DELIVERING YOUR POTENTIAL Annual report 2018 About Elkem | Highlights | CEO’s letter | Chair’s letter | Our business | Board of direcors’ report | Board and management | Corporate governance | Sustainability report | Annual accounts | Contact Elkem at a glance Who we are Contents and what we do About Elkem ............................................................ 2 Highlights .................................................................4 Established in 1904, Elkem is one of the world’s leading companies in the CEO’s letter ..............................................................6 environmentally responsible manufacture of metals and materials. Elkem is a fully- Chair’s letter ............................................................ 8 integrated producer with operations throughout the silicon value chain from The business .......................................................... 10 quartz to silicon and downstream silicone Silicones .............................................................................. 13 Production site specialities as well as speciality ferrosilicon Silicon Materials ................................................................ 15 Sales oce HQ alloys and carbon materials. Elkem has more Foundry Products ............................................................ 17 than 6,200 employees and consists of four Carbon ................................................................................. 19 business areas: Silicones, Silicon Materials, Case: The fast-growing battery market ...................20 Foundry Products and Carbon. Market opportunities: China ........................................ 24 Board of direcors’ report ...................................26 Headquartered in Oslo, the company's 27 production sites and extensive network of Board and management ....................................38 sales offices and agents around the world ensure proximity to customers and access to Corporate governance ...................................... 40 attractive end markets. Statement of corporate governance .........................40 Risk management ............................................................ 51 On 22 March 2018 Elkem was re-listed on Total operating income EBITDA Number of employees Sustainability report ...........................................54 NOK million NOK million Full time equivalent Oslo Børs. 5 973 Annual accounts ...................................................86 25 887 Elkem’s total operating income in 2018 6 022 6 113 6 280 Consolidated financial statements ............................ 88 21 403 amounted to NOK 25,887 million, with an EBITDA of NOK 5,793 million. Notes to the consolidated financial statements ....94 16 943 3 188 Financial statements – Elkem ASA ...........................162 Notes to the financial statements – Elkem ASA....165 1 559 Independent auditor’s report .....................................193 Alternative Performance Measures (APMs) ...........197 Contact ................................................................200 2016 2017 2018 2016 2017 2018 2016 2017 2018 2 HIGHLIGHTS ELKEM ANNUAL REPORT 2018 ELKEM ANNUAL REPORT 2018 HIGHLIGHTS 3 About Elkem | Highlights | CEO’s letter | Chair’s letter | Our business | Board of direcors’ report | Board and management | Corporate governance | Sustainability report | Annual accounts | Contact Elkem – key figures and highlights Key figures Highlights 2018 Metric 2018 2017 2016 ■ Elkem ASA re-listed on Oslo Børs in March Total operating income NOK million 25 887 21 403 16 943 ■ Acquisition of Xinghuo Silicones and Operating income growth % 20.9 26.3 16.3 All-time high Yongdeng Silicon Materials, substantially EBITDA NOK million 5 793 3 188 1 559 revenues strengthening the company’s integrated EBITDA margin % 22.4 14.9 9.2 silicones value chain EBIT NOK million 4 522 1 927 264 ■ All time high financial results Profit (loss) for the year NOK million 3 367 1 249 (268) ■ Cash flow from operations NOK million 4 030 2 336 1 051 New long-term financing agreements, significantly improving the group’s Reinvestments of D&A % 84.3 71.5 56.8 maturity profile and diversity of funding Total assets NOK million 31 129 25 507 23 092 sources Net interest-bearing debt NOK million 3 264 8 111 9 502 Strong ■ The new plant in Paraguay commenced Debt leverage 0.6 2.5 6.1 financial production Equity NOK million 13 722 8 565 5 830 position ■ More than 80 new products launched by Equity % 44.1 33.6 25.2 the Silicones division ROCE % 28.3 12.8 1.8 Earnings per share NOK 5.74 2.08 (0.52) ■ New business established for silicones to EV batteries Number of employees Full time equivalent 6 280 6 113 6 022 Total recordable injury rate H1+H2 Injuries per million working hours 2.20 3.10 5.30 ■ Decision to build new R&D centre for Silicones in Lyon, France CO2 emissions Million tonnes 2.54 1.78 1.50 Energy consumption TWh 6.26 5.30 4.40 Good EHS ■ Decision to build Elkem’s largest energy performance recovery plant so far in Salten, Norway 4 KEY FIGURES AND HIGHLIGHTS ELKEM ANNUAL REPORT 2018 ELKEM ANNUAL REPORT 2018 KEY FIGURES AND HIGHLIGHTS 5 About Elkem | Highlights | CEO’s letter | Chair’s letter | Our business | Board of direcors’ report | Board and management | Corporate governance | Sustainability report | Annual accounts | Contact An extraordinary year 2018 was an extraordinary year for Elkem. Not only did we deliver the strongest financial results in the company’s 114-year history. We also completed a successful Initial Public Offering and re-introduced Elkem on Oslo Børs. The listing of Elkem’s shares on 22 March marked the completion next ten years, partly driven by China, where electrification of the of a three-year process to restructure and reposition the com- transport sector is happening at a pace no one thought possible. pany to become a vertically integrated supplier of silicones and 2018 was advanced silicon and carbon based materials. Reducing carbon footprint has high priority. We opened our first foundry plant in Latin America, in Limpio, Paraguay in 2018. exceptionally It was a proud moment, “ringing the bell” that morning when Production is mainly based on local raw materials and hydroe- good for Elkem. Elkem was re-introduced to the stock market. Elkem has played lectric power, and this plant will have the lowest carbon footprint All divisions have an important part in Norway’s industrial history since 1904 and in the Elkem group. has grown to become a global player with more than 6,200 em- delivered strong ployees around the world. Another exciting event in 2018 has been the investment deci- results and strong sion to start building our largest energy recovery plant so far, in operational The plan to create an integrated value chain for silicones was Salten, Norway with an investment frame of up to NOK 1 billion, conceived when Bluestar acquired Elkem in 2011. Seven years on which will improve our ability to ensure environmentally friendly performance. we have come a long way in accomplishing our mission. We are silicon production with the lowest possible emissions at the low- one of the world’s top three producers of silicones and number est possible use of resources. one in China, the fastest growing market. Our production plat- form in China puts us in a perfect position to continue growth Elkem will continue to grow. Our products are everywhere, and capture market share, delivering customised silicone solu- improving the performance of thousands of products used in tions for products ranging from electrical vehicles, personal care every-day life. Global megatrends drive the demand for lighter and consumer electronics to medical equipment and construc- and stronger materials and as income levels rise, an increasing tion materials. amount of people will be able to afford higher quality products. Global demand for silicones is expected to increase by 5% per Safety is a cornerstone of our operations. The recordable injury year until 2021. Global demand for silicones is expected to in- rate of 2.2 in 2018 is the second lowest to date, but there is further crease at a rate of twice global GDP growth in the next five years. room for improvement. With continuous daily focus at all levels of Elkem aims to grow faster than the market, through specialisa- the organisation we will strive towards our goal of zero injuries. tion, organic growth and M&A. 2018 was exceptionally good for Elkem. All divisions have deliv- 2018 has been extraordinary in many ways and I would like to ered strong results thanks to excellent operational performance, thank all my Elkem colleagues for their dedication, hard work record high volumes and high prices, particularly in the first half and continuous efforts to create value for our customers and of the year. Concentrating on elements within our control, I re- shareholders. Elkem will focus on its growth and specialisation main confident in our strategy to grow sales and margins by de- strategy and we expect the strong production performance to veloping increasingly specialised products meeting the demands continue. The outlook for 2019 is promising. from the global megatrends. Specialisation is the future. Elkem is ready to capture the ex- pected growth in electrical vehicles (EV). The group is working intensely to industrialise its proprietary technology of combining graphite and silicon in anodes to improve battery performance. Helge Aasen Demand for graphite is expected to increase seven-fold in the CEO, Elkem ASA 6 CEO’S LETTER ELKEM ANNUAL REPORT 2018 About