Hello, and welcome to the Hydro Q3 conference call. My name is Jess, and I'll be your coordinator for today's event. For the duration of the call, your lines will be on listen only. However, there will be the opportunity to ask questions. This can be done by pressing star one on your telephone keypad to register your question at any time. If at any point you require assistance, please press star zero, and you'll be connected to an operator. I will now hand over to your host, Martine Rambøl Hagen, Head of Investor Relations, to begin today's call. Thank you. Thank you very much, operator, and welcome to the Q3 digital conference call Q&A. I'm here, joined, by our CEO, Hilde Merete Aasheim, and our CFO, Pål Kildemo, and we'll be taking questions throughout this conference call. Operator, we are all ready to start the questions. Thank you. Thank you. As a reminder, if you would like to ask a question, please press star one on your telephone keypad, and please ensure your line is unmuted locally as you'll be advised when to ask your question. The first question comes from the line of Liam Fitzpatrick from DB. Please go ahead. Good morning, everyone. Got a couple of questions on Rein, and then on extrusions. On Rein, can you elaborate on the alternative capital raise that you're now looking at in terms of what sort of stake, and can you also confirm will this then set up Rein as a ring-fence business from a financing point of view? Linked to that, you have highlighted some Rein CapEx, which is coming through. How is that gonna be reported divisionally, both now and once Rein is set up? That's the first set of questions on Rein, and then on extrusions, obviously it's a very you know, uncertain backdrop into Q4, but can you give us any color on how you expect kind of EBITDA to trend in relation perhaps to Q4 last year and some of the previous weak periods we've seen over the last couple of years? Thank you. Hello, Liam, and thank you for your questions. If we start with Rein, when we look at alternatives to the IPO market, we're still doing it from the same strategic starting point and also a similar model from a ring-fencing perspective. The difference is how you raise that capital and of course amount of partners you potentially have on the other side if that is the path we end up going down. Rein will be part of the energy business area. As mentioned earlier, both Rein, Havrand and Batteries are business units within a business area and will be followed up accordingly. No big changes apart from acknowledging that the IPO market is looking quite challenging and we need to evaluate other alternatives, as we said in Q2 also. On the extrusions side, I wish I could provide you a figure with the two lines under. But I think as we see from consensus but also internally that there is an expectation of a development into the fourth quarter which reflects the uncertainty that we are experiencing. Our best guidance is really the volume from CRU. As you see, CRU volumes in extrusions Europe being down 15% or so from the fourth quarter last year. We are largely seeing a similar picture, some pluses and minuses, and the same in North America, which is more balanced. That would be our starting point. Of course, acknowledging that things can change. If things change, I expect larger effects into Q1 than in Q4. We are not running very high costs currently in extrusion. We have been able to keep fixed costs and so at a more conservative level than we had going into the last crisis. With that as a starting point, I don't think you should expect us to have the same fixed cost release. On the variable cost, it's of course a higher energy level than what we experienced externally, but here we are working very hard to pass this on to customer, especially into 2023, where we have more open volumes. The last element you should take into account when looking at the third quarter, fourth quarter is of course the remelt. We are expecting to take down remelt production around 20,000 tons in the fourth quarter, and that will also impact profitability all else equal. Okay, thank you. I'll go back in the queue. Next question comes from the line of Amos Fletcher from Barclays. Please go ahead. Yeah, morning, Pål. Just a couple of questions. I wanted to ask a question about the CO2 compensation increase that you booked into EBITDA. You were mentioning that NOK half a billion relates to the current quarter, that annualizes at NOK 2 billion, but then you were saying the total for 2022 would be NOK 1.7 billion. I was wondering if you can explain why the difference is there. Should we also expect another NOK half a billion in Q4? Is it reasonable to assume a sort of, you know, the 2023 number you mentioned of NOK 2.2 billion, just divide that by four for the quarterly run rate through next year as well? I'll try and get this straight, Amos, because there's a lot of moving parts here. The reason why there may be some confusions between 2022 and 2023 is potentially when you build it up and account for it and when you actually receive it. When we talk about NOK 1.7 billion, that is the accumulated effect for 2021. That NOK 1.7 billion will be paid in 2022. From an EBITDA perspective, it hits 2021. From a cash flow perspective, it hits 2022, and that is also one of the reasons why we have a high receivable on the operating capital side. For 2022, we use the average CO2 prices for 2021, which were higher than what they were in 2020, which was the basis for 2021. That all else equal increases the figure. On the flip side, there's been put in a floor on CO2 compensation of around NOK 200, so that cuts it a bit down. When you add all of these pieces together with the CO2 compensation on own power, that becomes NOK 2.2 for 2022, payable in 2023. For 2023, you will be using the average CO2 price in 2022, which is higher than what it was in 2021. If you use the same methodology, I think the full year effect for 2022 payable in 2023 is NOK 3.7 -NOK 3.8 billion. Got it. Okay. I just wanted to clarify on the NOK 1.6 billion of EBITDA from Slovalco power sales. Can you just clarify, that was a quarter-on-quarter increase that you expect in Q4? Is that right? It's a quarter-on-quarter increase, but it's not just Slovalco, it's also the power sales from the curtailed operations at Husnes and Karmøy. The total power sales from Slovalco is higher than what we had indicated earlier, which also brings the total figure higher. Got that. You were saying at the sort of in-person presentation, is there a mix between where that gets booked? Does some of it get booked in primary metal, some in energy, or is it all in primary metal? Of that 1.6. No. Of the figures we're talking about now, it's all aluminum metal. What the aluminum metal has done this period is that they've sold the power to energy, and then energy takes it into the total portfolio and optimizes along with their own position. The figures are locked for aluminum metal, but for energy, there's still an uncertainty as to what price you end up selling them in the market at. They are currently placing these volumes in the market. You know, these are NO2 volumes. The power market there is not extremely liquid, so it's not something you do overnight. We also need to take into account the collateral and bilateral power purchase. Got it, okay. Yeah, last question I just wanted to ask around the potential physical rationing of gas Hilde was mentioning in the presentation, potential to move volumes from, you know, one part of the business towards Europe if you need. What sort of spare capacity percentage do you have outside of Europe? As a result, what kind of reduction in gas availability could the business accommodate if required? Well, for extruders, you typically don't run 100% capacity. It varies a bit among plants. Some maybe run down 50%-60%, some are closer to 80%-90%. That is either product-based or it might be to be able to capture short-term demand, etc. If within this guidance on gas consumption necessary to be reduced that we're operating with now, these are within some of the flexibility we have at plants if you get hit in one country and not another anywhere. I suppose the question is if you were, let's say, hit with, you know, to pick a number, 20% reduction in gas availability, is there the capability to make that volume up from elsewhere within the business? What sort of hit to gas availability could you accommodate? Yeah, well, if you get it across Europe as a total, you couldn't. If you got it in one country, you could potentially move it to another country. It depends a bit on what country gets hit and what countries don't, because there's different utilization in the different countries. I think our comment is mostly that as we see it now, we are not reducing production due to gas. It's to match the falling demand. I think that is the most likely outcome in scenarios, that the demand is actually what triggers. If you have one country that gets hit, then we have other countries that we could move volumes to. There is quite a lot of flexibility given that we've already reduced production. The question becomes more like how far does it make sense to move it given transport costs and margins and elements. I think the main point, Hilde, from the presentation earlier today was that this separates us a bit from peers that we have a larger flexibility than those purely operating in a single country. Mm-hmm. Got it. Okay. Thanks very much. I'll leave it there. Cheers. The next question comes from the line of Daniel Major from UBS. Please go ahead. Hi, guys. Thanks for the questions. Just a few clarifications just for the start. Just on the power sales and sorry for repeating this slightly. Is that NOK 1.6 billion expected in Q4 more than the NOK 0.6 billion that you achieved in Q3, or is it NOK 1.6 billion in absolute terms? More. Right. Okay. It's a total of, what's up with that, NOK 2.2. Okay. That makes sense. Thanks. And then just a second clarification on the numbers you gave around guidance on costs for primary aluminum in Q4, it was NOK 400-NOK 500, part offset by NOK 100-NOK 200, so net net it should be a reduction of NOK 300-NOK 400, is that correct? Yes, the raw material development into Q4 from Q3 is NOK 300-NOK400. In total it's NOK 300-NOK 400, 'cause I think you said raw materials were down NOK 400-NOK 500, but seasonally you have higher fixed costs of NOK 100-NOK 200. Exactly, yeah. So three to four hundred NOK 400-NOK 500 on aluminum. That's correct. Sorry. Yeah. Perfect. Thank you. Next, the question just to follow up on Liam's question on Hydro Rein. Obviously you hope to raise capital in the fourth quarter, but it's a difficult market in many respects. Can you tell me one, how much have you actually consolidated in terms of CapEx into Hydro Rein so far? How much would you expect in Q4? And what would the rate of expenditure be if you were unable to sell a stake in 2023, either on a quarterly basis or annual basis? Yeah. I think the guidance that we gave last quarter on Rein on the CapEx side, that still remains. In all scenarios, that remains. These are projects which are ongoing and you don't stop them. They're projects which are delivering very effective power in today's market to our operations also. There will be more than just the impact of stopping from the Rein side. Going into next year, we will get back to you at Capital Markets Day in a scenario where this looks challenging what the CapEx outlook for Rein would be. So far we're not in a situation to give a guidance for next year. We will update that at Capital Markets Day. Just to follow up on that one, 'cause I think the guidance was NOK 1.5 billion-NOK 2 billion. How has that been. How much did you book in this last quarter in terms of spend on Hydro Rein, and therefore what's the implied spend in Q4? Ooh. One second. We can take it offline if you don't have it in front of you. No, it's okay. It's okay. It's probably of interest. I think we spent around NOK 900 million on growth in line year to date Q3. Great. Thank you. Just final one and then I'll open up the line again. Just on the energy business, well, what was the EBITDA on the area pricing spread this quarter, so we can have a sense of how it might progress into next quarter as pricing progresses? Around NOK 2.5 billion. NOK 2.5 billion positive from the area pricing? Yeah. Okay, cool. Thank you for that. The next question comes from the line of Ioannis Masvoulas from Morgan Stanley. Please go ahead. Good morning, and, thanks for taking the questions. A few left from my side. First of all on realized premium, the guidance for Q4 is $550-$600 per ton. What would that figure be in 2023 if spot premiums persist? Well, it depends on the composition of the portfolio, but we did as a back of the envelope on using current market premiums, and then we end up around the $450 level for realized premium. That is not something you would see in Q1 most likely, but from Q2, Q3, et cetera, when you have less price contracts, that's when you start seeing these levels. Great. Thanks very much for that. Second question, around the aluminum cuts in Norway. Assuming demand stays weak or weakens further from here, how much more could you cut in practice? Are there any limitations around contract structures or any other considerations that put an absolute limit on how much you're gonna cut? I think as I said, this is Hilde. As I said in my presentation, we will continuously evaluate further mitigating measures in terms of a weakening demand. There are no, let's say, structural or contracts that avoid us or stop us from further cuts. It's more to understand how the market is developing, how long the market will stay down before we talk about further electrolysis cuts. We will evaluate that as the market is developing. Understood. Thanks for that. One more question on this, on the Norwegian state budget, around the windfall profit tax, from which, from what you're saying, it doesn't have much of an impact to your business. But are you exposed to that additional tax when it comes to the spot power sales or when it comes to the volumes exposed to the price area difference, or are you not exposed? Our understanding of the current framework is that the only exposure we have to the change in tax rate is the absolute 8% increase in resource rent tax. That will impact all the volumes that we produce as it does today, but then based on the internal contract price between aluminum metal and energy. Where we have very limited volumes that are exposed to any high price contribution. Okay, great. Thanks for that. A very last question, if I may. Just on the CO2 compensation, did you mention that for 2023, the compensation would be NOK 3.7 -NOK 3.8 billion payable in 2024? If you use the same methodology as is currently used for 2022, and the difference in price between 2021 and year to date 2022 prices, that amounts to 3.8, yes. That's great. Thank you so much. Thank you. The next question comes from the line of Liam Fitzpatrick from DB. Please go ahead. Right. It's round two. Just two or three follow-ups. Just on the working capital pool, you guided us to a reduction in Q3, which didn't come through. Understand the reasons behind that. What's your level of confidence around the NOK 5 billion reduction that you're guiding us for Q4? That's the first question. Secondly, just on Alunorte, it looks like it's getting close to breakeven at the EBITDA level, if not worse. Is reducing production part of your thinking at the moment of that asset? Then third and final, in terms of CapEx reductions, which you flagged, in terms of the weak demand environment, which of the divisions where you see the flexibility to kind of bring CapEx down and defer things? Thank you. Well, to start with operating capital, I'm glad that you acknowledged that the world around us is developing and that the guidance we give at any given quarter is best estimate as we see the world today. I think if you start with Q3, the CO2 compensation of course accounts for a large part of it. But the build in inventories in aluminum metal and extrusions we did not foresee a reduction in the market to the speed that actually took place. Then you ask about the coming period. Unless something happens in the Norwegian context, we're quite comfortable that NOK 1.7 billion of that, the CO2 compensation for 2021 should be paid in Q4. That's directly taken out. Of course, you have a net effect there because you will also receive another NOK 550 million in receivables for Q4. There's a net amount there, which is a bit lower. That's quite comfortable. It's the price development. We are still seeing high prices on the raw material side. If this continues to increase, if caustic markets strengthen, that could offset some of what we have in now. We have a quite flat price for raw materials in B&A. Of course, if you have sanctions or other elements which drives up revenue side prices also, that could impact it. We only have comfort with respect to how the market looks today. That goes for prices, but it also goes for inventories. When we look at inventories now, this is what our inventories will look like if we deliver according to the guidance on volumes we said in extrusions. If we deliver on the curtailment and don't see further demand fall, then the NOK 5 billion is what we end up at. I am only as certain as I am about what the base case is, which means quite uncertain, to be honest, because things can move quite a lot within the next months also. On CapEx reductions, I think the business areas which have the highest spend for this year and where there's been the biggest volatility in estimates are both Alumina and Aluminium metal. When we talk about CapEx reductions, it's just important for me to state that we're not talking about stopping projects or like, but it's more moving cash outflows a bit out in time, especially in light of your question number two, which is for Hydro Aluminium. It is correct that if you use $310 in pax, if you take the guidance I just gave you on raw material prices, EBITDA looks negative into the fourth quarter, just based on our annual sensitivities. Then it's important to ensure that we keep control of cash flows. For us, sitting at the 30th percentile on the cost curve, to curtail capacity in order for other players on the cost curve to benefit from that is not necessarily why we've worked so hard to get a 1st quartile or lower 2nd quartile position on the cost curve. The base hypothesis is not that we will curtail capacity at Alunorte and Alumina. Okay, thank you. Very clear. The next question comes from the line of Bengt Jonassen from ABG Sundal Collier. Please go ahead. Thank you for taking my question. Just a clarification on the windfall tax, and your decision to reduce production within primary. Is that long position in the end of the electricity subject to any windfall tax, either in primary or within the energy segment? Thank you. Our understanding is that it's not subject to windfall tax at the moment. Thanks. The next question comes from the line of Daniel Major from UBS. Please go ahead. Thanks. Can you give us any more color on the Dutch court ruling that you put out a press release a few weeks ago. Any context and kind of potential sort of moving parts and liabilities? Thanks. Yeah, I can comment on that, Daniel. The Dutch process is a parallel to the same allegation that is ongoing in the Brazilian court relating to particularly to the rainfall event. The reason is that the plaintiffs are frustrated about the fact that these processes goes very slow in Brazil. They have raised this allegation in the Dutch court. The process up till last week was to discuss if the case should be dealt with in the jurisdiction of Netherlands rather than in Brazil, where it in a way belongs. Then the ruling last week was that the judge decided to discuss or have the court decision in the Netherlands. That was something we have anticipated. What we are working on now is to prepare our defense and our story towards the court hearing for the case in February. The only ruling that was made last week was the fact that the case should be dealt with in the jurisdiction of the Netherlands rather than what we argued for, to have it in the Brazilian court. Okay. The hearing is in February, though, and you haven't made any provisions or associated with any of this. Is that correct? Yeah. Okay. I guess we'll find out more information in February. All right. Thanks a lot. The next question comes from the line of Ioannis Masvoulas from Morgan Stanley. Please go ahead. Hi. Thanks for taking the follow-ups. The first one just on the CapEx commentary, assuming you know some potential delay, at least in terms of cash outflows relating to projects. I'm just wondering whether there will be any implication to your decarbonization projects, whether you would look to delay anything there, or we should still assume that your 2025 and 2030 targets remain intact. I can confirm, Ioannis, that the ambition stays intact and that we will continue to allocate capital to the decarbonization, both when it comes to CCS as well as HalZero. We are also excited about the further process relating to using 100% post-consumer scrap. We stick to these ambitions and we look forward to talk about progress at the Capital Markets Day. Very clear. Thank you. Second question on, again, going back to the aluminum, volume cuts. In the last down cycle we had around COVID, the focus was on cutting secondary capacity. Right now, you're focusing a bit more on primary, I guess, given the power gains that you have. As we think about additional demand weakness from here, where would you expect the additional cuts to come, primary or secondary? You're correct, Ioannis, that we are reducing capacity across the portfolio. We are looking at how can we best deliver on our ambitions as a company, be that to grow in recycling, deliver on our CO2 ambitions, while also being able to deliver on volumes to advance customers from our smelters in Norway. As you know, Husnes, for example, produces HyForge, which is a high margin product that we've been working to establish customer relationships for a long time. It's based on the totality. I think as we move forward, we will continue to evaluate curtailment across the portfolio if necessary. I cannot today give a concrete guidance on where that will come. What we've been working on now is extrusion ingot, and that's where the biggest impact have been. As we move forward, we will get more flexibility in our portfolio, which might make things look a bit differently. We will keep you updated as we do it, but we're unfortunately not in a position to say where it will come ahead of time. All right. Great. That's very clear. Just the last question from me on the Alumetal transaction. Can you elaborate a bit on the reasons for the phase two investigation by the European Commission? Is there a risk that remedies or potential remedies could make the deal and the attractions unviable from your perspective, and hence the deal could fall through? Thank you. Well, the phase II has just started, Ioannis, so we're still in the exploratory of really what is the commission's concerns. We believe that this is in a way worth fighting for in the sense of describing these markets and to demonstrate that this will not be, let's say, jeopardizing competition in the secondary markets. We have to see, but it's very early days, so we're still, I'm still curious to also hear the real concerns coming from the process now. Just to supplement, in on that, you know, in the first phase, then we are the counterpart who needs to address specific questions. When they move into phase two, then the tables turn, then this needs to be presented for us. As Tone said, we're. We basically don't see the full totality or understand it, so we have nothing more to communicate. Great. Thanks very much. The next question comes from the line of Amos Fletcher from Barclays. Please go ahead. Yeah, hi there. Just a quick follow-up. Sort of leading on that question on Alumetal, I was just wondering if you have got any flexibility to reprice the deal if and when the EU investigation concludes, or is the price that you've agreed a binding one? Well, the price in Poland is related to certain historical market prices and the like. As we see it now, the price that has been discussed is what is relevant. If time progresses for a long period, then that could look differently. We would not go into the specifics of the study. Okay, got it. Second question, I just wanted to dig in a little bit into Alunorte. You were mentioning the LNG fuel switch project delivers significant cost benefits at current prices. Can you quantify that in terms of dollar per ton impact on the EBITDA breakeven? Well, I guess what we see now using spot prices is $80 million of positive EBITDA effect versus the fuel mix we have today. If you divide those $80 million by our production in a given quarter, you should get the dollar per ton figure. Great. Okay. One question, I'm just slightly baffled. I mean, it's why are caustic prices so high when alumina prices are collapsing? Do you know what's going on in that market? Well, I think you're as baffled as us. It's, I guess, a strong supplier discipline on the availability of volumes. We are really looking into the caustic costs going forward because this is really the item which is increasing as we look at it into fourth quarter also. Yeah. Okay. Then last one. I just wanted to. I mean, the other thing that's quite interesting is that bauxite prices have been pretty robust through all this. Is there any possibility to increase your merchant bauxite sales to compensate for lower profitability at Alunorte to some extent? Not that we see at the moment, no. Limited flexibility there. Okay, perfect. Thanks very much. Thank you, Amos. We currently have no questions in the queue. As a reminder, please press star one if you'd like to ask a question. We have no further questions in the queue. I'll hand the call back to your host for some closing remarks. Okay. Martine Rambøl Hagen, just one additional item from my side as we've been through the call. We've been talking about the price area differences and there was a question regarding the absolute amount in Q4, Q3, which is correct. I think the question was also phrased in the context of understanding what this would mean for price area differences and earnings going forward. As you probably remember from last week, just to remind you, we have some seasonality in the price area exposure and we expect a decrease in the fourth quarter of around 37% on the price area exposure. We expect an increase in the first quarter, again, coming back close to the levels where we are now. Just remember this seasonality also. Eline, I give the word to you. Thank you very much, Pål. I just wanna thank you for joining today. If you have any further questions, please don't hesitate to reach out to us in IR. Have a great day, and thank you. Thank you. Thank you. Thank you for joining today's call. You may now disconnect your lines.