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Notes to the consolidated financial
statements, REC Group
REC Annual Report 2011
SEGMENT INFORMATION
The segment information presented shows the main components of
the REC Group’s business that is evaluated on a regular basis by the
chief operating decision maker.
The term “chief operating decisionmaker” (CODM) is taken from
IFRS8
Operating segments
and identifies a function, not necessarily a
manager with a specific title. That function is to allocate resources to
and assess the performance of the operating segments of an entity.
TheRECBoard of Directors is responsible for the overall strategy of
the company, approving annual budgets andmajor investments,
internal controls etc. TheBoard periodically receives information
about the performance of the company. REC understands the term
CODMas relating to an operating level, and not on a strategic decision
level. TheGroupManagement consists of the segmentmanagers and
corporate functions. It periodically receives information on the
operations, and some decisions aremade inGroupManagement
meetings. TheGroupManagement is headed by the Chief Executive
Officer (CEO), and the CEO is the one thatmakes decisions across
segments. Consequently, REC regards the CEOas the CODM.
Financial and operational information are prepared specifically for
each segment for the purpose of assessing performance and
allocating resources. Segment results are disclosed in accordance
with IFRS, which is the same basis as presented internally. However,
the internal reporting also shows a breakdown of operating
expenses included in EBITDA that are not shown separately in the
tables below. The financial market currently focuses on EBITDA as
measurement of segment results. Consequently, this is also the
primary focus of RECmanagement with regards to segment results.
However, in the internal reporting EBIT is also shown, the difference
to EBITDA being depreciation, amortization and impairment.
Amounts for assets and liabilities, financial income and expenses
are not shown per segment in the internal reporting. Consequently,
it is REC’s understanding that such details are not required to be
presented per segment in the tables below. However, for the 2011
and 2010 reporting REC has elected to present amounts for non-
current assets per segment, and also condensed statements of
financial position per segment.
The REC Group’s primary format for reporting segment information
is operating segments. The REC Group’s segments are managed
separately and each segment represents a strategic business
area that offers products different from the other segments. The
REC Group’s segments are REC Silicon, RECWafer and REC Solar.
In addition, the REC Group reports “Other operations”.
In the fourth quarter of 2010 REC changed the composition of its
segments by moving the wafer operation in Singapore from the
RECWafer segment to the REC Solar segment. From the fourth
quarter of 2010 REC’s segments consist of REC Silicon, RECWafer
(Norway) and REC Solar (wafers, cells &modules in Singapore and
cells &modules in Scandinavia).
REC Silicon produces silane gas, solar grade polysilicon for the
photovoltaic industry as well as electronic grade polysilicon for
the electronic industry. REC Silicon is comprised of the operating
companies REC Solar Grade Silicon LLC (SGS) and REC Advanced
Silicon Materials LLC (ASiMI) located in the USA. Revenues are
mainly based on long term contracts for silane gas and electronic
grade polysilicon, while solar grade polysilicon is sold externally in
the spot market and internally to RECWafer and REC Solar on long-
term contracts based on arms-length terms, conditions and market
expectations that existed at the time terms were fixed. As a
consequence of the market development, internal prices were
reduced during the fourth quarter 2011. In the second half of 2011
the share of solar grade polysilicon sold internally decreased to 30
percent, compared to 70 percent in the first half, as a consequence
of reduced wafer production capacity in RECWafer (Norway).
RECWafer is comprised of multicrystalline wafer manufacturing
in Glomfjord and Herøya (Norway) and monocrystalline wafer
manufacturing at a separate plant in Glomfjord. The main customers
have been located in Asia and Europe, while a part of the production
is sold internally to REC Solar at arms-length prices. Revenues have
historically been based on long term take-and/or-pay contracts with
most of the contracts supported by bank guarantees or
prepayments. In 2010, 2011 and the beginning of 2012, REC wafer
accepted to terminate a majority of these contracts by receiving
cancellation fees. During the second half of 2011 the oldest multi
plants at Herøya and Glomfjord were closed down, and at the end of
2011 it was decided to temporary halt 60 percent of the remaining
wafer multi production capacity at Herøya due to a further
weakening of the PVmarket. At the end of 2011, revenues were
primarily based on spot sales mainly to Asian customers.
REC Solar is comprised of an integrated plant in Singapore
producing multicrystaline wafers, solar cells and modules,
REC Site Services (Singapore) and development of PV systems. It
also included solar cells manufacturing in Narvik (Norway) that was
decided to be closed down in the fourth quarter 2011 and solar
modules production in Glava (Sweden) that was decided to be
closed down at the end of the third quarter 2010. The wafers and
solar cells are primarily used internally to produce solar modules
in Singapore. REC Systems pursues project development
opportunities based on REC solar modules in selected segments
with limited capital exposure. REC Solar has established sales
companies and offices in Europe, USA and Asia. Europe has
traditionally been REC Solar’s main market, with Germany as the
largest. Revenues are based on short term contracts and will
therefore be influenced by market fluctuations.
“Other operations” consist of companies and activities that in
themselves are not significant enough to be reported as separate
segments. It includes primarily REC ASA with Group functions and
activities (see separate financial statements).
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