Trina Solar's (TSL) CEO Jifan Gao on Q1 2014 Results - Earnings Call Transcript

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Trina Solar Limited (NYSE:TSL) Q1 2014 Earnings Conference Call May 21, 2014 8:00 AM ET


Yvonne Young – Head, IR

Jifan Gao – Chairman and CEO

Teresa Tan – CFO

Zhiguo Zhu – SVP and President, Module Business Unit


Philip Shen – Roth Capital Partners

Vishal Shah – Deutsche Bank

Mahesh Sanganeria – RBC Capital Markets

Brandon Heiken – Credit Suisse

James Medvedeff – Cowen and Company

Nitin Kumar – Nomura Securities

Jian Xu – Goldman Sachs


Good morning everyone. My name is Melissa, and I will be your conference operator today. At this time, I would like to welcome everyone to the Trina Solar First Quarter 2014 Earnings Conference Call. All lines have been placed on mute. After the speakers’ remarks, there will be a question and answer session. (Operator Instructions) As a reminder, today's conference call is being recorded.

I would now like to turn the meeting over to your host for today's call, Ms. Yvonne Young, Trina Solar's Investor Relations Director. Please proceed, Yvonne.

Yvonne Young

Thank you, Melissa. Good day to all and welcome to Trina Solar’s first quarter 2014 earnings conference call. This is Yvonne Young, Trina Solar's Investor Relations Director. With us today are Trina Solar's Chairman and CEO, Mr. Jifan Gao; our Chief Financial Officer, Ms. Teresa Tan; and President of Trina Solar's Module Business Unit, Mr. Zhiguo Zhu.

Before I turn the call over to Mr. Gao, may I remind our listeners that in this call, management's prepared remarks contain forward-looking statements, which are subject to risks and uncertainties, and management may make additional forward-looking statements in response to your questions. Therefore, the Company claims the protection of the Safe Harbor for forward-looking statements that's contained in the Private Securities Litigation Reform Act of 1995.

Actual results may differ from those discussed today and therefore we refer you to a more detailed discussion of the risks and uncertainties in the Company's filings with the Securities and Exchange Commission.

For those of you unable to listen to the entire call at this time, a recording will be made available via webcast for 90 days at the Investor Relations section of our website at

And with that, it's my pleasure to turn the call over to Trina Solar's Chairman and CEO, Mr. Jifan Gao for our first quarter opening remarks. Mr. Gao, please.

Jifan Gao

Thank you, Yvonne. Good morning everyone and thank you for joining us today for our first quarter 2014 earnings call. I am pleased to report that in the first quarter we delivered another set of solid results, especially to given significant improvement in earnings – despite relatively soft demand. Our gross margin increased substantially to 20.6% in Q1 from 15.1% in Q4 last year.

This growth was supported by stable ASP and continued cost reductions. In addition, we significantly improved our bottom-line with net income earnings of 73.5% Q-over-Q. This positive result is from our continued efforts to achieve efficient operations controlled the business expansion and is stringent financial ability.

I will next talk about our Module business first. In this quarter, our module business were impacted by the seasonality in China and some poor product decreases in shipments to the yielded where the minimum import price was in (inaudible). Shipments to other markets the growth was another decision of the pricing allocation.

Including these two factors, our shipments to other services and the emerging markets recorded positive results, in particular, shipments for higher activities such as the U.S. and Japan grew particularly in Q1 with each market accounting for over 70% of our shipments.

Regarding our progress and adjusting to demand of our sales mix, our business achieved relatively stable ASPs despite the general downward pressure on prices. This is critical to our sustainable growth and long-term profitability.

Going forward, we will further improve our penetration in emerging markets by leveraging our focus emergence on leveraging our strong on-the-ground sales force and our industry-leading technology to deliver high quality tailored solar solutions for each region. We believe our efforts will further extend our leadership in module business.

Now, let’s talk about our downstream business. I am pleased to say that in the first quarter, we successfully completed the sale of our 50 MW Gansu, Wuwei power plant achieving results. Furthermore, we recently announced the construction of our 400 MW phase two production in Wuwei, Gansu province.

In addition, we expanded our 90 MW solar project in Toksun, Xinjiang Turpan Prefecture in June. In addition we have some projects in different stages of development in China and overseas.

These projects are expected to significantly support our target of completing 400 MW to 500 MW or downstream projects in 2014.

Now moving to DG. In the first quarter, we completed China’s first residential solar roof-top village in Jiangsu Province. As we move DG I expect to deliver actually in 2014. This we are really optimistic about growing that facility with the business model against maturing in the quarter ahead.

Regarding our efforts to the challenges of these markets and to grid on production capacity. Outside of China, we are making good progress as well and strategically working with local partners. We have also secured downstream projects in a number of regions with high profitability and low risks.

This business includes Japan. This will improve our downstream projects in UK where successfully and lesser risk rate. First projects have a total capacity of 23.8 MW. We expect projects in UK and Japan to account for 30% of our downstream projects in 2014.

Finally, in research and product development demand, cornerstones to our business, in the first quarter we made excellent progress in improving the power output and the quality of our self-produced PV cells and modules. Investing in product innovation will remain key throughout 2014. These efforts will help maintain our position as the leader in technology and innovation in overall solar industry.

Looking ahead, we are careful about global demand. We are also on track to release our 2014 total module shipment average of 3.6 GW to 3.8 GW and our downstream product target of 400 MW to 500 MW.

We believe that business between our module and our solar projects will develop the business will generate both capital gains and ongoing revenues from stable power generation.

Now, I would like to have Teresa to discuss the first quarter financial results and our second quarter guidance. Teresa, please.

Teresa Tan

Thank you Mr. Gao. Hello everyone. Welcome to the call. It is my pleasure to present you our first quarter 2014 financial results followed by the Company’s guidance for the second quarter and full year of 2014.

We achieved total shipments of 558 MW this quarter; of which 23.8 MW were shipped to our own downstream power plants in the UK. I would like to emphasize to investors and analysts that we don’t recognize module revenues for the module shipments to our projects, our module will be an integrated part of the project cost.

This since will apply to both our 24 MW internal module sales in Q1 and on our shipment guidance that I will cover in my discussion later on. So the external shipments, rather than the total shipments is an indicator of calculating module revenues.

Based on the external shipments of 534.2 MW for Q1, the revenue was $444.8 million, a decrease of 15.4% sequentially and an increase of 70.9% year-over-year. The decrease in revenues and shipments were primarily resulted from uncertainty in the minimum pricing agreement between China and the EU and a seasonal Q1 demand slowdown, especially in China over the holiday season.

The year-over-year increase in shipments and revenues was driven largely by rising shipment volumes due to growing demand from key geographical regions, particularly, Japan and the U.S., both accounting for over 30% of total external shipments.

Gross margin was 20.6% in the Q1, compared to 15.1% in Q4 of 2013 and 1.7% in Q1 last year. The sequential increase was primarily due to an increase in ASP attributable to greater sales to relatively higher priced markets, particularly Japan, as well as continued efforts in our silicon cost control.

The year-over-year increase in gross margin was primarily due to an increase in ASP and decrease in costs on a per watt basis. The sale of our 50 MW downstream project in Wuwei also contributed to the sequential and year-over-year increase in gross margin.

We continue to monitor and control operating expenses carefully in the first quarter of 2014. OpEx in Q1 was $53.3 million, a decrease of 10.2% Q-over-Q and 19.7% year-over-year.

It was primarily due to a decrease in selling expenses, particularly lower shipping and warranty; OpEx included an accounts receivable provision of $1.2 million in the Q1, compared to a reversal of accounts receivable provision of $9.5 million in Q4 of 2013 and an $11.1 million in Q1 last year.

As a result, operating income in Q1 was $38.2 million, an increase of 93.1% from the fourth quarter of 2013. Operating margin was 8.6% in Q1 2014, compared to 3.8% in Q4 2013 and negative 15.4% in the Q1 2013.

Net interest expense in Q1 was $8.7 million, compared to $8.2 million in last quarter and $13.2 million in Q1 of 2013. The increase was primarily due to a rise in short-term interest rate and long-term interest rates for the renewal of certain financing arrangements.

Foreign currency exchange gain was $0.8 million in Q1, including a loss in the fair value of derivative instruments, compared to a net gain of $1.8 million in Q4 2013 and a net loss of $19 million in Q1 last year.

Income tax expense was $6.4 million in Q1, compared to an income tax benefit of $1.1 million in the Q4 of 2013 and an income tax benefit of $6.1 million in Q1 2013. Depreciation in Q1 was $28.8 million.

Net income was $26.5 million in Q1 2014, an increase of 73.5% from $15.3 million in Q4 2013 and a net loss of $63.7 million Q1 2013.

Net margin was 6.0% in Q1 2014, compared to 2.9% in Q4 2013 and a negative 24.5% in the Q1 last year.

We achieved $0.37 earnings per fully diluted ADS Q1 2014 compared to $0.21 in Q4 of 2013 and a loss of $0.90 per ADS in Q1 2013. Despite the margin environment change challenges, we improved several key aspects of our first quarter operations and maintained relatively healthy balance sheet which I will talk about this later.

At the end of Q1 we had $577.7 million in cash and cash equivalents and restricted cash. Total bank borrowings were $982.5 million, including $877.1 million short-term borrowings and long-term borrowings up $105.4 million.

With our ongoing efforts in accounts receivable collection, we reduced our accounts receivable to $347.4 million, from $435.1 million at the end of the last year. Our DSOs has reduced to 80 days from 89 days at the end of Q4 last year.

Our working capital balance at the end of Q1 was $26.5 million, compared to negative $18.8 million at the end of 2013.

Shareholders' equity was $848 million as of March 31, 2014, an increase from $822.2 million at the end of the fourth quarter of 2013.

Now, turning to cost per watt. Our first quarter blended non-silicon cost per watt was $0.43. However, our silicon cost per watt increased to $0.10 per watt from $0.09 per watt a quarter ago reflecting an increased average spot price of polysilicon material in the first quarter.

Overall, our cost per watt decreased from $0.54 per watt from Q4 last year to $0.53 per watt this quarter. For second quarter 2014, we expect polysilicon prices will remain relatively stable with upward pressure. This will adversely impact our gross margin. The company will continue to work diligently to reduce its in-house manufacturing cost to mitigate any adverse impact to its gross margin.

In terms of CapEx, it was approximately $44 million for the first quarter and will remain our full year CapEx plan of around $215 million to $230 million for our wafer, scale and module capacity expansions. The capacity also includes in equipment upgrades. This has significantly increased our productivity with the lowest cost of investment in Q1.

This bring us now to our guidance for the second quarter and fiscal year of 2014 as follows. In the second quarter of 2014, we expect to ship between 950 MW to 1,010 MW of PV modules, of which 150 MW to 170 MW is expected to be shipped to our own self-developed downstream PV projects.

We expect blended gross margin for the second quarter of 2014 to be in the mid-teens in percentage terms. We will maintain our guidance for the annual PV module shipments at 3.6 GW to 3.8 GW for 2014, of which 400 MW to 500 MW of PV modules will be shipped to the Company's own downstream projects. We reiterate our guidance of completed downstream PV projects of between 400 MW and 500 MW for the year of 2014.

Lastly, I would like to update you on our system business. In the first quarter, Trina Solar successfully sold its 15 MW solar power plant in Wuwei, Gansu province to Huadian Fuxin Energy Corporation.

Following the successful completion of the Wuwei solar project in 2013, we started construction of our Wuwei phase two 100 MW solar power project, which is expected to connect to the grid in the second half of 2014.

We will also commence construction of a 90 MW solar power plant in Toksun, Turpan Prefecture in Xinjiang in June of 2014. It will be the first phase of construction under the 1 GW four-year investment framework agreement signed with the local government in December 2013. Under the agreement, solar power plants with a total capacity of 1 GW are scheduled to be built in multiple phases.

Outside of China, we completed two PV power plants totaling 24 MW in the first quarter. The company also received a loan of $17 million from the China Development Bank to fund 16 MW of utility-scale solar power projects in Greece.

In Japan and UK, we have signed strategic agreements with local partners to efficiently access project resources and obtain required certifications. We are evaluating the project pipelines with full scrutiny and expect the majority of these projects to come online in the second half of 2014.

We will continue to search for project opportunities inside and outside of China and are confident to meet our guidance of 400 MW and 500 MW completions by the end of this year.

One comment I want to make a correction on, our working capital balance at the end of Q1 was $23.8 million, compared to a negative $18.8 million at the end of 2013, to correct the statement I made earlier.

With that, I would like to turn the call over to our Module Business Unit President, Mr. Zhiguo Zhu to update you our commercial and manufacturing and product development. Zhiguo?

Zhiguo Zhu

Thank you, Teresa. And I thank you everybody for joining today's call. It is my pleasure to update you on our Module business. And I am pleased to report that, in the first quarter, we executed where close to most markets and regions. We shipped totally 558 MW of modules including 21 MW to our own downstream PV plants in the UK.

We made some strategic adjustments to our market average, this favor us to quickly adapt to changing market conditions and develop some more attractive markets. Our products and technological enhancements reached new levels and our Honey Ultra module built will record previously did by us.

As Jifan Gao mentioned, shipments were lower than with original expectations especially in EU and Japan. We believe through the long-term customer sales ability is highly important and that’s sometimes a temporary OpEx where actually bring us greater success in the future.

Despite these factors, we are delighted to see that we continued our global growth and our diversification in particular our sales to higher ASPs in countries than emerging markets increased, notably this quarter.

This object – of the wide expense from the slowdown in Europe and helped us to expand our gross margin. In addition, we are researching further to track the market with the most pressure demonstrating those efforts in emerging markets that accounts for 14.6% in quarter one an increase from 17% in quarter two.

As a result, in quarter one; we achieved a significant increase in our gross margin to 20.6% from 15.1% in the first quarter, our total cost decreased from $0.54 in quarter four to $0.53 this quarter.

Thanks to our improved supply chain cost conscious, increased utilization of our in-house manufacturing capacities and improvements in manufacturing process. Before looking at the performance of each market, I would like to update you on our capacity, which remains a top priority for us since these have been stable and a reliable manufacturing capacity supports our long-term sustainable growth.

By the end of March, we increased our annualized in-house indoor capacity to 2GW. This was achieved through upgrades and technology innovations at low cost of capital investments. Our annual wafer capacities were at 1.6 GW and PV sales and module capacities roughly 2.5 GW and 3 GW respectively. We continue to rebuild the company’s expectations in light of opportunities in overall market demand.

Now I would like to share with you the information regarding our performance in each market. In U.S., the first product, our shipments to U.S. grew significantly accounting for 72% of total module shipments. This was mainly driven by demand due to price increase stemming from the pending provision.

We will continue to supply modules to double amounting to three projects. In addition, we partnered with a key customer to conduct the largest residential installations of Trina’s smart module. In the first quarter, we’ve delivered the best to the diversified – of top tier.

We believe our strategical relationships, our distribution strategies and per watt capabilities points us well to continue to participate in and contribute to the continued growth of the U.S. solar industry.

In Japan, our effort development channel and the distribution networks particularly with some segment customers delivered positive results. Our shipments to Japan accounted for 30% of total module shipments, compared our volume from last quarter.

This demonstrates that the Trina Solar brand is increasingly recognized by the most stringent Japanese customers and partners thinking – curriculum.

Looking forward, we are very encouraged by the outlook for demand in Japan at the same time we will continue to expand our sales team, distribution network and co-marketing with our channel partners and in local developing partners so as to succeed further growth in Japan.

In EU, our shipments were affected by the pending adjustment of price undertaking. As previously mentioned, we believe it’s more important to build long-term customer relationships in this – certain short-term demand a notable achievement with our continued partnership with – our long-term strategic partner in the UK.

In addition, we also penetrated further into the residential roof-top market within Europe. We see that fixed demand coming from residential scale projects in the UK and from commercial residential roof-top projects in other countries such as Germany.

Our established reputation and exceptional customer service in the EU distinguish us from the peers. We are confident with this strength. We ensure we remain preferred supplier and achieve solid growth in market share in the quarters ahead. This said, we are aware that the market growth in EU may slow down compared with other markets. We are therefore strategically shifting our focus to broader non-EU markets.

In China, despite impact from seasonal downturn in China, our efforts to solidify our relationships with existing long-term customers further improve each product we sold our products to a number of larger scale Chinese companies.

We are also educating new customers about Trina’s products so as to further drive improvement. For a number of our new modules have been deployed in several DG projects since they were first launched.

I would also like to acknowledge the EU China trade dispute of polysilicon imports. While I am pleased to see that this business segment, the order may result in a slight adjustment to those polysilicon prices. This may negatively affect our costs, however, we don’t think this will have a significant impact since holding accounted for only 20% of our total cost.

And one of the lowest costs of PV manufacturer in China, our total in-house manufacturing cost was less than $0.50 per watt. In Q1 we achieved this despite the increase in silicon spot price to low 20s. This shows that we achieved a further reduction in our non-silicon costs.

In emerging markets, I am also delighted to share with you our progress in emerging markets, we have been actively expanding our business into markets such as India, Singapore, and Australia as well as other Asia-Pacific countries.

As previously mentioned, emerging markets accounted for 14.6% of total shipments in Q1, an increase from 7% in the last quarter. We played a key part in creation of the largest industries of top solar plants. Trina as selected as the sole supplier for the complete installation of this 1 MW DG project.

In addition, we have also seen an upward trend in shipments to a number of those emerging market countries. These are notable achievements as we continue to execute on our global diversification strategy.

About R&D, now, there are few product and technology milestones that I would like to share with you. I am pleased to report that, all our seven products produced PV sales, achieved priority ability. By optimizing here and module manufacturing technology, our module can effectively reduce loss in power outputs from solar panels.

In addition, our stated leverage announced a new – in second generation of Trina Solar high efficiency honey module technology with the new output would record our 306.3 watts for sales.

Technology innovation remains an essential part of our business. We will continue to focus on developing commercially viable products to drive the overall power output of our products due to ultimately drive down the per unit manufacturing cost with improvements on power output increase.

For the rest of 2014, our focus is to maintain our cost control efforts and to deliver on our market diversification strategy so as to capture the expected growth in the global PV markets. We are confident with this approach will help us to achieve our target of 3.6 GW to 3.8 GW of total module shipments in 2014.

With that, I would turn the call back to back to Yvonne to commence Q&A.

Yvonne Young

Thank you, Mr. Zhu. Now, I would like to open the call to questions. Melissa, please proceed.

Question-and-Answer Session


(Operator Instructions) Your first question comes from the line of Philip Shen from Roth Capital. Your line is open.

Philip Shen – Roth Capital Partners

Hi everyone. Thank you for taking my questions.

Teresa Tan

Hi, Phil.

Philip Shen – Roth Capital Partners

Hi, here – in the conference, everyone’s focus has been on what the size of the Chinese market might be in 2014. And what’s your latest view on the size of the Chinese market and what do you expect the mix of distributed generation versus utility to be?

Teresa Tan

Okay, yes this has been the talk of the town and the slow going on the DG installation or the market has gotten a lot of attention and through our communication in the past with investors and analysts, I know this has been part of people’s mind. So from our perspective, from our research, we – I mean, it’s very clear that the DG market is relatively immature and the business module is not as clear cut as other forms of business that we are currently conducting.

And with the goal of 14 GW set for this year’s installations, 60% has been allocated to DG. We – this 8 GW goal will be in this year, simply because of the complicated business module and the complication in parties involved in expanding in this region. However, we can see that the government has been very determined to push towards DG business and we certainly see this as one of the bright future as solar energy has been deployed in Trina.

And so, recently, there are many discussions in that Trina has been actively involved when – in discussion with the government, as the government is trying to find out what is the issue and what are the things that are causing the back haul right, and why is that the DG business is not picking up.

And I think, lot of people, especially, the industry leader like Trina has been very active in working with the government and sharing the information that we have from the market and I think the government has really gotten the message that it’s not as easy as it was as initially thought and they – we believe that the government will come out of more measurements to support the business towards DG.

But that cannot be fast enough or good enough sufficient for the 8 GW to be completed this year. We still don’t think that that’s we still think it’s going to be very, very challenging. So, overall, the – a lot of people concerned about the overall market in China.

And so, I will see that in some few respects, number one, we do believe that there is a good attempt for the total installation to be very close to 14, in 2014.

Secondly, we believe that, from our perspective it doesn’t really matter that the 11, or 12 or 13 or 14, from Trina’s perspective being the leader in providing module and downstream projects, we believe that as we are gaining market share and as we are – it’s our brand and quality of service that being recognized, the demand for our product is very much evident.

And this is reflected in our order take throughout the guidance that we are giving for the second quarter as well as for the rest of the year. So, we believe that there are some uncertainties but, as far as Trina is concerned, we believe that our business will still take off as the way that we are planning.

And we are allocating our resources to DG businesses and we are hoping that we will capture the market as the market is available and that matures and the opportunity is there for us to go further into the DG business. So I hope that helps a little bit on this, Phil? Okay.


Your next question is from the line of Vishal Shah from Deutsche Bank. Your line is open.

Vishal Shah – Deutsche Bank

Yes, hi thanks for taking my question. Wanted to just to – on your guidance for Q2, how many megawatts of projects do you expect to sell in Q2 and can you just provide some more color on the 400 MW to 500 MW of projects that you are talking about for the rest of the year. How many of those are in China? How many of those are already permitted? Thank you.

Teresa Tan

Sure, we’ll definitely talk about this. As far as guidance, for the downstream business, we guided for 400 MW to 500 MW for the year and we have completed 24 MW in the first quarter and we have sold a 50 MW in the first quarter as well. In the second quarter, we are not expecting any of the projects to be sold in the second quarter and we of course for the UK project and also for the overseas projects, we have in our plans, we are going to be eventually sell those projects.

And for the China projects, we mostly are expecting to hold them although we do evaluate each project one at a time to make sure that we use a criteria that we have formulated to make sure that whether we are going to end up with holding the target or selling the project.

As far as the China project, we have about 400 MW to 500 MW in the pipeline for this year to be completed and about 70% to 80% of those would be in China and about the rest of those in either UK markets or Japan markets.

And those are the two particular markets that we believe that the risk is relatively small as far as country in doing business and also the demand is very strong in our quality products has been very much recognized.


Your next question is from the line of Mahesh Sanganeria from RBC Capital Markets. Your line is open.

Mahesh Sanganeria – RBC Capital Markets

Yes, thank you very much and thank you for taking my question. In terms of the poly prices, is that something you are seeing this in the near-term? Did the poly overcapacity do you think the prices will come down in a quarter or so? And the other thing I don’t understand why that demand being weaker than expected while the poly prices are going down?

Zhiguo Zhu

Thank you for the question. I think the silicon price will be quite stable but because the weaker supplier – there power stations to supply energy, so we expect also some other supplier in the channel. They have new technology to supply the product – producing of silicon. So I can forecast that silicon price could go down. Certainly we are not sure.

Teresa Tan

Sorry, I want to add a couple of comments on this. Polysilicon cost is obviously part of our total cost. But it is about 20% or around 20% of the total cost. So, even with a little fluctuation in the first quarter and we also expect a little fluctuation in the second quarter as well.

Overall, percentage-wise, it’s still even we have a 20% increase – 20% cost is about 4% impact of total cost. So, like I said that in the past that, we really look at the total cost as the way to manage our costs and we look at the other manufacturing efficiency as well as other material cost to manage our total costs.

And as evidenced in the first quarter even though the poly cost increased about over 10%, the total cost has come down from the fourth quarter of last year. So, overall, we do expect that the poly cost to be stable. It may potentially go down a little bit, but still the overall cost will be managed effectively and we are expecting price – cost reductions as we did in the first quarter. Thank you.

Zhiguo Zhu

Yes, cost at quarter one and quarter two were the highest price for poly.

Teresa Tan



Your next question is from the line of Brandon Heiken from Credit Suisse. Your line is open.

Brandon Heiken – Credit Suisse

Hello, thank you. I was hoping you could discuss the…

Teresa Tan

Hi, Brandon.

Brandon Heiken – Credit Suisse

Hello, can you hear me?

Teresa Tan


Brandon Heiken – Credit Suisse

I was hoping you could discuss the revenue and gross profit from the sale of the Gansu project? And the second question is, if you could talk about the progress on permits for the 400 MW to 500 MW of projects this year please? Thank you.

Teresa Tan

Great. For the project that we have including the pipelines that we are developing for our downstream projects, we – obviously, the pipelines include China projects as well as overseas projects.

And overseas projects require permitting or – as well. But relatively simple compared to the China projects obviously and for the China projects, the Gansu, the – that we sold was very good experience for us where we went through the whole process of the design the project and construct the project and run the project and also sell the project.

And so that whole process is providing us very valuable experience as we progress further into our downstream projects, downstream businesses. And, for the Gansu project that we sold, the 50 MW, as Mr. Gao has indicated in his statement, the total margins on the projects is in the high teens and we are very happy that this was very successful.

And secondly for the other projects that we have in China, we have projects that are in various stages of permitting and as you know, Brandon, I know you have lot of knowledge China – doing business in China, the permitting process is very cumbersome and a complicated process that involves a lot of approvals from different agencies.

For our downstream projects we have the ones that are – some of them are in the very late stage of being approved or being approved basically and also some of them are in the early stage. So that’s why we are expecting our projects to be back-end loaded for the year especially when they comes to connecting to the grid.

And, but we are making progress as we start, we are coming into the year in the second quarter while making more and more progress and it will be out of this and we are sure there will be more news coming related to downstream projects.


Your next question is from the line of James Medvedeff from Cowen and Co. Your line is open.

James Medvedeff – Cowen and Company

Good evening.

Teresa Tan


James Medvedeff – Cowen and Company

Hi. The question – I have from my question I got to know if you expect to generate any revenues from the 24 MW UK project that is now connected to the grid in Q2. And secondly, what are the forces that are driving gross margins down several 100 basis points in Q2? Thank you/

Teresa Tan

Sorry, the second question again please?

James Medvedeff – Cowen and Company

What are the forces that are driving gross margin down sequentially in the second quarter?

Teresa Tan

Okay, sorry, yes. sorry, okay. Let me get to your first question first. For the 24 MW UK project that was connected to the grid at the end of first quarter, they will be started for sales as part of our strategy of selling the international downstream project.

So whether it’s going to be recognized or not revenue-wise in the second quarter, it’s too early to tell, because of the process of going through the – going through the whole process of selling the project.

So we are very happy to see that we have – because of the quality of our project and the favorable ROC that it has, we have attracted very good interest from the potential buyers and we are certainly in the process of expecting the transaction with our potential buyers.

So, secondly, as far as gross margins, the first quarter gross margin of 20.6% was extremely high and it’s – by various reasons, partially ASP was held up very well, because of the mix effectively because of the mix and the cost-cutting measurements went into effect was very effective and also some of the inventory that was used for making the first quarter products coming from the lower priced silicon.

So some of the price increase in the first quarter was not totally rejected in the product that was sold in the first quarter. So, and also the Wuwei project that was sold in the high teens contributed to the margin as well. So a number of factors came into play when to the relatively high gross margin which we are very happy to see.

Then, in the second quarter, we believe that there is, we will continue with the efforts that we’ve had. So obviously the silicon’s price has come up a little bit in the first quarter and the second quarter and so, it will be reflected in the second quarter and so that is one of the factors that caused the margins to not going to be at the high – the level that we saw in the first quarter.

And secondly, the margin targets may not be part of the revenue or margin contributor in the second quarter. So some of those factors put together we believe that the guidance for mid-teen gross margins is reasonable for us as we increase our sales in the second quarter and also expanding our capacity and everything else to meet the demand of the markets.


Your next question is from the line of Nitin Kumar from Nomura. Your line is open.

Nitin Kumar – Nomura Securities

Yes, hi, Mr. Gao, hi, Teresa. Good results, awesome results. Couple of questions, one, what can you elaborate, probably what is the revenue and margin contribution from the 1Q downstream project? And secondly, in terms of cash collection from sale of this project, how should we look at collecting cash from the sale?

Teresa Tan

Collecting the cash from sale of the Wuwei project?

Nitin Kumar – Nomura Securities

Of that project, yes.

Teresa Tan

Okay, for the – I’ll answer your second question first. For the Wuwei project, it was obviously sold in the first quarter and cash settlement has been reached and there is a little bit of a warranty set aside, a very small amount to the size, but rest of the cash has been collected. What was the first question? Sorry, what was the first question, about 100 MW?


(Operator Instructions)

Teresa Tan

Okay, I am sorry.


Your line is open.

Nitin Kumar – Nomura Securities

Sorry, yes, so, my first question was – what was the revenue contribution and margin contribution from the project sale in 1Q?

Teresa Tan

Okay, the project sale, the only project sale that we had in the first quarter was on the Wuwei project. And, the margin is in high teen rate as we have stated before. Yes, that’s the total 50, 5-0 megawatts.


Your next question is from the line of Vishal Shah from Deutsche Bank. Your line is open.

Vishal Shah – Deutsche Bank

Yes, hi. I wanted to just understand the mix of shipments by geography and obviously the second half it looks like in terms of geographies and also just I wondered what kind of margins you should be marking for the second half of the year? Do you expect margins to go back up in the 20% range or stay in the mid-teens? Thank you.

Teresa Tan

Okay, the mix for the first quarter is – we made about 31% for the shipments to U.S. and for Japan, we had over 30% to Japan, but China was very seasonably low at about 12% and Europe was slightly low due to the reason we have previously discussed at about 11% and the rest of the world takes up about 13.6%.

For Q2, the sales mix will be, we will continue the trend of looking for the sales mix that will produce a stable ASP as well as the higher price markets where we are targeting. The mid-year – to come in a little further in the Q2 sales.

Jifan Gao

The traditional China market – in China market, quarter-wise, very low sales because of the Chinese New Year and winter. So, from quarter two we will have more sales in China markets and actually three quarters we will have good sales in the channel. China market we have forecast whole year mainly we can achieve significant sales within China markets.

And we believe, Japan market we are above 20% or maybe 22% to 25%. The U.S. were above 20% with the U.S. market. So, EU, because of price undertaking problems, mainly a bit slower than past time this year could be 15%. So, Asia, rest of Asia maybe 11%, the rest maybe a 2% to 3%, that’s for the first half. That’s this year’s forecast.

Teresa Tan

Okay, then I will comment further on the margin, like I said, the 20.6% margin was contributed by different – various factors, but we don’t believe that this is the margin that will be repeated in the second quarter. And so that’s why we guided the margin to be at mid-teens.

Of course, as the sales will be higher and as we are pursuing the growth and the volume factors, we continue to look for opportunities to reduce cost as Mr. Zhu has previously discussed, we have looked at various initiatives that are being deployed to reduce cost, and partially can mitigate the price increase on the polysilicon and polysilicon produce the cost reduction as we are looking for.

So, this is the ongoing effort and it’s a very much – a very focused effort from our team here to reduce costs and bring up the margin as well. But we do not believe that the next quarter or this year, we will get to 20% kind of gross margin and that’s why we believe the guidance of mid-teen is a more reasonable and reachable growth.


Your last question comes from the line of Jian Xu from Goldman Sachs. Your line is open.

Jian Xu – Goldman Sachs

Hi. Hi, Teresa, my question is on the CDB loan that becomes due in June, as you mentioned in the 20-F, $180 million. So how does the company plan on either repay it or renew it and then whichever approach the company chooses could you give us an update?

Teresa Tan

Sure, obviously, the financing is very key to our business expansion and also to execute our business strategy. And so we constantly evaluate the options that are available to us and how best it will be – how best we would engage those financing option leads to help us to grow – have sustainable growth.

So, as we have the loan – loan that we have discussed previously, part of that is short-term loan and we have been renewing some of the short-term loans that came in due and we’ve been paying off some of the loans that came due like we did in fourth quarter as well as some in the first quarter of this year.

And we also are – other things that we are trying to do is to improve the structure of financing facilities, and that means we would continue to improve not only from the short-term, medium-term, long-term loan mixture kind of structure for our financing facility, as well as the amount that we are considering how much sufficient to meet and how much – that’s balance for the company growth.

And one of the things I wanted to share and this is something that I talk about every day in the office as well, is that, we take very seriously to manage our balance sheet and maintain a healthy balance sheet so that, we can have a sustainable growth. And that's why we constantly evaluate the financing opportunities available to us and improve, so that we don’t take on too much and we also have enough to support our business growth.

And so, as far as the loans are coming in due in May or June, including the CDB loans that we are using the same principle to evaluate how we should go about renew this loan and how much that we are going to take on and so, basically that is what we are evaluating and also working with the CDB in the process of renewing our credit facilities. Thank you.


There are no further questions at this time. Ms. Yvonne, I turn the call back over to you.

Yvonne Young

Yes, thank you. On behalf of entire Trina Solar management team, we want to thank you for your interest and participation in our first quarter 2014 earnings conference call. If you're interested in visiting our Trina Solar team at our PV Park, please feel free to get in touch.

And lastly I would like to take this opportunity to announce that management will participate in Intersolar Expo in Munich on June 4th and June 5th this year. If the investors or analysts are interested in meeting us, please contact me directly or send email to This concludes Trina Solar's first quarter 2014 earnings conference call. Thank you operator. You may now disconnect. Thank you.

Teresa Tan

Thank you.

Zhiguo Zhu

Thank you.


And ladies and gentlemen this does conclude today’s conference call. You may now disconnect.

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