Elkem : Second quarter results 2021 report

Contents
Highlights 2nd quarter 2021............................................................................................................................................	3
Key figures.....................................................................................................................................................................	3
Strong quarterly result and good market conditions ......................................................................................................	4
Financial review .............................................................................................................................................................	5
Group results .............................................................................................................................................................	5
Cash flow ...................................................................................................................................................................	6
Financial position .......................................................................................................................................................	6
Segments.......................................................................................................................................................................	7
Silicones.....................................................................................................................................................................	7
Silicon Products .........................................................................................................................................................	7
Carbon Solutions .......................................................................................................................................................	8
Outlook for the third quarter...........................................................................................................................................	8
Declaration by the Board of Directors ...........................................................................................................................	9
Condensed consolidated interim statement of profit or loss .......................................................................................	10
Condensed consolidated interim statement of comprehensive income ......................................................................	11
Condensed consolidated interim statement of financial position ................................................................................	12
Condensed consolidated interim statement of cash flows ..........................................................................................	13
Condensed consolidated interim statement of changes in equity ...............................................................................	14
Notes to the condensed consolidated interim financial statements ............................................................................	15
Note 1 General information, basis for preparation and judgements, estimates and assumptions ..........................	15
Note 2 Operating segments .....................................................................................................................................	15
Note 3 Fixed assets .................................................................................................................................................	17
Note 4 Right of use assets.......................................................................................................................................	19
Note 5 Intangible assets ..........................................................................................................................................	20
Note 6 Inventories ....................................................................................................................................................	22
Note 7 Other items ...................................................................................................................................................	22
Note 8 Finance income and expenses ....................................................................................................................	22
Note 9 Interest-bearing assets and liabilities ...........................................................................................................	23
Note 10 Cash flow hedging......................................................................................................................................	23
Note 11 Number of shares.......................................................................................................................................	24
Appendix - Alternative performance measures (APMs) ..........................................................................................	25

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Highlights 2nd quarter 2021

• Elkem is delivering another strong quarterly result, despite the planned maintenance stops for Silicones both in China and France.
• Market conditions have been good in all major regions in the second quarter.
• The strategic expansion of the Silicones plant in China has started and the battery pilot plant has commenced production.
• The financial position is strong and the capital increase in April provides an excellent platform for further growth.
• CEO Michael Koenig resigned from Elkem with effect from 30 June. Former CEO Helge Aasen will act as the interim CEO.
• The market outlook is good with strong demand and attractive conditions.

Key figures

(NOK million, except where specified)		2Q 2021	2Q 2020	YTD 2021	YTD 2020	FY 2020
Total operating income		7,332	5,879	14,525	11,677	24,691
EBITDA		1,371	644	2,602	1,234	2,684
EBITDA margin (%)		19 %	11 %	18 %	11 %	11 %
EBIT		841	212	1,646	409	957
Profit (loss) for the period	(1)	609	-13	1,293	238	239
Earning per share (EPS) (NOK per share)		0.98	-0.02	2.15	0.41	0.41
Equity ratio (%)		46 %	39 %	46 %	39 %	41 %
Net interest-bearing debt (NIBD)		5,630	8,122	5,630	8,122	8,058
Cash flow from operations		911	363	1,500	275	1,522
ROCE - annualised (%)		18 %	4 %	18 %	4 %	5 %
(1) Owners of the parent's share of prof it (loss)

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Strong quarterly result and good market conditions

In the second quarter of 2021, Elkem delivered all-time high operating income for the third consecutive quarter and another strong quarterly result. Market conditions are good in all of Elkem's main markets with strong demand and high prices. The group's financial position is strong and the capital increase in April provides an excellent platform for further growth.

Elkem's total operating income for the second quarter 2021 was NOK 7,332 million, which was all-time high for the third consecutive quarter and up 25% from the corresponding quarter last year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to NOK 1,371 million in the quarter, which was more than doubled compared to second quarter 2020. Earnings per share (EPS) was NOK 0.98 in the quarter, and NOK 2.15 YTD-2021.

Market conditions are strong across all Elkem's three divisions. The Silicones division has seen good demand and high prices during the second quarter 2021. The result has improved significantly against second quarter last year, despite higher raw material costs and scheduled maintenance stops both in China and France. Silicon Products also see good demand from steel and automotive. That combined with low supply has resulted in a tight market balance and increased market prices for silicon and ferrosilicon. The market for carbon products was good. Demand is still high but also here raw material costs are up.

CEO Michael Koenig handed in his resignation and left Elkem with effect from 30 June 2021. The board has initiated

the process to find Elkem's new CEO. Helge Aasen will act as the interim CEO. Elkem's strategy remains firm. In the

interim period the board and management will focus on implementation of the ongoing strategic projects, including silicones expansions and the battery materials project.

The announced expansion of Silicones Xinghuo has started and the cornerstone for the project was laid in April 2021. The project is scheduled to be completed within three years and will strengthen Elkem's position in the fastest growing markets in Asia Pacific. The project is an integral part of Elkem's growth and specialisation strategy and will improve profitability and environmental performance.

The pilot plant for battery materials in Kristiansand has started operations and qualification processes with prospective customers have reached advanced levels. A fast-track option is being considered to address the strong demand from customers and shorten time to market. On that basis the exact timing of the financial investment decision is pending.

The group's equity as at 30 June 2021 amounted to NOK 16,045 million, which gave a ratio of equity to total assets of 46%. Net interest-bearing debt was NOK 5,630 million, which gave a ratio of net interest-bearing debt to EBITDA of

1.4 times. The net interest-bearing debt and leverage ratio has been significantly reduced due to the capital increase in April and the improvements in results. Elkem had cash and cash equivalents of NOK 5,998 million as at 30 June 2021 and undrawn credit lines of around NOK 3,900 million.

The market sentiment is strong across all divisions. The market momentum for silicones is strong and prices are at high levels in China and expected to increase in Europe and the US. However, the high price level in China are not seen as sustainable. Market prices for silicon- and ferrosilicon-based products are stable at a high level due to tight market conditions. However, slower demand is expected in the third quarter due to holiday effects. Carbon products continue to benefit from strong steel and ferroalloys markets, but raw material costs are increasing. General cost increases and constraints in global logistics and raw material supply are a concern going forward.

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Financial review

Group results

KEY FIGURES	2Q 2021	2Q 2020	YTD 2021	YTD 2020	FY 2020
MNOK except where indicated otherwise
Total operating income	7,332	5,879	14,525	11,677	24,691
EBITDA	1,371	644	2,602	1,234	2,684
EBIT	841	212	1,646	409	957
Other items	18	-107	-44	22	-130
Net financial items	-70	-93	-13	-26	-229
Profit (loss) before income tax	789	16	1,614	380	584
Tax	-171	-16	-304	-119	-306
Profit (loss) for the period	618	-0	1,309	261	278

Quarter

Elkem group had total operating income of NOK 7,332 million in 2Q-2021, which was up 25% from NOK 5,879 million in 2Q-2020. Increased operating income was mainly driven by the Silicones and Silicon Product divisions, and mainly explained by higher sales prices.

The group's EBITDA for 2Q-2021 was NOK 1,371 million, which was up 113% from NOK 644 million in the corresponding quarter last year. Silicones and Silicon Products reported significantly stronger EBITDA compared to 2Q-2020 due higher sales prices and positive sales mix effects. The EBITDA for Carbon Solutions was in line with 2Q- 2020. The EBITDA for all divisions has been negatively impacted by currency.

EBIT for 2Q-2021 was NOK 841 million, up NOK 629 million compared to 2Q-2020.

Other items include fair value changes commodity contracts, gains (losses) on embedded derivatives, currency forward contracts and other income and expenses. Other items amounted to NOK 18 million in 2Q-2021 which mainly consisted of positive currency effects MNOK 16 from working capital items and positive effects on interest element in embedded derivatives in power contracts MNOK 7. This was partly offset by other and change in fair value of commodity contracts.

Net financial items were NOK -70 million in 2Q-2021, compared to NOK -93 million in 2Q-2020. Net interest expenses amounted to NOK -60 million, which was NOK 7 million more than the corresponding quarter last year. Losses on foreign exchange amounted to NOK -6 million, compared to losses of NOK -34 million in 2Q-2020. The foreign exchange losses in 2Q-2021 was mainly explained by negative translation effects on loans in EUR partly offset by positive translation effects on group loans in CNY. Other financial expenses amounted to NOK -4 million.

Profit before income tax was NOK 789 million in 2Q-2021 compared to NOK 16 million in 2Q-2020.

Tax expenses in the quarter was NOK -171 million, giving a tax rate for the quarter of 22%.

Profit for the period was NOK 618 million, compared to NOK -0 million in 2Q-2020. Owners of the parent's share of profit was NOK 609 million, which gave earnings per share of NOK 0.98 in 2Q-2021.

Year to date

The group's total operating income was NOK 14,525 million YTD-2021, which was up 24% compared to YTD-2020. EBITDA YTD-2021 amounted to NOK 2,602 million, which was up 111% from NOK 1,234 million YTD-2020. All divisions reported improved EBITDA YTD-2021 compared to YTD-2020, mainly explained by higher sales prices and higher sales volumes. Earnings per share (EPS) was NOK 2.15 YTD-2021.

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