Norsk Hydro ASA

OSE:NHY

Earnings Call Transcript 2018-Q4

[Stian Hasle, Head of Investor Relations]

Welcome to Hydro's presentation over the fourth quarter results. Also, a warm welcome to those of you following us on webcast. To present our results, our CEO, Svein Richard Brandtzæg; and CFO, Eivind Kallevik. And the presentations will be followed by a Q&A session here. Svein Richard, the floor is yours.

[Svein Richard Brandtzæg]

Thank you very much. Safety is always first priority in Hydro. So it was with a great sorrow that I received the message the 14th of November that one of our colleagues had a fatal accident in our extrusion plant in Hungary. And of course, this is something we work very hard to avoid. We work every day to make sure that our employees can come home safely, and we want to make sure that they come home safely every day always. Let us then move on to the highlights from the quarter, which was underlying result of NOK 0.5 billion, down from NOK 3.6 billion in the same quarter 2017, and we are now comparing our results with the same quarter 2017, the fourth quarter. It was also down from NOK 2.7 billion in the third quarter same year in 2018. The result is, of course, heavily impacted by the fact that we are running Alunorte at 50%, Albras at 50% and also Paragominas at 50%. That results in, of course, lower volumes, but also cost inefficiencies.Beside the Alunorte effect, there are also significant higher raw material costs, in total, NOK 2.6 billion in the quarter, NOK 1.6 billion in Primary Metal, which is, of course, alumina cost, but also higher cost for black materials at coal tar pitch topic for anode production. In Bauxite & Alumina, it was at about NOK 1 billion higher cost due to caustic soda and energy.Downstream has is delivered NOK 300 million below the same quarter last year due to lower volumes and lower margins. Energy delivered NOK 50 million better result on the same quarter in 2017 due to higher prices, good production. If we go to the Better program, we were close to deliver on the Better program last year, if it was not for Alunorte. But with Alunorte situation, half machine and also the whole FX that has, we are not able to deliver the 2019 target for the Better program as we also did not deliver on the 2018 target due to the situation in Brazil. The Board of Directors has proposed a dividend of NOK 1.25 per share. That is going to be decided by the Annual General Meeting in May. That reflects the challenging year we had in 2018. Also, the volatility in our industry, but also the fact that we have a strong financial situation.If we go to the market, we have the deficits in 2018, and we also are going to see a deficit in the global market in 2019. I will come back to that. If we go to the demand, there are some uncertainties in the market due to trade and also the macroeconomic development, but we expect that demand for Primary Metal will increase 2% to 3% in 2019. Let us then we go to Brazil and take a look at the status. As you know we have signed agreements with the authorities in September, which is related to a technical agreement and a social agreement. And we are now delivering according to that agreement continuously, and that is also a good fundament for the dialogue we have with the authorities, and we have a constructive dialogue with authorities in Brazil. With regard to embargoes, IBAMA, the federal environmental agency, lifted the embargo on the press filter early October last year. Later this month -- later October, they also lifted the embargo on DRS2, which is the new bauxite residue area. SEMAS, the state environmental agency issued a technical note confirming the validity of the existing license for DRS2. And in the middle of January, they also issued a technical note attesting that Alunorte can be operated to speed safely. That is very important input, not to the judge, but of course, now it is up to the judge to make the decision, and the judge is then going to make a decision on the DRS2 and also the embargo on production. We have provided the judge and the authorities in general with the documentation, but they also received independent documentation. A professor has said, "You know, Svein, Campina Grande has made a report to the authorities, saying that we can safely operate Alunorte." And of course, they then focus also that I mentioned on the water treatment system that I will come back to. So it is a matter of time. We expect that we will be back in full production, but we don't know exactly when that can happen. And when the judge has made a decision, then we also expect that SEMAS will give us the necessary authorities to take Alunorte back to full production.Now this is the new water reservoir system we have built, and it is now ready in Alunorte. That has increased the capacity of water handling with 350%. That means we are very well prepared for extreme weather also due to climate changes that may come later, but we have obviously now very different situation with this overcapacity that is now established. In parallel, we are also now building water treatment plant, which will increase the capacity for water treatment with 50%, and that is going to be ready in the second quarter this year.We have talked about the press filters, which is the state-of-the-art technology for handling bauxite residues. We have decided already in 2014 to invest in the most advanced technology for handling bauxite residues. And we established the technology, and we're ready to start that. And in the middle of the -- or in the early part of the commissioning phase, we experienced the embargo. The plan was to ramp up the press filters in parallel with ramping down the drum filters. Due to the embargo, we lost 8 months of learning curve, fine-tuning and adjustments. So when we look at the current capacity of the existing 8 filters, we will have the capacity of 75% to 85% of the total capacity that is needed for Alunorte. We will still do improvements of these filters, but we still need the 9 filter that will be ready in the second or third quarter this year.If we then move over to the market situation, in the fourth quarter, it was -- we experienced a growth of 2.4% compared to the same quarter the year before, 2.8% growth in China and 1.8% growth outside China. In the same period, we saw a production growth of 2%. If we take a look at the supply-demand balance on the quarter, we saw a small surplus in China and a deficit of about 0.5 million tonnes in the fourth quarter outside China. If we then take a 12 months rolling situation and look at the supply-demand balance, we saw 2 million tonnes deficit in the end of 2018. We expect the 2% to 3% growth in China. But with 2 million tonnes deficit in the end of 2018, that means that the global inventories has also been reduced with 2 million tonnes in 2018 from the end of 2017. In the quarter, we saw about 300,000 tonnes lower inventory. But if you then also take a look at inventory days, they are now trending downwards towards the level we had before the financial crisis. We have then the level of around 50 days. We are now approaching and like passing 60 days inventories. So that means that inventories are going down, inventory days are approaching the precrisis level, and we are now are probably going to see more tight market going forward.If we then take a look at the situation for 2019, that is expected with regard to supply demand. We see today that -- or expect that the growth in China will be around 2% to 4%. When we take a look at the situation for the moment, we see it's closer to 2% and 4% in China. We expect 1% to 3% growth in demand of Primary Metal outside China. On the supply side, we expect the 2% to 4% growth production in China. In 2018, it was 0 growth in China. Outside China, we expect 3% to 4%. There will be similar capacity in Middle East. The Albras smelter has been expanded, and we expect also some restocks in the U.S. So we expect 3% to 4% production growth outside China. So when we add this together, there will be a small surplus in China, a significant deficit outside China. And all in all, we expect that, in 2019, there will be between 1 million tonnes and 1.5 million tonnes deficit in Primary Metal. So that means inventories will further decrease. If we then take a look at the metal price development from a very volatile situation early in 2018, we saw a softening prices. Our market price went down from $2,068 in third quarter to $1,978 in the fourth quarter, and the realized price was $2,041 per tonne.Then we look at the standard ingot premiums. Steep increase in the U.S., due to the import duty of 10%. That was compensated by the ingot premiums. I've seen some softening some in premiums lately, and we see now from the level of close to $500, $480. It's now trading around $424 per tonne. In Europe, we see the standard ingot premiums of $127. And then Japan, $84 per tonne.If we then move to alumina, also here, volatile situation in 2018. The prices are coming down. We see market price going from a $542 per tonne to $450 per tonne as a PAX average in the quarters on the third to the fourth quarter, and we had realized alumina price of our $463 per tonne in the fourth quarter. Quite similar, it was $460 in the third quarter and $398 per tonne in the fourth quarter of 2017.It was the arbitrage earlier in 2018 that -- where it was made some contracts for export, and China exported the 800,000 tonnes alumina in the fourth quarter. That arbitrage window is now closed. For Hydro, we have secured the alumina supplies to our smelters through the first quarter and also into the second quarter this year.If we then move downstream and look at the expected demand in the 2019, we expect an extrusion that there will be, in Europe and the U.S., a demand of growth of about 2%. In the Rolled Products, we expect that U.S. and Europe, there will be a growth of around -- or close to 3%. While it was very high growth in the building and construction in U.S., 6%, 7% last year, we see now close to 2%. Also, transport and automotive was 9% to 10% in 2018. We see no also there a more normal growth figures. It was a very high growth in the -- especially on the heavy truck and trailer market in the U.S. last year. But we expect that it will still be a good development in automotive. But in average, in Europe and U.S., around 2%. In Rolled Products, we see still a good growth in transport automotive. This is due to body-in-white substitution with steel. Packaging is a very important market segment, and we'll see also good growth there. It's mainly Can, and that is now contributing. But all in all, close to 3% growth in Rolled Products expected in 2019 in these markets.If we then move on to raw material cost development, where we had quite some changes during last years. We have not seen softening in caustic soda, if it not for alumina production, also now some lower levels on fuel oil and steam coal. But still, there are time lags there of almost 1 quarter. So this quarter was also impacted by higher prices. On black material, petrol coke and coal tar pitch for anode production, also how we see some lower levels in the quarter, but also how time lag has led to higher cost in the quarter, but now we see the developments going in the positive direction seen from our side. But also for Primary Metal, it has been very high prices on alumina and that was also coming down. This is prices that is common for the whole global aluminium industry. So it's not only you do, this is something that is a development for the whole industry.If we then move over to the EBITDA cost and EBITDA margins, we see in alumina production that cost has gone up, very much impacted by the Alunorte situation, but also due to higher raw material and some fixed costs. It was especially higher sourcing cost and sourcing volumes that has been impacting the results. And although the price level is similar as the previous quarter, the margin has been reduced. If we then look into the primary cost and margin, also lower margins due to higher cost of input materials. And here, we should remember that in the third quarter, Albras had a promo sales, quite profitable promo sales that contributed to $100 per tonne on this scale, and that was not recurred in the fourth quarter.Rolled Products sales was quite stable, 1% higher sales in 2018 compared to 2017. A strong contributor here is body-in-white, of course, and due to also the fact that Automotive line 3 now is working quite well, quite good improvements. And the sales of body-in-white in 2018 was 30% higher than in 2017. Versus the fourth quarter 2017, we had 2% lower sales, and that was due to operational issues in Alunorte, the big hot and cold volume mill in Germany, which also reduced the Can volumes. But we also had lower volumes on foil and litho. And when we compare the fourth quarter results with the third quarter results, it's very much the standoffs and seasonal variation.Extruded Solutions delivered a very good result in 2018, better than 2017. The strategy valuable volume continues with better net added value in the different business units. There's one exception here that is Precision Tubing, and that is due to the acquisition in Brazil that contributes negatively. You probably remember that we acquired 2 of the Arconic extrusion plants in Brazil last year.On power, energy delivered good results. It was -- the power price was NOK 24, lower than the previous quarter, but NOK 165 per megawatt, higher than in the fourth quarter 2017. The hydrological balance was very much negative and -- through the year, but it improved in October due to heavy rain. But then we moved into dryer and colder climate and then we ended up with a negative hydrological balance of minus 15-terawatt hour compared to normal quarter, started with minus 7.Then on the Better program, as I said, we continue our improvements around the value chain. They have a very strong effort and good contribution from improvements. This is part of Hydro's DNA. We have had significant improvements through the last 10 years. But due to the situation in Brazil, we are not able to compensate for that. So with the contribution, that was 1.4 billion in 2016, 0.4 billion. And in the year after, we had a significant negative contribution in 2018 due to the situation in Brazil. There were also some indirect FX there that we had to source lower quality alumina into some of our smelters, which led to lower operational performance results.Rolled Products continued with the improvements, and it's good to see now that Automotive line 3 is now contributing positively, and also there are significant efforts also done to improve the Used Beverage Can Line in Germany.Over to the dividend. As I mentioned, the Board of Directors has decided to recommend NOK 1.25 per share as a dividend for 2018. As I said, this reflects the challenging year of 2018, but also the volatility in this industry and also that we have a strong financial situation. The payout ratio is 58% for the year. And if we take the last 5 years, it is 57% payout ratio. The policy is 40% over the cycle, and NOK 1.25 as a minimum. The decision will be done by the general meeting in May, as I mentioned, and the payout represent NOK 2.6 billion that will also be paid in May.Finally, key achievements in 2018 is that we are realizing the synergies of the integration of Extruded Solutions. We are now at full production at Karmøy Technology Pilot, and the production parameter shows that the technology is working well. So we are producing aluminium, but with lowest energy consumption in that Karmøy smelter. We have made a build decision at Husnes, and that project is now ongoing, and we will be ready to restart Husnes in about 1 year's time. We have the power contracts that [stopped cost] that expires in 2020, but we are now secured power at competitive terms after 2024 smelter portfolio here in Norway. And as I said, we have positive development now on Automotive line 3, and there is strong demand for body-in-white for these products. And we have also pursued growth opportunities in Extruded Solutions and in recycling.So with that, I give the word to CFO, Eivind Kallevik, please.

[Eivind Kallevik]

Thank you, Svein Richard, and good morning, everyone, and welcome from me as well. I will then take you through the financial results for the quarter.In the fourth quarter, we delivered an underlying results before financial items and tax of roughly NOK 0.5 billion, which is significantly lower compared to both the same quarter last year of NOK 3.6 billion and the previous quarter of NOK 2.7 billion. The results are clearly affected by the curtailments in Brazil, reducing both bauxite, alumina as well as aluminium production with a total effect of roughly NOK 1.1 billion negative. The major driver in the negative direction is clearly the increase in raw material costs over the year. This has a total negative effect of NOK 2.6 billion. Of this, roughly NOK 1.6 billion comes in Primary Metal, NOK 1.2 billion being alumina and roughly NOK 400 million on black materials. The other half of this is coming from energy bauxite as well as caustic soda. Fixed cost of some NOK 300 million, and this is mainly due to normal inflationary pressures, but also to certain extent, an increase due to the Karmøy Technology Pilot having ramped up. The negative effects were somewhat offset by the higher realized alumina prices as well as the currency effects from the weaker BRL, having a positive impact on the translated fixed cost in Brazil. And all together, NOK 0.6 billion in total.Other here includes a combination of positive and negative effects, netting out to positive NOK 400 million. The main effect here come from the strong performance in energy, the metal market remelters, but also the higher margins that we realized in Extruded Solutions.If you look at the full year development, we see some of the similar drivers as we saw in the fourth quarter. The online EBIT decreased with roughly NOK 2 billion from NOK 11.2 billion in '17 to NOK 9.1 billion in '18. The total volume effect from the production of embargo and subsequent curtailments in Brazil is about NOK 2.3 billion negative. The increase in raw material costs reduced the result significantly with some NOK 9.4 billion, again, with almost half of this coming through in higher alumina costs. On top of this, we have NOK 1.2 billion in higher fixed costs.On the positive side, we've seen a significant NOK 7.7 billion positive effect from higher realized all-in aluminium prices, alumina prices as well as currency support. The full consolidation of Extruded Solutions have given us a positive accounting effect of around NOK 1.2 billion. All the downstream divisions have improved their margins and volumes, adding roughly NOK 0.9 billion to the results. This is primarily driven by the significant improvement we've seen in net other value and Extruded Solutions, but also by the margins in both products as well as in the Metal Market remelters.Finally, a number of positive and negative effects, netted out to NOK 0.9 billion. The biggest positive FX here is the change in internal eliminations as well as stronger results from our Energy division. If we then take a quick look at the key financials for the quarter. The revenues are relatively flat between the quarters as lower volumes in all the business areas have been partly offset by higher prices. This quarter, we excluded from the reported EBIT of NOK 335 million, a loss of NOK 199 million, which I will get back to on next slide. The financial expenses of NOK 0.7 billion includes a net foreign exchange loss, which is mainly unrealized of NOK 0.4 billion. This reflects a weakened NOK versus euro and dollar, which gives us an unrealized effect on the embedded derivatives that we have in the Norwegian power contracts, and this has been partly offset again some inter-company assets, which has been denominated in dollars. As a result, the income before tax was negative NOK 0.4 billion compared to the positive NOK 3.7 billion in the fourth quarter. Income taxes of NOK 207 million in the fourth quarter reflects the relatively high share of reported income before tax, subject to power surtax. As you will see from results, the Energy contribution is a significant part of the earnings for the company this quarter. If we look at this on a yearly basis, the income tax expense is 32%, very much in line with our guidance of 30%.This gives us a net income of minus NOK 0.6 billion, down from a positive NOK 3.6 billion last quarter. The underlying net income, negative NOK 0.2 billion, significantly down from the NOK 2.8 billion in the last quarter -- in the same quarter last year. Consequently, the underlying EPS is also significantly weaker, and this quarter was negative NOK 0.06 per share.Let me then quickly comment the items excluded. In Q4, we excluded usual timing effects, which this quarter netted out to a negative NOK 33 million. In addition to those, we also had several one-off items. We have NOK 79 million related to rationalization and closure costs, and this is split between the foil restructuring that we are doing in Rolled Products as well as a partial closure of an extrusion plant in Extruded Solutions. In addition, we also have excluded loss of NOK 86 million related to a pension scheme charge in the U.K. and also some other smaller effects.If we then turn to the individual business area and then start with B&A.The underlying EBIT for B&A decreased significantly from NOK 1.9 billion in fourth quarter of '17 to NOK 493 million in fourth quarter of '18. The results are obviously negatively affected by the 50% production restrictions at Alunorte and subsequently Paragominas, and this has a volume effect of roughly 0.8 billion for the quarter. In addition to the volume shortfall, a lower production also means a higher fixed cost per tonne, thereby affecting margins, despite the fact that the fixed costs are relatively stable in absolute terms. Margins are also hurt by higher sourcing costs, as we had to source significantly more third-party alumina at increased PAX prices. This, of course, is to compensate for the production shortfall at Alunorte. In Q4 of '18, we sourced approximately twice the amount compared to Q4 of '17.On the positive side, $65 per tonne higher realized price driven by [ 16% ] strengthening of the PAX index lifted the results with roughly NOK 300 million. In addition, on the currency side, 17% weaker BRL versus the dollar positively impact the fixed costs, lifting the results with another NOK 300 million.If we look at this from a full year perspective. B&A results decreased from NOK 3.7 billion to 2017 to NOK 2.3 billion in 2018, and the drivers are much the same as I've commented on for the quarter in isolation.If we look into Q1 and as Svein Richard has explained, we have taken several measures in order to strengthen the robustness for our production system and the refinery, but we are still not able to give you any indication as to the start of -- restart of Alunorte. On the cost side, raw material cost side for Q1, we do expect to see a slight decrease both on the caustic side as well as on the fuel oil side. Then let me just remind you that the alumina prices are typically realized with a 1-month lag, indicating that you should see a reduction in the realized prices in Q1 compared to Q4 if prices stay where they are today.And last on this slide. We do expect to source a bit less alumina in Q4, as the volumes of sourced, externally sourced volumes in Q4 was very high in part driven by additional sourcing in the period where we anticipated that Alunorte had to close down 100%.If we turn to Primary Metal. The underlying EBIT decreased significantly with more than NOK 2 billion from NOK 1.4 billion in the fourth quarter to NOK 677 million in the first -- in the fourth quarter if -- of '18. By far, the main reason here is the significant increase that we have seen in raw material costs explaining roughly NOK 1.6 billion of this reduction. NOK 1.2 billion is related to alumina costs, with roughly NOK 400 million coming from higher carbon costs. Lower production and sales due to the Albras curtailment, despite being somewhat offset by the ramp-up of the Karmøy technology pilot, also had a negative effect of around NOK 200 million. Other effects were relatively minor during the quarter's as prices and currency remained relatively flat.For the full year of '18 versus '17, the results decreased with more than NOK 3 billion from NOK 5.1 billion in '17 to roughly NOK 1.8 billion in '18. The main reason again is the higher raw material costs, which contributed negatively with approximately NOK 6.5 billion. This together with lower sales volumes, higher fixed costs and negative currency effects further reduced the results. This was again partly offset by higher realized premium -- higher realized aluminum prices contributing with NOK 4.5 billion positive in the year.If we look into Q1. We still expect to see Albras producing at 50% until we have a clearer situation on the Alunorte embargo. On the price side, we have at the end of Q4 sold around 60% of our aluminum production forward at a price level of around $1,975 per tonne. We've also booked 55% of our premiums in Q1 at around $430 per tonne. And we expect the realized average premium for Q1 to be in the range of $325 to $375 per tonne, slightly below what we realized in Q4. If we look at the raw materials side, we do expect to start realizing the downward trend that we've seen both when it comes to alumina as well as carbon costs in the first quarter.In metals markets, this quarter, we did deliver a very strong underlying EBIT of NOK 275 million compared to NOK 185 million in the fourth quarter of '17. Let me emphasize that the reason behind this strong result development is a very good performance in the remelters and metal markets, where they have increased their margins. If we exclude the NOK 58 million in positive currency effects, the result was NOK 217 million, up from NOK 157 million in Q4 last year and double compared to the guidance of NOK 100 million per quarter. For the full year, results excluding currency and inventory valuation effects improved from NOK 499 million to NOK 658 million for 2018 and again mainly reflecting the improved margins we see at the remelters.Talking about guidance. We have for a long period of time guided for NOK 400 million on an annual basis for Metal Markets. Given the strong performance that we have seen during 2018 and the outlook we have for the remelters in this business, we are now lifting the guidance to NOK 500 million starting in the year of 2019. That being said, please be -- please remember that the outlook and results in Metal Markets are always volatile, driven by the currency and mark-to-market effects on metal.Let me on this slide also mention the accident we had at the Henderson remelter in Kentucky in the U.S. We did have an explosion in the furnace in Q1. No personnel was injured, but the melting -- or the furnace was damaged. And it will take about 1 to 2 months for that plant to come back into production. The plant produces about 90,000 tonnes on an annual basis of extrusion ingots, and we do estimate that the financial impact will be around $5 million for the quarter.If we turn to Rolled Products industry. Rolled Products did deliver a disappointing and weak, negative result in Q4 of NOK 113 million compared to the NOK 95 million in the fourth quarter of '17. On the positive side, the performance on the automotive line 3 is improving and supporting the results. This, along with more customer qualifications and strong demand, has led to significantly higher volumes through the automotive customers. Overall, however, the volumes are down 2% compared to last year. This is partly affected by the weaker markets in some segments and partly due to the operational issues and capacity constraints we have seen at Alunorf. We've also seen average margins coming somewhat down, in particular within the litho and general engineering segments. We've also seen significant cost increases due to inflationary pressures on personnel costs in Germany; a higher maintenance activity, including UBC; as well as higher energy costs due to the increased power prices in Germany.On the Neuss smelter side, the negative effects of significantly higher alumina and raw material costs, combined with lower aluminum prices, have to a large extent been offset by the more competitive power contract that we have in place starting in '19.For the full year of '18, Rolled Products results improved marginally to NOK 413 million compared to the NOK 380 million we saw in '17. Now -- and this is despite the benefit of the new power contract that we have in Neuss. This partly reflects the very challenging operational performance in '17, with positive developments in '18 where we've seen the Hamburg plant, the automotive line 3 and as well as the UBC recycling facility showing better performance. This has been offset by higher energy, higher personnel and higher raw material costs within ours operations.If we look at Q1. We do expect an overall healthy demand for rolled products. However, it is worth mentioning that, in addition to the continued margin pressure in this business, we also see somewhat softer demand within some of our key segments, like foil and general engineering. When it comes to the Neuss aluminum plant, do remember that these results are, as normal, driven by metal prices and raw material price developments. And as in Primary Metal, we do expect raw material costs to come down somewhat into Q1. We do continue to work on resolving a number of operational issues in Rolled Products. While not fully resolved, performance in Alunorf is improving. And we see performance in December and January certainly better than Q3 and better than bigger parts of Q4. Also worth mentioning that the automotive line 3 is continuing to pick up speed and volume deliveries.In Extruded Solutions the underlying EBIT declined from NOK 284 million to NOK 202 million in the fourth quarter of '18. On the positive side, as also explained by Svein Richard, the net added value per kilo continues to improve year-over-year. However, the net added value in this quarter has been largely offset by an increase in fixed and production-related costs. Well, the increase in production-related costs is primarily driven by ramp-up of new product lines in Europe and a related combination of several smaller operational issues similar to what we communicated also in Q3. The results in the North American operations are very strong and have improved significantly despite the impacts that it had on section 232 tariffs and somewhat declining Midwest premiums in this quarter. This quarter was also as the previous ones, have been negatively affected by the results in the acquired Precision Tubing plants in Brazil.For the full year of 2018, Extruded Solutions results was NOK 2,390,000,000, only slightly higher than the pro forma results of NOK 2.3 billion in 2017. If you adjust for the negative impact of the acquired plants, the result for the quarter -- or for the year would be around NOK 2.5 billion, an improvement of 7% from an EBIT perspective compared to the year of 2017. The other main drivers are -- for '18 versus '17 is the same as in the quarter.If we look into Q1. We are working to stabilize the new product lines in Europe and are putting mitigating actions in place to reduce the costs and also to reduce the trade effects in the U.S. On the market side we continue to see good, positive growth, albeit probably at a slightly lower pace compared to what we saw in 2018.The underlying EBIT for Energy increased with 9% in Q4 '18 versus Q4 '17 from NOK 457 million to NOK 500 million, making it the strongest quarter we've had in Energy since 2008. The main driver for the increased result was significantly higher spot prices having a positive contribution of around NOK 200 million.The production for the quarter was strong at 2.8 terawatt hour; however, somewhat lower than the very strong quarter in '17 of 3.1 terawatt hour, impacting the result then negatively. In addition, remember that we do have an repricing of the internal contract to Rolled Products having a negative impact of roughly NOK 60 million compared to the same quarter in '17.For the full year of '18, the Energy result of NOK 1.8 billion, that's roughly NOK 300 million better compared to '17. And again, it's primarily driven by higher market prices.If we look into the next quarter. Let me remind you, as I always do, price and volume developments in Energy is highly uncertain, as it depends on precipitation, weather forecasts and price patterns. So far in '19, the NO2 price, while we produce and sell most of our power, has increased quite a bit compared to Q4 and is now averaging around NOK 540 per megawatt hour. Also, starting mid-February, we will have a scheduled maintenance at Sunndal 1, which will affect the production levels at RSK, but also remember that we had similar maintenance periods in our systems in Q1 of '17.Other and eliminations netted to a negative NOK 145 million in Q4 compared to a negative NOK 715 million in last year. The underlying mainly consists of corporate costs in addition to some other elements like industrial insurance, industrial parts as well as integration costs for the Sapa acquisition. This quarter was negative with NOK 299 million, which is somewhat above the guidance that we've given of NOK 175 million to NOK 200 million per quarter, but it's fairly flat compared to the same quarter last year. Finally, eliminations amounted to NOK 154 million positive in Q4. This mainly reflects the reduced internal margins in Primary Metal as well as reduced internal alumina purchases.If we look to -- into 2019. We do expect the corporate costs to be around the same level as for 2018, 117 -- NOK 175 million to NOK 200 million per quarter. And on top of this, we expect an additional NOK 100 million to NOK 150 million in Sapa integration costs.Then quickly on net debt developments. The net debt position increased with more than NOK 2 billion from NOK 6.5 billion at the beginning of the quarter to NOK 8.7 billion at the end of the quarter. We did generate then underlying EBITDA of NOK 2.2 billion. And as guided and seasonally normal, we did release working capital in Q4, in this quarter to the tune of NOK 600 million. Taxes and other adjustments of negative NOK 1.2 billion is a combination of tax payments of roughly NOK 1.5 billion and dividends received from Qatalum of around NOK 300 million. As a result of this, we generated net cash flow from operations of positive NOK 1.6 billion in the quarter. Investments came in at around NOK 3.4 billion this quarter, which has been -- which is largely in line with the guidance that we've given.And then finally turning to the adjusted net debt. And this is up in Q4 for 2 main reasons. One is the NOK 2.2 billion in net debt which I just explained, and secondly is the significant NOK 2.4 billion increase in net pension liability. This is mainly due to reduced discount rates in Norway as well as reduced return on assets in the pension scheme. The other lines remain relatively stable compared to the end of Q3. With fairly stable debt in Qatalum, the total net adjusted debt including equity-accounted investments then amounts to NOK 28.7 billion, almost NOK 5 billion higher compared to the beginning of this period.Let me finally end at the end. Again, just to remind you, that as of January 1, 2019, the new IFRS 16 standard will require that all leases are recognized on the balance sheet. This is estimated to increase our net debt with approximately NOK 3 billion. Now this effect will be partly compensated in adjusted net debt, as operational leases will be reduced for an assumed tax benefit. As such, the adjusted net debt is estimated to go up with approximately NOK 1.5 billion.Thank you.

[Svein Richard Brandtzæg]

Thank you very much, Eivind And I would like to sum up with the priorities of 2019. And of course, safety will remain top priority for Hydro in all our operations in the world. We are in -- operating in more than 40 countries and have now more than 35,000 employees.I would like to bring your attention to the tragic dam disaster in Brumadinho tragedy that left more than 300 people dead or missing as a result of the dam break in Brazil. Our thoughts are going to their families, friends and colleagues. We also have tailings, and we have tailings in our 100% owned bauxite mine in Paragominas. We also have tailings in the MRN mine, where we own 5%. We should remember that these tailings are different material. They are built up with a different construction, different technology. And most of all, they are much drier material. And we are, of course, also having comprehensive, continuous monitoring of these tailings.The first priority for us in Brazil is, of course, also to get Alunorte and our assets, our operations in Brazil back to full speed. And we have a constructive dialogue with authorities. And in spite of we are very eager and ready to start, I cannot give a date when this can happen, but we are working in that direction every day. We will continue with the value-creating integration of Extruded Solutions. That continues, with good results. And we will continue, of course, our focus on project execution and operational excellence. Continuous improvements will, of course, be also very much in focus, and also continuous innovation. And also continue to be a company with even more sustainable operations along the value chain. And we will make sure also that we maintain our financial strength and flexibility.Thank you very much for your attention.

[Halvor Molland, Senior Vice President of Media Relations]

Then we will continue with questions and answers here. We have a microphone, so please wait for that and signal if you want to ask a question. And please state your name and affiliation.

[Hans-Erik Jacobsen]

Hans-Erik Jacobsen, Nordea. Last year, I think Chinese export increased by approximately 20%, a lot of that semi-fabricated products. Can you say anything about how this impacts your downstream activities, both sales volumes and margins?

[Svein Richard Brandtzæg]

We are seeing competition from China. It's more indirect, the fact that China is mainly exporting to the neighboring countries, but they are also -- we also see Chinese material coming to Europe. And that keeps a pressure on margins, but there are some products where it is difficult for Chinese to export. Body-in-white material, for example, there is a limitation. Also due to the large variety of different qualities, alloys. Extrusion also is an area where it's very difficult for China to compete in our home markets because there are thousands of different profiles, alloys, [ lengths ] and different constructions. So extrusion is an area where we don't see the same magnitude of competition from China as we see in other products.

[Morten Normann, Analyst of Materials]

Morten Normann, Carnegie. Primary Metal was the biggest blow this quarter. Can you please take us through the EBIT or EBITDA bridge from Q3 to Q4?

[Eivind Kallevik]

Sure. Okay, there's a couple of major components. One of them, of course, is Energy sales in Brazil. As we talked about in Q3, we do sell all the excess power we have. When Albras was curtailed 50%, that's roughly 0.8 terawatt hour per quarter. That gave us a revenue side which we guided on roughly to around NOK 400 million, NOK 450 million. Then prices, as we also talked about, are very low due to the [ weather ] pattern. And this is "run of the river" production in Q1 -- or in Q4. So a variation of roughly -- of NOK 500 million, if you like. Then there is also increased costs on raw material and certain fixed costs -- well, not so much fixed costs but raw material cost increases in the period.

[Morten Normann, Analyst of Materials]

Can you please be a little bit more precise on the cost side?

[Eivind Kallevik]

Yes. Alumina costs are up quite a bit, and carbon costs are also up somewhat. I don't have the number in my head, but the biggest difference between Q3 is the Energy side.

[Halvor Molland, Senior Vice President of Media Relations]

Other questions from the room? Then we have some questions from Stian.

[Stian Hasle, Head of Investor Relations]

Question from Jason Fairclough of -- in Bank of America Merrill Lynch. Could you discuss the earnings miss compared to [indiscernible] and the consensus on Rolled Products. To what extent is this a timing issue that could reverse or normalize in future quarters?

[Svein Richard Brandtzæg]

I can comment on the operational side because, in the second half of 2018, Rolled Products experienced operational issues in Alunorf. This is the biggest hot mill in the world. And when you have small operational issues there, it has a big impact on total volumes. So we had lower volumes due to -- and especially around can from Rolled Products. This is now back on tracks -- or Alunorf is now delivering what they should, but in the second half and the fourth quarter, there that – the results was impacted. Eivind, maybe you can go into some numbers maybe.

[Eivind Kallevik]

Yes. And I think, when you look at the results, the big part of the decreased or weakening result in Q4 is also related to inflationary pressures and costs for personnel. And that has a tendency to stick until we -- actions are taken on that. The second part of it is that we see some weakening in certain segments that we operate in both when it comes to foil and certain extent also general engineering. And that is also a weak part when we look into Q1 volumes.

[Stian Hasle, Head of Investor Relations]

And also, on Alunorte, is it possible to give any more color on the timing of a court date? What steps are needed to resume full production [ result ]?

[Svein Richard Brandtzæg]

With regard to Alunorte, it's very difficult to give a time and timing, Jason, but it's of course something we are working with day and night. And documentation is provided. It's also good to see that the environmental authorities are now supporting full operation, but it's up to the judge. And the judge will take the time that is needed and also make sure that the documentation is what is needed. So it is not possible to give any time line for that, but of course we are working hard to and are also, of course, very eager to come back in full production. And we are preparing for full production in Alunorte as soon as possible. It still will take a couple of months before we are able to ramp up. And as I mentioned, there are also some issues related to the press filter. That means we will need a ninth filter that will be ready in the second, third quarter this year.

[Stian Hasle, Head of Investor Relations]

Then a question from Menno Sanderse in Morgan Stanley. Was there a noticeable impact of destocking or related price effects in rolling and extrusion in Q4? And if so, will that continue? And question two on that is what actions are Norsk Hydro taking, doing to adjust to the softening demand environment in rolling and extrusion.

[Eivind Kallevik]

There is a certain extent of destocking within the rolling segments. We see this in foil, where our customers have been probably setting with too much inventory, also compared to normal, as they got towards the end of Q4 and then took down their buying patterns, which is also a reflection of what we see in Q1. I think, when it comes to extrusion in general, we still see overall good growth. It's not the same growth level as we saw in 2019, but remember that, for instance, in the U.S. the growth levels was exceptionally strong. So somewhat weaker result -- or somewhat weaker growth but still very good growth rates.

[Stian Hasle, Head of Investor Relations]

And then question from Liam Fitzpatrick in Deutsche. Could you provide some more guidance on Q1 '19 costs for primary and alumina? When will the business see the benefit of lower costs?

[Eivind Kallevik]

When it comes to black material and alumina. Black material is going to come down, we believe, around 5%, which should translate into a roughly NOK 50 million to NOK 100 million improvement; when we look at the alumina prices that we expect to realize, in the range of NOK 350 million to NOK 400 million in Q1.

[Stian Hasle, Head of Investor Relations]

And then a question from Daniel Major in UBS. Rolled Products continue to struggle. Are you considering more radical changes in the portfolio to improve profitability?

[Svein Richard Brandtzæg]

Well, we have introduced a restructuring in the foil business of Rolled Products. And of course, we are looking into also other measures to improve the performance. It has been an issue related to some operational problems also last year that we are now solving. With regard to the situation in Alunorf, Automotive line 3, we see now a much better performance; and also better performance in the UBC, the used beverage can recycling line. But that is still an issue that has to be worked more on in during this year. We are not back here on the full production with UBC, but there are several other elements that we see moving in a positive direction. And of course, there is the pressure on margins, as Eivind mentioned, and that is also the reason why we now see it is necessary to do some restructuring internally. And that is something we are working with.

[Stian Hasle, Head of Investor Relations]

And finally, on extruded, when will the negative impact of the Brazilian acquisition normalize or improve?

[Svein Richard Brandtzæg]

Again, this is an acquisition where we acquired 7 presses, 1 cast house and a tool shop for $10 million last year. We expected that it will be a tough start because the market has been negative, but we also see now that the Brazilian market is moving in positive direction. But I'm not sure we can give any date when this is turning on positive.

[Eivind Kallevik]

Other than we can anticipate that the delta change is turning into a positive territory in '19.

[Svein Richard Brandtzæg]

Yes.

[Halvor Molland, Senior Vice President of Media Relations]

Okay, thank you, Svein Richard. And thank you, Eivind.And that concludes this presentation and webcast. Thank you all for coming.