China Sunergy Financial Results Highlight the Challenges in the PV Market

Solar cell and module maker China Sunergy Co Ltd  released both it’s  fourth quarter financial and full year results for 2013 today. Here are the highlights:

Fourth Quarter 2013 Financial Highlights

  • Total revenue was US$125.5 million, an increase of 119.8% from US$57.1 million in the third quarter of 2013.
  • Shipments totaled 235.8MW, an increase of 109.2% (123.1MW) from 112.7MW in the third quarter of 2013. Module shipments including 20.9MW module processed under OEM arrangements and 5MW module delivered to one of the Company’s UK projects were 210.6 MW, or 89.3% of total shipments. Cell shipments including 19.4MW cell processed under OEM arrangements were 25.2MW.
  • Average selling price (“ASP”) for the Company’s solar modules, excluding those processed under OEM arrangements, was US$0.59 per watt, a decrease of 4.8% from US$0.62 in the third quarter of 2013.
  • Conversion cost for cells was US$0.15 per watt, unchanged from the prior quarter. Conversion cost for modules was US$0.19 per watt, a decrease of three cents from US$0.22 in the third quarter of 2013.
  • Gross profit was US$6.6 million, and gross margin was 5.2%, compared with gross profit of US$1.7 million and gross margin of 3.0% in the third quarter of 2013. Non-GAAP[1]gross profit was US$7.0 million, and Non-GAAP gross margin was 5.6%.
  • Net loss attributable to ordinary shareholders was US$13.2 million, unchanged from the third quarter of 2013. Non-GAAP net loss attributable to ordinary shareholders was US$ 11.6 million.
  • Net loss attributable to ordinary shareholders per ADS was US$0.89, compared with US$0.99 in the third quarter of 2013.Non-GAAP net loss attributable to ordinary shareholders per ADS was US$0.78.
  • Cash, cash equivalents and restricted cash totaled US$248.5 million, as of December 31, 2013.

[1]China Sunergy’s Non-GAAP financial measures are its corresponding GAAP financial measures as adjusted by excluding costs related to certain charges, including inventory and bad debt provisions. Please refer to “Reconciliations of Non-GAAP Financial Measures to the Nearest Comparable GAAP Measures” at the end of this press release.

Full Year 2013 Financial Highlights

Total net revenue was US$316.2 million, an increase of 8.0% from US$292.7 million in the prior year.

Shipments totaled 577.4MW, an increase of 47.7% from 391.0 MW in the prior year. Module shipments including 70.4MW module processed under OEM arrangements and 5MW module delivered to one of the Company’s UK projects were 548.2 MW, or 94.9% of total shipments.

Gross profit was US$15.2 million, and gross margin was 4.8%. Non-GAAP gross profit wasUS$16.9 million, and Non-GAAP gross margin was 5.3%.

Net loss attributable to ordinary shareholders was US$50.6 million, and net margin was negative 16.0%. Non-GAAP net loss attributable to ordinary shareholders was US$48.4 million.

Net loss attributable to ordinary shareholders per ADS was US$3.68, compared to a net loss per ADS of US$9.99 in the prior year. Non-GAAP net loss per ADS was US$3.53.

Fourth Quarter & Full-Year 2013 Financial Review

Total Revenue and Shipments

For the fourth quarter of 2013, total revenue was US$125.5 million, an increase of 119.8% from the third quarter of 2013, primarily due to higher shipments from both modules and cells. Revenue for full-year 2013 was US$316.2million, an increase of 8.0% from the prior year.

Total shipments for the fourth quarter of 2013 were 235.8MW, an increase of 123.1MW or 109.2% from 112.7MW in the prior quarter primarily driven by robust demand from China in the fourth quarter of 2013. Total module shipments, including module processed under OEM arrangement of 20.9MW and 5MW module delivered to one of the Company’s UK projects, were 210.6MW for the fourth quarter of 2013. Total cell shipments, including cell processed under OEM arrangement of 19.4MW, were 25.2MW for the fourth quarter of 2013.

Total shipments in 2013 were 577.4MW. Total module shipments, including module processed under OEM arrangement of 70.4MW and 5MW module delivered to the UK project, were 548.2MW for the full year 2013. Total cell shipments, including cell processed under OEM arrangement of 19.4MW, were 29.3MW for the full year 2013.

Asia became the largest market for the Company, accounting for 67.0% of total revenue in the fourth quarter of 2013, with Chinaand Japan accounting for 56.3% and 7.1% of total revenue, respectively. Sales to European markets represented 31.9% of total revenue in the fourth quarter, mainly contributed by the Germany and France markets, as well as the UK market from which the Company recognized 5MW solar project sales revenue in the fourth quarter of 2013. As the Company continues to expand its global customer footprint and decrease concentration risk, Europe and Asia accounted for 47.2% and 49.7%, respectively, of total revenue in 2013, more balanced compared with 71.0% and 14.5% respectively, of total revenue in 2012.

ASP

Module ASP for the fourth quarter was US$0.59 per watt, decreased by three cent or 4.8% compared with that of the previous quarter. Module ASP in 2013 was US$0.61 per watt, compared to US$0.74 in the prior year. The lower module ASP was primarily due to our increased shipments to lower-priced regions, lower cost structure and continued imbalance of supply and demand.

Wafer and Conversion Costs

Blended wafer costs in the fourth quarter of 2013 were US$0.22 per watt, remained flat quarter over quarter. Conversion costs of cells and modules manufactured in the fourth quarter of 2013 were US$0.15 and US$0.19 per watt, respectively, compared with US$0.15 and US$0.22 per watt, respectively, in the prior quarter. The reduction of three cents or 13.6% in conversion cost of modules was mainly attributable to decreased conversion cost of module at the Company’s Turkey plants as it ramped up the production capacity and enhanced operational efficiency.

Blended wafer costs in the full year of 2013 were US$0.22 per watt, compared to US$0.27 per watt in 2012. Conversion costs of cells and modules for the full year of 2013 were US$0.15 per watt and US$0.20 per watt, respectively, compared to US$0.17 per watt and US$0.23 per watt, respectively, in 2012.

Gross Profit and Gross Margin

Gross profit for the fourth quarter was US$6.6 million, and gross margin was 5.2%, compared to gross margin of 3.0% for the third quarter of 2013. Gross profit for full year of 2013 was US$15.2 million, and gross margin was 4.8%. The improved gross profit during the fourth quarter was mainly attributable to the decrease of unit manufacturing cost. Excluding the inventory provision of US$0.4 million, non-GAAP gross profit was US$7.0 million, and non-GAAP gross margin was 5.6% in the fourth quarter of 2013.

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

Operating expenses slightly decreased to US$13.9 million in the fourth quarter of 2013, from US$14.8 million in the third quarter of 2013. The decrease in operating expenses was primarily due to the sequential reductions in research and development expenses and selling and marketing expenses. Operating expenses that included bad debt provision of US$1.1 million in the fourth quarter, slightly decreased compared to US$1.3 million in the prior quarter. Operating expenses totaled US$55.1 million in 2013, significantly decreased from US$104.5 million in 2012, which was primarily attributable to a decrease in bad debt provision from US$47.4 million in 2012 to US$0.5 million in full year of 2013.

Loss from operations narrowed to US$7.3 million in the fourth quarter of 2013, and to US$39.9 million for full year 2013.

Correspondingly, net loss attributable to ordinary shareholders was US$13.2 million in the fourth quarter of 2013 and US$50.6 million for full year 2013.

Non-GAAP net loss attributable to ordinary shareholders was US$11.6 million for the fourth quarter of 2013, and US$48.4million for the full year 2013.

Amount Due from Related Parties

Amount due from related parties totaled US$84.0 million as of December 31, 2013, a decrease of US$15.8 million compared to US$99.8 million as of September 30, 2013. The decreased balance was mainly attributable to the Company’s full collection of the remainder of short-term interest-free non-trading advances[2] as of October 30, 2013.

[2]In the second quarter of 2013, the Company provided short-term interest-free advances totaling US$44.3 million to one of its related companies, CEEG Nanjing Semi-Conductor Co. Ltd (“CEEG Semi-Conductor”). The short-term interest-free advances were provided to address liquidity pressure on CEEG Semi-Conductor and China Electric Equipment Group Co., Limited (“CEEG”), and in turn preserve China Sunergy’s credit and liquidity, as CEEG guaranteed most of the Company’s bank loans.

Amount Due to Related Parties

Amount due to related parties totaled US$11.8 million as of December 31, 2013, a decrease of US$0.7 million compared to US$12.5 million as of September 30, 2013.

Inventory

Inventories at the end of the fourth quarter of 2013 totaled US$44.7 million, a decrease of US$21.0 million from the prior quarter, driven by higher shipment during the fourth quarter of 2013.

Cash Position

As of December 31, 2013, the Company had cash and cash equivalents of US$54.3 million, and restricted cash of US$194.2 million.

Additional Company Updates Subsequent to Fourth Quarter 2013

China Sunergy Builds Strategic Partnership with Larsen & Toubro: the Company had completed totaled 29.5MW solar modules shipment under two separate supply agreements to Larsen & Toubro Limited, an Indian conglomerate and solar developer headquartered in Chennai, India. China Sunergy has officially advanced into Larsen & Toubro’s strategic suppliers list in solar business.

China Sunergy Announces the Sale of an Idle Subsidiary: the Company has signed a share transfer agreement with its affiliated company, China Electric Equipment Group Co., Ltd. (“CEEG”), under which the Company agreed to sell and CEEG agreed to purchase, 100% of the equity interest in China Sunergy (Shanghai) Co. Ltd. (“Sunergy Shanghai”), a subsidiary of the Company, for a total consideration of approximately RMB 231.2 million (US$37.7 million). As a result, China Sunergy expects to receive the cash proceeds of approximately RMB 79.6 million (US$13.0 million) from the Transaction in the second quarter of 2014. The remaining consideration will be settled through forgiveness of the amount due from China Sunergy by Sunergy Shanghai.

China Sunergy’s Turkey Plant Fulfilled 7.8 MW Solar Module Contract: the Company’s Turkey plant has fulfilled a solar module supply contract totaling 7.8 MW for a project in Romania. The project is developed and owned by a well-known solar conglomerate headquartered in China. The solar modules supplied for the project were directly from China Sunergy’s Turkey plant.

China Sunergy Awarded MCS Certification for Modules Produced in Turkey: the Company has received a certificate under the UK Micro-generation Certification Scheme (“MCS”) issued by BRE Global, subject to periodic review and verification, for its mono and polycrystalline solar photovoltaic modules produced at its Turkey plant.

China Sunergy Announces Collaborative Research Agreement with University of New South Wales to Develop Cutting-Edge Wafer Materials: the Company has signed a five-year collaborative research agreement with New South Innovations Pty Ltd. (NSi), a wholly owned subsidiary of the University of New South Wales, Australia (UNSW), to substantially improve solar cell efficiency by improving wafer material quality.

Business Outlook

Mr. Cai continued, “For 2014, we anticipate a healthy pricing environment, and we are seeing a clearer path toward our return to earning positive net profits and cash flows. We aim to further upgrade our manufacturing processes; integrate our global supply; expand our overseas OEM business; and broaden the use of cheaper overseas financing channels. As such, despite the tough challenges in recent quarters, we are optimistic about 2014. We believe China Sunergy is more efficient, nimble, and well positioned for the foreseeable future, and we are confident that we will deliver significant year-over-year growth in shipment volume.”

Reflecting quarterly seasonality, the Company estimates that the total shipment for the first quarter of 2014 will range from 130MW to 140MW, including 35MW to 40MW of cell shipment. Gross margin for the first quarter of 2014 is expected to remain mid-single digit.

For the full-year 2014, the Company estimates total shipment will range between 750MW to 800MW including 150MW to 200MW of cell shipment.

This guidance is based on the current market conditions and reflects the Company’s current and preliminary estimates of market and operating conditions and customer demand, which are all subject to change.

 

 

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