Hello. A very warm welcome to Elkem's first quarter results presentation. My name is Odd-Geir Lyngstad, and I'm responsible for Investor Relations here in Elkem. With me today I have Michael Koenig, CEO, and Morten Viga, CFO. Michael Koenig will, as usual, take us through the business update on Elkem before Morten Viga will take us through the financials. Then Michael Koenig will take us through the outlook for the second quarter, and at the end we will take questions from the audience. With that, I leave the screen or line to you, Michael.
Good morning to everybody, to the presentation of what is one of the best quarters in the newer history of Elkem. If we could go to the first chart, please. I cannot see the chart. Here. In the first quarter, we have truly delivered on our plans on growth and profitability. We have, as I mentioned already in my introduction, truly delivered on our ambitions. Operating revenue and EBITDA have been at almost all-time high, with the truly best quarterly result since the third quarter of 2018, with a total operating income of more than NOK 7.1 billion and an EBITDA of more than NOK 1.2 billion . That makes an EBITDA margin of 17%.
In addition to the really positive quarterly results, we have decided to strategically expand our silicones position in China and do a major expansion of our silicones plant in Xinghuo to strengthen our position in the fastest-growing silicones market. Also, with that investment, support our specialization strategy. The market outlook is positive in all regions. It's based on good demand and attractive prices. We will elaborate on this further during the presentation. Before we do that, I would like to talk about ESG on the next chart, which is the most important focus that Elkem and its management has. We have a clear focus on ESG historically. Also in our decisions that we make. Strong improvements in environmental impact has been a key criteria for the new investment decision in China. You will hear a little bit more about it during this presentation.
As already referred to in the last presentation, we have received an A rating from the Carbon Disclosure Project, which makes us ranking in the world's top five on climate. We have also, in 2020, again received a gold sustainability rating from EcoVadis. Touching on a few other aspects, we have reached our target to replace 20% of our fossil CO2 emissions with biocarbon by 2020, and we have reduced our NOx emissions by 24% since 2015. Just to give you a number, that equals 470,000 diesel cars with average driving range. In terms of governance, we do adhere to the Norwegian Code of Practice for Corporate Governance, we will, in 2021, implement the TCFD framework for climate risk management. Let me go on the next chart into our investment in China that the board has approved yesterday.
This is a strategic investment into a brownfield expansion in our plant in Xinghuo, in China, which is going to further strengthen our already very strong and leading position as a fully integrated silicones producer. We will increase the capacity at Elkem Xinghuo by approximately 50%. This increased upstream capacity will support our specialization strategy by driving downstream volumes, capturing new markets, and increasing qualities. We expect to commission this plant in the first half of 2024. This decision and this investment comprises a total investment of NOK 3.8 billion that will be financed by a combination of debt facilities, new equity, but also cash flow generation in the company. We will, at any time, maintain an investment-grade profile. Just one word about the facility at Xinghuo. Xinghuo is the largest silicones plant in China.
It currently produces 235 KT of siloxane in 2020, and it employs 1,650 very skilled employees that are among the best professionals in the Chinese silicones industry. Going to the next chart, a bit more about the strategic rationale to pursue this capacity expansion. The industry fundamentals are very strong and support our strategy. We see global annual growth of 4.5% going forward, and we also see and demonstrate that already now attractive industry margins over the cycle. We will strengthen our position in the, by far, fastest growing market. We are expecting growth of 6.5% going forward in the Chinese market, and we expect an increasing need for specialized products with higher purities and higher qualities.
The scale and the higher quality from this new captive upstream will enable expansion of downstream volumes, and we have a number of concrete projects that are already being developed and will follow in the months and years to come. Now, why does this support our specialization strategy? As I mentioned already, it gives us high-purity products, and those are products that are geared towards more demanding customers, which fits into the development in China. We will have a high degree of linears, and that's helpful because we expect that in some applications, in particular in personal care, linears will substitute cyclics. With this new facility, we will be perfectly prepared for that. It gives an improved shelf life of our products, which helps us and enables us to do more long-distance logistics also across continents.
It gives us better access to byproducts, which means that we have a more robust supply chain going forward. On the next chart, we see how this investment will improve our financial and our environmental performance. The project as such has a 35% EBITDA margin that it does with this 50% capacity increase. If you then look at the environmental performance, it is actually quite spectacular. We will have a 57% reduction on energy use. We will have a better raw material yield, and by that, an 11% reduction in raw materials use, and we will reduce our solid waste by 30%. On the next chart, we see that we will support financing of this investment by a share issue that we have concluded yesterday.
We have raised almost NOK 1.9 billion of new equity to further strengthen our financial situation and use this new project as a growth platform also for downstream projects. The subscription price yesterday was NOK 33.5 per share and was determined through book building after close of trading in Oslo yesterday. Net proceeds, as I already said, will be used to further strengthen our capacity to invest in growth. Not just this project, but also downstream projects to come. The post-offering ownership of China National Bluestar, our anchor shareholder, will be 52.91% after this new share issue. China National Bluestar will remain as a long-term strategic majority shareholder in the company. That's about the new investment and the share issue. On my next chart, I would like to update you on the battery project, where we have talked about last time already.
Now the pilot plant is in operation, and we are progressing in this project according to plan. Just as a reminder, we aim to establish a leading position in this very fast-growing market for battery anode materials. Our technology is significantly more environmentally friendly and has a much lower CO2 footprint than any other technology that produces anode material for batteries. The pilot plant in Kristiansand is now starting industrial scale production, and we are already in qualification processes with several battery cell producers, and we are receiving very positive feedback. We have, and that has been reported already last time, selected Herøya in Norway as the site for the industrial plant, and we are still expecting a final investment decision during 2021. We are also ongoing discussing with potential industrial and financial partners in early stages.
You see on the right-hand side the amazing growth that the demand for these materials is going to take, and Elkem is going to participate in this fantastic growth and the amazing opportunities that come from that. On the next chart, we see some information about continued recovery in our key markets, in particular in the automotive segment. Global automotive markets have continued to recover in Q1, even though there are strong regional differences, there are some constraints, as you all know, on semiconductors. That has impacted automotive production in early 2021. We have not really seen a drop in demand for silicon and ferrosilicon alloys. In general, there is upward pressure on commodities and raw materials, and also GDP forecasts indicate continued growth this year and next year.
In addition to that, all major economies have decided on significant economic stimulus packages in the aftermath of the COVID-19 crisis to sustain growth. That clearly drives our business forward. The strong markets with strong volumes drive price increases in our products and in our businesses. Silicones demand, in particular, was very strong in all regions during the first quarter. All major suppliers have announced significant price increases in the range of 10%-20% for all product categories. In particular, in China, we have seen very strong markets following Chinese New Year. Spot prices have soared, even though peak spot levels are probably not representative for the main trading volumes. Volumes and prices are very good, and you see on the right-hand side the DMC reference price, which is fluctuating but is fluctuating on a very high level.
On the silicon and ferrosilicon markets, a similar but more steady development. Prices continued to rise during the first quarter. We see strong demand, mainly driven by steel and automotive. In addition, we also see still low supply. Some capacities that have been stopped last year in the middle of the demand crisis are challenged to start up, hampered by supply chains, by low container availability, and other problems. In addition, on specialty products, we see very good recovery due to improvements in automotive, as I already talked about during the silicon section. On the right-hand side, you see the representatives for silicon and ferrosilicon, clear and strong upward trend continuing throughout the quarter, and we will see continued strong prices also during Q2. With that, I would leave it to Morten. On the carbon market, we continue to see strong fundamentals.
Steel markets and ferroalloys are key demand drivers, and these markets are very strong. Global steel production has shown recovery since the second quarter of 2020, and this higher steel production is driving demand and also higher sales prices for ferroalloys. With that, I hand it over to Morten for the financials.
Thank you very much, Michael, and good morning, everybody. It certainly is a pleasure to present the financial results, where the headline is strong results driven by good markets and operational excellence. Our total operating income for the quarter reached an all-time high level of almost NOK 7.2 billion. That was higher than the previous quarter, which also represented a record level, and it was significantly higher than Q1 last year. The main change since last year is that we had a NOK 1.2 billion increase from Silicones, and we also have a good increase from Silicon Products. Having said that, we should also bear in mind that Q1 last year was a very weak quarter due to the outbreak of the COVID-19 pandemic, which hit us particularly hard in the Chinese Silicones business. Our EBITDA amounts to more than NOK 1.2 billion, representing an EBITDA margin of 17%.
That is also a good improvement versus Q4 last year, and it's more of a doubling versus Q1 last year. Here also, we have seen a tremendous improvement in Silicones, almost NOK 400 million versus last year, and also Silicon Products, NOK 150 million , and Carbon, NOK 19 million . You will also note that there is a significant improvement in elimination other, mainly due to profits on our FX hedging program. For your benefit, we have, as always, included the main numbers from our P&L and also some KPIs from our financials. As I said, the EBITDA amounts to NOK 1.231 billion . The other has turned positive, and that's mainly due now to positive results from our FX hedging program. I'm very happy to announce that our productivity improvement program continues to be ahead of plan.
We have targets as per year-end of NOK 350 million in permanent sustainable cost reductions, and we're currently at NOK 230 million per year, and we are committed to deliver the NOK 350 million. Other items for the quarter amounts to - NOK 63 million. That mainly consists of negative effects on interest elements in the embedded derivatives in the power contracts, which makes up -NOK 40 million, and negative currency effects of NOK 38 million from working capital items. It's a stronger NOK causing that. On the net financial items for the quarter are positive of NOK 57 million. The normal interest costs are - NOK 58 million, in line with our guiding, we have a positive impact of NOK 123 million due to positive translation effects on our Euro loans. The tax cost for the quarter amounts to NOK 133 million.
That gives an effective tax rate for the quarter of 16%. Going forward, we should more see a level around 20%-22%. Let's look at the divisional results. For Silicones, we clearly see strong markets in all major regions. The operating income amounted to NOK 3.7 billion. That's a very solid improvement, 48% up from Q1 last year. It's basically a strong improvement in markets, particularly in China, where we had the pandemic situation last year. It's also very good operational excellence, enabling good sales volumes to meet the strong demand. Our EBITDA amounted to NOK 587 million, that's up more than 200% versus last year. This is also mainly explained by higher sales volumes, also clearly positive impact from higher sales prices. The sales volume amounted to 107,000 tons.
That's in line with Q4 last year, it's a significant improvement versus Q1 last year. It basically reflects a good demand in most segments and in most regions. Also strong improvements in Silicon Products, where we've had good operations and also attractive market conditions. Our operating income amounted to more than NOK 3.1 billion. That's a good improvement versus the previous quarter. It's also a 6% improvement versus Q1 last year. Also here, we are talking about higher sales volumes and higher sales prices. Our EBITDA amounted to NOK 526 million, representing an EBITDA margin of 7%. That's a very solid improvement versus Q4 last year, it's also a 41% improvement versus Q1 last year. Also here, both positive development on sales prices and on sales volumes.
We are also very happy that there is a positive mix impact, where we have clearly seen a good recovery in specialty segments, particularly automotive. The sales volumes amounted to 131,000 tons. That's a little bit down versus Q4 last year, but it's an improvement versus Q1 last year. Carbon Solutions, as always, delivers excellent and stable result. That's based on a very good business model and very stable operations at a very high level. The operating income amounted to NOK 486 million. That was 2% up versus the same quarter last year. Basically, somewhat higher volumes, while we have had a negative impact on effects due to the stronger NOK. Our EBITDA ended at NOK 121 million. That is an all-time high number, and it represents a 19% improvement versus the same quarter last year.
This is basically explained by high sales volumes, and also here, a constant improvement in the product mix. We're selling more specialty products. The sales volumes amounted to 70,000 tons for the quarter, and that reflects an improvement in the demand from particularly steel and ferroalloys. Having said that, we are still not running at full capacity utilization in our Carbon Solutions divisions. The quarter also implied a very strong earning per share. The EPS amounted to NOK 1.70 per share in the first quarter, and the improvement is certainly caused by a strong improvement in underlying results, but also positive net currency effects from the stronger Norwegian kroner that we have seen through the quarter. We have a rock-solid balance sheet, and the total equity amounted to NOK 13.4 billion.
That is an improvement of NOK 800 million from the last quarter, or from year-end 2020, and the equity ratio is stable at 40%+. We have, during the quarter, performed a partial refinancing of the debt that is maturing later this year. We delivered on a successful bond issue in February, and we have seen an improved leverage ratio in the quarter. The leverage ratio is now 2.3x last 12 months EBITDA, which is a reduction from 3x as per year-end. The improvement that we have seen is a result of both an improvement or a reduction in the net interest-bearing debt due to a strong cash flow, but it's primarily due to a significant uptick in our EBITDA. Our debt maturities in 2021 are very well managed.
As I said, we successfully raised a new bond loan of NOK 1.25 billion with three and five years maturity, and that will partly then refinance the maturities that we're having later in 2021. As you may recall, we signed up for a facility of NOK 2 billion last year to really enable us to optimize the refinancing processes this year. We have now scaled down this facility by NOK 1.25 billion. Also here, we have a very comfortable situation. We had good cash flow generation in Q1. The cash flow for operations amounted to NOK 590 million, which is a very solid improvement versus the same quarter last year, and the improvement is mainly due to the underlying EBITDA improvement.
The investments, excluding mergers and acquisitions, amounted to NOK 443 million in the first quarter. That is in line with the same quarter in 2020. Reinvestments, NOK 259 million for the quarter, which equals 62% of depreciation and amortization, is somewhat lower than the target of 80%-90%. Our strategic investments amounted to NOK 184 million, and this is primarily going to various silicones growth and development projects, very much in line with our strategic direction. With that, I would hand the word back to Michael to go through the outlook for the second quarter. Please.
Yeah. Thank you very much, Morten. After this very positive first quarter of 2021, we can look very confident also into the second quarter of 2021. We have positive market sentiment for all divisions, and we will continue to develop our market positions and our focus on sustainable growth. I think that besides the positive market sentiment, we also see some of the measures that we have taken last year with regard to operational excellence now coming into fruition and supporting the growth and the profitability that Elkem is showing. The silicones market remains strong. Market reference prices in China are expected to remain at quite attractive levels also in the second quarter, and we will, in addition, in the second quarter, see the effect of some global price increases that will gradually become effective.
The results of the Silicones division, however, will be impacted by maintenance stops that we will have in April and May in China and in France, which gives a combined negative EBITDA effect of about NOK 150 million . Demand also prices for ferrosilicon and silicon-based products are expected to level out in Q2 on a fairly high level, but realized contract prices will increase due to some time lag effects for longer-term contracts. Steel and ferroalloys markets are still very strong, which gives continued attractive market conditions also for our carbon products. In summary, we are very confident for the second quarter of 2021, and we will continue our successful performance that we have demonstrated during the first quarter of 2021. Thank you very much for your attention, and I would now give it back to Odd-Geir to moderate us into the questions.
Very much for that, Michael, and thank you very much, Morten. We will now take some questions. I will start with one question regarding sales mix. The question is the sales rate on new products to existing products. I think more it's probably about the specialization compared to more commodities. Maybe if you, Michael or Morten, could share a few comments on that.
Maybe I start, and then, Morten, you can complement it. We are striving for a healthy mix of downstream products versus upstream products in silicones. We are striving for a healthy mix of specialties and commodities in our Silicon Products Division. We have a permanent effort of increasing our specialization rate. That has continued last year. It has also continued during 2021 Q1. We will continue on this effort. Morten, you want to put some more flavor to it?
No, I think that's a good summary. I know that some people are looking for, let's say, a very precise KPI on specialization versus commodity products. We believe that that could easily be very misleading, as there is no clean cut. What we are talking about is really a degree of specialization where we, at all time, we try to move our portfolio from, let's say, commodity into more and more specialized product segments. We have delivered on that through a lot of, let's say, organic initiatives in recent years, and we have delivered on that also by the acquisitions that we have done, and we will also deliver on that through strategic initiatives going forward.
As expected, we get some questions regarding the announced expansion project in China. There is a question here from Andreas Bertheussen in Kepler. He says that you expect EBITDA margin of the new brownfield at 35%. What is your price assumption? Not sure if you can answer that, but I'll give it a try to you.
We can certainly not answer on the price assumptions. The very high EBITDA margin results from the fact that it's really a step change in costs. What we are doing is we are converting a plant which already is in a leading position in China, into a plant that has significantly lower costs going forward. Hence, the very high EBITDA margin of the product. We have made realistic price assumptions for this profitability, and certainly not, I think that much we can say, certainly not assumptions that the price that we are currently seeing will remain for a long time into the project. Morten, you think you want to make it more concrete?
Yeah, just to build on what you just said, Michael, we will see a significant cost reduction, with the new facility versus our existing facility in Xinghuo. We're talking about approximately 25% cost reduction. Of course, given the fact that we already have a very good cost position, and that we basically generate healthy margins in Xinghuo, even at low market prices, we are very confident that we will generate very good margins. We have communicated minimum 35% EBITDA margins also going forward at modest prices.
Yeah. Maybe last word, just to emphasize that again. In terms of technology and cost efficiency, this new project is a step change.
There is another question on the project. It comes from Charlie Webb in Morgan Stanley. How does your upstream expansion fit into the big picture of sizable upstream silicones additions in China? Is there any risk that these capacity additions will be disruptive on the market and associated profitability?
We see a balanced supply-demand situation in the years to come in China. Of course, there are a number of projects that have been announced. There is some projects that are under construction, there is also strong growth. From everything we can see going forward, there will be a balanced supply-demand scenario, and we don't expect any disruptive situation in the years to come.
Other than that, of course, as we've said, this new plant will give us a significantly better cost position, it will also enables us to speed up our specialization strategy because the upstream product qualities that we will produce from the new plant will be significantly better fit for new specialty products than the existing production in China.
Another question from Charlie Webb, more on environmental side, which is very important to the new project. It's interesting that you flag plant efficiency measures you're making at Xinghuo and CO2 footprint. Is there more regional regulatory scrutiny around these metrics in China? What are the implications of this for the industry more broadly?
It is, of course, hard to comment on that and speculate on that. Clearly, there is more regulatory pressure in China on ESG aspects, in particular on CO2 emissions, but also on other aspects of ESG. With this facility, we are setting a trend, and I do believe that trend will, over time, also force others to follow us.
Very good. Follow up with a question from Thomas Wrigglesworth in Citi. Is your planned new capacity at Xinghuo inspired by the silicone anode opportunity?
No, there is no relationship between those two.
Another question from Andreas Bertheussen on the capital that was raised. If we have any comment why Bluestar did not participate in the private placement?
I don't think we should comment on the behavior of Bluestar in this. Obviously, Bluestar was very supportive to this issuing of new shares, and we had full support of Bluestar. They have decided to not join, but they remain our majority and anchor shareholder.
Very good. There is a last question to wrap up this session. It comes from Thomas Wrigglesworth in Citibank. It is more on the outlook. Spot prices for DMC in China are now around RMB 28,000 per ton. Do you see this as a fair representation of Elkem's realized prices for the second quarter?
I don't think we can do that. I mean, the spot prices are a good indication of where prices are, but main trading volumes are typically at different prices. They are very attractive.
Very good. That concludes the Q&A session, and then I would like to thank everyone for participating, and thanks to Michael and Morten for taking us through the presentation. Have a nice day. Thank you.
Thank you.
Thank you very much.