Elkem : First quarter results 2021 report.pdf

Contents
Highlights 1st quarter 2021.............................................................................................................................................	3
Key figures.....................................................................................................................................................................	3
Delivering on growth and profitability ............................................................................................................................	4
Financial review .............................................................................................................................................................	5
Group results .............................................................................................................................................................	5
Cash flow ...................................................................................................................................................................	5
Financial position .......................................................................................................................................................	6
Segments.......................................................................................................................................................................	7
Silicones.....................................................................................................................................................................	7
Silicon Products .........................................................................................................................................................	7
Carbon Solutions .......................................................................................................................................................	7
Outlook for the second quarter ......................................................................................................................................	8
Condensed consolidated interim statement of profit or loss .........................................................................................	9
Condensed consolidated interim statement of comprehensive income ......................................................................	10
Condensed consolidated interim statement of financial position ................................................................................	11
Condensed consolidated interim statement of cash flows ..........................................................................................	12
Condensed consolidated interim statement of changes in equity ...............................................................................	13
Notes to the condensed consolidated interim financial statements ............................................................................	14
Note 1 General information, basis for preparation and judgements, estimates and assumptions ..........................	14
Note 2 Operating segments .....................................................................................................................................	14
Note 3 Fixed assets, right-of-use assets, goodwill and intangible assets ...............................................................	17
Note 4 Other items ...................................................................................................................................................	18
Note 5 Finance income and expenses ....................................................................................................................	19
Note 6 Interest-bearing assets and liabilities ...........................................................................................................	19
Note 7 Cash flow hedging........................................................................................................................................	20
Note 8 Number of shares.........................................................................................................................................	20
Appendix - Alternative performance measures (APMs) ..........................................................................................	22

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Highlights 1st quarter 2021

• Elkem is delivering on its growth strategy and ambition to be a leading integrated provider of silicones solutions
• The operating revenue for the first quarter reached another all-time high with the best quarterly result since third quarter 2018
• The board has approved a strategic expansion of the Silicones plant in China to strengthen Elkem's position in the fastest growing silicones market and to support the specialisation strategy
• The market outlook is positive in all major regions, based on good demand and attractive prices

Key figures

(NOK million, except where specified)		1Q 2021	1Q 2020	YTD 2021	YTD 2020	FY 2020
Total operating income		7,193	5,798	7,193	5,798	24,691
EBITDA		1,231	590	1,231	590	2,684
EBITDA margin (%)		17 %	10 %	17 %	10 %	11 %
EBIT		806	197	806	197	957
Profit (loss) for the period	(1)	684	251	684	251	239
Earning per share (EPS) (NOK per share)		1.17	0.43	1.17	0.43	0.41
Equity ratio (%)		41 %	40 %	41 %	40 %	41 %
Net interest-bearing debt (NIBD)		7,668	6,772	7,668	6,772	8,058
Cash flow from operations		590	-88	590	-88	1,522
ROCE - annualised (%)		17 %	4 %	17 %	4 %	5 %
(1) Owners of the parent's share of prof it (loss)

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Delivering on growth and profitability

In the first quarter of 2021, Elkem delivered all-time high operating income and the best quarterly result since the third quarter 2018. The strong results reflected Elkem's growth and specialisation strategy in a market with attractive fundamentals and its strong culture for operational excellence. On 26 April, Elkem approved a strategic expansion in China, the world's fastest-growing silicones market. The NOK 3.8 billion project will further support Elkem's growth and specialisation strategy.

Elkem's total operating income for the first quarter 2021 was NOK 7,193 million, which was another all-time high and up 24% from the corresponding quarter last year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to NOK 1,231 million in the quarter, which was more than doubled compared to first quarter 2020 and the best since the third quarter 2018. Earnings per share (EPS) was NOK 1.17 in the quarter.

Elkem's main business segments all showed a strong development in the first quarter 2021. Strong demand in all

major regions has positively impacted sales volumes and realised prices. Silicones prices in China have increased to attractive levels during the first quarter. In March, Elkem also announced global price increases for silicones. For silicon and ferrosilicon the market prices have risen consistently during the first quarter and reached the highest levels in several years. Also, the market for carbon products was good driven by strong global steel markets.

Elkem's operational performance was strong in the quarter with high and stable production. The productivity

improvement programme with the target to realise annual cost improvements of more than NOK 350 million was still progressing ahead of plan and reached an annual run rate of NOK 230 million by end of first quarter.

Elkem continues to deliver on its growth strategy and ambition to be a leading integrated provider of silicones solutions. On 26 April 2021, the board approved a NOK 3.8 billion strategic expansion of the Xinghuo Silicones plant

in China to strengthen Elkem's position in the fastest growing silicones market and to further support the specialisation

strategy. In addition to supporting Elkem´s specialisation and growth strategy, the project will also significantly improve

Elkem's overall cost position and environmental profile based on state-of-the-art technology.

The project will increase the plant's production capacity by more than 50% for high quality upstream products and enable Elkem to further drive specialty volumes by increasing access to high purity products and critical by-products where Elkem has developed an attractive backlog of downstream products to offtake upstream volumes. The project will also significantly improve the environmental performance by reducing the energy consumption by 57%, reducing use of raw materials by 11% and giving a 30% reduction of solid waste. Improved environmental performance was

one of the key decision parameters for Elkem, in line with the company's high ambition level on Environment, Social

and Governance (ESG) factors.

During the first quarter, Elkem also successfully raised MNOK 1,250 in the bond market for refinancing of debt

maturities December 2021. The bond transaction was significantly oversubscribed and demonstrated Elkem's strong

financial position.

Elkem's advanced battery materials activities are proceeding according to plan. The pilot plant in Kristiansand was commissioned in April 2021 and has started industrial scale production. Qualification processes are ongoing with several battery cell producers. The potential large-scale battery materials plant at Herøya represents a significant green value creation opportunity and Elkem is currently in the process to invite external investors to take part in the project. This will enable a swift development, and position Elkem as a significant and attractive supplier to the battery industry.

The group's equity as at 31 March 2021 amounted to NOK 13,440 million, which gave a ratio of equity to total assets of 41%. Net interest-bearing debt was NOK 7,668 million, which gave a ratio of net interest-bearing debt to EBITDA of

2.3 times. The leverage ratio has been improved over the past two quarters due to higher EBITDA and lower net- interest bearing debt. Elkem had cash and cash equivalents of NOK 4,183 million as at 31 March 2021 and undrawn credit lines of close to NOK 3,900 million.

The market sentiment is positive for all divisions and Elkem will continue to develop its market positions and focus on sustainable growth. The silicones market is strong and market reference prices in China are expected to remain at attractive levels in the second quarter. The announced global price increases will gradually become effective from the second quarter. The result for the Silicones division will be impacted by maintenance stops in China and France. The combined EBITDA effect is limited to NOK 150 million. Demand and market prices for silicon- and ferrosilicon-based products are expected to level out. However, realised contract prices will increase due to time-lag effects. Steel and ferroalloys markets are still strong, giving continued attractive market conditions for carbon products.

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Financial review

Group results

KEY FIGURES	1Q 2021	1Q 2020	YTD 2021	YTD 2020	FY 2020
MNOK except where indicated otherwise
Total operating income	7,193	5,798	7,193	5,798	24,691
EBITDA	1,231	590	1,231	590	2,684
EBIT	806	197	806	197	957
Other items	-63	129	-63	129	-130
Net financial items	57	66	57	66	-229
Profit (loss) before income tax	824	364	824	364	584
Tax	-133	-102	-133	-102	-306
Profit (loss) for the period	691	261	691	261	278

Quarter and year to date

Elkem group had total operating income of NOK 7,193 million in 1Q-2021, which was up 24% from NOK 5,798 million in 1Q-2020. Increased operating income was mainly driven by the Silicones divisions and mainly explained by higher sales volumes. First quarter 2020 was impacted by Covid-19 effects in China.

The group's EBITDA for 1Q-2021 was NOK 1,231 million, which was up 109% from NOK 590 million in the corresponding quarter last year. All divisions reported stronger EBITDA compared to 1Q-2020 due to a combination of higher sales volumes, positive sales mix effects and higher sales prices.

EBIT for 1Q-2021 was NOK 806 million, up from NOK 197 million in 1Q-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 -63 million in 1Q-2021 which mainly consisted of negative effects on interest element in embedded derivatives in power contracts MNOK -40 and negative currency effects MNOK -38 from working capital items.

Net financial items were NOK 57 million in 1Q-2021, compared to NOK 66 million in 1Q-2020. Net interest expenses amounted to NOK -58 million, which was NOK 2 million lower than the corresponding quarter last year. Gains on foreign exchange amounted to NOK 123 million, compared to a gain of NOK 129 million in 1Q-2020. The foreign exchange gain in 1Q-2021 was mainly explained by positive translation effects on external loans in EUR. Other financial expenses amounted to NOK -8 million.

Profit before income tax was NOK 824 million in 1Q-2021 compared to NOK 364 million in 1Q-2020.

Tax expenses in the quarter was NOK -133 million, giving a tax rate for the quarter of 16%.

Profit for the period was NOK 691 million, compared to NOK 261 million in 1Q-2020. Owners of the parent's share of profit was NOK 684 million, which gave earnings per share of NOK 1.17 in 1Q-2021.

Cash flow

CASH FLOW FROM OPERATIONS	1Q 2021	1Q 2020	YTD 2021	YTD 2020	FY 2020
NOK million
Operating profit (loss) before other items	806	197	806	197	957
Amortisation, depreciation and impairment	425	393	425	393	1,727
Changes in working capital	-395	-442	-395	-442	232
Reinvestments	-259	-253	-259	-253	-1,387
Equity accounted investments	13	16	13	16	-7
Cash flow from operations	590	-88	590	-88	1,522
Other cash flow items	457	112	457	112	-2,839
Change in cash and cash equivalents	1,047	24	1,047	24	-1,317

1. Elkem's internal cash flow measure is defined and described in the APM appendix to the report.

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