Saturday, October 15, 2011

Bronte Capital enters strategic partnership with Diageo - maker of Guinness beer. Oh and a comment on Trina Solar

Bronte Capital have entered into a strategic partnership with Diageo - the maker of Guineess. But we haven't really. We are in a pub in London knocking back a pint of the black liquid. Guinness tastes better in the old country. [It is the old country to an Australian...]

We now have a commercial arrangement with Diageo - albeit a temporary (though tasty) one. But that has not stopped us writing a press-release trumpeting this "strategic partnership". I may send a copy to the news wires to see if they will run it.

In all seriousness they probably would. They ran this:

CHANGZHOU, China, Aug. 17, 2011 /PRNewswire via COMTEX/ --
Trina Solar Limited (TSL) ("Trina Solar" or the "Company"), a leading integrated manufacturer of solar photovoltaic (PV) products from ingots to modules, today announced that through its subsidiary, Trina Solar Australia Pty Ltd, it has signed a strategic partnership with Origin Energy Australia ("Origin"), the leading Australian integrated energy company.
Under the terms of the agreement, Trina Solar is expected to supply Origin with approximately 22 MW of PV modules over the next twelve months starting from the third quarter of 2011. 
"We are delighted to initiate our relationship with Origin, Australia's leading energy retailer and the country's largest green energy retailer with significant investments in renewable energy technologies," said John Susa, Trina Solar's Country Manager of Australia and New Zealand. "We are confident that this long-term partnership with Origin will bolster our ability to expand and strengthen our market position in the residential segment."

Being a cynical sort of guy - and knowing that Origin Energy are reputable I checked this release. Here is what Origin said.

Hi John, 
Origin has not put out a release as it is simply part of our ongoing supply arrangements and not material in its own right.  Trina is one of a number of suppliers we use. 

Angus Guthrie
Group Manager, Investor Relations

I blogged this response here.

I almost did not need to check. When a party announces a "strategic partnership" and the press release offers contacts from only one side of the deal then you should be skeptical. Indeed it can hardly be strategic if only one side comments.

There are other strategic partnerships announced by Trina. In all cases there is no contact given for the "strategic partner", for they once announced a strategic partnership in Italy.

I am going to be blunt. The Origin press release has as much substance as Bronte's "strategic partnership" with Guinness. I have no idea about the other strategic arrangements but Trina says some strange things about Italy. For instance in the last conference call the chief operating officer said:

I have been waiting for Italy since I got here. So, we are actually seeing some good activity finally. And we have some pickup in activity. We see it. Obviously, our historic Italian account is at the utilities. We also see Spanish accounts that a lot of them actually served projects there. So, after much waiting and unclarity, we are seeing some pickup in demand. There is – we still have a mix of utility projects in commercial rooftop there. And so what we are seeing moved quicker was the stuff that was utility that was finishing off and now it’s blending into commercial rooftop.

It is possible that Italy was taking off just as he said this - but it seemed unlikely to us. After all the banks in Southern Europe were under sharply increasing financial stress at precisely the time of this conference call and funding for long term projects (like solar) was drying up. I did not believe the statement. Maybe it was true - but there is a problem with statements about insignificant "strategic partnerships". Those statements predispose you to not believe further statements.

So here is what I believe. I believe Trina is burning cash increasingly fast. So fast that it is in deep trouble.

Trina, through operating cash burn and capital expenditure chewed through $136 million last quarter. I blogged the calculation here. Chinese banks funded this.

The average selling price during the quarter was $1.46 per watt (reference given here).

The prices per watt have fallen to $1.10 or below when priced wholesale.

So revenue per watt is running 36c lower than during the quarter.

The costs per watt have dropped too. Polysilicon has dropped from say $48 to $38 per kilogram - but exact numbers are hard to find.  At 6 grams per watt the costs per watt thus dropped 6c. Efficiency gains add another 2c reduction in costs per watt.

Nonetheless margin per watt will be 28c per watt lower than last quarter.

Production is going to be (at least) 450 million watts - so aggregate margin is going to be $112 million lower than last quarter.

There won't be any tax paid - or anything like that - but the company looks like it will burn through $136 million plus $112 million in cash - more if stuff keeps accumulating in warehouses - less if the hard-selling they are doing actually works.

$248 million per quarter - or roughly a billion dollars a year is a little bit much for Trina to bear.

Unless there is something dramatically wrong with my calculation Trina is doomed. Not even a Chinese bank comes at a billion a year funding requirement just to stay in business.

Now of course all of this is my estimates. I can only go on public information and my own inquiry and my own analysis. I wish I could just use Trina's statements but - and it might just be the PR people who have done this - Trina has devalued its statements with overblown puff pieces about "strategic partnerships".

But I have trouble trusting Trina. And you should have trouble trusting me. I am effectively short the stock. Besides, I have just entered into a very enjoyable "strategic partnership" with Diageo.

And I might just have another Guinness.



Jordan Terry said...

Did you ever get any color into the silicon purchase agreements? Just those alone could suck up a large chunk of revenues last I checked.

Robert formerly in Dublin said...

With all the good English ales out there, you're in London touting an Irish stout and claiming it tastes better there? (Legend has it that Guinness tastes better within an hour or two of delivery time from the Dublin brewery. My taste buds weren't good enough to compare across locations.)

Anonymous said...

Minor quibble:

Not sure that an Australian of, for instance, Greek descent, would see the UK as the old country.

Most Aussies can trace ancestry back to the UK, but an increasingly large number cannot.

Of course, one thing that all Aussies can presumably still agree upon is that Poms whinge...

Anonymous said...

I too have a strategic partnership with Guinness. It's quite profitable... for them.

I was also disappointed you didn't have a fake press release for your partnership. I was looking forward to reading it.

Anonymous said...

Great idea. Pints and Partnerships for all.

Perhaps Bronte could enter into a "Preferred Provider" relationship with Diageo too. Or they could become your "exclusive supplier" of Guiness.

Don't forget to file the 8Ks.

Detlef Guertler said...

Today I came to your site via your strategic partnership (aka Blogroll) with FT Alphaville. And if I post a comment here under my real name, I might publish that I started a strategic partnership with Bronte Capital - and you would see my shares explode. If I were listed at any Stock Exchange...

Anonymous said...

If most of the Solar companies are on the same ship then it comes to mind who will survive. We can play with the numbers and estimates per our liking. China, US, and India need alternative power or risk letting oil price run wild. Short term investers need to worry if they run investments on margin accounts, but long term investers need to find the companies which will survive the hard crash of solar industries before start of consolidation there. FSLR and TSL seems to remain leaders even during negative profit cycle they have secured long term finances to keep themselves above water. I think this one analyst comment vs. 90% analyst who see Trina shining in long term need to be considered as well. Not saying one analyst is wrong, others can't be off the track either.

Anonymous said...

Your work is basically right. I would just add spot poly is closer to $28 at the moment than $45 which will save them some more money, and I expect EVA pricing will also be hit as there is margin in that industry to be squeezed (look at STR Holdings). Also, that was an operating cash burn AND capex and you have to expect they will stop buying more furnaces and building factories...unless you think a lot of the capex is ongoing or somehow fudged that should save at least half off of that quarterly 130m burn.

The working capital situation is unlikely to get better in short term but you may see a smaller absolute increase in receivables and inventory...then again you may not.

Curious though why this is your number one short in the space. You think they are a fraud I guess? STP also has a huge debt load, FSLR uncompetitive pricing/cost structure, STR Holdings fat margins and competition, Satcon inverters is essentially bankrupt.

Seems like TSL will survive bc the Chinese gov wants to have some
solar companies survive in China. TSL looks more saveable than an STP or LDK to me.

Gareth Cottam said...

On page 41 of the Weekend West Australian newspaper, Retravision was running a full page ad for Solar. Install a hot water system, get a 1.5W solar power system with inverter for free. Not sure who their suppliers are, but doesn't seem to bode well for the solar industry profits.

John Hempton said...

To your point and mine about "strategic partnership" this is from LONGTOP - a company which did not exist:

Longtop has established strong vendorship with Microsoft and we are one of the largest Chinese vendors that provide software development and testing services to Microsoft. Longtop has built a Microsoft Offsite Facility in Beijing recently. Longtop has received wide recognition for its global software service. It was ranked as the “Fifth Emerging Outsourcing Provider in Asia”, one of “Top 100 Global Services Companies” by the well-known IT magazine InformationWeek in 2007 and 2008, and in the “Global Services 100” by neoIT and the Global Services Consultation Company in 2007, 2008, and 2009.


Did Microsoft know it was aiding and abetting fraud?

John Hempton said...

To the Greek Australian who objects to calling the UK the old country...

may i point out

Her Majesty, Queen of Australia.
Her Majesty's Courts
Crown prosecutors
The Royal Australian Navy
Her Majesty's Australian Service etc

We got a lot of intitutions from the old company.

Anonymous said...

Another Greek, who lives in Australia and is an unashamed Anglophine, notes the following:

The Economist now seems to have picked up on John's idea on the solar panel industry - check this out:


Jordan Terry said...

@ Anonymous who commented about Si spot prices: doesn't much matter as TSL's purchase agreements (primarily from GCL) are already spelled out and there isn't too much wiggle room. They've gotta buy (again, with not much wiggle room or many "outs") some $15bn of it through 2020.

Anonymous said...

Friday 21 October, 2011

PV Crystalox Solar

Interim Management Statement

RNS Number : 5857Q

PV Crystalox Solar PLC

21 October 2011

PV Crystalox Solar PLC

21 October 2011

Interim Management Statement

In light of the ongoing difficult market conditions in the solar industry PV Crystalox Solar PLC ("the Group") has brought forward its Interim Management Statement to today's date. This announcement is provided in accordance with the UK Listing Authority's Disclosure and Transparency Rules, for the period from 30 June 2011 to the date of this announcement.

The anticipated recovery in PV end-market demand stimulated by lower module prices has been weaker than expected in the second half of 2011, particularly in Germany, the largest global market. Furthermore, the hitherto expected year-end rally, driven by the pull-in effect of installations in advance of the feed-in tariff cut, does not appear to be materialising.

Since our interim results statement wafer prices on the spot market have decreased by more than 20%, meaning that the overall decline since April is greater than 50%. This decline has been driven by a combination of weak demand coupled with significant over-capacity and high inventories.

Some of our customers have reduced production in response to the weak market conditions and accordingly the Group now expects full year shipment volumes to be in the range 360-390MW. This is broadly flat in comparison with the 378MW shipped the previous year but below the 400-450MW indicated at the time of our interim results on 18 August 2011.

In light of these market conditions the Board has resolved to take appropriate actions to manage the business through these difficult times and to conserve the Group's cash. In the short term the Group intends to reduce production output at its UK ingot and German wafer operations. The Board also intends to suspend production temporarily at its polysilicon facility in Bitterfeld, Germany. Regrettably these actions will lead to significant job losses in the UK and short time working in Germany. In addition the Group will continue to have discussions with its suppliers in order to reduce costs and will continue to seek further methods of achieving greater efficiencies within the Group's operations.

As a result of the lower volumes, the intense pricing pressure, and the associated inventory write-downs the Group now expects to incur an operating loss for the full year. The Group continues to review the carrying value of assets, and the result would be a significant non-cash impairment at the year-end, if market conditions persist.

The Group's cash position remains positive and the above measures have been instigated to minimise cash outflows, and the Group expects to have a healthy cash balance at the end of the year. Whilst the market conditions are currently difficult, the Board's actions are a necessary response, designed to preserve the capabilities within the business. The Group continues to believe that the medium-term outlook for solar installations remains positive and in the importance of protecting the Group's capabilities and cash for the future. The Group continues to review industry conditions on an ongoing basis.


PV Crystalox Solar PLC +44 (0) 1235 437188

Iain Dorrity, Chief Executive Officer

Peter Finnegan, Chief Financial Officer

Matthew Wethey, Group Secretary

FTI Consulting +44 (0) 20 7831 3113

James Melville-Ross

Tracey Bowditch

General disclaimer

The content contained in this blog represents the opinions of Mr. Hempton. You should assume Mr. Hempton and his affiliates have positions in the securities discussed in this blog, and such beneficial ownership can create a conflict of interest regarding the objectivity of this blog. Statements in the blog are not guarantees of future performance and are subject to certain risks, uncertainties and other factors. Certain information in this blog concerning economic trends and performance is based on or derived from information provided by third-party sources. Mr. Hempton does not guarantee the accuracy of such information and has not independently verified the accuracy or completeness of such information or the assumptions on which such information is based. Such information may change after it is posted and Mr. Hempton is not obligated to, and may not, update it. The commentary in this blog in no way constitutes a solicitation of business, an offer of a security or a solicitation to purchase a security, or investment advice. In fact, it should not be relied upon in making investment decisions, ever. It is intended solely for the entertainment of the reader, and the author. In particular this blog is not directed for investment purposes at US Persons.