Elkem Asa Ord

Welcome to LKM's first quarter results presentation. My name is Ogge Lindgstad, and I'm responsible for investor relations in LKM. As you can see, today's main agenda item consists of a market update with outlook for the second quarter and the presentation of the first quarter results. CEO Helge Aasen will take us through the first part, and CFO Morten Viga will present the financial results for the first quarter. After these presentations, we will open for Q&A. So with that, I leave the word to CEO Helge Olsson.

Thank you, and good morning, everyone. As you're all aware of, the markets are turbulent for the time being, caused by global trade tensions. So this creates quite significant uncertainty also for us. It affects trades flows and market demand and are having an impact on Elkem's results. The first quarter EBTA ended up at 898 million NOK, which gave an EBTA margin of 11%. The silicones division benefited from improved cost positions. And that's particularly the case in China. The results improved significantly compared to first quarter last year. But compared to the previous quarter, the results were hampered by Chinese New Year and also maintenance stop. The strategic review of the silicone division is underway and the target is to conclude the process by year end. The division is reclassified in the accounts, and if you look at the Elkem group excluding silicones, the operating income was 4.3 billion NOK in the quarter, with an EVPA of close to 700 million, which represents a margin of 16%. Silicon products was also impacted by weak market conditions, including maintenance stops at several sites in Norway. In addition, we have had a power curtailment on Iceland, resulting in reduced capacity utilization at that site. Carbon Solutions delivered stable results and high margins, also this quarter. So an update on ESG. Our ESG focus is built on two main pillars. Reduce CO2 and other emissions and to supply the green transition with critical materials. Our aim is to reduce and ultimately remove fossil CO2 emissions from the smelting processes, first through increased share of biogenic reduction materials. Longer term, We are looking at the groundbreaking R&D project, such as the carbon capture and storage project at Vama in Norway, and the Cicalo project with the aim of completely eliminating CO2 emissions. And to do all this by 2050. We are engaged in several initiatives throughout the value chain and together with our shipping partner, NCL, we are deploying two new methanol powered container ships. One of them is on the picture here on the lower left side of the slide. In April, we also launched a pioneering range of recycled silicones for the label industry, which is a big market for us, with 70% lower carbon footprint. So these are only two of many ongoing initiatives and our efforts are also well recognized by good scores on ESG ratings as the platinum rating from Ecovadis, as well as top score on forest and water from CDP. Coming back to global trade tensions, they are escalating and obviously becoming an increased concern. The proposed tariffs are affecting markets around the world and our industry and markets will for sure be impacted also by these shifts in trade policies. We expect that local and regional content throughout value chains will have increased importance in many industry segments and where access to and control of critical raw materials will be key. And we think Elkem is well positioned for this. And our strategy has been for quite some time to operate geographically diverse and independent value chains. This means a regional business model where most of raw material sourcing, production and sales take place within each geographic region. In other words, most of what we sell in the western part of the world are produced in Europe and the Americas, and most of what we produce in China is sold in the Asia-Pacific region. It is a bit early to say exactly how these global trade tensions will play out and how we will be affected. But I think it's important to note that both the EU and the US are net importers of Elkem's products, including silicon, ferro-silicon, foundry alloys and silicones. So we do think that potential tariffs likely will be counterbalanced by increased prices. So let's move on to the market update and the outlook. As I indicated, global trade tensions and changes in trade policies are creating a high level of uncertainty. These changes are expected to affect global economic prospects and contribute to rising inflation and tightening financial overall conditions. Current economic indicators are pointing to slower growth and business and consumer confidence has declined. OECD and other institutions have updated their GDP forecasts, which are depicted on the slide here. And the table to the right shows the latest GDP projections from OECD from March this year. So they are lowering their projections for key economies, including the US, China and the Euro area. So how is this impacting And it is creating uncertainty, as I have mentioned. However, I think it's important to highlight some opportunities as well that may come out of this. And keep in mind that Elkem has a very diversified global footprint. The proposed tariffs where we are located are all in the low end of what has been proposed by the US, ranging from 10 to 20%. Elkem's plant in Canada currently has no tariff. The exception is, of course, China. But our sales from China to the US are on a very low level. In addition to the general tariffs, the US have also imposed ADD and CVD duties on ferro-silicon from Kazakhstan, Malaysia and Brazil. and the EU are also assessing trade defence measures that could be positive for our industry in order to prevent dumping. The direct impact could therefore be limited on Elkem, but the indirect impact through reduced market demand is obviously where most of the uncertainty is located and could become more substantial. Automotive is an important sector to Elkem and drives demand for many of our products and materials. The global auto industry is also important to many countries, which are now evaluating how to cope with the impacts of the new tariffs and tensions. Demand is showing some signs of recovery and production forecasts have been revised up. However, The situation remains vulnerable to new policies and trade barriers. In Europe, the automotive industry has faced challenges from electrification and weak demand. The EU is trying to address this and have made revisions to the CAF regulations. These regulations include requirements for allowed CO2 emissions per kilometer for cars sold in the 27 member states. Following these revisions, the expected production has been upgraded to 16.7 million units in 2025 and 17.3 million units in 2026. The outlook in China has been increased to 30.7 million units for this year and 31.8 million units for 2026. also driven by a vehicle scrappage policy and strong growth in the EV segment. Similar modest growth is also expected in the Americas. In addition to automotive, the construction and infrastructure markets are very important to Elkem. Defense spending is also an area that is expected to drive increased demand going forward. particularly because of the high focus on reliable access to critical materials. Germany has announced a package for increased defense spending and a 500 billion Euro infrastructure fund. The initiative is to overhaul the country's infrastructure network, modernizing areas such as energy, transportation, digitalization, et cetera, NATO and the EU's ReArmEU initiative aim to strengthen and protect the supply chains and increase defense spending. And silicon is one of the materials included in the Defense Critical Supply Chain Security Roadmap, to make it short. Ferrosilicon and ferroalloys are used to produce different steel qualities and are important both in infrastructure and in the defense industry. So as one of the world's largest suppliers of both silicon and ferroalloys, Elkem expects to benefit from increased demand when this will start picking up. Let's take a closer look at the markets and start with silicon. very much affected by uncertainty level, as already mentioned several times. The longer term outlook, though, is quite positive. As mentioned, the new fiscal package in Germany and higher defense spending in Europe are expected to improve demand. EU silicon prices remained stable in the first quarter, but were under pressure due to imports and have declined by slightly more than 10% in the EU after we entered the second quarter. The US silicon market is experiencing oversupply, which is putting a downward pressure on sales prices in that region. And in China, silicon prices have continued to drop due to weak demand and higher inventory levels. And the decline in Chinese demand is largely explained by the decrease in polysilicon production, which was down 45% in January, February, compared to the same period last year. Moving on to ferrosilicon, we have many of the same drivers, obviously, as in silicon. prices in the EU rose slightly during the first quarter due to demand from steel and lower inventories, particularly was this the case in Germany. But the high imports into the EU have imposed a renewed downward price pressure, and we have seen a modest decline now going into the second quarter. In the US, furosilicon prices remain stable. However, potential tariffs and ongoing trade cases are influencing the market, obviously. In China, ferro-silicon prices are decreasing as a result of weak demand from the steel industry combined with higher inventory levels. And as we know, historically, low prices in China are also putting some pressure on prices in other regions. Then moving on to silicones. In the first quarter, we have seen seasonally low demand in most regions, with some exceptions for silicone specialties. The demand recovery in China has been weaker than expected. And this is particularly the case in sectors like construction, textiles and the chemicals. Despite this, we have seen higher DMC prices in China during the first quarter. They reached a high of 14,600 RMB per tonne by the end of the quarter, mainly driven by reduced production and strong willingness among producers to sustain a higher price level. And by reducing production capacity utilization, However, moving into the second quarter, we have seen a decline in DMC prices of more than 15%, impacted, we think, by the big changes in trade tensions. The silicones markets in the EU and the US were impacted by seasonal factors and weak commodity demand. But in general, demand for specialties have held up quite well. The market for carbon products is much smaller than for silicones and silicon, and we do not have any good reference prices here, but the demand varies across regions, mainly driven by steel, ferroalloys and aluminium production. And in the first quarter of 2025, the global steel production was down 3% compared to the same period previous year. And there has been a decline in all regions. Europe experienced a 7% drop while North America saw a 3% year-on-year decrease. So although the steel and ferroalloy markets are currently weak, specialty portfolio of carbon solutions is supporting still a very stable financial performance. Then let me take you through the outlook. So as mentioned, markets are characterized by significant uncertainty due to all the changes in trade policies. However, I think it's very important to keep in mind that Elkem is relatively well positioned due to our diverse geographical presence and also the fact that we have isolated or made our value chains independent of each other, especially comparing East and West. Silicon's markets are likely affected by trade tensions, but disruptions in the Chinese markets may be compensated by new opportunities for our French production sites. So when Chinese exports are kept out of the US, there will be obviously an attempt to look for other sources of import with lower tariffs. Silicon products continue to face low demand. The EU reference prices for silicon metal have declined early in the quarter, in the second quarter, but the division still benefits from strong cost and market positions. And in carbon solutions, we are in a very good position in terms of market and cost. And we have a very geographically diverse position. So I think with that, I'll give the word to you, Morten. Take us through the financials.

Thank you very much, Helge. And good morning, everybody. so i am certainly pleased to go through the results for the first quarter in in more detail our operating income for the quarter amounted to eight billion knock that's up one percent compared to the first quarter last year the silicones division reported increased operating income which was mainly explained by higher sales volume And also carbon solutions had a small increase in operating income, while silicon products had a reduction due to the weak market sentiment. The EBITDA for the quarter was close to 900 million NOK for the group. Silicones and carbon solutions delivered improved EBITDA compared to the first quarter 2024, while silicon products was behind Q1 2024. The reported group EBITDA margin was 11% for the quarter, which is below our long-term target of 15 to 20% EBITDA margin through the cycle. However, EBITDA for the continuing operations, i.e. silicon products and carbon solutions, amounted to 16% in line with the long-term target, and this even in a very difficult market situation. Clearly, Elkem's strong cost and market positions remain unchanged, and this is the main reason that we generate fairly good margins, even in a very weak market sentiment. There were no particular one-offs affecting the EBITDA this quarter. As usual, we provide an overview of some of the main financial numbers and ratios. I will not go into detail on all of them, but it's important to note that the silicones division has been reclassified as discontinued operations and assets held for sale. The P&L cash flow and balance sheet in the financial report reflect LKM results excluding silicones. In the table to the right, you can see comparable figures for Elkem with and without silicones. In this presentation, we mainly refer to Elkem group including silicones as the division is still part of the group and management's responsibility. The group EBITDA was 898 million NOC, where the segment other include realized currency hedging losses of minus 34 million NOC. Other items amounted to minus 7 million NOC, and these main items were gains on power and currency derivatives of 38 million NOC and restructuring expenses of minus 25 million NOC. Net finance expenses were minus 192 million NOC, consisting of net interest expenses of minus 171 million NOC, and currency losses of 15 million NOC. Tax amounted to minus 132 million NOC in the quarter, despite a loss before tax. And this is mainly due to negative taxable income for silicones. Let's then take a look at the divisions and start with the silicon products division. The division reported total operating income of 3.5 billion NOC. That's down 12% from the first quarter last year. And this is mainly explained by lower sales volumes caused by weaker market conditions. The EBITDA was 489 million NOK, which was down 28% compared to the first quarter last year. The EBITDA margin amounted to 14%. As already mentioned, the division was impacted by generally weak market sentiment with generally low prices and thin demand. In addition, the quarter was also negatively impacted by maintenance stops at several plants in Norway and power curtailment in Iceland. The negative EBITDA impact related to the maintenance stops and power curtailment amounts to approximately minus 75 million NOK for the quarter. The demand situation was weak in the first quarter and the sales volume was, as I said, down approximately 10% compared to the same quarter last year. The carbon solutions division continues to show strong financial performance despite challenging markets. Total operating income amounted to 860 million NOK, which is up 3% compared to the first quarter last year. And this is mainly generated by favorable sales mix and currency effects, which was partly countered by somewhat lower sales prices. EBITDA amounted to 261 million NOK, which was up 5% from the same quarter last year. And the EBITDA margin was 30%, which once again represents a very good and stable level in a difficult market situation. The improved EBITDA is mainly explained by favorable sales mix and positive currency effects. The demand was quite low in the first quarter with unchanged sales volumes compared to the first quarter last year. And as we have said before, the division is clearly benefiting from very strong market positions and now also higher sales from the new expansion project in Brazil. As mentioned, the silicones division is under strategic review. The division delivered total operating income of almost 3.8 billion NOC for the quarter. That's up 16% from the first quarter last year. EBITDA amounted to 201 million, which also was better than first quarter last year. The higher operating income was explained by higher sales volumes, also from our new expansion project in China, but this was partly countered by lower commodity sales prices. The division has improved significantly its cost position after, among others, the expansion and upgrading project in China. And this has certainly made the division more competitive on commodity products, securing higher margins, even in a very weak market sentiment. The result was, however, negatively impacted by maintenance stops, both in France and China. In addition, the Chinese New Year also impacted the result when compared to the previous quarter last year. The negative EBITDA impact related to the maintenance stops in France and China is calculated to approximately minus 50 million for the quarter. Sales volume was up 34% compared to the first quarter last year, mainly in Asia Pacific region. We will now take a closer look at some of Elkem's key financial ratios. The EPS earnings per share was negative in the first quarter with minus 0.33 NOK per share. And we are of course not satisfied with this, but we should bear in mind that the EPS was negatively impacted by losses from the silicones division, which is under strategic review. If we exclude silicones, the EPS for the first quarter would have been plus 0.21 NOC per share. The balance sheet is very solid. Total equity amounted to 24.9 billion NOC by the end of first quarter, which gives an equity ratio of around 50%. The total balance sheet values and equity were lower compared to year end, mainly due to currency movements. Elken's financing position remains robust and stable, and it's our clear focus to keep a strong liquidity position and a smooth maturity profile on our debt. The net interest bearing debt amounted to 11 billion NOK as per the end of Q1. This was up by 700 million NOK from the previous quarter. As you can see from the graph to the right, Elkem has very low upcoming installments in 2025 and even in 2026. Based on last 12 months EBTA, the debt leverage was 2.5 times, which is unchanged from year end. The target is to bring the leverage within Elkem's communicated target between one to two times EBTA. By the end of Q1, 25 and Elken's interest coverage ratio was 5.6 times, which means that we are well above the covenant level in our loan agreements, which is a minimum four times. The cashflow from operations amounted to plus 97 million in the first quarter. This is negatively impacted by working capital changes, mainly explained by higher trade receivables and lower trade payables. This was partly offset by lower inventories, which was according to the plan due to increased inventories towards year end, and where we also prepared for planned maintenance stops in the first quarter. Also here, the numbers are negatively impacted. The cashflow is negatively impacted by silicones. And if you exclude silicones, the cashflow for operations would have been almost 400 million for the quarter. We will continue to focus on a very disciplined capital spending as long as the weak market conditions prevail. In the first quarter, total investments were down to 414 million NOK. The major part of this is reinvestments amounting to 362 million NOK, which equals 51% of depreciation. Strategic investments were only 52 million NOK as the major part of our project portfolio was completed last year. So let me wrap up this presentation by summarizing the main headlines and takeaways from the quarter. The markets are clearly characterized by significant uncertainty due to the ongoing disputes on trade tariffs. And this clearly means that Elkem's main focus going forward will be on cash generation and disciplined capital spending. Silicones is benefiting from significantly improved cost positions, both in China and France, but the trade tensions will likely affect our business. But Elkem's geographical footprint with a regional business model will clearly also provide some good opportunities. Silicon products continue to face low demand, but is well positioned due to strong cost and market positions compared to all competitors. Carbon Solutions also continues to benefit from excellent cost positions and geographically diverse market positions. The strategic review for the silicones division is ongoing and the target is clearly to conclude the process well ahead of the year end. But right now it's not possible for us to go into the detail about this process. And with that, I think we are through our presentation and I'd like to hand the word back to Odger for the Q&A session. Thank you.

Thank you for that. We have a few questions related to mainly results, outlook and the strategic review process. So I'll take them as they have come in. First question is if we can say something about the impact of the maintenance stops and how they have impacted the results. You mentioned that, but to make sure that it's well understood, the impact from the maintenance stops and curtailments and how that has been, and also if the plants have resumed operations in April.

Sure. It follows the nature of our business model that we need to have maintenance stops from time to time to secure excellent technical conditions of our assets. We have, however, accelerated some maintenance projects now to do that in a low business cycle and then be prepared to run full blast when things are moving up again from the market side. So we have particularly done maintenance work in some of our Norwegian silicon products smelters and also in Iceland. The direct loss from this expensed costs and also lost revenues and margins amounts to approximately 75 million NOK for the quarter. And similarly, we've had a major maintenance stop in France and also a maintenance stop for upstream business in silicones in China. And the loss from these stops is calculated to 50 million NOK for the quarter, i.e. in total 125 million NOK for the quarter.

Very good. There is also a question if there will be more maintenance stops of curtailments in the second quarter.

We don't plan with any extensive maintenance stops in the second quarter, and we clearly believe that the situation with containment that we've had in Iceland is being improved.

Then there is a question more related to COVID outlook, because with the negative price movement we have seen in silicon metal, will that have any effect on the volumes in addition beyond the silicon metal? Will that impact also foundry products and other product categories?

I'm relatively optimistic about the situation going forward. Elkem is relatively speaking very well positioned. And as Morten explained in detail, there has been some volume reductions due to maintenance stops in the Q1. We don't plan for that in the Q2, so I think the top situation should be possible to maintain the current run rate. That's the way we look at it. But again, of course, we talked a little about indirect effects that are difficult to predict right now. So let me keep that also as part of my answer.

And there is also a question on trading patterns in the first quarter. If there has been any pre-buying from customers and if there have been any change to trade flows as such?

No, relatively small movements. We saw some, but that was mainly in the fourth quarter actually. We saw some buildup of foundry alloy materials in the US in the anticipation of tariffs. It never happened, but it's not having any material impact.

And then last questions are related to the strategic review and it's obviously if it's impacted by the trade tensions and the trade war. So the question is if the US tariff situation has impacted the timeline and negotiations with potential buyers and also if the potential buyers interest for the silicon segment has been kind of reduced or impacted by the recent development.

No, obviously a question we had expected. We cannot really go into any details about the process for obvious reasons. It's well underway and based on the situation today, we expect to close that by the end of the year as planned.

So that concludes kind of the questions we have received on the webcast. I would like to just check if there are any questions among the people present here in the audience. Doesn't seem to be that. So with that, I thank Helge and Morten for the presentation, and thank you very much for participating. And that concludes our presentation for the first quarter. Thank you.