Solarfun Power Holdings Co., Ltd. (�Solarfun� or �the Company� )
(NASDAQ:SOLF), a vertically integrated manufacturer of silicon
ingots and photovoltaic (PV) cells and modules in China, today
reported its unaudited financial results for the fourth quarter and
full year ended December 31, 2008.
FOURTH QUARTER 2008 RESULTS
- Net revenue was RMB 1.12 billion
(US$ 164.6 million), representing an increase of 13.7% from the
fourth quarter of 2007, but down 11.9% from the third quarter of
2008.
- Results were influenced by a
total non-cash provision of US$ 47.8 million for inventory write
downs. Provisions were necessary as a result of a decline in
inventory market values below carrying value. Additionally,
provisions were made for unsalable products that could not be sold
in the current market environment.
- PV module shipments showed good
momentum, reaching 47.6 MW. This represents an increase of 69.4%
from the fourth quarter of 2007 and an increase of 13.9% from 41.8
MW in the third quarter of 2008.
- Average selling price (�ASP�)
declined, as expected, to US$ 3.37, from US$ 4.04 in the third
quarter of 2008. This was primarily due to soft demand and high
module inventories in the market. Business continued to be centered
in Europe, with Germany accounting for 57%, France 19%, Switzerland
10%, and Portugal 9% of net revenue in this quarter. Spain
accounted for only 2% of net revenue in this quarter.
- Gross loss was RMB 377.8 million
(US$ 55.4 million), compared to a gross profit of RMB 174.5 million
in the fourth quarter of 2007 and a gross profit of RMB 46.1
million in the third quarter of 2008.
- Gross margin was negative 33.7%
and was adversely impacted by the aforementioned inventory
provision, as well as the Company�s transition to a period of lower
raw material prices.
- Operating loss was RMB 439.2
million (US$ 64.4 million). Selling expenses were RMB 20.2 million
(US$ 3.0 million). The Company�s total operating expenses decreased
by 14.7% from RMB 72.0 million (US$ 10.6 million) in the third
quarter of 2008 to RMB 61.4 million (US$ 9.0 million) as it
continues to focus on reducing costs.
- Interest expense increased
approximately RMB 5.2 million (US$ 0.8 million), or 24.2%, from RMB
21.6 million (US$ 3.2 million) in the third quarter of 2008 to RMB
26.8 million (US$ 3.9 million) due to an increase in bank
borrowings.
- The net impact of foreign
currency exchange was a gain of RMB 21.5 million (US$ 3.2 million).
The Company recorded a RMB 28.8 million (US$ 4.2 million) currency
loss largely as a result of the impact of the declining Euro
against the U.S. dollar, but was able to more than offset this loss
through its foreign exchange hedging program, which resulted in a
RMB 50.3 million (US$ 7.4 million) gain.
- Net loss was RMB 418.8 million
(US$ 61.4 million). The loss per basic ADS was RMB 7.79 (US$1.14).
The negative impact of the fourth quarter inventory�provision was
approximately $0.74 per fully diluted ADS
FULL YEAR 2008 RESULTS
- Net revenue was RMB 4.95 billion
(US$ 725.4 million), representing an increase of 106.6% from 2007.
This more than doubling in net revenues was primarily due to the
strong operating environment that existed during much of 2008 and
the Company�s ability to penetrate a broadened global customer
base.
- Total PV module shipments were
172.8 MW, representing an increase of 120% from 78.4 MW in
2007.
- The ASP was $3.92 for 2008,
which was an increase from $3.74 in 2007. This increase was
primarily due to robust demand, particularly in Germany and Spain,
and tight module and raw material supply during the first three
quarters of 2008.
- Gross profit was RMB 43.9
million (US$ 6.4 million), a decrease of 89% from RMB 397.8 million
(US$ 58.3 million) in 2007. The decline was largely due to
provisions for inventory write-downs and unsalable products
totaling RMB 414.0 million (US$ 60.7 million).
- Gross margin was 0.9 %, compared
to 16.6% in 2007.
- Net loss was RMB 280.5 million
(US$ 41.1 million), declining from net income of RMB 148.0 million
in (US$ 21.7 million) 2007.
- Basic loss per ADS was RMB 5.55
(US$ 0.81), down from basic earnings per ADS of RMB 3.08 (US$ 0.42)
in 2007. The negative impact of the full-year inventory provision
was approximately $1.08 per fully diluted ADS
Harold Hoskens, Chief Executive Officer of Solarfun, commented,
�Our current results reflect the global environment in which we
operate. In the fourth quarter, funding for solar projects remained
tight, excess inventories existed in many markets, and normal
seasonal factors exacerbated softer demand. In this context, the
industry is in a transition from a polysilicon supply-driven
environment, to a demand-driven environment, and currently demand
has been affected by the global economic situation. We see that
module prices have declined at the same time as the cost of
polysilicon, with the cost of polysilicon falling somewhat faster
than module prices. We are confident that after turning over our
higher cost inventories and with the further ramp-up of our
internal ingot and wafer making facilities, we will be able to
further expand business volumes, increase margins and return to
profitability. We have contracts and good relations with key global
customers. We recognize that this short-term turbulence requires
close cooperation with these customers to create a mutually
sustainable future. As we head into the coming year, we will
continue to focus diligently on maintaining liquidity,
strengthening customer relationships and expanding our geographic
footprint, adjusting our raw material costs to reflect the current
environment, and enhancing the efficiency and consistency of our
manufacturing capabilities, including leveraging our vertical
integration strategy.�
FINANCIAL POSITION
As of December 31, 2008, the Company had cash and cash
equivalents of RMB 410.9 million (US$ 60.2 million) and working
capital of RMB 1.61 billion (US$ 236.2 million). Total bank
borrowings were RMB 1.30 billion (US$ 190.4 million), which was up
from RMB 1.20 billion (US$ 177.3 million) as of September 30,
2008.
The Company continued to focus on working capital management and
held days sales outstanding constant at 27 days.
The Company spent US$ 31 million in capital expenditures and US$
49 million on supply prepayments related to long-term contracts in
the fourth quarter of 2008.
Q-CELLS CONTRACT FINALIZED
The Company executed its manufacturing services agreement with
Q-Cells AG, the world�s largest independent manufacturer of solar
cells. Beginning in the second quarter of 2009, Solarfun will
supply on a fixed-price, fixed quantity basis no less than 100 MW
of photovoltaic modules per annum using PV cells supplied by
Q-Cells. The agreement has fixed terms for the first two years and
Q-Cells has the option to extend for a third year.
Solarfun CEO Harold Hoskens noted, �This contract is the
beginning of what we believe will be a growing and long-term
relationship between our two companies and we are honored that a
company of Q-Cells stature has selected us as their first module
supplier in China. We think this is a testament to our product
quality, manufacturing reliability, and competitive cost structure.
It provides us with a good return on invested capital, supports
module capacity expansion during an otherwise soft market, and will
contribute to our profitability going forward.�
CHANGES IN MANAGEMENT
Appointment of Dr. Peter Xie as President, China
The Company announces the appointment of Dr. Peter Xie as
President, China.
Dr. Xie joins Solarfun from NeoPhotonics Corporation, a
Shenzhen, China-based provider of integrated optics products that
use standard semiconductor silicon wafer technology. He most
recently worked as Global Chief Technology Officer and General
Manager, China, where he was responsible for the company�s overall
operations in China and its world-wide product development
programs. During his six years at the company, he also held various
engineering, product development, sales and business development
roles. Earlier in his career, Dr. Xie acquired a broad range of
experience in both management and research, including working at
Bookham Inc., JDS Uniphase and Los Alamos National Lab. He received
a Ph.D. in applied physics and an M.S. in physics from the
University of Michigan, Ann Arbor and a B.S. in electrical
engineering from Tsinghua University in Beijing.
Yonghua Lu, Chairman of Solarfun, commented, �We are very
fortunate to attract an executive of Dr. Xie�s caliber. He has a
unique skill set that combines an excellent education, strong
grounding in technology and cross-border managerial experience that
will further strengthen our management team. We look forward to his
excellent performance.�
Dr Xie added, �I am extremely excited to be joining Solarfun.
While the solar industry is clearly going through a turbulent
period, I am a firm believer in the long-term opportunity of solar
energy, and I am quite confident in Solarfun�s ability to emerge as
a key player in the industry.�
Terry McCarthy, Chair Audit Committee, named Interim
CFO
Effective March 31, 2009, Ms. Amy Liu will leave her position as
Chief Financial Officer to pursue other interests. We thank her for
her dedicated service to the Company and wish her well in her
future endeavors. Replacing her will be Mr. Terry McCarthy, former
Chairman of the Audit Committee, who has been named Interim CFO.
Mr.�McCarthy has served as independent Director of Solarfun since
November 2006. From 1985 to 2006, Mr.�McCarthy worked for Deloitte
LLP in San Jose, California in various roles, including as Office
Managing Partner, Tax Partner-in-charge and client services
Partner. Beginning in 1999, he worked extensively with companies
entering the China market and, from 2003 to 2006, he was Associate
Managing Partner of the Deloitte US Chinese Services Group.
Previously, Mr.�McCarthy owned his own accounting firm and held
various audit positions for a national accounting firm. He has an
MBA from the University of Southern California and a BS in Business
from Pennsylvania State University.
BUSINESS OUTLOOK
The Company is well aware of the unpredictable nature of the
current operating environment and, as a result, will offer less
specific quantitative guidance than previously provided for the
full year 2009. We do note the following:
For the first quarter of 2009, management expects:
- Demand will reach its low point
for this business cycle. As a result, shipments will be below those
of the preceding quarter and be around 35 MW. ASP�s are currently
in the range of Euro 2.05 � 2.10.
- Gross margins should show some
gradual improvement as supply costs are being reduced. With further
leverage from our vertical integration, the impact will become more
visible as the year progresses.
For the full year of 2009:
The Company currently has signed contracts with key customers
totaling 200 MW. Excluding the aforementioned manufacturing
services agreement with Q-Cells, Solarfun has an ongoing dialogue
with these customers to ensure that both partners find a
sustainable way forward on these contracts. The Company expects
full-year demand to exceed these levels as markets rebound and gain
momentum beginning in the second quarter or 2009.
Management expects:
- ASP�s to gradually decline by a
further 10-15% towards year-end.
- The relative rate of 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 60% of the Company�s polysilicon and wafer
requirements, price levels will be determined based on prevailing
market conditions. Current (for new purchase orders) polysilicon
costs are approximately $130kg. This level is expected to be
reduced further going forward.
- A larger part of the Company�s
total wafer volume to come from in-house facilities, which should
create greater opportunities for cost optimization and technical
innovation.
- Capacity expansion to remain on
hold until the demand picture becomes more clear. Current capacity
is adequate to support sales volumes of 280 MW.
- 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, which
remain accommodative in China.
Harold Hoskens concluded, �We believe the year 2009 will remain
challenging, particularly during the first half, but we remain
confident in the long-term promise of PV solar energy and the
competitive positioning of Solarfun. A better operating environment
is on the horizon; supply/demand imbalances for modules are being
reset, raw material costs and inventories are being adjusted to
reflect real time costs, and customers are becoming more optimistic
as we enter the second quarter.�
Conference Call
Mr. Harold Hoskens, Chief Executive Officer, Mr. Terry McCarthy,
Interim Chief Financial Officer, and Paul Combs, Vice President of
Strategic Planning, will discuss the results and take questions
following the prepared remarks on a conference call that will take
place at 8:00 am U.S. Eastern Time (8:00 pm Shanghai time) on March
25, 2009.
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
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
Bank of New York as of December 31, 2008, which was RMB6.8225 to
US$1.00. No representation is intended to imply that the Renminbi
amounts could have been, or could be, converted, realized or
settled into U.S. dollars at that rate on Dec 30, 2008, or at any
other date. The percentages stated in this press release are
calculated based on Renminbi amounts.
Safe Harbor Statement
This news release contains forward-looking statements, as
defined under the Private Securities Litigation Reform Act of 1995,
such as the Company�s business outlook for 2009, including first
quarter and full year 2009 estimates for PV product shipments, raw
materials and product pricing trends, PV cell production capacity
and gross margins. Forward-looking statements involve inherent
risks and uncertainties and actual results may differ materially
from such estimates depending on future events and other changes in
business climate and market conditions. Solarfun disclaims any
obligation to update or correct this information.
About Solarfun
Solarfun Power Holdings Co, Ltd. manufactures both PV cells and
PV modules, provides PV cell processing services to convert silicon
wafers into PV cells, and supplies solar system integration
services in China. Solarfun produces both monocrystalline and
multicrystalline silicon cells and modules, and manufactures 100%
of its modules with in-house produced PV cells. Solarfun sells its
products both through third-party distributors, OEM manufacturers
and directly to system integrators. Solarfun was founded in 2004
and its products have been certified to TUV and UL safety and
quality standards. SOLF-G
http://www.solarfun.com.cn
Financial Statements
� SOLARFUN POWER HOLDINGS CO., LTD. CONSOLIDATED BALANCE SHEETS
(Amounts in thousands of Renminbi ("RMB") and U.S. dollars ("US$"),
except for number of shares and per share data) � � � � December 31
September 30 December 31 December 31 2007 2008 2008 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited) RMB RMB RMB USD
ASSETS Current assets Cash and cash equivalents
272,928 511,393 410,901 60,227 Restricted cash 42,253 390,660
88,137 12,919 Financial assets - 35,877 39,665 5,814 Accounts
receivable, net 430,692 347,955 319,537 46,835 Inventories, net
728,480 751,739 731,708 107,249 Advance to suppliers, net 640,118
1,355,451 1,355,597 198,695 Other current assets 214,478 249,136
256,108 37,539 Deferred tax assets 3,026 18,881 51,035 7,480 Amount
due from related parties 920 9,344 19 3
�
�
�
�
Total current assets 2,332,895 3,670,436
3,252,707 476,761
�
�
�
�
Non-current assets Fixed assets � net 702,884 1,298,874
1,492,575 218,772 Intangible assets � net 94,282 169,333 212,736
31,182 Goodwill - 134,735 134,735 19,749 Deferred tax assets 4,767
9,195 10,029 1,470 Long-term deferred expenses 214,385 218,070
37,444 5,488 Long-term investment 300 - - -
�
�
�
�
�
Total non-current assets 1,016,618 1,830,207
1,887,519 276,661
�
�
�
�
TOTAL ASSETS 3,349,513 5,500,643
5,140,226 753,422
�
�
�
�
LIABILITIES AND SHAREHOLDERS� EQUITY Current
liabilities Financial liabilities - 6,254 5,792 849 Short-term
bank borrowings 965,002 996,974 1,098,832 161,060 Long-term bank
borrowings, current portion 15,000 29,500 30,000 4,397 Accounts
payable 141,709 176,975 217,025 31,810 Notes payable - 3,104 39,341
5,766 Accrued expenses and other liabilities 135,395 306,230
173,370 25,412 Customer deposits 27,628 32,612 9,494 1,392
Unrecognized tax benefit - - 27,385 4,014 Amount due to related
parties 92,739 12,587 39,766 5,829
�
�
�
�
Total current liabilities 1,377,473 1,564,236
1,641,005 240,529
�
�
�
�
Non-current liabilities Long-term bank borrowings,
non-current portion - 177,500 170,000 24,918 Convertible notes
payable - 1,176,157 1,178,969 172,806 Long term payable - 13,500 -
- Deferred tax liability 9,038 28,019 27,155 3,980
�
�
�
�
Total non-current liabilities 9,038 1,395,176
1,376,124 201,704 �
Minority interests
100,420 12,975 4,183 613
�
�
�
�
Redeemable ordinary shares - 32 32
5
�
�
�
�
Shareholders� equity � Ordinary shares 194 214 214 32
Additional paid-in capital 1,601,853 2,129,128 2,138,624 313,465
Statutory reserves 37,548 59,546 47,638 6,982
Retained earnings (deficit)
222,987 339,336 (67,594 ) (9,908 )
�
�
�
�
Total shareholders� equity 1,862,582 2,528,224
2,118,882 310,571
�
�
�
�
TOTAL LIABILITIES, MEZZAINNE
EQUITY AND SHAREHOLDERS� EQUITY
3,349,513 5,500,643 5,140,226 753,422
�
�
�
�
0.00 0.00 0.00 0.00 � � 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) � � � � � � � For the three months ended
For the years ended December 31 September 30 December 31 December
31 December 31 December 31 2007 2008 2008 2007 2008 2008
(Unaudited) (Unaudited) (Unaudited) (Unaudited) (Unaudited)
(Unaudited) RMB RMB RMB RMB RMB USD
Net revenue Photovoltaic
modules 804,164 1,146,900 1,094,498 2,209,514 4,626,423 678,113
Photovoltaic cells 50,025 90,923 28,199 52,019 253,074 37,094 PV
cells processing - - - - 3,229 473 PV modules processing 5,876 - -
5,876 - - Raw materials 127,706 37,025 - 127,726 66,342 9,724
�
�
�
�
�
�
Total net revenue 987,771 1,274,848
1,122,697 2,395,135 4,949,068 725,404
�
�
�
�
�
�
Cost of revenue Photovoltaic modules (653,667 ) (1,103,612 )
(1,466,831 ) (1,835,886 ) (4,592,945 ) (673,206 ) Photovoltaic
cells (47,476 ) (83,053 ) (33,666 ) (49,332 ) (241,882 ) (35,454 )
PV cells processing - - - - (1,208 ) (177 ) PV modules processing
(2,014 ) - - (2,014 ) - - Raw materials (110,110 ) (42,077 ) -
(110,123 ) (69,112 ) (10,130 )
�
�
�
�
�
�
Total cost of revenue (813,267 )
(1,228,742 ) (1,500,497 )
(1,997,355 ) (4,905,147 )
(718,967 )
�
�
�
�
�
�
Gross profit / (losses) 174,504 46,106
(377,800 ) 397,780 43,921 6,437
�
�
�
�
�
�
Operating expenses Selling expenses (23,167 ) (20,174 )
(20,202 ) (62,777 ) (87,913 ) (12,886 ) G&A expenses (50,153 )
(46,057 ) (39,811 ) (113,756 ) (143,340 ) (21,010 ) R&D
expenses (8,506 ) (5,765 ) (1,433 ) (27,440 ) (19,679 ) (2,884 )
�
�
�
�
�
�
Total operating expenses (81,826 ) (71,996 ) (61,446 ) (203,973 )
(250,932 ) (36,780 )
�
�
�
�
�
�
Operating profit / (losses) 92,678 (25,890
) (439,246 ) 193,807 (207,011
) (30,343 ) � Interest expenses (11,293 )
(21,559 ) (26,769 ) (25,978 ) (103,146 ) (15,119 ) Interest income
(1,805 ) 4,280 1,974 16,244 10,004 1,466 Exchange gain / (losses)
(3,307 ) (30,001 ) (28,794 ) (25,628 ) (35,230 ) (5,164 )
Investment income - - (384 ) - (384 ) (56 ) Gain on change in fair
value of derivative - 32,782 50,307 - 83,089 12,179 Other income
(7,552 ) 3,996 4,629 1,507 15,018 2,201 Other expenses (2,032 )
(3,896 ) (2,860 ) (9,670 ) (25,220 ) (3,697 ) Government grant
1,369 221 3,020 2,089 3,479 510
�
�
�
�
�
�
Net income / (losses) before income tax and minority
interest 68,058 (40,067 ) (438,123
) 152,371 (259,401 ) (38,023
)
�
�
�
�
�
�
� Income tax benefit / (expenses) (3,814 ) 1,224 19,270 (7,458 )
(6,519 ) (956 ) Minority interest 2,199 (5,463 ) 16 3,124 (14,573 )
(2,136 )
�
�
�
�
�
�
Net income / (losses) 66,443 (44,306 )
(418,837 ) 148,037 (280,493 )
(41,115 )
�
�
�
�
�
�
Net income / (losses) attributable to ordinary
shareholders 66,443 (44,306 )
(418,837 ) 148,037 (280,493 )
(41,115 )
�
�
�
�
�
�
�
Net income / (losses) per share Basic 0.28 (0.17 ) (1.56 )
0.62 (1.11 ) (0.16 ) Diluted 0.28 (0.17 ) (1.56 ) 0.62 (1.11 )
(0.16 ) �
Shares used in computation Basic 240,807,142
258,503,644 268,717,524 240,054,686 252,659,614 252,659,614 Diluted
240,807,142 258,503,644 268,717,524 240,054,686 252,659,614
252,659,614 � �
Net income / (losses) per ADS Basic 1.38
(0.86 ) (7.79 ) 3.08 (5.55 ) (0.81 ) Diluted 1.38 (0.86 ) (7.79 )
3.08 (5.55 ) (0.81 ) �
ADSs used in computation Basic
48,161,428 51,700,729 53,743,505 48,010,937 50,531,923 50,531,923
Diluted 48,161,428 51,700,729 53,743,505 48,010,937 50,531,923
50,531,923 �
Solarfun Power Holdings CO., Ltd. ADS, Each Representing Five Ordinary Shares (MM) (NASDAQ:SOLF)
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