Elkem Asa · OSL:ELK
Elkem Asa — Q3 2018 Earnings Presentation
28 slides from Elkem Asa's earnings presentation, Oct 24, 2018
Slide 1: Elkem Third Quarter Results 2018
ELKEM THIRD QUARTER RESULTS 2018 24 October 2018
Slide 2: Agenda
Agenda • Helge Aasen, CEO - Highlights - Business update - Outlook • Morten Viga, CFO - Financial performance and market update 2
Slide 3: A strong quarter despite weaker market conditions
A strong quarter despite weaker market conditions • Total operating income for 3Q-2018 was NOK 6,050 million, an increase of 14% from third quarter last year • EBITDA for 3Q-2018 was NOK 1,394 million, an increase of 63% from third quarter last year • Increased operating income and EBITDA mainly exp
Slide 4: Health and safety – our main priority
Health and safety – our main priority • Elkem has a zero harm philosophy when it comes to health and safety. The target is zero H1 & H2 incidents • In 3Q-2018 Elkem had 5 H1 and 3 H2 injuries - Most injuries are low severity, but some injuries in the third quarter have unfortunately been severe • Th
Slide 5: Elkem's competitive strengths
Elkem’s competitive strengths Leader in Material presence in fundamentally the fast-growing attractive markets Chinese market Experienced and proven management Low cost integrated team with long-term position shareholder support Leading R&D Enhanced financial capabilities for performance and further
Slide 6: Leader in fundamentally attractive markets
Leader in fundamentally attractive markets Market conditions still attractive, but weaker in China • The global silicones market is still tight, but has declined in China from very high levels • Softer demand in China is likely a result of recent price hikes and effects of new US tariffs • Direct ex
Slide 7: Leader in fundamentally attractive markets
Leader in fundamentally attractive markets Good underlying markets for silicon and ferrosilicon • Reference prices for silicon metal are down from 2Q-2018 - Prices in 3Q impacted by seasonally higher production in China and lower demand following set-back in the solar market - Prices slightly up in
Slide 8: Material presence in the fast-growing Chinese market
Material presence in the fast-growing Chinese market Investments securing further operational improvements • High focus on training and operational improvements through Elkem Business System • Maintenance stops carried out at Xinghuo and Yongdeng - Regular maintenance stop at Xinghuo from mid-July t
Slide 9: Investments to enhance low cost position, growth and specialisation
Investments to enhance low cost position, growth and specialisation Focusing on growth and specialisation GROWTH SPECIALISATION • Strengthening positions in attractive growth markets • Strategy to increase specialisation within all product areas - Increased capacity in Xinghuo to 240 kMT through - I
Slide 10: Elkem group – Growth particularly driven by Silicones
Elkem group Growth particularly driven by Silicones TOTAL OPERATING REVENUE UP 14% FROM 3Q LAST YEAR EBITDA UP 63% FROM 3Q LAST YEAR SILICONES AND FOUNDRY PRODUCTS ARE MAIN DRIVERS SILICONES IS THE MAIN DRIVER – ALL DIVISIONS IMPROVE 10
Slide 11: Elkem group – Financial performance still robust
Elkem group Financial performance still robust CONSOLIDATED KEY FIGURES COMMENTS (NOK million, except where specified) 3Q 2018 3Q 2017 YTD 2018 YTD 2017 FY 2017 Total operating income 6,050 5,306 19,620 15,039 21,402 • Other items NOK 86 million EBITDA 1,394 858 4,817 2,111 3,188 - Mainly consisting
Slide 12: Silicones – Market update
Silicones – Market update Solid markets but softer in China • Silicones market in China impacted by softer demand and lower prices • Imposed tariffs on intermediary silicone products are reducing exports from China to USA - New tariffs also impacting other goods containing silicones - Impact more se
Slide 13: Silicones – Financial performance
Silicones – Financial performance Solid result, but impacted by maintenance stop • Total operating income of NOK 3,033 million, which is NOK 432 million (17%) higher than 3Q-2017 • EBITDA of NOK 852 million, up NOK 405 million (91%) compared to 3Q-2017 • Sales volumes are down 27% compared to 3Q-201
Slide 14: Silicon Materials – Market update
Silicon Materials – Market update Reference prices somewhat down in 3Q • Reference prices for silicon metal have declined in 3Q-2018, but so far limited effect on contract prices • Demand is seasonally weaker in 3Q and negatively impacted by set-back in demand for solar • Silicon metal prices expect
Slide 15: Silicon Materials – Financial performance
Silicon Materials – Financial performance Result and volumes affected by maintenance stop • Total operating income of NOK 1,472 million, a reduction of NOK 83 million (-5%) from 3Q-2017, mainly due lower sales volumes • EBITDA of NOK 237 million in 3Q-2018, up by NOK 3 million (1%) from the correspo
Slide 16: Foundry Products – Market update
Foundry Products – Market update Demand is holding up, but prices are down • The demand for ferrosilicon and foundry alloys is holding up well, supported by good performance in steel and cast iron markets • Reference prices for ferrosilicon have however declined due to increased Chinese supply • Rea
Slide 17: Foundry Products – Financial performance
Foundry Products – Financial performance Stable financial performance • Total operating income was NOK 1,232 in 3Q-2018, up by NOK 263 million (27%) from 3Q-2017, mainly due to higher sales prices and higher sales volumes • EBITDA of NOK 248 million, an increase of NOK 109 million (78%) from 3Q-2017
Slide 18: Carbon – Market update
Carbon – Market update Stable market conditions • Total sales volumes in line with corresponding quarter last year • Strong market for specialised grades • Still upward pressure on raw material prices such as anthracite and pitch binder 18
Slide 19: Carbon – Financial performance
Carbon – Financial performance Strong quarter for Carbon • Total operating income was NOK 480 million, up by NOK 85 million (22%) from 3Q-2017, due to generally higher sales prices • EBITDA was NOK 98 million, up NOK 32 million (49%) from 3Q-2017, mainly as a result of higher sales prices and strong
Slide 20: Elkem group – Strong equity and EPS
Elkem group Strong equity and EPS EARNINGS PER SHARE (EPS) – NOK PER SHARE EQUITY RATIO • EPS per share amount to NOK 1.57 in 3Q-2018 • Equity amounts to NOK 13.0 billion by end of 3Q-2018, - EPS YTD 2018 is NOK 5.10 which gives a ratio of equity to total assets of 48% • Historic EPS is calculated o
Slide 21: Elkem group – Low leverage provides financial flexibility
Elkem group Low leverage provides financial flexibility NET INTEREST BEARING DEBT (NIBD) (1) REFINANCING • Net interest bearing debt amounts to NOK 3.8 billion, • The planned refinancing of Xinghuo Silicones and giving a leverage ratio of 0.6x based on LTM EBITDA Yongdeng Silicon Materials is somewh
Slide 22: Elkem group – Solid cash flow generation, investments in line with plan
Elkem group Solid cash flow generation, investments in line with plan CASH FLOW FROM OPERATIONS INVESTMENTS • Cash flow from operations(1) was NOK 721 million in 3Q- • Reinvestments of NOK 203 million in 3Q-2018 2018, down from the corresponding quarter last year - YTD 2018 reinvestments of NOK 675
Slide 23: Outlook
Outlook • Elkem continues to deliver solid results - Specialisation strategy is continuing - Operational performance exceeding expectations • The fundamental market demand is expected to be good in the coming quarters, but the short-term market conditions for silicones in China are unclear • The fou
Slide 24: Important notice
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 (f
Slide 25: Appendix
Appendix 25
Slide 26: Currency and currency sensitivity
Currency and currency sensitivity CURRENCY CURRENCY DEVELOPMENT • Cash flow is exposed to revenues and costs in different • The NOK has been quite stable against the major currencies currencies. The main currencies are EUR and USD during 3Q-2018 - EUR - net cash flow approx. EUR 375 million per year
Slide 27: Other financial sensitivities
Other financial sensitivities POWER SALES PRICES • Electric power is a key input factor in Elkem’s production. • Changes in sales prices could significantly affect revenue Total consumption for the group was 6.4 TWh in 2017. and EBITDA Near term exposure to spot power prices is limited - Norway, hed
Slide 28: Delivering your potential
DELIVERING YOUR POTENTIAL EOP ESP eee: