Elkem Maintains Stability in a Challenging Market: A Profits Call

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Elkem Maintains Stability in a Challenging Market: A Profits Call

In its third-quarter earnings call, global supplier of silicone-based advanced materials Elkem ASA (ELK.OL) reported a robust performance with an operating revenue of 8 billion NOK and an EBITDA of 1.2 billion NOK. This reflects a 15% EBITDA margin in line with the company's targets. The silicones segment made a significant contribution to this success; the commissioning of a new production line in China added 75 million NOK to its earnings. Despite the challenging market environment in China, Elkem is on track to achieve its financial and sustainability targets, including a 28% reduction in CO2 emissions by 2031 and reaching net-zero emissions by 2050.

Key Points:

  • Operating revenue for Q3 reached 8 billion NOK, with EBITDA at 1.2 billion NOK.
  • The silicones segment contributed to the improvement, aided by the new production line in China.
  • Elkem raised 1.5 billion NOK through new bond loans for refinancing purposes.
  • The company aims for a 28% reduction in CO2 emissions by 2031 and to achieve net-zero emissions by 2050.
  • Financial targets include an average top-line growth of 5%, maintaining a minimum 15% EBITDA margin, and an improvement of 1.5 billion NOK in EBITDA by 2024.
  • Market conditions in China are tough, but recent incentives may provide relief.
  • Elkem is focusing on supply chain resilience and geographic diversification to mitigate trade risks.

Company Outlook: Elkem expects modest improvements in EBITDA and production capacity in Q4. The company is progressing toward reducing CapEx by 2 billion NOK compared to 2023. Elkem plans to maintain a strong liquidity position and be prepared for potential future investments.

Negative Highlights:

  • The market is showing weak demand, particularly in China's construction and automotive sectors.
  • New housing projects in China have decreased by 23% since the beginning of the year.
  • Elkem's Silicon Products segment experienced an 8% decline in operating revenue.

Positive Highlights:

  • Vehicle production in China has slightly increased.
  • U.S. tariffs on Chinese electric vehicles may benefit Elkem's sales in the United States.
  • The silicones segment saw a 20% increase in operating revenue, reaching 3.8 billion NOK.

Shortcomings:

  • Cash flow from operating activities remained low at 32 million NOK due to rising inventory levels.
  • The Silicon Products segment saw a decline in operating revenue, although EBITDA improved.

Q&A Highlights:

  • Management discussed the impact of the stimulus package on economic activity and commodity prices.
  • Elkem's Salten facility is expected to complete its restructuring project by the end of Q4.
  • Investments in environmental initiatives continue, reflecting confidence in operational positioning.

In conclusion, Elkem's third-quarter results demonstrate the company's ability to maintain stability despite market challenges and make progress toward its financial and environmental goals. The company continues to strategically advance in a challenging global market with a focus on long-term sustainability and growth.