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Business Analysis Project Solar Industry

Case Study Conergy

Term Paper (Advanced seminar) 2010 27 Pages

Business economics - Operations Research

Excerpt

Table of contents

1. Introduction and Objectives

2. Macro-environmental Analysis - Situational Audit
2.1. Current Situation of the Solar Branch
2.2. PESTLE Analysis

3. The Conergy Group
3.1 Financial Analysis
3.2. Porters 8 Forces Analysis
3.3. Critical Success Factor Analysis

4. Strategic Alignment
4.1. Strategy Map

5. Conclusion and Recommendations

6. Bibliography

List of Figures

Figure 1: Share price of Conergy

Figure 2: 8 Forces Analysis

Figure 3: Strategy map for Conergy

Figure 4 Strategic Objectives and Measurements

Figure 5: Key figures prognosis

List of Appendices

Appendix I Porters 8 Forces Analysis

Appendix II LEPEST Analysis

Appendix III Critical Success Factors

Appendix IV Key Performance Indicators

Appendix V Key Figures 2008/2009

Appendix VI Consolidated Balance Sheet of Conergy Group

1. Introduction and Objectives

The purpose of this Business Analysis Project is to evaluate the current situation of the solar branch, especially the German company Conergy Group. The aim is to show the current changes within the branch and the influence on the business strategy of solar companies. Furthermore the analysis will consider the following issues:

- A situational audit of the branch and the Conergy Group. This will contain an analysis of the macro- and micro-environments supported by a PESTLE and Porter 8 Forces Analysis
- Strategic Alignment: Identification of the key success factors (KSF) of the branch, evaluate the performance of Conergy and compare this with 2 other big players in the solar branch. From this information, I will identify potential changes inside of Conergy and develop a strategy map.

Another aim is the critical appraisal of the key figures and the current strategy of Conergy, supported by using approved analysing methods in a literature review in order to show potential improvements as well as recommend strategy adaptations. As a basis for the analysis of the key figures I will use the 2009 third quarter report and the 2008 annual report. The advantage of using this quarterly report and comparing it to the 2008 annual report is that the effects of the economical crisis in 2009 are visible.

2. Macro-environmental Analysis - Situational Audit

2.1. Current Situation of the Solar Branch

The solar branch is facing substantial changes on a global level. Main parts of this industry are highly dependent on subsidies. These were granted in different forms. In 2009 this branch was also influenced by the economic crisis and the drastic decrease of exports. Economic stimulus packages, the increasing awareness of climate change and limited fossil resources helped to limit the negative effect. The weak US Dollar also has had negative effects on the balance sheets of exporting companies.

The Spanish solar market crash following the cancellation of subsidies in Spain in 2008 shows the high dependence of subsidies within the branch (www.manager-magazin.de) .

In Germany, subsidies are regulated by the Energieeinspeisegesetz (EEG). This law guaranties the owner of a solar plant a salary of 0,2843 and 0,3914 €/Kwh for every plant built in 2009. This salary is guaranteed for 20 years after putting the plant into service (www.solarportal24.de) . This fact makes the solar branch especially interesting for customers and investors. The amount of subsidy is critically discussed in Germany. A reduction might cause the same effect as it did in Spain where the whole industry crashed.

Germany is still an attractive market. 10.000 solar companies are active on the market, with an annual turnover of 9,7 bill. Euro. The installed capacity in Germany has risen by 44% between 2007 and 2008 (www.solarwirtschaft.de).

Another positive effect for the branch is the slight decrease in price for raw materials and the stabilisation of order levels and prices for modules in the 3rd quarter.

2.2. PESTLE Analysis

This chapter will give a macro-environmental overview and will focus on the factors that will influence the solar branch in the near future.

PESTLE gives an overview of the following issues (Cheverton, P., 2005):

- Political
- Economic
- Social
- Technological
- Legal
- Environment

PESTLE offers a bright view on the factors that helps companies appraise their current situations and shows the potential opportunities and threads on a macro-environmental level.

Due to increasing globalisation, solar companies have to work with a worldwide focus in mind. That means they are also highly affected by the national tax and subsidy politics of individual countries. Barriers to change the place of production are, besides initial investments, very low. Emerging markets like India and China are pushing this business sector with an aggressive funding strategy.

In the near future we will see the branch consolidate. Companies have to enter new markets. New markets are limited because of climatic-dependency. Only countries with a high rate of sunshine are attractive.

A detailed PESTLE analysis is attached in appendix II.

3. The Conergy Group

Conergy is a German solar company founded in 1998. They produce components for the production of rechargeable energy and offer a broad range of services. Since 2005 it has been listed on the German stock exchange TecDAX and is therefore one of the leading high-tech companies. The Conergy Group employs 1650 people, is active on four continents and has branches in 15 countries worldwide (annual report 2008). 67 allied companies belong to Conergy Group. The main target groups are: retailer, private and commercial house owners, and solar plant investors.

The total volume installed by Conergy is app. 800 MWp. Despite the fact that it is one of the companies with the highest turnover in this branch, Conergy’s losses continuously increase. In 2007 Conergy had to carry out an emergency increase in share capital to pay back short term debts and avoid insolvency. Since the opening of the fully automatic waver fabric in Frankfurt in 2007, Conergy has faced strong financial problems. There are ongoing rumours that a potential bankruptcy has only been avoided by the intervention of the German government. These rumours were supported by the share price crash, from EUR 65,00 in 2007 to 0,37 € in 2010.

illustration not visible in this excerpt

Figure 1: Share price of Conergy – 05.01.2010 ( www.financen.net )

3.1 Financial Analysis

As you can see in the balance sheet and in the key figures in appendix V, VI and Figure 3, Conergy’s sales on a global level have decreased by app. 56%. Gross profit, EBIT, EBIT margin and have also dramatically decreased. Despite several cost reduction programs and a small improvement in 2008, figures have been very bad in the last few years.

Conergy is using the “Gearing Approach” to describe the capital structure. Gearing is defined as the ratio of net financial liabilities to equity (Dyson, 2007). According to the 2008 annual report, the company tried to achieve a gearing of 100 % i.e. a 1:1 ratio of equity to net financial liabilities. Besides an improvement in 2008 the gearing has continuously deteriorated. With a gearing result of 257 % in Sep. 2009 the ratio of liabilities to equity has increased by 109.3 %, compared with the result of Dec. 2008 (147 %). When looking at the long-term, the company faces a massive problem of overindeptness, especially considering the fact that they, until today, have never had any positive revenues.

3.2. Porters 8 Forces Analysis

5 forces analysis is a framework that is used to analyse influencing factors of competition in the environment of a company. It was developed by Michael Porter. The basic analysis focuses on the 5 forces that could influence the profitability of a company:

- Bargaining power of supplier
- Bargaining power of buyer
- Threats of substitutes
- Threats of new entrants
- Threats of rivalry among existing firms

To give an extended overview about the current situation of the solar branch three additional dimensions were added to the basic five forces model. We also decided to consider:

- Threats of globalisation
- Threats of digitalisation
- Threats of deregulation

In a world of globalisation, these are important factors which influence a company’s business, especially if they work on an international level.

illustration not visible in this excerpt

Figure 2: 8 Forces Analysis (Source: Own figure)

As you can see in the detailed analysis in appendix I the highest threat for companies within this branch comes from direct competition and from the supplier. Reasons for this are i.e. current overcapacities caused by the financial crisis and the market crash in Spain. This overcapacity has a strong effect on the prices of solar modules and increases the competition on a global level.

Increasing globalisation might also influence the branch in the future. Especially regulations like the German EEG will be critically discussed. With an increasing share of renewable energies and a guaranteed price for this energy, the price per Kwh for the customer will increase significantly. Even in Germany it is only a question of time when these kinds of subsidies will be cut. It is also possible that, due to effects of standardisation by the European Union, the EEG will be changed. As the cut of subsidies in Spain has shown, this will have dramatic effects on the solar market.

There are only a few substitutes for solar energy on the market. Because of the different environmental influences, the possibility to substitute one technology for another is often impossible, e.g. it is not possible to build a hydroelectric power plant in a desert.

One problem of the branch is that there is only very little brand awareness. Customers usually compare price and technical details, degrees of effectiveness, lifespan and energy outcome. German solar producers are often quite innovative but also very expensive. They usually invest huge sums in R&D and are technology leaders, especially in high tech branches.

One effect that has intensified with globalisation is the problem of product piracy, especially in regions in Asia and the Middle East. Since 2009 China has strongly promoted the solar branch and will strive in market leadership within the next few years. This could have strong effects on Conergy and other solar companies. China not only has very low personnel costs, but it also has very low patent protection. It is very likely that within the next years copied technology will appear on the market for very low prices.

Globalisation will also have positive effects. Conergy will have access to new, attractive markets. It also offers the possibility to form strategic alliances and to produce in low-cost countries.

In summary, the solar branch is still a very attractive industry. The energy demand will increase significantly in the next few years. Because of the Kyoto Protocol the awareness of the need for renewable energies and with it Conergy’s market will continuously grow. Customers look very critically at the price and the technology of solar modules. That means Conergy still has to increase investments in R&D and also increase sales by entering new markets to use the effect of the economy of scales.

3.3. Critical Success Factor Analysis

Critical Success Factors (CSF) are those factors within the firm’s market environment that determine the firm’s ability to survive and prosper (Grant 2002).

The management can influence these factors through its decisions and it can affect the competitive position of the firm in an industry (Hofer/Schendel, 1977). Once the KSF are identified, the results can be used to determine critical business processes.

Critical success factors for companies within the solar branch are:

- Support of the government in main markets: This CSF is influenced by the governmental subsidy politics in the main market (i.e. EEG), the awareness of limited fossil fuels, ecologic forms of energy).
- Economy of scales: Solar module producers are very dependent on the quantity of sales. Using effects of the learning curve helps to improve the production processes, decreases the failure rate and helps to increase the efficiency of the plants. This helps to decrease the production cost and finally to reduce the costs of the installed product.
- Financial Background: The solar branch is consolidating on global level. To have a weak financial background might threat the long-term survival of the company. The need for high investments in R&D and the introduction of new technologies also requires a well situated financial background.
- Power to innovation/innovation leadership: Customers have a high focus on effectiveness of their investment. This means, access or the possibility to develop new, innovative technologies is one of the most important CSF. The importance of this CSF is also shown by the score in the CSF-analysis in appendix III. Companies with a good result for this CSF should be able to increase the electricity conversion efficiency by at least 20 % within the next 3 years and should also be able to produce thin film modules.
- Access to new markets: Companies should be able to increase sales by entering new markets. This is also related to the economy of scales. Part of the result for this CSF is also the ability of a company to transfer technologies to other business, i.e. solar cars, waver production, etc..
- Strong brand: Even if the brand awareness in the solar branch is very low, a weak brand can affect the business. The quality of the product should especially be recognised as good because customers see investments in solar modules as a long-term investment. A strong brand also increases the value of a company in the case of alliances, mergers & acquisitions. Even if it is very difficult to measure a brand, the financial background, failure rate and rate of effectiveness influence the rating.

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Details

Pages
27
Year
2010
ISBN (eBook)
9783640836345
ISBN (Book)
9783640836369
File size
931 KB
Language
English
Catalog Number
v167218
Institution / College
Anglia Ruskin University – Business School
Grade
1,0
Tags
Strategy Map KPI Porter 5 Forces PESTLE Analysis Solar Industry BAP 8 Forces Porter Business Analysis Solon Conergy First Solar Solar Photovoltaik EEG

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Title: Business Analysis Project Solar Industry