LDK Solar Takes $411.8 Million In Write-Downs In Q4

May. 1.12 | About: LDK Solar (LDK)

Long-awaited fourth-quarter results were published by LDK Solar (NYSE:LDK) on Monday. The company reported revenue of $420.2M on sales of 197.1MW of wafers and 255.5MW of cells and modules. The gross margin for the period was a negative 65.5%, which included a deduction of $232.6M in inventory write- down and provisions for firm purchases. The gross margin loss was at $275.2M. The operating results included a provision for doubtful receivables and prepayments in the amount of 179.2M. The total loss from operations was at $531.4M.

The net loss for the period was $588.7M, or $4.63 per ADS. The company exits the year with $244M in cash and cash equivalents, in addition to $565.1M in short-term pledged bank deposits. The total cash accounts holdings dropped by 6.8% or $59M in comparison to the third quarter. The balance sheet showed $2.2B in short-term borrowings, including the current portion of the long term debt, $282M in convertible senior and senior notes and $849.1M in long-term debt, for an overall total of $3.3B. In comparison to Q3, the interest-bearing borrowings decreased by $267.2M or 7.4%.

Despite those improvements, total liabilities increased by $157.9M, mainly due to an increase in trade accounts and accounts payable. The total amount of this increase was $427.7M, for an increase of 47% versus Q3. In the assets section of the balance sheet, outside already mentioned inventory write-downs, the company reduced prepayments to suppliers by $157.7M to $28.1M. LDK is making efforts to reduce its exposure to vendors and by increasing the cycle for payables, hold onto more cash and reduce the need for more short-term borrowing. Further, LDK is looking to move some of the short-term debt into a long-term category, stating full support of banks in its reorganization efforts.

Based on details given at the conference call, LDK sold modules at $1.06 per watt and wafers at $0.39. The wafer-processing cost per was at $0.26 and $0.19 for cell processing. LDK announced all-in-cost at $0.85 for Q4 2011, which suggests that polysilicon market pricing was used in the calculation of this dynamic. The overall cost of consumed polysilicon was described at $42 per kg in Q4; even at 5.6g, this would lead to poly costs of $0.23 per watt. The company has set the objective to reduce wafer processing towards $0.16 per watt, polysilicon production cost to low $20 per kg, and all-in-cost to $0.70 or below this figure, by the end of 2012.

In addition to operational restructuring and balance sheet readjustments, LDK reduced its workforce from 28,000 workers in peak times during July of 2011 to over 19,000 in Q1, which is a 32% reduction. SPVI reported details on this event earlier this month.

Without a great deal of information in regards to its new product called M2 wafer, and assumed by SPVI to be a multicrystalline based product, Chief Technology Officer Dr. Yuepeng Wan described various conversion rates ranging between 16.8% to up to 17.5%. Dr. Wan mentioned cells built on this type of a wafer achieving as much as a 19% efficiency rating. LDK, based on successful feedback from its customers, plans to convert all wafer lines by the end of the second quarter to M2 wafer production. LDK yearend capacity for wafers was said to be at 4.3GW, and 1.7GW for cells.

The company mentioned two acquisitions made during 2011: US-based solar developer Solar Power Inc. and German-based inverter maker Sunways AG. Acquisition of 71% interest in Sunways was completed in April of this year. Including this addition LDK offered guidance for inverters in the amount of 250 to 300MW for 2012. SPI was seen to increase its revenue to $100M in 2011 and double it in 2012. LDK holds 72% interest in SPI.

For Q1, the company guided revenue in the range of $190M to $230M on shipments of 140 to 150MW wafers and 170 to 180MW of modules. LDK still guides revenue over $2B to $2.7B for 2012, with 70% materializing in the second half of 2012. Guidance included sales of 6,000 to 8,000MT of polysilicon, 1.5 to 2GW of wafer sales and 1 to 1.2GW of cell and module sales. In addition, the firm sees 400 to 600MW EPC (engineering, procurement and construction) projects with 270MW to 300MW being sold during 2012.

Disclosure: I am long YGE, TSL.