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Hanwha Q CELLS Reports Third Quarter 2016 Results

Hanwha Q CELLS Co., Ltd. today reported its unaudited financial results for the third quarter of 2016.
Third Quarter 2016 Highlights
- Net revenues were $707.8 million, compared with $638.0 million in the second quarter of 2016 and $427.2 million in the third quarter of 2015.
- Gross profit was $140.5 million, compared with $151.2 million in the second quarter of 2016 and $93.0 million in the third quarter of 2015.
- Gross margin was 19.9%, compared with 23.7% in the second quarter of 2016 and 21.8% in the third quarter of 2015.
- Operating income was $72.4 million, compared with $84.5 million in the second quarter of 2016 and $40.3 million in the third quarter of 2015.
- Net income attributable to Company's ordinary shareholders was $41.7 million, compared with net income of $76.8 million in the second quarter of 2016 and net income of $52.4 million in the third quarter of 2015.
- Earnings per fully diluted American Depositary Share ("ADS" and each ADS represents 50 of the Company's ordinary shares) were $0.50, compared with earnings per fully diluted ADS of $0.92 in the second quarter of 2016 and net income per fully diluted ADS of $0.63 in the third quarter of 2015.
Mr. Seong-woo Nam, Chairman and CEO of Hanwha Q CELLS, remarked, "Our financial and operational results in the third quarter were solid while generating net revenues of $707.8 million in this quarter, an increase of 65.7% from the same period last year. And we are on course to achieve our previously guided full-year total module shipments of 4,800 to 5,000MW in 2016."
"Our industry is undergoing challenging time with elevated macro uncertainties," Mr. Nam continued. "We will continue to focus implementing disciplined financial and operational management as we navigate current market environments, yet further strengthening our industry leadership in technology, quality and customer services for stable long-term growth."
Third Quarter 2016 Results
Net Revenues
- Total net revenues were $707.8 million, up 10.9% from $638.0 million in the second quarter of 2016 and up 65.7% from $427.2 million in the third quarter of 2015.
Gross Profit and Margin
- Gross profit in the third quarter of 2016 was $140.5 million, compared with $151.2 million in the second quarter of 2016 and $93.0 million in the third quarter of 2015.
- Gross margin in the third quarter of 2016 was 19.9%, compared with 23.7% in the second quarter of 2016 and 21.8% in the third quarter of 2015.
Operating Expense, Income and Margin
- Total operating expenses were $68.1 million in the third quarter of 2016, up 2.1% from $66.7 million in the second quarter of 2016 and up 29.2% from $52.7 million in the third quarter of 2015.
- Selling and marketing expenses were $36.4 million in the third quarter of 2016, up 10.0% from $33.1 million in the second quarter of 2016 and up 59.6% from $22.8 million in the third quarter of 2015.
- General and administrative expenses were $19.7 million in the third quarter of 2016, up 0.1% from $19.6 million in the second quarter of 2016 and up 13.9% from $17.3 million in the third quarter of 2015.
- Research and development expenses were $12.0 million in the third quarter of 2016, down 14.3% from $14.0 million in the second quarter of 2016 and down 4.8% from $12.6 million in the third quarter of 2015.
Net Interest Expense
- Net interest expense was $12.4 million in the third quarter of 2016, compared with $9.3 million in the second quarter of 2016 and $11.9 million in the third quarter of 2015.
Foreign Currency Exchange Gain (Loss)
- Net foreign currency exchange loss was $2.3 million in the third quarter of 2016, compared with a net gain of $1.8 million in the second quarter of 2016 and net loss of $17.8 million in the third quarter of 2015.
Changes in Fair Value of Derivative Contracts
- The Company recorded a net loss of $2.1 million in the third quarter of 2016 from the change in fair value of derivatives in hedging activities, compared with a net loss of $13.7 million in the second quarter of 2016 and a net gain of $0.9 million in the third quarter of 2015. 
Income Tax Expense (Benefit)
- Income tax expense was $10.3 million in the third quarter of 2016, compared with an income tax benefit of $8.8 million in the second quarter of 2016 and an income tax expense of $2.4 million in the third quarter of 2015.
Net Income (Loss) and Earnings (Loss) per ADS
- Net income attributable to Company's ordinary shareholders was $41.7 million in the third quarter of 2016, compared with net income of $76.8 million in the second quarter of 2016 and net income of $52.4 million in the third quarter of 2015.
- Earnings per fully diluted ADS on a GAAP basis was $0.50 in the third quarter of 2016, compared with earnings per fully diluted ADS of $0.92 in the second quarter of 2016 and net income per fully diluted ADS of $0.63 in the third quarter of 2015.
Financial Positions
As of September 30, 2016, the Company had cash and cash equivalents of $254.8 million, compared with $255.4 million as of June 30, 2016. The restricted cash as of September 30, 2016 was $147.2 million, compared with $165.2 million in the previous quarter.
As of September 30, 2016, accounts receivable was $456.1 million, compared with $518.3 million as of June 30, 2016. Inventories were $451.7 million, compared with $485.3 million as of June 30, 2016.
Total short-term bank borrowings (including the current portion of long-term bank borrowings) were $414.9 million as of September 30, 2016, an increase of $35.2 million from the second quarter of 2016. As of September 30, 2016, the Company had total long-term debt (net of current portion and long-term notes) of $796.9 million, a decrease of $2.7 million from the second quarter of 2016. The Company's long-term bank and government borrowings are to be repaid in installments until their maturities, which range from one to sixteen years.
Net cash used in operating activities was $94.9 million in the third quarter of 2016.
Capital expenditures were $23.0 million in the third quarter of 2016.
Operations Updates and Business Outlook
Capacity Status
As of September 30, 2016, the Company had in-house, annualized production capacities of 1,550MW for ingot, 950MW for wafer, 4,100MW for cell and 4,050MW for module.
Additionally, the Company has an access of module supply of up to 1,500MW (annualized) as of September 30, 2016 from Hanwha Q CELLS Korea Corporation, an affiliate of the Company.
Business Outlook
For the fourth quarter of 2016, the Company estimates net revenues in the range of $600 to 620 million.
For the full year 2016, the Company reiterates its previous guidance of module shipments and reduced capital expenditures as below:
- Total module shipments in the range of 4,800 to 5,000MW
- Revenue-recognized module shipments in the range of 4,600 to 4,800MW
- Capital expenditures of approximately $130 million, of which $84 million for capacity expansion and the remaining $46 million for manufacturing technology upgrades and certain R&D related expenditures