Emeren Group Ltd (SOL) 2011 Q2 法說會逐字稿

Hello, ladies and gentlemen, and thank you for standing by for ReneSola Limited's second quarter 2011 earnings conference call. At this time all participants are in listen-only mode. After managements' prepared remarks there will be a question and answer session. As a reminder, today's conference is being recorded.

I would now like to turn the meeting over to your host for today's call, Mr. Tony Hung, ReneSola's Vice President of International Corporate Finance and Corporate Communications; please proceed, Tony.

Hello, everyone and apologies for the delay. Welcome to ReneSola's second quarter 2011 earnings conference call. ReneSola's second quarter 2011 earnings results were released earlier today, and are available on the Company's website, as well as on news wire services. You can follow along with today's call by downloading a short presentation, which can also be found on the Company's website at www.renesola.com.

On the call today from ReneSola are Mr. Xianshou Li, Chief Executive Officer, and Mr. Henry Wang, Chief Financial Officer. Mr. Li will discuss ReneSola's business highlights and strategy. And Mr. Wang will go through the financials and guidance. They will both be available to answer your questions during the Q&A session that follows.

Before we continue, please note that today's discussion will contain forward-looking statements made under the safe harbor provisions of the US Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, the Company's results may be materially different from the views expressed today.

Further information regarding these and other risks and uncertainties is included in the Company's Annual Report on Form 20F and other documents filed with the US Securities and Exchange Commission.

ReneSola does not assume any obligation to update any forward-looking statements, except as required under applicable law.

Before I turn the call over to Mr. Li, please be reminded that, unless otherwise noted, all figures mentioned during this conference call are in US dollars.

It is now my pleasure to introduce Mr. Xianshou Li, CEO of ReneSola. Mr. Li will give his remarks in Mandarin and I will translate into English. Please go ahead Mr. Li.

(interpreted) Thank you for participating in today's 2011 second quarter earnings call. If you have downloaded our presentation, please turn to page 4 for our business highlights.

The second quarter of 2011 proved tough as European subsidy cuts weakened demand and led to over-supply in the industry. With rapidly falling ASPs, we believe the majority of solar wafer and modular providers have taken a hit, and we were no exception. However, our leading low cost manufacturing and increasing in-house polysilicon production costs have allowed us to maintain a relatively healthy gross margin of 18.4%.

Additionally, we have made substantial progress in the production of our Virtus wafers, which is currently operating at a capacity of 900 megawatt, and is expected to replace all existing multi-crystalline wafer production by the end of this year. While it has been a relatively difficult quarter, we're confident that our continual focus on lowering wafer processing costs, and building out our Virtus wafer production will position us well for the long-term.

Please turn to page 5 for a quick snapshot of our shipments and financial progress. Total solar product shipments in the second quarter of 2011 were .5 megawatts, a decrease of 10.6% from 330.4 megawatts in the first quarter. This was primarily due to weaker demand for our solar modules, as a result of solar policy changes in Europe.

Although our wafers are selling at a near full capacity utilization rate, wafer shipments slowed somewhat, due to a temporary loss of production capacity as we replaced our standard multi-crystalline wafer production with Virtus wafer production.

Poor shipments, along with rapidly dropping ASPs, contributed to lower revenues of $249.3 million for the second quarter, compared to $359.2 million for the first quarter. For the second quarter the ASP for wafers was $0.69 per watt compared to $0.87 per watt in the first quarter, whilst the ASP for modules was $1.53 compared to $1.72 in the first quarter.

Please turn to page 6 for an update on our polysilicon production. Our Sichuan polysilicon plant continues to make increasing contributions toward our profitability, as we continue to reduce in-house costs and ramp up production. In the second quarter of 2011 we produced approximately 787 metric tons of polysilicon, up from 750 metric tons in the first quarter. Our production cost was approximately $40 a kilogram at the end of the second quarter, down from approximately $45 a kilogram at the end of the first quarter. We're on track to reach our target costs of $35 per kilogram by year end, and expect to add an additional 5,000 metric tons of polysilicon production facilities by the second quarter of 2012 in order to contribute more internal polysilicon to our wafer production and protect us from volatile polysilicon spot prices.

Please turn to page 7 for an overview of our Wafer business results for the quarter. Our Wafer business is substantially affected by the declining ASPs, which dropped from $0.87 per watt last quarter to $0.69 per watt this quarter.

Fortunately, our low costs allowed us to sustain a relatively healthy gross margin of 14.3% for our wafer business. Although our costs increased slightly quarter over quarter from $0.24 to $0.26 per watt, this was primarily due to the integration of Virtus wafer production, which is still relatively new and not quite operating at full cost efficiency. As we continue to integrate the production of our Virtus wafers, we expect costs to decrease substantially, to approximately $0.19 per watt by the end of the year.

As announced last quarter, we plan expanding horizontally into wafer consumables, such as steel wires and slurry recycling. In July of this year, as you may already know through our press release issued last week, we began trial production for steel wire, which will be used for slicing our solar wafers. We are confident we can produce steel wires at a significantly lower cost than the prices offered by our current suppliers and expect to be in full production with an annual capacity of 8,400 metric tons by the end of the year.

Please turn to page 8 for an overview of our module business results for the quarter. Our solar and module business was affected by European solar policies, which weakened demand and led to lower ASPs.

In the second quarter of 2011, we shipped 65 megawatts. We remain cautious on the module market as a whole, especially in Europe but will continue to expand our module business and increase our sales force at a conservative rate to capitalize on long-term potential and strengthen our service offerings.

Now I would like to turn the call over to Henry, who will discuss our financial results for the quarter.

Thank you Mr. Li. Please turn to page 10 to 13 for a look at our financial highlights.

Given the increased softness of the macro environment within the industry, the second quarter we have been able to deliver relatively good financial results, despite declines in the wafer and module ASPs and the increases in certain costs.

Our rigorous costs reduction strategy, our continual expansion in in-house polysilicon production and our transition towards the production of the new Virtus wafer, which should have higher profit margins than our existing wafers, have helped the Company remain on course. Also, our balance sheet and cash position allow us to make the necessary strategic investments, positioning us well for long-term growth, despite the difficult market conditions.

Before [commencing] with our financial statements, I'd like to point out that we have retroactively restated our revenue and gross profits for the first quarter of 2011, due to the reclassification of the sale of some of our raw materials, comprising primarily of extra tips and edges producing the wafer slicing process, as sales of raw materials.

Previously, the sale was classified as other income. These materials that we have sold are also recycled for production of additional silicon ingots and wafers. However, in the first quarter, due to costs relating to the recycling of these materials, we decided to sell some of our remaining edges and tips.

As a result of this reclassification, first quarter related revenues, cost of revenues and gross profit have all increased, while first quarter other income has decreased. Please note, however, that this does not impact our operating or net income for the first quarter.

Now, I'd like to attend to the details of our financial results. Please refer to pages 14 to 15 for historical comparison of some key figures from our first quarter financial restatement.

Net revenues for the second quarter of 2011 were $249.3 million, a sequential decrease of 30.6% from $359.2 million in the first quarter of 2011. The sequential decrease in revenues was driven by a decline in the ASPs of solar wafers and modules, and the relatively weakened demand, as a result of European subsidy cut.

Gross profit margin for the same quarter of 2011 was 18.4%. It was down from a gross margin of 28.2% in the first quarter of 2011, primarily due to the decline in solar wafer and module ASPs, as well as the Company's transition towards Virtus wafer production, which has resulted in an increase in the cost of wafer processing.

Operating income for the second quarter of 2011 was $23 million compared to an operating income of $75.6 million in the first quarter of 2011. Total operating expenses for the second quarter were $22.9 million, a decrease of 10.5% from $25.6 million in the first quarter of 2011. This decrease in expenses was primarily due to a decrease in general and administration expenses from our overall expenses control and a lower R&D expenses.

Operating margins represented 9.2% of total revenues in the second quarter of 2011, a decrease from 21% in the first quarter of 2011. We also recognize tax expenses of $2.7 million for the second quarter, compared with tax expenses of $10.6 million in the first quarter of 2011.

Net income attributable to holders of ordinary shares for the same quarter of 2011 was $1.8 million compared to the net income of $43.3 million for the first quarter of 2011. This represents basic and diluted earnings per share of $0.01 and basic and diluted earnings per ADS of $0.02. It is worth noting that these results included a $7.8 million loss investment loss in our hedging euro provision, a $1.4 million loss on fair value of foreign exchange on forward contracts.

Our balance sheet of June 30, 2011, our overall debt was $560.7 million. Excluding the $200 million convertible notes offered in the first half of the year, short-term borrowings increased slightly from $404 million in the first quarter of 2011 to $428 million in the second quarter of 2011.

At the end of the same quarter, short-term borrowings, consisting of $174.5 million in trade finance; $181.9 million revolving in the short-term facility; and $71.6 million of short-term portion of the long-term debt.

Our net cash and cash equivalent position was $438.1 million and the total cash including the restrictive cash was $480.8 m at the end of the second quarter, compared to a net cash and a cash equivalent position of $380.6 million and a total cash including restrictive cash of $435.9 million at the end of the first quarter. Given our strong cash position, we have been buying back our convertible bonds from time to time during the said quarter.

Please turn to page [13] for a discussion of our capital expenditure and the related capacity expansion. Our capital expenditure for the same quarter of 2011 were $22.8 million, as a result of the deferment of a portion of our 5,000 mega tons per polysilicon production capacity expansion into the first half of 2012.

We expect to reduce our expected capital expenditures for the full year 2011 from $350 million to $270 million. We expect to further expand our wafer capacity from currently 1.3 gigawatts to 2 gigawatts, up from the previously guided 1.9 gigawatts by the end of this year. Included in the 2 gigawatts capacity will be 1.8 gigawatts of our new multi-Virtus wafers and 200 megawatts of mono wafers.

At the same time, we expect to increase module production capacity from the current 400 megawatts to 600 megawatts by the end of this year. However, this module expansion may be adjusted depending on the market conditions.

With regards to our steel wire production, we have launched a trial production and hope to be in full production by the end of the second half of this year, with an annual capacity of 8,400 million tons.

Now listen to our guidance, which can be found on page 18. As we move into the second half of the year, we expect the solar market to remain challenging. For the second quarter, we're expecting shipments to be in the range of 300 megawatts to 350 megawatts, and the revenues to be in the range of $220 million and $240 million; with gross profit margins being in the region of 6% to 8%. Also, please note that we will withdraw our guidance for 2011.

At this time, we are happy to take your questions; operator, please?

(Operator Instructions). Satya Kumar, Credit Suisse.

I was wondering if you could talk about the current market prices now for wafers and modules.

Hi Brandon. Yes, in terms of the current spot price that we're seeing in the market for wafers, it is $0.52 to $0.55. And for modules, what we're seeing is anywhere from a $1.00 to $1.20. But, of course, I'm sure you can find a wide range of prices that are being quoted out there in the market.

Okay, thanks. And could you talk about the composition of the inventory; I mean the second quarter between raw material, work in progress, and finished goods, please?

(interpreted) Actually, we will have -- almost 50% is [especially] as the inventory, as the module and the wafers. And another 40% is the raw materials.

Okay. And could you talk about the average cost of poly in the raw materials, please?

The average poly cost, you mean our internal production?

Both, if you can, please?

The blended -- okay, our internal poly production costs are almost [like] $42 per kilogram. And our blended cost is $54.

Okay. And what do you expect poly costs to do in the third quarter?

In the second quarter our -- for the third quarter, our guidance is that we will be in the range of $35 to $40.

Thank you very much.

Operator, can you get us the next question?

Ahmar Zaman, Piper Jaffray.

In terms of your guidance for CapEx, I guess I'll start with a high level question. Given the current oversupply in the entire value chain, what is your thinking around continuing to expand your module and wafer capacity?

Actually, as I mentioned in the call that the wafer capacity will expand to -- we will expand the wafer capacity to 2 gigawatts at the end of the year. And for module, we will keep the guidance about 600 megawatts.

I guess, in terms of what we're thinking, because of the overcapacity that's out there, on the module side, we're going to be very, very careful. So we have not made the expansion yet. And depending on how things go for the year, we may decide to curtail that. Or alternatively, we will stick to our guidance, which basically predicts that things will be better by year end. So by year end, we'll likely expand the module capacity to 600 megawatts.

Now on the wafer side, it is what it is. It's our core business; it's our strength. It is where, basically, we have the low cost advantage. So even if we expand, we will still produce at much lower cost than everyone else. At the same time, we'll produce a much better product than everyone else, with the Virtus wafer. So hence, that's our rationale behind that.

And just, I guess, as an aside, we're also expanding on the poly side, because we feel that is critical to the long-term cost benefit for our Company.

Thanks. And then, if I may, just two more questions. Number one, previously, I believe your end of year target for your wafer processing costs is $0.18. It seems like it's gone up. Can you talk about the [1p] difference; where that comes from?

Sure. Basically, it comes from the fact that we've done the switchover to Virtus.

Okay. And what type of premiums are you getting on your Virtus wafers versus standard wafers? Can you talk about that?

(interpreted) Yes, we believe we should be able to get between 5% to 10% premium, over other normal wafers. Now keep this in mind that, already, we sell our wafers at a premium. So hopefully, we'll be able to get an even larger premium.

Great. And if I may squeeze in one last one. Your internal poly, at 8,500 metric tons of capacity, how much of that -- how much of your total poly requirements will that satisfy?

Yes, actually, as you know, the 8,500 metric tons is for next year. Let me direct that question to our CFO.

(interpreted) Yes, once we have 8,500 metric tons, we should be able to cover 80% of our internal needs.

Right. And is that the plan then, to cover 80% of your internal needs with your internal poly?

Actually, we still have some poly wafers. So if we can produce 8,500 metric tons of polysilicon, I think we almost have 90% to 100% vertically integrated, because another 10% could be covered by the poly. For our total polysilicon needs for the next year -- for the end of this year it's almost about (spoken in Chinese).

So also, because of the fact that we've got these long-term tolling contracts, actually, we could probably get by with having just 70% to 80% of our internal poly needs satisfied, and then the rest will be covered by the tolling contracts. So (multiple speakers).

Great. Are you using hydro-chlorination technology in your polysilicon?

That would be the case for the second phase, yes.

Okay, great. Thank you very much.

Thank you.

Vishal Shah of Deutsche Bank.

Can you talk about your assumptions for pricing in your third quarter guidance, both for the wafer and the poly segment -- I'm sorry, the module segment?

(interpreted) Okay. We're assuming $0.55 on the wafer, and $1.20 on the modules.

Okay. And the pricing that you quoted for modules and wafers appears to be slightly lower than that, currently. So are you assuming a price improvement, stabilization? What are your thoughts around how pricing develops in the third quarter? Thank you.

I think generically speaking, what we're seeing is that overall pricing is stabilizing. Now some of the numbers that we've put out there, they're reflective of spot; they're reflective of non-Virtus wafers. But generally our view, and this is, if you will, consistent with much of what's out there in the public domain, is that things appear to be stabilizing, at least for the third quarter.

Great. What about the polysilicon environment? The spot prices are they continuing to go up, or have they also stabilized? And where are they right now?

(interpreted) Our view right now is that Q3, clearly, appears to be very stable, and will remain that way. For Q4, we believe it may go down.

Okay. And I know that you took your fourth quarter guidance off, but can you maybe just talk qualitatively about where you think module prices could go to by the end of the year, maybe even in the wafer prices?

(interpreted) Generically speaking, we are basically being conservative, and we'll forecast a 10% decline. And that's for both.

Okay, in Q4. And where is polysilicon's spot price right now? Is it mid 60s or lower than that?

No, not that high. The polysilicon price that we're seeing right now is around $53 to $54.

Okay. One last question. Your cost -- wafer cost, internal [Virtus] wafer cost will be below $0.40, closer to, say, $0.36, $0.37, exiting this year. Where do you think wafer prices can go during 2012, if you think this oversupply environment continues in 2012?

(interpreted) As low as $0.40.

Thank you very much.

Sorry, apologies $0.45.

Sanjay Shrestha, Lazard Capital.

A couple of quick questions, guys. First off, can you give us some more granularity on what sort of pricing and demand do you guys expect to see from China in 2011, and in 2012? And when I'm saying pricing, I'm talking about the module pricing.

(interpreted) So for the module pricing, we believe that, for the China market, it'll command something like $1.10; and that's for this year. For next year, it will probably go down by something like 10%, so it will be somewhere around $1. Demand this year will probably be around 3 gigawatts. Next year, we're likely to see something like 3 to 5 gigawatts, based on our house view.

I'm sorry, 3 gigawatts of demand in China just in 2011?

2012; it's 3 to 5 gigawatts.

And so I just want to confirm. So the module pricing you guys said is $1.10 for 2011?

That's correct.

Okay. Why does it have to be that low, though, given some of the recent announcements, and the feed-in tariff in some of the province? Pricing has a potential to be higher than that, right? Why is it that low? It doesn't need to be $1.10; it can very well be $1.30 this year.

(interpreted) The big picture is that the provinces ultimately will probably defer to the national policy. Much of this has been, if not openly announced, it's been hinted at. So some of the feed-in tariffs that were announced, or some of the other subsidies that were announced they are probably more temporary measures. No one is coming out, saying that they'll do something for 25 years. More often than not, they're coming out and saying they'll do something temporarily, but when the national policy comes out, they'll follow the national policy.

Okay, got it. A few -- two more questions for me, guys, if I may. So I'm taking what you guys said, right, about your poly cost, and then what you expect your wafer prices to be in 2012. So if you guys think wafer is either going to go to $0.45, let's say, your internal poly's at $0.35, [5.6 grams], so $0.18 of non-silicon processing. You take that into consideration, you're talking about 15% to 16% gross margin as a normalized run rate. Is that the thinking here?

And if that's the thinking, then why are you guys not thinking about maybe slowing down your ramp-up, and being able to buy some of the equipment in the secondary market, so that you can actually purchase them at cheaper price, rather than having to really go and spend the CapEx right now? Why not preserve the cash here, given the environment we're in?

I think it's safe to say, in the second part of your question, much of the capacity out there that we could go and buy in the secondhand market are probably higher cost capacities, that would bring our costs actually higher; as opposed to things that we could do ourselves. But with regards to normalized margin question, let me direct that to our CEO and CFO.

(interpreted) Yes, with regards to your question on the margins, that's probably correct for the first half of the year. For the second half of the year, as you might recall from our previous presentations, if we can get the second phase production facility up and running on the polysilicon side, the average cost there will probably be somewhere around $25, with a theoretical low of $20. So at that point, we can improve our margin substantially.

Okay, got it. That's very helpful. Thank you so much, guys.

No problem.

Kelly Dougherty, Macquarie.

I just want to follow up on the margins quickly. The 6% to 8% that you're guiding for in the third quarter, is that the new level until you get more of this poly online next year? So should we be thinking about something in the single digits for the fourth quarter as well, or as maybe you can control the processing costs; that could come down -- or that could go up actually?

Yes, actually, the third quarter margin is just based on what's the current ASPs and what's our processing costs and the poly costs we can buy from the spot market.

And for the [fourth] quarter, we think this will be improved. As we mentioned in the call, we already started to have the -- do wire production and we also have some internal technology improvement, which could be helpful to reduce the processing costs to $0.19 at the end of the year. So in the fourth quarter, our gross margin could be improved, what I can believe is -- should be about 10%.

About 10%.

And I guess one other little thing to add to that is that right now, we are producing, or are expecting to produce about 600 metric tons to 700 metric tons of polysilicon in Q3, and this we've mentioned in the [PPT], as well as elsewhere. And this is just due to some temporary electricity stoppages as the local government makes some upgrades to our infrastructure. And as we make additional upgrades to lower our costs. So if you will, the third quarter will have, shall we say, some temporary anomalies in terms of our operations.

Okay, great. That actually goes on to the next question. Just wondering how much you think you can produce then in the fourth quarter when the ramp will be further along; you don't have the temporary stoppages. Can you produce north of 800 metric tons/900 metric tons in the fourth quarter internally?

(interpreted) Yes, that's correct. We are expecting to be able to produce 800 metric tons to 900 metric tons in the fourth quarter.

Great. Thanks. And then just to follow up on the processing costs; so we saw the increase in the second quarter. You mentioned that was due to the transition to Virtus. How much more does it cost to make a Virtus wafer, or was that due to ramp costs as you brought the lines up?

Yes. It's almost $0.02 to $0.03 higher than the multi-wafers, Virtus wafer processing costs.

But as you correctly pointed out, some of that is due to the ramp-up. So, if you will, there is a, shall we say, a precise cost, if you will, the [before].

So it's cost $0.02 to $0.03 more to make a Virtus wafer going forward once things are ramped? Or that's just right now?

That's just right now.

Okay. So when you're on a normalized basis, how much more will it cost?

That will be only $0.01 added. That's the reason why we had the increase to the guidance for the wafer processing costs from $0.18 to $0.19.

Okay. So all of that is due to producing more Virtus than you previously expected?

Yes.

Okay. And then just my last question is what the thinking was behind pulling the shipment guidance all together. If you make the midpoint of the third quarter guidance, you can kind of get to [965], almost 1 gigawatt, for the first three quarters. Is there just no visibility into the fourth quarter at this point that you couldn't give a rough estimate of what you think for the full year?

Well, I think we won't say that there's no visibility. Our wafer utilization overall is still at approximately at 100%. There is, if you will, less clarity in the module market on our side.

In terms of reasons for pulling the guidance, I think it's fair to say that obviously from the numbers, if you just add them all up, it's no longer realistic and we won't be hitting the guidance. And, as you correctly point out, given the fact that we have two quarters of numbers and a third quarter guidance out there, I think it's fair to say that, in general, people can extrapolate what our full year numbers are likely to look like.

Okay. So how much of your wafer shipments do you have already spoken for for the fourth quarter?

Right now, we're still basically at 100% utilization. Pretty much whatever we can produce we can sell.

Okay, and then just a last quick one. In the 330 megawatts to 350 megawatts, how much of that -- for the third quarter; how much of that is supposed to be wafers versus modules?

(interpreted) Of the amount should be about 90 that is to modules, and the remainder to wafers.

Thank you very much.

Sam Dubinsky, Wells Fargo.

A couple of quick questions. First, pricing is obviously very depressed and a number of vendors are struggling to stay profitable. Have you seen any capacity come offline recently, either from your competitors or your customers? And then I have a couple of follow-ups.

(Interpreted). Yes, so basically, the big Tier 1 type companies similar to ourselves, we haven't really seen that; and I think you'll probably notice that in the public announcements as well. For second/third tier manufacturers, we have seen some cases of that here and there.

Does the capacity get aisled, or has anyone actually shut down facilities permanently?

(Interpreted). Overall, we haven't seen anyone just, if you will, go out of business, whether it's on the module side where they have a lot more flexibility, given the nature of module manufacturing. The sell side we're seeing some stoppage, but again, nobody go out of business per se.

On the wafer side, as I'm sure you know, the mono manufacturers are doing good. On the multi side, yes, there has been some of our competitors in the second or third tier who have a stock reduction. But as far as we know, no one has, if you will, completely exited the market.

Okay. And then what was -- a housekeeping question. What was your tolling in the quarter, and how has pricing been for the tolling segment?

Yes, well, as you know, typically we don't give out information on our tolling business, and that is something that we're bound by contract not to give out. But I think it's fair to say that it's still pretty good and stable. But that said, I think it's also safe to say that prices and margins have probably come under pressure in every single part of the Sola vertical.

Okay, and then I missed your commentary on 1Q again. I know earnings are the same, but what was the adjustment to revenue?

Yes, long story short, basically our accountants, our auditors, came back to us and said that some of the things that they originally agreed with they thought that we needed to adjust.

And what that was was that we have a bit of raw materials which we sell off, and what those raw materials are are the tips and edges from, if you will, cutting the ingots and wafers. Now most of the time, we're able to recycle most of those and make into ingots and then wafers again, but some of the extraneous raw materials, because they're not of good quality, we sell off to some second or third tier companies who can still use them.

And those sales we were including that in other income, but our auditor said that we should be including instead in our revenues. So, hence, our revenues and our costs to goods sold were adjusted for that.

I got you. My last question is can you disclose what -- the Virtus technology how it compares to mono?

And it seems like you've taken some mono capacity offline, I assume to move more to Virtus. What's the pricing premium for a mono versus multi wafer? And is your Virtus wafer getting similar treatment to a mono wafer in the market?

(interpreted) Generally speaking, our Virtus wafers, compared to mono right now, are probably cheaper by 5%. It's worth noting that we've got two types of Virtus wafers. One, the Virtus V, it tends to be able to command a much higher price than the normal multi-crystalline wafers, so something like higher by 15% to 20%.

Now with regards to your other question in terms of the capacity as well as our reducing the mono-crystalline capacity, well, the guidance is for 200 megawatts at year end. And while it appears 200 megawatts of mono-crystalline capacity is coming offline, we haven't formally made a decision on what we're going to do on that capacity.

One of the potential things that might happen is we could potentially relocate that capacity somewhere else, such as to Sichuan where the electricity is cheaper. And given that mono uses more electricity that might make more sense. But let's just say that we're definitely not just shutting down 200 megawatts of mono capacity yet.

It was a cost issue, because the costs are a little bit higher in the mono business than in the multi?

Fundamentally, yes. Obviously, mono is always going to generate higher costs, and the -- one of the holy grails of the business is to use the multi-process to create a mono-like multi. And we've come close to that with the Virtus wafer.

Okay, great. Thank you very much.

You're welcome.

Jesse Pichel, Jefferies.

It's a pretty impressive 25% processing cost reduction you're targeting, which is $0.07 to $0.19, and how much of this is making your own wire, versus savings and slurry or crucible savings? Thank you.

Actually for the slurry we will proceed to recycle the slurry, and it is going to help us to [think] about the $0.005 to $0.01. And, therefore, the wiring production this could have helped us to reduce the pricing costs $0.02 to $0.03.

And the rest for the crucible and processing, or?

Exactly, and, as mentioned earlier, some of the higher processing costs, as you're aware right now, is partially due to temporary set up for Virtus. On the one hand you see a $0.26 number; on the other hand that's probably not, shall we say, a normalized number.

When you reclassified the scrap sales, how is the cost of that scrap material determined? Because I'm wondering, for the entire industry, how the industry is classifying scrap, and if that is really embedded within their -- or netted against their polysilicon costs.

Okay, I can explain here. For the -- probably we (inaudible) this as just a scrap of materials, because it could be recycled for use, but following -- after the purifying processes it could be back to the [Virtus] for use.

[While] -- we decided to sell those materials, because we have an internal model to decide whether if we need to sell or not. While the market price and the purifying costs, if the gap is above $30 we need to recycle to use these kind of materials. If we're just between we should -- to sell it directly and buy the poly directly to increase the capacity utilization. So for the amount it should be -- for the same quarter it's about $10 million.

So the cost -- you're selling it at a price per kilo, what is the cost per kilo on scrap? How is that determined?

It is almost the same.

So it's at par, okay. Okay.

Do you -- in the last cycle downturn, at the end of '08 and '09, ReneSola had inventory write-offs. And I'm just wondering, do you anticipate inventory write-offs in your third quarter? Is that baked into your guidance?

No.

No?

We learned our lessons from the last time, if you will.

My last question is, ReneSola is one of the lowest cost wafer companies in the world, and a very high quality, yet, based on the current wafer price in Q3, it doesn't appear like you will make money, given your 6% to 8% gross margin guidance, and your OpEx is running in line or higher than that.

If that's the case, there should be no wafer company -- pure play wafer company that makes money I would think, which is probably not sustainable. And I'm just wondering what do you think happens? Do you think the polysilicon vendors will have to dramatically lower the price to enable the biggest buyers of poly to make money? Or do you think the wafer price could go up for instance, or some other alternative?

Yes, let me have some comment, and maybe see if Mr. Li to add some comments.

From my point of view, wafer manufacturing, without any polysilicon materials, yes, it will be very difficult for the kind of wafer manufacturers to get in the -- to up in the margins, get less profit in the next few quarters, because while we can see that wafer price will not -- goes up in the future.

I think Mr. Li is of the view that the big picture is one where, later in the year, and certainly into next year, for us and for many others, there'll be polysilicon production that comes on line. And, as a result of that, that will, hopefully push the polysilicon prices down. And in our view, whether it's our own polysilicon production, or elsewhere, it will help with, basically, lowering the overall poly costs, in which case our margins will return to a more favorable, or even, shall we say, a more normal level.

So you could take the view that we view things in the way that once more capacity comes on line we should see poly prices come down. And the wafer manufacturers were able to last until then should be able to earn more favorable margins.

Does Chairman Li have a price target for poly for next year? He was very accurate with the module price target. What does he think poly prices will be for next year?

(interpreted) $35.

Thank you very much.

Dan Ries, Collins Stewart.

I have two quick questions. Operating expenses were down nearly $3 million if you -- excluding the other; the sales, marketing and general administration. And R&D, were down about $3 million, Q1 to Q2. Can you continue to reduce those, specifically the R&D budget, at over $11 million, is a bit large for a company your size. Do you have some room to [maneuver]?

Actually we can control our general and administration expenses. But for the R&D expenses it could be in line with our revenue. Actually, we will try to have -- while the difficult environment which -- we will also try to have some (inaudible) expenses reduction.

Okay. Now, on the poly plant, I was wondering when you expect to mechanically complete the 5,000 metric ton expansion facility. When would the CapEx spending for that plant be largely complete? And then what time period are you expecting for testing and ramping that facility?

(interpreted) Based on the terms that we have discussed with our equipment providers, what we'll do is we'll actually spend the CapEx over time. So if you will, we have gotten relatively favorable payment terms. So it will be spread out until the end of the second quarter next year. So that's on the CapEx front.

In terms of the testing and actual doing test runs and production, we'll definitely be able to do it by the end of the second quarter next year.

Does that mean all the equipment would be in place in December of this year/January of next year?

(interpreted) That's correct, it should be around the end of this year/beginning of next year.

Thank you very much.

Philip Shen, Roth Capital Partners LLC.

Given the overall market environment, and given what you know now, can you provide us a sense for what kind of capacity expansion in the wafer business you may see in 2012? I'm just trying to get a sense for what your cash needs beyond 2011 might be.

(interpreted) Right now, we don't have, if you will, a official guidance for 2012 in terms of our capacity.

Okay. Let me ask about the steel wire business. How much did you invest in the steel wire business, and who do you purchase your cutting wire from now?

It's about $30 -- $40 million.

In terms of who we buy the wires from, these days we buy a little bit more from the Japanese and Korean suppliers.

Just to clarify, did Henry say $40 million?

Yes, correct.

Okay, great. Then just one clarification on OpEx, do you expect -- could you see Q3 and Q4 OpEx to be lower than Q2 as well. I know R&D will likely trend with revenues, but how much more do you have in SG&A, in terms of cost reductions there?

Actually, our operating expenses were -- what I can see, there should be no significant reduction on the operating expenses because that is mainly related with the financial expenses, and the depreciation expenses and the staff expenses.

So I guess maybe to be conservative, and for everybody's modeling purposes, maybe it's best to model the OpEx as flat with Q3 versus Q2, and similarly for Q4 for now.

Great, thanks very much.

Eric Cheng, Deutsche Bank Research.

I understand from Chairman Li that there is some intentions for you to invest in the solar farm project in China. Is that the case? And if that's the case, what kind of investment that you would be looking for, like equity investment, or some kind of cooperations with the large IPPs?

I think there's nothing definitive per se that's been done. But you're right, there's a few things that we're looking at specifically, in particular, with regards to [Xinghai], but let me double check with CEO Li.

(interpreted) There are several projects we are looking at participating in. But in terms of the logistics and some of the operations, a lot of things are not settled in, whether it's with regards to land or other things. So, for example, there is a 20 megawatt project in Xinghai that we maybe doing something with in the future. But again, there is a lack of, if you will, of a position and a finality to some of the agreements that's out there.

So is that kind of potential investment -- I understand for the Xinghai project, probably the completion date needs to be by the end of this year. So is that the -- that kind of potential investment included in your CapEx guidance?

(interpreted) We haven't received all the approvals and all the documentation. A lot of the policies that are due haven't come down officially. So no, it's not officially included in the $270 million guidance that we've given for CapEx.

Okay, I see. Maybe one more questions for Chairman Li. What kind of return would you be looking at -- or what's the hurdle rate, which you'd be looking at for investing in the solar farm projects in China?

(interpreted) So the target ideally based on the pricing for something like RMB15 is to get to something like a 20% rate of return.

Sorry. Last question is actually a housekeeping question. Regarding your 14.3% gross margin, does it include any inventory write-down or provision in that margin, or that's just purely the gross margin for external sale of wafers, including tolling?

That's purely margins. There's no write-down here.

Okay, okay, understood. Thank you very much.

[Nick Zhu], Goldman Sachs.

I just have a quick follow-up question. If you guys have a poly price view about $35 by next year, so why do you guys still ramp up new poly capacity? How do (multiple speakers)?

I think, again, our view for $35 is for the industry as a whole. That's the price that hopefully we'll get to on our Phase 1 by the end of the year, and maybe sometime next year we can get it down even lower.

And as mentioned earlier on the call and previously, the Phase 2 plant, we're very, very much hoping to have very low poly cost, something like $25 in there with a theoretical low of $20. So for next year, at least, we'll still have internal poly costs that are lower than the spot market in spite of our, shall we say, low price target for the poly spot price.

Okay, so can you give us the picture, why do you -- how can you achieve such a low cost on the Phase 2 poly capacity, because the different location electricity, or it's different methodology? Can you give us a more detailed cost structure breakdown?

(interpreted) Ultimately, if you look at the Chinese polysilicon production that is out there, doing something like $25 or $20, it's not abnormal, and it's even less abnormal if we can move t he production to places where electricity is cheap, like Szechuan.

In terms of some of the input materials that go into polysilicon production, if you look at the Chinese prices, they're substantially lower than some of the international prices. For, if you will, these types of Phase 7, Phase 8 type of polysilicon projects, if you can't hit these types of costs, of say $25 or lower, then it's really a failed project.

So, basically, in terms of some of the numbers, again on the electricity side, we could probably drop by something like 100%. On other costs, something like $1 to $1.30; and then, in terms of just the overall CapEx and other depreciation, we can probably knock something like $6 off.

Okay. Thank you. So, just to follow up the poly price question is, how do you view the long-term contract poly price in the international market right now? How flexible are they? If we see poly price drop to $30 or maybe $25 next year, maybe more, hypothetically, at this point do you think that they're very flexible -- how do you view? And when you continue to source some poly from international vendors?

(interpreted) So, from a market perspective, for a lot of the European and North American suppliers, it's very much a take or pay situation, and they try to have, shall we say. very rigid contracts. It's Mr. Li's views that this will either need to change, or there will be some types of problems on our outlook on things.

For our side, of course, right now, the long-term contracts don't take up a big chunk of our poly needs. And of that half of the long-term contracts are based on flexible pricing. So next year it'll basically fulfill only 10% to 15% of our needs, and will just become a smaller portion. And again, a substantial portion of that is actually based on flexible pricing, so we're in a favorable position there.

Okay, great. Thank you.

Aaron Chew, Maxim.

Hi, thank you very much for the question. I just -- not to beat a dead horse, but I wonder if you could provide just a little bit more detail and timing into your near-term outlook for polysilicon spot pricing in the back half of 2011? I know you said $35 in 2012. Is it stable in third quarter '11, and quote-unquote down in fourth quarter, but perhaps you can offer a little bit more detail?

Specifically, do you see poly actually breaking $50 over the next few months, and what do you guys think actually has to happen for that to occur? It seems like most of the poly producers are trying to hang tough, and any color you can offer on that would be greatly appreciated. Thanks.

(interpreted) Basically, Mr. Li is pretty confident that the price will break the $50 price level in the fourth quarter. And the catalyst for that, if you will, is, one, additional capacity coming on line around that time. And also two, it's traditionally a more quiet period in Europe, so there'll be less activity, and perhaps more pressures on the producers.

All right, excellent, thanks. One quick follow-up; if you do the math on the shipment and ASPs that you broke out, it comes to a little higher revenue. Is it safe to assume that the difference is roughly 25 megawatts on tolling? And that that means your $0.69 wafer ASP is ex. tolling? Is that correct, or roughly correct?

I think we might need to go through your numbers more carefully, perhaps in a separate call?

But -- let me back up and just -- the $0.69 ASP is ex. tolling?

(interpreted) Yes, it's ex. tolling; that's correct.

All right, thank you, gentlemen.

We are now approaching the end of the conference call. I will now turn the call over to ReneSola's Chief Financial Officer, Mr. Henry Wang, for his closing remarks.

Overall, we've delivered satisfactory margins in the quarter. Given the weak macro environment surrounding European solar policies and the industry oversupply, our core Wafer business suffered from rapidly declining ASPs. However, we were able to sustain relatively strong margins by controlling our silicon and non-silicon costs.

Furthermore, we made a substantial headway in the production of our Virtus wafers, which we expect will improve our margins and attracting new business, and it is regarded as one of the most efficient multi-wafers in the industry.

Our supplementary Module business was impacted by slower market demand and declined ASPs. To counter this problem, we have plans to increase our sales force, to help increase module sales, and deliver more module shipments in the growing Chinese market.

As we move into the second half of the year, we will continue to capitalize our cost reduction capability and expand our business, to solidify our position as a leading, cost efficient solar company.

Again, thank you for joining us today. If you have any further questions, please do not hesitate to contact us. Thanks.

Operator, please.

Thank you for your participation in today's conference. This concludes the presentation. You may now disconnect. Good day.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.