Hello, and welcome to Norsk Hydro Q1 2022 Q&A session. My name's Leanne, and I'll be your coordinator for this event. You will now have the opportunity to ask questions throughout this call. This can be done by pressing star one on your telephone keypad. If you require assistance at any point, please press star zero and you'll be connected to an operator. If you would like to ask a question, that's star one on your telephone keypad. Our first question comes from the line. Operator. Hi there. Our first question comes from the line of Ioannis Masvoulas from Morgan Stanley. You are now unmuted. Please go ahead. Great. Good morning, and thanks for the Q&A session. A few questions from my side. The first one on line. Can you provide an update on topics related to this initiative for 2022 and 2023 following the recent projects that you have announced here, and maybe an update on the IPO timing? Are you where you want to be on maturing the pipeline, or is there more to go on that front? Thank you. Thank you, Ioannis. And thank you for a good question. On the line, as you saw today, we have announced, or we've progressed quite significantly on three projects. It's the Stora Sjöfallet project in Sweden, it's Posovje and Mendip in Albras. These projects we have a different ownership stake in today, in a situation where the line is 100% owned by Hydro. If you look at the CapEx for these three projects, and you multiply by our ownership position in them, then you're looking at a total CapEx level of around NOK 3 billion. As you know, we have a 33% ownership in Mendip and Posovje, and we have a 25% ownership in Stora Sjöfallet. The ambition is to finance this to a large extent through external capital raise still, which is still targeted for 2022. What we see, however, currently is that the IPO window is not very open, and the possibility to IPO will depend on that opening going forward. When it comes to substance, I would say that we crossed many thresholds this quarter. The fact that we have 1 gigawatt on a 100% basis now very close to sign PPAs on all three. The fact that we've also sold an external contract to Telenor visualizing the cooperation between Hydro Rein and Hydro Energy to be able to provide the energy to third parties. The fact that we've also been able to farm down parts of this project at a 40% return on equity invested is very much in line with the strategic priorities we have within this company. We are at the level where maturity is at a much more attractive level for an IPO when that window opens. Great. That's very clear. Thank you. A second question on aluminum metal and maybe also extrusions. What are you seeing on the ground in Europe? Have you been able to take market share as customers shy away from Russian material? Is that meaningful enough for the balance of the year? Well, what we see on the ground is really a continuation of the tight market in the current quarter. As we advised you in the last quarter, we don't have a lot of excess capacity in our system. Extrusion is basically pushing out as much as possible. The bottleneck within the remelt capacity, the ability to produce more billets and the like from standard ingot or even scrap. We see in extrusions that we are improving on market share. We have over a period. In aluminum metal it is more a similar situation to earlier. That being said, we do also observe that Russian metal is becoming harder to sell for those sitting on that. We also hear stories of that trading at a discount, at least in a European context or being offered at a discount. Sorry. Great. Thank you very much. I'll stop here and join the Q&A session again. Thank you. Our next question comes from the line of Jason Fairclough from Bank of America. You are now unmuted. Please go ahead. Yep. Good morning, everybody. Thanks, Pål, for this Q&A session. Look, two questions for me. The first one's just on hedging and cash flow. The second one's on recycling. First, on the hedging, could you just talk a little bit about the cash outflow here related to the collateral and the margin requirements for your hedging activities? To what extent is this temporary and, you know, should we think about it reversing? And I guess, you know, you and I have discussed this a lot in the past. Do you ever feel like you need to reconsider your hedging activities? Because it does seem like there's a big sucking sound going on here. Sorry. Jason, did you have a second question also, or was it just that? Well, the second one is just in terms of the recycling business, you've just bought this business in Poland. Where will it be reported? Is there a view to sort of reporting recycling as a standalone segment? Okay. I'll start on hedging. When it comes to the margin requirements, as you are aware of, we hedge an integrated margin. That means that we sell LME forward, and then we purchase a certain part of the raw material complex, including, for example, power, in Slovalco, for 2022. On the LME that we sell forward, that for a significant part of it requires collateral. We have been working over the last half a year or so to reduce the collateral requirements. Going forward, there will be less of that than there has been historically. Still, we are in a situation where that requires collateral. Between the fourth quarter and the first quarter, LME prices moved quite significantly and ended the quarter at a higher part than what you see today. That resulted in the build in collateral of around NOK 4.4 billion. We had a positive movement on the mark-to-market of, for example, power in Slovakia also and other raw materials. Those are not necessarily giving a collateral as they might be done OTC and not on exchange. This will be reversed if LME prices come down again. Since the close of the first quarter, LME prices have performed quite significantly, and that has taken away most of the collateral that was built up in the first quarter if you look at current spot prices. The latest hedges that have been entered into are actually even money for 2024. When you look at the strategy as per se, as I mentioned in today's call, we will continue to remain open for the majority on the upside. Given the very strong margins in a historical context, we will continue to lock in a small share of the portfolio to protect against the downside. Introducing such an activity and running it through an increasing pricing environment and then stopping it when prices are at record-high levels is not something I would stand behind in the current context. Okay. Yeah. I can try to add. This is Hilde. I can comment on this, the recycling. First of all, I hope that we are successful in acquiring the aluminum metal, but we're not there yet. If we are successful, then this will be part of the recycling business in aluminum metal. When we report metal markets, there is this substantial recycling activity in the results. I think Pål pointed to it this morning. But then obviously we are carefully discussing how to integrate and how to make sure that we sustain preserve really the really good commercial team and the capability of aluminum metal going forward. We are careful thinking about how to integrate in the best possible way if we are successful. Okay. Thank you, Hilde. Just a quick follow-up if I could, Pål. In terms of Slovalco, how are you thinking about that business right now in the current power price environment? I mean, are you actually, you know, signing new hedges and locking in margin, you know, into 2023, or does it work right now? I mean, how should we think about that capacity going forward? That's a good question, Jason. Basically, if we haven't locked in the margin for Slovalco for the current year, then we would most likely have to ramp down Slovalco. It would be in the same situation as you see many of our European peers smelters are. At the current integrated margin, it doesn't look attractive enough to lock that in for 2023. Even though LME prices are high, the price of power in Europe has increased to a larger extent. If this picture doesn't change, we are potentially looking at a reduction of production in Slovalco for 2023, at least on the electrolysis side. We have other parts of the smelter, like the cast house or the anode plant, which could see the production for the rest of the portfolio and the market potentially. Okay. Thanks very much, Pål. Thank you. Our next question comes from the line of Liam Fitzpatrick from Deutsche Bank. Liam, your line is open. Please go ahead. Hi, Pål and Hilde. Three questions from me. I'll give you all of them up front. First one just on Hydro Rein. Just wanted to understand if the equity markets are not there for an IPO, and given that you wanna progress some of these projects from Q4 this year, what's the financing strategy? Will you look at other sources? Second question, just on extrusions. I know you told us on the call earlier, but I didn't quite catch it. What is your guidance for Q2? Is it that we should see pretty similar results to the record we've just seen in Q1? Finally, a detailed one on the cost front. I'm just trying to understand exactly what's gone on in aluminum metal. Looking at slide 27, the implied cost to LME looks pretty flat, actually slightly down into Q1. The other portion of the cost is up, obviously up very significantly. What's driven that? Is that kind of third-party purchases? Is there something abnormal which has kind of come through in the Q1 results relative to Q4? Thank you. Yeah. I can start on the Hydro Rein questions. If you look at the equity markets, those are the main track that we're following now. But we are also evaluating if there are other sources of capital where if this window does not remain open. IPO is still the best base case, but we're also evaluating other alternatives. When it comes to extrusion guiding, you are right in stating that the positives and the negatives, they largely offset each other as the market looks now. We expect a continued increase in the net value added margin. We've also, if premiums remain at a high level, we will have strong recycling results. On the other side, energy costs and other raw material fixed costs continue to increase. As we mentioned at the quarter, we have a one-off potential fixed cost of NOK 200 million related to a bonus which was paid out to all employees in Hydro of $1,000 per ton for the contributions during the COVID period. That impacts extrusion higher than the other business areas because it is so labor-intensive. As I mentioned, you have two sets of elements which move against each other, partly offsetting as it looks today, but that could change a bit as we move through the quarter. On the financial side, on aluminum metal and the cost side, the differences, I would have to get back to you on. It might be related to the lower liquid sales than expected. We've been having to pull more from inventory this quarter than straight from production. Let's follow up on that and get back to you to explain the bits. Largely on costs for aluminum metal, it should be very much in accordance to the guidance. I think we guided for around NOK 650 million, and we ended up around NOK 600 million or so. Understood. Could I just follow up briefly on Rein? Could you elaborate on these other sources of capital that you're thinking about? And secondly, from an accounting point of view, regardless of the financing route, how do you expect to account for these projects? Will it be off balance sheet as an associate, or will it be kind of JV type accounting? Yeah. No, I won't go into the different alternatives, but I guess, based on the known alternatives, it should be within those that we evaluate. If we were not successful to IPO before year-end, and we still carry these investments on the balance sheet, then they would be fully consolidated because then there's 100% owned venture. But the ambition is of course to keep it off through an IPO. We also have to spend some more time looking into the ability to do that in a non-IPO setting, because at the end of the day, we will still establish these as special purpose vehicles with non-recourse loan under a topco company. I guess the higher ownership you have, the more discussions you might have on balance sheet impact. I will need to get back to you on that. You mean 100% consolidation of your share of the CapEx, is that right? Yeah. Okay. Thank you. Our next question comes from Amos Fletcher from Barclays. You are now unmuted. Please go ahead. Yeah. Hi, guys. Thanks for taking my questions. I just wanted to ask, first one on the hedging side. You mentioned in the slides you put in 75,000 tons of call options as part of the hedging. Can you just talk through what's the benefit of that and what levels are they priced at? During the quarter and right after, Russia invaded Ukraine, you got a market which became very volatile. Our price exposure so of course moved up to an intraday high of about $4,000. You had other materials where price movements were significantly higher. Our balance sheet is robust. We have mitigating measures in place for situations like these, both on operating capital and on the operational and strategic hedges. An invasion or war situation is something which can move things outside the sample space that most operate with. In order to reduce some of the liquidity risk in that period, we purchased 75,000 tons of call options for second half 2022 and also for 2023. These are well out of the money to reduce the cost. Basically in current situation, if prices increase, then you will receive collateral on these call options which reduces or nets out the collateral you have to post on the future or forward positions. Of course, if prices increases significantly, you could exercise that option also. At the moment they are out of the money with the recent fall in energy prices. Okay. Thanks. I wanted to ask on working capital. The build was quite a lot bigger than expectations. Could you give us a sensitivity? Let's say spot prices prevail for the rest of this quarter, roughly speaking, what could we expect the working capital to do in Q2? Yeah. It's always a bit hard to guide exactly into the next period. If you look at the year as a whole, and the current pricing environment, we saw a build, which was more close to 2.8 than what we reported today. So, already at the spot prices, we should expect a bigger price release. In general, I guess we operate with around 60,000 tons or so. Let me get back to the exact guidance on that figure. Okay, thanks. Last question was just on the energy business. Could you talk about the sustainability of the price area differentials, as you guys see it over the next few years? At the current level, we are seeing a weak hydrological balance in the south of Norway and a strong hydrological balance in the north. That is what's maintaining it at current levels. A normalization of that could bring that somewhat down. As you know, the price is very much tied to the continental price now. In power production terms, you talk about control of production. When does a producer be in a situation where they're able to trade on or produce on water values and not necessarily have to connect to the global prices. As we see it now, it requires quite an improvement in that situation for prices to come significantly down in the south of Norway. You know, the grid capacity between the south and the north of Norway is not allowing for this to flow as much as it potentially could to balance prices. That is not a quick fix. It's hard to answer that question directly, but as long as European power prices remain elevated, there's probably a higher possibility of south Norwegian prices also remaining at a high level. Okay. Very clear. Thank you. That's it. Our next question comes from Jatinder Goel from BNP Paribas Exane. You are now unmuted. Please go ahead. Thanks, operator. Good morning. I've got two questions. Apologies if either or both have been asked. I joined the call about 3-5 minutes late. First one on realized aluminum price. On LME it was below 4Q average. You did explain, Pål, during the call that it was to do with the lower spot exposure. Does that mean 2Q will have a bigger catch-up, or do we not see the spike that we saw in first quarter into realized prices? Related to that, do we see continued lower exposure as the Albras will only come to full production by end of into fourth quarter, I think you've said? That's the first one. Second question is on hedging. Was there any particular reason to not add any forward sales since you reported last time? You've done in the first quarter, but that was all before you reported Q4 results. Thank you. Yeah. Two areas. On the realized prices, basically we say that we are exposed on a one to two month time lag, average 1.5. This quarter, we were closer to the two month range while if we should guess that the consensus was closer to the one month range on the unhedged part and even a bit beyond that. Increased periods where prices move from the $400, it's quite difficult to exactly get to the realized amount because you realize on a per shipment basis, and shipments can be very influenced by one day where price was very high, and then maybe not as much as the other day when they're a bit lower. So that is the biggest part of the difference I would say is the per-lag profile. The next is the fact that we have not been producing at full capacity at Albras. And that will impact the secured ratio. The last part is also that we had lower liquid sales at some of our smelters. We were selling more from inventory which impacted that lag profile. The totality of this explains the difference. If we had known of all of these things before the quarter, we would actually just have had an open exposure around 20 or 30.5% or so, which gives the exact split. Moving into the next quarter, we do not foresee these elements to the same extent based on what we've guided now. The locked-in part is of course $3,155, and you could be exposed to more of the high prices given the same lag profile into the next quarter. Again, it depends on the given shipments, like the ship on a given day. Yes. Thank you very much. Yeah. The second one was. Thank you. How we've acted through the quarter. As you saw, we've added 80,000 tons on 2024, so we're at 100,000 tons there. The hedging activity was somewhat more limited in the situation where we also were ensuring that we had the proper liquidity measures in place when prices were moving to quite extreme levels on fears of Russian actions. Our first priority is always to ensure that the balance sheet is robust, and then it is to continue the strategic activity. As I mentioned, the latest prices entered into for 2024 are at quite escalated levels, compared to what we started this activity at. Thanks. Just to follow up on the second point, I mean, you are still probably 70%+ long on your metal exposure even if you did a forward sale at $4,000. Do you think it can realistically have any financial strain in terms of the liquidity that you mentioned? With what? With all the measures we have implemented now, no. Of course you, if you get movement like you're observing in nickel or other type of materials, then these type of price movements can impact even very small collateralized positions. In a normal type of space, no, it should be very fine. When you have, for example, an invasion of a country and a war situation, then you see movements that you haven't observed over the last 50 years or so. Understood. Thank you very much. Our next question is a follow-up question from Ioannis Masvoulas from Morgan Stanley. You're now unmuted. Please go ahead. Great. Thank you. Yeah, a couple of questions left from my side. The first, going back to extrusions, if we look at the last presentation of the full-year results, you were looking at Q1 of volume development in Europe of -4%, and we ended up at +3%. For the year, the outlook for Europe has been upgraded from 3%-4%. Can you talk about the main drivers from a demand point of view? Yeah. When we moved into the year, the absolute expectations of third party analysts were a bit different from what we were experiencing. Now those expectations have moved more towards our experience of the market. Of course, it is uncertain and volatile, so it's hard to be very firm on expectations. As you see from the chart, it's really building and construction and industrial. Still residential building and construction is holding up well. These areas are and continue to be strong in current bookings. Also, automotive is still the challenging area. Big impact, for example, precision tubing and part of the remainder of the portfolio. If you look towards the full year estimates that we've included of 6% and 4%, these also do include some improvement in the automotive supply chain. If that doesn't materialize, then there could be some downside to these figures. Okay, very clear. Thanks for that. One more question on recycling. On the back of the acquisition you announced, you have already hit your 2025 growth targets. Is there potential to do more on this front, or do you think you're done and you're looking at other ways to deploy capital across the new energy initiatives you've been working on? It's good that we have, I think 43 share targets that we kept back in 2020. We will be looking into if there are more opportunities in recycling. It's really a nice business where we can use our capabilities and see how we can source more scrap also to the smelters to replace standard ingot. We will have another round now that we have projects that actually meet our targets that we set, and then we will update and come back on that. Great. Thank you very much. Our next question comes from Krishan Agarwal from Citigroup. You're now unmuted. Please go ahead. Hi. Thanks a lot for taking my question. A couple of questions on hedging has already been asked. If I can ask a question on aluminum, primary metal, looking into the second half. I mean, Aluminum prices have come down 25%, and we are looking for kind of a, you know, lower realization going into the Q3. In that context, what sort of visibility you are able to provide to the market on your cost that, the corresponding decline in the cost will also be there, or the cost visibility as of now is very, very low? I think the cost visibility beyond the coming quarter is very much related to what you observe in the marketplace. If you start with aluminum metal, the alumina price has of course come somewhat down, which will relieve some pressure compared to what we saw just a month ago. Power cost for our side doesn't move that much. It's really the carbon cost which has been a strong driver outside of alumina. There we haven't seen movement in a negative direction yet. More in line with our guidance for the second quarter, quite a significant increase. Okay, I understand. A kind of very small housekeeping question. I can see the alumina cost, the unit cost you have restated for Q4 2021 and then the Q3 2021 as well. There is a big restatement by almost $35 on the upside. Can you explain what led that restatement? I guess that's the amount of volumes which went into the calculation as a basis for those costs. I will need to get back to you on what volume which was included, which was not in the original case. Okay. Okay, thanks a lot. That's it from my side. Thank you. Our next question comes from Amos Fletcher from Barclays. You're now unmuted. Please go ahead. Yeah, hi there. I just wanted to ask a follow-up question around the Hydro CapEx number you mentioned of NOK 3 billion. Could you give a bit of detail over the phasing of that CapEx between this year, next year, the year after? Yeah, how much falls in each year? Thanks. Well, we haven't gone out with detailed business plans for Hydro Rein, and we want to save that for the prospectus for the potential IPO. A large part of this will come into next year as some of these projects reach a final investment decision in the latter part of this year. If we see that our base case of an IPO does not look possible, we will have to increase disclosure on potential details here, also after we've evaluated on alternatives for capital contribution here. We've given you the total number. Somewhat less, or a smaller part of that will be this year, a larger part next year, and then the remainder after that. Got it. All right. Thank you very much. That's it. We currently have one final question. As a reminder, if you would like to ask a question on today's call, please press star one on your telephone keypad. The next question comes from the line of Bengt Jonassen from ABG Sundal Collier. You are now unmuted. Please go ahead. Yes. Thank you for taking my questions. I have two questions. If you were to mark-to-market adjust your premiums today, where would those be? The second question would be related to slide 19 on the EBITDA uplift on the post-consumer scrap. On the announced project, EBITDA of NOK 750. What is the committed CapEx behind those projects? Yeah. If we start with the premium, we are looking at our guided level into the second quarter is quite close to what we're seeing in the spot scenario. Now, there might be some tens of dollars above that based on some flat contracts over the year. But when you look at the total mix, it reflects quite a large chunk of that. On the CapEx side, for recycling then, on the realized projects or the announced projects that you see there, this accounts for a CapEx of around NOK 2.5 million-NOK 3 million. Thank you. We currently have no further questions in the telephone queue. Oh, one moment. We've just had one more come through. The next question comes from Morten Normann from Carnegie. You are now unmuted. Please go ahead. Yeah. Hi, Pål. A technical question maybe. Looking at the P&L, the minorities is quite big this time. What's the reason behind that? Yeah. I would have to come back to you on that question, Morten. I don't have it on the back of my head. I'm sorry. Okay. We'll get back to you on that. There are no further questions in the telephone queue. Thank you, operator. Thank you all for joining our conference call today. Please don't hesitate to contact us in IR if you have any further questions. Wish you all a great day. Thank you. Thank you for joining today's call. You may now disconnect your lines.