REC Silicon Annual Report 2019

42 Notes to the consolidated financial statements, REC Silicon Group REC Silicon Annual Report 2019 access to the Chinese market for polysilicon or other significant positive developments in solar grade polysilicon markets. Additional impairments and provisions would be required if the FBR facility is not restarted. In addition, general economic conditions and the effects of the trade war between China and the United States is having an adverse impact on markets served by the semiconductor materials facility in Butte, Montana. In response, the Company has implemented plans to reduce spending and activity levels to conserve cash. The Group reported consolidated equity of USD 0.8million at December 31, 2019. The low equity level reported by the consolidated group is caused by the impairment of the Solar Materials segment (see note 3 fixed assets) and the relatively low carrying of operating assets in the Semiconductor Materials segment. However, the Company reported net equity of USD 148.2 million in the financial statements of the parent company, REC Silicon ASA, at December 31, 2019. The parent company equity consists of share capital of USD 33.9million and other equity and retained earnings of USD 114.3million. The Board of Directors considers the equity level of the Company adequate for the Company’s current situation. The Board of Directors will monitor equity levels and take appropriate action as necessary. The Board of Directors alsomakes reference to the risk factors discussed in this report. Specifically, the sections on the Company’s liquidity risk and the impacts of tariffs imposed by China on US polysilicon which create significant uncertainty for the Group, its customers, certain other competitors, and the industry as a whole. In addition, if conditions surrounding the call of the indemnification loan or the outcome of tax examinations are negative (See note 31 to the consolidated financial statements), the Company will not have the liquidity necessary tomeet its financial obligations and continue to support theworking capital requirements of ongoing operations. The economic impact of the current global response to the COVID-19 (novel coronavirus) outbreak are expected to adversely impact the Company’s liquidity risk. The impacts of the COVID-19 outbreak are dependent upon the extent and duration of the outbreak. If markets served by the Company are impacted further and/or do not recover quickly, the Company’s liquidity risk will increase further. In addition, if the impact of COVID-19 lasts for an extended period of time and/or capital markets are substantially degraded, the Company’s ability to raise additional capital and sell assets may be adversely affected. The risk factors described above indicate that material uncertainty exists and cast significant doubt on the Company’s ability to continue as a going concern. Management and the Board of Directors have identified initiatives to reduce spending and to improve the efficiency of the Company’s operations. If necessary, the Company plans to sell assets, issue debt, and/or issue additional equity to obtain additional capital. The Board of Directors believes that these initiatives and plans are realistic and are sufficient to support assumption that the Company has the ability to meet its financial obligations and continue to support the working capital requirements of ongoing operations for the next 12months. Accordingly, the Board of Directors confirms that the Financial Statements have been prepared under the assumption that the Company is a going concern and that this assumption is appropriate at the date of the accounts. (D) Interest rate risk Changes in market interest rates affect the fair value of assets and liabilities or the variability in cash payments. The Group is exposed to interest rate risk through funding and cash management activities, primarily in REC Silicon ASA. Cash in bank accounts and liabilities have primarily carried variable interest rates. The Company has borrowings through bonds and indemnification loans. Interest income and interest expense in the statement of income, as well as interest receipts and payments, are influenced by interest rate changes for financial instruments that carry variable interest rates. See note 30 for interest rate sensitivity. (E) Hedging of risk related to supply of rawmaterial/commodities When the Group is exposed to changes in the total costs from specific input factors it may hedge the associated risk. As of year- end 2019 and 2018, no hedges were in place, except certain forward energy purchase contracts. 3.2 FAIR VALUE ESTIMATION Fair value estimation is discussed in note 30. 3.3 CAPITAL STRUCTURE AND FINANCING In determining the appropriate capital structure for the Group, various factors have been considered. These include risks associated with the Group’s business profile and the fact that the polysilicon production has high capital intensity. The Group’s goal is to maintain sufficient capital to maintain current operating cash flow requirements and to meet debt service obligations. Taking into account market volatility and risk related to future cash flows, the Group aims to maintain a capital structure with a high ratio of equity funding.