Elkem Asa Ord

Good morning and welcome to Elkem's fourth quarter results presentation. My name is Audja Lyngstad and I'm responsible for investor relations in Elkem. Today's presentation has been extended because Elkem has reached a significant milestone to sell the majority of its silicones division to Bluestar. But before we present the details of that transaction, we will take you through the fourth quarter results. As usual, we will go through the highlights for the quarter and give you an update on the markets and the first quarter outlook. CEO Helge Olsen will take us through the first part of this presentation before CFO Morten Viga will present Elkem's fourth quarter results in more detail. We will open for Q&A after the presentation of the sales of the silicones division. So with that, I give the word to CEO Helge Olsen.

Yeah, thank you, Edgar, and good morning and welcome, everyone. So, as already indicated by Odger, we have the pleasure of announcing that we've entered into a sales agreement with China National Blue Star, our majority shareholder, for a sale of most of the silicones division. This transaction will be settled through a redemption of all of Blue Star's shares in Elkem. And as already mentioned, we will come back to the details later in the presentation about this transaction. The result for the quarter was relatively strong, given the current market conditions. And I think we can say that, as most of our competitors in Europe have temporarily or permanently curtailed production, while we have throughout the quarter maintained close to full capacity utilization. The EBITDA for the fourth quarter ended up at 890 million Norwegian kroner, which gave an EBITDA margin of 12% for the group. And if you exclude silicones, which is reclassified as assets held for sale and which will now be sold, the operating income was 4 billion NOK, with an EBITDA of 485 million, which is then also representing a margin of 12%. We have been able to partly mitigate low demand and declining sales prices with cost improvements, both on raw material costs and other operational costs. And that is of course still ongoing. In the quarter, silicon products was impacted by lower sales prices. However, we do see higher ferro-silicon prices in the EU due to the safeguard measures restricting imports of ferro-alloys into the EU. Carbon Solutions had lower sales in the fourth quarter due to continued idling of steel and ferro-alloy capacity, which we have seen across many main operating regions. In the quarter, silicones delivered further profitability improvements, which is primarily due to higher sales prices towards the end of the year in Asia-Pacific and generally strong prices. performance on cost improvements. The share redemption in connection with the sales of the silicones division will impact Elkins equity and due to that the board has proposed not to distribute the dividend for 2025. So before we go on to present the market update and results I'd like to say a few words about ESG. At the end of last year It was unfortunately marked by a tragic accident at one of our plants in France. On the 22nd of December, an explosion occurred at an R&D facility in our silicones facility in Sampho, just outside Lyon. We had four colleagues injured, and sadly two of them later passed away from the injuries that were sustained. Internal and external investigations are still not finally concluded, but of course, regardless of that, I can only say that this is a very tragic setback in our efforts on safety work. And obviously, such an event right now overshadow other achievements within our ESG work. But we continue to get good ratings on ESG assessments in general, as is illustrated on this slide. Moving on to trade barriers. This continues to impact markets and is also having an impact on Elken, both directly and indirectly. EU safeguard measures that came into effect in November last year unfortunately exempted Norway and Iceland, so we are outside of the EU safeguard measures. That's been broadly covered in the media. However, we have received country-specific quotas, which puts us in a rather beneficial position compared with most other countries. Those quotas are approximately 70 to 75 percent of historic sales, and this has been combined with the pricing benchmark of 2,400 euros. as a reference when you calculate the tariffs for sales which exceed the quotas. So far, ferro-silicon prices are up about 20% since this was implemented, and if these measures are effective, we expect to see further price increases. Then moving on to the U.S., countervailing duties have been imposed on silicon, silicon metal, imported from several countries, including Norway, and the preliminary CVD rate is close to 17%. In addition, there are also anti-dumping duties announced, which is close to 4%. So that brings the total tariffs now. There was 5%. Then we have the Trump tariff, 15%. And then you put this on top of that. We are now up to around 40% on silicon metal exported from Norway to the U.S. So the basis for the CVD duty is based on CO2 compensation and the allocation of CO2 quotas, which Norwegian companies receive under the EU carbon scheme. Of course, our position is that EU's policies on CO2 quotas and CO2 compensation do not constitute counter-available subsidies. harming the US domestic industry as there is no CO2 tax in the US. So the case is expected to be finally decided in June this year and so far I think we can say that we've been fairly successful in navigating and adapting to unpredictable trade dynamics while we are leveraging a global business model with strong cost and market positions. Here we have included a summary of Elkem's performance over the past years and how that compared to our communicated financial targets. So if we look at the three last years, we have seen deteriorating market conditions due to lower economic activity, a global overcapacity and a very big reshaping of global trade. So despite these challenging conditions, Elkem has met the financial targets over the cycle, very much due to our diversified business model and strong operational execution. And of course, we have continuous cost focus. So since 2020, we have delivered a compound annual growth of 5%, which is in line with our target. And the EBITDA margin during the same period was 16%, which is also within our target range. And if you exclude silicones from these numbers, the performance is even better with a compound growth in operating income of 6%, while the EBITDA margin was 21%, exceeding the target range. Then we move on to the market update and the outlook. So let's have a look at some of the key markets and market trends and indicators. Automotive is an important sector for Elkem, driving demand for many of our products, as silicon is essential in electronics, in batteries, and in aluminum, lightweight components. Markets, particularly in Europe, have declined and the outlook remains weak. Soft demand combined with import pressure from China. A new minimum price mechanism in the EU on imported Chinese electrical vehicles could offer some protection. It remains to be seen. In the US, the outlook for 2026 is also relatively soft due to the pressure on affordability and an overall weak demand for EVs. Construction is another key market for Elkem, for Elkem silicon-based products, which go into high performance concrete, building materials and other infrastructure. It seems that Europe is seeing a gradual recovery in this sector, but the performance is varying significantly across countries and different segments. The US industry is also relatively soft, but the data centers, power infrastructure and institutional projects are showing growth. The PMI number is normally a good indicator for the economic sentiment, and global PMIs show a mixed but stable picture. Manufacturing remains soft, but the downturn seems to be easing now. The US stays in mild expansion, supported by improving output, though underlying demand and export orders remain soft. Europe is a mixed picture, with the German economy continuing to contract, keeping the broader Eurozone picture rather subdued. If you look at the specific markets for Elkem and start with the silicon, as illustrated on the graph, the silicon reference prices remain on a low level during the quarter. Year-to-date figures for November 2025 show that exports from China to Europe increased significantly compared with last year. And this combined with, as I said, generally weak demand have put quite significant pressure on prices in the EU. In the US, silicon prices increased slightly in the fourth quarter, but also here the demand is relatively low. Prices are, however, expected to rise in 2026 due to tariffs, anti-dumping duties and a tightening domestic supply. In China, silicon prices are affected by challenging market conditions. Power prices are increasing and sales prices for silicon remain on a low level. A little bit positive is that production curtailments are expected from several producers. Moving on to the first, silicon. As you know, we have many of the same underlying drivers as the silicon metal. The overall picture for Elkin is also here, marked by weak demand. But as mentioned earlier, we've seen an increase in reference prices by around 20% following the implementation of the safeguard measures. In addition, the EU has announced a tightening on the safeguard measures for steel. The annual tariff-free import quotas will be reduced, and the out-of-quota duty will be doubled to 50%. So as these measures will take effect, it is expected that steel production in the EU will increase. I think Gautam Kumpu reported a similar picture yesterday. This could also have a positive impact on the demand for ferroalloys and electrode materials supplied by our carbon division. In the US, furl silicon prices were marginally down in the fourth quarter due to weaker demand, and in China, furl silicon prices remain on a low level despite further production cuts to address overcapacity. Then the market for carbon products, obviously much smaller than the market for silicon and ferrosilicon, and there are no available reference prices here. Demand for carbon products differ by region, influenced by steel primarily, which again drives consumption of ferroalloys, and aluminium is also an important driver. Global steel production actually declined by 3% in the fourth quarter compared to the year before, primarily driven by lower activity in China, where production actually decreased by 9%. In Europe, the production increased by 4%, while North America remained stable. So this means that the steel and ferroalloy markets continue to be challenging and affecting carbon solutions. The effects are partly mitigated by our specialized product offering in carbon and the diverse geographic presence, which gives us a natural hedge and creates quite a stable situation, which you have seen on historical financial figures. Then, lastly, silicones. Anti-involution measures are underway in a number of sectors in China, also in silicones, so addressing overcapacity. The DMC price in China rose by about 23% from around 11,000 RMB per ton by the end of the third quarter up to 13,600 by the end of the fourth quarter. primarily driven by various anti-involution measures, curbing overproduction and then leading to an increasing in sales prices. The demand still within China remains on a weak level, particularly due to the construction sector. In the EU and the US, demand for commodity silicones was low in the quarter, mainly impacted by shifting tariff policies. So, moving on to the outlook for the first quarter. As mentioned, trade regulations and protective measures are likely to continue to affect Elkhem's markets and contributing to ongoing uncertainty. However, I think Elkem is well positioned due to our geographic presence and strong market and cost positions. Silicon products are still facing subdued demand. We are temporarily reducing capacity in Norway, mainly to manage inventory levels. And the EBITDA effect of that is expected to be somewhat negative, but with a very positive cash flow effect. Carbon Solutions is expecting a slight improvement in sales volumes, but again, due to already mentioned the situation in steel etc., the overall demand remains on a relatively weak level. Silicon prices in China have increased due to the reduced supply, while the fundamental demand situation remains on a lower level than what we've seen historically. The division will of course benefit from higher sales prices anticipating that these actions will be maintained on production reduction. So I think with this I'll give the word to Morten to take you through the financials for the fourth quarter and then we'll come back to the transaction afterwards.

Thank you very much, Helge, and good morning, everybody. It's certainly a pleasure to go through the results for the fourth quarter in more detail. Our operating income for the quarter was 7.3 billion NOK, which was down 14% compared to the fourth quarter last year. And we saw a reduction in all three divisions, and this is mainly explained by lower sales prices. LKM's EBITDA for the fourth quarter was 890 million NOK, And this was 24% lower than the fourth quarter last year, but slightly higher than in the previous two quarters. The reported group EBITDA margin was 12%. which is somewhat below our long-term target of 15 to 20 percent. However, it's clearly important to bear in mind that sales prices in key markets, particularly in silicon and ferrosilicon, have been at or close to all-time low levels. And as such, we believe that LKM's EBTA is clearly supported and held up by good operational performance and strong underlying cost positions. There were no particular one-offs affecting the EBTA in this quarter. As usual, we have provided an overview of some of the main financial numbers and ratios on this slide. I will certainly not go into detail on all of them, but it is important to note that the silicones division has been reclassified as discontinued operations and assets held for sale. And as you know, now we are announcing this transaction. But silicones has been a part of Elkem's structure during the quarter, and the division is affecting Elkem's key financial numbers. And for that reason, we will mainly focus on the financial numbers for the group, including silicones. In the table to the right, you can see comparable figures, however, for Elkem with and without silicones. Including silicones, the group EBTA was 890 million NOK and the realized effects from the currency hedging program was minus 21 million NOK reported in segment other. Other items amounted to minus 68 million NOK and the main items were gains on power and currency derivatives. of plus 64 million and restructuring expenses of minus 20 million NOC and other items of minus 111 million NOC, mainly consisting of dismantling and environmental expenses. Net finance expenses were minus 192 million NOC, the main items were net interest expenses of minus 130 million NOK and currency losses of minus 48 million NOK. We have been able to reduce the interest expenses from minus 187 million NOK in the same period in 2024. Income tax was positive with $6 million knocked due to tax deductions and changes in the tax losses carried forward. So let's then take a look at the divisions and we start with the silicon products. The silicon and per silicon market clearly remain difficult with low sales prices. And this is also affecting the divisions result in the fourth quarter. Total operating income amounted to 3.2 billion NOK for the quarter. which was a reduction of 14% from $3.8 billion in the fourth quarter of 2014. The reduction was largely due to lower sales prices, particularly for silicon and ferrosilicon. The EBITDA amounted to 294 million NOC, which was a significant reduction of 53% from the fourth quarter last year. And the reduction is also here, primarily driven by lower sales prices, but this is then partly balanced by lower raw material costs and higher sales volumes. The specialty segments, particularly foundry alloys and the materials maintain strong performance also this quarter due to Elkem's very strong market positions. Sales volume was 8% higher compared to the fourth quarter last year and we had a higher sales volumes across all product lines. The carbon solution division has presented extraordinary good results over a long period and continue to deliver good margins. However, this quarter was impacted by lower sales volumes. The operating income came in at 735 million NOC, which was down 20% from the fourth quarter last year. EBITDA amounted to 174 million NOC. which is a reduction of 38% from the corresponding quarter in 2024. But the reduction in operating income and EBITDA can be explained by decline in sales volumes. We have also seen a reduction in sales prices, but this has been partly offset by extraordinary cost improvements. Sales volume was down 11% compared to fourth quarter last year. The silicones division, where the majority now is being sold to Bluestar, has delivered improved results in the fourth quarter, mainly due to cost improvements. Total operating income was 3.6 billion NOK, that's down 14% from the fourth quarter last year. and the decline is primarily due to lower commodity sales prices during the quarter. EBITDA on the other hand improved by six percent from the corresponding quarter last year and it reached almost 400 million NOK. The decline in sales prices and sales volumes was more than offset by good cost reductions and lower raw material costs. Sales volumes was down 3% compared to the fourth quarter last year, and this is mainly due to lower commodity sales across the geographical regions. Let's now have a look at some of LKM's key financial ratios. The earnings per share EPS was negative with 0.21 NOK per share in the fourth quarter and that brings the EPS year-to-date to minus 1.05 NOK for the year. We are of course not satisfied with this, but clearly the EPS has been negatively impacted by net losses from the silicones division, which we are now selling. If we exclude silicones from the 25 numbers, Elkem's EPS for the full year would have been plus 0.61 NOC per share. The balance sheet remains very solid and total equity amounted to 24 billion NOK by the end of 2025 and that equals an equity ratio of 51%. By the end of the fourth quarter, LKM had a net interest bearing debt of 11.9 billion NOK, and this gives a debt leverage ratio of 3.5 times, based on last 12 months EBITDA. The sale of the silicones division will impact LKM's equity and debt, and we will revert to that later. The equity will be reduced by share redemption and the net debt will also be reduced from 11.9 billion NOK to 9.8 billion NOK as Blue Star will take over 2.1 billion NOK of the debt. This will then increase LKM's leverage based on pro forma numbers. But the plan will be or is to raise additional equity and conduct a refinancing of the main bank facilities after closing of the silicones transaction. As I said, we will get back to more details on this under the presentation of the silicones transaction. As mentioned in the previous quarters, Elkem's focus has been on cash generation and disciplined capital spending in response to the very challenging market conditions that we are experiencing now. And we have delivered on our promises. In the fourth quarter, the cash flow operation was plus 829 million NOK, a clear improvement compared to previous quarters. And this is explained by lower capex and positive working capital changes. In the fourth quarter, total investments were down to 674 million NOK. Reinvestments were down to 530 million NOK, which amounted to 75% of depreciation for the quarter. And for the full year, reinvestments amounted to 1.5 billion NOK. which equals 58% of depreciation. Strategic investments were moderate, 145 million NOK in the fourth quarter, taking the total number to 328 million NOK for the full year. So let me wrap up this presentation by summarizing the main headlines and takeaways. First of all, trade regulations and protective measures are likely to continue affecting Elkem's markets. Elkem is, however, very well positioned due to strong market and cost positions and a diverse business model. Silicate Products is still facing weak demand. but the division is benefiting from cost improvements and higher ferro-silicon prices after the implemented EU safeguard measures. Carbon Solutions benefits from good cost positions and a geographically diverse customer base, and clearly the division is excellently positioned when there is a market recovery. Our silicones business delivered further profitability improvements in the fourth quarter and is well positioned if current price levels are maintained. As I said, the board has proposed not to distribute dividend for 2025 and this is due to the share redemption in connection with Elkem's sale of the silicones division. So then I think that summarizes the Q4 presentation, and then I hand the word back to Olga. Thank you.