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Thank you, and good morning, and welcome to Hydro's Q4 Presentation and Conference Call. We will start with the presentation, followed by a Q&A session. Both will be hosted by our CFO, Pal Kildemo, who will be presenting Q4 and Q2 going forward, while our CEO will also present at Q1 and Q3, which will include more of a strategic focus. The presentation slides we will walk through can be seen on the webcast. A link to the webcast as well as the slides can be found on hydro.com. Please note that you will need to dial into the conference call to be able to ask questions at the end. It will not be possible to ask questions over the webcast. If there are any media inquires for one-on-one for this call after the presentation, please contact Head of Media, Halvor Molland. With that, I turn the microphone over to you, Pal.
Good morning, and welcome from me as well. I hope you and yours are keeping well and healthy in these unprecedented times. Before getting into the quarter, I would like to briefly let you know of the revision to our business area names. To reflect our new strategic direction, we have simplified and updated the names of our business areas to better reflect the business. For instance, Primary Metal is now Aluminium Metal, reflecting that the business area holds both primary and recycled metals. The other business areas are Bauxite & Alumina, Energy, Rolling and Extrusion. Now let's get into the quarter, where we are pleased to report that we have exceeded our 2020 goal for the improvement program, and again, similar to Q3, generated a strong cash flow. Move to Slide 2, please. Underlying EBIT for the fourth quarter was NOK 1.449 million (sic) [ billion ], up from NOK 560 million in the same quarter last year. While our free cash flow also increased from last year, ending up at NOK 3.4 billion for the quarter, reflecting our focus on cash generation. In the fourth quarter, we were pleased to see an overall continuation of the economic recovery following the contractions caused by COVID-19 earlier in the year. Aluminum demand, especially in China, remained strong, resulting in a year-end surplus that was lower than what was originally forecasted. These fundamentals have resulted in a strong LME development during the fourth quarter and also a continued recovery in the downstream market, where the year-over-year volume declines each quarter have continued to be less and less through the year. Within our downstream businesses, both Extrusions and Rolling reported volumes, which exceeded the market outlook for Q4, with Extrusions growing 7% compared to Q4 '19 and Rolling staying flat year-over-year. This has been supported by recovery in key downstream segments, like automotive, through the second half of 2020. We are also pleased to announce that we have achieved and even exceeded our improvement target for 2020, reporting NOK 4.2 billion in savings compared to our NOK 4.1 billion target. This is particularly satisfying as we were slightly behind our target in Q3 due to the pipeline maintenance in Bauxite & Alumina. Another positive development this quarter has been the Lyse Kraft transaction. On December 31, 2020, Hydro's RSK hydropower asset was merged with part of Lyse's production to form a joint hydropower company. The new company leads Lyse Kraft DA, of which we now own 25.6%, secures an access to renewable hydropower for our aluminum production and ensures that RSK does not revert to state ownership in 2022. I will cover some of the details of this transaction later in the presentation. Finally, we are also pleased to announce the proposed dividend of NOK 1.25 per share for 2020, which will be paid in 2021, subject to approval from the Annual General Meeting in May. Our ability to pay dividends after a difficult and volatile year is due to the measures undertaking to support our strong cash flow generation. We save on our balance sheet and then service our shareholders before evaluating return-seeking investments in operations. We strive to provide our shareholders a predictable dividend, and we are pleased to continue delivering according to policy. We aim to lift performance and cash returns to shareholders over the cycle and have, as such, revised our dividend policy to pay a minimum of 50% of underlying net income over the cycle with a continuation of the NOK 1.25 per share dividend. Let's now move into some of the key figures for the fourth quarter. Next slide, please, Slide 3. If we start with EBITDA, then underlying EBITDA increased by 24% compared to the fourth quarter last year and rose by 3% compared to Q3 2020. On free cash flow, I am very pleased that we are able to deliver improvements, both from last year, but also from the last quarter, which was particularly strong. Our strict focus on working capital and capital expenditures, in addition to ongoing improvement efforts, have been key drivers in generating this cash flow. Our underlying ROACE as for the last 12 months rolling at Q4 2020 remains around 4%, in line with Q3. But if we just look at the underlying ROACE for Q4, we would have come in over 7%. And if we use both assumptions that we currently see, we're actually around 10%. If we move on to the business area key indicators, then upstream, we have experienced a slightly higher cost base compared to the previous quarter in B&A, but there have been some costs related to extraordinary alumina sourcing due to the pipeline maintenance and also some costs related to repairing a ship unloader crane used for unloading bauxite at a port we use in Pará. In Primary, we see a relatively flat development quarter-over-quarter, but a considerable improvement in cost position compared to last year. Downstream, we see increased volumes compared to both Q4 2019 and Q3 2020 and, in general, performance is somewhat better than the underlying market. It is also worth noting that Q4 '19 was relatively weaker than expected, which exaggerates our improvement this quarter somewhat year-over-year. Finally, we exceeded our 2020 improvement target and are so far on track to deliver on the 2021 goal of NOK 6 billion in total compared to the baseline of 2018. Please move over to Slide 4. The global aluminum market ended 2020 in a surplus of around 3 million tonnes. However, this surplus is considerably lower than the earlier forecast this year, which was close to 5 million tonnes. The global market was fairly balanced in the fourth quarter and stable from the third quarter due to a strong recovery in demand throughout the year. However, 2021 will still be a surplus in the aluminum balance, driven by strong production rebound in China but also the rest of the world due to consistently high prices since the summer of 2020. In addition, announced mentor closure candidates is not closed after all, which keeps production levels at higher levels than expected. It is also interesting to note that external consultancies providing balanced estimates are in relative close consensus for 2021 around 1.5 million to 2 million tonnes, following up 2020, where there were large variances between each company outlook. We will get back to the specific demand drivers and expected developments later in the presentation. Please change to Slide 5. Let me now get into a high-level result overview. Comparing to the same quarter last year, Q4 underlying EBIT is up by around NOK 800 million. On the positive side, we have experienced lower raw material costs than 1 year ago. This is mainly driven by lower alumina prices for aluminum metal but also supported by lower carbon prices as well as somewhat lower bauxite and caustic prices in Bauxite & Alumina. We also saw a currency gain as NOK and BRL weakened against the dollar. In addition, stronger margins and volumes downstream drive our downstream results, supported by the cost improvement efforts in both Extrusions and Rolling. These positive developments were offset primarily by additional other costs, which includes around NOK 500 million in maintenance-related costs in Bauxite & Alumina and also around NOK 250 million in antidumping duties and provisions in Rolling. Please move to Slide 6. If we compare the fourth quarter results to the third quarter, we see a stable development quarter-over-quarter. Upstream, the positive impact from prices is coming primarily from aluminum metals, where we have had both higher LME and premiums from Q3 to Q4, driving around NOK 1.1 billion of the gain. On the other hand, the volume uplift comes mostly from Bauxite & Alumina, where we managed to produce around 90% of nameplate in Q4 and reach nameplate by year-end. We also saw an improved result in energy as production remained relatively high and prices rebounded following loss in Q2 and Q3 due to more exports and normalization of weather patterns. These positive developments were more or less offset by higher raw material cost upstream with both alumina and power cost rising in aluminum metal and higher fuel oil costs in Bauxite & Alumina. These costs are in addition to the aforementioned maintenance-related costs in Bauxite & Alumina and antidumping duties in Rolling, impacting our other costs here by around NOK 700 million. The additional NOK 200 million in other costs results from cyberattack insurance on the case booked in the third quarter of 2020 of around of NOK 200 million. Please move to Slide 7. Our underlying EBIT for 2020 of NOK 6.1 billion increased compared to 2019 by NOK 2.7 billion. The main contributor of our improved results was lower raw material costs, primarily in aluminum metal, which had lower prices on alumina, energy and carbon in 2020 compared to 2019. Positive currency effects from weaker BRL and NOK to dollar also contributed around NOK 4.5 billion to the annual underlying EBIT. And finally, the ramp-up of Alunorte, which produced at 87% of nameplate capacity in 2020 and reached nameplate by year-end was the main positive contributor in terms of upstream volume recoveries. It is also satisfying to see that we managed to reduce NOK 1.7 billion in fixed cost in 2020. Over 80% of that saving comes from our downstream businesses, Extrusions and Rolling, and is a true credit to how these organizations managed to exhibit cost discipline amidst the volume and margin pressure our industry experienced and continues to experience due to COVID-19, represented by the NOK 2.4 billion negative impact in downstream volumes and margins. In addition, our realized alumina prices fell 18% year-over-year to $268 per tonne, and our realized aluminum price fell 7% from '19 to '20, resulting in a combined dip on the underlying EBIT of around NOK 7.5 billion. Please move to Slide 8. I would also like to highlight the positive contribution of the improvement program in 2020. Without this improvement and the cost discipline shown by our business, our underlying results for 2020 would fallen to around NOK 2 billion. Our uplift in volumes, primarily involves Bauxite & Alumina, provided a lift of around NOK 2.6 billion. However, the curtailment reversal in Alunorte also contributed positively here. Our cost-out initiatives and other improvements, both downstream and in Aluminium Metals, added another NOK 1.6 billion in savings. I will now go to the next slide where we will take a closer look at this program in 2020 and moving forward. Please move to Slide 9. Our regional improvement target for 2020 was an accumulated savings of NOK 4.1 billion. During Q3, we mentioned that due to the pipeline maintenance, we were slightly behind this goal. However, we are pleased to note that we not only reached overall goal for 2020, but exceeded it by around NOK 100 million. The main driver of NOK 4.1 billion goal has been ramping up our volumes of Alunorte from the embargo levels of 2018. During 2020, we produced 87% of nameplate capacity, and we expect Alunorte to continue running at nameplate capacity in 2021 after having reached this level in December. It is delivering on cost improvement ahead of schedule like in Rolling, which enabled us to reach its goal. In Rolling, for example, our original target was NOK 150 million. However, strong momentum behind organizational rightsizing and procurement initiatives throughout 2020 have provided a saving that is over 3x higher at NOK 500 million. At the Capital Markets Day 2020, we announced that improvement program will be extended to 2025 and include an even more ambitious cost-saving target of NOK 8.5 billion. This program is front loaded, and after 2020, we are nearly halfway there. In 2021, we plan to secure an additional NOK 1.8 billion in savings, driven by further cost cuts, but also volume gains like producing at nameplate capacity in B&A and the ramp-up of Husnes line B. We will also continue to work toward our commercial uplift ambition of NOK 2 billion, which comes from stock of the NOK 8.5 billion through market and customer-driven opportunities within the Aluminium Metal, Rolling and Extrusions. Capturing more volumes and margins through our greener products, Hydro CIRCAL and Hydro REDUXA, is one important lever towards this commercial ambition. Please move to Slide 10. If we then take a look at the key financials for the quarter, then revenues were stable at around NOK 36 billion for the fourth quarter. Underlying EBIT came in at NOK 1.4 billion, as explained on the previous slide, and it is worth noting that around NOK 5.3 billion gain on the Lyse transaction is held outside of underlying EBIT, and I will explain this in detail later. With depreciation of around NOK 2 billion, underlying EBITDA amounted to NOK 3.5 billion. Financial income of NOK 1.4 billion for the fourth quarter included a net foreign exchange gain of NOK 1.5 billion. And this primarily reflects a stronger NOK versus euro, affecting the embedded derivatives in Norwegian power contracts and other liabilities denominated in Europe. Our tax expense amounted to NOK 849 million or about 10% of the income before tax. The relatively low tax rate was positively impacted by the tax expense gain of NOK 5.3 billion related to the Lyse transaction. Overall, including the transaction gain, this provides a net income of NOK 7.3 billion, up from negative NOK 0.7 billion in the same quarter last year. Underlying net income was positive of NOK 0.8 billion compared to negative NOK 0.3 billion last year in Q4. And consequently, underlying earnings per share was NOK 0.35 per share, up from a negative NOK 0.12 per share in Q4 '19. Please move to Slide 11. Now let's review items excluded during Q4, which totaled around NOK 5.3 billion. As usual, we excluded some timing effects in Q4 of around NOK 100 million. These are more or less offset by impairments related to the ongoing restructuring in Extrusions. The main item included in this quarter is a NOK 5.3 billion in transaction-related effects related to the completion of our deal with Lyse. This is an accounting gain based on the fair value estimate of our ownership stake in Lyse Kraft DA, representing the depreciated asset base in Energy. Please move to Slide 12. Underlying EBIT for Bauxite & Alumina increased from a loss of NOK 75 million in Q4 '19 to NOK 116 million profit in Q4 2020. The quarters of positive effects from currency and lower raw material prices, the BRL's weakening against dollar contributed around NOK 700 million. And in addition to upside from lower bauxite and caustic prices, so these raw material gains were partially offset by higher fuel oil prices. In sum, these factors created an overall lower implied alumina cost per tonne in Q4 '20 of $241, which is $14 lower than last year's level. Overall margins were up by around $5 year-on-year. However, these positive effects were partially offset by the lower prices, additional sourcing costs due to pipeline maintenance of around NOK 280 million and costs associated with crane repair work of around NOK 170 million. The production of Paragominas resumed after extended pipeline maintenance in October, and alumina production at Alunorte has averaged around 90% of nameplate capacity as we guided in the last quarter. During the fourth quarter, Lyse undertook extraordinary repair work on the crane, which is used for unloading bauxite from ships. The repair work caused additional operational costs, but did not have a material impact on production or shipments from the Alunorte refinery. As part of our continuous asset integrity program in B&A, we will continue preemptive maintenance where necessary to ensure the robustness of our operations. By doing so, we should be able to avoid major production curtailment. And in the long run, this will help us to increase the life cycle of our assets and reduce risk and cost. Lower realized alumina prices by $9 per tonne also negatively impacted the quarterly results by a negative NOK 120 million compared to the fourth quarter in '19. If we look into Q1, the Alunorte production is expected to be around nameplate capacity. However, we do expect the costs associated with the crane repair to impact Q1 results also by around of NOK 200 million, but we do not expect extraordinary sourcing costs as experienced in the fourth quarter. And the crane incident in Bauxite & Alumina is notified to the insurance companies. In addition, we expect somewhat lower raw material prices in comparison to Q4, given today's market prices, while current alumina prices indicate somewhat higher realized alumina prices than achieved in the fourth quarter. Please move to Slide 13. Underlying EBIT for Aluminium Metals increased from NOK 165 million in Q4 '19 to NOK 844 million in Q4 2020. In general, we experienced stronger margins year-on-year. All-in prices were marginally higher, but the main prohibitor was a lower cost position per tonne, mainly driven by lower alumina prices, lower carbon prices and lower fixed cost and depreciation, which accounted for a positive impact of NOK 600 million year-on-year. From Q3 to Q4, we managed to mitigate some of the fixed cost increases, which were anticipated for Q4. Improved margins quarter-on-quarter, mainly from higher LME and premiums, which lifted underlying EBIT by nearly NOK 1.1 billion from the third to fourth quarter. When it comes to the outlook for the first quarter, we have, by the end of December, sold approximately 65% of our primary aluminum production forward at a price level of around $1,980 per tonne. This includes pricing effects from our strategic hedging program, which I will get back to a bit later. On the premium side, we have secured around 59% at around $273 per tonne. And we expect a premium level within the range of $225 to $275 per tonne. When it comes to the cost side, then we are expecting somewhat higher fixed costs compared to Q4 2020 due to seasonality of quality credits, the timing of some property tax invoices and the further ramp-up of the business measures. We are also expecting some higher power prices from a new internal power contract and currency effects, and I will get back to that a bit later. Please move to Slide 14. This quarter, metal markets delivered an underlying EBIT of NOK 248 million compared to NOK 132 million in Q4 last year. The results increased compared to the same quarter last year due to higher results from the sourcing and trading activities and positive currency effects. Underlying EBIT from our recycling facilities were unchanged, however, included a positive insurance refund in Q4 '19, implying stronger results, excluding this effect. Higher sales volumes were the main drivers of those. Excluding the currency and inventory valuation effects, primarily currency, the result for the quarter was NOK 257 million, which is up from NOK 184 million in Q4 '19. Looking into the next quarter, our recycling facilities are operating at normal capacity levels. As always, remember that trading results and currency effects in metal markets are, by nature, volatile. Please move to Slide 15. The market for our downstream business areas is on the path to recovery. Within Rolling, we see a flat development in our sales volumes from Q4 '19 to Q4 '20, which was a better performance than the overall market, which was down 2% in Europe for Q4. The overall rolling market outperformed the external analyst forecast provided at Q3 of a decline of 5% in Europe. Rolling continues to optimize its portfolio by increasing the share of higher-margin can and auto. And in addition, this shift will further support our strategy of higher levels of recycled volumes. For Q1, we see indicators that the rolling market is continuing its recovery, and external analysts estimate 2% growth in Europe for Q1 compared to Q1 2020. Our Q1 outlook for Rolling is more or less in line with the market. We do have some planned revamps for costing centers and production lines in Q1. For the full year 2021, external analysts expect the market to improve 8% in Europe as volumes are recovering from the COVID outbreak of 2020. Please move to Slide 16. The results in Rolled Products decreased to a loss of NOK 188 million in Q4 compared to NOK 34 million profit in Q4 '19. The result from the rolling mills decreased mainly due to a NOK 259 million impact of the imposed U.S. antidumping duties in October 2020, and this negative impact includes a provision of NOK 60 million for Q1. The negative effects were partly offset by lower costs from the ongoing improvement programs mentioned earlier in this presentation, where Rolling has delivered over 3x higher than its original savings targets, achieving NOK 500 million in savings through 2020, primarily through organizational right restructuring, metal cost optimization and procurement initiatives in logistics, maintenance and direct materials. In addition, the quarter saw some positive currency effects. The Neuss smelter results increased, driven by lower raw materials. If we look into Q1, the antidumping duty is expected to have a negative impact of around NOK 100 million. For 2021, we have only one contract of some thousand tonnes in total, which we are working with our customers to try and replace. The U.S. International Trade Commission is to decide whether there was harm to U.S. producers by April. If no harm is found, the duty should disappear and potentially even be reimbursed. We believe that the duty is unfounded and unreasonable, and we will work with all related parties to minimize the effects of this, and we'll keep you up to date on any development. The strategic review continues with the aim to evaluate the best ownership setup for Rolling within or outside Europe. The result of the review will be announced in due time. Please move to Slide 17. In Extrusions, we saw a 7% increase in our sales volumes compared to Q4 last year, 12% higher in Europe and 4% higher in North America. The improved volumes exceeded the market, which was flat in North America and down 3% in Europe. However, we should keep in mind that Q4 '19 was a challenging quarter for us. The market development was better than what was expected 3 months ago, but it was predicted declines of 8% and 7% in European and North American markets, respectively. In the automotive segment, we saw overall solid recovery continuing in Q4. OEMs are increasing production again, and there were less supply disruptions during second wave of COVID-19 and during the first wave. Some of the demand rebound is linked to restocking following destocking in Q2. Nevertheless, underlying demand is also improving, which is evident in increasing auto sales, especially electrical vehicles, where we see strong growth in Germany and also growth in the premium segment, where aluminum is the most exposed material. When it comes to the first quarter outlook, external market expectations are indicating further improvement. External analysts expect an increase from same quarter last year of 7% and 2% in North America and Europe, respectively. In total, we expect the development in line with the external market in the first quarter. If we look at the full year 2021 cost, external analysts estimate a growth of 9% and 10% in North America and Europe, respectively. We believe based on our internal estimates that we will be roughly in line with the rest of the market. However, there is still uncertainty in the early part of 2021. Now let's take a closer look at the financial results for Extrusions. Please move to Slide 18. Underlying EBIT for Extruded Solutions significantly increased from NOK 85 million in Q4 '19 to NOK 511 million in Q4 '20. The results were positively impacted by increase in volumes, also from Q3 of 5% and 7% from Q4 '19. Increase in volumes from Q4 '19 and previous quarter was driven by a general recovery in most segments. Comparing the Q4 results to the previous quarter, we see, as mentioned, a positive impact of slightly higher volume, while fixed costs increased due to seasonality related to regular maintenance towards year-end. In addition, the third quarter was positively impacted by cyber insurance payments. Continuing the trend from previous quarter, Q4 results were also positively impacted by reduced costs from the ongoing improvement and restructuring efforts as well as other temporary cost measures implemented amid weaker demand but are expected to start returning with increased activity levels. We are also pleased that Paul Warton is now in place as the new EVP for Extrusions to continue lifting profitability and cash flow from Extrusions in the years to come. If we look into the first quarter, Extrusions is working hard to support their earnings with the ongoing portfolio optimization, fixed cost reduction initiatives and procurement optimization. Extrusions continue to firmly control their cost development into the first quarter with the objective to retain a maximum of savings as the market slowly resume from the COVID-19 prevalence. Please go to Slide 19. Underlying EBIT for Energy increased from NOK 296 million in the fourth quarter '19 to NOK 352 million in the fourth quarter of '20. The quarter saw a significant drop in prices compared to Q4 '19, mainly attributed to a strong hydrological balance with prices averaging NOK 137 per megawatt hour compared to NOK 392 per megawatt hour in Q4 last year. However, if you compare prices to the previous quarter, prices have increased from low levels of just NOK 52 per megawatt hour due to more exports and normalization of weather patterns. In January, we have seen drier and colder weather, nearly eliminating surfaces in the hydrological balance. So things can change very fast. We have seen some improvements in power prices in the Nordic region with average NO2 spot prices of NOK 499 megawatt hours so far in January. However, the uncertainty is still large and will depend on the weather going forward. Please let me also remind you that NO2 spot prices are publicly available, and the realized price levels for the company should not deviate significantly from the prices observed on the Nordic power exchange for NO2. Also keep in mind that the prices and production can change fairly quickly in response to hydrological development. We have quite some other elements impacting the first quarter results, which I will refer to on the next slide. Please move to Slide 20. This is a page I would like to spend a bit some time on to update on the changes as a result of the Lyse and RSK transactions and some other changes in Energy to keep in mind for modeling going forward. As mentioned at the start of the presentation, we announced the merging of our RSK due to power assets with part of Lyse's production to form a joint hydropower company in October, and the transaction closed on December 31. We are very pleased to see the conclusion from the discussion in the standing committee on energy and environment on the parliamentary question related to the conversion of the RSK concession. Establishment of Lyse Kraft DA builds on the principles established by the Stoltenberg 2 government in 2008 and that was further developed by the Stoltenberg 1 government and secures for public ownership to the RSK hydropower plant and long-term predictability for industrial activities and value creation. It is comforting to see that the continuation of this framework is supported by such a broad solution, comprising the parties in the government and the main 2 opposition parties, [ Arbeiderpartiet ] and [ Venstre Partiet ].The Lyse-RSK transaction is reported as a sale in Q4, and the proceeds of the sale is the value of Hydro's 25.6% ownership in Lyse Kraft DA. As part of the fair value assessment and purchase price allocation, an external third party has estimated the fair value of our share of Lyse Kraft DA to NOK 7.8 billion corresponding to an EV multiple of approximately NOK 3.30 per kilowatt hour due to price and IFRS accounting policies, which include elimination of Hydro's proportional share of unrealized profit from transactions with associates and joint ventures. Loss elimination of 25.6% of gross gain represents NOK 1.8 billion. This demonstrates a recognition of NOK 5.3 billion accounting gain after adjustment for carrying book values for RSK and IFRS elimination. Additionally, Lyse Kraft DA will be owned as an associate and accounted for as an equity-accounted investment as opposed to RSK previously being held as a subsidiary. Due to this reclassification that would also share of Lyse Kraft DA's net income will be added to Energy's EBITDA as opposed to previously when RFK's EBITDA was directly reflected in Energy. This will reduce Energy's EBITDA by NOK 100 million to NOK 200 million annually. It is important also to note here that our own production volumes will be lowered by around 750 gigawatt hours as a result of the transaction. This, however, is partly offset by higher quality assets, representing approximately 300 gigawatt hours, of which there's a 200 gigawatt hour impact EBITDA and around 100 gigawatt hours is related to higher tax shield, resulting in lower tax payments. The volume loss related on EBITDA, you could estimate to around NOK 130 million, assuming a price of NOK 300 per megawatt hours and cost of NOK 70 per megawatt hour and correspondingly to around NOK 30 million gain on net income, resulting in a net effect of negative NOK 100 million for Hydro. Over the medium to longer term, we expect increased positive synergies on the transaction to mitigate some of this loss. In addition to Lyse Kraft DA, there are a few other changes in Energy to keep in mind for 2021. A loss-producing supply contract, which had a negative effect of around NOK 650 million in 2020, has now expired. The large loss in 2020 was impacted by low spot prices as part of the contracted spot exposure and, in addition, significantly impacted by weaker NOK compared to euro, as this was a euro-denominated one. The second contractual effect to keep in mind from 2021 in Energy is related to the new internal contracts with Aluminium Metal. We would see a positive effect of around NOK 750 million compared to the internal contract portfolio from 2020. The positive effect here compared to using 2019 and 2018 as a starting point is a stronger euro, resulting in a currency gain in Energy. It is important to note that the gain on the internal contract will be partly offset by the expiry of external sourcing contracts in Aluminium Metal, but still resulting in a net increase in power cost in Aluminium Metal of around NOK 300 million to NOK 350 million compared to 2020. These effects depend on the currency rates used, and these calculations were based on a euro-NOK rate of around 10.8. Finally, it is important to keep in mind that we are ramping up our battery and renewable growth units. And while it is difficult to give full guidance on the cost level or these areas at this stage, one could assume a preliminary estimate of additional costs of between NOK 100 million to NOK 200 million related to operational costs, but also the project development, which will go into the respective portfolio. Please move to Slide 21. Other and eliminations was negative NOK 435 million in Q4 compared to a negative NOK 67 million in Q4 last year and positive NOK 213 million in Q3. Other is mainly comprised of head-office costs and costs related to holding companies. This quarter, we had NOK 300 million in cost compared to NOK 223 million last year and NOK 204 million in the third quarter. This quarter's eliminations amounted to negative NOK 135 million, reflecting higher internal volumes. Please move to Slide 22. We move now from the business areas to the development in net debt. Overall, our net debt position decreased by NOK 2.1 billion. We started Q4 with NOK 9.9 billion in net debt. We generated underlying EBITDA of NOK 3.5 billion, and we then had a release of working capital of around NOK 1.6 billion. We have originally forecasted the build of working capital for the period. However, we ended Q4 with lower inventories and higher payables, mainly in the downstream business areas in addition to normal seasonality effects. Other operating cash flow adjustments of positive NOK 0.4 billion includes dividends from equity-accounted investments, reversal of mark-to-market effects, being offset by interest taxes and some other negative effects. As a result, we generated net cash flow from operations of positive NOK 5.4 billion in Q4. Investments came in at around NOK 1.9 billion, and we also paid out the 2019 dividend in November of Q4, totaling NOK 2.6 billion. The net effect of exchange rates on our debt and cash also lowered overall net debt by around NOK 0.1 billion -- NOK 1 billion. At the end of Q4, we ended with NOK 7.8 billion in net debt, our lowest level since 2018. Please move to Slide 23. If we look at the adjusted net debt at the end of the fourth quarter 2020, that is decreased by around NOK 3.5 billion to Q3 -- compared to Q3. Net debt decreased by NOK 2 billion, as I just explained, and net pension liabilities decreased by NOK 1.6 billion due to higher discount rates in Norway and positive returns on Norwegian pensions and assets, slightly offsetting the lower discount rates in Germany, and other adjustments were up NOK 0.3 billion. And with that, the total adjusted net debt, including equity-accounted investments at the end of Q4, amounted to NOK 28 billion, down from NOK 31.6 billion at Q3 2020. Please move to Slide 24. Let me then move on to some comments on our financial policy and hedges. We see that the aluminum industry is a cyclical industry, where the periods with above cost of absolute returns are of limited duration. As a result, Hydro has diffused the situations where the use of derivatives could make sense in order to support the group's financial target and is more actively evaluating the use of such derivatives, although still to a limited extent, and with the majority of our exposure still remaining unhedged for the upside. In line with our hedging policy, we have the flexibility to hedge LME for currency in certain cases. And we have normally done this with respect to transactions or plant start-ups. Under our current profitability agenda, we are constantly looking into making our portfolio more robust and delivering on our return of getting [indiscernible] cycles. And hedging is one lever which can be used to support the strategic agenda by reducing volatility in earnings and improving downside risk matters. Last quarter, we mentioned the forward contract of around 30% of B&A to BRL/dollar exposure through '21 and '22. And the aim here is to reduce the volatility and uncertainty in Alunorte's cash flows and ensure our cost curve position for Alunorte remain robust at the date currently. In addition, we have secured LME hedges for around 250,000 tonnes of primary aluminum or around 10% of our volumes, each for '21, '22 and '23. The hedges have locked in LME prices seen in late December, early January, and you can see that the guidance for Q1 volumes includes the effects of this hedge. Part of the corresponding raw material exposure has also been partially secured through further derivatives and physical contracting, locking in an attractive margin for parts of our volumes. Please move to Slide 25. For 2020, Hydro's Board of Directors proposed a dividend of NOK 1.25 per share, reflecting Hydro's robust financial situation and taking into account the demanding year caused by the COVID outbreak and the general volatility of the aluminum industry. The dividend represents a payout of around NOK 2.6 billion, which is to be paid in May, subject to approval by the Annual General Meeting of Shareholders. The proposed payment demonstrates our commitment to shareholders, providing a competitive shareholder return compared to similar companies. It also represents a dividend yield well ahead of the aluminum peer group when comparing dividends paid out during 2020 compared to the year-end 2020 share buyback. On average, our 5-year payout ratio based on reported earnings is 65%, which is above our over-the-cycle dividend policy, which was to have a 40% payout ratio with NOK 1.25 considered as a floor. Moving forward from 2021, the Board has increased the payout ratio in our dividend policy to minimum 60% of underlying net income with a floor of still NOK 1.25 per share, reflecting our ambitions to lift performance and resulting cash returns to shareholders over the cycle. And given the current market price environment, we're off to quite a good start. Please move to Slide 26. I will now conclude with an update on our capital return dashboard for 2020, summarizing our performance on key financial targets and priorities for the year. Starting at the balance sheet and the key ratio of funds from operations to adjusted net debt, we have seen 39% in the last 12 months, which is an improvement compared to 35% last quarter and nearly in line with our target of about 40% over the cycle. Following our strong second half, free cash flow for the year is up NOK 7.7 billion, NOK 6.6 billion of which came in the second half of the year and supported by an overall release of NOK 2.4 billion in net operating capital during 2020. We have also maintained our CapEx cut in 2020 to preserve liquidity. We aim to cut CapEx to around NOK 7 billion to NOK 7.5 billion, and we ended up undertaking NOK 6.4 billion in investment in 2020. However, NOK 700 million will be carried over to the 2021 OpEx budget. Thus, we update our outlook for 2021, which was originally NOK 9 billion to NOK 9.5 billion to NOK 9.5 billion to NOK 10 billion. Our longer-term outlook or medium-term outlook for 2022 to 2025 remains at NOK 9 billion to NOK 9.5 billion. And with that, I would like to thank you for joining the presentation and invite you to stay for a Q&A session, which will begin shortly. Thank you.
Thank you, Paul. Operator, we are now ready for questions. Thank you.
[Operator Instructions] We'll take our first question from a participant.
It's Jason Fairclough from Bank of America. Two quick ones for me. First, through the COVID downturn, you were selling LME-grade products to traders. I was wondering if you can confirm that this is finished? And then second and probably related, we are hearing of shortages of certain sorts of products, and I guess particularly can stock. Any similar product shortages that you're seeing across your product suite?
Thank you, Jason. Good questions. If we start with the shortages, the latter ones, then we see across the system that the demand recovery is stronger than most players had expected, both when it comes to can, automotive and building and construction. As you see from our operating capital figures, these are at lower levels than we thought, and that is much driven by reductions in inventory beyond the levels that we normally keep at the minimum stock levels. So we are able to supply most of our customers, but we are actually having to move some delivery a bit out in time because demand is so strong. And if we have had more rolling slots, for example, available in the system, then we could be able to increase the production to even more than what we are doing today. So it is not causing an issue for us. It is a good trend, but ideally we will be able to ship out more and not have to delay a bit into next year. And the first question was on?
Sorry -- was you were selling commodity-grade products to traders.
Yes. Exactly. We have seen the value-add premium product sales increased. So we are selling less standard ingots typically to traders or to others through finance. But as you know, part of our operations are on a normalized level, also producing standard ingots, and those are being continuously sold to different market participants. But we are moving there and have moved the value-add product production more towards the normal levels for our portfolio. So linking it a bit back to the comment on sheet ingots, we also see the same picture on extrusion ingots. We are producing and selling at capacity and running everything at [indiscernible] and also ramping up the Husnes as fast as we can. And compared to earlier quarters, when we spoke, when a lot of this was driven also by destocking, we see more signs now of this being under-supported by fundamental demand figures also. So a bit more sustainable demand based on what we're delivering, but still uncertainty in the months following January and upwards.
Just if I could follow up. So if we look at other commodities, what we're seeing is that the premiums or the spot prices are rallying quite hard as lead times extend. Do you feel like you're fully taking advantage of this type of market environment in terms of premiums and pricing?
I think as you will have seen from Aluminium Metals' results, that premiums moved up and they moved up to the higher part of our guided range and also a bit about market expectations based on what we've done in Q3. So with these increased volumes, we are also seeing an increase in premiums. You're seeing increases driven by demand, and you're seeing increases in premium driven by more regulatory matters, for example, like in the U.S., where the Midwest premium is now up at the record high level. So we are able to benefit from that, as you will also see into our Q1 guidance, and we will continue to ensure that we will work for increasing those premiums as long as the market tightness continues. As you also are aware of LME prices are and have been trading quite a bit above the 90% on the cost curve, reflecting at least the tightness we're seeing in the market now.
[Operator Instructions] We'll take our next question from next participant.
It's Liam Fitzpatrick from Deutsche Bank. Two or 3 questions from me. Firstly, on Rolled Products. Even without the duties, it's pretty close to breakeven. So it seems like it could have a better owner elsewhere. Can you give any more color on at least the timing on when you think you will have made a decision either way to keep or sell? Second question on CO2 compensation for the Norwegian smelters. In terms of timing, when do you think we get more clarity on the numbers for 2021 and beyond? .And final, hopefully, a quick one on alumina costs. If we ignore the crane or the maintenance impact in terms of the net effect into Q1 versus Q4, do you expect overall costs to be down just given the lower sourcing costs?
Yes. If we start with a question on Rolling as it is now called, if we just start with the underlying results. Yes, on an EBIT level, excluding the antidumping duties, we are still around breakeven levels. However, it's important to remember that this also includes effects of the cleanup and the restructuring, which are ongoing, represented by, for example, higher depreciation related to curtailment of certain parts of the operations. And the EBITDA development in a year impacted by quite a significant COVID-related effect as have been very much under-supported by the NOK 0.5 billion in improvements delivered by annual run rate organization. And if we look at the strategic review, then like earlier sessions, we will announce to the market when that is completed, and we hope that, that is in not the too distant future. On CO2 compensation, I unfortunately can't answer on behalf of the Norwegian authorities. The ball is in their court now. And they need to make a decision before the annual budget for 2022. So anywhere between now and at the end of the summer is the timing that they will spend to do this is our expectation. Looking into Bauxite & Alumina and development into the first quarter, of course, the fact that we don't have to source extraordinary aluminum equipment to supply our customers on their contracts will have quite a large net effect close to NOK 300 million. But if we look at the other elements and market prices, then fuel oil is a bit up, and coal is flat to somewhat up and caustic soda is also remaining weak. So there's not a lot of other cost cuts apart from fuel oil. So the totality should still be a good positive development in costs for the first quarter, even if you include the NOK 200 million in [indiscernible] cost.
We will take our next question from next participant.
Jatinder from Exane BNB Paribas. A couple of questions, Paul. Just one on hedging. Again, is 10% meant to reflect any sort of level, which represents only your external volumes from Hydro Aluminium? Or is there any other thinking behind 10%? And is there a potential to change that number to a higher level? Second question on dividends. Good to see minimum payout being lifted on the floor of NOK 1.25. Is there any scenario where management or Board could think about lifting that floor as well?
Thank you, Jatinder. If we start on the hedging, the absolute percentage does not reflect our external position or similar. What we are looking at is we want to remain majority exposed to the movement in the market. But given the cyclicality and given the absolute integrated margin that we're seeing now, utilizing some of the better years to safeguard the capital for potential lower cyclical years is something which we believe over the cycle could make sense. 10% is what we have committed to now as we've been building up the strategy and program, ensuring that we have the right system in place. And this could increase somewhat in the coming period. If we have seen that we are able to sufficiently keep our margins, but not significantly above the levels that you are seeing today. When it comes to the dividend, we have the floor, as you are aware of and, of course, that provides a form of predictability and a certain yield over the cycle. But being a cyclical exposed company, we would rather report shareholders in times where the cash flow is available for doing that instead of committing to large payments in periods where we are on the cyclical low side. We have seen during COVID, which is maybe an exceptional circumstance there, how big that dividend payment can be of the total balance sheet outlook and the reviews from rating agencies. So we -- as we see it today, given the current cyclicality in that portfolio, we would rather keep the floor at this level and give extra back when earnings improve. Over time, if we look forward with the strategic direction and more diversification in earnings, we might think differently about that, but that is not currently something we're evaluating today.
We'll take our next question from next participant.
It's Amos Fletcher from Barclays here. Just a couple of questions. I just wanted to ask around -- so firstly, the NOK 1.8 billion incremental cost reduction in 2021 that you're targeting, can you split that out by business area? And then the second question was just around working capital. Is there a risk that you have to rebuild working capital during the course of '21, given your comments around inventories being run down? And then the final question is just also around the headlines about the collective lawsuit that was -- that's been brought against you in the Netherlands. Is there anything you can sort of say about that in terms of potential impacts, provisions, et cetera?
Thanks, Amos. Good questions. If I start backwards and moving to the top, when it comes to the Cainquiama lawsuit, then our entities received a notification about a Dutch lawsuit, and we will respond as requested before the Dutch court. However, it's worth noting that the matters brought forward are already being discussed before Brazilian courts and Brazilian authorities. And that the Cainquiama association has, since 2017, died -- 5 losses in Brazil against different legal entities in Brazil. So we are looking into the case now. And we will follow up that as we should. On the other elements, working capital, there is an expectation from our side that a large part of what has been released this year should come back into 2021. If we see markets remaining where we see them today and the volumes coming back as the external analysts, they expect. And so as you saw from our report, there is an expectation of quite a decent growth in year-on-year volumes in Extrusions and Rolling. That will drive some operating capital. We are ramping up the Husnes smelter and completing the ramp-up of Hydro. That will drive some operating capital. And then you have the price effect on top. So yes, already into the first quarter, you could typically see a build above seasonality on operating capital. If we look at the improvement program and the amounts that you talked about for next year, then around on NOK 1 billion of these are improvements in the business areas and around NOK 900 million is reflecting a ramp-up in B&A volumes. So we're not running at nameplate, but 87% for the year as a whole. You still have a ramp-up effect into next year. Positive NOK 1 billion in improvement, that is spread quite well among the business area. But with a larger share in Extrusion, Rolling and Aluminium Metal and lastly B&A primarily has the volume effect into next year.
We'll take our next question from next participant.
This is Ioannis Masvoulas from Morgan Stanley. Most of my questions have been answered. But just have a couple for you. The first one is in terms of the Primary Metal or Hydro aluminum business, what sort of cost progression should we be expecting across the various moving parts sequentially for Q1? And secondly, given the new -- the accounting changes in the Energy division, what sort of depreciation base should we be assuming for the group going forward?
Yes. If we start with the cost development in Primary Metal, then the energy cost is the biggest moving element there into the first quarter. As you saw from the Energy slides, that the higher prices on power contracts internally has a negative effect in Aluminium Metals, which is now compared to 2020, not compensated by other high-cost expiring contracts. So depending a bit on what currency rate you use and the starting point, you could see between NOK 100 million and NOK 200 million in increased energy cost for Aluminium Metals Q4 versus Q1. And that is before you potentially take in anything on the CO2 compensation side. The other elements with the market, alumina prices are somewhat up compared to what we saw in the fourth quarter. If prices remain there, that could be around $30 or so per tonne. And then carbon costs are also somewhat up. And if prices remain where we see in the market now, that could also be around $30 or so per tonne. And when it comes to the -- and then you have fixed cost, which also typically increases a bit into the first quarter. If you look at depreciation, then the Lyse Kraft transaction per se shouldn't really be impacting depreciation to a large extent. As you know, the RSK assets were so written down that they didn't add a lot to the depreciation in the existing system. But when we write up these assets, this is the increased effect that we're talking about between -- which is between NOK 100 million and NOK 200 million for the year as a whole, which will not hit depreciation, but it will hit the EBITDA line as we account EBITDA as an equity accounted investment. So the overall depreciation line should be marginally reduced by the Lyse Kraft transaction, but then the increased depreciation effect is higher, but it will not be a depreciating much. However, we can spend some time with IR to go through the spreadsheet and the details which we will go through.
There are no further questions at this time. Dear speaker, please go ahead.
Great. Thank you, everyone, for joining us today. And please don't hesitate to contact us if you have any questions afterwards. Thank you very much, and have a good day.
Thank you.