REC may end production in Norway
July 20, 2011
Renewable Energy Corporation ASA, better known as REC, was once one of Norway’s most successful new industrial ventures. It’s still doing well abroad, but production in Norway is threatened by high costs and one of its major investors predicts REC will eventually have to shut down its local plants.
“It’s sad and unfortunate that we’re cutting production in Norway, but we have to act in accordance with facts,” Stein Erik Hagen, one of Norway’s wealthiest investors and businessmen, told newspaper Dagens Næringsliv (DN) on Wednesday. “When the company isn’t generating cash, it speaks for itself that you have to shut down.”
Hagen indirectly controls around 10 percent of REC’s stock through his stake in industrial firm Orkla, which itself has around a 40 percent stake in REC. Orkla recently sold off metals firm Elkem and has enough cash to take over the rest of REC, which grew quickly in recent years when interest warmed up in the solar energy business. REC specializes in production of components for solar panels and now has 4,200 employees in Norway, the US, Singapore, China, Japan and several European countries.
Its production in Norway, though, has become too expensive for REC and the company halted production and laid off another 200 workers at its Glomfjord facility this week. REC’s solar cell plant in Narvik is already closed and parts of its wafer production at Herøya also have been shut down. All told, around 700 of REC’s 1,300 employees in Norway are now idle.
“The problem for REC is the Norwegian operation,” claimed Hagen, who otherwise thinks prospects for REC’s solar energy business remain bright. “Industrial production is difficult in Norway, with high costs and salaries to produce things and export them out of the country.”
REC’s chief executive, Ole Enger, announced NOK 6.4 billion in write-offs and a corresponding loss for the second quarter, most of it tied to the company’s Norwegian operations. He made it clear REC won’t continue Norwegian production at any price.
“Some foreign investors have been skeptical over whether REC will be willing to take the action necessary in Norway, maybe they’re worried that there are too many feelings involved and that we won’t act rationally,” Enger said. “We want to make it clear (through the write-offs and plant shutdowns) that this isn’t the case.”
REC’s share price soared just over 10 percent after Enger’s remarks, despite the company’s report of operating losses tied to the write-offs. Now REC is concentrating on its operations in Singapore and the US, where it’s earning money on relatively low salary and energy costs.
Analysts also told DN that they think it’s improbable REC will resume earlier production levels in Norway. “With today’s market prices, it’s just not profitable with production in Norway,” analyst Anita Huun at Handelsbanken told DN. “There would have to be a huge price increase to justify starting up production in Norway again.”
REC’s share price remains well below its historic levels despite Tuesday’s jump, and has been cut in half so far this year. That may make it a prime takeover target, for Orkla or others.
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