Changzhou, Jiangsu Aug 18, 2015 (Thomson StreetEvents) -- Edited Transcript of Trina Solar Ltd earnings conference call or presentation Tuesday, August 18, 2015 at 12:00:00pm GMT TEXT version of Transcript ================================================================================ Corporate Participants ================================================================================ * Yvonne Young Trina Solar Limited - Director, IR * Jifan Gao Trina Solar Limited - Chairman & CEO * Teresa Tan Trina Solar Limited - CFO ================================================================================ Conference Call Participants ================================================================================ * Philip Shen ROTH Capital Partners - Analyst * Maheep Mandloi Credit Suisse - Analyst * Mahesh Sanganeria RBC Capital Markets - Analyst * Vishal Shah Deutsche Bank - Analyst * Nitin Kumar Nomura Securities - Analyst * Emily Liu Arete Research - Analyst * Lina Yanglu - Analyst ================================================================================ Presentation -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- Good morning. My name is Julie and I will be your conference operator today. At this time, I'd like to welcome everyone to the Trina Solar second-quarter 2015 earnings and conference call. (Operator Instructions). As a reminder, today's conference call is being recorded. I would now like to turn the meeting over to your host for today's call, Ms. Yvonne Young, Trina Solar's Investment Relations Director. Please proceed, Yvonne. -------------------------------------------------------------------------------- Yvonne Young, Trina Solar Limited - Director, IR [2] -------------------------------------------------------------------------------- Thank you, operator. Hello, everyone and welcome to Trina Solar's second-quarter 2015 earnings conference call. This is Yvonne Young, Trina Solar's Investor Relations Director. With us today are Trina Solar's Chairman and CEO, Mr. Jifan Gao and Chief Financial Officer, Ms. Teresa Tan. Before I turn the call over to Mr. Gao, may I remind our listeners that, in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties and management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements as contained in Private Securities Litigation Reform Act of 1995. Actual results may differ from those discussed today and therefore, we refer you to a more detailed discussion of the risks and uncertainties in the Company's filings with the Securities and Exchange Commission. For those who are unable to listen to the entire call at this time, a recording will be made available via webcast for 90 days at the Investor Relations section of our Company website at www.trinasolar.com. And with that, it's my pleasure to turn the call over to Trina Solar's Chairman and CEO, Mr. Jifan Gao, for the second-quarter opening remarks. Mr. Gao, please. -------------------------------------------------------------------------------- Jifan Gao, Trina Solar Limited - Chairman & CEO [3] -------------------------------------------------------------------------------- (interpreted) Thank you, Yvonne. Good morning, everyone and welcome to our second-quarter 2015 earnings call. Following our best first quarter ever, we achieved our strongest quarter in almost all financial and operating metrics for both upstream and downstream. We exceeded our high-end guidance and market expectations with module shipments of 1.23 gigawatts. More importantly, as we focus on profitable growth and sustainable growth, gross margin expanded to 20% from 18%, and net income increased 170% to $43 million. Thanks to our strong execution team, we lowered the in-house manufacturing costs by over 16% in the first half alone, [beat] our year-end target of $0.40 to $0.41. In the second quarter, we continued to optimize the geographical mix of our shipments in line with changes in the global environment. We increased our presence in China, the US and in the fastest growing and the highly promising markets to offset the seasonal slowdown in Japan and the UK. Our ability to adapt quickly to market changes has paid off and is reflected in our improved fundamentals. As demand in global solar market continues to increase, our transition to relative asset-light capacity expansion enables us to quickly respond to growing demand while maintaining manufacturing flexibility. In addition, we are leveraging our better supply chain management, coupled with our technology and operation management advantages, while utilizing capacity from the tier 2 and even tier 1 module producers. This has enabled us to capture high growth opportunities, both upstream and downstream, and maintain a healthy balance sheet. We believe all of these existing measures, along with our industry-leading scale and cost leader advantage, have strengthened Trina Solar's ability to leverage [these results] throughout the value chain and positions us well ahead of our competition during the period of the industry consolidation. Moving to downstream business, we had 121 megawatts of new project connections to the grid, including 31 megawatts of DG projects, far exceeding our guidance of 65 megawatts to 75 megawatts. At the end of Q2 2015, we had a total of 359 megawatt operating assets. Over 600 megawatts of utility and DG projects under construction and 800 megawatts in the late stage of project development. Our flexibility, adaptability, faster response time, superior project execution, diversified funding channels, coupled with the improved credit environment to our projects for both utility and DG in China will enable us to emerge as the first class downstream player while we solidify our leading position as one of the top module manufacturers. Finally, let me briefly comment on the China market. We continue to see tremendous progress in the transformation of China's energy system with increasing focus on clean energy. From only public data, electricity generated from green energy increased by over 60% from the first half of 2014. We also see growth opportunities brought by China's ongoing investments in green infrastructure, as well as the government's determination to set key priorities accordingly. Halfway through the year, China has already completed over 40% of these 2015 targets of 17.8 gigawatts and moreover projects are expected to connect to the grid in the second half of the year. We are confident that China will meet its target this year with greater growth potential in the coming years. Looking forward to the second half of the year, with our leading technology, strong brand name and superior products, we will move one step further to our goal of becoming a first-class product developer and operator while further solidifying our leading position as the world-leading module manufacturer. Given the forward visibility of our business, we raised the margin target for the year. With that, I would like now to turn the call over to Teresa Tan to reveal our operational and financial results, further discussion of our downstream business, as well as to introduce our non-GAAP analysis and provide our Q3 and full-year guidance. Thank you. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [4] -------------------------------------------------------------------------------- Thank you, Mr. Gao and hello, everyone. Welcome to our call. Today, I will give you two pieces of updates. The first portion will be an update for our module manufacturing business and the second portion will be an update of our financial results for the quarter. In the second quarter, we continued to see strong global demand, which helped us ship 1 gigawatt of modules to external customers. We shipped 37% of our total external volumes in China, making it the largest contributor to our Q2 volumes and a new record for our selling into the Chinese market. We were able to achieve such high volume thanks to our expansion cooperation with our existing customers and broadened partnerships with new customers. It is also a stamp of approval from our customers for the portfolio of our high-quality and differentiated products that we offer. For example, we signed a 50 megawatt project in England. This project will be solely equipped with our Duo-Max module. Once completed, it will be the largest ground-mounted Duo-Max project in the world and it will be a showcase project for promoting our Duo-Max module in China. We believe this trend of Chinese customers seeking high-quality products will continue through the rest of the year and beyond. We have already secured a number of large, high-quality orders, which will help us meet our targets in the coming quarters. Our shipments to the US also hit a new record high, increasing 60% quarter-over-quarter to 324 megawatts and making it the second largest region for us after China. We have seen continued strong incremental growth thanks to our strong sales network that [pull in] demand before the ITC expiration at the end of 2016. Today, we are almost fully booked for Q3. We have also built a strong backlog for Q4 and have decent visibility into 2016. We believe with our high efficiency and cost-effective products and our ability to expand our overseas manufacturing capacity and international partnership, we are well-prepared to maintain our position in the US market and capture more growth opportunities. Moving over to Japan and emerging markets, in Japan, in the first quarter of this year, we saw a surge in demand ahead of the end of the favorable FIT pricing. So the second quarter, a drop from the first-quarter high was expected, but our sales will pick up in the second half. Looking at India, similar to Japan, the second quarter is traditionally a slow season. However, we maintained stable volume and we continued to improve our business and marketshare by cooperating with our high-quality customers. Now looking at our overseas capacity expansion, we have been making steady progress on our Thailand facility and we expect to start serving overseas demand early next year. Our Malaysian partners also started to deliver shipments this quarter as previously scheduled. In addition, our overseas OEM network is improving as well. We are also planning to expand our capacity (inaudible) overseas market to strengthen our global presence. As of June 30, 2015, we had annualized in-house production capacity of 2.3 gigawatts for ingots, 1.8 gigawatts for wafers, 3.2 gigawatts for PD cells and 4.4 gigawatts for modules. The capacity increase for ingots and wafers was largely driven by upgrades to our existing equipment and technology advancements. In terms of technology, we believe it is vital for us to keep developing and producing cutting edge products and technology. In the first half of 2015, our scientists and researchers at Trina Solar's State Key Laboratory of PV Science and Technology continue to develop a low-cost industrial version of advanced IBC cell and constructed an initial pilot line for IBC cells and modules. We have obtained an extraordinary peak efficiency level of up to 23.1% and average efficiency greater than 22% with those modules. The IBC pilot line is fully commissioned and the first batch of IBC modules has been built. As you may have seen in a recent report, the RIBC sales and modules equipped the Osaka Sangyo University Solar Park and won in the 2015 FIA Alternative Energy Cup Solar Power Race held in Suzuka, Japan. We are proud to be a market leader with our high efficiency solar technology and I'm confident that with increasing demand for our current portfolio of innovative products such as our Duo-Max, Trinasmart and Honey Plus series of modules, our R&D team will continue to push innovation to strengthen our position in the global market. Looking forward, we are confident that with our proven execution capabilities in key operational markets, our ability to remain cost competitive, along with our cutting edge technology of compelling product design and our strong global branding will help us continue to increase our marketshare and solidify the leading position of our upstream module business in this rapidly changing industry. Now I would like to move on to the second portion of my update on Trina's Q2 financials. As Mr. Gao mentioned, the second quarter marks our second straight quarter of record results and eight consecutive quarters of profitable growth. Our total shipments for the second quarter reached 1.23 gigawatts, beating our expectations of 1.1 to 1.4 gigawatts. Net revenues were $722.9 million, an increase of 29.5% sequentially and an increase of 39.2% year-over-year. Gross margin in the second quarter was 20%, increasing from 18% from last quarter and 15.4% from Q4 of last year. This was primarily because of our ongoing cost-reduction initiatives at the same time maintain a relatively stable ASP. In this quarter, we continued to make progress in executing our cost-reduction strategy well ahead of our schedule. As a result, our in-house costs reached $0.39, declining 7% sequentially and 19% year-over-year. There were a number of reasons contributing to this result. First, the drop in raw material prices across the value chain. Secondly, our supply chain management maximized our utilization of resources. Number three reason, the advantage of greater economies of scale in managing our operations continue to be favorable; and fourth, our efficiency management improved the output per capita. And last but not least, improved efficiency driven by technological advancements across the entire manufacturing process also helped the cost reduction. Operating income was $60.7 million, a significant increase of 108.1% from last quarter, $29.2 million. EBITDA in the second quarter was $99.5 million compared to $61.2 million last quarter. Net income increased 174% sequentially to $43.1 million. To support our rapid growth, we continue to maintain a strong balance sheet. Our liability to asset ratio stands at 70%. Our cash balance at the end of the second quarter stood at $616.3 million in cash and cash equivalents and restricted cash. Total bank borrowings were $1.02 billion of which $924.2 million was short-term borrowings. We expect the percentage of long-term borrowings to increase in the second half as the more long-term financing are in place. In terms of CapEx, we mentioned in our first-quarter results that we expect the CapEx needed for our module business to be around $300 million to $350 million this year and total CapEx needed for downstream business is around $1 billion. This expectation remains unchanged. The funding environment for ground-mounted projects has matured and the ready access to funds supported our project development. Also, our module business has become self-sufficient in terms of operating cash flow. However, to ensure that our growth can be sustained, we continue to develop new sources of financing in order to meet our capital needs. In addition to the traditional bank loans, we have also looked into other options to finance the downstream business, including [refinance]. With our well established network of financial institutions we partner with, we continue our efforts to ensure that we have sufficient funds to capture the key market opportunities when they arise. A recent example is our recent breakthrough in distributed generation. We have signed an agreement to develop a 13 megawatt solar roof project for Volkswagen. When the project is completed, it will become the largest carport DG project in China. This project is funded by China Construction Bank, the second biggest bank in China by assets and we have received all the funding as of today. Going forward, we remain committed to securing more reliable sources of financing to secure Trina Solar's continued growth for both the utility and DG segment. Now I'd like to move on to our non-GAAP financial update. As mentioned in the last two quarters, we use non-GAAP disclosures to more fairly represent the true state of our profitability of our P&L due to the restrictions placed on recognizing module sales to our own internal projects. Also the downstream assets captured on our balance sheet are creating more value, but this value may not have been fully recognized by the market. Therefore, our non-GAAP financials is comprised of module business and the downstream business. In terms of modules, for the second quarter of 2015, while we shipped 1 gigawatt of modules on a GAAP basis, we also shipped an additional 231 megawatts to our own downstream projects. So on a non-GAAP basis, our total module shipments were 1.23 gigawatts. Using the same approach, our non-GAAP revenues for this quarter would have been $816 million. Our cost of goods sold would have been $653 million. Our gross profit would have been $163 million and our gross margin would be 20%. In terms of retained project assets, as of the end of Q2 2015, we had over 300 megawatt projects in China retained on our balance sheet that are operating. This includes 300 megawatt utility scale project and a total of 35.2 megawatts of DG projects. The estimated retained value of the total 335.2 megawatts of solar power projects is $483 million using 8% discount rate and $502 million using 7.5% discount rate. Finally, in terms of outlook and guidance, I will summarize briefly here. The full details can be found in our earnings release. For Q3 2015, we expect to ship between 1.45 gigawatts to 1.5 gigawatts of PV modules, of which 170 to 190 megawatts of PV modules will be shipped to our downstream PV projects. As for downstream projects, we expect to connect 180 megawatts to 200 megawatts of PV projects to the grid in quarter three. Given the strong demand to our products, we are raising our full-year 2015 module shipment target to between 4.9 gigawatts and 5.1 gigawatts, of which 700 to 800 megawatts will be shipped to the Company's downstream projects. All in all, we are pleased for what we are able to deliver in the first half of the year and we certainly hope our strong performance to continue in the second half. With that, I would like to turn the call back to Yvonne. Yvonne. -------------------------------------------------------------------------------- Yvonne Young, Trina Solar Limited - Director, IR [5] -------------------------------------------------------------------------------- Operator, I think we can now open the call for questions. Thank you. ================================================================================ Questions and Answers -------------------------------------------------------------------------------- Operator [1] -------------------------------------------------------------------------------- (Operator Instructions). Philip Shen. -------------------------------------------------------------------------------- Philip Shen, ROTH Capital Partners - Analyst [2] -------------------------------------------------------------------------------- Mr. Gao, Teresa, Yvonne, congratulations on some nice results. So you guys are fully booked in Q3. You have a strong order book for Q4. I know it's early, but what kind of bookings, if any, are you seeing for 2016? We've seen some of your peers lock in some large orders in the US given the expiration of the ITC at the end of 2016. Do you see any potential for some similar opportunities for Trina? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [3] -------------------------------------------------------------------------------- Yes, absolutely. For Q3, as I discussed earlier, in US and a number of markets, we are very much booked and (inaudible) extend into Q4 and we see a very steady order coming in. Some of them have signed of those going into 2016. And as to what you have asked about the US market, we see very strong market demand in 2016 and very likely to match or even surpass the demand in 2016 in that market. -------------------------------------------------------------------------------- Philip Shen, ROTH Capital Partners - Analyst [4] -------------------------------------------------------------------------------- Okay, great. Thanks, Teresa. In terms of your cost structure, what was your cost per watt in Q2 and relative to your target by year-end of $0.40 to $0.41 per watt, how do you see your cost structure trending in 2016? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [5] -------------------------------------------------------------------------------- We continue to see cost reductions on a going-forward basis. This year was a very exceptional year. We have achieved much faster and even surpassed the goal for the cost reduction that we set for this year and we continue to see a 5% to 6% reduction in the coming year and we certainly hope that the operation would deliver stronger results surpassed our expectation as well. -------------------------------------------------------------------------------- Philip Shen, ROTH Capital Partners - Analyst [6] -------------------------------------------------------------------------------- Great. One more question from me. With your asset-light capacity strategy, you are expanding into Thailand and Malaysia. Given your increasing guidance, what's your latest view on additional capacity expansion in either 2015 or 2016 beyond what you've announced? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [7] -------------------------------------------------------------------------------- I discussed a little bit earlier, but then I'm very happy to talk a little bit further from what we have said. This year, we actually -- our target was to reach the module capacity at 4.8 gigawatts and it looks like we are very much well on our target -- on our way to reach the target. And on a going-forward basis, we are looking at a number of key markets. For instance, the India market is one of the markets that we are evaluating in a very active manner and we are looking at the potential module and cell capacity in India market. And we are in the process of selecting sites at this point. And we are also looking at potential markets where we can establish our presence in Latin America, as well as in Europe. So we are actively looking, but then the manner of expansion will be in multiple ways, not only the way that we have said before as cooperation, but also could be partner with other people or utilizing other people's or other companies' facilities to keep on executing our relative asset-light strategy. So we are definitely looking forward to 2016, which we believe will be another very strong year globally in addition to some of the key markets where we have a significant presence. -------------------------------------------------------------------------------- Philip Shen, ROTH Capital Partners - Analyst [8] -------------------------------------------------------------------------------- Great. Thanks, Teresa. Congrats again on nice results. -------------------------------------------------------------------------------- Operator [9] -------------------------------------------------------------------------------- Patrick Jobin. -------------------------------------------------------------------------------- Maheep Mandloi, Credit Suisse - Analyst [10] -------------------------------------------------------------------------------- Hi, this is Maheep Mandloi on behalf of Patrick Jobin from Credit Suisse. A question on the financing environment. You gave an update on the visibility you have over there for funding the projects. Could you give more color on what appetite you see for downstream assets or were there any other funding avenues apart from debt and leasing? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [11] -------------------------------------------------------------------------------- Sure. Be happy to discuss that. For our downstream projects, we see very active and very healthy appetite for the projects regarding supporting the projects with financing. And we are looking at not only the major banks that have always been active starting from last year, but then we are looking at many different ways of different forms of financial institutions very actively participating. And also it includes the active players, includes a lot of regional banks, which they are maybe smaller, but very quick in taking options and they are actually very, very active in seeking the financing opportunities and partner with major players like Trina. And one of the things that I would comment on this is that, as we are seeing more and more active participation from the financial institutions, we also have some knowledge that this is not a blind support by the financial institutions for all the projects out there because the financial institutions are more and more focused on quality and they are more and more focused on the assets knowing that they will be around for a long time. And this is a very healthy focus, which we very welcome that kind of focus. And so from our perspective, we are definitely seeing a lot more possibilities to partner with the big banks and also the regional banks, as well as other funds and leasing companies and also partnerships who may want to strategically partner with us in developing projects and grow the business. So we definitely see a very healthy appetite. -------------------------------------------------------------------------------- Maheep Mandloi, Credit Suisse - Analyst [12] -------------------------------------------------------------------------------- Thanks. That's helpful. And just on the shipment guidance for the whole year, the additional 500 megawatt of guidance, can you help us where do you see that coming from? Is it mostly China or US? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [13] -------------------------------------------------------------------------------- Actually we are seeing increases from different regions, including the major markets in China, definitely one of them in US is another one and we are also seeing faster growth from emerging markets like India and we are seeing new markets, Latin America, as well as Middle East. So from our perspective, we are very comfortable that the revised targets that we set for the year will be reachable and we are happy to be able to be in a position to provide a higher guidance. -------------------------------------------------------------------------------- Maheep Mandloi, Credit Suisse - Analyst [14] -------------------------------------------------------------------------------- Thanks and congratulations on the quarter. -------------------------------------------------------------------------------- Operator [15] -------------------------------------------------------------------------------- Mahesh Sanganeria. -------------------------------------------------------------------------------- Mahesh Sanganeria, RBC Capital Markets - Analyst [16] -------------------------------------------------------------------------------- Yes, thank you. Thank you very much and congratulations on a very good quarter. My question on the cost side. Can you talk a little bit about how much of cost reduction is coming from the commodity prices? And maybe you can talk a little bit about poly prices. The poly prices have been pretty favorable. At the beginning of the year, expectation was the poly price will start to increase, but is your expectation that poly prices will continue to decline and maybe you can comment on other commodities and impact of that on your prices -- on your [class]? Thank you. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [17] -------------------------------------------------------------------------------- Yes, the cost has come down for us, especially the in-house manufacturing costs and that is actually coming from multiple sources. One of the sources actually is coming from the poly costs, but that is about a 10% reduction from $0.10 of Q1 to about $0.09 in Q2 and other materials has dropped as well close to 10%. So that was actually quite healthy from our perspective to have the cost reduction. In addition to that, our cost reduction also comes from labor reduction as well. As you have probably noted that with our significant increase of our module shipment and manufacturing, our labor force actually reduced and that is another way to show that we actually are able to increase our productivity and therefore reduce the cost per capita. So the cost for in-house manufacturing is reducing, but, at the same time, we have to point out that, due to our restriction on the capacity, we have to increase our outsourcing for this quarter, as well as the coming quarters. So that actually will increase the cost a little bit and that was reflected in our second-quarter overall costs. The total for the $0.08 is a blended module cost that we present to you today. -------------------------------------------------------------------------------- Mahesh Sanganeria, RBC Capital Markets - Analyst [18] -------------------------------------------------------------------------------- Actually, I have a follow-up on your earlier comment on that one. If I look at the module business versus the project business, looks like your gross margins are definitely improving on the module business and maybe even better than the project business and the project business is requiring so much capital. And you can improve your margins probably by bringing in more production in-house. So how do you balance those two businesses? I would think that you should be focusing more on the module business considering that some of your customers and competitors are having problem with raising capital for the project business. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [19] -------------------------------------------------------------------------------- I'll be happy to discuss that. From Trina's perspective, obviously, every company has its own strategy in extending their capacity, but from Trina's perspective, we are very focused on the midstream. That means we are focusing on the capacity increase on the cell capacity, as well as the module capacity and we are not investing in the upstream, meaning the poly and wafer, capacity expansion on those. It is not part of our strategy and that will continue to be the case. And so on a going-forward basis, we will continue to see ourselves partner with the upstream suppliers and we believe that this will help us to maintain our relatively asset-light approach and reach our target to have sustainable growth. -------------------------------------------------------------------------------- Mahesh Sanganeria, RBC Capital Markets - Analyst [20] -------------------------------------------------------------------------------- Okay. Thank you very much. -------------------------------------------------------------------------------- Operator [21] -------------------------------------------------------------------------------- Vishal Shah. -------------------------------------------------------------------------------- Vishal Shah, Deutsche Bank - Analyst [22] -------------------------------------------------------------------------------- Teresa, can you maybe talk about your margin expectations for the second half? And also are your plans for the downstream business in China, are you looking to expand in 2016 as well? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [23] -------------------------------------------------------------------------------- Can you repeat the last one again? -------------------------------------------------------------------------------- Vishal Shah, Deutsche Bank - Analyst [24] -------------------------------------------------------------------------------- Your plans for the downstream business in China, are you looking to expand your portfolio of projects on hand in 2016 as well? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [25] -------------------------------------------------------------------------------- Sure, let me talk a little bit about the downstream business for now, for the second half, the going-forward basis. For the downstream business, we are looking at the market to have very healthy demand and we have seen that not only China, but a number of other countries as well that has very focused and more high profile focus on the downstream business in the process of seeking clean energy and healthy environment. So we are definitely expanding our efforts in increasing our portfolio, not only in China, but also in other countries. In addition to our established markets like UK and Japan, we are also expanding into other countries. For instance, India, we are very active in looking at the projects and business opportunities there and we believe that this is a very big region and high-growth region and we very much intend to be a significant player there and we will look for local partners as well to help us and partner with us to grow together in this very important market. And so from China's perspective, we are definitely looking at not only meet the target that we set for this year, but looking forward, we are looking at further growth our target and further increase our investment as well into our downstream business. -------------------------------------------------------------------------------- Vishal Shah, Deutsche Bank - Analyst [26] -------------------------------------------------------------------------------- How do you plan to fund the downstream operations? You say you need to borrow $1 billion this year. What kind of financing you are looking at for next year as well? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [27] -------------------------------------------------------------------------------- Right. Yes, this is a very important question, very much a question that we ask ourselves in looking for solutions as well. For this year, for the 700 to 800 megawatts project that we have planned that we are in process of completing, we very much looked at all the options we have and look for favorable options out of the ones that we have and secure as we go the financing for the project. So for the rest of the year, we believe that as we progress on the business side into meeting our targets, we are also progressing very nicely in securing financing for the projects that we have currently developing and constructing. So going-forward basis, we have discussed our desire to separate the downstream business into a separate listing so that we can create a financing platform for this downstream business, which is quite different from our module business and manufacturing business. So we believe that this is the way to go. As far as timing and as far as the market where the spinoff could happen, this is very much still in discussion and we are also very much in very active discussion actually with our supporters and resources that we are working with. On the other hand, there are multiple ways of -- new ways of financing for downstream. As you probably have also noted in the market that there are a number of options such as green bond options that is very much available for renewable energy. And we have seen recent cases, successful cases in the market that is something that we are also studying. And also, there are many other sources of strategic partners that are very active in looking to partner with us and that is also something that we are evaluating as one of the options to secure financing. So we believe that there are a number of options that will be strong support for our meeting the target for the next year. -------------------------------------------------------------------------------- Vishal Shah, Deutsche Bank - Analyst [28] -------------------------------------------------------------------------------- That's helpful. Thank you. -------------------------------------------------------------------------------- Operator [29] -------------------------------------------------------------------------------- Nitin Kumar. -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [30] -------------------------------------------------------------------------------- Thanks, guys. Congratulations on a very strong quarter. A lot of things have already been answered, but I'm just trying to understand if I compare the 20-F capacity guidance to what it is being provided in 2Q, it seems you've actually brought down some of your capacity expectations. Is that a pushout in some areas or is that more related to timing issues? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [31] -------------------------------------------------------------------------------- Actually that's probably not the case that we see a demand receding from what we are expecting a high-growth year. Traditionally, Q3 is a very, very high volume quarter because of the grid connection that people are targeting is for the end of the year. So the fact that we revised our overall whole year guidance and the fact that we provided the higher guidance for the third quarter and maybe slightly lower guidance for the fourth quarter for the difference, I don't think there's much of a message of slowing down at all. As a matter of fact, we expect that to be level from Q3 to Q4. -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [32] -------------------------------------------------------------------------------- Okay. The other thing is that your diluted share count has actually increased quite significantly from 1Q to 2Q. Any particular reasons for that? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [33] -------------------------------------------------------------------------------- I'm sorry, would you repeat the question again? -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [34] -------------------------------------------------------------------------------- The diluted share count in 2Q has gone up from -- if we basically compare -- has gone up quite substantially. It's gone up from 97.2 million in 1Q to 105.2 million. So I'm just trying to understand those 8 million additional shares. What kind of (inaudible) has that come in from? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [35] -------------------------------------------------------------------------------- Yes, okay, well, I'll be happy to explain a little bit. I know it's a relatively complicated issue, but I think maybe I can explain this in layman's language and see if I can be successful in explaining. As you know that we have a basic share of about 85 million and then on top of that, we had two follow-on issuances that we did last year -- one in June, one in October. And because of the two follow-on shares that are related to convertibles, they are only dilutive when they meet certain conditions. And in the first quarter of this year, only the June 2014 shares were dilutive and that's why they were included in the Q1 total shares. But now in Q2, when we do the calculation based on the required shares for dilution, the fully diluted method in US GAAP requires we do that comparison. And as we do that calculation, the number one follow-on and also the number two follow-on both become dilutive and that's why the total shares were increased because of the shares related to the convertible bonds issued in last year. Hope that explains it a bit. -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [36] -------------------------------------------------------------------------------- It does, thank you. The other thing is -- there have been quite a few questions on the source of capital for the project, for the further expansion on the project side of the business. And thanks for the commentary around what are the other markets you're looking for. I'm just trying to understand, you've mentioned that the Company is looking at all the options, including a separate listing. What could be the timeframe that you would want -- you would need to do it for continued access or what kind of limitations are there -- bringing it forward or bringing it -- pushing it forward in terms of listing of that asset? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [37] -------------------------------------------------------------------------------- Right. Well, that's a question of -- $1 million question almost. The fact that the market condition changes and the fact that the Company, every company is different and the strategy and their target is determined what kind of strategy that they will deploy. So from Trina's perspective, we need to evaluate not only the appetite from the investor perspective, but also the future financing options and possibility for our downstream business as well. And so because most of our assets on our balance sheet are from China, we also need to make sure that the market that we select recognizes the value of those assets and also will support that kind of development as well. So like I said, this evaluation is a very complex situation and actually it really changes when overall conditions and the macro economy condition changes as well. So it's almost like a -- it's a very active evaluation that I can say, but as far as clear plans, it is very hard to give a very clear plan and we will be sure to communicate with the market as the plan becomes clear. -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [38] -------------------------------------------------------------------------------- Understand. If I may just like ask a bit more on -- if you look at the data from global (inaudible) issue (inaudible) that 9.75%, obviously that's significantly higher than the kind of rates you can get for domestic bond issues. Does that mean that more and more issues going forward could actually be in the domestic market in China rather than in US? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [39] -------------------------------------------------------------------------------- You mean the downstream business? -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [40] -------------------------------------------------------------------------------- Yes, for the downstream business. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [41] -------------------------------------------------------------------------------- Yes, well, actually it turns out that the oversea business has accounted for less than 10%. That partially is because of the very, very robust demand and very healthy kind of development in China where we have to dedicate more resources to capture while the opportunity presents. And so it turns out to be that a higher percentage of projects in development happen in China. So on a going-forward basis, we still are very much focusing on not only develop our business in China, but also overseas, like I mentioned earlier, that we are looking at markets like India. We are also looking at markets in Latin America and we believe that we have a good chance to succeed in those growing markets as well. -------------------------------------------------------------------------------- Nitin Kumar, Nomura Securities - Analyst [42] -------------------------------------------------------------------------------- I understand. And last question from me, Teresa, touching on something Mahesh asked before, on the use of capital, there is clearly a consolidation happening on the module side of the business. Margins for all the module guys have been strong, pretty much the strongest it has been in three or four years. As we go into next year, we are probably going to see even more capacity tightness, particularly in the cell and module space. How should we think in terms of capacity growth? Is the Company going to be focused more on marketshare or is it going to be more on maintaining profitability or looking at -- trying to create a balance on the future capacity expansion? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [43] -------------------------------------------------------------------------------- Yes, that's a very great question because in our strategy discussions we also ponder over again and again over this question as well because this is very much a very key factor in our strategy going forward for the module business. From a management perspective and from Trina's perspective, we have to balance a number of factors. We need to meet the customers' demand and we need to meet the fast growth in multiple markets, including the key markets. So we definitely need to increase our capacity not only because this is one of the ways for us to capture the market, but also will establish further of our leading as one of the top manufacturers for the module manufacturer. But now, on the other hand, we are also very much focused on profitability as well and we want to make sure that we not only expand our capacity, we not only capture the marketshare or increase our marketshare, but also not to lose sight on the profitability. I know there are many concerns out there that as you are too focused on the marketshare, maybe you will lose sight of the profitability and this is definitely not happening at Trina. We are very much focused on profitability and we want to make sure to balance the different factors and different demands to not only -- long-term wise, we want to have sustainable growth, so we are not just looking at one quarter or two; we are looking at three years, five years down the road where we need to be and that's why we believe we will still continue to evaluate the possibility of increasing capacity, using our relatively asset-light approach, but at the same time we would make sure that we keep profitability very much in front of us. -------------------------------------------------------------------------------- Operator [44] -------------------------------------------------------------------------------- Emily Liu. -------------------------------------------------------------------------------- Emily Liu, Arete Research - Analyst [45] -------------------------------------------------------------------------------- Congratulations on a good quarter and thanks for taking my question. I think my question is more on the technology roadmap because I see the success of Duo-Max and IBC and it seems to me that efficiency is a -- high-efficiency sales is one of the product differentiation. And I wonder whether it's possible to give us an update on your efficiency roadmap and also how does that tie in with the CapEx guidance? I think I have $275 million for the year, including $160 million for Thailand expansion. Thanks. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [46] -------------------------------------------------------------------------------- Sure. Our technology is one of our very vital portion of our business and we believe that this will separate us apart from our peers and we believe that this is one of the forces to keep us have sustainable growth going forward and become more and more of a leader in this field. And if you look at the past quarter, our efficiency for the cells that we have installed in our production is for the mono sales and also the multi-sales. They have reached -- for mono sales, it has reached more than 19%, 19.3% average for the second quarter and for the multi-modules and sales, the capacity efficiency has reached close to 18%. Now, one of the things that I want to highlight is you probably have seen some of our announcements in the past couple months where we have set the record for our multi-modules. One of them is very significant where the efficiency has passed 19%, which, in the past, we always believed that this is where the top modules in cells will be able to produce, but now we are able to do that with multi-cells and multi-modules. So there is still much room for us to advance. And also one of the things that we have done, and I mentioned earlier a little bit, that we are expanding our capacity for high-efficiency modules manufacturing capacity. And so by the end of the year, we will reach a much higher capacity for the module compared to our current capacity. And for instance, our PERC capacity for this year by the end of the year will reach more than 200 megawatts, which is very significant and by next year, 2016, our capacity will increase for the product to almost 500 megawatts and those high efficiency products will allow us to penetrate further into the market where customers are more and more in demand of the high-efficiency products, especially as residential DG business is picking up as we are expecting. So we believe that the PERC productline that we are expanding is very much a key for our continued success. And another example that you probably saw was that the (technical difficulty) cells that was equipped with the solar car that won the race by a large compared to the number two and number three in the race and that was very much another proof that we are ahead of the competition and produce high-efficiency cells in the solar modules. So again, we will continue our effort in this area and we hope that the team will continue to produce impressive results as they did in the past. -------------------------------------------------------------------------------- Emily Liu, Arete Research - Analyst [47] -------------------------------------------------------------------------------- Just to make sure I understand, you have a 200 megawatt of PERC capacity by the end of this year and 500 by the end of next year? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [48] -------------------------------------------------------------------------------- That is our target. -------------------------------------------------------------------------------- Emily Liu, Arete Research - Analyst [49] -------------------------------------------------------------------------------- And do you get premium by selling PERC modules? What kind of price premium are you seeing? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [50] -------------------------------------------------------------------------------- Yes, currently, the high-efficiency modules can demand a price premium. Of course, how much of a premium depends on the market from market to market, but it does have a premium that we are able to enjoy. -------------------------------------------------------------------------------- Operator [51] -------------------------------------------------------------------------------- [Lina Yanglu]. -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [52] -------------------------------------------------------------------------------- Thank you for taking the questions. This is (inaudible) calling on behalf of [Frank]. We have three questions in total. First is how much revenue is booked for the 50 megawatt project sales in second quarter and what is the gross margin for the sales? And the second question is, any revenue booking from downstream solar project sales? And the third question is we see broad curtailment in the receivable issues for downstream solar project. What is the strategy for Trina to manage the risk? Thank you very much. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [53] -------------------------------------------------------------------------------- Okay, I may have to ask you to repeat the second and third questions, but let me answer your first question first. The UK project that was sold in June, the second quarter, contributed to our bottom line in the second quarter and the 50 megawatt project was connected in the first quarter and we are very happy to partner with Bluefield again to complete the sale. And the margin is in the low 20%s when you consider all the costs together and that's very much comparable with the other two projects that were sold earlier in 2014. So that answers your first question, but then I apologize, speak slowly on your second question again, please. -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [54] -------------------------------------------------------------------------------- Sure. Second question is electricity sales revenue for downstream projects. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [55] -------------------------------------------------------------------------------- Electricity revenue? -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [56] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [57] -------------------------------------------------------------------------------- Okay, yes. In the second quarter, the electricity revenue is about $12 million compared to $10 million in the first quarter and that's very much in line with what we expected according to the grid connection progress. And I also believe that for the year we have targeted about $70 million in total for the electricity revenue for this year, 2015. And we are expecting approximately $20 million for third quarter and the rest in the fourth quarter. -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [58] -------------------------------------------------------------------------------- Thank you very much. And the third question is -- the third question is about the broad curtailment and the (inaudible) issued --. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [59] -------------------------------------------------------------------------------- If you could repeat your third question again, I appreciate it. -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [60] -------------------------------------------------------------------------------- Thank you. No problem. We see broad curtailment and the receivable issues for downstream solar project. What is Trina's strategy to manage the risk? -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [61] -------------------------------------------------------------------------------- Right, okay. I understand you are asking about the receivable questions, right, for the downstream business? -------------------------------------------------------------------------------- Lina Yanglu, - Analyst [62] -------------------------------------------------------------------------------- Yes. -------------------------------------------------------------------------------- Teresa Tan, Trina Solar Limited - CFO [63] -------------------------------------------------------------------------------- Okay. Yes, I'll be happy to discuss that. As you know that the downstream business, the revenue comes from two major portions. The first one is coming from selling the electricity, which we, for most of the projects that are connected after an initial processing time, we are receiving on a regular basis the revenue from electricity companies or from the users for the DG business and those are very much in progress for now. The second piece is related to the FIT, the feed-in tariff, which I think in many people's minds, including ours, that the payment has been delayed and I may want to discuss this in separate portions. One is for utility basis, one is for DG business. For the utility basis, FIT, we are seeing that the delay is between 12 to 18 months and we are working very actively, including engaging our association, including engaging the active dialogue with government officials to push for faster processing of the FIT payment. And recently, we have received another request for starting the AR on the FIT overdues, basically overdues from the government and we see that as an effort from the government to understand the extent of the problem and hopefully thinking of a way to expedite the processing of the FIT payment in solving the problem of the lack of funding to those FIT payments. But now coming to the DG business, we are seeing much faster payments from the FIT perspective for DG projects and we have not seen much of delay after the grid connection once an initial processing time is passed. So for instance, for the project that we have connected in the first quarter for the DG business, we are now receiving on a regular basis, on a monthly basis for the project, that we, for the FIT payment, retroactively back to the day one when the grid connection was made. So that we actually see that as a very positive sign for receiving the payment and also it very much depends on where the project is located for the DG business. In different provinces, they have different process and different times to process the FIT payment. So we are seeing encouraging signs of much faster processing for the Company to receive the FIT payment. So I hope I've explained this from different ways to make this problem or this issue much clearer to listeners that are on the call. -------------------------------------------------------------------------------- Operator [64] -------------------------------------------------------------------------------- There are no further questions in queue. I'd like to turn our call back over to Yvonne Young. -------------------------------------------------------------------------------- Yvonne Young, Trina Solar Limited - Director, IR [65] -------------------------------------------------------------------------------- Thank you. On behalf of Trina Solar management team, we want to thank you for your interest and participation to our second-quarter 2015 earnings call. If you are interested in visiting our Trina Solar management team -- our [PV] park -- please feel free to get in touch with me. With that, this concludes Trina Solar's second-quarter 2015 earnings conference call. Thank you, operator. You may now disconnect. -------------------------------------------------------------------------------- Operator [66] -------------------------------------------------------------------------------- That concludes today's conference call. You may now disconnect. -------------------------------------------------------------------------------- Yvonne Young, Trina Solar Limited - Director, IR [67] -------------------------------------------------------------------------------- Thank you. -------------------------------------------------------------------------------- Editor [68] -------------------------------------------------------------------------------- Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.
|