Hanwha Q CELLS Reports First Quarter 2016 Results

 Hanwha Q CELLS Co., Ltd.  one of the world’s largest photovoltaic manufacturers of high-quality, high-efficiency solar modules,recently reported its unaudited financial results for the first quarter of 2016. The Company will host a conference call to discuss the results at 8:00 am Eastern Standard Time (9:00 pm Korea Standard Time) on May 19, 2016. A slide presentation with details of the results will also be available on the Company’s website prior to the call.

FIRST QUARTER 2016 HIGHLIGHTS

Total module shipments were 912 megawatts (“MW”) in the first quarter of 2016, exceeding the guidance range of 850 MW to 900 MW.
Net revenues were $514.9 million, compared with $702.1 million in the fourth quarter of 2015 and $333.5 million in the first quarter of 2015.
Gross profit was $109.0 million, compared with $134.2 million in the fourth quarter of 2015 and $48.4 million in the first quarter of 2015.
Gross margin was 21.2%, compared with 19.1% in the fourth quarter of 2015 and 14.5% in the first quarter of 2015.
Operating income was $56.7 million, compared with $53.8 million in the fourth quarter of 2015 and an operating loss of$17.2 million in the first quarter of 2015.
Net income attributable to Company’s ordinary shareholders was $27.5 million, compared with a net income of $26.0 million in the fourth quarter of 2015 and a net loss of $20.4 million in the first quarter of 2015.
Earnings per fully diluted American Depositary Share (“ADS” and each ADS represents 50 of the Company’s ordinary shares) were $0.33, compared with earnings per fully diluted ADS of $0.31 in the fourth quarter of 2015 and a net loss per fully diluted ADS of $0.25 i First Quarter 2016 Results n the first quarter of 2015.
FIRST QUARTER 2016 RESULTS

Net Revenues

Total net revenues were $514.9 million, down 26.7% from $702.1 million in the fourth quarter of 2015 and up 54.4% from$333.5 million in the first quarter of 2015.
Total module shipments were 912 MW in the first quarter of 2016, exceeding the guidance range of 850 MW to 900 MW.
Net revenues from module sales business were $501.6 million in the first quarter of 2016 with 899 MW of total revenue recognized shipments. The Company allocated 13 MW for its own downstream projects, which were not recognized in revenue.
The Company generated additional $13.3 million in the first quarter from downstream related activities and components sales.
The average selling price (“ASP”) of revenue-recognized shipments was modestly declined to $0.56 per watt in the first quarter of 2016, compared with $0.57 per watt from the previous quarter. Total revenues from the Company’s revenue-recognized module shipments were $501.6 million with the geographic mix

Gross Profit and Margin

Gross profit in the first quarter of 2016 was $109.0 million, compared with $134.2 million in the fourth quarter of 2015 and$48.4 million in the first quarter of 2015.
Gross margin in the first quarter of 2016 was 21.2%, compared with 19.1% in the fourth quarter of 2015 and 14.5% in the first quarter of 2015. The sequential increase in gross margin was largely driven by continuing reduction in module manufacturing cost coupled with much increased production scale.
Operating Expense, Income and Margin

Total operating expenses were $52.3 million in the first quarter of 2016, down 35.0% from $80.4 million in the fourth quarter of 2015 and down 20.3% from $65.6 million in the first quarter of 2015. Total operating expenses as a percentage of revenues fell to 10.2% in the first quarter of 2016 compared with 11.5% in the fourth quarter of 2015 and 19.7% in the first quarter of 2015, as the Company is now fully benefiting from more efficient operations post-merger with rapidly accelerating shipment volumes.
Selling and marketing expenses were $22.8 million in the first quarter of 2016, down 37.2% from $36.3 million in the fourth quarter of 2015 and up 50.0% from $15.2 million in the first quarter of 2015.
General and administrative expenses were $17.9 million in the first quarter of 2016, down 40.7% from $30.2 million in the fourth quarter of 2015 and down 3.2% from $18.5 million in the first quarter of 2015.
Research and development expenses were $11.6 million in the first quarter of 2016, down 16.6% from $13.9 million in the fourth quarter of 2015 and up 17.2% from $9.9 million in the first quarter of 2015.
Net Interest Expense

Net interest expense was $12.8 million in the first quarter of 2016, compared with $18.4 million in the fourth quarter of 2015 and $10.9 million in the first quarter of 2015.
Foreign Currency Exchange Gain (Loss)

Net foreign currency exchange gain was $4.0 million in the first quarter of 2016, compared with a net loss of $6.6 million in the fourth quarter of 2015 and a net gain of $0.8 million in the first quarter of 2015.
Changes in Fair Value of Derivative Contracts

The Company recorded a net loss of $15.3 million in the first quarter of 2016 from the change in fair value of derivatives in hedging activities, compared with a net loss of $0.7 million in the fourth quarter of 2015 and a net gain of $8.2 million in the first quarter of 2015.
Income Tax Expense (Benefit)

Income tax expense was $4.6 million in the first quarter of 2016, compared with $4.6 million in the fourth quarter of 2015 and $2.3 million in the first quarter of 2015.
Net Income (Loss) and Earnings (Loss) per ADS

Net income attributable to Company’s ordinary shareholders was $27.5 million in the first quarter of 2016, compared with a net income of $26.0 million in the fourth quarter of 2015 and a net loss of $20.4 million in the first quarter of 2015.
Earnings per fully diluted ADS on a GAAP basis was $0.33 in the first quarter of 2016, compared with earnings per fully diluted ADS of $0.31 in the fourth quarter of 2015 and a net loss per fully diluted ADS of $0.25 in the first quarter of 2015.
FINANCIAL POSITIONS

As of March 31, 2016, the Company had cash and cash equivalents of $327.3 million, compared with $200 million as ofDecember 31, 2015.

Total short-term bank borrowings (including the current portion of long-term bank borrowings) were $450.7 million as of March 31, 2016, an increase of $34.0 million from the fourth quarter of 2015. As of March 31, 2016, the Company had total long-term debt (net of current portion and long-term notes) of $648.0 million, a decrease of $5.5 million from the fourth quarter of 2015. The Company’s long-term bank and government borrowings are to be repaid in installments until their maturities, which range from one to sixteen years.

Net cash provided by operating activities was $198.4 million in the first quarter of 2016. As of March 31, 2016, accounts receivable was $315.9 million. Days sales outstanding (“DSO”) was 61 days in 1Q16. As of March 31, 2016, inventories totaled$463.9 million. Days inventory turn was 97 days in 1Q16.

Capital expenditures were $53.1 million in the first quarter of 2016.

DIVESTITURE OF MODULE FAB IN KOREA

The Company decided to dispose its ownership interest of module fab located in Eumseong, Korea to Hanwha Q CELLS Korea Corporation, which is an affiliate of the Company and the current owner and operator of GW-scale cell fab in Jincheon, Korea.

The Parties have reached an agreement of the terms and valuation of the transaction, and it is expected to close before the end of the second quarter of 2016 subject to final approval by the boards and necessary regulatory approvals. Once consummated, Hanwha Q CELLS Korea Corporation will assume all outstanding assets and liabilities of the disposed module fab and the Company will receive cash proceeds of approximately $57 million subject to final approval by a special committee of the Board of Directors of the Company comprised of independent directors.

The Company expects following two key strategic benefits from this divestiture:

Full optimization of manufacturing cost structure and operational efficiency by combining closely related cell and module manufacturing operations, both located in Korea, under a single entity, which are currently operated by two different companies.
Improved liquidity and cash proceeds will be used to fund the Company’s key strategic initiatives to further strengthen its core competencies including R&D investment and global expansion of sales and marketing operations.
OPERATION UPDATES and BUSINESS OUTLOOK

Capacity Status

As of March 31, 2016, the Company had annualized production capacities of 1,400 MW for ingot, 900 MW for wafer, 4,850 MW for cell and 4,800 MW for module. The Company is currently expanding its cell and module nameplate capacities to 5,200 MW and 5,200 MW respectively, which is expected to be completed by the middle of 2016.

1,000 MW for cell capacity as of the first quarter of 2016 and additional 400 MW for cell capacity to be added in 2016 of the aforementioned new cell capacity is from the production facility operated by Hanwha Q CELLS Korea Corporation, an affiliate of Hanwha Q CELLS Co., Ltd.

Business Outlook

The Company provides the following guidance based on current operating trends and market conditions.

For the second quarter of 2016, the Company expects:

Module shipments of 1,100 to 1,150 MW, of which approximately 15 to 20 MW will be allocated to the Company’s own downstream projects, which will not be recognized in revenue.
Gross margin of 19 to 20%
For the full year 2016, the Company expects:

Module shipments of 4,800 to 5,000 GW, up from previous guidance range of 4,500 to 4,700 MW.
Revenue-recognized module shipments in range of 4,600 to 4,800 MW.
Capital expenditures of approximately $180 million, of which $100 million for capacity expansion and the remaining $80 million for manufacturing technology upgrades and certain R&D related expenditures.
Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS, commented, “With a successful turnaround year behind us, we started 2016 with the right strategic elements in place to meet growing demands for our products and to further strengthen our technology and quality leadership.”

Mr. Nam continued “With our cell and module capacity expansion is nearing completion in South Korea and Malaysia, we are delivering high quality products to increase our market share in both OECD countries and emerging markets.” Mr. Nam added “The rollout of Q.ANTUM product lines from our fabs in South Korea and Malaysia will help us increase our market share in key strategic markets with high power class products.”

“One of the top strategic initiatives of 2016 is to improve our capital structure and to make strategic investments in areas that will fuel the Company’s full growth potential,” Mr. Nam remarked. “Our net debt to equity ratio has improved to 232% as ofMarch 31, 2016 from 365% as of March 31, 2015,” and he also added “The decision to dispose our module fab in Korea to Hanwha Q CELLS Korea Corporation is our continuing implementation of asset-light strategy to deploy financial resources in the areas to strengthen our core competencies rather than having such resources locked up with fixed assets.”

Mr. Nam concluded by noting “Despite recent market concerns over 2H outlook, our outlook for the remainder of 2016 is robust based on our sales backlog. We will continue to focus executing on our strategy and increasing our market share so that we can deliver our improved performance consistently with high visibility.”