OREANDA-NEWS. Sky Solar Holdings, Ltd. (NASDAQ:SKYS) (“Sky Solar” or “the Company”), a global developer, owner and operator of solar parks, today announced its financial results for the second quarter of 2016 ended June 30, 2016.

Highlights:

  • Q2 2016 total revenue of $17.0 million, up 34.6% over Q2 2015
  • Q2 2016 electricity revenue of $15.6 million, up 40.2% over Q2 2015
  • Q2 2016 Adjusted EBITDA of $8.6 million, compared to $4.5 million in Q2 2015, up 91.5% year-over-year; Q2 2016 annualized Adjusted EBITDA return on equity ratio of 28.4%1
  • 133.1 MW of IPP assets in operation as of June 30, 2016. Including the recent acquisition of operating assets in the U.S. on July 15, 2016, total IPP assets in operation currently stand at 155 MW.
  • As of June 30, 2016, 27.9 MW under construction, 232.3 MW of shovel-ready projects, and 1.0 GW of solar parks in pipeline.

Mr. Weili Su, Founder, Chairman and Chief executive officer of Sky Solar, commented, “We have begun operating 22 MW solar parks with average remaining PPA of 15 years in the United States since the completion of our acquisition of these assets from Greenleaf-TNX and SunPeak Universal Holdings on July 15, 2016, on top of our existing assets in other key markets. We believe the sustainable cash flow expected to be generated from these solar parks provides a strong foundation for future business development. The efforts we implemented in previous years to develop our business in key markets have resulted in attractive cash-on-cash return, and we expect these efforts to result in stable earnings over the long run. We have a very bright future in the renewable energy industry and appreciate the loyalty of our shareholders.”

Mr. Sanjay Shrestha, Chief Investment Officer of Sky Solar, and President of Sky Capital America commented, “As Mr. Su highlighted, we are pursuing opportunities in the U.S. and continue to remain disciplined with our investment return metrics. In addition to the recent acquisition of operating solar parks in the United States, we aim to enter into definitive agreements to acquire additional PV development pipeline in the U.S. within the third quarter of 2016.  This is in addition to the 22.5 MW development stage permits in the U.S. that we acquired last month. We also expanded our partnership with Hudson to be a strategic financial partner for opportunities in the U.S. as well as in Latin America and we are in discussion with other potential strategic partners to expand our presence in key target markets.  Our strategic objective remains on reducing our cost of capital and focus on owning or developing renewable assets with higher returns on capital. We look forward to reporting on our progress throughout the fiscal year.”

Second Quarter 2016 Financial Results

Revenue was $17.0 million, up 34.6% from $12.6 million in the same period of 2015.

Electricity sales were $15.6 million in the second quarter of 2016, up 40.2% from $11.2 million in the same period of 2015. The year-over-year growth in electricity sales was primarily due to the increase in the Company’s operational IPP assets globally. Electricity sales in the second quarter of 2016 was up 57.4% from $9.9 million in the first quarter of 2016, due to seasonally higher solar irradiation across most of the Company’s major geographic markets.

Systems and other sales were $1.4 million in the second quarter of 2016, down 7.5% from $1.5 million in the same period of 2015. The year-over-year decline in systems and other sales was primary due to the lower sales in Japan. Systems and other sales in the second quarter of 2016 were down 24.4% from $1.8 million in the first quarter of 2016, primarily due to the same reason.

The following table shows the Company’s sequential and year-over-year change in revenue for each category, geographic region and period indicated.

  Q2 2016   Sequential
Change		   Q1 2016   Year-Over-Year
Change		   Q2 2015
  (US$ in thousands, except percentages)
Asia 10,242   32.0 %   7,761     55.9 %    6,569
Electricity Sales 9,804   53.5 %    6,389     69.2 %    5,795
System Sales and Other 438   -68.1 %    1,372     -43.4 %    774
Europe 4,436   73.1 %   2,563     -0.6 %    4,465
Electricity Sales  3,870   80.9 %    2,139     2.0 %    3,794
System Sales and Other  566   33.5 %    424     -15.6 %    671
South America   409   -46.5 %   764     -     -
Electricity Sales  127   -83.4 %   764     -     -
System Sales and Other 282   -     -     -     -
North America  1,909   195.5 %    646     20.0 %    1,591
Electricity Sales  1,838   184.5 %    646     17.1 %    1,569
System Sales and Other  71   -     -     222.7 %    22
Electricity Sales 15,639   57.4 %   9,938     40.2 %    11,158
System Sales and Other  1,357   -24.4 %   1,796     -7.5 %    1,467

Cost of sales and services were $5.4 million, compared to $4.3 million in the same period in 2015. The increase was mainly a result of the increased capacity of IPP solar parks during the second quarter of 2016.

Gross profit was $11.6 million, up 38.8% from $8.4 million in the same period in 2015. Gross margin increased to 68.2% from 66.2% in the same period in 2015 because of the higher percentage of revenue contribution from electricity sales, which had higher margin compared to system sales and others. The increase in percentage of electricity sales primarily came from increase in electricity sales in Japan.

Selling, general and administrative (“SG&A”) expenses were $6.8 million, up 21.4% from $5.6 million in the same period in 2015 due to the increased project financing activities in Japan.

Other operating income was $119 thousand, compared to $75 thousand in the same period of 2015. The increase in other operating income was due to land lease income during the second quarter of 2016.

Operating profit was $4.9 million in the second quarter of 2016, compared to $8.8 million in the same period in 2015. Included in the operating profit in the second quarter of 2015 was a $6.0 million reversal of tax provision of previously-recorded VAT and other tax provision.

Finance costs were $1.5 million, compared to $0.8 million in the same period of 2015. The increase in finance costs was primarily due to the increased average balance of bank loans in the second quarter in 2016.

Other non-operating expenses of $2.2 million mainly represented fair value changes of financial liabilities  – FVTPL of US$1.4 million and loss from hedge ineffectiveness on cash flow hedge of $0.7 million – compared to other non-operating expenses of $1.9 million in the same period of 2015. These other non-operating expenses were primarily due to an increase of charges in fair value change as a result of increase in external financing as compared with the same period in 2015.

As a result of the above, the net loss for the second quarter of 2016 was $1.4 million, compared to a net profit of $8.8 million in the same period in 2015.

Basic and diluted loss per share was $0.004 compared to earnings per share of $0.02 in the same period in 2015. Basic and diluted loss per ADS were $0.03 compared to earnings per share of $0.18 in the same period in 2015.

Adjusted EBITDA was $8.6 million, compared to $4.5 million in the same period in 2015.

Pipeline Analysis

As of June 30, 2016, the Company owned and operated 133.1 MW of IPP assets, which remained at the same level as of the end of March 31, 2016.  Including the recent acquisition of operating assets in the U.S. on July 15, 2016, among others, the Company’s total operating assets now stand at approximately 155 MW. 

The Company had 27.9 MW of projects under construction as of June 30, 2016, compared to 24.1 MW under construction as of March 31, 2016. All of the 27.9 MW of projects under construction are located in Japan.

In total, the Company had 1.2 GW of projects in various stages of development as of June 30, 2016, which included the projects under construction described above as well as 232.3 MW of shovel-ready projects and more than 1.0 GW of projects in pipeline. This does not include any incremental opportunities associated with project opportunities in the U.S.

Balance Sheet and Liquidity

As of June 30, 2016, the Company had bank balances and cash of $37.0 million, trade receivables of $28.0 million and IPP solar park assets of $323.2 million. Total borrowing was $142.5 million, including $19.2 million of borrowing due within one year.

Use of Non-IFRS Measures

To provide investors with additional information regarding the Company’s financial results, the Company has disclosed Adjusted EBITDA and annualized Adjusted EBITDA return on equity ratio, non-IFRS financial measures, below. The Company presents these non-IFRS financial measures because they are used by the Company’s management to evaluate its operating performance. The Company also believes that these non-IFRS financial measures provide useful information to investors and others in understanding and evaluating the Company’s consolidated results of operations in the same manner as the Company’s management does and in comparing financial results across accounting periods and to those of its peers.

Adjusted EBITDA, as the Company presents it, represents profit or loss for the period before taxes, depreciation and amortization, adjusted to eliminate the impacts of share-based compensation expenses, impairment charges, interest expenses, fair value changes of financial liabilities, loss from hedge ineffectiveness on cash flow hedges and reversal of tax provision.

Annualized Adjusted EBITDA return on equity ratio is Adjusted EBITDA of the applicable quarter multiplied by four, and divided by total equity as of the applicable quarter end.

The use of Adjusted EBITDA and annualized Adjusted EBITDA return on equity ratio has limitations as an analytical tool, and you should not consider them in isolation or as substitutes for analysis of the Company’s financial results as reported under IFRS. Some of these limitations are: (a) although depreciation and amortization are non-cash charges, the assets being depreciated and amortized may have to be replaced in the future, and Adjusted EBITDA does not reflect cash capital expenditure requirements for such replacements or for new capital expenditure requirements; (b) Adjusted EBITDA does not reflect changes in, or cash requirements for, the Company’s working capital needs; (c) Adjusted EBITDA does not reflect the potentially dilutive impact of equity-based compensation; (d) Adjusted EBITDA does not reflect tax payments that may represent a reduction in cash available to the Company; and (e) other companies, including companies in the Company’s industry, may calculate Adjusted EBITDA or similarly titled measures differently, which reduces their usefulness as a comparative measure.  In addition, the annualized Adjusted EBITDA return on equity ratio does not take into account effects of seasonality from quarter to quarter.  Because of these and other limitations, you should consider Adjusted EBITDA and annualized Adjusted EBITDA return on equity alongside the Company’s IFRS-based financial performance measures, such as profit (loss) for the period and the Company’s other IFRS financial results.

The following table presents a reconciliation of Adjusted EBITDA to profit (loss) for the period, the most directly comparable IFRS measure, for each of the periods indicated:

  Three months ended June 30,
    2016     2015  
             
  US$ in Thousands
(Loss) profit for the period/year      (1,379 )   8,831  
Adjustments: ?  
Income tax expense    2,654     (2,597 )
Depreciation of property, plant and equipment    3,450     2,621  
Share-based payment charged into profit or loss    294     285  
Interest expenses    1,544     782  
Fair value changes of financial liabilities-FVTPL    1,368     585  
Loss from hedge ineffectiveness on cash flow hedges    652       -  
Reversal of tax provision   -     (6,025 )
Adjusted EBITDA   8,583       4,482  

The following table presents a reconciliation of annualized Adjusted EBITDA return on equity to annualized profit (loss) return on equity for the period, the most directly comparable IFRS measure, for each of the periods indicated. Annualized profit (loss) return on equity is profit (loss) return of the applicable quarter multiplied by four, and divided by total equity as of the applicable quarter end.

  Three months ended June 30,
    2016    2015  
             
Annualised net (loss) profit return on equity   -4.6 %   28.3 %
Adjustments:    
Income tax expense   8.8 %   -8.3 %
Depreciation of property, plant and equipment   11.4 %   8.4 %
Share-based payment charged into profit or loss   1.0 %   0.9 %
Interest expenses   5.1 %   2.5 %
Fair value changes of financial liabilities-FVTPL   4.5 %   1.9 %
Loss from hedge ineffectiveness on cash flow hedges   2.2 %   -  
Reversal of tax provision   -     -19.3 %
Annualised Adjusted EBITDA return on equity   28.4 %   14.4 %

The Company does not consider historical Adjusted EBITDA or annualized Adjusted EBITDA return on equity ratio to be representative of future Adjusted EBITDA or annualized Adjusted EBITDA return on equity ratio, as the Company’s revenue model changed from primarily generating revenue from selling solar energy systems to primarily generating revenue from selling electricity in the fourth quarter of  2013 and the Company continues to shift its business towards IPP business. The Company believes that Adjusted EBITDA and annualized Adjusted EBITDA return on equity ratio are important measures for evaluating the results of its IPP business.

These measures are not intended to represent or substitute numbers as measured under IFRS. The submission of non-IFRS numbers is voluntary and should be reviewed together with IFRS results.

About Sky Solar Holdings, Ltd.

Sky Solar is a global independent power producer (“IPP”) that develops, owns and operates solar parks and generates revenue primarily by selling electricity. Since its inception, Sky Solar has focused on the downstream solar market and has developed projects in Asia, South America, Europe, North America and Africa. The Company's broad geographic reach and established presence across key solar markets are significant differentiators that provide global opportunities and mitigate country-specific risks. Sky Solar aims to establish operations in select geographies with highly attractive solar radiation, regulatory environments, power pricing, land availability, financial access and overall power market trends. As a result of its focus on the downstream photovoltaic segment, Sky Solar is technology agnostic and is able to customize its solar parks based on local environmental and regulatory requirements. As of June 30, 2016, the Company had developed 276 solar parks with an aggregate capacity of 259.1 MW and owned and operated 133.1 MW of solar parks.

Sky Solar Holdings Ltd.        
Condensed Consolidated Statements of Operations        
USD In Thousands, Except Per Share Amounts        
(Unaudited)        
         
? Three Months ? Six Months  
Ended June 30 ? Ended June 30  
?   2016   ?   2015   ?   2016   ?   2015    
Revenue: ? ? ? ? ? ? ?  
Electricity generation income   15,639   ?   11,158   ?   25,577   ?   16,282    
Solar energy system and other sales   1,357   ?   1,467   ?   3,153   ?   6,595    
Total revenue   16,996   ?   12,625   ?   28,730   ?   22,877    
Cost of sales and services   (5,406 ) ?   (4,273 ) ?   (11,807 ) ?   (7,344 )  
Gross profit   11,590   ?   8,352   ?   16,923   ?   15,533    
Impairment loss on IPP solar parks   -   ? —   ?   0   ?   (42 )  
Selling expenses   (253 )     (247 )     (392 )     (608 )  
Administrative expenses   (6,513 ) ?   (5,372 ) ?   (11,193 ) ?   (9,368 )  
Other operating income   119       75       2,042       117    
Reversal of tax provision —   ?   6,025   ? —   ?   6,025    
Profit from operations   4,943       8,833       7,380       11,657    
Investment gains   115   ?   60   ?   58   ?   147    
Finance costs   (1,544 )     (782 )     (2,853 )     (1,670 )  
Other non-operating expenses   (2,239 ) ?   (1,877 ) ?   (3,802 ) ?   (1,392 )  
Profit before taxation   1,275       6,234       783       8,742    
Income tax expense   (2,654 ) ?   2,597   ?   (2,985 ) ?   2,675    
(Loss) profit for the period   (1,379 )     8,831       (2,202 )     11,417    
Other comprehensive income (loss) that may be subsequently reclassified to profit or loss:   -   ? ? ?   -   ? ?  
Exchange differences on translation of financial statements of foreign operations   1,165       1,134       6,731       (10,835 )  
Total comprehensive income (loss) for the year   (214 ) ?   9,965   ?   4,529   ?   582    
(Loss) profit for the year attributable to owners of the Company   (1,408 )     8,831       (2,227 )     11,417    
Gains for the year attributable to non-controlling interests   29   ? —   ?   25   ? —    
    (1,379 )     8,831       (2,202 )     11,417    
Total comprehensive income (loss) attributable to: ? ? ? ?   -   ? ?  
Owners of the Company   (502 )     9,965       4,175       582    
Non-controlling interests   288   ? —   ?   354   ? —    
    (214 )     9,965       4,529       582    
(Loss) earning per share — Basic   (0.004 ) ?   0.02   ?   (0.006 ) ?   0.03    
(Loss) earning per share — Diluted   (0.004 )     0.02       (0.006 )     0.03    
(Loss) earning per ADS — Basic   (0.028 ) ?   0.18   ?   (0.045 ) ?   0.24    
(Loss) earning per ADS — Diluted   (0.028 )     0.18       (0.045 )     0.24    
Sky Solar Holdings Ltd.        
Condensed Consolidated Balance Sheets        
USD In Thousands, Except Per Share Amounts        
(Unaudited)        
         
? June 30, 2016 ? December 31, 2015  
 
? Thousand ? Thousand  
Current assets: ? ? ?  
Bank balances and cash 36,987 ?   26,272    
Restricted cash 7,452 ?   5,560    
Amounts due from related parties 12,918 ?   14,794    
Trade and other receivables 27,244 ?   31,052    
Inventories 3,547 ?   3,294    
? 88,148 ?   80,972    
Non-current assets: ? ? ?  
IPP solar parks 323,206 ?   259,423    
Amounts due from related parties 3,594 ?   2,984    
Other non-current assets 18,439 ?   17,701    
? 345,239 ?   280,108    
Total assets 433,387 ?   361,080    
? ? ? ?  
Current liabilities: ? ? ?  
Trade and other payables 52,764 ?   47,912    
Amount due to related parties 7,691 ?   7,606    
Tax payable 5,705 ?   2,197    
Borrowings 19,195 ?   16,495    
? 85,355 ?   74,210    
Non-current liabilities: ? ? ?  
Borrowings 123,337 ?   84,671    
Other non-current liabilities 103,989 ?   89,480    
? 227,326 ?   174,151    
Total liabilities 312,681 ?   248,361    
Total assets less total liabilities 120,706 ?   112,719    
Equity: ? ? ?  
Share capital 5 ?   5    
Reserves 117,492 ?   112,846    
Equity attributable to owners of the Company 117,497 ?   112,851    
Non-controlling interests 3,209 ?   (132 )  
Total equity 120,706 ?   112,719    
Total liabilities and equity 433,387 ?   361,080