At the time of the PV Crystalox Solar plc interim results on 27 August 2015 the Board indicated that it was to carry out a strategic review of the business which it intended to complete by the end of 2015. The review was to take account of the Group’s cash position and production cost structure, industry overcapacity and the prospects for rational pricing returning to the market. As a result of recent positive developments in the PV market environment the Board have decided that it would be prudent to extend the review period to assess the ongoing impact of these changes on the Group’s business.
PV market conditions have been extremely challenging for several years with industry overcapacity depressing prices across the value chain. However, the spot price for wafers, the Group’s primary product, has shown some modest recovery during recent months while the price of polysilicon, the key raw material, has fallen to historical lows and is still declining. The net result of these divergent trends is that wafer prices now exceed the Group’s cash cost of production. The Group has significant polysilicon inventory and under current circumstances conversion into wafers is now a more favourable option than trading the surplus polysilicon at market prices.
In common with most PV companies the Group has been burdened by long term polysilicon purchase contracts with prices considerably in excess of market prices. The Group has enjoyed good support from its two suppliers and has been able to negotiate adjustments to contract pricing. The Group has now concluded its obligations under the largest contract and took delivery of the final shipment of polysilicon under that contract in December 2015. Shipments under the remaining contract are scheduled to continue until late 2018 but the planned quantities are consistent with current production volumes.
The Group has one outstanding long term sales contract but the customer which is one of the world’s leading PV companies, has failed to purchase wafers in line with its obligations. Despite extensive negotiations it has not been possible to reach a mutually acceptable agreement and a request for arbitration was filed in March 2015 with the International Court of Arbitration of the International Chamber of Commerce. The evidentiary hearing of the arbitral tribunal is now scheduled to take place in Frankfurt in July 2016.
In December 2015 the French government announced the results of its CR3 tender and awarded 800MW of PV projects which must be completed within a two year period. The carbon footprint of the complete module is a critically important factor for these projects. Accordingly, the Group expects to be well positioned to benefit as the low carbon footprint of our wafers is more favourable than product from competitors based in China and Taiwan.
Previously the Group has carried out wafering at subcontractors in Japan as well as at the Group’s own in house facility in Germany. In view of both the marked decline in cell manufacturing and the Group’s lack of an active customer base in Japan, wafering in Japan was suspended during 2015. Instead the Group’s focus has shifted to in-house wafer production where considerable progress has been achieved in cost reduction. As a consequence of these changes the Group decided to wind up its Tokyo based subsidiary at the end of 2015.
The Board remains mindful of the need to protect shareholder value and accordingly believes that extending the period of the strategic review is in the best interest of shareholders, especially in view of the judgement of the arbitral tribunal which is expected before the end of 2016.The Group expects to release its preliminary results for the year ended 31 December 2015 on Thursday 17 March 2016.