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Norsk Hydro ASA
OSE:NHY

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Norsk Hydro ASA
OSE:NHY
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Price: 68.86 NOK 0.41% Market Closed
Updated: May 25, 2024

Earnings Call Analysis

Q4-2023 Analysis
Norsk Hydro ASA

Hydro Reports Mixed Q4 Results, Ups Dividends

In Q4, Hydro's adjusted EBITDA fell by NOK 200 million to NOK 3.7 billion, attributed to lower sales and volumes, although free cash flow was positive at NOK 6.9 billion including Alunorte proceeds. The company released NOK 3 billion in working capital, ending 2023 with a total release of NOK 7 billion. Hydro exceeded their improvement target by NOK 400 million reaching NOK 8.8 billion, with a notable NOK 2.8 billion from commercial initiatives. Despite difficult alumina market conditions which led to a NOK 4.9 billion impairment, the company proposed a generous cash dividend distribution of 59% and a new NOK 2 billion share buyback program, making the total distribution 81.5% of adjusted net income. The adjusted Return on Average Capital Employed (RoaCE) for 2023 was 7.1%, below the 11% achieved over the last five years. Alumina prices ended the quarter at $350 per metric ton, recently stabilizing around $370 amid market tightness. Looking ahead, the global aluminum market is expected to balance out in 2024 with a 7% projected demand decline in extrusions for Europe and North America.

Solid Foundation Amid Market Challenges

In the final quarter of 2023, the company navigated through a landscape marred by macroeconomic uncertainty and a decrease in demand. The adjusted EBITDA of NOK 3.7 billion, though slightly down by NOK 200 million from the previous quarter, shows the impact of lower sales prices and volumes against a backdrop of diminishing raw material costs and adjusted CO2 compensation. A robust working capital management strategy led to the release of NOK 3 billion in the fourth quarter alone, totaling an impressive NOK 7 billion for the year. Despite the lower EBITDA, the company's dedication to cutting costs and optimizing its cash flow is commendable.

Exceeding Improvement Targets

The company didn't just meet its improvement program target; it exceeded it by NOK 400 million, achieving a total of NOK 8.8 billion for the year. This was primarily driven by a thrust towards greener products, enhanced product mix, increased margins, market share growth, and the introduction of energy commercial initiatives. This proactive strategy demonstrates the company's ability to innovate and adapt to market conditions, finding new avenues for profitability.

Advancing Green Leadership

In its commitment to sustainability, the company has accelerated its recycling and extrusions activities, aligning with the burgeoning opportunities presented by the green transition. Remarkably, the company has not only met its 2025 recycling objectives but is making considerable strides towards its 2030 goals. Furthermore, the near deployment of a natural gas-based floating storage and regasification unit at Alunorte signifies its earnest efforts towards carbon reduction.

Rewarding Shareholders Generously

Reflecting strong financial performance, the Board has recommended a substantial cash dividend distribution. At 59%, the payout totals NOK 5 billion, translating to NOK 2.5 per share. Additionally, a NOK 2 billion share buyback plan is also in the pipeline, culminating in an 81.5% total distribution—well above the 50% to 60% guidance. This strategic move highlights the company's capital strength and commitment to rewarding its shareholders.

Navigating Impairments and Returns

While the adjusted Return on Average Capital Employed (RoaCE) for 2023 dipped to 7.1%, influenced by aggressive investment for growth and challenging alumina market conditions, the company demonstrates solid long-term value creation. However, these challenges and uncertainties led to an impairment of NOK 4.9 billion for the quarter.

Commodities and Market Dynamics

The fourth quarter alumina market was volatile, with the Platts alumina index initially stable but rising towards the quarter's end to $350 per metric ton, fueled by constraints in China and Guinea. This uptick continued post-quarter, hitting approximately $370 per metric ton. The anticipated aluminum market for 2024 is expected to approach equilibrium, with a predicted moderate surplus globally that could equalize the market.

Facing Demand Declines in Key Sectors

A significant downturn was observed in the building and construction sector, where demand plummeted by roughly 50% in 2023. Billet demands shrank by about 15% year over year, and a further decline of 7% is expected in the first half of 2024 within Europe and North America. Present margin levels, which are well below the historical average and comparable only to early pandemic levels, have forced the company and other recyclers to curtail capacity, with utilization dropping to 57%.

Earnings Call Transcript

Earnings Call Transcript
2023-Q4

from 0
H
Hilde Aasheim
executive

And welcome to Hydro's Fourth Quarter 2023 Presentation and Q&A. So we will start off with our CFO, Pal Kildemo, presenting our Q4 and annual results, followed by a Q&A session. [Operator Instructions] But before that, I leave the microphone over to Pal Kildemo.

P
Pål Kildemo
executive

Thank you, Martine, and good morning, and welcome from me as well. It is a pleasure to present both our fourth quarter and full year results with you today. And as normal, we'll kick it off with the key highlights. For the fourth quarter, we reported an adjusted EBITDA of NOK 3.7 billion, NOK 200 million down from the third quarter, on the back of lower sales prices and volumes partly offset by lower raw material costs and adjusted CO2 compensation. Our reported free cash flow came in at negative NOK 1.5 billion. However, this excludes the proceeds from the Alunorte transaction, which would lift the figure to NOK 6.9 billion positive. As macro uncertainty continues and demand weakened in the fourth quarter, we have had strong focus on cash release and margin management, and our dedicated efforts on reducing inventories have paid off, and I'm happy to announce that we have released an additional NOK 3 billion of working capital in the fourth quarter, ending the year with a NOK 7 billion working capital release for 2023, supporting our proposed shareholder distribution. Our robust position is also supported through continuous improvements. And we are happy to report that for 2023, we delivered NOK 400 million above the improvement program target of NOK 8.4 billion, a total of NOK 8.8 billion. The positive traction for greener products, our improved product mix and higher margins and market share growth, and also the addition of energy commercial initiatives in the program, resulted in a delivery of NOK 2.8 billion in commercial initiatives, which is also above our annual targets. At our Capital Markets Day, which we had in the end of November, we announced that we are stepping up growth in recycling and extrusions to take a lead in the market opportunities emerging from the green transition. And in particular, within recycling, we have announced several undertakings supporting our growth ambitions to increasing capacity and securing scrap. By the end of 2023, we have already achieved our 2025 targets, and we are progressing well towards our 2030 ambitions. And that's the value of reducing our footprint increases, it is good to report further progress on our carbon reduction goals. The floating storage and regasification unit, the FSRU, with natural gas to replace heavy fuel oil at Alunorte, is now just days away from the harbor in Barcarena, and this is one of several key developments this quarter. On the back of robust financials and all the improvement initiatives undertaken, the Board has proposed a cash dividend distribution of 59% of adjusted net income from continuing operations to Hydro shareholders, amounting to NOK 5 billion or NOK 2.5 per share. A new NOK 2 billion share buyback program will also be proposed, which results in a total distribution of 81.5%, which is well above our 50% to 60% guidance at our Capital Markets Day in November, but in line with our overall policy. And this is enabled by a strong operational capital release. Finally, during 2023, all business areas, except for Bauxite & Alumina, delivered returns above their cost of capital despite more challenging markets. And over the last 5 years, the adjusted RoaCE has been 11%, which is above our target of 10% over the cycle. However, for 2023, the adjusted RoaCE ended at 7.1% for the year, which is influenced by high growth and return-seeking investments in the year as well as challenging alumina market conditions. And the same challenging alumina market conditions in the short term, but also our expectations for the medium term as well as long-term power price in security for our partly-owned Tomago aluminum plant in Australia, resulted in a total impairment of approximately NOK 4.9 billion for the quarter. And on that latter note, let us move over to the alumina market. It has been quite an eventful quarter on the alumina market side. The Platts alumina index has traded in a narrow range between $326 per metric ton and $339 per metric ton until the last weeks of December, when the parks rallied upwards and ended the quarter at $350 per metric ton. This increase was driven by higher Chinese alumina prices due to temporary Chinese refinery curtailments as well as concerns around bauxite shipments from Guinea, which follows an explosion at the main countries that fuel depot in [indiscernible] on the 18th of December. Domestic bauxite supply in Shanxi and Henan provinces in China has been limited by various environmental and safety audits of some mines, which has forced some refineries to cut production thus also supporting the tightening of the market and pushing prices upwards. Temporary alumina production restrictions because of heavy pollution also occurred, which cuts supplies further. By some estimates, more than 2 million tonnes of refinery capacity has been curtailed recently. If we then look into the next quarter and in light of the recent events, the [ PAX ] has continued to move upwards from the end of December, and that's now stabilized around $370 per metric ton. For some time now, we have said that the alumina price has not reflected the marginal cost of production. And 2024 started with the announcement of a sizable industry curtailment, which will take place from Q2 2024. This will tighten the global alumina market, which could be slightly undersupplied this year according to CRU. The impact of the fuel shortage in Guinea on bauxite production and shipments remains an uncertainty, and could provide a risk to Chinese alumina production for the year. If we then move over to the aluminum market, this continues to be impacted by the general macroeconomic uncertainties, and we continue to see a large sample space of macro outcomes for 2024. The 3-month LME price increased through the fourth quarter of 2023, starting at $2,321, ending up at $2,384 which was impacted by the sanctions against Russia implemented by the U.K., as well as the rumors regarding possible further sanctions by the EU. These events led to market players dumping even more Russian metal in the LME warehouses, driving the share of Russian aluminum to an all-time high, also confirmed by reporting yesterday at 90%. And we continue to believe that it is challenging that the LME market is based on Russian metal, with a large share of self sanctioning among producers and customers, and we continue to call upon the EU, the U.S. and other G19 nations to expand sanctions beyond tariffs. If we look at the global balance, external sources estimate that the surplus for 2023 for world ex China was 1.6 million tonnes, while China was in 1.2 million tonne deficit, leading to a net total global surplus of around 0.5 million tonnes. We expect this balance to tighten during 2024 in the base case, with current estimates for world ex China of 1.4 million tonnes in surplus, and deficit in China of 1.3 million tonnes, which suggests a largely balanced market for aluminum. The part of the market, which is most negatively impacted is building and construction. And we've seen demand falling around 50% in 2023. And we know that BNC accounts for 20% of global semis demand and an even higher share of global extrusion demand. And the result of this is that demand for billets have declined dramatically, with around 15% decline in '23 versus '22, and also an expectation for a 7% decline in the first half of 2024 in Europe and North America. So the drop in billet demand translates to a fall in extrusion ingot premiums, which creates margin pressure for recycling operations. If we take a simplified proxy for recycling margins, it is to look at the margin between the billet and the standard ingot, where the weak market demand has driven down product premiums since the end of '22, with the extrusion ingot declining unproportionately against the standard ingot, leading to a very large margin squeeze. The current margin level of approximately $100 per tonne can be compared only with the level that we experienced in the beginning of the COVID pandemic. And we can also see clearly that the current margin is significantly below the average margin in the period from 2010 to '23. And even if we normalize for the exceptional 2022, we are still at least $100 per [ tonne ] below that level. And as recyclers are often the swing capacity in the billet markets, a lot of recycling capacity is being curtailed, including our own with current capacity utilization level of 57%. This also compares only with the levels of the same period during the pandemic when we had frozen supply chains and demand dropped drastically. This level is also significantly below our average utilization ratio since 2020 at around 91%. Although we do remelt some standard ingot to billet or use a sweetener, we use primarily process and post-consumer scrap with the latter to an increasing extent, around 440,000 tonnes in 2023. And on the graph on the right below here, you can also see the scrap price development since the end of '22. And while the clear trader scrap has declined more in line with the full pricing -- price for billets, the old rolling scrap, for example, has remained flat and even slightly higher over the time period. And this is a result of the reduced activity, especially in building and construction, which, as I mentioned, is down 50% in 2023, leading to lower scrap generation and also more sticky scrap prices depressing deferred margins further. This is also impacted by scrap finding its way out of Europe, for example. When we look into 2024, we expect continued squeezed margins until we see an increased activity in the building and construction sector and also demand increases as a result of this. So in this market environment, we continue managing the short-term market uncertainty by adjusting to the demand developments with the same levers that we have utilized over the latter quarters. However, the key highlight for this quarter is the strong focus on inventory reductions with -- together with seasonal and transitional divestment effects, partly offset by higher CO2 compensation, freed up around NOK 3 billion in operating capital, which brings the full year figure to around NOK 7 billion. And while we expect a significant increase in the first quarter on seasonality, we will continue the strong focus on inventory and capacity management, and we intend to keep the level of working capital stable at around NOK 28 billion at the end of 2024, which is in line with our guidance from our Capital Markets Day in November. We just managed to take the operating capital out a bit earlier than what we estimated there. Being resilient starts with having a robust position on the cost curve. And we have a long track record of increasing and delivering on targeted improvement programs. We set a target for NOK 8.5 billion for 2025 back in 2020, and we have delivered NOK 300 million above this target already now in 2023. Across the different business areas, fixed-cost reductions and procurement savings have been the strongest drivers for achievements during the last year. And by rolling out best practices, investing in tools and raising capabilities, procurement alone has contributed with NOK 200 million in 2023, and an additional NOK 1.4 billion is targeted by 2030, which means that procurement is our largest improvement category going forward. From our improvement target in 2023, we also have NOK 5.2 billion in additional ambitions, which will be delivered towards 2030. And here, the main levers are also procurement, which will contribute along with operational excellence and fixed-cost improvements. This also includes around NOK 3 billion in digital initiatives, with NOK 1 billion of these not transferred to the traditional cost buckets, which you see here. We have ramped up our internal digital transformation office to ensure higher speed and increased value realization from digital enablers across commercial, fixed cost and operational parameters. Within commercial initiatives, we have pursued market and customer-driven growth opportunities, including developing the greener premium market in 2023. Also here, we are delivering above our target, with a total of NOK 2.9 billion contribution in 2023, primarily driven by the fact that we've included Hydro Energy's commercial improvements in the program, which contributed with NOK 400 million for the year. Lastly and most excitingly, as announced on the Capital Markets Day in November, we have our ambition for greener premiums with a potential of NOK 2 billion by 2030, given the current green premium pricing environment. And with all of this, we target an additional NOK 3.3 billion in commercial improvements by 2030. So our robust positioning enables us to balance the short-term challenges, but at the same time, not lose sight of the longer-term opportunities and to further enhance positioning and resilience in the world, which is in transition. And as we announced at our Capital Markets Day in November, we are shifting gears to capture opportunities in this new reality. Towards 2030, we are stepping up growth investments in extrusions and recycling and heightening ambitions in renewable power generation to ensure that we have affordable renewable energy throughout the aluminum value chain at attractive returns. In addition, we remain committed to forcefully executing on our decarbonization and technology road map, actively contributing to nature conservation and adjust transition, and collaboratively shaping the market for greener aluminum, in partnership with customers. During the fourth quarter, we have taken several strategic steps towards delivering on these ambitious 2030 targets. We have made a lot of progress the last quarter, on the targeted recycling EBITDA of NOK 5 billion to NOK 8 billion by 2030, including building, expanding and upgrading recycling facilities. The greenfield recycled Hydro Cassopolis in Michigan U.S. was officially opened on the 16th of November, aiming to supply aluminum and Hydro CIRCAL to the automotive and the U.S. market. We expect to produce 120,000 metric ton of aluminum extrusion ingot per year at the site, consuming around 40,000 tonnes of post-consumer scrap. And while being the third greenfield recycling plant we have built in the United States, this is the first designed to produce Hydro CIRCAL. Based on a similar blueprint, we have also made an investment decision for another greenfield recycler in Torija, Spain. This has an estimated investment cost of around EUR 180 million. And the new recycling plant is designed to produce 120,000 tonnes of low-carbon recycled aluminum per year and will consume a bit more than Cassopolis, 70,000 tonnes of post-consumer scrap, giving it an even higher CIRCAL capacity. If we include invested and install post-consumer scrap capacity on top of 2023 usage of 444,000 tonnes, we are well within our set out 2025 targets of 520,000 to 670,000 tonnes of post-consumer scrap, which is strongly supported by Cassopolis, but especially the 2023 transaction of the Polish recycling company, Alumetal. For Alumetal, the integration process is well underway to deliver on a targeted EUR 10 million to EUR 15 million in annual synergies towards 2027, especially by utilizing the best of both Hydro's and Alumetal's sorting technologies to utilize cheaper scrap types as well as widening the product offering in the low carbon and scrap-based foundry alloy market. A further contribution towards post-consumer scrap targets is the recently announced joint venture with PADNOS which enables an upcycling of an additional 20,000 tonnes annual PCS by industrializing Hydro's proprietary sorting technology, HySort, bringing this advanced aluminum sorting technology to the U.S. Together, Hydro and PADNOS plan to install a HySort sorting machine at PADNOS' existing sorting hub in Grandville, Michigan. Despite the margin pressure for recycling in recent months and especially supported by the Alumetal transaction, the 2023 EBITDA amounted to NOK 2.9 billion, delivering well within the 2025 target of NOK 2.6 billion to NOK 3 billion. During the fourth quarter, we have also executed well on our carbon reduction goals across the whole value chain. Targeting 30% reduction in carbon emissions by 2030 is primarily driven by fuel switching and boiler electrification at the Alunorte alumina refinery, moving Alunorte to one of the lowest carbon smelter-grade alumina qualities available. The FSRU carrying natural gas to replace heavy fuel oil at Alunorte is only days away from arriving at our Harbor in Barcarena. While decarbonizing alumina gives large impact in the short term, our two technology parts to 0 for primary aluminum could change the industry in the long term. We have approved the construction of a test facility at area in Norway for our carbon-free also electrolysis technology. And we are proud to be recognized as an energy transition change maker for pioneering the green aluminum on the Climate Change Conference in Dubai, COP 28. From smelting, we moved to casting and recycling, which requires high temperatures and is an energy-intensive process, which today is hard to achieve without fossil energy in the form of natural gas. However, in January, we announced testing of emission-free plasma technology in the casthouse at Sunndal. New plasma technology could enable electrification of the process using the same renewable energy that powers our primary smelters. And we aim to cast the first aluminum with near-zero emissions from the casthouse at Sunndal in the fourth quarter of 2025. This is one of three pathways to Zero in the cast house, where we are also piloting both hydrogen and biomethane, as other alternatives. We were also very pleased to announce that as of January '24, we can deliver Hydro CIRCAL recycled aluminum, with a documented carbon footprint of 1.9 kilos of CO2 per kilo aluminum, which is down from previous 2.3 kilos. This is achieved through advances in sourcing, sorting and traceability of post-consumer aluminum scrap, increasing the uplift potential for our greener aluminum portfolio. To further strengthen the commitment to decarbonization targets and shaping the market for greener aluminum at premium pricing, we have joined forces with the world's leading global companies through the First Movers Coalition in December at COP 28. We will take the FMC aluminum sector commitment via our extrusion business, committing to at least 10% by volume of all primary aluminum procured externally annually, being near zero emissions by 2030. We have also qualified as a member of the First Mover Coalition new green supplier database with our Hydro reduction at 3.0, with a footprint of 3 tonnes of CO2 per tonne of aluminum compared to the global average of 16.7%. And we are one of only two companies in the aluminum industry that is part of this database today. Also at COP 28, we announced a strategic partnership with the Volvo Group to enable the global transport manufacturer to reach its 2040 target of delivering Net Zero vehicles. And all of this will contribute to our NOK 2 billion in greener premium earning uplift potential as we further develop and offer industry-leading products. The world is demanding greener aluminum, and we will continue to deliver and capitalize on this opportunity. And an enabler to produce more low-carbon aluminum is access to renewable power, and we have a project portfolio with a robust return potential within Hydro Energy. We and [ Lyse ] have applied for consensions for five new Hydro power stations in Røldal-Suldal, and upgrade and expansion of the current plant could give a gross 800-gigawatt hours increased annual power production and 650 megawatts increased capacity. If this is successful, we are looking at a NOK 7 billion to NOK 8 billion investment potential on a 100% basis to more than double today's capacity and building to potentially start in 2027 at the earliest. Hydro REIN has also recently signed a cooperation agreement with Årdal Energi in Norway to develop renewable projects in Årdal. And when it comes to Hydro REIN, then Macquarie Asset Management are still in the process of raising capital for the transaction, and the expectation is for closing in the second quarter. On the regulatory side, in December 2023, the Norwegian Parliament reached an agreement on the implementation of our resource rent tax on onshore wind power. The effective tax rate is set to 25% with effect from the first of January '24, which is down from the previous suggested 35%. And the level here is a crucial contributor for triggering sufficient investments to ensure adequate supply of power for our industry and the green transition. Let's then dive into the detailed results. We will start with the full year results. And there, we saw a significant decline in adjusted EBITDA of NOK 7.4 billion. The major driver behind the decline is lower upstream prices, were the challenging overall economic conditions and weaker demand has impacted both aluminum and alumina prices. And these, in combinations, impacted the results negatively by around NOK 16.2 billion. On the positive side, we saw lower raw material costs, driving the results upwards by NOK 2.1 billion, in line with the global trend in commodity prices. Furthermore, we saw stronger extrusion margins, contributing positively with NOK 1.6 billion, however, those were more than offset by lower recycling margins and NOK 3.1 billion effect of lower volumes, again, both in extrusions and recycling. We also saw an increase of overall fixed costs across all BAs of NOK 1.6 billion, mainly driven by inflation and also the new business units in Hydro Energy. Our currency exposure supported the results by around NOK 3.5 million, driven mainly by a weakening NOK against the dollar on the year as a whole. And the last bucket in the greenfield is as always a combination of many things, but the most significant is the negative Slovalco effects related both to power sales and the curtailment, in total NOK 3.4 billion. And furthermore, we have several pluses and minuses, like upstream volumes and commercial results netting each other out, leaving around NOK 800 million negative in Other and elimination effects. When looking at the results for the fourth quarter versus the third quarter, we see similar trends as for the year as a whole. The realized prices are again a major driver behind the lower EBITDA, with around NOK 700 million impact. The lower downstream and midstream volumes impacted the results negatively by another NOK 500 million. And the quarter was also impacted negatively by increase in fixed and other costs of around NOK 700 million. And the major areas impacted by the cost increase were aluminum metal M&A in line with our guidance from last quarter. On the positive side, we saw a raw material cost release of around NOK 600 million, and positive currency effects of NOK 300 million. And the major drivers behind the cost release were driven by carbon cost release in aluminum metal and mainly caused the cost release in Bauxite & Alumina. In Other, the CO2 compensation stands out due to the negative correction we had last quarter and the additional approximate NOK 200 million allocation by the Norwegian government in the fourth quarter. This, in combination with the correction made in Q3 gets us to around NOK 800 million. And also, the last quarter were impacted by the [indiscernible] houses, and we need to adjust this out and as it doesn't come again, and this gives a positive effect of NOK 500 million. The final NOK 400 million is mainly related to the lower commercial results in Metal Markets and the other and elimination line. And this leads us again to the NOK 3.7 billion EBITDA for Q4. If we then move to the key financials for the quarter, when compared both with last year, and last quarter, we saw an increase in revenue of 6% to NOK 46.7 billion, and the positive revenue developments are mainly driven by positive realized and unrealized effects related to Hydro's strategic hedging program. For the quarter, there was around NOK 940 million effects adjusted out of EBITDA, which includes mainly unrealized derivative effects from the higher LME price at the end of the quarter impacting our strategic hedging positions of around NOK 1.2 billion, which were partially offset by unrealized derivative effects on power and raw material contracts and some other smaller effect, bringing us again to the NOK 3.7 billion in EBITDA. If we move down the table, then we recorded adjusted depreciation and amortization and impairments of around NOK 6.9 billion in the quarter, which results in reported negative EBIT of NOK 2.2 billion. The depreciation expense is around NOK 2.5 billion, and the remaining NOK 4.4 million is the impairment of noncurrent assets related to B&A and aluminum. The impairment is adjusted out of the results, giving an adjusted EBIT of NOK 1.2 billion. Financial expenses of NOK 260 million for the fourth quarter includes NOK 150 million in currency gain, primarily reflecting a gain on dollar borrowing in Brazil due to the weaker dollar against BRL, which is offset by a higher interest expense. Then we also have an income tax expense for the quarter amounting to NOK 258 million, and the quarter was mainly impacted by power surtax and the fact that the goodwill impairment does not impact the tax expense, as well as losses in countries where deferred tax assets are not recognized. Overall, this provides a negative net income of NOK 2.7 billion, down from positive NOK 158 million in the same quarter last year, and down from the negative NOK 625 million in the third quarter. Adjusted net income was NOK 754 million and consequently, adjusted earnings per share was NOK 0.5. Let's then move into the business areas and start with Bauxite & Alumina. Adjusted EBITDA for Bauxite & Alumina increased from NOK 101 million in the fourth quarter last year, to NOK 401 million in the fourth quarter this year. and this was driven mainly by lower caustic and energy prices. This was partly offset by the stronger BRL against the dollar, somewhat lower bauxite production in the quarter and higher fixed and other costs. Compared to the third quarter of '23, the adjusted EBITDA increased from NOK 93 million, mainly driven by lower caustic prices at around NOK 300 million. This was quite a bit above what we guided for last quarter, and that was due to lower fuel oil prices than expected. In addition, there were positive currency effects, and we don't have any fourth quarter [ piece ] house expense. And these elements were slightly offset by weaker alumina margins in our commercial operations. Fixed and other costs increased compared to the third quarter at guided levels around NOK 300 million due to planned and also some delayed maintenance, which took place in the fourth quarter. For the first quarter, Alunorte is expected to be producing around nameplate capacity. The increased alumina price will have a positive impact on our results in the first quarter, and we expect the raw material development into the first quarter to be largely stable and the same also applies for fixed and other costs. If we then move on to aluminum metal, then this quarter's adjusted EBITDA decreased from NOK 4.8 billion in fourth quarter '22 to NOK 1.9 billion this quarter. The decrease is mainly driven by lower all-in metal prices, reduced contributions from power sales and lower sales volumes and partly offset by reduced raw material costs, adjusted CO2 compensation and positive currency effect. The CO2 compensation effect year-over-year is amounting to a positive NOK 500 million, but part of this positive effect is the additional allocation of NOK 200 million after the final fiscal budget was presented in December 2023. Compared to the third quarter of 2023, adjusted EBITDA for aluminum metal increased from NOK 1.4 billion due to lower raw material costs, adjusted CO2 compensation and positive currency effects, partly offset by lower oil in metal prices and higher fixed costs. The raw material cost release was around NOK 400 million, and this was at the lower end of our guidance, however, we continue to see that release stretch into the next quarter, mainly impacted by carbon cost and our contract structure on carbon. Fixed costs were a bit higher than initially guided around NOK 200 million, but we expect part of that to be reversed into the next quarter. So this resulted in a net cost release of around NOK 200 million, somewhat lower than what we guided. And this brings us on to guiding for the next quarter. because while the LME has peaked slightly since Q4, we continue to see pressure on value-added premiums for the following quarter. For the first quarter, we have booked 67% of primary production at $2,255 per tonne, and this includes the effects of our strategic hedging program. We have booked 46% of premiums affecting Q1 at $373 per tonne, and we expect the realized premium in the range of $275 to $325 per tonne. With respect to the CO2 conversation, our guidance for 2024 remains the same as from the Capital Markets Day. And we expect the total CO2 compensation booking for 2024 of around NOK 3.2 billion, implying NOK 750 million to NOK 850 million per quarter. The cash inflow for this is, as always expected in the first half of the following year 2025. We also expect further reduction in raw material costs, driven by carbon partly offset by alumina, giving a total raw material cost reduction of NOK 100 million. And we will continue to monitor the demand development, but currently, we do not foresee any restarts of curtailed primary volumes next quarter. If we then move to Metal Markets. Then adjusted EBITDA for Metal Markets increased in the fourth quarter from a negative NOK 91 million last year to negative NOK 38 million this year. This is mainly due to increased results from sourcing and trading activities, positive inventory valuation and large currency effects. These, however, were partly offset by lower recycling results around NOK 300 million lower compared to the record strong results in 2022. The premiums decreased in a weakening extrusion ingot market while the ingot and scrap price reductions were comparatively lower than what we saw on the billet side throughout the year. In addition, we have negative effects related to the ramp-up of Cassopolis and some minor one-offs in Alumetal. Excluding the currency and inventory valuation effects, the result for the quarter was NOK 36 million -- negative NOK 36 million, down from NOK 160 million in '22. And compared to the third quarter of 2023, adjusted EBITDA for Metal Markets decreased from NOK 568 million, mainly due to the lower results from recyclers, decreased results from sourcing and trading activities which also includes impairments, which will be reversed through hedges in the next quarter as well as negative currency effects, which were partly offset by positive inventory valuation effects. The outlook for the next quarter continues to be challenging as we expect the recycling margins continued to be squeezed on falled billet premiums and low swap availability, keeping margins low. We also continue to expect negative effects from the ramp-up of Cassopolis until we start selling volumes and getting the revenue side to compensate for the cost side. We expect recycling margins to improve towards normalized levels with time, but this is to be tied to the improvements in the building and construction markets, which are not expected to come in the first half of this year. Normally, we see that stand-alone remelters are the marginal price setter for the extrusion ingot premium. However, currently, it is the primary casthouse is setting the price. And with $100 per tonne spread above standard ingot, this is not a sustainable situation for stand-alone remelters. And average historical spread adjusting for higher energy prices and other inflation is probably closer to $250 to $300 per metric ton. But we don't just sit and wait for better margins. We continue to closely manage the metal margin. We are digging deeper into the scrap pipe, we are utilizing their clear scrap pipes, and we are securing access to scrap as well as differentiating our product portfolio and market segments driving the greener premium to increase our counter cyclicality in this business area. All those measures have driven their effectiveness so far, and we expect that next quarter will be no expectation. This we will continue to drive for the coming years.

For our commercial area, we expect positive contributions from sourcing and trading activities for the next quarter and a reversal of impairments from the fourth quarter as we account for positive hedging effects. If we then move to the end of the value chain, then the Extrusion demand also remained challenging in both Europe and North America in the fourth quarter.

European Extrusion demand is estimated to have decreased 14% in the fourth quarter of 2023 compared to the same quarter last year, but increased 3% compared to the third quarter of '23 as market demand has started to stabilize, although at low levels. Demand growth for residential building and construction and industrial segments have continued to remain negative due to macroeconomic headwinds, while demand for automotive has been performing relatively better supported by increased share of electrical vehicles as share of total auto registrations.

Overall, European exclusion demand is estimated to have decreased by 17% in '23 compared to '22. If we look into the first quarter of '24, then CRU estimate that the European demand will decrease 10% compared to the same quarter last year. due to continued softness in building and construction and more moderate automotive demand. The demand is expected to continue to stabilize over the next 2 quarters and pick up from the second half of '24. However, '24 as a whole is expected to be flat year-over-year in Europe.

If we move over to North America, then Extrusion demand is estimated to have decreased 9% during the quarter -- fourth quarter of '23 compared to the same quarter last year and 7% compared to third quarter of '23. Also here, demand continues to be weak in the residential building and construction sector, while demand is still positive in the automotive segment. At the same time though, lower trailer build rates have started to negatively impact demand in the overall transport segment.

So for 2023, the Extrusion demand is estimated to have decreased by 13% compared to '22 in North America. And CRU estimates that the demand for extruded products in North America will decrease also 10% in the first quarter of '24 compared to the same quarter last year, mainly due to continued weak development in B&C and the transport segment. Also in North America, Q1 and Q2 are expected to decline year-over-year and the pickup to materialize from the third quarter.

If we look to our volumes, then Hydro extrusion sales volumes declined 11% in Q4 compared to the same quarter previous year. Our transport volumes have been negatively impacted by weaker shipments to the truck and trailer markets in the U.S. And this quarter, we also see that automotive sales have been moving into negative growth territory in both Europe and the U.S., driven by moderating productions at some OEMs.

Growth for sales volumes in B&C and Industrial segments is still negative, but overall volumes and orders have started to stabilize on the low level. [indiscernible] in our volumes in Precision tubing is experiencing strong growth, supported by the transition from copper to aluminum. And for the first quarter of '24, we expect lower volumes or slightly lower volume developments for our North American extrusion business compared to the market as a whole, also due to our truck and trailer exposure, whereas in Europe, we expect to be largely in line with CRU expectations.

Now with that in mind, let's take a look at the fourth quarter results for Extrusions. And here, I am pleased to respond that despite the 11% fall in sales volumes year-over-year, we keep our adjusted EBITDA largely stable as we are able to offset the lower volumes and higher variable costs with higher sales margins. We are also helped by some positive currency and metal effects in the quarter. If we compare to the third quarter, adjusted EBITDA for Extrusion decreased due to seasonally lower sales volumes and higher variable and fixed costs, but also here partly compensated for by stronger sales margins.

If we look into the first quarter for Extrusions, we should look towards the same quarter last year to capture the seasonal development in extrusion. But compared to last year, we expect somewhat continued strong margins, but we expect the margin development year-over-year to be lower compared to what we have seen in previous quarters year-over-year. And as we have touched upon, we expect continued market uncertainty, soft extrusion markets in both Europe and North America, which results in lower sales volumes compared to last year.

And also for extrusion, remelt margins continue to be under pressure. And we combine this with higher fixed and variable costs, we expect that the negatives for Q1 will more than offset by the positives in the first quarter by quite a bit. The final business area is energy, where the adjusted EBITDA for the third quarter decreased to NOK 805 million compared to NOK 1.5 billion same quarter last year. The main drivers behind the weaker results were lower prices and lower gain on price area differences, partly offset by higher production and no loss on internal contracts.

The difference in the price area again year-over-year was approximately NOK 250 million. If we compare results to the third quarter, the adjusted EBITDA increased by NOK 43 million from NOK 762 million, mainly due to no loss from the [AM] buyback contract. We also had higher production and net spot sales, partially offset by lower price area differences of around NOK 150 million.

In the fourth quarter, our external power sourcing volumes continued to be affected by a disrupted delivery of volume from a long-term power purchase in Marketing in Sweden, and the non-delivered volumes were 0.5 terawatt in the quarter, amounting to 1.3 terawatt hours year-to-date. We will continue to see compensation for the non-delivered volumes and keep you updated if something changes here. If we look into the next quarter, then as always, we should be aware of the inherent price and volume uncertainty in energy.

Power prices in Southern Scandinavia are expected to decrease. However, the below normal snow reservoirs might limit some of the downside. Furthermore, we expect lower price area differences resulting in NOK 50 million to NOK 150 million and last quarter, these results were at around NOK [ 3 ] million.

Let's then move to one of my favorite slides for the quarter. The net debt decreased by NOK 4.2 billion from the third quarter. And based on the starting point of NOK 13.8 billion in net debt from Q3, the positive contributions for third quarter where the generation of NOK 3.7 billion in adjusted EBITDA as well as the total release of net operating capital of NOK 2.7 billion. Under other operating cash flow, we have a negative NOK 3.1 billion, mainly driven by cash outflow for taxes of NOK 3.5 billion, partially offset by dividends from equity accounted investments of around NOK 400 million.

On the investment side, we have net cash effective investments of NOK 4.8 billion, resulting in a total for '23 of NOK 21.1 billion, where CapEx payables bridges the gap to our annual guidance from CMD of NOK 22.5 billion. We expect the difference this year to be spent in 2024, but of course, for the year as a whole, that will pend the status of payables at the end of the year.

As a result, we had a negative free cash flow from operations of NOK 1.5 billion in Q4, which excludes the Alunorte transaction as it is fully consolidated in our books and comes in as a minority sale share with NOK 8.4 billion. We have also finalized the market share of our '23, '24 share buyback program, and the outflow relates to those transactions for Q4 of around NOK 900 million.

Finally, we also have around NOK 400 million in new leases related primarily to our extrusion operations. If we then move to adjusted net debt, we start by adjusting for the following items: Hedging collateral and others has been stable since Q3 and comprised mainly of NOK 1 billion in collateral related to short-term operational hedging positions and NOK 0.5 billion of committed cash on escrow accounts for Albras investment in self-producer energy projects in Brazil.

During the fourth quarter of '23, net pension assets of NOK 0.3 billion has turned into net pension liabilities of NOK 0.9 billion. This is mainly explained by a NOK 0.7 billion increase in defined pension benefits assets, coupled with a NOK 0.7 billion increase in long-term defined pension benefit liabilities.

And finally, we have further increase in other liabilities of NOK 2.1 billion since Q3 '24, mainly due to financial liabilities of NOK 2.2 billion towards Glencore following the sale of shares in Alunorte which includes earning, deal delay and other developments on the indemnities, of which around NOK 800 million are short-term liabilities expected to be paid in 2024. With these adjustments, we end up with an adjusted net debt position of NOK 18 billion at the end of the fourth quarter.

So a healthy working capital release in combination with a robust balance sheet enable us to deliver on our ambition to deliver solid distributions to our shareholders. At our Capital Markets Day, we guided for a total shareholder distribution of 50% to 60% of adjusted net income. This was based on our estimated adjusted net income for the year and our ambition to distribute up to NOK 25 billion in adjusted net debt. This also reflects that we're coming from a more mid-cycle earnings. With the additional working capital releases, we are unable to extend the distribution further to 81.5% of adjusted net income from continuing operations.

And in line with this, the Board of Directors has proposed a distribution to shareholders of NOK 7 billion, where the distribution will be split between an ordinary dividend of NOK 2.5 per share, and a share buyback program of NOK 2 billion. The dividend represents a 59% cash distribution, a year-end yield of around 3.7%. And a 5-year average payout ratio of 74% of adjusted net income. As always, the final distribution for 2023 is subject to approval by the Annual General Meeting on May 7, 2024.

Let me then round off the total presentation with some final reflections on our priorities going forward. The health and safety of our people and the people who work for us is our #1 priority always. We are in the midst of a more uncertain and volatile macro environment, and we will continue to address this meeting the challenging markets with firm mitigating measures and a more robust and resilient portfolio following the strategic measures that we have undertaken in the latter years.

At the same time, we are not losing sight of the long-term opportunities for low-carbon aluminum. And to meet the increasing demand for low-carbon aluminum, we are determined to push forward and deliver on our growth ambitions for recycling and extrusion all while advancing our renewable energy portfolio and enabling and delivering on our decarbonization and technology roadmaps.

Every day, we see potential for further value creation in the low-carbon aluminum space. As our customers' appetite for greener aluminum at premium pricing continues to grow. And by joining forces on the road to see emissions, we are not just shaping the market. We are changing the aluminum game.

And with that said, I would like to say thank you and hand over the word to you, Martina.

Operator

[Operator Instructions] First question is from Liam, Deutsche Bank.

Two questions here. One, please provide some guidance on extrusions EBITDA for quarter 1 in comparison to the same quarter last year; and two at spot premiums where do you expect Q2 realized premiums to move to above quarter 1 levels?

P
Pål Kildemo
executive

Yes. So if we start with the question on executions, it's a challenging market environment to guide in because ability to see beyond the short term is limited. As we have seen in earlier times, we have big falls in demand. As I mentioned in my presentation, we expect to be able to continue to improve margins in the first quarter but to a much lower extent than what we've seen year-over-year in the previous quarters.

And this will be more than compensated by a lot of other more negative elements remelt will decrease quite a bit in the first quarter. As you know, in North America, we typically have annual contracts. So there, you get more large impact from a fourth to first quarter, whereas Europe, we've seen a general decline in recycling contribution also in extrusions. We expect our volumes to fall in line with what we have seen in the marketplace so far. So around the 10% mark a bit worse in North America, maybe a bit better in Europe. And we're not able to shift volumes to the same extent as we've been earlier as -- although automotive demand is still strong, it's not so strong that we're seeing a lot of additional capacity. And then extrusions is labor-intensive operation. So we will see an increase in fixed costs and variable costs into the first quarter. And all of these elements are expected to offset the improvement we see on the margin side quite significantly.

The second question on the realized premiums. As I went through, we guide for around $275 million to $325 per ton for the first quarter. This carries with you some of the higher premium level that you saw in the fourth quarter. So if you run premiums at spot levels today, you are actually in the middle of that range and quite flat from our guidance in first quarter. This is developing by the day, as you've probably seen, extrusion Billet premiums have picked up a bit lately but it remains to be seen what is driven by supply chain constraints and what is driven by low inventories and what is driven by any signs of movements in demand.

Operator

And then we have a question from Sri, RBC.

Given the recycling business is close to breakeven have you considered curtailing further capacity? And how should we think about 2024 recycling EBITDA?

P
Pål Kildemo
executive

This is perhaps even a more challenging questions than what we believe about the extrusion next year because we are in make careful to say, but slightly unprecedented territory when it comes to the margins that we are seeing now. Apart from COVID, we don't see many periods where building and construction demand falls 50% year-over-year. So as you correctly refer [indiscernible] doesn't make sense to run a lot of stand-alone remelters in the current market. And that is what it typically happens when Billet premiums fall, you curtail that capacity, which is easier to swing with the market demand. So when you look at the current premium spreads, and spot prices, there's not a lot of recycling earnings in Hydro as a whole. I think you could easily see a scenario at spot pricing where you're moving between the let's say, NOK 500 million to NOK 1.2 billion mark.

But as I mentioned earlier, these levels are not sustainable over time. And we expect the margins to pick up again once demand returns in building and construction. So we will continue to adjust capacity in line with demand. As you saw from our slide, we have 57% capacity utilization, which is low, and we will not run [indiscernible] if it doesn't make economic sense.

What is good in our portfolio is that given our strategy on scrap sourcing, moving deeper and deeper into the scrap pile given our strategy on building the greener premium portfolio. Our recycling portfolio stands better than the industry in average. So we are able to continue to have at least cash positive margins longer than the industry in average. So this, we will continue to follow up and adjust on a daily basis.

Operator

And then we have a question from Ioannis, Morgan Stanley. How do you see metal markets recycling profitability in Q1? And can you provide an indication of working capital for Q1 2024?

P
Pål Kildemo
executive

Yes. Unfortunately, recycling profitability in Q1 doesn't look much stronger than what we have seen in Q4 as it stands today. The margins continue to be low. We haven't seen that spread move a lot and we have somewhat higher ramp-up costs in Cassopolis in the first quarter than in the fourth quarter. So I expect them to be around what we saw in fourth quarter. This is short-term markets, so things can change quite quickly if the sentiment becomes more positive, especially because inventories are at the level where they are now, but this is at least the base case.

Operator

And then we have another question from Sri, RBC, Which project segments are you considering to deploy the NOK 1 billion optional CapEx in 2024?

P
Pål Kildemo
executive

Well, as the year progresses, we will see how our earnings develops in general, the market environment hasn't been stronger than what we had discussed at the Capital Markets Day. So we would need to see a good pickup from what we see today in order to allocate more capital. But in general, the capital is earmarked towards our strategic growth area where recycling and exclusions sits on the bulk of that.

Operator

And then we have another question from Ioannis, Morgan Stanley.

Can you quantify [indiscernible] ramp-up cost in Q4 and Q1?

P
Pål Kildemo
executive

I would say, around the NOK 40 million to NOK 60 million mark.

Operator

And then we have another question from Sri, RBC. Up to 3 months of decreased aluminum premiums in Europe, Amsterdam, have moved up 30% month-on-month in January. Are you seeing any green shots in the map?

P
Pål Kildemo
executive

This is the most common questions I asked the sales organization, and I hope to get the answers to you in the positive way. If we saw strong green shoots or something worth mentioning, I would have said so already. There are always stories of green shoots here and there but I don't want to tie that to a shift in sentiment or anything else until it materialized to a larger extent than what we're seeing now. So there's -- there are suddenly high spot purchases at very good premiums because inventories are low. And we are seeing better market situation in North America than, for example, Europe. So North America is surprising us a bit on the upside, whereas Europe is surprising us a bit on the downside. But at the moment, it's too early to call as a good shift.

Operator

And then we have a question from [indiscernible]. Can you please give us a clear CapEx guidance on 2024? It looks like you're guiding at the NOK 17 billion of CapEx in '24. Is that a fair assumption?

P
Pål Kildemo
executive

Well, the only thing that has changed since our Capital Markets Day is that the NOK 1 billion in potential additional CapEx is looking less likely and we have spent around NOK 1 billion plus less cash-wise this year than what we've guided at, which would flow into next year on a cash basis. So no change in guidance from our Capital Markets Day only a [indiscernible] of CapEx.

Operator

And then we have a question from Cameron, Bank of America.

On the green premium ambition by 2030, could you talk us through how you're getting to the NOK 2 billion figure? And what are the assumed tonnes that are involved in this calculation?

P
Pål Kildemo
executive

Yes, I can. So if you look at this ambition, it consists of our targets to grow our CIRCAL portfolio and our REDUXA portfolio. And today, a large part of the greener premiums comes from a combination of these two. In REDUXA, we produced 4.0. And as you see here from competitors or other price providers. The premium on the 4.0 typically sits between $10, $50, referring to external sources. But we will transition that premium as we move from 4.0 into 3.0 where for this exercise, we have assumed the CO2 price at the end of the year as a basis for premium on 3.0.

And the volume of that is around 800,000 tonnes or so, which is the certified capacity we have today. We could have even more production of REDUXA 3.0, but we would need to certify additional plants. So if the market becomes really strong, you could say that's a conservative estimate of volume-wise. On CIRCAL, it's the same basis. Now we are below 2 tonnes of CO2 per tonne of aluminum on CIRCAL at 1.9, the difference from the reference market for is around 2 tonnes of CO2, multiplying that with the CO2 price you saw before year end, then you get a couple of hundred dollars of premium there. So it is and the volumes that brings us to the NOK 2 billion.

Operator

And then we have another question from Liam, Deutsche Bank. How will the fuel switch impact G&A costs in Q2 and Q3?

P
Pål Kildemo
executive

Yes. As you saw from our release today, the ship has taken a bit longer to come to Barcarena than what we estimated at Capital Markets Day, it took a bit longer to get out of the shipyard in Singapore. It was extra controls and other elements that needed to be in place to ensure that this is fully in shape for delivering natural gas to us for the coming decades. And impact of this is that the effect in Q1 is quite limited. We expected the [indiscernible] to come in the next couple of days.

I was hoping to have it this morning, but it might be tomorrow or the day after. And then we will immediately start the ramp-up process, which will gradually impact Q1 results. But as you know, we have so late in the quarter that it won't impact it a lot. So in Q2, you'll start getting more of an effect out of this. I can't guide on a specific figure because this will depend a bit on the profile and as we go along. But as you know, the full year effect of the fuel switch compared to the cost level we saw in 2023 is somewhere around the $150, $150 million benchmark depending if you use [indiscernible] or forward.

And if you take a fourth of that then include estimate some form of ramp-up profile, it should give you some indication of what we can get into [ Q2 ].

Operator

And then we have a question from [indiscernible] What segments are driving the expected improvements in demand for second half '24 within extrusion in North America and Europe?

P
Pål Kildemo
executive

Well, the segment that you need to pick up in order to see positive developments year-on-year is really the building and construction segment. So our own and industry expectations is that this will be tied to the general macroeconomic developments with hopefully, Interest rates starting to move lower, sentiment starting to improve and appetite therefore, again, driving demand in building and construction impacting us positively. But this still remains to be seen. As I started the presentation with, there is a big sample space here. If that pickup doesn't come, then the year becomes more challenging, but this is our base case as we speak today, at least.

Operator

And then we have another question from Ioannis, Morgan Stanley.

Consensus assumes NOK 350 million year-over-year decline in Q1 extrusion EBITDA. Is that a reasonable assumption?

P
Pål Kildemo
executive

I won't comment on the specific consensus or the absolute figure. What I'll say is that we have a lot of very good sell-side analysts, which tends to capture the biggest effects impacting results going forward.

Operator

And then we have a question from [indiscernible] . Are there excess expectations on green premiums for lower emission alumina and from direct output or sales of products from the HalZero technology?

P
Pål Kildemo
executive

Well, if I have John, the EVP of Bauxite and Alumina here, he would definitely say yes. But I do also -- as you know, the enabler for the change in footprint in the short to medium term is really driven by Bauxite and Alumina. And if you look at the global emission curve for smelters, what really separates the best from the others, when you take out the energy source is the footprint of the refinery. So this is where the value creation takes place until we succeed with the technology developments that we talked about earlier today.

So as you might remember from our Capital Markets Day, we will be ensuring that this price is reflected in our Bauxite and Alumina operations also. So profitability is materializing where the improvements are taking place. We don't have a large external position in Alumina at the moment. But on what we have, we will, of course, work to ensure that this becomes a market practice also. And for our technology pilots, which will materialize over time into larger industrial scale pilots.

We, of course, expect this to also contribute with greener premiums as then you are really moving into a tight market the 4.0 market is not that tight. The 3.0 market is quite tight, but when you move towards the 0.5 and 0, it becomes very tight. As we've also discussed earlier, the premiums we get on products like [indiscernible] is very high.

Operator

And then we have a question from Matt Goldman Sachs, [indiscernible] in Spain. CapEx looks to have increased to EUR 180 million from the initial NOK 130 million to NOK 140 million provided last year. Is the full CapEx amount captured in your 2024 guidance?

P
Pål Kildemo
executive

It's included in 2024 guidance, and this is what we expect to be spent there. We have done some inflationary elements since the original estimate. As I mentioned earlier, we have also decided to invest to be able to produce a higher level of CIRCAL, then we, for example, have a Cassopolis, which impacts the investments. So all changes [indiscernible] inflation are driven by elements which have a good return on the capital profile.

Operator

And on the same project, can you also please clarify between the project being approved and final building decision expected in second half 2024. And do you see a need to market improvement. Or is cost escalating labor availability potentially limiting our ability to execute the building?

P
Pål Kildemo
executive

As it stands today, we don't see that as a risk. You can never say never. And our whole portfolio will always be evaluated based on the market outlook at any given point in time, not the spot market, but the medium-term market outlook. And if the world looks very differently than what we see today, there are no absolutes. But as we see the market today, this project makes sense to move forward to final build decision.

Operator

And then we have a couple of questions from Dan from UBS. Can you remind us where the split of the NOK 5 billion to NOK 8 billion EBITDA target from recycling is between metal markets and extrusions and what is also the -- what was the total recycling EBITDA in '23 and therefore, incremental growth by '23?

P
Pål Kildemo
executive

Yes. So I cannot, unfortunately, because it's not set where that will take place. We have the great pleasure of having an organization that is continuously looking for the highest returning projects. And we have a quite active capital allocation process. So both extrusions and metal markets are working on the best alternatives, and we will allocate capital where we see that we get the best return. In some cases, that might be in extrusion in some years. And in some cases, that might be in metal markets. And that's why we give a guiding on a total level. For 2023, we have included the total recycling EBITDA in our pack. I can't remember, was NOK 2.6 or NOK2.9 billion.

Operator

And then we have another question from Dan. You provide guidance for commercial results at NOK 250 million to NOK 400 million. Is that a reasonable medium-term normalized target?

P
Pål Kildemo
executive

Yes. That is a reasonable medium-term normalized target when excluding currency and inventory valuation effects, we -- as it stands today, our biggest commercial improvement ambitions sits in energy, to some extent, B&A. So the metal markets [indiscernible] is our best estimate going forward, yes.

Operator

And then we have another question from [indiscernible] . On Aluminum metal post consumer scrap procurement for the recycling business, do you anticipate stronger competition from Asian markets for similar operations?

P
Pål Kildemo
executive

Well, one of the things we see impacting the market now is competition for scrap and as the world transitions and the customer demand for recycle the metal -- low carbon footprint metal. The [fight] that will have more and more shift to the upstream part as we are seeing already. And that is why we've been very active working on moving upwards in the recycling value chain through the investment that we did, for example, with Alumetal both moving closer to the scrap suppliers, but also broadening the product span through recycled foundry alloys, not purely the extrusion side where we're most exposed today.

And that is also what you're seeing us do in North America with the Padnos joint venture and we will be continuing to look to develop our strengths on the scrap side in extrusion in recycle. That is what is so good in the Hydro family now is that we -- we have a very good position on the marketing side. We have the greener product portfolio. We have the supplements of the primary recycling and exclusion in the end. And now together with Alumetal and other partners, we are also building our competence and capabilities on the scrap side. So this will be a key part of our strategy going forward.

Operator

And then we have another question from Ioannis, Morgan Stanley. Is the 2024 extrusions EBITDA of NOK 8 billion target still achievable? Or would this require a significant improvement in demand?

P
Pål Kildemo
executive

Well, it's a 2025 target. So for 2024, I do not believe we will make NOK 8 billion. And as we said on Capital Markets Day, this target needs the base case scenario to materialize for 2024. If we do not see the pickup starting to come in the middle of this year, it will be more and more challenging to reach the NOK 8 billion 2025 target.

Operator

And then we have another question from them from Dan, from UBS. It's always a lot of short-term variables in energy. Is NOK 3 billion to NOK 4 billion, still a reasonable medium -term target for energy EBITDA?

P
Pål Kildemo
executive

It all depends on what you believe about energy prices going forward. But yes, this is still our best estimate. We see a bit tighter price area of spreads now as you're probably referring to. And we expect them to widen again in a more normalized market environment. We are also working to strengthen our earnings primarily through the commercial operations. So we still have comfort in this earnings level going forward. And remember that the last years have been very negatively impacted, at least the last year by the internal buyback contract with aluminum metal. And we are also getting some effects from the market [indiscernible] contract now.

Operator

And what this expected IRR on potential Hydro investments in Norway? Would these projects generate IRR above the average group [indiscernible]. If not, why would you invest in them?

P
Pål Kildemo
executive

Well, the IRR on the renewable portfolio needs to be competitive in Hydro context or as a starting point. That being said, we are also working hard to ensure that we get long-term power for our smelters. And the impact of not getting power at competitive costs and having to source at market cost is significantly more negative for the group as a whole then a 1% IRR difference on renewable project, for example. So we continue to chase high -- the demand but there's two backdrops for the renewable growth portfolio. One is profitability in energy. The other one is profitability in aluminum metal, and we need to see that from a total level.

Operator

And then very last question from Hans-Erik Nordea on aluminum scrap availability in Europe. Can you comment on how exports out of Europe is developing?

P
Pål Kildemo
executive

Yes. At the moment, they have been developing a bit negatively. There has been more scrap going out -- this is one of the reasons why we're working very hard to secure our scrap sources. But an overall level, this, of course, impacts the scrap prices in general. So -- and there are big movements here and this is something we will continue to ensure that we become more robust on going forward.

Operator

Very good and then we need to round it off there. So thank you, everyone, for joining us today and don't hesitate to contact us in Investor Relations if you have any further questions. And I wish you all a continuous [indiscernible] Thank you so much.