Good day and welcome to the Norsk Hydro Q1 2013 conference call. At this time, I'd like to turn the conference over to Mr. Rikard Lindqvist. Please go ahead.
Thank you. Welcome to Hydro's first quarter 2013 result conference call. With me here to present is President and CEO, Svein Richard Brandtzæg, and Executive Vice President and CFO, Eivind Kallevik. With that introduction, I leave the word to you, Svein Richard Brandtzæg.
Thank you, Rikard. The underlying result in the quarter was NOK 1,077 million, which is at NOK 900 million from the fourth quarter, and approximately NOK half a billion from the first quarter last year. The result was impacted by higher realized alumina and aluminum prices, and seasonally higher sales for most segments. The result in energy was up, driven by higher production and prices. Although we got help from seasonality, we continue to see challenging markets and also in general, a weak development for commodities. We have questions, of course, about development in the global economy, and especially uncertainties related to the growth in the U.S. too, of course, the consequences of the continued debt crisis in Europe and also the development of the growth in China going forward.
If you take a look at the supply and demand balance, we had, as I said, stronger demand in the first quarter, and somewhat higher production, but in general, a balanced market in the first quarter. We maintain growth in 2013 of 2%-4% outside China. We expect a balanced market given the closures and new production that will come on stream during this year. A balanced market going forward in 2013. If you then take a look at the reported inventories, there has been some increases, but that is related to overproduction in China. That is the same situation as we said seen previously in the first quarter, related to Chinese New Year and some lower demand for a shorter period during the quarter.
In the world outside China, we don't see any increases. It has been fairly stable inventory development outside China. On ingot premiums, we have seen the trend sideways at historical high levels. Ingot premiums have come down some dollars in Europe, while more or less unchanged in U.S. and Asia. However, the increases in premiums that we have seen recently is this quarter positively influencing our realized product premiums in extrusion ingot and primary foundry alloys. The aluminum price was about $2,040 per ton in the quarter, up from $1,940 in the fourth quarter last year. The realized price was $2,043 per ton.
6% reduction LME during the quarter in Norwegian krone due to weakening of the Norwegian currency, a -3%, drop in LME in the quarter. The alumina price increased in the first half of the quarter on the back of temporary supply concerns, mainly in Australia. These concerns have now eased in combination with the increased macro uncertainty. The price has retracted to a level of $320-$330 per ton. What is interesting to see here is that the alumina price is holding up relatively to LME and is now at a level of 17% of the aluminum price. The next slide shows the import/export balance of China. Starting from the bottom, fairly stable export of semis and fabricated products from China.
We have a balanced situation on primary metal, meaning there is no net export or no net import. We see similar development on scrap as we have seen previously. Import of scrap is fairly stable. We see a reduction in alumina import, but a record high bauxite import during the quarter. Of course, the bauxite import is again showing the dependency of external support or external sources to China to keep up the aluminum production at the level they need there. We also have seen that tendency previously. Indonesia has been the key exporter to China, and we have seen a removal of temporary export restriction from Indonesia this quarter. We maintain our strong focus in our bauxite and alumina assets in Brazil.
In Paragominas, we have a stable production, around 9 million tons as a yearly run rate in the quarter. In Alunorte, I'm not satisfied with the situation. We have similar production volume as we had in the previous quarter, but our ambition is to increase the production. We have some effects from power outage in the end of 2012, which caused some instability of power sourcing into Alunorte. There are also some operational issues with coal boilers that we are working with in Alunorte. We are now focusing on putting more resources into that, and especially operations and maintenance progress in Alunorte has to be improved.
We have introduced the improvement program on cost and the B&A program that has been announced previously has a target to reach NOK 1 billion by the end of 2015 compared to 2011. Half of that we have ambition to deliver on this year. The $300 program is for the fully owned smelters and is set to be concluded by the end of this year, with additional saving of $65 per ton. In addition, what has already been delivered, we delivered $235 dollar loss per ton improvement to the end of last year. The program is developing according to plan. For the joint ventures, we have improvement programs in place, which should improve the cost position of the other half of our portfolio.
Looking at the cash cost, it is trending downwards. In first quarter for this year, the plant cash cost was $1,625 per ton, with a margin of approximately $425 per ton. The cost position was in the quarter positively impacted by casthouse's margins, primarily driven by premiums and also increased contribution from Qatalum. Qatalum was positively impacted by LME premium and somewhat of a reduction in cost. On rolled products, we have 5% higher sales in the first quarter compared to the fourth quarter last year. There is some reduced export of can out of Europe. Litho, automotive, and general engineering had good development of above 10%. Compared to the first quarter last year, we have 4% higher sales.
In fact, lower sales in cars and heat exchanger compared to last year due to lower car volumes, lower production of cars. We have positive volume development in litho, in can, and general engineering compared to last year in rolled products. In addition to the volume effect, increased productivity and good operations are impacting our results in this business area. On the energy side, the Nordic spot prices increased in particular toward the end of the first quarter due to cold and dry weather conditions. Water reservoir levels declined sharply in Norway, resulting in a somewhat constrained hydrological situation in Western Norway. However, weak coal and CO2 prices combined with low German power prices partly limited the increase in the Nordic power prices.
The Nordic hydrological balance ended first quarter 26 terawatt hours below normal levels. In Norway, the hydrological balance was about 15 terawatt hours below at the end of the quarter. With the challenging market situation, we continue to work on the things that we can influence, and the improvement efforts is our main priority. As you know, we have improvement efforts across the whole value chain in Hydro. The Sapa transaction is one of the measures we are taking to improve our business by creating a stronger extrusion company. The European Commission has raised some concerns, and as a response, Hydro and Orkla has offered to divest some assets. The transaction has been approved in the U.S. and several other jurisdictions.
Closing of the transaction is subject to approval in China and the European Union, and we expect closing of the transaction in the first half of this year. We also adjust our smelter production, and we took it down last year with 200,000 tons. This is a very flexible production system that we can use to meet the demand and seek to improve the margins on our products. A recent announcement is related to portfolio adjustment in our products, where we are adjusting our capacity towards markets with higher margins and improved demand in automotive body in white. With this review, I give the word to Eivind Kallevik, the new CFO in Hydro.
Thank you, Svein Richard Brandtzæg, and good afternoon, everybody who is on the call. As you will have noted, Hydro's underlying EBIT improved from NOK 172 million in the fourth quarter of last year to NOK 1,077 million this quarter, an improvement of NOK 905 million between the quarters. This basically reflects better results in all our business areas. From an overall perspective, this quarter has been impacted by seasonally stronger our volumes in all business areas, with the exception of Bauxite & Alumina. In addition, we have also realized higher prices within most of our business areas. I will get back to some more details on each of the areas later on in the presentation. Now let me draw your attention to the line called Other and Eliminations.
We have an underlying EBIT of NOK -38 million versus NOK -275 million in the previous quarter, a difference of NOK 237 million. The quarter-on-quarter change mainly relates to changes in eliminations of internal gains and losses on inventories. Adjusting for these internal eliminations, the result is roughly NOK 150 million in charges for common services and other businesses. This is pretty much in line with what we have guided as a normal run rate in the past. If we take a closer look at this quarter's main result drivers, as I said, the underlying EBIT improved with roughly NOK 900 million to close to NOK 1.1 billion for the first quarter compared with the fourth.
If we first look then at the energy, volume and price effect, 1/3 of that is coming out of higher positive price effects in the quarter, while 2/3 of that improvement is coming from seasonally increased volumes. On the alumina and aluminum volume and price, that is up NOK 400 million. This quarter, it's primarily all related to our primary metal activities. We see LME and currency, LME is up with roughly $100 between the quarters, giving us a positive effect of about NOK 200 million, while 36,000 tons of increased sales in the periods gives us an additional NOK 100 million. We have good contributions from our joint ventures, increasing the results from NOK 140 million between the periods.
This is partly offset by somewhat higher variable cost of a negative NOK 70 million, which is primarily driven by higher alumina costs for the smelters in this period. The last block on this slide is called other, and it's a positive variation of NOK 300 million or NOK 0.3 billion. That is primarily driven by the explanation I gave on the previous slide, which is the change in other and eliminations. If we then move to key financials, we see that revenues are up approximately NOK half a billion between the quarters of 3%. This is driven by increasing prices and volumes in most of the areas, with the major revenue increases coming from metal markets and energy.
The underlying EBIT, as I've said, landed on NOK 1,077 million, up NOK 900 million from the last quarter. We have excluded negative effects of NOK 372 million from the underlying EBIT, and I will get back to that in more detail on the later slide. Financial items for this quarter was a negative NOK 171 million. This includes currency losses of NOK 115 million, which is more or less stable from Q4. For the first quarter, the net currency loss is primarily related to US dollar debt. Income before tax for this quarter is a positive NOK 535 million, with a calculated tax expense of NOK 281 million for the quarter. That gives us an effective tax rate of 53%.
This, of course, is relatively high, but also reflects the relatively higher share of earnings from our energy segment, which as you know, is also exposed to higher power surtax. This gives us an underlying reported net income of NOK 263 million, up from NOK 87 million in the last quarter. The net financials was, as I said, a negative NOK 171 million for the quarter. We commented on the ForEx part. I think what is maybe worth drawing your attention to this quarter is the net interest on pension liability. We have started in the first quarter of 2013 to report according to IAS 19R, the International Accounting Standards under IFRS.
Under this implementation, Hydro has decided to split out the interest component of the net periodic pension cost and moved that to the financial items. This is what you see on the line called net interest on pension liability. If you look at the 2012 figure, you see NOK 280 million. If you divide that by 4, you get NOK 70 million, somewhat higher cost per quarter in 2012 compared to 2013. This, of course, is due to the reduced pension liabilities that we did talk about in fourth quarter reporting, which are driven by changed assumptions using covered bonds instead of government bonds in Norway when we calculate the pension obligations. The other effects are relatively stable between the quarters. Moving to items excluded from underlying EBIT.
As we have mentioned before, we do exclude certain elements when we discuss underlying performance to give us a better understanding of the underlying business. In this quarter, we have excluded negative items of about NOK 370 million from the underlying result versus roughly NOK 530 million positive in the previous quarter. If we try to work our way down the table, we see a negative unrealized effect on embedded derivatives and power and raw material contracts this period. This quarter, the effect is mainly driven by the developments of LME. However, we also see some minor changes from currency and coal. On the second line, unrealized derivative effects on LME-related contracts. The effects from the various areas are relatively small in the period, and they partly offset each other.
In general, this is a combination of positive effects of short positions due to falling LME prices nearby, which are offset by some reversal of realized profits, as well as negative effects on net long positions out in time. The third item of any size is the rationalization and closure costs, which in this quarter is primarily related to the corporate restructuring program in Oslo. In the fourth quarter, the rationalization charges were approximately twice this size and related to the closure of our smelter in Australia, Kurri Kurri in Australia. Moving into the business areas, let's start with Bauxite & Alumina. The underlying EBIT was negative NOK 63 million, which is pretty much a sideways development compared to fourth quarter 2012. The realized alumina price improved somewhat between the quarters.
However, this is more than offset by higher energy and sourcing costs of third-party alumina. The daily alumina production adjusted for the fewer production days in Q1 is relatively stable from the fourth quarter, but it remains at a weak level that we're not satisfied with, as Svein-Richard will explain as well. Paragominas, on the other hand, is also operating at a stable yearly run rate around 9 million tons, which is quite good given that first quarter of the year is typically the rainy season in northern Brazil. The realized prices for alumina, as I said, were up about 4% this quarter, which had a positive impact.
As most of you know, close to 20% of the portfolio now is sold on index prices, but the majority of the contracts or of our volumes is now sold on contracts linked to LME. We do expect that the share sold on index will gradually increase going forward until after 2016, when the larger part of the contract portfolio will be renewed and can be renewed with different pricing structures. The positive impacts from prices were more than offset by increasing operational costs, largely as a result of the issues that Svein Richard Brandtzæg had mentioned earlier, in part also driven by higher energy costs for the period. In addition to the above effects, this quarter also included an insurance compensation related to a historic business interruption case in Brazil.
If we look into the next quarter, we do expect stable production volumes, but somewhat increased maintenance activity in the period. Let me also remind you that realized prices will mainly follow LME with 1 month lag, meaning that the current pricing environment represents a downside to this quarter's realized prices. We saw a good increase in profitability coming from an underlying EBIT of NOK 58 million fourth quarter to NOK 364 million this quarter. As I've already explained, we saw an increase in LME of roughly $100 per ton from 1,940 to 2,043. Sales volumes increased by 36,000 tons due to some sales out of inventory as well. Together, these effects increased our results by approximately NOK 300 million.
Qatalum results were improved by NOK 100 million, and I will revert in more detail on that on the next slide. Offsetting this, is a cost increase of about NOK 70 million, higher variable and fixed costs, where approximately half of this was relating to increased alumina costs for this matter. At the end of first quarter, we have sold approximately 50% of the primary aluminum production for second quarter forward at the price of around $1,975 per metric ton, excluding Qatalum. As you will be aware, Q1 was the first quarter where we partly started our new pricing regime. For second quarter, the whole quarter will be covered by this, and this means that we will sell our liquid production according to the 1 month forward pricing formula.
Due to inventory and other timing effects, Hydro's realized prices will lag LME spot prices with approximately 1.5-2 months. We are very happy to see stable and high production volumes in Qatalum. We are at above nameplate capacity at around 600,000 tons on a yearly basis for the first quarter. The underlying net income for this period improved by NOK 103 million for our share of Qatalum compared to fourth quarter. This reflects higher sales price, higher premiums, and in addition, somewhat less maintenance cost compared to Q4. Going into second quarter, we continue to see good production volumes in Qatalum. We do also expect to see slightly higher maintenance activity for Qatalum for the quarter.
Metal markets delivered an underlying EBIT of NOK 146 million, whereas it's NOK 70 million in the previous quarter. Excluding currency and inventory valuation effects, which were relatively stable between the quarters, we had a result of NOK 110 million, a sizable increase from the fourth quarter's NOK 40 million result. The result improvements are primarily driven by a 13% improvement in volumes in addition to stronger margins in this business. We also had good contribution from our sourcing and trading activities. Looking at the second quarter, we expect the continued stable remelt volumes, but at the same time, please remember that the results from our trading activities due to its hedging and currency effects by nature can be volatile between the quarters.
In rolled products we saw an improvement in the financial results from NOK 70 million in fourth quarter to NOK 153, and this primarily helped by increased seasonality in sales in all business segments, with the exception of can sheet, which saw somewhat lower export sales out of Europe compared to last quarter. Average margins are somewhat higher for the period, but the pressure on margin still remains in this business, in particular in the standard segment or general engineering. We saw positive developments in productivity as well as on the cost side in the first quarter, measured through kilos per man hour and the cost per ton respectively. If you look into second quarter, we do expect relatively stable volumes.
As always, it is a margin business, and we do expect to see continued pressure also in this going forward. Energy increased its underlying EBIT with NOK 195 million compared to fourth quarter, giving us a total result for the period of NOK 517 million. Prices were up in the NO2 pricing area with roughly 40 NOK per megawatt hour, where we have 2/3 of our production situated. The price increase was driven by cold and dry weather, which has also led to somewhat constrained hydrological situation in western Norway at the end of the quarter. We had seasonal higher production by 456 gigawatt hours and also an increase in net spot sales with 419 gigawatt hours.
For second quarter, we expect seasonally lower production, which is further impacted by the low snow levels in the mountains of Norway. On prices, we have so far realized higher average prices in the second quarter than what we realized for the first quarter, as an average. As we did explain in fourth quarter, extruded products will be treated as discontinued operations until closing of the Sapa transaction, which, as Svein Richard Brandtzæg said, we do still expect to take place in the first half of 2013. All previous periods are restated to reflect this. The underlying income from extruded products was NOK 49 million for this period.
If we adjust for depreciation, financial items, and taxes of NOK -71 million, this leads us to a pro forma underlying EBIT of NOK -22 million for the business area. This is a 50 million improvement compared to Q4. We have seen somewhat higher seasonal sale volumes compared to Q4, and margins remain relatively stable. However, if you do compare back to first quarter 2012, this quarter is weaker in terms of volumes, and gives us some insight into the challenges of this market. Looking into second quarter, we expect continued weak markets from a volume perspective for this business. If we take a quick look at the net cash and debt development in Q1. As you will remember, we started the quarter with a net cash position of NOK 1.7 billion.
In this period, we have generated an underlying EBITDA of NOK 2.2 billion, which is up NOK 900 million from the fourth quarter. We have in this period had a normal seasonal increase in operating capital, partly driven by increased sales, but also driven by prices of NOK 700 million. We have a negative development in what we call other adjustments of NOK 1 billion. This is partly driven by taxes that's been paid in the period, but it's also used to back out non-cash effects which are part of the underlying EBITDA. This gives us a net cash flow from operations of half a billion positive. On investments, we have spent or invested half a billion for the period. This is very much in line with the early guidances of keeping a tight ship and capital discipline.
Our guidance for 2013 of NOK 3 billion is very much in line with this. We have a negative development on discontinued operations. This is comprising of 2 things. It is poor results in the period reflecting operations, but it's also a build-up reflection of higher volumes for the period. Finance lease is also a negative half a billion NOK. We have transferred a lease bauxite ship onto the balance sheet, which includes it now in net debt. For the fourth quarter, this used to be part of the adjusted net debt, so the effects on Hydro in totality is neutral. Last part is what we call other, which is basically negative currency translation effects due to the weakening of the NOK versus the U.S. dollars between the quarter.
That gives us a somewhat reduced net cash position, but it's still positive of NOK 0.4 billion for Hydro as such.
Thank you, Svein Richard Brandtzæg and Eivind Kallevik. Operator, that concludes the presentation. We can open up for questions.
Thank you. Ladies and gentlemen, if you wish to ask a question, please press star one on your telephone. Please ensure that the mute function on your telephone is switched off to allow your signal to reach our equipment. Again, if you wish to ask a question today, please press star one on your telephone. We'll pause for a moment to give everyone an opportunity to signal. We will take our first question today from Luc Pez from Exane BNP Paribas. Please go ahead.
Hi, gentlemen. I will have 2 questions, if I may. First of all, on Primary Metal, whether you could provide a bit more color on any guidance for cash costs going into Q2, and how you would expect premiums to the cash cost basis you report there going forward. Second question would be with regards to metal markets, which was a very good surprise this quarter, and how you would see next quarters coming in. I know it's very volatile, but if you could provide a bit more color from what you are pointing to in the presentation, sorry. Thank you.
Maybe I can start commenting on the cash cost for the primary smelters. The $300 approved program, as you know, is for the fully owned smelters. We delivered our target last year, $235 per ton, and the remaining $65 per ton will be delivered until the end of this year. We should have additional
Improvement in the second quarter compared to the first quarter. This, of course, is also depending on several other factors, and the premium on our metal products is one factor that is influencing on these results. What we see in the first quarter is that we finally have seen the impact of the very strong ingot premiums on the extrusion ingot premium and foundry alloy premium. These products are priced on LME basis plus the premium, while sheet ingots has been priced on LME plus the ingot premium, plus the conversion premium for sheet ingot. Sheet ingot has benefited already from the increased standard ingot premium levels. Primary foundry alloys and extrusion ingots has been lagging behind.
We expect that the positive development that we have seen in the first quarter will also be maintained in the second quarter with regard to premiums and metal products that we are selling into the market.
On the question on metal markets, it is, as you say, it's a relatively volatile area for many reasons. What we have said in the past, if you exclude inventory valuation effects and the likes, is that we guide on roughly NOK 100 million as a going performance number for that business area over time. I think that is a good signal of how you can estimate for second.
Thank you.
Thank you. We now have a question from Rob Clifford from Deutsche Bank. Please go ahead.
Yeah. Hi, gentlemen. Thanks for the call. Just quite a simple question, really. Looking at the cash slide, which was the last or the second last slide that you presented, the other adjustments, NOK 1 billion. A bit of a cheeky question. Can you give us a bit of guidance roughly where you see that going into the second and third quarters, given there'll be a bit of pressure on the underlying EBITDA, by the looks of your outlook statements.
Yeah. Well, yeah, Rob, this is a volatile part of cash flow or the net cash bridge. I mean, as Ivan mentioned, we do have some taxes, in particular related to the power surtax, from the energy business area. You might also recall that we had a positive effect on this line in fourth quarter. There are some periodic effects going from quarter to quarter. It's really hard to guide on that topic as such. Of course, we, as long as we make money, there will be some tax elements in the other adjustment line.
I mean, your cash as of this quarter, you're effectively cash negative, so your net cash position dropped. Is it fair to assume that you'll remain cash negative with the decline we've seen in the aluminum price so far? Is that a fair assumption, or are there things you can do to address that?
I think, Rob, I mean, clearly we work quite hard on optimizing things like net operating capital, and investments and all the other issues that we do control and work on a daily basis. On this slide, please remember that, you know, there is a financial lease in here of half a billion NOK, which has a negative effect on this slide. But the last quarter was included in the net debt that we also talked about the fourth quarter, meaning that it's neutral for the totality. Looking into second quarter, you know, whether we will be positive cash, please remember that we will also do a dividend payment in the second quarter of 2013, roughly one and a half billion NOK.
That is more likely than not gonna take us below negative line for the net cash position.
Sure. Okay. Look, that's. Yeah, it was a bit of a cheeky question. Sorry about that. Thanks for that.
Thank you. We now have a question from Terence Ortslan from TSO & Associates. Please go ahead.
Yes, good morning. The industry seems to be shifting towards looking into the cost levels and asset realizations as well as the asset realignments. Question 1 is that these are the times whereby companies go through the whole motions and rationalizations. You can tell the major companies are seeing CEO changes, and obviously directions will also be realigned. My question is that, Norsk, how do you see yourself along the lines of the competitors, number 1? And number 2, there are assets on the table and available. Where are your priorities with respect to asset realignment, primary sector and the open products, flat rolls, whatever, and/or how to go next level whereby Norsk can be a bigger player, a more profitable player? It's a philosophical question. I think it's important we should address it at this moment in time. Thank you.
Good morning, Terence, and thank you for the good question. First of all, we will continue to work ourselves down the cost curve, both on alumina and on the aluminum cost curve. The fact that we will finalize the $300 program this year doesn't mean that we are finished with our cost cutting exercises in primary metal. I also mentioned earlier today that we are now attacking our joint ventures because we also see good potentials to reduce cost even further there.
What we do here is a combination of build up the competence, use our technology, and also simplify our organization so we can get the sustainable cost reductions in our operations along the value chain. We have also introduced the improvement programs in the extruded products that are also showing good effects. In general, for us, it's about improving operations continuously in the market situation that are quite challenging. I should also mention that we continue to high-grade the product portfolio. We have a lot of programs on the metal markets and also on downstream where we are also targeting higher margin products. In general, this is a tough competition and our target is to be among the best in the industry, of course.
We feel that what we have done with the improvements is helping us. I can also mention that we have a cost reduction program in the head office of Oslo, where we are cutting down the headquarters with a 30% of cost, which is the second time in two and a half years we are doing that. We took it down in 2010, 2011, and with 30%. Now we reduce the cost in headquarters again with another 30%. We have efforts along the whole value chain. Of course, when we are then looking at opportunities in the market there will be, in a way, any sort of consolidation or assets that could be of interest.
The main focus for us is in fact now to improve our existing assets and improve our operational performance.
Essentially organic, nothing outside from one of your primary or the reserves on the bauxite side, alumina or the primary sector. You're not interested in building that portfolio up?
Well, if you look at the main target for us is of course then to improve our position, competitive position. If there is any opportunities coming up, we will come back to that. With what we have done lately is of course to strengthen our position upstream, and that will be a very important strategic development for Hydro also going forward.
Okay, perfect. Thank you very much for your attention.
Thank you. As a reminder, ladies and gentlemen, if you would like to ask a question today, please press star one on your telephone keypad. We now have a question from Jatinder Goel from Citigroup. Please go ahead.
Hi. Good afternoon, gents. I've got 2 questions. Firstly, on the bauxite sourcing. So the volume looks pretty low for the quarter: 1.26 million tons. I can see Q1 remains a seasonally big quarter, but is there something else we need to be aware of? Secondly, on discontinued business cash outflow, it's been NOK 600 million cash used in this quarter, and it was NOK 665 million in the first quarter of last year. How do we look at this business once the JV is up and running? Thank you.
If we look at the bauxite side first, here, I think, you know, there's timing differences as to when ship leaves the Paragominas mine and arrives Alunorte as well. You have to look at this from not only from a single quarter, but you have to look at it on average over several quarters. There is nothing. If you do that, you know, we are still comfortable with what's been shipped in first quarter 2013. We think this is relatively normal. On the discontinued operations, you are right. I mean, there is a cash out in both these quarters.
It is in many ways too soon, and we're not in a position to comment on the combined cash out for the Sapa joint venture when it does merge. That is something that we have to talk about after the transaction actually has been completed. It is, as we said before, I mean, this is an industry and part of our industry which is quite challenged in terms of, cost, and business, and it needs to be restructured and improved. That is also part of the plan behind the whole merger between the Sapa and Hydro's extruded products business area.
Okay, great. Thank you very much.
Thank you. We now have a question from Ahmed Bensari from Société Générale. Please go ahead.
Hello?
Hi. Hello.
Yeah. Hi. I have just 2 questions. First one on the alumina division. Now you plan to save, like reduce close to 50% of the NOK 1 billion cost reduction in 2030. Would you be able to explain where do you see the cost improvements? That would be my first question. Second one would be on the Sapa JV. I think the management had earlier guided for a one-off benefit of NOK 0.5 billion from closing of this JV. What is the status on this, and when do you expect it to reflect in the P&L?
I will try and answer your question. If I understood correctly, it was about the improvement program in the Bauxite & Alumina business area. It is really a program that takes many levers into consideration. It is about operational stability. It is about procurement, it is about manning and cost efforts. It is about the operational efficiency at the plant. It is really a program that is built out by many smaller activities that, you know, is aggregated up to this NOK 1 billion. It's everything from cost to operational improvements and higher productivities.
Okay. When do you see the bulk of it? In the second quarter, third quarter? I mean, just to have a sense on that.
Oh, we haven't commented specifically on the quarter. What we've said is that we will realize and target to realize half of that NOK 1 billion during the year 2013.
Okay, fair enough.
With this question about the Sapa joint venture, when gain is coming, we have said that the closing will be within the first half of this year. We will come back with details afterwards, but there is quite substantial synergies here that we will take out after closing.
Okay. Thank you.
Thank you. As a final reminder, ladies and gentlemen, if you wish to ask a question today, please press star one on your telephone. Mr. Lindgren, we have no further questions at this time.
Okay, thank you. Thank you for your questions, and thank you for listening in. That concludes the conference call.