Elkem Company Overview and Financials

Risk factors (V/VIII) 2.1.18 Elkem receives each year substantial amounts under the EU's CO2 quotas compensation scheme which may be phased out Carbon dioxide is one of the main emissions resulting from Elkem's production operations. Elkem's European operations are therefore subject to the EU's CO2 Emissions Trading Scheme (the "CO2 Trading Scheme"), which was established as part of the EU's attempts to control greenhouse gas emissions and global warming. Under the scheme, industrial emitters of CO2 are obliged to surrender allowances to the authorities corresponding to their emissions on an annual basis. Depending on their industry, most companies are awarded a significant portion of their allowances for free to avoid placing them at an undue competitive disadvantage as compared to producers outside of Europe. Elkem, which came under the ambit of the CO2 Trading Scheme in 2013, has been awarded free allowances on an annual basis for its emissions, and purchased allowances in the market to cover the remainder of its emissions in each year. The amount of free allowances as government grants is expected to decrease gradually until the current phase of the CO2 Trading Scheme ends. In the future, Elkem may not receive such allowances, or receive lower allowances than previous years, which may result in increased costs pertaining to CO2 allowances, and have a material negative cost impact on Elkem. 2.1.19 Elkem is exposed to significant risks in relation to compliance with anti-corruption laws and regulations and economic sanctions programs As a result of doing business in foreign countries, Elkem is exposed to a risk of violating anti-corruption laws and sanctions regulations applicable in those countries where Elkem, its partners or its agents operate. Some of the international locations in which the Group operates lack a developed legal system and have high levels of corruption. Elkem's continued expansion and worldwide operations, including in developing countries, its development of joint venture relationships worldwide and the employment of local agents in the countries in which it operates increases the risk of violations of anti-corruption laws, OFAC or similar laws. Violations of anti-corruption laws and sanctions regulations are punishable by civil penalties, including fines, denial of export privileges, injunctions, asset seizures, debarment from government contracts (and termination of existing contracts) and revocations or restrictions of licenses, as well as criminal fines and imprisonment. In addition, any major violations could have a significant impact on Elkem's reputation and consequently on its ability to win future business. 2.1.20 Elkem relies on the proper functioning of its computer and data processing systems that must be regularly upgraded or replaced, and a larger-scale malfunction could result in material and adverse disruptions to its business Elkem relies primarily on globally and locally functioning information technology systems across its operations, including for management, supply chain and financial information and various other processes and transactions. This applies particularly to the Group's global enterprise resource planning system, which electronically captures and controls group business and financial transactions, as well as to the operating systems at Elkem's plants. Elkem's ability to effectively manage its business depends on the security, reliability and capacity of these systems. Information technology system failures, network disruptions or breaches of security could materially disrupt its operations, cause material delays or cancellations of customer orders or impede the production or shipment of products, processing of transactions or reporting of financial results. An attack on or other problems with the Group's systems could also result in the disclosure of proprietary information about its business or confidential information concerning its customers or employees, which could result in significant damage to its business and its reputation. Any breach of the Group's security measures could result in unauthorised access to and misappropriation of its information, corruption of data or disruption of operations or transactions, any of which could materially adversely affect the Group's business, financial condition, results of operations and prospects. 2.1.21 Production at Elkem's facilities may be subject to planned and unplanned production interruptions, which could have a material adverse effect on its ability to produce products for sale or maintain business operations and therefore, may materially adversely affect its business Elkem operates multiple and complex technical processes, which may be subject to breakdowns, government shut-downs or suspensions, inefficiencies, operational human errors, sabotage and technical failures that may interrupt production operations or delay a resumption of production following a plant modification or a turnaround. Any material disruption at any of the Group's production facilities, in particular the Group's facilities with large production capacity, could impair its ability to use its facilities, have a material impact on its ability to produce products for sale or maintain business operations. Furthermore, the Group may at times enter into product swap agreements and similar arrangements with other producers to adequately supply customers. The operations of such producers are also subject to unplanned disruptions that may impact the Group's relationship with its customers. Disruptions at one or more of Elkem's production facilities or other facilities or infrastructure upon which it relies may also interrupt production further up or down the production chain and lead to a decrease in volumes and sales, potential loss of customers and damage claims by customers. Adequate spare parts and maintenance services may not be available in a timely manner to secure the continuation of the operations, and alternative facilities with sufficient capacity or capabilities may not be available Material disruptions at any of Elkem's production facilities could cause the Group's customer to seek alternative supply and materially adversely affect its business, financial condition, results of operations and prospects. 2.1.22 Losses caused by disruptions to the supply of power could have a negative impact on Elkem's operations and profitability Large amounts of electricity are used to produce silicon materials and foundry alloys and the Group's operations are heavily dependent upon a reliable supply of electrical power. Losses may occur due to a temporary or prolonged interruption in the supply of electrical power to the Group's facilities, which can be caused by unusually high demand, limited supply blackouts, equipment failure, natural disasters or other catastrophic events or lack of rainfall. 2.1.23 Elkem may not be able to successfully implement its strategy and may incur significant delays or cost overruns on major investment projects The successful implementation of Elkem's strategy depends on its ability to drive profitable growth by focusing on higher margin specialty products; realizing operational efficiencies and synergies through enhanced integration and continued cost reduction; and strengthening its market position through organic growth and bolt-on acquisitions. Elkem's ability to implement these initiatives consistently across the Group and within anticipated timeframes or at all could be inhibited as a result of the complexity of Elkem's operations, macroeconomic conditions, market developments, actions by competitors or other factors, many of which are out of Elkem's control. Elkem may undertake major investment projects from time to time, such as the planned expansion of the Xinghuo Silicones plant in China, or other strategic investments to increase production capacity or to develop a new product or geographic area. Such projects are subject to the risk of delays, cost increases, availability of adequate funding and other complications. Overruns or delays for such project could have a material negative impact on Elkem's profitability and competitive position and require significant additional capital which may not be available, or available on favorable terms, which may have a material adverse effect on Elkem's financial condition and prospects. Elkem 43