Hanwha SolarOne Co., Ltd.("SolarOne" or the "Company") (Nasdaq: HSOL), a vertically integrated manufacturer of silicon ingots, wafers and photovoltaic ("PV") cells and modules in China, has reported its unaudited financial results for the quarter ended June 30, 2012. The Company will host a conference call to discuss the results at 8:00 am Eastern Time (8:00 pm Shanghai Time) on September 11 , 2012. A slide presentation with details of the results will also be available on the Company's website prior to the call.
SECOND QUARTER 2012 HIGHLIGHTS(1)
Total net revenues were RMB1,071.7 million (US$168.7 million), an increase of 33.3% from 1Q12, and a decrease of 40.4% from 2Q11.
PV module shipments, including module processing services, were 230.7 MW, an increase of 43.6% from 160.7 MW in 1Q12, and an increase of 12.0% from 205.9 MW in 2Q11.
Average selling price ("ASP"), excluding module processing services, decreased to RMB4.85 per watt (US$0.77) from RMB5.30 per watt in 1Q12, and decreased from RMB10.09 per watt in 2Q11.
Gross profit was RMB67.5 million (US$10.6 million), compared with a gross loss of RMB75.2 million in 1Q12 and gross profit of RMB162.9 million in 2Q11.
Gross margin was 6.3%, compared with negative 9.4% in 1Q12, due to the decline in production costs outpacing the decline in ASP, and higher factory utilization which was driven by higher shipment volumes. Gross margin in 2Q11 was positive 9.1%.
Operating loss decreased to RMB82.8 million (US$13.0 million) from an operating loss of RMB220.9 million in 1Q12. The Company recorded an operating loss of RMB25.7 million in 2Q11. The decrease in operating loss in 2Q12 from 1Q11 was primarily due to the return to gross profitability and tight control of operating expenses.
Operating margin was negative 7.7%, compared with negative 27.5% in 1Q12 and negative 1.4% in 2Q11.
Net loss attributable to shareholders on a non-GAAP basis was RMB245.9 million (US$39.0 million), compared with a net loss of RMB269.9 million in 1Q12 and a net loss of RMB64.9 million in 2Q11.
Net loss per basic ADS on a non-GAAP basis was RMB2.91 (US$0.46), compared with a net loss per basic ADS on a non-GAAP basis of RMB3.20 in 1Q12 and a net loss per ADS on a non-GAAP basis of RMB0.77 in 2Q11.
Net loss attributable to shareholders on a GAAP basis was RMB266.7 million (US$42.0 million), compared with a net loss attributable to shareholders on a GAAP basis of RMB303.7 million in 1Q12. The Company recorded a non-cash gain of RMB1.1 million (US$0.2 million) from the change in fair value of the convertible feature of the Company's convertible bonds as compared with a non-cash loss of RMB9.5 million in 1Q12. Net loss attributable to shareholders on a GAAP basis in 2Q11 was RMB69.0 million, including a non-cash gain of RMB51.9 million from the change in fair value of the convertible feature of the Company's convertible bonds. As explained in prior quarters, the fluctuations in the fair value of the convertible feature of the Company's convertible bonds are primarily due to changes in the Company's ADS price, over which the Company has no direct control, and does not reflect the operating performance of the Company.
Net loss per basic ADS on a GAAP basis was RMB3.16 (US$0.50), compared with a net loss per basic ADS on a GAAP basis of RMB3.60 in 1Q12 and a net loss per basic ADS on a GAAP basis of RMB0.82 in 2Q11.
Annualized Return on Equity ("ROE") on a non-GAAP basis was negative 28.8% in 2Q12, compared with negative 29.4% in 1Q12 and negative 5.2% in 2Q11.
Annualized ROE on a GAAP basis was negative 27.6% in 2Q12, compared with negative 29.2% in 1Q12 and negative 5.2% in 2Q11.
Mr. Ki-Joon HONG, Chairman and CEO of Hanwha SolarOne commented, "In spite of a difficult operating environment, we achieved some good progress during the second quarter. Our shipment volumes grew nicely quarter-to-quarter, our production costs continued to improve and now are in reach of our year-end target, and we are increasingly seeing synergies with our parent company, particularly in downstream activities. We remain optimistic that our presence in large new growth markets such as China, Japan and the US, will provide incremental volume potential in the second half of 2012. Challenging industry conditions remain: overcapacity, a spike in manufacturer's inventories, declining prices, and regulatory issues pertaining to duties in the US and possibly Europe. In spite of these, we continue to move forward with our long-term goals, in concert with support from our largest shareholder, and believe we have established the brand, competitive cost structure, balance sheet and management team to enter the next growth stage of the industry."
SECOND QUARTER 2012 RESULTS
Total net revenues were RMB1,071.7 million (US$168.7 million), a increase of 33.3% from RMB803.9 million in 1Q12, and a decrease of 40.4% from RMB1,797.8 million in 2Q11. The increase in total net revenues in 2Q12 compared with 1Q12 is due to higher shipment volumes, partially offset by lower selling prices.
Revenue contribution from PV module processing services as a percentage of total net revenues was 4.8%, compared with 7.7% in 1Q12 as the Company continued to shift its focus to branded sales.
PV module shipments, including module processing services, were 230.7 MW, an increase from 160.7 MW in 1Q12, and also an increase from 205.9 MW in 2Q11. The increase in module shipments in 2Q12 was primarily due to increased demand from Germany ahead of the reduction of incentives that commenced on July 1, 2012.
The Company shipped to over 25 countries during 2Q12, led by activities in Germany prior to the reduction of incentives that commenced on July 1, 2012. Germany accounted for 57% of total shipments. Europe and Africa ("EA") accounted for 76% of total shipments. Other significant markets in Europe included England, Italy and Spain, representing 5%, 4% and 4% of total shipments, respectively. The Asia Pacific region ("AP") accounted for 17% of total shipments, including Korea (3%), Australia (3%), Japan (2%) and China (2%). Shipments to North America, including the United States, represented 7% of total shipments.
ASP, excluding module processing services, decreased to RMB4.85 per watt (US$0.77) from RMB5.30 per watt in 1Q12 and from RMB10.09 per watt in 2Q11.
Gross profit was RMB67.5 million (US$10.6 million), compared with a gross loss of RMB75.2 million in 1Q12 and gross profit of RMB162.9 million in 2Q11.
Gross margin was 6.3%, compared with negative 9.4% in 1Q12. Internal production costs decreased significantly and outpaced the decline in ASP from 1Q12 to 2Q12. Gross margin in 2Q11 was positive 9.1%.
The blended cost of goods sold ("COGS") per watt, excluding module processing services, was US$0.72, representing a 21.7% decrease from US$0.92 in 1Q12. The blended COGS takes into account the production cost (silicon and non-silicon) using internally sourced wafers, purchase costs and additional processing costs of externally sourced wafers and cells.
Internal production costs (including both silicon and non-silicon costs) using internally sourced wafers were US$0.71 per watt, representing a 9.0% decrease from US$0.78 per watt in 1Q12. The decrease was primarily due to reduced polysilicon costs as well as operational improvements.
Operating loss was RMB82.8 million (US$13.0 million), compared with an operating loss of RMB220.9 million in 1Q12 and an operating loss of RMB25.7 million in 2Q11. Operating margin improved to negative 7.7% from negative 27.5% in 1Q12, compared with negative 1.4% in 2Q11.
Operating expenses as a percentage of total net revenues were 14.0% in 2Q12, compared with 18.1% in 1Q12 and 10.5% in 2Q11. The lower percentage in 2Q12 compared with 1Q12 was primarily due to an increase in total net revenues in 2Q12.
Interest expense was RMB76.6 million (US$12.1 million), compared with RMB69.1 million in 1Q12 and RMB40.3 million in 2Q11, as a result of the Company's higher debt levels.
The Company recorded a net loss of RMB34.3 million (US$5.4 million), which combined the effect of a foreign exchange loss with a gain from the change in fair value of derivatives. The Company recorded a net gain of RMB11.4 million in 1Q12 and a net loss of RMB38.2 million in 2Q11, which were the net effect of the foreign exchange gain/loss and the gain/loss from changes in fair value of derivatives.
Gain from the change in fair value of the conversion feature of the Company's convertible bonds was RMB1.2 million (US$0.2 million), compared with a loss of RMB9.5 million in 1Q12 and a gain of RMB51.8 million in 2Q11. The fluctuations resulting from the application of ASC 815-40 on January 1, 2009, were primarily due to changes in the Company's ADS price during the quarter. This line item has fluctuated, and is expected to continue to fluctuate quarter-to-quarter. The Company has no direct control over the fluctuations.
Income tax expense in 2Q12 increased to RMB77.8 million (US$12.2 million), compared with income tax benefit of RMB37.7 million in 1Q12 and income tax expense of RMB16.1 million in 2Q11.
Net loss attributable to shareholders on a non-GAAP basis(1) was RMB245.9 million (US$39.0 million), compared with a net loss attributable to shareholders of RMB269.9 million in 1Q12 and net income attributable to shareholders of RMB64.9 million in 2Q11.
Net loss per basic ADS on a non-GAAP basis was RMB2.91 (US$ 0.46), compared with a net loss per basic ADS on a non-GAAP basis of RMB3.20 in 1Q12 and a net loss per basic ADS on a non-GAAP basis of RMB0.77 in 2Q11.
Net loss attributable to shareholders on a GAAP basis was RMB266.7 million (US$42.0 million), compared with a net loss attributable to shareholders of RMB303.7 million in 1Q12 and net income attributable to shareholders of RMB69.0 million in 2Q11.
Net loss per basic ADS on a GAAP basis was RMB3.16 (US$0.50), compared with a net loss per basic ADS on a GAAP basis of RMB3.60 in 1Q12 and net income per basic ADS of RMB0.82 in 2Q11.
Annualized ROE on a non-GAAP basis was negative 28.8 % in 2Q12, compared with negative 29.4% in 1Q12 and negative 5.2% in 2Q11.
Annualized ROE on a GAAP basis was negative 27.6 % in 2Q12, compared with negative 29.2% in 1Q12 and negative 5.2% in 2Q11.
FINANCIAL POSITION
As of June 30, 2012, the Company had cash and cash equivalents of RMB1,789.3 million (US$281.6 million) and net working capital of RMB1,280.4 million (US$201.5 million), compared with cash and cash equivalents of RMB1,908.9 million and net working capital of RMB45.9 million as of March 31, 2012. Total short-term bank borrowings (including the current portion of long-term bank borrowings) were RMB1,941.6 million (US$305.6 million), compared with RMB2,727.0 million as of March 31, 2012. The decrease in short-term bank borrowings was primarily due to the Company's ongoing strategy to shift debt to longer—term bank borrowings.
In the second quarter of 2012, the Group provided a full valuation allowance of RMB92 million on deferred tax assets related to tax losses of a subsidiary of the Group, as the subsidiary is not expected to have sufficient future taxable income from its operations, and such tax losses may not be utilized in the future.
As of June 30, 2012, the Company had total long-term debt of RMB2,878.4 million (US$453.1 million), which comprised both long-term bank borrowings and convertible notes payable. The Company's long-term bank borrowings are to be repaid in installments until their maturities, which range from 2 to 4 years. Holders of the convertible notes have the option to require the Company to redeem the notes beginning on January 15, 2015.
Net cash used in operating activities in 2Q12 was RMB335.5 million (US$52.8 million), compared with net cash generated from operating activities of RMB46.0 million in 1Q12 and net cash generated from operating activities of RMB443.8 million in 2Q11.
As of June 30, 2012, accounts receivable were RMB802.9 million (US$126.4 million), compared with RMB603.9 million as of March 31, 2012 and RMB537.5 million as of December 31, 2011. Days sales outstanding were 77 days in 2Q12, compared with 83 days in 1Q12 and 76 days in 2Q11.
As of June 30, 2012, inventories increased slightly to RMB684.9 million (US$107.8 million) from RMB659.1 million as of March 31, 2012, and from RMB684.0 million as of December 31, 2011. Days inventory were 60 days in 2Q12, compared with 69 days in 1Q12 and 51 days in 2Q11.
Capital expenditures were RMB39.6 million (US$6.2 million) in 2Q12. Following the close of the 2Q.12, the Company repurchased an additional $22 million of its convertible bonds. The Company previously repurchased approximately $50 million of its convertible bonds during 1Q12.
CAPACITY
As of June 30, 2012, the Company had production capacity of 800 MW for ingots and wafers, 1.3 GW for cells and 1.5 GW for modules. The Company currently has no near-term plan to add additional capacity. Management will review expansion needs in the future in line with changes in overall market demand.
BUSINESS OUTLOOK
The Company provides the following guidance based on current operating trends and market conditions.
For 3Q12, the Company expects
Total module shipments to be similar to those achieved in the 2Q 2012.
Gross margin to be positive.
For the full year 2012, the Company expects:
Module shipments reduced from the previous forecast of 1 GW to a range of 900 MW to 1 GW.
Capital expenditures of US$150 million, depending on demand and other market conditions.
Processing costs (excluding silicon costs) to be approximately US$0.50 per watt by the end of 2012.
OTHER DEVELOPMENTS
On September 6, 2012, the European Commission launched an anti-dumping investigation regarding whether Chinese producers are selling solar panels at unfairly low prices in Europe. The Company believes its pricing practices have been fair and lawful in Europe and other jurisdictions. In any event, the Company intends to vigorously defend itself and rebut all allegations.
