Catalogue of woes at PV encapsulant producer STR Holdings

In January, 2015 the company undertook a reverse stock split to regain compliance. Not surprisingly, STR noted that it did not plan a second reverse stock split, at this time.

Although STR has around six months to address the US$1.0 threshold, it does not have that luxury in relation to meeting an average market capitalisation of US$15 million on a 30 day consecutive trading timeframe, as no ‘cure’ period exists under NYSE rules.

However, PV related stocks have been hit by a number of sell-offs this year, driven by oil prices to China’s slowing economy. 

Not helping has been annual losses of US$211.6 million in 2012, US$18.3 million in 2014 and US$22.7 million in 2014. The company has reported a net loss of US$5.9 million in the first half of 2015. 

Sales had followed a similar pattern even after China-based PV project developer Zhenfa Energy Group acquired a majority stake in the company and pushed sales through its PV module assembly subsidiary in China. 

STR had sales of US$15.3 million in the first six months of 2015, down from US$20 million. Sales have at least improved slightly in the second quarter, reaching US$8.5 million, supported by the highly unusual bartering route of accepting PV modules as payment instead of cash from its customer ReneSola. 

ReneSola accounted for approximately 37% of STR’s net sales in 2014, its largest single customer. However, STR was forced to close its production plant in Malaysia after ReneSola said it was withdrawing from the OEM business model. 

STR said that during the second quarter it had entered into a module-for-encapsulant swap transaction with Zhenfa and ReneSola to settle outstanding payments of around US$7.5 million. 

STR received modules from ReneSola that were then sold to Zhenfa, providing STR with US$2.2 million in cash in the quarter. 

STR finished the second quarter of 2015 with US$10.4 million in cash and no debt. Cash and cash equivalents balance stood at US$16.5 million at the end of 2014, compared to US$58.1 million at the end of 2014, equating to a net decease of US$41.62 million in the year. The Zhenfa acquisition was completed in late 2014. A total of around US$24 million of cash was returned to investors via buying outstanding shares at the beginning of the year. 

Going downstream 

In reported second quarter earnings, STR Holdings confirmed PV Tech’s previous assertions that the company was planning to target the downstream project business in the US as possibly its only chance to return to near-term profitability. 

STR noted that it had engaged the services of a US-based investment bank to assist in finding ways to enter the downstream sector, while advising on potential investments. 

Robert S. Yorgensen, chairman, president and CEO of STR Holdings said: “We believe that the battle for success in the encapsulant business will be won in China, where we are currently focusing our related growth initiatives and working more closely than ever with our majority shareholder to leverage synergies and drive new sales. Pertinent examples include the initial swap agreement with Zhenfa and ReneSola, executed in the second quarter, and the recent appointment of two key Zhenfa executives to positions within STR Holdings. “At the same time, we are also seeking to diversify the Company toward more lucrative sectors of the renewable energy industry, where earnings and valuation multiples have been more attractive.”

Business development 

STR also noted that it had 14 PV module manufacturers in certification testing of its paperless encapsulant in the second quarter of 2015, while eight companies had completed certification testing, while two potential customers required re-testing. 

According to the company, six new customers (one said to be a leading player) had placed initial unspecified volume encapsulant orders in the quarter. 

However, management also noted that it had delayed supplying Zhenfa's PV module assembly subsidiary, formerly known as Zhangjiagang Huhui Segpv Co, until the end of 2015.