The beleaguered solar company announced the news just one month after it decided to permanently close down its 300 megawatt (MW) monocrystalline wafer plant in Glomfjord. It has suffered a series of setbacks since last May, when it first announced it would scale back its photovoltaic production activities, due to weak market demand.
Production at the 650 MW Herøya wafer plant is scheduled to wind down in the second quarter of 2012, despite three out of four employee representatives in the REC Board of Directors voting against the decision. REC added that it will "explore alternatives" for the plant over the next few months.
CEO and president, Ole Enger blamed overcapacity and "extreme competition" from China for the closure. "Despite solid demand growth, overcapacity continues to negatively affect the wafer prices," he said. "Our organization at Herøya has worked very hard to reduce cost and improve quality. Over the last two years annual cost reductions have exceeded 25 percent, even though the cost position was held back by long term contracts with uncompetitive suppliers. However, with extreme competition, especially from China, and market prices down to one third of the prices one year ago, these cost reductions have unfortunately not been sufficient. Significant continued losses were to be expected from the wafer operations at Herøya going forward. We therefore have no choice but to discontinue our operations in Norway."
In terms of the financials, the fixed assets were written down to zero back in 2011. "REC will recognize costs in relation to the close down of the plant in the second quarter 2012," it said.
First quarter financials
Reporting on its first quarter (Q1) financial results, REC says that overcapacity continued to present problems for the industry, despite "high module installation" volumes. It added that average selling prices for the key photovoltaic materials were sequentially down, by 15 percent for polysilicon and 24 percent for wafers. Meanwhile, module prices fell by 18 percent on Q4 2011.
In Q1 2012, RECs revenues fell 25 percent, from NOK 4.10 billion (around 542 million; US$716 million) in Q1 2011, and NOK 2.86 billion in Q4 2011, to hit NOK 2.13 billion (around 281 million; $372 million). EBITA fared slightly better having grown from NOK 178 million in Q4 2011, to NOK 455 million, but fell down when compared with Q1 2011, which achieved NOK 1.45 billion. EBITA margin looked a lot healthier in Q1 2012, having grown from six percent in Q4 2011, to 21 percent (Q1 2011: 35 percent).
In terms of the different business segments, REC Silicon performed the best, having reaped NOK 409 million of the NOK 455 million EBITDA. REC Wafer also performed positively, having drawn in NOK 97 million. REC Solar, however, fell down, having lost NOK 90 million in Q1 2012. The cost of closing the Glomfjord plant also hit the group by NOK 366 million, which ate away at the NOK 795 million received for terminated polysilicon and wafer sales contracts. The company additionally recorded inventory write-downs of around NOK 100 million. "The improved adjusted EBITDA mainly reflects reduced inventory write downs and reductions in the overall cost base after close down of wafer production capacity in Norway," explained the company.
EBIT was also more positive in Q1 2012, having grown from NOK-2.73 billion in Q4 2011 to NOK 59 million (Q1 2011: NOK 772 million). EBIT margin further rose from -96 percent in Q4 2011, to three percent in Q1 2012 (Q1 2011: 19 percent). Meanwhile, loss after tax was NOK 209 million in Q1 2012, compared to NOK-2.48 billion in the previous quarter.
REC shutdown timeline
Below is a timeline of RECs production scale-backs, which began last May:
- May 24, 2011 REC announced it would reduce production of its solar cells, wafers and modules as of July 1 in "response to the current market conditions". Wafer production was reduced by 125 MW in Q3, and cell and module production was scaled back by approximately 50 MW. Roughly 300 employees at RECs Herøya site and 200 employees in Narvik, were affected through "temporary" lay-offs.
- August 25, 2011 REC decided to extend its production shutdown in Norway until the end of 2011. It emerges that the company stopped its cell operations in Narvik, worth 180 MW. Around 600 employees have now been affected.
- September 28, 2011 – REC says it is considering the permanent closure of three wafer facilities and one cell plant in Norway. The company said that work would continue at its two newest multicrystalline wafer plants at Herøya, which has a 650 MW annual capacity and at its 300 MW monocrystalline plant in Glomfjord.
- October 26, 2011 REC officially announced the permanent closure of three of its photovoltaic production plants in Norway. The plants included RECs 500 MW wafer facility in Herøya, its 275 MW wafer multi plant in Glomfjord, and its 180 MW solar cell plant in Narvik. Around 700 employees will be affected by the decision. Overall, REC estimates that the total cost of closing down the facilities will be NOK 400 million.
- March 21, 2012 REC decided to permanently close down its 300 MW monocrystalline wafer plant in Glomfjord. 200 employees were affected.
- April 24, 2012 REC announces it will close the last of its wafer operations in Norway, thus affecting 460 employees.