Elkem ASA

OSE:ELK

Earnings Call Transcript 2022-Q2

[Odd-Geir Lyngstad, executive]

Welcome to Elkem's Results Presentation for the Second Quarter 2022. My name is Odd-Geir Lyngstad, and I'm responsible for Investor Relations.

Today's presenters are CEO, Helge Aasen; and CFO, Morten Viga. CEO, Helge Aasen, will take us through the business update and the outlook for the third quarter. CFO, Morten Viga, will present the financials for the second quarter. We will take questions after Helge and Morten's presentations.

And with that, I hand over to CEO, Helge Aasen.

[Helge Aasen, executive]

Thank you, Odd-Geir. It's a pleasure to be here, presenting another record result for Elkem. The result for the second quarter was yet another all-time high and Elkem's seventh consecutive quarter with improved EBITDA results. The strong results were again largely explained by high sales prices and were particularly driven by Silicon Products. Also, Carbon Solutions presented strong results and had their highest operating income and EBITDA ever. The strong performance gave earnings per share of NOK 4.67 in the quarter and NOK 8.87 year-to-date. That will provide an attractive dividend yield for 2022 based on Elkem's dividend policy.

In the second quarter, Elkem has refinanced its bank facilities. The new facilities consist of a revolving credit facility of EUR 500 million and a term loan of EUR 500 million. The intention is to include sustainability performance targets in the loan agreements, which we think emphasizes Elkem's focus and commitment on ESG.

We're very satisfied with the transaction which was well received in Elkem's Bank Group. We also had a change in our corporate management in the second quarter. Larry Zhang was appointed new Senior Vice President for the Silicones division. Larry joined Elkem back in 2016 as a Plant Manager in our Silicones' upstream plant in Xinghuo in China and later became responsible for the Asia Pacific region. Larry has done an excellent job to develop our business in the region and will strengthen Elkem's global management team.

ESG is a key priority for Elkem, and we're working across multiple areas. Right now, we're mapping our taxonomy eligible activities to prepare for reporting from 2022. One of this year's successes include the Platinum rating from EcoVadis. EcoVadis is one of the most respected ESG rating agencies and the Platinum rating is only awarded to the top 1% performers.

We launched the climate roadmap in 2021 and are working actively to reduce CO2 emissions. In 2021, Elkem's CO2 emissions were reduced by 4%. Several of our climate initiatives require technology development and further investments. These will be implemented after 2026. But the groundwork is laid now and in the second quarter, we commissioned 2 climate-friendly container vessels from MSCL, enabling reduced CO2 emissions.

We're also happy to see that the safety performance has improved in 2022. The performance was weaker last year, partly as a consequence of COVID, which unfortunately resulted in less inspections and less interactions. Now that COVID restrictions are removed in most locations, we have been able to step up our efforts in safety follow-up, which is also now starting to show in the statistics.

Then to Vianode. This is a very important project for Elkem and a significant opportunity in connection with the green transition. The market for battery materials is growing at an exponential rate and the focus is to build a sustainable value chain for batteries in Europe. Elkem's project is also receiving international recognition for its potential contribution in this regard. In May, the German Minister for Foreign Affairs, Mrs. Annalena Baerbock visited Vianode's pilot plant in Kristiansand. And in June, the plant was visited by a delegation from Deutsche Bundestag and the German Embassy in Norway.

Elkem continues to develop Vianode and prepare to make an investment decision together with Hydro and Altor as partners. The completion of the transaction with Hydro and Altor is still pending approval from competition authorities and the total investments in the first phase, including preparations for a full-scale investment decision are estimated at around NOK 2 billion.

Let's turn to the integrated value chain of Elkem and renewable power positions or key competitive advantages and some of the main reasons for our strong performance. During the past 2 years, we have a market that's been characterized by several incidents causing disruptions to the industry. We had the COVID pandemic, we have the energy crisis, conflict in Ukraine. The purpose of this overview is to further increase the understanding of Elkem's positions and exposure to cost increases.

In silicon metal production, power, quartz, electrodes, and logistics, generally make up approximately 60% of the cost base for an average industry player. Elkem is well covered in these areas, either through captive supply or long-term competitive power contracts. In siloxane, which is the upstream part of silicones production, silicon metal is the most important raw material and generally, make up approximately 50% of the cost. Here, we are fully integrated in Europe and partially integrated in China.

For the other cost elements, we are also well-positioned, but with a more normal market exposure. We are very comfortable with these positions which will enable us to remain cost-competitive also going forward.

Elkem is operating in very competitive markets, and we have an ongoing focus on cost improvements. Continuous improvement is one of Elkem's core values. We have built a strong lean manufacturing culture with our Elkem business system.

Our focus on cost and cost improvements is never-ending and we continue to identify better ways to work throughout the entire value chain. As you know, power is a significant cost factor in the upstream production of silicon and ferrosilicon and access to competitive contracts are key to remain one of the winners in this industry.

In the second quarter, we have entered into new long-term contracts with a total aggregated volume of 2.5 terawatt hours during the period 2027 to 2033. These contracts are in line with our hedging policy to secure competitiveness long-term and approximately 80% of the consumption in Norway is hedged until 2026. After that, the hedging position is gradually lower with the longest contracts expiring in 2035.

In 2020, Elkem established a digital office to drive improvements and value creations by implementing digital initiatives. So far, an annual improvement program of more than NOK 200 million is being carried out through many different initiatives and use cases.

Another important strategic pillar is specialization. We have specialty products positions in all of Elkem's divisions. Particularly, in Silicones, we have a significant opportunity space to further develop specialized applications due to the very broad use of silicones in many, many end markets.

Silicones going into electrical vehicles is one of our success stories. This product segment has grown from close to 0 to become our single most important application area in just a few years. And in 2021, more than 25% of the Silicones division sales came from products developed less than 5 years ago.

So research and innovation capabilities are essential to develop tailor-made products and we have recently opened a new research and innovation center in France and are now in the process of building a new center in Shanghai. Of course, this is to facilitate increased spending in product development and not at least to attract more talented people.

To strengthen our product portfolio in the Silicon Products division, we made an acquisition in the second quarter, a company named KeyVest Belgium. KeyVest is a company that has specialized in silicon metal powders to refractory and advanced ceramics. This acquisition will expand our product portfolio and create an attractive platform for further growth.

The automotive market is still weak and has not yet recovered to pre-COVID levels. In 2021, the global sales of light vehicles were around 80 million units, which was 13% below pre-COVID level. This year, the global sales have continued to decline. Year-to-date, 2022 sales are down about 10% compared to last year. Europe is even weaker with sales down approximately 18% year-to-date compared with same period last year. However, electrical vehicles are showing very strong growth. And despite the global supply chain constraints, sales were up 75% in the first quarter compared with the same period last year. This development is good for Elkem and compensates for the reduction in total car production because an electrical vehicle contain and consume approximately 4x more silicones than the regular car.

Then a bit more on the market. The general picture for the Silicones market is good in the EU and the U.S., while China has been impacted by COVID restrictions. In Europe and the U.S., we have seen strong demand for specialty products, particularly from electrical vehicles and health care. Prices for specialties in Europe and the U.S. remain stable, following the price increases implemented in the first quarter. In China, we have seen a decline in reference prices for DMC and other intermediates, mainly explained by extensive COVID restrictions that have impacted both demand and production, particularly downstream. The lower demand of intermediates combined with new upstream capacity additions have increased stock levels and with the subsequent price decline as illustrated in the graph on this page.

For silicon and ferrosilicon, we see a continued strong market. Market prices have remained at attractive levels in the second quarter even though we have seen somewhat lower prices towards the end of the quarter. There is an increase in cost pressure on raw materials going forward. This is mainly related to the reduction materials, coal and coke. And for Elkem, this will come into effect during the second half of the year.

However, higher raw material and energy price levels in all major regions will support the current price levels for silicon and ferrosilicon, and we continue to see robust demand across all product lines despite the weakness in automotive and we have a good order situation going into the third quarter.

The steel market is an important driver for Carbon Solutions both directly and indirectly and we continue to see strong demand here for our products. The steel production in Europe and U.S. show some signs of weakness. Despite this, the demand for Elkem's carbon products has remained very strong. This is likely explained by challenging industry conditions with constrained raw material access and transportation problems. We, however, have managed to keep a good and stable production. Increasing raw material costs have been passed on through increased sales prices.

So that sums up this part of the business review. And with that, I'll give the word to our CFO, Morten Viga.

[Morten Viga, executive]

Thank you very much, Helge, and good morning, everybody. It certainly is a pleasure to once again present record results for Elkem. We are delivering new all-time high revenues, amounting to NOK 12.3 billion for the quarter and also a new all-time high EBITDA amounting to more than NOK 3.9 billion. And this was the seventh consecutive quarter with improved EBITDA results.

The extraordinary results in Q2 were once again driven particularly by Silicon Products, benefiting both from high prices for silicon, ferrosilicon and foundry products. Carbon Solutions also posted their highest revenue and EBITDA ever. As mentioned, the EBITDA was all-time high, exceeding NOK 3.9 billion, which is equivalent to 32% EBITDA margin, which is a very strong number in our sector.

As mentioned, high prices are clearly a key driver for the very good results, particularly for Silicon Products and Carbon Solution. But the results are also due to superior cost positions and very robust business models.

As always, we have, for your benefit, included a slide to give an overview of the key financial figures for Elkem. I'm not going to go through all details on this slide, but the EBITDA was NOK 3.924 billion, which gives an EBITDA margin of 32%. It included a realized currency hedging loss of NOK 12 million, which is included in the other segment. Apart from that, there are no particular one-offs in the quarter, but Silicones in France had a delayed start up after maintenance work and I will get back to that in a minute.

Other items amounted to NOK 334 million, mainly related to currency gains of NOK 314 million on working capital items. This comes from a weaker value of the NOK, which gives a higher value of receivables and bank deposits when translated from foreign currencies back to the NOK.

Net finance income was NOK 10 million and it consists of currency gains of NOK 71 million, mainly explained by unrealized gains on shareholder loans in Chinese yuan. The net interest expenses were minus NOK 53 million, which was somewhat lower than Q2 '21, mainly due to higher interest income and a better cash status.

Tax costs amounted to NOK 790 million for the quarter, which equals an effective tax rate of 21%. This is very much in line with our guidance and the expected tax rate for the full year is around 22%.

Let's then have a look at the divisional results, and I will start with Silicones, which had a good quarter, but the result was clearly impacted by the maintenance stop in France. In our guiding 3 months ago, we did not include any effects from this maintenance stop as the impact was expected to be very modest. However, such maintenance stops are very complicated and this time, we had a delayed start up, which impacted the results negatively and the estimated EBITDA impact in total was NOK 100 million negative.

The division had total operating income of NOK 5.2 billion for the quarter, which was up 45% compared to the same quarter last year. The increase was mainly driven by higher sales prices and also higher sales volumes. The EBITDA amounted to NOK 743 million, which was up 30% from the second quarter last year. The improvement was explained by higher sales prices but also impacted by high raw material costs, particularly on silicon metal.

As mentioned, most of this silicon is sourced internally and on a group basis, Elkem is clearly benefiting from high silicon prices, but the major part of that effect is shown under Silicon Products. The demand for Silicones products was pretty good in all regions in Q2, particularly for specialties in the U.S. and Europe, which, of course, is very important in our strategy.

Let's then move to the Silicon Products division, which once again delivered outstanding results, particularly benefiting from high prices, but as I said, also taking advantage of really superior cost positions. On pricing, we see very attractive levels all across our product portfolio and we are particularly pleased to see price improvements in our specialty segments.

The operating income was all-time high at NOK 6.5 billion in the quarter, up 94% from the second quarter last year. The EBITDA was almost NOK 3 billion, up 341% from second quarter last year, again explained by higher sales prices, but also good operations at Elkem's plants. The EBITDA margin amounted to 45%, which represents a very high level compared to all industry peers. Silicon Products has continued to see robust demand in Q2 and the division is generally benefiting from its strong market positions, good production performance, and good access to critical raw materials, particularly for foundry products where we see challenges in the supply chain.

As already mentioned, the Carbon Solution division also had record results driven by both good operations and strong markets. Total operating income was NOK 906 million for the quarter, which was up 79% compared to the second quarter last year. The increase was explained by high sales prices and higher sales volumes. The EBITDA was NOK 268 million, which was up 127% from second quarter last year. And this represents an EBITDA margin of 30%, which is a significant improvement versus previous quarters.

Higher sales prices and higher sales volumes are the main reasons for the margin improvement. And the sales volumes were clearly higher than the corresponding quarter, once again demonstrating Elkem's leading position in the marketplace.

The strong results are also driving further improvements in Elkem key ratios, particularly, regarding earnings per share and the EPS for the quarter amounted to NOK 4.67 per share and the year-to-date EPS amounts to NOK 8.87 as per end of June. As you know, Elkem's policy is to pay 30% to 50% of the profit for the year as a dividend and based on the performance so far and the current share price, the dividend yield should be pretty attractive for 2022. And just to remind you, we still have 2 quarters to go.

The total equity amounted to NOK 25.9 billion as per end of June and this gives an equity ratio of 52%. The equity is up NOK 6 billion from year-end and up NOK 3 billion in Q2. The dividend payment in Q2 reduced the equity by NOK 1.9 billion, but this has been offset by an even higher profit in the quarter.

In addition, one of Elkem's power contracts falls within the scope of IFRS 9, which means that Elkem's accounts must reflect the increased value -- mark-to-market value of the contract. The effect is positive NOK 1.2 billion for 2022, recognized in other comprehensive income.

Elkem's financial position is absolutely rock solid, and it has been further improved during the quarter. The net interest-bearing debt amounts to NOK 4.1 billion as per end of the quarter. This is slightly up from the NOK 3.8 billion that we had in the previous quarter and the increase is due to the dividend payment in May of NOK 1.9 billion. Based on the last 12 months' EBITDA, this gives a debt leverage ratio of 0.3.

Elkem's target is to have a well-distributed maturity profile on our debt financing. In line with this, we refinanced our bank facilities, which were due in 2023 during the second quarter. We also took the opportunity to upsize the bank financing up to EUR 1 billion, which consists of NOK 500 million on an RCF and a term loan of EUR 500 million. Both facilities have a tenure of 5 years, but the RCF also has a 2-year or it has 2 1-year extension options at the discretion of each lender.

We cannot go into detail on the pricing, but the conditions are very attractive and better than in the previous facilities. The facilities are unsecured and have the same financial covenants as previously, i.e., an equity ratio of 30% and an interest cover ratio of 4x.

Elkem also has the option to include sustainability linked performance measures, and this will not have a big financial impact, but it really underlines our strong commitment to ESG improvements. As you will see from the graph, there are also some debt maturities in 2022, but these largely consist of Chinese working capital financing, which are regularly rolled over. That's the nature of such financing in China.

Also the cash flow generation was very strong in Q2 amounting to NOK 2.8 billion of cash flow from operations, which also was a new all-time high number. The main driver for this was, of course, the high operating profit, but also a very disciplined capital efficiency management. We have seen a slight increase in working capital during the quarter, and this is mainly explained by higher inventory values partly due to higher prices for raw material and finished good, the inflation effect.

Investments amounted to NOK 862 million in the second quarter, whereof the reinvestments amounted to NOK 366 million, which equals 74% of depreciation and amortization. Target is to keep reinvestments between 80% to 90% of our depreciation, so we were a bit lower than that. Strategic investments amounted to almost NOK 500 million for the quarter, and this is mainly related to Silicones expansion projects, which we are performing in China and in France.

So with that, I give the word back to Helge to take us through the outlook for Q3.

[Helge Aasen, executive]

Yes. Thank you, Morten. So we are in the market where the sentiment is impacted by macroeconomic uncertainty. We have inflation pressure and higher interest rates, but Elkem continues to see robust demand going into the third quarter. Silicones demand in China is expected to gradually improve as COVID restrictions are eased. And as we have seen, the Chinese government also seems to take further action now to stimulate economic growth.

In EMEA and the U.S., prices and demand for specialties are expected to remain stable. Silicon Products will continue to benefit from high prices and extraordinary good cost positions, although higher raw material costs, as we have mentioned, particularly for reduction agents will gradually have an impact on the results.

Carbon Solutions continue to benefit from strong markets, but the situation here is a bit more challenging in terms of logistics and raw material supply. But to sum up, we have good visibility looking into the third quarter. The outlook is good. And again, I can say that we are basically sold out. Thank you.

So with that, I give the word back to Odd-Geir.

[Odd-Geir Lyngstad, executive]

Thank you, Helge. We will then open for questions from those following us on the webcast and those present here. Not too many now in the holiday season, but I'd like to ask those who are present here if there are any questions. If not, we move straight to the web.

I will start with some questions from [ Andreas Lee ]. Will the fire at Elkem Grundartangi on the 5th of July affect operations in Iceland?

[Helge Aasen, executive]

Yes. We expect a 10-day maintenance stop to repair an electrical switch cabinet that was affected by the stop -- or by the fire.

[Morten Viga, executive]

But it will not have any significant financial impact.

[Helge Aasen, executive]

Just to be clear on that, it's -- we're talking about 1 furnace.

[Morten Viga, executive]

Yes.

[Odd-Geir Lyngstad, executive]

Then I'll continue with another question. How do you see the development in investments in your production in Silicones? I guess it's mainly referring to China. Are there any other competitors making similar investments as Elkem makes in China?

[Helge Aasen, executive]

There are several new projects announced in China and within the next 2 to 3 years, we definitely expect to see quite significant new production capacity coming on stream. And it of course, remains to be seen how that's going to affect the overall market.

You would like to add anything, Morten?

[Morten Viga, executive]

No, I think there is nothing new in the situation in China. We have during the last 4, 5 years seen, let's say, a number of new projects being announced and of course, portion of those projects being realized, and the additional supply has so far been very well absorbed by the increased demand and we believe that will also be a well-balanced market going forward. Because we should remember that there is no capacity being built in -- outside China. So basically, all new global demand, which is quite significant for Silicones products, is being based on new upstream supply from China.

[Helge Aasen, executive]

I'd also like to add to that, that the Elkem strategy is clearly to focus on downstream development, broaden our portfolio of specialty products. And we are not competing on volume here, we are competing on value.

[Odd-Geir Lyngstad, executive]

Then to a question about the impact of Russian gas to Europe. If that is kind of shutdown, how will it affect Elkem's operations?

[Helge Aasen, executive]

No, I don't see that having an indirect effect on Elkem.

[Morten Viga, executive]

No, I think that's one of our major advantages. We have a very solid supply of critical raw materials among others, electric energy both in Norway, Iceland, Canada, et cetera. So we will probably be -- or we will definitely be much less affected by a potential gas crisis or energy crisis compared to most of our competitors.

[Odd-Geir Lyngstad, executive]

And then the last question from Andreas Lee. How much exposure does Elkem have to spot DMC? Is there most long-term contracts with fixed prices?

[Helge Aasen, executive]

I think we've talked about this also in previous presentations. We have very limited direct exposure to DMC, but this is affecting the intermediate and upstream market.

[Odd-Geir Lyngstad, executive]

I'll then move to questions from Mubasher Chaudhry in Citi. Can you please provide an indication of cost of electricity in Norway after 2026?

[Morten Viga, executive]

Yes. There is a very transparent energy market in Norway and there are, for the time being, constraints in the energy supply of electric power in the very southern part of Norway. But we should then remember that the major part of our plants in Norway are located in mid or Northern Norway where there is actually very low prices and where there is a fundamental surplus of electric energy and the long-term price for electric energy is around EUR 30 per megawatt hour, which is of course extremely competitive in an international comparison.

[Odd-Geir Lyngstad, executive]

And furthermore, related to energy, can you please provide some thoughts on ex-Norway power cost exposure, also power exposure outside of Norway?

[Morten Viga, executive]

We can do that. The beauty of our production structure is that all our power-intensive smelters are located in regions or countries, which are based on renewable hydropower. And that secures, first of all, a green energy base, but it also secures long-term predictability and very competitive prices. That goes for Iceland, that goes for Quebec, Canada with our Chicoutimi smelter, that goes for Paraguay. We also have 1 smelter in China. And here, we are exposed to let's say annual contracts like most other players in the Chinese environment. But also here, we see very competitive prices versus domestic competition in China.

[Helge Aasen, executive]

But the mix in that province is about 30% renewable. And as you probably know, the Chinese energy market is not deregulated, so prices are established on province basis or province by province.

[Odd-Geir Lyngstad, executive]

And we have a couple of questions from Morten Normann in Carnegie. The first is, are there any significant high or low microsilica sales in the first quarter of '22 versus the first quarter last year?

[Morten Viga, executive]

No. As Helge said, we are pretty much sold out all across the Board. That also applies to microsilica, where we have very attractive #1 position. So we have good stable prices and also good stable sales volumes.

[Odd-Geir Lyngstad, executive]

And the question is, also, if you have any lag effects of the extraordinary high silicon metal prices going into the third quarter?

[Morten Viga, executive]

No, you will see from the CRU reference price curves that prices have been quite stable. And as a rule of thumb, there is a 3-month lag in -- from, let's say, changes in market reference prices until it hits into our books. So that should clearly also support good, stable and attractive prices in Q3.

[Odd-Geir Lyngstad, executive]

Then we have a couple of questions regarding the order books going into the third quarter coming from Sindre Sorbye in Arctic and Charlie Webb in Morgan Stanley. It's very similar. Can you elaborate on the order book for the third quarter and also help us understand the visibility that we have in our order books?

[Helge Aasen, executive]

I think as I said, we are sold out and these are mainly allocations made by our customers. So for all practical purposes, we plan to run full capacity utilization and we could have sold more if we had material available.

[Odd-Geir Lyngstad, executive]

Then another question from Sindre Sorbye. How do you see supply, particularly in the European market for silicon metal and ferrosilicon developing on the back of higher raw material prices and the Ukrainian war?

[Helge Aasen, executive]

I think that the inflationary pressure we have seen on some key raw material inputs, including power are strong support for maintaining the current price level. I don't know if you want to add anything, Morten, but...

[Morten Viga, executive]

No, I think, unfortunately, you are right. There will probably be a very challenging energy situation in Europe, particularly during the next winter. Let's hope that everybody can get through that in the best possible manner. We are very well positioned in this respect because we have secured the very majority of our energy requirement at fixed prices.

[Odd-Geir Lyngstad, executive]

There is also kind of a similar question, but a little bit more on the demand side from Magnus Rasmussen in Kepler Cheuvreux. How should we think about sales prices in silicon product going forward? Is the very strong sales prices in Q2 still a result of lag effect from the reference prices spike in fourth quarter? And can we expect a stable performance if market reference prices remain stable at current levels?

[Helge Aasen, executive]

I think Morten already answered that. It's a 3-month lag and you basically can use the CRU price reference for the following quarter. That's what we achieved.

[Odd-Geir Lyngstad, executive]

A couple of questions from Martin Melbye in ABG. Where is normalized EBITDA for Elkem given current energy prices for the marginal producer?

[Morten Viga, executive]

That's a very good question. I think we have now delivered 2 very stable quarters and we are also giving a quite good market outlook now for Q3, but I guess we will not comment more in details.

[Odd-Geir Lyngstad, executive]

And how many terawatt hours remains open, and not yet renegotiated post-2026 -- the situation after 2026?

[Morten Viga, executive]

In Norway, as we said, we have approximately 80% coverage up until 2026 out of a total annual consumption in Norway of some 3.9 terawatt-hours per year and after that, it's gradually pretty much linearly declining up until 2035, where our longest power contract expires. But the good thing is, as I said, we are able to enter into new long-term contracts at very competitive terms and conditions. And we will certainly also utilize that opportunity going forward, so that we will have a very robust and long-term competitive power-base for particularly our Norwegian smelters. And in Iceland and in Chicoutimi and in Paraguay, we are also in an excellent position with long-term contracts.

[Odd-Geir Lyngstad, executive]

I will then continue with a couple of questions from Charlie Webb. First is if you can comment on the seaborne market in silicon metal. I guess he's referring to export volumes and so on. How much is it down year-over-year, and do you expect to see any recovery?

[Helge Aasen, executive]

You mean cross-regional trade or -- I think more a general answer is that we see China who has traditionally been the global, shall I say swing supplier of silicon metal, is playing -- going to play less overall with the increase in costs. And constraints in supply chains, higher energy prices, I think are very positive signs for Elkem, given our cost position. So this is not only a question about demand, but we also have to look carefully at the supply side. And I think that balance is in favor of Elkem for the time being, and also looking forward.

[Morten Viga, executive]

Yes. And then one additional comment. There are clearly significant bottlenecks in overseas transport and logistics, and one of our unique competitive advantages is that we have a full-fledged integrated value chain in Asia Pacific, and we also have a full-fledged integrated value chain in the western world. So we are not dependent on forwarding intermediates or finished goods from one part of the world to another. And I think that's also an important part of our business model.

[Helge Aasen, executive]

And in fact the only one in the Silicones world with that setup.

[Odd-Geir Lyngstad, executive]

And then another question. Given the Silicon metal environment and energy arbitrage potential, are you seeing any signs of new capacity expansion plans? If so, who is making these plans, and if not, why not?

[Helge Aasen, executive]

Nothing has been announced yet on silicon metal expansion outside of China. In China, there are still expansions being announced, triggered by especially increased production of polysilicon and also silicones. But outside of China, not that we are aware of. But of course, it's something that's interesting to look at.

[Morten Viga, executive]

I think there will be new capacity announced even in the Western world because, as Helge said, the role of Chinese export will probably be less important in the future, and it will come at a much higher cost, so it will be more attractive to produce these products in the Western world. But to build a new plant in the Western world, it will take several, several years to get permits, to get power and to get all the, let's say, all the other input factors that's needed for this kind of business. So in a short, mid-term perspective, we don't see any new capacity coming on stream in our core markets.

[Odd-Geir Lyngstad, executive]

And then a question from Slava Starkov. What is the outlook of the cost competitiveness of EU Silicones versus China given the significant price increases of energy and also silicon metal prices higher in EU than China? So what is the cost competitiveness than EU silicones?

[Helge Aasen, executive]

It's not an easy comparison to make. But no, I think what we see in China is definitely some producers emerging with the scale benefit. But apart from that, I don't think we can say that other input factors are significantly more competitive in China any longer.

[Odd-Geir Lyngstad, executive]

There is a question from [ Kyle Count ]. I guess we have partly answered that. I'll give you a chance to elaborate a little bit more on that, Morten, but please detail your energy strategy ex-Norway. Where are your remaining energy demands and how are the contracts structured in these locations?

[Morten Viga, executive]

Yes, I can repeat it. Our smelters outside Norway are in Iceland, are in Canada, are in Paraguay, all based on long-term hydropower contracts at very favorable rates. In China, our smelter is in the Gansu province, where we have annual contracts at competitive terms. Then as you also know, we have 2 major Silicones upstream production hubs, 1 in France and 1 in China in the Jiangxi province. These are far less energy-intensive, but also here we have, let's say, good availability of electric power at competitive prices. But the important thing here is electric power for our upstream smelters and here we are in a very good position.

[Odd-Geir Lyngstad, executive]

Then I will round off this session with the proposal on dividends, which is probably appropriate. Any proposal for dividends?

[Helge Aasen, executive]

I think this will be, of course, a discussion with our Board during the next months and quarters. So, but for the time being, no decision on any extraordinary dividend beyond what has been presented here today around expectations for next year.

[Odd-Geir Lyngstad, executive]

Very good. That kind of concludes the questions that we have received on the webcast. So I give those present here in the audience a final chance to ask questions if there are any. And it doesn't seem to be that. And then I'd like to thank you all for participating and thank you very much for listening in. Thank you.

[Helge Aasen, executive]

Thank you.