Solarfun Reports Second Quarter 2009 Results

Tuesday, August 18, 2009 8:02 AM

SHANGHAI, Aug. 18 /PRNewswire-FirstCall/ -- 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 quarter ended June 30, 2009.

SECOND QUARTER 2009 RESULTS

Total net revenues were RMB 854.6 million (US$125.1 million) in the second quarter of 2009, representing a decrease of 36.8% from RMB 1,352.2 million in the second quarter of 2008, but an increase of 24.9% from RMB 684.2 million in the first quarter of 2009.

PV module shipments reached 64.3 MW in the second quarter of 2009, an increase from 43.1 MW in the second quarter of 2008 and 35.7 MW in the first quarter of 2009. The increase from the first quarter of 2009 was due to increases in PV module shipments and PV module processing services, which represented approximately 36% of the total PV module shipments in the second quarter of 2009. In the second quarter of 2009, excluding module processing, Germany accounted for 83% of the Company's total PV module shipments. The Czech Republic, a new market for the Company, Australia, Korea and Spain accounted for 6%, 5%, 3% and 2% of the Company's total module shipments, respectively.

Average selling price further declined, as expected, to US$2.66 per watt in the second quarter of 2009 from US$2.78 per watt in the first quarter of 2009, primarily due to the decrease in the market prices of PV products.

The Company's management determined that a provision of RMB 236.5 million (US$34.6 million) in the second quarter of 2009 was required for pre-payments already made on certain existing supply agreements because the continued performance of these contracts would not be in the best long term economic interest of the Company in view of current prevailing market prices.

On a U.S. GAAP basis, gross loss was RMB 53.0 million (US$7.8 million) in the second quarter of 2009, compared to a gross profit of RMB 185.6 million in the second quarter of 2008 and a gross profit of RMB 49.4 million in the first quarter of 2009. Excluding the provision for pre-payments, on a non-GAAP basis, gross profit was RMB 183.5 million (US$26.8 million) and gross margin was 21.5% in the second quarter of 2009. This compares to a gross margin of 7.2% in the first quarter of 2009 and 13.7% in the second quarter of 2008, both of which were calculated on a U.S. GAAP basis. The sequential and year-over-year increase was primarily due to the Company's ability to renegotiate the majority of its existing silicon-based raw material supply agreements to obtain reduced prices and its ability to source these materials in many cases on the spot market, as well as the vertical integration to the ingot and wafer level.

On a U.S. GAAP basis, operating loss was RMB 121.9 million (US$17.8 million) in the second quarter of 2009, compared to an operating profit of RMB 116.4 million in the second quarter of 2008 and an operating loss of RMB 15.3 million in the first quarter of 2009. Excluding the provision for pre-payments, on a non-GAAP basis, operating profit was RMB 114.6 million (US$16.8 million) and the operating margin was 13.4% in the second quarter of 2009. This compares to an operating profit of RMB 116.4 million in the second quarter of 2008 and an operating loss of RMB 15.3 million in the first quarter of 2009, both of which were calculated on a U.S. GAAP basis. The increase in operating profit from the first quarter of 2009 reflects the Company's continuing focus on managing its operating expenses.

Interest expense was RMB 36.1 million (US$5.3 million) in the second quarter of 2009, an increase from RMB 28.1 million in the second quarter of 2008, but a decrease from RMB 41.4 million in the first quarter of 2009.

Fair value of the conversion feature of the Company's convertible bonds increased by RMB 113.4 million (US$16.6 million) in the second quarter of 2009, as a result of the increase of the Company's ADS prices during the second quarter of 2009.

On a U.S. GAAP basis, net loss attributable to shareholders was RMB 319.9 million (US$ 46.8 million) in the second quarter of 2009, compared to net income attributable to shareholders of RMB 78.1 million in the second quarter of 2008 and net income of 27.4 million in the first quarter of 2009. Net loss per basic ADS was RMB 5.95 (US$0.87) in the second quarter of 2009, compared to net income per basic ADS of RMB 1.62 in the second quarter of 2008 and net income per basic ADS of RMB 0.51 in the first quarter of 2009. Excluding the provision for pre-payments and the increase in fair value of the conversion feature of the Company's convertible bonds, on a non-GAAP basis, net income attributable to shareholders was RMB 30.0 million (US$4.4 million) and net income per basic ADS was RMB 0.55 (US$0.08) in the second quarter of 2009.

Peter Xie, President of Solarfun, commented, "We are quite pleased with our operating performance during the second quarter. These results reflect the significant progress we have made in reducing our raw material costs and returning the Company to profitability prior to the one-time, non-cash provision. This positions us well to aggressively compete for business going forward, and to do so profitably. We are determined to capture an increasing market share if demand for PV products recovers in the second half of 2009. The first shipments to Q-Cells as part of our multi-year manufacturing services agreement occurred during the second quarter and we look forward to higher volumes going forward."

FINANCIAL POSITION

As of June 30, 2009, the Company had cash and cash equivalents of RMB 494.7 million (US$72.4 million) and working capital of RMB 1,289.0 million (US$188.7 million). Total short term bank borrowings as of June 30, 2009 were RMB 1,394.0 million (US$204.1 million), a decrease from RMB 1,435.0 million as of March 31, 2009. The lending environment in China remains accommodative and as of June 30, 2009, the Company had approximately US$84.9 million of undrawn credit lines with a number of commercial banks.

Accounts receivable increased to RMB 514.3 million (US$75.3 million) as of June 30, 2009 from RMB 202.1 million as of March 31, 2009. This increase was primarily due to a large percentage of shipments occurring in the latter part of the second quarter. Days sales outstanding increased from 35 days in the first quarter of 2009 to 38 days in the second quarter of 2009.

Inventories declined to RMB 695.7 million (US$101.9 million) as of June 30, 2009 from RMB 747.6 million as of March 31, 2009.

Capital expenditures were RMB 24.8 million (US$3.6 million) in the second quarter. The Company currently has a module capacity of 460 MW. The Company plans to expand its module capacity by 50 MW during the third quarter of 2009, and plans to further increase its nameplate capacity to 700 MW in 2010.

BUSINESS OUTLOOK

Based on current operating trends and market conditions, the Company provides the following outlook.

The Company expects:

Total module shipments to exceed 100 MW in the third quarter.

Total module shipments to be approximately 80 MW in the fourth quarter, although visibility currently remains quite low.

Average selling prices to further decline to US$2.00 per watt, or below, by the end of 2009.

Peter Xie concluded, "The demand environment appears to be improving in the second half of the year. We will increase our focus on enhancing product performance and quality and on further enhancing our relationships with both new and existing customers. We are enthused about the long term market opportunity in China and have built an internal organization to capture those opportunities. We have been approved by Jiangsu Development and Reform Commission to construct two projects totaling 20 MW in our home province, Jiangsu Province. In the second quarter of 2009, we entered into a number of new framework sales agreements in Europe, totaling approximately 30 MW, to cover our module shipments in the second half of 2009. We are enhancing both our senior level technical team and marketing team in both Europe and the US to better serve our customers and to grow our business."

CONFERENCE CALL

Management will host a conference call to discuss the results at 8:00 am U.S. Eastern Time (8:00 pm Shanghai time) on Tuesday, August 18, 2009.

The dial-in details for the live conference call are as follows:

    - U.S. Toll Free Number:    +1 800 299 0433
    - International dial-in number:   +1 617 801 9712
    - South China Toll Free Number:  +10 800 130 0399
    - North China Toll Free Number:  +10 800 152 1490
    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 until August 25, 2009. The dial-in details for the replay are as follows:

    - U.S.

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