Earnings impacted by development of prices as well as sales and production volumes International expansion of distribution channels
Business operations of Sunways AG(SWW:GR, SWWG.DE, ISIN DE0007332207) in the third quarter of 2012 were impacted by the situation in the markets, such as the continuously prevailing global oversupply of components for solar systems, as well as by economic framework conditions, mainly the Euro crisis. The demand for photovoltaic products and solutions decreased significantly in the third quarter. In Germany, the amendment to the Renewable Energies Act (EEG) adopted with retroactive effect led to a marked decline in new system installations. Demand in Italy also declined when the Conto Energia 5 came into force. In addition, from July through September liquidity pressures experienced by many companies in Germany and abroad resulted in a high supply level in the markets and, correspondingly, strong pressure on prices. „At the current level, manufacturers, in particular those from Europe, are hardly able to charge cost-covering prices“, says Michael Wilhelm, Chairman of the Management Board of photovoltaics specialist Sunways.
Development of Group operations
In the months of July through September 2012, sales revenues of Sunways Group amounted to € 11.5 million, a decline against the prior year quarter by more than 50 percent (Q3/2011: € 23.3 million). The operating loss (EBIT) of € 11.2 million was at about the same level as in the third quarter of 2011 (Q3/2011: € -11.8 million). Successfully implemented cost reduction measures with respect to workforce and raw materials as well as other expenses were more than offset by necessary inventory write-downs across all product segments. Taking into account deferred taxes relating to loss carry-forwards, earnings after taxes in the third quarter of 2012 amounted to € -8.1 million (Q3/2011: € -8.7 million).
Sales revenues of € 39.1 were generated in the first nine months of 2012 (9M/2011: € 84.2 million). During that same period, operating losses (EBIT) amounted to € 24.5 million (9M/2011: € -21.6 million). Earnings after taxes for the first three quarters of the current fiscal year were € -14.3 million; earnings after taxes as of 30 September 2011 had amounted to € -11.2 million – including the earn-out relating to the sale of MHH Solartechnik.
In the third quarter of 2012, sales revenues in the amount of € 5.5 million were generated in international markets (Q3/2011: € 9.9 million). Thus the international sales quota rose to 47.8 percent (Q3/2011: 42.5 percent). Thanks to sales of solar cells to LDK Solar, Asian sales contributions increased to 11.3 percent. Total international sales generated by the Sunways Group in the first nine months of 2012 amounted to € 17.1 million or 43.7 percent of total sales revenues. During that period, the most important markets for Sunways in terms of volume were Italy, Greece and France. In the solar module and solar inverter segments, the Company gained access to some of the emerging European solar markets during that period.
Expansion of sales markets for solar modules and solar inverters
At € 2.9 million, sales revenues in the solar cell segment declined by 76.0 percent against the comparable prior year quarter (Q3/2011: € 12.1 million). The sales volume of solar cells (measured in terms of capacity sold) decreased by 50.8 percent to 5.9 megawatts peak (Q3/2011: 12.1 megawatts peak). The segment’s operating result (EBIT) in the third quarter of 2012 amounted to € -5.8 million (Q3/2011: € -4.0 million). As a result of the weak demand and constrained solar module production activities at Sunways, short-time working prevailed almost throughout the quarter. In the first nine months, the segment's sales revenues amounted to € 12.8 million (9M/2011: € 46.1 million); the solar cell sales volume was 22.0 megawatts peak (9M/2011: 45.9 megawatts peak). The operating result declined to € -8.3 million during that same period (9M/2011: € -6.9 million). The development of earnings in the segment was due to drastic price declines in the market, inventory write-downs and reduced capacity utilization.
In the solar module segment, sales revenues of € 3.4 million were generated in the quarter under review (Q3/2011: € 14.0 million). LDK merchandise was used to compensate for the at times limited availability of Sunways solar modules. As demand weakened, the sales volume declined to 4.9 megawatts peak (Q3/2011: 11.4 megawatts peak). EBIT improved by € 3.5 million against the comparable prior year quarter (Q3/2011: € -5.9 million).
Three quarters of solar module sales revenues in the third quarter of 2012 were generated abroad, in particular in the emerging markets of South Eastern Europe. In the prior year, the focus had still been on the established European markets such as Italy or France.
In the first nine months of the current year, the segment’s total sales revenues amounted to € 16.2 million (9M/2011: € 59.5 million). The sales volume dropped to 20.7 megawatts peak (9M/2011: 44.7 megawatts peak). Despite the marked decline in sales revenues, the operating loss was reduced: EBIT improved to € -8.1 million (9M/2011: € -10.5 million).
Sales revenues in the solar inverter segment declined to € 6.1 million in the third quarter of 2012 (Q3/2011: € 7.3 million). In contrast, the sales volume of Sunways solar inverters increased to 42.1 megawatts peak (Q3/2011: 38.9 megawatts peak). However, the segment’s operating result (EBIT) dropped further to € -3.0 million (Q3/2011: € -1.9 million) due to price declines in the market which could not be offset on the cost side, the sell-off of individual models as well as inventory write-downs.
On a positive note, international sales of Sunways solar inverters in the third quarter rose by 14.3 percent against the prior year quarter. Sales markets in Europe were expanded and access was gained to some of the emerging solar markets in this product segment as well.
In the first nine months of 2012, sales revenues from solar inverters rose to € 19.0 million (9M/2011: € 18.4 million). The sales volume increased markedly by 42.2 percent to 127.6 megawatts peak (9M/2011: 89.7 megawatts peak). Due to the development of market prices and inventory write-downs, an operating loss (EBIT) of € 8.2 million was incurred in the first nine months (9M/2011: € -4.2 million).
„We worked hard to create a broader regional base for our distribution activities in Europe“, emphasizes Michael Wilhelm, Sunways AG’s Chairman of the Management Board. “Together with LDK Solar, we are also developing and implementing strategies for marketing our products outside Europe in the large growth markets in North America and China. Sunways continues to stand for high technological competence, above-average quality as well as an extensive portfolio of services and makes consistent use of the cost advantages relating to production activities in China.”
Prospects for the fiscal year 2012
The photovoltaics industry has had to cope with enormous challenges for almost two years. From today‘s point of view, the situation in Europe may be expected to deteriorate even further in subsequent quarters: subsidy cuts in almost all established markets in combination with a global oversupply of components result in massive price and competitive pressures - not only for European companies. An increasing number of companies has to cope with the corresponding effects on their operating results and liquidity.
„Against this background, a 12-month payment deferral granted by the LKD Solar Group will support the funding of Sunways“, says Michael Wilhelm. „Furthermore, another agreement relating to financial support for our company was entered into with our majority shareholder a few days ago“, Wilhelm adds. In addition to in-kind benefits, a shareholder loan in the amount of € 5.8 million was agreed upon.
„We will not lose sight of our objective to again achieve profitable growth – although, due to the massive deterioration of prices, this can currently not be achieved in all product segments. Our objective for the entire fiscal year 2012 continues to be to stabilize the development of sales volumes and sales revenues and to reduce our losses compared to the fiscal year 2011. The achievement of this target is subject to risks, in particular in view of the year-end impairment test”, Michael Wilhelm adds with respect to future prospects.
Against the background of current developments in the industry and those expected in subsequent years, Sunways will steadily monitor the competitiveness of its individual business segments. In addition, we will implement measures to improve the supply chain and pursue targeted cost management efforts.
Michael Wilhelm: „In the past months, several measures were developed - and in some cases already initiated - together with LDK Solar to shape and secure our company’s future. The main goal is to achieve a more efficient and productive participation in the competitive market in the future by bundling the activities and resources of both companies. In this context, the focus will be on our distribution activities”.
Key figures Q3/2012
Group
Sales revenues: € 11.5 million (Q3/2011: € 23.3 million)
EBITDA: € -9.7 million (Q3/2011: € -10.2 million)
EBIT: € -11.2 million (Q3/2011: € -11.8 million)
Consolidated net loss: € -8.1 million (Q3/2011: € -8.7 million)
Earnings per share: € -0.47 (Q3/2011: € -0.75)
Sales revenues Germany: € 6.0 million (Q3/2011: € 13.4 million)
Sales revenues rest of Europe: € 4.1 million (Q3/2011: € 9.9 million)
Number of employees (30/09/2012): 267 (30/09/2011: 343)
Solar cell segment
Sales volume: 5.9 MWp (Q3/2011: 12.0 MWp)
Sales revenues: € 2.9 million (Q3/2011: € 12.1 million)
EBIT: € -5.8 million (Q3/2011: € -4.0 million)
Solar module segment
Sales volume: 4.9 MWp (Q3/2011: 11.4 MWp)
Sales revenues: € 3.4 million (Q3/2011: € 14.0 million)
EBIT: € -2.4 million (Q3/2011: € -5.9 million)
Solar inverter segment
Sales volume: 42.1 MWp (Q3/2011: 38.9 MWp)
Sales revenues: € 6.1 million (Q3/2011: € 7.3 million)
EBIT: € -3.0 million (Q3/2011: € -1.9 million)
Key figures 9M/2012
Group
Sales revenues: € 39.1 million (9M/2011: € 84.2 million)
EBITDA: € -19.2 million (9M/2011: € -16.7 million)
EBIT: € -24.5 million (9M/2011: € -21.6 million)
Consolidated net loss: € -14.3 million (9M/2011: € -11.2 million)
Earnings per share: € -0.82 (9M/2011: € -0.96)
Sales revenues Germany: € 22.0 million (9M/2011: € 42.0 million)
Sales revenues rest of Europe: € 15.0 million (9M/2011: € 42.3 million)
Solar cell segment
Sales volume: 22.0 MWp (9M/2011: 45.9 MWp)
Sales revenues: € 12.8 million (9M/2011: € 46.1 million)
EBIT: € -8.3 million (9M/2011: € -6.9 million)
Solar module segment
Sales volume: 20.7 MWp (9M/2011: 44.7 MWp)
Sales revenues: € 16.2 million (9M/2011: € 59.5 million)
EBIT: € -8.1 million (9M/2011: € -10.5 million)
Solar inverter segment
Sales volume: 127.6 MWp (9M/2011: 89.7 MWp)
Sales revenues: € 19.1 million (9M/2011: € 18.4 million)
EBIT: € -8.2 million (9M/2011: € -4.2 million)
Financial calender
As a consequence of the switch to the Frankfurt Stock Exchange’s General Standard trading segment, Sunways AG will publish semi-annual financial statements as well as interim disclosures for the first and third quarters as from the fiscal year 2013. The detailed financial calendar 2013 will be announced at a later date.