Solarfun Power Holdings Co., Ltd. (�Solarfun� or �the Company� )
(NASDAQ:SOLF), a vertically integrated manufacturer of silicon
ingots, wafers and photovoltaic (PV) cells and modules in China,
today reported its unaudited financial results for the first
quarter ended March 31, 2009.
FIRST QUARTER 2009 RESULTS
- Net revenue was RMB 684.2
million (US$100.1 million), a decrease of 43% from the first
quarter of 2008, and a decline of 39% from the fourth quarter of
2008.
- PV module shipments reached 35.7
MW, representing a decrease of 11.4% from the first quarter of
2008, and a 25% decline from 47.6 MW in the fourth quarter of 2008.
First quarter volumes were impacted by module production
overcapacity, excess module inventories in the channel, continuing
restrictive funding availability for solar projects, and winter
weather, particularly in Germany. We believe these conditions were
not unique to the Company, but prevalent throughout the PV industry
globally.
- Average selling price (�ASP�)
declined further, as expected, to US$2.78 from US$3.37 in the
fourth quarter of 2008 due to the competitive environment. Business
continued to be centered in Europe, with Germany and Portugal
accounting for 76.5% and 9.7% of net revenue during the quarter,
respectively. Newer markets such as Australia, Korea and the United
States each accounted for between 3-5% of shipments.
- Gross profit was RMB 49.4
million (US$ 7.2 million), down 74.0 % from RMB 190 million (US$
27.8 million) in the first quarter of 2008, but up substantially
from the RMB 377.8 million (US$ 55.3 million) loss in the fourth
quarter of 2008.
- Gross margin improved to 7.2%
from negative 33.7% in the fourth quarter of 2008. This was
primarily due to the Company�s ability to reduce raw material costs
by nearly 25% from fourth quarter of 2008. This occurred because
existing supply contracts were revised and/or renegotiated, and
because the Company took advantage of its greater flexibility and
access to lower-cost raw materials on the spot market.
- Operating loss was RMB 19.5
million (US$ 2.9 million). For the first quarter of 2009, operating
expenses as a percentage of revenues reached 10.1%, well above the
Company�s historical range of 5-7%. This is primarily a reflection
of lower shipment volumes combined with lower pricing, leading to a
reduced revenue base on which to spread operating costs.
- Interest expense was RMB 39.5
million (US$ 5.8 million), a slight increase from the fourth
quarter of 2008 due to a rise in short term borrowing and
implementation of new convertible debt accounting.
- The net exchange rate gain was
RMB 38.3 million (US$ 5.6 million). The Company recorded a RMB 32.8
million (US$ 4.8 million) currency loss largely as a result of
fluctuations in exchange rates between the Euro and the U.S.
dollar, but was able to more than offset this through its foreign
exchange hedging program, which resulted in a RMB 71.1 million (US$
10.4 million) gain.
- The net loss attributable to
shareholders was RMB 7.0 million (US$ 1.0 million). The loss per
basic ADS was RMB 0.13 (US$0.02). This was a decline from net
income of RMB 107.9 million (US$ 15.8 million) and earnings per
basic ADS of RMB 2.17 in the first quarter of 2008, but a
substantial improvement from the prior quarter net loss of RMB
418.8 million (US$ 61.3 million) and loss per basic ADS of
RMB7.79.
Peter Xie, President of Solarfun, commented, �The first quarter
of this year saw mixed results from our perspective. On the one
hand, shipments and sales continue to be pressured by excess
channel inventories, industry-wide module production overcapacity,
declining prices, and the continued tight lending environment for
solar projects. However, we do believe that the first quarter will
prove to be the low point for industry demand and for our company
during this cycle. We are cautiously optimistic for a more
meaningful rebound, particularly during the second half of this
year and heading into 2010. That being said, the timing and
magnitude of this turn is quite unpredictable and as a result, we
will continue to refrain from making specific quarterly and full
year projections.
On a more positive note, we achieved a gross profit in the first
quarter and we expect this trend to improve throughout the year.
Our average wafer cost per watt declined almost 25% as a result of
greater purchasing flexibility and as our vertical integration at
the wafer level grows in scale. We see continued and further
progress ahead. We are still aggressively negotiating with our
suppliers regarding our existing multi-year contracts to bring raw
material costs and pre-payment terms more in line with current
market conditions. This is a process and is not always successful.
We are working closely with our partners to achieve a mutually
beneficial outcome on a case-by-case basis.
FINANCIAL POSITION
As of March 31, 2009, the Company had cash and cash equivalents
of RMB 466.3 million (US$ 68.2 million) and working capital of RMB
1.5 billion (US$ 213.5 million). Total bank borrowings as of March
31, 2009 were RMB 1.6 billion (US$ 238.2 million), which was up RMB
328.7 million (US$ 48.1 million) from the previous quarter. This is
reflective of the supportive lending environment in China as well
as Solarfun�s long-standing and strong relationships with
lenders.
Working Capital
The Company continued to focus on working capital management and
reduced accounts receivable by RMB 117.4 million (US$17.2 million)
from the prior quarter. Days sales outstanding increased from 27
days in the fourth quarter of 2008 to 35 days and were well below
levels for the same period last year and many industry peers.
Inventories remained relatively constant at RMB 747.6 million
(US$ 109.4 million), but importantly, raw materials with rapidly
declining market prices were cut in half.
Capital Expenditures
The Company spent RMB 217.3 million (US$ 31.8 million) in
capital expenditures, including the final payment for Linyang
Yangguang (LYG), the Company�s ingot manufacturing subsidiary. No
large capital projects are scheduled for the remainder of the
year.
ORGANIZATIONAL CHANGES
The Board of Directors has accepted the resignation of Harold
Hoskens, Chief Executive Officer, effective June 30, 2009. The
Company�s Management Committee, including John Breckenridge,
Managing Director of Good Energies, and Peter Xie, Solarfun
President, will actively oversee all day-to-day business activities
and the Company�s strategic direction. Solarfun would like to
extend its gratitude to Harold for his many contributions,
particularly in the face of such a difficult operating environment.
The Company hopes to build on the foundation he helped establish
and believe it now has the necessary leadership in place to
accomplish its goals.
BUSINESS OUTLOOK
The Company recognizes that the current operating environment is
evolving rapidly and is less predictable than in previous periods.
In light of these uncertainties and based on current operating
trends and market conditions, the Company provides the following
outlook:
For the second quarter of 2009, management expects:
- Shipment volumes to improve
compared to the first quarter of 2009. The expected rise in
shipments excludes the start of the Company�s value-added services
agreement with Q-Cells AG, which should account for more than 25 MW
of incremental module shipments in the second quarter.
- Average selling prices to
decline further.
- Gross margins to show some
gradual improvement as supply costs decline faster than ASPs. With
leverage from the Company�s vertical integration, the impact will
become more visible as the year progresses. Additionally, the
Company�s value-added services agreement with Q-Cells AG has become
fully operational in the second quarter and should contribute
incrementally to gross margins.
For the full year of 2009:
The Company previously announced signed contracts with key
customers totaling 200 MW and is actively negotiating others.
Excluding the aforementioned manufacturing services agreement with
Q-Cells, Solarfun has an ongoing dialogue with other customers to
ensure that both partners find a sustainable way forward on these
contracts. We note, however, that this is a very fluid business
environment and our ability to predict is less certain. The Company
continues to expect full-year demand to exceed these levels as
markets rebound and begin to build momentum, particularly in the
latter half of 2009.
Management expects:
- The anticipated decline in ASPs
to be more than offset by lower polysilicon pricing. With an
increasing percentage of total wafer volume coming from the
Company�s in-house facilities, management believes that gross
margins could approach or reach low double digits for the full
year.
- The Company to be well
positioned to take advantage of rapidly declining polysilicon
prices. For more than 70% of the Company�s polysilicon and wafer
requirements, price levels will be determined based on prevailing
market conditions. Polysilicon prices on the spot market are
currently below $70 per kilogram.
- Capacity expansion to remain on
hold until the demand picture becomes more clear. Current capacity
is adequate to support sales volumes of 280 MW, and Solarfun has an
additional 100 MW of module capacity that is dedicated to support
the Company�s contract with Q-Cells.
- Funding to be adequate to meet
2009 anticipated spending requirements through a combination of
cash on hand and access to commercial bank lines of credit.
Peter Xie outlined the primary goals for the Company for the
remainder of 2009. �Our top priority, as always, is to meet the
needs of our customers. We intend to strengthen our brand and
expand our geographic footprint in an increasingly competitive
environment. We are prudently managing our organizational costs and
production flow in order to maintain liquidity, maintaining and
growing our commercial lending partnerships in order to fund future
growth, actively pursuing all angles to further reduce our raw
material costs for both existing and new contracts, reducing
inventories, and executing our vertical integration strategy.�
�We continue to remain optimistic for the remainder of 2009 and
beyond. With both module and raw material prices declining, we
think volume growth is imminent. Incentives already in place, and
new ones from the United States and China in particular, bode well
for a resumption of healthy growth in the long term.�
CONFERENCE CALL
Management will discuss the results and take questions following
the prepared remarks.
The dial-in details for the live conference call are as
follows:
- U.S. Toll Free Number: +1 866 713
8562
- International dial-in number: +1 617 597
5310
- China Toll Free Number (North): +10 800
152 1490
- China Toll Free Number (South): +10 800
130 0399
Passcode: SOLF
A live webcast of the conference call will be available on the
investor relations section of the Company�s website at:
http://www.solarfun.com.cn. A replay of the webcast will be
available for one month.
A telephone replay of the call will be available for seven days
after the conclusion of the conference call. The dial-in details
for the replay are as follows:
- U.S. Toll Free Number: +1 888 286
8010
- International dial-in number: +1 617 801
6888
Passcode: 24572746
CONVERTIBLE SECURITIES
In the first quarter the Company adopted Emerging Issues Task
Force ("EITF") No. 07-5, which requires the Company to re-assess
whether the conversion feature embedded in the convertible bonds
that the Company has issued is indexed to its own stock from 2009.
The Company concludes that the embedded conversion feature is no
longer indexed to its own stock and thus should be bifurcated from
the host contract and with the change in fair value to be
recognized at each period end from 2009 onwards. As a result, the
embedded conversion feature has been accounted for as an embedded
derivative and measured at fair value. The cumulative effect as a
result of the adoption of EITF 07-5 will be recognized as an
adjustment to the opening balance of retained earnings as of
January 1, 2009.
From time to time the Company may seek to retire, repurchase, or
exchange its convertible securities in open market purchases or
privately negotiated transactions depending on market conditions,
liquidity, and contractual obligations and other factors.
FOREIGN CURRENCY CONVERSION
The conversion in this release of Renminbi into U.S. dollars is
made solely for the convenience of the reader, and is based on the
noon buying rate in The City of New York for cable transfers of
Renminbi as certified for customs purposes by the Federal Reserve
as of March 31, 2009, which was RMB6.8329 to US$1.00. No
representation is intended to imply that the Renminbi amounts could
have been, or could be, converted, realized or settled into U.S.
dollars at that rate on March 31, 2009, or at any other date. The
percentages stated in this press release are calculated based on
Renminbi amounts.
SAFE HARBOR STATEMENT
This news release contains forward-looking statements, as
defined under the Private Securities Litigation Reform Act of 1995,
such as the Company�s business outlook for 2009, including second
quarter and full year 2009 estimates for net revenue, PV product
shipments, raw materials and product prices, PV cell production
capacity and gross margins. Forward-looking statements involve
inherent risks and uncertainties and actual results may differ
materially from such estimates depending on future events and other
changes in business climate and market conditions. Solarfun
disclaims any obligation to update or correct this information.
ABOUT SOLARFUN
Solarfun Power Holdings Co, Ltd. manufactures both PV cells and
PV modules, provides PV cell processing services to convert silicon
wafers into PV cells, and supplies solar system integration
services in China. Solarfun produces both monocrystalline and
multicrystalline silicon cells and modules, and manufactures 100%
of its modules with in-house produced PV cells. Solarfun sells its
products both through third-party distributors, OEM manufacturers
and directly to system integrators. Solarfun was founded in 2004
and its products have been certified to TUV and UL safety and
quality standards. SOLF-G
http://www.solarfun.com.cn
SOLARFUN POWER HOLDINGS CO., LTD. CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$"),
except for number of shares and per share data) � � �
�
December 31 March 31 March 31 2008 2009 2009 (Unaudited)
(Unaudited) (Unaudited) RMB RMB USD
ASSETS Current
assets Cash and cash equivalents 410,901 466,276 68,240
Restricted cash 88,137 270,398 39,573 Financial assets 39,665
63,079 9,232 Accounts receivable, net 319,537 202,096 29,576
Inventories, net 731,708 747,587 109,410 Advance to suppliers, net
1,355,597 1,382,648 202,352 Other current assets 256,108 196,735
28,792 Deferred tax assets 51,035 49,790 7,287 Amount due from
related parties 19 19 3
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Total current assets 3,252,707 3,378,628
494,465
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Non-current assets Fixed assets � net 1,492,575 1,629,544
238,485 Intangible assets � net 212,736 211,559 30,962 Goodwill
134,735 134,735 19,719 Deferred tax assets 10,029 11,025 1,614
Long-term deferred expenses 37,444 37,075 5,426 Long-term
investment
-
-
-
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Total non-current assets 1,887,519 2,023,938
296,206
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TOTAL ASSETS 5,140,226 5,402,566
790,671
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LIABILITIES Current liabilities Financial
liabilities 5,792 5,273 772 Short-term bank borrowings 1,098,832
1,435,000 210,013 Long-term bank borrowings, current portion 30,000
45,000 6,586 Accounts payable 217,025 225,023 32,932 Notes payable
39,341 39,341 5,758 Accrued expenses and other liabilities 173,370
129,392 18,937 Customer deposits 9,494 2,956 433 Deferred tax
liability - - - Unrecognized tax benefit 27,385 27,385 4,008 Amount
due to related parties 39,766 10,109 1,479
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Total current liabilities 1,641,005 1,919,479
280,918
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Non-current liabilities Long-term bank borrowings,
non-current portion 170,000 147,500 21,587 Convertible notes
payable 1,178,969 787,399 115,236 Long term payable - - - Deferred
tax liability 27,155 27,008 3,953
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Total non-current liabilities 1,376,124
961,907 140,776
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TOTAL LIABILITIES 3,017,129 2,881,386
421,694 �
Redeemable ordinary shares 32
32 5 �
EQUITY Shareholders� equity
Ordinary shares 214 214 31 Additional paid-in capital 2,138,624
2,155,241 315,421 Statutory reserves 47,638 47,638 6,972 Retained
earnings (deficit) (67,594 ) 313,956 45,948
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Total shareholders� equity 2,118,882 2,517,049
368,372 Noncontrolling interest 4,183
4,099 600
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TOTAL EQUITY 2,123,065 2,521,148
368,972
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TOTAL LIABILITIES, MEZZAINNE EQUITY AND SHAREHOLDERS� EQUITY
5,140,226 5,402,566 790,671
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� SOLARFUN POWER HOLDINGS CO., LTD. CONSOLIDATED STATEMENTS OF
OPERATIONS (Amounts in thousands of Renminbi ("RMB") and U.S.
dollars ("US$"), except for number of shares and per share data) �
� � � � March 31 December 31 March 31 March 31 2008 2008 2009 2009
(Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB RMB RMB USD
Net revenue Photovoltaic modules 1,151,507 1,094,498 678,136
99,246 Photovoltaic cells 29,734 28,199 6,043 884 PV cells
processing - PV modules processing 0 - 0 0 Raw materials 18,088 -
18 3
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Total net revenue 1,199,329 1,122,697
684,197 100,133
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Cost of revenue Photovoltaic modules (965,589 ) (1,466,831 )
(627,186 ) (91,789 ) Photovoltaic cells (27,918 ) (33,666 ) (7,284
) (1,066 ) PV cells processing - PV modules processing 0 - 0 0 Raw
materials (15,762 ) - (281 ) (41 )
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�
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Total cost of revenue (1,009,269 )
(1,500,497 ) (634,751 ) (92,896
)
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Gross profit / (losses) 190,060 (377,800
) 49,446 7,237
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Operating expenses Selling expenses (21,055 ) (20,202 )
(16,328 ) (2,390 ) G&A expenses (22,518 ) (39,811 ) (44,449 )
(6,505 ) R&D expenses (4,784 ) (1,433 ) (8,185 ) (1,198 )
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Total operating expenses (48,357 ) (61,446 ) (68,962 ) (10,093 )
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Operating profit / (losses) 141,703 (439,246
) (19,516 ) (2,856 ) � Interest
expenses (26,669 ) (26,769 ) (39,508 ) (5,782 ) Interest income
2,381 1,974 494 72 Exchange gain / (losses) 19,430 (28,794 )
(32,849 ) (4,807 ) Investment income (384 ) Gain on change in fair
value of derivative 0 50,307 85,906 12,572 Other income 2,011 4,629
3,533 517 Other expenses (12,323 ) (2,860 ) (3,584 ) (524 )
Government grant 124 3,020 1,907 279
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Net income / (losses) before income tax 126,657
(438,123 ) (3,617 ) (529
)
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Income tax benefit / (expenses) (18,730 ) 19,270 (3,445 ) (504 )
�
�
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Net income / (losses) 107,927 (418,853
) (7,062 ) (1,033 )
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Net income / (losses) attributable to noncontrolling interest 3,363
(16 ) (85 ) (12 )
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Net income / (losses) attributable to shareholders
104,564 (418,837 ) (6,977 )
(1,021 )
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Net income / (losses) per share Basic 0.43 (1.56 ) (0.03
) (0.00 ) Diluted 0.41 (1.56 ) (0.03 ) (0.00 ) �
Shares used in
computation Basic 241,181,882 268,717,524 268,848,771
268,848,771 Diluted 271,563,142 268,717,524 268,848,771 268,848,771
� �
Net income / (losses) per ADS Basic 2.17 (7.79 ) (0.13 )
(0.02 ) Diluted 2.06 (7.79 ) (0.13 ) (0.02 ) �
ADSs used in
computation Basic 48,236,376 53,743,505 53,769,754 53,769,754
Diluted 54,312,628 53,743,505 53,769,754 53,769,754
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