Elkem Asa · OSL:ELK
Elkem Asa — Investor Day (November 2018)
69 slides from Elkem Asa's investor day presentation, Nov 20, 2018
Slide 1: Creating Value Through Operational Excellence, Growth and Specialisation
CREATING VALUE THROUGH OPERATIONAL EXCELLENCE, GROWTH AND SPECIALISATION ELKEM CAPITAL MARKETS DAY 20 NOVEMBER 2018
Slide 2: 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 3: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 4: Elkem: more than 110 years of history as a technology provider
Elkem More than 110 years of history as a technology 27 PLANTS >400 R&D PEOPLE provider WORLDWIDE Headquarter R&D centres in Norway, France and in Norway China ~6.100 26 BNOK Founded in 1904 by Sam Eyde EMPLOYEES Total operating Worldwide income LTM-3Q 2018 Listed on Oslo stock exchange since March
Slide 5: Elkem's evolution
Elkem’s evolution A leader within silicon-based advanced materials 2011-2015 2015-2018 Global integrated leader in high-value specialty Upstream focused silicon-based materials company silicones Foundry Silicon Materials Carbon Silicones Products Bluestar Silicones Elkem Xinghuo Silicones (Rhodia) F
Slide 6: Elkem - Four strong business areas
Elkem - Four strong business areas Silicones Silicon Materials Foundry Products Carbon BNOK 13.4 BNOK 6.7 BNOK 5.1 BNOK 1.8 50% of 25% of 19% of 6% of group sales group sales group sales group sales End-markets End-markets End-markets End-markets Paper & Film Release Chemicals Automotive Ferroalloys
Slide 7: Elkem's strategy
Elkem’s strategy Building blocks of continued profitable growth Key priority: Continue transition Operational China and new Growth and into a specialty chemicals company efficiencies and market specialisation synergies opportunities • Enhance growth • Grow Silicones • Stable margins • Increase speci
Slide 8: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 9: Silicones - our largest business area
Silicones - our largest business area Silicones Silicon Materials Foundry Products Carbon BNOK 13.4 BNOK 6.7 BNOK 5.1 BNOK 1.8 50% of 25% of 19% of 6% of group sales group sales group sales group sales End-markets End-markets End-markets End-markets Paper & Film Release Chemicals Automotive Ferroall
Slide 10: Silicones are everywhere
Silicones are everywhere LIQUID SILICONES SOLID SILICONES Liquid silicones (fluids) are invisible to the end customer Solid silicones (elastomers) are used as materials. When and greatly improve the performance of the substrate cured, they become solid materials for various while being a small part
Slide 11: Elkem: one of few fully integrated producers
Elkem | one of few fully integrated producers UPSTREAM SILOXANE PRODUCTION DOWNSTREAM SILICONES PRODUCTION Core products Volume specialties Value specialties • Rubber • Core products • Airbag coating • Home & Personal • Construction • Healthcare Care • Sealing & Bonding • Textile & Leather • Release
Slide 12: Attractive market fundamentals for Silicones
Attractive market fundamentals for Silicones… GLOBAL MEGATRENDS CREATE SPECIFIC NEEDS • Higher quality products • Electrical vehicles – Increased standard Sustainability • Textiles / clothing products such as of living batteries and cables • Affordable comfort and personal care • Growing use of sola
Slide 13: Elkem has strong market positions
… and Elkem has strong market positions GLOBAL SILOXANE PRODUCTION (2016A) CONSOLIDATED INDUSTRY STRUCTURE Top 5 producers represent appx. 67% 11% • Increasing consolidation Other 33% • Chinese growth is sustainable with higher added value markets 27% 2.3MMt • High barriers to entry on specialties •
Slide 14: Strong growth potential both by product and geography
Strong growth potential both by product and geography Silicones demand by geography (BUSD) Global silicones demand by end-use (BUSD) 18.25 18.3 4.7 4.3 14.25 14.2 12.48 12.5 1.6 3.7 3.4 3.5 5.3 3.1 2.1 1.2 4.3 1.0 1.7 3.2 3.6 1.6 3.4 2.5 2.0 2.9 3.7 2.9 2.3 2.8 4.8 2.4 3.4 2.7 3.3 2.5 2011A 2016A 20
Slide 15: Strategy to specialise within each cluster to deliver high and stable EBITDA
Strategy to specialise within each clusters to deliver high & stable EBITDA 15
Slide 16: When to specialise and how?
When to specialise & how? SILOXANE CAN BE EITHER SOLD AS INTERMEDIATE OR TRANSFORMED AND SOLD DOWNSTREAM Commodities Specialties Rubber master Ready to use Siloxane D4 Gum batch rubber No direct sales 2 €/kg 2.5 €/kg 3 to 5 €/kg 5 to 10 €/kg Sales to Sales to Sales to Sales to formulators formulator
Slide 17: Specialising: the example of Silicones for Electrical Vehicles
Specialising: the example of Silicones for Electrical Vehicles LEVERAGING MARKET POSITIONS WITH TECHNOLOGY EXPERTISE AND GEOGRAPHICAL REACH Sealing and bondings for EV batteries Rubber for high Elkem setting up expertise in performance electrical Asia to capture market growth cables in EV 5 - 11 kg
Slide 18: Tomorrow's applications are being prepared now
Tomorrow‘s applications are being prepared now BOTH IN EUROPE & CHINA 3D PRINTING IMPLANTS ROBOTICS 18
Slide 19: Value creation through growth and specialisation
Value creation through growth and specialisation • Outlook for specialty silicones looks promising & growth continues • Value through specialisation with company sharing of expertise & captive use of available upstream capacity • Attractive positions in a growing markets and in China • Strong demand
Slide 20: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 21: Introduction
Introduction • Overview and main growth drivers in Chinese silicone market • Industry structure and market dynamics • Elkem’s market position • Specialisation footprint in China 21
Slide 22: Chinese silicone market
Chinese silicone market The world’s biggest silicones market with strong growth potential CAPACITY SIZE DEMAND AND GROWTH • China is the biggest silicone supply center in the world • Strong demand development in China based on - Siloxane production in China is expected to reach 1.1 million economic
Slide 23: Global megatrends also create demand growth in China
Global megatrends also create demand growth in China NUMEROUS MEGATRENDS… … INCREASE THE GROWTH POTENTIAL ….IMPACTING FOR SILICONES CHINA SILICONES IN CHINA APPLICATION China has a particular focus on renewable Sustainability Energy energy such as wind and solar to reduce air pollution Energy demand
Slide 24: Growth supported by a wide range of end-user segments
Growth supported by a wide range of end-user segments CHINA SILICONES CHINA SILICONES DEMAND BY MARKET SEGMENTS (BUSD) DEMAND BY PRODUCT (BUSD) 5.5 5.5 0.2 0.2 1.1 1.8 3.4 3.4 0.5 0.1 0.1 0.2 0.6 1.1 2.4 2.4 0.6 0.1 0.1 0.3 0.4 4.0 0.8 0.8 0.1 0.3 0.2 0.1 0.5 2.5 0.2 0.4 1.8 1.6 1.0 0.7 2011A 2016A
Slide 25: Economic growth drives increasing demand per capita
… and economic growth drives the increasing demand per capita Source: Freedonia 25
Slide 26: Industry structure – a mix of international and local players
Industry structure – a mix of international and local players 13 MAIN PLAYERS IN CHINA SHARE OF SUPPLY VOLUME Transit Luxi Jinling 3% 2% • 4 international integrated players 5% - Elkem has the leading position with 18% market share Sanyou 7% Elkem - Dow + Wacker have a JV in east of China 18% - Mome
Slide 27: Supply and demand – still a commodity market
Supply and demand – still a commodity market … Over supply Capacity closures for situation environmental reasons Tight supply US tariffs imposed 40000 1200 35000 35000 1000 30000 30000 25000 25000 800 20000 20000 600 15000 15000 400 10000 10000 200 5000 5000 0 0 0 Unit: KMT 2016 2017 Unit: Unit: Jan
Slide 28: But the outlook is still relatively good
… but the outlook is still relatively good ANNOUNCED CAPACITY ADDITIONS 2020 – 2022 No new capacity and redistribution Risk of oversupply • Hoshine - 100Kt siloxane, estimated by 2020 expect balanced market due to new capacity and stabilise prices Price development uncertain • Wynca - 100Kt siloxane
Slide 29: Competitive landscape
Competitive landscape ELKEM HAS A STRONG PLATFORM FOR FURTHER SPECIALISATION Integrated producers UPSTREAM • Elkem is market leader • Upstream with operation Upstream excellence Fumed silica DOWNSTREAM • Fully integrated technology • Strong specialization platform Room temperature to extend silicone
Slide 30: Silicones widely used in China markets
Silicones widely used in China markets ELKEM HAS MARKET LEADING POSITIONS IN ALL SEGMENTS End-markets Products Customers & Partners Textile & Leathers ▪ No.1 Market Share ▪ Textile pilling treatment Transportation ▪ No. 1 Market Share ▪ Cable & Wire Construction ▪ No.1 Market Share ▪ Sealant Consume
Slide 31: Specialisation at work in China: Silicones for release liner
Specialisation at work in China | Silicones for release liner LEVERAGING COMPETITIVE SOURCING BY TECHNOLOGY EXPERTISE, FACILITY STRENGTH AND GEOGRAPHICAL REACH 2011 2013 2016 Release coatings for labels • R&D • Production • Commercial ▪ Transfer release ▪ Set up special ▪ Professional local team for
Slide 32: Well positioned for profitable growth in an emerging market
Well positioned for profitable growth in an emerging market • Geographical advantage AND MARKET LEADER - The most demanding and the fastest growing silicone market in the world - Elkem has the highest market share for silicones in China • Sustainable growth WITH SPECIALISATION STRATEGY - Reduce expo
Slide 33: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 34: Elkem's history in China
Elkem’s history in China • Up to 22 years manufacturing, M&S, R&D experience in China • Extensive experience gained from Elkem Silicone Shanghai and Elkem Carbon China’s development: - Specialised products - Staff, productivity, profitability, EHS standard, organisation development • Acquisition of
Slide 35: Integration of Xinghuo and Yongdeng is increasing operational excellence
Integration of Xinghuo and Yongdeng is increasing operational excellence • Xinghuo and Yongdeng formally acquired by Elkem in 2018 • Before that Elkem has provided long standing support - In Yongdeng Elkem has had the plant manager from 2012 and two furnaces were upgraded to Elkem standard - In Xing
Slide 36: Xinghuo: Operational improvements achieved to date
Xinghuo | Operational improvements achieved to date MT • Siloxane production cost reduced by 11% in H12018 • Quality claims from customers (CCR) reduced by 33% • 19 debottleneck projects and technical upgrades • EBS implementation(*) for improving equipment reliability (*) EBS is Elkem’s business sy
Slide 37: Yongdeng: Operational improvements achieved to date
Yongdeng | Operational improvements achieved to date MT • High grade microsilica increased from 28% to 55% in H1 2018 and Si metal qualification rate increased from 98.35% to 99.27% • Cost road map programmes completed with estimated cost savings of around 44 MRMB/year • Strong support from technica
Slide 38: Improvements achieved through systematic work
Improvements achieved through systematic work SUCCESS FACTORS EBS IMPLEMENTATION • Strong and action/result oriented Management team EBS Tools- training and leadership support: practice • Technical debottleneck/upgrade projects Participation from all Follow up and assessment employees: • Synergies/s
Slide 39: Further improvement potential ahead
• When talking about EBS as improvement Further improvement potential ahead potential – pls clarify how EBS can create further improvements. • Xinghuo: Upstream cost competitiveness and downstream products development • Yongdeng: Cost competitiveness • Both sites: - EBS and innovation - Developing p
Slide 40: Cross cultural aspects
Cross cultural aspects CULTURAL DIFFERENCES • Management and leadership: systematic vs firefighting; Involvement from organisation vs top down approach • Mindset: Conflict management (face) and networking (guanxi) • Communication and motivation: Big obstacle when communication is not clear and posit
Slide 41: Establishing a common platform for profitable growth across geographies
Establishing a common platform for profitable growth across geographies • Elkem has a unique position with long experience, international Elkem’s Core Values: management and market growth potentials in China and support from Chinese majority shareholder • Integration has created synergies and improv
Slide 42: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 43: Elkem battery solutions
Elkem battery solutions | Meeting today’s challenges. Ready for tomorrow’s opportunities Carbon Silicon Silicones Graphite for anodes – developing large Silicon for tomorrow’s anodes – leveraging Silicones for battery packs and EVs – scale industrial production to meet market best in class silicon k
Slide 44: Electrification of transportation drives strong growth in demand
• Li-ion battery , average demand forecast (GWh) Electrification of transportation drives strong growth in demand • 22-30% of new light vehicles in 2030 assumed to be EVs • Electrical buses growing significantly, especially in China • Pace of fast growing markets tend to be underestimated • Demand f
Slide 45: Elkem in the battery value chain
Elkem in the battery value chain Graphite and silicon for Silicones protection and anodes thermal management Raw Battery cell Battery Battery End use materials materials cell pack Mining of natural Processing of minerals, Manufacturing of Assembly of battery packs Buy cells or packs graphite or refi
Slide 46: Elkem providing the solution for today's and tomorrow's anodes
Elkem providing the solution for Market share active anode materials today’s and tomorrow’s anodes • Graphite - Proven and established technology Other - Stable long term performance (LTO, SiOx - Opportunities to mix in other materials (such as silicon) etc) 7% - Limited upside • Silicon - Theoretic
Slide 47: Elkem battery solutions: Status and plans by division
Elkem battery solutions | Status and plans by division Carbon Silicon Silicones • Current focus to verify product • Already commercial sales of small • 2018 revenues from batteries and EVs performance and production process volumes exceeding 30 MEUR parameters • Main focus on technology • Focus to g
Slide 48: Potential revenues impact of battery strategy
Potential revenues impact of battery strategy ▪ Silicon: - Timing of commercialisation uncertain, but significant growth expected when technological challenges are resolved ▪ Carbon: - Sale of industrial volumes assumed from 2021 ▪ Silicones: - Established position with more than 30 2017 2018 2019 2
Slide 49: Elkem has a unique position – today and tomorrow
Elkem has a unique position – today and tomorrow Western supply The Li-ion battery chains must be market offers a developed to serve significant growth battery production opportunity for in Europe and the Elkem US Robust cost Elkem is uniquely positioned to supply structure is solutions to the batte
Slide 50: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 51: Foundry Products: A highly specialised division
Foundry Products | A highly specialised division Silicones Silicon Materials Foundry Products Carbon BNOK 13.4 BNOK 6.7 BNOK 5.1 BNOK 1.8 50% of 25% of 19% of 6% of group sales group sales group sales group sales End-markets End-markets End-markets End-markets Paper & Film Release Chemicals Automoti
Slide 52: Foundry Division: A proven business model for stable prices and high margins
Foundry Division | A proven business model for stable prices and high margins High quality, branded Global coverage specialty products combined with customer intimacy Technical expert service R&D, innovation and local on site customer service laboratories 52
Slide 53: Foundry Division: Our Specialty Products
Foundry Division | Our Specialty Products REVENUE & PRODUCT APPLICATION END PRODUCTS MARGINS Grey iron and ductile iron castings 60.000 t BNOK 1.1 Lighter, stronger and easy to INOCULANTS ≥ 20% EBITDA machine castings BNOK 1.5 Ductile iron castings 94.000 t ≥ 20% EBITDA Lighter, stronger and tempera
Slide 54: Creating value in the customers' production process
Creating value in the customers’ production process Iron and Melting Metal treatment with Metal Steel furnace Elkem Products transfer Design Sales & Casting Machining Distrib. Engineering Sand molding Total cost base composition • Metal treatment ‘ makes or breaks’ the final product Foundry consumab
Slide 55: Global environmental programmes pull for Elkem specialties
Global environmental programmes pull for Elkem specialties Need for stronger Need for higher CO2 reduction and fuel Need for lighter MEGATREND reduction components and potent thinner castings alloys INDUSTRY Tier 1 Iron Foundry products OEM EFFECT supplier foundry supplier 55
Slide 56: Global coverage and untapped potential in fast growing markets
Global coverage and untapped potential in fast growing markets China • Elkem is the global market leader • Increasing focus on emerging Elkem Market Share markets Rest of market Europe/Russia - China, India, other Asian markets and South America North America • Well positioned to meet growing demand
Slide 57: Doubled sales of specialties 2015-2018 in important growth markets
Doubled sales of specialties 2015-2018 in important growth markets THE KEY GROWTH DRIVERS: ELKEM FOUNDRY SALES IN MNOK INNOVATION, QUALITY AND LOCAL PRESENCE 1,000 900 • High quality products based on innovation and 800 product development 700 600 • New production plants in India, China and Paraguay
Slide 58: Capturing growth opportunities in foundry alloys in key markets
Capturing growth opportunities in foundry alloys in key markets Strong opportunities to grow specialty business Capture market share and grow with strong segment development by focusing on key growth areas ELKEM FOUNDRY SALES IN MNOK GROWING MARKET SHARES IN TARGET MARKETS 1,800 1,600 2018 - 2023 1,
Slide 59: Stable, high margins and further growth in emerging markets
Stable, high margins and further growth in emerging markets • Global environmental programmes will be a key growth driver for Elkem’s specialty products • Speciality products ensure stable market shares and high margins in mature markets • Innovation, quality and local presence drives growth in emer
Slide 60: Agenda
• Creating value through operational excellence, growth and specialisation Helge Aasen, CEO • The world of silicones Frédéric Jacquin, SVP Silicones • China – vast country with vast opportunities Sandy Chen, Director Xinghuo Silicones • Elkem – strong Chinese experience Helge Aasen, CEO, and Chen Xi
Slide 61: Elkem's strategy
Elkem’s strategy Building blocks of continued profitable growth Key priority: Continue transition Operational China and new Growth and into a specialty chemicals company efficiencies and market specialisation synergies opportunities • Enhance growth • Grow Silicones • Stable margins • Increase speci
Slide 62: Shareholder value
Financial objective – shareholder value through growth and dividend Specialisation Dividend Shareholder value Revenue policy growth Capital structure 62
Slide 63: Financial targets
Financial targets Target metric Targets Comment Grow faster than market through specialisation, organic growth Revenue growth 5 – 10% and acquisitions EBITDA margin (%) 15 – 20% Target average margin through the economic cycle Ensure appropriate and disciplined capital allocation following Reinvestm
Slide 64: Revenue growth
REVENUE GROWTH Continue organic growth and possible bolt on acquisitions 5 – 10% 21% 26% HISTORICAL TRACK RECORD FUTURE ENABLERS • Capacity increase Xinghuo • Number 1 position in China Silicones – basis for Asia growth strategy - From 152kMT in 2016 to 218kMT 3Q-18-LTM • Further capacity expansion
Slide 65: EBITDA margin
EBITDA MARGIN Stabilise EBITDA margin at attractive level through continued specialisation HISTORICAL TRACK RECORD FUTURE ENABLERS • Significant price increases • Continuous cost improvements - Well positioned in attractive growth markets - Energy recovery projects – Salten with 275 GWh/year - Speci
Slide 66: Reinvestments % of D&A
REINVESTMENTS % OF D&A Well invested assets reduce need for extensive capex HISTORICAL TRACK RECORD FUTURE ENABLERS • Key strategy – optimise technical condition while maintaining • Well invested plants reduce need for extensive capex disciplined capex program programmes going forward • Low capex in
Slide 67: Debt leverage ratio (NIBD/LTM EBITDA)
DEBT LEVERAGE RATIO (NIBD/LTM EBITDA) Pursuing growth in a disciplined manner HISTORICAL TRACK RECORD FUTURE ENABLERS • Strong 2018 development • Long-term target reflects conservative balance sheet while maintaining capacity for growth - Operating cash flow generation LTM 3.5 BNOK • Main priorities
Slide 68: Shareholder value
Financial objective – shareholder value through growth and dividend Specialisation Dividend Shareholder value Revenue policy growth Capital structure 68
Slide 69: Delivering your potential
DELIVERING YOUR POTENTIAL SEORD OO 2 Oe e eee.