Hanwha Q CELLS Reports First Quarter 2017 Results

Hanwha Q CELLS Co., Ltd. (“Hanwha Q CELLS” or the “Company”) (NASDAQ: HQCL), a global leading photovoltaic manufacturer of high-performance, high-quality solar modules, today reported its unaudited financial results for the first quarter ended March 31, 2017. The Company will host a conference call to discuss the results at 8:00 am Eastern Time (9:00 pm Korea Standard Time) on May 25, 2017.

First Quarter 2017 Highlights

Net revenues were $432.0 million, compared with $565.2 million in the fourth quarter of 2016 and $514.9 million in the first quarter of 2016.
Gross margin was 13.8%, compared with 7.0% in the fourth quarter of 2016 and 21.2% in the first quarter of 2016.
Operating income was $28.3 million, compared with operating loss of $21.5 million in the fourth quarter of 2016 and operating income of $56.7 million in the first quarter of 2016.
Net income attributable to Company’s ordinary shareholders was $17.6 million, compared with net loss of $18.5 million in the fourth quarter of 2016 and net income of $27.5 million in the first quarter of 2016.
Earnings per fully diluted American Depositary Share (“ADS” and each ADS represents 50 of the Company’s ordinary shares) were $0.21, compared with loss per fully diluted ADS of $0.22 in the fourth quarter of 2016 and earnings per fully diluted ADS of $0.33 in the first quarter of 2016.
“Our first quarter results were modestly ahead of our plan and we are pleased to report that we have returned to a profitable quarter despite a challenging industry environment,” said Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS. Mr. Nam continued “We have been focusing on strengthening our sales backlog early on to increase our operational visibility in 2017 while diversifying our regional and segmental business profile to better navigate different market cycles.”

“From our products side, we are now offering a more balanced products portfolio with an official launch of our proprietary mono-PERC module series, called Q.PEAK,” Mr. Nam remarked. “Our first launch was made in the United States, Europe, Japan and Australia with 60-cell modules reaching up to 305 Wp in the first quarter. This will be followed by the launch of 72-cell modules reaching up to 370 Wp in the second half of this year. Our new mono-PERC modules are already in high demand, and we are excited that our stronger product line-up will enable us to compete more effectively in the broader market segments.”

Mr. Jay Seo, CFO of Hanwha Q CELLS, said “We are making good progress strengthening our balance sheet by continuing to pay off certain interest-bearing instruments and we have brought down our net debt-to-equity ratio to 125% this quarter compared with 191% in the previous quarter.” Mr. Seo continued, “We believe that we are well-positioned to navigate through different industry cycles with our strong technology, product portfolios and cost competitiveness, and we’ll prudently manage our operations to continue sustainable growth.”

First Quarter 2017 Financial Results

Net Revenues

Total net revenues were $432.0 million, down 23.6% from $565.2 million in the fourth quarter of 2016 and down 16.1% from $514.9 million in the first quarter of 2016.
Gross Profit and Margin

Gross profit in the first quarter of 2017 was $59.8 million, compared with $39.6 million in the fourth quarter of 2016 and $109.0 million in the first quarter of 2016.
Gross margin in the first quarter of 2017 was 13.8%, compared with 7.0% in the fourth quarter of 2016 and 21.2% in the first quarter of 2016.
Income from Operations and Operating Margin

Income from operations in the first quarter of 2017 was $28.3 million, compared with a loss from operations of $21.5 million in the fourth quarter of 2016 and income from operations of $56.7 million in the first quarter of 2016.
Operating margin in the first quarter of 2017 was 6.6%, compared with -3.8% in the fourth quarter of 2016 and 11.0% in the first quarter of 2016.
Total operating expenses were $31.5 million in the first quarter of 2017, down 48.4% from $61.1 million in the fourth quarter of 2016 and down 39.8% from $52.3 million in the first quarter of 2016.
Selling and marketing expenses were $21.9 million in the first quarter of 2017, down 21.2% from $27.8 million in the fourth quarter of 2016 and down 3.9% from $22.8 million in the first quarter of 2016.
General and administrative expenses were $18.2 million in the first quarter of 2017, down 13.3% from $21.0 million in the fourth quarter of 2016 and up 1.7% from $17.9 million in the first quarter of 2016.
Research and development expenses were $8.8 million in the first quarter of 2017, down 24.1% from $11.6 million in the fourth quarter of 2016 and down 24.1% from $11.6 million in the first quarter of 2016.
Net Interest Expense

Net interest expense was $9.5 million in the first quarter of 2017, compared with $12.0 million in the fourth quarter of 2016 and $12.8 million in the first quarter of 2016. This was largely due to the payment of principal on certain interest-bearing debt instruments.
Foreign Currency Exchange Gain (Loss)

Net foreign currency exchange gain was $2.5 million in the first quarter of 2017, compared with a net loss of $6.9 million in the fourth quarter of 2016 and net gain of $4.0 million in the first quarter of 2016.
Gain (loss) on Change in Fair Value of Derivative Contracts

The Company recorded a net loss of $0.4 million in the first quarter of 2017 from the change in fair value of derivatives in hedging activities, compared with a net gain of $6.7 million in the fourth quarter of 2016 and a net loss of $15.3 million in the first quarter of 2016.
Income Tax Expense (Benefit)

Income tax expense was $5.4 million in the first quarter of 2017, compared with an income tax benefit of $10.4 million in the fourth quarter of 2016 and an income tax expense of $4.6 million in the first quarter of 2016.
Net Income (Loss) and Earnings (Loss) per ADS

Net income attributable to Company’s ordinary shareholders was $17.6 million in the first quarter of 2017, compared with net loss of $18.5 million in the fourth quarter of 2016 and net income of $27.5 million in the first quarter of 2016.
Earnings per fully diluted ADS on a GAAP basis were $0.21 in the first quarter of 2017, compared with loss per fully diluted ADS of $0.22 in the fourth quarter of 2016 and earnings per fully diluted ADS of $0.33 in the first quarter of 2016.
Financial Position

As of March 31, 2017, the Company had cash and cash equivalents of $516.1 million, compared with $390.0 million as of December 31, 2016. The restricted cash as of March 31, 2017 was $110.7 million, compared with $116.8 million as of December 31, 2016.

As of March 31, 2017, accounts receivable was $295.3 million, compared with $328.1 million, as of December 31, 2016. Inventories were $399.3 million as of March 31, 2017, compared with $338.5 million as of December 31, 2016.

Total short-term bank borrowings (including the current portion of long-term bank borrowings) were $432.5 million, a decrease of $95.4 million from the fourth quarter of 2016, due to the repayment of certain bank loans.

As of March 31, 2017, the Company had total long-term debt (net of current portion and long-term notes) of $643.0 million, a decrease of $0.7 million from the fourth quarter of 2016. The Company’s long-term bank and government borrowings are to be repaid in installments until their maturities, which range from one to fourteen years.

Net cash provided by operating activities was $234.5 million in the first quarter of 2017.

Capital expenditures were $11.9 million in the first quarter of 2017.

Operations Updates

Production Capacity

As of March 31, 2017, the Company’s in-house, annualized production capacities were 1,550 MW for ingot, 1,000 MW for wafer, 4,200 MW for cell and 4,200 MW for module.

By the end of this year, we expect our annual nameplate capacities to reach 1,600 MW for ingot, 1,100 MW for wafer, 4,600 MW for cell and 4,600 MW for module mainly from conversion efficiency improvement and debottlenecking of our production operations.

Furthermore, the Company has additional module availability of up to 1,800 MW (annualized) as of March 31, 2017 from Hanwha Q CELLS Korea Corporation, an affiliate of the Company. Hanwha Q CELLS Korea Corporation is currently expanding its capacity with expected capacity of approximately 2,200 MW respectively in the second half of 2017.

Business Outlook

Second Quarter and Full Year 2017 Guidance

For the second quarter of 2017, the Company estimates net revenues in the range of $560 to 580 million.

For the full year 2017, the Company reiterates its previous guidance of:

Total module shipments in the range of 5,500 to 5,700 MW
Revenue-recognized module shipments in the range of 5,300 to 5,500 MW
Capital expenditures of approximately $50 million for manufacturing technology upgrades and certain R&D related expenditures
Conference Call

The Company will host a conference call to discuss the results at 8:00 am Eastern Time (9:00 pm Korea Standard Time) on May 25, 2017. The management will discuss the results and take questions following the prepared remarks.

A live webcast of the conference call will be available on the investor relations section of the Company’s website at www.hanwha-qcells.com or by clicking the following hyperlink: http://edge.media-server.com/m/p/iar4z3gn.

The dial-in details for the live conference call are as follows:

International Toll Free Dial-In Number
+65 67135090
United States
+1 (845) 675-0437
South Korea
+82 (0)2 6490-3660
Germany
08001820671
United Kingdom
China, Domestic
Hong Kong
+44 2036214779
8008190121 / 4006208038
+852 30186771

Passcode: HQCL

A replay of the call will be available after the conclusion of the conference call on the investor relations section of the Company’s website at www.hanwha-qcells.com and also by dialing numbers below:

International Toll Free Dial-In Number
+61 2 8199 0299
United States
+1 (855) 452-5696
South Korea
0079861361602
Germany
United Kingdom
08001802149
08082340072
China, Domestic
Hong Kong
8008700206 / 4006322162
800963117

Conference ID: 22649435

Replay time period: May 25, 2017 11:00 ET – June 2, 2017 09:59 ET