Elkem Company Overview and Financials
Risk factors (VI/VIII)
2.1.24
Elkem may have difficulty accessing credit in sufficient time, on acceptable terms, or at all, and is vulnerable to interest rate increases
The industries in which Elkem operates are cyclical and highly capital intensive and Elkem is exposed to risks related to the availability and cost of funding for future growth within its business segments. The Group is dependent on timely access to sufficient funding on acceptable terms, which may be difficult to achieve if
the Group faces an economic downturn in its main markets. Any difficulty the Group may encounter in securing adequate sources of short and long-term funding could hamper the Group's future merger and acquisition opportunities and/or its ability to invest in its manufacturing capacity or in new markets, thus restraining
the Group's growth opportunities. Difficulty in accessing funding may also result in financial distress and creditors imposing restrictions on the business.
In addition, deterioration in Elkem's credit profile or a rise in market interest rates could increase the costs of borrowing money and limit Elkem's access to the capital markets and commercial credit. Any future difficulty accessing funding at an acceptable cost, or a significant increase in its existing debt service obligations,
may have a material adverse effect on Elkem's business, results of operations, financial condition and prospects.
2.1.25
Elkem relies upon intellectual property, trade secret laws and contractual restrictions to protect important proprietary rights and, if these rights are not sufficiently protected, its ability to compete and generate revenue could suffer
Elkem's ability to compete effectively in certain markets depends in part on its ability to obtain, maintain, and protect its trade secrets, proprietary information and other intellectual property rights. Elkem relies particularly on proprietary technologies and technical capabilities in order to compete effectively and produce high
quality silicon, silicones, foundry alloys and carbon products. Elkem is subject to the risk that proprietary technologies may be challenged and Elkem may not be able to protect its rights to these technologies.
The global silicones market is largely patent driven and a significant portion of the Silicones division's sales are based on patented products. Elkem, and in particular the Silicones division, is dependent on its patent portfolio in order to sustain a competitive advantage for its products and processes. The other divisions of
Elkem generally rely on a combination of patent, trademark, copyright, domain name registration and trade secret laws, as well as contractual restrictions and physical measures to protect Elkem's trade secrets, proprietary information and other intellectual property rights.
The fact that Elkem has intellectual property rights does not guarantee success in any attempts by it to enforce these rights against third parties, and any such attempts may result in a substantial diversion of resources and, if any dispute were to be decided unfavourably against it, could have a material adverse effect on
Elkem's business, results of operations, financial condition and prospects.
2.1.26
Third parties may claim that Elkem's products or processes infringe their intellectual property rights
It is Elkem's intention to avoid infringing, misappropriating, or otherwise violating the intellectual property rights of others. Elkem cannot be certain that the conduct of its business or its products or processes do not infringe or otherwise violate such rights, nor can Elkem inaccurate or unsupported from third parties. From
time to time, Elkem may become subject to legal proceedings, including allegations and claims of alleged infringement or misappropriation of the patents and other intellectual property rights of third parties.
Any of the foregoing could cause Elkem to incur significant costs or prevent it from selling its products or services, which in turn could have a material adverse effect on Elkem's business, results of operations, financial condition and prospects.
2.1.27
Elkem could be materially adversely affected by legal proceedings or investigations
Elkem could be included in criminal or civil proceedings related to, among others, product liability, environment, health and safety, anti-competitive, anti-corruption, trade sanctions, infringements of intellectual property rights or other similar laws or regulations or other forms of commercial disputes which could have a
material adverse effect on Elkem. Violation of applicable laws and regulations could result in substantial fines or penalties, costs of corrective work and, in rare instances, the suspension or shutdown of Elkem's operations. Silicones are used in industries which are exposed to litigation, including the automotive industry
(as they are used in the manufacture of airbags) and health care. Use of silicones in such industries and sectors may also entail product recalls and legal proceedings, investigations and claims for damages in connection with such product recalls. Proceedings, liabilities, product recalls or other actions could have a
material adverse effect on Elkem's business, results of operations, financial condition and prospects.
2.1.28
Changes in rules related to accounting for income taxes, changes in tax laws in any of the jurisdictions in which Elkem operates or adverse outcomes from audits by taxation authorities could result in an unfavourable change in its effective tax rate
Elkem operates its business in numerous tax jurisdictions and its effective tax rate is derived from a combination of the applicable tax rates in the various locations in which it operates. Elkem's effective tax rate may be lower or higher than its effective tax rates has been in the past due to numerous factors, including the
sources of its income and the tax filing positions it takes. Changes in rules related to accounting for income taxes or changes in tax laws in any of the jurisdictions in which Elkem operates could result in an unfavourable change in its effective tax rate.
2.1.29
The terms of the Company's financing arrangements may limit its commercial and financial flexibility
Elkem will be subject to affirmative and negative covenants contained in the Group's loan agreements, including financial covenants. There can be no assurances that Elkem will be able to meet such covenants. A breach of the financial covenants, or certain other provisions or restrictions, may cause an event of default
under the loan agreements, which may result in the relevant creditors cancelling any commitments and/or elect to declare all amounts owed to them, including accrued interest, immediately due and payable.
Additionally, the loan agreements contains a mandatory prepayment clause upon a change of control relating to the ownership interest of Bluestar (as defined below). After the completion of the Private Placement, more than 50% of the Company's issued share capital will still be owned by Bluestar. If Bluestar were to
cease to have the power to cast more than 50% of the maximum number of votes cast at a general meeting or beneficially own more than 50% of the issued share capital of the Company, the facility could be cancelled and all outstanding amounts owed to creditors, including accrued interest, could become immediately
due and payable.
If the Group's creditors were to accelerate payments of outstanding amounts due under the loan agreement, the Group can provide no assurances that its assets would be sufficient to repay in full those amounts due and payable.
Elkem may seek to enter into future financing arrangements to refinance existing debt or finance new initiatives. There is no assurance that Elkem will be able to secure such financing on terms that are as favourable as those under the existing loan agreements, or that it will be able to secure such financing at all.
Elkem
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