Emeren Group Ltd (SOL) 2015 Q1 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola Limited's first quarter 2015 earnings conference call. (Operator Instructions). Please note that today's conference call is being recorded.

I will now turn the call over to Miss Juliet Young, ReneSola Investor Relations Director. Please go ahead, Miss Yang.

Hello, everyone, and welcome to the Company's earnings conference call. ReneSola's first-quarter results were released earlier today and are available on the 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 regarding ReneSola's 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 risk and uncertainty. As such, the Company's results may be materially different from the views expressed today. Further information regarding these and other risks and uncertainties as 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'll begin with an overview of our first quarter business highlights. Although the first quarter was marked by ongoing macro headwinds including foreign exchange fluctuation that impacted ASPs and margins, we continued to make progress on our strategy to transition our business into downstream services, retail and projects. These are segments that we believe offer better profitability in the long run.

We believe we are particularly well equipped to move quickly to take advantage of these opportunities in these areas while leveraging the flexibility of our asset-light international business platform, our well-known brand name and our extensive and deep relationship across the industry.

We have already achieved initial success in downstream project segment. In the first quarter we expanded our UK project portfolio to 71 megawatts by completing and connecting three utility-scale projects totaling 57.5 megawatts. Including the 25.1 megawatt Eastern Europe project, we now have a total project sales pipeline of 96.1 megawatts which we expect to sell in coming quarters. In the second half of the year we plan to continue to scale back our OEM capacity while focusing on expanding to a larger portfolio of downstream projects.

In the first quarter we gained 221 new customers and increased our customer base to 2,767, as we provided more renewable energy products and service to smaller-sized customers. We believe this is the client pool for which we will be able to create new cross-selling opportunities for our products and services.

Regarding our poly production the Company's total output of polysilicon for Q1 2015 was 1,522 metric tons, down slightly from the previous quarter due to annual maintenance, which is normally scheduled in Q1. Our polysilicon factory is currently running at full capacity and generating positive cash flow.

Looking at our project update in more detail, as I mentioned earlier we currently have a total of approximately 96.1 megawatts in existing projects. This includes four utility-scale projects totally 71 megawatts in the UK, and four utility-scale projects totally 25.1 megawatts in the Eastern Europe.

In Q1 we successfully completed and connected to the grid three utility-scale projects in the UK. We have identified a potential buyer for all three projects. We also have signed agreement to sell a 13.5 megawatt utility-scale project in the UK for which we expect to complete the sale within coming months.

While we have already started to monetize our existing project in the UK, we're also actively exploring other downstream opportunities in developed markets such as Europe, the United States and Japan. We plan to announce a more detailed pipeline later this year.

In terms of research and development, in Q1 we continued to invest in the development of new technologies and to increase the efficient of our current solar and other clean energy products. Our innovative A

+++ wafer reached 100% mass production and we're now working on develop a new A

++++ wafer, which has a concentrated efficiency distribution and 0.1% higher cell average efficiency than the 17.8% average cell efficiency attained by our A

+++ wafer.

The Company's double-glass module, which features 1,500 volts maximum cell system voltage, has received 1,500 maximum system voltage and Class A fire rating certification by TUV. Also receiving TUV certification was our four bus bar cell module product, which has around 5 watt output improvement over three bus bar product. Both the double-glass module and the four bus bar cell module products entered mass production in May.

Within our inverter business, our innovative 5-kilowatt hybrid inverter has now received applicable certification and we have started promotion in Australia. The Company's TLE series inverters have now received related certification in the UK and Ireland and scale shipments have begun in these markets. And our first generation micro inverters have achieved elevated stability following software and hardware upgrades and six months of testing.

For our LEDs we launched our T8 LED replacement series products in North America. This series serves as a replacement for traditional fluorescent bulbs and works with magnetic and electronic ballast and access the electronic (sic - see slide 9, "electricity") power supply directly, eliminating the need for clients to change wiring in old fixtures. The series includes a five-year warranty with a number of product and services features that appeal to clients.

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

Thanks, Juliet, and thank you everyone for joining us. As we shift our business strategy into the downstream segment and begin to monetize our project portfolio we continue to closely manage our balance sheet. This prudent financial approach has allowed us to reduce our inventory levels and long term liabilities as we transition our module business and concentrate on downstream products and services.

I will now walk you through our product shipments. Total solar and module shipments in the first quarter were 496 megawatts, compared to 488 megawatts in Q4 2014 and 521 megawatts in Q1 2014. Our wafer shipments totaled 195 megawatts in the first quarter compared to 256 megawatts in Q4 2014 and 189 megawatts in Q1 2014.

The sequential decrease in module shipments was mainly due to strong demand in Europe, particularly in the United Kingdom. The sequential decrease in wafer shipments reflects our strategy of shipping -- shifting away from lower-margin wafer business and towards the her-margin module and downstream project business.

The geographic breakdown of module shipments in the first quarter was as follows. Europe represented 44% of our total shipments, Japan 30%, China 5%, US 3%, and the rest of the world 17%. We saw an increasing number of shipments into other countries in Q1, including India, Australia and Asia Pacific region.

Our module ASP went from $0.64 per watt in Q4 2014 to $0.60 per watt in Q1, mainly due to a decrease in module ASP in local currency in Europe, as well as the depreciation of euro against the US dollar.

I will now review our financial results for the first quarter. Net revenues were $249m (sic - see slide 11 "$349m"), compared to $287m (sic - see slide 11 "387m") in Q4 2014. Gross profit was $36.7m compared to $51.2m in the previous quarter. Gross margin was 10.5% compared to 13.2% in Q4 2014. Gross margin was lower than previous guidance mainly due to a decrease in margin ASPs, as well as a delay in recognizing revenue of a UK project as we wait for the final certifications of the project.

Our first quarter total operating expenses were $46.2m, representing 13.2% of total revenues, compared to $53.4m and 13.8% in Q4 2014. The sequential decrease in operating expenses was mainly due to lower SG&A expenses as a result of improved cost control and lower bad debt provisions during the quarter.

Operating loss was $9.5m compared to operating loss of $2.2m in Q4 2014. Operating margin was negative 2.7% compared to negative 0.6% in Q4 2014.

Foreign exchange loss in the first quarter was $16.1m, primarily due to depreciation of the euro, pound and yen against the US dollar, and this negatively impacted our bottom line.

Now loss attributable to holders of ordinary shares was $18m, representing basic and diluted loss per common share of $0.09 and diluted loss in ADS of $0.18.

As for our cash and debt positions, our total debt was $723m as of March 31, 2015, compared to $691.1 -- I'm sorry, $698.1m as of December 31, 2014, excluding the $62.9m of convertible notes to March 15, 2018, which has a put option on March 15, 2016. During the quarter we reduced our convertible notes by $31.7m and reduced inventory by $88.8m as part of our strategy to manage our balance sheet and improve our financial position.

Our net cash position, including cash and cash equivalents plus restricted cash, was $228.1m as of the end of the first quarter, compared to $221.7m as of the end of Q4 2014.

Lastly, net cash outflow from operating activities was $9.0m in the first quarter compared to net cash outflow -- net cash inflow of $41.9m in Q4 2014.

Turning now for our guidance, for Q2 2015 the Company expects its net revenue to be in the range of $250m to $300m, and gross margin to be in the range of 16% to 18%.

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

(Operator Instructions). Philip Shen, Roth Capital.

Hi, everyone. Thank you for taking my questions.

Hi, Phil.

You've shifted your -- hi, Juliet. You've shifted your strategy around over the past year, initially embracing an OEM manufacturing footprint and now shifting away. Do you continue to focus on the DG segment downstream or do you expect to focus more on utility-scale projects downstream? And then, in general, can you speak to how you expect your business to look a year from now? Thank you.

Okay, well, I'll just start it and Mr. Li may maybe add some comments. Basically we are focusing on both, the both the downstream and the DG. The DG market, for us, mainly, all the projects are five megawatts or less. As you can see, we have mentioned in the PowerPoint that we have increased the number of clients and we have over 2,000 clients right now, so we're going to continue that path, just targeting smaller customers.

On the downstream side we definitely want to focus more in this area. Right now we have, during the last two quarters, we have completed 70 megawatts in the UK and these are very attractive projects. This is on top of 25 megawatts of projects we have finished in Eastern Europe. So, going forward, after we monetize this existing portfolio we're going to expand the portfolio in the second half and definitely we're going to increase the growth in the downstream this year.

Okay, with some of your competitors targeting a non-poly, well, a cost structure of $0.40 per watt by the end of 2015 can you talk about what you see in terms of your cost structure for your OEM footprint and how this might affect -- or impact your plans for capacity expansion, if at all, or reduction, in 2015?

Well, first of all, yes, starting beginning of the year we have been cutting back our international OEM capacities. That's mainly because the macro situation. First it's mainly because the uncertainty with the foreign currencies and also, second is the recent development of the international trade policies, so it has becoming not so favorable to focus too much on the international OEMs.

So that said, we are focusing more on the downstream, so we are scaling back on the international OEMs. That said, our average cost definitely will come down as a result. Just to give you a comparison, just compare -- make comparison internally. Our internal cost was about $0.49, $0.49 to $0.50, in Q1. Right now we have driven the cost down to about [$0.44] (corrected by company after the call) to $0.45. So, going forward, we definitely are, yes, decreasing the cost and making cost savings.

Okay. Thanks very much. I'll jump back in the queue.

Thanks, Phil.

Patrick Jobin from Credit Suisse.

Hi, this is [Maheev], on behalf of Patrick Jobin from Credit Suisse. A quick question on the downstream projects, could you just tell us why you saw that delay in Q1? Is it more related to the permitting process? And what gives you more visibility on connections or monetization in coming quarters?

Well, first of all, 70 megawatts have been connected to the grid already, so that's not really an issue. We have active buyers looking at these projects, so economically these are attractive projects. It's just a matter of there are a lot of certifications we had to go through, so right now they're just going through the standard procedures and just a few certifications that were longer than expected, but we expect them to be completed in the short term.

Okay, and does your second-quarter guidance include any downstream shipments? And a follow up on that, if you could just help us understand the increase in gross margin, is it driven by your internal cost reductions or ASP improvements in your markets?

Well, it has a few -- several factors. First of all we are scaling back on the module side, including the international OEM, and also we are increasing the downstream, so as a percentage of the revenue the downstream plays a bigger part in gross margin contribution. And in terms of how much, right now we have estimated about half of the 70 megawatts we expect to be able to recognize revenue in the second quarter, assuming all the certifications are done at the end of the month.

Thanks, and could you just talk about your strategy for way forwards as modules you just said you expect to scale it down, so what kind of a mix can we expect in Q2 and going forward?

Okay. Let me translate that question for Mr. Li.

(Interpreted). Okay, we still have about a little over 2 gig wafer capacity. We're going to sell a portion of those wafer capacities, approximately 200 megawatt per quarter, and the rest of it we're going to use internally and for our downstream project.

Thanks, and last question from my side, given this new strategy how do you think about capacity expansion internally on the wafer side, or the module side, going forward? Thank you.

In terms of -- yes, our strategy in terms of capacity expansion has been constant for the last year and a half or so. Yes, we will expect to expand capacity in any of the upstream or midstream. Actually, we have been scaling back in terms of capacity, at least on the international OEM side, so as we focus more on the downstream, and to a certain extent the DG side, we're going to scale back on the manufacturing side, mainly the upstream and the midstream.

Thank you.

Thank you.

(Operator Instructions). Dan Ries from Ardsley Partners.

Hi, good evening and thanks for taking my question. When I look at the R&D budget of ReneSola it's often two to four times larger than some of the other module companies, companies better off and much larger in terms of shipments and revenue. As you look to go downstream, does the R&D budget at some point get affected because you're not doing quite so much on the product front? However you do also have an LED and inverter division. So my question is what portion of that R&D budget might be related to those non-solar wafer or module products? What is the rough revenue contribution from those other products? And can you -- is there a margin profile that you can describe on those other products?

Okay, thanks, Dan, for the question. I'll translate that for Mr. Li.

(Interpreted). Okay, Dan, as you may aware there's a highly competitive market in the solar market and ASP is declining constantly, and as the Japanese market and the US market and Europe market's starting to scale back in one -- in two years it is imminent that we need to develop new products such as LED, just because we realized how important those new products are to make, so that's why we're invest so much R&D in this segment.

Take LED for example, we're doing very great in certain markets, especially in Indonesia and those margins in the segment is up a little above 30%, so it's very attractive.

Okay. Can you size the revenue from those other products at this point?

(Interpreted). Okay, the portion of the revenue from other products is still a little bit low at this point but we can talk about in particular markets such as Indonesia. In May we have sold 230,000 lights in this market to over 1,000 customers and the revenue is $560,000. It's not -- LED products not like filler. The unit price is low and they take, it really takes time and devotion into generating more revenue from this segment.

Okay, thank you for that color on that. I appreciate it.

Okay. Do you have any other questions, Dan?

I think that's good for me.

Thanks.

Thanks, Dan.

Philip Shen from Roth Capital.

Hi, Phil?

Hi. Can you hear me now?

Yes.

Yes, we can hear you.

Great. Thanks for taking my follow up here. You mentioned earlier that you plan on selling 200 megawatts of wafer capacity per quarter. Can you tell us when do you expect that to start? Is that in Q2? And have you also identified a buyer? And is this deal already done? Thank you.

I think, Phil, you misunderstand that we are currently selling 200 megawatts each quarter, wafers, to third parties. It's already been going on for several quarters.

I got it. That's my mistake. As per your OEM module capacity can you update us on what it was at the end of Q1, and then how do you expect the trend through the year? Thanks.

Okay.

Yes, in Q1, at the end of Q1 we had about 580 megawatts of international OEM capacities. Over the next two quarters we expect to pretty aggressively scaling them back by 200 to 300 per quarter, so by year end we pretty much are exiting this international OEM capacity, unless there are some favorable international trade policies that allow us to do it, to come back to the market.

Thank you. I'll jump back in the queue.

Wei Feng, Luminus Management.

Hi, just a couple of questions on the poly side. Can you comment on the cash costs per kilo? And also total cost per kilo in your poly business? And do you have any cost cutting target for the year?

Yes, the cash is about $14.50 right now.

Is there further room to cut?

Right now it's -- we consider it pretty low, but yes, we can reduce it a little bit, but not too drastically.

Good, and for the UK products, can you give us some color around what is the target gross margin from those products for you?

Yes, this margin's pretty high, from the high teens to low 20s, so on average it's north of 20%.

And on the Q2 revenue again, you said that includes the roughly 35 megawatts of UK product sales, right?

Yes.

And does the gross margin also include the impact from the downstream product sales?

Yes, that's true.

All right. And can you comment on the demands in China, in 2Q and 3Q? Do you see the demand picking up?

I -- right now we think for the second half that there probably will be some rush order in the second half, but before we have been focusing more on the international market, especially in the downstream, so it's probably better to ask some of the other guys who are concentrating more on the China market. Actually, we focus more on the Indian than the China market at this point.

Makes sense. Thank you. That's all my questions.

Great. Thank you.

Thank you. We have no further questions at this time. Ms Yang, please continue.

Thank you. On behalf of the entire ReneSola management team I want to thank you for your interest and participation on this call. If you have further questions please feel free to contact us. Have a good day and good evening. Thank you, and goodbye.

Goodbye.

That does conclude our conference for today. Thank you all for participating. You may all disconnect.