May 14, 2014 - Hanwha SolarOne Co., Ltd. today reported its unaudited financial results for the three months ended March 31, 2014.
FIRST QUARTER 2014 HIGHLIGHTS
Mr. Seong-woo Nam, Chairman and CEO of Hanwha SolarOne commented," Our first quarter results were primarily impacted by a slowdown in demand in China due to seasonality and delayed project installation, as customers anticipated more lucrative government subsidies later this year, and the unexpected devaluation of the Renminbi, which resulted in a foreign exchange loss for the quarter. Our core business remained strong. We continued to maintain our strong position in the Japanese market and made good progress towards filling our allocation in the EU. Our average selling prices remained firm at the high end of peer averages, and we continued to effectively manage operating expenses."
Chairman Nam noted," Beginning in the second quarter and for the remainder of the year, demand and shipment volumes look promising. We anticipate up to a 14% increase in shipments from the first quarter to the second quarter. China demand is beginning to warm and a strong second half of the year is expected in this market as the government increases incentives and improves the availability of credit for select companies. We expect business opportunities to develop further in China with cooperation from our strategic partners, including downstream project development."
Chairman Nam concluded," There is good potential for cost reduction for the remainder of this year, especially as we increase utilization and reduce costs at our internal ingot and wafer operation. Conversion of existing module lines to full automation beginning mid-year will also cut costs and improve quality. Synergies with Hanwha Q CELLS remain strong, as the companies exchange technology, share manufacturing expertise, integrate supply chains, in each case where practical and appropriate, and continue a meaningful toll arrangement. Finally, we are now prepared to increase cell and module capacity to 1.5 GW and 2.0 GW respectively, positioning us to enter 2015 with higher capacity to meet a significant anticipated increase in demand."
FIRST QUARTER 2014 RESULTS
- Total net revenues were RMB1,138.4 million (US$183.1 million), a decrease of 12.1% from RMB1, 294.9 million in 4Q13, and an increase of 2.3% from RMB1, 112.9 million in 1Q13. The decrease in total net revenues in 1Q14 compared with 4Q13 was primarily due to lower shipments.
- PV module shipments, including module processing services, were 323.6MW, an 8.1% decrease from 352.2MW in 4Q13, and an 11.9% increase from 289.1MW in 1Q13.
- The Company continues to maintain a strong presence in Japan, representing 51% of module shipments worldwide in 1Q14. The UK market increased substantially this quarter and accounted for 22% of total shipments, due to strong demand for utility-scale solar projects ahead of scheduled incentive changes. Deliveries to the US, Korea and Canada remained relatively stable for the Company at 8%, 7% and 3% for this quarter, respectively. Guatemala entered the geographic mix this quarter after the completion of a previously announced module delivery. China, which represented 16% of shipments the prior quarter, experienced a pause as developers waited for new incentives from the government. We expect activity to increase starting in the second quarter and gain further during the second half of the year. The Company shipped PV modules to 22 countries during 1Q14, including a number of notable new markets. Shipments to Europe and Africa (EA) contributed 24% to total module shipments, Asia Pacific (AP) accounted for 63% and North America (NA) 13%.
- The average selling price of modules, excluding module processing services, increased to RMB4.27 per watt (US$0.69), from RMB4.09 per watt in 4Q13 and RMB4.12 per watt in 1Q13.
- Gross profit in 1Q14 was RMB158.1 million (US$25.4 million), compared with a gross profit of RMB183.0 million in 4Q13 and a gross profit of RMB28.9 million in 1Q13. The decrease in gross profit in 1Q14 was primarily due to lower revenues.
- Gross margin was positive 13.9%, compared with positive 14.1% in 4Q13 and positive 2.6% in 1Q13.
- The blended cost of goods sold ("COGS") per watt, excluding module processing services, was US$0.59, representing no change from 4Q13. The blended COGS takes into account the production cost (silicon and non-silicon) using internally sourced wafers, purchase costs and additional processing costs of externally sourced wafers and cells.
- Operating profit in 1Q14 was RMB21.9 million (US$3.5 million), compared with an operating loss of RMB23.7 million in 4Q13 and an operating loss of RMB128.2 million in 1Q13. Operating margin improved to positive 1.9% from negative 1.8% in 4Q13 and negative 11.5% in 1Q13.
- Operating expenses as a percentage of total net revenues were 12.0% in 1Q14, compared with 16.0% in 4Q13 and 14.1% in 1Q13.
- Interest expense was RMB89.0 million (US$14.3million), compared with RMB85.4 million in 4Q13 and RMB75.8 million in 1Q13.
- The Company recorded a net loss of RMB72.7 million (US$11.7 million), which included a foreign exchange loss and a loss from the change in fair value of derivatives in hedging activities. The Company recorded a net gain of RMB43.7 million in 4Q13 and a net loss of RMB23.8 million in 1Q13 for the foreign exchange gain/loss and the gain from change in fair value of derivatives in hedging activities.
- Loss from the change in fair value of the conversion feature of the Company's convertible bonds was RMB0.3 million (US$0.05 million), compared with a gain of RMB32.6 million in 4Q13 and a gain of RMB2.1 million in 1Q13. This line item has fluctuated, and is expected to continue to fluctuate quarter-to-quarter, based on changes in the Company's ADS price. The Company has no direct control over the fluctuations.
- Net loss attributable to shareholders on a non-GAAP basis was RMB98.8 million (US$15.9 million), compared with a net loss attributable to shareholders of RMB25.4 million in 4Q13 and a net loss attributable to shareholders of RMB202.9 million in 1Q13.
- Net loss per basic ADS on a non-GAAP basis was RMB1.09 (US$0.17), compared with net loss per basic ADS on a non-GAAP basis of RMB0.30 in 4Q13 and net loss per basic ADS on a non-GAAP basis of RMB2.40 in 1Q13.
- Net loss attributable to shareholders on a GAAP basis was RMB133.4 million (US$21.5 million), compared with net loss attributable to shareholders of RMB21.8 million in 4Q13 and net loss attributable to shareholders of RMB225.9 million in 1Q13.
- Net loss per basic ADS on a GAAP basis was RMB1.47 (US$0.24), compared with net loss per basic ADS of RMB0.26 in 4Q13 and net loss per basic ADS of RMB2.67 in 1Q13.
- Annualized ROE on a non-GAAP basis was negative 24.6% in 1Q14, compared with negative 6.3% in 4Q13 and negative 36.2% in 1Q13.
- Annualized ROE on a GAAP basis was negative 28.4% in 4Q13, compared with negative 4.6% in 4Q13 and negative 34.3% in 1Q13.
As of March 31, 2014, the Company had cash and cash equivalents of RMB1,078.6 million (US$173.5 million) and net working capital of RMB140.1 million (US$22.5 million), compared with cash and cash equivalents of RMB1,249.5 million and net working capital of RMB591.1 million as of December 31, 2013. Total short-term bank borrowings (including the current portion of long-term bank borrowings) were RMB1, 519.5 million (US$244.4 million) as of March 31, 2014, compared with RMB1, 339.7 million as of December 31, 2013. As of March 31 2014 the Company's convertible bonds are classified as a current liability and totaled RMB509.2 million (US$81.9 million). Holders of the convertible bonds have the option to require the Company to redeem the notes on January 15, 2015. The Company has from time to time been buying back its convertible bonds since January 1, 2012 and may do so in the future, subject to market conditions and other factors. The Company has repurchased convertible bonds to the value of approximately US$72 million out of US$172.5 million in face value as of March 31, 2014. Following the close of 1Q14, the Company repurchased an additional US$9.5 million of convertible bonds.
As of March 31, 2014, the Company had total long-term debt of RMB2, 985.0 million (US$480.2 million), which is comprised of long-term bank borrowings and long-term notes. The Company's long-term bank borrowings are to be repaid in installments until their maturities ranging from 1 to 3 years. The Company's long-term notes are to be repaid in 2 years.
Net cash used in operating activities in 1Q14 was RMB290.5 million (US$46.7 million), compared with net cash provided in operating activities of RMB258.9 million in 4Q13 and net cash used in operating activities of RMB54.1 million in 1Q13. The change in operating cash flow was primarily due to an increase in net loss, as well as, a negative change in restricted cash and accounts and notes payable.
As of March 31, 2014, accounts receivable were RMB824.5million (US$132.6 million), compared with RMB744.7 million as of December 31, 2013 and RMB1, 131.6 million as of March 31, 2013. Days sales outstanding ("DSO") increased to 116 days in 1Q14 from 103 days in 4Q13 and 127 days in 1Q13. As of March 31, 2014, inventories increased to RMB779.6 million (US$125.4 million) from RMB752.3 million as of December 31, 2013 and RMB776.9 million as of March 31, 2013. Day's inventory was 70 days in 1Q14 compared with 63 days in 4Q13 and 67 days in 1Q13.
Capital expenditures were RMB31.6 million (US$5.1 million) in 1Q14.
As of March 31, 2014, the Company had production capacity of 800MW for ingot and wafer, 1.3GW for cell and 1.5GW for module. The Company is aiming to expand cell and module capacities to 1.5GW and 2.0GW, respectively, by the end of 2014.
Following the close of the first quarter, several changes were announced to the management team and board of directors. Chairman and CEO Ki-Joon HONG retired from his various roles within the Hanwha organization, including his management and board capacities at Hanwha SolarOne. Seong-woo Nam was named his replacement as both Chairman and CEO. Mr. Nam joins Hanwha SolarOne from Samsung Electronics where he most recently led their large and growing IT Solutions Business. Also, Min-Su KIM resigned as President and member of the board. His board seat was filled by Jay SEO, current Chief Financial Officer and Head of China Business for Hanwha SolarOne.
The Company provides the following guidance based on current operating trends and market conditions.
For the second quarter 2014 the Company expects:
- Module shipments of 350 - 370MW
For the full year 2014, the Company expects:
- Module shipments between 1.5 - 1.6GW of which about 25-30% will be for PV module processing services
- Capital expenditures of $80 million largely for automation of existing manufacturing lines, as well as, cell module capacity expansions to 1.5GW and 2.0GW respectively
- Gross margins targeted in the range of 15-20%