Elkem ASA

OSE:ELK

Earnings Call Analysis

Overview of Elkem's Performance

In the third quarter, Elkem reported an operating income of NOK 8 billion, which reflects a 3% increase compared to the same quarter last year. This rise is attributed primarily to performance in the Silicones division, which benefited from increased sales volumes, notably from a recently expanded production line in China. Despite challenging market conditions, Elkem achieved an EBITDA of NOK 1.2 billion, representing a margin of 15%, aligning with their long-term target of maintaining a margin between 15% and 20%.

Segment Performance Highlights

The Silicones division has emerged as a key contributor, generating NOK 3.8 billion in operating income—up 20% year-on-year—primarily driven by higher sales volumes. This division also reported an EBITDA margin of 15%, aided by operational improvements and a successful ramp-up of the new production line in China, which contributed NOK 75 million in EBITDA this quarter. Conversely, the Silicon Products division saw a decline in sales volume and prices, resulting in a decrease in operating income to NOK 3.6 billion, though its EBITDA margin increased to 23%, largely due to lower raw material costs.

Strategic Financial Position and Outlook

Elkem's financial stance remains solid, with a total equity of NOK 25.7 billion and a robust cash flow management strategy. In September, the company raised NOK 1.5 billion through new bond loans, fortifying its liquidity position by refinancing loans that are due in the upcoming years without major maturities until 2026. Looking forward, Elkem is targeting a 5% average annual growth in revenue across its divisions, underpinned by stringent cost management strategies and a focus on operational efficiencies.

Challenges and Market Conditions

Despite the positive financial results, Elkem operates in a weakened market environment. Global demand for silicones remains under pressure due to lower economic activity, especially in China, where new housing projects have plummeted by 23% year-to-date. Furthermore, the general sentiment in the silicones market is expected to remain weak, with additional overcapacity in supply constraining production. Elkem anticipates somewhat lower realized sales prices in the next quarter, specifically in the Silicon Products segment.

Guidance for Future Earnings

Elkem anticipates that the improvements initiated this quarter will continue to bear fruit, projecting an annual run-rate improvement of NOK 1.4 billion through the end of 2024. Additionally, the company expects further contributions from the new production line in China, which is anticipated to operate at higher utilization rates in the fourth quarter. They remain focused on sustaining an EBITDA margin of at least 15% alongside continued investment in green technologies aimed at achieving zero emissions by 2050.

Environmental Commitments and Future Investments

Elkem is committed to environmental sustainability, targeting a reduction of CO2 emissions by 28% by 2031. This is part of a broader initiative to reach net zero emissions by 2050, with several ongoing projects slated for development. Among these is Sicalo, a project aimed at innovating CO2-free production processes. Elkem continues to work closely with research institutions and has secured significant funding to support these green initiatives, signaling confidence in making substantial improvements to both financial performance and ecological footprint.

Earnings Call Transcript 2024-Q3

[Odd-Geir Lyngstad, executive]

Good morning. It's a pleasure welcoming you to Elkem's Third Quarter Results Presentation. My name is Odd-Geir Lyngstad, and I'm responsible for Investor Relations in Elkem. With me today, I have Helge Aasen, CEO; and Morten Viga, CFO, to take us through the business update, financial results and for the third quarter and also the outlook for the fourth quarter. After Helge and Morten's presentations, we will open for Q&A. We will start with the business update. So please, Helge.

[Helge Aasen, executive]

Thank you, Odd-Geir and welcome, everyone. The EBITDA for Elkem in the third quarter is the highest since the first quarter of 2023, and profitability has gradually been improved, and that is despite weak market conditions, which are continuing.

The operating income for the group was NOK 8 billion in the quarter, and the EBITDA ended up at NOK 1.2 billion. So this gives an EBITDA margin of 15%, which is within our target corridor, 15% to 20%. So we are satisfied with this achievement given the weak market conditions, and I'd like to give credit to the Elkem organization, use this opportunity for the intensive improvement work that's ongoing. The improvement in EBITDA was mainly driven by the Silicones division and explained by higher sales volume and also operational improvements.

The result in this quarter also includes positive effects from the new production line in China. We've had a very successful start-up and the EBITDA contribution in the quarter from that line is NOK 75 million. And Silicon Products are also continuing to deliver good results with an EBITDA margin of 23%. That is despite a rather weak market demand. Carbon Solutions continued to deliver very good margins, but also here, the result is impacted by lower sales volumes.

In September, we successfully raised new bond loans in Norway, NOK 1.5 billion with 3, 5 and 7 years maturity. The proceeds from these loans will be mainly used to refinance other loans maturing this year and next year.

We recently had a strategy meeting with our Board, and I'd like to update you on a few of the main elements of this strategic direction. We continue to talk about dual-play growth and green leadership. It is our ambition to grow top line across all 3 divisions and in all geographies. Recent developments show the importance of having resilient and geographically independent supply chains, both in the Western and the Eastern part of the world. The growth target is still 5% on average top line growth or higher, of course, through the cycle and to do this in a sustainable way, both from a financial and environmental perspective.

We will continue to target an EBITDA margin of at least 15% per year. Green leadership remains an important part of our strategic direction. And Elkem is well positioned with already low CO2 emissions compared with main competitors. This is mainly explained by our upstream metals production being based on -- primarily on hydropower. And of course, we also use already a significant amount of bio-based reduction materials in the mix or in the raw material mix.

We maintain our ambition of zero emission by 2050. There are a number of projects ongoing to support that very ambitious goal. Carbon capture is something we've already been working on quite extensively. And we have a new technology project called Sicalo, which I'll come back to with a few more details, which aims at developing a CO2-free emission production process.

We also have an update, as usual, on the ESG performance. We continue to deliver good results and get good feedback from the rating agencies. In the third quarter, we were awarded Platinum rating from EcoVadis, which puts us among the top 1% companies in the industry. We were also rated in the 98th percentile by S&P Global, which means that we're also here among the best companies in the industry.

It is an important target for us to reduce CO2 emissions, primarily generated in the production of silicon and ferrosilicon. And the target is to reduce absolute emissions by 28% by 2031, which corresponds to a product carbon footprint reduction of almost 40% when you factor in expected growth in the same period. So we appreciate that this could be a challenging target due to existing framework conditions, and I would say, limited willingness in -- among our customers to pay a premium for lower CO2 content. CCS will definitely require significant investments and is reliant on, we think, both OpEx and CapEx support from governments in order to be realized. But we will, in any case, continue our R&D efforts to reach a net zero situation by 2050.

So this is the project I just mentioned. It stands for silicon production with carbon looping, Sicalo. The concept involves capturing and recycling carbon in the process of gas and then reuse the carbon, as a reductant in the production process. So keep carbon in a continuous loop, which then has the potential to eliminate CO2 emissions. This is one of our main initiatives if you take a longer-term perspective towards 2050.

It's a collaboration project with SINTEF and also a consortium of other industry players and research institutions like NORCE in here in Norway, also future materials support -- and support from the Norwegian Research Council. So we are definitely not going at this alone. We are looking at part of it. Other parties are looking at other part of the -- of this, let's say, production process chain. It will require extensive resources, no doubt about that, and we are very pleased that Enova has granted NOK 31 million to a medium-scale pilot testing, which will take place in Kristiansand in Norway.

Commissioning of 2 pilot reactors has been successfully conducted this year and will be used in test campaigns starting now until the end of 2027. We also received NOK 20 million funding from EU, as part of the Horizon Europe project.

Then coming to the financial performance, the macroeconomic sentiment is still challenging, many -- or let's say, with limited tailwind from markets and a substantial part of Elkem's improvements in 2024 are due to internal improvements. This is particularly the case in the Silicones area. Just to mention some of the main initiatives or measures, sales mix optimization, both trying to boost sales and also optimizing customer and product mix. Raw material sourcing for obvious reasons and yield improvements that very often goes hand-in-hand. This includes new sourcing alternatives.

Of course, all of this with the aim of reducing cost, organizational streamlining and manning reductions and simplifying the organization structure. So in other words, trying -- when we run, we want to run lines and plants flat out. One consequence of this is that we are closing a smaller silicones facility in Lubeck in Germany. And in the third quarter, we also booked restructuring expenses of NOK 54 million in connection with this program.

The target is to improve EBITDA by NOK 1.5 billion this year compared to last year. We are ahead of plan, happy to say that. And by the end of the third quarter, we have realized improvements of approximately NOK 1 billion. These improvements have an estimated full year effect for 2024 of NOK 1.4 billion. So in other words, we expect to reach our target with additional initiatives in the fourth quarter. But of course, with limited time remaining this year, it's limited also how much that will directly impact the bottom line.

We're also looking at CapEx reductions, a very important part of the program. The plan was to reduce CapEx with NOK 2 billion compared with last year, which will bring us to a level of NOK 3.2 billion. So as you can see here on the graph, the total investments amounted to NOK 1.9 billion by the end of this quarter, which means that also here, we are ahead of our target. Investments are expected to be somewhat higher in the fourth quarter, but we will still be well within the target for the full year. So after completion of the expansion project in China, the main ongoing projects now are related to Silicones in France and also Carbon Solutions in Brazil with completion later this year and in the beginning of next year.

So we've had, as you who follow us know a quite extensive upstream investment program in recent years, and we have a very high technical standard now on the Elkem business or the Elkem production facilities, which means that we also have flexibility going forward to focus more on regular maintenance and channel investments more into downstream development and specialization, which is, by nature, less capital intensive.

The China project has been a significant investment. We have given regular updates on this project, and it was completed on time and cost with first commercial deliveries in May. I'm happy to say that we, during this quarter, reached an operating rate of close to 80%. And there are no indications that we will not reach design capacity and that, that will happen during the fourth quarter.

We've been a bit cautious to talk about the financial impact of this project this year, given the nature of start-ups and expected uncertainties. But as I mentioned initially, it has delivered an EBITDA contribution of NOK 75 million in the quarter, which we are very happy with. And it also, I think, demonstrates that the target of reducing cost and improving the productivity and energy efficiency are being reached. We think we can claim now that this production line is on level with the lowest cost capacity in the silicones industry in the upstream part.

Then moving on to markets, the market development in China is still quite challenging. We are quite heavily exposed towards construction and automotive, which are very important sectors for Elkem. And the 2 graphs to the left, no, mostly to the right well, I think, show development in new housing projects and car production. China's property market has been in a severe downturn since 2021, and which has weighed heavily on the economy and economic activity in general and reduced consumer confidence.

So if you look at the statistics year-to-date August 2024 indicates that new housing projects have declined 23% year-to-date. And if you compare with the same period in 2022, new housing projects are down 42%. Vehicle production in China is showing a better development. Production year-to-date in August was 18.7 million units, which is up 2% compared to the same period last year. The share of EVs continue to grow and represented 38% by August, which is up from 30% last year and 23% the year before 2022.

In September, China's Central Bank announced its biggest stimulus package since the pandemic. So with funding and interest rate cuts aimed at boosting -- especially the real estate sector and to increase consumer spending. It has received mixed receptions in the market. But I think in general, there is a positive reaction to this.

We have talked about or I mentioned dual-play growth, as an important part of Elkem's strategy. The objective is to develop supply chain resilience by being geographically, let's say, independent, having independent supply chains in the Western part of the world and in the Eastern markets. And we essentially sell products produced in Europe and the Americas in those regions. And similarly, production based in China is primarily sold in China and in some Asian countries. So we did this. We started doing or following this direction already in 2017, '18 in order to mitigate the risk of impact from trade restrictions.

So we think this has been the right strategy, and it's underlined by recent international trade developments. The U.S. announced increased tariffs on Chinese-made EVs, electrical vehicles from 25% up to 100% in May this year. And the EU states have voted in favor of introducing a tariff on Chinese-made electrical vehicles, which is proposed to be up to 45%.

And in addition, the U.S. is investigating antidumping and anti-subsidy practices on ferrosilicon from countries like Brazil, Malaysia, Kazakhstan and Russia. Anti-subsidy and antidumping duties have already been imposed on Russian material with rates of 283% and 449%, respectively, very high actually levels and substantial anti-subsidy and antidumping rates could also be imposed on imports from these other countries, Malaysia, Kazakhstan and Brazil.

If we look a bit closer on the silicones market, demand is generally weak, mainly due to lower economic activity and also impacted by Chinese overcapacity. Elkem and other global players have announced a global price increase on specialties. This is now being implemented. There are a number of different contractual obligations here. So it's a bit difficult to be precise on the direct impact of it. But it has also had an impact on commodity prices actually.

And profit margins in China have been under significant pressure and many producers took the opportunity to also raise prices on DMC and other intermediates when the price increases on specialties were announced. So as a result, we've seen a modest price increase for DMC, hardly noticeable on this graph, but there is a rather small increase and combined with lower prices on silicon metal, we see somewhat improved margins for silicones players during this quarter.

The price development going forward is still very uncertain. We expect that the stimulus package in China will have some positive effect, but will also be countered by ramp-up of new capacity. So -- and the average operating rate for new upstream silicones producers in China is around 80%, not new, but for the upstream silicones production in general is about 80% in the third quarter, relatively decent level. But if you look at the overall supply-demand situation, we think there is no -- there's nothing that supports any significant price increase. We'll continue to see some ups and downs, but it's expected that this will probably keep the markets at the current levels.

In the EU, when we look at silicon and ferrosilicon, it has also remained quite stable during the whole year. Underlying demand is relatively weak, but has been countered by capacity adjustments. And the prices for silicon and ferrosilicon in the U.S. have declined slightly, but remain at a significantly higher level than what's the case in the EU. The potential antidumping duties I just mentioned on ferrosilicon from Russia, Brazil, Kazakhstan and Malaysia represent an opportunity for us. So we are channeling more sales into the U.S. market.

Silicon prices in China remain on a very low level historically due to weaker demand and several producers are suspending production now that we're moving into the dry season. So increased Chinese exports to the EU could impose some additional pressure on prices. in Europe, but index prices so far remain stable. So I think if you look at silicon, it's quite similar to silicones. It will remain, I think, on under pressure due to overcapacity and a relatively weak demand, but no significant stock movements, as we can see. So production is pretty much balanced with demand.

When we come to the carbon products area, this is much smaller than silicon and silicones, and we don't really operate with reference prices in this market. Demand for carbon products varies across regions, but its underlying driver is steel, which again drives demand for ferroalloys and also aluminium is an important driver to look at.

Global steel production in the third quarter was down 4% compared to last year, and that was mainly a result of lower production in China. The production in Europe and North America is stable, but low and markets are generally weak. But we have a strong position and a good portfolio of specialty products, and which is contributing to maintaining stable performance across all regions. So that sums up the market update.

Morten, the floor is yours.

[Morten Viga, executive]

Thank you very much, Helge, and good morning, everybody. I'm very pleased to go through the main financial numbers in our Q3 presentation, and as always, we start with the main numbers.

Our operating income amounted to NOK 8 billion, which is up 3% compared to the same quarter last year. The Silicones division had increased operating income, which is mainly explained by higher sales volumes, particularly from our expansion project. For the other 2 divisions, the sales volumes were relatively low in the third quarter, which also gave lower operating income compared to the corresponding quarter last year.

EBITDA for the quarter amounted to NOK 1.2 billion, which was the highest since the first quarter 2023. Both Silicones and Silicon Products reported significant improvements compared to last year. But here, we should, of course, remember that Silicon Products had one-offs in third quarter last year of NOK 220 million related to inventory write-down and also to changes in the Norwegian CO2 compensation scheme.

And the EBITDA of NOK 1.2 million for the quarter, it represents a margin of 15% -- and it's still a quite low margin, but it is within the long-term target corridor of 15% to 20%, and it is a good improvement from previous quarters. And we have, as we said, been able to generate this in a weak market sentiment. There were no particular one-off items affecting the EBITDA this quarter.

As always, we have for your benefit, provided an overview of some of the main financial numbers and ratios. I will not go into detail on all of them. But as I said, there were no major one-off items this quarter. EBITDA amounted to NOK 1,235 million. This included realized losses on the currency hedging program of NOK 38 million.

Other item was minus NOK 68 million, consisting of losses on power and currency derivatives totaling minus NOK 35 million, and as mentioned, restructuring expenses of NOK 54 million in the Silicones divisions. This was partly countered by currency gains of NOK 12 million and net other items of NOK 9 million.

Net finance expense amounted to minus NOK 197 million, consisting of net interest expenses of NOK 179 million, currency losses of NOK 23 million and net other financial items of plus NOK 3 million.

Tax expenses for the quarter were high, minus NOK 155 million, which gives a tax rate of 57%. It's basically the same picture as previous quarters. The taxable profit in Silicones was still low, which explains why the tax rate is relatively high.

Then I would like to give an update on our Vianode position. As you may recall, we divested our stake in Vianode in March this year to focus on our core business. We have received a portion of the sales revenue, but we hold -- we held a claim for -- or we hold a claim for deferred payments with a book value of NOK 765 million. And this payment is conditional upon specific milestones for the further development of Vianode. Based on recent developments, we see that the risk related to this payment has increased, but we will -- and we will monitor the situation going forward.

Let's then take a look at the results for the division and start with Silicones. The results for the Silicones division have improved steadily this year. The division accounted for 48% of Elkem's revenue and 16% of the EBITDA in the third quarter. As mentioned, we have not had much tailwind from the markets. Hence, the EBITDA improvements are predominantly coming from good results from our systematic improvement work, particularly on cost and productivity improvements.

The total operating income in the third quarter was NOK 3.8 billion, which was up 20% from the third quarter last year. The increase in operating income was mainly due to higher sales volume. And the EBITDA was NOK 202 million, up from a loss of NOK 268 million in the corresponding quarter last year. This improvement was mainly explained by higher sales volume, operational improvements and positive effects from the new production line in China. As mentioned by Helge, the project in China has had a successful start-up and has generated an EBITDA of approximately NOK 75 million in the quarter.

Sales volumes were up in all regions compared to the third quarter last year and reached 105,000 tonnes, which was the highest since Q3 '22.

Let's then take a look at the Silicon Products division. The division accounted for 42% of operating income and 63% of the group's EBITDA in the quarter and continue to deliver good results despite weak markets and lower sales volumes. The division had total operating income of NOK 3.6 billion in the third quarter, down 8% from the third quarter last year. Lower operating income was explained by lower sales prices and lower sales volume.

EBITDA was NOK 821 million, up 56% from the third quarter last year. And the EBITDA margin represents or is 23%, which, of course, is a good level in today's weak market sentiment. As mentioned already, when comparing to the third quarter last year, we should, however, remember that last year was impacted by negative one-offs of NOK 220 million.

We still run at a reduced capacity in our Salten plant, which is our biggest silicon plant after the fire in December last year. Two of the plants 3 furnaces have been put back in production since respectively, January and April, but the last furnace is still idle. We expect that this funnel (sic) [ furnace ] will restart production towards the end of this year. The expected insurance compensation is included to reflect the estimated operating losses compared to normal operations. And as mentioned, the market demand from sectors such as silicones, aluminium and steel markets remains weak.

The Carbon Solutions division continued to show strong performance despite challenging markets. The division accounted for 10% of the group's operating income and 20% of the EBITDA in the third quarter. The division has managed to compensate the weak market situation by a strong business model and good geographical diversification.

Total operating income was NOK 886 million, down 13% from the third quarter last year, and this is mainly explained by lower sales prices. The EBITDA amounted to NOK 269 million, which is down 14% from the third quarter last year. And the reduction in EBITDA was mainly explained by lower sales prices, but this has been partly offset by lower raw material costs and internal improvements.

Sales volume was in line with third quarter last year, and the division has been able to partly offset low demand in certain regions by a very strong business model and a strong geographical diversification and presence in the local markets.

Let's then go to some of Elkem's key financial ratios. The earnings per share EPS was NOK 0.15 in the quarter, and the improvement from last year when it was negative is mainly coming from improvements in EBITDA. And year-to-date EPS is NOK 0.80 per share.

The balance sheet is still -- or is very solid. Total equity amounted to NOK 25.7 billion by the end of September, which gives an equity ratio of 49%. Equity has increased gradually with a stable equity ratio since the turn of last year.

Elkem's financing position, it remains very robust and stable. It is our clear focus to keep a strong liquidity position and a smooth maturity profile. And in this context, we are very happy to announce that we raised new bond loans of NOK 1.5 billion in the third quarter to refinance loans maturing in '24 and early '25. And the new financing has further improved our liquidity position and extended the maturity profile with no major maturities before '26 and particularly '27.

As you may recall, in the first quarter, we entered into a covenant waiver agreement, which reduced the interest cover covenant from 4 to 3 for all quarters in 2024. And by the end of Q3, our interest cover ratio was 4.6, which means that we are above the original covenant level.

Net interest-bearing debt was NOK 9.9 billion by end of Q3, which was up by NOK 0.6 billion from the previous quarter. I should mention that we have, in this quarter, changed the definition somewhat as we have reclassified bank bills in China and taken that out of the net interest-bearing debt. We believe this is a much better classification and more correct according to IFRS.

These bills are, let's say, short-term financing in China. They do not carry interest. And with this change, we treat the bills payables the same way, as we treat the bills receivables. The change does not affect the interest cover ratio, the bank covenant, but it has reduced the reported debt leverage by approximately 0.3x.

And based on the last 12 months EBITDA, the debt leverage was 2.7x at the end of Q3, and this was also an improvement from the last quarter. The long-term target is to bring the leverage within Elkem's financial target between 1x to 2x, and we're heading in that direction.

Cash flow from operations during the quarter was rather low, amounted to NOK 32 million. This was a low level compared to previous quarter -- quarters and was explained by negative working capital changes.

In particular, the inventory levels have gone somewhat up in the third quarter due to rather slow markets. And we're also taking out some capacity in Salten now in order to connect the new equipment after the rebuilding from the fire last year. This is a controlled and managed process, and we clearly have good plans to bring down inventory later.

When it comes to investments, the target is to reduce CapEx by NOK 2 billion compared to 2023, and we are ahead of that. Reinvestments and strategic investments ended at NOK 537 million in Q3 and NOK 1.9 billion year-to-date. This is ahead of our CapEx reduction target. And even though we do expect some higher investments in the last quarter, we should stay well within the target of NOK 2 billion reduction versus last year.

And as Helge mentioned, we are very well invested in the capital-intensive upstream part of the business, and that means that we have the flexibility to keep investments rather low going forward, if needed, but we also have a good list of very exciting projects that we can pursue if we find that correct.

So with that, I hand the word back to Helge to take us through the outlook.

[Helge Aasen, executive]

Yes. Thank you, Morten. So as we have mentioned a few times now, the market sentiment continues to be relatively weak, but we will also continue to benefit from strong cost and market positions and well-defined improvement programs. The Silicones market is still challenging, but the division expects to continue to benefit from EBITDA improvement programs and higher sales volumes.

In Silicon Products, we expect a relatively stable market condition in the next quarter, but somewhat lower realized sales prices.

And in Carbon Solutions, we expect stable performance, taking advantage also here -- taking advantage also here of strong market positions and the geographical diverse base in carbon.

So that concludes our presentation today. We are available for Q&A. So I'll hand that back to you, Odd-Geir.

[Odd-Geir Lyngstad, executive]

Thank you. I just need to get the computer, but before we have received some questions on the webcast. Before we go to those questions, I would like to see if there are any questions from the people in the audience here. If there are, just raise your hand. If there are not, we have quite a few questions on the webcast. I'll take some of the questions related to the results first. And the first question is how much more effect of the improvement program can we expect in the fourth quarter?

[Morten Viga, executive]

No. As Helge said, we are very happy that we are ahead of plan so far. We have realized effects with an annual run rate of NOK 1.4 billion. We keep on working. We constantly see new opportunities, better ways of doing, increasing productivity, et cetera. But of course, with only 2 months more to go, there is obviously -- you should not expect any major, major additional changes above the NOK 1.5 billion that we have communicated.

[Odd-Geir Lyngstad, executive]

Okay. And the next question is also related to the result and how much more EBITDA can we expect from the new production line in China in the fourth quarter? Is the full effect already there? Or should we expect more?

[Morten Viga, executive]

We are now gradually ramping up our new production line. Very happy to see that this is working very well. It's a lot of advanced technology put together, which will give us an excellent cost position. We're currently at around 80% utilization, NOK 75 million EBITDA in Q3. It will probably be more in Q4, as we will have somewhat higher production.

Going forward, of course, the EBITDA will be heavily dependent on market prices, both on raw materials and finished goods. But what we know is that this production line will give a significantly better cost and significantly better margin compared to the existing production line. But I cannot be quanti -- or I cannot give any quantified numbers for next year.

[Odd-Geir Lyngstad, executive]

Then there is a question related to investment levels. And the question is if the Q3 strategic investment level is representative for what we can expect also in 2025.

[Morten Viga, executive]

Yes. Can we say about that?

[Helge Aasen, executive]

No. We -- on reinvestments, we have communicated a strategy that we will stay between 80% to 90% of depreciation. It should obviously not be too high, but reinvestment should not be too low either because we want to have world-class technical condition on our assets, and that requires reinvestments. So you should count on 80% to 90% of depreciation, and then that will be somewhat north of NOK 2 billion per year, NOK 500 million per quarter going forward.

[Morten Viga, executive]

I think on the strategic investments, obviously, we are working on budget and plans for next year. But I think you can -- we can safely say that it will kept -- be kept at a relatively low level.

[Odd-Geir Lyngstad, executive]

Then there is -- there are coming in questions, so I go back to EBITDA. How much of the sequential quarter-over-quarter EBITDA increase in Silicones was due to company-specific factors, such as the new capacity, cost savings and how much is due to underlying markets? And how much did the price increase in specialties contribute?

[Morten Viga, executive]

I can start a little bit. I think if you look at the improvement overall, the -- I would say, price -- if you look at this over, let's say, last year and compare the same period this year, prices are down, but pretty much compensated by lower raw material costs and the rest is a result of internal improvements. So there is no direct market -- positive market impact. I don't know if you want to add something.

[Helge Aasen, executive]

No, I think that's a very good summary. We're pleased to see that the organization is working very hard on productivity and cost improvements, and that is, let's say, giving results. But of course, we also see that there still is a very long way until we have a good and robust profitability in that division. There is significantly more potential.

[Odd-Geir Lyngstad, executive]

And the last question related to results. Could you please elaborate how the NOK 765 million book value in Vianode is accounted for in your reported equity?

[Helge Aasen, executive]

That is accounted for as a receivable. We sold our shares at a fixed price. We received a portion of that sales price already in March, but the major part is -- will be paid up on, let's say, certain milestones in the Vianode development. And as such, it's sitting in the receivables.

[Odd-Geir Lyngstad, executive]

Then moving over to markets, there are a couple of questions related to silicones and siloxane markets in China. How we expect -- if you expect any capacity rationalization in siloxane in China going forward? And if you are seeing any new supply additions. And related to that is also kind of a question on how silicon supply and demand picture is looking in China and globally. And also, again, if you're seeing capacity rationalization?

[Morten Viga, executive]

I think we'll see overcapacity also next year in silicones. There will be some new capacity coming in, but we also see that, that the industry is very quickly adjusting capacity utilization to demand. So I don't expect any significant inventory -- a big inventory impact. So this will be pretty stable. But obviously, the overcapacity will keep or maintain a pressure on prices.

So as I also mentioned in my presentation, there is no indication or anything that we can see that supports any significant improvement. Hopefully, the stimulus package will increase economic activity, but I think it will take some time still before we see any real impact on the commodity price level. But there will be some ups and downs like we have seen this year.

[Odd-Geir Lyngstad, executive]

Then we have a question related to Silicon Products and how we see the volume development in -- for Silicon Products in the coming -- upcoming quarters?

[Morten Viga, executive]

Also here, very much linked to GDP development and especially looking at, I would say, both chemical industry and steel. So again, there are some positive indicators for higher economic activity in the recent macroeconomic analysis. But I think since -- especially if you talk about silicon metal, there is also here overcapacity. And I think Chinese exports, as we have seen historically, will play the role of swing production, balance the market and that will also, I think, reduce any significant price fluctuation.

[Helge Aasen, executive]

Maybe I can add a couple of points. In Q4, as I said, we will complete the rebuilding project in Salten. So towards the end of Q4, we will basically have full production. But in the final stage of that project, we also have to take out the 2 running furnaces. So there will be a reduced capacity utilization in Salten, which is our biggest silicon plant in Q4. Financially, this is covered by our business interruption insurance, so we should not have any financial consequence.

Going forward, we are in a very good position because we are basically running at full capacity utilization in Silicon Products, more or less, while our competitors, which have not as good cost position, not as good competitive position, as we are, they are more, let's say, swing producers. And that is clearly our target also going forward to run at a very high-capacity utilization based on our cost and technology leadership.

[Odd-Geir Lyngstad, executive]

So we're happy with the Elkem's performance in a relatively weak market. Then questions related to kind of the measures taken in the U.S. And the question is if Elkem is shifting more volumes to the U.S. to benefit from U.S. tariffs on Brazilian, Malaysian, Russian ferrosilicon and silicon metals. And also, if we have channeled any volume out of the 96,000 tonnes in the third quarter already into that market.

[Morten Viga, executive]

We're definitely positioning ourselves for increasing sales in the U.S. market.

[Helge Aasen, executive]

Also here, we are in a very good position. Our biggest ferrosilicon plant is in Iceland, right in the middle between Europe and the U.S. So we have a very good flexibility in directing materials in the market, where it's most profitable and attractive.

[Odd-Geir Lyngstad, executive]

There's also a question regarding sales split, if you have any rough geographical split between Europe, U.S. and Asia on Silicon Products.

[Helge Aasen, executive]

We have not communicated that per division, but we have given, let's say, good guidance on group level, where we basically say that in general, 40% of our revenues goes to Asia and predominantly China, 40% to Europe and then 20% to North South America and also a small portion to Africa, and that's still a very good rule of thumb.

[Odd-Geir Lyngstad, executive]

And then we have kind of more a question related to outlook and results going forward. Considering your clear focus on investing in reducing emissions now that markets are subdued, should we read this as you're confident in improving cash flow in the upcoming quarters?

[Morten Viga, executive]

From investing in environmental...

[Odd-Geir Lyngstad, executive]

Yes, that we are investing in environmental.

[Morten Viga, executive]

That's not going to have an impact on financial performance. And we're also not investing.

[Odd-Geir Lyngstad, executive]

No, more that -- the fact that we are investing is a sign that we are confident in improving cash flow or the other way that we are confident on the results going forward making these investments possible.

[Morten Viga, executive]

Yes [indiscernible] try and communicate is that we are very well positioned in that we don't see any major impact from market improvement. So in other words, I think Elkem will continue to deliver on the current levels. And of course, we are working hard on our improvement program. So we are definitely ambitious in order to improve it, but it's not going to come from the market in the short term.

[Odd-Geir Lyngstad, executive]

Good. That kind of concludes the questions we have received on the webcast. And last chance for people in the audience to raise their hand if there are any questions. If not, that concludes our presentation today, and thank you very much for attending. Thank you.

[Helge Aasen, executive]

Thank you.