REC Silicon Annual Report 2019

41 Notes to the consolidated financial statements, REC Silicon Group REC Silicon Annual Report 2019 The group has reviewed all of the lease arrangements and at January 1, 2019 recognized right-of-use assets of USD 28.9million and lease liabilities of USD 28.9million (See note 4). Short-term and low-value leases will continue to be recognized as expense in profit or loss when incurred. The group’s activities as a lessor are not material and hence the group does not expect any significant impact on the financial statements. FINANCIAL RISK MANAGEMENT 3.1 FINANCIAL RISK FACTORS The Group’s activities expose it to a variety of financial risks, including currency risk, interest-rate risk, liquidity risk, credit risk, refinancing risk and others. The goals for the Group finance policy and the treasury operations are primarily to minimize the risk of financial distress, secure long- term funding, manage currency risk of expected future net cash flows, and manage interest rate risk. The Company’s finance policy sets the framework and limits for hedging activities in the Group. It defines risk management objectives, responsibilities and operational requirements. The disclosures that are required regarding financial risks below focus on the risks that arise fromfinancial instruments and how they have beenmanaged. Derivative financial instruments may be used to reduce risks fromcommercial transactions; the existence of derivative financial instruments exposes the Company to additional risks. (A) Currency risk The Company operates internationally and is exposed to currency risk. At December 31, 2019, the Group’s working capital is almost exclusively in USD, equity is in NOK, and debt is in NOK and USD. Currency risk arises from transactions in currencies other than the Group’s reporting currency, the potential tax liability denominated in NOK, and borrowings denominated in NOK. Currency risk relates primarily to the sufficiency of net positive cash flows in USD to meet liabilities denominated in NOK. Net cash flow is defined as the consolidated external cash flows of the Group. The Group’s policy provides the ability to hedge external net cash flows with a maximum time horizon of 24months. The purpose is to reduce the currency risk of expected future net cash flows. The Company manages currency risk on an overall level. At December 31, 2019 and 2018, the Group did not hold any derivative financial instruments related to mitigating currency risks. (B) Credit risk Credit risk is the risk of loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligation and is primarily related to trade receivables. The Group maintains policies to ensure that credit is extended to customers with appropriate liquidity and credit histories in combination with requiring guarantees when appropriate. (C) Liquidity risk and going concern Liquidity risk is measured by subtracting the Group’s liabilities from cash considering historic and anticipated operating results. Liquidity risk management requires maintaining sufficient available cash or access to capital markets to compensate for anticipated volatility in operating cash flows or to fund additional investments. Liquidity risk is impacted by changes in market conditions, potential claims against the Company, and uncertainty associated with critical judgements used to arrive at accounting estimates. In addition, the Company’s access to capital markets may be impacted by overall market conditions (notes 4, 17, and 30). The Company does not have any scheduled repayments of borrowings in 2020. The indemnification loan was callable in February 2016. The Company received a claim dated December 16, 2019 under the indemnification loan. According to the letter, the claim is based on an assumption that the loss will exceed the declared amount when the estates are concluded. However, the relevant bankruptcy estates have not yet been concluded. Therefore, the amount of loss suffered by the claimant as a result of the bankruptcy cannot be calculated at this time. Given this and other uncertainties concerning the basis for the claim, the Company has responded by denying the claim. The status and timing of the indemnification loan is subject to uncertainty. In addition, the minimum liquidity required by the covenants of the USD Senior Secured Bond (note 17) is USD 15million. Current market conditions and the solar trade dispute between the United States and China have forced the curtailment of production at the FBR facility in Moses Lake, Washington. Management and the Board of Directors have placed the FBR plant in a long-term shutdown to reduce spending and to maintain the Company’s liquidity. This shutdown of the FBR facility is intended to retain the liquidity necessary to maintain operations at the semiconductor materials facility in Butte, Montana. The timing and length of the shutdown are dependent on whether REC Silicon is able to regain 3