Canadian Solar: Bad debts and arbitration hit the accounts

With Canadian Solar’s net loss from operations more than doubling in the final three months of the year, from US$43.3 million in Q3 to $104.8 million, and over the full year, from $90.9 million to a huge $195 million, Shawn Qu, chairman and CEO of the module manufacturer was nevertheless bullish in his remarks about the company’s outlook and even prepared to have a not-so-sly dig at his firm’s competitors.

Canadian Solar’s confidence is based on its dismissal of more than $61 million of write-offs for bad debts and the result of an arbitration decision against it by LDK Solar.

Remove that $61 million aberration, which the company is obliged to include in its accounts under generally accepted accountancy practice and the outlook is more healthy, or so Canadian Solar claims.

However, revenues also fell from $326 million at the end of September to $295 million in the final three months of the year and suffered a year-on-year decline of $600 million to $1.3 billion, thanks to tumbling module selling costs.

The figures show Canadian Solar was forced in the final quarter of 2012 to include a $31.2 million "allowance for doubtful accounts", which included an $18.6 million question mark over just one Chinese client with "liquidity issues". On top of that, the company has had to set aside $30 million in relation to the decision against it by the Chinese International Economic and Trade Arbitration Commission, which Canadian Solar says it is contesting.

There are positives in the figures with the volume of modules shipped rising from 1.32 GW in 2011 to 1.54 GW, leading the company to predict shipments of between 290 MW and 310 MW from January to March 2013 and 1.66 GW to 1.86 GW in 2013.

Of those modules, the amount shipped to Japan trebled in the last three months of 2012 and the company is continuing to diversify its markets away from an increasingly moribund Europe with the proportion of revenue raised from Asia and other markets rising to 39.4% from 27.2% in Q3, and 26.6% in the last three months of 2011.

Best of all, Canadian Solar is developing 29 projects totaling 400 MW in Ontario with two ready for sale, another seven coming to market this year, a further 18 in the pipeline next year and two more in 2015. The company values the utility-scale portfolio in the province at C$1.5 billion (US$1.47 billion), as it continues to expand into the mid and downstream sector.

That led Qu to cock a snook at his rivals, stating in the press release announcing the figures, "Moving forward, we are uniquely positioned as we do not have to carry the baggage of underperforming polysilicon manufacturing assets and the liability of large long-term supply contracts that some of our competitors have."

That is certainly true – it was the cancellation of one such long-term supply contract with LDK Solar, which landed Canadian Solar with its arbitration reverse.

The focus will be on profitability rather than market share in 2013, added Qu in another barb at rival manufacturers, with the aim to be to return to profitability for the full year in 2013.

That is an ambitious target with the fall in revenue leading gross profits, even before those inconvenient admin charges are added, to plunge by more than half from $182.2 million in 2011 to $90.3 million last year.