REC’s annual report makes grim reading


The full-year figures make familiarly grim reading with rising sales and shipping volumes only partly mitigating steepling revenue declines as REC‘s attempts to cut costs failed to match plunging solar system selling prices in a damaging race to the bottom being mirrored worldwide.

The 2012 figures were enough to see off chairman Jens Ulltveit-Moe, who was replaced by Mimi Berdal in February and it is easy to see why.

Although polysilicon sales rose 16% on 2011 to 21,700 MT, the poly selling price fell 39% during that period and it was a similar story in the panels business where a 31% rise in sales and a 34% reduction in manufacturing costs at REC's Singapore production facility still added up to a 30% fall in revenue to NOK4 billion (US$694 million) for the division.

With REC's silicon business experiencing a 42% drop in revenue to NOK3.3 billion, the bottom line figures were a NOK6.6 billion loss after tax with group revenue down 25% to NOK7.1 billion and EBITDA and EBIT suffering similarly alarming falls.

Add in an impairment of NOK6.5 billion, mainly thanks to an inflated valuation of the company's U.S. silicon business, and that is a lot of red ink.

The message from the Norwegian manufacturer – which wound down its wafer business during 2012 – is one of a continuing emphasis on cost reductions, in improving the performance of its products and in diversifying markets.

The last point will be pretty high up the list of REC's new chairman, with 79% of the company's panel sales in 2012 concentrated in increasingly moribund European markets, including 36% in Germany and 23% in a stagnant Italy. With the U.S. accounting for 9% of panel sales and Australia 5%, an alarmingly low 7% of REC's panels were sold to the rest of the world segment that is key to survival.

The silicon business is at least in a healthier state with only 4% of sales of REC polysilicon outside China, Japan, Taiwan and the rest of Asia.

The downbeat figures at least saw the manufacturer reduce net debt from NOK4.7 billion in 2011 to NOK1.8 billion in a balance sheet, which lists total assets of NOK13.8 billion, down from NOK24.5 billion, and total current liabilities of NOK6.6 billion, a figure which halved from NOK12.3 billion during 2012.

With REC having reduced its credit facility from an undrawn NOK2 billion to a rolling NOK400 million with an additional NOK400 million guarantee, at least the company’s fiscal discipline appears to be tightening.

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