Hanwha Q CELLS Reports Third Quarter 2015 Results

Hanwha Q CELLS Co., Ltd., one of the world’s largest photovoltaic manufacturer of high-quality, high-efficiency solar modules, today reported its unaudited financial results for the three months ended September 30, 2015. The Company will host a conference call to discuss the results at 8:00 am Eastern Time (10:00 pm Seoul Time) on November 19, 2015.  A slide presentation with details of the results will also be available on the Company’s website prior to the call.

HIGHLIGHTS

– Total solar module shipments were 805 megawatts (“MW”), an increase of 31.1% quarter-over-quarter.
– Total shipments include 742 MW of external shipments, 11 MW of OEM and 52 MW of shipments to the Company’s own downstream projects.
– Net revenues were US$427 million, an increase of 26.4% quarter-over-quarter.
– Gross profit rose 59.2% quarter-over-quarter to US$93.0 million at gross margin of 21.8%, an improvement of 450 basis points quarter-over-quarter, well exceeding the Company’s guidance of a minimum of 18%.
– The Company’s cash balance approached US$300 million.
– Company generated US$52.4 million in net income.
– Downstream pipeline exceeding 1.2 gigawatts (“GW”), with approximately 40% in late stage development.
– The fourth quarter guidance is 1.2 to 1.4 GW of total module shipments, and gross margin at over 20%.
– The Company reiterates its FY2015 guidance of total module shipments of 3.2 to 3.4 GW and raises its gross margin forecast to be approximately 19%.

Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS commented, “This quarter was one of the most significant milestones for the Company highlighted by a return to net profitability, accelerated shipment growth, all-in internal processing cost reduction to below US$0.40 per watt, expansion in gross margins to well over 20%, a downstream pipeline in excess of 1.2 GW, and a one-time $51.2 million arbitration award relating to inventory valuation during the Q.cells acquisition in 2012. We are now more fully benefiting from the merger between Hanwha SolarOne and Hanwha Q CELLS in February of this year, including the elimination of redundant costs as reflected in the improvement in our operating expenses as a percentage of revenues. The final quarter of 2015 looks equally bright with shipments expected to rise by 50% or more quarter-to-quarter. We expect to have a more meaningful contribution in the fourth quarter from sales of downstream projects up to 150 MW, bolstering both revenues and profits. And, we have begun shipments to NextEra Energy Resources as we begin to fulfill that 1.5 GW contract in the higher-priced US market.”

Mr. Nam continued, “Our aggressive capacity expansion plans in order to meet anticipated demand in 2016 and beyond are progressing on schedule. We expect to close this year with an estimated 4.3 GW of both cell and module capacity and 5.2 GW of both cell and module capacity by mid 2016, with approximately half located in Korea and Malaysia where we can ship modules duty free into the US.”

Chairman Nam concluded by noting, “Our outlook for 2016 is also robust. We will enter the year with the strongest foundation in the Company’s history with a competitive position rivaling, or in some cases exceeding, those of other Tier-1 solar companies in a number of categories including manufacturing scale, processing costs, technology and profitability. Our near-term downstream focus on build-to-sell will add to both revenues and profitability and enable the Company to more prudently manage its liquidity and financial leverage.”

THIRD QUARTER 2015 RESULTS

Net Revenues

– Total net revenues were US$427.2 million, an increase of 26.4%.
– Total solar module shipments were 805 MW, an increase of 31.1% quarter-over-quarter, meeting our guidance range.
– Total shipments include 742 MW of external shipments, 11 MW of OEM and 52 MW of shipments to the Company’s own downstream projects.
– The average selling price (ASP) of external shipments declined US$0.02 per watt to US$0.57 per watt in 3Q15, largely due to lower ASP’s in large developing markets, including China and India. Total revenues from the Company’s external module shipments was US$423.0 million.
– Gross profit increased 59.2% to US$93.0 million from US$58.4 million in 2Q15. This increase in gross profit in 3Q15 was primarily due to higher revenues and further improvements in the company’s cost structure.
– Gross margin improved to 21.8% from 17.3% in 2Q15. The improved gross margin is the result of continued high utilization of manufacturing facilities and reduction in processing costs.
– Total all-in processing costs approached 39 cents per watt in September for our in-house production with little difference between using its own wafers and purchasing wafers. The Company’s cost structure improved due to continued high utilization, improvements resulting from increased automation, and higher purchasing power with much larger scale. The Company continues to benefit from the Malaysia facilities acquired from Q CELLS which manufactures cells at costs well below industry averages.

Operating Expense, Income and Margin

– Operating profit was US$40.3 million, compared with an operating profit of US$1.0 million in 2Q15.
– Operating expenses as a percent of revenues fell to 12.3% in the 3Q from 17.0% the previous quarter, as the company benefits from a growing shipment and revenue base, and the more efficient sales and marketing expenses associated with rapidly accelerating sales volumes. The company expects a reduction in operating expenses as a percent of revenues to approach 10% by the year end.
– Operating expense included a one-time reimbursement of US$2.5 million in legal fees from the favorable outcome of an arbitration proceeding in 3Q15.

Net Interest Expense

– Net interest expense was US$11.9 million, compared with US$14.8 million in 2Q15.

Foreign Exchange Loss

– The unexpected devaluation of the Chinese Yuan was largely responsible for a US$18.0 million net foreign exchange loss during the 3Q15, mostly resulting from translation of outstanding USD denominated borrowings.

Changes in Fair Value of Derivative Contracts

– The Company recorded a net gain of US$0.9 million from the change in fair value of derivatives in hedging activities as compared to a net gain of US$1.2 million for the preceding quarter.

Income Tax Expense

– Income tax expense was US$2.4 million as compared to income tax expense of US$0.8 million for the preceding quarter.

Other Income

– One-time gain of US$48.7 million was recorded this quarter from a reversal of arbitration accruals.

Net Income and Earnings per ADS

– Net income attributable to shareholders on a GAAP basis was US$52.4 million, compared with net loss of US$14.2 million in 2Q15.
– Net income attributed to shareholders per share was US$0.01, compared with net loss per share of US$0.00 in 2Q15.
– Net income per basic ADS on a GAAP basis was US$0.63, compared with net loss per basic ADS of US$0.17 (retrospectively adjusted to reflect the current ADS to ordinary share ratio of one ADS to fifty ordinary shares effective on June 15, 2015) in 2Q15.

FINANCIAL POSITION

As of September 30, 2015, the Company had cash and cash equivalents of US$293.9 million. Total short-term bank borrowings (including the current portion of long-term bank borrowings) were US$516.6 million as of September 30, 2015, an increase of US$60.1 million from the prior quarter. As of September 30, 2015, the Company had total long-term debt (net of current portion and long-term notes) of US$601.2 million, a reduction of US$17.9 million from 2Q15. The Company’s long-term bank borrowings are to be repaid in installments until their maturities, which range from one to eighteen years.Net cash used in operating activities in 3Q15 was US$124.9 million. As of September 30, 2015, accounts receivable were US$342.1 million.  Days sales outstanding (“DSO”) were 70 days in 3Q15. As of September 30, 2015, inventories totaled US$499.4 million. Days inventory turn 130 days in 3Q15.