Emeren Group Ltd (SOL) 2015 Q4 法說會逐字稿

Ladies and gentlemen, thank you for standing by and welcome to the quarter four and financial year 2015 ReneSola Limited earnings conference call. (Operator Instructions). I would now like to turn the call over to your speaker today, Mr. Gary Dvorchak. Please go ahead, sir.

Hello, everyone, and thank you for joining us on ReneSola's conference call to discuss the fourth-quarter results.

We released the fourth-quarter and full-year 2015 results earlier today and they're available on the Company's website, as well as through newswire services. You can also follow along with today's call by downloading the short presentation available on the Company's website at www.renesola.com.

On the call today with me are Mr. Xianshou Li, Chief Executive Officer; Ms. Maggie Ma, Chief Financial Officer; and Ms. Rebecca Shen, Director of Investor Relations. Rebecca will read Mr. Li's prepared remarks regarding Renesola's operational highlights and strategy, and Maggie will then review our fourth-quarter and full-year 2015 financial results in detail.

Before we continue, please note on slide 2 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, 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.

Let me now turn the call to Rebecca, who will translate Mr. Li's prepared remarks. Rebecca.

Thank you, Gary. The following are Mr. Li's prepared remarks.

Thank you, everyone, for joining our call this morning. We appreciate your interest in ReneSola. I will begin our call with key important strategic comments and an update on how our new strategic direction continues to translate into near-term performance. Then we will turn the call over to Maggie for details about our operating and financial performance in the fourth quarter and full year 2015.

Please turn to slide 3. Year 2015 was a pivotal year for ReneSola. We entered the year actively working to recast our strategy away from being a solar product manufacturer and towards being a multi-faceted participant across the value chain. We unveiled this effort in midyear, which included a controlled exit from the OEM business and aggressive pace of project development. Our result in 2015 demonstrated the wisdom of our strategy.

We increased gross margin for the third straight year and reduced operating expenses on an absolute basis for the second straight year. This resulted in operating profit tripling from last year and a significantly reduced net loss. Revenue declined somewhat, but this was mainly due to reduced shipments to external customers as we strategically directed more shipments to our own downstream projects. Our solid P&L performance enabled us to reduce total debt by $59m.

We enter 2016 on a high note as a global leader across the solar value chain. We're profitable, with over 600 megawatts of projects under development and a burgeoning new business in LED distribution. Our fourth-quarter result continued the successful execution of the new strategy unveiled this year.

Let me now elaborate on our downstream project development, which is at the core of our transformation. Downstream projects are a substantial opportunity worldwide and equipment manufacturers like us have a natural advantage in designing and constructing projects. We have only just begun to tap this opportunity geographically. We have visibility on years of growth as we expand our footprint of activity around the globe.

We initially focused on two attractive markets, the UK and Japan. In the short one and a half years since initiating our downstream strategy, we have already sold a total of 71 megawatts in the UK and 1.8 megawatts in Japan. We sold 18 megawatts in the fourth quarter, which Maggie will detail shortly.

We now have 54 megawatts under construction in the UK and 29 megawatts in Japan, which we expect to complete and connect during 2016. Those two regions plus the 5 megawatts under construction in Canada represent a solid near-term pipeline of 88 megawatts which we expect to monetize in the near future.

Our long-term horizon holds even more promise. Beyond that 88 megawatts under construction, we have another 553 megawatts in early stage development around the world. These new markets track our historical manufacturing footprint, thus leveraging the staff and infrastructure we have in place already.

North America is a large and robust market and the most attractive to us for stepped up activity. In the US, we currently have 103 megawatts of projects in our pipeline, all of that pre-construction. We did hit a speed bump during the year, however, due to issue around our previously announced joint venture with Pristine Sun.

We cannot comment specifically on details, since we're in litigation, but I can say that both parties are interested in resolving the dispute quickly via mediation. We believe we can resolve our issue and move on in a reasonable amount of time. Meanwhile, we will continue to drive development in the US and expect to start construction on a good portion of our pipeline in the near future.

Meanwhile, we are ramping up in Canada. In addition to the 5 megawatts I mentioned that is already under construction, we have another 27 megawatts in early stage development.

Looking to Europe, we are accelerating progress there. In addition to the 54 megawatts under construction in the UK, we have another 57 in early stage development. Poland is our most robust market, with 140 megawatts in development.

In Asia, we have 65 megawatts in development in Thailand, in addition to the construction in Japan I mentioned. Also, note that unlike most of our peers we are avoiding development in China. Although China is quite a large market, FiT collections can be challenging and we want to focus on more stable markets which make our projects more [bankable] and more easily sold.

Finally, we're excited to be stepping up activity in the sunny Middle East. We have 80 megawatts of projects scheduled starting in Egypt and Turkey.

All in, we have a very robust pipeline of future projects, with 641 megawatts in various stages of development. Because we're highly focused on cash flow and balance sheet improvement, we're generally pursuing the build and transfer model, and over time we expect to sell the entire pipeline.

We do retain assets where the economics are particularly attractive. In particular, we own and operate four projects in Eastern Europe with 25 megawatts of annual capacity, with two each in Bulgaria and Romania. While we are holding them, those operating assets produce a steady stream of high margin recurring revenue from the sale of electricity.

We still intend to sell them, however, to fully monetize their value. We're in the late stages of negotiation to sell our two projects in Bulgaria. We expect to announce a deal in the very near future.

The project business is a key component of the enterprise value we have built at ReneSola. It is our growth driver and layers on top of the PV manufacturing that is our solid and stable foundation. An important strategic goal for us in 2016 is to drive higher profitability and cash flow, so that we can continue to pay down debt and thus shift enterprise value from creditors to shareholders.

Let me elaborate on how we expect again to improve financial performance in 2016. Please turn to slide 4.

The first step is to continue to scale back the OEM business. As communicated in prior conference calls, the ramp of the project business is enabling us to gradually exit the OEM business. We will continue to scale back our OEM business again in 2016, to drive down costs and shift our focus towards downstream project business away from manufacturing business.

The second step is to continue to reduce manufacturing costs in 2016. We expect to expand our wafer manufacturing capacity through technology improvements rather than equipment purchases or other CapEx. By midyear, we expect to have capacity of 2.9 gigawatts, up from 2.4 gigawatts now, with minimal CapEx.

The third step is to use R&D strategically to reduce cost and improve product performance, which can result in better pricing and higher margins. Consider the R&D milestones we achieved in 2015. The previously announced A4+ wafers deliver cell efficiency of 18.4% and are now in mass production. We are working on improving cell efficiency to 18.5% with narrower distribution by optimizing the wafer process.

Additionally, both our double-glass module and four bus-bar cell module products are now in mass production. Customers are raving about double-glass modules, noting the quality and power generation. Our new Virtus III module product is certified by TUV and offers a 15 watt output improvement compared to the Virtus II module. Meanwhile, our R&D team is developing a 72 cell double-glass module that we will introduce in the near future.

The fourth element to improve financial performance is to look beyond solar related products. Specifically, we're levering our global footprint and brand equity to develop an LED distribution business. This is an exciting new opportunity for us, which we expect will create the next layer of growth on top of project development.

The LED business is already delivering encouraging financial performance. In the fourth quarter, we saw over 35% sequential revenue growth, with a gross margin north of 30%. We now have over 3,270 customers as of December 31.

The energy efficiency market is a very large and growing market and LED lighting is a critical element. We expect this market to expand substantially, as energy efficiency retrofits grow as a trend around the world. Because we have a natural advantage, we want to position ourselves to capture this opportunity in the years ahead.

We expect to deliver 30% to 50% sequential growth of LED revenue in 2016, as we grow our distribution and add SKUs. Gross margins are at 30% today, but we are looking at higher margins in the long term.

We expect all of these steps to result in better financial performance again in 2016, with better margin, cash flow generation and further debt retirement. Maggie will offer our specific guidance for the coming year in a moment.

I'm very excited about our prospects for 2016 and beyond. Our project business has emerged from an internal plan more than a year ago to a rapidly growing and globally recognized business now. We're transitioning the overall business away from lower margin contract manufacturing to higher margin projects, equipment and LED sales.

We're maintaining our reputation for high quality as well as tight cost control, with a focus on cash generation that will strengthen our balance sheet over time. I'm very proud of the hard work of the entire ReneSola team and have high expectations for continued success in the quarters ahead.

Let me now turn the call over to Maggie for details on our project operations and financial performance. Maggie.

Thank you, Mr. Li and Rebecca, and thank you, everyone, for joining us on the call today. I will review our operations and financial performance for the fourth quarter and full year 2015, and then discuss our outlook.

Let's begin with slide 5, which highlights our financial performance in the fourth quarter. Revenue of $296.4m for the fourth quarter exceeded our guidance range of $275m to $295m. Our revenue was down 20% sequentially and down 23% year over year.

The revenue decline on both sequential and year-over-year basis reflects the continued redirection of OEM module production away from external sales and towards the Company's project development, coupled with the decline in the ASP of our modules. Revenue for the full year was $1.3b, down 18% when compared to last year.

Gross profit of $47.5m declined 20% sequentially and 7% year over year. Q4 gross margin was relatively stable sequentially and higher than the prior year period. Gross margin declined due to the costs associated with the annual maintenance in our polysilicon plant, partially offset by lower production costs and the above corporate average gross margin generated from our project sales in the quarter.

Gross margin in Q4 2015 was below guidance of 17% to 18% due to the change in the timing of annual maintenance in our polysilicon plant, which moved to Q4 2015 from Q1 2016. Note that excluding the unexpected costs associated with the maintenance work in our poly plant, gross margin in the fourth quarter would have been at the high end of our guidance. We are encouraged that our project business continues to be a positive contributor to our growth in profitability.

Gross margin for 2015 was 14.7%, which compares to 13.4% last year.

Operating expenses for the fourth quarter of 2015 were $30.5m, or 10.3% of revenue, significantly down from $47.9m or 13% of revenue in the prior quarter and down from $53.4m or 13.8% of revenue in the prior year period. The decline in operating expense in the quarter reflects the cost control initiatives and actions we took during the quarter.

As Mr. Li. mentioned, we remain committed to R&D spending for new technologies, enhancing the efficiency of our current solar and other clean energy products. However, we are taking a more cautious and conservative approach to spending in other areas. We are managing our expenses across the Company in a smart and prudent manner.

General and administrative expense was down 5% in the quarter from last year.

Operating income for the fourth quarter was $16.9m, which represented an impressive growth of 48% sequentially. Operating margin for Q4 was 5.7%, up from 3.1% in Q3.

Operating income for full year 2015 was $29.3m, compared to $8.2m. Operating margin increased to 2.3% in 2015 from 0.5% in 2014.

Non-operating expenses of $9.2m include net interest expense of $9.8 million (corrected by company after the call) and losses on derivatives of $1.2m, offset by foreign exchange gain of $2m.

Net income for the fourth quarter was $6.7m, which compares to $8.6m in Q3 2015 and a net loss of $8.1m in the same quarter last year. Earnings per ADS in the quarter were $0.07.

We significantly narrowed our net loss for the year to $5.1m, from $33.6m last year.

Slide 6 provides a summary of the key components of our income statement over the last several quarters.

Please turn now to slides 7 and 8, which highlight portions of our balance sheet. We continue to maintain a substantial amount of liquidity. Cash and equivalents, including the restricted cash, end the year at $178m. During the quarter, the Company further reduced the total debt by $16.8m to $734m.

The Company had approximately $26.1m in convertible bonds outstanding as of December 31, but retired $20.5m more subsequent to the end of the quarter. As of today, the Company has $5.6m in convertible bonds outstanding. We want to remind you that the holders of the convertible bonds can exercise the put option until they expire on March 14 (corrected by company after the call), 2016.

Before I move on to our project sales in the quarter, I want to reiterate that the entire finance team remains focused on improving our balance sheet and we are happy with the continued progress the team has made.

Now let me provide the details of our project sales in the quarter on slides 9 and 10. We recognized $33.8m from the sales of projects in the quarter, representing 18 megawatts of generating capacity. Sales include one utility scale project in the UK and two small utility scale projects in Japan.

In the UK, we closed our 16.5 megawatt Membury utility scale. In Japan, we sold two projects located in Tochigi Prefecture, both utility scale system, with capacity of 920 kilowatts and 590 kilowatts, respectively, and both are qualified for Japan's JPY32 FiT scheme. The transaction closed in December and we have received all proceeds from the sale.

Now turn to slide 11, which summarizes the size and geographic distribution of our project pipeline. We currently have 641 megawatts of projects in various stage of development, of which 621 megawatts are solar projects and 20 megawatts are wind related projects. As Mr. Li mentioned, 88 megawatts of projects are under construction.

Slide 12 details the size, status and location of the current pipeline.

Slide 13 summarizes the result of LED, with the revenue of $4.9m and gross margin of over 30%. At the end of December, we have accumulated over 3,270 LED customers. We are starting to get significant penetration around the world, building distribution channels on every continent but Africa.

Next, let me quickly summarize our module and wafer product shipments in the quarter, shown on slide 14. Our module and wafer business is still attractive, given the cost reduction initiatives we put in place. Our in-house manufacturing cost per watt at the end of Q4 2015 was about $0.40, down from $0.43 in Q3, and we expect the cost per watt to further decrease in the coming quarters.

Total solar module shipments in the fourth quarter were 373 megawatts compared to 405 megawatts in Q3 of 2015 and 488 megawatts in Q4 of 2014. The year-over-year decrease reflects our gradual exit from the OEM business as our successfully transition our business model to focus on project development.

Wafer shipments were 270 megawatts, compared to 342 megawatts in Q3 of this year and 256 megawatts in Q4 of 2014. Total solar module shipments for the year decreased 19% to 1.6 gigawatts when compared to the prior year. Wafer shipments for the year were 1.1 gigawatts, up 29% year over year.

The pie chart on the right highlights the geographic breakdown of module shipments in the fourth quarter. China represented around 32% of our total shipments. Japan was around 20%. Europe was approximately 8%. The US was over 3% and the rest of the world about 37%.

Module ASP decreased slightly to $0.54 per watt in Q4, from $0.57 per watt in the third quarter.

Finally, we concluded with guidance, which is on slide 15. The revenue outlook reflects continued shift of OEM module production from external sales and toward proprietary project development. We believe that the shift will also improve gross margin and overall profitability.

So in the first quarter of 2016, we expect revenue in the range of $260m to $270m and a gross margin around 17%. For the full year, we expect revenue in the range of $1b to $1.2b.

We would now like to open up the call for any questions that you may have for us. Operator, please go ahead.

(Operator Instructions). Philip Shen, Roth Capital.

Hi, everyone. Thanks for taking my questions. I'd like to start with the guidance for the year. Can you give us a sense for what the revenue mix for each of your business segments is that you expect for 2016?

Let me take a look on our revenue mix in this way. For the wafer and the module side, we expect to have external shipments of wafers at about 1.6 gigawatts for the whole year, and for the module shipments we expect it would be 1.2 to 1.3 gigawatts for the full year. And for the project side, we are going to build 100 megawatts to 130 megawatts in 2016, and we expect to sell it as more as we can. So it's about -- I would expect it's about 100 megawatts for sale in 2016. And for the LED, I think we will provide a growth, quarter over quarter, at about 30% to 50%. That's about revenue mix.

Great, Maggie. Okay. That's really helpful. I think last quarter you guys talked about selling maybe 130 to 150 megawatts of downstream projects in 2016, so it looks like you've taken down that a little bit. Can you talk about and touch on why the reduction there? I'm guessing there might be some impact with Pristine Sun. But to the degree that you can talk about the reduction, that would be helpful.

Yes. I think the slight decrease of sales of project assets has nothing related to the case we are negotiating with Pristine Sun. Because of the environment change in the UK, we are becoming more prudent in the project development.

(Spoken in Chinese).

So Mr. Li just said that the litigation with Pristine will have an impact on the reduction of our downstream projects, and the schedule in some sense got delayed.

Okay. That makes sense. Can you tell us how much or -- what kind of project sales do you see in Q1?

We have very small project sales in Q1, mainly from Japan, but it is only about -- it's little. It's little. I think the revenue for the Q1 project sales is only 1 megawatt. So most of our projects would come -- would be from Q2 to Q4.

Okay. And speaking of Japan, can you talk about the ASP for the Japanese projects that you sold in Q4? And what kind of FiT -- which FiT was that project receiving?

For the Q4 project sales in Japan, I think we just mentioned in our call it's about the JPY32 FiT. And regarding to the ASP, let me check it with Mr. Li. $3.20 for the Japan project.

Okay. So $3.20 per watt?

Right. For Japan.

Good. I'll ask one more and I'll jump back in the queue. In terms of your balance sheet, can you walk us through your plan to manage your debt and working capital needs in 2016?

In 2016, we're going to enhance our working capital like tight under control on our AR and our -- as well as inventory control, especially on our module and LED products.

(Spoken in Chinese).

So Mr. Li just said for the past two to three years we have been working closely on repaying our $200m of convertible bonds, and now there is only a little portion of $5.6m outstanding to be repaid. So for the next few years, we will mainly rely on our own operating cash flow to generate more cash.

(Spoken in Chinese).

Mr. Li said that we plan to generate over $100m for cash flow.

Great. Thank you, Mr. Li and Maggie. I'll jump back in the queue.

[Yu Zhou Ping], Deutsche Bank.

Hello. Thanks for taking my question. I just want to ask about the polysilicon. For your facility last year, what is the production volume or utilization rate? And what is the cash or total production cost? And also, what do you see for the poly and wafer price as well as module price going forward in 2016? Thank you.

Okay. About the polysilicon production in 2015, the total shipment -- the total production volume for quarterly is about 1,600 tonnes for quarter, but in Q4 it's a decrease because we are doing the annual maintenance. Currently, in Q1 2016, we are going to produce about 1,300 tonnes for Q1, and starting -- currently we are covered to be 100% utilized our production capacity.

And regarding to the cost, the current cost is about $12 per KG. Cash cost is about --

(Spoken in Chinese).

Mr. Li says that the average cost for 2016 is $15 per kilogram, and cash cost is around $12.

Yes, thank you. And also the outlook for the poly and wafer and module prices. Thank you.

For next year -- for this year, for 2016?

Yes.

(Spoken in Chinese).

Mr. Li said as for the ASP for wafer, the price is very good right now. It's around $0.20 right now. And for the module ASP, he predicts $0.52 per watt for the first half of the year, and he assumes that there will be a decline for the prices for the second half of the year.

Thank you. And also, the other competitors are all expanding the production capacity all through the value chain. And what is your strategy? Because you mentioned before you are focusing more on the downstream project development, but what's your strategy in terms of upstream business going forward? Thank you.

You mean in capacity?

Yes, and also the strategy overall for the upstream business.

Manufacturing? Upstream manufacturing, right?

Yes.

(Spoken in Chinese).

We don't have any plan to expand capacity. We insist that there is overcapacity in the industry in the long term.

Okay. Thank you.

(Operator Instructions). There are no further questions at this time. I would like to hand the call back to Rebecca. Please go ahead.

Thank you, operator. Let me make some closing remarks on behalf of Mr. Li.

We are very pleased with our 2015 performance and our strategic shift to the project business continued to gain traction. We are developing a robust pipeline of projects around the world. Furthermore, since we disclosed our project development effort, we have monetized our work. This will provide a crucial capital infusion, enabling us to strengthen our balance sheet and grow our business.

Let me reiterate that balance sheet strength is a long-term commitment we have made to our shareholders, and you should expect to see us continue to pay down debt in the quarters ahead.

In summary, 2015 was a breakout year for ReneSola and we have tremendous momentum in our business entering 2016. We remain positive on our downstream strategy. We are excited about the business opportunities in the quarters ahead. We continue to believe ReneSola can achieve an attractive growth rate by developing solar projects in attractive markets. We intend to follow through on these strategic initiatives and build a great foundation to increase shareholder value in 2016 and beyond.

That concludes our call today. You may all disconnect.