North Coast Solar Stocks

November 18, 2009

China Sunergy Announces Financial Results for the Third Quarter of 2009

Filed under: CSUN — Tags: , , , , , , — Jason @ 6:06 am

Third Quarter Revenues of US$80.1 million; Achieves Upper Range of Guidance with 54.4 MW in Shipments; Gross Margin Improves to 10.2%; GAAP Net Income of $7.8 million

6:06 am EST, Wednesday November 18, 2009

NANJING, China, Nov. 18 /PRNewswire-Asia/ — China Sunergy Co., Ltd. (CSUN), (“China Sunergy” or the “Company”) a specialized solar cell manufacturer based in Nanjing, China, announced today its financial results for the third quarter of 2009.

Third Quarter Financial Results

— Revenues were US$80.1 million, a 14.3% increase compared to the second quarter of 2009. Revenues generated from solar cell sales were US$68.5 million, representing a 25.7% increase compared to the second quarter of 2009.
— Gross profit was US$8.2 million for the third quarter, compared to gross profit of US$6.8 million during the second quarter of 2009. Accordingly, gross margin was 10.2%, slightly above the 9.7% reported during the second quarter of 2009.
— GAAP net income was US$7.8 million. Adjusted non-GAAP net loss was US$1.3 million, which excludes share-based compensation and the change in the fair value of foreign currency derivatives. This compares to non-GAAP net income of US$1.2 million in the second quarter of 2009.
— GAAP net income per ADS was US$0.20 on basic basis and US$0.19 on diluted basis. Adjusted non-GAAP net loss per ADS was US$0.03 on both basic and diluted basis, which excludes share-based compensation and the change in the fair value of foreign currency derivatives, compared to a non-GAAP net income of US$0.03 per ADS in the second quarter of 2009.
— Inventory as of September 30, 2009 was $32.0 million, up from $25.0 million as of June 30, 2009. Inventory write-down was $3.3 million, compared to $2.9 million in the second quarter of 2009.
— Operating cash flow in the third quarter was negative US$16.5 million, compared with positive $19.5 million in the second quarter of 2009. As of September 30, 2009, the Company had cash and cash equivalents of US$113.4 million

Please refer to “Reconciliation Tables of GAAP to adjusted Non-GAAP Figures” at the end of this press release.

Technology Development and Operational Highlights

— Shipments in the third quarter amounted to approximately 54.4 MW, representing a 31.1% increase sequentially and a 59.5% increase on a year-over-year basis.
— Utilizing the new technology, China Sunergy has developed a mono-crystalline high efficiency P-type solar cell with target conversion efficiency of over 19%. A test conducted in the third quarter by the Fraunhofer Institute for Solar Energy Systems in Germany has shown the conversion efficiency of 19.04%.
— China Sunergy entered into a series of sales contracts with NUE PTY Ltd, a leading Australian photovoltaic firm. China Sunergy expects to ship up to a total of 10MW of OEM sub-contracted monocrystalline solar modules, to NU Energy, with full delivery scheduled to be completed by early 2010.
— The Company furthered this strategy by entering into a framework agreement related to the delivery of China Sunergy solar products to Opsun Technologies, Inc., a Canadian photovoltaic firm between 2009 and 2014. The framework agreement aims both to facilitate sales of up to 100MW of China Sunergy’s existing of solar cells and modules while enhancing the development of specialized solar cells for future projects.

Commenting on the results, Dr. Allen Wang, CEO of China Sunergy, said:

“We have effectively implemented strategies to benefit from the improved market for our solar products, primarily by building demand channels among new clients and within existing relationships. As a result, we have achieved the upper range of our previously released shipment guidance for the quarter, and an improvement in our gross margin. Although challenges remain given the still uncertain long-term demand, China Sunergy is consistently improving the scope and technological leadership of our products to meet our clients’ needs, and we expect this trend to continue in the coming quarters.”

Third Quarter 2009 Financial Review

Revenues and Shipment

During the third quarter of 2009, revenues increased 14.3% sequentially to US$80.1 million. Sales from solar cells, modules, cells processed under OEM arrangements and other sales accounted for 85.5%, 6.1%, 0.0% and 8.4% of total revenues, respectively. Other sales were mainly revenue on polysilicon sales through buy-sell arrangements.

Shipments amounted to approximately 54.4 MW, representing 59.5% and 31.1% increase compared with the third quarter of 2008 and the second quarter of 2009, respectively.

The percentage of solar cell sales in overseas markets was 36.1% of total solar cell sales in the third quarter of 2009 compared to 45.1% and 41.0% in the third quarter of 2008 and the second quarter of 2009, respectively.

ASP, Gross Profit/Loss & Gross Margins

Blended average selling price (ASP) for the third quarter of 2009 declined from US$1.44 per watt in the previous quarter to US$1.32 per watt. The blended ASP for the third quarter of 2008 was US$3.48.

Gross profit for the quarter was US$8.2 million, which led to a blended gross margin of 10.2%, compared to 9.7% in the previous quarter, and 9.3% in the third quarter of 2008 despite the decline in ASP in the third quarter. The increase in gross margin from the second quarter of 2009 was primarily due to the lower conversion cost in the third quarter of 2009, balancing the continued decline in ASP.

Wafer Costs

In the third quarter of 2009, blended wafer cost, a part of production costs, declined to US$0.87 per watt compared to US$0.96 per watt in the second quarter of 2009. The Company’s procurement flexibility allowed for the continued purchase of raw materials on the spot market, reducing blended wafer cost.

Wafer cost continued to decline as a percentage due to lower wafer pricing in the third quarter. Wafer cost per watt as a percentage of total production costs per watt declined from 75.2% in the second quarter of 2009 to 74.7% in the third quarter of 2009.

Other production costs, or conversion costs, for the quarter were US$0.29 per watt, compared with $0.31 per watt in the second quarter of 2009, and $0.28 in the third quarter of 2008. The decline from the second quarter of 2009 was largely due to greater utilization and effective non-wafer cost controls.

SG&A, Operating Profit/Loss and Net Income/Loss

SG&A expenses in the third quarter of 2009 were US$7.1 million, compared to US$4.9 million in the third quarter of 2008 and US$3.6 million in the last quarter. G&A expenses in the third quarter included US$1.4 million of bad debt provision for account receivables, while the Company reversed US$0.4 million of provision in the second quarter. China Sunergy booked US$0.8 million in legal expenses related to the REC Wafer AS legal proceedings in the third quarter.

Income from operations was US$0.5 million for the third quarter, compared to operating income of US$1.7 million for the second quarter of 2009. Operating income for the third quarter of 2008 was US$5.7 million.

Interest expense for the third quarter 2009 was US$1.8 million, compared to US$2.1 million for the third quarter of 2008 and US$1.9 million for the second quarter of 2009, respectively.

Net other income in the third quarter of 2009 was US$0.7 million, compared to net other income US$3.0 million for the second quarter of 2009. Net other income in the second quarter included a gain of US$2.2 million on the repurchase of the convertible bonds.

The gain from the change in fair value of derivatives during the third quarter of 2009 was US$9.7 million, compared to the gain of US$0.5 million during the second quarter of 2009. It was mainly due to the termination of REC long-term supply contract announced by REC on September 9, 2009. Therefore, US$10.7 million of the derivative liability related to this long-term supply contract was reversed to income statement as a gain through the change in fair value of derivatives, resulting from the contract termination.

In the third quarter, GAAP net profit was US$7.8 million, an improvement sequentially compared to GAAP net income of US$1.7 million in the second quarter of 2009. GAAP net income was US $0.2 million in the third quarter of 2008.

Non-GAAP net loss was US$1.3 million in the third quarter of 2009, compared to a Non-GAAP net income of US$1.2 million in the second quarter of 2009, and a Non-GAAP net income of US$2.0 million in the third quarter of 2008. Non-GAAP figures exclude share-based compensation and the change in the fair value of foreign currency derivatives.

The non-GAAP measures are described and reconciled to the corresponding GAAP measures in the section below titled “Use of Non-GAAP Financial Measures.”

Liquidity, Cash Flow, Borrowing and Capital Expenditure

As of September 30, 2009, the Company had cash and cash equivalents of US$113.4 million. Net operating cash outflow for the third quarter was US$16.5 million, compared to the positive cash flow of $19.5 million at the end of second quarter, as the Company made a full cash payment for the US$14.6 bank promissory note which was issued in January of 2009 and matured in the third quarter.

The short-term bank borrowing at the end of the third quarter increased to US$125 million from US$76 million at the end of the second quarter. On September 30, the Company obtained a RMB 200 million short-term loan from the Export and Import Bank of China. Subsequent to receiving this loan, the Company recently repaid certain short term banking loans from other banks ahead of schedule, as the Company has preferable interest rate on the borrowings from the Export and Import Bank of China.

Depreciation and amortization was US$2.9 million and capital expenditures were US$1.4 million, largely involving the remaining payments for equipment relating to the Company’s selective emitter cell production lines.

Third Quarter and Full Year Outlook

The Company currently anticipates strong shipment growth in the fourth quarter, and therefore believes that shipments will range from 70 MW to 80 MW in the fourth quarter. The gross margin in the fourth quarter is expected to be in low teens given moderate pricing stabilization, lower conversion costs and the strong demand for our solar products.

Given an improved demand environment now being seen through the end of the year, the Company now expects that full year shipments will be between 190 MW to 200 MW, which is at the high end of their previously announced guidance.

Management Updates

China Sunergy recently named Mr. Siegfried Yi Chou Hsu to be Chief Financial Officer. Mr. Shiliang Guo, who was the acting CFO of China Sunergy, resigned from the acting CFO position while remaining a Director of the Company.

Other Company Updates

China Sunergy held its annual general meeting during the second quarter, during which the shareholders adopted the ordinary resolutions proposed by the Company.

During the quarter, the long term supply contract signed with REC Sitech As in 2008 was terminated. China Sunergy initiated legal proceedings against REC Wafer AS related to the contract and bank guarantees. REC has until November 18, 2009 to respond to a legal writ the Company filed regarding to the viability of their claimed position as a party to the contract signed with REC SiTech. As these legal proceedings continue, we will be better able to determine the outcome, and as such, the Company has not accrued any contingent loss related to this pending litigation with REC Wafer AS in the financial results in this earnings report given the outcome and any loss, if any, is undeterminable at this time.

Quarterly Earnings Conference Call Details

China Sunergy will host a conference call at 7:00 a.m. Eastern Time or 4:00 a.m. Pacific Time (Beijing / Hong Kong Time: November 18, 2009 at 8:00 p.m.). The management team will be on the call to discuss results and highlights of the quarter and answer questions.

The dial-in details for the live conference call are as follows:

US Toll Free Dial In: +1-866-356-3377
International Dial In: +1-617-597-5392

Participant Passcode: 79024512

The call will also be available online at http://www.chinasunergy.com

For those who cannot access the live broadcast, a replay will be available from two hours after the end of the call until November 25, 2009. The replay is available online or using the numbers below:

US toll free number: +1-888-286-8010
International: +1-617-801-6888
Passcode: 63924111

                            China Sunergy Co., Ltd.
         Unaudited Condensed Consolidated Income Statement Information
                (In US$ '000, except share and per share data)

                                                   For the 3 months ended
                                               Sep 30,     Jun 30,    Sep 30,
                                                 2009        2009      2008
      Sales to third parties                   58,061      57,825     102,006
      Sales to related parties                 21,992      12,315      17,031
      Total sales                              80,053      70,140     119,037
      Cost of goods sold                      (71,888)    (63,315)   (107,987)
      Gross profit                              8,165       6,825      11,050
      Operating expenses:
      Selling expenses                           (887)       (630)       (582)
      General and administrative expenses      (6,185)     (2,949)     (4,319)
      Research and development expenses          (605)     (1,509)       (431)
      Total operating expenses                 (7,677)     (5,088)     (5,332)
      Income from operations                      488       1,737       5,718
        Interest expense                       (1,790)     (1,864)     (2,081)
        Interest income                           379         594         408
        Other income/(expenses), net              745       3,015      (3,728)
        Changes in fair value of derivatives    9,713         470        (848)
      Income/(loss) before income tax           9,535       3,952        (531)
      Income tax (expense) benefit             (1,719)     (2,210)        742

      Net income                                7,816       1,742         211
      Net income attributable to ordinary
       shareholders                             7,816       1,742         211

      Net income per ADS
      Basic                                     $0.20       $0.04       $0.01
      Diluted                                   $0.19       $0.04       $0.01

      Weighted average ADS outstanding
      Basic                                39,957,185  39,823,915  39,737,547
      Diluted                              43,708,330  40,409,045  40,392,139



                               China Sunergy Co., Ltd
             Unaudited Condensed Consolidated Balance Sheet Information
                      (In US$ '000, except share and per share data)

                                                   Sep 30,          Dec 31,
                                                     2009             2008
      Assets
      Current Assets
        Cash and cash equivalents                 113,416           94,800
        Restricted cash                            70,735           62,400
        Accounts receivable (net)                  24,649            8,906
        Other receivable (net)                      5,970           10,273
        Income tax receivable                       1,258            1,258
        Inventories                                32,048           59,125
        Advance to suppliers                        2,253            7,320
        Amount due from related companies          25,350           18,583
        Current deferred tax assets                 2,656            1,992
      Total current assets                        278,335          264,657
      Property, plant and equipment, net           97,835          102,609
      Prepaid land use rights                       6,465            6,442
      Deferred tax assets                           1,512            1,512
      Restricted cash- Collateral account          19,186           17,502
      Derivative assets                                28               --
      Other long-term assets                        3,925            5,003
      Total assets                                407,286          397,725

      Liabilities and equity
      Current liabilities
        Short-term bank borrowings                125,065           97,299
        Accounts payable                           40,918           43,730
        Accrued expenses and other current
         liabilities                                6,718            5,445
      Amount due to related companies                 512              247
      Total current liabilities                   173,213          146,721
      Collateral account payable                   19,186           17,502
      Derivative liability                            248            9,058
      Other liabilities                             1,083            1,187
      Convertible bond payable                     44,000           48,000
      Total liabilities                           237,730          222,468

      Equity
      Ordinary shares: US$0.0001 par
       value; 267,287,253 and 267,766,443
       shares issued outstanding as of
       September 30, 2009 and
       December 31, 2008, respectively                 27               27
      Additional paid-in capital                  182,867          182,070
      Subscription receivable                        (405)            (405)
      Accumulated deficit                         (34,122)         (27,792)
      Accumulated other comprehensive
       income                                      21,189           21,058
      Total equity attributable to CSUN           169,556          174,958
      Noncontrolling interest                          --              299
      Total equity                                169,556          175,257
      Total liabilities and equity                407,286          397,725



           Reconciliation of non-GAAP results of operations measures to the
                         nearest comparable GAAP measures
                  (In US$ '000, except share and per share data)

                                                   For the 3 months ended
                                               Sep 30,     Jun 30,     Sep 30,
                                                 2009        2009        2008
      GAAP Net income                           7,816       1,742         211
      Stock based compensation                    564        (119)        925
      Changes in fair value of
       derivatives- REC contract              (10,662)     (2,085)        848
      Changes in fair value of
       derivatives- Euro hedging                  949       1,615          --

      Non-GAAP Net income/(loss)               (1,333)      1,153       1,984

      Non-GAAP Net income/(loss) per ADS
      Basic                                    ($0.03)      $0.03       $0.05
      Diluted                                  ($0.03)      $0.03       $0.05

      Weighted average ADS outstanding
      Basic                                39,957,185  39,823,915  39,737,547
      Diluted                              39,957,185  40,409,045  40,392,139
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