Elkem ASA ((NO:ELK)) has held its Q2 earnings call. Read on for the main highlights of the call.
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Elkem ASA’s recent earnings call presented a mixed sentiment, reflecting both achievements and challenges. While the company showcased strong operational performance and strategic energy contracts, these positives were overshadowed by weak market conditions, particularly in the Silicon Products division, and a negative earnings per share (EPS). The company is navigating significant challenges, especially due to overcapacity and price pressures in key markets.
Resilient Operational Performance
Elkem demonstrated resilience in its operational performance, maintaining high utilization rates and strong cost positions. The company’s EBITDA for the second quarter stood at NOK 803 million, resulting in a margin of 10%. This indicates Elkem’s ability to manage operations efficiently despite external pressures.
Positive Regulatory Outcome
A favorable ruling from the Norwegian Ministry of Climate and Environment regarding Elkem’s complaint about the allocation of free emission quotas could potentially result in an additional NOK 1.3 million allowances for the period 2021-2025. This regulatory win is a positive development for the company.
ESG Recognition
Elkem’s commitment to sustainability was recognized with top ratings from EcoVadis and CDP. Additionally, the company received NOK 33 million from Innovation Norway to pilot green products, underscoring its dedication to environmental, social, and governance (ESG) initiatives.
Strategic Energy Contracts
The company secured a significant energy contract with NTE for 300 gigawatt hours per year, ensuring a stable energy supply from 2028 to 2037. This strategic move aligns with Elkem’s long-term energy security goals.
Silicones Division Improvement
Elkem’s Silicones division reported improved EBITDA, driven by a 22% increase in sales volume compared to the previous year. This improvement highlights the division’s potential for growth and contribution to the company’s overall performance.
Weak Market Conditions
Elkem is facing downward price pressure across key markets, particularly in the Silicon Products division. Weak demand and overcapacity in China are significant challenges impacting the company’s market position.
Decline in Silicon Products Division
The Silicon Products division experienced a 13% decline in operating income and a 54% drop in EBITDA compared to the second quarter of the previous year. This decline reflects the ongoing challenges in this segment.
Challenging Automotive Sector
The automotive sector, a key market for Elkem, remained weak outside of China, affecting demand for the company’s products. This sector’s performance continues to be a concern for Elkem.
Negative Earnings Per Share
Elkem reported a negative EPS of minus NOK 0.49 per share for the second quarter, and minus NOK 0.82 year-to-date. This negative performance is attributed to low prices and EBITDA, highlighting the financial challenges faced by the company.
Overcapacity and Price Pressure
The company is dealing with declining silicon and ferrosilicon prices due to overcapacity in China and destocking. EU reference prices have been reduced by around 20%, adding to the price pressure challenges.
Forward-Looking Guidance
Looking ahead, Elkem anticipates receiving approximately NOK 1.3 million in additional EU emission allowances, with no immediate accounting impact. The company has secured a new contract for 300 gigawatt hours of renewable power annually from 2028 to 2037, complementing previously secured contracts. Elkem remains focused on reducing CO2 emissions and promoting green technology, supported by NOK 33 million from Innovation Norway for developing cement alternatives. The strategic review to streamline Elkem’s business portfolio is ongoing, with further updates expected in the third quarter.
In conclusion, Elkem ASA’s earnings call revealed a company navigating through a challenging market environment with strategic initiatives and operational resilience. While the sentiment was mixed, with notable achievements in energy contracts and ESG recognition, the company faces significant hurdles in its Silicon Products division and broader market conditions. Investors and stakeholders will be keenly watching how Elkem addresses these challenges in the coming quarters.