Elkem
Second quarter results 2023
Agenda
Business update
By CEO Helge Aasen
Financial performance
By CFO Morten Viga
Outlook
@Elkem
By CEO Helge Aasen
Highlights
An overall good performance in weak markets
- Elkem delivered an EBITDA of NOK 1,039 million in the second $\mathbf{u}$ . quarter 2023. The result was negatively impacted by NOK 250 million related to one-offs
- Silicon Products and Carbon Solutions continue to deliver strong results, based on superior cost and markets positions
- Weak results for the Silicones division, impacted by challenging markets, inventory write down, and maintenance stop in China
- Elkem well positioned for demand recovery and improved market conditions, based on maintenance and growth investments
- Acquisition of VUM, a Slovak producer of carbon materials, in second quarter to further increase Elkem's capacity in attractive markets
Total operating income MNOK 9,258
EBITDA MNOK 1,039
EBITDA margin $11\%$
Strong ESG focus and performance
Green leadership
- Product carbon footprint reduced by $\blacksquare$ 7% from 2021 to 2022
- Elkem is a key supplier to the green $\blacksquare$ transition with silicon defined as a critical material in EU and the US
- Elkem and the environmental $\blacksquare$ foundation Zero have entered into a partnership for industrial climate solutions
- Elkem has recently demonstrated п solutions for recycling of silicones, potential to reduce carbon footprint by up to 70%
Safety
Ambition: Zero injuries
Total injury rate (per million working hours)
Rated among the world's leading companies
ZERO
Net zero CO2 emissions by 2050
$\left[\begin{matrix} 1 \ 1 \end{matrix}\right]$ ESG100
Rated A for ESG reporting in 2022
Delivering on strategy - dual-play growth & green leadership
Corporate strategy
Increasing capacity in attractive specialty markets
- Elkem has entered into an agreement to acquire VUM, a Slovak $\blacksquare$ producer of carbon based-materials
- The company produces carbon-based materials for industrial $\blacksquare$ smelters, including anode paste, electrode paste and recarburisers
- The transaction will further increase Elkem's capacity and $\blacksquare$ competence in attractive specialty markets and increase its flexibility in the supply chain
- Another example of Elkem delivering on its dual strategy with focus $\blacksquare$ on diversified geographical growth across the value chain
Additional annual sales: ~MNOK 360
Capacity ~Up to 50,000 mt
$E$ Elkem
Corporate strategy
Upgrades and digitalisation enhancing efficiency and cost improvements
- Accelerated maintenance and improvement projects at the $\blacksquare$ Thamshavn and Rana plants successfully completed
- Both plants have restarted production, well positioned for future $\blacksquare$ demand recovery and with enhanced competitive positions
- New state-of-the-art control room opened at the Bremanger plant (picture), enhancing safety and improving efficiencies
- Silicones developing a complete digital chain, from online process $\blacksquare$ analysis to process control, leveraging on advances in digitalisation and Al
Upgrading and digitalisation projects
Projects at Thamshavn, Rana and Bremanger in Norway, and Lyon in France
Improving efficiency and cost position
Limited project investments totalling MNOK 300
Ongoing specialisation projects
Systematic improvement work to counter weak Silicones markets
• Elkem taking measures to counter challenging markets for Silicones
China – New construction areas (unit 10,000 square meters)
Source: China National Bureau of Statistics
Construction – global annual growth and key regions ( in %)
Source: Oxford Economics
Light-vehicles production: Annual growth in key regions (changes in %)
DMC reference price China (CNY/mt)
DMC reference prices are based on quotes incl. VAT and transportation. Quotes may not always reflect accurate sales prices.
CRU silicon 99 price EU (EUR/mt)
▪
CRU ferrosilicon 75 price EU (EUR/mt)
- Crude steel production (million mt) ▪
-
- ▪
- ▪
Elkem group
Still strong in Silicon Products and Carbon Solutions, but weak results for Silicones
Down from 20-2022, due to lower sales prices and volumes
■ ... impacting Silicones and Silicon Products
$\blacksquare$ ... but results for Silicon Products and Carbon Solution still strong
$\mathbf{u}$ .
20 2022 Silicones Si. Prod. Carbon Elm/Oth. 2Q 2023
Elkem Group
Overview financial ratios
- EBITDA MNOK 1,039
- Segment Other included realised currency hedging losses of MNOK-119
- Other items MNOK 37
- Mainly loss on power and currency derivatives MNOK-86, offset by currency gains on working capital items MNOK 129
- Net finance income (expenses) MNOK -182
- Consist of net interest expenses MNOK -124. currency loss of MNOK -53 and other financial expenses of MNOK -5
- Tax MNOK -193
- Resulting in a tax rate of 76% for the second quarter 2023
- The high tax rate was explained by low results in France and China where losses are not capitalised as deferred tax assets
Consolidated key figures
| (NOK million, except where specified) |
20 20 23 |
|
|
2Q 2022 YTD 2023 YTD 2022 FY 2022 |
|
| Total operating income |
9,258 |
12,326 |
19,192 |
24,201 |
45,898 |
| EBITDA |
1,039 |
3,924 |
2,604 |
7,798 |
12,925 |
(1)
EBIT |
469 |
3,428 |
1,494 |
6,827 |
10,898 |
| Other items |
37 |
465 |
590 |
552 |
2,151 |
| Net finance income (expenses) |
$-182$ |
10 |
$-291$ |
42 |
$-161$ |
| Profit (loss) before income tax |
255 |
3,773 |
1,640 |
7,174 |
12,236 |
| Tax |
$-193$ |
$-790$ |
$-596$ |
$-1,522$ |
$-2,594$ |
(2)
Profit (loss) for the period |
36 |
2,962 |
989 |
5,621 |
9,561 |
| Key ratios |
|
|
|
|
|
| EPS (NOK per share) |
0.06 |
4.67 |
1.56 |
8.87 |
15.09 |
| Equity ratio (%) |
50 % |
52 % |
50% |
52 % |
55 % |
(3)
Net interest bearing debt (NIBD) |
8,191 |
4,051 |
8,191 |
4,051 |
2,615 |
| Leverage ratio |
1.1 |
0.3 |
1.1 |
0.3 |
0.2 |
| Reinvestments % of D&A |
128 % |
74 % |
96 % |
64 % |
84 % |
| ROCE (annualised) (%) |
6 % |
50 % |
9% |
51% |
39 % |
(1) Operating profit before other items and hedge adjustments
(2) Owners of the parent's share of profit (loss)
(3) Excluding non-current restricted deposits and interest-bearing financial assets
Total operating income
Total operating income
Earnings per share (EPS)
Equity ratio
Net interest-bearing debt (NIBD)
Outlook for the third quarter 2023
- Continued weak market sentiment. Elkem well positioned to benefit from recovery due to strong market positions and robust financials
- Silicones markets expected to remain challenging, and Elkem plans to run at reduced capacity to optimise product mix
- Prices for Silicon Products in a downward trajectory going into third quarter, partially countered by lower raw material costs. Higher capacity utilisation is expected, following completion of maintenance projects
- Carbon Solutions expected to remain at a good level, despite weak markets
ZEIkem
Important notice
Any statement, estimate or projection included in this presentation (or upon which any of the conclusions contained herein are based) with respect to anticipated future performance (including, without limitation, any statement, estimate or projection with respect to the condition (financial or otherwise), prospects, business strategy, plans or objectives of the company and/or any of its affiliates) may prove not to be correct.
No representation or warranty is given as to the completeness or accuracy of any forward-looking statement contained in this presentation or the accuracy of any of the underlying assumptions. Nothing contained herein shall constitute any representation or warranty as to the future performance of the company, any financial instrument, credit, currency rate or other market or economic measure.
Information about past performance given in this presentation should not be relied upon as, and is not, an indication of future performance.
ZEIkem
Appendix
Currency sensitivity
- The result and cash flow are exposed to currency fluctuations. The main currencies are EUR, USD and CNY
- EUR exposure approx. MEUR 550 ٠.
- USD exposure approx. MUSD 100
- CNY exposure approx. MCNY 200
- Current cash flow hedging programme
- 90% hedging of net cash flows occurring within 0-3 months
- 45% hedging of forecasted net cash flows within 4-12 months
- Before hedging activities, a 10% strengthening or weakening of NOK versus all other currencies would have an EBITDA effect of approx. MNOK 800 over the coming 12 months. CNY is not hedged
Currency development
- As of 30 June 2023, the NOK closed 3% weaker against the EUR, 3% weaker against USD, and 3% stronger against CNY compared to 31 March 2023
- In 2Q-2023, the NOK was on average 16% weaker against EUR, 14% weaker against USD, and 7% weaker against CNY compared to 2Q-2022
Other financial sensitivities
POWER
- Electric power is a key input factor in Elkem's production. The normal $\blacksquare$ consumption is around 6.5 TWh of which approx. 3.6 TWh is in Norway. Near term exposure to spot power prices is limited
- Norway, hedging programme mainly consisting of long-term contracts covering around 80% of full capacity consumption until 2026. After 2026, Elkem has a high but gradually declining hedging ratio in line with its long-term hedging strategy
- Outside Norway, power prices are mostly based on long term contracts $\blacksquare$ or regulated power tariffs
SALES PRICES
- Changes in sales prices could significantly affect operating income and EBITDA
- 10% price change on silicon metal is expected to affect result by approx. MNOK 150 per year(*)
- 10% price change on ferrosilicon is expected to affect result by approx. MNOK 450 per year(*)
(*) Sensitivities are on group level and based on annual sales volumes. Sales prices are based on LTM CRU prices.
Delivering your potential