SolarWorld bets big on U.S.

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The extent of German manufacturer SolarWorld‘s dependence on the burgeoning U.S. market was laid bare in the latest financial update released by the company.

According to the figures for the second quarter and first half of this year, ebullient chairman Frank Asbeck appears to have turned around the supertanker through a combination of the company restructuring he drove through last year and backing from the Qatar Solar group which now owns 29 per cent of the Bonn-based company.

And, like generations of rock stars since the Beatles, Asbeck was astute enough to realize the U.S. market was the key to success, with the figures highlighting the importance of trading across The Pond as well as backpedalling from the accounting used to illustrate why the company restructure was such a success, in order to relieve year-on-year comparisons.

Revenue from the U.S. rose from €70.3 million ($78.5 million) in the first six months of last year to €175.3 million ($195.8 million) from January to the end of June and, with corresponding inflows from Germany, the rest of Europe and Asia falling, it is clear which side SolarWorld’s bread is buttered – as well as why Asbeck’s group lobbied so strenuously to maintain anti-dumping and anti-subsidy tariffs on Chinese products shipped to America.

Shipments to the U.S. rose from 113 MW in last year’s first half to 440 MW in the same period this year with trade shipments in modules and kits doubling on the same comparison and SolarWorld will continue to bet big on the U.S. as it expects solar capacity to grow from 6.2 GW to 8.1 GW in the States this year, on the back of a further 30 per cent rise until the end of the year.

China is for the Chinese

Although China is, rightly, acknowledged as the world’s biggest solar market, it is airily dismissed as "only accessible to domestic providers," with SolarWorld targeting production capacity expansions of 170 MW of modules, 100 MW of cells and 250 MW of ingots at its U.S. production line in Hillsboro, Oregon whilst announcing plans for only 100 MW more module production capacity in Arnstadt, Germany, and nothing for its third manufacturing site, at Freiberg, also in Germany.

With the company announcing its U.S. production capacity will expand from 380 MW to 550 MW by the final quarter of the year, Asbeck will be an interested spectator in next year’s U.S. presidential election with Democrat candidate Hillary Clinton pledging to install 500 million solar panels from 2016-20, if elected, as well as extending the federal income tax credit (ITC) for solar, which is due to fall from 30 per cent to 10 per cent at the end of next year. The management board, too, makes reference in the update to the fact SolarWorld’s risk position is still ‘high’, due in part for the potential of the regulatory environment to worsen for solar, although the support for solar by right-wing groups in the U.S. attracted to the idea of going ‘off the grid’ muddies the picture somewhat.

The other most noticeable aspect of SolarWorld’s update is a yawning gap in the first-half figures, with net income falling from €497.9 million ($556 million) in the first six months of last year to a loss of €25.5 million ($28.5 million) in the comparative period this year.

The company explains away that horrific-looking disparity by dismissing the ‘restructuring profit’ of €555.7 million ($620.6 million) booked in last year after injections of cash from Asbeck, his Qatari backers – who pumped in a further €5.2 million ($5.8 million) of equity in the first half of this year – and an increase in shares issued.

When an income boost is a bad thing

SolarWorld is also stripping out the €136.1 million ($152 million) ‘preliminary estimate’ of earnings booked from an expanded capacity after Asbeck’s group bought Bosch Solar‘s production lines, from last year’s first-half EBITDA figure, – with the Bosch deal also including a €15 million ($16.8 million) sweetener for the purchaser – as well as writing off a further €36.1 million ($40.3 million) income boost from a renegotiated supply agreement last year as a one-off.

Looking ahead, SolarWorld has announced its intention to continue its focus on quality by expanding production capacity for its more costly, high-efficiency passivated emitter rear contact (PERC) cells with the group already claiming to be the world’s biggest PERC cell maker, thanks to its 430 MW U.S. capacity.

With Asbeck highlighting the debut of SolarWorld’s first bifacial module and the company having achieved the impressive trick of adding 110 new employees from the first half of last year whilst raising revenue per employee from €84,000 ($94,000) to €113,000 ($126,000) as well as announcing an intention to ship more than 1 GW of products this year, bring in more than €700 million ($782 million) of revenue and achieve positive EBITDA, all seems rosy in the Asbeck garden.

Only a churl would point out the management board rates the economic position of the group as "challenging" but that may have something to do with the elephant in the room mentioned on page 39 of the 44-page financial update.

That relates to the not-insignificant claim by a silicon supplier against SolarWorld subsidiary SolarWorld Industries Sachsen, for not fulfilling commitments to buy silicon. The potential cost of losing the lawsuit – an eventuality given short shrift by SolarWorld – would come in at $676 million. Investors will be hoping the company’s faith in its position is justified.