REC Group 3Q13 Financial Result Analysis: Financial Contributions from Two Subsidiaries is Unclear

published: 2013-12-23 17:27 | editor: | category: Analysis

REC Group released their 3Q financial result on October 24th, 2013. The company’s solar energy sector became an independent listed company during 2Q13. In the 3Q financial result, REC Solar is listed as - assets to be sold in the parentcompany’s financial result.

Separate look at the two company’s financial situation:

REC Solar 3Q net revenue reached NOK 917 million, a 14.3% drop from 2Q NOK 1.07 billion. EBITDA in 3Q was NOK 59 million, a decline of 1% from 2Q NOK 75 million. The two key indicators have reflected REC Solar's profitability has fallen.

REC Silicon 3Q net revenue reached NOK 738 million, a 48% rise from 2Q NOK 498 million. EBITDA in 3Q reached NOK 80 million, a decrease of 10% from 2Q NOK 106 million. With such a large increase in net revenue, decrease in EBITDA shows the company’s need to funnel more money into operations than in the past, increasing operation costs. This has been the direct cause of the company’s recent layoffs.

Total net revenue for the two companies reached NOK 1.62 billion, an increase of 5 percent from NOK 1.54 billion in 2Q. The company split management of REC Solar and REC Silicon hasn’t started to show effectiveness this quarter. After selling REC Solar, nominal net debt was reduced from NOK 2.6 billion to NOK 1.8 billion, greatly alleviating debt pressure. Convertible bonds due 2014 will reach NOK 700 million. With the company’s good financial structure, its current ratio is at 1.45 and has quick ratio of 1.26, both within safety boundaries lessening debt repayment pressure.

The two companies market information:

REC Silicon 3Q financial resultt showed an increase in market demand for solar-grade silicon and the demand for granular polysilicon is strong. The float zone and electronic grade polysilicon market is still weak, however silane gas market is stable, but price remains low.

Polysilcon and silane gas sales volume had a larger increase in 3Q due to market demand growth. Polysilicon had an increase in sales volume of 56%, and 73% for silane gas. However, there was a clear decrease in sales price, especially for silane gas which went down by 18%. The price fall was smaller than sales volume growth, showing increase in sales volume still contributes to revenue.

The company reduced polysilicon sales volume in 2Q, and set aside a larger inventory space in expectations of increased sales prices. However, polysilicon price actually decreased yet demands still drove sales volume, allowing the company to avoid stock up pressure.

Polysilicon production for 3Q reached 4,793 metric tons, including 4,448 metric tons for solar and electronic grade, which slightly dropped compared to the last two quarters. Polysilicon production for the last two quarters was 4,486 metric tons in 1Q and 4,471 metric tons in 2Q.

REC Solar production volume had a gradual QoQ increase, with 1Q13-3Q13 production volume being 170MW, 199MW, 223MW, respectively. Although production volume experienced rapid growth, sales volume and price showed a downward trend directly leading to a drop in revenue.

Solar panel production costs this quarter dropped significantly with 2Q EUR 0.54 /W dropping down to EUR 0.51 /W. The company’s 4Q target cost went from EUR 0.47 /W up to EUR 0.50 /W due to higher price of raw material  than originally anticipated.

The first three quarters and forecasted 4Q shipment of 2013 for REC Group:

Source: Companies’ financial results/ collected by EnergyTrend

REC 4Q13 Outlook

REC Solar estimates that solar panel production volume will be at 220MW with a yearly target of 810MW. High 4Q production volume has been driven by Japanese, Chinese, and U.S. market, but prices are not expected to rise any further.

REC Silicon 4Q polysilicon production volume goal is 4,850 tons, an increase compared with 3Q. Yearly target for 2013 is 19,500 metric tons and 4Q silicon material selling price is anticipated to undergo an incremental increase.

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