Hanwha Q CELLS Reports Fourth Quarter and Full Year 2016 Results

Hanwha Q CELLS Co., Ltd., a global leading photovoltaic manufacturer of high-performance, high-quality solar modules, recently reported its unaudited financial results for the fourth quarter and full year ended December 31, 2016. The Company will host a conference call to discuss the results at 8:00 am Eastern Time (9:00 pm Korea Standard Time) on March 23, 2017.

Fourth Quarter 2016 Highlights

Net revenues were $565.9 million, compared with $707.8 million in the third quarter of 2016 and $702.1 million in the fourth quarter of 2015.
Gross margin was 9.5%, compared with 19.9% in the third quarter of 2016 and 19.1% in the fourth quarter of 2015.
Operating loss was $6.1 million, compared with operating income of $72.4 million in the third quarter of 2016 and operating income of $53.8 million in the fourth quarter of 2015.
Net loss attributable to Company’s ordinary shareholders was $25.5 million, compared with net income of $41.7 million in the third quarter of 2016 and net income of $26.0 million in the fourth quarter of 2015.
Loss per fully diluted American Depositary Share (“ADS” and each ADS represents 50 of the Company’s ordinary shares) was $0.31, compared with earnings per fully diluted ADS of $0.50 in the third quarter of 2016 and earnings per fully diluted ADS of $0.31 in the fourth quarter of 2015.
Full Year 2016 Highlights

Total revenue-recognized module shipments in 2016 were 4,583 MW for the full year 2016, an increase of 55.0% from 2,956 MW for the full year 2015.
Total net revenues were $2,426.6 million for the full year 2016, an increase of 34.8% from $1,800.8 million for the full year 2015.
Gross margin rate was 18.7% for the full year 2016, compared with 18.5% for the full year 2015.
Operating income was $207.5 million in the full year 2016, compared with $77.9 million in the full year 2015.
Net income attributable to Company’s ordinary shareholders was $120.5 million for the full year 2016, compared with $43.8 million for the full year 2015.
Earnings per fully diluted ADS were $1.45 for the full year 2016, compared with $0.53 for the full year 2015.
Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS, remarked “We achieved record high total module shipment and revenue in the full year 2016 while establishing solid market positioning in key strategic markets in both mature and emerging countries. In 2016, we have also successfully ramped up a world leading PERC cell in-house production capability, now having produced over 3 GW1 of both mono and multi PERC cells since 2015, positioning Hanwha Q CELLS as a global leader in production of advanced cells.”

“Despite the market’s concern for global solar demands, we have started 2017 with a strong momentum,” Mr. Nam continued. “Hanwha Q CELLS was awarded the tender to construct the region’s largest 1 GW solar power plant in Turkey, which will help us establish a stronger foothold in the region with great growth potentials, and we have also entered into several large module supply contracts strengthening our sales backlog for the year.”

Mr. Jay Seo, CFO of Hanwha Q CELLS, said “Our fourth quarter results came in weaker than anticipated due to certain project schedule delays, which prevented us from recognizing certain revenues in the year 2016, and several other one-time accounting adjustments, such as measurement of inventory at the lower of cost or market and asset impairments.” Mr. Seo added, “We will continue to execute on reducing manufacturing costs and augmenting operating expense controls, while diligently managing our balance sheet and cash management.”

1 Also includes PERC cells produced by Hanwha Q CELLS Korea Corporation, an affiliate of the Company
Fourth Quarter 2016 Financial Results

Net Revenues

Total net revenues were $565.9 million, down 20.0% from $707.8 million in the third quarter of 2016 and down 19.4% from $702.1 million in the fourth quarter of 2015.
Gross Profit and Margin

Gross profit in the fourth quarter of 2016 was $54.0 million, compared with $140.5 million in the third quarter of 2016 and $134.2 million in the fourth quarter of 2015.
Gross margin in the fourth quarter of 2016 was 9.5%, compared with 19.9% in the third quarter of 2016 and 19.1% in the fourth quarter of 2015.
Operating Expense, Income and Margin

Total operating expenses were $60.1 million in the fourth quarter of 2016, down 11.7% from $68.1 million in the third quarter of 2016 and down 25.2% from $80.4 million in the fourth quarter of 2015.
Selling and marketing expenses were $27.9 million in the fourth quarter of 2016, down 23.4% from $36.4 million in the third quarter of 2016 and down 23.1% from $36.3 million in the fourth quarter of 2015.
General and administrative expenses were $20.3 million in the fourth quarter of 2016, up 3.0% from $19.7 million in the third quarter of 2016 and down 32.8% from $30.2 million in the fourth quarter of 2015.
Research and development expenses were $11.9 million in the fourth quarter of 2016, down 0.8% from $12.0 million in the third quarter of 2016 and down 14.4% from $13.9 million in the fourth quarter of 2015.
Net Interest Expense

Net interest expense was $12.2 million in the fourth quarter of 2016, compared with $12.4 million in the third quarter of 2016 and $18.4 million in the fourth quarter of 2015.
Foreign Currency Exchange Gain (Loss)

Net foreign currency exchange loss was $7.5 million in the fourth quarter of 2016, compared with a net loss of $2.3 million in the third quarter of 2016 and net loss of $6.6 million in the fourth quarter of 2015.
Gain (loss) on change in Fair Value of Derivative Contracts

The Company recorded a net gain of $7.0 million in the fourth quarter of 2016 from the change in fair value of derivatives in hedging activities, compared with a net loss of $2.1 million in the third quarter of 2016 and a net loss of $0.7 million in the fourth quarter of 2015.
Income Tax Expense (Benefit)

Income tax benefit was $5.4 million in the fourth quarter of 2016, compared with an income tax expense of $10.3 million in the third quarter of 2016 and an income tax expense of $4.6 million in the fourth quarter of 2015.
Net Income (Loss) and Earnings (Loss) per ADS

Net loss attributable to Company’s ordinary shareholders was $25.5 million in the fourth quarter of 2016, compared with net income of $41.7 million in the third quarter of 2016 and net income of $26.0 million in the fourth quarter of 2015.
Loss per fully diluted ADS on a GAAP basis was $0.31 in the fourth quarter of 2016, compared with earnings per fully diluted ADS of $0.50 in the third quarter of 2016 and earnings per fully diluted ADS of $0.31 in the fourth quarter of 2015.
Financial Positions

As of December 31, 2016, the Company had cash and cash equivalents of $390.9 million, compared with $254.8 million as of September 30, 2016. The restricted cash as of December 31, 2016 was $108.1 million, compared with $147.2 million as of September 30, 2016.

As of December 31, 2016, accounts receivable was $415.1 million, compared with $453.1 million as of September 30, 2016. Inventories were $333.5 million as of December 31, 2016, compared with $451.7 million as of September 30, 2016.

Total short-term bank borrowings (including the current portion of long-term bank borrowings) were $527.9 million as of December 31, 2016, an increase of $113.0 million from the third quarter of 2016. As of December 31, 2016, the Company had total long-term debt (net of current portion and long-term notes) of $643.7 million, a decrease of $153.2 million from the third 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 $94.8 million in the fourth quarter of 2016.

Capital expenditures were $25.1 million in the fourth quarter of 2016.

Full Year 2016 Financial Results

Net Revenues

Total net revenues were $2,426.6 million, up 34.8% from $1,800.8 million for the full year 2015.
Gross Profit and Margin

Gross profit was $454.7 million, compared with $334.0 million for the full year 2015.
Gross margin was 18.7%, compared with 18.5% for the full year 2015.
Operating Expense, Income and Margin

Total operating expenses were $247.2 million, down 3.5% from $256.1 million for the full year 2015.
Selling and marketing expenses were $120.2 million, up 27.7% from $94.1 million for the full year 2015.
General and administrative expenses were $77.6 million, down 15.4% from $91.7 million for the full year 2015.
Research and development expenses were $49.4 million, up 2.3% from $48.3 million for the full year 2015.
Net Interest Expense

Net interest expense was $46.7 million, compared with $56.0 million for the full year 2015.
Foreign Currency Exchange Gain (Loss)

Net foreign currency exchange loss was $4.0 million, compared with a net loss of $23.6 million for the full year 2015.
Gain (loss) on change in Fair Value of Derivative Contracts

The Company recorded a net loss of $24.1 million from the change in fair value of derivatives in hedging activities, compared with a net gain of $9.6 million for the full year 2015.
Income Tax Expense (Benefit)

Income tax expense was $0.8 million, compared with an income tax expense of $10.1 million for the full year 2015.
Net Income (Loss) and Earnings (Loss) per ADS

Net income attributable to Company’s ordinary shareholders was $120.5 million, compared with net income of $43.8 million for the full year 2015.
Earnings per fully diluted ADS on a GAAP basis was $1.45, compared with earnings per fully diluted ADS of $0.53 for the full year 2015.
Financial Positions

As of December 31, 2016, the Company had cash and cash equivalents of $390.9 million, compared with $200.0 million as of December 31, 2015. The restricted cash as of December 31, 2016 was $108.1 million, compared with $172.2 million in the previous year.

As of December 31, 2016, accounts receivable was $415.1 million, compared with $641.9 million as of December 31, 2015. Inventories were $333.5 million, compared with $406.1 million as of December 31, 2015.

Total short-term bank borrowings (including the current portion of long-term bank borrowings) were $527.9 million as of December 31, 2016, an increase of $111.2 million from the full year of 2015. As of December 31, 2016, the Company had total long-term debt (net of current portion and long-term notes) of $643.7 million, a decrease of $9.8 million from the full year 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 fourteen years.

Net cash provided by operating activities was $125.5 million in the full year 2016.

Capital expenditures were $137.7 million in the full year 2016.

Operations Updates

Production Capacity

As of December 31, 2016, the Company’s in-house, annualized production capacities were 1,550 MW for ingot, 950 MW for wafer, 4,150 MW for cell and 4,150 MW for module.

Additionally, the Company has an access of module supply of up to 1,550 MW (annualized) as of December 31, 2016 from Hanwha Q CELLS Korea Corporation, an affiliate of the Company.

Business Outlook

First Quarter and Full Year 2017 Guidance

For the first quarter of 2017, the Company estimates net revenues in the range of $410 to 430 million.

For the full year 2017, the Company estimates:

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 March 23, 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 http://investors.hanwha-qcells.com or by clicking the following hyperlink: http://edge.media-server.com/m/p/5wtyqxo3.

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
China, Domestic
Hong Kong
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
08001802149
China, Domestic
Hong Kong
8008700206 / 4006322162
800963117
Conference ID 83925129

Replay time period: March 23, 2017 11:00 ET – March 31, 2017 08:59 ET