Third quarter results 2021 report.pdf

Contents
Highlights 3rd quarter 2021 ............................................................................................................................................	3
Key figures.....................................................................................................................................................................	3
Record results in extraordinary markets........................................................................................................................	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 fourth 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 ...............................................................	16
Note 4 Other items...................................................................................................................................................	18
Note 5 Finance income and expenses ....................................................................................................................	18
Note 6 Interest-bearing assets and liabilities ...........................................................................................................	19
Note 7 Cash flow hedging........................................................................................................................................	19
Note 8 Number of shares.........................................................................................................................................	20
Appendix - Alternative performance measures (APMs) ..........................................................................................	21

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Highlights 3rd quarter 2021

• Helge Aasen will continue as permanent CEO of Elkem, after serving as interim CEO since June 2021.
• Elkem is delivering its best quarterly result ever, benefitting from a strong business model and attractive market positions.
• Strong market demand while supply has been hampered by capacity constraints and power curtailments. Elkem has kept normal production in the quarter.
• Elkem has launched a new ambitious climate strategy supporting the Paris agreement, leading the green transition in the industry.
• Elkem announces a major investment of NOK 350 million in France strengthening Elkem's specialty business in EMEA & Americas.
• Supply-demandbalance for Elkem's products expected to remain tight until the global energy situation eases.

Key figures

(NOK million, except where specified)		3Q 2021	3Q 2020	YTD 2021	YTD 2020	FY 2020
Total operating income		8,796	5,886	23,321	17,563	24,691
EBITDA		2,131	512	4,733	1,746	2,684
EBITDA margin (%)		24 %	9 %	20 %	10 %	11 %
EBIT		1,666	99	3,313	508	957
Profit (loss) for the period	(1)	1,371	-105	2,664	133	239
Earning per share (EPS) (NOK per share)		2.16	-0.18	4.34	0.23	0.41
Equity ratio (%)		46 %	40 %	46 %	40 %	41 %
Net interest-bearing debt (NIBD)		5,421	8,571	5,421	8,571	8,058
Cash flow from operations		1,886	182	3,386	457	1,522
ROCE - annualised (%)		34 %	2 %	23 %	4 %	5 %
(1) Owners of the parent's share of profit (loss)

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Record results in extraordinary markets

In the third quarter 2021, Elkem delivered its best quarterly result ever. Market conditions have been extraordinary with all-time high prices across several products lines and regions. Due to its integrated business model and attractive market positions, Elkem has been well positioned to benefit from the strong market momentum. In addition, Elkem launched a new ambitious climate roadmap in the quarter, with an aim of delivering a 39 per cent reduction of its product carbon footprint by 2031.

Elkem's total operating income for the third quarter 2021 was NOK 8,796 million, which was all-time high and up 49% from the corresponding quarter last year. Earnings before interest, taxes, depreciation and amortisation (EBITDA) amounted to NOK 2,131 million in the quarter, which was as much as 316% higher than third quarter 2020.

Earnings per share (EPS) was NOK 2.16 in the quarter, and NOK 4.34 YTD-2021.

Elkem's board of directors and Helge Aasen have agreed that Aasen will continue as CEO of Elkem, after serving as interim CEO since June 2021. Helge Aasen has previously served as CEO of Elkem from 2009 to 2019. He has a broad industrial experience after working in most of the company's different functions for nearly 30 years.

Market conditions have been extraordinary in the third quarter, particularly for Elkem's two largest divisions; Silicones and Silicon Products. Elkem has seen strong demand in all regions and steady price increases for its main product categories. The group has kept normal production in the quarter, while many other producers have been hampered by low raw material availability, transportation constraints, high power prices and in some cases energy curtailments. The combination of strong demand and disruptions on the supply side have pushed market prices up to new record levels.

Elkem has a strong business model with an integrated value chain and a highly competent global workforce. The group is therefore in a good position to benefit from the current market situation. In addition, access to reliable and renewable electricity is a key competitive advantage and paramount to ensure stable production, predictable cost development and the lowest possible CO2 emissions. The recent market trends, which could mark a structural shift for global silicon markets, will further strengthen Elkem's long-term competitive position.

The focus on CO2 emissions is becoming more critical for all types of industry and Elkem's response has been to launch a new ambitious climate roadmap for the group. The company aims to reduce its fossil CO2 emissions by 28% from 2020-31 while growing its supplies to the green transition - thereby delivering a 39% improvement in the carbon footprint of its products in the same period. Elkem's long-term goal is net zero emissions by 2050. From an already favourable position where 83% of the electricity consumption is based on renewable energy, Elkem is leading the green transition in the industry.

The board has approved an investment in Elkem's silicones plant in Roussillon, France, amounting to NOK 350 million. This project will further develop and strengthen Elkem's specialty business in EMEA & Americas and will be finalised in 3Q-2023. There is a structural deficit of siloxane in EMEA and further capacity is required to meet increasing demand from customers. The project will also improve Elkem's cost position and environmental performance through debottlenecking, better energy efficiency and upgraded wastewater treatment.

The group's equity as at 30 September 2021 amounted to NOK 17,512 million, which gave a ratio of equity to total assets of 46%. Net interest-bearing debt was NOK 5,421 million, which gave a ratio of net interest-bearing debt to EBITDA of 1.0 time. The net interest-bearing debt and leverage ratio have been significantly reduced due to the strong improvement in results and the capital increase in April. Elkem had cash and cash equivalents of NOK 7,176 million as at 30 September 2021 and undrawn credit lines of around NOK 3,200 million.

There is strong underlying demand for Elkem's products going into the fourth quarter and industry supply continues to be hampered by energy and raw material constraints. Elkem is well positioned to benefit from the current market conditions despite inflationary pressure, due to its integrated value chains in Asia and Europe/US. Silicones markets are expected to remain tight in the fourth quarter. Due to time lag versus market prices, Elkem expects to realise higher sales prices in the quarter both for commodities and specialities. Market prices for silicon- and ferrosilicon- based products are at all-time high. Elkem is benefitting from attractive positions and expects to realise higher sales prices due to time-lag in sales contracts. Carbon products continues to benefit from strong steel and ferroalloys markets.

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Financial review

Group results

KEY FIGURES	3Q 2021	3Q 2020	YTD 2021	YTD 2020	FY 2020
MNOK except where indicated otherwise
Total operating income	8,796	5,886	23,321	17,563	24,691
EBITDA	2,131	512	4,733	1,746	2,684
EBIT	1,666	99	3,313	508	957
Other items	16	-18	-29	4	-130
Net financial items	-10	-153	-23	-179	-229
Profit (loss) before income tax	1,675	-74	3,289	306	584
Tax	-295	-23	-599	-141	-306
Profit (loss) for the period	1,380	-97	2,690	164	278

Quarter

Elkem group had total operating income of NOK 8,796 million in 3Q-2021, which was up 49% from NOK 5,886 million in 3Q-2020. Increased operating income was driven by all three divisions and mainly explained by higher sales prices and higher sales volumes.

The group's EBITDA for 3Q-2021 was NOK 2,131 million, which was up 316% from NOK 512 million in the corresponding quarter last year. All divisions reported significantly stronger EBITDA compared to 3Q-2020 due higher sales prices and higher sales volumes. Raw material costs are also increasing, partly offsetting higher sales prices.

EBIT for 3Q-2021 was NOK 1,666 million, up from NOK 99 million in 3Q-2020.

Other items include fair value changes commodity contracts, gains (losses) on embedded derivatives in power contracts, currency forward contracts and other income and expenses. Other items amounted to NOK 16 million in 3Q-2021 which mainly consisted of positive currency effects MNOK 39 from working capital items. This was partly offset by negative effects on embedded derivatives MNOK 17 and other expenses of MNOK 6.

Net financial items were NOK -10 million in 3Q-2021, compared to NOK -153 million in 3Q-2020. Net interest expenses amounted to NOK -59 million, which was in line with the corresponding quarter last year. Gains on foreign exchange amounted to NOK 52 million, compared to losses of NOK -89 million in 3Q-2020. The foreign exchange gains in 3Q-2021 was mainly explained positive translation effects on group loans in CNY. Other financial expenses amounted to NOK -2 million.

Profit before income tax was NOK 1,675 million in 3Q-2021 compared to NOK -74 million in 3Q-2020.

Tax expenses in the quarter was NOK -295 million, giving a tax rate for the quarter of 18%.

Profit for the period was NOK 1,380 million, compared to NOK -97 million in 3Q-2020. Owners of the parent's share of profit was NOK 1,371 million, which gave earnings per share of NOK 2.16 in 3Q-2021.

Year to date

The group's total operating income was NOK 23,321 million YTD-2021, which was up 33% compared to YTD-2020. EBITDA YTD-2021 amounted to NOK 4,733 million, which was up 171% from NOK 1,746 million YTD-2020. All divisions reported significantly improved EBITDA YTD-2021 compared to YTD-2020, mainly explained by higher sales prices and higher sales volumes. Earnings per share (EPS) was NOK 4.34 YTD-2021.

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