REC Silicon ASA

Ole Enger – President and CEO Bjørn Brenna – Chief Financial Officer Mikkel Tørud – Vice President and Investor Relations Officer

Truls Engene – Seb Enskilda Einer Evensen – DnB NOR Markets Preben Rasch-Olsen – Carnegie Anders Rosenlund – ABG Sundal Collier

Okay. Good morning, everybody.

And welcome to the Third Quarter Result Presentation for REC. We will do it the way we usually do it.

We start up with a operational review, as well as, some few remarks related to the market and then Bjørn Brenna, our CFO will go through the financials, and then we will have some conclusions and remarks related to the outlook for the fourth quarter. So, let’s start out with the highlights.

The revenues in the third quarter amounted to about 3.8 billion, up 37% from the second quarter. We had strong demand for all REC products during the quarter and also there was minor changes to the average prices for the different products.

So we cannot complain about the market in the third quarter. As far as the results are concerned, the EBITDA amounted to 827 million, up from the 455 we had in the second quarter.

EBIT was 155 versus 146 minus, so some progress there. The results are positively affected by higher sales volume and a good ramp-up in Singapore.

And on the other side, negatively affected by the power outage we had in our Silicon operation, as well as the restructuring costs in Sweden in relation to our Module production in Glava. We do see continued operational improvements also in Scandinavia that is in Norway, except for the Mono operations, which is still very much disappointing.

I’ll get back to this later. Net financial items are negatively impacted by currency we had it the other direction last quarter.

This quarter negatively impacted and also of course this relates to the fair value adjustment our convertible bond. And that’s the way it is when results are improving and stock prices are increasing, the option value of the convertible is also up and it’s good for the shareholders but then we have to hit on the company, that’s how it is.

Okay. That’s as far as the highlights for the quarter are concerned.

That was the wrong direction. A few words about the market.

As I said, the demand in the solar market continued to be strong in the second and the third quarter and the market has been better than most of us had expected in the third quarter and that seems to continue into the fourth. As far as prices are concerned, we do not see much change moving from the third into the fourth.

So both volume wise it’s a very good balance in the market between supply and demand, and so demand is good and the prices are very, very stable for the moment. As far as next year is concerned, of course, there is much more uncertainty and first quarter there is some visibility.

We do expect the market to be reasonable in the first quarter when it comes to demand, volume side both for modules, as well as for wafers but prices are expected to decline. But we do expect, as far as, module prices are concerned, prices to decline probably less than the reduction in the Feed-in tariff in Germany which is 13%, but prices are likely to come down.

And as we also can see from the right part of the slide here, the demand in 2009 was 7-gigawatt. This year probably will double to roughly 14, 15-gigawatt, which is very impressive, 100% volume increase and this year, as I said a fairly good balance between supply and demand.

As far as 2011 is concerned, there are many opinions out there related to the probable volumes, I personally have become more and more careful about making forward-looking statements related to the market. We have been wrong so many times, someone have to be careful.

But according to the sources we have used here, the estimate is on the demand side between 14 and 20-gigawatt. I must say that personally I think we have to be prepared for the lower rather than for the higher number, I think, also that is more likely.

We all know what’s going on in Germany, we have had a fantastic year, this year, but I think it’s almost too good to be true that this will continue into next year. So I think we have to be more modest when it comes to the outlook for next year.

Supply will continue to increase 30%, 40%, that’s what is in the pipeline and that’s quite certain. So, as I said, 2010 is characterized by a very good balance between supply and demand.

We do expect supply to increase more next year than demand and therefore naturally lower prices. That’s what we have to expect and as I said, we have to prepared -- be prepared for the lower.

Then let us turn to the different divisions and have an -- give you an overview of the operation, staring with Silicon. And total polysilicon production in the third quarter amounted to almost 3400 metric ton, of which 2700 is solar and electronic grade.

And we see a good increase from the previous quarter. As far as the Silicon operation is concerned, the pattern is very much like we have described earlier.

The capability of the FBR process we are very much convinced about. However, we do struggle somewhat with the stability of the process and that is mostly related to the silane part not to the FBR part.

So surprisingly enough, our challenges have not been on the FBR part that’s running very well. However, we have had some stability issues related to the silane production.

As far as the third quarter is concerned, we had the problem as you have heard with the power outage, which directly affect the yield, the quality yield and the trend upward, we didn’t see that in the third quarter. The yield was down to 66 from 77 in the previous quarter.

I can assure you, however, that now that we have the production in line again the yield is up on the track we had expected. So we are back on track as far as the quality yield is concerned.

What is not so positive about our REC Silicon is the gas, the silane gas market. As you can see there, the volume in the third quarter is lower than in the second quarter and that is probably a surprise to you and it certainly has been a surprise to us.

And this is a result of the fact that the market in general is weaker than we had anticipated. The different some markets have not grown as much as we had expected and as we have also indicated earlier, we do see more and more competition also in the gas segment.

So that’s why the volumes are down. So a few words more about the power outage, we lost 250 metric tons and a careful conservative estimation of the negative EBITDA effect is about 50 million Kroner.

Power outage is the worst you can have in a production like this and for obvious reasons we are now in contact with the utility, the local utility to try to see what we can do to avoid this happening in the future. We are of course totally dependent on the grid belonging to the utility, as well as, the substations and here we have to do more together to try to avoid it going forward.

We do -- this is not only isolated to the United States. We also have -- had minor outages in Norway related to our operations in Glomfjord and Herøya.

So this is a subject we have to pay more attention to. Okay.

That concludes the Silicon business. The next in line is our wafer production and as you can see here, our production from the second to the third quarter increased by some 20%.

And the trend is continuing good in Norway, as well as, in Singapore where the ramp-up is good. And we have done a lot to try to strengthen the organization in both Herøya and Glomfjord and hopefully we will see this having a positive influence on the results going forward.

As far as the Mono operation in Glomfjord is concerned, you can see that we were not able to increase the volume, which is very disappointing. We only produced 26-megawatt, which is much lower than we had anticipated.

And then, well, I think we have to realize the fact that operating in Norway and for example, in Singapore are two different things that we have alluded to earlier also. I mean, we are in -- just to illustrate it in Singapore after one advertisement we had 15,000 applications for jobs but you can imagine that the same is not the case up in Glomfjord in Northern Norway.

And this is one thing. The second is that, of course, the background of the people in Singapore, where they have semiconductor electronic, very relevant background, very well trained in continuous improvement.

We are in a totally different situation in Norway both in Herøya and in Glomfjord. So it takes much more time to train the people and to get the right management in place.

So in this respect, I think, we have to realize that there are no quick fixes. It will take more time than what we see in Singapore to improve the operations.

In Glomfjord now in the Mono plant there, I mean, when you are starting up an operation you first have to make, get your equipment working and at the present, that’s what really we are struggling with up there. It’s not one big thing.

It’s a hundred small details that has to be tuned in to get the operation up and going and we have to get through this phase fixing it before we see better results. Next, once you have got your equipment up you have to stabilize your production and thereafter you can really start to streamline and get your costs down.

That’s the nature of starting up businesses like this. So we have to be patient and work hard to improve the operational results both in Glomfjord as well as in Herøya.

In Solar, you see here we are very much concentrated in Singapore and you see the effect of that. Increase of 50% from second quarter to third quarter and the operation’s running quite satisfactory.

As you will recall, the decision was made to close down ScanModule in Sweden and the 150-megawatt production there will be replaced partly by the module operation in Singapore, as well as, a contract manufacturing that will take the remaining part of the cells we produce in Narvik. As far as Narvik is concerned, we stick to what we said earlier.

They have to be cash positive and they are cash positive. So they are running quite satisfactorily.

So overall, as far as Solar is concerned, we are quite pleased with the development and we are back to what I said earlier, the quality of the organization in Singapore, which is very impressive. So that’s as far as I intended to go related to the operational part of the presentation.

So then I leave it to Bjørn, our CFO, to take you through the financials.

Thank you. First, the Group you have seen already some of the key figures from the quarter.

We ended up close to 3.8 billion in revenues and that was mainly driven by volume increase. As you have already seen, we have started up Silicon IV in July and that contributed quite a lot.

In addition to that, we are ramping up rather in more capacity in Singapore. So that’s the key drivers between the revenue growth in the period.

EBITDA, 827 million, of course, the volume helped us a lot but we had fairly stable prices overall in this quarter compared to the second quarter. It’s a little bit mixed between the segments.

I’ll come back to that but overall, the picture is stable prices. EBIT, for the first time since fourth quarter last year we had a positive EBIT, 155 million and we are now very close to the peak related to depreciations as well.

Condensed income statement and just a comment on this EBITDA, including one offs, I’m always a little bit afraid of adjusted for this and that but here we have two provisions. One is the closedown in Glava, adds up to 93 million Norwegian Kroner, which is negative and we also had a positive adjustment.

That’s the junction boxes because the end cost seems to be lower than we expected for the provision we made last year. Depreciation, as I said, 648, we started depreciation on Silicon IV as we started production in beginning of the month and there are little CapEx left.

But there are some CapEx also in the fourth quarter coming up, especially related to Singapore. Net financials is -- last quarter was positive 1 billion, now negative 1 billion but last quarter the dollar ended at 650 and this quarter, 587.

And that affected, since we have a lot of derivatives, affected the financials quite a lot. And there are -- I will highlight three main items here.

We have the financial expenses, which is 311 million minus, out of that, 234 is cash and the rest is capitalized interest related to mainly to Singapore. And the second large item is currency gains and losses.

This time it’s a loss because we have an internal loan to U.S. in dollar to the Silicon operation and since the dollar is reduced, that affected the financials.

And the third element is the convertible bond. And, as Ole Enger mentioned here, when the share price goes up the option element increases but also the trading of the loan part of the convertible has gone up.

And that affects us negatively in the quarter. Silicon delivered strong financials also this quarter, 49% margin, despite the fact that the average selling prices went down.

That was mainly due to sales of lower quality material and that was affected by the outage we had in this quarter. And it took time to bring the quality up to the right level again.

And we also was affected by volume increase from the new silane gas plant and we get that through the reactors which helps the capabilities of the reactors in Moses Lake. Gas sales were down by 19% and, as we have seen, we see a weaker market, market condition, both in terms of volumes and also competition.

In Wafer, we improved the results in the quarter compared to last quarter but here we see there is quite a mix of challenges. And the main challenge here is -- was of course the Mono operation, which contributed negatively by 64 million in this quarter, which is a very high number.

In addition, we also had negative EBITDA from Singapore, but gradually improving through the quarter and was positive when we reached the fourth quarter. In (inaudible) Norway, minus -- plus 178 and we improved the margin by five percentage points from last quarter and we had a price increase of 3%.

So that you see there are some underlying improvements in the Norwegian operation, but still weak results. On Solar, revenues are sharply up and of course, that is affected by the Singapore operation.

And this is the first quarter on this sketch, where you see positive contribution from Solar in terms of EBITDA, which is positive by 89 million. We see prices are slightly down, only two percentage points compared to the previous quarter, a huge volume increase but you see the cost position and the capacity utilization of the plants affects the costs and thereby the results.

And here, we have taken restructuring costs of 93 million in the quarter but we also have this reversal of the provision for the junction boxes. But adjusted for these two, the underlying EBITDA was about 145 million.

In terms of balance sheet, the total balance sheet is down about 2 billion in the period and that is mainly, it’s two factors here. One thing is that we have reduced the cash and paid-down debt, which reduces the whole balance sheet.

And secondly, its currency effects on both side of the balance sheet, that’s the two main effects. And equity ratio is 58% and if you adjust for the convertible, its about 65% equity share.

Net debt increased by 200 million, 0.2 billion from 8.8 to 9 billion Norwegian Kroner. The CapEx spent in the period, 700 million and we had a cash contribution from operations of 600 million which also on this slide increased in the net debt.

A couple of words about the facilities, we have this bank facility today of 10 billion. We have four banks in the facility today.

We are in connection with the Singapore Presentation, also launching or targeting a few more banks in this syndicate to have a slightly broader bank structure, which I think is wise for us and after that we hope for six to eight banks in the structure. We have the remaining part of this year, approved CapEx of about 400 million, 0.6 in total, but 400 million is our expectation for the fourth quarter in terms of CapEx.

We have our CapEx estimate under review for next year. And we will try to come back to that in one week’s time.

Some technical issues here, we -- from the fourth quarter, since we have made an organizational change, we will also change the reporting structure from fourth quarter, not huge changes but Moses Lake and Butte is exactly the same as it is today. Wafer is now only Wafer Norway, which means Herøya and Glomfjord.

And Solar is Wafer, Cell and Module in Singapore as a total plant and we also include ScanCell and ScanModule. We will publish the changes in figures, historical figures before year end.

So you can update the historical data before we release the fourth quarter. There are one other small change as well, since we now see the cell efficiency is going up in Multi, now at 16% instead of 15% and then they convert now sales volumes et cetera in megawatt.

We will use 16 instead of 15 from now on. And we also then need to change historical data.

So this is more two technical things that you should be aware of. So that concludes the financials for this quarter and a couple of words about the outlook for the fourth quarter.

Yeah. We will make this brief.

We have already touched upon certain issues. As far as the prices are concerned, we have already mentioned that we do not see much change from the third quarter to the fourth quarter, that’s what we expect.

They are relatively stable prices. As far as the volumes are concerned, silicon, we have unchanged volume targets as far as our polysilicon production is concerned, but silane gas is down to 815 -- 850 tons compared to 2,200 which we had expected, so that’s down.

On the wafer side, there is not much changes. This is as expected.

And in solar, we are expecting a fourth quarter module production of about 165 megawatt. So all in all and as far as the fourth quarter is concerned, I mean we have guided earlier and we said that we expected the second half to be better than the first half.

We still believe that. As far as the fourth quarter is concerned, I think you can draw your conclusions yourself but with unchanged prices and some pluses on the solar side and the wafer side, compared to third quarter.

But lower silane gas volumes, there will not be much changes on the volume side either. So we should see a fourth quarter EBITDA, which is in line or slightly higher, than what we have seen in the third quarter.

That is based on the assumptions, I have just referred to. So that’s how we see the fourth quarter for 2010.

And as far as 2011 are concerned, I think we should be very, very careful on making statements. So that concludes our outlook.

Then just to mention that I hope to meet some of you again already next week in Singapore, where we will have the grand opening of the Singapore plant. And I hope you all will enjoy seeing the plant.

We will arrange a site trip for you and thereafter, we will have a seminar where we are going to outline to you, give you a good overview we hope, about the overall situation for REC where we are today, where we are with regard to the market, where we are with regard to the overall cost position, as well as the cash cost position. This is something that you have been very much interested in for a long time and we will certainly elaborate on this rather deeply during our seminar in Singapore.

So as we say here, the grand opening will take place on November 3 by the Prime Minister of Singapore. So I hope this will be a successful stay for you in Singapore.

Okay. That leaves us or takes us to the next, which is questions, Mikkel.

Yeah. Okay.

We can start here in the front.

Yeah, good morning. Truls Engene, SEB ENSKILDA.

Regarding the silane gas market, we got some more detailed information on that in your Moses Lake, analyst trip in March. Could you elaborate a bit on the outlook now going into 2011?

Do you expect to see the silane gas market being now more stable from 2010, or do you still expect to see growth going forward? And if you’re not assuming any growth in the silane gas market, how will that affect your polysilicon production guidance for 2011, since you will then have more silane gas available for internal production.

Well, we are so lucky to have Jan Johannessen here, who was the CFO of REC Silicon. So I think Jan you could answer that question.

You should raise and show who you are.

Hello. Well, we actually do expect growth in the silane market next year.

We had some inventory issues this year which caused the market growth to be less than expected. Next year however, we do expect growth, double digit growth in volume in the silane market.

So yeah, we expect long-term growth in that market to continue to be very good and driven by the applications such as LCDs and other applications like that, so continued growth in the market, but not this year.

And is that double digit growth also for your own silane gas sector or is it only…

That is for our sales of silane.

There’s one more question.

Yeah, Einer Evensen from DnB NOR Markets. A follow-up on Truls question there, I recall from the graph you showed in March that you have enough capacity to basically take the whole silane gas market worldwide.

So my -- I am a bit puzzled why you don’t act more like -- why you act like a quantity and price taker in this market and why you’re not being more aggressive in taking as much market as possible, to deter new competitors. If I may, a couple of other questions on silicon, you state that the FBR materials have some real production benefits to your customers.

So I was wondering will that eventually translate into price premiums on this product, because as far as I understand it’s still selling at a discount. And then the second one is, will it be compensated through insurance on the costs related to the power outage at Moses Lake?

Thank you.

Well, as far as the silane gas, the first question, is concerned we are always happy to have good advices. But I do think we are very carefully considering how to get the maximum out of it.

And I am very confident that we are playing this in a good way. So I can’t say more, for obvious reasons.

This is commercial issues. As far as FBR is concerned, benefits to customers yeah.

We see that in fact stronger and stronger. We have the opening of the Silicon III and Silicon IV last week in Moses Lake.

We had a large number of customers there and they are very happy. They expressed very positive views on the quality of the FBR materials.

And this is related to the fact that, as we have mentioned earlier, the -- you can load the crucibles in the ingot production with more material. You improve the yield factor and thereby also the production yield in the ingot production.

And this is even more important for the monocrystalline production, because there we see now a trend towards more and more continuous feeding of the furnaces. And then the flow ability of the material is very important and that’s where the FBR material, the granular material is doing very well.

So yeah, there is a keen interest in the FBR material. And as far as price premiums are concerned, you mention that, I do think that it takes some time, this is a new product, the feedback is positive so far.

There have been questions related to the fact that FBR does not have the same purity as the Siemens material. I think that is overcome and now we will see an improved positioning among customers and hopefully, that is obviously our target, to be able to get more out of the FBR than what we do today.

And for the reasons I just have given, it shouldn’t be totally out of the question to get a premium for FBR on the longer run. As far as insurance is concerned, related to the outage, I think that’s a very difficult issue.

I can’t say more.

Preben Rasch-Olsen, Carnegie. I’m a bit puzzled about the comment that EBITDA will only be in line or slightly above Q3 in Q4, given that we have high volumes and also positive benefits from the ramp up in, especially Singapore.

So I am a bit concerned about where we go wrong.

To guide is always very difficult. But I think slightly better than the third quarter that’s where we stopped.

We don’t say more.

There is one on the right-hand side.

Anders Rosenlund, ABG Sundal Collier. I have two questions if I may.

The first question is a question which Preben asked but I want to ask it differently. You have one-offs in the third quarter of roughly 150 million and you say that the prices are stable and you say that volumes will be up in the fourth quarter.

Is that the correct interpretation of your guidance for the fourth quarter?

That is correct, except for silane gas which we have guided down.

Okay.

And silane is a profitable product.

My second question is, given the way some of your competitors behave downstream, do you think that the average downstream player will be making a decent return on capital employed in the next couple of years?

Well that is all market dependent. And as far as the market -- that question related entirely to the markets and…

But what do you think when you do strategic planning in REC?

Well, we are careful about our forward-looking statements. As I said earlier we have been wrong so many times and we are -- we have to be very careful.

We don’t want to go further than saying that we do see a higher probability from more increase in supply that we see in demand for next year. That should be declining prices.

To which extent they will decline? We said for the first quarter we had some feel, some visibility.

We say less than the 13%. But when it comes to the later quarters, I think it is only guessing and to express guessing in an audience like this, that doesn’t make much sense.

Let me finish off by asking, what do you think the bottleneck will be in 2011?

Well, I don’t think -- bottleneck on the supply side? Well, we have seen, yeah, this year that the bottleneck has both in fact, been in silicon, mostly in silicon but also to some extent in wafer.

But with a 30% to 40% increase as we see next year, we don’t think there will be any bottlenecks next year. We think the likelihood that demand will grow more than 30%, 40%, or 30%, 40%.

I have been wrong before, but I would be very happy if I could see numbers like that. And very surprised I have to say.

Einer Evensen, DnB NOR Markets again. You said the issue of insurance was very, very difficult.

Does that mean you’re working on the issue and you might see some sort of compensation between 0% and 100%? Or is it basically not going to happen?

Another question relating to Glomfjord is, you stated that you were disappointed and 64 million of negative EBITDA on the plant that cost REC about 2 billion Norwegian Kroner to build, poor training of staff. The list goes on.

Can you say what you’re doing to change this rapidly -- as rapidly as possible, or how long you are going to be willing to see negative EBITDA in any operational unit in your organization? Then the third question is, you had two wafer contracts in -- you have two wafer contracts in dispute.

We, this morning saw LDK come out with arbitration results in their favor. Maybe you can give us an update on where your disputes with Moser Baer and China Sunergy is standing?

Thank you.

Well, first the insurance issue. I just repeat that for commercial reasons I think it’s wrong to comment on that.

We are following up the case definitely and we have to see what the outcome will be. As far as Glomfjord is concerned, yeah, you are right we are disappointed.

And what we are doing is this is very much about leadership, people, the equipment, the plant is very nice, very well equipped. There is nothing wrong with the investment as such.

But there are the hundreds of issues related to the equipment to get it up and running. We have now brought our most experienced wafer person who has started it up and made all the success in Herøya.

We took him to Singapore to help in the wafer ramp up and the utility ramp up in Singapore. We brought him back earlier than was planned and he is now helping out in Glomfjord.

That’s the most experienced person we have in REC. In addition to that, we have done our utmost to improve the management, to get as high quality people as possible.

We have been successful and we have recruited many experienced people. Some of them are Swedes with good industrial background, but they are, of course, new and the solar industry, wafer is new to them.

And although they come from the automotive industry, the automotives are different to wafers so it takes some time to get them up and running at the full speed. But there is not very much more we can do with this.

And that is the situation. We feel we do whatever possible, I do think we know what to do.

And I can only regret that it takes more time than what we see, for example, in Singapore. Two wafer contracts to my knowledge there is nothing new related to these disputes.

We have informed the market there is nothing new, but we are I can say, very active. But how these legal disputes are, they take time especially when you have a party that is doing their utmost on their side to try to avoid and we understand why.

I can’t see that there are any further questions from the audience here and we have covered the questions also from the web. So, I guess, we then thank you all for attending and welcome you back next week and for the fourth quarter presentation in February.