Thank you. Good morning, and welcome to Heathrow's Q1 2021 Presentation and Conference Call. We will start off with a presentation followed by a Q and A session. Our CEO, Hilde Moretto Ozan, will start the presentation followed by our CFO, Paul Hildemore. The presentation slides we will walk through can be seen on the webcast.
The link to the webcast as well as the slides can be found on hydras.com. Please note that you will need to dial into the conference call to be able to ask questions at the end. It's not possible to ask questions over the webcast. If there are any media inquiries for 101s with Hilde or Paul after the presentation, please contact our Head of Media, Alvaro Mollam. With that, I turn the microphone over to you, Hilde.
Thank you, Lina, and good morning and welcome from me as well. Let me start with the highlights for the quarter. Next slide, please. I'm pleased to see earnings and returns picking up across most of our operations on higher margins and volumes, but also on continued low costs, especially in exclusions. For Q1, we reported an EBITDA of NOK 5,200,000,000 while free cash flow came in at negative NOK 800,000,000 mainly driven by seasonal working Capital Bill.
In the Q1 of 2021, we saw a strong global recovery driven by the reopening of economies and substantial fiscal stimulus. As a result, we saw a decreasing oversupply in primary aluminum markets and Amelrich now expects a largely balanced market for 2021. Hydro Exclusion achieved a record result this quarter, driven by strong volume growth, improved margins and continued cost savings on Improvement Program Initiatives. Hydro Energy also experienced a record quarter driven by higher power prices, production volume and the expiry of legacy power contracts. I'm also pleased to see that our improvement program is ahead of plan and continues to be a focus area throughout the whole organization.
A milestone in this Q1 was the announcement that Hydro entered into an agreement to to sell its rolling business to KBS Capital Partners. Completion of the transaction is expected to take place in the second or Q3 of 2021. The sale of rolling will strengthen our ability to deliver on the 2025 strategy. Another important milestone this quarter is that we have made the investment decision for the fuel switch project at the Alunorte refinery in Brazil. The fuel spit project is an important enabler towards reaching our climate target to reduce our CO2 emissions by 30% by 2,030.
Hydro set out a clear strategic direction towards 2025, where we aim to strengthen our position in low carbon aluminum, while exploring new growth opportunities in Renewable Energy. The new growth initiatives within Hydro Energy are progressing well. And last month, we announced our interest for hydrogen. We see a large potential for hydrogen replacing natural gas at our plant and by that reducing our climate footprint. We will explore the potential for developing and operating hydrogen facilities to meet the internal demand as well as Sterling and External Markets, leveraging the company's industrial and renewable power expertise.
Let's turn to the next page, please. Health and testing is our top priority in Hydro, both for our employees and the communities where we operate. An injury free environment is our ultimate goal and we are continuously working to avoid any incidents to happen. Hidlors operations have been operating largely as normal during the quarter with strict COVID initiatives to support employees and prevent infections. I'm very impressed about how our organization and employees have handled the COVID situation.
We have been able to keep the wheels turning while dealing with the most challenging global health crisis in the century. Currently, Brazil is among the countries being impacted the hardest And Hydro is providing a lot of support to our own employees as well as the local communities in Brazil in their efforts to handle the pandemic. Please turn to the next page, please. Then have a look at the financial highlights for the quarter. Since we signed an agreement to sell rolling in March, we have excluded rolling in the majority of consolidated numbers throughout the presentation.
As I said, adjusted EBITDA came in at NOK 5,200,000,000 up from NOK 3,800,000,000 in the same quarter of last year, reaching the highest level we have seen since Q4 2017. Our free cash flow decreased mainly due to working We are pleased to see a positive trend in the 12 months rolling in Wartshe from 3.7% at Q4 2020 to 5.4% at Q1. For the quarter alone, the rewards there was 13%. And if I use both assumptions, we are currently around 15%. We set an ambitious 10% structure target over the cycle in 2019, and we are well on our way to deliver on this now.
Upstream costs increased some in the quarter, both in D and A and aluminum metals, mainly driven by higher prices for raw materials. Volumes in Exclusion increased by 16% from Q4 levels and 11% from Q1 2020. Lastly, and I'm very happy to see that our improvement program is on track and looking to exceed full year expectations, driven mainly by the continued low cost levels in Extrusions. Turning to next page. Our stronger results are supported by the global recovery, which is well underway.
Driven by the reopening of economies and substantial fiscal stimulus, The IMF is now expecting the global economy to grow by 6% in 2021, the strongest expansion ever recorded. On the back of this, global aluminum demand is expected to grow by over 9% in 2021, supported by the reallocation of In Q1 2021, primary aluminum markets in the world ex China has been in a deficit, driven by stronger than expected demand recovery and China importing this quarter. China experienced a surplus of aluminum in Q1 2021 due to with the seasonally low demand during Chinese New Year, but it is expected to turn into a deficit market over the upcoming months on continued strong demand. While demand is strong in both China and Woralex China, there are substantial production additions expected in both regions. Projects in the Yunnan Province in China are being ramped up leading to 7% expected production growth in China this year.
Both Harbour and CRU expect strong demand growth in 2021, both in China and World of China. Overall, analysts are expecting largely balanced markets for 2021. Please then turn to the next slide, please. The strengthening markets are driven by existing but also new trends supporting demand for aluminum. Sustainability and climate change are increasingly important in the aluminum industry.
From the demand side, aluminum is expected to play a bigger role in the green transition through, for example, higher aluminum content in electrical vehicles, but also higher end product adoption due to repackability. In this context, we are very pleased to see that primarily aluminum based on renewable power and recycling will qualify under the new taxonomy criteria communicated by the European Commission last week. On the supply side, it becomes clear that The aluminum industry has to transform in order to reduce its carbon footprint. In the future, it will most likely become increasingly difficult to get financing first measures not based on low carbon energy sources, potentially lifting the CapEx for new projects. Also important in this context is the development in China.
The Chinese government has set targets for peak carbon emissions in 2,030 and net 0 emissions in 2,060. There is a growing pressure on the provinces to decrease energy consumption, which has led to production costs for the aluminum industry in Inner Mongolia and other regions may potentially also become impacted going forward. Further supply restrictions could transform the Chinese market into a deficit market for primary and reduce the risk of sustained overcapacity the next decade. Please turn to the next page. The strong recovery in It's very visible in our Extrusion sales volume.
The markets are performing ahead of industry forecast for the quarter, with CRU estimating a 6% amount increase compared to the same quarter last year in both Europe and North America, while the forecast going into the quarter were 2% and 7%, respectively. The strong performance in Q1 is partly due to seasonality. However, underlying demand has continued to improve, especially for the Industrial and Automotive segment, even though the latter segment is impacted by Semiconductor Shortage, especially in North America. Hydro extrusion sales outperformed the market, delivering 11% growth compared to the Q1 2020. All market segments are currently showing strong demand impacting both volumes and margins.
Automotive and Transport showed the strongest growth, but the heat exchanger market and Billing and Construction are also showing an increase versus same period last year. I do estimate that the demand for extrusion will increase around 36% in North America and 30% in Europe in the Q2 of 2021 compared to last year. But we expect our volumes to grow even more than the overall market due to strong current momentum in some of our key segments. Now I'll turn to the next page. 1st quarter marked a record quarter for Hydro Exclusion, delivering an adjusted EBITDA of NOK1.7 billion compared to previous 3rd quarters of around NOK 1,400,000,000.
The positive performance was driven by strong volume growth, improved margins and consumer cost savings from improvement program initiatives, in particular relating to procurement and SG and A costs. The restructuring work done in the previous years is also contributing significantly to the bottom line in 2021. The quarter also saw a strong rebound in automotive sales in Europe and solid growth in the Industrial segment and Residential Building and Construction. Strong production levels at recycling units also positively impacted results and was a key source of internal billet supply given the tight billet market in both Europe and North America. Going forward, we see the strong momentum continuing.
And as long as we can get our hands On the metal needed to meet customer orders, we should see a strong increase in results also in the second quarter. Then let's turn to the next page please. If we then move over to the specific update, we have set a clear specific direction for the made towards 2025 and aim to strengthen our position in low carbon aluminum, while exploring new growth opportunities in renewable energy. The first pillar builds on our strength and we continue to improve our position as a low carbon aluminum producer based on solid cost efficient asset base and a strong market position. We continue our efforts to differentiate on the sustainable footprint of our product offering, including Hydro Strip Karl and HydroDesktop.
And we are also progressing on growing our recycling capacity. In Pillar 2, we are looking by young aluminum to diversify our portfolio within new energy. At our Capital Markets Day in December 2020, we will introduce hydrogen as the 3rd energy growth area. For EU and the industry to meet their climate ambition, we see a substantial potential for industrial hydrogen consumption. Taking a developer and operator role in hydrogen sector represents an opportunity for Hydro, reduce industrial CO2 emissions and develop a profitable and sustainable business based on hydrogen.
Let me start with giving an update on our first pillar. Turning to the next page, please. In order to strengthen our low carbon aluminum position, a strong cost and improvement focus is essential. And I'm pleased to see that the improvement program is continuing with full speed. In addition to the continued low cost levels in Exclusion, the ramp up of volumes in our OpSim operations Business is coming at full speed in this summer.
Improving operational parameters and an ambitious procurement efforts across The total improvement target has been adjusted for the sale of Groden and the updated target of NOK 7,400,000,000 to be delivered by 2025. It is a front loaded program and is targeting an accumulated NOK 5,100,000,000 of improvements to be delivered at the end of 2021. The commercial ambition has been adjusted to NOK 1,500,000,000. While markets and earnings are improving significantly, We will continue to focus on continuous improvement, securing our position on the cost curve, while at the same time focusing on how we go to market, growing our market share and expanding our margins. Please turn to the next page, please.
This quarter, we saw a strong demand for our low carbon aluminum products, HydroDesktop and HydroDesktop, with the volume of HydroDesktop sold in the Q1 seeing approximately 60% of the total Hidlors reductar volumes sold in 2020. One example that we are pleased with is that Hyundai Ruducta will be used for Google's new office building at Hudson Square in New York City. The 1,300,000 square foot office will contain 450 tonnes of Higgs bos reducta. The aluminum billings for the new Google office is produced at our Hysteles Sundal plant in the Western Norway. Sundal is the largest of our 5 primary production plants in Norway, where 700 highly qualified employees produced more than 400,000 tons primarily minimum based on Hydro Power per year.
The Sundal Bi lifts are then shipped to our exclusion plants in Hydro Atezza in Italy, where they are extruded into profiles and customized to become Vicuna double skin facade before finally assembly and installation is done via project partners. A global Heidels and Square project show how our global value chain and areas of competencies are linked, helping our customers to meet their sustainability ambitions. Then let's turn to the next page, please. Sustainability is the basis for our future positioning and embedded in our strategy of lifting profitability and driving sustainability. We are continuing our efforts to drive change in key areas, including social responsibility, environment and climate.
With our social responsibility strategy, we aim to make a positive difference by strengthening our business partners and the local communities where we operate. We target the fundamental drivers of long term development to contribute to education and capacity building for 500,000 people by the end of 2,030. At the start of 2021, we have passed 100,000 people, meaning that we are well on track for our 2,030 targets. The biggest share comes from about our latest developments related to our tailing storage facilities in our mining operation in Paragominas. We have invested in an industry pioneer project to eliminate the need for new tailing storage facilities.
The methodology eliminates the need for continued construction Our upgrade of new permanent hailing storage and will enable us to operate more safe with reduced footprint and more swiftly delivered on our one to one rehabilitation targets. The operating license to implement this new concept was received in December 2020 and it has now been fully adopted into operations at the Perrigo Mine. What I also find very exciting is that the project is It's estimated to also have CapEx savings of around BRL 2,000,000,000 over the next 10 to 15 years. Our climate strategy is 30 by 2,030, partly for 30% reduction of all greenhouse gas emissions throughout the aluminum welded chain by 2,030. We will do this through greener sourcing, greener production on reducing the carbon footprint on the products we deliver to our customers.
An important milestone project to reach our climate goal is the fuel switch at Alunorte in Brazil. I will talk more about that on the next slide. But we are also working by on the 2,030 targets. Currently, we are working on several technology and innovation tasks to see how we can get to the next 0 situation by 2,050. We are exploring now different pathways for the electrolysis, such as carbon capture and storage, biomass anode and a new carbon free turbine process.
Our new opportunities in hydrogen will also contribute positively together with our existing ambitions using more renewable energy. Please turn to the next page. Today, we are pleased to announce that an investment decision has been made for the Alunorte futures project, which is one important enabler to deliver on our 2,030 CO2 Reduction Target of 30%. While replacing a large portion of the current fuel oil consumption at the refinery with LNG, we expect to unlock the potential of 600,000 tonnes of CO2 emissions reductions. The CapEx expected for the project is BRL 1,100,000,000.
Hysl is supporting use of LNG and natural gas in the state of Para. And our access to LNG will not only enable more sustainable operations for Hesros, but also give access to natural gas for other industries and consumers in the region. Earlier in April, Heuser and New Fortress Energy signed an MoU for the delivery of liquid natural gas to Alunorte, with the expected first delivery next year. In 2021, we're also planning the first pilot installation of 3 electric field boilers in Northern with the potential of 400,000 tonnes of CO2 reduction and with further work on potential for eliminating coal as power source in the remaining boilers by 2,030, which has the potential of up to 2,000,000 tonnes of CO2 reduction. With the fuel pitch project, the 2 CO2 footprint on producing hydro reduxor will go from today below 4 kilo CO2 per produced kilo aluminum to 3 kilo.
And with the further electrification of the boilers at the refinery, then the CO2 footprint producing the DUKSA could be as low as 2 kilo CO2 high produced kilo of aluminum. Before I leave the sustainability area, I would like to comment on the lawsuit filed against Hydro in February in the Netherlands by a Brazilian group called Caixeama. The lawsuit filed against Hydro is related to allegations against our local operation in Vaca Arena in Brazil of Sustained Harm to Local Environment and Health. The matters are already being discussed before Brazilian courts and authorities. We do not see that there is a link between the allegations made in the lawsuit and our operations in West Variana.
Even if you do not recognize the allegations, the lawsuit still illustrates the scrutiny and very high expectations to Hydro, which emphasized the importance of our sustainability agenda and which is our license to operate. Let's turn to the next page. Recycling will play a vital role and vital part in the transition towards the low carbon economy. Recycling has a great potential for Hydro, both from sustainability and profitability perspective. As communicated at Hidels Capital Markets Day in December, we have an ambition to grow the current feed packing business substantially to double our use of post consumer scrap by 2025.
Recycling is already an important part of Heidels' value proposition, creating a solid foundation for further growth. Currently, we have 25 recyclers in operation in the business areas, aluminum metal and extrusion combined. COVID-eleven is in the U. S. And 14 in Europe.
The capacity of these plants combined is approximately 2,000,000 tonnes annually and consists of recycling of both process and post consumer scrap. By the way, recycling of process crafts does not help the green transition. And Hydro advocates for common standards that will ensure that the use of recycled aluminum in the marketplace actually contributes to reduced emissions. The most important contribution to the circular economy and reduced emissions is to ensure used scrap comes back into use. This is at the core of Hygels' recycling strategy.
We see an EBITDA uplift Potential of NOK700 1,000,000 to NOK1100 1,000,000 in our project pipeline after excluding the rolling numbers. We have already several projects now underway, including recycling of post consumer scrap at our Norwegian smelters with an initial ambition of adding up to 10% to our primary production capacity in Norway with scraps coming back after use. The project pipeline for investment decision and other early phase projects include greenfield projects, larger brownfield projects and we're also evaluating M and A opportunities. These initiatives will have a total CapEx spend of NOK 3,000,000,000 to NOK 4,500,000,000 up to 2025. This is then more to an update on our 2nd specific pillar, New Energy.
Turning to the next page, please. Heser has unique capabilities that set us apart from other industrial players due to our own existing renewable power position and industrial competence as well as large internal demand for renewable power. We have now expanded our proposal to also include hydrogen in addition to already announced areas such as renewable growth and battery. Please turn to the next page. Hydro Rhein is our newly established and dedicated company for development of new renewable projects.
Rhein picked the customer centric and market driven approach to process development. Finding the best combination of forces on submarkets increase value for projects and customers. In Brazil, that means combining wind and solar projects to create a balanced portfolio. For example, the project that Rhein is looking at together with Maguire is a 6 20 megawatt hybrid wind and solar project. In the Nordic, Rhein is assessing opportunities for wind primarily in Norway and Sweden at this stage.
This includes also the opportunity to enter into offshore wind, a segment we consider to have significant potential and as the success will come, which will become a key part of the future of global energy mix. We are progressing well towards the target of having an investment decision in at least 1 gigawatt Gross installed capacity in 2021. And to date, Rhein has screened more than 20 gigawatts of projects in Brazil and 7 gigawatts in the Nordics. MOUs are now in place on projects totaling above 1.4 gigawatts gross installed capacity in Brazil, including a new MoU signed in April for the 300 megawatt solar project in Southeast Brazil. Hydro companies have in aggregate repowering needs of 10 terawatt hour by 2025, of which about 9 terawatt hours in Brazil and 1 Sarawatt hours in the Nordics.
And our ambition is for Rhein to supply as much of that need as possible based on competitive renewable projects. To do that, Rhein will capitalize on Hydros' more than 100 years of experience in Power Systems from production, operations and trading to Industrial Sourcing and Consumption. But Rhein also relies on partnering with industry leaders such as the partners that we already have and we're used with. In addition to developing renewable capacity, Hydro Rhein will help Hydro and external customers to speak with the Energy Transition through delivering industrial scale energy solutions and services to both improve energy efficiency, to reduce emissions and to reduce costs. This includes services related to sourcing of renewable energy, on-site generation, Storage Solutions and Energy Efficiency Measures.
As communicated at Hesiod Capital Markets Day in December 2020, Hydro is evaluating to raise external capital and pursue a separate stock listing for Hydro Dine. Now let's move to our second area within new energy, which is the batteries. Please turn to the next page, please. The battery team is progressing as planned towards building a portfolio of battery companies. Coal with Energy, where Heidler owns 21 delivers battery systems to the marine sector.
Recently, the company started the development and production of large scale Marisim certified hydrogen fuel sales system within with Toyota as a key partner. Huwis has also recently signed a joint venture agreement with Sumitomo Corporation, fifty-fifty ownership for marketing and sales of cordless energy battery system and fuel cell system in Asian markets, mainly in Japan. The Hydro Vault, the EV battery recycling pilot is progressing well as has now been financed with a combination of assets and the Novo support, resulting in limited need for equity at this stage. Our qualitative approach and technology within EV battery recycling has an exciting rollout potential into Europe, and we also see synergies with Hydro's existing aluminum recycling business in Europe. The joint battery initiative between Panasonic, Hydro and Equinor is progressing as planned with our market investigations, This is case building and site selection process for the potential Norwegian battery sale plant.
The local interest for hosting a plant has been very positive. We are working with relevant governments for this on prem petition. However, one obstacle has occurred lately related to the rule of origin for Norwegian made EV batteries created by the new trade agreements between the EU and UK following Brexit. We are pleased to note the strong support from the Norwegian government to seek solutions to this challenge.
We have
built an extensive pipeline across the battery on the plane with 2 investments in operation and ambitions of NOK 2,500,000,000 to NOK 3,000,000,000 of investments by 20 25, returning a full data of NOK 600,000,000 to NOK 7,000,000. We are evaluating Several other opportunities along the battery value chain. Overall, Hydro is seen as a very attractive partner and there's a good access to potential projects. This is a move from the U. S.
Growth area, Hydrogen. Please turn to the next page, please. Hydrogen will play a key role in the energy mix towards 2,050 and the global transition to carbon neutrality. Clean hydrogen produced from renewable sources enables industry long distance transport and other hardware based sectors to move away from fossil fuels. We see a substantial potential for industrial hydrogen consumption, which helps to reduce our CO2 emissions.
By producing and offering clean hydrogen, which does not emit CO2 when used, we can enable Hydro and other industrial companies to succeed in the industry transition. We are now establishing a separate hydrogen company to take the leading role as a developer and operator in the hydrogen sector, switching from gas to hydrogen at several of our own sites as well as developing and serving the external markets. Our new hydrogen business will leverage Hydro's large global footprint of industrial assets and Hydro's world leading position in sourcing renewable power. We have a large hydrogen potential in industrial heating in our own portfolio, equaling approximately 4 gigawatts of hydrogen production in long term. Switching from gas to hydrogen in Hydros downstream and primary aluminum sites alone would cost 1,000,000 tonnes of CO2 emissions.
This would enable us to offer our customers aluminum with even lower fee of footprint than we have today and contribute to our target of reducing Hydro's CO2 emission even further. To start with, we look at switching from gas to hydrogen at some of our aluminum plants in Norway and Europe. We believe the global efforts to decarbonize, attractive political support teams, higher CO2 prices and lower technology costs make this the right time to move into green hydrogen based on renewable power at attractive costs. Establishing a separate hydrogen company will give the organization speed and flexibility around financing, resources, partnerships and projects. And we are evaluating an equity rate in the hydrogen company to support the growth agenda.
We have set out to explore hydrogen potential based on our long term capital demand, with Hydro's Ryan as a potential vehicle to develop renewable power and the ability to leverage Hydro Energy Market and Systems Support as well as Hydro's operational capabilities. And with that, I would like to hand the word to you, Paul, to take us through the financial in more detail.
Thank you, Hilde, and good morning from my side as well. Hope that you and yours are all keeping safe and well. Before we move into the details of the quarter, I would like to just make some comments on changes in our performance measures for 2021. We reviewed our key financial metrics used for performance follow-up and managing capital during 2020. The goals of the review were to achieve clear communication, aligned with industry and peer practice and also simplify where possible.
Input from you, the key users of our reporting material was highly prioritized in this process. This process resulted in a decision to focus on EBITDA and adjusted EBITDA as the main performance measures going forward, moving from EBIT and underlying EBIT. We are moving from items excluded to adjusted items as this line also includes elements included in the results Such as currency elements from our strategic hedging contracts and from the embedded derivatives on our long term energy sourcing contract moving into aluminum metal, which are now being realized from 2021 and upwards. In addition, On the 5th March 2021, we announced an agreement to sell our rolling business to KPS Capital Partners. And following the agreement, Operating results for the rolling business are presented net of financial items and tax as income or loss from discontinued operations and separated from Hydro's reported EBITDA and adjusted EBITDA in the Q1 reporting.
Next slide, please. Let me then move over to the high level results overview. Hydros adjusted EBITDA for the Q1 of 2021 was NOK5.182 billion compared with NOK3.810 billion for the same quarter last year, an increase of NOK 1,400,000,000. On the positive side, we see higher all in metal prices, Higher energy prices, volumes and new contracts in energy and improved margins and volumes in exclusions, which all contributed positively to the results. These positive elements were partly offset by higher raw material costs, mainly fuel oil, energy, alumina and carbon.
And in addition, we had negative currency effect on the strengthening not versus the dollar and additional maintenance related costs in bauxite and alumina. Next slide, please. If we then take a look at the key financials for the quarter, And the revenues are stable at around SEK 32,000,000,000 for the Q1. Adjusted EBIT came in at SEK 5.2 SEK2 billion as explained on the previous slide and the largest adjustment to EBITDA of a total SEK1.1 billion are related to unrealized losses on LME related contracts of NOK 1,200,000,000. This is mainly related to our strategic hedging positions entered into over the latter quarters.
This is offset by net foreign exchange gains and a positive gain on a listing of a small thermal storage company that we hold and present in. In addition, we had around €200,000,000 adjusted from EBIT driven by restructuring related impairments and exclusions and accelerated depreciation related to the announced closure of the Allogeneic carbon ammo plant. Financial income for the quarter amounted to NOK euros 424,000,000 related to positive currency effect on the embedded derivatives in the energy sourcing contract as the NOK has strengthened compared to the euro, which is partly offset by interest expenses. Our tax expense was NOK 776,000,000 for the quarter or about 29% of income before tax, in line with our long term guidance of around 30%. Overall, this provides a net income from continuing operations of NOK1.9 billion, up from negative NOK1.7 billion the same quarter last Adjusted net income from continued operations was positive NOK2.4 billion, up from NOK0.8 billion in Q1 2020.
And consequently, adjusted earnings per share from continuing operations was NOK 1.15 per share, up from NOK0.39 per share in Q1 2020. Now let's move into the business area. Next slide please. If we start with bauxite and alumina, then adjusted EBITDA decreased slightly from NOK 1,102,000,000 in Q1 2020 to NOK 999,000,000 in Q1 2021. The quarter saw positive effect of a higher realized alumina price, Currency effect of weaker BRL against the dollar and higher alumina sales.
These three categories in total impacting results around NOK 700,000,000 This was more than offset by higher raw material prices, impacting results around NOK 200,000,000 mainly related to fuel oil. In addition, the higher cost related to the ship unloader event in Q4 and higher sourcing cost for alumina impacted results in total of around SEK 600,000,000 negative for the quarter. Despite high COVID contingent rates in Brazil and the ship unloader event, Our preventive measures has resulted in improved production in the quarter for both bauxite and alumina with Paragominos producing at 11,400,000 tons Annualized speed and Alunorte at 6,200,000 tons annualized. So in sum, all of these factors resulted in a higher implied alumina cost per ton in Q1 2021 of $243,000,000 which is $7,000,000,000 above Q1 2020, while overall margins ended up at similar levels year over year. Compared to the Q4, we have seen a slight decrease in cost and a $20 increase in margin.
If we look into Q2, Denali Nordkoye is expected to continue to operate at around nameplate capacity. We also expect costs associated with the clearing repair to come down to around NOK 100,000,000 for the quarter, But this is more than offset by higher prices for fuel oil and also maintenance as part of Ominas reducing bauxite volumes and lifting maintenance costs. Next slide please. If we then move further upstream to aluminum metal, Then adjusted EBITDA increased from NOK 1,197,000,000 in Q1 2020 to NOK 1,754,000,000 in Q1 2021. We experienced a $2.35 higher realized LME and higher premiums and sale volumes.
In total, this contributed with NOK 1,500,000,000 effect. This was partly offset by a weaker NOK against the dollar of around NOK 600,000,000 and higher alumina, carbon and power prices of around NOK 400,000,000. It is also worth mentioning We have booked a positive NOK 120,000,000 risk adjusted CO2 compensation, which reflects 2 months of eligible sales volume. Although not all elements are approved by the relevant authorities at the end of March, based on the elements approved, we have concluded that Reflecting the uncertainty in final approved can be recognized. A full year of production is currently estimated to result in CO2 compensation of between SEK 700,000,000 and not SEK 1,000,000,000.
When it comes to the outlook for Q2, we have by the end of March sold approximately 65% of our primary production forward at a price level of around $2,108 per ton. This includes pricing from our strategic hedging program. On the premium side, we have secured around 59% at around $3.33 per tonne and we expect the premium level to rise to between $2.75 to $3.25 per tonne. We are currently seeing strong development in the market premium, which will translate into further increases in premium for the 3rd Q4 given our current booking setup. Given the market prices for raw materials, we also expect smaller increases in raw materials for the Q2, mainly carbon.
This would partly be compensated by higher Tier 2 compensation reflecting 3 and not 2 months for the Q2. In addition, due to the continued ramp up at our Husnes Line D and also improvements in production at Husnes Line A At Albras and at Sundar, we expect primary aluminum production to increase by around 20,000 tons in the coming quarter. Next slide please. For Metal Markets, the adjusted EBITDA ended up at NOK 78,000,000 down NOK 209,000,000 from NOK296,000,000 in last quarter. The results decreased mainly due to lower realized Sales premiums in recycling and negative currency and inventory valuation effects.
If we exclude the currency and inventory valuation effect, The result for the quarter was NOK161,000,000 which is up from NOK119,000,000 in Q1 2020 driven by stronger results in our commercial operations. Looking into the Q2, we expect stronger results from our recyclers, but also Remember that as always results from our commercial operations are by nature volatile. Next slide please. If we then move downstream, adjusted EBITDA for Exclusion significantly increased from NOK 1,242,000,000 in Q1 'twenty to NOK 1,744,000,000 in Q1 2021. We reduced fixed costs significantly following the COVID outbreak and we still keep these costs low as the markets improve, also supported by significant improvement work and the restructuring undertaken last year.
The results were also positively impacted by higher volumes driven by strong demand, increased margins and also lower variable costs. It is also good to see that extrusions are now back above their long term cost of capital on a 12 month rolling basis after a couple of years of being right below and the continued improvement in the coming year should ensure that the Extrusion continues generating economic value. Looking into the Q2, we expect a continued strong demand and continuation of low fixed costs. I will also repeat Hilde's earlier guidance in that we should see a strong second quarter as our volumes are expected to grow more than what market analysts are currently estimating for the market as a whole. Next slide please.
We end the business area review with Energy, which delivers an adjusted EBITDA of NOK 841,000,000 increasing from NOK 505,000,000 in the Q1 of 2020. The quarter saw a seasonally high production at higher prices due to below normal temperatures and low wind power output compared to the same quarter last year of 4 22 quarters to date. However, uncertainty is still large and will depend on the hydrological balance going forward and when the spring fall takes Next slide please. We now move from the business areas to the development in net debt. Overall, our net debt position increased by NOK 1,200,000,000.
We started Q1 with NOK 7,800,000,000 in debt. Then we had an adjusted EBITDA of NOK 5,200,000,000. Net operating capital increased by NOK 2,400,000,000 driven by the normal seasonal increase but also strong customer demand in addition to increasing prices. Other operating cash flow adjustments amounted to NOK2.3 billion mainly driven by tax payments, bonus payments, Interest expenses as well as also negative collateral effect from our hedging positions given the very current very strong pricing environment. As a result, we generated a net cash flow from operations of positive NOK500,000,000 in Q1.
Then we had investments coming in at SEK 1,300,000,000 and then we had other effects of SEK 700,000,000 which are mainly driven by positive currency effects on debt. And finally, net cash used in discontinued operations amounted to negative NOK 1,100,000,000 impacted by increasing net operating capital in our rolling units. At the end of the quarter, we ended with SEK 9,000,000,000 in net debt. If we also comment on adjusted net debt, Then remember that the adjusted net debt definition reflects Hydro's debt and liabilities only and does not include the previous adjustment for Hydro's share of net debt in equity for the investment. If we look at adjusted net debt at the end of the Q1 2021, then it decreased by around NOK 10,300,000,000 compared to Q4 2020.
I've just explained SEK 1,200,000,000 through the net debt increase, Our net pension liabilities decreased by SEK 10,000,000,000 mainly due to reclassification of liabilities enrolling as liabilities in the disposal group. Higher discount rates in Norway as well as positive returns on pension plan assets in Norway also contributed positively. Other liabilities decreased by SEK1.2 billion mainly due to reclassifications of asset retirements and restructuring liabilities in rolling. And with that, the total adjusted net debt at the end of the Q1 of 2021 amounted to NOK 12,300,000,000 which is a reduction of 45% compared to Q4 2020 63% compared to the high level seen at the end of Q1 2020. Next slide, please.
Let me then end with an update on our strategic hedging program. Since the last quarterly presentation, Koksite and Alumina has extended the dollar BRL hedge to cover 2023 as well, resulting in a 30% hedge for the years 2021 to 2023. In addition, another 100,000 tonnes per year of aluminum hedges have been placed for the years 2022, 2023 at price levels seen in the middle of April. The total aluminum hedge amounts to 250,000 tonnes for 2021 and 350,000 tonnes for 2022 and 2023. Raw material costs have been partly secured using financial derivatives or fixed pricing on physical raw material contracts.
In addition, an amount of dollar NOK hedges are in place. And with that, I give the word back to you, Hilde. Next slide, please.
Thank you, Paul. Let's then conclude today with our key priorities going forward. Health and safety will always be our top priority both for our employees and the communities where we operate. We will continue to capture opportunities from strong markets to grow both volumes and margins. The improvement program is an important enabler to deliver on our strategic direction and will continue with proofors.
Our cost program and commercial ambitions have strong momentum and is well anchored in the organization. We will execute on the 2025 strategy to strengthen our position in low carbon aluminum and grow in recycling and expand and diversify by new energy areas including renewable growth, batteries and hydrogen. And finally, we will reaffirm our ambitions We reaffirm our ambitious targets for climate and environment as sustainability is one of our competitive advantages and a key enabler for successfully delivering on our 2025 strategy.
Thank you, Hilde. Then operator, we are ready for questions.
Thank We take our first question today. Please go ahead caller. Your line is now open.
Good morning. It's Liam Fitzpatrick from Deutsche Bank. First question or 2 just on your new growth areas. I guess just a high level question trying to understand your thinking. There's a lot to absorb in this release.
There's now 3 or 4 different Growth avenues that you're considering. So the question is, do you think you're taking on too much given that the last two years has really been about cutting costs And simplifying the business. So interested in your thoughts on that. And then more specifically on hydrogen, can you give any sort of details on How much equity ownership you want to keep of this new hydrogen company that you're setting up is the plan to keep Over 50% ownership. And can you give any kind of feel for the level of investments we could see if you do proceed with some of the Projects that you're considering over the next 1 to 2 years.
And one final sort of operational baseline, if I can, just on the extrusions business, Which has had a very strong quarter. How much of this uplift that we're seeing in Q1 and that you're guiding to Q2 is driven by Lower costs, which will ultimately come back once travel restrictions and travel resumes? Thank you.
So if I can start on the comment to the growth areas and your question to is this Plomats? That is obviously a question that we ask ourselves. But here, that is one of the reasons why we have been very carefully in establishing separate entities, ring fencing the initiatives as well as realizing that the new entities with the new entities has a lot to learn from each other. And we also see that These new initiatives also create a lot of excitement in the rest of the organization, while when we see this, As you said, we have been in a cost focused mode for many years. We see that this creates opportunities for Our people to move in the company.
And so, yes, it's a lot on the agenda, but I believe that With the way we have set this up in separate organizational entities with mobilizing the people from our own organization, but also coming from outside, because we realized that in some areas we also need to We need expertise from outside. I feel confident that We have the right focus and let's say the good basis for developing these renewable energy areas. When it comes to the perhaps you can comment on the equity. When it comes to the hydrogen area, that is the newest And there's still a lot that we need to mature in terms of how we will set this up. We will organize it as a separate entity.
We will bring in partners and but at this stage it's still early days in let's say the financing of it. When it comes to the extrusion and the cost situation, Yes, Extrusion has done a fantastic job when it comes to working on the cost base, both during the during 2019 2020, but now also focusing on to preserve as much as possible of what has been gained through the SG and A initiatives, but also obviously getting effect of the restructuring that was done in the 2 last years. So we are cautiously optimistic in the sense of preserving as much of the gain that has been made and but then also continues to focus on an efficient cost base of the sites.
Just to supplement Hilda on the The ownership and capital expenditures side for both Dain and the HydroGen Ventures, we are Targeting majority the ownership and then for both of these entities we are working to set up a model which limits the cash pull from the Hydro company. So both of these ventures, although Given the ownership side, CapEx, etcetera, will be consolidated in to Hydro's balance For what is done on the top level, not what is done in special purpose vehicles, we still aim to do it through a more or less cash neutral set up with Hydro. The new growth initiatives which will have a cash impact on Hydro in the short to medium term is the batteries Battery initiatives.
Okay, got it. Thank you.
Thank you. We now move on to our next questioner. Please go ahead caller. Your line is now open.
Yes. It's Jason Fairclough with Bank of America. Thanks for the presentation. And Pal, just upfront, I wanted Thank you for your revised approach on the reporting metrics. This is going to be very helpful for comparability with peers.
So thanks for that. Look, two quick questions from me. First, in terms of the market, China is exporting less aluminum by the looks of things. We're going to have tight markets outside China. Could you talk about what price would see you Consider adding primary supply or what is the incentive price for you to build a new smelter?
And then second, just in terms of the brands, The low carbon and the recycling. So volumes are picking up, but can you talk about whether this is actually a premium product yet?
Thanks, Jason. I can start on the upstream side. At the moment, we are not discussing increasing Primary aluminum capacity within our portfolio. That being said, the integrated margin level for the Norwegian operations is at a level which would make smelter investments They're more robust than they have been for a very long period in time. But at the moment, we are running a Sustain and improve focus on our upstream business areas, also driven by the fact that we've seen Investment costs in other parts of the world being much lower than in the western part of the world.
So we will continue to follow development See how it plays out, but there's not a price level that triggers us to make investments in this quarter. Then on low carbon products?
Yes, I can comment on that. Well, the low carbon Products are still in the early phase and what we have been doing is that we have targeted market segments that appreciate the low carbon such as the billing system and with the example that I gave from the Google office. And here we see a willingness to pay a premium. But this is how we have to work to expand the interest and for the awareness of how the metal is produced under the carbon footprint. So this is an ongoing work that we have to do and we see that there is a trend out there and these products get more and more traction.
Yes. Thanks very much Both. Could I just have a follow-up? In terms of adding volumes, can you just remind us, do you have any opportunities To increase primary metal production, are there is it mothballed capacity or do you have low capital intensity brownfield expansion
Right now we are in the ramping up of the HUDSNEST smelter in Norway. It's a line that was closed in the financial crisis back then and which will be up in full capacity during the summer this year. Other than that, We have some capacity out in Sravanpur, but that's just a minor portion. That's so at this point, we are almost at operating at full capacity in this major portfolio.
So additions will be more related to CREEP initiatives, getting more out of existing capacity on top of what Hilda mentioned. Andriy Bakr.
Okay. Thanks very much both. Appreciate it.
Thank you. We now move on to our next questioner. Please go ahead, caller. Your line is now open.
Hello, good morning. This is Ioannis Masfullas from Morgan Stanley. Thanks very much for the presentation today. The first question from my side, just Following up on Jason's question around potential for aluminum growth within the portfolio, it sounds like A lot of it is going to come by recycling. And it's fair to say that over the past 6 months, you have been focusing a lot on diversifying away from primarily meaning into all the green growth areas you have been talking about today.
If we were to fast Forward to, let's say, 2,030, could you share with us your vision on how the earnings contribution from your B and A and smelting activities could change over the timeframe relative to the 40% to 50% EBITDA share we've seen in the past years? I'll stop here for the first question.
I think we have when it comes to the We have shown some potential in terms of both EBITDA and growth when it comes to both renewable energy batteries as well as now the new hydrogen. But still the low carbon aluminum parts will be will constitute a large part of the company. And that is why we have these 2 pillars in the strategy to continue to grow On the low carbon with particularly growing in recycling and then to develop these new opportunities with the potential that we have
illustrated. Okay, great. Thank you very much. And just a couple more from my side. Just on the hedging side, especially for Primary Metal, I guess that gives you more cash flow visibility as you look to reallocate capital In some of the growth areas, could you remind us what's the upper range of percentage of volume that you are willing to hedge over the next few years.
And separately, just on bauxite and alumina, looks like the crane damage continues to Some additional costs into Q2. Did you expect further costs into the second half? And How likely is insurance compensation given the size of the overall costs we've seen since Q4 last year?
Thank you, Janis. I can answer those questions. If we start with the cash flow No, if we start with the last one on the crane incident, then did this impact The quarter a bit more than what we had expected. And this is also driven by the fact that The solution to reduce costs has taken somewhat longer to get in than what we planned for. And so Into Q1, Q2 we will be expecting another SEK 100,000,000 or so, but on a total level, so quite a reduction What we saw in the Q1 and then in Q3 and Q4, we will have smaller figures probably around half of that again.
So it's Starting to become less significant. And what will change the situation is Getting in place a new solution because we're running more a temporary solution today And we're still evaluating which process to go with their thinking a bit longer term also. Insurance compensation is difficult to comment on that at current stage and I don't want
to set
any expectations in either directions, but this is And as an excuse and case, we will revert when we have some more clarity. If I start with the hedging and with the hedging question, then We are reaching the ceiling for what we believe is a targeted level for the integrated margin hedge. Margin Hedge. And we have said that we're moving up to 20%, 25%. That's where we believe we have a Good balance between protecting and making the company somewhat more robust in the low case scenario, while still leaving the majority of the portfolio Open for positive price movement.
Great. Thank you very much.
Thank you. We now move on to our next questioner. Please go ahead.
Yes, morning. It's Amos Fletcher from Barclays here. I just had a couple of questions. The first one was Around the net debt level, I just wanted to get a feeling for do you have in your minds a net debt level Below which you would seek to return surplus cash flow, sort of over and above the dividend policy? And then the second question is just on batteries.
Just looking at your projections for Potential CapEx and potential EBITDA. Could you give us some sort of detail on where that EBITDA is coming from and sort of I guess a little bit of a sort of buildup behind the numbers that you've given there in terms of EUR 600,000,000 EUR 700,000,000 pro rata by 2025? Thanks.
Yes. I can start here with the net debt level. Basically, we are approaching a level which is well within our targeted levels that we updated at Investor Day in 2020. And we don't have a trigger which will result in the payout of extraordinary dividend or similar. But As we move forward now with the strategic process allocating capital to the different areas, evaluating The possibilities that we see going forward, we will make an evaluation towards the dividend process at End of next year or our Board will do so to set the level for 2021 as a whole.
And there we need to ensure that there is a good balance between strength of balance sheet, available capital for investments and return to shareholders. And given the current earnings environment and our policy of a minimum of 50% over the cycle, There is of course a good room for a significant increase in dividend into next year. And the second question was on
Patarit.
Patarit, yes. We All of these new growth areas that we operate in, we are working in the mode where we have quite a large pipeline of alternative. So we're maturing more ambitions than we believe we will end up with at the end of the day to ensure that that certain value creation is generated. So splitting it up Per contributor is a bit difficult because some might fall out in some time, some might progress, some might be larger than what we expect Currently, but the overall ambition has a long pipeline which allows for some flexibility in which projects we pursue. So If you look at the 2025 ambition of SEK 2,500,000,000 to SEK 3,000,000,000 of investments delivering an EBITDA of between SEK 600,000,000 SEK 700,000,000 Then the list is much longer than these levels.
On the current initiatives which we have visualized, of course, the largest contributors In this setup, as we see it today is the joint venture we have with Panasonic and Equinor. Also Corvus is of a growing scale and the Huizor vote initiative has quite some potential if we ramp up further than what we have in the current plan. So these 3 are of course heavy contributors, But then we have 4 or 5 initiatives or more that are not covered by this overview. And if some of these investments slow a bit Down, we see that the business case doesn't stand up. We might reprioritize a bit within the portfolio.
So we will keep you updated On semi annual basis through these strategic reviews on which projects are progressing well or not. And so far, Corvid Energy, we see development as Hilde mentioned. Hydros Vault is going as planned. And then we have some Obstacles now in the joint venture with respect to rules of origin, but we will see if we can are able to cater for that risk over the coming year or not.
Okay, thanks. So I guess the that pro rata So EBITDA, is that based on a target return on capital employed or is there sort of more to it than that as it were?
Yes, of course all of these have a targeted return on capital employed and which have been based on the best Returning candidates, the same approach we run-in recycling and the rain venture and hydrogen also.
Okay, perfect. Thank you.
Thank you. We now move on to our next questioner. Please go ahead, caller.
Hi, thanks. Dan Major from UBS. First question, follow-up from Jason slightly, just to clarify on the numbers around the green premiums. If I look at Page 11, You allocate 20% to the €1,500,000,000 commercial ambition to new products, including greener brands. Is it fair to assume that, That is effectively capturing your estimate of the financial upside from greener brands.
Is that what we should read from that chart?
No, because that only covers the greener premiums that the aluminum metal received on their product. And then that there might be an additional effect when exclusions sell them further out in the market. So as you know between these two business areas there's less differentiation possibility In primary than there is in exclusion as this is more project based. So as Hilde mentioned earlier, We are targeting premiums on the majority of our volumes, but for some of them we will also target volumetric increases. And as this market moves forward, you will see that gradually reflected to a larger extent in Our realized premiums overview at the end of the day.
But of course, at the end of the day, this is also a negotiation on a customer by customer basis. And as We don't want to disclose the exact details of these premium components.
Okay. Thanks. The next question is just on the indirect carbon compensation that you are beginning to accrue through the P and L. When do you expect to see that reflected in the cash flow statement?
I guess that is more towards the 2022. The setup is Currently so that you get paid in the year after you produce The material and consumed the carbon in a way.
Okay. And just to be so accounting question. So that I guess will be reflected you build a payable sorry, receivable on the balance sheet. And then because you have heard that. Is that correct?
Yes. So you'll recorporate now and then we reverse it next year and then you get the cash flow in.
Okay. And that's about it would be about €700,000,000 to €1,000,000,000 of cash flow that you'd receive as a one off payment in early 2022, I guess?
I will comment in 2022, yes.
Okay, great. Thanks. And just final question on Extruded. You obviously mentioned around kind of growth rates relative to market expectations, but on a year on year basis where we're talking about Obviously, quite a skewed base. If we just purely looked sequentially relative to Q1, is it fair to assume you'd see Higher volumes, higher EBITDA?
Yes,
that's a good question. And I And the challenging using the Q2 last year as a baseline and numbers become so big with respect to volume growth. I just want to stress that We expect higher volume growth than what the market is seeing. So this 36% 30% which TRU refers to, We will most likely end up a bit above that. And then I think your second question is very relevant.
If you look at historical Development and seasonality in our exclusion operations, we often come in higher in the Q2 than the Q1. And as the market is playing out now with more normalization, etcetera, we expect to see that trend also in the current year. The only risk element I would like to flag in that context, which could result in a different picture is if we see some challenges on the supply side. As you know markets are very tight currently and supply chains are tight. So if we get any form of global hiccup, which Happens from time to time in the aluminum industry, then that could impact what we get of earnings in Q2.
But the thing goes that as planned, we should expect to see a seasonally stronger second
Excellent. Thanks a lot.
Thank you. We now move on to our next questioner. Please go ahead caller. Your line is now open.
Apologies. It's Liam Fitzpatrick again from Deutsche Bank. Two very quick questions hopefully. Just on premiums, the Q2 guide, Given what we're seeing in terms of regional premiums looks low. Can you just give a bit of color there?
Should we Expect the premiums will move higher again as we look into Q3. And then just coming back to the CO2 point, so you haven't changed the guidance of Up to $1,000,000,000 EBIT uplift. But since you provided that guidance, the CO2 price has gone up by Over 50%. And my understanding was that there was a positive direct correlation there. Can you just give a bit of color in terms of how that's impacted your guidance?
Yes. On the premium side, then it is true we expect Higher premiums in the 3rd Q4 if market remains where they are now and most likely in most That we have already booked quite a lot into the 3rd and 4th quarter. So there is quite a lag on the realized Premiums, there's some full year contracts, some shorter contracts and then you get the total situation of 3 to 4 months or so. So we expect an increase in Q2, further in Q3, further in Q4 and if spot prices remain where they are now, you should see stronger premiums into to next year. Also in a historical context, the billet premiums are very high enough, approaching $900 for example For exclusion, Ingo.
And the second question was on CO2, yes. No, within that the range is also development in the CO2 price and We are at current price levels, you're probably towards the higher end of that range than the lower end of that range.
Okay. Thank you.
Thank you. We now take our next questioner. Please go ahead caller. Your line is now open.
Good morning. Chathinder Goyal from Exane BNP Paribas. Just a question on wind, solar and hydrogen. You got a big hydro power Fully as well, but its external exposure is limited because most of it gets used internally. Just to understand on your wind, solar and Hydrogen, because you have this opportunity to electrify in Brazil and also switch from gas to Hydrogen in many of your operations as you indicated, what would be the eventual external exposure of Wind Solar and Hydrogen, once you get to your stated ambition, how much will be used internally versus externally of your attributable share from these two businesses?
Thank you.
Yes, I think it's still a bit early days, Jotin there. But to give Some color on the total landscape. If you start with bauxite or Brazil and the repowering Efforts that we're running there. Then for the smelter And the bauxite and aluminum operations, they both rely on external power as is the case today. And then as we progress on developing hydro or solar and wind projects down there, Then a larger share will be based on a percentage of equity production depending On 1, our ownership in the top coat and 2, the ownership of the top coat to the special purpose vehicle And then how much of the external sourcing these plants end up consuming.
And then you have a similar situation Across the Nordics and through the hydrogen portfolio. So we don't have the full details in place Yes, as we are developing on a portfolio basis, negotiating contracts, negotiating ownerships, so we will have to update that That the pipeline becomes more concrete and we have a better view on what ownership we will have in the different operations. But we it will not of course be 100 Or even a percentage reflecting an ownership in these top costs because this will be built up in special purpose vehicles where the top cost also has A smaller ownership stake than 100%.
Sure. Thanks, Paul. That's very helpful. Just to get the thinking clearly, is the idea to go into these businesses to make more money for the businesses by Going and serving the outside world or is it more to home improve and make your own operations Exposed to greener energy over the medium term?
I think the internal demand creates substance to the project and that we can build capability based on the internal demand. And then while we are doing that, we are also we can also repurchase the external market. So it is both.
Thank you. At this stage, we have no further questions in the queue.
Thank you. Thank you, operator. Then I would just wish to thank you all for joining our call today. And please don't hesitate to call us So send us an e mail in Investor Relations if you have further questions. Thank you, and have a good day.