May 21, 2014 - Trina Solar today announced its unaudited financial results for the first quarter of 2014.
First Quarter 2014 Financial and Operating Highlights
- Solar module shipments were 558.0MW during the first quarter of 2014, compared to 770.1MW in the fourth quarter of 2013
- Net revenues were $444.8 million, a decrease of 15.4% from the fourth quarter of 2013
- Cost of revenues was $353.3 million, a decrease of 20.9% from the fourth quarter of 2013
- Gross profit was $91.5 million, an increase of 15.7% from the fourth quarter of 2013
- Gross margin was 20.6%, compared to 15.1% in the fourth quarter of 2013
- Operating income was $38.2 million, an increase of 93.1% from the fourth quarter of 2013
- Operating margin was 8.6%, compared to 3.8% in the fourth quarter of 2013
- Net income was $26.5 million, an increase of 73.5% from the fourth quarter of 2013
- Earnings per fully diluted American Depositary Share ("ADS" and each ADS represents 50 of the Company's ordinary shares) was $0.37, compared to $0.21 in the fourth quarter of 2013
Mr Jifan Gao, Chairman and Chief Executive Officer of Trina Solar commented, "I am pleased to report that we delivered another set of solid results despite some headwinds in the first quarter. We remain focused on maintaining profitable growth as opposed to pursuing volume growth alone. By employing this strategy, we increased our gross margin to 20.6% this quarter, a significant improvement from the previous quarter's 15.1%. This improvement underpinned a net income increase of 73.5% quarter-over-quarter. Trina continues to see the positive impact of our focus on efficient operations, controlled business expansion and disciplined financial management.
"We have made further progress adjusting our sales mix to achieve relatively stable ASP in spite of the general downward trend in prices. This is critical to our sustainable growth and long-term profitability. In this quarter, our shipments to high ASP regions, such as Japan, grew significantly, accounting for 30% of our total external shipments. We have also further penetrated into new and emerging markets by leveraging our strong on-the-ground sales networks and our industry-leading technology to deliver high quality solar solutions tailored for each region.
"We are conscious of the importance of balancing the pace of our growth with our commitment to developing superior products if we are to maintain long-term success. Given the highly competitive nature of the global market, it is essential for us to focus on what are the critical drivers for future growth. Innovation, product development and the pursuit of superior quality remain the cornerstones of our business. In the first quarter we made excellent progress in improving module power output and the quality of our self-produced PV cells and modules. Investing in product innovation will remain key throughout 2014 as we strive to maintain our position at the forefront of technological innovation in the global solar industry.
"We are also progressing well in our downstream business. In the first quarter, we successfully completed the sale of our 50MW power plant in Wuwei, Gansu province. Further, we have started construction of several projects in China. We believe that we are well on track to achieve our target of developing 400MW to 500MW of downstream PV projects in 2014. Looking ahead, we are optimistic about global demand for our products and are confident that we will be able to realize our 2014 module shipment target of 3.6GW to 3.8GW. We believe the synergies between module sales and our solar project development business will generate both capital gains and ongoing revenues from stable power generation."
First Quarter 2014 Results
Net revenues in the first quarter of 2014 were $444.8 million, a decrease of 15.4% sequentially and an increase of 70.9% year-over-year. Total shipments were 558.0MW, of which 23.8MW were shipped to the Company's own downstream power plants in the UK, compared to total shipments of 770.1MW in the fourth quarter of 2013 and 392.6MW in the first quarter of 2013. Revenues were not recognized for 23.8MW of internal shipments as required by U.S. GAAP regulations. The sequential decrease in revenues and shipments was primarily due to a seasonal slowdown in demand in China and the previously noted decreased shipments to the EU as a result of uncertainty in the minimum pricing agreement between the PRC and the EU. The year-over-year increase in shipments and revenues was driven largely by rising shipment volumes due to growing demand from key geographical regions, particularly China, Japan and the U.S.
Gross Profit and Margin
Gross profit in the first quarter of 2014 was $91.5 million, as compared to $79.1 million in the fourth quarter of 2013 and $4.4 million in the first quarter of 2013.
Gross margin was 20.6% in the first quarter of 2014, compared to 15.1% in the fourth quarter of 2013 and 1.7% in the first quarter of 2013. The sequential increase was primarily due to an increase in ASP attributable to greater sales to relatively higher priced markets, particularly Japan, as well as continued efforts in cost control. The year-over-year increase in gross margin was primarily due to the increase in ASP and decrease in costs on a per watt basis. The sale of our 50MW downstream project in Wuwei also contributed to the sequential and year-over-year increase in gross margin.
Operating Expense, Income (Loss) and Margin
Operating expenses in the first quarter of 2014 were $53.3 million, a decrease of 10.2% sequentially and an increase of 19.7% year-over-year. The sequential decrease was primarily due to a decrease in selling expenses, particularly lower shipping and warranty expenses, as a result of lower shipment volumes as well as decreased R&D expenses. The Company's operating expenses represented 12.0% of first quarter net revenues, an increase from 11.3% sequentially and a decrease from 17.1% during the first quarter of 2013. Operating expenses included an accounts receivable provision of $1.2 million in the first quarter of 2014, compared to a reversal of accounts receivable provisions of $9.5 million in the fourth quarter of 2013 and a reversal of account receivable provisions of $11.1 million in the first quarter of 2013.
As a result, operating income in the first quarter of 2014 was $38.2 million, compared to $19.8 million in the fourth quarter of 2013 and an operating loss of $40.1 million in the first quarter of 2013. Operating margin was 8.6% in the first quarter of 2014, compared to 3.8% in the fourth quarter of 2013 and negative 15.4% in the first quarter of 2013.
Net Interest Expense
Net interest expense in the first quarter of 2014 was $8.7 million, compared to $8.2 million in the fourth quarter of 2013 and $13.2 million in the first quarter of 2013. The sequential increase in net interest expense was primarily due to an increase in short-term interest rates and long-term interest rates for the renewal of certain financing arrangements.
Foreign Currency Exchange Gain (Loss)
The Company had a foreign currency exchange gain of $0.8 million in the first quarter of 2014, which included a loss in the fair value of derivative instruments, compared to a net gain of $1.8 million in the fourth quarter of 2013 and a net loss of $19.0 million in the first quarter of 2013.
Income Tax Expense (Benefit)
Income tax expense was $6.4 million in the first quarter of 2014, compared to an income tax benefit of $1.1 million in the fourth quarter of 2013 and an income tax benefit of $6.1 million in the first quarter of 2013.
Net Income (Loss) and Earnings (Loss) per ADS
Consequently, net income was $26.5 million in the first quarter of 2014, compared to $15.3 million in the fourth quarter of 2013 and a net loss of $63.7 million in the first quarter of 2013.
Net margin was 6.0% in the first quarter of 2014, compared to 2.9% in the fourth quarter of 2013 and negative 24.5% in the first quarter of 2013.
Earnings per fully diluted ADS were $0.37 in the first quarter of 2014 compared to $0.21 in the fourth quarter of 2013 and loss per fully diluted ADS of $0.90 in the first quarter of 2013.
As of March 31, 2014, the Company had $577.7 million in cash and cash equivalents and restricted cash. Total bank borrowings were $982.5 million, of which $877.1 million were short-term borrowings.
Accounts receivable, net of the allowance for doubtful accounts, at the end of the first quarter of 2014 were $347.4 million, compared to $435.1 million at the end of the fourth quarter of 2013.
As of March 31, 2014, the Company's working capital balance was $23.8 million, compared with negative $18.8 million as of December 31, 2013.
Shareholders' equity was $848.0 million as of March 31, 2014, an increase from $822.2 million at the end of the fourth quarter of 2013.
Projects in China
In the first quarter of 2014, Trina Solar successfully sold its 50MW solar power plant in Wuwei, Gansu Province to Huadian Fuxin Energy Corporation. This transaction represented a significant milestone for Trina Solar, as it showcased the Company's ability to develop large-scale downstream projects across a complete project cycle. In addition, Trina Solar completed China's first residential solar roof-top village in Jiangsu Province. This provides a solid foundation for further expansion into the Distributed Generation (DG) business segment.
Following the successful completion of our 50MW solar project in 2013, this being the initial phase of our planned Wuwei solar project, we started construction of an additional 100MW solar power plant in Wuwei. This marks phase two of the Wuwei project and is expected to connect to the grid in the second half of 2014.
The Company also will commence construction of a 90MW solar power plant in Toksun, Turpan Prefecture in Xinjiang in June of 2014. This marks the first phase of construction under the four-year investment framework agreement signed with the local government of Turpan Prefecture in December 2013. Under the agreement, solar power plants with a total capacity of 1GW are scheduled to be built in multiple phases.
In the first quarter, the Company completed two PV power plants with a total capacity of 23.8MW in the UK and further announced grid connection in April. The Company is currently engaged in developing additional projects in Europe and other regions.
In the first quarter, the Company received a loan of €17.0 million from the China Development Bank to fund 16MW of utility-scale solar power projects in Greece.
In Japan and the UK, we have signed strategic agreements with local partners to efficiently access project resources and obtain required certifications. The Company is evaluating the project pipelines supplied by both partners and expects the majority of these projects to come online in the second half of 2014.
Trina Solar continues to search for project opportunities inside and outside of China. As the Company evaluates risk factors related 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 funding for both the Company and prospective purchasers, and the potential internal rate of return. The commencement of a project is subject to a number of factors, some of which are beyond the Company's control, such as the availability of network transmission and interconnection facilities, as well as the attainment of certain project rights, including land use rights and the right to construct manufacturing facilities in the relevant locations.
Operations and Business Development and Outlook
2014 Manufacturing Capacity
As of March 31, 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 2.5GW and 3.0GW, respectively.
The Company expects that as of December 31, 2014, it will have 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. For capacity expansion, management reviews various factors especially the overall market demand, leverage quality and outsourcing as needed.
Cell and Module Technology Update
In collaboration with the Australian National University, the Company developed a high-performance Interdigitated Back Contact (IBC) solar cell in 2013, which reached an independently confirmed record efficiency of 24.4%. In the first quarter of 2014, researchers at Trina Solar's State Key Laboratory of PV Science and Technology continued to develop a low-cost industrial version of the advanced IBC cell and the pilot-line of IBC cells is currently under development. The industrial pilot production of IBC cells is planned to commence towards the end of 2014.
The Company also continued its research on silicon-based Heterojunction (HJ) cells, undertaken in collaboration with the Shanghai Institute of Microsystems and Information (Chinese Academy of Science), and achieved efficiencies of greater than 21%. The research into HJ technology will focus on improving cell efficiency and developing the HJ module assembly process.
In the first quarter of 2014, the State Key Laboratory developed a high-efficiency Honey Ultra monocrystalline silicon module that reached a new efficiency record of 326.3 W, which was independently certified by TUV Rheinland, a leading independent certification institution. This result sets a new world record for p-type monocrystalline silicon modules. The monocrystalline silicon module, is fabricated with a technology developed at the State Key lab of PV Science and Technology and is currently in pilot production. Honey Ultra marks the second generation of Trina Solar's Honey module technology. This new high-efficiency record significantly improves upon the previous milestone of 284.7 W attained by Trina Solar's first generation of Honey modules in 2012.
Trina Solar's frameless double glass module (PDG5) is the first PV module in Asia to receive the new International Electrotechnical Commission (IEC) 61730-2 standard certification with Class A Fire Safety from TUV Rheinland. TUV Rheinland's testing rated the PDG5 dual glass module to the highest level of fire resistance and is among the most durable modules currently on the market. This provides an improved product for solar energy utilities located in harsh climate conditions.
For the remainder of 2014, Trina Solar will continue to work on developing new PV modules adapted for particular climates, as well as smarter PV products for better safety and better energy production to reduce the Levelized Cost of Electricity (LCOE).
Second Quarter and Fiscal Year 2014 Guidance
In the second quarter of 2014 the Company expects to ship between 950MW and 1,010MW of PV modules, of which 150MW to 170MW will be shipped to its downstream PV projects. Revenues will not be recognized for the modules shipped to its own developed projects as required by U.S. GAAP regulations.
The Company expects that polysilicon prices will remain relatively stable with upward pressure. This will adversely impact its gross margin. The Company will continue to work diligently to reduce its in-house manufacturing costs to mitigate any adverse impact to its gross margin. The Company expects its blended gross margin for the second quarter of 2014 will be in the mid-teens in percentage terms. Such guidance is based on the exchange rate between the Euro and the U.S. dollar as of May 21, 2014.
The Company reiterates its 2014 guidance of total PV module shipments between 3.6GW and 3.8GW, of which 400MW to 500MW of PV modules will be shipped to the Company's own downstream projects. Revenues will not be recognized for the modules shipped to its own projects as required by U.S. GAAP regulations. The Company maintains its guidance of completed downstream PV projects of between 400MW and 500MW for the year of 2014.