Renewable Energy Corporation ASA (STO: RECO) has released its second quarter results for the current financial year. The company recorded revenues of $327M, which shows a 1.4% increase from the previous quarter’s $322M, but a decrease of 41% from the second quarter of 2011.
The business is structured upon three business units: REC Silicon, REC Solar and REC Wafer. REC Silicon contributed $152M to revenues from the sale of 5,889MT of polysilicon and 454MT of silane gas. REC Solar’s revenue stood at $188M from module sales of 216MW, up from 191MW sold in the previous quarter and considerably more than 141MW sold in Q2 2011. REC Wafer, on the other hand, contributed just $35M from sale of 79MW multi and mono crystalline wafers, as this business unit was permanently closed and therefore reported as “discontinued operations.” EBITDA for the second quarter decreased to $44M from first quarter’s $51M. The net cost of closing down since the second half of 2011 has come to a positive $2.64M.
The business recorded a net loss of $668M, compared to the previous quarter; the current loss is almost 19 times the recorded loss of $34.4M in Q1; however, when compared to the previous year’s second quarter, the business was actually able to reduce its losses from the $1.1B recorded in 2011. The current loss is translated as loss per share of $0.67, an improvement from the loss per share of $1.10 reported in Q2 2011. The cost reduction plans see REC reach level of $0.63 all-in costs by the end of the Q4, 2012. This cost includes $0.02 for depreciation, but does not include SG&A and R&D. The company has an opportunity to gain a positive gross margin on polysilicon production costs versus market pricing, as part of its module processing and raw material content. REC remains the only large-size European company able to keep up with the Chinese on the manufacturing front, and continues to look to improve costs with various initiatives. In Q2 REC has released multicrystalline modules using backside passivation, an innovation used for the first time in a commercial product. The “Peak Energy Plus Series” modules have better reaction to red light and improvement performance in higher temperatures and low light. They deliver additional 5 watts in performance.
Note on the rear passivation. Backside/rear passivation leads to replacement of back aluminum metalization, which through high temperature application today bows the cell with the thickness below 180 microns. While double printing reduces the shadowing on the front of the cell, infrared light absorption by aluminum contacts can be eliminated by using another material, thus improving conversion performance. In addition, high temperature application necessary for aluminum back surface metalization, which due to different thermal expansion coefficients of silicon and aluminum results in a bow, can be eliminated. This will allow lower poly consumption through wafer thickness reduction in the future.
The massive increase in losses from the previous quarter was attributed to impairment charges of fixed assets in Singapore of $592M. In fact, in the first quarter, the company did not recognize an impairment of fixed assets. If we deduct impairments from total losses, then the figure comes down to a relatively reasonable loss of $75.1M, which is still twice as much as $34.4M. The company recognized that the primary reason for increased losses, despite increasing revenues, was the continuous decline in selling prices. Even during the three months of the second quarter, the prices of polysilicon and modules fell by approximately 8%.
REC was able to report an operational improvement, which was translated as FBR cash production cost of $12 per kg and module cash cost of $0.86 per watt. Financially, the company was pleased to announce a reduction in net debts, which now stands at $675M, while its net cash flows from operating activities were $101M. On July 4th, the company put forward a refinancing proposal that includes issuance of new shares to raise $214M. Ole Enger, the CEO, believes that REC’s investors would continue to support the company in the future. "I am very pleased to see further improvements operationally and financially and that we continue to generate positive cash flow under current market conditions. I am also grateful that our shareholders and banks continue to provide support as demonstrated through the proposed re-financing,” he said. The refinancing plan awaits a final approval at the extraordinary general meeting scheduled for July 27th.
REC Silicon has been named as a responder in a trade case filling initiated by Chinese poly manufacturers: LDK Solar (NYSE: LDK), Daqo New Energy Corp (NYSE: DQ), China Silicon Corp. and GCL Poly. The investigation conducted by China’s Ministry of Commerce will review whether exporters from the U.S. and South Korea sold solar-grade polysilicon below cost in China. The company denied any wrongdoing and urged China and the US to engage in constructive dialog to prevent destructive trade war.
