Suntech Power Holdings Co., Ltd. (NYSE: STP), the world’s largest producer of solar panels, today announced financial results for its third fiscal quarter ended September 30, 2010.
Third Quarter 2010 Highlights
Total net revenues were $743.7 million in the third quarter of 2010, representing growth of 19.0% sequentially and 57.2% year-over-year.Total PV shipments increased 25.3% sequentially and 107.1% year-over-year.Gross profit margin for the core wafer to module business was 18.2% in the third quarter of 2010.Consolidated gross profit margin was 16.4% in the third quarter of 2010. GAAP net income attributable to holders of ordinary shares was $33.1 million, or $0.18 per diluted American Depository Share (ADS). Each ADS represents one ordinary share.
“The third quarter was a highly productive period for Suntech,” said Dr. Zhengrong Shi, Chairman and CEO. “Shipments and revenues each hit new quarterly records and we reached production capacity of 1.6GW. We are on track to achieve our goal of 1.8GW cell and module capacity by the end of this year.”
“In the third quarter, we continued to diversify our sales globally and participated in high profile solar projects across Europe, the Americas, and Asia Pacific. In Europe, we supplied a 5MW project in Thiva, which is one of the largest grid connected solar projects in Greece. In Asia Pacific, we were selected for phase two of a 44MW project in Thailand. And we recently opened our module manufacturing facility in Goodyear, Arizona, which will help us to service the accelerating demand in the Americas. Indicative of our rapid market penetration, we sold more product in the Americas in the third quarter of 2010 than we did in the full year 2009,” Dr. Shi continued.
“We are also pleased to announce we are in the process of extending our vertical integration into the wafer segment of the solar value chain. As we expand our internal wafer manufacturing capacity, we are confident we will have an improving earnings profile as we benefit from lower wafer cost. Upstream integration is in line with Suntech’s strategy to continue to reduce the cost of solar energy and stimulate greater global adoption of clean, renewable energy,” said Dr. Shi.
Recent Business Highlights
Suntech announced it is in the process of integrating 375MW of ingot and wafer slicing capacity in China. The wafer manufacturing capacity is being spun off from a subsidiary of Glory Silicon Technology Investments (Hong Kong) Limited, in which Suntech holds an equity investment.
Suntech partnered with Biosar Energy S.A. to supply solar modules to a 5MW solar project in Thiva, Greece. The solar plant, which is owned by Energy S.A., is one of the largest grid-connected solar plants in Greece.Suntech opened its first U.S. manufacturing plant in Goodyear, Arizona. The new module production facility has an initial manufacturing capacity of 30MW and is expected to expand to 50MW in early 2011. The new plant provides a local platform to meet the burgeoning demand for solar products in the Americas.Suntech signed a Letter of Intent with Calisolar Inc., a privately held, vertically integrated manufacturer of solar silicon, wafers and cells, to construct a solar silicon manufacturing facility in Ontario, Canada. Suntech intends to assist with financing the facility and sign a multi-year agreement to purchase solar silicon produced by Calisolar. Solar panels that utilize Calisolar silicon will qualify for the 2011 Ontario local content requirements.Suntech was selected for phase two of a 44MW solar power plant in Thailand. Owned by Bangchak Petroleum Public Co., Ltd., and integrated by Solartron Public Co., Ltd., the landmark solar power plant will be one of the largest in Thailand and Southeast Asia.
Third Quarter 2010 Results
Total net revenues for the third quarter of 2010 were $743.7 million, an increase of 19.0% from $625.1 million in the second quarter of 2010 and an increase of 57.2% from $473.1 million in the third quarter of 2009. Total net revenues to the investee companies of GSF were $143.8 million in the third quarter of 2010. Revenue and profit related to the sales to investee companies of GSF during the third quarter of 2010 were fully recognized with accounts receivable fully collected during the same period.
For the third quarter of 2010, consolidated gross profit was $122.0 million and gross margin was 16.4% compared to consolidated gross profit of $113.9 million and gross margin of 18.2% in the second quarter of 2010. The sequential decline in gross margin was primarily due to a small decrease of average selling price, and a marginal increase in the cost of silicon wafers used in production.
Operating expenses for the third quarter of 2010 decreased to $59.5 million compared to $132.9 million in the second quarter of 2010. Operating expenses in the second quarter of 2010 included a non-cash impairment of thin film equipments and a special prepayment provision to account for credit risks associated with the delivery of silicon wafers from Shunda Holdings Co., Ltd. Operating expenses excluding provisions for bad debts were $54.5 million in the third quarter of 2010.
Income from operations was $62.6 million for the third quarter of 2010 compared to a loss from operations of $19.1 million in the second quarter of 2010.
Net interest expense increased to $23.1 million in the third quarter of 2010 compared to net interest expense of $22.7 million in the second quarter of 2010. Net interest expense in the third quarter of 2010 included $9.4 million in non-cash expenses of which $7.6 million was related to the adoption of FASB Codification 470-20-65, Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion. This compares to $8.8 million in non-cash net interest expense in the second quarter of 2010.
Foreign currency exchange gain was $42.0 million in the third quarter of 2010 compared to a foreign exchange of loss of $61.4 million in the second quarter of 2010. The foreign currency gain in the third quarter was primarily related to the appreciation of the Euro versus the US Dollar during the third quarter of 2010.
Net other expense was $74.1 million in the third quarter of 2010, compared with net other income of $24.1 million in the second quarter of 2010. The net other expense in the third quarter of 2010 was mainly due to mark to market losses from hedging activities. The net impact of losses related to hedging and foreign exchange fluctuations was approximately $32.1 million in the third quarter of 2010.
Equity in earnings of affiliates in the third quarter of 2010 was $23.1 million compared to equity in loss of affiliates of $100.6 million in the second quarter of 2010. The equity in earnings of affiliates in the third quarter of 2010 was primarily related to a $19.8 million increase in the fair value of GSF’s investments in projects, due to the completion of construction of 10MW of projects in the third quarter of 2010. The equity in loss of affiliates in the second quarter of 2010 was primarily related to an impairment of equity investments in Shunda Holdings of $101.1 million.
Net income attributable to holders of ordinary shares was $33.1 million, or $0.18 per diluted ADS for the third quarter of 2010, compared to net loss of $174.9 million, or negative $0.97 per ADS, for the second quarter of 2010. Non-cash impairment charges and provisions related to thin film and Shunda had a negative impact of $1.00 per ADS in the second quarter of 2010.
In the third quarter of 2010, the major non-cash related expenses were share-based compensation charges of $3.2 million; $9.4 million of non-cash interest expenses, as mentioned above; and depreciation and amortization expenses of $26.7 million.
In the third quarter of 2010, capital expenditures, which were primarily for the addition of new production equipment, totaled $137.0 million.
Cash and cash equivalents totaled $946.2 million as of September 30, 2010, compared with $765.6 million as of June 30, 2010. The increase in cash and cash equivalents was mainly due to stringent working capital management and additional financing activities.
Accounts receivable totaled $443.7 million as of September 30, 2010, compared with $405.0 million as of June 30, 2010. The increase was in line with the increase in revenue. Days sales outstanding improved to 54 days in the third quarter of 2010, compared to 58 days in the second quarter of 2010.
Accounts receivable due from investee companies of GSF was $59.7 million as of September 30, 2010, compared with $94.2 million as of June 30, 2010. The sequential decrease in the related accounts receivable was due to the collection of approximately €33 million in the third quarter.
Inventory was $447.4 million as of September 30, 2010, compared with $381.5 million as of June 30, 2010. The increase in inventory was in line with the growth of production. Inventory turnover days declined to 66 days in the third quarter of 2010 from 68 days in the second quarter of 2010.
Accounts payable totaled $394.6 million as of September 30, 2010, compared with $366.1 million as of June 30, 2010. The increase in accounts payable was primarily due to increased material procurement to meet production requirements of burgeoning demand.
In the fourth quarter of 2010, Suntech expects at least 10 percent sequential growth in shipments. Suntech targets to ship more than 1.5GW of solar products in 2010, representing year-over-year growth of at least 113%.
Consolidated gross margin in the fourth quarter of 2010 is expected to be approximately 17%, which is based on an assumed exchange rate of 1.35USD to the Euro.
GSF is in the process of constructing a further 140MW of projects, of which at least 80MW are expected to be completed in the fourth quarter of 2010. As a result Suntech expects that the fair value of those projects will increase significantly and Suntech will recognize a related gain in earnings of affiliates in the fourth quarter of 2010. As each of the economics and timing of completion of these projects is different it is difficult to provide an accurate estimation of the gain at this time.
Full year 2010 capital expenditures are expected to be approximately $350 million. Suntech targets to achieve 1.8GW of installed cell and module production capacity by the end of 2010.
Third Quarter 2010 Conference Call Information
Suntech management will host a conference call today, Wednesday, November 17, 2010 at 8:00a.m. U.S. Eastern Time (which corresponds to 9:00p.m.Beijing/Hong Kong time and 1:00p.m. Greenwich Mean Time on November 17, 2010) to discuss the company’s results.
To access the conference call, please dial +1-857-350-1682 (for U.S. callers/ international callers) or +852-3002-1672 (for HK callers) and ask to be connected to the Suntech earnings conference call. A live and archived webcast of the conference call will be available on Suntech’s website at http://www.suntech-power.com under Investor Center: Financial Events.
A telephonic replay of the conference call will be available until November 27, 2010 by dialing +1-617-801-6888 (passcode: 30650315).
Suntech Investor and Analyst Day 2010
Suntech will host an investor and analyst day in New York City on December 6, 2010 for institutional investors and equity analysts. For information or to register for this event, please contact:
The Piacente Group, Inc. | Investor Relationssuntech@tpg-ir.com