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PV Crystalox Solar PLC Interim results to 30 June 2016

PV Crystalox Solar PLC Interim results to 30 June 2016



·    Favourable Industry environment in H1 2016 followed by rapid deterioration at the start of H2

·    Wafer shipments were 59MW (H1 2015: 104MW)

·    Group has traded increased volumes of excess polysilicon feedstock

·    Significant reduction in polysilicon inventory and consequent release of cash

·    Net cash has increased by €12.1 million since 31 December 2015 to €24.8 million

·    ICC arbitration evidentiary hearing postponed until November 2016

Financial Overview

·    Revenues €34.7m (2015: €33.4m)

·    Profit before taxes (EBT) €4.7m (H1 2015: Loss €(9.5)m)

·    Net cash €24.8m (31 December 2015: €12.7m)

·    Inventories €12.7m (31 December 2015: €23.2m)

Iain Dorrity, Chief Executive Officer, commented: “The extreme pressure on pricing which has developed in recent weeks would appear to prevent any continuation during H2 2016 of the profitable performance seen in the first half of the year.  If adverse market pricing persists it will be necessary to reconsider the merits of the continued extension of the review in order to protect the interests of shareholders.

Chairman and Chief Executive’s joint statement 

Market environment

PV market conditions have been very challenging for many years but the gyrations in pricing have been particularly extreme during the year to date.  The situation has been further exacerbated in recent weeks as a slowdown in PV installations in China has weakened demand and caused a dramatic worsening of the market environment with oversupply across the value chain and falling prices.  

Wafer prices, which had risen progressively from the low point seen in July 2015, peaked in Q1 2016 and were relatively stable during April and May. They have plunged since then to reach new historic lows which are well below industry cash production costs.  Polysilicon pricing which had declined week on week during 2015 reached a low point during Q1 2016 and then surged rapidly to recover to levels previously seen in mid 2015.  Consequently the relatively favourable conditions, experienced by wafer makers in Q1 2016, have changed dramatically with current wafer pricing declining by around 15-20% while polysilicon input costs have increased by a similar factor. 


Following the suspension of subcontract wafer production in Japan during 2015, the Group has focused on wafering at its own facility in Germany, where the cost structure is more favourable, and has effectively been operating with reduced production output in comparison with recent years.  Wafer shipments during H1 2016 were 59MW (H1 2015:104MW) with an additional 8MW shipped as blocks for wafering by our customers.  The Group had significant polysilicon inventory at the end of 2015 which was written down to market values at that time.  Due to the low polysilicon price and favourable wafer market conditions the average wafer sales price was above the cash cost of production (including direct labour) during H1 2016. 

The Group’s wafers have previously benefited from demand for use in the French PV market where incentives, in the form of higher feed in tariffs, were offered to end users when two out of the three parts of the manufacturing process (wafer/cell/module) are carried out in the EU.  In December 2015 the French government announced the results of its CR3 tender, which will replace the current scheme, and awarded 800MW of PV projects which must be completed within a two year period.  Under the new scheme, the carbon footprint of the complete module becomes a critically important factor.  The Group expects to be well positioned to benefit from this scheme as the low carbon footprint obtained by wafering in Germany is more favourable than wafers produced in China and Taiwan.  This niche market may provide some respite from the pricing pressure which is currently ravaging the PV industry. 

The Group has continued to be successful in trading polysilicon in order to reduce its inventory and was able to take advantage of the favourable polysilicon trading which occurred during Q2 when pricing peaked. 

Polysilicon contracts

The Group was previously burdened with two long term contracts for purchase of polysilicon but its obligations under the largest contract were concluded in December 2015.  The one remaining contract with a different supplier was originally agreed in 2008 when polysilicon prices were around four times current spot levels.  Following successful negotiations in 2014, the contract was amended to adjust both the pricing and the volumes and to extend the purchase period until 2018.  The purchase price is above current spot levels but to date the supplier has remained supportive and permitted deferral of a significant proportion of scheduled shipment volumes. 

The combined effect of the polysilicon trading, the conclusion of the Group’s major polysilicon purchase contract obligation in 2015 and the deferral of a significant proportion of scheduled shipment volumes under the remaining contract has resulted in a 60% reduction in the polysilicon inventory and a significant improvement in the Group’s net cash position. 

Wafer supply contract

The Group has a significant outstanding long term sales contract with one of the world’s leading PV companies which has failed to purchase wafers in line with its obligations since 2013.  The supply contract was signed in 2008 and related to wafer shipments over a seven year period with prices which reflected market prices at that time and which are considerably above current levels. 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 had been scheduled to take place in Frankfurt in July 2016 but following a request by our customer the tribunal agreed to postpone the hearing until November 2016. The judgment of the arbitral tribunal is now expected in early 2017 and while the outcome is uncertain, the value of any award if our claim is upheld could be a multiple of the Group’s market capitalisation. 

A partial resolution of the other outstanding wafer supply contract, with a customer which entered insolvency and where shipments stopped in 2012, has now been achieved.  Claims had been registered with the administrator and an interim settlement of €0.96m was eventually received during H1 2016.  A final payment is expected to bring our final claim up to €1.5m although the timing is uncertain. 

Financial Review

In the first half of 2016 Group revenues of €34.7 million were 4% higher than in the same period in 2015 (€33.4 million) despite a 43% decline in wafer shipments. This increase was mainly due to the trading of larger volumes of polysilicon than in H1 2015. 

The Group’s gross profit at the end of the period was €6.2 million (H1 2015: gross loss of €5.5 million). Two factors contributed to this positive margin in 2016: sales of excess polysilicon inventory at prices above the 2015 year end valuation as a result of the rebound in polysilicon spot prices during Q2 2016 and stronger wafer sales prices during the period.  During H1 2015 the Group was purchasing polysilicon under its onerous long term contracts and changes in polysilicon spot prices at that time meant that an additional provision of €5.2 million affecting cost of materials was required. 

The Group’s profit before interest, taxes and currency gains was €2.2 million (H1 2015: loss of €11.3 million). This return to profitability was mainly driven by the increase in gross profit and to a lesser extent due to an increase in other income, and a reduction in other expenses. 

Other income of €1.8 million was €1.1 million higher than the €0.7m recognised in H1 2015 mainly as a result of settlements relating to long term contracts where customers had entered insolvency.  Other expenses were €0.4 million lower in the first six months of 2016 due to a lower level of fees, in relation to arbitration proceedings, and lower costs as a result of closing the Group’s Japanese subsidiary at the end of 2015.  

After including currency gains the Group’s profit before interest and taxes was €4.7 million (H1 2015: loss of €9.2 million). 

The Group’s net cash position at the end of the period was €24.8 million, which was €12.1 million higher than the net position of €12.7 million at the start of the year. The Group was successful in reducing its inventories by €10.5 million from €23.2 million at the start of 2016 to €12.7 million at the end of June 2016. 

The Group’s positive cash flow of €12.1 million was generated mainly through cash inflows from adjusted profit before taxes of €5.5 million and a positive inflow from changes in working capital of €8.1 million partly offset by negative foreign exchange rate changes on cash of €1.2 million. 

Risk Factors

The principal risks and uncertainties affecting the business activities of the Group were identified under the heading “Risk management and principal risks” in the Strategic Report on pages 10 to 11 of the 2015 Annual Report, a copy of which is available on the Group’s website, www.pvcrystalox.com. In the view of the Board the key risks and uncertainties for the remaining six months of the financial year continue to be those set out in the 2015 Annual Report. 

Market Drivers

The three major market analysts are in agreement on the forecast level of global PV installations in 2016 although they differ on regional market sizes.  The forecast of between 66 and 68GW represents double digit growth over installations in 2015.  Growth in Asia remains the key driver with China and Japan expected to account for almost half of global installations and India expected to become one of the top five markets in 2016.

There has been little change in the disputes that have plagued the PV industry in recent years.  China has maintained its anti-dumping duties of up to 57% on polysilicon imports.  The highest duties are applied to imports from the USA while some Korean companies receive only relatively modest duties of 2.4%.  In April the Chinese Ministry of Commerce announced that it would extend duties on imports from the European Union for a further year although German company Wacker Chemie was again spared duties because of “price commitments” given by the company.

The USA maintains duties on imports of Chinese modules which were first imposed in 2012 and subsequently adjusted in July 2015.  Most tier 1 companies received modest cuts to anti-dumping rates which were partially offset by increases to anti-subsidy rates. The net outcome is that combined tariffs of around 30% are now applied.

The European Commission (“EC”) has launched an expiry review of anti-dumping measures imposed on imports of Chinese PV modules which were introduced in 2013.  The measures which included a minimum module price (“MIP”) of €0.56/W agreed in a negotiated settlement were due to expire in December 2015.  Following complaints that it was likely that dumping would resume if the price agreement was removed, it was agreed that the measures will continue while the EC conducts an investigation, which must be completed by March 2017.  However, the effectiveness of the MIP is now minimal as many Chinese companies have withdrawn from the undertaking following their shift of production outside China to other countries in Asia.

The EC has also warned China that it will reassess the future of the MIP due to a pattern of continuing breaches of the MIP agreement where companies were selling at prices below those stipulated in the price undertaking.  EU documents show that a further three Chinese manufacturers have recently been removed from the price undertaking agreement between the EU and China. 


In view of current adverse market conditions where wafer prices are well below production costs, the Group has significantly reduced wafer shipments but is maintaining production output. The Board advised earlier in the year that it was extending the period of the strategic review in view of the improved market conditions that positively impacted the Group’s competitive position at that time.  The extreme pressure on pricing which has developed in recent weeks would appear to prevent any continuation during H2 2016 of the profitable performance seen in the first half of the year.  If adverse market pricing persists it will be necessary to reconsider the merits of the continued extension of the review in order to protect the interests of shareholders.

Anand Gupta Editor - EQ Int'l Media Network


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