Renewable Energy CEO Discusses Q3 2010 Results - Earnings Call Transcript

Renewable Energy CEO Discusses Q3 2010 Results - Earnings Call Transcript
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Renewable Energy Corporation (

RNWEF.PK

)

Q3 2010 Earnings Call

October 27, 2010 8:00 AM CET

Executives

Ole Enger – President and CEO

Bjørn Brenna – Chief Financial Officer

Mikkel Tørud – Vice President and Investor Relations Officer

Analysts

Truls Engene – Seb Enskilda

Einer Evensen – DnB NOR Markets

Preben Rasch-Olsen – Carnegie

Anders Rosenlund – ABG Sundal Collier

Presentation

Ole Enger

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Okay. Good morning, everybody. And welcome to the Third Quarter Result Presentation for REC. We will do it the way we usually do it. We start up with a operational review, as well as, some few remarks related to the market and then Bjørn Brenna, our CFO will go through the financials, and then we will have some conclusions and remarks related to the outlook for the fourth quarter.

So, let’s start out with the highlights. The revenues in the third quarter amounted to about 3.8 billion, up 37% from the second quarter. We had strong demand for all REC products during the quarter and also there was minor changes to the average prices for the different products. So we cannot complain about the market in the third quarter.

As far as the results are concerned, the EBITDA amounted to 827 million, up from the 455 we had in the second quarter. EBIT was 155 versus 146 minus, so some progress there. The results are positively affected by higher sales volume and a good ramp-up in Singapore. And on the other side, negatively affected by the power outage we had in our Silicon operation, as well as the restructuring costs in Sweden in relation to our Module production in Glava.

We do see continued operational improvements also in Scandinavia that is in Norway, except for the Mono operations, which is still very much disappointing. I’ll get back to this later.

Net financial items are negatively impacted by currency we had it the other direction last quarter. This quarter negatively impacted and also of course this relates to the fair value adjustment our convertible bond. And that’s the way it is when results are improving and stock prices are increasing, the option value of the convertible is also up and it’s good for the shareholders but then we have to hit on the company, that’s how it is.

Okay. That’s as far as the highlights for the quarter are concerned. That was the wrong direction.

A few words about the market. As I said, the demand in the solar market continued to be strong in the second and the third quarter and the market has been better than most of us had expected in the third quarter and that seems to continue into the fourth. As far as prices are concerned, we do not see much change moving from the third into the fourth. So both volume wise it’s a very good balance in the market between supply and demand, and so demand is good and the prices are very, very stable for the moment.

As far as next year is concerned, of course, there is much more uncertainty and first quarter there is some visibility. We do expect the market to be reasonable in the first quarter when it comes to demand, volume side both for modules, as well as for wafers but prices are expected to decline. But we do expect, as far as, module prices are concerned, prices to decline probably less than the reduction in the Feed-in tariff in Germany which is 13%, but prices are likely to come down.

And as we also can see from the right part of the slide here, the demand in 2009 was 7-gigawatt. This year probably will double to roughly 14, 15-gigawatt, which is very impressive, 100% volume increase and this year, as I said a fairly good balance between supply and demand.

As far as 2011 is concerned, there are many opinions out there related to the probable volumes, I personally have become more and more careful about making forward-looking statements related to the market. We have been wrong so many times, someone have to be careful. But according to the sources we have used here, the estimate is on the demand side between 14 and 20-gigawatt. I must say that personally I think we have to be prepared for the lower rather than for the higher number, I think, also that is more likely.

We all know what’s going on in Germany, we have had a fantastic year, this year, but I think it’s almost too good to be true that this will continue into next year. So I think we have to be more modest when it comes to the outlook for next year. Supply will continue to increase 30%, 40%, that’s what is in the pipeline and that’s quite certain.

So, as I said, 2010 is characterized by a very good balance between supply and demand. We do expect supply to increase more next year than demand and therefore naturally lower prices. That’s what we have to expect and as I said, we have to prepared -- be prepared for the lower.

Then let us turn to the different divisions and have an -- give you an overview of the operation, staring with Silicon. And total polysilicon production in the third quarter amounted to almost 3400 metric ton, of which 2700 is solar and electronic grade. And we see a good increase from the previous quarter.

As far as the Silicon operation is concerned, the pattern is very much like we have described earlier. The capability of the FBR process we are very much convinced about. However, we do struggle somewhat with the stability of the process and that is mostly related to the silane part not to the FBR part. So surprisingly enough, our challenges have not been on the FBR part that’s running very well. However, we have had some stability issues related to the silane production.

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