Elkem Asa Ord

It's 9 o'clock so let's start today's presentation. Good morning and welcome to the third quarter results presentation for Elkem and also the capital markets update. My name is Odd-Geir Lyngstad and I'm responsible for investor relations. Today's event will be split into two sections. First we will start with a third quarter results presentation and then we will continue with the capital markets update. We will have one Q&A session after the third quarter presentation and then one after the capital markets update. So to take us through today's presentations and start with the third quarter presentation, we have CEO Dag Teigland and CFO Morten Viga. For the capital markets update, we will also be joined by the senior vice presidents for each of the three divisions. We have Luiz Simao representing Elkem Silicon, Inge Grubben-Stromnes from Elkem Foundry Alloys, and Izaias Entringer from Elkem Carbon. They will be introduced in more detail later. So let's move on to the agenda items for the third quarter presentation. As usual, we will go through the highlights for the quarter and give a business update. This will be followed by a market update in the outlook for the fourth quarter. CEO Dag Teigland will take us through these agenda items. CFO Morten Viga will then take us through the third quarter results. As mentioned, we will open for Q&A after Dag and Morten's presentations. We plan to continue with the third quarter presentation until around 9.45, and we will then take a short break and start the CMU at 10 sharp. And with that, I will give the word to CEO Dag Teigland.

Thank you, Odd-Geir, and good morning to everyone. I'm very happy to see such a great physical attendance today. In particular, since this is my first quarterly presentation for LCAP. It is really a privilege to take the helm at Elkem, not only because it's such a company with such a proud and long industrial history, but also because of the very motivated and highly competent organization. So I'm really looking forward to what we can accomplish together. When it comes to the third quarter, I think the best way to characterize the quarter is robust financial performance amid challenging markets. Elkem Foundry Alloys and Elkem Carbon delivered solid financial results due to their strong market positions. The Foundry Alloys' performance improved slightly, both compared to the previous quarter and the corresponding quarter last year. Carbon reported the best result since third quarter last year, with certain regions showing signs of improvement. The silicon division was impacted by continued weak markets and low sales prices for both silicon and ferrosilicon. In September, Elkem finally received the 1.3 million additional free emission allowances for 2021 to 2025. For 2026 to 2030, our plants in Norway will receive allocations in line with the industry in Europe. This is very important to secure competitive and predictable framework conditions and a level playing field. So let me start out with saying a few words about ESG. The safety of our people is the number one priority in Elkem. We want every employee to have a safe and good working environment. We're not very happy with the injury rate level we are at for the moment, but the development is going in the right direction. We will continue to work systematically to improve our performance. The target is and always will be zero injuries. We also have clear and ambitious goals for reducing our CO2 emissions. Our efforts to reduce emissions starts from a very good level, as Elkem's CO2 footprint is less than 35% of the global average for silicon production. This is supported by renewable energy, energy recovery at several of our plants, and the use of bioreductions. As part of LKM's strategic update, we concluded to retain our target of reducing CO2 emissions by 25% by 2030. Our long-term ambition is to reach net zero by 2050. However, these ambitions are challenging and will depend on the regulatory environment. The ambitions will also have to be financially sustainable. In addition to reducing our own emissions, Elkem's products and solutions are important to help others reduce their CO2 emissions. We have many initiatives ongoing within this area. In third quarter, Elkem Carbon and Daniel Kouros signed an agreement where the aim is to reduce greenhouse gas emissions from steel production. By developing solutions to increase the share of recycled steel in the production process, CO2 emissions could be reduced by up to 20%. As announced in the third quarter, we are strengthening the long-term competitiveness at El Camerana by investing 260 million NOC to renew the furnace. The investment includes replacement of one of Elkem's two furnaces and its off-gas equipment. The furnace is at the end of life and is already causing production issues. The upgraded furnace will incorporate the latest proven technology, enhancing operational reliability, process control and energy efficiency. This will secure continued safe and cost efficient production at the plant. The new furnace will also facilitate increased use of biocarbon and reduce fossil CO2 emissions in line with Elkem's climate ambition. The installation is scheduled to start in the first quarter of 2027 and will last three to four months. Elkem Radda's second furnace will operate as normal during the period. In September, Elkem received the 1.3 million long-awaited additional free emission allowances under the EU's ETS scheme for the period 2021 and 2025. The allocation follows the Norwegian Ministry of Climate and Environment's conclusion in July 2025 that Norwegian silicon, ferrosilicon and manganese producers were unequally treated compared to EU producers. In addition, the plants in Norway have received confirmation that future allowances will be in line with comparable industry in the EU. This is very important to secure competitive and predictable framework conditions. By the end of September 2026, Elkem had approximately 1.3 million allowances available for sale. The allowances are carried at zero value, while the estimated fair value is around 1.2 billion NOK. The plan is to sell these allowances over time as a normal part of our operations. Elkem Iceland was placed under strategic review in the second quarter of this year. due to consistently weak financial performance caused by the extremely challenging markets and a structurally higher cost base than our Norwegian plants. Under this strategic review, all alternatives will be evaluated to secure long-term profitable operations. In October, Elkim Iceland entered into a new power purchase agreement. The contract will secure long-term electricity supply at competitive terms and increase the plant's operational flexibility. The agreement runs from 2026 to 2029 and covers a volume of 127 MW, which is approximately 1035 GWh per year. The contract will significantly improve the plant's strategic attractiveness, but the strategic review will continue as additional measures will be required to restore profitability to an acceptable level. In addition to Iceland, the retained assets from the silicone divestment are classified as discontinued operations. We'll give you a very quick status on these assets. So first of all, Elkem Silicon, which is the plant in France, remains under strategic review. The plant has a take or pay contract with Bluestar for 50,000 tons of xyloxane per year until 2031. In addition, the plant has entered a strategic partnership with US-based Milliken, which will position the plant for sales into the US market. The plant is well positioned as one of only two remaining upstream silicone producers in the EU. The plant has a strong organization and currently a good operational performance with positive financial results. In the middle, Silicon's India consists of a very small downstream plant. Also, this asset is well positioned with local customer base. The organization is strong and the operational performance is also good. When it comes to Yongdong Silicon in China, this plant was closed in 2025. We have a sales process ongoing for the remaining assets and we expect to conclude the sale. The sales process will, however, be fairly modest, reflecting that the plant is already closed. We continue our efforts to find the best possible solution for all of these assets, but cannot give an exact timeframe for when this can be concluded. Until further notice, these assets will therefore remain under strategic review. So we'll now continue with an update on the main markets that affect Elkem. The overall market conditions are challenging, but the development is somewhat mixed depending on the sector. There are signs that industrial momentum is improving, but construction certainly remains weak. In automotive, there are signs of stabilization, but with regional differences. EU is about to implement measures to limit Chinese hybrid imports. This could ease the competitive pressure and support a modestly improved outlook in Europe. In addition, Rising European defence spending creates new opportunities across industrial and automotive supply chains. When it comes to construction, the activity remains weak. The Eurozone PMI stands at 43.4, which signals a continued contraction. Residential construction is particularly challenging while AI and data center infrastructure are bright spots and remain key growth areas. The manufacturing activity in Europe has shown some signs of improvement with Germany as the bright spot. Steel and aluminum production are important demand drivers for Elkem silicon, ferrous silicon, foundry alloys, and carbon products. Steel production in the third quarter reflected a normal seasonal decline with volumes at the level with the same quarters in the previous years. European and global steel production are well below the 2021 level, which has been used as the base in this graph. Steel production in the EU is expected to increase following the implementation of the carbon border adjustment mechanism from January 26 and stronger EU steel safeguards from July this year. Aluminum production has shown a positive development in Europe despite relatively weak demand. The Middle East conflict is disrupting supply and logistics, reducing exports to Europe and global markets. So let's take a look at the silicon and ferrosilicon markets. The overall picture is that silicon prices have increased modestly from historic low levels, while the safeguard for ferrous silicon in the EU has so far not had any significant impact on the prices. The reference prices for silicon, here illustrated by the 553 quality, improved modestly in the EU in the third quarter. Prices have continued to rise marginally early in Q4, mainly because buyers in the EU increasingly prefer to source European material. Prices are, however, still at a very low level. In the US, on the other side, silicon prices have continued to rise due to tight supply and low inventories. Fairer silicon prices in the EU were marginally down in the third quarter. We have yet to see any material impact from the safeguard measures that the EU implemented last year. In the US, ferrous silicon prices remain stable in the third quarter, and market conditions are expected to improve further. The Chinese silicon market is also important as the persistent oversupply gives a continued downward pressure on reference prices in the EU. The silicon prices in China remain at record low levels as price recovery continues to be hampered by oversupply and high stock levels. So far, higher domestic coal prices and higher electricity prices after the wet season have not yet resulted in an increase in silicon prices. Weak domestic demand in China puts pressure on exports and China's global silicon exports rose with 4% so far this year. The silicones market here referred by the DMC prices is a key indicator as it is an important part of the silicon-based value chain. Also, this industry suffers from Chinese overcapacity. During the third quarter, the DMC prices in China have shown significant fluctuations. First, a steep decline in the prices, followed quickly by a recovery after very effective price management initiatives by the Chinese industry. As already mentioned, the industry in the EU is suffering from competition from low priced imports and unfair competition. Protective measures are therefore gaining momentum. This is important to Elkem as more than 75% of our sale from Norway and Iceland go to the EU. For silicon, the European Commission has now initiated an interim review of the anti-dumping duties on imports from China. The interim review will examine whether the current duties of 16.8% are sufficient, as Chinese oversupply put the downward pressure on prices, which adversely affect European producers. And now, most recently, on October 23rd, the Commission also implemented registration of silicon imports originating in China. This decision could have an immediate impact on our markets, as importers may accrue potential liability if the ADD rate should be increased with retroactive effect. The investigation is expected to conclude within 12 months. On ferrosilicon, The EU has renewed the anti-dumping duties on imports from China and Russia for another five years due to risk of renewed dumping. Chinese producers face a general anti-dumping duty of 31.2 while the rate for Russian producers is 22.7. Other protective measures in the EU which are relevant to our industry includes EU's Clean Industrial Deal and the Carbon Border Adjustment Mechanism, which aims to secure preferential treatment and a more level playing field for producers in Europe. The new safeguards for steel are aimed at increasing European steel production. And a new proposal to limit the number of hybrid electric vehicles imported from China to 350,000 cars per year, potentially cutting the Chinese market share in half. So, based on the recent market developments as presented, we will quickly go through the outlook for the fourth quarter. First of all, LKM's cost reduction program will continue to contribute positively to the results going forward. We have seen a modest increase in silicon prices in the third quarter and prices have continued to rise marginally in the fourth quarter. This will not have much impact in the fourth quarter due to time lag. The expectations for the fourth quarter results for silicon remain stable while the further price normalization strengthened the outlook for 2027. For foundry alloys, a stable result is anticipated with seasonally lower sales expected towards the end of the year. The signs of recovery for carbon in certain markets point to a modest improvement in the fourth quarter. Going forward, the new protective measures in the EU are expected to improve market conditions ahead, although the exact timing and magnitude is uncertain. So with this, Morten, I pass it to you.

So thank you very much, Dag, and good morning, everybody. I'm pleased to go through the results for the third quarter in more detail. And clearly the markets are still challenging, but as you will see, we continue to deliver somewhat improved EBITDA compared to the previous quarter, and that's good. We now report on three segments, carbon and foundry alloys, which are the specialty business segments and deliver stable EBTA margins at a good level, while clearly the Elkem silicon EBTA margin is still hampered by low silicon and ferro-silicon prices. Please note that the Elkem Iceland and also our chemicals operations in Rosio in France are classified as discontinued operations and are not included in the revenue and EBITDA numbers. So Elkem's operating income for the quarter was 3.6 billion NOK, which was down 2% compared to the third quarter last year. And this is mainly explained by lower sales prices. The EBTA amounted to 554 million NOC, which was down 14% from the third quarter last year. The EBTA margin for the quarter was 15%, supported by good and stable margins in foundry alloys, carbon, and the materials business line within the silicon division. As always, we have provided a summary of main financial numbers and ratios. I will not go through everything in detail, but the main takeaways are, first of all, as I said, the EBITDA was 554 million NOK, and this includes realized effects from the currency hedging programs of 38 million NOK due to a stronger NOK. Other items amounted to 111 million NOC and consisted of gains on power and currency derivatives, so NOC of million NOC 169, currency losses of 49 million NOC and other items of minus 9 million NOC. The net finance income was 225 million NOK. This consists of net interest expenses of minus 80 million NOK, currency gains of 314 million NOK due to stronger NOK, and net other financial items of minus 8 million NOK. The income from tax was minus 139 million NOK, which represents an effective tax rate of minus or of 24%. Net profit for the period was 319 million NOK, which was an improvement from 29 million NOK in the third quarter last year. So let's take a look at the divisions. As previously mentioned, Elkem has changed the reporting structure and split the former silicon products division into Elkem Silicon and Elkem Foundry Alloys. We will get back to more details in the CMU presentations, but generally, silicon contains the commodity segments, silicon and ferrosilicon, while Ferroiano Foundry Alloys consist of a very specialized product offering. LKM Silicon continued to be very much impacted by low sales prices for silicon and ferro-silicon. This is to some extent mitigated by strong performance in the materials segment, which includes our micro-silica products. We have very strong positions within the materials and micro silica product lines. And here the prices are not linked to market reference prices, but based on more individual negotiations, based on a CVM methodology. Total operating income for Elkem Silicon for the quarter was 2.142 million NOK. That was down 9% from the third quarter last year. This reduction is mainly driven by lower sales prices for silicon and ferro-silicon, but also by currency effects due to a stronger NOC. The EBITDA amounted to 127 million NOC and this was down 43% from the third quarter last year, but it was an improvement from the previous quarters this year. The reduction from the third quarter last year is mainly due to lower commodity sales prices and negative currency effects. The effects from our previously announced cost reduction program has partly offset this negative impact. And as previously mentioned, good results from materials and micro silica are contributing positively to the result for the quarter. The sales volume was generally in line with the third quarter last year. But please note that the reported sales volume does not include materials or micro-silica. It's silicon and ferro-silicon. Elkem Foundry Alloys is a very good business segment and it improved its financial performance despite challenging markets. In the third quarter, the division accounted for 26% of total income on the group and 43% of the group's EBITDA. Total operating income was 1,056,000,000 NOK and this was up 5% from the third quarter last year. The increase in total operating income is mainly driven by positive volume and sales mix effects. The EBITDA was 235 million NOK in the quarter, which was up 7% from the third quarter last year. And the improvement is explained by positive volume and sales mix effects. This is, however, partly offset by negative currency effects and also somewhat higher raw material prices. Foundry Alloys, as I said, has very strong market position and this has enabled a high capacity utilization and stable and good sales volumes. Our carbon business is still experiencing challenging markets, but we see signs of improvement. The division now in Q3 accounted for 20% of the group's total income and 34% of the group's EBITDA. The reported operating income for the quarter was 782 million NOK, which was down 5% compared to the third quarter last year. And this is also mainly driven by lower average sales prices and negative currency effects. The EBITDA amounted to 183 million NOK, which is down 21% from the third quarter last year, impacted by lower average sales prices and also somewhat higher raw material costs. The overall sales volume is in line with the third quarter last year. So let's take a closer look at Elkem's key financial ratios. The EPS earnings per share amounted to 0.87 NOC plus in the third quarter of 2026, and the improvement is largely driven by currency gains in other items and financial items. However, it's also important to bear in mind that the weak performance that we reported in Q2 was mainly explained by losses in discontinued operations, which also included a fair value adjustment in our Yongdeng operations. Our EPS year to date is minus 1.18 NOC per share and this number is based on the current number of issued shares as we find this more relevant than the average number of shares which include the Blue Star shares which were cancelled on the 30th of April. Total equity as per NOQ3 amounted to 13 billion NOC and this gives an equity ratio of 45%. The reduction in equity ratio after the first quarter is mainly a reflection of the cancellation of the Blue Star shares. However, we believe that 45% is a very solid equity ratio and this underlines our very solid financial position. As you know, we have raised new equity and we have also refinanced a significant portion of our debt in the second quarter. And this has certainly provided Elken with a very strong financing and liquidity position. By the end of the third quarter, we had net interest-bearing debt of 6.5 billion NOK, and this gives a leverage ratio of 3.3 times last 12 months EBTA at the end of third quarter. That is a slight increase from the 3.2 that we had by the end of Q3, just because of the fact that Q3 this year was somewhat weaker than the Q3 last year. A key priority going forward will certainly be to ensure a further reduction in net interest bearing debt and the corresponding leverage ratio. After the refinancing in the second quarter, we have a very attractive maturity profile on our debt with all major maturities coming in 2031 and onwards. In addition, we have a very strong cash balance amounting to 5.5 billion NOK and this means that technically we are able to handle all debt maturities until 2029 with the current cash position. So needless to say, we are very comfortable with the financing position and certainly that It gives us a very good opportunity for management to fully focus on strategic and operational matters. Our cash flow has improved compared to 2025. In fact, all three quarters this year have been better than the corresponding quarters last year. And this has mainly been driven by strong focus on capital allocation and capital improvements. And in connection with the first quarter, we communicated a target to improve working capital this year by 1 billion NOK and also to limit reinvestments to 1 billion NOK. And the purpose was clearly to improve cash generation and to reduce debt. I'm very happy to say that we are delivering on these targets. The cash flow from operations this quarter was 421 billion NOK and year-to-date it's 1.4 billion NOK. By the end of third quarter, Elkem has had realized working capital reductions of almost 1 billion NOK for our continued operations. And also our investments, including the reduction that I talked about, have been according to plans. In the third quarter total investments amounted to 207 million NOK with reinvestments of 148 million NOK and strategic investments of 58 million NOK. Investments year to date amount to 510 million NOK. And as I said, we're very pleased to have a good direction to deliver on the investment and working capital reduction targets for the year in total. So let me wrap up this presentation by a couple of main takeaways. First of all, we are very happy to see that Elkim Foundry Alloys and the carbon divisions maintain good results and good margins, even in a very challenging market sentiment. And we will certainly get back to the drivers for this in the upcoming CMU presentations. As I said, the silicon division is clearly more exposed to commodity prices. and that is a tough place to be for the time being but we have seen silicon pricing increasing modestly in the third quarter and that's good. And we have also seen that prices have continued to rise moderately in the beginning of fourth quarter and a continued price normalization would certainly improve the outlook for 2027. Foundry Alloys Specialized Business Model certainly means that this segment is very well positioned to continue delivering good results and attractive margins. And the same basically applies to carbon, where we have very strong market positions and a very good competitive edge. Inge Grubben-Stromnes, Odd-Geir Lyngstad, Havard Moe, Katja Lehland, Morten Viga Clarity on frame conditions going forward up until 2030. This provides predictability and it also provides fair competition frame conditions versus our European competitors. We also clearly believe that the new protective measures in the EU give rise to optimism with regard to improved market conditions going forward in the EU as there is now clearly willingness to take more actions, more specific action to protect European industries from unfair competition. So that concludes this presentation, and I'm happy to give the word back to Odd-Geir, who will take us through the Q&A.