14 March 2012

Solar slowdown prompts 5N Plus’ $45.6m write down and idling of panel recycling plant

5N Plus Inc of Montreal, Quebec, Canada, a producer of specialty metal and chemical products, has reported results (in US dollars) for the quarter to end-December and for the fiscal year (which comprises just seven months, due to a change in fiscal year-end from end-May to end-December).

5N Plus focuses on specialty high-purity metals such as tellurium, cadmium, selenium, germanium, indium and antimony and also produces related II-VI semiconducting compounds such as cadmium telluride (CdTe), cadmium sulphide (CdS) and indium antimonide (InSb) as precursors for the growth of crystals for electronic applications, including solar photovoltaic, radiation detector and infrared markets. In addition, in mid-April 2011, 5N Plus paid $317m to acquire MCP Group SA of Tilly, Belgium, a producer and distributor of bismuth and bismuth chemicals (with a 50% global market share) as well as other specialty metals (including gallium, indium, selenium and tellurium).

Consequently, revenue for the quarter of $149.4m was up 674% on $19.3m for the quarter to end-November 2010. Revenue for the seven-month fiscal year was a record $391.7m. The backlog of orders (expected to translate into sales over the next 12 months) was $223.2m at the end of December. This compares with revenue of $180m for the prior 12-month fiscal year (to end-May 2011) but a corresponding order backlog of $263.7m (higher than the current order backlog).

“We did experience a significant softening in demand for most of our products, resulting partly from a greater year-end seasonality in the markets of the recently acquired MCP Group and to a larger extent from the impact of the general downturn in the economy,” says president & CEO Jacques L’Ecuyer.

“Seasonality was most strongly felt in the Eco-Friendly business unit, where we experienced a decrease in our sales,” he continues. “Demand also softened to a lesser extent in our Electronic Materials business unit as a result mainly of lower-than-anticipated sales of gallium-based products. We also incurred significant impairment costs in this business unit as we wrote-down our tellurium inventories by $21.5m and wrote-off our fixed assets in Wisconsin [a solar module recycling facility in DeForest, WI],” he adds. “We also chose to write-off our investment in Sylarus, given the current conditions in the solar market.” In January 2011, 5N Plus acquired a majority stake in Sylarus Technologies LLC of Saint George, UT, USA, which produces germanium substrates for manufacturing multi-junction compound semiconductor photovoltaic cells. “Such impairment charges, although required under IFRS accounting rules, could be partially or totally reversed in the following quarters if market conditions improve sufficiently, leading to a larger than normally expected variability in our financial performance,” L’Ecuyer notes.

Impairment charges totaled $45.6m in the quarter and $46.9m for the seven-month period, resulting mainly from the current turmoil in the solar market and the corresponding impact on the selling price of solar-related products and the value of fixed assets used to manufacture or develop such products, says the firm. Specifically, the charges include total write-offs of fixed and intangible assets amounting to $12.2m and total inventory write-downs of $33.4m in the quarter and $34.8m for the fiscal year.

Net losses (attributable to equity holders of 5N Plus) for the quarter and seven-month fiscal year were $37.2m and $21.6m, respectively. This compares with net earnings of $6.5m for the quarter to end-November 2010 and $21.9m for the 12-month fiscal year to end-May 2011.

“Our integration of MCP activities is continuing as planned. Efforts are now largely aimed at improving overall operational efficiency and at reducing costs as we aim to right size our activities and eliminate redundancies,” continues L’Ecuyer. The firm has idled its solar module recycling facility in Wisconsin until further notice. “We have cut back on our workforce and are implementing a number of cost-reduction initiatives and expect to continue doing so for most of the 2012 fiscal year... This effort, together with a number of investments that we recently announced, should enable us to be very well positioned for future growth,” he believes. During the last quarter, 5N Plus acquired the outstanding 40% ownership interest in its joint venture Laos Industrial Resources Co Ltd.

Also, 5N Plus has entered into a revised CdTe supply agreement with First Solar Inc, which comes into effect on 1 April and replaces three existing supply agreements between 5N Plus and First Solar. The new agreement, which is evergreen in nature, provides that 5N Plus will supply substantially all of the CdTe required by First Solar in its manufacturing of photovoltaic modules on a worldwide basis. Pricing in the new supply agreement has been adjusted downwards from the existing agreements in line with more competitive environments in both the solar and material-feedstock markets. Either party can terminate the new agreement by providing two-year advance notice, which in the case of First Solar will be effective only after a minimum quantity of CdTe has been purchased.

“We are pleased to have strengthened our relationship with our main customer in the solar market, First Solar, in an extremely challenging environment,” says L’Ecuyer. “We expect our new supply agreement with First Solar to be in effect for a number of years and, although we have had to adjust our terms and conditions to reflect the new market dynamics, we are confident that we are now better positioned than ever to take advantage of growth opportunities in the solar market,” he adds.

“We remain very confident of our ability to continue growing our company,” says L’Ecuyer. “Preliminary results for the current quarter suggest that sales and earnings are reverting back to more standard levels when compared to the quarter ended December 31, 2011, further highlighting the detrimental impact of the year-end seasonality. We are also reducing our cash requirements and have correspondingly downsized our credit facility [from $250m to $200m] to better match such requirements,” he adds. “We remain a well-diversified corporation with a large number of customers, a broad range of products and a very unique skillset and asset base,” L’Ecuyer concludes.

See related items:

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