JinkoSolar discusses the challenges it faced in 2011, and looks at the year ahead

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Having worked in the industry for over 10 years, Herrero believes the challenges seen in 2011, such as the lack of stability between supply and demand, are simply part and parcel of the solar market. And, while many have struggled recently, he is optimistic that there is a bright future ahead. Indeed, he says that the next solar boom could come as early as 2012, and will definitely be seen in 2013. In the interview below, Herrero discusses, among other issues, module prices, emerging markets and survival strategies.

This has year been very challenging. How has JinkoSolar been affected by the market conditions?

2011 was a record for JinkoSolar in terms of sales revenues and megawatt achievements, so even with the difficult market situation, the company has been surpassing investors’ expectations, both in the first and second quarters.

In the second half of the year, we were expecting further rebounds from the main market, especially from Germany and it didn’t come as fast as we expected in the third quarter (Q3), so we slightly reduced our guidance for the full year.

Having said that, we are still in a very good position compared to our peers. I think that we did a better job in expansion of our market share, expansions of our revenues and also … we have a very strong financial structure.

How did JinkoSolar achieve this?

There are three main reasons for this success. The first one is the good cost structure of our company. We are vertically integrated … and this ensures our cost structure is very well controlled. I think we also have a strong financial management to be sure that we have a safe cash flow situation at the end of each quarter.

The second point is the well-executed sales and marketing strategy. I think we managed to have the attractiveness of big, important customers, so our main partners are companies that are financially healthy and reliable, meaning we didn’t suffer any major impacts from the financial crisis. At the same time, we managed to get a good return on the profits, in terms of higher average selling prices (ASP’s) from our modules. For example, in Q1 and Q2, our ASP was higher than most of our competitors, particularly in markets like Italy and Germany.

The third point of our success, so far, has been the rapid expansion in terms of localized teams in different countries. We have been reducing the exposure in Italy and Germany – at the beginning of the year, they represented over 70 percent of our revenues. In Q3, this was already reduced to 50 percent, which is quite a good signal that we have been able to diversify to different geographical markets.

Which markets comprise the other 50 percent?

Around 26 percent is Germany, 24 percent is Italy, 12 percent comes from France, 12 percent from Spain, seven percent from the U.K., and even five percent has been from China.

You mentioned that your ASP was higher than competitors. Can you provide concrete numbers?

We were selling for around €1.25 per Watt (/W) at the beginning of the year. Right now, we are below €1/W during Q3, so there has been a big reduction.

Will it continue to drop in Q4?

We have the good news that silicon is also going down, so we are taking advantage of this reduction of the raw materials, and are passing them onto customers. So, we are able to sell modules right now at prices below €0.80/W.

What do you expect in terms of prices going into 2012?

What we are seeing is that the situation is more stable. We are expecting stability on the demand side, mainly because there are new countries emerging with stronger expectations than we have right now, like the U.S., India and China. We expect these markets to compensate as much as they can for the reduction we are seeing in markets like Germany or Italy.

Also at the same time, we are seeing a reduction on the offers from manufacturers. A lot of our competitors are facing very hard times in keeping up their production capacities, so mainly manufacturers from Europe and the U.S. – they are trying to survive in these difficult conditions. Therefore, we see a lot of consolidation and a reduction on the total production over the coming months.

At the same time, there will probably be some countries showing the first signs of reaching grid parity – it will make the situation in the market, probably by mid-next year much more attractive for markets that have not been demanding any solar installations so far. I’m specifically thinking of South America and countries like Mexico, Brazil or Chile.

Is JinkoSolar expecting to reap more sales from these regions?

That’s correct. It’s our diversification strategy and we are approaching the markets for next year. We are also increasing our market share in China, India, Australia and Canada.

Does the company have plans to set up sales offices in these countries?

We have established our new office in Montpellier, France, and we have also opened the first office in Queensland, Australia. The U.S. headquarters is in San Francisco and, by the end of this year, there will be a new office in New Jersey to cover east coast activities. Now we are planning to do the same in the next year, probably in India and Canada.

You mentioned that emerging markets are going to be a key focus for 2012. Which ones will be important for JinkoSolar?

We still think Europe will be a leader in terms of percentage of our distribution revenues. So Europe will probably still account for 70 to 80 percent of our revenues. Italy, Germany, Spain, France and Belgium will take the biggest part of this. Outside of Europe, we expect to have around five to seven percent of revenues coming from the U.K. Then we will probably see China and India – each of them will account for around five percent of our revenues. The rest of the world will comprise the rest. It’s still too early to consider a big jump in sales in the South American markets or South Africa.

Your initial 2011 production capacity target was 1.5 gigawatts (GW). The company reduced this to 1.2 GW in Q3. What is the situation now?

Part of our reduction of our guidance has also been the decision to reduce our capacity speed of expansion, so at the end of this year, capacity will be 1.2 to 1.3 GW. We will not take the decision to expand further, until we have better visibility on demand in the year to come.

Have any employees been affected?

Only the temporary employees that we need in peaks of production … when the production goes down, we do not renew the contracts. But you can understand that it is quite a number, because we are having a huge production process and need a lot of employees. So when the temporary contracts are not renewed, it is impacting quite a lot of people.

JinkoSolar came under fire this year after the fluoride leak at its Haining facility. How has this situation affected the company?

I think we did a good job in terms of being very clear and transparent about what happened. It has been misled and taken out of context from some media, especially reports from China. We didn’t hide anything. We were mentioning from the beginning what were the real facts … we didn’t have any incident in the factory – it was mainly in the storage part outside of the facility, where we had this solid waste storage for a few days that unfortunately was [impacted by] the rain.

Once we communicated that, we needed to renew the trust and confidence not only from customers, but also from the banking community and investors. I think we succeeded in doing that, despite obviously the timing that we needed to convince the major players in our portfolio. We [invited] several companies to come to our facilities and to do by themselves the checking of the operations and to see that everything had been set up properly.

Right now, after we put in place different measures in terms of improving the controls of the environment, I think we are one of the cleanest factories in China. Obviously it takes time to communicate these reports, so we have done well. But there is still some further processes to do.

Has JinkoSolar lost customers?

No we didn’t. Some of the potential customers that we were in negotiations with – they put on hold for a while their decisions, and probably they decided to go to other sources, but they were not our customers.

After the incident, the company wanted to invite the villagers who were a part of the protests into its factory and create more of a two-way dialogue. Has this happened?

Let me clarify: The demonstrators were not mainly coming from the village – most of the rioters that were provoking the incident were people coming from other cities. In fact, some of them were taken by the police and have been prosecuted for different incidents, not only against JinkoSolar, but also other facilities in the past. So there were people that were receiving money in order to conduct these kind of aggressions. There is one person called Mr. Sun that was … circulating all kinds of bad press. He has been taken by police and I think he is still, according to the local government, in prison.

What was his motivation?

Probably economical – people paying him money. We prefer not to enter into too much detail, but it seems that there was some envy from local manufacturers who were not receiving enough support from the local government.

Lawyers Howard G. Smith have launched legal action on behalf of investors who purchased JinkoSolar stock on the New York Stock Exchange. What is the situation here?

The process has still not been filed. Our company is very clear in our statements. We will fight very strongly with all the legal weapons against this potential lawsuit. We really feel that there is nothing to be concerned about. They’re alleging that we didn’t have the environmental standards … during our process of getting the company listed. There is not any kind of evidence that this is true. We had complied with all the environmental standards in China before the IPO.

They also claim that because of the announcement of the incident, that was creating a big drop on the stocks … the fact is that our share after the incident was recovering much faster than our competitors, so if you have an objective comparison with the stock situation of JinkoSolar versus our competitors, our share was recovering much faster and much better. Unfortunately, the whole industry’s stocks have been negatively impacted, not by this Haining incident, but by the reduction of policies in feed-in tariffs and also by the financial situation of many companies like Solyndra, or Evergreen, that financially couldn’t survive.

What is your opinion the U.S.-China trade dispute?

I think this is motivated by their [SolarWorld’s] own situation. The fact is that they are not doing a good favor to the whole industry, and they are not doing a very good favor to themselves.

What we expect is that the U.S. will not take into consideration their claim … hopefully they will not introduce a big duty for the import of Chinese products.

At the end of the day, it is not only damaging the commercial relationship between both countries – China and the USA (and there is a lot of interest from American companies to export to China)– but also it is damaging the interest of the end user, the ones who want to install solar panels on the roofs under the most competitive conditions. By increasing duties for the import, obviously we will have to increase the pricing to the end user, who is right now having much better competitive conditions when buying solar panels in the market.

Looking ahead to 2012, what trends or problems do you foresee?

What we will see next year, will be a lot of consolidation and companies that will unfortunately not be able to compete any further. But there will also be companies, and JinkoSolar will be one of them, that will reinforce their market share, activities and brand recognition, and will be able to cope with these difficulties. [We will be] more prepared and competitive, and ready to face the next boom in solar, which probably will come by the end of next year, and definitely by 2013 when there is not so much for such huge subsidies.

Finally, what are your survival strategies in such a competitive marketplace?

We need to keep focusing on our marketing activities and the localization of our efforts in sales … I think the main reasons for customers to keep buying from JinkoSolar is reliability, the service localized in each country and the trust that the company will survive, because we have a very strong financial platform and our cash situation is really healthy.