Germany and UK provide nearly 50% of Trina Solar’s Q1 revenue

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Trina Solar’s first quarter 2013 revenue was dominated by sales to Europe, notably Germany and the UK, making a significant effort to meet customer demand in Europe before EU anti-dumping duties are imposed on Chinese PV module producers.

Trina Solar reported first quarter 2013 revenue of US$260.2 million, a decrease of 14.0% from the fourth quarter of 2012. However, Germany accounted for 24.6% of sales in the quarter, up from 12.9% in the fourth quarter of 2012.

The UK accounted for 22.9% of first quarter 2013 sales, up from only 4.6% of sales in the previous quarter. The UK is experiencing a boom in utility-scale PV projects and has been dependent on lower-cost Chinese produced modules for meeting project ROI (Return on Investment) requirements, due to a cut in feed-in tariffs.

However, the company guided that on a geographical basis, Germany would only account for around 19% of revenue in 2013, while the UK would represent around 12% of revenue this year.

Sales diversification is expected to continue away from Europe in 2013, according to the company. Key emerging markets such as China are expected to account 20% of revenue this year, up from 12.9% in 2012.

Other emerging markets such as Japan are expected to generate 9% of sales in 2013, compared to 3% of revenue in 2012. India is expected to generate 6% of sales in 2013, while India was not represented separately in percentage terms charts provided in Trina Solar’s first quarter conference call supporting presentation. Markets such as Australia are expected to increase year-on-year by 0.9%.

Management noted in the call to discuss financial results that Europe as whole would still account for around 40% of revenue in the second quarter of 2013.

However, key markets such as the US are set to account for around 17% of revenue in 2013, down from 25.5% in 2012.

Profitability push

Cost reductions implemented in 2012 limited first quarter losses and slowed the impact of continued ASP declines in the quarter.

Trina Solar reported an operating loss of US$40.1 million, compared to an operating loss of US$70.4 million in the fourth quarter of 2012. Operating margin was negative 15.4% in the first quarter, compared to negative 23.3% in the fourth quarter of 2012.

The net loss was US$63.7 million in the first quarter, compared to net loss of $87.2 million in the fourth quarter of 2012.

Net margin was negative 24.5%, compared to negative 28.8% in the fourth quarter of 2012 and negative 8.5% in the first quarter of 2012.

However, management noted in the call that manufacturing cost reductions outstripped ASP declines in the first quarter. Overall gross margins are expected to slowly increase in coming quarters as ASPs improve.

ASP improvements were expected due to revenue recognition from a series of PV power plant projects such as projects in China and South Africa. Management noted that the company did not recognise any PV project revenue in the first quarter of 2013, impacting margins compared to some of its rivals.

Overall gross margin for the second quarter is expected to be in the middle single-digit percentage range, despite an impact from increased outsourced quantities of wafers and solar cells from third party suppliers to meet demand in excess of its internal capacity. Outsourcing of cells is required for the US market.

Ironically, the expected EU duty penalties would also support higher ASPs in the second half of the year as prices rise to cover duties, though are expected to be impacted by alternative use of non-Chinese materials (wafers, cells etc…) to meet customer demand in Europe.

However, management remained vague on a return to profitability in 2013, though reiterated efforts to be profitable on an operating basis by year-end.

The company also reiterated its module shipment guidance for the year to be between 2GW and 2.1GW, still below nameplate capacity of 2.5GW at the end of the second quarter of 2013 (2.4GW in Q1).

Second quarter shipments are expected to increase significantly over the first quarter as management guided shipments to be between 500MW to 550MW, a figure expected for the remaining quarters of the year.

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