China Sunergy Announces Second Quarter 2012 Financial Results Shipments within Expectations; Ongoing Progress in Driving Down Conversion Costs

NANJING, China, Aug. 30, 2012 China Sunergy Co., Ltd. (NASDAQ: CSUN) ("China Sunergy" or "the Company"), a specialized solar cell and module manufacturer, today announced its financial results for the second quarter ended June 30, 2012.  The quarterly results were adversely affected by a foreign exchange loss, which was due to the depreciation of the Euro against the U.S. dollar during the period. While the Company met its shipment guidance, its gross margin was lower than expected, according to the revised guidance announced on August 14.

Second Quarter 2012 Financial Highlights

  • Total revenue was US$110.4 million and rose by 61.2% compared with the first quarter of 2012. 
  • Shipments totaled 150.3MW (144.5MW of which were module shipments) in the second quarter of 2012, increasing by 88.1% over the first quarter of 2012 and 68.3% over the second quarter of 2011. This was consistent with the Company's shipment guidance of between 145 and 155MW.
  • Average selling price (ASP) per watt for the Company's solar modules was US$0.75; 11 cents or 12.8% lower than that of the first quarter of 2012. This number reflects the tough market conditions, especially in Europe, and the depreciation of the Euro against the U.S. dollar during the period.
  • Conversion costs of cells and modules continued to decrease in the second quarter of 2012 to US$0.16 per watt (down 3 cents or 15.8%) and US$0.23 per watt (down 2 cents or 8.0%), respectively, compared to the first quarter of 2012.   
  • Gross losses were US$0.3 million, and gross margin was negative 0.3%. Contributing factors included  the depreciation of the Euro against the U.S. dollar and the decrease in module ASP, outpacing the decrease in the Company's manufacturing costs during the period.
  • Net losses wereUS$30.3 million and net margin was negative 27.4%.
  • Net loss per ADS was US$2.26 on both a basic and a diluted basis, compared to a net loss per ADS of US$0.71 on both a basic and a diluted basis in the first quarter of 2012.
  • Operating cash outflow in the second quarter was US$55.9 million, but when combined with the US$85.0 million cash inflow in the first quarter, there was a cash inflow of US$29.1million in the first half of this year. 
  • Cash Position: As of June 30, 2012, the Company had cash and cash equivalents and restricted cash of US$416.5 million.

Operational, Technological and Business Highlights in Second Quarter

  • Signed another contract with SUNfarming Group: The Company signed a new agreement in April to supply 31 MW in solar modules to SUNfarming Group, building on the previous cooperation in October 2011. The modules will be used in rooftop and ground-mounted solar projects in Germany.
  • 5MW in solar modules delivered to Bulgaria in May: The Company completed delivery of 5MW in solar modules to Bulgaria for the Yerussalimovo Solar Park in May. Since the beginning of 2012, China Sunergy has shipped a total of 24.3 MW in solar modules to Bulgaria, on top of 18 MW sold last year, which comprised 30% of the Bulgarian market in 2011, assuming the total sales of solar modules to Bulgarian market in 2011 was 57 MW.
  • Passed salt mist corrosion and ammonia resistance tests: The Company's mono and poly solar modules passed the salt mist corrosion and ammonia resistance tests in May conducted by TÜV Rheinland Group, an internationally recognized certification authority which provides neutral test reports and certificates to a wide range of products and services.
  • QSAR module event in Bangkok, Thailand: The Company held a large customer event in Bangkok, Thailand to introduce its high efficiency QSAR modules to Thailand customers and investors such as EGCO Group, a state-owned energy company, Bangchak Petroleum Public Company, a Thailand based petroleum refining and marketing company, and IPRC, Thailand's largest petrochemical producer.

Mr. Stephen Cai, CEO of China Sunergy, commented: "The shipments in this quarter were on track and within our expectations. However, ASPs fell faster than manufacturing costs, and currency fluctuations imposed a large impact on our financial reports. We will be reviewing and strengthening our hedging policies going forward.   In the second quarter, we have made further progress in  markets such as Bulgaria, Australia, China and Japan, and we have begun executing our downstream strategy in Europe and elsewhere. We will continue to optimize cost structure, pursue technological advances, and invest strategically in viable downstream projects. We are confident that we have the right business strategy in place to position ourselves to meet the challenges ahead."     

Second Quarter 2012 Financial Review

Total Revenue and Shipments

For the second quarter of 2012, revenue was US$110.4 million (108.2 of which was modules), rising by 61.2% over the first quarter of 2012. The quarterly increase in revenue was driven by a significant increase in sales to several markets such as Italy, Germany and Denmark. 

Shipments for the second quarter 2012 were 150.3MW, including 144.5MW of solar modules, in line with the Company's guidance. 

Europe continued to make a large contribution to the Company's total revenue, with Germany, Italy, and Bulgaria accounting for 27.5%, 23.5% and 9.4% of its total revenue, respectively. The Australian market was also strong,  accounting for 9.2% of the Company's total revenue.

Gross Profit / Loss and Gross Margin

Gross losses for the second quarter were US$0.3 million, compared to gross profit of US$0.7 million for the first quarter of 2012.  Gross margin was negative 0.3% for the second quarter of 2012, compared to gross margin of 1.1% for the first quarter of 2012.  The lowered gross margin was mainly due to the decrease in the ASP of solar modules outpacing the decrease in the Company's manufacturing costs and the depreciation of the Euro against the U.S. dollar during the period.  

ASP

Module ASP for the second quarter of 2012 was US$0.75 per watt, which was 11 cents (12.8%) lower than that of the last quarter. The lowered ASP was driven by market forces, especially the challenging market conditions in Europe.

Costs

In the second quarter of 2012, wafer costs were US$0.28 per watt, representing a sequential decrease of 3 cents over the first quarter of 2012. The prices of polysilicon and wafers are expected to continue to decline in the second half of 2012.  Conversion costs of cells and modules manufactured realized continuous decreases in the second quarter of 2012 to US$0.16 and US$0.23 per watt, respectively.

Operating Expense, Operating Profit/Loss and Net Income/Loss

SG&A expenses in the second quarter of 2012 were US$14.7 million, compared to US$16.4 million in the first quarter of 2012. The bad debt provision accrued decreased to US$3.1 million in the second quarter, down US$2.8 million over the first quarter of 2012.

Operating expenses decreased by 9.6% from the first quarter 2012 to US$17.0 million in the second quarter of 2012. This decrease was primarily due to the lowered bad debt provisions.

Losses from operations were US$17.3 million, and net losses were US$30.3 million for the second quarter of 2012. Main factors accounting for the gap in losses from operations and net losses included a US$2.2 million gain from the repurchase of convertible bonds issued by the Company, US$ 2.2 million in interest income,  US$7.9 million in interest expense, a US$12.6 million exchange loss, and a US$3.1 million income tax gain. 

Inventory

Inventories at the end of the second quarter of 2012 reached US$53.3 million, a decrease of 3.1% over the first quarter of 2012. The Company will strive to maintain inventory at a reasonable level throughout the second half of 2012 by planning production strictly according to orders placed.

Cash and Cash Flow

As of June 30, 2012, the Company had cash and cash equivalents of US$204.7 million, and restricted cash of US$ 211.8 million.  Operating cash outflow was US$55.9 million for the second quarter of 2012 compared to the operating cash inflow of US$85.0 million for the first quarter of 2012, The outflow for this quarter was mainly for the increase in accounts receivable and payable (resulting from increased sales) and other receivables.

Capital Expenditures

Capital expenditures were US$10.7 million for the second quarter of 2012 and were primarily for the purchase of new cell and module lines and further investment in the R&D Center. 

Additional Company Updates Subsequent to Q2 2012

  • Tapped further into the Australian market: The Company signed a 7.8 MW sales contract with Urban Group, the energy arm of Urban Group Australia, a top conglomerate in Australia. Delivery of the solar modules was scheduled to be completed by the end of August 2012.
  • Secured 50MW in East European sales, with partner V2M: The Company agreed to supply 50MW in multi-crystalline PV modules to its Bulgarian partner V2M and its affiliates, for projects in Romania and Macedonia, in the third and fourth quarters of 2012.

Third Quarter Guidance

The Company believes that weak market demand and industry oversupply will continue to adversely affect its business for the second half of the year, and it expects that challenging conditions in the global solar market will persist in 2012. 

The Company estimates that third quarter shipments will be in the range of 80MW to 85MW.  The Company expects its gross margin to be at the breakeven level and forecasts a net loss in the third quarter of 2012. Such guidance is based on the average Euro-US dollar exchange rate in June. For the full year 2012, the Company revises its estimated yearly total shipments to approximately 400MW to 420MW. 

Conference Call

China Sunergy's management will host an earnings conference call on Thursday, August 30, 2012 at 8:00 a.m. Eastern Time (Thursday, August 30, 2012 at 8:00 p.m. Beijing/Hong Kong time). The management team will be on the call to discuss financial highlights of the second quarter 2012, provide business outlook and answer questions.

To access the conference call, please dial:

United States toll-free:    

+1 866 519 4004

International:                   

+ 65 6723 9381

Singapore:                                     

6723 9381

China:                           

800 819 0121 (Domestic) /400 620 8038 (Domestic Mobile) 

Hong Kong:                     

+852 2475 0994

Please ask to be connected to Q2 2012 China Sunergy Co., Ltd. Earnings Conference Call and provide the following passcode: 16251555.

China Sunergy will also broadcast a live audio webcast of the conference call. The broadcast will be available for 7 days by visiting the "Investor Relations" section of the company's web site at http://www.chinasunergy.com.

Following the earnings conference call, an archive of the call will be available by dialing:

United States toll-free:                   

+1 866 214 5335

International:                  

+61 2 8235 5000

The passcode for replay participants is: 16251555. The telephone replay also will be archived on the "Investor Relations" section of the company's website for seven days following the earnings announcement.

About China Sunergy Co., Ltd.

China Sunergy Co., Ltd. is a specialized solar cell and module manufacturer in China. China Sunergy manufactures solar cells from silicon wafers, which utilizes crystalline silicon solar cell technology to convert sunlight directly into electricity through a process known as the photovoltaic effect, and assembles solar cells into solar modules. China Sunergy sells these solar products to Chinese and overseas module manufacturers, system integrators, and solar power systems for use in various markets. For more information, please visit our website at http://www.chinasunergy.com.

Investor and Media Contacts:

China Sunergy Co., Ltd.

Elaine Li
Phone: + 86 25 5276 6696                   
Email: Elaine.li@chinasunergy.com      

Brunswick Group

Hong Kong

Ginny Wilmerding

Phone: + 852 3512 5000

Email: csun@brunswickgroup.com

Hong Kong

Annie Choi

Phone: + 852 3512 5000

Email: csun@brunswickgroup.com  

Safe Harbor Statement

This announcement contains forward-looking statements within the meaning of the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All statements other than statements of historical facts in this announcement are forward-looking statements. These forward-looking statements are based on current expectations, assumptions, estimates and projections about the Company and the industry, and involve known and unknown risks and uncertainties, including but not limited to, the Company's ability to raise additional capital to finance the Company's activities; the effectiveness, profitability, and the marketability of its products; litigations and other legal proceedings, including any decisions by the US International Trade Committee and Department of Commerce on the petitions filed; the economic slowdown in China and elsewhere and its impact on the Company's operations; demand for and selling prices of the Company's products, execution of our strategy to expand into downstream solar power businesses, the future trading of the common stock of the Company; the ability of the Company to operate as a public company; the period of time for which its current liquidity will enable the Company to fund its operations; the Company's ability to protect its proprietary information; general economic and business conditions; the volatility of the Company's operating results and financial condition; the Company's ability to attract or retain qualified senior management personnel and research and development staff; future shortage or availability of the supply of raw materials; impact on cost-competitiveness as a result of entering into long-term arrangements with raw material suppliers and other risks detailed in the Company's filings with the Securities and Exchange Commission. The Company undertakes no obligation to update forward-looking statements to reflect subsequent occurring events or circumstances, or to changes in its expectations, except as may be required by law. Although the Company believes that the expectations expressed in these forward looking statements are reasonable, it cannot assure you that its expectations will turn out to be correct, and investors are cautioned that actual results may differ materially from the anticipated results.

The following financial information is extracted from the Company's condensed consolidated financial statements for the respective periods.

China Sunergy Co., Ltd.

Unaudited Condensed Consolidated Income Statement Information

(In US$ '000, except share and per share data)

 


For the 3 months ended


Jun 30, 2012


Mar 31, 2012


Jun 30, 2011







Sales to third parties

106,943


67,663


144,004

Sales to related parties

3,441


804


15

Total sales

110,384


68,467


144,019

Cost of goods sold 

(110,669)


(67,739)


(140,304)

Gross profit 

(285)


728


3,715

Operating expenses:






Selling expenses

(4,850)


(4,339)


(5,507)

General and administrative expenses

(9,891)


(12,067)


(8,035)

Research and development expenses

(2,245)


(2,369)


(1,514)

Goodwill impairment loss

-


-


-

Total operating expenses

(16,986)


(18,775)


(15,056)

Income(loss) from operations

(17,271)


(18,047)


(11,341)

Interest expense 

(7,917)


(6,384)


(3,776)

Interest income

2,152


631


508

Other income/(expenses), net

(10,387)


11,262


(510)

Changes in fair value of derivatives

-


-


(1,870)

Income(loss) before income tax

(33,423)


(12,538)


(16,989)

Income tax benefit(expense) 

3,141


2,985


72







Net income(loss)

(30,282)


(9,553)


(16,917)







Net income(loss) per ADS






Basic

($2.26)


($0.71)


($1.27)

Diluted

($2.26)


($0.71)


($1.27)







Weighted average ADS outstanding






Basic

13,372,292


13,372,292


13,372,292

Diluted

13,372,292


13,372,292


13,372,292

 

China Sunergy Co., Ltd

Unaudited Condensed Consolidated Balance Sheet Information

 (In US$ '000, except share and per share data)

 


Jun 30, 2012


Dec 31, 2011

Assets




Current Assets




Cash and cash equivalents

204,710


209,479

Restricted cash

211,781


84,435

Accounts receivable, net

139,621


152,286

Other receivable, net

30,386


46,646

Project assets

13,570


9,204

Income tax receivable

1,901


2,604

Inventories, net

53,320


43,978

    Advance to suppliers, net

5,308


5,419

    Amount due from related parties

53,875


634

    Current deferred tax assets

12,293


6,416

    Restricted cash-collateral account

3,486


-

    Other current assets

35


249

Total current assets

730,286


561,350

Property, plant and equipment, net

180,190


164,535

Prepaid land use rights

28,869


23,360

Deferred tax assets

17,598


17,598

Intangible assets

3,410


4,839

Restricted cash-collateral account

-


1,654

Amount due from related parties-non current

11,858


29,622

Other long-term assets

4,102


6,951

Total assets

976,313


809,909





Liabilities and equity




Current liabilities




Short-term bank borrowings

447,264


322,216

Accounts payable

72,774


47,720

Notes payable

54,175


56,206

Accrued expenses and other current liabilities 

19,083


14,037

Amount due to related parties

129,562


57,610

Collateral account payable 

3,486


-

Convertible bond  payable 

1,500


-

Current deferred tax liability

357


786

Total current liabilities

728,201


498,575

Collateral account payable

-


1,654

Convertible bond payable

-


27,500

Long-term debt

129,060


125,439

Accrued warranty costs

16,292


14,763

Other liabilities

3,784


2,891

Total liabilities

877,337


670,822





Equity:




Ordinary shares: US$0.0001 par value; 267,287,253
shares issued outstanding as of March 31, 2012
and December 31, 2011.

27


27

Additional paid-in capital

185,367


185,367

Accumulated profit(deficit)

(120,841)


(81,006)

Accumulated other comprehensive income

34,423


34,699

Total equity 

98,976


139,087

Total liabilities and equity

976,313


809,909

 

SOURCE China Sunergy Co., Ltd.



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