NANJING, China, Aug. 19, 2011 /PRNewswire-Asia/ -- 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, 2011. The results reflected lower quarterly shipments, but slightly higher gross margins compared to the most recent guidance provided by the Company.
Second Quarter 2011 Financial Highlights(1)
•Total revenue was US$144.0 million, a 22.4% increase over Q2 2010 but a 13.1% sequential decrease from Q1 2011.
•Shipments totaled 89.3 MW (87.4 MW of which were solar modules) in the second quarter, representing an 8.9% decrease over Q1 2011.
•Average selling price (ASP) per watt for the Company's solar modules was US$1.64 per watt.
•Gross profit decreased to US$3.7 million, a decrease of 84.1% over Q2 2010 and a decrease of 79.2% over Q1 2011.
•Gross margin was 2.6%. In-house gross margin related to modules produced with the Company's in-house cells was 6.1%.
•Net losses were US$16.9 million, and net margin was negative 11.7%.
•Net loss per ADS was US$0.42 on both basic and diluted basis, compared to a net income of US$0.09 per ADS on both basic and diluted basis in the first quarter of 2011 and net income per ADS of US$0.34 on basic and US$0.33 on diluted basis in the second quarter of 2010.
•Operating cash inflow in the second quarter was US$37.3 million. As of June 30, 2011, the Company had cash and cash equivalents of US$117.4 million.
(1) Note that Q2 2011 financial results are not entirely comparable to Q2 2010 due to the November 2010 acquisition of two solar module companies.
Technological, Operational and Business Highlights in Second Quarter
•Capacity expansion: China Sunergy announced in late June that its subsidiaries China Sunergy (HK) Co., Ltd. and China Sunergy (Nanjing) Co., Ltd would invest RMB1.8 billion (approximately US$282 million) in a 1GW solar cell expansion project in Yangzhou, Jiangsu Province; this plant will produce high efficiency Quasar cells. The first batch of 500MW solar cell production lines is expected to be commercialized by the end of the first half of 2012.
•Quasar cells in production: The pilot line for Quasar cells, a new kind of P-type cell produced on average P-type wafers started daily production at China Sunergy's Nanjing R&D Center in early June 2011; daily production reached 3000 pieces/day in July and is ramping up rapidly. The highest batch average efficiency rate maintained our previously reported level of 18.6% in June as we scaled up production.
•Indian market entry: In June 2011, China Sunergy entered into a 13MW supply contract with Visual Percept Solar Projects Private Limited, a solar project developer established to help India's National Solar Mission. Visual Percept is part of the well-known Enam Group in India.
Mr. Stephen Cai, CEO of China Sunergy, commented: "Our second quarter results, while disappointing, marked a turning point for China Sunergy, which expects a significant rebound in the second half of 2011. The focus of the Company in the second quarter was on diversifying beyond Europe and into new geographic markets, especially the United States and India, but the results from this strategic expansion will not be reflected in our financial performance until the second half of this year. Likewise, our capacity expansion and technological improvements represent a deliberate attempt to plan ahead for future demand in emerging solar markets such as the U.S., India, and our home country of China. We are investing now in our long-term future."
Second Quarter 2011 Financial Results in Detail
Total Revenue and Shipments
For the second quarter of 2011, revenue amounted to US$144.0 million, a decrease of 13.1% over the first quarter of 2011. Revenue from module sales amounted to US$142.9 million and accounted for 99.2% of total revenue. Shipments for the second quarter were 89.3 MW, including 87.4 MW of solar modules. The decline in revenue was partially attributed to falling ASPs and partially attributed to lower quarterly shipments. As of June 30, 2011 the Company had 11.2 MW of shipments in transit; these sales were recognized in July. It is for this reason that the Company did not meet the low end of its revised shipment guidance of 100 MW for the quarter.
Gross Profit and Gross Margin
Gross profit for the second quarter was US$3.7 million, representing a sequential decrease of 79.2%. Gross margin was 2.6% for the second quarter of 2011, higher than the revised guidance of 1% partially because of later delivery of the 11.2 MW mentioned above which was sold at an ASP of $1.43. A number of short term factors, including a higher proportion of higher-cost inventory in second quarter shipments, an increase in non-silicon costs, and a faster than expected drop in solar module ASP all contributed to the low margin levels.
Average Selling Price
Blended module ASP during the second quarter was US$1.64 per watt, declining from US$1.74 per watt in the first quarter 2011.
Costs
In the second quarter of 2011, blended wafer costs were US$0.79 per watt, representing a sequential decrease of 14.1%. The prices of polysilicon and wafers are expected to continue declining in the third quarter. Non-silicon costs for cells and modules for the second quarter of 2011 were US$0.27 and US$0.32 per watt respectively.
Operating Expense, Operating Profit/Loss and Net Income/Loss
SG&A expenses in the second quarter of 2011 were US$13.5 million, compared to US$8.5 million in the first quarter of 2011. The increase was primarily due to a quarter-on-quarter increase of US$2.1 million in sales and marketing expenses, related mainly to the development of new markets. In addition, the Company recorded US$1.8 million of bad debt expense in association with certain doubtful accounts receivables.
Operating expenses were US$15.1 million for the second quarter of 2011, representing 10.5% of total revenue, and increasing by 54.1% over first quarter of 2011. Operating expenses account only for 5.9% of total revenue for the first quarter of 2011. This increase is in line with the significant increase in SG&A expenses.
For the second quarter of 2011, loss from operations was US$11.3 million and net loss was US$16.9 million.
Inventory
Inventories at the end of the second quarter of 2011 reached US$98.9 million, including about US$7.0 million in provisions. Inventory levels decreased 20.3% over the first quarter of 2011.
Cash Flow
The Company generated operating cash inflow of US$37.3 million, largely due to the accompanying 20.3% decrease in inventory and 14.3% decrease in accounts receivable during the quarter.
Additional Company Updates Subsequent to Q2 2011
•U.S. Office Opening: On July 14, 2011, China Sunergy launched its U.S. headquarters, China Sunergy (US) Clean Tech Inc., in San Francisco. San Francisco Mayor Edwin M. Lee, China Sunergy Chairman Mr. Tingxiu Lu, and China Sunergy CEO Stephen Cai officially opened the new office at an opening ceremony and a reception on that day.
•New U.S. CEO: China Sunergy appointed Mr. Willis He as its new U.S. CEO. He will manage the U.S. operations from the new office in San Francisco. He will lead local recruitment efforts, pursue bankability status with U.S. banks, investigate U.S. manufacturing and project development opportunities, and be the public face of the Company in America.
•India Market Exploration: China Sunergy supplied 30MW of solar modules to Indian markets in July and August. The Company is expected to supply more solar modules to India later this year.
•China Development Bank loan: In August 2011, China Sunergy signed US$160 million in financing and credit facilities with China Development Bank to help fund its growth. These facilities, including a combination of both long-term and short-term loans, will be used in cell capacity expansion and as working capital.
•Establishment of China Sunergy Luxembourg S.A.: In August 2011, the Company established China Sunergy Luxembourg S.A. through acquisition of a shell company in order to explore potential future investments in solar projects throughout Europe.
REC Dispute
After an oral hearing, the Halogaland Court of Appeal on June 30, 2011, ruled in favor of China Sunergy and determined that REC Wafer was not, and had never been a party to the contract.
In parallel to the main dispute China Sunergy has been granted an injunction with regard to a $50 million bank guarantee raised according to the contract between China Sunergy and the dissolved REC Sitech AS. The Court of Appeal has decided that the injunction shall remain in force until the Court of Appeal has passed a judgment in the main case. As the court now has ruled in favor of China Sunergy in the main case there will be no need for a further injunction.
REC Wafer has stated they will appeal the decision made by the Court of Appeal.
2011 Third Quarter Guidance
The Company believes that third quarter shipments will be 140MW to 160MW. The Company expects its gross margin for the third quarter of 2011 to be between 4% and 5%, with an in-house margin of 6% to 7%.
For the full year 2011 guidance, the Company now expects its solar module shipments to be between 470MW and 500MW.