Emeren Group Ltd (SOL) 2014 Q4 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Limited's fourth-quarter 2014 earnings conference call. (Operator Instructions). As a reminder, today's conference is being recorded. I will now turn the call over to Ms. Juliet Yang, ReneSola's Senior IR Manager. Please go ahead, Ms. Yang.

Hello, everyone, and welcome to the Company's earnings conference call.

ReneSola's fourth-quarter results were released earlier today and are now on Company's website, as well as from newswire services. You can also follow along with today's call by downloading a short presentation available on the Company's website at www.renesola.com.

Joining the call today are Mr. Xianshou Li, our Chief Executive Officer, and Mr. Daniel Lee, our Chief Financial Officer. I will read Mr. Li's prepared remarks regarding ReneSola operational highlights and strategy, and Daniel will then review our shipments and financials.

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 20-F 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.

Please note that unless otherwise stated, all figures mentioned during the conference call are in US dollars.

I will now begin with an overview of our fourth-quarter business. Despite continued macro challenges in the fourth quarter, most notably foreign exchange fluctuations, we surpassed our guidance for shipments and met our guidance for gross margin. We also continued to implement our strategy of shifting our business toward services, retail and downstream projects.

The flexibility of our global manufacturing network enabled us to rebalance our geographic mix by reducing our exposure in euro denominated markets while shifting toward dollar based and other non-euro markets.

At the same time, our customer base increased to 2,546 as we provided more renewable energy products and services to smaller sized customers. This is a client pool that we expect to create new cross-selling opportunities for our products and services.

Regarding our polysilicon production, the Company's total output of polysilicon for full year 2014 was 5,825 metric tons, with an output of 1,884 metric tons in Q4. Our polysilicon factory is currently running at full capacity, and we expect it to be profitable and generate positive cash flow this year.

Regarding project updates, in Q4, the Company completed the sale of 37 megawatts in distributed generation projects in mainland China. We currently have a total of about 38.5 megawatts in existing projects, including 25 megawatts in utility scale projects in Eastern Europe and 13.5 megawatts in the United Kingdom, all of which have been completed and connected to their respective grid.

The Company also has a total of 57 megawatt utility scale projects under construction in the UK, including the 6.3 megawatt utility project announced last quarter. The 57 megawatt projects are expected to be connected to the grid within Q1 this year, and all of the UK projects are expected to be sold in the coming months.

In terms of research and development, in Q4, the Company continued to invest to develop new technologies and increase efficiency of its current solar products. Specifically, ReneSola upgraded the processing technology of its A-plus-plus-plus wafer, maintaining the same average efficiency of 17.8% while reducing the processing cost by 4%.

The Company's 275 watt and 330 watt polysilicon (sic - see press release "polycrystalline") modules have been completed and will be in mass production soon. The average power output of the Company's module products has also been improved. The lower limit module product was upgraded to 255 watts for the 60 cell version and to 305 watts for the 72 cell version.

Also, the certification process is underway for the Company's double glass module, which features 1050 (sic - see press release "1500") volt maximum system voltage, and is expected to enter production soon.

On the inverter side, our new 300 watt micro inverter is now in trial production and undergoing onsite project testing. Related certifications have been obtained in several key markets in North America and Europe. The first batch of the products is expected to enter the market soon.

We continue to obtain applicable certification for its string inverters across several international markets, including Germany, the United Kingdom, Australia, Thailand and the United States. Also, our innovative 5 kilowatt hybrid inverter has now received applicable certification and is in trial production.

In terms of LED news, we recently launched a range of LED bulb products with a new composite coating material that combines cost effectiveness with outstanding insulation performance. Also, ReneSola LED lighting tubes feature a range of configuration and cap design options, all of which are now available worldwide.

ReneSola continues to obtain certifications across different continents for its LED products, including LED bulbs and spotlights. The Company's first batch of LED lighting products was shipped to customers in January of this year, with additional shipments expected to start from March.

For European and North American markets, the Company launched its LED High Bay, featuring high brightness SMD chips. CB certification was obtained in late February and the product will be available for order soon.

I will now turn the call over to Mr. Daniel Lee, our CFO, who will provide details regarding our shipments and financials.

Thanks, Juliet, and hello to everyone.

Overall, we continue to follow a prudent financial approach and asset-light strategy in order to improve our margins and cash flow. Consistent with that approach, in the fourth quarter, we enhanced our cash position and reduced our long-term liabilities. This year, we will look to further improve our financial position as we grow our businesses worldwide.

I will now walk you through our product shipments. Total solar module shipments in the fourth quarter were 488 megawatts, compared to 462 megawatts in Q3 and 505 megawatts in Q4 of 2013. Our wafer shipments totaled 256 megawatts in Q4, compared to 202 megawatts in Q3 and 279 megawatts in Q4 of 2013.

Our module shipments exceeded our Q4 guidance, mainly as a result of expansion in emerging markets such as India. The decrease in wafer shipments year over year reflects our strategic shift towards higher margined module business.

The geographic breakdown of module shipments in Q4 was as follows: Europe represented 31% of our total shipments, Japan 27%, US 14%, China 8%, and the rest of the world 21%.

Our module ASP dipped from $0.67 per watt in Q3 to $0.64 per watt in Q4, mainly related to the depreciation of euro and yen against US dollars.

I will now review our financial results for Q4. Net revenues were $387m, compared to $372m in Q3. Gross profit was $51.2m, compared to $57.1m in Q3. Gross margin was 13.2%, compared to 15.3% in Q3.

Our total operating expenses were $53.4m, representing 13.8% of total revenues, compared to $48.6m and 13.1% in Q3. The Company's SG&A expense showed a slight sequential decrease due to improved cost control. The sequential increase in operating expenses was primarily due to an increase in administrative items gains during Q3 of 2014.

Operating loss was $2.2m, compared to operating income of $8.5m in Q3. Operating margin was negative 0.6%, compared to an operating margin of 2.3% in Q3.

Net loss attributable to holders of ordinary shares was $8.1m, representing basic and diluted loss per common share of $0.04 and a diluted loss per ADS of $0.08.

In terms of our full-year 2014 results, total solar module shipments were 1.97 gigawatts, representing an increase of 14% from 1.73 gigawatts for full year 2013. Total solar wafer and module shipments were 2.82 gigawatts, representing a decrease of 10.5% from 3.15 gigawatts for full year 2013.

Net revenues were $1.56b, up slightly from $1.52b in 2013. Gross profit was $209.3m, with gross margin of 13.4%, compared to gross profit of $113.1m with gross margin of 7.4% in 2013.

Operating income was $8.2m, with an operating margin of 0.5%, compared to an operating loss of $221.4m with an operating margin of a negative 14.6% in 2013.

Net loss attributable to holders of ordinary shares was $33.6m, representing basic and diluted loss per share of $0.17 and basic and diluted loss per ADS of $0.33.

As for our cash and debt positions, total debt was $698.1m as of December 31, 2014, compared to $748.8m as of September 30, 2014, excluding $94.6m of convertible notes due March 15, 2018.

Our net cash position, including cash and cash equivalents and plus restricted cash, was $221.7m as of the end of Q4, compared to $196.7m at end of Q3 and $348.9m as of the end of 2013.

Lastly, net cash inflow from operating activities was $48.8m in Q4, compared to a net cash outflow of $10.7m in Q3. For the full year, net cash outflow was $110.8m (sic - see press release "$114.8m"), compared to a net cash inflow of $118.6m in 2013.

Turning now to our guidance, for Q1 2015, the Company expects its net revenue to be in the range of $360m to $380m, and gross margin to be in the range of 14% to 16%. For full year 2015, the Company expects its net revenue to be in the range of $1.5b to $1.6b.

We will now open the call to questions. Operator, please go ahead.

(Operator Instructions). Philip Shen, Roth Capital.

Hey, guys. This is actually Justin Clare on for Phil Shen. Congratulations on the shipments in the quarter. That was good news. So first, I wanted to --

Thanks, Justin.

No problem. So first, I wanted to talk about ASPs, and I just wanted to understand, was the decline from $0.67 to $0.64 due to just depreciation or have you seen a decline in the local currency ASP as well?

Yes, it was primarily due to the strengthening of the US dollar against major currencies, especially euro. That's the key area where we're operating, so that's the main impact.

Okay. Thank you. And then, I was wondering, with the ASPs, could you provide us a breakdown as to what you saw in Q4 for, let's say, Europe, Japan and the US and China?

Yes, sure. We can get that for you. Yes. The US was $0.72 to $0.73 in Q4. Europe was about $0.62. Japan was about $0.66. China was about $0.56. And the rest of world, for us, it's about $0.61 to $0.62.

Okay. Great. And then maybe just one more for me. It looks like you're having some success in new markets like India. How many megawatts do you think you could ship to some of the new markets in which you're having success throughout 2015?

At this point, we don't want to quantify any amount, but maybe just give you the magnitude. For instance, India we have pretty much -- quarter over quarter, we have more than doubled our shipments. One is because it's dollar based, denominated, so that from a foreign currency perspective it won't impact us negatively. And second of all, because we have been in India longer than most of the other guys, we can utilize the DCR, the domestic content requirement, to our advantage, and the ASPs are relatively high, actually.

Okay. Great. The color is helpful. I'll jump back in queue.

Great. Thank you.

Patrick Jobin, Credit Suisse.

Hi. This is Jennifer King, on the line for Patrick. You guys talked about shifting away from European markets because of FX pressures. What are you thinking 2015 will look like in terms of geographic mix?

2015, we want it to be more or less 50/50, but still biased a little bit more towards the mature markets, for example, Europe and Japan. But that said, on a relative basis, Europe will be a little bit on the lighter side, comparing to 2014. One is that the market is relatively mature, and the other is the currency issues.

So there are some other markets we are pretty active in. The US is a pretty good market. We have been using 100% US compliant OEM products for our US shipments. And also other emerging markets. We have mentioned India, which has been very good to us. We want to continue to target these markets where we think we can get higher ASPs and higher margins.

Great. And could you guys just give us any updates on capacity expansion plans?

Actually, yes, this has been our strategy for more than a year. We don't intend to make any capital expenditures. Our model is about building our channels, providing bundled services, and we have been shifting more and more from the large scale ground based projects to smaller, more retail oriented type of clients. That's why this year our shipments will be lower than last year, but in terms of revenue it's still at par with last year's.

Great. Thanks.

Thank you.

(Operator Instructions). Pranab Sarmah, AM Capital.

Hi. Thank you for taking my question. My first question is your convertible bond payment. I guess it's due on March 15. Are you going to pay this one, or are you going to issue a new bond against this convertible bond?

Yes, thank you for the question. Regarding the convertible bond, first of all, it really depends on the capital market condition. If the capital market is to our favor and if we have the right cash flow for each quarter, then we'll try to repurchase as much CB as possible. So whatever that's left, we're going to try the other many alternatives. For example, we can try to renew it or we can issue new bond or some other type of financing to satisfy the rest of the CB.

Does that answer your question?

Yes, that answered my question. The second question is on your first-quarter guidance. You are talking about declining revenue but improving gross margin. Could you elaborate a little bit on your ASP outlook on Q1 and why you think that your margins will improve on Q1 [over] Q4?

Okay. First of all, we hope that in Q1 the foreign currency won't be as volatile as Q4. We feel that the currency probably will bottom out sometime in Q1. And also, we intend to sell at least one of our downstream projects in Q1, so that can give us a boost in the gross margins. And of course, every quarter, we're in the process of reducing cost. So every quarter we expect to reduce the cost of -- manufacturing cost by $0.01 to $0.02 per watt.

What's the module ASP we're expecting on Q1, ASP for the modules?

(Spoken in Chinese).

Yes. So, for now, Mr. Li says the ASP quarter over quarter in Q1 will decrease slightly.

Okay. Thank you. Good luck.

Thank you.

Thank you. Ladies and gentlemen, that does conclude our conference for today. Thank you for participating. You may all disconnect.