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Welcome, everyone, to our presentation of Hydro's third quarter results. And welcome also to all of you following us on the webcast today. The results will be presented by Hilde Aasheim, our CEO; and CFO, Pal Kildemo. And after that, we will have time for Q&As, both from the people here in Oslo and also from webcast. And with that, I'll give the word to you, Hilde.
Thank you, Inger. Good morning to all of you here in Oslo, and good morning to you that is following us on webcast. Let me say that I'm very happy to stand here when all the embargoes has been lifted in Brazil, which means that we can come back to normal operation of our Brazilian assets. Our third quarter are positively influenced by the fact that we have started the ramping up as well as that costs is coming down in the upstream part of Hydro. But the quarter is also impacted by, indeed, a volatile business environment with increased uncertainty and low visibility, resulting in reduced demand for our products and solutions in the quarter but also reduced expectations going forward in terms of demand. In such an environment, it's important for us in Hydro to work on what we can influence. And that is why we forcefully now work on the improvement program that was launched on the Investor Day as well as the forceful restructuring and optimization that we're doing both in Rolled Products as well as in Extruded Solutions. But let me go to the first -- to the highlights for the third quarter. The underlying EBIT for third quarter was NOK 1,366 million, down from NOK 2.7 billion in last -- in third quarter last year but up from NOK 875 million in Q2 this year. As I said, I'm very happy that the last embargo was lifted on September 26 on the DRS2, the new deposit. After 19 months of embargo, we can now start on activities on the DRS2, which is, as we have said many times, is the only long-term solution for Alunorte, using the new press filter and using the new deposit and close the old one.When it comes to the result, compared to last year, the results are down on lower aluminum prices, 20% lower aluminum prices and 30% alumina prices. But the positive side is that, as I've said, we have started to ramp up in Brazil and we have also seen that cost is coming down on the upstream part of Hydro.On our investment -- on our Investor Day on September 23, I announced an improvement program of NOK 6.4 billion to be realized by 2023, and I'm happy to stand here today and say that we are on track to deliver the first NOK 500 million by the end of this year.When it comes to the market, we see increased uncertainty and we also see demand expectation going forward, to be lower than what we expected in the previous quarters. We are now estimating a flat global primary aluminum demand compared to 2018 -- to 2019 towards 2018, down from an estimation of 1% to 2% as we guided on the last -- on second quarter, but more in line with what we said at the Investor Day. But we are also now seeing reduced demand expectation in the downstream area, in particular in the extrusion, where we now expect a negative demand growth 2019 compared to 2018. I will come back to that.But before I go to the market, let's dwell a little bit again with Alunorte and Brazil. As I said on the 26th of September, we got the last embargo, the criminal embargo on the DRS2, and we have now started the activities when it comes to installation and commissioning of the DRS2, which is the first -- which is an important milestone in terms of coming back to normal in Brazil. I'm also happy to say that we have had a successful third quarter when it comes to ramping up in Alunorte. We have been producing at a level of 83% in terms of the capacity utilization, which is showing that we are progressing when it comes to using the 8 press filters, which I have said many times, it's a new technology. It was stopped while we were in commissioning phase. Now we are learning how to operate the 8 press filters, and -- but we still guide on 75% to 85% for the fourth quarter because we are working on the cycle time. We are working on the -- what kind of intensity we need in terms of maintenance. But third quarter was a good sign that we are progressing in a good way.As mentioned before, we are waiting now for the ninth press filter. And I was in Brazil 2 weeks ago, and I saw that the press filter was inside the big building, together with the 8 press filters. And we are commissioning the ninth press filter now in November and should be up at full speed at the end of the year, adding 10% of -- in terms of capacity utilization. And then if you sum up the numbers, we're saying that we -- at the end of the year or the beginning of the year, we should be in the range of 85% to 95%, and then further optimization should make us come to 100% capacity utilization during 2020 at full capacity through the whole year of 2021.What is as important with the ramp-up is that we continue the good dialogue with the local communities. And when I was in Brazil, I was meeting several of the community representatives. And to see myself the active dialogue, the constructive dialogue that we now have with the local community was very good for me to see, that we are also progressing in this area. And I also told them that we are fully committed to deliver on the technical as well as the social agreements that we have put forward to them. So in terms of Brazil, I hope that we can continue to talk positively about the development going forward. Brazil is extremely important to us.Then to the improvement program. As you may have hopefully listened to me on the Investor Day on September 23, we announced a full-fledged improvement program throughout the whole company in all business areas, in all staff and support areas, within procurement and throughout the whole company: NOK 6.4 billion to be delivered by 2023, a front-loaded program; NOK 5.5 billion to be delivered by 2021; and NOK 500 million to be delivered by this year. The improvement program is about operational excellence. It's about fixed cost. It's about commercial excellence, but it's also about restructuring. And I have to say that I'm quite impressed about how the whole organization has mobilized through these few months in terms of working on what we can influence ourselves in a volatile environment. And I'm happy to stand here to confirm that we will deliver the NOK 500 million by the end of the year. We do expect that the contribution from Extruded Solutions and the improvement program for Extruded Solutions, which is an EBIT improvement program, will be somewhat behind plan for 2019, reflecting the market headwind that we see now, even though we do have forceful restructuring activities, which I will come back to, that should mitigate the risk going forward. But in 2019, they might be somewhat behind. But the good thing is that we have been ramping up faster in Brazil, so that sort of make up for the difference. And that is why I stand here today saying that we are on track to deliver the NOK 500 million by the end of the year.Then let me go to the market, and let me start by the third quarter. In third quarter, we saw a flat development in terms of primary demand, Q3 versus Q3 last year, 2% growth in China but negative 2% growth in world ex China. On the supply side, we saw a decrease of 1% because we have seen production disruption in China. Hongqiao experienced flood in the Shandong area, and there was explosions in 2 smelters: one in Northwest, the Xinfa plant, and also one in Inner Mongolia taking down the supply, which ends up with a deficit of around 500,000 tonnes in Q3, the major part in China, 400,000 tonnes in China, and more or less in balance in the world ex China. To the right, you see the 12 months rolling, which is still in deficit in the tune of 1.3 million tonnes. When we look at the global demand for the whole year, we -- as I said, we are expecting a flat development, 0.5 negative to 0.5 positive, which is down from the 1% to 2% growth number we guided on in Q2 but is more in line with what we said at the Investor Day. But let's look at the supply/demand balance for 2019. We still believe in a deficit for the whole year of around 1 million to 1.5 million tonnes. If we look at the composition of that, if we look to the world ex China, we see now that we are in the negative territory, 1% to 2% negative growth in the Western world ex China. We see continued weaknesses in Europe, and we also see now weaknesses in the U.S. So the growth is negative in the 1% to 2%, while we see the supply growth of 2% to 3%, more or less same as we said in Q2. The reason for the supply growth is Alba coming up to full speed and then also the restarts in the U.S. So the deficit that we have seen in the Western world is still there but less than what we have seen in the past. When it comes to China, we expect a 1% to 2% growth, slightly down from 1% to 3% last quarter. But then we see the disruption that I just talked about, the negative supply growth of 1% to 2% because of the disruption in the flooding and the explosions in these 3 plants that I mentioned. So now China is also in deficit for 2019, making up for the total of 1 million to 1.5 million tonnes in deficit for 2019.But then let's look into 2020. Here, we see a slightly different picture. Now we see more or less a balanced or even a small surplus in 2020. We believe that the world ex China will have a flat development, minus 1% to plus 1% flat development going into 2020, while we still see supply growth coming from Alba, coming from Brazil, coming from Canada, which makes the world ex China more or less in balance. And then we see China expecting a slightly tick-up on growth, not much, 1% to 3%. But then we see a supply growth of 4% to 6% in China. Here, we expect that the plants that was disrupted are coming back, but we also hear about new greenfield plants in China in several regions.Here, we should be a little bit cautious because we believe that if demand is at a low level as we see here, we believe that also, the growth numbers will come down because we don't believe that China will build up a big surplus in the environment we see now. But as I said, the visibility is low, but that's what we expect based on our intelligence. And then we see that the market is more in balance or a slight surplus than what we have seen in the past with deficits.We normally follow the inventories very closely, and we do that also for this quarter. We see that the inventories are now slightly below 11 million tonnes, approaching 60 days of inventories. We saw in the financial crisis that we were down to 50, which we consider to be a tight market, but now we are at 60. Inventories have also come down in Q3, but in China, because China was the one that was in deficit while more in balance in the Western world.If we look to the right, we see the export from China, which is extremely important to follow. And we have seen growth year-on-year of export from China. If you compare third quarter 2019 to third quarter 2018, export has come down with 10%. But if you look at the export for the year of 2019, we have seen an increase of 3%, primarily in the first part of the year, because since May, the arbitrage that we have observed has not incentivized that much export. Arbitrage is now -- is more in balance, the Shanghai price and the LME, so we haven't seen that much export since May when the arbitrage is more in balance. But obviously, for the aluminum industry, to follow both the growth rate and the export in China is extremely important to us.When it comes to LME, we have seen a quite flat development when it comes to the LME development from Q2 to Q3. The average LME in Q2 was $1,818, while in Q3, it was $1,879 (sic) [ $1,789 ]. But the fact that -- and throughout the quarter, we have seen LME moving from $1,800 in the beginning of the quarter down to $1,720 at the end of the quarter. And yesterday, it traded at $1,735. But the fact that the Norwegian kroner has depreciated to the dollar and we see improved LME in Norwegian kroner, which is obviously a positive sign for part of the primary portfolio.We have also included onto the right here, the development when it comes to the ingot premium. We see the black curve is the standard ingot duty paid, which is quite flat. And then we see the extrusion ingot premium, which has come down during the last year. And the green is the spread between the ingot premium -- standard ingot premium and the product premium for extrusion. And here, I would like to remind the audience that in Hydro, we have very little production of standard ingot. We produce so-called value-added. And so if you look at our premium development, you would see that the premium development has been reduced quite significantly compared to if you just look at the standard ingot premium. And this has an effect on the Primary Metal result but also when we look into the Metal Markets results with the remelters as well as the remelters in extrusion ingot -- in Extruded Solutions.Then to the demand for downstream products. And here, we guide towards a negative growth. The extrusion demand is very much correlated to the macroeconomic development, and when we talk about weak demand in Europe, weak demand in the U.S., this hits also the demand for extrusion ingots. And compared to what we guided on in Q2, we have taken down the expectation for extrusion ingot quite significantly. We are now in the negative territory. If you look to the left here, we show the expected growth rate for extruded ingots compared to -- from 2019 to 2018. And we look at the 2 regions, North America and Europe, and we look into the different market segments. If I start with North America. Here, we guided on a growth rate of 1% in Q2. Now we are more in the range of 3% negative. There are 2 main parts: We -- the building and construction area, we believe that demand would pick up after summer. It has remained flat. And now it has turned into negative territory. When it comes to the transport and automotive, in particular the truck and trailers, has moved to positive growth to negative growth, which makes the main composition of the fact that we are now expecting a negative growth number of 3% for extrusion in North America.When it comes to Europe, we guide on an expected growth rate of negative 3%, while we had flat 0 in Q2. Here, we see the transport sector. You have heard a lot about the automotive industry in Europe, in particular in Germany. And we also see the industrial segment, in particular in Germany, is now in negative growth. And that is the main composition of the fact that we are guiding on negative growth in Europe for the whole year 2018 -- 2019 versus 2018. To the right, we see how the numbers look like at Q3 level, Q3 versus Q3 last year. We are already now in the negative of 2% to 3%. And even though the visibility is low in extrusion, because it's the nature of the business is quite short term, we see now -- we guide now on a quarter-by-quarter comparison to 2018 and negative development in Europe of 8% and negative growth rate of 8% compared to last year, while we guide on a 4% negative in North America for Q4.Then what should we expect for 2020? Well, that's not easy to guide on. As I said for the global demand growth, we expect a flat development in 2020 versus 2019. But then, as I said, in the extrusion business, it's low visibility but it's -- and it's short term in terms of the nature of the business, so it's hard to guide how this would look like in the next quarter going forward.What we can do is to address this situation, and that is what we do rather forcefully. We, already in Q2, we saw a softer demand. And that is why the management of Extruded Solutions started to look at their portfolio. We looked -- we started with Europe, looking into how we could optimize the portfolio and how we could plan for a weaker market sentiment but also to reduce cost. And we, on Investor Day, we went through in more details what we have been doing in Europe. We have decided to fully close some plants. We have taken down warehouses in Europe, and we have also divested a plant in Romania. When we saw that the market is deteriorating further, we also took a closer look in the U.S., and we have now decided to fully close also 2 plants in the U.S. These are our measures in order to be ahead of the situation in terms of optimizing our portfolio, in terms of reducing costs and sort of compensate for a weak market. We have also now introduced and announced a full review of the SG&A costs throughout the whole Extruded Solutions in order also to take out cost in all parts of the organization. Because the measures we take is not to be weaker in the market, we would still focus on being strong in the local market, this is a local business, but to optimize and to reduce cost to be even more robust, which also feeds into the improvement program that Extruded Solutions have as part of the EUR 6.4 billion to reduce or to improve the EBIT by NOK 1 billion within the next 3 years.During this restructuring, there's also some cost following that. In Q2, we have already taken NOK 228 million, and we are booking another NOK 156 million in third quarter to cater for this restructuring, these closures and these sales.Then move to Rolled Products. In Rolled Products, transport and packaging are holding up, while we also see in Rolled Products that the demand is weakening in general. Here, I used the same format as I had on extrusion. To the left, we see the growth -- expected growth rates for North America and Europe in the different market segments compared to 2018. And here, we see that we have taken down, compared to second quarter, taken down the growth rate in North America from 4% to 2%, primarily due to building and construction and the industrial segment, while transport is holding up. Automotive is holding up mainly due to the substitution in the automotive business in the U.S.In Europe, we have taken down the growth rate from 0.5% to -- we have taken down the growth rate from 1% to 0.5%. And here, we see that packaging are holding up, while we see in Europe that the automotive is struggling and also the industrial segment, particularly in Germany. So more or less, the same development in Rolled Products as we saw in extrusion but not with the same negative growth rate.Yes. And to the right, we see also the same development in the sense that here, we had a strong Q3 versus Q3 last year, especially in North America, but more we see a flat development in the fourth quarter.The good spot in this market is the can market. The can market is growing on substitution. We've seen that the sustainability trend, looking for materials that can be recycled, is supporting can versus plastic. We have heard several of the beverage companies and can producers now substituting the plastic towards using aluminum cans, which is good for our business. And we see that -- and we expect that the can sheet demand in Europe will grow by 5% to 6% in 2019 and 6% to 7% in 2020. This is good news also for Rolled Products in Hydro. And as you heard from the Investor Day, that we are moving our production from the low-margin segments, the foil as well as the litho, towards automotive and can. And when we look into Rolled Products volume development year-on-year, it has been a rather flat development. But we have increased our production towards the can segment of 4%. And we are targeting now to increase deliveries to can by 20% by 2023, which is part of the restructuring ongoing in our Rolled Products area. I'm talking about the restructuring that is ongoing in Rolled Products. So you heard from our Investor Day that we have taken quite a look at our Rolled Product business. We put it under strategic review as I announced on my first day as CEO. And on the Investor Day, we announced an improvement program of NOK 900 million within Rolled Products to be delivered by 2021 -- 2023 and also release of operating capital of NOK 900 million by 2021. We are forcefully working on that improvement program. We have announced a shutdown on the mainline, and we are working on manning reductions -- heavily manning reductions, especially in Grevenbroich as well as improvements in all parts of the business in terms of operational excellence, how we go to market and also this shift from the more attractive segments, automotive and can, while leaving or reducing our exposure in the foil and litho business.As part of this restructuring, we are taking down manning. We are taking down lines, and we have booked for third quarter a restructuring and impairment cost of NOK 1.145 million of cost, which is not part of the underlying result, pretty much in line with what we guided on at the Investor Day. While we are working on improving what we can influence within the Rolled Products business area, we are continuing the strategic review, looking for more value-creating, strategic opportunities. This could mean also different scenarios for ownership. And I know that you are all interested to hear more about that, but we will revert to you with more information in due course.Then moving to alumina. We have seen that the alumina prices has trended down in Q3 from -- in the range of $300 to $290, on the backdrop of the fact that Alunorte is ramping up and also the refinery, the EMAL refinery in Abu Dhabi coming onstream. We see now that the alumina market is in surplus, and we have seen that the Chinese have started to import alumina, which is different from what they did in the peaks when we had the peaks of alumina prices when China was exporting. But that was an extraordinary situation rather than a normal situation. Alumina prices in China has gone up. Several alumina refineries has closed down, and that has opened the arbitrage or that has opened, let's say, the opportunity for the Chinese to import alumina. Then to the cost levels upstream. The upper level is the major cost elements, raw material costs in the primary part, and to the lower end is the raw material costs for alumina. We have seen cost reductions or cost -- price reductions in most of our raw material costs since 2018. And in pet coke, in pitch, and we now see also in alumina, prices has come down quarter-by-quarter. And we still see reductions coming down from second quarter to third quarter, and we even expect for the primary part to see also prices coming further down in Q4. On the alumina side, we have seen the same picture when it comes to caustic soda, while also fuel costs -- fuel oil costs and steam coal has come down, now more flattening out towards the fourth quarter.Here, I would like to remind the audience that there is a lag over 1 quarter before we see this in our numbers. But we definitely see these costs coming down now in the upstream part, and we also expect that it will come further down in the Q4. For the primary part, more uncertain further reduction in Bauxite & Alumina related to the fuel oil and to the steam coal. But obviously, all of these input factors are globally traded, so this will impact the overall aluminum industry as well.But if we look at the cost in the upstream part, cost has come down. To the left here, you see the alumina costs coming down to $253 all-in -- implied all-in alumina cost to $253 per tonne, now approaching the fourth quarter 2017 level, which was $265 at that time. This is very much influenced by the ramp-up of Alunorte, but also lower raw material cost as well as the lower sourcing cost of external alumina that we saw at very high levels during the embargo period. The margin though, in Bauxite & Alumina has not gone up simply because the alumina price has gone down.If we look to the right, the all-in implied primary cost. Cost has definitely come down. We're now seeing an all-in implied cost of $1,900, which at Q4 in 2017 was $1,850. But as I said, we still have lags to improve further in Q4. We see that the main contributor is the alumina cost but also the fact that we have been ramping up and also the other raw material cost has improved as well as the continuous effort to reduce cost in general. In the primary part, we see that the margin has ticked up simply because the cost has come more down than the aluminum price has come down.A few comments on the Energy results. Very much influenced by Nordic power prices coming down. It was quite at extreme levels in Q3 last year. Now we see more normal levels, simply because the hydrological balance is at normal levels. We also saw in Q3 that the fuel cost or fuel prices on the continent has come down. So that explains sort of the main difference between Q3 this year versus Q3 last year. We saw that the hydrological balance in Q3 last year was 7 terawatts lower than normal, while we see now for the Q3, we are more in a normal situation.I would like to end my part of the presentation on a positive note relating to the demand for greener aluminum. We have talked about in this audience before that it's really the high-end players in the automotive, in packaging as well as in the building and construction industries that are leading the way in terms of demanding a greener aluminum. And Audi is a good example, is a good partner for us. And now we deliver certified aluminum to the battery housing in the Audi e-tron, which is an exciting joint effort together with Audi.And when we say it's certified, this is certified according to the Aluminum Stewardship Initiative, which is setting the standard when it comes to responsible and sustainable production of aluminum. And here, we benefit from the fact that we are in the long value chain of aluminum, that we are able to produce in a responsible way, all the way from the mine to the fabricated product. And in this sense, Hydro has the longest sort of unbroken chain of this stewardship certificate for the fact that we are in that long value chain. So Alunorte is certified, the primary smelters are certified, and the fabrication is also certified now at 19 different Hydro plants in 8 countries. And several more are in the progress. And this is what we talked about at the Investor Day, that our sustainability agenda is the platform for commercializing also our products in the market, meeting the demand of these advanced customers that are now looking for greener products in their products. And that we find very exciting, and we see that these brands now are getting traction in the market. And when we talk about negative growth in the market segment, it's good to have demands in these areas, which we can build on going forward.So on that note, I leave the floor to our new CEO -- CFO. He will do the first -- his first quarterly presentation. So I leave the floor to you, Pal.
Thank you, Hilde. Good morning, everyone. I will now take you through Hydro's financial results in a bit more detail.Let me start with the high level result development compared to the same quarter last year. In the third quarter of 2019, we delivered an underlying result before financial income items and tax of NOK 1.4 billion. This is down from NOK 2.7 billion in the Q3 of 2018. Most of the reduction in the result is explained by the decline in both the realized aluminum and alumina prices. We have 18% lower realized all-in aluminum prices in dollars, which took the results down by NOK 2 billion. And the alumina price is 33% lower, which reduces the results by a further NOK 1.6 billion.On the positive side, volumes in our upstream divisions increased, reflecting the ongoing ramp-up in Brazil, contributing positively with NOK 1.2 billion, mostly due to higher bauxite and alumina production but some small effects from Albras also. This ramp-up also has positive scale effect on fixed costs of our around NOK 0.2 billion. And at the same time, falling market prices resulted in lower raw material costs mainly for alumina but also for caustic soda and carbon through pitch and pet coke. So overall, lower upstream costs added NOK 1.5 billion to our results compared to last period. Stronger dollars also had a positive effect of NOK 0.5 billion given our cost base in NOK and BRL. And finally, we also had several other effects, which when compared to the positive effects last year, resulted in a negative deviation of NOK 900 million. This includes lower results in energy of NOK 400 million, lower earnings on sales of excess power in Brazil of NOK 400 million as well as negative eliminations of another NOK 400 million delta quarter-on-quarter.If we compare the results to the previous quarter, which is more relevant from an upstream part due to our downstream divisions being driven by seasonality and upstream NOK, then this result improved by around NOK 500 million, from NOK 0.9 billion in the second quarter to NOK 1.4 billion in the third quarter of 2019. The main drivers are similar to what we saw on a year-on-year basis. We have 4% lower aluminum prices. We have 15% lower alumina prices, which together, impacts result negatively by NOK 0.5 billion and NOK 0.7 billion consecutively. The ongoing ramp-up in Alunorte, Paragominas and Albras continued to contribute positively to the results with around NOK 800 million due to higher volumes, with around half or around NOK 0.5 billion in B&A and around NOK 0.3 billion in Primary Metal. The upstream results were further supported by the continued relief in raw material costs and some reduction in fixed costs, which gave a total effect of NOK 700 million.Finally, we have a stronger dollar, which supported the results also from Q2 to Q3 with around NOK 300 million. Other effects such as seasonally lower downstream results, negative eliminations and a positive deviation on Albras power sales compared to a loss of around NOK 200 million in the second quarter have largely netted each other out.If we then take a look at the key financials for the quarter. Then, as expected, revenues were around NOK 2.2 billion down compared to Q3 (sic) [ Q3 2018 ] as we have declining prices, which are partly offset by the positive currency effects as well as somewhat higher upstream volumes. This quarter, we excluded from reported EBIT of NOK 222 million a loss of NOK 1.1 billion, which I will get back to a bit later. And with that, the underlying EBIT ended up at NOK 1.366 billion.We have high financial expenses in the quarter of NOK 1.6 billion, and that includes an interest expense of NOK 0.2 billion. But the majority is the net foreign exchange loss, mainly unrealized, of NOK 1.4 billion. This reflects the embedded derivative in power contracts in euro with Norwegian counterparties, which is impacted by the strengthening of the euro versus the NOK or the weakening of the NOK versus the euro.As a result, income before tax was a negative NOK 1.4 billion, significantly down from the NOK 1.6 billion positive in Q3 last year. We have a marginal tax income of NOK 16 million in the third quarter compared to a large negative income before -- compared to a large negative income before tax. And the marginal tax income of NOK 16 million is due to the high power surtax as well as certain tax considerations related to tax losses carried forward in Germany. This gives a negative income of around NOK 1.4 billion, down from a positive NOK 0.9 billion in the same quarter of the last year.If we also here adjust for the net foreign exchange loss, then underlying net income was positive with NOK 606 million, also significantly down from NOK 1.7 billion of last year. Consequently, underlying EPS was reduced to NOK 0.33 per share from NOK 0.74 per share in last year.If we then get back to the items excluded of around NOK 1.1 billion. Then, as usual, we have several timing effects that net out to around NOK 43 million, but we also have several one-off effects. The major effect which is in line with our earlier guidance is the rationalization and closure costs of NOK 1.1 billion, which is related to the previously announced restructuring efforts in Rolled Products. This is split between redundancy payments and impairments and then cleanup and restructuring efforts, approximately NOK 900 million on redundancy and NOK 200 million on cleanup and restructuring. In addition, we excluded NOK 156 million in rationalization and impairment charges related to the ongoing restructuring in Extruded Solutions. This comes on top of NOK 228 million which we took in Q2, and we also expect a similar level as we have in Q3 into Q4. So for the year as a total, we should end up at around NOK 500 million on restructuring costs in extrusion. For the third quarter, a large part of this is impairment charges of around NOK 95 million. We made a small adjustment to the provisions on the TAC/TC agreements in Brazil of NOK 30 million. We also reduced our provision related to time varying on a historical customs case. And finally, we have the pension settlement in the U.S., which reduced our historical liability to some extent.If we then move over to the detailed business areas. I will start with Bauxite & Alumina. Underlying EBIT for Bauxite & Alumina decreased from NOK 685 million in Q3 (sic) [ Q3 2018 ] to NOK 481 million in Q3 '19. By far, the main reason behind lower results is significantly 30% lower realized alumina prices driven by both lower tax and lower LME. The negative price effect in Bauxite & Alumina is around NOK 1.6 billion. At the same time, as the ramp-up is progressing well, there was a positive volume effect due to higher alumina production of around NOK 1 billion. At the same time, higher bauxite volumes and lower production costs in Paragominas also contributed with around NOK 200 million positively. Production costs per tonne at Alunorte also decreased significantly, driven by positive scale effects as well as declining raw material prices. Caustic soda, fuel oil as well as coal prices all came down in the third quarter, and a positive effect from cost relief was around NOK 300 million.If we look into the fourth quarter, then we will continue to ramp up production at Alunorte and Paragominas with a positive effect on both volumes and costs. And as Hilde has explained earlier, we expect to run in the range of 75% to 85% of the nameplate capacity in the fourth quarter. Overall, we expect a fairly flat cost per tonne development versus Q3, while cost levels should come down significantly compared to last year as we have taken out a bit of the raw material costs as you saw on the chart earlier. In addition, I should remind you that if the current PAX price remains at around the $280 level, then there will be a price-driven downside to our results compared to what we see in the third quarter of 2019.If we move over to primary. It's a bit of the same story. Underlying EBIT for primary decreased by around NOK 900 million, from NOK 861 million positive in Q3 '18 to a small negative of NOK 39 million in Q3 '19. And by far, the main reasons behind these lower results was an 18% decrease in realized all-in prices, taking the results down by around NOK 2 billion.In addition, the third quarter last year was positively affected by a large gain of around NOK 450 million on excess power sales in Brazil. And this quarter, we had a marginal effect from Albras power sales, both due to the fact that power prices in Brazil are much lower than what they were in 2018 but also because we have lower power available for sale as we have ramped up Albras.The negative effects that we saw were partly offset, as in B&A, by lower raw material costs and somewhat lower fixed costs, in total, NOK 1 billion for raw material and fixed costs. But the main part of this is the significantly lower alumina costs, which contributes with around NOK 0.9 billion or NOK 900 million of the NOK 1 billion. Finally, a stronger dollar against the main cost currencies also had a net positive effect of around NOK 300 million.If we then look into the fourth quarter. Now that we have all the electrolysis cells at Albras restarted, we are increasing amperage to lift the production to full capacity. This means that we should have higher production in the fourth quarter than in the third quarter for Primary Metal. On the price side, we have by the end of September sold around 55% of our primary aluminum production for Q4 at a level of around $1,765 per tonne, which is indicating a somewhat lower level for prices in the fourth quarter. And as you know, market prices have been trading in the range between $1,700 and $1,750 over the latter months. On the premium side, we have booked around 60% of our volume at around $325. And as a consequence of this, we expect the realized premium in Q4 to come further down ranging between $250 and $300. But if we also look at the declining prices for raw materials, then we continue to expect a cost relief for primary into the fourth quarter, not only quarter-on-quarter but also year-on-year. And compared to the fourth quarter, we are estimating around NOK 400 million in lower alumina costs and additional NOK 100 million from lower carbon and energy given the current market prices. I should also mention that we typically see higher fixed costs into the fourth quarter in Primary Metal, driven by seasonality.If we then move over to Metal Markets. Then Metal Markets delivered an underlying EBIT of NOK 362 million, significantly up from a marginal result of minus NOK 3 million in Q3 2018. Remelters had another quarter with a strong performance, mostly driven by higher margins in the U.S. But in addition, Metal Markets also received an insurance compensation of around NOK 45 million for the fire that we had at the Henderson remelter earlier in the year.We also saw a strong contribution from sourcing and trading activities in this quarter. This is mainly related to the strong contango levels that we've seen on the forward curve, which has a positive effect on our risk mitigation strategy in periods of strong contango. And in 2018, we saw this with an opposite effect due to a backwardation in that period.In addition, we had positive currency impacts of NOK 24 million due to a weaker NOK versus the dollar, while last year the currency effect was negative NOK 81 million. So excluding the currency effects, the result was NOK 338 million compared to NOK 78 million Q3 last year.When we look into the quarter of Q4 for Metal Markets, then we are seeing a tightening spread between the extrusion ingot and standard ingot premiums, as Hilde mentioned earlier, and also a tightening spread between the extrusion ingot premium and the scrap prices, which impacts our remelters going forward. Therefore, we do not at current market prices expect to see the same strong remelter results into the fourth quarter. And I would also like to remind you that our quarterly guiding for Metal Markets stands at NOK 125 million per quarter or averagely NOK 500 million per year, but that can be higher and lower depending on sourcing and trading effects and also currency.If we move to Rolled Products. Then results in rolled doubled from NOK 82 million in Q3 '18 to NOK 166 million in Q3 '19. However, if you look at rolling results from the rolling operation, then these were stable between the 2 periods as higher volumes and positive currency effects were largely offset by inflationary cost pressures in Rolled Products. So the improvement we see year-on-year is mainly driven by the Neuss smelter results that have decreased despite lower aluminum -- which have increased despite lower aluminum prices, mainly due to lower alumina and power costs. Here, as in Primary Metal, we have also -- or as in Metal Markets, we have also received an insurance compensation of around EUR 2.5 million related to the exhaust duct incident at Neuss earlier this year.If we look into the fourth quarter for Rolled Products. While demand growth is still positive, we are seeing some softening growth rates in several markets, in addition to the continued margin pressure within some of our key segments, which may impact results for the fourth quarter in Rolled Products negatively.When it comes to the Neuss smelter, remember that as always, the results are driven by metal prices and raw material price development. So similarly to Primary Metal, we expect further relief from lower raw material costs, mainly alumina, in the fourth quarter, while the market price for LME so far in the quarter has been trading somewhat below the level that Neuss realized in Q3.For Extruded Solutions, underlying EBIT improved from NOK 497 million in Q3 '18 to NOK 559 million in Q3 '19. And the main reason behind these better results is continued positive margin development in all business units despite somewhat higher variable costs. We also saw somewhat higher fixed costs due to higher maintenance and labor costs. At the same time, volumes were 8% down, mainly due to softening markets. And as guided, the cyber effect for extrusion in the third quarter is very limited.If we look at the different business units, then we see a different performance. Results in Extruded North America continues to improve driven by higher margins, while results in Extrusion Europe were lower driven by a decline in most market segments. For Building Systems and Precision Tubing, we see improvements in results compared to what we saw last year.If we look into the next quarter, then Hilde talked quite a bit about the market for extrusion, and we do expect to see challenging markets with shrinking demand across segments and regions. And this will impact the results of Q4 for Extruded Solutions. In addition, Extruded Solutions has remelting capacity, which will be impacted similar to Metal Markets and primary by the falling margin between extrusion ingot and scrap and standard ingot prices. The final business area is Energy. And the underlying EBIT here decreased by 60% compared to Q3 last year, where we had NOK 652 million. And we're now recording NOK 254 million for the third quarter of '19. The decline in result of around NOK 400 million is explained almost entirely by 20% lower production and 30% lower prices. And remember also that Q3 last year was a record quarter for Energy with a combination of strong production and prices.As opposed to what we guided earlier, production in Q3 ended up a bit higher than in Q2 as a result of the improved hydrological balance, which we have experienced over the Norwegian summer.If we look into Q4, we will continue to optimize production based on price signals, and we expect to move more volumes into the first quarter of next year. This indicates continued low production levels. However, as always, keep in mind that prices and production can change fairly quickly in response to hydrological developments. So far, in the fourth quarter, NO2 prices has increased somewhat from the Q3 levels of NOK 328 and are now averaging around NOK 360 per megawatt hour.For Other and eliminations, this netted to negative NOK 417 million in the third quarter, down from negative NOK 97 million in the third quarter last year and negative NOK 258 million in the second quarter of 2019. The Other line consists mainly of corporate costs in addition to costs in holding companies and earnings from our industrial insurance. This quarter, we had NOK 160 million, slightly down from NOK 190 million last year and slightly below our usual guidance of NOK 175 million to NOK 200 million per quarter.As you remember, in Q2 2019, the level of NOK 253 million was much impacted by the higher costs related to the cyberattack. In Q3, however, we have an opposite effect as we have now received the first insurance compensation or recorded the first insurance compensation for the cyberattack of around NOK 33 million. As we have said before, we have a robust cyber insurance in place. However, at this time, we are not able to provide more information as to the final compensation, amounts and timings. And compensation amounts will be recognized when they are deemed virtually certain after discussions with the insurance companies.Finally, we have quite high eliminations of NOK 257 million in Q3. As you know, this is eliminations of internal profits and losses. And this quarter, we have sold more alumina to primary from Bauxite & Alumina based on own production instead of external sourcing, and thereby, we eliminate that profit until their profit is realized out in the market.If we look at the net development since the last quarter. Then we have a small decrease in the net debt position, NOK 600 million lower than what we had in the second quarter. We started the third quarter with NOK 15.1 billion in net debt. We generated underlying EBITDA of NOK 3.5 billion. And then we have a release of operating capital of around NOK 1 billion in the period. The release here is partly due to declining prices, but it also reflects the efforts we are making on reducing safety raw material stocks that we accumulated in 2018 on the back of the Alunorte situation and also the Rusal sanctions. And reducing working capital levels will remain very high on our agenda going forward, and we expect a further release as guided on into the fourth quarter due to the seasonal destocking but also very much due to our own improvement efforts.For taxes and other adjustments, they are NOK 900 million in the period. That includes NOK 300 million in tax payments as well as the reversal of some noncash effects from EBITDA. In addition, we have cash effects here on provisions and net interest payments, which we should expect to be higher in the periods to come, reflecting the provisions we are taking for restructuring in Rolled.As a result of all of this, we generated net cash flow from operations at a positive NOK 3.5 billion in the third quarter. We had around NOK 2 billion in investments, and we had NOK 1 billion in currency translation effects on cash and debt of around NOK 0.8 billion of the NOK 1 billion. So with that, we ended up the third quarter with NOK 14.5 billion in debt -- net debt.If we move to adjusted net debt. Then it increased by NOK 1.7 billion despite the reduction in net debt. And the main reason here is the same reason you see across many other companies: it's increase in net pension liability driven by a significant reduction in the discount rates, mainly in Germany but also in Norway, giving us a total effect of NOK 1.5 billion increase in that pension liability. We also have an increase in other adjustments with NOK 0.8 billion. And that is reflecting the downstream restructuring provisions after tax, so the rolled effects that we talked about earlier. With that, the total adjusted net debt, including equity accounting investments, at the end of Q3 '19 amounted to NOK 35 million.We introduced the capital returns dashboard at our Investor Day in September to emphasize our increased focus on cash and returns. We have a somewhat reduction in capital employed in the third quarter of '19, and for the business areas, we have a total level of around NOK 99 billion. You know well the earnings story over the last 12 months. Our rolling URoaCE figure is at 2.4%. So we still have a way to go to get up to the 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. If we look at our balance sheet and the key ratio of funds from operations to adjusted net debt. Then we have seen 24% over the last 12 months, which is below the level we aim to be at over the cycle of 40%, impacted by many of the same elements that impact our returns.If we look at the spot rate or funds from operations to net adjusted debt. Given the earnings we are seeing in Q3, we're closer to the 40% which we target to be at. We also have a second balance sheet ratio of total debt to equity, and this is still well within our guided target.So far in 2019, we have generated NOK 0.7 billion in free cash flow. And if we then turn to the measures. Then on the improvement program, as Hilde mentioned, we are well on track towards our 2019 target of NOK 0.5 billion. When it comes to net operating capital, we have released NOK 2.3 billion so far in 2019 compared to our target of just NOK 4 billion by the end of 2019. And we expect to see a bigger release into the fourth quarter.On the CapEx side, we have so far spent NOK 6.5 billion compared to our guidance of NOK 10.5 billion for the year as a whole. And this indicates that you have NOK 4 billion to come in Q4. And remember that we usually do see a higher share of CapEx into the fourth quarter, around 40% at the end of the year. So as such, our guidance on CapEx remains unchanged.And on that note, I would like to give the word back to Hilde.
Thank you, Pal. A good start. I started my presentation by saying that I was very pleased with the fact that all embargoes are lifted in Brazil. I'm happy that we see costs are coming down in the upstream part. But we in Hydro, we are mobilized for change. We are mobilized for improvement. We -- our earnings are simply not good enough, and that is sort of what is the main theme going forward. And that is why our priorities going forward is obviously safe and efficient operation. It's about to mobilize now in terms of a weaker market, in terms of taking strong measures, compensating measures in order to maneuver in that situation and then to continue to deliver on the improvement program throughout the whole organization as well as keeping a high -- a strict capital discipline in the situation that we're in. We are working hard to release the NOK 3.8 billion that is the target for releasing net working capital for the -- at the end of the year. And then it's about differentiating ourselves through low carbon positions. And as I said, I'm really impressed about how the organization has responded to this agenda. And we are mobilized for delivering better improvements, better earnings, better returns going forward.So with that, I open -- we open for questions.
Yes, we do. Questions from the audience here in Oslo for Pal or Hilde? Hans-Erik Jacobsen, yes, please?
Hans-Erik Jacobson, Nordea. Given your outlook for surplus in the primary aluminum market in 2020, there is certainly a need for lower production. And one of your competitors has announced that they will review as much as 1.5 million tonnes. Given your position on the cost curve, could you give us an insight to your own view on the necessity of capacity cuts? And are you seeing any other players in the market than the one I mentioned considering taking out capacity?
I think I will comment, Hans-Erik, on Hydro portfolio saying that we have a good position on the cost curve with our primary portfolio as of today. We are -- based on the market we see now, we have already taken down remelt capacity, which is the normal thing we do when we adjust for capacity utilization. And at the moment, we don't have any plans to take out primary capacity.
But you do agree that capacity on a global basis should be reduced given your outlook for demand?
But then it's about where you are positioned on the cost curve.
I think just to supplement on that. If you look at, for example, the margin between LME price, raw material prices in different currencies, then you see for our Norwegian operations, then this margin is at the level which is similar to what we've seen the last 10 years or so in the third quarter given spot prices in the market is actually quite a bit above, which would affect our Norwegian operations. If you then look at the same margin in dollars, then you see that this is at the lowest level it's been for many years. And without naming names, you can see that the announcements which are coming now are coming from producers which are in a very different currency situation than what we are experiencing.
Eivind Veddeng, DNB Markets. I have 2 questions, one upstream and one downstream. Firstly, on Extruded Solutions, is it possible to provide some -- a bit more guidance or color on the outlook for Q4? I mean on your market slide for Q4, you indicate that volumes in Europe and U.S. together, down 5% to 6% year-on-year. Should we expect the same for your business? Where do you see margins going on the back of this? Will you take out high or low margin capacity? And also, how much did the remelting in Extruded Solutions contribute in Q3? And also, on input cost upstream, I can see on your slide that now all input costs are below 2017 levels except for pitch. How should we look upon that compared to your cash cost guidance from the Capital Markets Day, where you say it should be similar to 2017 levels? Shouldn't it be below?
I'll start with the cost question first. I think as we mentioned at Capital Markets Day, there are no big structural changes to our fixed cost base. There's no big changes to consumption factors of raw material once we get the alumina qualities from Alunorte back into the primary operations. So given that, and if the raw material prices are lower than what you saw in 2017, then compensating for -- or taking into account cost inflation, then there's no reason why we shouldn't also move to the lower levels. And I guess you see already for Bauxite & Alumina that we are trending below these levels. And for primary, we are not there yet. But as I guided on, we expect alumina costs to come quite a bit down in the fourth quarter, together with carbon. On the first one, on extrusion, we are a large player in the markets, both in Europe and North America. We have a significant position. So if the market moves a lot, you should expect our volumes also to move with the market. I think what we are doing and which you have seen already announced through the last couple of quarters is that we are adjusting capacity and improving how much is produced at each of our facilities to try and react in advance of some of these movements. And when we do that, we, of course, focus on lower margin versus higher-margin products.
Okay. Thank you. Any more questions from Oslo? Then we'll turn to the questions from webcast. Stian?
Question from Daniel Major, UBS. CapEx is tracking below guidance, and you need to spend NOK 4 billion in Q4 to reach it. How realistic is this? And do you see downside risk to full year '19 guidance?
Well, normally, we see a higher uptick of CapEx coming in fourth quarter. It's sort of the normal sequence. But obviously, in a situation where we are in and also the fact that we have discussed a lot about the capital allocation framework and how to spend our capital going forward, we will have a strict capital discipline. So we will have to see at the end of the year how that turns out.
Cyber claim, can you give any indication on the timing of the expected receipt of the remaining insurance proceeds?
I think I covered that already in the presentation. We are working through it case by case. It depends on the dialogue with the insurance companies, et cetera. So we will communicate at the time when this is made available to us.
And finally, on extruded, given the weak market conditions for extruded, do you still expect to deliver earnings growth in 2020? Or is it a flat outlook more realistic in the current macro environment?
Well, that is what we are working on in terms of initiating now even more restructuring and improvement initiatives in order to avoid not to meet the target of 2020.
Okay. Any more questions this morning? No? Then we will say thank you, everyone, for joining us, and have a great day. Thank you.
Thank you.