Thank you, and good morning and welcome to HUSAL's Q4 presentation and conference call. We will start with the presentation followed by a Q and A session. Both will be hosted by our CFO, all Gilles de Moc who will be presenting Q4 and Q2 going forward, while our CEO will also present at Q1 and Q3, which will include more of a strategic focus. The presentation slides we will walk through can be seen on the webcast. The link to the webcast as well as the slides can be found on diesel.com.
Please note that you will need to dial into the conference call to be able to ask questions at the end. It will not be possible to ask questions over the webcast. If there are any media inquiries for 101s with Paul after the presentation, please contact Head of Media, Haarong Moulin. With that, I turn the microphone over to you, Paul.
Good morning, and welcome from me as well. I hope you and yours are keeping well and healthy in these unprecedented times. Before getting into the quarter, I would like to briefly let you know of our vision to our business area names. To reflect our new strategic direction, we have simplified and updated the names to our business areas to better reflect the business. For instance, Primary Metal is now aluminum metal, reflecting that the business to the area of both primary and recycled metals.
The other business areas are both light and alumina, energy, rolling and extrusion. Now let's get into the quarter, where we are pleased to report that we have exceeded our 2020 goal for the improvement program, and again, similar to Q3, generated a strong cash flow. Move to Slide 2, please. Underlying EBIT for the Q4 was NOK 1,449,000,000 up from NOK 5 to the $50,000,000 in the same quarter last year, while our free cash flow also increased from last year, ending up at not $3,400,000,000 for the quarter, reflecting our focus on cash generation. In the Q4, we were pleased to see an overall continuation of the economic recovery following the contractions caused by COVID-nineteen earlier in the year.
Aluminum demand, especially in China, remained strong, resulting in a year end surplus that was lower than what was originally forecasted. These fundamentals Have resulted in a strong LED development during the Q4 and also a continued recovery in the downstream markets where the year over year volume declines each quarter have continued to be less and less through the year. Within our downstream businesses, both exclusions and rolling recorded volumes, which exceeded the market outlook for Q4, with exclusions growing 7% compared to Q4 2019 and rolling the same flat year over year. This has been supported by recovery in key downstream segments like Automotive through the second half of twenty twenty. We are also pleased to announce that we have achieved and even exceeded our improvement target for 2020, reporting NOK 4,200,000,000 in stations compared to our NOK 4,100,000,000 target.
This is particularly satisfying as we were slightly behind our target in Q3 to the pipeline maintenance in bauxite and alumina. Another positive development this quarter has been the lease aircraft transaction. On December 31, 2020, Hydro's RSK hydropower asset was merged with part of Lucid Production to form a joint hydropower company. The new company, Lusica PA, of which we now own 25.6%, secures with access to renewable hydropower to our aluminum production and ensures that RSK does not revert to state ownership in 2022. I will cover some of the details of this transaction later in a certain period.
Finally, we are also pleased to announce the Post dividend of NOK 1.25 per share for 2020, which will be paid in 2021, subject to approval from the Annual General Meeting in May. Our ability to pay dividends after a difficult and volatile year is due to the measures undertaken to support our strong cash flow generation. We safeguard our balance sheet and then service our shareholders before evaluating return seeking investments in operations. We strive to provide our shareholders a predictable dividend, and we are pleased to continue delivering according to policy. We aim to lift performance and cash returns to shareholders over the cycle and have as such revised our dividend policy to pay a minimum to the Q1 of 50% of underlying net income over the cycle with a continuation of the NOK 1.25 per share dividend loss.
Let's now move into some of the key figures for the Q4. Next slide please, Slide 3. If we start with EBITDA, then underlying EBITDA increased by 24% compared to the Q4 last year and rose by 3% compared to Q3 2020. On free cash flow, I am very pleased that we are able to deliver improvements both from last year, but also from the last quarter, which was particularly strong. Our strict focus on working capital and capital expenditures in addition to ongoing improvement efforts to the Q1 of 2019.
Our underlying watch out for the last 12 months rolling at Q4 2020 Remains around 4% in line with Q3. But if you just look at underlying margin for Q4, we would have come in over 7%. And if we use both assumptions that we currently see, we're actually around 10%. If we move on to the business area key indicators, in upstream, we have experienced a slightly higher cost base compared to the previous quarter in G and A There have been some costs related to extraordinary alumina sorting due to the pipeline maintenance and also some costs related to repairing to our ship unloader crane used for unloading bauxite at the port we use in Parat. In Primary, we see a relatively flat development quarter over quarter, for the considerable improvement in cost position compared to last year.
Downstream, we see increased volumes compared to both Q4 2019 and Q3 2020. And in general, performance is somewhat better than the underlying market. It is also worth noting that Q4 2019 It was relatively weaker than expected, which exaggerates our improvement this quarter somewhat year over year. Finally, we exceeded our 2020 improvement target and are so far on track to deliver on the 2021 goal of €600,000,000 in total compared to the baseline to 2018. Please move over to Slide 4.
The gold aluminum market We ended 2020 in a surplus of around 3,000,000 tonnes. However, this surplus is considerably lower than the earlier forecast this year, which were close to 5,000,000 The global market was fairly balanced in the Q4 and stable from the Q3 due to a strong recovery in demand throughout the year. However, 2021 will still see a surplus in the aluminum balance, driven by strong production rebound in China, but also the rest of the world due to consistently high prices since the summer of 2020. In addition, announced Meltzer to the closure candidates did not close off their own, which keeps production levels at higher levels than expected. It is also interesting to note that external consultancies providing balanced estimates are in relative close consensus for 20.20 around 1,500,000 to 2,000,000 tons following in 2020 where there were large variances between each company outlook.
We will get back to the specific demand drivers to the expected developments later in the presentation. Please change to Slide 5. Let me now get into a high level results overview. Comparing to the same quarter last year, Q4 underlying EBIT is up by around NOK to $800,000,000 On the positive side, we have experienced lower raw material costs than 1 year ago. This is mainly driven by lower alumina prices for aluminum metal, but also supported by lower carbon prices as well as somewhat lower bauxite to the Q1.
We also saw our currency gains as the NOK and BRL weakened against the dollar. In addition, stronger margins and volumes downstream drive our downstream results supported by the cost improvement efforts in both Exclusions and Rolled. These positive developments were offset primarily by additional other costs, which includes around $500,000,000 in maintenance related costs in bauxite alumina and also around $250,000,000 in antidumping duties and provisions in Rolland. Please move to Slide 6. If we compare the 4th quarter results to the 3rd quarter, we see a stable development quarter over quarter.
Upstream, the positive impact from prices is coming primarily from aluminum metal, where we have had both higher LMIs and premiums from Q3 to Q4, Driving around €1,100,000,000 of the gain. On the other hand, the volume uplift comes mostly from bauxite and alumina, where we managed to produce around 90% of nameplate in Q4 and reached nameplate by year end. We also saw an improved result in Energy as production remained relatively high and prices rebounded following lows in Q2 and Q3 due to more exports and normalization of weather patterns. These positive developments were more or less offset by higher raw material costs upstream with both alumina and power cost rising in aluminum metal and higher fuel oil costs in bauxite and alumina. These costs are in addition to the aforementioned maintenance related costs in both Titan alumina and antidumping due to heating and rolling, impacting our other costs here by around 700,000,000 The additional NOK 200,000,000 in other costs results from cyber attack insurance compensation booked in the Q3 of 2020 of around NOK 200,000,000.
Please move to Slide 7. Our underlying EBIT for 2020 of NOK 6,100,000,000 increased compared to 2019 by NOK 2,700,000,000. The main contributor of our improved results was lower raw material costs, primarily in aluminum metal, which had lower prices on alumina, energy and carbon in 2020 compared to 2019. Positive currency effects from weaker BRL and NOK to dollar also contributed around $4,500,000,000 to the annual underlying EBIT. And finally, the ramp up of Alunorte, which produced at 87% of nameplate capacity in 2020 and reached nameplate that we managed to reduce not SEK 1,700,000,000 in fixed costs in 2020.
Over 80% of that savings comes from our downstream businesses, exclusions and rolling, And it's a true credit to how these organizations manage to exhibit cost discipline amidst the volume and margin pressure our industry experienced and continued to experience due to COVID-nineteen represented by the NOK 2,400,000,000 negative impact in downstream volume and margins. In addition, our realized alumina prices fell 18% year over year to $2.68 per tonne And our realized aluminum price fell 7% from 2019 to 2020, resulting in a combined hit on the underlying EBIT of around 7,500,000,000 Please move to Slide 8. I would also like to highlight the positive contribution of the improvement program in 2020. Without this improvement and the cost discipline shown by our business, our underlying results for 2020 will fall to under NOK 2,000,000,000. Our uplift in volumes, primarily in Borxite and alumina, provided a lift of around SEK 2,600,000,000.
However, the curtailment reverse in Albras also contributed positively here. Our cost out initiatives and other improvements both downstream and in aluminum metal added another NOK 1,600,000,000 in sales. I will now go to the next slide where we will take a closer look at this program in 2020 and moving forward. Please move to Slide 9. Our original improvement target for 2020 was an accumulated saving of NOK 4.1000000000.
During Q3, we mentioned that due to the pipeline maintenance, we were slightly behind this goal. However, we are pleased to note that we not only reached the overall goal for 2020, but exceeded it by around EUR 100,000,000. The main driver of the low 4,100,000 boat has been ramping up our volumes of dollar north here from the embargo levels of 2018. During 2020, we produced 87% of nameplate capacity and we expect our launch to continue running at nameplate capacity in 2021 after having reached this level in December. It is delivering on cost improvement ahead of schedule, like enrolling, which enabled us to reach this goal.
Enrolling, for example, our original target was not €150,000,000 However, strong momentum behind organizational rightsizing and procurement initiatives throughout 2020 has provided a saving that is over 3 times higher at NOK 500,000,000. At the Capital Markets Day 2020, we announced that the improvement program will be extended to 2025 and include an even more ambitious cost saving target of NOK 8,500,000,000. This program is front loaded And after 2020, we are nearly halfway there. In 2021, we plan to secure an additional NOK to the 1,800,000,000 in savings driven by further cost adds, but also volume gains like reducing at nameplate capacity in DNA and the ramp up of Husqvist R and D. We will also continue to work toward our commercial uplift ambition of NOK 2,000,000,000 which comes on top of the NOK 8,500,000,000 through market and customer driven opportunities within aluminum metal, rolling and exclusions.
Capturing more volumes and margins through our greener products, Hydrocephal and Hydro Reducer, It's one important lever towards this commercial ambition. Please move to Slide 10. If we then take a look at the key financials for the quarter, then revenues were stable at around €36,000,000,000 for the 4th quarter. Underlying EBIT came in at €1,400,000,000 as explained on the previous slide. And it is worth noting that a €5,300,000,000 gain on the leases transaction to the financial results.
Thank you. And good morning and welcome. It's held outside of underlying EBIT and I will explain this in detail later. With depreciation of around €2,000,000,000 Underlying EBITDA amounted to NOK 3,500,000,000. Financial income of NOK 1,400,000,000 for the 4th quarter Included a net foreign exchange gain of NOK 1,500,000,000 and this primarily reflects a stronger NOK versus euro, Affecting the embedded derivatives in Norwegian power contracts and other liabilities denominated in Europe.
Our tax expense amounted to NOK 849,000,000 or about 10% of income before tax. The relatively low tax rate was positively impacted again. This provides a net income of NOK 7,300,000,000 up from negative NOK 700,000,000 in the same quarter last year. Underlying net income was positive NOK 0.8 billion compared to negative NOK 0.3 billion last year in Q4. And consequently, underlying earnings per share was NOK0.35 per share, up from a negative NOK0.12 per share in Q4 2019.
Please move to slide 11. Now let's review items excluded during Q4, which totaled around NOK 5 point to 3,000,000,000. As usual, we excluded some timing effects in Q4 of around NOK 100,000,000. These are more or less offset by impairments related to the ongoing restructuring in the Exclusions. The main item excluded this quarter It is not €5,300,000,000 in transaction related effects related to the completion of our deal with Luce.
This is an accounting gain based on the fair value estimate of our ownership stake in Lisek RCA, representing the depreciated asset base in Energy. Please move to Slide 12. Underlying EBIT for both sides and alumina increased from a loss of $75,000,000 in Q4 2019 to $116,000,000 profit in Q4 2020. The quarter saw positive effects from currency and lower raw material prices. The BRL's weakening against Dollar contributed around €700,000,000 And in addition to upside from lower bauxite and caustic prices, So these raw material gains were partially offset by higher fuel oil prices.
In sum, these factors We created an overall lower implied alumina cost per ton in Q4 'twenty of $2.41 which is $14 lower than last year's level. Overall margins were up by around $5 year on year. However, these positive effects were partially offset by the lower prices, additional sourcing costs due to pipeline maintenance of around EUR 280,000,000 And costs associated with train repair were of around $170,000,000 The production at Paragominas Resumed after extended pipeline maintenance in October and aluminum production at Alunortia averaged around 90% of mine based capacity as we guided in to the last quarter. During the Q4, Heathrow undertook extraordinary repair work on the crane, which is used for unloading bauxite from ships. The repair work caused additional operational costs, but did not have a material impact on production or ship length from our North Sea Refinery.
As part of our continuous asset integrity program MD and A, we will continue preemptive maintenance to Barry to ensure the robustness of our operations. By doing so, we should be able to avoid major production curtailment and in the long run, This will help us to increase the lifecycle of our assets and reduce risk and costs. Lower realized solution prices by $9 per tonne also negatively impacted the quarterly results by a negative $120,000,000 compared to the Q4 in 2019. If we look into Q1, the Nalandorcha production is expected to be around nameplate capacity. However, we do expect the cost associated with the crane repair to impact Q1 results also by around NOK 200,000,000, but we do not expect extraordinary sourcing costs as experienced in the Q4.
And the crane incident in bauxite and alumina is notified to the insurance companies. In addition, we expect somewhat lower raw material prices in comparison to Q4 given today's market prices, While current alumina prices indicate somewhat higher realized alumina prices than achieved in the 4th quarter. Please move to Slide 13. Underlying EBIT for aluminum metal Increased from $155,000,000 in Q4 2019 to $844,000,000 in Q4 2020. In general, we experienced stronger margins year on year.
All in prices were marginally higher, but the main contributor was a lower cost position per ton, mainly driven by lower alumina prices, lower carbon prices and lower fixed cost and depreciation, which accounted for a positive impact of not to EUR 600,000,000 year on year. From Q3 to Q4, we managed to mitigate some of the fixed cost increases, which were anticipated for Q4. The improved margins quarter on quarter were mainly from higher EMEA premiums, which lifted underlying EBIT by nearly $1,100,000,000 from the 3rd to Q4. When it comes to the outlook for the Q1, we have by the end of December sold approximately 65% of our primary aluminum production forward at a price level of around $19.80 per tonne. This includes pricing effects from our strategic hedging program, which I will get back to a bit later.
On the premium side, we have secured around 59% at around $2.73 per tonne and we expect the Premium level within the range of $2.25 to $2.75 per ton. When it comes to the cost side, then we are expecting somewhat higher fixed costs compared to Q4 2020 due to seasonality of holiday credits, the timing of some property tax invoices to the further ramp up of the Houston segment. We are also expecting some higher power prices from a new internal power contract and currency effect, and I will get back to that happy place. Please move to Slide 14. This quarter, Metal Markets delivered an underlying EBIT of NOK 248,000,000 compared to NOK 132,000,000 in Q4 last year.
The results increased compared to the same quarter last year due to higher results from the sourcing and trading activities and positive currency effects. Underlying EBIT from our recycling facilities were unchanged, however, included a positive insurance refund in Q4 2019, We will find stronger results excluding this effect. Higher sales volumes were the main driver of those. Excluding the currency and inventory valuation effects, primarily currency, the result for the quarter was €257,000,000 which is up from €184,000,000 in Q4 Looking into the next quarter, our recycling facilities are operating at normal capacity levels. As always, remember that trading results and currency effects in metal markets are by nature qualified.
Please move to Slide 15. The market for our downstream business areas is on the path to recovery. Within rolling, we see a flat development in our sales volumes from Q4 2019 to Q4 2020, which was a better performance than the overall market, which was down 2% in Europe for Q4. The overall rolling market outperformed external analyst forecasts provided at Q3 of a decline of 5% in Europe. Rolling continues to optimize its portfolio by increasing the share of higher margin Canon auto.
And in addition, this shift will further support our strategy of higher levels of recycled volumes. For Q1, we see indicators that the rolling market is continuing into recovery and external analysts estimate 2% growth in Europe for Q1 compared to Q1 2020. Our Q1 outlook for rolling is more or less in line with the market. We do have some planned revamps to casting centers and production lines in Q1. For the full year 2021, external analysts The market to improve 8% in Europe as volumes are recovering from the COVID outbreak of 2020.
Please move to Slide 16. As a result, Enrolled Products Decreased to a loss of NOK188,000,000 in Q4 2020 compared to NOK 34,000,000 profit in Q4 2019. The result from the rolling mills decreased mainly due to NOK 259,000,000 impact of the imposed U. S. Antidumping usage in October 2020.
And this negative impact includes a provision of NOK 60,000,000 for Q1. The negative effects were partly offset by lower costs from the ongoing improvement programs mentioned earlier in this presentation, where rolling has delivered over 3 times higher than and its original saving targets, achieving CHF 500,000,000 in savings through 2020, primarily through organizational restructuring, to the metal cost optimization and procurement initiatives in logistics, maintenance and direct materials. In addition, the quarter saw some positive currency effects. The noise smelter results increased driven by lower raw materials. If we look into Q1, the antidumping usage is expected to have a negative impact of around CHF 100,000,000.
For 2021, we have only one contract of some 1,000 tons in total, which we are working with our customers to try and replace. The U. S. International Trade Commission is to decide whether there will harm the U. S.
Producers by April. If no harm is found, the duty could disappear and to eventually even be reimbursed. We believe that the duty is unfounded and unreasonable, and we will work with all related parties to minimize the effects of this, and we'll keep you up to date on any developments. The strategic review continues with the aim to evaluate the best ownership to the top for rolling within or outside the door. The result of the review will be announced in due time.
Please move to Slide 17. In Extrusions, we saw a 7% increase in our sales volumes compared to Q4 last year, 12% higher in Europe and 4% higher in North America. Improved volumes exceeded the market, which was flat in North America and down 3% in Europe. However, we should keep in mind that Q4 2019 was a challenging quarter for us. The market development was better than what was expected 3 months ago, when it was predicted declines of 8% and 7% in European and North American markets, respectively.
In the automotive segment, we saw overall solid recovery continue into Q4. OEMs are increasing production again, and there were less supply disruptions during second wave of COVID-nineteen than during the first wave. Some of the demand rebound is linked to restocking following destocking in Q2. Nevertheless, underlying demand is Also improving, which is evident in increasing auto sales, especially electrical vehicles, where we see strong growth in Germany And also growth in the premium segment, where aluminum is the most exposed material. When it comes to the Q1 outlook, External market expectations are indicating further improvement.
External analysts expect an increase from same quarter last year of 7% and 2% in North America and Europe, respectively. In total, we expect the development in line with external markets in the Q1. If we look at the full year 2021 forecast, external analysts estimate a growth of 9% and 10% in North America and Europe, respectively. We believe based on our internal estimates that we will be roughly in line with the rest of the market. However, there is still uncertainty in the early part of 2021.
Now let's take a closer look at the financial results for Exclusions. Please move to Slide 18. Underlying EBIT for Excluded Solutions Significantly increased from €85,000,000 in Q4 2019 to €511,000,000 in Q4 2020. The results were positively impacted by increase in volumes also from Q3 of 5% and 7% from Q4 2019. Increased in volumes from Q4 2019 and previous quarter was driven by a general recovery in MOLFEC.
Comparing the Q4 results to the previous quarter, we see, as mentioned, a positive impact of slightly higher volume, to the Q1.6 cost increase due to seasonality related to regular maintenance towards the event. In addition, the Q3 was positively impacted to our Cyber Intelligence statement. Continuing the trend from previous quarter, Q4 results were also positively impacted by reduced costs from the ongoing improvement and restructuring efforts as well as other temporary cost measures implemented amid weaker demand that are expected to start returning We are also pleased that Paul Wharton is now in place as a new EBT for Exclusions to continue lifting profitability and cash flow from Extrusions in the years to come. If we look into the Q1, Extrusions is working hard to support their earnings with their ongoing portfolio optimization, fixed cost reduction initiatives and procurement optimization. Extrusions continue to firmly control their cost development into the Q1 with the objective to retain a maximum of savings as the market slowly resumes from the COVID-nineteen turmoil.
Please move to Slide Underlying EBIT for Energy increased from TR296,000,000 in the Q4 2019 to NOK352,000,000 in the Q4 of 2020. The quarter saw a significant drop in prices compared to Q4 2019, Mainly attributed to a strong hydrological balance with prices averaging NOK137 per megawatt hour compared to NOK 3.92 in Q4 last year. However, if you compare prices with the previous quarter, prices have increased from low levels of just 52 NOK per megawatt hour due to more export and normalization of weather patterns. In January, we have seen drier And colder weather nearly eliminating surfaces in the geological balance, so things can change very fast. We have seen some improvements in Our prices in the Nordic region with average NO2 spot prices of NOK 4.99 megawatt hours so far in January.
However, the uncertainty is still large and will depend on the weather going forward. Please let me also remind you that NO2 spot Prices are publicly available and the realized price levels for the company should not deviate significantly from the prices observed on the Nordic Power Exchange for NO2. Also keep in mind that the prices and production can change fairly quickly in response to hydrological development. We have quite some other elements impacting the Q1 results, which I will refer to on the next slide. Please move to Slide 10.
In this update, I would like to spend a bit of time on to update on the changes as a result of the Luisa RFK transaction and some other changes in energy to keep in mind for modeling going forward. As mentioned at the start of the presentation, we announced to the merger of our RSK hydro power assets with part of leases production to form a joint hydro power company in October and the transaction closed on December 31. We are very pleased to see the conclusion from the discussion in the standing committee on energy and environment on the parliamentary question related to the conversion of the RSA concession. Establishment of PCF FDA builds on the principles established by the Stoltenberg II government in 2,008 And that was further developed by the Tholberg Wong government and secured both public ownership to the RSA Hydro Power Plant and long term predictability for industrial activities and value creation. It is comforting to see that the continuation of this framework is supported by The broad coalition comprising the parties in the government and the main two opposition parties, our data Partia and Sempis Partia.
The Liza RSA transaction is reported as a sale in Q4 and the proceeds of the sale is the value of Hydro's 25.6 ownership in Lisa Kraft here. As part of the fair value assessment and purchase price allocation, An external third party has estimated the fair value of our share of Lutecraft DA to NOK 7,800,000,000 corresponding to an EV multiple of approximately 3.3 NOK per kilowatt hour. We've got sites on IFRS Accounting policies, which include elimination of Hydro's proportional share of unrealized profit from transactions with associates and joint ventures. Thus, elimination of 25.6 percent of gross gain represents NOK 1.8 percent of issuance. This then creates a recognition of NOK 5,300,000,000 accounting gain after adjustments for carrying book values for RFA and IFRS elimination.
Additionally, Lussek Rfteil will be owned as an associate and accounted for as an equity accounted investment as opposed to RSK previously being held as a subsidiary. Due to this reclassification, The true asset share of Lussekraft DA's net income will be added to Energy's EBITDA as opposed to previously when RSK's EBITDA was directly This will reduce Energy's EBITDA by €100,000,000 to €200,000,000 annually. It is important also to note here that our own production volumes will be lowered by around 7 50 gigawatt hours as a result of the transaction. This, however, is partly offset by higher quality assets, representing approximately 300 gigawatt hours, Of which, there's a 200 gigawatt hours impact EBITDA and around 100 gigawatt hours is related to higher tax yield, resulting in lower tax payments. The volume loss related on EBITDA, you could estimate to around $130,000,000 as yielding a price of 300 knots per megawatt hours and cost of NOK 70 per megawatt hour and correspondingly to around NOK 30,000,000 gain on net income, resulting in a net effect of negative NOK 100,000,000 for Heathrow.
Over the medium to longer term, we expect increased positive synergies from the transaction to mitigate some of this loss. In addition to Lussek RPA, there are a few other changes in energy to keep in mind for 2021. A loss producing supply contract, which had a negative effect of around NOK 650,000,000 in 2020, has now expired. The large loss in 2020 was impacted by low spot prices as part of the contracted spot export And in addition, significantly impacted by weaker NOK compared to Europe as this was a euro denominated one. The second contractual effect to keep in mind from 2021 in Energy is related to the new internal contract with Alameda Methode.
Here we see a positive effect of around €750,000,000 compared to the internal contract portfolio from 2020. The positive effect here compared to using 2019 2018 as a starting point is a stronger euro, resulting in a currency gain in Energy. It is important to note that the gain on the internal contract will be partly offset by the expiry of external sourcing contracts in aluminium metal, but still resulting in a net increase in power cost in aluminium metal of around €300,000,000 to €350,000,000 compared to 2020. These effects depend on the currency rates used and these calculations were based on the euro NOK rate of around 10.8. Finally, it is important to keep in mind that we are ramping up our battery and renewable growth units.
And while it is difficult to give full guidance on the cost levels for these areas at this stage. We could assume a preliminary estimate of additional costs of between $100,000,000 to $200,000,000 related to operational costs, also the project development, which will go into the respective portfolio. Please move to Slide 21. Other eliminations was negative CHF435,000,000 in Q4 compared to negative CHF 67,000,000 in Q4 last year and positive $213,000,000 in Q3. Other is mainly comprised of comprised of head office costs and costs related to holding companies.
This quarter, we had $300,000,000 in cost compared to $223,000,000 last year and $204,000,000 in the 3rd quarter. This quarter's eliminations amounts to negative $135,000,000 reflecting higher internal volumes. Please move to Slide 22. We move now from the business areas to the development in net debt. Overall, our net debt position Decreased by NOK 2,100,000,000.
We started Q4 with NOK 9,900,000,000 in net debt. We generated underlying EBITDA of NOK 3,500,000,000 And we then had a release of working capital of around $1,600,000,000 We have originally forecasted a build of working capital for the period. However, we ended Q4 with lower inventories and higher payables, mainly in the Downstream business area, in addition to normal seasonality effect. Other operating cash flow adjustments of positive €400,000,000 includes dividends from equity accounted investments, reversal of mark to market effects being offset by interest taxes and some other negative effects. As a result, we generated net cash The flow from operations of positive €5,400,000,000 in Q4.
Investments came in at around €1,900,000,000 And we also paid out the 2019 dividend in November of Q4, totaling NOK 2,600,000,000. The net effect of exchange rates on our debt and cash Also lowered overall net debt by around €100,000,000 not €1,000,000,000 At the end of Q4, we ended with €7,800,000,000 in net to our lowest level since 2018. Please move to Slide 63. If we look at the adjusted net debt at the end of the Q4 2020, that has decreased by around $3,500,000,000 compared to Q3. Net debt decreased by NOK 2,100,000,000 as I just explained, and net pension liabilities decreased by NOK 1,600,000,000 due to higher discount rates in Norway And positive returns on Norwegian pension plan assets, slightly offsetting the lower discount rates in Germany and other adjustments were up 0.3 bps.
And with that, the total adjusted net debt, including equity accounted investments at the end of Q4, amounted to €28,000,000,000 down from €31,600,000,000 at to Q3 2020. Please move to Slide 24. Let me then move on to some comments on our financial policy and hedging. We see that the aluminum industry is a typical industry, where the periods with above cost of capital returns are of limited duration. As a result, Hydro has reviewed the situations where the use of derivatives could make sense in order to The group's financial targets and is more actively evaluating the use of such derivatives, although still to a limited extent And with the majority of our exposure still remaining on hedged for the upside.
In line with our hedging policy, we have the flexibility to hedge Almeid or currency in certain to Tejas. And we have normally done this with respect to transactions or planned We are constantly looking into making our portfolio more robust and delivering on our return on business over the cycle. And hedging is one lever which can be used to support the strategic agenda by reducing volatility in earnings and improving downside risk scenarios. Last quarter, we mentioned the forward contracts for around 30% of G and A's Imperial dollar exposure through 2021 and 2022, And the aim here is to reduce the volatility and uncertainty in Alunorte's cash flow and ensure our cost curve position for Alunorte remains robust as it is currently. In addition, we have secured LME hedges for around 250,000 tonnes of primary aluminum or around 10% of our volumes, each for 2021, 2022 and 2023.
The hedges have locked in LME prices seen in late December, early January, And you can see that the guidance for Q1 volumes includes the effects of the effect. Parts of the corresponding raw material exposure has also been partially secured to further derivatives and physical contracting, locking in an attractive margin for parts of our business. Please move to Slide 24. For 2020, Hydro's Board of Directors proposed a dividend of NOK 1.25 per share, reflecting Hydro's robust financial situation and taking into account the demand in year, both by the COVID outbreak and the general volatility to the Intermediating Industry. The dividend represents a payout of around $2,600,000,000 which is to be paid in May, subject to approval by the Annual General Meeting of Shareholders.
The proposed payment demonstrates our commitment to shareholders, providing a competitive shareholder return compared to similar companies. It also represents a dividend yield well ahead of the aluminum peer group when comparing dividends paid out during 2020 compared to the year end 2020 share price. On average, Our 5 year payout ratio based on reported earnings is 65%, which is above our over the cycle dividend policy, which also have a 40% payout ratio with 1.25 considered as a floor. Moving forward, from 2021, the Board has increased the payout ratio in our dividend policy to minimum 60% of underlying net income with a floor of still not 1.25 per share, reflecting our ambitions to lift performance and the resulting cash returns to shareholders over the cycle and given the current market price environment, we're off to quite a good start. Please move to Slide 26.
I will now conclude with an update from our capital return dashboard for 2020, summarizing our performance on key financial targets and priorities for the year. Starting at the balance sheet and the key ratio of funds from operations to adjusted net debt, we have seen 39% in the last 12 months, which is an improvement compared to 35% last quarter and nearly in line with our target of about 40% over the cycle. Following our strong second half, free cash flow for the year is up SEK 7,700,000,000 NOK 6,600,000,000 of which came in the second half of the year and supported by an overall release of SEK 2,400,000,000 in net operating capital during 2020. We have also maintained our CapEx cuts in 2020 to preserve liquidity. We aim to cut CapEx to around NOK 7,000,000,000 to NOK 7,500,000,000 We ended up undertaking NOK 6,400,000,000 in investments in 2020.
However, NOK 700,000,000 will be carried over to the 2021 CapEx budget. Thus, we update our outlook for 2021, which was originally €9,000,000,000 to €9,500,000,000 to €9,500,000,000 to €10,000,000 Our longer term outlook for medium term outlook for 2022 to 2025 remains at NOK 9,000,000,000 to NOK 9,500,000,000. And on that, I would like to thank you for joining the presentation and invite you to stay for a Q and A session, which will begin shortly. Thank you.
Thank you, Paul. Operator, we are now ready for questions. Thank you.
Thank We'll take our first question from a participant. Your line is open. Please go ahead.
Good morning, Paola. It's Jason Fairclough at Bank of America. Two quick ones for me. First, through the COVID downturn, you were selling LME grade products to traders. I'm just wondering if you can confirm that this is finished.
And then second and probably related, we are hearing of shortages of certain sorts of products and I guess particularly can stock. Any similar product shortages that you're seeing across your product suite?
Thank you, Jason. Good questions. If we start with the shortages, to the latter ones. Then we see across the system that the demand recovery is stronger than most players had expected, both when it comes to to the Chem, Automotive and Building and Construction. As you see from our operating capital figures, these are at Lower levels than we thought, and that is much driven by reductions in inventories beyond the levels that we normally keep at Minimum stock level.
So we are able to supply most of our customers, But we are actually having to move some deliveries and pick out in time because demand is so strong. And if we have had More rolling flats, for example, available in the system, then we could be able to increase the production to even more than what we are doing today. So it is not causing an issue for us. It is a good trend, but ideally, we will be able to ship out more and not have to delay a bit into next year. The first question was on
Sorry, it was You were selling commodity grade products and distributors.
We have seen our premium Exactly. We have seen the value add premium to the premium products, the sales increased. So we're selling less standard ingots typically to traders or rather to Ireland. But as you know, part of our operations are on a normalized level also producing standard ingots and those are to the continued results to different market participants. But we are moving there and have moved the value add Product production more towards the normal levels there for our portfolio.
So linking it a bit back to the comment there on sheeting off. We also see the same picture on exclusioning off. We are producing and selling at capacity and running everything at to Steve and also ramping up the Husnett as fast as we can. And compared to Earlier quarters when we spoke, when a lot of this was Driven also by restocking, we see more signs now of this being under supported Hi, fundamental demand figures also. So a bit more sustainable demand based on what we're delivering, But still uncertainty in the months following January and upwards.
Al, just if I could follow-up. So if we look at other commodities, what we're seeing is that the premiums or the spot prices are rallying Quite hard as lead times extend. Do you feel like you're fully taking advantage of this tight market environment in terms of
I think as you will have seen from aluminum metals results that Premiums moved up, and they moved up to the higher part of our guided range and also a bit above market So with these increased volumes, we are also seeing increases in premium. You're seeing increases driven by demand and you're seeing increases in premium driven by more regulatory matters, for example, like in the U. S. Where the Midwest premium is now up at record high levels. So we are able to benefit from that, as you will also see into our Q1 guidance, and we will continue to ensure that we work for increasing those premiums as long as the market tightness continues.
As you're also aware of LME prices are I have been trading quite a bit above the 90% On the cost curve, reflecting at least the tightness we're seeing in the market now.
Okay. Thank you very much, sir.
Thank you,
We'll take our next Question from next participant. Please go ahead.
Good morning. It's Liam Fitzpatrick from Deutsche Bank. 2 or 3 questions from me. Firstly, on Rolled Products. Even without the duties, it's pretty close to breakeven.
So it seems like it could have a better owner elsewhere. Can you give any more color on at least the timing on when you think you will have made a decision either way to keep or sell? Second question on CO2 compensation for the Norwegian smelters. In terms of timing, when do you think we get more clarity on And final, hopefully a quick one on alumina costs. If we ignore the crane or the maintenance impact, In terms of the net effect into Q1 versus Q4, do you expect overall Costs to be down, just given the lower sourcing costs?
Thank you.
Yes. If we start with a question on rolled or rolling, as it is now called, If we just start with the underlying results, yes, on an EBIT level, excluding to the antidumping duties. We are still around breakeven levels. However, it's important to remember that This also includes effects of the cleanup and the restructuring, which are ongoing represented by, for example, to the higher depreciation related to curtailment of certain parts of the operations and The EBITDA development in a year impacted quite a significant COVID related effect I've been very much under supported by the SEK 500,000,000 in improvements delivered by Einar and his organization. If we look at the strategic review, then like earlier sessions, We will announce to the market when that is completed, and we hope that, that is in not the too distant future.
On CO2 compensation, I unfortunately can't answer on behalf of the to Norwegian authorities. The Board is in their court now, and they need to make decision before the annual budget for 2022, So anywhere between now and the end of the summer is the timing, let's say, we'll spend to do this is our expectation. Looking into bauxite and alumina and development into the Q1, of course, The fact that we don't have to source extraordinary alumina equipment to supply our customers On their contracts, we'll have quite a large net on net effect, both to CHF 300,000,000. But if we look at the outer elements and market prices, then fuel oil is a bit up And coal is flat to somewhat up, and caustic soda is also remaining weak. So there's not a lot of other Costkus apart from fuel oil.
So the totality should still be a good positive development in cost for the Q1, even if you include the CHF 200,000,000 in the quarter.
Okay. That's clear. Thanks, Paul. Thank you.
Thank you.
We'll take our next question from next participant. Please go ahead.
Good morning. Jatinder from Exane BNP Paribas. A couple of questions, Paul. Just one on hedging. Again, is 10% meant to reflect Any sort of level which represents only your external volumes from hydroaluminum?
Or is there any other thinking behind 10% and is there potential to change that number to a higher level? Second question on dividends, Good to see minimum payout being lifted. On the floor of NOK 1.25, Is there any scenario where management or board could think about lifting that floor as well? Thank you.
Thank you, Jiginder. If we start on the hedging, the absolute percentage does not reflect Our external position are similar. What we are looking at is we want to remain majority both to the movement in the margin. But given the cyclicality and given the Absolute integrated margin that we're seeing now, utilizing some of the better years to safeguard the cash flow for potential lower cyclical years. It's something which we believe over the cycle could make sense.
10% is what we have committed to now as we have been building up the strategy and program, ensuring that we have to the right system in place. And this could increase somewhat In the coming period, if we feel that we are able to sufficiently safeguard margins, but not Significantly above the levels that you are seeing today. When it comes to the dividend, We have the floor, as you are aware of, and of course, that provides a form of predictability and that's safeguarded A certain yield over the cycle. But being a cyclical exposed company, we would rather Instead of committing to large payments in the periods where we are on the cyclical low side, We have seen during COVID, which is maybe an exceptional circumstance, how big that dividend payment can be of to the total balance sheet outlook and then the reviews from rating agencies. So we As we see it today, given the current difficulty in the portfolio, we would rather keep the floor at this level and give extra back when earnings improve.
Over time, if we move forward with the strategic direction and some more diversification in earnings, we might think differently But that is not currently something we're evaluating today.
Great. Very clear, both. Thank you.
Thank you, Jatinder.
We'll take our next question from next participant. Please go ahead.
Yes, good morning, Paul. It's Amos Fletcher from Barclays here. Just a couple of questions. I just wanted to ask around so firstly, The €1,800,000,000 incremental cost reduction in 2021 that you're targeting, can you split that out by business area? And then the second question was just around working capital.
Is there a risk that you have to rebuild working capital during the course of 2021 given your comments around inventories being run down. And then the final question is just also around the headlines about the collective lawsuit that was That's being brought against you in the Netherlands. Is there anything you can sort of say about that in terms of potential impacts, provisions, etcetera? Thanks.
Thank you, Amos. Good questions. If I start backwards and moving to the top, when it comes to the Then our entities received a notification about that to the Dutch lawsuit, and we will respond as requested before the Dutch court. However, it is worth noting that the matters brought forward are already being discussed before Brazilian courts and Brazilian authorities. And as the Kanquama Association has since 2017 filed pipe losses in Brazil against different veto entities in So we are looking into the case now and We'll follow-up as we should.
On the other elements, working to the group. There is an expectation from our side that a large part of what has been released This year should come back into 2021 if we see markets Remaining where we see them today and volumes coming back as external analysts expect. So as you saw from our report, there is an expectation of Quite a decent growth in year on year volumes in Exclusions and Rolling that will drive some operating capital. We are ramping up the Husnes measure and completing the ramp up of Alpro. That will drive some operating capital.
And then you have The price effect on top. So yes, already into the Q1, you could typically see I have built above seasonality on operating capital. If we look at the improvement program And the amount that you talked about for next year. And then around 1,000,000,000 of these are improvements in the business area and around 900,000,000 It's reflecting ramp up in G and A volumes. So since we're not running at nameplate, but 80 7% for the year as a whole, you still have a ramp up effect in the next year.
Of the $1,000,000,000 improvement, that is spread quite well among the business areas, but with a larger share in extrusion rolling and aluminum metal and less in B and A. DNA primarily has volume effect in the next year.
Okay. That's great. Thank you.
Thank you, Andrew.
We'll take our next question from next participant. Please go ahead.
Yes. Hi, there. This is Ioannis Masfullas from Morgan Stanley. Most of my questions have been answered. Just have a couple for you.
The first one is In terms of the primary metals or hydro aluminum business, what sort of cost progression Should we be expecting across the various moving parts sequentially for Q1? And secondly, given the And you, the accounting changes in the Energy Division, what sort of depreciation base
should we
be assuming for the group going forward? Thank
you. Yes. If we start With the cost development in primary metal, then The energy cost is the biggest moving element there into the Q1, as you saw from the energy That's right. The higher prices on power contract internally Has a negative effect in aluminum metal, which is now compared to 2020 not compensated by to other high cost expiring contracts. So depending on EBITDA on what's current rate You used and the starting point, you could see between €100,000,000 €200,000,000 in increased energy costs for aluminum method Q4 versus Q1.
And that is before you potentially take into anything on to the CO2 compensation side. These are the other elements with the market. Alumina prices are somewhat up Compared to what we saw in the Q4, if prices remain there, that could be Around $30 or so per tonne. And then carbon costs are also somewhat up And the prices remain where we see in the market now, that could also be around $30 or so per tonne. When it comes to the and then you have fixed cost, which also typically increases a bit into to the first quarter.
If you look at depreciation, then the lease and trust transaction per se Shouldn't really be impacting depreciation to a large extent. As you know, the RSK assets So we're so written down that they didn't add a lot to the depreciation In the existing system, but when we write up these assets, This is the increased effect that we're talking about between where we say between €100,000,000 and €200,000,000 for the year as a whole, Which will not hit depreciation, but it will hit the EBITDA line as we account the LPDA As an equity accounted investment, so the overall depreciation line should be marginally reduced by that transaction, The depreciation effect is higher, but it will not be the depreciation line. And we can spend
There are no further questions at this time. Dear speaker, please go ahead.
To Grace. Thank you everyone for joining us today and please don't hesitate to contact us if you have any questions afterwards. Thank you very much and have a good day.