Emeren Group Ltd (SOL) 2015 Q2 法說會逐字稿

Hello, ladies and gentlemen. Thank you for standing by for ReneSola's second quarter 2015 earnings conference call. (Operator Instructions) Please note that today's conference call is being recorded. I will now turn over the call to Miss Juliet Yang, ReneSola's IR Director. Please go ahead, Miss Yang.

Hello, everyone, and welcome to the Company's earnings conference call. ReneSola's second-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 remarks regarding ReneSola's operational highlights and strategy, and Daniel will then review our shipment and financials.

Before we continue, please note that today's discussion will contain forward-looking statements made under the Safe Harbor provisions of 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 statement 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 begin an overview of our second quarter business highlights and project updates.

We continued to make measurable progress on our strategy to shift our business into downstream projects and services while scaling back our module business. Our accomplishments range from the successful development of sales of various projects in the UK to the signing of new project development agreements in developed markets like Japan and also include our recently announced joint venture in the US, which has been formed to help accelerate US project development.

Before diving into our project updates, I would like to point out that we have included more information regarding our project pipeline in our earnings press release and earnings presentation, both of which you can find on our investor relations website. Now, let me provide more details regarding our project within specific markets.

We currently have a total of more than 77 megawatts of existing projects in our sales pipeline, including 51.1 megawatts in the UK, 1.2 megawatts in Japan, 9.7 in Bulgaria and 15.4 megawatts in Romania. In addition, we have a pipeline of more than 200 megawatts of late-stage projects in development across the UK, the US and Japan. In the UK, the second quarter, we closed the sale of our 6.4 megawatt Field House solar power plant and 13.5 megawatt Wedgehill utility-scale project.

We're also in the process of selling two additional projects totaling 51.1 megawatts. In addition, during Q2, we add 28 megawatts to our UK project pipeline, with all of these projects expected to be connected to the grid before March 2016.

In the US, we recently announced a new joint venture with leading US-based solar project developer Pristine Sun. The joint venture, named Baynergy, will develop, build and operate over 300 megawatts of solar projects across the country. The first phase includes 82 projects, totaling 151.8 megawatts, most of which are distributed generation projects. Currently, Baynergy has 88 megawatts accepted in California, Minnesota and North Carolina, with the expected completion by the end of 2016.

In Japan, we have nine projects in our pipeline, totaling 32.4 megawatts, with two projects totaling 1.2 megawatts already completed.

In the second half of 2015, we will continue to monetize our existing project portfolio while seeking out additional opportunity to expand our project pipeline across key markets. We are establishing a solid track record in the downstream segment, and we believe our execution capabilities, as well as our well-known brand name, will help us deepen our penetration into global solar project markets, expand our project portfolio in coming quarters. We aim to have over 300 megawatts of solar projects in operation in 2016.

Once again, we are excited by our rapid progress we have made in the transitioning our -- in our business into the downstream segment. We believe this is an area that offers better profitability and a better long-term business model. We remain confident that our track record, global business platform, established customer relationships, strategic partnerships and experienced team will help us to capitalize on opportunities in the segment of the value chain.

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

Thank you, Juliet, and thank you, everyone, for joining us. Our strategic business shift into the downstream segment and active management of our business -- of our balance sheet and long-term liabilities are beginning to show positive results. For example, we have successfully completed 71 megawatts of UK projects. They are in various monetization stages. We expect to generate about $100m in cash flow from some of these projects in the second half of this year.

We aim to build on the success of our existing solar portfolio and expand more rapidly in developing and building new high-quality global projects. In addition, our improved balance sheet will make us a more attractive partner for global downstream project management, project development.

We will continue to develop and monetize downstream projects across geographies in the coming quarters, while maintaining a prudent approach in our balance sheet management.

I will now walk you through our product shipments. Total solar modular shipments in the second quarter were 322 megawatts compared to 496 megawatts in Q1 of 2015 and 499 megawatts in Q2 of 2014.

Our wafer shipments totaled 282 megawatts in the second quarter, compared to 195 megawatts in Q1 of this year and 200 megawatts in Q2 of 2014. Sequential and year-over-year decrease in module shipments were mainly due to a strategic shift toward downstream project business. The quarter-over-quarter increase in wafer shipments was due to temporary business opportunities.

The geographic breakdown of module shipments in the second quarter was as follows. Japan represented 36% of our total shipments; China, 25%; Europe, almost 14%; and the US, nearly 6%; and the rest of the world, about 19%.

Our module ASP remains stable at $0.59 per watt in Q2 2015, compared to $0.60 per watt in the first quarter.

I will now review our financial results for the second quarter. Net revenues were $268m compared to $349m in the first quarter of this year. Gross profit was $34.4m compared to $36.7m in the previous quarter.

Gross margin was 16.5%, compared to 10.5% in the first quarter of 2015. Gross margin increased mainly as a result of material and processing cost reductions and positive contribution from the revenue recognition of the sale of a solar project.

Our second-quarter total operating expenses were $33.9m, representing 12.6% of total revenues, compared to $46.2m and 13.2% in Q1 of 2015. The sequential decrease in operating expenses were primarily due to lower sales and marketing expenses associated with lower module shipments, as well as discounts obtained in connection with the settlement of certain payables.

Operating income was $10.5m, compared to operating loss of $9.5m in the first quarter of this year. Operating margin was 3.9%, compared to negative 2.7% in the first quarter of this year. Net foreign exchange loss was $2.6m, which includes a loss of $8.8m from foreign exchange forward contracts.

Net loss attributable to owner of ordinary shares was $2.9m (sic - see slide 14 "2.3m"), representing basic and diluted loss per common share of $0.01 and diluted loss per ADS of $0.02, compared to a net loss of $18m and diluted net loss per ADS $0.18 in the first quarter of this year.

As for our cash and debt positions, total debt was $694.7m as of June 30, 2015, compared to $723m as of March 31, 2015, excluding $62.2m of convertible notes due March 15, 2018, with a put option on March 15, 2016. During the quarter, we repurchased $0.7m notional amount of our convertible notes.

Our debt cash position, including cash and cash equivalents, plus restricted cash, was $185.1m as of the end of second quarter, compared to $228.1m as of the end of Q1 2015.

Lastly, net cash outflow from operating activities was $11.6m in the second quarter, compared to net cash outflow of $9m in the first quarter of 2015.

Turning now to our guidance, for Q3 2015, the Company expects its net revenues to be in the range of $330m to $340m to be in the range of 15% to 16%. We will now open the call to questions. Operator, please go ahead.

(Operator Instructions). Philip Shen, Roth Capital Partners.

Hi, everyone. Thank you for taking my questions.

Hey, Phil.

Hi, Phil.

Hey, Daniel. In recent quarters, you have indicated that you wanted to focus on DG and residential markets with the distribution strategy, and now it sounds like you are focusing more on developing your downstream utility-scale business. Are you going to try to do all of it, or are you deemphasizing distribution? Can you expand on how your strategy is evolving?

Yes, that's a good question. Actually, Phil, we're doing both. If you look at it, retail and the DG is our long-term strategy. Going forward, the industry as a whole, there's no doubt the focus will be more and more towards the smaller projects and also DG and residential projects, and we are building that every quarter. We're building the retail and the small channels to these small projects.

That said, we are simultaneously building utility-scale projects, along with DG type of projects. For example, the joint venture we have with Pristine Sun, a big chunk of that, more than 100 megawatts of that, are DG projects. So we are really focusing on both building utility and also working on DG projects, both in terms of on the module side and also on the downstream project side.

Okay, and how do you expect to see your balance sheet evolve as you grow your downstream projects business? I know it sounds like you're selling a lot of the projects, but do you have any intention of keeping any of the projects on your balance sheet?

Yes, right now, we've been managing our balance sheet and cash flow very carefully. For the 70 megawatts that we developed so far, we pretty much financed everything internally, so going forward, with the new even bigger portfolio that we're building, we will be a little more aggressive in terms of getting financing, such as, for example, project financing. So that's the first part.

The second part is we tend -- we want to maintain the flexibility by first maintaining -- try to maintain these projects for as long as possible, and it really depends on the market next year. If the market does well, most likely, we can hold onto the project for a long period, but we're aware of the option of either selling the project portfolio as a whole, as we did with the 70 megawatts, or we can hold it and try to monetize it in some other manners.

Okay, great. And can you help us understand in your guidance how many megawatts of modules is embedded in that guidance in Q3?

Yes, right now, it's going to be more than second half, mainly because the China market has been ticking up. Although we've been relatively cautious about getting too much exposure into the China market, but right now, we see some good opportunities, and we've been taking selective orders and expanding our module business, expanding it in China next quarter. So it's going to be around 400 megawatts.

Okay, okay. That's helpful. Thank you. And then in your release, you talked about other project opportunities in several developed markets that you're exploring. Does this imply that you could, similar to the Pristine Sun announcement, announce some joint ventures with other partners in other markets?

We are definitely reaching out to many different types of stakeholders in this industry, but at this point, Pristine Sun is a very big partnership. But most of the other projects right now, we look at them on the individual basis, but we keep our eyes open. There could be possibility for other projects of -- partnerships of the same size as Pristine Sun.

Okay. Thank you, Daniel. Thank you, Juliet.

Great. Thanks, Phil.

Thank you.

Patrick Jobin, Credit Suisse.

Hello. This is Maheep here on behalf of practice. Guys, good question on the guidance for Q3. Does it include system sales, the ones you expect from UK in Q3 or all of that is in Q4?

I'm sorry, you're talking about module sales?

And project sales.

Yes. We're going to sell at least one project -- of the remaining 70 megawatts -- we're going to sell at least one in the third quarter and at least another one in the fourth quarter.

Thanks. And on the module part, what geographic mix are you seeing in Q3 and Q4? You said there would be more of China, so can we expect China to increase beyond their current share right now?

Let's just go back a little bit, because we have been scaling back our module business, so we have been -- our internal capacity is about 1.2G, so basically, we want to keep it around that level, so any increase in modules will be from some either domestic or internal OEMs, so we may increase it, but it won't be a whole lot. For example, in Q3, we utilized some domestic OEM and expand our China business.

Thanks. And the geographic split, will it be more domestic or more international?

Yes, for the third quarter, it will be divided relatively -- it will be 50-50 between the OECD type of countries and the emerging countries, including China. So, on the international side, on the mature country side, most likely, around 25% from Japan, maybe 15% to 16% from UK, another 10% or low teens from the US. And China will be probably between 30% to 35%.

Okay, thanks. Yes, that's helpful. And last question from my side, what's your outlook for the whole year for Q4 for 2015? Have you updated that, or it still remains the same?

Yes, we're just going from quarter to quarter. As we mentioned before, our key strategy right now is focusing on the downstream, so as we expand our pipeline, the downstream, we'll make more announcements in the third quarter.

Thank you.

Thank you.

(Operator Instructions). [Chen Ke, China Capital.]

Yes, first of all, congratulations on your operating question.

Thank you.

My question is regarding the foreign derivative loss. Is this just a one-time thing or what's the status going forward?

(Spoken in Chinese).

The foreign exchange loss, $8m.

(Spoken in Chinese).

Well, it really depends on the foreign exchange market, and we tried to make hedges, but sometimes the hedging instrument is a double-edged sword. Right now, we expect the foreign exchange to be relatively stable, comparing to the previous few quarters, so we are expecting less volatility in the foreign exchange going forward.

Okay, now, the next question about your LED and the converter business, could you talk about those two businesses?

(Spoken in Chinese).

Okay, Mr. Chen, I think you understand that, but for everyone else on the line, Mr. Li says, for the LED business, we're still expanding our channel and try to get more retail partners. It's going under our schedule, and compared to solar, the volume is still quite low at this point, but we have already seized over 3,000 retail stores as our customers, and we expect to have a good sales volume by next year around this time.

Okay, my last question, with China just last cut the interest rate, how that went up your -- with bottom line.

I'm sorry. Can you repeat that?

Yes, China just announced a cut in interest rate, like this evening. How that helped your income statement, help your bottom line.

Okay. (Spoken in Chinese).

(Interpreted). So the interest rate reduction is definitely a positive for us, not just only our interest expense will reduce, but our financing environment will become more flexible. The banks will have more credit and facilities to provide. It's positive news for us.

Great. Thank you. That's all.

Thank you.

(Operator Instructions). We have no further questions at this time. I will now turn the call over to your host, 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.

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

Statements in English on this transcript were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.