Hanwha Solarone Co Ltd (HSOL)

Q2 2012 Earnings Call

September 11, 2012 8:00 am ET

Executives

Paul Combs – Vice President-Investor Relations

Ki-Joon Hong – Chairman and Chief Executive Officer

Jung Pyo Seo – Chief Financial Officer

Charles Kim – President

D.K. Kim – Chief Strategy Officer

Analysts

Kelly Dougherty – Macquarie Research

Caleb Dorfman – Simmons & Company

James Medvedeff – Cowen & Co. LLC

Presentation

Operator

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Ladies and gentlemen, thank you for standing by and welcome to the Second Quarter 2012 Earnings Conference Call. At this time all participants are in a listen-only mode. There will be a presentation followed by a question-and-answer session. (Operator Instructions) I must advise you that this conference is being recorded today Tuesday, 11 of September 2012.

I would now like to hand the conference over to your speaker today, Mr. Paul Combs. Thank you. Please go ahead.

Paul Combs

Good morning everyone, welcome to our call. Joining me today our Chairman, Hong; our President, Charles Kim; CFO, Jay Seo; and D.K. Kim, our Chief Strategy Officer.

Chairman Hong will open with some broad summary comments of key accomplishments as well as touch on the current industry operating environment. Jay will follow with some financial highlights from the second quarter. Charles will then discuss a few critical longer term initiatives for the company, followed by D.K. who will conclude with some observations on the recent acquisition of Q-cells by Hanwha Group. We’ll then be happy to answer any questions you may have.

I’d like to remind you of our Safe Harbor policy, which is included in the earnings release as well as posted in its entirety on slide two of the slide package. I need to remind you that our comments today will contain forward-looking statements that are subject to risks and uncertainties. Please review our filings with the SEC for a complete rundown of these risks.

Now, it is my pleasure to turn the call over to Chairman, Hong.

Ki-Joon Hong

Thank you, Paul, and good morning, everyone. In spite of challenging industrial environment, I believe our company has made some significant products during the last quarter. The most notable accomplishment were acceleration in shipment growth, a meaningful reduction in processing cost, a return to gross profitability, continued discipline in operating expense, and working capital management, and enhanced synergy with the Parent company.

We believe the company is increasingly well positioned not only to survive this prolonged industrial downturn, but will endeavor to establish a position of leadership going forward. This is not the key process nor will it come without challenges including continued pressure on volume price near term, industrial capacity, slowing growth in traditional or European market and duties in the United States and maybe in Europe. It is apparent that the industrial consolidation is well underway as marginal competitors either not scale low cost production run, and financial resources have and will continue through future.

The synergies with our largest shareholder are becoming increasingly more relevant, and provide us with certain strategic advantage. The recent acquisition of Q-cell is a significant milestone in the company’s long-term ability to gain competency advantage and provide a number of benefit to us, which D.K. will outline shortly.

Now, Jay Seo, our CFO will touch on some financial highlights for the second quarter.

Jung Pyo Seo

Thank you, Chairman, and good morning everyone. My comments are summarized on slide 3 through 7. Some highlights for the second quarter include; PV module shipments including module processing services rose 43.6% to 230.7 megawatts, while our ASPs declined to $0.77 from $0.84 in the preceding quarter. Our EA, which is Europe and Africa region was the largest by far at 76% of total shipments and reflected the pull-in demand in Germany ahead of incentive reductions.

Germany accounted for 57% of total shipments while other markets such as England, Italy and Spain were 4% to 5% each. The Asia Pacific region was the next largest market segments at 17% of total shipments with China, Korea and Japan the largest distributors. Shipments to North America accounted for 7% of total, as we continue to transition to the new AD and CVD structure.

The full geographic mix of shipments is illustrated on slide 5. Higher volumes somewhat offset by lower prices combined to increase revenues over 33% from the previous quarter to $168.7 million. The company achieved over $22 million swing in gross profit from the prior quarter. Gross profit of $10.6 million and gross margin of 6.3% was much improved from $11.9 million gross loss and negative gross margin of 9.4% for the first quarter.

We continue to maintain tight control over operating expenses and narrowed our operating loss from $35 million in Q1 to $13 million this quarter. As a percent of revenues, operating expense is at 14% were improved from 18% the prior period, largely due to higher shipments and revenues. This ratio should improve to a more normalized range of 10% to 12% overtime.

Interest expense rose slightly reflecting higher debt levels, and we recorded a $5.4 million loss from the combined effect of a foreign exchange loss with a gain from the fair value of derivatives. On a GAAP basis, we recorded a net loss of $42 million or $0.50 per basic ADS. On a non-GAAP basis, we recorded a net loss of $39 million or $0.46 per basic ADS. The figure was significantly impacted by the change in fair value of our convertible bonds this quarter, as it has some periods in the past which is largely influenced by the movement of our stock price.

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