REC Silicon ASA

Good morning, my name is Tor Vind and I'm the CEO of REC Silicon. We would like to welcome you to the presentation of the first quarter in 2021. We are all in the US in different locations, so hopefully the technology will be working. Together with me, I have James May, our CFO. Kurt Levins, who is responsible for our Butte operations. And he is going to talk about the silicon gas semiconductor update. Also Chuck Sutton, responsible for our solar market. we'll give you an update on the PV. I will then cover shortly the ULIN, give you some update on the battery side, and also how we see next quarter for REC silicon. Next. The highlights for this quarter is basically that the revenue came in at $28.1 million. And we have again a positive EBITDA of $4 million. The cash balance is by the end of the quarter, 131.5 million. And that's a cash decrease from the previous quarter of 3.4 million. As you know, we mainly make our income today from our semiconductor business. In Butte, we sold silicon gas of 781 metric tons this quarter, somewhat lower than what we had in Q4, but that's mainly due to the fact that Q1 normally is a weaker quarter than what we will have going forward in 2021. We sold 137 metric tons of semiconductor-grade polysilicon. And we then got the approval from our board to invest approximately 8 million in Butte. When we raised the capital back in October, we said that some of these capitals should be used to take business opportunities. We have been not able to pursue lately. And we have now then decided to invest in a DCS expansion. And the completion will be approximately 18 months from today. And we estimate that the payback time will be 2.5 years on this expansion. On the Moses Lake facility, as you know, there is no activity, no production in Moses Lake. But we see that in the marketplace, it is a very strong demand growth coming on. And Chuck will talk more about that. And we continue to work hard together with other companies and also with the US government to create a non-Chinese low carbon footprint solar value chain. And Chuck will give you more information about that. On the battery side, we continue the discussions with silicon anode companies concerning a silent supply contract in Moses Lake. We pursue discussions with several of these companies for the moment. And also we, or one of our a potential partner that started a pilot making silicon atom material in Moses Lake. So this is the highlight from this quarter. And then I hand over to James to present the financial review.

Good morning. Next slide, please. Story indicated the revenues for the first quarter were $28.1 million, which represents a decrease of approximately 22% compared to the $36 million that we saw during the fourth quarter of 2020. This decrease can be attributed to lower volumes, primarily due to this normal seasonality in our shipments. However, compared to the first quarter of 2020, the year-ago quarter, revenues increased by almost 14%, as we are now seeing a sustained recovery from the COVID-19 pandemic, as well as increasing demand from the semiconductor industry. Total EBITDA for the first quarter was $4 million compared to $1.9 million for the fourth quarter. And again, the increase, or in this instance, the increase in EBITDA can primarily be attributed to lower expenses in the solar material segment and in others. Compared to Q1 of 2020, EBITDA increased by approximately $3 million, or a factor of nearly three, due to higher silicon gas sales volume, higher semiconductor-grade polysilicon sales volume, and more importantly, higher production volumes, which is resulting in increases in capacity utilization and therefore increases in efficiency of the butte operation. Next slide, please. As I indicated on the last slide, revenues for the Butte facility declined due to lower sales volumes. Semiconductor polysilicon sales volumes decreased from 250 metric tons in the prior quarter to 137 metric tons, and silicon gas sales volumes decreased from 881 in the prior quarter to 781 in the current quarter. Decrease, again, is due to normal annual seasonality of shipments. However, if you look at the prior year quarter, Q1 of 2020, you can see the overall trend of increasing revenues over the last several quarters. A few more minutes, Kurt is going to provide a great deal more detail with respect to the market developments and outlook for the Butte Montana facility. EBITDA contributed by the semiconductor segment was $10.8 million for the first quarter of 2021. As you can see on the slide, the profitability of the Butte facility is trending upward, consistent with the sales trend due to higher volumes and increasing efficiency associated with higher production volumes. Next slide, please. Revenues within the solar material segment were only $100,000 and represent small sales from the remaining inventories of granular polysilicon. During the first quarter, net expense was $1.9 million in the solar material segment and $4.9 million in other. The decrease in net expense compared to the fourth quarter of 2020 was due to changes in estimates to arrive at liabilities at year end, which resulted in higher expenses during the fourth quarter of 2020. Next slide, please. Story indicated cash balances decreased by $3.4 million. during the first quarter. Cash outflows from operations were $1.3 million and consisted of inflows due to EBITDA of 4 million and a currency gain of $400,000 due to the effects of a weaker US dollar. These were offset by a $3.4 million increase in working capital, which was driven by a $7.6 million increase in inventories, $700,000 increase in trade receivables, which was offset by a $4.8 million increase in accounts payable and accrued liabilities. Other outflows included interest payments of $2.2 million, which was associated with the IFRS 16 long-term leases and a $200,000 contribution to the defined benefit contribution plan or defined benefit pension plan in the United States. Cash outflows from investing activities were $1.7 million and were a result of capital expenditures only. And cash outflows from financing activities were 500,000. And this was a result of the payment of long-term lease liabilities only. Again, total cash balances decreased by $3.4 million during the quarter to $131.5 million on March 31st. Next slide, please. Our nominal debt decreased by 400,000 during the quarter to 220.3 million. The change is due to a net decrease in lease liabilities of 400,000, offset by a $100,000 increase in the indemnification loan due to changes in currency rates. Nominal net debt increased by $3.1 million to $88.8 million during the quarter, And this was due to the decrease in cash of 3.4 million offset by the decrease in nominal debt of 400,000 that we just spoke of. Now turn the presentation over to Curt Levins to discuss market developments and business prospects for our Butte, Montana facility. Thank you.

Good morning. First, I'd like to talk about our semiconductor polysilicon segment and what we see in terms of, you've heard several times before, repeated from James and Tor, the seasonality effect. The fact is year after year, we see this same effect due to different customers, order patterns, issues around ends of fiscal years, weather, and even holiday periods. What's important to note is that when we look at this relative to last year, it's much higher. And on polysilicon, there was less COVID effect due to the forward nature of agreements for supply in polysilicon. We are seeing increased inventory drawdown in the semiconductor wafer space and polyspace. And that is a result of the very strong demand and use. But it's also important to note that while utilization is going towards a more full situation, without further expansion, the opportunity for very large increments is going to be, in terms of more volume, is going to be somewhat muted. Also want to note that we are on track for three key qualifications of our material, which will result in our volumes gradually getting phased into production volumes at the customer in the second half. Next. In silicon gases, again, we see similar effect in the first quarter. However, last year there was some COVID effect to our Q1 results. In this quarter, it's important to note that the underlying demand was very strong. However, there were some cycle or say some logistics challenges that we ran into and worked through. So sufficient enough that we were able to make timely deliveries of our products. However, There were opportunities that were more timing related, meaning that we had to move material into subsequent periods as a result of bookings and the global freight situation. We continue to monitor that and have thus far been able to manage it with our channel partners and our channel partners inventory, as well as end users inventory. overseas so that it's not something that is of concern at this point. Our advanced silicon gases are increasing in terms of demand. Advanced silicon gases make up a segment of our silicon gases business. The main driver of that increase is due to device technology advancement. So as these new processes come online, as you do hear about new fabs being built, there is a fair percent of those that are being built with the most advanced technology. And that's using our other gases that we sell specifically for those applications. We are currently sold out. We've de-bottlenecked our process and we're continuously de-bottlenecking as well as engaging in process improvements to increase our volume. And our current expectation is to continually increase shipment level every quarter through the remainder of this year. Next. so to to put a finer point on it in terms of how we see things evolving in the semiconductor polysilicon space for us we've done is provided some customer indicative forecasts to give you a viewpoint in terms of what we talked about when we say growing volumes through the remainder of the quarters in this particular case you can see what q1 actual is And then you can see a low case and a high case based upon feedback from our key customers in terms of shipments for the remaining year. It, of course, will be dependent upon how fast the customers draw down inventory, where we end up in that range, as well as dependent upon our final qualification and some of those key customers that I had already noted and the timing around that. However, above all shipments are expected to increase and above and beyond that. We're going to start need to look at new wafer capacity and fabrication capacity that is all in the works. However, it takes time. Next. In terms of Silicon gases, we also see a trend towards increasing shipments through the remaining quarters of this year. Main consuming segments are currently increasing. That means the semiconductor. The flat panel display as well as the PV segments are all very strong right now. The. Quarterly shipments that we are showing at this case is includes all of our. Silicon gases together. You will note as well that. There may be some effect as a result of. Timing on new customer facilities, startups and there could be some minor adjustments and movements due to the global logistic bottlenecks. All things that we are in fact. Working around and. Making sure that we keep on top of next. We talked about DCS before when we had several quarters ago when we talked about business opportunities that we had. We were able to get approval for one of those business opportunities, and that's for dichlorosilane. This is part of our portfolio. Specifically, demand for this material is driven by leading edge semiconductor fabrication. and the new investments and new processes going in. This has a compounded annual growth rate that is above underlying normal semiconductor materials rate. And most importantly, we have advantages in terms of our offer to the customers in this particular product, as well as advantages due to our scale and process that enable a world-class cost position. We are currently at full capacity in our existing operation. So this new investment is going to allow us to increase our production capacity by more than two times and nearly double the current packaging capability. In addition, the design basis is going to allow for a more rapid incremental expansions in the future as the market continues to grow. So we will not have to take as long to bring on the capacity. The product quality is designed for the next generation processes and requirements. And currently it's being very well received from in terms of discussions around getting this going as quick as possible from key customers and end users. And as Tor noted, I believe that the payback right now is estimated to be two and a half years. Thank you. With that, I'll turn it over to Chuck.