REC Silicon ASA

Good morning and welcome to the presentation of the fourth quarter for REC Silicon. We are all today, I'm Tore Torvind, the president and CEO of REC Silicon, and we are all today in the US. So I have brought my colleagues. to this presentation, so you can listen to their view. These are mainly the people responsible for the different areas we are going to present today. So let me start. Let's say I will present the highlights. James May, Financial Reviews. Can you go back one? Curt Levins, responsible for our Butte operations. uh we'll take silicon gas francine sullivan and chuck sutton will give an update on the pv market i will come back with a short update on yulin and francine will then cover the battery update next the highlights for fourth quarter we had the revenue of 36 million dollars and a positive ebitda of 1.9 The cash balance is today 134.9. And we have a cash increase of 99 million, mainly due to the private placement of 1 billion Norwegian krona, which was done in October. And the cash outflow from operating activities was $2.8 million. The very positive development we see on the silent silicon gas volume It was 881 metric tonne compared to 746 in Q3. And this is one of the strongest quarter we have on silicon gas. And Kurt Levins will cover all the details there. A minor reduction in the gas price of some 2.8%. Also on the polysilicon side, we are very satisfied with the numbers. and we sold 250 metric tons of high-quality polysilicon to the semiconductor industry. I think we have already covered the private placement of equity in October, but that is, let's say, what was in this quarter. On the solar material, we are not into this market, as you know, due to the fact that we have still this trade war going on between China and the U.S., But we see now that there is definitely a very good balance between the demand and supply of polysilicon. And it is also expected that the demand for PV will continue to grow. And that will definitely then need more polysilicon to be brought online in the near future. Also, we will give an update on the battery development. There is a high level of interest within those who are working with the silicon anode side. And we are talking to several companies. And as you remember, we have an MOU with G14. And Francine will also cover this part of it. On the Jolint JVE, we have decided to write down the investment to zero in our book. uh it is very difficult for us to follow up due to the fact that i have not been to china or no one has been to china now for more than a year and it is very difficult to communicate with with our partner in china and we get the limited insight in their activity what we know is that we know the production levels we know that we have very high quality FBR product produced. In fact, we have also received some of these products here in the US. And we also see that we have achieved the design capacities for this facility. But due to the fact that we have limited insight and influence, we have decided to write down our investment in China to Xero. And James will cover that in more detail. Then I hand over to James for the financial update.

Thank you. Good morning. Total revenues for the fourth quarter were $36 million, which represents an increase of approximately 19% compared to $30.3 million in the prior quarter. This increase in revenues, as Tori indicated, can be attributed to strong sales performance in the semiconductor materials segment, which I'll discuss in a little more detail in a few moments. Total EBITDA for the quarter was $1.9 million compared to $17.9 for the third quarter. Recall that during the third quarter, the results included a $16 million non-cash adjustment due to the settlement of the property tax dispute, which leaves $1.9 million of clean EBITDA in the third quarter, which is the same as the EBITDA that we're reporting for the fourth quarter. This represents the fourth straight quarter of positive EBITDA the company has reported and results in a positive EBITDA of $23.8 million for the full year. This was achieved in spite of a very challenging business environment and was a result of reduced spending in the solar materials segment, and more importantly, due to continued strong results in the semiconductor materials segment, which is highlighted on the next slide. Next slide. As you can see, Revenues in the semiconductor and materials segment have increased steadily throughout the year from a low in the first quarter due to seasonality and uncertainty caused by the COVID-19 pandemic to $35.9 million in the current quarter. This increase in revenues compared to the third quarter is a result of higher sales volumes of both silicon gases and semiconductor-grade polysilicon. While total polysilicon sales volumes within the segment decreased from 401 metric tons during the third quarter to 338 metric tons in the fourth quarter, sales volumes of the semiconductor grades of polysilicon increased from 174 to 250 metric tons. This resulted in an overall increase of 37% in polysilicon revenues compared to the prior quarter. Overall, average prices for polysilicon sold increased substantially due to a high mix of semiconductor polysilicon compared to volumes of solar-grade polysilicon. Average prices for semiconductor-grade polysilicon declined slightly due to mix as well. However, prices within the specific grades of semiconductor polysilicon increased from 5% to 15% during the quarter and compared to last quarter. Silicon gas sales volumes increased from 746 metric tons to 881 metric tons, while average silane prices declined by 2.8%. EBITDA contributed by the semiconductor material segment was $11.7 million for the fourth quarter, compared to 7.3 in the prior quarter. So I've already indicated the increase in earnings can be attributed to higher sales volumes. Next slide. Revenues within the solar material segment were $100,000 and represented small sales from the remaining granular polysilicon inventories. EBITDA contributed by the solar material segment was a net expanse of $2.8 million, which is in line with prior quarters excluding items of other income, such as the $16 million that we've already discussed that occurred in the third quarter within this segment. Other eliminations were a net cost of $7 million and were $3 million higher than the previous quarter due to changes in estimates to arrive at accrued liabilities at year-end. Next slide. Cash balance, as the store indicated, increased by $99 million during the quarter. As we've indicated, the main reason behind this large increase is the private placement of equity that was completed in October. Our cash flows from operations Cash outflows from operations were $2.8 million and consisted of inflows of $1.9 million from EBITDA, $400,000 from a decrease in working capital invested, and these were offset by interest payments of $8.5 million and a $1.1 million contribution to the defined benefit pension plan in the United States. In addition, we've benefited from a currency gain of approximately $4.6 million due to the impact of a weaker U.S. dollar relative to the NOK on large cash balances denominated in NOK following the private placement. The majority of these proceeds from the private placement have since been converted to U.S. dollars to solidify this gain in terms of U.S. dollars. Cash outflows from investing activities were $800,000 in consistent capital expenditures of $400,000 and an increase in restricted cash balances of $400,000. Cash flows from financing activities were $102 million. This was the private placement of $105 million offset by payments of the lease liabilities of $500,000 and the payment of principal on the property tax note of $2.8 million. Total cash balance has increased by $99 million to a balance of $134.9 million on December 31st of 2020. Next slide. Nominal debt decreased by $800,000 during the quarter to $220.6 million. Change in nominal debt is due to $400,000 repayment of lease liabilities. Recall that on the last slide, I said there was a $500,000 change. There was also an increase in lease liabilities due to modifications of leases. The $2.8 million decrease in the property tax note, and these were offset by a $2.3 million increase in the indemnity loan due to the change in currency. Nominal debt decreased by $99.9 million to $85.7 million. This was the $800,000 change that I just discussed plus the $99 million increase in cash. With respect to the indemnification loan, claim was filed in the district court here in Norway on November 13th of 2020. RNC intends to defend this cause of action and the status and the timing of the indemnification loan continues to be subject to uncertainty. I will now yield the presentation to Curt Levins to speak on the semiconductor materials business.

Okay, please advance it. So first, I'd like to talk about our electronic grade polysilicon performance in Q4 of last year, what the primary drivers were for that. As had been mentioned before, the market for semiconductor devices has been tightening. And to some degree, there's been some headwinds as a result of inventory that had built previous to that in both the polysilicon and the wafer space. However, as a result of continued tightening of demand for the end user devices, we've seen that there is starting to be higher utilization in Q1 than is what is historical. And as a result, customers were preparing for operations to continue during the Lunar New Year, which gave us some buoyancy in terms of our shipments. It was, in fact, the strongest shipment quarter we've had since 2018. For 2021, the demand picture is starting to firm up. Q1 will be seasonally lower, as it is every quarter, every year, I should say. And there's strong potential for quarters to continue to improve throughout the year in terms of our shipments. In addition to that, customers are considering increased demand scenarios, which in fact are mainly geared towards the second half of the year, depending upon how long the continued tightness in the market lasts. Next. Silicon gas shipments were also up in Q4. One thing to note between the silicon gas supply chain and the polysilicon supply chain is that when it's functioning normally in the silicon gas supply chain, there's less inventory. So therefore the response mechanism between demand signal and our ability to fulfill it is in general much quicker. And we started to see that because semiconductor remained at a high utilization through Q4 and surprisingly flat panel displayed it as well. That it started in Q3, it had started in late Q2 and sustained through Q3. and surprised everyone by continuing on through Q4. So that also gave some increase in terms of our shipments. One thing to note is just a point of the ongoing challenges that were wrought by COVID that after things recovered and with COVID mitigations in place, we are finding that the cycle times logistically are starting to increase on ocean freight. It's something that we're monitoring and have developed plans to mitigate any effects. Currently, Q1 is firming up to be stronger than a normal Q1 period in terms of shipments. I'd also like to point out that silicon gases, as we define them, also include several other gases They're specifically meant for advanced process nodes and integrated circuits. And the demand for these continue to increase. These are products such as DCS, MCS, disilane. And not only do they continue to increase to service these advanced nodes and investments, but they're increasing in share of our overall shipments as well. We expect that trend to continue. over the midterm to longer term of five years. And we will need additional capacity to continue to meet our customer growth. Next. So I've talked generically about our products. We always report them as electronic grade polysilicon or semiconductor polysilicon and silicon gas products. Well, what does that mean? Well, for us, it all starts with silane from there. We make a solid form of silicon. Specifically in our case, float-zone polysilicon is our target. We also produce some electronic-grade high-purity Tchaikovsky or CZ silicon. Gas-wise, we sell the silane into the marketplace, as well as disilane, which is the derivative of silane, and our purified monochlorosine and dichlorosilane, which are intermediates in our production process. So when we talk about silicon gas products, those are silicon gas products. When we talk about polysilicon electronic grade, those are the products. Next. And how are these products applied? Well, our float zone polysilicon goes into float zoning. It's a process to make a single crystal ingot. And its primary target is the power semiconductor market. This is a large driver and it's utilized in high voltage distribution systems, IGBTs or transistors for electric vehicles use high purity float zone, valve stations for large distribution systems, and on and on and on. Czochralski silicon is the workhorse of the semiconductor industry. It's used for just about every form of electronics that you would imagine that go into your computers, your smartphones. This is the traditional semiconductor wafer that then the devices are built upon. Silane is used in chemical vapor deposition, which means that It's being deposited in very thin layers on top of the wafer in order to build the device, the microprocessor, the memory device, whatever sort of device it may be. Dichlorosilane, monochlorosilane, disilane, also used in chemical vapor deposition, primarily targeted advanced semiconductor processes, but utilized in some standard semiconductor processes as well. Next. So also, I just thought it would be good to show you where our products are used in the entire semiconductor value chain. This is a very simple illustration, but our polished silicon is used in the front end to make the ingots that the wafers come out of. The wafers are then utilized on the front end of the fab where they build the device. And that's where they use the gases in a deposition. It's successive steps of lithography, etching, deposition, repeat, repeat, repeat as they build these transistors or other sort of devices. as is required by the integrated circuit. Next. So a little bit about where we are right now and how that translates to the midterm for us. First, the chart on the left demonstrates quarterly IC unit volume shipment. And you can see that it reached a high. back in Q3 of 2018, at which point it started steadily down. And this is what the headwind we've been fighting for the past two years, is that it went down and then before it was able to tighten up, we had to go through COVID. Now it's returned to a trend line that is portraying the potential for continued growth over the next few years. But this is just where we're at right now for this year. What's driving that? Aside from the issues around the temporary supply situation and then the COVID related situation, it's about content in electronic systems. Semiconductor content in electronic systems has grown and is forecasted to continue to grow. So what that translates into on the next slide next is that overall semiconductor unit growth is expected to grow 6% compounded annually growth growth rate over the next five years. And semiconductor unit growth is primarily driven by wafer throughputs. Yes, there's other factors as well. But wafer throughputs are easily more than 80% of the driving factor. And what this means is that the more wafers that go through the process, the more polysilicon they need to make those wafers, the more wafer starts there are, the more deposition there is on those wafers. So it drives both parts of that business for us. Next, how we've worked to make sure that we're aligned to be able to take care and to take a good strong position going into this growth curve has been to make sure that we are supplying the top manufacturers in the semiconductor industry. all of the 100% of the top 15 are supplied by us with our gases. And why that's important is because in the industry now, the largest capacities and the largest investments in new capacities are coming from the concentrated players at the top. In addition to that, investment in new advanced processes are also coming from the players at top. So our alignment with them is key. Next. And on top of that, no matter where they locate, we have the ability to supply them. If you looked at over on the far left, when you see these regions by installed capacity, we have number one market share to supply silane in all of the regions except for one. And in that region, we're number two. Next. I mentioned about advanced semiconductor processes as well, and this is what's driving those other gases in our portfolio. It also drives silane. In the advanced semiconductor processes, some of them, silane is used up to 30% more per square inch of silicon than it is in more traditional processes. But more importantly, on our other gases, dichlorosilane, monochlorosilane, disilane. That growth is driven by adoption of advanced processes, and when you look at the future over the next five years, the movement towards advanced processes, those nodes that are 20 nanometers and less, is going to be greater than the growth for the traditional processes. We've positioned ourselves with the right customers, we're in the right areas, and we have the right portfolio to take advantage of this. Thank you. Next.