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Welcome to the AS Norsk Hydro (sic) [ Norsk Hydro ASA ] Q1 call. Today's conference is being recorded. At this time, I would like to turn the conference over to Mr. Stian Hasle. Please go ahead, sir.
Thank you. Good morning and welcome to Hydro's Q1 presentation and conference call. Although we're not having a physical presentation this quarter, we will follow the normal routine, starting with the presentation by CEO, Hilde Merete Aasheim; followed by CFO, Pal Kildemo, before we end with a Q&A session.The presentation slides we will walk through can be seen on the webcast. The link to the webcast as well as the slides can be found on hydro.com. Please note that you will need to dial in to the conference call to be able to ask questions at the end, and this is not possible over the webcast.With that, I leave the word to you, Hilde. Page to Slide 2.
Welcome from me as well. Let us first have a look at the highlights for the quarter.Underlying EBIT for the first quarter was NOK 2.2 billion, up from around NOK 600 million in the first quarter of last year as well as for Q4. Compared to Q1 2019, the results are positively impacted by lower costs, a weakening NOK and BRL versus U.S. dollar as well as increased volumes from Alunorte moving towards nameplate capacity. The main cost impact relates to lower raw material costs. However, we are also seeing cost improvements well ahead of targets in our downstream business areas, reflecting the ongoing improvement programs. The combined positive effects are partly offset by lower realized aluminum and alumina prices. The direct operational impact of COVID-19 on Hydro's financial results was limited in the first quarter, primarily impacting Extruded Solutions. As everyone knows, these are very special times for the entire world as well as for Hydro, and we are seeing unprecedented impact on the world economy from the COVID-19 situation. This -- which is causing a sharp drop in aluminum demand globally as well as expectations of significant surplus for primary aluminum in 2020. In this situation, we are taking firm measures to ensure a safe and healthy work environment, maintaining operations to the extent possible and assisting and contributing in the local communities as well as safeguarding liquidity.Our improvement target of NOK 7.3 billion by 2023 still stands unchanged. However, we are not expecting to reach the overall target of NOK 4.1 billion for 2020 due to the expected shortfall of volumes and market developments. That being said, we are ahead of our plan and progressing with full speed on cost initiatives and controllable measures to mitigate as much as possible.Turning to Slide 3 (sic) [ Slide 4 ]. Let me then move to the COVID-19 and the effect on our operations. We have provided frequent updates on the operational impact on our business from COVID-19 on hydro.com. This is very much a moving target as the virus spreads globally. The map on the right-hand side shows how our production is impacted by the virus.Outside China, Southern Europe was first hit with Italy, Spain and France having to close down. And the virus has since then progressed across most countries to varying extent with the Americas, including Brazil and parts of Asia, seeing the most active development currently. However, it is also worth mentioning that, for example, in Southern Europe, we are now resumed operation at some of our plants, although at low activity levels. And even though we are able to restart production, the demand picture is still challenging with order intake at around 60% of normal across our extrusion operations. In Extruded Solutions, 30% of our sites are currently running at approximately normal levels, primarily in China, Scandinavia, Germany, some other European countries as well as parts of the U.S. 55% is running at reduced level spread globally, and 15% is either closed or running at very low levels in Italy, India, U.K. and Argentina. In Rolled Products, we have been temporarily reducing production for the automotive sector as our customers are closing production, whereas other areas such as can and foil are currently proceeding relatively well. In our primary -- in primary, our primary plants are running more or less at normal levels but with a somewhat different portfolio mix. Our recyclers are running at reduced capacity utilization, both in Europe and the U.S. In Bauxite & Alumina, operations are mostly running as normal. That is also the case for Energy business. As more and more operations are allowed to resume, the main uncertainty becomes more how long will it take for demand to resume, which will be dependent on governmental supporting and the general consumer optimism.Slide 4 (sic) [ Slide 5 ]. The situation we are in is extraordinary, and we need to take extraordinary actions. Let me first start with our top priority in these challenging times, which is health and safety. We have implemented strict and precautionary measures based on authorities' advice aiming to protect employees, contractors, customers, suppliers and our local communities. In addition, we are working closely with local authorities across the world in order to contribute to our local communities. We've also taken measures to safeguard liquidity, which I went through in detail in early April. These measures include: temporarily curtailing plans; cutting costs and enforcing strict cash discipline as well as continuously evaluating further measures; freezing capital expenditure in 2020 by NOK 2 billion until we have more visibility, resulting in the updated CapEx estimates for 2020 being NOK 7.5 billion to NOK 8 billion until further notice; and the Board resolution to amend dividend proposal of NOK 1.25 per share and instead proposed that Board is authorized to resolve distribution of dividends at a later stage, if conditions allow for it.Let's then move over to the market development on Slide 5 (sic) [ Slide 6 ]. The COVID-19 situation is increasingly impacting the global economy, and as such, the demand for aluminum. Estimate for 2020 GDP has been significantly revised downwards over the last couple of months from the levels seen in the light green to the dark green, which shows a global recession in 2020. This includes the expectation of negative GDP growth in all key regions with the exception of China. Within our key markets, the U.S. and Europe, the estimated GDP decline is around 5% in both regions. This development is also evident in the expected change of industrial production. The expectations for industrial production growth in our key markets, Europe and the U.S., were not very strong even before COVID-19, but we are now seeing estimates of significant decline in both areas, with the U.S. estimated to experience a double-digit decline.There is clearly a consensus that 2020 will be extremely challenging, but the uncertainty makes it difficult to predict how negative it will be. It is also, at this stage, difficult to forecast what shape the recovery will take, and for us as a company, it is important that we prepare for all variants and then adjust our plans as visibility improves.Slide 6 (sic) [ Slide 7 ], please. The development seen in the last slide is clearly impacting the demand for aluminum, which is typically closely linked to GDP and industrial production development but with an intensified magnitude. So let's start with our internal sales figures for Q1 on the left-hand side.Extruded Solutions experienced an 8% drop in sales from the level of Q1 2019. And here, I should remind you that Q1 last year was impacted by the cyberattack. Sales dropped in all areas with the exception of Building Systems, where there was a flat development adjusting for the acquisition of the remaining 50% of the Building Systems provider, Technal, in the Middle East. The drop in sales reflected the impact of COVID-19 towards the end of the quarter as well as our communicated market expectation at Q4, which indicated a more challenging market into the first half of 2020. Overall, we estimate that the volume impact for Extruded Solutions in Q1 from COVID-19 has been around 10,000 to 15,000 tonnes lost sales, primarily impacting the European plants.Rolled Products saw a decline in sales of 4% in Q1 2020. Also, this is reflecting the negative impact from COVID towards the end of the quarter. As communicated earlier, our strategic growth areas are automotive and can, where auto has been impacted negatively by COVID-19 towards the end of the quarter, whereas can has seen a positive development in this quarter. The decline in foil and litho also reflects the strategic decision to reduce our exposure in this segment. But in addition, there is some negative impact from COVID-19 on litho and positive impact on foil.Moving then to the external estimates for Q2. There is significant level of uncertainty of how the rest of 2020 will develop, but there is no doubt that the second quarter will be severely impacted by COVID-19. Estimates from the external consultancy, CRU, indicate that the extrusion demand will drop by around 30%, both in the U.S. and Europe. And for Rolled Products, they expect demand to drop by around 20% in both Europe and North America. Again, it is important to mention that these estimates are highly uncertain but, nevertheless, gives an indication of the levels that could be expected in Q2 if CRU estimates materialize. Please also remember that our product mix differs somewhat from the general market indication, and we will, therefore, never move exactly in line with the market.Automotive is the segment which is the hardest hit due to the curtailments of car and car part manufacturers. However, also all sectors -- almost all sectors are impacted, including building and construction as well as deliveries to the general industrial sector, while packaging is experiencing less of an impact.Slide 7 (sic) [ Slide 8 ], please. If we then move upstream to the primary aluminum market, then in the first quarter, we saw a global demand decline of around 8% compared to Q1 last year, consisting on approximately 10% drop in China and 7% in the world outside China. Normal system development, mainly driven by the Chinese New Year, was much intensified by COVID-19, hitting China first before impacting the rest of the world later in the quarter. Supply is estimated to have increased by around 2% globally in the same period, both inside and outside China. Overall, this has resulted in a global surplus in Q1, as seen on the graph on the left-hand side, of around 2 million tonnes, of which the majority of the surplus is coming from China. Not surprisingly, this led to an increase in inventories of the same amount, taking inventory days back up about 70 days as seen on the graph on the right-hand side.Slide 8 (sic) [ Slide 9 ], please. On the back of the significant uncertainty, it is challenging to predict the impact this will have on the global supply-demand balance. However, as said, there is no doubt that there will be a significant surplus in 2020, adding to the global inventory levels. In our presentation today, we will therefore show you various primary demand and supply estimates from 3 different consultancies. They all estimate a decline on the demand side of various sizes and the supply side which does not respond accordingly. This results in an external estimate of a global surplus of primary aluminum globally in 2020 of between approximately 1.5 million to 5.5 million tonnes with surplus both in China and the world outside China. The spread of estimates indicate the current uncertainty. However, all consultancies predict a significant surplus. As a response to this, we have decided to postpone the restart of the second line at Husnes, and we also took down the Slovalco smelter by 20% earlier in the year.We anticipate an increased percentage of the global aluminum production to be below they now. In addition to the peers review, which some of our peers have announced earlier, we're also seeing some of our peers starting to curtail capacity.Slide 9 (sic) [ Slide 10 ], please. Moving on to prices, then our main revenue drivers are all declining following the outbreak of COVID-19. The aluminum price declined from around $1,820 at the end of 2019, falling significantly in March to around $1,520 at the end of Q1. Today, pricing is trading at around $1,500. During the weakening of the Norwegian currency, the price fall has been less substantial for aluminum in Norwegian kroner.The standard ingot premium have followed more or less the same development. The Platts alumina index started the quarter at USD 275 per tonne, increasing gradually to USD 304 per tonne in early March on closures of Chinese alumina refineries before retreating to USD 252 per tonne at the end of the quarter, and is today trading at around USD 225 to USD 230 per tonne.Slide 10 (sic) [ Slide 11], please. As with the revenue drivers, costs elements are also impacted by the general market development. If we look at the main costs for producing primary aluminum, the light gray bars on the top, we are seeing all the 3 main raw material market prices coming down in Q1, reflecting the general economic development and reduced demand. Currently, alumina spot is trading lower than the average in Q1, whereas in coke and pitch, we are seeing a more flattish development versus average in Q1. For alumina, the black bars at the bottom, we're seeing the same trend in Q1 with prices coming down for caustic, coal as well as fuel oil. Currently, we are seeing significantly lower fuel oil due to the general drop in oil prices. Spot prices for coal are relatively similar to Q1 levels, whereas caustic prices are currently trading somewhat above the average seen in Q1. As always, I would like to remind you that we typically have a time lag of between 1 to 3 months for realizing these market prices effects into our results. Also important to mention that these are market prices, whereas our prices can deviate somewhat from this. We have seen falling raw material prices in our results for Q1 and should expect further relief in Q2, primarily from fuel oil in Bauxite & Alumina. It is important to mention that this picture can quickly change, which may impact the cost realization in our second quarter figures.Slide 11 (sic) [ Slide 12 ], please. As shown on the last slide, the market prices for many raw materials have moved downwards in Q1. This we also see in our cost levels. In Bauxite & Alumina, implied alumina costs have come further down in Q1 to USD 226. This was mainly due to lower raw material costs and positive currency development. As prices have been fairly stable over the last 2 quarters, the margin has, therefore, increased to around USD 50.Moving to Primary Metal. The implied primary cost also decreased in Q1 versus Q4 on lower cost, mainly related to lower alumina cost as well as positive currency development. The margins improved in Q1 from Q4 in primary as costs reduced more than prices.Slide 12 (sic) [ Slide 13 ], please. If we then move on to our improvement program. The improvement program target of NOK 7.3 billion by 2023 remains unchanged, and we'll do our utmost to deliver on this target. However, we are not expecting to reach the target for 2020 of NOK 4.1 billion due to the expected shortfall of volumes as well as market developments, as rolled and extrusion program are not purely cost-based. That being said, we are progressing with full speed ahead of plan on cost initiatives and controllable measures to mitigate to the extent possible. In light of the situation, we believe it is necessary now to refocus the improvement program to reflect the current situation with increased focus on controllable measures.On the left-hand side, you see the improvement targets split by year, totaling NOK 7.3 billion and indicating an accumulated 2019 and 2020 target of NOK 4.1 billion, of which NOK 1 billion has already been delivered in 2019. Bringing the NOK 4.1 billion over to the right-hand side, you’ll see a split by selected categories within the NOK 4.1 billion target. NOK 2.7 billion is targeted to come from bringing Alunorte and Albras back to normal production after the embargo. NOK 800 million comes from various upstream initiatives, including improved technical parameters, energy mix, fixed cost as well as centralized initiative. Around NOK 100 million was planned to come from the ramp-up of Husnes during the year and finally, around NOK 500 million to come from downstream improvements, being a mix of cost initiatives as well as volume and price effects.Given the current market and impact on demand on the next quarters, we expect that the market elements will impact the improvement program negatively to a significant extent. This includes the delayed ramp-up of Husnes until Q3 2020 at the earliest, the curtailment of Slovalco by around 20% and the expectation of reduced volumes from our downstream business areas. To provide an estimate of how much behind we will be by the end of 2020 is difficult as we have limited visibility at this current stage. With this as a backdrop, we have decided to refocus our improvement efforts for 2020 to be able to a larger extent focus on underlying costs to be able to provide you with some formal annual guidance.Slide 13 (sic) [ Slide 14 ], please. So in the graph on the left-hand side, you will recognize some of the categories from previous slides. The NOK 2.7 billion curtailment reversal is still ongoing, and I'm very happy to see that the ramp-up of Alunorte is now progressing ahead of plan. As Alunorte is already producing at very high levels, we are comfortable that we will deliver on the full year target of being back to full nameplate capacity towards the end of the year. We produced at a rate close to 100% capacity utilization in Q1, with the ninth press filter in full operation.As you know, the curtailment reversal did also include Albras. Albras had to curtail 25% of the production earlier this year due to a fire in an electrical transformer. Our plan is to restart Albras during the year. The upstream and centralized initiatives of NOK 700 million has been reduced from NOK 800 million from the previous slide, reflecting the Slovalco curtailment which we are not able to offset with other initiatives as we see the situation today. But the staff improvement initiatives are moving forward ahead of plan.Growth, which was NOK 200 million on the previous slide, has been taken out due to the delay of Husnes until Q3 at the earliest. The downstream part of our improvement program included price and volume improvements, and in the current market, it's difficult to give any full year guiding on this. We have, therefore, changed the downstream part of our program from cost and market initiatives to purely cost initiatives. The new downstream number of NOK 700 million is higher than on the previous slide, as this splits out market impact and measure gross cost ex inflation, making it comparable to the upstream program. We are, as such, focusing on the gross cost improvement targets downstream for 2020 until we gain more visibility on the market side.In Rolled Products, the main initiatives are: organizational rightsizing reducing manning, as we have communicated before; procurement initiatives; as well as metal cost optimization, including improvements in the used beverage can plants. Year-to-date, we are progressing ahead of target on these initiatives, as can also be seen in our results for the first quarter. The strategic review of the Rolled Products business is still ongoing. However, the COVID-19 situation is impacting the speed of the review, especially the external part.In Extruded Solutions, the main initiatives include restructuring and streamlining portfolio, where we are experiencing positive impact from the 2019 portfolio optimization in addition to additional restructuring being considered. In addition, we have fixed cost initiatives across the portfolio with increased focus now in the COVID-19 situation. Also here, we have procurement initiatives. For Extruded Solutions, we are delivering cost improvements ahead of our targets year-to-date, also clearly visualized in our results, reflecting the absolute result level in the quarter experiencing year-on-year decline in volumes.It is important to mention that we are not changing our overall program, neither the target of how we calculate the effects. The gross cost initiatives come up to the NOK 4.1 billion for 2019 and 2020, which, by coincidence, is the same amount as the original improvement program. We are, however, adapting our 2020 target to the situation to be sure we are focusing on the right areas in the falling market and to be able to at least give some guidance on the elements which we can influence ourselves.Slide 14 (sic) [ Slide 15 ], please. During our Investor Day, we set out a clear direction for the company, lifting profitability and driving sustainability. This slide shows some of the key targets and ambitions that we have in place for sustainability, and we will continue to report on these going forward. This quarter, I would like to focus on safety and well-being for our people as well as community support amid COVID-19 in addition to some examples of how we are positioning for the future through our low-carbon products.Slide 15 (sic) [ Slide 16 ], please. Our top priority in this challenging time is health and safety of our people and local communities. All operations are complying with local regulations to help reduce the risk of spreading the coronavirus while, at the same time, keeping the wheels turning. All sites practice strict and precautionary measures relating to health and hygiene, including social distancing, foreign flying regulations and shift schedules adapted to the regulation. We're also supporting our communities through donation of funds, food and PPE to local hospitals and organizations at many of our 150 sites. In addition, we have donated property and funding for field hospitals in Pará state in Brazil, and we are delivering aluminum profiles in the U.S. and Europe for the medical sector.Slide 16 (sic) [ Slide 17 ], please. COVID-19 is affecting much of what we do today, but we are also positioning our company for post COVID-19 and for the future. We continue to produce market and deliver low-carbon products to a growing customer base. If you just recall, with more than 75% of recycled post-consumer scraps go to more than 85 building projects over the last year. Now we also see demand outside the building sector. One example is this airport bench made in Hydro CIRCAL by a Swedish company, Green Furniture Concept. On the right-hand side, you see Hydro REDUXA at a terrace cover in Germany made by the company called Stern, which was one of the first customers to switch all orders to Hydro REDUXA. Hydro REDUXA has a maximum of 4-kilo CO2 per kilo aluminum, less than 1/4 of the world average.For many symbolic volumes a year ago, we are ramping up capacity to offer greener products to a wide range of customers. This is a promising trend and supporting our strategy to differentiate on our greener product portfolio.Then I would like to hand it over to our CFO, Pal Kildemo, and let's turn to Slide 17 (sic) [ Slide 18 ].
Good morning, everybody, and welcome from me as well. I will now take you through the financial details of Hydro's Q1 2020 results.Let's move to Slide 18 (sic) [ Slide 19 ]. Let me start first with a high-level result overview. The results for the first quarter improved with NOK 1.7 billion compared to the first quarter last year and is a quarter with good momentum from the downstream improvement programs. We saw positive effects from the continued ramp-up of our operations in Brazil. And in B&A, volume improved results by NOK 0.6 billion, whereas volumes in primary contributed around NOK 0.3 billion despite the Albras outage at the start of March.Currency contributed with a NOK 1.2 billion compared to the first quarter of '19, primarily due to the 18% depreciating reais and 11% depreciating NOK against the dollar, which reduces our cost position compared to USD-denominated sales prices. We also experienced positive translation effects this quarter.In the quarter, we also saw a decrease in raw material costs, positively impacting the results with NOK 2.3 billion, primarily in our smelter portfolio, but also in B&A. These positive developments were offset by lower sales prices. In B&A, 25% lower alumina price decreased result by NOK 1.3 billion, while 8% lower LME and 32% lower premiums reduced primary earnings with a further NOK 1.2 billion. The other category of negative NOK 0.2 billion primarily includes positive improvements in Extruded Solutions but which are offset by lower energy results as well as negative deviation from internal eliminations.Let's move to Slide 19 (sic) [ Slide 20 ]. Compared to the previous quarter, results for Q1 increased, mainly driven by lower raw material costs, positive currency effects and positive seasonality in our downstream business. There was a decline in raw material costs stemming from significant movements in raw materials during the quarter, providing a positive impact of NOK 0.7 billion split with NOK 0.2 billion in Bauxite & Alumina, caustic, energy and bauxite, and close to NOK 0.5 billion in primary, which is roughly 50% alumina and 50% carbon, pitch and other.Currency had a significant positive impact through currency movements with the BRL depreciating 8% and the NOK 4% against the dollar, and the total effect of this was NOK 0.6 billion, roughly evenly spread between B&A, primary and metal market. Volume contributed with NOK 0.2 billion positively in the quarter, whereas sales prices came slightly down, impacting the result negatively with NOK 0.1 billion. The downstream businesses saw an improvement of NOK 0.8 billion, mostly driven by seasonality, but also strong delivery on their improvement ambitions, bringing cost out to compensate in these falling markets. The other category primarily consists of negative eliminations, partly offset by improved energy results.Let's then move to Slide 20 (sic) [ Slide 21 ]. If we take a look at the key financials for the quarter, then revenues were NOK 0.5 billion up compared to the first quarter of 2019, which mainly reflects the improved production in Brazil. Underlying EBIT came in at NOK 2.3 billion, as I've just explained on previous slides. And if we add depreciation of around NOK 2.2 billion, then underlying EBITDA amounted to NOK 4.5 billion. Financial expenses amounted to NOK 4.8 billion for the first quarter, which included a very large net foreign exchange loss, mainly unrealized, of NOK 4.6 billion. This primarily reflects a weaker NOK versus euro, which affects the embedded derivatives in Norwegian power contracts denominated in euro and also currency loss on dollar-denominated debt in Brazil due to the weaker BRL versus USD.The tax income amounted to NOK 498 million, reflecting the large net foreign exchange loss. Overall, this provides a negative net income of NOK 2 billion, down from negative NOK 124 million in the same quarter last year. However, underlying net income was positive NOK 1.2 billion compared to NOK 124 million last year. And consequently, underlying EPS was NOK 0.55 per share, up from NOK 0.13 per share in Q1 2019.If we then change to Slide 21 (sic) [ Slide 22 ], then I will get a bit back to the items that we have excluded from the underlying EBIT this quarter. And as usual, we exclude some timing effect of a limited amount, and for this quarter, this amounted to around NOK 66 million in total. The other effects I would like to highlight is the NOK 129 million in our Alunorte agreement. This is a provision related to community efforts in Brazil, which comes in addition to the existing provisions for TAC and TC agreements. The NOK 57 million in transaction-related effects are accounting gains related to divestments of Extruded Solutions plants in Vietnam and Romania, and the NOK 76 million in other effects relates to insurance refund on property damages in the Norsk as well as a reversal of a provision related to a customs case in Germany.If we then move over to the more detailed business area slide on #22 (sic) [ #23 ] and start with Bauxite & Alumina, then we see that underlying EBIT for Bauxite & Alumina increased from NOK 153 million in the first quarter of '19 to NOK 535 million in the first quarter of 2020. The ramp-up of Alunorte is progressing successfully, and there was a positive volume effect in Q1 from higher alumina and bauxite production, contributing to NOK 0.6 billion. Alunorte is, therefore, currently producing at close to nameplate capacity.During the quarter, production cost per tonne at Alunorte decreased mainly, driven by lower raw material prices as well as positive scale effects on fixed costs, contributing by around NOK 0.7 billion. In addition, although not a large deviation quarter-on-quarter versus the first quarter of '19, I would like to mention that we have deposited tailings into DRS1, which is accounted for against the ARO and not against fixed costs at around NOK 50 million positive. Finally, there was also a positive currency effect from a stronger dollar against the BRL during the period, contributing around NOK 0.4 billion. The results were partly offset by lower realized alumina sales prices, impacting negatively with NOK 1.3 billion. Overall, we expect a positive impact on Alunorte cash costs from a further reduction in raw material prices looking into Q2, primarily from fuel oil, which is expected to come down around 40%. The positive cost effect is expected to be offset by lower alumina sales prices, as alumina price is currently trading at levels around the $230 benchmark. Given current dollar-BRL foreign exchange rates, we also expect to have a significant positive effect from depreciating BRL against the dollar in the quarter to come. Please remember that our outlook today is based on current market prices, and that this may change before the third quarter with the large market volatility and uncertainty that we are experiencing. If we move to Slide 23 (sic) [ Slide 24 ] and Primary Metal, then underlying EBIT for Primary Metal improved from a loss of NOK 771 million in Q1 '19 to a positive result of NOK 573 million in Q1 2020. The improved results was driven mainly by lower raw material prices, contributing positively by NOK 1.7 billion, with lower alumina prices accounting for NOK 1.4 billion of this. In addition, positive currency effects and increased sales volumes contributed with approximately NOK 0.8 billion positively. The positive cost effects were partly offset by 8% lower realized alumina prices and more than 30% lower premiums, taking the results down by NOK 1.2 billion.When it comes to the outlook for the second quarter, we have, by the end of March, sold approximately 55% of our primary aluminum production forward at the price level of around $1,650 per tonne. On the premium side, we have secured about 60% at around $260, and as a consequence, we expect a further decline in realized premiums in Q2 towards the range of $200 to $250 per tonne. Based on what we've seen now, we do expect significant negative contribution from lower aluminum prices but, at the same time, some help from the weaker BRL and NOK. Raw material prices are also expected to come somewhat down but not to a very large extent. We also expect lower sales volumes compared to the first quarter on lower Albras production but more steady compared to Q2 last year. As with Bauxite & Alumina, please remember that all these comments are based on current market prices.If we then move to Slide 24 (sic) [ Slide 25 ] and Metal Markets, then this quarter, Metal Markets delivered an underlying EBIT of NOK 261 million compared to NOK 100 million in Q1 last year, mainly driven by NOK 176 million in positive currency effects from the significant depreciation of the NOK versus the dollar. The extraordinary positive currency result was mainly due to the depreciation of NOK versus dollar during the quarter, which results in positive translation effects on derivative contracts, inventory and cost of goods sold and margins, which are all accounted for in currency of reporting units and then translated back to NOK as currency effects here are not hedged.Excluding the currency and inventory valuation effects, the result for the quarter was NOK 84 million, which is down from NOK 230 million in Q1 '19. And this is the result of lower results from the remelters on lower sales premiums as well as some curtailment and also lower contribution from the sourcing and trading activities.Looking into the next quarter, there is large uncertainty on the back of COVID-19, and we are expecting to see lower capacity utilization at our remelters. But always remember that trading results and currency effects in Metal Markets are, by nature, volatile.If we move to Rolled Products on Slide 25 (sic) [ Slide 26 ]. Then the results in Rolled Products, it improved to NOK 299 million in the first quarter compared to NOK 138 million in the first quarter of '19. We had lower cost in the smelter and rolling operations, which contributed noteworthy this quarter. However, despite this, the EBIT results from the rolling mills was relatively flat compared to Q1 last year with the reduced costs being offset by lower volumes, sales margins but also accelerated depreciation, which is related to closures and planned closures of foil lines. This means that the underlying EBITDA contribution from rolling mills was up, reflecting the positive contribution from the ongoing cost and restructuring initiatives in rolled products. As Hilde has shown, there is large uncertainty moving into the second quarter of 2020 as well as the remainder of the year when it comes to demand. And there is no doubt that demand in general will come down into the second quarter, and rolled products will be impacted by this in the quarter to come. If we then change to Slide 26 (sic) [ Slide 27 ], then underlying EBIT for Extruded Solutions increased from NOK 593 million in the first quarter of '19 to NOK 702 million in the first quarter of '20. The COVID-19 situation, which reduced sales volumes and caused temporary plant shutdowns towards the end of the quarter, has had similar negative effect as the cyber attack had on first quarter of 2019 results, a total of around NOK 250 million to NOK 300 million. The results were also positively impacted by cyber insurance compensation of around NOK 113 million. Beyond these effects, the Extruded Solutions results are impacted by the declining market with an 8% drop in sales volumes, of which half can be explained by COVID-19 approximately. These effects have been offset by reduced costs relating to our ongoing improvement initiatives, which are well ahead of plan in 2020 for extrusion within SG&A, procurement and also restructuring initiatives. In addition, we have somewhat increased margins and positive currency effects in the quarter compared to the same quarter last year. When we look into the next quarter for Extruded Solutions, we expect to see challenging markets with decreasing demand across segments and regions and, as we have mentioned several times today, a very high uncertainty, especially towards the end of the quarter. Current order intake for the short-term period is only at around 60% of plan in extrusion. At the same time, Extruded Solutions are working hard to support their earnings in challenging markets with ongoing portfolio optimization, fixed cost reduction initiatives and procurement optimization. And as you can see from the first quarter, these are compensating quite well. If we move to Slide 27 (sic) [ Slide 28 ] and energy, then underlying EBIT for energy decreased from NOK 517 million in Q1 '19 to NOK 437 million in the first quarter of 2020. Q1 production is above the same period last year, mainly due to strong hydrological balance and also higher availability. However, the quarter saw a significant drop in prices attributed to the rapid increase in hydrological balance, above-normal wind power production and also low consumption due to mild weather. The system price for the first quarter of 2020 delivered at EUR 15 per megawatt hour, which is down from EUR 39 in Q4 '19 and from EUR 47 in Q1 '19. On the other hand, we had positive contributions from energy commercial activities, which improved the quarterly results by around NOK 280 million, which is all-time high and reflects the large negative price trend we have seen since Q4. We have a commercial strategy which focuses on short-term fundamental Nordic and German power position, where Hydro has an edge. And in mid-December, we saw a significant potential for lower prices and therefore carried short positions into 2020, contributing to the result. If we look into the second quarter, then we are seeing very low power prices in the Nordic region on the back of a strong hydrological balance. The average NO2 spot price is at NOK 52 so far in March, and the current spot price is around NOK 55 or around EUR 5. We should also keep in mind that the prices and production can change fairly quick in response to hydrological developments. On Slide 28 (sic) [ Slide 29 ], we have other eliminations, which netted out to negative NOK 560 million in Q1 compared to a negative NOK 261 million in the first quarter last year and negative NOK 67 million in Q4. The other category is mainly comprised of head office costs, costs related to holding companies as well as earnings from Hydro's industrial insurance company. Other also includes costs related to the cyber attack in 2019. This quarter, we had NOK 219 million in costs compared to NOK 317 million (sic) [ NOK 307 million ] last year and NOK 223 million in Q4. We have seen reductions in head office costs from ongoing improvement and cost initiatives, but these were more than offset by provisions in our captive insurance company, reflecting mainly the Albras incident in the first quarter. Eliminations are comprised mainly of unrealized gains and losses on inventories purchased from group companies, which fluctuate with product flows, volumes and margin developments throughout Hydro's value chain. The majority of this quarter's eliminations come from the improved volumes and margins on the internal alumina sales between Bauxite & Alumina and Primary Metal. On Slide 29 (sic) [ Slide 30 ], we take a look at the net debt development since the last quarter. Overall, our net debt position increased by NOK 4.4 billion, and we started Q4 with NOK 11.8 billion in net debt. We generated an underlying EBITDA of NOK 4.4 billion, and we then had a build of working capital of around NOK 1.4 billion, which is a typical seasonal development in the Q -- first quarter and also impacted by weaker NOK. Taxes and other adjustments of a negative NOK 1.6 billion reflects tax payments as well as cash effects of provisions and some net interest payments. As a result, we generated a net cash flow from operations of a positive NOK 1.4 billion in the first quarter, and then we have investments coming in at around NOK 1.3 billion for the quarter, still leaving us cash positive. However, we had a large NOK 3.6 billion other effect, which reflects the negative effects from a strengthening dollar on our dollar liability in Brazil and our euro liability in Norway, impacted by the weakening NOK. With that, we ended Q4 with NOK 15.2 billion in net debt. If we then also move on to the adjusted net debt at the end of the first quarter, then it increased by more than NOK 8 billion compared to the fourth quarter. The net debt increased by NOK 3.4 billion, as I've just explained and then net pension liabilities increased by NOK 3.8 billion as a result of lower interest rates on Norwegian pension assets, which is around NOK 1 billion; currency effects from converting German pensions to Norwegian kroner, around NOK 2 billion; as well as negative return on plan assets reflecting the market developments of around NOK 1 billion. Other adjustments was fairly flat, whereas the net debt in Qatalum also increased on currency as it is dollar translated back to NOK. And with that, the total adjusted net debt, including equity-accounted investments at the end of the first quarter, amounted to NOK 39.3 billion, up from NOK 31.0 billion at Q4 2019. On Slide 21 (sic) [ Slide 32 ]. Given the large volatility and uncertainty in the market, I would like to remind you of our financial and shareholder policy. We are aiming for competitive shareholder returns and dividend yield compared to alternative investments in peers. We have always had, and we will continue to have a strong focus on maintaining a robust balance sheet and investment-grade credit rating. We are currently rated BBB stable at S&P and Baa3 negative at Moody's. And we believe that an investment-grade rating is important for us to gain competitive access to capital as well as for our business model. Given that we can maintain our investment-grade credit rating, then we target NOK 1.25 per share as a dividend floor. So although the Board had decided to postpone the dividend decision, our dividend policy has not changed as the current uncertainty calls for mitigating measures to ensure liquidity and investment-grade credit rating going forward. An evaluation will be conducted during the year to see if the situation changes, potentially allowing for dividend payments at a later stage. In addition, I would also like to remind you of our strong liquidity going into the further uncertain periods. At the end of the quarter, we had NOK 12.2 billion in cash and cash equivalents, and we also have a $1.6 billion multi-currency revolving credit facility which matures in 2025, and which is currently undrawn. And on Slide 32 (sic) [ Slide 33 ], I would also like to focus a bit on CapEx because as previously communicated, to safeguard liquidity, we have decided to freeze around 20% of total estimated CapEx for 2020. This equals around NOK 2 billion until we have more visibility. This will reduce the CapEx estimate for 2020 to NOK 7.5 billion to NOK 8 billion until further notice. And this CapEx freeze will impact both sustaining and growth projects with a roughly 50-50 split, and it is split among all our business areas. Sustaining projects will be postponed to later periods but taking then into consideration safety and asset integrity.In line with the capital-allocation strategy as well as uncertain situation, we will continuously seek to optimize CapEx, and we will continuously evaluate if further actions are deemed necessary. I will then finish off on Slide 33 (sic) [ Slide 34 ] with an update on our capital return dashboards, which summarizes our key financial targets and priorities. At the end of the first quarter, we ended at NOK 102 billion of capital employed, and we delivered an underlying rolling RoaCE of 3.6%, which is an increase from 1.3% at the end of the fourth quarter. However, our underlying RoaCE is still impacted by the Alunorte situation, the cyber attack as well as the weakening markets, and the high market uncertainty will impact this figure going forward. Despite of this, we maintain our target of 10% over the cycle, and we will continue to work on the road maps to profitability for Hydro and for each business area to improve our returns on capital to ensure that we have full speed when we come out of the current situation. The downstream cost initiatives that we have seen this quarter make us more robust as volumes pick up again also. If we look at our balance sheet and the key ratio of funds from operations to adjusted net debt, then we are still at around 30% level on the rolling 12 months, which is below our target but also impacted by the same items that I mentioned above. And as I just went through, we generated a very small free cash flow in the first quarter of NOK 0.1 billion. Finally, on the improvement program. As Hilde mentioned, we are seeing that our overall target of NOK 4.1 billion is not expected to be met on volume shortfall and market development. And we have, therefore, refocused our 2020 efforts to initiatives and measures not impacted by the market to the same extent, and the refocused program targets NOK 4.1 billion in gross improvements for accumulated '19 and '20. And on that note, I would like to give the word back to Hilde for her final remarks.
So the last slide. So to round off, our top priority in this situation is health and safety for our employees and communities while at the same time, keeping the wheels turning to the extent possible, focusing on what we can influence, generating cash. We have so far taken forceful mitigating actions to adapt to the COVID-19 situation and will continuously evaluate further measures as the situation develops. At the same time, we need to think ahead and plan for the return to normal operations and continuing our agenda to lift profitability, driving sustainability.
Operator, then we will open up for questions.
[Operator Instructions] We'll take our first question from Liam Fitzpatrick from Deutsche Bank.
Two questions from me, one on Extruded; and secondly, on CapEx. On the Extruded business, I do appreciate the uncertainties heading into Q2. But how should we think about profitability in the coming quarter? Are you able to give us any kind of guide on that fixed cost versus variable costs? Could the business still achieve positive EBIT in the quarter ahead? And secondly, on CapEx. You've made some large reductions to this year. If we make the assumption that by the end of this year, the global economy has recovered, volumes are getting back towards more normal levels, what could 2021 CapEx look like? Could it go materially above the NOK 10 billion figure that you had previously guided to?
Thank you, Liam. If we start with the Extruded Solutions, then I'm sorry, but I'm not able to provide a good guidance on the absolute result level for the coming quarter. The main reason for this is that the current visibility that we have. We have around 3 weeks, as have been mentioned earlier. So if you look at the first 2 periods, there, we have some indication. But then as we move into June, the uncertainty is large and will be impacted about how the situation develops on the customer side and on the very end customer side. And we have, as you see, provided some external estimates with respect to volumes, where you see these levels expected to come down around 30% in North America and Europe for extrusion compared to the second quarter last year. And if you compare this to our current order booking rate of around 60%, then you see that we are in the same ballpark as we speak, but this could develop, of course, in both directions going forward. So I guess that's for most companies these days what is available externally and our additional comments is what we have to go on now. We are working quite hard to take out costs. And as you see in the first quarter, we had quite some discussions a quarter ago on how the first quarter will develop. And we said that our improvement targets, we will stand by. And the cost part of this are delivering. So we should be able to compensate some of the volume downturn with cost. But into the second quarter, if we get to the levels that you see in the market now, this will be much larger than what we are able to offset in costs. So apart from that, it's difficult to give an exact guidance level for the coming quarter. And I -- yes?
Are you able to give any color on kind of fixed versus variable? Or is that not something...
No. Typically, we sit on a variable cost of 20% of the total cost base and fixed, including depreciation, around 25%. And then you have a metal cost of around 55%. But as you know, how much cost you are able to take out as you curtail varies a bit. If you partly curtail a plant, you will have a bit more optimal cost mix than on a full curtailment. There will also be compensation schemes from governments in different countries which might impact us differently. So I guess the best we have to go now is the volume guidance and the existing cost bit. And then, of course, on a full year level, our updated cost targets. On the CapEx side, we have not reevaluated our estimates for the period after 2021 -- or after 2020, and we will have to get back to that as we have more visibility this year. As I mentioned earlier, we are postponing some sustaining projects, given that we can do so from a safety and compliance perspective. But some of these investments, you cannot postpone indefinitely. So we need to reevaluate the portfolio when we have more visibility into market outlook in the years to come.
Sorry. Can I just follow up briefly on the CapEx? Is it fair to assume that most of the reduction, NOK 2 billion to NOK 2.5 billion, most of that is deferrals versus FX and cost-type benefits?
No. And half of it is typically related to deferrals of sustaining projects as we see it today. And then, of course, as the time progresses, we might be able to reduce these levels or find other ways that results in it not coming back again. But in the first instance, half of that CapEx is more deferred. The return-seeking projects will be dependent on the business cases. If the markets are still weak, then those are easier to keep out until we see that there is a good business case for them again.
Next up, we have Daniel Major.
A few questions. First, can you give us a little bit more detail on the bridge in terms of costs for the upstream business, so for Bauxite & Alumina and for primary aluminum into Q2 and I suppose, through the rest of the year? And specifically on that, it'd be useful to get a sense around the unit costs. I think you printed about $225 for alumina and about $1,700 for aluminum. What sort of sense of further cost improvement on those metrics should be expected in Q2? That's the first question.
Yes. If you look into Bauxite & Alumina and start with that as you referred to it lastly, then as you said, we have that cash cost of -- or an implied cost of around NOK 226 million in the first quarter, which is quite similar to the PAX price that we are seeing right now. However, we do expect raw material prices to come down in the coming quarters based on how the market is operating right now and primarily driven by fuel oil. For Q2, we are expecting a drop of around 40% on fuel oil, which would, by itself, equate to a cash cost drop of some $15 to $20. Currently -- currency, looking at current spot rates, should improve our results and also lead to somewhat lower cost position as well as the other cost elements. Coal is fairly flat, whereas caustic is currently trading higher at spot and could also impact the cash cost somewhat in the other direction. But by far, the most significant impact in the second quarter will be the 40% lower fuel oil cost. If you look into primary metal, and -- then we had implied cash cost of around $1,450 and all-in cash cost of around $1,700. The main development in the market here is the alumina cost coming down and now trading at around $225 to 200 and -- I think up towards $235 as we speak. And comparing this to the average market price over the last 2 quarters, around $218 both, this should give an improvement in cash cost of around $90 to $95 per tonne. But be aware that there is some time lag, so a lot of this will not hit Q2 but come a bit further out in the year, and I guess you have the time lags available. Currency, looking at current spot rates ,should also further improve our results according to our sensitivities and lead to somewhat lower implied costs. So for both Bauxite & Alumina and Primary Metal, we expect a cost relief, primarily from fuel oil, alumina and currency rates.
Great. That's really helpful. So around -- as we stand on the current inputs, acknowledging they're uncertain around $200 a tonne for the alumina business and an all-in cost of somewhere near $1,600, maybe slightly lower for primary, is a reasonable place to be. And I guess that would imply both businesses would be EBITDA positive in Q2. Is that a fair assumption?
If using those assumptions and market prices hold as we see them today, yes, that is correct.
Great. Second question is on working capital. You obviously had to build this quarter seasonal and other. Can you give us any more sense both in Q2 and expectations through the remainder of the year, assuming the broader markets normalize, on where you expect to see working capital move and if you will be holding more working capital in the business in this uncertain period, perhaps beyond the end of the current year?
Yes. Working capital is quite difficult to guide concretely on these days. And if you look into Q2, then we do expect volumes to come somewhat down. Prices have come down. NOK, BRL has weakened. But the net outcome for this is hard to hit exactly. Typically, you have a more stable operating capital development in between Q1 and Q4 with Q4 and Q1 being the largest shift in operating capital due to seasonality. And we are building some inventories, safety stock in order to mitigate the longer supply chains, driven by delays in transportation. But the total effect is quite hard to estimate currently. So to try and sum everything into one, in theory, we shouldn't see too large movements, possibility of somewhat negative on lower volumes, possibility of somewhat positive on -- or higher on building of inventory. And then the currency rate will, of course, impact also. But I'm sorry, I can't give you an exact estimate there, but these are the main drivers, which you should look at going into Q2.
Okay. That's great. And then just on a full year basis, I mean, as we stand, would it be fair, our best estimates would be flat year-on-year in terms of working capital in terms of what we should be assuming, obviously, acknowledging the uncertainties?
If you adjust for prices -- because, of course, working capital is impacted when you have dollar going up against the kroner, but if you adjust for prices and if the business environment has normalized to some extent that we don't need to keep excess inventories for supply reasons, then we should be aiming for days, which are similar to what we experienced now, adjusted for some shifts in the portfolio mix in Rolled Products. As you know, we have moved more sales over towards the can segment, which have somewhat longer days than our foil segment, but this comes at much better margins.
[Operator Instructions]
It's Jason Fairclough from Bank of America. Just 2 quick ones from me. First, in terms of Primary Metal, as we're seeing downstream demand disappear, are you just delivering an ingot to warehouses? Or are you actually thinking about reducing primary production? That's first. Second, just thinking about the current weakness of the NOK. So if we have low oil prices, and that ends up meaning this is the new normal in terms of the NOK, could we actually see Hydro becoming a structurally more competitive aluminum producer? Or do we actually have offsetting factors?
I could start with your first question. We have, so far, taken forceful mitigating actions to adopt, and we will continuously evaluate further measures as the situation develops. And I think that is what we can say at this point. I think I'll leave the NOK to Pal.
Yes. And it is a good reflection, Jason. We -- if we see this currency picture going forward, then that has shifted our company not insignificantly on the cost curve. Alunorte operations was already quite a competitive -- while quite competitively placed on the cost curve, but the BRL-dollar at BRL 5.50, that shifts us further into the first quarter. The same with the NOK-dollar. We have a large sensitivity, and all our Norwegian smelters are much more comfortably placed now than they were before Christmas. So yes, to confirm, it makes us more robust as a company. And to tie that a bit back to your question on curtailments. As Hilde mentioned, I mentioned in an earlier call also, we have been adjusting our product portfolio to ensure that we are selling volumes where there are uptake for that. And that also includes using PFA capacity to produce ingots. And we will continue to operate where we are cash positive, as we are today. And then you also know that we have made some adjustments to the portfolio earlier. For example, curtailing Slovalco before Christmas and postponing the Husnes restart into the third quarter. If we end in a situation where market prices significantly deteriorate from current level, then we will, of course, have to reevaluate.
Can I just push a little bit here? So if we think about the extent to which the downstream volumes have come under pressure, does that mean then if I just look at your primary production, every incremental tonne is being delivered to a warehouse, that's it?
I think you can see we have a flexibility in our system, which is more than just the primary volume. When we say that we take mitigating actions, what we typically first work on is our stand-alone remelters. As you know, we have quite a large stand-alone remelter capacity, as does the industry in general, and that is typically swing production. So when markets experience sudden decline, we take down remelting a bit, and you use that as a lever as long as you can, as long as the system is cash flow-positive, of course. When that is fully utilized then, typically, you see players either start curtailing due to price pressure or increase sales into inventories. And we have observed increased sales into inventories due to the fact that the contango is quite strong as we currently speak. But we have taken most of our reductions out through reduced remelting capacity so far.
So Pal, just so that I understand that, does that mean you're not buying scrap? Or does that actually mean that you're building up an inventory of scrap that you're not processing?
Remelting is a combination of many items. It's remelting processed scrap. It's remelting post-consumer scrap, and it's also remelting standard ingots when the markets are large enough. So stopping remelting of standard ingot when product premiums fall, it's typically the first thing you prolong. And then if you see reduced operations downstream, then there's less [ car ] scrap coming back from customers also, which would impact the remelters also. And then there is -- typically, when you move into stopping. But we're not building stock. We aim to keep low stock levels, at least over a period. We might have temporary disruptions due to forced local close downs.
Next up, we have Amos Fletcher from Barclays.
Just a quick couple from me. First question was just, I guess, following up a little bit on what Jason was asking. If we looked at 2019, you guys produced about 80% of your product in value-added form. What is the rough proportion of that output at the moment?
If you purely look at the primary part of our operations, I guess where we have the most flexibility on the value-added side is on the primary foundry alloys. That's where you can produce a standard ingot instead. And our PFI (sic) [ PFA ] lines have around 0.5 million tonnes in total, and this we can produce unalloyed metal and sell to the LME or traders. And we have utilized this to some extent, and then we would utilize it further if the market deteriorates further than what we see today. So as with most of our figures now, we are not comfortable to give a full year guidance as the uncertainty is so high.
Yes. That's good. And then I also wanted to ask a sort of a follow-up or equivalence to what Liam was asking earlier. Can you give us the fixed-variable split of cost in Rolled Products?
Yes. So in Rolled products, there is a somewhat different cost setup but not completely different. In extrusion, we said that we had around 55% of metal cost. In rolled, this is closer to 70%. And extrusion, we were around 20% on variable, and in rolled, this is closer to 10%. And then fixed, including depreciation, is around 25% in extrusion, around 20% in rolled. So a somewhat lower variable cost base and somewhat higher fixed cost base. No better cost base.
Okay. Understood. And then further one was regarding Alunorte. Can we expect utilization to reach 100% during Q2?
We've guided for utilization at 100% at the end of the year. We are close to full utilization now, but we have not changed our guidance for the second quarter, more around current levels. And we should be able to deliver at the end of the year, but it might happen earlier.
Okay. And then last one, just with respect to the Neuss smelter. Obviously, you don't give a lot of disclosure around the dynamics there. But can you give us a sense of the impact of the lower unit costs regarding Primary Metal and what effect that might show in the roll product output by NOK?
You should expect that the rolled earnings to move quite simultaneous -- or quite similar to what you see in primary. So the increase in -- or the decrease in costs coming from alumina and the black materials is similar. What differentiates them is the positive currency effect. You won't be experiencing that in Rheinwerk. So the total cost effect is not as positive. But what you should be looking at is a big decline in alumina for the period.
[Operator Instructions] Next up, we have Ioannis Masvoulas from Morgan Stanley.
Three questions left on my side. The first, again, on Extruded Solutions. Just to get a bit more visibility, it looks like capacity utilization has bottomed out in the range of 55% to 60% over the past few weeks. Is that fair? Or do you expect additional weakness going into the back half of the quarter? And secondly, related to that, you talked about refocusing the EBIT improvement program with some additional restructuring effects in the downstream operations. Are we looking at any additional cash effects here? And I'll stop here for the first question.
I think if you start with the order book, yes, this is where we have seen it, I don't want to say bottom out, but this is where we've seen it flatten out for a period. How this will look into June, we don't have good visibility as we currently see it. As you know, first, impact on our operations was driven by a lockdown and state-enforced closures. Then we're able to restart some of our operations. But unless our customers restart, and unless you see the general consumer optimism pick up again, that doesn't necessarily help so much. So we've been able to take out some backlogs. There have been some spots of positive demand. But in general, we're not seeing a large demand increase yet. So we will continue to keep you updated if the situation changes, as we have on hydro.com for a period. But as of now, this is still our best guidance -- or not necessarily guidance, best comments. When it comes to cash effects of the new improvement effort, it's not a new improvement program. It's basically refocusing on costs. And yes, we -- since we are delivering ahead of plan, we get positive cash contributions from this earlier than what was planned, but the total improvement level still remains the same.
Okay. So no additional restructuring cash costs though?
This could come at a later stage if the market develops in a negative direction, and then we will announce accordingly. But as you saw for this quarter, it was quite limited, and then we will see if more is necessary going forward. But then there's 3 parts of it. SG&A and procurement, that doesn't require the same amount of restructuring costs. And then you have the third element, which is the restructuring part. So we will have positive contributions from at least the 2 first ones without additional effects.
Okay. Understood. And then a couple...
Sorry?
And a couple more left. The first one on Slovalco. My understanding is that the power contract expires next year. Could you give an indication on the exact timing in 2021? And then secondly, on Albras. You said you would look to restart the remaining capacity later in the year. Is that going to be driven purely by market conditions? Because I would have assumed that the weaker BRL is helping operations there and margins significantly.
Yes. On Slovalco, 2021, it's a full year power contract. So by the end of 2021, that is expired. When it comes to Albras, yes, you're right. As with Alunorte, we're benefiting positively from the currency depreciation. You probably remember when we curtailed Albras 50% last year, that you have a power contract, which is take-or-pay, and we had to sell the excess power into the spot market at quite significant losses. So this, together with the market picture, will be the 2 main criterias that we evaluate exactly start timing based on. But as we see the picture today, our plan is to restart Albras going through the year.
Next up, we have Morten Normann from Carnegie.
Yes. This is Morten Normann from Carnegie. Further question on the cash cost in B&A. Now that Alunorte is basically up and running on nameplate capacity, what was the cash cost for Alunorte isolated in this quarter?
Yes. The Alunorte cash cost is quite close to the implied cash flow. Their developments are in line with implied cash costs.
[Operator Instructions] Next up, we have Jatinder Goel from Exane BNP.
Couple of questions, please. Firstly, on potential restructuring of ownership at Rolled Product. Does COVID-19 mean that those discussions will be postponed? Or do you still have any active dialogue or looking actively on that ownership restructuring as well? Second question, on dividend. If the worst case that you presented on supply-demand balance is like 5.5 million tonne surplus, if those things materialize and prices remain low, does that mean 2020 dividend might be nonexistent as well?
Well, the restructuring of Rolled Product is continuing. As we have talked about before, all options are on the table, including potential ownership changes. We have not taken any decision yet. The COVID situation is affecting us in the sense of being out there in the external market, but the process is going on as before.
And when it comes to the dividend, Jatinder, it's hard to base it purely on demand-supply dynamics. But of course, without giving any clear answer on that, if we experience a large oversupply for a couple of years, this will most likely affect the pricing environment and our ability to meet our balance sheet requirements. This can be mitigated by cost improvements, by currency effects, et cetera. So we will have to get more back to this as we approach the end of this year to see how we expect things to develop going forward. Even if you have an oversupply, if the outlook is positive with respect to resumption in demand, it might be other things that we use as key criterias.
[Operator Instructions ] It appears that there are no further question at this time. Mr. Hasle, I would like to turn the conference back to you for any additional remarks or closing remarks.
Thank you, and thank you all for joining us today. As normal, if you have any follow-ups, please do not hesitate to contact us. Thank you.
This concludes today's conference. Thank you, everyone, for your participation. You may now disconnect.