Trina Solar Announces Second Quarter 2016 Results

Trina Solar Limited (NYSE: TSL) (“Trina Solar” or the “Company”), a global leader in photovoltaic (“PV”) modules, solutions, and services, today announced its unaudited financial results for the quarter endedJune 30, 2016.

Second Quarter 2016 Financial and Operating Highlights

• Total module shipments were 1,658.3 MW, consisting of 1,619.0 MW of external shipments and 39.3 MW of shipments to the Company’s own downstream power projects. This compares with total shipments of 1,423.3 MW in the first quarter of 2016, consisting of 1,370.4 MW of external shipments and 52.9 MW of shipments to the Company’s own downstream power projects, and total shipments of 1,231.6 MW in the second quarter of 2015, consisting of 1,000.7 MW of external shipments and 230.9 MW of shipments to the Company’s own downstream projects.
• Net revenues were $961.6 million, compared with $816.9 million in the first quarter of 2016 and $722.9 million in the second quarter of 2015.
• Gross profit was $176.3 million, compared with $139.7 million in the first quarter of 2016 and $144.9 million in the second quarter of 2015.
• Gross margin was 18.3%, compared with 17.1% in the first quarter of 2016 and 20.0% in the second quarter of 2015.
• Operating income was $83.7 million, compared with $44.8 million in the first quarter of 2016 and $60.7 million in the second quarter of 2015.
• Net income attributable to Trina Solar’s ordinary shareholders was $40.3 million, compared with $26.6 million in the first quarter of 2016 and $40.9 million in the second quarter of 2015.
• Earnings per fully diluted American Depositary Share (“ADS” with each ADS representing 50 of the Company’s ordinary shares) were $0.42, compared with $0.29 in the first quarter of 2016 and $0.42 in the second quarter of 2015.

Mr. Jifan Gao, Chairman and CEO of Trina Solar, commented, “We had another solid quarter with major financial and operational metrics improving across the board. Module shipments during the quarter increased on a sequential and year-over-year basis to 1.66 GW. Module shipments were driven mainly by continued demand from China ahead of the expected subsidy policy adjustment. Our new production facility in Thailand is ramping up its capacity on schedule and is helping to strengthen our competitiveness in the U.S.

“Our downstream business performed well in China’s rapidly growing market as we connected 292.8 MW of utility projects and 28.0 MW of DG projects during the quarter. We also made progress overseas with the sale of 11.2 MW of projects in the U.K. and Italyduring the quarter.

“We are a proven and leading innovator in the global PV industry, having made a series of breakthroughs in transforming lab technology into production practice. Following the achievement of a 21.1% average efficiency for industrially-produced mono-crystalline cells using passivated emitter rear cell (PERC) technology, our R&D team achieved an average efficiency of 20.2% for industrially-produced P-type multi-crystalline silicon cells with PERC technology. We also achieved an average efficiency of 18.7% for our multi-crystalline silicon P-type double print cells that were produced for commercial shipment. We will continue driving the development of our high-efficiency cells in order to offer customers the highest quality products.

“Going forward, we will continue to focus on developing our brand name, products and technology, while identifying opportunities to develop our downstream business. We believe that our strategy gives us a competitive edge in the industry and provides a solid foundation for our sustainable and long term development.”

Second Quarter 2016 Results

Net Revenues

Net revenues were $961.6 million, including $60.7 million in revenues from electricity generated by the Company’s operational downstream solar power projects, sales of solar power projects that are developed for sale, and EPC services. Total net revenues represent an increase of 17.7% sequentially and an increase of 33.0% year-over-year. Total shipments were 1,658.3 MW, consisting of 1,619.0 MW of external shipments which were recognized in revenue and 39.3 MW of shipments to the Company’s downstream power projects. This compares with total shipments of 1,423.3 MW in the first quarter of 2016, consisting of 1,370.4 MW of external shipments and 52.9 MW of shipments to the Company’s own downstream power projects, and total shipments of 1,231.6 MW in the second quarter of 2015, consisting of 1,000.7 MW of external shipments and 230.9 MW of shipments to the Company’s own downstream projects. The sequential increase in revenues and shipments was primarily driven by growth from China as a result of rush orders before June 30 in anticipation of an expected subsidy policy adjustment, which more than offset the decline of shipments to the U.S., Europe, Japan and the rest of Asia.

Gross Profit and Margin

Gross profit was $176.3 million, compared with $139.7 million in the first quarter of 2016 and $144.9 million in the second quarter of 2015.

Gross margin was 18.3%, compared with 17.1% in the first quarter of 2016 and 20.0% in the second quarter of 2015. The sequential increase in gross margin was mainly due to lower blended costs as a result of a significant decrease in antidumping and countervailing duties in the U.S. as the Company increased the proportion of shipments to the U.S. from its Thailand facilities in the second quarter. The year-­over­-year decrease in gross margin was primarily due to average selling prices declining at a faster rate than the Company’s cost reductions.

Operating Expenses, Income and Margin

Operating expenses were $92.6 million, compared with $94.9 million in the first quarter of 2016 and $84.2 million in the second quarter of 2015. Operating expenses included an accounts receivable provision of $2.4 million in the second quarter of 2016, compared with $6.0 million in the first quarter of 2016, and a reversal of accounts receivable provision of $3.1 million in the second quarter of 2015. Operating expenses also included other operating income, which mainly represents income from electricity generated from the Company’s downstream solar power projects that are recorded as current assets on the balance sheet prior to the sale of the projects. Other operating income was $7.1 million in the second quarter of 2016, compared with $3.3 million in the first quarter of 2016 and nil in the second quarter of 2015.

The Company’s operating expenses accounted for 9.6% of net revenues during the second quarter of 2016, a decrease from 11.6% in both the first quarter of 2016 and the second quarter of 2015. Excluding the other operating income, the Company’s operating expenses accounted for 10.4% of net revenues during the second quarter of 2016, a decrease from 12.0% in the first quarter of 2016 and 11.6% in the second quarter of 2015. The sequential decrease of operating expenses as a percentage of revenue was primarily due to a decrease in accounts receivable provision along with an increase in net revenues. The year-over-year decrease of operating expenses as a percentage of revenue was primarily due to the decrease of shipping expenses resulting from the increasing shipment in China with lower shipping expenses.

As a result, operating income was $83.7 million, compared with $44.8 million in the first quarter of 2016 and $60.7 million in the second quarter of 2015. Operating margin was 8.7%, compared with 5.5% in the first quarter of 2016 and 8.4% in the second quarter of 2015.

Net Interest Expense

Net interest expense was $25.5 million, compared with $15.1 million in the first quarter of 2016 and $12.4 million in the second quarter of 2015. The sequential and year-over-year increases in net interest expenses were mainly due to the increase in both short-term and long-term borrowings, as well as less interest expense being capitalized in the second quarter of 2016.

Foreign Currency Exchange Gain (Loss)

The Company recorded a net foreign currency exchange loss of $2.9 million, which included a gain on the change in fair value of foreign exchange derivative instruments of $4.0 million. This compares with a net gain of $0.8 million in the first quarter of 2016 and a net gain of $5.1 million in the second quarter of 2015. The foreign currency exchange loss in the second quarter of 2016 primarily resulted from the depreciation of the RMB against the USD.

Income Tax Expense

Income tax expense was $16.5 million, compared with income tax expense of $3.7 million in the first quarter of 2016 and $11.8 millionin the second quarter of 2015. The sequential and year-over-year increases in income tax expense were mainly due to the increase in taxable profits in the second quarter of 2016 compared with the first quarter of 2016 and the second quarter of 2015.

Net Income and Earnings per ADS

Net income attributable to ordinary shareholders of Trina Solar was $40.3 million, compared with $26.6 million in the first quarter of 2016 and $40.9 million in the second quarter of 2015. Net margin was 4.2%, compared with 3.3% in the first quarter of 2016 and 5.7% in the second quarter of 2015.

Earnings per fully diluted ADS were $0.42, compared with $0.29 in the first quarter of 2016 and $0.42 in the second quarter of 2015.

Financial Condition

As of June 30, 2016, the Company had $831.5 million in cash and cash equivalents, and restricted cash. Total borrowings were$1,792.7 million, of which $1,157.8 million were short-term borrowings.

In the first quarter of 2016, the Company adopted Financial Accounting Standards Board Accounting Standards Update 2015-03, Interest – Imputation of Interest, which requires that debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of being reported on the balance sheet as an asset. Accordingly, debt issuance costs with an amortized balance of $10.5 million, which used to be reported as an asset, have been retrospectively reclassified as a direct deduction from the carrying amount of the related debt liability as of June 30, 2015.

Shareholders’ equity was $1,113.8 million as of June 30, 2016, an increase from $1,081.9 million as of March 31, 2016 and an increase from $1,031.6 million as of June 30, 2015.

Operations and Business Updates

Manufacturing Capacity

As of June 30, 2016, the Company had the following annualized in-­house manufacturing capacities:

• Ingot production capacity of approximately 2.3 GW;
• Wafer capacity of approximately 1.8 GW;
• PV cell capacity of approximately 5.0 GW; and
• PV module capacity of approximately 6.0 GW.

Project Development

In the second quarter of 2016, the Company connected a total of 320.8 MW of PV projects to the grid in China, including 28.0 MW DG projects and 292.8 MW utility projects. The Company also sold 11.2 MW projects in the U.K. and Italy.

As of June 30, 2016, the Company had a total of 1,276.8 MW downstream solar projects in grid-connected operation, including 1,241.6 MW in China, 4.2 MW in the U.S., and 31.0 MW in Europe. The 1,241.6 MW projects in China consisted of 1,015.7 MW of utility projects and 225.9 MW of DG projects.

Going Private Transaction

On August 1, 2016, the Company entered into a definitive agreement and plan of merger, pursuant to which the Company will be acquired by an investor consortium in an all-cash transaction implying an equity value of the Company of approximately $1.1 billion. The merger, which is currently expected to close during the first quarter of 2017, is subject to customary closing conditions including the approval of the merger by the Company’s shareholders at a meeting of shareholders to be convened.

Third Quarter of 2016 Guidance

The Company expects to ship between 1.55 GW and 1.65 GW of PV modules, of which 30 MW to 50 MW of PV modules will be shipped to the Company’s downstream PV projects, from which revenues will not be recognized.

Fiscal Year 2016 Guidance

The Company reiterates its 2016 guidance of 6.30 GW to 6.55 GW, of which 220 MW to 260 MW will be shipped to the Company’s downstream projects, from which revenues will not be recognized.

The Company reiterates its 2016 guidance of global solar power project connections at between 400 MW and 500 MW, including 15% to 20% of DG projects in China.