per tonne in the previous quarter and $297 per tonne in the third quarter of 2017.We see there are some price arbitrage and export from China. There are some changes there, but we still about 400,000 tonnes of alumina exported out of China. The volatile situation is, of course, as I mentioned previously, influenced by the Rusal situation, it's the Alunorte situation, but also strike in Australia. As I said, we have now secured sourcing of alumina to the smelters for the rest of 2018.If we then move downstream and look at the extrusion market and the rolled products market. We see that the extrusion market in Europe is on the way to grow at the speed of 2% to 3%, and the extrusion market in the U.S. is now growing at the speed of 5%.And the extrusion market is solely demand in building and construction, but it's really the transport and automotive that is growing at a very high speed. This is due to substitution, but in North America market, we see now that where we expected 6% growth in this market, previously, we now see 6.9% growth, and it's driven by heavy truck and trailers that is now at the higher levels -- higher growth levels than what we expected, in addition to the substitution.In the rolled products market, we expect somewhat below 4% growth in Europe, also have strong development in transport and automotive, in addition to building and construction. And again, in the North America market, it's the heavy truck and trailer market that is now consuming more and more aluminum. In total, around somewhat below 4% growth in rolled products market in Europe and 4% growth in North America.We have talked about the cost development for the impact factors for alumina production and aluminum production during the last quarters. And the caustic soda has, of course, been one of the major factors that have more than doubled over the last 2 years. We see now, during the last quarters, that the prices are coming down on caustic soda. We see fuel oil still increasing in price, and coal price is now moving sideways.For aluminum metal production, it is the alumina price that has increased significantly. But we see now, in this quarter, that this will be lower priced than in the previous quarter. On the anode input factors like coal tar pitch and petrol coke, the price is moving sideways. You should keep in mind that there are 2 to 3 months' time lag from the market prices, it's changing to -- we see this as a profitable resource [ here too ].If we then move over to the business areas and start with the Bauxite & Alumina. We had higher costs in the quarter this year compared to the third quarter last year, but similar level as the previous quarter. We have high alumina sourcing cost and also increased raw material prices that are affecting the cost level. But we also have positive currency development with the strengthening dollar compared to the BRL. Margins are high due to high alumina prices.On the metal production side, also here, we have higher cost than the third quarter last year, similar level as the previous quarter, higher margins due to higher prices. Increased alumina cost is, of course, a major factor here. But we also have, of course, the contribution from power sale in Albras.If we then move over to Rolled Products, 2% higher sales year-to-date compared to the same period last year, very much driven by automotive, fairly flat on the other products. We sold 27% more body-in-white material this quarter compared to -- or this period compared to the same period last year. This can be ascribed to a much better performance on the automotive line 3 that we have had some ramp-up problems previously.Comparing this quarter with the third quarter, isolated, it's fairly flat on the total volumes, lower sales on can. And this can be ascribed to some operational issues at Alunorte, which can also be seen when we compare the third quarter this year with the second quarter this year.We have 6% lower sales, which is more than the normal seasonal variation. And this can be ascribed to the fact that there are some issues related to coal mills in Alunorte, which is one of the biggest rolling mills in the world.This rolling mill have had some operational issues, as I mentioned, some downtime, downtime that has led to lower output and lower stability. This is something that we are addressing. This is a joint venture together with Novelis, and we are now using the best people to solve these issues. But this operational performance is now also going to be seen into the fourth quarter this year.The recycling facility for used beverage cans in Germany is moving slowly in the right direction, but we still have to solve a technical issue there that is about dust accumulation that will be now solved with -- in connection with the maintenance stop in the end of the year and beginning of next year. And we are targeting stable output at the level of 40,000 tonnes as a run rate towards the end of 2019.In Extruded Solutions, also had continued focus on value-over-volume strategy, which has helped the business to deliver better results. And if we take away the integration cost in Brazil, this is another quarter where Extruded Solutions is delivering better results in the quarter than the same quarter the year before as they have done every quarter since 2013.You see the cost of development on margins in each business area, except Precision Tubing, and that is the area where we have the integration cost in Brazil. The Brazilian operation is a part of the Precision Tubing business. And the integration is continuing, that was after the acquisition of the Arconic extruders in Brazil, and they are now being integrated to the Hydro system gradually.There are several interesting opportunities to develop the Extrusion business, and one is the fact that we are now investing in big press in Cressona, which is our biggest extrusion plant in U.S. That will increase the capacity with 5,000 tonnes and will supply their higher demand in automobile and transport market, like Ford, in U.S. And again, this is a good example of the direction where we are targeting markets, which will require high quality and advanced technology and competence. The investment is estimated at $45 million for this new press in Cressona.On the primary side, we also have interesting opportunities. We have previously talked about the investment decision that we made for bringing Husnes back to full speed. And we have now also made a final build decision for Husnes, meaning that Husnes will double the production within -- in the time that is necessary -- after the time that is necessary to change the cathodes and prepare the plant for full production. We think that other plan is to have the production in the first half of 2020, meaning, that we will then ramp up the plant during the first half of 2020 and bring production from 95,000 tonnes to 190,000 tonnes in Husnes. That has an -- is an investment cost of NOK 1.4 billion. Husnes was taken down to 50% capacity during the financial crisis in 2009.We're also investing in a remelt facility in Slovalco. We have a smelter there that have a capacity of 170,000 tonnes. And this remelter will add another 50,000-tonne capacity and will handle process scrap in the Central European area. And again, this is a good logistical solution for handling the scrap and a good investment for Hydro, which is EUR 13 million.In Spain, also in Madrid, we have a remelter that will now also take care of recycling material. And we will now add the EUR 10 million in investment that will give capability to this plant to recycle post-consumed scrap and produce the 75R product which is the product based on 75% or more recycled material, which is a sustainable product, a low-carbon product for the extrusion market.And finally, Energy. Energy delivered a strong result, very much driven by, of course, good production, but also higher prices. The prices were affected by high CO2 prices and also high coal prices on the continent, but also a very negative hydrological balance. So altogether, it resulted in a very strong result.We had, in the end of the quarter, about 7 terawatt hours below the normal. We are now, after a heavy rainfall that we have observed during the last weeks, we've seen that the hydrological balance is around 4 terawatt hour below normal. This is also affecting the prices that has now coming down.And with this, I give the word to Eivind, please.

[Eivind Kallevik]

Thank you, Svein Richard, and good morning to all of you from me as well.This quarter, we delivered an underlying result before financial items and tax of approximately NOK 2.7 billion, which is up NOK 300 million compared to the same period last year and roughly in line with what we delivered in second quarter this year. The main factors contributing positively to the NOK 2.5 billion this quarter are higher realized prices for aluminum as well as higher realized prices for alumina, contributing some NOK 1.4 billion and NOK 1.1 billion, respectively.Currency development, mainly the weakening of the BRL versus the U.S. dollar, contributed to the result with roughly NOK 300 million -- or NOK 500 million. Energy had an all-time high result this quarter, up some NOK 300 million compared to the same period last year.On the negative side, though, we've also seen significant increase in raw material costs over the last 12 months, reducing the results with some NOK 2.9 billion. The alumina cost increase in primary alone is about NOK 1.4 billion. Higher carbon, higher power price added almost NOK 500 million to the negative side. Another NOK 500 million comes as raw material cost increases in Bauxite & Alumina through higher fuel, higher energy and higher bauxite costs. In addition, there's also somewhat higher fixed cost, both in primary as well as in B&A, adding NOK 400 million to the fixed cost line.We also saw some negative volume effects on the upstream side, taking down the results with roughly NOK 500 million, and that is primarily driven by the situation that we have at Alunorte. The downstream results are relatively flat between the periods.The last item, the Other item, is a combination of several items adding up to positive NOK 0.4 billion. The largest gain here is the profitability around the sale of excess power in Brazil related to the Alunorte -- Albras curtailment.We then take a quick look at the key financials. Revenues are up some NOK 17 billion between the quarters. This is mainly impacted by the inclusion of Extruded Solutions as well as reflecting increased prices, which is then partly offset by the lower volumes.This quarter, we have excluded from reported EBIT of NOK 2.1 billion a loss of roughly NOK 620 million. Of this, roughly NOK 519 million relates to the signed TAC and TC agreements in Brazil. And with that exclusion, we end up with an underlying EBIT of NOK 2.7 billion.The financial expenses of NOK 0.4 billion are mainly unrealized. Roughly NOK 0.3 billion of that is a result of the weakening BRL versus the U.S. dollar impacting the dollar debt that we do carry in Brazil.As a result of this, the income tax -- the income before tax in Q3 was roughly NOK 1.6 billion, compared to NOK 2.8 billion in the same period last year, and the income taxes then represents roughly 43% This gives us a net income of NOK 0.9 billion, which is down from the NOK 2.2 billion in the same quarter last year. The underlying net income, however, was NOK 1.7 billion, which is slightly down from the NOK 1.8 billion in the same quarter last year. Consequently, earnings per share is also slightly down to [ NOK 0.75 ] per share -- NOK 0.75 per share, a bit different. We enter to the business areas and start with the Bauxite & Alumina. The underlying EBIT for this business area improved from NOK 430 million in Q3 in '17 to NOK 685 million in the third quarter of 2018. And let me remind you once again that this excludes the NOK 519 million that is related to the TAC and the TC agreements.By far, the main driver behind the improved results this quarter is the 55% higher realized alumina price. This lifts the results with roughly NOK 1 billion. In addition, the weakening of the BRL versus the U.S. dollar of roughly 25% also contributed positively to the results with approximately NOK 400 million.At the same time, the 50% reduction restrictions at Alunorte and, consequently, then at Paragominas, had a negative volume effect of roughly NOK 300 million. In addition to the volume shortfall, the lower production also meets the higher fixed costs per tonne as the fixed costs remained relatively stable on an absolute level and then has the result impact as a consequence.We also had the higher sourcing cost this quarter since we had to source more third-party alumina at increased PAX index to compensate for the shortfall in Alunorte.In total, for 2018, we anticipate to source an additional 1 million to 1.5 million tonnes of alumina in the market on top of the normal sourcing situation of 2 million to 2.5 million tonnes per year.Another major driver in the negative direction is, of course, the raw material costs, which reduced results with roughly NOK 0.5 billion, as energy and caustic soda and bauxite prices all increased since the Q3 '17 results.Then to give you an impact or an indication of the impact on the results of the curtailment of Alunorte and Paragominas. If we had assumed that Alunorte and Paragominas were at full production and we used the realized price of $360, which we had prior to the curtailment or the embargo, and the cost level that we had in the third quarter this year, the underlying EBIT for this business area would be roughly NOK 1.3 billion.Now if we take the realized price level as we had in the third quarter this year of approximately $460, then the underlying EBIT for B&A would be approximately NOK 2.3 billion. So I think it is fair to assume that the Alunorte situation in particular has had an impact in terms of lifting alumina prices for the quarter.If we look into fourth quarter. As Svein Richard has already explained, we do have good and constructive dialogue with the authorities, but we do not have a clear indication of the time line as to when we can take Alunorte back up to 100%.On the raw material cost side, if we look at the market prices today, we do not expect any further increases on the caustic side, but we do continue to see an increase cost, both for fuel oil as well as for coal.The financial and operational impact of the event we had in the period from October 3 to October 8, is expected to be relatively minor. The volume shortfall that we lost in this period is expected to be 20,000 to 30,000 tonnes, which are tonnes that we cannot recuperate for the rest of this period.Svein Richard has taken you through all the actions and efforts we are doing to resume full operations at Alunorte. But in this period, we also made several commitments and investments both on the social, regulatory and an operational side. So let me take a little bit of time to go through these investments and what they are and the value of those.The TAC, or the Terms of Adjusted Conduct, which was signed with Ministèrio Pùblico and the Government of Pará on September 5, they outlined several actions and initiatives that need to be taken. This has an estimated cost of NOK 168 million. Most of these have been expensed now in Q3, with approximately NOK 35 million left to be capitalized over the coming years. The terms of commitment was signed with the same parties that -- or with the Government of Pará that outlines investments of a social nature of approximately BRL 150 million -- BRL 168 million, I'm sorry and most of these have been expensed also in this quarter -- full amount was expensed this quarter.Another social initiative that has been previously announced is the Sustainable Barcarena Initiative. That is BRL 100 million, which we've committed to invest in the next 10 years. Those costs will be expensed as they are incurred.The final 3 items on this list relates more to operational investments, which is necessary to ensure and prepare Alunorte for the increased climate risk nature and the related extreme weather events that we saw in February of 2018.Svein Richard mentioned the water treatment plant, which has a somewhat increased CapEx of BRL 235 million, compared to the BRL 195 million previously communicated. The original investment for this was to increase the water reservoir capacity up with 150% and the water treatment capacity with 50%. As we mature the project, we now see that we can actually increase the water reservoir capacity with 350%, and this will still be delivered within the fourth quarter of this year.In addition, we've seen that there is a further need to strengthen the infrastructure around the water treatment and management system, and we will do this by the second quarter of '19. This mainly relates to additional pipes and valves in the infrastructure surrounding this area, and this amounts to an additional budget of BRL 250 million.Furthermore, in addition to the improvements that I've just mentioned, there is also some need for upgrades to the refinery itself, also to cater to future extreme weather events. And this amounts then to BRL 190 million, and these investments will be carried out in the period of 2018 to 2020.So to summarize, the total operational social and regulatory commitments related to the Alunorte situation now adds up to BRL 1.1 billion with approximately BRL 710 million of this affecting CapEx in 2018 to 2020. These investments are necessary to improve the preparedness for increased parameters, establish the license to operate long term in Pará and ultimately then, to assume full operations in Alunorte.We turn to Primary Metal. The underlying EBIT decreased in the third quarter from the same quarter last year, from NOK 1.3 billion to NOK 861 million. We did realize a 17% higher all-in aluminum price, up from $2,182 to $2,561 per tonne, lifting the results with approximately NOK 1.3 billion.At the same time, we have seen a very strong cost push in the Primary division, primarily driven by alumina, but also by pet coke and, to a certain extent, Energy. The higher alumina cost is then reflected in the 2 to 3 months lag that we have, the higher PAX level as well as the higher amounts sourced on the PAX index, altogether reducing the results with some NOK 1.4 billion.The higher carbon costs, including pet coke and pitch, reduced the results with roughly NOK 300 million. Fixed costs are also somewhat up compared to Q3 2017, and this is mostly related to additional manning for the Karmøy Technology Pilot, altogether approximately NOK 200 million.Production and sales volumes are down somewhat, primarily due to the Albras curtailment. That, of course, is partly offset by the volumes we get from the Karmøy Technology Pilot with another NOK 200 million in [ smelter ].In Q3, we did see a significant positive contribution from the sale of excess power following the production curtailment in Albras smelter in Brazil. And of course, in the dry season, as we have just been through in Brazil, the prices are structurally high in this period.When we look into Q4 and assume that the Albras matter is still curtailed, we will continue to sell excess power. But prices are starting to come down on the back of more normalized precipitation and lower demand in Brazil.On the price side for aluminum, we have sold approximately 60% of the primary production in Q4 at the price level of $2,050. We've also booked roughly 55% of the premium for Q4 at $445 per tonne. In aggregate, for Q4, we expect premiums to come in, in the range of $350 to $400 per tonne.We look at the raw material cost situation in Q4. We do expect fairly stable carbon and energy costs in the fourth quarter compared to this quarter. However, due to the higher PAX index and the relatively higher sourcing on PAX index, we continue to expect higher alumina cost in the fourth quarter to the tune of roughly NOK 200 million.Let me also spend just some words on Qatalum this quarter. On October 17, Qatalum experienced a temporary power disturbance. The power was restored and production was stabilized. However, in this process, it was decided to, in a controlled manner, to take down some of the cells as a precautionary measure to ensure safe operations going forward. The expected volume and financial impact for this for the fourth quarter is relatively limited, and we expect the production loss of roughly 10,000 tonnes for the fourth quarter with no expected impact for Q1.If we look to Metal Markets. They delivered an online EBIT this quarter of minus NOK 3 million, compared to NOK 91 million in the third quarter last year. Now if we exclude NOK 81 million in negative currency effects, which was also the main deviation between the quarters, the result is NOK 78 million, down from NOK 107 million last quarter or the third quarter last year, which is largely in line with the guidance we have on NOK 100 million run rate in the quarter.When we look into fourth quarter, it is basically just normal guidance, by nature, the results of Metal Market are volatile, driven by the LME prices and currency effects.If we turn to the downstream areas and start with Rolled Products. The Rolled Products area also delivered a somewhat lower result in Q3 of NOK 82 million, compared to the same period last year of NOK 95 million. On the positive side, we did see improved margins on the average for the portfolio. In addition, the production performance in Alunorte -- in automotive line #3 as well as UBC was also improved compared to the same quarter last year.However, the volume perspective, the volumes are still flat despite the improved performance at automotive line 3. And this is something that we can explain -- primarily explain by the operational issues we've had in Alunorf.Also, on the cost side, we have somewhat higher personnel cost as the annual wage increase is now kicking in. And we do have higher energy costs in Germany on the unhedged volumes for our system. The main effect, though, for this quarter is really related to raw material. In particular, alumina, cost development -- that has a significant cost development or cost impact on the Neuss smelter.The total negative effect this quarter for higher raw material costs in Q3 was roughly NOK 150 million, more than offsetting the improved energy contract we had for the smelter as well as the higher dealer aluminum prices so far.If we look into Q4. You should expect the normal seasonal decline for the fourth quarter and expect continued margin pressures, as we have seen also in previous periods, for key areas within the Rolled Products area. When it comes to Alunorf, we are working to fixing those operational issues, but we do not expect that to be fully resolved in the fourth quarter.On the raw material side for Neuss, do remember that the results are impacted by the raw material cost and LME price. And we do expect further increases in alumina cost for the smelter in the fourth quarter. Let me just remind you that, based on Q3 results, another 10% change in the PAX price for Rolled Products will have a negative cost impact of NOK 120 million on alumina alone.If we look to Extruded Solutions and to make the results comparable, I will compare this on a pro forma basis. And the biggest impact on a pro forma basis is the excess value depreciation that we have added. That is roughly NOK 300 million on an annual basis from previous quarter's results. The underlying result this quarter was NOK 497 million, slightly down from NOK 510 million in the same quarter last year.On the positive side, and as Svein Richard explained, the net added value per kilo continued to improve strongly on a year-over-year, reflecting the value-over-volume strategy. However, the net added value improvement this quarter was more than offset by increased production costs, partly due to ramp-up of new production lines as well as some smaller operational issues.The North American operations also suffered from the 232 tariffs as well as a somewhat Mid-West premium. And Precision Tubing had a negative effect from the integration of the 2 new extrusion plants we acquired from Arconic in Brazil.Looking into fourth quarter. We are working hard on stabilizing the new product lines, and we expect to see improvements on those. And we are putting in place mitigating actions to offset the trade-related -- or the 232 increased costs in the U.S. However, we do expect to see impacts of that also in Q4.And let me again remind you, the same as with Rolled Products, Q4 is the seasonal weaker quarter for Extruded Solutions due to demand, but also due to the fact that we shut down plants for the annual maintenance period in the winter time.Turning to Energy. The underlying EBIT increased by roughly 80% from third quarter of '17 to the third quarter of '18 results, up from NOK 368 million to the record NOK 652 million. The main driver for this increased results was significantly higher spot prices, increasing from NOK 258 per megawatt hour, up to NOK 475 per megawatt hour in Q3 of '18 in the NO2 pricing area where we sell most of our own produced power. The price effect, alone, is roughly NOK 300 million in improved results.Now despite the dry summer, power production was also higher last year. This is both due to price signals that we saw in the market, but also due to higher reservoir inflows in August as well as in September. This also increased the spot sale, again improving the results. These positive effects were partly offset by the repricing of the power contract to Rolled Products having a quarterly impact of roughly NOK 60 million compared to the same quarter last year.As always, also here, let me remind you that the price and volume development in Energy for the quarter is always uncertain as it depends on precipitation and price signaling. So far, in October, the prices in Energy has come down and has averaged, so far, NOK 388 per megawatt hour.Then quickly on Other and eliminations. This quarter, this netted to a negative 96 -- NOK 97 million, compared to positive NOK 181 million last year and negative NOK 229 million last quarter. One factor reducing results compared to last year is, of course, the Extruded Solutions as we do not include those results in Other and eliminations anymore.The Other line comprises of corporate costs in addition to some other element, such as industrial parks, industrial insurance as well as the integration costs related to the Sapa acquisition. This quarter was negative with NOK 190 million, which is very much in line with the quarterly guidance that we have given you of NOK 175 million to NOK 200 million.Finally, eliminations amounted to NOK 97 million positive in Q3, and this mainly then reflects the reduced internal margins as well as somewhat reduced internal stock of sourced volumes in Primary Metal.On the net debt side, this has decreased NOK 1 billion between the second quarter of this year to the end of the third quarter of '18. We had an underlying EBITDA of roughly NOK 4.5 billion. And I've explained the underlying EBIT development of NOK 2.7 billion in detail. And then, of course, it's NOK 1.8 billion of depreciation on top of that.We've seen a working capital increase this quarter of NOK 1.6 billion. This is due to inventory buildup and raw material buildup that we have seen primarily in many of our business areas. Normally, we would see a decline in the third quarter as we get into the seasonally weaker demand situation in the second half of the year. This year, we have taken a more cautious approach to secure sufficient alumina units -- and sufficient alumina units in order to mitigate the risks in this rather unpredictable market that we're currently operating in.Taxes and other adjustments include tax payments as well as dividend payments -- dividends received from Qatalum. And then that gives us an operating cash flow of some NOK 2.7 billion.We have invested roughly NOK 1.5 billion this quarter. This includes the final payment from Enova related to the Karmøy Technology Pilot of approximately NOK 300 million. That brings the total investments in 2018 to NOK 4.4 billion. The total CapEx guidance we gave you at the last Capital Markets Day was roughly NOK 8.1 billion, and we still foresee that we will stay within that range for the year as such.The last part, the Other line is mainly currency-related effects. And with that, Svein Richard, I leave it with you.

[Svein Richard Brandtzæg]

Thank you, Eivind. And just to sum up, safety will always have first priority in Hydro, but it's also now very important for us to continue the constructive dialogue with the authorities in Brazil to resume 100% production in Paragominas, Alunorte and Albras. We will also continue the value-creating integration with the Extruded Solution business area, the previous Sapa, that continues. And also, we have strong focus on project execution going forward.So with that, thank you very much for your attention.

[Inger Sethov]

Okay, thank you very much, Svein Richard and Eivind. And then we open for questions, first from the audience here in Oslo. Any questions? Do you have any questions, Stian, from the web, yes?

[Stian Hasle, Head of Investor Relations]

Question from Liam Fitzpatrick from Deutsche as well as Daniel Major, UBS. Can you give any guidance on the cost levels into Q4 for Primary and B&A?

[Svein Richard Brandtzæg]

Sure. On the black material and energy, we really do not see any significant cost increases into Q4. There will be a continued cost increase in Primary for alumina costs to the range of roughly NOK 200 million, the way we see it today. On the B&A side, we don't see an increase in caustic in fourth quarter. But we still see some increase in fuel oil as well as pet coal for the quarter.

[Stian Hasle, Head of Investor Relations]

And a question from Menno Sanderse, Morgan Stanley. The downstream rolling business continues to account for operational issues, does this business need a structural review of operating processes or more investment in assets and people to make it work? The last 2 years, just the profit potential, is materially lower than we expected, thus, do you not agree with that view?

[Svein Richard Brandtzæg]

Well, with regard to Rolled Products, there has been high investment level over some years, and we could always discuss if there has been too many project at the same time, but we also see now that like the automotive line #3 where we have had the ramp-up issues, that this is also now underway towards the planned level. We have had used beverage can recycling line, that was a very complex integrated recycling line that we also have been struggling with. This is a prototype that have never been built before, but it's also a very efficient production line, and it is in full production. And we are very clear what is necessary to bring that production line back to speed. And then the other was then Alunorf where, normally, we had some issues related to Alunorf after a maintenance stop in the beginning of the year. But this year, we came up to full speed very quickly. But now, in the second half, yes, we experienced some coal mill issues. And this is a big rolling mill, so when we have some issues in production there, it has an impact on the rest of the value chain because the materials from Alunorf goes also further to Grevenbroich, the biggest coal mill we have in our system. So we have now, of course, put people in place, the competence in place. We have the capabilities to solve these problems. And in Alunorf, we also have the joint venture partner, Novelis, the biggest holding company in the world. That is also, of course, supporting this process. So this is going to be solved, but I cannot give you a time line exactly when this will be brought back to full speed.

[Stian Hasle, Head of Investor Relations]

A question from Cedar Ekblom, Bank of America Merrill Lynch. How long can you extend the life of DRS1 with the use of press filter? How long have you got before you have to move to DRS2 even with the use of press filter?

[Svein Richard Brandtzæg]

As I mentioned, the sustainable solution there is the combination with the press filter and the DRS2. That is something we have planned for since we stopped -- or decided on the investment in 2014. So when we now have the press filter up and running, we, of course, are now discussing with authorities to open the embargo for DRS2. In the meantime, we are using DRS1. And then we see the life of DRS1 -- lifetime of DRS1, together with the drum filter, that was now ended. But together with the press filter, we will continue operations into -- towards the next 12 to 18 months.

[Stian Hasle, Head of Investor Relations]

And then Daniel Major, UBS. Presenting material to the Federal Court. As far as I understand it, an agreement needs to be made between Government of Pará and Ministério Público before material is presented to start the process to lift the embargos. Does this mean that the September agreements really indicate any positive momentum at all?

[Svein Richard Brandtzæg]

Yes, I think we can say that the September agreements has been a very important part of the fundamental. And then it's ongoing discussions now with the authorities. And as you mentioned, it's both Ministèrio Pùblico, it's Government of Pará, it's the local environmental agency, SEMAS. And this is continued in a constructive way, and of course, we want to lift the embargo on DRS2 and also for the 50% production as soon as possible. But we need to take the time that is necessary here, also environmental processes, the authorities need to have in connection with these embargos.

[Stian Hasle, Head of Investor Relations]

A final question from Truls Engene at SEB. What is the status of the audits under the TAC on Alunorte and DRS2? And when are these audits expected to be concluded?

[Svein Richard Brandtzæg]

Okay. They are different audits. There is environmental assessments that is ongoing, audits that will take 1 to 2 years. And we will come back with the information of this when the conclusion has been made. But some of these audits are environmental -- based on environmental measurements and the reviews that has to be done, so this is something we will come back to later. But as I said, we are committed to follow up the TAC agreement and the TC agreement according to what we have signed finitely.

[Inger Sethov]

Okay. Any other questions from here? No? Then I would like to say thank you very much for coming this morning, and have a great day. Thank you.