Trina Solar Limited today announced its unaudited financial results for the third quarter of 2014.
Third Quarter 2014 Financial and Operating Highlights
- Solar module shipments totaled 1,063.8MW during the third quarter of 2014, compared to 943.3MW in the second quarter of 2014, an increase of 12.8%
- Net revenues were $616.8 million, an increase of 18.8% from the second quarter of 2014
- Gross profit was $102.8 million, an increase of 28.1% from the second quarter of 2014
- Gross margin was 16.7%, compared to 15.4% in the second quarter of 2014
- Operating income was $35.6 million, an increase of 127.1% from the second quarter of 2014
- Operating margin was 5.8%, compared to 3.0% in the second quarter of 2014
- Net income was $10.6 million, an increase of 2.7% from the second quarter of 2014
- Net income excluding the unrealized loss or gain in foreign exchange would be $26.9 million, an increase of 217.2% from the second quarter of 2014
- Earnings per fully diluted American Depositary Share ("ADS)", each representing 50 of the Company's ordinary shares, was $0.14, the same as the second quarter of 2014. Excluding the unrealized loss or gain in foreign exchange, earnings per ADS would be $0.34, an increase of 189.7% from the second quarter of 2014
"Both our module and downstream project businesses delivered good results in the third quarter of 2014, demonstrating our commitment to consistent revenue and profit growth for our core businesses," said Mr. Jifan Gao, Chairman and Chief Executive Officer of Trina Solar. "Despite foreign exchange fluctuations and weaker demand in Europe, we continue to meet or exceed our financial and performance targets. Particularly, gross margin significantly exceeded management guidance. In the third quarter, we strengthened the competitive advantages of our module business with our efforts to reduce module manufacturing costs and our emphasis on technology breakthroughs generating positive results. We continue to leverage the synergies between our module and downstream business units and expect the resulting positive momentum to continue through the rest of this year and into next year."
"The profitability of our core business grew in the third quarter. Our operating income increased 127% from the previous quarter, largely driven by growing demand from Japan and China. Our strategy to expand and diversify geographic markets continued to deliver good results this quarter. Sales in new and emerging markets represented almost 15% of our total shipments, demonstrating the success of our recent efforts to build a more comprehensive and diversified product distribution network covering more countries and regions."
"We strive to remain at the forefront of technology improvements and innovations. We recently set several new records in module power output and solar cell efficiencies. Our researchers from the State Key Laboratory of PV Science and Technology have demonstrated a high-efficiency mono crystalline Honey Module with 60 cells (156mm x 156mm), which set a new world record for peak power output of 335.2 W. Our mono crystalline silicon Honey Plus, p-type (156mm x156mm) PERC record-setting cell reached an efficiency of 21.4%. To our knowledge, this is the highest efficiency ever demonstrated to date for a large-area PERC solar cell fabricated using a low-cost industrial PERC process. In addition, our multi-crystalline silicon cell (156mm x 156mm), also fabricated with an industrial PERC process, reached another world record in efficiency of 20.76%. These efficiency numbers have been independently measured by Fraunhofer ISE CalLab in Freiburg, Germany and set two new world records, which were previously held by the Institute for Solar Energy Research Hamelin and Q-cell, respectively. We expect them to drive performance improvements in our commercial PV modules."
"We understand that the ultimate goal of our research is not just to increase solar cell efficiencies as high as theoretically possible, but rather to combine the increases in solar cell efficiencies with our innovative large-scale manufacturing process that will help us drive down costs and ultimately provide affordable and accessible solar energy to the world. We believe our investment in leading technology, product innovation and product diversification, together with our focus on superior quality and competitive cost structure, are recognized in the market and will continue to best position the company to increase sales and profit going forward."
"In the third quarter we intensified our project development efforts. As a result, we successfully sold a 10.6MW power plant in the UK at a good margin. We commenced construction of a 49.9MW solar power plant in the UK and completed the construction of a 120MW project in Jiangsu province in China. We also strengthened our downstream business in China and accelerated our expansion into southern China by engaging a strategic partner in Yunnan province. Additionally, we are making steady progress in our distributed generation ("DG") business in China. For example, we completed and connected a commercial rooftop DG project in Changzhou, Jiangsu province, and currently have a number of new, small-scale DG projects under development. Given the highly dynamic downstream market in China, our emphasis is on evaluating project risks and conducting thorough financial return analysis prior to the development of the project. Despite a final decision not to proceed with a 130MW utility project in Inner Mongolia due to the projected return being lower than expected and an adjustment to our downstream business strategy to respond to recent government policy changes, we remain optimistic and confident about the growth of our project pipeline and our ability to further capitalize on the strong momentum in China in the years ahead."
"In October 2014, we raised an aggregate of US$138.9 million in net proceeds through a successful follow-on public offering of ADSs and a concurrent offering of convertible senior notes. We expect to use the proceeds to support our ongoing efforts to drive growth in the downstream business, strengthen our solar project pipelines and provide funding for our manufacturing capacity expansion for 2015. I would like to extend our sincere thanks to our shareholders for believing in and investing in our vision, and for recognizing the value of our initiatives, particularly our two recent offerings on the capital markets. We will continue to work towards our goal of maximizing shareholder value."
Third Quarter 2014 Results
Net revenues in the third quarter of 2014 were $616.8 million, an increase of 18.8% sequentially and an increase of 12.5% year-over-year. Total shipments were 1,063.8MW, consisting of 936.8MW of external shipments and 127MW of shipments to the Company's own downstream power projects, compared to total shipments of 943.3MW in the second quarter of 2014 and 774.6MW in the third quarter of 2013. Revenues were not recognized for 127MW of internal shipments as the revenue recognition criteria as set forth in U.S. Generally Accepted Accounting Principles (U.S. GAAP) were not met as of September 30, 2014. The sequential increases in revenues and shipments were primarily due to an increase in demand from Japan, China, as well as new and emerging markets. The year-over-year increases in revenues and shipments were driven largely by rising shipment volumes due to growing demand from key geographical regions, particularly Japan and the U.S., and due to greater demand from the Asia-Pacific region.
Gross Profit and Margin
Gross profit in the third quarter of 2014 was $102.8 million, compared to $80.2 million in the second quarter of 2014 and $83.4 million in the third quarter of 2013.
Gross margin was 16.7% in the third quarter of 2014, compared to 15.4% in the second quarter of 2014 and 15.2% in the third quarter of 2013. The sequential increase in gross margin was the result of several factors including sales mix change with higher shipments to Japan, lower shipments to the U.S., and reduced in-house manufacturing costs as a result of greater economies of scale and improvements in operation efficiency. In addition, the sale of a 10.6MW solar project in the UK at a relatively high margin compared to the margin on module sales also contributed to the increase in gross margin in the third quarter of 2014.
Operating Expense, Income and Margin
Operating expenses in the third quarter of 2014 were $67.1 million, an increase of 4.0% sequentially and a decrease of 13.2% year-over-year. The sequential increase was primarily due to an increase in warranty expenses associated with increased shipment volumes and an increase in R&D expenses relating to investment in new technology. The Company's operating expenses represented 10.9% of its net revenues in the third quarter of 2014, a decrease from 12.4% in the second quarter of 2014 and from 14.1% in the third quarter of 2013. Operating expenses included the reversal of an accounts receivable provision of $3.0 million, compared to the reversal of an accounts receivable provision of $0.9 million in the second quarter of 2014.
As a result, operating income in the third quarter of 2014 was $35.6 million, compared to $15.7 million in the second quarter of 2014 and $6.0 million in the third quarter of 2013. Operating margin was 5.8% in the third quarter of 2014, compared to 3.0% in the second quarter of 2014 and 1.1% in the third quarter of 2013.
Net Interest Expense
Net interest expense in the third quarter of 2014 was $7.0 million, compared to $8.1 million in the second quarter of 2014 and $12.0 million in the third quarter of 2013. The sequential decrease in net interest expense was due to a decrease in the average outstanding bank borrowing balance in the third quarter of 2014.
Foreign Currency Exchange Gain (Loss)
The Company had a foreign currency exchange loss of $15.1 million in the third quarter of 2014, which included a gain on change in fair value of foreign exchange derivative instruments of $1.4 million, compared to a net gain of $3.3 million in the second quarter of 2014 and a net gain of $8.0 million in the third quarter of 2013. The loss in foreign currency exchange was mainly due to $16.3 million of unrealized loss in foreign exchange mainly resulting from the depreciation of the Euro and Japanese Yen against the U.S. dollar in the third quarter of 2014, as compared to $1.8 million of unrealized gain in foreign exchange in the second quarter of 2014.
Income Tax Expense (Benefit)
Income tax expense was $5.2 million in the third quarter of 2014, compared to $2.2 million in the second quarter of 2014 and an income tax benefit of $4.9 million in the third quarter of 2013.
Net Income and Earnings per ADS
Consequently, net income was $10.6 million in the third quarter of 2014, compared to $10.3 million in the second quarter of 2014 and $9.9 million in the third quarter of 2013. Net income would be $26.9 million if the unrealized loss in foreign exchange of $16.3 million were excluded in the third quarter of 2014, compared to $8.5 million if unrealized gain in foreign exchange of $1.8 million were excluded in the second quarter of 2014.
Net margin was 1.7% in the third quarter of 2014, compared to 2.0% in the second quarter of 2014 and 1.8% in the third quarter of 2013. Net margin would be 4.4% in the third quarter of 2014 if the unrealized loss in foreign exchange were excluded.
Earnings per fully diluted ADS were $0.14 in the third quarter of 2014, the same as the second quarter of 2014 and the third quarter of 2013. Earnings per fully diluted ADS would be $0.34 in the third quarter of 2014 if the unrealized loss in foreign exchange were excluded.
As of September 30, 2014, the Company had $416.5 million in cash, cash equivalents and restricted cash, as compared to $562.7 million as of June 30, 2014. Total bank borrowings were $887.5 million as of September 30, 2014, of which $783.9 million were short-term borrowings, including current portion of long-term borrowings, as compared to $774.7 million of total bank borrowings as of June 30, 2014.
Accounts receivable, net of the allowance for doubtful accounts, as of September 30, 2014 were $556.7 million, compared to $457.8 million as of June 30, 2014.
As of September 30, 2014, the Company's working capital balance was $74.3 million, compared to $150.9 million as of June 30, 2014.
Shareholders' equity was $930.9 million as of September 30, 2014, an increase from $912.9 million as of June 30, 2014.
Projects in China
In September, the Company announced the acquisition of a 90% stake in Yunnan Metallurgical New Energy ("Yunnan Metallurgical") to support development of solar power projects in that region. Yunnan Metallurgical currently has a 300MW project under development in southern Yunnan province. Once operational, it is expected to be the largest single utility-scale solar power plant in Yunnan province and one of the largest in China. The Company expects to start construction of the project at the end of this year or early next year provided that all necessary regulatory approvals are obtained by then.
The Company completed the construction of a 120MW utility-scale solar plant in Jiangsu province in China in the third quarter of 2014 and expects this plant to connect to the grid by the end of this year or early next year.
The Company also signed a framework agreement with the Yumen municipal government in Gansu province to develop 100MW of solar projects, including DG projects. Construction is expected to commence in 2015.
In the UK, the Company sold a 10.6MW power plant in the third quarter of 2014, which was connected to the grid at the end of March 2014. Another 13.8MW UK project is expected to be sold in the fourth quarter of 2014 or early in the first quarter of 2015. In addition, the Company expects to complete the 49.9MW utility-scale power project in the UK by the end of 2014 and connect to the grid in the first quarter of 2015.
The Company entered into an agreement for the design, construction, operation and maintenance of the 10MW Shamsuna Solar Project in Aqaba, Jordan with Shamsuna Power Company. It is financed by the International Finance Corporation and a syndicate of lenders. It is scheduled to commence construction in late November 2014 and is expected to be completed and connected to the grid in the second quarter of 2015. Pursuant to the agreement with Shamsuna Power Company, Trina Solar will provide operation and maintenance services for the solar farm for five years once it starts operating, with an option to extend for an additional five years subject to mutual agreement.
Trina Solar continues to develop projects in and outside of China. As the Company evaluates risks relating to new solar power projects, it will continue to carefully consider a number of factors including location, local policies and regulatory environment, the availability of financing for both the Company and prospective purchasers, and the potential internal rate of return. The commencement and grid-connection of a project is subject to a number of factors, some of which are beyond the Company's control, such as changes in government policy, availability of network transmission and interconnection facilities, and the receipt of regulatory authorities' approvals for the relevant projects.
Operations, Business Development and Outlook
2014 Manufacturing Capacity
As of September 30, 2014, the Company had annualized in-house ingot and wafer production capacity of 2.0GW and 1.6GW respectively, and PV cell and module capacity of approximately 2.9GW and 3.6GW, respectively.
The Company expects that by December 31, 2014, it will have an annualized in-house ingot production capacity of 2.2GW, wafer capacity of 1.7GW, PV cell capacity of approximately 3.0GW, and module capacity of approximately 3.8GW.
Fourth Quarter and Fiscal Year 2014 Guidance
In the fourth quarter of 2014 the Company expects to ship between 1, 045MW and 1, 095MW of PV modules, of which 40MW to 60MW will be shipped to its downstream PV projects. Revenues will not be recognized for modules shipped to the Company's own developed projects as the revenue recognition criteria set forth in U.S. GAAP will not be met. The Company expects its blended gross margin for the fourth quarter of 2014 to be between 14.5% to 15.5%.
The Company changes its 2014 guidance of total PV module shipments to between 3.61GW and 3.66GW, of which 340MW to 360MW of PV modules will be shipped to the Company's own downstream projects from the original guidance of total 3.6GW to 3.8GW including 400MW to 500MW of shipment to its own downstream projects. Revenues will not be recognized for the modules shipped to the Company's own projects as required by U.S. GAAP.
The company expects to complete between 330MW and 360MW of downstream solar projects by the end of 2014, as compared to the original guidance of 400MW to 500MW projects be completed by the end of 2014. This change is mainly due to the cancellation of a 130MW solar farm project in Inner Mongolia after the Company conducted a thorough analysis on the project's return. The Chinese government's policy change will impact the development of the Company's pipeline to a certain extent. Trina Solar is flexible in developing projects and believes the change will ultimately benefit the sustainable and strong growth momentum in China.