China Sunergy Announces Second Quarter 2012 Financial Results

NANJING, China, August 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.
  • Shipmentstotaled 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 outflowin 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 TV 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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