Elkem
Fourth quarter results
Agenda
Business update
By CEO Helge Aasen
Financial performance By CFO Morten Viga
Outlook
By CEO Helge Aasen
ZEIkem
Highlights
Fourth quarter concludes a record year for Elkem
- Elkem delivered a good result for the fourth quarter, based on strong performance from Silicon Products and Carbon Solutions
- The market conditions have generally been weak, particularly in China, severely impacting the Silicones division
- Elkem's business model is robust against turbulent markets, based on a diversified product portfolio and balanced geographical positions
- In December, Elkem was awarded double A- scores from CDP for the company's efforts on climate and forests
- Earnings per share (EPS) was NOK 15.09 in 2022. The board has proposed a dividend of NOK 6.00 per share, equivalent to 40% of profit for the year
Total operating income MNOK 10,404
EBITDA MNOK 1,787
EBITDA margin 17%
ZEIkem
ESG - rated among the world's leading companies
A clear focus on ESG
- Awarded double A- scores from CDP for the company's efforts on climate and forests. Elkem also achieved a B score on water security
- Elkem has closed its first sustainability linked loan facility with KPIs on key sustainability goals
- World's first carbon capture pilot for $\blacksquare$ smelters inaugurated at Elkem in Rana, Norway
Safety
Ambition: Zero injuries
Total injury rate (per million working hours)
Social
- Human rights impact assessment completed in 40-2022
- Launching of a new system to strengthen HSE work
Environmental
- Target to reduce product carbon footprint by 39% by 2031
-
80% of electrical consumption from renewable energy
Governance
- 54% of revenue in 2021 defined as EU Taxonomy eligible
- Conducting physical climate risk assessment according to TCFD
Corporate strategy
Dual-play growth & green leadership - a balanced strategy for changing markets
Profitable growth: Top 3 in silicones worldwide We are Elkem Number 1 in silicon products and carbon solutions in the West Advanced siliconbased materials shaping a better & Green leadership Dual-play growth more sustainable $\rightarrow$ Strengthening position as best in the $\rightarrow$ Balanced between geographic Dual-play growth industry on low $CO2$ regions (East & West) future & green leadership $\rightarrow$ Growing supplies to green transition & $\rightarrow$ Balanced across the value chain (Upstream & Downstream) creating green ventures Silicon products Carbon solutions Silicones EBITDA Growth $\rightarrow$ Balanced geographical growth $\rightarrow$ Selective growth $\rightarrow$ Selective growth in West >15% per year >5% per year $\rightarrow$ Sustainable low-cost position $\rightarrow$ Improve cost position $\rightarrow$ Secure leading cost positions $\rightarrow$ Lower carbon emissions $\rightarrow$ Higher degree of specialisation $\rightarrow$ Preferred supplier with high quality Reduce CO2 Net zero -28% 2020-31 By 2050
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Investment amount MNOK 200
Capacity increase 40%
Additional annual sales > MNOK 300
| EU |
3,9 % |
1,8 % |
|
| Norway & Iceland |
6,6 % |
3,6 % |
|
| North America |
4,5 % |
2,3 % |
|
| South America |
5,9 % |
4,5 % |
|
| China |
74,5 % |
72,5 % |
|
| Asia Pacific |
3,5 % |
5,0 % |
|
| Russia & Central Asia |
1,0 % |
7,9 % |
|
| Rest of the world |
0,1 % |
2,4 % |
|
| SUM |
100,0 % |
100 % |
|
Global light vehicles production, 2018 – 2022 (in million)
Global EV production forecast, 2023-2029 (in million)
General markets
Covid situation severely impacting Chinese markets
- The Covid situation has impacted Chinese markets throughout 2022, with forecasted GDP growth down to approx. 3%
- Lock downs and travel restrictions have negatively impacted consumption and production, particularly for downstream silicones
- Covid restrictions were lifted late 4Q-2022, but infection rates soared, leading to even lower demand
- Construction and consumer markets have been hit particularly hard, due to economic uncertainty
- The situation has severely impacted the results for the Silicones division
- A recovery is expected after Chinese New Year. Chinese government likely to stimulate among others the construction sector. A recovery also expected in EV and consumer markets
$E$ Elkem
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
Weak result for Silicones, but another strong quarter for Silicon Products and Carbon Solutions
• Lower operating income for Silicones offset by Silicon Products & Carbon Solutions
4Q 2021 Silicones Si. Prod. Carbon Elm/Oth. 4Q 2022
Down 42% $\mathbf{u}$ . compared to 4Q-2021
Reduction $\blacksquare$ explained by weak result for Silicones
4Q 2021 Silicones Si. Prod. Carbon Elm/Oth. 4Q 2022
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Elkem Group
Overview financial ratios
- EBITDA MNOK 1,787
- Segment Other included realised currency hedging losses of MNOK -34. Gain of MNOK 40 from discontinuation of power hedging in Norway not included in EBITDA (included from 10-23)
- Other items MNOK 168
- Mainly consisting of gain on power and currency derivatives MNOK 333, offset by currency loss on working capital items MNOK -185. Various other items amounted to MNOK 20
- Net finance income (expenses) MNOK -208
- Consist of net interest expenses MNOK -73, currency loss of MNOK-129 and other financial expenses of MNOK-6
- $\blacksquare$ Tax MNOK -254
- Resulting in a tax rate of 22% for the fourth quarter 2022
- Tax rate YTD-2022 was 21%
Consolidated key figures
| (NOK million, except where specified) |
40 2022 |
40 2021 |
|
YTD 2022 YTD 2021 |
FY 2021 |
| Total operating income |
10,404 |
10,397 |
45,898 |
33,717 |
33,717 |
| EBITDA |
1,787 |
3,059 |
12,887 |
7,791 |
7,791 |
| EBIT |
1,229 |
2,586 |
10,861 |
5,899 |
5,899 |
| Other items |
168 |
$-85$ |
1,554 |
$-114$ |
$-114$ |
| Net finance income (expenses) |
$-208$ |
28 |
$-161$ |
6 |
6 |
| Profit (loss) before income tax |
1,178 |
2,538 |
12,236 |
5,827 |
5,827 |
| Tax |
$-254$ |
$-564$ |
$-2,594$ |
$-1,163$ |
$-1,163$ |
(1)
Profit (loss) for the period |
894 |
1,964 |
9,561 |
4,628 |
4,628 |
| Key ratios |
|
|
|
|
|
| EPS (NOK per share) |
1.41 |
3.11 |
15.09 |
7.49 |
7.49 |
| Equity ratio (%) |
55 % |
47 % |
55 % |
47 % |
47 % |
| Net interest bearing debt (NIBD) (2) |
2,615 |
4,827 |
2,615 |
4,827 |
4,827 |
| Leverage ratio |
0.2 |
0.6 |
0.2 |
0.6 |
0.6 |
| Reinvestments % of D&A |
146 % |
145 % |
84 % |
91% |
91% |
| ROCE (annualised) (%) |
23 % |
44 % |
41% |
27 % |
27 % |
(1) Owners of the parent's share of profit (loss)
(2) Excluding receivables from related parties, loans to external parties, accrued interest income and non-current other restricted deposits
Total operating income
Total operating income
Total operating income
Earnings per share (EPS)
Equity ratio
Net interest-bearing debt (NIBD)
Cash flow from operations
Investments ex. M&A
Outlook for the first quarter 2023
- Market sentiment impacted by macroeconomic uncertainty and lower growth in key sectors
- " The silicones market in China is weak going into the first quarter but expected to improve after Chinese New Year. In addition, Silicones could be negatively impacted by strikes in France
- An overall weak market sentiment for Silicon Products, but significant capacity curtailments seem to balance the market at current level. Reference prices for silicon and ferrosilicon somewhat down from the fourth quarter 2022
- Carbon Solutions has seen lower demand due to closures in steel, but markets expected to be stable in the first quarter
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
@Elkem
Currency sensitivity
- The result and cash flow are exposed to currency fluctuations. The main currencies are EUR, USD and CNY
- EUR exposure approx. MEUR 430 in 2022 ٠.
- USD exposure approx. MUSD 250 in 2022
- CNY exposure approx. MCNY 1,700 in 2022 $\blacksquare$
- 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 900 over the coming 12 months. CNY is not hedged
Currency development
- As of 31 December 2022, the NOK closed 1% stronger against the EUR, 9% stronger against USD, and 3% stronger against CNY compared to 30 September 2022
- In 4Q-2022, the NOK was on average 4% weaker against EUR, 17% weaker against USD, and 5% weaker against CNY compared to 4Q-2021.
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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. 3.7 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 2025. After 2025, 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 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 191 per year(*)
- 10% price change on ferrosilicon is expected to affect result by approx. MNOK 593 per year $(*)$
(*) Sensitivities are on group level and based on annual sales volumes. Sales prices are based on LTM CRU prices.
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