Mr. Jifan Gao, Chairman and CEO of Trina Solar, commented, "This quarter was a good start to the year. We posted strong year-over-year growth in major financial and operational metrics, particularly with revenue and net income up 46.4% and 91.3%, respectively. Total module shipments during the quarter increased 38.7% year-over-year to 1.42 GW, which was largely driven by demand from our key markets in the U.S., China, and India. Our shipments in Europe were up two-fold sequentially as a result of our strategic shift in Europe.
"Our downstream business continued to expand in the global market. We connected a total of 101.7 MW of utility projects to the grid during the quarter, bringing the total of grid-connected operating projects to near 1 GW. We successfully commissioned five new solar projects in the UK, totaling 24.3 MW, and further expanded our presence in Japan by partnering with GE to invest in a 14 MW DC utility-scale project, for which we were also awarded a contract to provide engineering, procurement and construction ("EPC") management services, demonstrating our experienced end-to-end capabilities.
"During the quarter we continued expanding our overseas manufacturing capacity in select markets to meet global demand, especially from the US and Europe. This capacity expansion strategy ensures we retain and grow our competitive position in the PV industry as we focus on improving our profitability. In the first quarter, we acquired a cell factory in the Netherlands and also brought our facility in Thailand online as scheduled, using our 'Honey' state-of-the-art high-efficiency assembly line method.
"As a leading innovator of PV technology, we are committed to developing high-efficiency cells and delivering high-quality products. Our R&D team recently achieved a new world record of 23.5% for IBC (Interdigitated Back Contact) cells, raising the total number of world records held by Trina Solar to 13. In addition, we have commercialised our advanced PERC (Passivated Emitter and Rear Cell) technology for high efficiency cells, and our PERC annualised capacity in the quarter has already reached 200 MW.
"We are proud of these achievements attained so far in 2016. However, we have no plans to rest. We remain focused on improving our products and business along with developing exciting new technologies, as we continue to strategically position Trina Solar for sustainable long term growth."
First Quarter 2016 Results
Net revenues were $816.9 million, including $28.7 million in revenues from electricity generated by the Company's downstream solar power projects recorded as property, plant and equipment (PP&E) on its balance sheet, EPC and other downstream activities. Total net revenues represent a decrease of 15.1% sequentially and an increase of 46.4% year-over-year. Total shipments were 1,423.3 MW, consisting of 1,370.4 MW of external shipments which were recognised in revenue and 52.9 MW of shipments to the Company's downstream power projects. This compares with total shipments of 1,776.3 MW in the fourth quarter of 2015, consisting of 1,579.7 MW of external shipments and 196.6 MW of shipments to the Company's own downstream power projects, and total shipments of 1,026.2 MW in the first quarter of 2015, consisting of 891.7 MW of external shipments and134.5 MW of shipments to the Company's own downstream projects. The sequential decrease in revenues and shipments was primarily due to seasonality. The year-over-year increase in revenues and shipments was mainly driven by key markets in China, the U.S., and India, and was partially offset by the decrease in demand from Japan and Europe.
Gross Profit and Margin
Gross profit was $139.7 million, compared with $183.3 million in the fourth quarter of 2015 and $100.3 million in the first quarter of 2015.
Gross margin was 17.1%, compared with 19.1% in the fourth quarter of 2015 and 18.0% in the first quarter of 2015. The sequential decrease in gross margin was mainly due to lower average selling prices as a result of price decline in almost all major markets and lower downstream revenues which have relatively high margins compared to the upstream module business. The year-over-year decrease in gross margin was because average selling price declined at a faster rate than the Company's cost reductions.
Operating Expenses, Income and Margin
Operating expenses were $94.9 million, a decrease of 6.9% sequentially and an increase of 33.3% year-over-year. Operating expenses included an accounts receivable provision of $6.0 million in the first quarter of 2016, compared with a reversal of accounts receivable provisions of $8.2 million in the fourth quarter of 2015. The Company's operating expenses represented 11.6% of the first quarter net revenues, an increase from 10.6% in the fourth quarter of 2015 and a decrease from 12.8% in the first quarter of 2015.
Other operating income during the quarter was $3.3 million, which represents incidental electricity income generated from the Company's downstream solar power projects recorded as current assets on its balance sheet, prior to the sales of the projects.
As a result, operating income was $44.8 million, compared with $81.3 million in the fourth quarter of 2015 and $29.2 million in the first quarter of 2015. Operating margin was 5.5%, compared with 8.5% in the fourth quarter of 2015 and 5.2% in the first quarter of 2015.
Net Interest Expense
Net interest expense was $15.1 million, compared with $13.2 million in the fourth quarter of 2015 and $10.7 million in the first quarter of 2015.
Foreign Currency Exchange Gain (Loss)
The Company recorded a net foreign currency exchange gain of $0.8 million, which included a loss on the change in fair value of foreign exchange derivative instruments of $8.2 million. This compares with a net loss of $11.4 million in the fourth quarter of 2015 and a net loss of $1.7 million in the first quarter of 2015. The foreign currency exchange gain in the first quarter of 2016 primarily resulted from the appreciation of the RMB against the USD.
Income Tax Expense
Income tax expense was $3.7 million, compared with income tax expenses of $17.6 million in the fourth quarter of 2015 and $3.2 million in the first quarter of 2015.
Net Income and Earnings per ADS
Net income attributable to ordinary shareholders of Trina Solar was $26.6 million, compared with $41.7 million in the fourth quarter of 2015 and $13.9 million in the first quarter of 2015. Net margin was 3.3%, compared with 4.3% in the fourth quarter of 2015 and 2.5% in the first quarter of 2015.
Earnings per fully diluted ADS were $0.29, compared with $0.43 in the fourth quarter of 2015 and $0.16 in the first quarter of 2015.
As of March 31, 2016, the Company had $621.4 million in cash and cash equivalents, and restricted cash. Total bank borrowings were $1,516.7 million, of which $933.2 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 the debt issuance costs be presented on the balance sheet as a direct deduction from the carrying amount of the related debt liability, instead of reporting on the balance sheet as an asset. Accordingly, the debt issuance costs, which used to be reported as assets, have been retrospectively reclassified as a direct deduction from the carrying amount of the related debt liability with the total amount of $9.1 million as of December 31, 2015 and $11.0 million as of March 31, 2015, respectively.
Shareholders' equity was $1,081.9 million as of March 31, 2016, an increase from $1,050.7 million as of December 31, 2015 and an increase from $988.4 million as of March 31, 2015.
Operations and Business Updates
As of March 31, 2016, the Company had the following annualised in-house manufacturing capacities:
In the first quarter of 2016, the Company connected a total of 101.7 MW of utility projects to the grid, consisting 24.3 MW in the UK, 50 MW in Xinjiang, and 27.4 MW in Yunan.
As of March 31, 2016, the Company had a total of 967.3 MW downstream solar projects in grid-connected operation, including 920.8 MW in China, 4.2 MW in the U.S., and 42.3 MW in Europe. The 920.8 MW projects in China consisted of 722.9 MW of utility projects and 197.9 MW of DG projects.
Second Quarter of 2016 Guidance
The Company expects to ship between 1.50 GW and 1.60 GW of PV modules, of which 40 MW to 50 MW of PV modules will be shipped to the Company's downstream PV projects, from which revenues will not be recognised.
Fiscal Year 2016 Guidance
The Company reiterates its total PV module shipment guidance of between 6.30 GW and 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 recognised.
The Company updates its 2016 guidance of global solar power project connections to between 400 MW and 500 MW from the original guidance of 750 MW to 850 MW, including 15% to 20% of DG projects in China.