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Canadian Solar Reports Fourth Quarter and Fiscal Year 2011 Financial Results

March 7, 2012

ONTARIO, March 7, 2012 /PRNewswire-Asia-FirstCall/ — Canadian Solar Inc. (the “Company”, or “Canadian Solar”) (NASDAQ: CSIQ), one of the world’s largest solar companies, today announced financial results for the fourth quarter and fiscal year ended December 31, 2011.

Fourth Quarter 2011 Highlights

  • Solar module shipments were 436 MW, an increase of 23% from 355 MW in the third quarter 2011.
  • Net revenue was $474.1 million, compared to $499.6 million in the third quarter 2011.
  • Gross margin was 8.7%, compared to 2.4% in the third quarter 2011.
  • Diluted loss per share was $1.39, compared to diluted loss per share of $1.02 in the third quarter 2011.
  • Operating cash flow was approximately $48.9 million, compared to approximately $94 million in the third quarter 2011.
  • Inventory balance at the end of the quarter was $296.6 million, compared to $406.0 million at the end of the third quarter 2011.

Fiscal Year 2011 Highlights

  • Solar module shipments were 1,323 MW, an increase of 65% from 803 MW in fiscal year 2010.
  • Net revenue was $1.9 billion, compared to net revenue of $1.5 billion for fiscal year 2010.
  • Gross margin was of 9.6%, compared to 15.3% in fiscal year 2010, due to a significant decline in average selling price during 2011.
  • Diluted loss per share was $2.11, compared to earnings of $1.16 per diluted share for fiscal year 2010.
  • Operating cash flow was approximately $46.3 million, compared to negative $58.5 million for fiscal year 2010.
  • Inventory balance at the end of fiscal year 2011 was $296.6 million, compared to $272.1 million at the end of fiscal 2010.

Fourth Quarter 2011 Results

Net revenue for the fourth quarter of 2011 was $474.1 million, down 5.1% from $499.6 million in the third quarter of 2011 and up 4.7% from $452.7 million in the fourth quarter of 2010. Total solar module shipments for the fourth quarter of 2011 were 436 MW, compared to total module shipments of 355 MW for the third quarter 2011 and 237 MW for the fourth quarter of 2010. Total solar module shipments for the fourth quarter of 2011 included 16.3 MW used in the Company’s total solutions business.

By geography, in the fourth quarter of 2011, sales to European markets represented 46.5% of revenue, sales to North America represented 26.9% of revenue, and sales to Asia and all other markets represented 26.6% of revenue, compared to 61.7%, 16.1% and 22.2%, respectively, in the third quarter of 2011 and 70.9%, 10.3% and 18.8%, respectively, in the fourth quarter of 2010. Specifically, India, China and the U.S. were markets of notable positive growth for the Company in 2011.

    Revenue by Geography
    --------------------
                                                                   Q4 2011                    Q3 2011                    4Q 2010                    FY 2011                     FY 2010
                                                                   -------                    -------                    -------                    -------                     -------
                            US$M                               %          US$M          %          US$M          %          US$M          %          US$M          %
                            ----                              ---         ----         ---         ----         ---         ----         ---         ----         ---
    Europe                                                      220.5        46.5        308.2        61.7        321.1        70.9      1,232.9        65.0     1,193.70         79.8
    ------                                                      -----        ----        -----        ----        -----        ----      -------        ----     --------         ----
    America                                                     127.3        26.9         80.6        16.1         46.8        10.3        327.6        17.5        115.7          7.7
    -------                                                     -----        ----         ----        ----         ----        ----        -----        ----        -----          ---
    Asia and others                                             126.3        26.6        110.8        22.2         84.8        18.8        326.7        17.5        186.2         12.5
    ---------------                                             -----        ----        -----        ----         ----        ----        -----        ----        -----         ----
    Total                                                       474.1       100.0        499.6       100.0        452.7       100.0      1,895.4       100.0     1,495.60        100.0
    -----                                                       -----       -----        -----       -----        -----       -----      -------       -----     --------        -----

Gross profit in the fourth quarter of 2011 was $41.4 million, compared to $11.9 million in the third quarter of 2011 and $77.0 million in the fourth quarter of 2010. Gross margin was 8.7% in the fourth quarter of 2011, compared to 2.4% in the third quarter of 2011 and 17.0% in the fourth quarter of 2010. The sequential increase in gross profit and margin was due to a reversal of previously recorded non-cash losses on firm purchase commitment of $14.0 million resulting from the termination of a long-term supply contract, as well as the fact that in the third quarter the Company incurred a large non-cash inventory charge that was not repeated in the fourth quarter 2011. The year-over-year decline in gross profit and margin was primarily due to the significant decline in average selling prices during 2011.

Total operating expenses were $62.9 million in the fourth quarter of 2011, compared to $42.6 million in the third quarter of 2011 and $34.9 million in the fourth quarter of 2010.

Selling expenses were $21.1 million in the fourth quarter of 2011, up 12.9% from $18.7 million in the third quarter of 2011 and up 49.0% from $14.2 million in the fourth quarter of 2010. The sequential and year-over-year increases in selling expenses were primarily due to increases in freight and other export-related expenses associated with higher shipment volumes.

General and administrative expenses were $36.8 million in the fourth quarter of 2011, compared to $16.0 million in the third quarter of 2011 and $18.7 million in the fourth quarter of 2010. The sequential and year-over-year increases in general and administrative expenses were primarily due to a bad debt provision totaling $18.5 million, most of which relates to the termination of the aforementioned long-term supply agreement.

Research and development expenses were $5.0 million in the fourth quarter of 2011, compared to $7.9 million in the third quarter of 2011 and $2.1 million in the fourth quarter of 2010. The sequential decline reflects a lower level of material consumption for research and development activity as projects related to new product launches and cost reduction were completed. The year-over-year increase in research and development expenses was due to the Company’s increased investment in advanced solar technologies to reduce cost, improve cell conversion efficiency and launch innovative new products, compared to the same period of 2010.

Operating margin was negative 4.5% in the fourth quarter of 2011, compared to negative 6.1% in the third quarter of 2011 and positive 9.3% in the fourth quarter of 2010. The sequential improvement in operating margin was driven by the increase in gross profit partially offset by higher operating expenses. The year-over-year decrease in operating margin was due to lower gross profit and higher operating expenses.

Interest expense in the fourth quarter of 2011 was $11.7 million, compared to $10.8 million in the third quarter of 2011 and $6.5 million in the fourth quarter of 2010. The sequential increase in interest expense was primarily due to higher borrowing costs partially offset by a reduction in bank borrowings during the fourth quarter of 2011. The year-over-year increase in interest expense was due to additional bank borrowings and higher borrowing rates. Interest income in the fourth quarter of 2011 was $1.8 million, compared to $3.0 million in the third quarter of 2011 and $1.4 million in the fourth quarter of 2010. The sequential decline in interest income was driven by the significant reduction in restricted cash balances from $344 million in the third quarter to $178.3 million in the fourth quarter of 2011.

The Company recorded a gain on change in fair value of derivatives of $2.4 million in the fourth quarter of 2011, compared to a gain of $14.5 million in the third quarter of 2011 and a gain of $3.2 million in the fourth quarter of 2010. Foreign exchange loss in the fourth quarter of 2011 was $14.1 million, compared to a foreign exchange loss of $23.9 million in the third quarter of 2011 and foreign exchange loss of $1.2 million in the fourth quarter of 2010.

Income tax expense in the fourth quarter of 2011 was $16.3 million, compared to income tax benefit of $3.4 million in the third quarter of 2011 and $10.3 million in the fourth quarter of 2010. The Company’s income tax expense in the fourth quarter of 2011 is mainly driven by its tax structure where production is on a cost plus basis, and can result in taxes being owed in some jurisdictions even when the Company incurs an overall loss.

Net loss attributable to Canadian Solar in the fourth quarter of 2011 was $59.9 million, or $1.39 per diluted share, compared to net loss of $43.9 million, or $1.02 per diluted share, in the third quarter 2011, and net income of $25.5 million, or $0.58 per diluted share, in the fourth quarter of 2010.

Financial Condition

As of December 31, 2011, the Company had $522.3 million in cash, cash equivalents and restricted cash, compared to $621.1 million as of September 30, 2011 and $476.2 million as of December 31, 2010. The sequential decline in cash, cash equivalents and restricted cash was primarily due to a decrease in restricted cash to $178.3 million in the fourth quarter of 2011 from $344.0 million at the end of the third quarter 2011, as the Company reduced short-term borrowing and the corresponding need for cash collateral.

Accounts receivable balance at the end of the fourth quarter of 2011 was $292.2 million, compared to $217.8 million at the end of the third quarter of 2011. The sequential increase reflects a higher concentration of shipments in the last month of the quarter. Accounts receivable turnover days increased to 50 days in the fourth quarter of 2011 from 47 days in the third quarter of 2011.

Inventories at the end of the fourth quarter of 2011 were $296.6 million, compared to $406.0 million at the end of the third quarter of 2011. Inventory turnover days were 80 days in the fourth quarter of 2011 compared to 85 days in the third quarter of 2011.

Accounts and notes payable were $306.0 million the end of the fourth quarter of 2011, compared to $407.1 million at the end of the third quarter of 2011. Accounts payable turnover days were 74 days in the fourth quarter of 2011 compared to 67 days in the third quarter of 2011. This increase in accounts payable turnover during the quarter reflects the Company’s continued efforts to improve its working capital management and more closely align payments with the current industry practice.

Short-term borrowings at the end of the fourth quarter of 2011 totaled $743.7 million compared to $794.8 million at the end of the third quarter of 2011. The Company maintains good relationships with several local and regional PRC banks for nearly all of its short-term borrowing needs. These credit lines can be renewed each year and have no restrictive covenants attached to them. As of the date of this press release, the Company has approximately $975 million in unused credit facilities and historically has had no difficulty renewing its credit lines. Long-term debt at the end of the fourth quarter 2011 was $88.2 million, compared to $153.6 million at the end of the third quarter of 2011.

As of December 31, 2011 the Company had $467.0 million in total stockholders’ equity, compared to $517.1 million as of September 30, 2011 and $534.3 million as of December 31, 2010.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, remarked: “Canadian Solar continued to execute and thrive in a highly challenging global market and benefit from customers flight to quality. Our ability to remain focused and to provide customers with innovative, high-quality solar energy solutions, with top notch support, helped us grow our market share. Shipments for the full year 2011 were up 65%, with a 23% increase in the fourth quarter. The strength was widely distributed, as we had a very good trend of wins at major clients. As for specific markets, we had positive growth in the U.S., Europe, China and India in 2011. China has been our fastest growing market given the lower base it started at, with forecasts calling for a potential 3 GW to 5 GW opportunity in 2012. Importantly, we made substantial progress in our strategy of building our downstream total solutions business and currently have more opportunities than we could possibly address, which is allowing us to be selective. We are excited about this area of our business because it clearly differentiates Canadian Solar, it helps increase our visibility, and leverages our expertise and global brand. Further, the specialization of the solutions business makes it a higher margin business. Our success was illustrated in December 2011 when we entered into a purchase and sale agreement with TransCanada, in which they will acquire from us in 2012 and 2013, nine utility-scale power plants in Ontario valued at approximately C$470 million. We see similar opportunities for our solutions business in many other countries including, India, Japan, the U.S. and China.”

Michael G. Potter, Senior Vice President and Chief Financial Officer of Canadian Solar, commented: “During the fourth quarter, we continued our emphasis on working capital management, specifically working to reduce inventory and control receivables levels. We were successful in reducing our inventory balance by $106.3 million or 26% in the fourth quarter. We are currently examining our worldwide cost structure to ensure it is properly aligned with our expected shift towards more project business and changes in our targeted geographies. By closely managing our operating expenses, we are confident we can continue to excel in a challenging global market as the industry continues to mature.”

Business Outlook

The Company’s business outlook is based on management’s current views with respect to operating and market conditions, its current order book, and the challenging global financing environment, which continues to result in customer demand uncertainty. Management’s views and estimates are subject to change without notice.

For the first quarter of 2012, shipments are expected to be in the range of approximately 340 MW to 350 MW, with gross margin expected to be between 5% and 8%. Despite the challenging global financing environment, which continues to result in customer demand uncertainty for the whole year 2012, the Company expects to ship approximately 1,800 MW to 2,000 MW of solar products. The Company will continue to actively manage manufacturing utilization, inventory and mix levels, and operating expenses as demand levels fluctuate. The Company will also continue to explore ways to increase manufacturing efficiency and yield and to lower processing and consumable costs where opportunities exist.

Dr. Shawn Qu, Chairman and Chief Executive Officer of Canadian Solar, remarked: “Canadian Solar is in an excellent position as we pursue future growth. In addition to our global brand, strong track record of innovation, quality and service, we have one of the most efficient manufacturing models in the industry. We expect to further improve our financial ratios moving forward as we gain more flexibility to drive our total solutions business. Our goal remains to expand our engineering, procurement and construction (EPC) and solar systems kits business to approximately more than 25% of total revenue in 2012 and greater than 40% of revenue in 2013. We are a leader in most markets we serve. Importantly, our commitment to the Canadian market has given us a significant competitive advantage not only in the attractive Canadian market but also in the U.S. market, as we have a fully operational manufacturing base nearby.”

Recent Developments

  • On February 23, 2012 the Company announced the supply of 2,800 solar modules for a rooftop system in the Danish city of Virum. The solar installation, north of Copenhagen, has a capacity of 605 kW, which makes it Denmark’s largest PV system. SRU Solar AG, based in the city of Berga in Saxony-Anhalt, Germany, constructed the pioneering PV system on two roofs of an office complex located in Virum, in cooperation with the young Danish energy company Greengo Energy.
  • On February 22, 2012 the Company announced that it had become a sponsor of the National Hockey League’s Los Angeles Kings. The Los Angeles Kings play in the world-famous STAPLES Center in downtown Los Angeles, also home to three other professional sports franchises and the host site of more than 250 events annually.
  • On January 26, 2012 the Company announced an agreement with the Al Fahad Group, a diversified conglomerate with expertise in defense, intelligence, homeland security, networking, communications and power. Under the agreement, Canadian Solar will supply more than 1.5 MW of its solar modules to the Al Fahad Group, which is spearheading one of the largest solar PV projects in Abu Dhabi, considered one of the pioneers for renewable energies in the Middle East.
  • On January 17, 2012 the Company announced that its solar modules passed the most stringent salt spray corrosion test — IEC61701 Ed2 (salt mist corrosion testing) and IEC60068-2-52 Ed.2 (Severity 1, Environmental testing) standards adopted in 2011. Canadian Solar was granted certification by TUV NORD CERT GmbH, based in Germany. The certification covers 33 of the Company’s products, with outputs ranging from 13W to 305W.
  • On January 5, 2012 the Company announced the successful completion and grid-connection of a 10 MW ground mounted solar project, a part of a 50MW solar plant, in Hongsibao, Ningxia, in northwest China at the end of 2011.
  • On December 20, 2011 the Company announced that its wholly owned subsidiary, Canadian Solar Solutions Inc. (CSSI), entered into a sales agreement with TransCanada Corporation (TSX, NYSE: TRP) (TransCanada), whereby TransCanada will acquire from Canadian Solar a 86 megawatts (MW) AC solar project portfolio for approximately $470 million Canadian dollars.
  • On December 13, the Company announced it had entered into a sales contract with Siemens. Under the agreement, Canadian Solar we will supply 2.5 MW of solar modules for two solar projects — a rooftop system and a carport — constructed by Siemens for the University of Murcia, Spain. For both projects, Siemens used Canadian Solar’s MaxPower CS6X modules, the company’s utility-scale module series. Due to its larger size, power and performance, MaxPower cuts balance of system costs per watt by optimizing tracker and racking space.
  • On December 1, the Company announced that it had supplied solar modules for a 9 MW solar power plant by OPDE Group in Spain. The solar system is scheduled for commissioning in the fourth quarter of 2011 in the town of Ablitas in the Spanish region of Navarra.
  • On November 30, the Company announced the provision of 12,465 high-performing photovoltaic modules for a ground-mount solar power plant installed on a former mining site in the Italian city of Cavriglia (Arezzo).
  • On November 29, the Company announced that it had supplied solar modules for an 8.5 MW power plant in Lindenhof near Neubrandenburg in the German state of Mecklenburg-Vorpommern. Berlin-based saferay expects to complete the project next month.

Conference Call Details

The Company will hold a conference call to discuss its financial results for the fourth quarter of 2011 on Wednesday, March 7, 2012 at 8:00 a.m. U.S. Eastern Time (9:00 p.m. March 7, 2012 in Hong Kong). The dial-in phone number is +1-617-213-8895 or +1-866-272-9941, with passcode 10107363. A live webcast of the conference call will also be available on Canadian Solar’s website at www.canadiansolar.com.

A replay of the call will be available approximately one hour after the conclusion of the live call until 10:00 a.m. on March 14, 2012, U.S. Eastern Time (10:00 p.m., March 14, 2012 in Hong Kong) and can be accessed by dialing +1-617-801-6888, passcode 75429946. A webcast replay will also be available at www.canadiansolar.com.

About Canadian Solar Inc. (NASDAQ: CSIQ)

Canadian Solar Inc. (NASDAQ: CSIQ) is one of the world’s largest solar companies. As a leading vertically integrated provider of ingots, wafers, solar cells, solar modules and other solar applications, Canadian Solar designs, manufactures and delivers solar products and solar system solutions for on-grid and off-grid use to customers worldwide. With operations in North America, Europe, Australia and Asia, Canadian Solar provides premium quality, cost-effective and environmentally-friendly solar solutions to support global, sustainable development. For more information, please visit www.canadiansolar.com.

Safe Harbor/Forward-Looking Statements:

Certain statements in this press release including statements regarding our expected future shipment volumes, gross margins, supply cost, manufacturing capacities, and cell conversion efficiencies, 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 U.S. Private Securities Litigation Reform Act of 1995. In some cases, you can identify forward-looking statements by such terms as “believes,” “expects,” “anticipates,” “intends,” “estimates,” the negative of these terms, or other comparable terminology. Factors that could cause actual results to differ include the risks regarding the previously disclosed SEC investigation as well as general business and economic conditions and the state of the solar industry; governmental support for the deployment of solar power; future available supplies of high-purity silicon; demand for end-use products by consumers and inventory levels of such products in the supply chain; changes in demand from significant customers; changes in demand from major markets such as Germany; changes in customer order patterns; changes in product mix; capacity utilization; level of competition; pricing pressure and declines in average selling prices; delays in new product introduction; delays in utility-scale project approval process; delays in utility-scale project construction; continued success in technological innovations and delivery of products with the features customers demand; shortage in supply of materials or capacity requirements; availability of financing; exchange rate fluctuations; litigation and other risks as described in the Company’s SEC filings, including its annual report on Form 20-F filed on May 17, 2011. Although the Company believes that the expectations reflected in the forward looking statements are reasonable, it cannot guarantee future results, level of activity, performance, or achievements. You should not place undue reliance on these forward-looking statements. All information provided in this press release is as of today’s date, unless otherwise stated, and Canadian Solar undertakes no duty to update such information, except as required under applicable law.

FINANCIAL TABLES FOLLOW

                                                                                                 Canadian Solar Inc.
                                                                              Unaudited Condensed Consolidated Statement of Operations
                                                              (In Thousands of US Dollars, Except Share And Per Share Data And Unless Otherwise Stated)

                                                            Three Months Ended                  Twelve Months Ended

    Item                                                        2011-12-31                           2011-9-30                            2010-12-31              2011-12-31             2010-12-31
                                                                ----------                           ---------                            ----------              ----------             ----------
    Net revenues                                                               474,060                              499,639                              452,719              1,898,923              1,495,509
    Cost of revenues                                                           432,675                              487,735                              375,743              1,716,639              1,266,737
    Gross profit                                                                41,385                               11,904                               76,976                182,284                228,772
    Selling expenses                                                            21,094                               18,685                               14,161                 69,341                 47,109
    General and administrative expenses                                         36,794                               16,037                               18,655                 86,268                 54,520
    Research and development expenses                                            5,012                                7,885                                2,064                 19,839                  6,843
    Total operating expenses                                                    62,900                               42,607                               34,880                175,448                108,472
    Income (Loss) from operations                                              (21,515)                             (30,703)                              42,096                  6,836                120,300
    Interest expenses                                                          (11,737)                             (10,795)                              (6,476)               (43,844)               (22,164)
    Interest income                                                              1,763                                3,040                                1,397                  8,446                  6,936
    Investment income (loss)                                                      (134)                                 309                               (2,912)                   (44)                (2,853)
    Gain (Loss) on change in fair value of derivatives                           2,407                               14,494                                3,158                 (5,751)                 1,657
    Exchange loss                                                              (14,097)                             (23,949)                              (1,192)               (40,008)               (36,294)
    Income (Loss) before taxes                                                 (43,313)                             (47,604)                              36,071                (74,365)                67,582
    Income tax expenses(benefit)                                                16,269                               (3,379)                              10,286                 16,540                 16,754
    Net income (loss)                                                          (59,582)                             (44,225)                              25,785                (90,905)                50,828
    Less: Net income (loss) attributable to non-controlling
     interest                                                                      306                                 (348)                                 249                    (99)                   259
    Net income (loss) attributable to CSI                                      (59,888)                             (43,877)                              25,536                (90,806)                50,569

    Basic earnings (loss) per share                                             ($1.39)                              ($1.02)                               $0.60                 ($2.11)                 $1.18
    Basic weighted average outstanding shares                               43,155,767                           43,154,552                           42,889,124             43,076,489             42,839,356
    Diluted earnings (loss) per share                                           ($1.39)                              ($1.02)                               $0.58                 ($2.11)                 $1.16
    Diluted weighted average outstanding shares                             43,155,767                           43,154,552                           43,714,853             43,076,489             43,678,208

                                                                   Canadian Solar Inc.
                                                      Unaudited Condensed Consolidated Balance Sheet
                                                               (In Thousands of US Dollars)
                                            December 31, 2011  December 31, 2010
    Assets
    Current assets
    Cash and cash equivalents                                                                      343,995    288,652
    Restricted cash                                                                                178,270    187,595
    Accounts receivable, net of allowance
     for doubtful accounts                                                                         292,176    169,657
    Amount due from related parties                                                                 19,836      1,356
    Inventories                                                                                    296,568    272,097
    Value added tax recoverable                                                                     16,974     42,297
    Advances to suppliers                                                                           11,309     27,321
    Foreign currency derivative assets                                                               2,727      2,183
    Project assets                                                                                  88,504          -
    Prepaid and other current assets                                                                45,217     43,508
    Total current assets                                                                         1,295,576  1,034,666
    Property, plant and equipment, net                                                             510,069    330,460
    Intangible assets                                                                               10,781      2,695
    Advances to suppliers                                                                              258     13,946
    Prepaid land use right                                                                          13,805     13,378
    Investments                                                                                     11,008      5,671
    Deferred tax assets - non current                                                               23,227     16,725
    Other non-current assets                                                                        15,084      5,826
    Total assets                                                                                 1,879,808  1,423,367
    Current liabilities
    Short term borrowings                                                                          743,687    540,520
    Accounts and Notes payable                                                                     305,998    123,373
    Other payables                                                                                  84,676     47,876
    Advances from customers                                                                         65,216      8,971
    Amounts due to related parties                                                                   3,008      2,445
    Foreign currency derivative liabilities                                                              -      2,452
    Provision for firm purchase commitment                                                               -     15,889
    Other current liabilities                                                                       33,863     33,807
    Total current liabilities                                                                    1,236,448    775,333
    Accrued warranty costs                                                                          47,021     31,225
    Contingent contract liability                                                                   27,862          -
    Liability for uncertain tax positions                                                           12,301     11,460
    Convertible notes                                                                                  950        906
    Long term borrowings                                                                            88,249     69,458
    Total liabilities                                                                            1,412,831    888,382
    Common shares                                                                                  502,403    501,146
    Additional paid in capital                                                                     (53,331)   (57,392)
    (Accumulated deficit) Retained earnings                                                        (28,695)    62,111
    Accumulated other comprehensive income                                                          45,556     28,462
    Total Canadian Solar Inc. stockholders'
     equity                                                                                        465,933    534,327
    Non-controlling interest                                                                         1,044        658
    Total equity                                                                                   466,977    534,985
    Total liabilities and equity                                                                 1,879,808  1,423,367

SOURCE Canadian Solar Inc.


Source: PR Newswire