Falling prices and declining sales hit REC’s Q3 results

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Norway-based Renewable Energy Corporation ASA (REC) has revealed that its revenues from continuing operations for the third quarter of 2012 fell by 24% to NOK1.51 billion compared with the corresponding period one year earlier.

Its earnings before interest, taxes, depreciation, and amortization (EBITDA), meanwhile, came in at a loss of NOK184 million (US$32 million) compared to a black figure of NOK267 million in the previous quarter.

REC has also revealed it is considering a merger and is in talks with several possible partners.

REC Solar
The company’s solar division, REC Solar, which produces wafers, solar cells and modules, reported revenues of NOK870 million in the third quarter, down by 36% from the third quarter 2011 and down by 24% from the second quarter of 2012.

In a further breakdown, module sales dropped by 20% to 169MW compared with the corresponding quarter one year earlier and by 22% compared with the previous quarter. Average selling prices of the modules in euros have also been negative with a 42% drop compared with the corresponding three-month period in 2011 and a 10% decline compared with the second quarter of this year.

However, total module production amounted to 220 MW in the third quarter, up by 23% from the previous quarter. Of the 220MW produced, 22MW was produced by contract manufacturing at the beginning of the quarter as a result of strong demand. Despite this excess capacity, the company is still aiming to produce around 745MW of modules in 2012 with approximately 190MW forecasted for the final quarter of the year.

REC Solar’s EBITDA came in at a loss of NOK174 million, worse than the NOK51 million loss recorded in the third quarter of the previous year. The weak EBITDA is due mainly to price declines and lower sales volumes, though the company highlights that this has been partly offset by its cost reduction programme. Indeed, price declines have contributed to writedowns of NOK125 million for inventory still in stock at the end of the third quarter.

Other developments with REC Solar highlighted in a company presentation included the company’s plans to temporarily stop production at its ingot and block manufacturing facility in Singapore. This follows the discontinuation of the company’s REC Wafer business which filed for bankruptcy on August 13, 2012.   

REC Silicon
REC Silicon, which produces polysilicon and silane gas for the solar industry, reported a 50% plunge in revenues to NOK693 million in the quarter. The figure was down by 25% compared with the second quarter of 2012. The decline has been primarily blamed on lower volumes available for sale caused by planned maintenance shutdowns as well as continued pricing pressure.

A breakdown of these revenues show that polysilicon sales were 4,802MT while silane gas sales were 358MT. Average selling prices were down 10% for polysilicon and 4% for silane gas. In addition to lower prices, the decline in silane gas sales was also attributed to weak market conditions.

In terms of EBITDA, REC Silicon reported a red figure of NOK1 million compared with a positive NOK709 million in the third quarter of 2011 and NOK242 million in the previous quarter. The decrease mainly reflects reduced sales volumes, reduced selling prices, increased unit costs and inventory writedowns.

Commenting on the results, Ole Enger, CEO of REC, said: “Current solar market conditions are unsustainable with spot prices below cash cost for all market participants. Solar energy is a very attractive source of electricity in many areas of the world. With the right frameworks and regulations in place, I am convinced that we will see strong demand growth in the years to come. REC continues to aggressively reduce costs and improve our product quality; together with our partners we will weather the current industry turmoil and capture the opportunities that lie ahead”.

In an interview with Bloomberg after the company presentation, Enger also revealed that REC would be open to merging and is currently in talks with several possible partners.

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