Investor Presentation • Mar 9, 2018
Investor Presentation
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USD 110m Senior Secured Bond Issue Investor Presentation
09 March 2018
This presentation (the "Presentation") has been produced by REC Silicon ASA (the "Company" or the "Issuer") with assistance from Arctic Securities AS and DNB Markets, a part of DNB Bank ASA (together the "Managers") solely for use at the presentation to investors held in connection with the offering of bonds by the Company (the "Offering").
This Presentation is strictly confidential and may not be reproduced or redistributed, in whole or in part, to any other person. This Presentation has not been reviewed by or registered with any public authority or stock exchange and does not constitute a prospectus. This Presentation must be viewed in context with the Company's stock exchange announcements and periodic filings and to the best of the knowledge of the Company and its board of directors, the information contained in this Presentation is in all material respect in accordance with the facts as of the date hereof, and contains no material omissions likely to affect its import. This Presentation contains information obtained from third parties. As far as the Company is aware and able to ascertain from the information published by that third party, such information has been accurately reproduced and no facts have been omitted that would render the reproduced information to be inaccurate or misleading. Only the Company and the Managers are entitled to provide information in respect of matters described in this Presentation. Information obtained from other sources is not relevant to the content of this Presentation and should not be relied upon.
This Presentation does not constitute an offer to sell or a solicitation of an offer to buy any securities in any jurisdiction to any person to whom it is unlawful to make such an offer or solicitation in such jurisdiction.
This Presentation contains certain forward-looking statements relating to the business, financial performance and results of the Company and/or the industry in which it operates. Forward-looking statements concern future circumstances and results and other statements that are not historical facts, sometimes identified by the words "believes", "expects", "predicts", "intends", "projects", "plans", "estimates", "aims", "foresees", "anticipates", "targets", and similar expressions. The forward-looking statements contained in this Presentation, including assumptions, opinions and views of the Company or cited from third party sources are solely opinions and forecasts which are subject to risks, uncertainties and other factors that may cause actual events to differ materially from any anticipated development. None of the Company, the Managers or any of their parent or subsidiary undertakings or any such person's officers or employees provides any assurance that the assumptions underlying such forward-looking statements are free from errors nor does any of them accept any responsibility for the future accuracy of the opinions expressed in this Presentation or the actual occurrence of the forecasted developments. None of the Company or the Managers assumes any obligation, except as required by law, to update this Presentation, including any forward-looking statements or to conform any forward-looking statements to our actual results.
AN INVESTMENT IN THE COMPANY INVOLVES RISK, AND SEVERAL FACTORS COULD CAUSE THE ACTUAL RESULTS, PERFORMANCE OR ACHIEVEMENTS OF THE COMPANY TO BE MATERIALLY DIFFERENT FROM ANY FUTURE RESULTS, PERFORMANCE OR ACHIEVEMENTS THAT MAY BE EXPRESSED OR IMPLIED BY STATEMENTS AND INFORMATION IN THIS PRESENTATION, INCLUDING, AMONG OTHERS, RISKS OR UNCERTAINTIES ASSOCIATED WITH THE COMPANY'S BUSINESS, SEGMENTS, DEVELOPMENT, GROWTH MANAGEMENT, FINANCING, MARKET ACCEPTANCE AND RELATIONS WITH CUSTOMERS, AND, MORE GENERALLY, GENERAL ECONOMIC AND BUSINESS CONDITIONS, CHANGES IN DOMESTIC AND FOREIGN LAWS AND REGULATIONS, TAXES, CHANGES IN COMPETITION AND PRICING ENVIRONMENTS, FLUCTUATIONS IN CURRENCY EXCHANGE RATES AND INTEREST RATES AND OTHER FACTORS. SHOULD ONE OR MORE OF THESE RISKS OR UNCERTAINTIES MATERIALISE, OR SHOULD UNDERLYING ASSUMPTIONS PROVE INCORRECT, ACTUAL RESULTS MAY VARY MATERIALLY FROM THOSE DESCRIBED IN THIS PRESENTATION. NONE OF THE COMPANY OR THE MANAGERS INTEND, NOR DO THEY ASSUME ANY OBLIGATION, TO UPDATE OR CORRECT THE INFORMATION INCLUDED IN THIS PRESENTATION.
The Managers have not independently verified any of the information contained herein through due diligence procedures or other investigations. No representation or warranty (express or implied) is made as to, and no reliance should be placed on, any information, including projections, estimates, targets and opinions, contained herein, and no liability whatsoever is accepted as to any errors, omissions or misstatements contained herein, and, accordingly, none of the Company or the Managers or any of their parent or subsidiary undertakings or any such person's officers or employees accepts any liability whatsoever arising directly or indirectly from the use of this document. By attending or receiving this Presentation you acknowledge that you will be solely responsible for your own assessment of the market and the market position of the Company and that you will conduct your own investigations and analysis and be solely responsible for forming your own view of the future performance of the Company's business and its current and future financial situation.
This Presentation is confidential and is being communicated in the United Kingdom to persons who have professional experience, knowledge and expertise in matters relating to investments and are "investment professionals" for the purposes of article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005 and only in circumstances where, in accordance with section 86(1) of the Financial and Services Markets Act 2000 ("FSMA") the requirement to provide an approved prospectus in accordance with the requirement under section 85 FSMA does not apply. Consequently, the Investor understands that the Offering may be offered only to "qualified investors" for the purposes of sections 86(1) and 86(7) FSMA, or to limited numbers of UK investors, or only where minima are placed on the consideration or denomination of securities that can be made available (all such persons being referred to as "relevant persons"). This presentation is only directed at qualified investors and investment professionals and other persons should not rely on or act upon this presentation or any of its contents. Any investment or investment activity to which this communication relates is only available to and will only be engaged in with investment professionals. This Presentation (or any part of it) is not to be reproduced, distributed, passed on, or the contents otherwise divulged, directly or indirectly, to any other person (excluding an investment professional's advisers) without the prior written consent of the Company or the Managers.
IN RELATION TO THE UNITED STATES AND U.S. PERSONS, THIS PRESENTATION IS STRICTLY CONFIDENTIAL AND IS BEING FURNISHED SOLELY IN RELIANCE ON APPLICABLE EXEMPTIONS FROM THE REGISTRATION REQUIREMENTS UNDER THE U.S. SECURITIES ACT OF 1933, AS AMENDED. THE BONDS HAVE NOT AND WILL NOT BE REGISTERED UNDER THE U.S. SECURITIES ACT OR ANY STATE SECURITIES LAWS, AND MAY NOT BE OFFERED OR SOLD WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, UNLESS AN EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE U.S. SECURITIES ACT IS AVAILABLE. ACCORDINGLY, ANY OFFER OR SALE OF BONDS WILL ONLY BE OFFERED OR SOLD (I) WITHIN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OR BENEFIT OF U.S. PERSONS, ONLY TO QUALIFIED INSTITUTIONAL BUYERS ("QIBs") IN OFFERING TRANSACTIONS NOT INVOLVING A PUBLIC OFFERING AND (II) OUTSIDE THE UNITED STATES IN OFFSHORE TRANSACTIONS IN ACCORDANCE WITH REGULATION S. ANY PURCHASER OF BONDS IN THE UNITED STATES, OR TO OR FOR THE ACCOUNT OF U.S. PERSONS, WILL BE DEEMED TO HAVE MADE CERTAIN REPRESENTATIONS AND ACKNOWLEDGEMENTS, INCLUDING WITHOUT LIMITATION THAT THE PURCHASER IS A QIB.
This Presentation speaks as of 09 March 2018. There may have been changes in matters which affect the Company subsequent to the date of this Presentation. Neither the delivery of this Presentation nor any further discussions of the Company with any of the recipients shall, under any circumstances, create any implication that there has been no change in the affairs of the Company since such date. This Presentation is subject to Norwegian law, and any dispute arising in respect of this Presentation is subject to the exclusive jurisdiction of Norwegian courts with Oslo District Court (Nw: Oslo tingrett) as exclusive venue.
Note: 1) Please refer to appendix for a more comprehensive overview of the risk factors
Tore Torvund President & CEO
James A. May II CFO
› Holds a Master of Science degree from the Norwegian University of Science and Technology
› Almost 30 years of finance/accounting experience
› Holds Bachelor's degrees in Business Administration and Accounting from Boise State University
Transaction summary
Polysilicon Fluidized Bed Reactor ("FBR")
PV and semiconductor
Joint Venture, Yulin (China) › Started up in December 2017
› REC only international player with
› 15% ownership
presence in China
| 1983 - 1984 |
Construction of Moses Lake plant (Silicon I) by Union Carbide Corporation |
|---|---|
| 1990 | Komatsu Ltd. acquires Moses Lake plant and creates Advanced Silicon Materials Inc. (ASiMI) |
| 1996 - 1998 |
ASiMI constructs facility in Butte, Montana USA (Silicon II) which produces silane gas and polysilicon for the electronics industry |
| 2002 | REC enters into Joint Venture with ASiMI, Moses Lake plant separated as Solar Grade Silicon LLC (SGS), the first polysilicon producer dedicated to the solar industry |
| 2005 | REC purchases 75% ASiMI plant and remaining shares of SGS |
| 2006 | A new silane plant (Silicon III) and a new Fluid Bed Reactor (FBR) technology facility set up in Moses Lake |
| 2006 | Oslo Stock Exchange listing under the ticker REC |
| 2007 | New silane production unit (Silicon IV) set up next to Silicon III in Moses Lake |
| 2009-2010 | Start-up of Silicon III's silane facility and FBR as well as Silicon IV. REC acquires last 25% of ASiMI |
| 2013 | Renewable Energy Corporation ASA splits organization into two pure-play companies; REC Solar ASA and REC Silicon ASA |
| 2014 | REC Silicon enters JV in Yulin, China, with Shaanxi Non-Ferrous Tian Hong New Energy Co., Ltd. (SNF) to ensure REC Silicon's position as the only foreigner with access to the Chinese market |
| 2014 | New R&D laboratory opened at Moses Lake |
| 2015 | Start of JV construction |
| 2017 | JV plant successfully commencing production |
| 2018 | Enters agreement that reduces REC's equity stake in the JV from 49% to 15% in return for not contributing with capex funding, while maintaining the option to buy back 34% after 3 years |
| Issuer | REC Silicon ASA |
|---|---|
| Guarantors | REC Silicon AS, REC Silicon Inc., REC Solar Grade Silicon LLC, REC Advanced Silicon Materials LLC (the "Butte Subsidiary"), REC Silicon Pte. Ltd. and other future Material Group Companies |
| Amount | USD 110 million |
| Status of the Bonds | Senior secured |
| Settlement Date | [●] April 2018 |
| Maturity Date | [●] April 2023, 5 years from Settlement Date |
| Amortisation | 100% at maturity |
| Coupon | [●]% p.a., semi-annually interest payments |
| Security | First security interest in the Butte Subsidiary, security interest in or right to use any intellectual property required to operate and maintain the Butte Facility from time to time being owned by a Group Company, and all tangible and intangible assets of the Butte Subsidiary, and pledge over the Escrow Account |
| Use of Proceeds | (i) Refinance the REC03 Bond and the Convertible Bond and (ii) general corporate purposes |
| Call Structure |
Make Whole first 3 years, callable at par plus 40/20/10% of the Coupon after 36/48/54 months, respectively |
| Maintenance Covenant | Minimum Liquidity of USD 15 million |
| Incurrence Test1 | Leverage Ratio (NIBD/EBITDA) below 3.0x |
| Dividend Restrictions | No dividends |
| Other Covenants | Including inter alia negative pledge, restrictions on subsidiaries' distribution, financial support , financial indebtedness, and Nomination of Material Group Companies |
| Investor Put Option | Put at 101% upon a Change of Control, De-Listing (of shares), or Listing Failure Put at prevailing Call Option price upon a Material Asset Sale Event (pertaining to the Moses Lake facility) |
| Mandatory Redemption | Redeem 100% of the outstanding Bonds at the prevailing Call Option price upon a Mandatory Redemption Event (pertaining to the Butte facility) |
| Listing | Oslo Børs or any other regulated market within six months |
| Documentation / Trustee | Norwegian / Nordic Trustee |
| Joint Lead Managers | Arctic Securities, DNB Markets |
Note: 1) Only unsecured debt with maturity after the bonds or certain secured debt up to USD 60 million from a US government or US state-backed lender related to the further development of Moses Lake may be incurred under the Incurrence Test
| Sources (USDm) | Uses (USDm) | ||
|---|---|---|---|
| Senior secured bonds | 110.0 | Refinancing of REC03 | 55.5 |
| Cash on balance sheet2 | 104.5 | Refinancing of CB |
110.0 |
| Rollover cash3 | 49.0 | ||
| Total sources | 214.5 | Total uses | 214.5 |
Note: 1) FY2017 pro forma the transaction and gross of accrued interest, transaction and any redemption costs 2) As per FY2017
3) Gross of accrued interest, transaction and any redemption costs
11 © REC Silicon ASA. All rights reserved.
› Secured bond structure with share pledges and asset pledges in the owning entity of the Butte facility, the world's largest supplier of silane gas and other specialty gases
› The Butte facility is able to operate separately from Moses Lake with limited carve-out costs › Total investment of USD 351m already incurred - limited maintenance capex needs going forward
› Capability to adapt showcased by a reduced FBR cash cost at Moses Lake to USD10.4/kg at 50% utilization in a demanding polysilicon price environment
› Sustainable cost reduction implemented at the Butte and Moses Lake plants, securing EBITDA momentum › Moses Lake utilization adjusted to minimize trade-war impact on profitability
Well positioned to capture market share within the attractive semiconductor market
Note 1) Average spot price including price inside China 2) Based on 2016 numbers 3) Does not include idle capacity
14 © REC Silicon ASA. All rights reserved.
15 © REC Silicon ASA. All rights reserved.
Global semiconductor market with drivers (USD)
Source: GTM Market Demand Tracker – February 1 2018, DNV GL – Energy transition outlook 2017 Note: 1) IoT represents "Internet of things"
| Silane Gases | Electronic Grade CZ Semiconductor Polysilicon |
Electronic Grade FZ Semiconductor Polysilicon |
Solar Grade Polysilicon |
|
|---|---|---|---|---|
| Highlights | › ~70% global market share › ~70% contract coverage with 2 of 3 |
› Production of silicon wafers for semiconductor devices |
› Production for power semiconductor devices |
› Moses Lake the largest granular polysilicon plant in the world |
| gas distribution companies | › Long-term supply relationships with an average of 10 years |
› Long-term supply relationships with an average of 14 years |
› Unique form factor allows for crucible recharge |
|
| › Long-term contracted revenue › Lowest cost supplier |
› Top 2 customers among top 4 electronic grade wafer companies |
› Top 2 customers among top 3 FZ wafer companies |
› Sustainable energy saving vs. competitor technology |
|
| › Exceptional safety record/support of safety training and site audit |
› Product qualified by top 5 wafer companies |
› Product qualified by all of the top 5 FZ wafer companies |
› Contingency feed process generates cost efficiency |
|
| End Markets / | › Thin film transistor (TFT) displays |
› (Mobile) communications |
› Power management |
› Polysilicon is the base material for PV cells |
| Product Applications |
› Semiconductors |
› Consumer electronics |
› Power in- conversion |
› Ideally suited for multi crystalline |
| › Photovoltaics (PV) › Float glass |
› Computing › Automotive / Military |
› Electric motor controls › High voltage applications such as |
tech | |
| › Silicon precursors for CVD |
› Aviation / Aerospace |
electric trains | › 2 nd gen. FBR-B PV mono crystalline capable |
|
| Key Customers | › Industrial and specialty gas distributors |
› Semiconductor wafer manufacturers |
› Float Zone semiconductor wafer manufacturers |
› Solar wafer manufacturers |
| % of sales | 29% | 71% | ||
| Manufacturing | Butte | Butte | Butte | Moses Lake |
Note: 1) As of Q3 2017 the Company has limited its solar grade production
844 7,000 6,000 5,000 4,000 3,000 2,000 1,000 0 MT 2017 5,838 1,412 3,582 2016 5,584 1,324 1,526 2,734 2015 5,825 1,194 1,560 3,071 2014 6,253 1,313 1,513 3,428 Silicon Gas sales Solar polysilicon production Solar polysilicon price Silane price
Semiconductor polysilicon price
Semiconductor polysilicon production
Platform costly to replicate
› Independent manufacturing units with world's largest
| Intellectual Property and R&D |
› Siemens, 11 active patents with 4 pending applications › Silane, 6 active patents and 16 pending applications, › 5 active trademarks relevant to the Butte plant, or products › Stand-alone R&D function, including Siemens and silane technology |
Headcount 7 |
Degree of autonomy |
|---|---|---|---|
| Sales & purchasing | › Stand-alone functions › Butte entity is contract counterparty with customers |
14 | |
| Engineering | › Stand-alone function › Consists of both production engineering and general engineering › Supports continuous improvement and R&D initiatives |
22 | |
| Quality and lab | › Quality function self-sufficient › Analytical lab would have to be relocated from Moses Lake |
16 | |
| Production | › Independent of Moses Lake › Exception is filament where equipment and production is in Moses Lake |
122 | |
| Maintenance | › Key tasks self-sufficient at current state › Includes preventative maintenance and reliability functions |
41 | |
| IT | › Owns hardware systems and network › Would need to outsource software and support |
3 | |
| Administration | › Stand-alone organization › Some support functions and systems will have to be outsourced |
21 | |
Total Wafer volume (M)
TFT production capacity (million m2 )
› Silane gas production has seen a healthy annual growth rate of 11% between 2008 and 2017
› Growth expected to continue over the next years at a 7% CAGR
Source: HIS Markit, Numbers are based on standard forecast (does not include <30% probability)
Source: GTM Market Demand Tracker – February 1, 2018
May increase domestic installations
› Continued growth expected for PV installations
Polysilicon spot price
Source: GTM Pulse January 2018 edition
31 © REC Silicon ASA. All rights reserved.
| Butte | USDm | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|
| Polysilicon production in MT (Siemens) | 2,826 | 2,754 | 2,850 | 2,256 | |
| Polysilicon sales in MT (Siemens) | 2,426 | 2,634 | 3,333 | 2,093 | |
| Silicon gas sales in MT | 3,428 | 3,071 | 2,734 | 3,582 | |
| Total revenues | 201 | 177 | 154 | 147 | |
| Contribution margin | 93 | 61 | 41 | 55 |
| Moses Lake | USDm | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|
| Polysilicon production in MT (Granular) | 15,929 | 14,098 | 7,863 | 9,379 | |
| Polysilicon sales in MT (Granular) | 14,388 | 10,824 | 9,671 | 11,442 | |
| Total revenues | 291 | 153 | 117 | 128 | |
| Contribution margin | 96 | -23 | -41 | -2 |
| Other | USDm | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|
| Total revenues | 0 | 0 | 0 | 0 | |
| Contribution margin | 44 | -51 | -31 | -33 |
| Group | USDm | 2014 | 2015 | 2016 | 2017 |
|---|---|---|---|---|---|
| Polysilicon production in MT (Siemens) | 2,865 | 2,785 | 2,867 | 2,257 | |
| Polysilicon sales in MT (Siemens) | 2,466 | 2,636 | 3,396 | 2,101 | |
| Silicon gas sales in MT | 3,428 | 3,076 | 2,734 | 3,501 | |
| Polysilicon production in MT (Granular) | 15,929 | 14,098 | 7,863 | 9,379 | |
| Polysilicon sales in MT (Granular) | 14,388 | 10,824 | 9,671 | 11,403 | |
| Total revenues | 493 | 330 | 271 | 272 | |
| EBITDA | 233 | -13 | -31 | 20 |
Pre-transaction capital structure and debt maturities Post-transaction capital structure and debt maturities
The refinancing will create a financial runway for the Company
The occurrence and if so timing of the liability is uncertain
Transaction summary
› Maintain option to continue as the only international player in China
› First silane unit and FBR reactors started up December 2017
Signing seremony, Feb 2014 Production facility
"The U.S. Trade Representative will engage in discussions… that could lead to positive resolution of the separate antidumping and countervailing duty measures currently imposed on Chinese solar products and U.S. polysilicon."
| FBR Production | FBR Cash Cost |
Total Polysilicon Production | ||||
|---|---|---|---|---|---|---|
| Q1 | 2,620MT | Q1 | USD 11.1/kg |
Q1 | 2,990MT | |
| 2018 | 9,760MT | 2018 | USD 11.7/kg | 2018 | 11,330MT |
| Semiconductor Production | Silicon Gas Sales | 2018 Capex1 | ||||
|---|---|---|---|---|---|---|
| Q1 | 210MT | Q1 | 880MT | Maintenance | USD 4m | |
| 2018 | 870MT | 2018 | 3,700MT |
| (USD IN MILLION) | YEAR 2014 | YEAR 2015 | YEAR 2016 | YEAR 2017 |
|---|---|---|---|---|
| Revenues | 493.0 | 329.9 | 271.2 | 272.4 |
| Cost of materials | -99.7 | -96.1 | -60.0 | -54.3 |
| Changes in inventories | 29.2 | 12.0 | -29.0 | -18.2 |
| Employee benefit expenses | -93.5 | -89.5 | -74.6 | -73.9 |
| Other operating expenses | -197.0 | -169.2 | -140.3 | -106.2 |
| Other income and expenses | 101.0 | -0.1 | 2.0 | -0.1 |
| EBITDA | 232.9 | -13.0 | -30.8 | 19.8 |
| Depreciation | -131.9 | -131.1 | -90.3 | -145.2 |
| Amortization | -2.5 | -3.1 | -1.9 | -1.8 |
| Impairment | -4.3 | -151.6 | -93.1 | -0.3 |
| Total depreciation, amortization and impairment | -138.8 | -285.7 | -185.3 | -147.3 |
| EBIT | 94.1 | -298.8 | -216.0 | -127.5 |
| Share of profit/loss of investments in associates | -0.6 | -1.8 | -2.9 | -1.8 |
| Financial income | 4.6 | 3.4 | 1.7 | 0.6 |
| Net financial expenses | -24.2 | -11.2 | -13.5 | -30.2 |
| Net currency gains/losses | 131.8 | 115.1 | -13.5 | -34.1 |
| Net gains/losses derivatives and fair value hedge | -1.5 | 0.0 | 0.0 | 0.0 |
| Fair value adjustment convertible bonds | 14.6 | 3.3 | -3.9 | -16.2 |
| Net financial items | 125.3 | 110.5 | -29.2 | -79.9 |
| Profit/loss before tax from continuing operations | 218.8 | -190.1 | -248.1 | -209.2 |
| Income tax expense/benefit from continuing operations | -5.4 | 127.3 | 100.7 | -157.8 |
| Attributable to: | ||||
| Owners of REC Silicon ASA | 212.8 | -62.6 | -147.4 | -367.0 |
| Earnings per share (In USD) | ||||
| From continuing operations | ||||
| -basic | 0.09 | -0.02 | -0.06 | -0.14 |
| -diluted | 0.09 | -0.02 | -0.06 | -0.14 |
| YEAR | YEAR | YEAR | YEAR | |
|---|---|---|---|---|
| (USD IN MILLION) | 2014 | 2015 | 2016 | 2017 |
| ASSETS | ||||
| Non-current assets | ||||
| Intangible assets | 24.2 | 21.9 | 17.3 | 15.7 |
| Land and buildings | 74.6 | 62.8 | 51.7 | 50.5 |
| Machinery and production equipment | 839.9 | 605.2 | 460.7 | 416.7 |
| Other tangible assets | 20.9 | 16.2 | 13.2 | 12.0 |
| Assets under construction | 35.3 | 65.8 | 69.7 | 61.1 |
| Property, plant and equipment | 970.6 | 750.0 | 595.2 | 540.3 |
| Government grant assets | 116.7 | 110.8 | 89.7 | 0.0 |
| Financial assets and prepayments | 12.8 | 4.1 | 3.8 | 3.8 |
| Deferred tax assets | 0.0 | 34.5 | 134.7 | 0.0 |
| Total non-current assets | 1,124.4 | 921.2 | 840.7 | 559.8 |
| Current assets | ||||
| Inventories | 128.2 | 141.6 | 104.1 | 82.9 |
| Trade and other receivables | 124.1 | 70.3 | 55.3 | 48.6 |
| Current tax assets | 0.0 | 0.0 | 0.6 | 0.0 |
| Restricted bank accounts | 1.1 | 3.7 | 4.0 | 4.4 |
| Cash and cash equivalents | 96.4 | 95.4 | 65.8 | 104.5 |
| Total current assets | 349.8 | 311.0 | 229.8 | 240.4 |
| Total assets | 1,474.2 | 1,232.2 | 1,070.6 | 800.2 |
| YEAR | YEAR | YEAR | YEAR | |
|---|---|---|---|---|
| (USD IN MILLION) | 2014 | 2015 | 2016 | 2017 |
| EQUITY AND LIABILITIES | ||||
| Shareholders' equity | ||||
| Paid-in capital | 3,115.3 | 3,158.0 | 3,158.0 | 3,158.0 |
| Other equity and retained earnings | -2,060.9 | -2,237.0 | -2,376.0 | -2,709.1 |
| Total shareholders' equity | 1,054.4 | 921.0 | 782.0 | 448.9 |
| Non-current liabilities | ||||
| Retirement benefit obligations | 18.4 | 18.2 | 18.1 | 20.1 |
| Deferred tax liabilities | 94.1 | 5.5 | 4.5 | 0.4 |
| Investments in Associates | 22.4 | 28.5 | 35.7 | 34.7 |
| Derivatives | 2.0 | 0.0 | 0.0 | 0.0 |
| Non-current financial liabilities, interest bearing | 190.4 | 138.8 | 144.1 | 0.0 |
| Non-current prepayments, interest calculation | 3.2 | 1.1 | 5.9 | 5.5 |
| Other non-current liabilities, not interest bearing | 0.1 | 0.2 | 0.2 | 8.8 |
| Total non-current liabilities | 330.5 | 192.3 | 208.6 | 69.6 |
| Current liabilities | ||||
| Trade payables and other liabilities | 80.1 | 72.5 | 53.8 | 62.9 |
| Provisions | 0.0 | 0.0 | 0.0 | 0.3 |
| Current tax liabilities | 2.6 | 0.0 | 0.0 | 26.0 |
| Derivatives | 0.0 | 1.4 | 1.5 | 1.5 |
| Current financial liabilities, interest bearing | -0.2 | 42.9 | 23.1 | 187.8 |
| Current prepayments, interest calculation | 6.7 | 2.0 | 1.6 | 3.1 |
| Total current liabilities | 89.3 | 118.9 | 80.0 | 281.7 |
| Total liabilities | 419.8 | 311.2 | 288.6 | 351.3 |
| Total equity and liabilities | 1,474.2 | 1,232.2 | 1,070.6 | 800.2 |
| (USD IN MILLION) | YEAR 2014 | YEAR 2015 | YEAR 2016 | YEAR 2017 |
|---|---|---|---|---|
| Cash flows from operating activities | ||||
| Profit/loss before tax from total operations 1) | 218.2 | -189.9 | -248.1 | -209.2 |
| Income taxes paid/received | 3.4 | -3.0 | 0.0 | 0.6 |
| Depreciation, amortization and impairment | 138.8 | 285.7 | 185.3 | 147.3 |
| Fair value adjustment convertible bond | -14.6 | -3.3 | 3.9 | 16.2 |
| Equity accounted investments, impairment financial assets, gains/losses on sale | 0.6 | 1.8 | 2.9 | 1.8 |
| Gains/losses on disposal of discontinued operations | 0.6 | -0.2 | 0.0 | 0.0 |
| Changes in receivables, prepayments from customers etc. | -3.5 | 38.2 | 15.3 | 5.9 |
| Changes in inventories | -33.0 | -13.4 | 37.4 | 22.6 |
| Changes in payables, accrued and prepaid expenses | -4.0 | -3.8 | -12.8 | 18.6 |
| Changes in provisions | -1.3 | 0.0 | 0.0 | 0.3 |
| Changes in VAT and other public taxes and duties | 3.4 | 2.5 | 0.0 | 1.0 |
| Changes in derivatives | 11.3 | -0.3 | 0.0 | 0.0 |
| Currency effects not cash flow or not related to operating activities | -127.4 | -111.7 | 13.2 | 33.6 |
| Other items | -104.8 | -1.0 | 6.8 | 0.1 |
| Net cash flow from operating activities | 87.7 | 1.6 | 3.8 | 38.8 |
| Cash flows from investing activities | ||||
| Cash payments for shares (incl. equity accounted investments) | -75.0 | 0.0 | 0.0 | 0.0 |
| Proceeds from finance receivables and restricted cash | 5.6 | 0.8 | 0.3 | 0.0 |
| Payments finance receivables and restricted cash | 0.0 | 0.0 | -0.2 | -0.2 |
| Proceeds from sale of property, plant and equipment and intangible assets | 198.0 | 0.0 | 0.0 | 0.0 |
| Payments for property, plant and equipment and intangible assets | -35.8 | -54.7 | -14.5 | -2.6 |
| Proceeds from investment in municipal bonds | 0.0 | 5.7 | 0.0 | 0.0 |
| Net cash flow from investing activities | 92.8 | -48.2 | -14.4 | -2.8 |
| Cash flows from financing activities | ||||
| Increase in equity | 0.0 | 42.7 | 0.0 | 0.0 |
| Payments of borrowings and up-front/waiver loan fees | -143.1 | -6.7 | -21.2 | 0.0 |
| Proceeds from borrowings | 0.0 | 17.1 | 0.0 | 0.0 |
| Net cash flow from financing activities | -143.0 | 53.1 | -21.2 | 0.0 |
| Effect on cash and cash equivalents of changes in foreign exchange rates | -2.6 | -7.4 | 2.2 | 2.8 |
| Net increase/decrease in cash and cash equivalents | 34.8 | -1.0 | -29.7 | 38.8 |
| Cash and cash equivalents at the beginning of the period | 61.6 | 96.4 | 95.4 | 65.8 |
| Cash and cash equivalents at the end of the period | 96.4 | 95.4 | 65.8 | 104.5 |
Investing in the Bonds involves inherent risks. Prospective investors should, based on attentive investors' presupposed understanding of macroeconomic conditions and financial market dynamics, carefully review this Information Presentation and carefully consider the risk factors set out in this section before making a decision to invest in the Bonds.
This section addresses risks associated with the macroeconomic context, the industry in which the Group operates and specific risks associated with the Group's business - production of advanced silicon materials, and supply of high-purity polysilicon and silicon gases to the solar photovoltaic ("PV") and electronics industries worldwide (the "Business"), and risks relating to the Bonds. The risk factors are not listed in any particular order of priority as to severity, significance or probability of occurrence of individual risks.
Additional risks and uncertainties, such risks and uncertainties presently neither known to the Issuer nor the relevant Group Companies, or currently deemed immaterial, may also affect and impair the Group's business operations and/or financial condition, and/or the value of the Bonds.
The Issuer's and the Group's business, financial condition, results of operations and cash flows could be materially adversely affected in the event of risks materializing. Under such conditions, the trading price of the Bonds could depreciate, and an investor may lose part or all of its investment. Therefore, an investment in the Bonds is suitable only for investors who understand the general risks associated with this type of investment, as well as the risks associated with the Issuer and the Group, specifically, and who can afford a loss of part or all of the investment in the Bonds.
Any forward-looking statements contained in this Presentation also involve risks and uncertainties. Actual results are, as a result of numerous factors including the risks described below and elsewhere in this Information Memorandum, likely to differ from those on which such forward-looking statements are based.
The financial return of an investment in a PV system depends to a large extent on the market price of the electricity produced. While this is further influenced by government subsidies and support, as outlined below, the future development of the PV industry will to a significant degree depend on the development in electricity market prices over time. Electricity prices depend on a number of factors including, but not limited to, availability and costs of primary energy sources (including oil, coal, natural gas and uranium), and the development in cost, efficiency and equipment investment need for other electricity producing technologies, including other renewable energy sources. Additionally, developments in the cost of electricity transmission and electricity storage will influence the relevant market price. Declining electricity prices could potentially, through reduced demand from the PV industry, significantly reduce the demand for the Group's products, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group is exposed to risks related to general changes in legislation and regulatory framework in the various jurisdictions in which the Group operates. Changes in the legislative and fiscal framework, both generally and related to the customers in the PV industry, could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
Trade barriers, trade restrictions and unfair trade practices has had a significant negative impact on the Group's ability to sell its products at attractive terms. This may continue, adversely affecting the Group's performance. The Group 's performance will be adversely affected to the extent it is restricted from selling into important markets or competitors achieve unfair competitive advantages.
The Trump Administration recently issued a tariff scheme and quotas pertaining to imports of solar cells and modules, potentially aggravating the ongoing trade war between the United States and China, already hindering the Group from effectively competing for market share in certain markets. The new tariff and quotas could potentially also impact the Groups ability to compete in other key markets due to other countries' retributions. The continuance of, or implementing of further, trade restrictions, other barriers and unfair market practices could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The demand for PV products is dependent on the availability of short and long term funding (project financing as well as longer-term debt and equity financing) of small and large scale PV projects. A scarcity of financing during any given period of time could limit the demand for PV projects with a negative impact on the growth of the PV industry, implying a negative impact on the demand for the Group's products. This could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
Grid-connected PV plants are often to a large extent financed by the incurrence of debt. By reducing financing costs, relatively low interest rates generally have had a positive effect on the profitability of PV plants in recent years. In addition, the low interest rate environment has reduced the expected return on certain alternative investments. Relatively low interest rates therefore have made an essential contribution to the increase in the demand for PV systems. An increase in interest rates could significantly reduce the profitability of PV plants and reduce the demand for PV systems. This could in turn result in a decrease in demand for the Group's products, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The PV industry competes, in particular, with other sources of renewable energy (e.g., wind, biomass, fuel cells) and conventional power generation. If prices for conventional and/or other renewable energy resources decline or if other renewable energy resources enjoy greater policy support than the PV industry, and the PV industry is not able to achieve reduction in aggregate production costs that enable reduced price per kilowatt-hour of electricity, the PV industry could suffer. This could result in lower demand from the Group's customers, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
Significant developments in technologies and changes in market structure, supply and demand could significantly alter the Group's competitive situation, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
Periods of oversupply can result in reduced capacity utilization at the Group's production facilities, and therefore lead to higher manufacturing costs and/or layoffs and plant closures, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group is active as a sub-supplier to a wide range of end-uses, mainly in applications relating to electronics, flat panel displays and semiconductors. Significant changes in competitive dynamics, end user demand or technology in these markets could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
If one or more of the Group's key customers were to default, and the Group would be unable to find alternative buyers or have to sell at a considerably lower price, this could have a significant material adverse effect on the financial results of the Group.
The Group is exposed to fluctuations in sales prices and volume, which could cause its operating results to fluctuate and could have significant adverse effect on the Group's business, prospects, financial results and results of operations.
Where the Group participates in joint ventures, the companies in which the Group has made investments might be dependent on obtaining additional funding. If the credit market conditions worsen, the ability of these companies to obtain the external funding necessary to finance their development would be severely impaired, resulting in an increased demand on the Group to provide the necessary funding. The Group could under such circumstances be forced to either (i) take part in the funding, and be subject to an increased financial exposure, or (ii) not take part in the funding and face dilution of the Group's ownership share, or potentially face a loss of the investment if the joint venture does not succeed in meeting its funding requirement, resulting in either a worsening of the development potential, or in the worst case, bankruptcy. Any of these alternatives would affect the Group's financial position and/or liquidity situation.
Developing appropriate internal organizational structures and management processes on an ongoing basis and the need to hire, integrate and retain an appropriate number of qualified employees represents a particular challenge for the Group. The Group may not succeed in securing the necessary financing for future investments.
Future expansion projects may be significantly affected by cost overruns, schedule delays, technology risks and defects. This could have significant adverse effects on the Group's business, prospects, financial results and results of operations.
The Group currently takes advantage of tax agreements and preferential tax treaties in certain territories. Such agreements and treaties are liable to change and renegotiations, which typically are outside the Group's control, may remove some or all of the benefits the Group currently enjoys. Any changes to these arrangements may, accordingly, have a detrimental effect on the Group's financial position, cash flows and its ability to compete going forward.
There can be no assurance that the Group over the longer term will be able to refinance its debt as it becomes due or obtain additional debt financing on commercially acceptable terms or to access the Group's current debt facilities.
The Company is exposed to interest rate risk through funding and cash management activities. Changes in interest rates affect the estimated fair values of financial assets and liabilities with fixed interest rates. When estimating value in use of other assets, or groups of assets, changes in interest rates may affect the discount rate and consequently the estimated fair values. Changes in interest rates also impacts the competitiveness of solar power installations and thereby the customer's willingness and capability to pay for the Group's products. This could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group operates internationally and is exposed to currency risk arising from commercial transactions and assets and liabilities in currencies other than the entities' functional currencies. The Group sells its products in the global market. The Group's competitors are situated in several geographical locations and might have exposure to a different mix of currencies from the Group. Therefore, the relative development of the Group's main cost currencies and those of its competitors could significantly influence the Group's relative cost position and the estimated fair values of assets and liabilities. This could potentially make the Group's production facilities fundamentally uncompetitive, something that could have a significant adverse effect Group's business, prospects, financial results and results of operations.
The Group will from time to time be involved in disputes and legal or regulatory proceedings. Such disputes and legal or regulatory proceedings may be expensive and time-consuming, and could divert management's attention from the Group's business. Furthermore, legal proceedings could be ruled against the Group and the Group could be required to, inter alia, pay damages or fines, halt its operations, stop the sale of its products, etc., which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group is dependent on a limited number of third party suppliers for key production raw materials, supplies, components and services for its products and any disruption to supply could negatively impact its business significantly.
The failure of a supplier to supply raw materials, components, consumables and/or services in a timely manner, or to supply raw materials, components, consumables and/or services that meet the Group's quality, quantity and cost requirements, could impair the Group's ability to manufacture its products or decrease its costs (including claims), particularly if it is unable to obtain substitute sources of these raw materials, components, consumables and/or services on a timely basis or on terms acceptable to the Group. This could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Company has received a draft decision from the Norwegian Central Tax Office, whereby claimed losses for the fiscal years 2009 through 2011 are challenged. The Company has responded to the draft decisions, and addressing what it sees as misinterpretation of legal doctrine and fallacies in application of factual circumstance. Although Company has received advice to from its tax advisors to the effect that it is more likely than not that the Company's position will prevail, there can be no assurance that the Company will succeed in its challenges. Should the Company's views not ultimately prevail , the Company will be subject to substantial tax claims. Even if the Company is ultimately successful, it may need to fund the value of interim decisions.
The Group's polysilicon manufacturing operations rely on external subcontractors and suppliers of services and goods to varying degrees. This operating model inherently contains a risk to the Group's goodwill and branding. If suppliers fail to meet agreed or generally accepted standards in areas such as environmental compliance, human rights, labor relations and product quality, this could have a significant adverse effect on the Group's business, prospects, financial results and results of operations. The scope of this risk has increased in recent years, as the Group's business has grown in size and extended into many new geographic markets, including the production facility in Singapore and outsourcing of a part of the cell and module manufacturing.
Electricity is a principal component of cost of production. Significant increases in the cost of electricity at the Group's polysilicon production facilities could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
If the Group does not achieve planned yields, its product costs could increase, and product availability would decrease, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations. The Group, like any manufacturer, from time to time receives complaints from customers regarding the quality of its products. Also, product quality has become an increasingly important competitive factor in the market and, the Group is constantly striving to improve the quality of its products. If the Group is not able to achieve satisfactory quality in manufacturing its products or does not continue to develop at the same rate as its competitors, the demand for its products could be adversely affected and existing contracts could be terminated, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group relies upon intellectual property and trade secret laws and contractual restrictions to protect important proprietary rights, and, if these rights are not sufficiently protected, its ability to compete and generate revenue could suffer significantly.
The Group seeks to protect important proprietary manufacturing processes, documentation and other written materials, and other intellectual property primarily under patent, trade secret and copyright laws. It also typically requires employees, consultants and companies that have access to its proprietary information to execute confidentiality agreements. The steps taken by the Group to protect its proprietary information may not be adequate to prevent misappropriation of its technology. In addition, the Group's proprietary rights may not be adequately protected because:
people may not be deterred from misappropriating its technologies despite the existence of laws or contracts prohibiting misappropriation;
policing unauthorized use of the Group's intellectual property is difficult, expensive and time-consuming, and the Group may be unable to determine the extent of any unauthorized use; and
the laws of certain countries in which the Group markets or plans to market its products may offer little or no protection for its proprietary technologies.
Unauthorized copying or other misappropriation of the Group's proprietary technologies could enable third parties to benefit from its technologies without paying for doing so. Any inability to adequately protect its proprietary rights could harm the Group's ability to compete, to generate revenue and to grow its business. This could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group's patent applications may not result in issued patents, and even if they result in issued patents, the patents may not have claims of the scope that the Group seeks. In addition, any issued patents may be challenged, invalidated or declared unenforceable, or a competitor may have filed similar patent applications as the Group in the 18 non-published months prior to the Group's own filing. The Group's present and future patents may provide only limited protection for its technology and may not be sufficient to provide competitive advantages. For example, competitors could be successful in challenging any issued patents or, alternatively, could develop similar or more advantageous technologies on their own or design around the Group's patents. Also, patent protection in certain countries may not be available or may be limited in scope and any patents obtained may not be as readily enforceable as in all jurisdictions, making it difficult for the Group to effectively protect its intellectual property from misuse or infringement by other companies in these countries. Any inability to obtain and enforce intellectual property rights in some countries could have a significant adverse effect on the Group's business, prospects, financial results and results of operations. In addition, given the costs of obtaining patent protection and the sometimes limited potential for protection, the Group may choose not to protect certain innovations that later turn out to be important. There is also a general risk that the Group receives information subject to confidentiality agreements, regarding other parties' know-how and trade secrets in relation to technology which may hinder the Group from development of similar intellectual assets.
The Group may be required to indemnify some of its customers and third party intellectual property providers for certain costs and damages of patent infringement in circumstances where its products are a factor creating the customer's or these third party providers' infringement liability. This practice may subject the Group to significant indemnification claims by its customers and third party providers. The Group cannot guarantee that indemnification claims will not be made or that any such claims will not have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group cannot guarantee that grounds for such claims of infringement does not currently exist or will not occur in the future. Intellectual property litigation is expensive and time consuming, could divert management's attention from the Group's business and could have a material adverse effect on the Group's business, prospects, financial results or results of operations.
The Group's operations are subject to numerous environmental requirements under the laws and regulations of the various jurisdictions in which the Group conducts its business. Such laws and regulations govern, among other matters, air pollution emissions, wastewater discharges, solid and hazardous waste management, and the use, composition, handling, distribution and transportation of hazardous materials. Many of these laws and regulations are becoming increasingly stringent (and may contain "strict liability"), and the cost of compliance with these requirements can be expected to increase over time.
The Group's manufacturing processes in Moses Lake, Washington and Butte, Montana involve manufacturing, processing, storage, use, handling, distribution and transport of silane gas and other substances of an explosive or hazardous nature. Accidents or mishandlings involving these substances could cause severe or critical damage or injury to property and human health. Such an event could result in civil lawsuits and/or regulatory enforcement proceedings, both of which could lead to significant liabilities. Any damage to persons, equipment or property or other disruption of the Group's ability to produce or distribute the Group's products could result in significant additional costs to replace or repair and insure the Group's assets, which could negatively affect the Group's business, prospects, financial results and results of operations. The Group also incurs considerable expenditures to install, maintain and monitor equipment designed to safely manage these volatile substances and to limit and manage air emissions, waste water discharges and solid and hazardous waste generated by the Group's processes.
The Group depends on various discharge permits granted by authorities. From time to time, breaches of the allowed emission limits set out in such permits may occur. If such limits of the relevant permits should be exceeded, this may have a significant effect on the Group's operations and result, as the Group may be ordered to temporarily halt production, be subject to fines and/or be ordered to undertake corrective measures.
The Group cannot predict the impact of new or changed laws or regulations relating to health, safety, the environment or other concerns or changes in the ways that such laws or regulations are administered, interpreted or enforced. The requirements to be met, as well as the technology and length of time available to meet those requirements, continue to develop and change. To the extent that any of these requirements impose substantial costs or constrain the Group's ability to expand or change its processes, the Group's business, prospects, financial results and results of operations could suffer. Any breach of such requirements could in addition result in fines or other substantial costs and/or constraint the Group's ability to operate its production plants, which could have a significant adverse effect on its business, prospects, financial results and results of operations.
The success of the Group depends on qualified executives and employees, in particular certain executive officers of the Group and employees with research and development expertise. The loss of executives, key employees in the area of research and development, or other employees in key positions could have a material adverse effect on the market position and research and development expertise of the Group. Considerable expertise could be lost or access thereto gained by competitors. Post-contractual prohibitions on competition exist for only certain members of the Group's management and despite the existence of such post-contractual prohibitions, no assurance can be given that such prohibitions will be complied with or, if breached, can be enforced effectively. Due to intense competition, there is a risk that qualified employees will be attracted by competitors and that the Group will be unable to find a sufficient number of appropriate new employees. There can be
no assurance that the Group will be successful in retaining these executives and the employees in key positions or in hiring new employees with corresponding qualifications. If the Group fails to do so, it could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
Silane gas is a pyrophoric, i.e. a highly combustible substance which explodes upon contact with air, and is therefore potentially destructive and extremely dangerous if mishandled or in uncontrolled circumstances. The occurrence of a catastrophic event involving silane gas or hydrogen at one of the Group's polysilicon production facilities could threaten, disrupt or destroy a significant portion or all of the Group's polysilicon and silane gas production capacity at such facility for a significant period of time. Additionally, the polysilicon production facilities are highly reliant on electricity. Accordingly, an interruption in the supply of electricity at one of the Group's manufacturing facilities could disrupt a significant portion of the Group's production capacity for a significant period of time. Finally, the occurrence of deliberate industrial sabotage or a terrorist attack at one of the Group's manufacturing facilities could threaten, disrupt or destroy a significant portion of the Group's production capacity for a significant period of time.
Despite insurance coverage, the Group could incur uninsured losses and liabilities arising from such events, including damage to the Group's reputation, and/or suffer substantial losses in operational capacity, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group operates several complex chemical plants, and operates in several countries. There is a risk that incidents can occur resulting in damages not covered by insurance, which could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group renegotiates and renews its insurance policies on a regular basis. Although the Group has not received any indication that the future renewal of its insurance policies will be difficult, the Group cannot guarantee that these renewals can be made on the same terms as existing policies or that the Group will be able to obtain insurance on normal and acceptable terms. If not, such circumstances could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The Group's existing and potential competitors may for various reasons be able to respond more quickly than the Group to changing customer demands or to devote greater resources to the development, promotion and sales of their products. The Group's business relies on sales of its products, and competitors with more diversified product offerings may be better positioned to withstand a decline in the demand for products of the types that the Group offers. It is possible that new competitors or alliances among existing competitors could emerge and rapidly acquire significant market share, which would harm the Group's business. If the Group fails to compete successfully, it could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
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The Group is dependent on advanced computer database and telecommunications technology as well as upon its ability to protect its telecommunications- and information technology systems against damage or system interruptions from human error, natural disasters, telecommunications failures, sabotage or vandalism and computer viruses. A temporary or permanent loss of any of the Group's systems or networks could cause significant disruption to the Group's business operation. The Group cannot guarantee absolute protection against unauthorised attempts to access its servers, its data and information systems, attempts to cause technical malfunctions or interruptions in its IT services or the loss or corruption, as a result of a virus or otherwise, of databases, software, hardware or any other IT equipment. Such damages could have a significant adverse effect on the Group's business, prospects, financial results and results of operations.
The preparation of financial statements in accordance with IFRS requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, as well as the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates. Consolidated financial statements, changes in key assumptions could lead to the recognition of additional impairment losses. Changes in evaluation of the useful lives of assets may change depreciation and amortization going forward. The Group is subject to income taxes in several jurisdictions. Judgment is required in determining the provision for income taxes, and the final outcome may be different from the amounts that were initially recorded. The Group recognizes its best estimate of provisions for liabilities of uncertain amount and timing, including warranty provisions, provisions for restructuring, onerous contracts and asset retirement and restoration obligations. Management believes that the assumptions are reasonable, but they are inherently uncertain and unpredictable and, as a result, future estimates and actual results may differ from the current estimates.
The estimated values in use of the Group's operating assets are sensitive to changes in prices and other key assumptions. There is a risk that the price projections and cost targets that are used in the impairment tests cannot be achieved and that management needs to adjust its judgment of the future developments. This can result in a further reduction of the estimated cash flows and thereby the estimated values in use.
Each potential investor in the Bonds must determine the suitability of that investment in light of its own circumstances. In particular, each potential investor should: (i) have sufficient knowledge and experience to make a meaningful evaluation of the Bonds; (ii) have access to and knowledge of the appropriate analytical tools to evaluate an investment in the Bonds; (iii) have sufficient financial resources and liquidity to bear the risks associated with investment in the Bonds; (iv) understand the terms of the Bonds and the behaviour of the relevant financial markets; and (v) be able to evaluate possible scenarios for economic interest rate and other factors that may affect its investment.
Although the Bonds are secured obligations of the Issuer, there can be no assurance that the value of the assets securing the Bonds and the Issuer's other assets will be sufficient to cover all the outstanding Bonds together with accrued interests and expenses in case of a default and/or if the Issuer goes into liquidation.
If the Group is unable to generate sufficient cash flow from operations in the future to service its debt, the Group may be required to refinance all or a portion of its existing debt, including the bonds, or to obtain additional financing. There can be no assurance that any such refinancing would be possible or that any additional financing could be obtained. Inability to obtain such refinancing or financing may have a material adverse effect on the Group's business, results of operations, financial position and/or cash flow.
The Bonds will be new securities for which currently there is no trading market. There can be no assurance as to: (i) the liquidity of any such market that may develop; (ii) bondholders' ability to sell the Bonds; or (iii) the price at which bondholders would be able to sell the Bonds. If such a market were to exist, the Bonds could trade at prices that may be lower than the principal amount or purchase price, depending on many factors, including prevailing interest rates, the market for similar bonds and the Group's financial performance and outlook. If an active market does not develop or is not maintained, the price and liquidity of the Bonds may be adversely affected.
The terms and conditions of the Bond Terms will provide that the Bonds shall be subject to optional redemption in accordance with the terms and conditions of the Bond Terms. This is likely to limit the market value of the Bonds. It may not be possible for bondholders to reinvest proceeds at an effective interest rate as high as the interest rate on the Bonds.
Upon the occurrence of a change of control event, de-listing event, a listing failure event or a material asset sale event, each individual bondholder shall have a right to require that the Issuer purchases all or some of the Bonds held by that Bondholder, as further set out in the Bond Terms. However, it is possible that the Issuer may not have sufficient funds or be able to obtain third-party financing to make the required redemption of bonds, resulting in an event of default under the Bonds.
While the Bonds are freely transferable and may be pledged, any Bondholder may be subject to purchase or transfer restrictions with regard to the Bonds, as applicable from time to time under local laws to which a Bondholder may be subject (due e.g. to its nationality, its residency, its registered address, its place(s) for doing business or similar), including, but not limited to, specific transfer restrictions applicable to Bondholders located in the United Kingdom and the United States. The Group is relying upon exemptions from registration under the U.S. Securities Act, applicable state securities laws and UK and EU securities laws in the placement of the Bonds. As a result, in the future the Bonds may be transferred or resold only in a transaction registered under or exempt from the registration requirements of such legislation. Consequently, investors may not be able to sell their Bonds at their preferred time or price. The Issuer cannot assure investors as to the future liquidity of the Bonds and as a result, investors bear the financial risk of their investment in the Bonds, and each Bondholder must ensure compliance with applicable local laws and regulations at its own cost and expense.
The Bond Terms governing the Bonds will contain provisions for calling meetings of Bondholders. These provisions permit defined majorities to make decisions affecting and binding all Bondholders. The trustee may, without the consent of the bondholders, agree to certain modifications of the Bond Terms and other finance documents which, in the opinion of the trustee, are proper to make.
The Bonds will be issued by the Issuer, which is incorporated under the laws of the Kingdom of Norway. Many of the Issuer's and the Group's members of senior management and Directors and executives currently reside outside the United States. As a result, prospective investors may be unable to effect service of process within the United States, or to recover on judgments of U.S. courts in any civil proceedings under the U.S. federal securities laws.
If the cash flow and capital resources are insufficient to fund the debt obligations, the Group may be forced to sell assets, seek additional equity or debt capital or restructure its debt. In addition, any failure to make scheduled payments of interest and principal on outstanding indebtedness is likely to result in a reduction of credit rating, which could harm the ability to incur additional indebtedness on acceptable terms.
The terms and conditions of the Bonds are governed by Norwegian law in effect as at the date of this presentation. No assurance can be given as to the impact of any possible judicial decision or change to such laws or administrative practices after the date of this presentation.
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