Third-quarter financial results published today by Canadian Solar reveal brisk trade and growth for the company right across the board.
The solar power company enjoyed a 41.1% increase in net revenue in Q3, generating $490.9 million compared to $380.4 million in Q2. This growth can largely be attributed to an increase in module shipments rising from 455 MW in the second quarter to 478 MW for Q3 but there were other contributing factors, too.
Japan was the largest single recipient of Canadian Solar modules, receiving almost one-third of all global shipments (29.5%) in the third quarter a figure that was down from Q2 (when the Japanese market purchased 35.7% of all Canadian Solar modules) but way up on Q3 for 2012, when Japan accounted for just 5.7% of all modules.
In contrast, the European market generated just 9.5% of Canadian Solars revenue in Q3, compared to the 46.9% generated from the U.S. market. After being responsible for more than 50% of the companys revenue in the second quarter of 2013, Asia and all other markets generated 43.6% of revenue for Q3, indicating a slight but notable shift towards the American market, which grew by 10% quarter-on-quarter.
A profitable quarter
Canadian Solars profit margins also look healthy for Q3. Gross profit was $100.2 million in this third quarter, which is in stark contrast to the figure for last year, when Q3 2012 brought just $7.3 million in gross profit. The report suggests that "the sequential quarterly increase in gross profit was primarily due to increased revenue contribution from the Companys higher margin total solutions business," as well as higher gross margin for its pure module business.
Year-on-year, the profit increase can also be attributed to lower manufacturing costs, which were partially offset by a decline in average selling price over the past 12 months. In terms of gross margin, Canadian Solar experienced a 20.4% fillip, which was some 10% above initial expectations and partly thanks to the companys sale of two solar power plants to BlackRock and TransCanada.
The companys operating margin was 11.3% for Q3, up from 2.3% in the second quarter and a healthy upswing on the same period in 2012, when Canadian Solar ran an operating margin of negative 10.6%. By the end of the third quarter of this year, Canadian Solar had a cash flow of $681.7 million, which is $140 million more than at the end of Q2.
"Our third quarter results underscore the continued successful execution of our total solutions business plan, the strength of our module business, and the scalability of our operating model," Canadian Solar CEO and chairman, Shawn Qu, said. "Third quarter results exceeded the high point of our revenue and gross margin guidance, and our net income reached $27.7 million, allowing us to reach our goal of returning Canadian Solar to profitability for the year.
"During the quarter, we closed the sale of our Brockville 2 and Burritts Rapids solar plants, and announced the separate sale of two solar power plants to BlackRock. We are making excellent progress on larger scale opportunities as well. Most notably, we began construction of a 130 MW utility-scale solar power plant in Ontario, Canada under our EPC agreement with Grand Renewable Solar LP, a solar energy project developed by Samsung Renewable Energy Inc., which is expected to generate over C$310 million ($301.1 million) in revenue for Canadian Solar. We are also actively developing other market opportunities, in particular in China and Japan. We have high confidence in our visibility and in the sustainability of our business plan into the next several years."
The companys CFO and senior vice president, Michael G. Potter, added: "This was another strong quarter for us, as we returned to profitability and further improved our financial position.
"We continue to put a priority on expanding our pipeline with other new, high-quality, actionable projects in Japan, China, the U.S. and the Middle East. In support of our efforts to build out our pipeline we signed a C$104 million non-recourse, short-term construction financing agreement with Deutsche Bank. Finally, to further demonstrate the Company’s commitment to adhering to best practices in corporate governance and enhanced Board independence, I have, with the agreement of the Board, resigned from the Board to allow for the appointment of another independent director."
Potters resignation from the board was explained as "an effort to further enhance board independence and corporate governance."
Accompanying Canadian Solars Q3 financial results were further details of the companys planned pipeline for utility scale projects. After selling four solar projects in Q3, Canadian Solar now operates 24 utility scale projects in Ontario, with a collective capacity of 327 MW, which is down slightly on the beginning of the year.
However, the company expects to complete an additional 16 solar plants in the region in 2014, with a further six in the pipeline for 2015. Overseas, Canadian Solars Japanese pipeline now stands at 278 MW and is assessing more than 200 MW of additional projects, while in the U.S. the companys pipeline has reached 198 MW. Globally, the company ended Q3 with a pipeline of 1,015 WM in PV projects, compared to 971 MW for Q2.
Looking ahead, the company expects its annual module shipment capacity to reach 1.77 GW by the end of 2013, expanding its gross margin to somewhere between 13 and 15%.