JA Solar Holdings' CEO Discusses Q2 2012 Results - Earnings Call Transcript

JA Solar Holdings Co., Ltd. (JASO)

Q2 2012 Earnings Call

August 29, 2012, 08:00 am ET

Executives

Nick Beswick - Brunswick Group

Peng Fang - CEO

Christoph Flinck - Head of Strategic Planning and Corporate Development

Analysts

Brandon Heiken - Credit Suisse

Edwin Mok - Needham

Caleb Dorfman - Simmons & Company

Pavel Molchanov - Raymond James

Nitin Kumar - Nomura Capital

Jeff Osborne - Stifel Nicolaus

Presentation

Operator

Hello, and thank you for standing by for JA Solar second quarter 2012 earnings conference call. At this time, all participants are in a listen-only mode. After management’s prepared remarks, there will be a question-and-answer session. Today’s conference is being recorded. If you have any objections, you may disconnect at this time.

I’d now like to turn the call over to your host for today's conference, Mr. Nick Beswick of Brunswick Group.

Nick Beswick

Thank you. Welcome to JA Solar’s second quarter 2012 earnings conference call. Joining us from the company today are Dr. Peng Fang, CEO; Mr. Min Cao, CFO; and Dr. Christoph Flinck, Head of Strategic Planning and Corporate Development.

As stated in the press release, the oversimplified translation of CNY into US dollars, which is set at 6.343 RMBs to the dollar, is made solely for the convenience of the audience. References to dollars are the lawful currency of the USA.

The press release published today provides detailed financial tables for the conversion from CNY to USD. On this call, Dr. Fang will begin with an overview of the company's Q2 2012 results covering the business and market developments and outlook. Following that, Christoph will provide details of the company’s financial performance.

After the prepared remarks, we will open up for questions for the remainder of the call. We expect the entire call to last approximately one hour.

Before we begin the formal remarks, I’d like to remind you that certain statements on today’s call, including statements regarding expected future financial and industry growth are forward-looking statements that involve a number of risks and uncertainties that could cause actual results to differ materially. These statements are made under the Safe Harbor provisions of the US Private Securities Litigation Reform Act of 1995.

Factors that could cause actual results to differ into general, business and economic conditions in the solar industry; governmental support for the development of solar power; future shortage or availability of the supply of high purity silicon; demand for end-user products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers; changes in demand for our major markets; changes in product mix, capacity utilization, level of competition, pricing pressures, and declines in average selling prices; delays in the introduction of new product lines; continued success in technological innovations; shortage in supply of raw materials; availability of finance; exchange rate fluctuation, litigation and other risks as described in the company’s SEC filings including its annual report on Form 20-F filed with the SEC.

Although the company believes that the expectations reflected in the forward-looking statements are reasonable, it cannot guarantee future results. You should not place undue reliance on these forward-looking statements. All information provided on today’s conference call speaks as of today’s date unless otherwise stated and the company undertakes no duty to update such information except as required under applicable law. I will now turn the call over to Dr. Peng Fang, CEO of JA Solar.

Peng Fang

Thank you, Nick and thank you everyone for joining today’s call. In the second quarter, market conditions in the solar industry remained challenging, but I am encouraged that JA Solar recorded a healthy shipment volume and that way sustained our strong financial position. Throughout the current market downturn, we demonstrated a clear strategy to work through these past conditions by focusing on maintaining healthy cash flow and strong balance sheet while remaining a solid market share.

We have always believed it would be irresponsible to prioritize short-term shipment gains over long-term financial stability. As a consequence we entered the second half of the year in a relatively strong financial position in the industry. This combined with the consistent excellence of our product ensures that we receive the task of our customers across key market. We see us as a long term player.

Let's take a look of some of the key metrics for the quarter starting with our shipments. In this quarter shipments were 418 megawatts, in line with the low end of our guidance. As that said, given the current market uncertainty ensuring long-term financial stability is more important than chasing short-term shipments volumes. Having said that, I do want to highlight that we are making excellent progress in module shipments.

Customers, in question they recognized the quality and the value of our offerings. This quarter for the first time modules account for more than 60% of revenues and more than 55% of shipments. In the long term, the greater share of modules in overall shipments to the [gross] margins.

Gross margins, in this quarter continued to improve increasing to 4.8% in second quarter than 2.1% in first quarter. This shows the success of our cost cutting effort, increased operating efficiency and technological improvements. Our operating margin was negatively impacted by increase in operating expense and this was primary due to the prepayment impairment of 3.4 million related to the share transfer agreement with M.SETEK for the acquisition of a 65% interest in Hebei Ningjin Songgong. We will discuss this in more detail later.

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