Canadian Solar is one of the world’s largest solar power companies, providing solar power products, services and system solutions and operating in North America, South America, Europe, South Africa, the Middle East, Australia and Asia. The company designs, develops and manufactures solar ingots, wafers, cells, modules and other solar power products. The company is incorporated in Canada and conducts most of manufacturing operations in China and south-east Asia.
In recent years, Canadian Solar has increased investment in its energy segment. The energy segment contributed 20.0%, 42.1% and 22.5% of the company´s net revenues in 2017, 2018 and 2019, respectively.
Canadian Solar has the following business segments: MSS segment and Energy segment. MSS primarily involves the design, development, manufacturing and sale of a wide range of solar power products, including standard solar modules, specialty solar products and solar system kits. The energy segment consists primarily of solar power project development and sale, operating solar power plants and sales of electricity.
In 2019, the company increased its market share in Latin America and Australia, and maintained the leading market share in Japan, Europe, Middle East and Africa. Canadian Solar intends to continue to expand sales in these areas and develop more emerging markets in 2020.
According to the Annual Financial Report, total revenues of the company decreased by $543.9 million, or 14.5%, from $3,744.5 million for the year ending December 31, 2018 to $3,200.6 million for the year ending December 31, 2019. The decrease was primarily due to a decrease in revenue contribution from the sale of solar power projects and a decrease in the average selling price of solar modules. Asia contributed 31.8%, the Americas contributed 43.8%, and Europe and others accounted for 24.4% of the net revenues of the company.
Segmentally, the revenues generated by the MSS segment increased by $168.7 million, or 7.0%, from $2,413.9 million in 2018 to $2,582.6 million in 2019. $330.5 million of the increased revenues was attributable to a 15.2% increase in volume of shipments of solar modules. In addition, sales revenues including sales of system kits, EPC services, inverters and O&M services, generated by MSS segment increased by 115.8% year-over-year, from $170.6 million in 2018 to $368.1 million in 2019. These beyond-pure-module-sales revenues are an important item for the company going forward; they accounted for 14.3% of MSS revenues in 2019, up from 7.1% in 2018. The company expects them to increase in the future.
Total solar module shipments at MSS segment in 2019 were 7,980 MW, an increase of 34.9% from 5,916 MW compared to 2018. The increase was primarily due to an increase in sales in key geographical regions, particularly the American markets where sales increased by 1,202 MW from 1,271 MW in 2018 to 2,473 MW in 2019, mainly as a result of higher shipments to customers in Brazil and the U.S. markets. Shipments to European markets increased by 383 MW and shipments to other regions increased by 479 MW, principally as a result of increased sales to the Australia market. Shipments to Asian markets deceased by 121 MW, from 2,973 MW in 2018 to 2,852 MW in 2019.The average selling price of solar modules declined from $0.34 in 2018 to $0.29 in 2019. The decline was primarily due to the supply of solar products exceeding demand.
Revenues generated by the Energy segment decreased by $856.1 million, or 54.3%, from $1,575.6 million in 2018 to $719.4 million in 2019. This decrease was primarily due to a decrease of $874.4 million in sales of solar power projects ($418.4 million in the U.S., $213.2 million in China, $172.3 million in Japan and $64.6 million in the United Kingdom).
Total cost of revenues decreased by $487.3 million, or 16.4%, from $2,969.4 million in 2018 to $2,482.1 million in 2019. The decrease was primarily due to lower solar power project sales and lower solar module manufacturing costs. Total cost of revenues as a percentage of total net revenues decreased from 79.3% in 2018 to 77.6% in 2019. Segmentally, cost of revenues within the MSS segment increased by $10.9 million, or 0.6%, from $1,923.1 million in 2018, 2018 to $1,934.1 million in 2019. The increase was primarily due to increased solar module shipments. Cost of revenues incurred by the Energy segment decreased by $667.1 million, or 51.2%, from $1,302.8 million in 2018 to $635.7 million in 2019. The decrease was primarily due to lower solar power project sales.
Total gross profit of the company decreased by $56.6 million, or 7.3%, from $775.1 million in 2018 to $718.5 million in 2019. Total gross margin increased from 20.7% in 2018 to 22.4% in 2019. Gross profit for the MSS segment increased by $157.8 million, or 32.2%, from $490.8 million in 2018 to $648.6 million in 2019, primarily due to a decrease in solar module manufacturing costs and an increase in solar module shipments. Gross margin increased from 20.3% in 2018 to 25.1% in 2019, primarily due to a decrease in solar module manufacturing cost. Gross profit for the Energy segment decreased by $189.1 million, or 69.3%, from $272.8 million for the year ending December 31, in 2018 to $83.7 million in 2019, primarily due to a decrease in sales of solar power projects. Gross margin decreased from 17.3% in 2018 to 11.6% in 2019, primarily due to a higher proportion of sales of low margin solar power projects in 2019.
Operating expenses increased by $49.2 million, or 12.0%, from $410.4 million in 2018 to $459.6 million in 2019. Operating expenses as a percentage of total net revenues increased from 11.0% in 2018 to 14.4% in 2019.
Selling expenses increased by $14.9 million, or 9.0%, from $165.4 million in 2018 to $180.3 million in 2019. The increase was primarily due to an increase of $18.2 million in shipping and handling expenses, increase in module shipments and $1.2 million in labour cost. Selling expenses as a percentage of net total revenues increased from 4.4% in 2018 to 5.6% in 2019.
General and administrative expenses decreased by $2.6 million, or 1.1%, from $245.4 million in 2018 to $242.8 million in 2019. The decrease was primarily due to a decrease of $9.7 million in impairment charge related to certain manufacturing assets, $2.2 million in labour cost and $1.6 million in bad debt provision. General and administrative expenses as a percentage of total net revenues increased from 6.6% in 2018 to 7.6% in 2019.
Research and development expenses increased by $2.9 million, or 6.5%, from $44.2 million in 2018 to $47.0 million in 2019. Research and development expenses as a percentage of total net revenues were 1.2% in 2018 and 1.5% in 2019.
Net cash provided by operating activities was $600.1 million in 2019, compared to net cash provided by operating activities of $216.3 million in 2018. The improved operating cash flow in 2019 was primarily due to enhanced working capital management and an increase in advance payments received from module customers. Net cash used in investing activities was $294.1 million in 2019, compared to net cash provided by investing activities of $29.1 million in 2018. The change was primarily due to a $336.1 million decrease in proceeds from disposal of investment in affiliates (i.e., 49% shareholding in Tranquillity and Garland projects).
The company intends to continue to focus on reducing manufacturing costs by improving solar cell conversion efficiency, enhancing manufacturing yields and reducing raw material costs.