Scalper1 News
Executives Tore Torvund – President & CEO Francine Sullivan – Chief Legal Officer James May – CFO REC Silicon ASA ( OTCPK:RNWEF ) Q3 2015 Earnings Conference Call November 4, 2015 3:00 AM ET Operator So welcome all to you overview of this Q3 2015 presentation. To get in with me today I have friends in Francine Sullivan, Chief Legal Officer, he is the one who some has mainly worked with the trade dispute, mainly in the U.S. but also in China. He will give an update on where we are on that part of it. And then James May, our CFO will cover the more details financial numbers. This is the first time how been critical with a company now for almost more than six years and it for the first time we have a negative EBITDA in this company. Hopefully it will be the last time I will have to present these numbers. But we lost on EBITDA basis $14.1 million in Q3. The main reason was low prices space, basically there is low prices in the polysilicon market particularly for REC, it is the fact that we are now left out of the Chinese market due to the trade disputes, trade war between the U.S. and China. And that means that basically we have to discount the price of our polysilicon to find buyers outside China because only 20% of the total volume are traded outside China, 80% inside China. If you would like to look for some positives in these numbers, the fact that we were able to reduce our inventory by about 1000 metric tons is positive. Two reasons for that we sold more and we produced less due to the fact that we shut down part of our capacity in Moses Lake in July this year. The second positive is basically on the silicon gas side we improved the price by some 17% compared to Q2 and we are back to the level we were in Q1. The negative on the silicon gas side is that we sold 80 metric ton less than what was the guidance from our side. Because [indiscernible] key metrics I will cover the deviation on the cash cost, and I will cover also the deviation on the silicon gas in more detail. When you look through the production volume, it is almost on spot with the guidance we gave in July, but on the silicon then delivered for the semiconductor market we see that we have a deviation of some 15% negative and that is due to the fact that due to the general slowdown in the economy. There is less PC’s produce, there is less electronic gadgets produced and that makes demand for the polysilicon for the semiconductor market less than what it was used to be. There is also some inventory build, so also the semiconductor market is weak compared to what it used to be. As you remember we announced last quarter that we were going to reduce the capacity in Moses Lake due to the fact of the trade war. We did that by your July 25th, and we have been into an extended maintenance for the silicon three silent unit in Moses Lake. This unit is now undergoing maintenance and we do it this time with our own employees so we don’t need to lay off people. And we are not using contractors normally such an outage will last for four weeks. This time we will have more than three months to do it. And we have done it with our own employees to reduce the spending basically we now run the company where cash is king in terms of keeping the company in good health. Reduced capacity means higher production cost, we came in $13.80 which is not the real number because we had one off opportunity from property tax. So basically the cash cost is more equal to what we guided on $15.20. The polysilicon market is very weak. The reason is very simple, oversupply. There has been an inventory build in the spot market in China. Polysilicon has traded around $15 in this quarter. We have had to give a discount of about $2 to $2 per kg because basically we don’t get access to the Chinese market and that’s why we’re basically need to find customers outside and they know our situation and definitely we have to discount the price to be able to sell the volume. So basically weak market, together with the trade war means very low prices for our polysilicon. We see now that basically there is some strength in the market so far this quarter. It has been easier to find customers we don’t see price movements yet but basically in the value chain. It seems that the inventory has gone away and it’s a strong market going forward. Hopefully we will also enjoy some increases in prices due to this increased demand for polysilicon. On the silicon gas side we delivered 642 metric ton which was 80 ton less than what we guided on. We guided on 720, two main reason, one reason why we didn’t meet our guided number. There is still strong turbulence in the market due to the port issue or the port slowdown we had on the West Coast of the U.S. in first and second quarter. Some of our customers have decided or they decided to go for other suppliers because there was some fear that we were not able to deliver to our obligations due to the fact that we were not certain that we could be able to ship out of the U.S. The second reason is that we sold forward more than 900 metric ton all together in Q2. Some of this silent sold forward will be then distributed during Q3, Q4, and Q1 next year. So basically the sales will be in the impacted by this forward sale in the next two quarters as well. The positive sign is that we’ve got 17% higher price for the silicon gas and the underlying strength of the silicon gas is very good. The prices seems to be stable and we are able to defend our market share in this very interesting market as such. Then Francine I will ask you to give you an update on the trade dispute, as said. Francine has been the one who has dealt with this within polysilicon for the last two years. Francine Sullivan Okay. Good morning. My name is Francine Sullivan. I am the Chief Legal Officer at REC Silicon and I will give you a brief update on these trade matter because this potentially being some positive developments in this matter recently. Now you will recall that this trade war arose out of some tariffs that the U.S. government imposed on Chinese solar panels issuant to trade cases bought by SolarWorld against Chinese panel makers. Sometime ago back in 2012 in response to that the Chinese imposed retaliatory tariffs against U.S. polysilicon including REC silicon. Now recently in August 2015 SolarWorld and the Chinese panel makers managed to settle or reach an agreement on terms to settle the underlying dispute in relation to the panel trade case. Now that deal is a confidential deal, not much is known about the terms of that deal but we know that the withdrawals of the tariffs against Chinese solar panels and improves the market access for Chinese solar panels in the U.S. Now the issue that these parties have and that is SolarWorld and the Chinese panel makers is that they can’t make their deal effective on their own they need the U.S. government to consent and agree to this deal before this deal can be effective. Now the U.S. government have imposed a condition on agreeing on this deal and that condition is that China make a similar deal committing U.S. polysilicon makers to have reasonable market access once again in China. So what the U.S. government wants is a package solid deal. It will not implement the panel deal unless there is a deal for U.S. polysilicon makers and that is all U.S. polysilicon that permit U.S. polysilicon to have reasonable market access once again in the U.S. Now there hasn’t as I said, panel deal is confidential. There hasn’t been much information around about it. However you may have seen in the media last week that nine U.S. senators and six U.S. Congressman issued a letter to the Chinese Ambassador calling for a trade settlement on solar and in that letter they highlighted the fact that this panel deal was made, this panel deal on the table, it was available to the Chinese and it has a lot of benefits for the Chinese and that the U.S. government condition on implementing that deal is that a polysilicon deal must be made. Now in terms of bringing this package deal to fruition, the U.S. government and China have had a lot of discussions recently and those discussions intensified around the time of the Xi Jinping visit to the U.S. in late September. Now those discussions are still ongoing but the Chinese [indiscernible] polysilicon deal and that’s why we haven’t had an announcement to-date that’s why we haven’t got this global deal done because they are holding up the polysilicon pace because they want their cake and they want to eat it as well. They want the panels into the U.S. but they want the panels into the U.S. but they don’t want to make a polysilicon deal. So, just to run even though they drag [ph] in a free just to run you through, just kind of what it means for China. This global resolution package has a lot of benefits for China and hopefully that will lead to the global deal being a reality soon. Now those benefits accrue both on the panel side and on the polysilicon side. On the panel side, the deal gives improved market access, the Chinese panels in the U.S. and this is why they work so hard on the deal. I mean it took the negotiating with SolarWorld for well over a year and those negotiations intensified recently because 2016 is coming and most people connected with the solar industry know that the U.S. panel market will be a very, very attractive market in 2016. So that’s why the Chinese panel makers really want this deal done this year. Now even after 2016 the U.S. is a very valuable market for the Chinese and that’s because it’s a very large market and a diversified market so it’s a reliable market and it will be there for many years to come. Now these duties that are in place in the U.S. at the moment are costing the Chinese tens of millions of dollars a month because basically because of the tariff that they have to collect on top of that price. Now of course if they go forward with this deal those costs go away and those costs are expected to increase in 2016 because of the increased volumes of panels that will come into the U.S. Now in addition to this because of the way the U.S. process works the tariffs against Chinese panels are reviewed every year. So they can go up or down every year and that creates additional problems for the Chinese of course because they have a limited pricing horizon. You know they don’t know what the tariff going to be in the next six months. So it’s difficult to price. The other risk that they face with these ongoing reviews is that if the tariff actually increase then the Chinese importers will be liable to some back pay the retrospective tariff because the way the process works is that it’s a look back so for example the next review will be announced at the end of 2015 and that will relate to panels that came into the U.S. jury during 2014. Now if the duties GD rates increase then the Chinese importers of record will need to collect those additional duties, so this is sort of like an ongoing liability risk with having these duties in place which the Chinese are pretty came to avoid – the Chinese panel makers pretty came to avoid. So if China moves forward with the global deal, all these problems for the panels go away. If they don’t these problems will be around years to come because these duties will be in place for several years to come if there is no deal. In addition to the benefits on the panel side, there’s actually a lot for China to gain on the polysilicon side if it goes for with a global deal and withdrawal the tariffs against U.S. polysilicon. Now Tori will talk to you a little bit later about how the polysilicon market is expected to tighten in coming years. Now that problem will be extenuated in China. If they have limited access to U.S. polysilicon. Recently we’ve seen high in China prices than outside China prices and we’ll see that again. Now that pricing differential of course creates a competitive disadvantage for the Chinese wafer makers and cuts into their margins and what is a very low margin business which you’re probably aware of. So these cost across the industry having his price differential this can run to 100s of millions of dollars across the Chinese industry and this will get worse for them. In addition to this problem with the wafer makers, I guess it’s a related problem and that is that China is creating an issue for itself in relation to wafer capacity additions. Now market analysts expect that there will be wafer capacity additions required shortly because wafer capacity has not kept pace with seller module capacity additions. And those investment decisions will be made very soon if expect PV demand is going to be met in the coming years. Now given this polysilicon problem that they have in China and the fact that these hits their margins in China. It’s more likely that these investments will be made outside of China and we’ll see wafer capacity and wafer demand come up outside of China as a result of this problem. Anyway, there is a number of reasons why this package deal provides a lot of economic benefits for China. There is benefits for the Chinese polysilicon makers if there is no deal, but on balance it seems to me there’s a lot more financial benefits to be had by China by moving forward with the deal. Now in terms of where we’re at actually one additional point on the deal. This is a very important diplomatic problem right now between China and the U.S. This has become a significant trade irritant recently between China and the U.S. and that’s what the letter from the U.S. Senators highlighted last week. Now this trade problem also relates to solar energy and both China and the U.S. are prioritizing solar energy in the lead up to the Paris Climate Change Summit. So there is a lot of diplomatic benefits for China and the U.S. to move forward with this deal. Okay, so in terms of timing and where we’re at there is no deadline, but the discussions are ongoing. And it’s uncertain as to when we will get a deal but as I said there are a lot of benefits for China to move forward with this deal. What we do know is that there is a lot of activity going play on in China right now, there is a lot of discussions basically around this and what this global deal means on balance for China and how they can move forward with this deal. So there’s this sort of this consensus building process going on in China right now. What we also know is that the Chinese minister recently in the last couple of weeks [indiscernible] to the U.S. trade ambassador that China are very interested in moving forward with this global deal. And that they’re working on it. So that has been reiterated diplomatically, so the other thing we know is that 2016 is looming. It’s coming up very soon and that was the impetus for the whole the event which caused this recent chain reaction and this resolution opportunity and that is this is the deal in principle between the Chinese panel makers and SolarWorld back in August. So, the timing is uncertain but there is a lot of reasons on balance why we could have a resolution on his matter. Tore Torvund I will [indiscernible] together with my Board last week and definitely just to add a little bit to Francine definitely this deal which is now on the table it is an advantage for definitely the panel makers in China. It is an advantage for SolarWorld which has moved into having an agreement. It is an advantage for the U.S. polysilicon like REC, the only one do not benefit is definitely the polysilicon makers in China and as you probably know the China is a very consensus oriented society basically what is now going on is that one try to make things work out for everybody. Definitely the panel makers in China is very, very in favor, the polysilicon makers against it and that’s the way it is. What will be the final resolution to it, hopefully for China, Inc. definitely this is a very good deal. But let’s say for the polysilicon that might be – it’s not hard understand that they are fighting against it, but that’s where we are. We are very hopeful. I think we have been able to moving very, very far by resolving the U.S. case. So now it just remains an issue in China. Just to give you an upshort update on the market outlook. We have together with GTM made an update on the demand for solar panels this year and also for the subsequent years, basically GTM think that this year there will be installed 58 gigawatt on a global basis, I think different analysis between 55 and 60 but it seems to be very consensus that is a huge increase from last year where we came in at 44, what remains then to be installed is about 17 gigawatt in Q4. China will install about 6 gigawatt when we meet with customers and analysts in China, it seems like everybody is bullish, that at least it will be 6 gigawatt as Francine alluded to the U.S. market is very strong for gigawatt very interesting definitely for the Chinese panel makers. Japan will be strong this year, it will not be strong next year because now they have restarted a lot of their nuclear capacity and new area which now is coming up is India where Prime Minster Modi’s ambition to install solar panels and solar energy has started to move into to reality. So basically 17 gigawatt in Q4, when you look for the longer term basically there is very bullish view on the market going forward. Basically the reason why, first of all solar is now very competitive compared to conventional ways to make an electricity like nuclear, like natural gas. Coal is definitely cheaper but more and more unacceptable in most areas due to the environmental issues. It is high electricity prices which support installation of solar and distributed solar or electricity generation. We also see that areas where we do not have access to electricity or very limited access to electricity like in Africa and India has been started to be important markets and definitely the cost of capital to support solar. You see that in U.S. you see it elsewhere, that the low cost of capital and all this new coal [ph] opportunities make solar very attractive. So basically we see a 20% increase in the market going forward. Well we do have a lot of insight is on the supply side. Basically we see that additional capacity coming on the coming years will be very limited. There is just one plant which was done as we know it takes about three to four years from an investment decision until you’re up and running and delivering polysilicon. A lot of the investment came in the period of 2008 to 2010 at the time where the EBITDA margin at least 50% plus and everybody believed that this was a huge opportunity to make a good rate of return, basically since 2011 no new investment has been launched and that means that you come to the end of the ramp up of these investments which was decided during that period of time. In 2016, those [indiscernible] facility in Tennessee, 25,000 metric ton which we believe will be up and running probably depend upon a solution to be trade and then it is mainly our JV in China which will add the capacity to this if you combine these two graphs. You will see that basically the access to the polysilicon will probably be what will limit the gross in the market from the second half of 2016 and onwards. So basically if things moves in the direction we believe there will be a tightness we already see the tightness coming up and definitely the limit or the limitation of the growth will then be the axis of polysilicon at least in the next two to three years. Then James for the financials. James May Good morning I’ll be discussing the financial results for the third quarter. First off, revenues decrease by about 6% from 93 million to 87.5 million the decrease was largely driven by lower silicon gas sales volumes, while polysilicon volumes were up. These increases were largely offset by decreases in prices. In terms of polysilicon sales we increased from 3817 metric tons to 4512 metric tons. However because of the liquidation of excess inventories and the uncertainty, the effects of the trade dispute combined to force prices down by about 13%. So revenues in that area were relatively neutral. Polysilicon production was down from 5771 to 3580 metric tons and that’s largely because we curtailed the production in our [indiscernible] facility in Moses Lake beginning in August. At the same time inventories decreased by someone 1000 metric tons is [indiscernible] discuss and discuss the impacts of the cash – the cash flow impacts through this just in a minute. Silicon gas sales volumes dropped considerably about 35% from the high levels that we saw in Q2 is primarily because we executed several or two short term contracts to recapture market share significant discounts. During the second quarter earnings release we indicated that prices would return to near Q1 levels and that was the case we had about a 17% increase so that came to fruition. As Tore discussed we had EBITDA loss of 14.1 million that’s the first loss that either of us has seen and like Tore I hope that we don’t see another one, because of the lower sales prices as well as a higher unit cost caused by the curtailment of production capacity. Those are the primary drivers to push EBITDA down. In terms of cash flow we had positive cash flow from operations of about $8 million the majority of this was caused by some $24 million reduction and working capital investments. The change in working capital was decrease in inventories of about $14.7 million decrease in accounts receivable of about $8 million and higher accounts payable of a little over a $1 million dollars and then we had interest payments of about $2 million. The largest impact to cash flows was the transactions that we executed near the Q2 earnings release to raise cash with the resale of bonds held in treasury for about $10 million in the placement of 230 million shares that raise about $43 million. Resulted in an increase in cash of about $45.5 million and we ended the quarter with $95 million in cash. Terms of our liquidity situation, the nominal debt as it currently stands at $208 million. This is only about a $4.7 million despite the resale of the bonds. The increase in the bonds was about $10.4 million but it was offset by the impact of the strength in the U.S. dollar on our [indiscernible] which is stated in NOK [ph]. And then in terms of nominal net debt the largest impact there was the $45.5 million increase in cash that we discussed on the last slide as well as offset by the increase in the nominal debt of 4.7 million. Again there are no debt maturities in 2015. The next debt maturities will be the indemnity loan which is indemnity loan which is NOK200 million that we expect to mature sometime in 2016 depending on the closure of the wafer bankruptcy and RACO2 [ph] which is a NOK179.5 million that will mature in May of 2016. With that will I will turn it back Tore. Tore Torvund Thank you, James. Let me then just give short update on the Yulin JV, as I said the Board of REC Silicon went to China last week along this we visited the site in Yulin. We visited the [indiscernible] and we also had discussions with both local and central politicians in China. Basically on the Yulin we have started the construction, you see what we have started this is the dormitories, we built dormitories 800 people who is going to live on site and start working there in 2017. We have also now finalized all the applications so we will get the about between ’15 and ’16 Chinese coming to the U.S. for training starting out in January nest to next year. Basically the project is on schedule more than 50% of the packages has now been given to the lenders, 85% in China, about 15% will be fabricated outside China mainly it is critical equipment, IP sensitive will be fabricated outside China, but 85% will be done in China. So far we are tracking both time schedule, but also on the budget. In fact we have been able to be when we have awarded these contacts it has generally come in about 20% to 25% below what was anticipated and the reason why is that there is a very low activity in most of the suppliers in China for the moment we see large companies having limited activity and that’s why we have been able to get very good prices on major equipment for this development. On the other hand we will not reduce the overall budget of $1.25 billion yet. As we know I’ve said that’s between 4000 and 5000 people will be employed on site next summer. So it’s next summer we will start to see what the actual situation in the project. But basically so far we track where we want. We also negotiated deals with group in case there is a need financial need. If we could delay the installment as part of our equity into the JV as you remember it’s $50 million in 2016 and $154 million in 2017 and these negotiations are ongoing. Let me then turn into a more short term action plan and strategy and basically even though we are optimistic concerning the trade dispute. We planned for a situation where we don’t find a resolution to it, if we get a resolution to it that be an upside to the company. So we plan for a no resolution even though we are optimistic that we will be able to achieve within a decent time frame resolution to the trade. There is many reason why that should occur. First of all, let’s say REC silicon when we are at full capacity is by far the most cost effective way of making polysilicon. The reason why is that we have developed a technology [indiscernible] reactors which only consume about 10% of the power compared to the traditional Siemens reactors. And that’s the reason why even in the U.S. with U.S. wages we’re able to compete and in fact having lower cost than our Chinese competitors. And we are also even with our very strong U.S. dollar compared to both Korean and European currency. We are still in the lead in terms of cash cost this – this graph is updated with the latest currency exchange rates as well. We also have seen that our competitors do have a lot of issues to basically be able to move into this technology. We know that one of our major Chinese competitor has stated that they want to convert 25,000 metric tons of Siemens into FBR, so far that has not been materialized as far as we know and we know that one of our U.S., Korean competitors has not been able to restart their FBR plant, even though they have been now struggling for more than a year in doing. So basically it is not an easy technology to move into, REC now has five years of experience on commercial as ability to operate an FBR plan and there is no reason to believe that we will have that kind of issues when we are now also move into the Yulin JV in 2017. As I said about 80% of wafer makers are located in China basically just means that it only remains 20% and if you make the calculation that’s about 70 gigawatt of wafer capacity outside China. If you take let’s say 70 gigawatt that correspond to about 75,000 metric ton of polysilicon, remember we make about 20,000 metric ton. The 75,000 metric ton is a lot of this is occupied by long term. Take a pay contract. So we think there is about 50,000 metric ton available for us for our REC to compete towards other suppliers. So this is the main issue as Francine alluded to, there is now indication that some of the wafer makers in China want to move out of China, establish new capacity. The reason why is basically that China has higher wages and what you can find for example in Vietnam, in Malaysia and also there is a lot of government incentives to establish new activity in these countries and some of our customers in China are now looking into the opportunity to move some of their capacity out of China. That is the dynamic of this business, we also see that some of these customers ask for long term contracts. We’ve already seen as a supplier contracts for two to three years that could be attractive in one way. On the other hand definitely it will be at the low price and if we believe in an upside, if we enter into this kind of contract. We will not enjoy the upside if the market come back. On the other hand it gives some security for our cash flow if you were to enter into this these kind of engagement. No decision has been made, no negotiation has not been finalized but at least show the dynamics in what’s going on in the marketplace. The good thing basically from what we did in Q3 was that we were able to find customers outside China, in fact almost 3900 metric ton of polysilicon went to customers which is not located in China and we did only 1100 metric ton with China. For Q4 basically we continue to believe that China will be even less important for REC but we will be able to move even more material into non-Chinese customers also, what we call bricks tolling [ph] we have already made ingots which was not sold in Q3. Those ingots will be sold in Q4 and that’s why we have increased ingot from 65 to 390 in Q4. We’re satisfied with the fact that we were able to do this. This has been the main focus in the company and it has reduced our inventories, still inventory is at the almost record high level of 6500 metric ton. The reason why we’re able to reduce will start to increase the sale on reduced production. We anticipate that we will reduce another 1700 metric ton in between Q3 and Q4 and then gradually move down to what we think is a sustainable level which should be around 3000 metric ton of inventory. Relatively high inventory but the reason why is that there is a delivery time between our facilities in the U.S. and the market in China of about 60 days. So we need to have some inventory located in that region to be able to serve our customers. So that’s our plan and again other initiatives, we will then be able to keep our liquidity through 2016 with a good margin by reducing all our spending at the same time as we basically than improve our sales for our non-Chinese customers. We have already affected, we have already made the headcount reduction in our company. We used to be about 720, we will buy end of this month around 675 so we have a reduction about 45 mainly within the SG&A on the as a support services for operation. We will defer all the outages as I said, the fact that we took down Silicon Tree [ph] it has now been over three months period as it’s refurbished with our own employees, all our operators are still available in the company and we didn’t use external resources to do outage. We do defer all capital investments in the company, no investment has been undertaken lately and we will save money wherever it’s possible. At the same time, we anticipate that it will be a gradual let’s say improvement of the ASP for solar grade material, not very significant, but still somewhat high what we enjoyed in Q3 and given all this we also then anticipate that we would start with full capacity in beginning of January 2016 lower the cash cost towards between $11 and $12 a kg and then outcompete our competitors in the non-Chinese market. So by doing this, we should have enough liquidity, our cash flow should be sufficient to cover all our obligations for 2016 with good margin even though there is no resolution to the trade dispute. If we find a resolution to it definitely that’s a bonus which will add on to our cash flow. So, for the guidance for Q4, basically you can read the numbers. There is no – that’s a shocking number here. Just want to pinpoint that even with all the difficulties we have had in 2016 our average cash cost of FBR will be $12.40 which is still way lower than what is achieved by our competitors. So that’s just underline how competitive our FBR technology is and that’s why we really believe that there is a great future for the company. And that’s it. Any questions? I think you have to use the mike since we on the web Question-and-Answer Session Operator [Operator Instructions] Unidentified Analyst Just two question if I may, one is you’re right on the final slide there that you expect to turn on again full capacity in January, you’re right it depends on the trade war and the market balance if I phrase a question like this, if there is no resolution to the trade war by January and marketing conditions remain the same but you manage to achieve your Q4 sales guidance in terms of volume, will you still be turning on full capacity? Tore Torvund We decided that we will – let’s say we have the capability to do that, the unit will be ready, our people are ready. But we have decided together with the Board that we will review the situation in mid-December and make a final decision at that time. Definitely it depends very much about the trade, it depends about what is the general market situation. But as we see today, we think that’s a likely scenario because for the company the only way we can really compete is to have a full capacity and then out compete our competitors by the ability to deliver, polysilicon good quality polysilicon at the low cost. So that’s the idea behind it. But we are going to review this by mid-December and make a final decision at that time. Unidentified Analyst And then the second question is related to the PV tolling. If you could add some more color to why expected to increase in Q4, what’s the status on that? Tore Torvund We have made as I said ingots out of our polysilicon that’s what we are looking there. So these quantity is already available in the company. We’re going to find customers and sell it during Q4. On the other hand if the market condition improves, this is not our business. We are polysilicon maker, we’re not an ingot maker and there’s [indiscernible] something we saw as an opportunity now as we see the market strengthen. We probably will not continue to do more calling in the company because that’s not our expertise. Unidentified Analyst A few questions from me as well, starting with the trade war. Just trying to see if I can understand this right in and try playing a bit with the numbers, if we assume that China takes about 2 gigawatts of the U.S. market and resume about 5.5% EBITDA margin for the module makers, it should make roughly $55 million for the module makers. If we assume $2 lower prices on polysilicon in China that should assume 300 million less profit for the polysilicon makers in China, isn’t that really the reason why they don’t do anything? I have never heard about Chinese do anything for one single year of profit so it just seems a bit strange. Francine Sullivan Well. I mean as I said it’s not just 2016, that’s interesting for the Chinese and the U.S. It will be – it is a very large market and it will continue to be a very large market even after 2016 because it is diversified, so it’s reliable, it’s not just dependent on one set of government subsidies because there are so many states and so many different incentive programs. So that’s really why they see it. You know that this is really why they work so hard to get it done. I can’t verify the figures that you’ve just quoted me. I understand the value of this deal is a lot more than that to these guys and that’s why they’re anxious to get it. In addition they do have these other downsides with not having his deal in place and that is this constant pricing uncertainty and this risk of the tariffs going up. Now as the volume of Chinese [indiscernible] coming into the U.S. increase, there is a fear that the tariffs will go up as a result of that and they’ll be faced in 18 months’ time with an obligation to pay additional duties to the U.S. government because a tariff for increase for panels that they’re sending in now and collecting a 30% tariff on. Tore Torvund The total import of panels to the U.S. from China was 1.2 billion, and add-on 25% on top of that which is the duty they have to pay. On the other side, silicon exported from the U.S. to China was about $400 million to $500 million, so less than half of that. That’s the numbers we have we have signed up. And that’s why we think it’s attractive to the Chinese. Unidentified Analyst That’s on the revenue side, the problem is what is China as a country left with when you’re looking at everything? And then on the demand side in which we’ve had a uncertain or we’ve had our disputed in the past. First and foremost 17 gigawatt in Q4, if that was to take place shouldn’t we have seen the prices started to increase long time ago because in December you’re not making any wafers any more than you’re installing the modules. Secondly, your demand outlook going forward I don’t know so much about the rest of the world but I can at least tell you that Europe going from 13 gigawatt to 36 gigawatt this year to 2020 I just wonder where do you see those installments being done? Tore Torvund So we can argue about it, that’s the nice thing about this business. What we know is that basically it has least increased year-over-year and I think this year is definitely much higher than last year, that’s 44 towards 57, concerning the margins we seen now that basically the prices of sales and modules wafers start to increase, hopefully it will also happen in the polysilicon side. The future is uncertain, that’s not only this business but also other businesses but at least we see a very, very attractive market out there. Okay. No more questions? Unidentified Analyst Just a quick one on the supply side here on the slide 15, you mentioned that the Samsung e-MMC hasn’t stopped producing yet and also the Wacker plant is probably not going to produce full capacity until maybe Q3 ’16 according to the company. Where have you put them in in your overview of supply additions in ’15 and ’16? Tore Torvund The Samsung? Unidentified Analyst Yes and the Wacker, Tennessee. Tore Torvund Wacker, we anticipate that there will be up and running full capacity next year as I think they have stated they’re going to make some 5000 this year up towards 20,000 next year so that’s what you see basically in the rest of the world. Here in ’16 concerning the Sun Edison plant in Korea, it is uncertain. What we see is that there is no production material from the Sun Edison out in the marketplace and also we have indications that they are not able to supply, there is a long term contract between Sun Edison and Sun Edison semi-conductor and it seems that Sun Edison semiconductor is out for quoting [ph] because they don’t get what anticipated to get from their plant in Korea. So that’s the reason why we believe that it would be limited quantities from the Sun Edison plant in Korea, at least in 2016. Unidentified Analyst You said that you had to discount prices by some $2 to $3 per kilo in Q3. Can you just say something about how that discount is now and is there something maybe about the price trajectory you’re seeing for your cheap prices throughout this quarter? Tore Torvund Yes. It is very early in the quarter you know basically in this business, most of the transaction will happen through last week for the quarter. What we see is that there is much more willingness to ask for quotes for the moment. As I said we don’t see any major price increases so far. But that’s quite, quite normal that will happen more towards the end of the quarter. In our cash flow analysis for how we are going to meet our obligation for 2016, we have relatively limited price increases as basis for this at least for the first nine months. So we don’t expect it will move very, very fast, basically what we have experienced earlier is that you get about $0.50 per months when you start to improve, that’s the rule of thumb that increase by some 58% per month when it start to be shortage of raw material. Unidentified Analyst How much new wafer capacity do you see coming outside China in 2016 and 2017? Tore Torvund We do not have any firm estimate on that, as I said we’re having some discussions with potential wafer makers in China who would like to do it in outside China. What I could say is basically that, a decision is made until a plant is up and running. You have to count six months plus minus typical investments in $100 million. So it is not a huge investment to get it out if they want to move outside China. Unidentified Analyst Do you see any competitors shutting down capacity? Tore Torvund Very limited. Yet, we believe that in China there will be a major – the smaller players will definitely have an incentive to shut down. Just waiting for what is the final decision on the trade dispute. We have seen some minor reduction but not a lot so far. Unidentified Company Representative That’s all the questions from the web. Tore Torvund Okay. Thank you very much for coming. Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited. THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY’S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY’S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY’S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS. If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com . Thank you! Scalper1 News
Scalper1 News