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, reported its unaudited financial results for the quarter ended September 30, 2012. The Company will host a conference call to discuss the results at 8:00 am Eastern Time (9:00 pm Shanghai Time) on December 11, 2012. A slide presentation with details of the results will also be available on the Company's website prior to the call.
Third QUARTER 2012 HIGHLIGHTS[1]
Total net revenues were RMB966.1 million (US$153.7 million), a decrease of 9.9% from 2Q12, and a decrease of 32.8% from 3Q11.
PV module shipments, including module processing services, were 239.5 MW, an increase of 3.8% from 230.7 MW in 2Q12, and an increase of 19.2% from 200.9 MW in 3Q11.
Average selling price ("ASP"), excluding module processing services, decreased to RMB4.22 per watt (US$0.67) from RMB4.85 per watt in 2Q12, and decreased from RMB7.86 per watt in 3Q11.
Gross loss was RMB56.1 million (US$8.9 million), compared with gross profit of RMB67.5 million in 2Q12 and, gross loss of RMB155.2 million in 3Q11.
Gross margin was negative 5.8%, compared with positive 6.3% in 2Q12, due to the decline in ASP outpacing the decline in production costs. Gross margin in 3Q11 was negative 10.8%.
Operating loss increased to RMB251.2 million (US$40.0 million) from an operating loss of RMB82.8 million in 2Q12. The Company recorded an operating loss of RMB327.8 million in 3Q11. The increase in operating loss in 3Q12 from 2Q12 was primarily due to further declined ASP and an increased operating expense such as freight.
Operating margin was negative 26.0%, compared with negative 7.7% in 2Q12 and negative 22.8% in 3Q11.
Net loss attributable to shareholders on a non-GAAP basis was RMB301.9 million (US$48.0 million), compared with a net loss of RMB245.9 million in 2Q12 and a net loss of RMB295.7 million in 3Q11.
Net loss per basic ADS on a non-GAAP basis was RMB3.57 (US$0.57), compared with a net loss per basic ADS on a non-GAAP basis of RMB2.91 in 2Q12 and a net loss per ADS on a non-GAAP basis of RMB3.51 in 3Q11.
Net loss attributable to shareholders on a GAAP basis was RMB322.1 million (US$51.3 million), compared with a net loss attributable to shareholders on a GAAP basis of RMB266.7 million in 2Q12. The Company recorded a non-cash gain of RMB1.2 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 gain of RMB1.1 million in 2Q12. Net loss attributable to shareholders on a GAAP basis in 3Q11 was RMB177.6 million, including a non-cash gain of RMB131.4 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 RMB3.81 (US$0.61), compared with a net loss per basic ADS on a GAAP basis of RMB3.16 in 2Q12 and a net loss per basic ADS on a GAAP basis of RMB2.11 in 3Q11.
Annualized Return on Equity ("ROE") on a non-GAAP basis was negative 38.5%, compared with negative 28.8% in 2Q12 and negative 24.6% in 3Q11.
Annualized ROE on a GAAP basis was negative 36.0% in 3Q12, compared with negative 27.6% in 2Q12 and negative 13.6% in 3Q11.
Mr. Ki-Joon HONG, Chairman and CEO of Hanwha SolarOne commented, "In spite of a difficult operating environment, we achieved some good progress in shipment and production costs during the third quarter even though we suffered from continued ASP decline. Our shipment volumes grew nicely quarter-to-quarter, our production costs continued to decline and now are reaching our year-end target, and we are increasingly seeing synergies with our parent company, particularly in downstream activities. We also anticipate opportunities resulting from the cooperation with Q CELLS, which was recently acquired by our parent company. We remain optimistic that our presence in large new growth markets such as China, Japan and the US, will provide incremental volume potential in 2013. 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. We believe we have established the brand, a competitive cost structure, balance sheet and a management team to enter the next growth stage of the industry."
THIRD QUARTER 2012 RESULTS
Total net revenues were RMB 966.1 million (US$153.7 million), a decrease of 9.9% from RMB 1,071.7 million in 2Q12, and a decrease of 32.8% from RMB 1,437.3 million in 3Q11. The decrease in total net revenues in 3Q12 compared with 2Q12 is primarily due to lower selling prices.
PV module shipments, including module processing services, were 239.5 MW, an increase from 230.7 MW in 2Q12, and also an increase from 200.9 MW in 3Q11.
Revenue contribution from PV module processing services as a percentage of total net revenues was 6.2%, compared with 4.8% in 2Q12. The Company continues to shift its focus to branded sales, but processing services temporarily increased.
The Company shipped PV modules to over 24 countries during 3Q12. Europe and Africa ("EA") accounted for 63% of total shipments. Germany accounted for 39% of total shipments. Other significant markets in Europe included Italy, Belgium and Holland, representing 6%, 5% and 5% of total shipments, respectively. The Asia Pacific region ("AP") accounted for 22% of total shipments, including China (11%), Korea (6%), Japan (3%) and India (2%). Shipments to North America, including the United States, represented 13% of total shipments.
ASP, excluding module processing services, decreased to RMB4.22 per watt (US$0.67) from RMB4.85 per watt in 2Q12 and from RMB7.86 per watt in 3Q11.
Gross loss was RMB56.1 million (US$8.9 million), compared with gross profit of RMB67.5 million in 2Q12 and gross loss of RMB155.2 million in 3Q11.
Gross margin was negative 5.8%, compared with positive 6.3% in 2Q12. Internal production costs decreased but the decline in ASP outpaced the decline in production costs from 2Q12 to 3Q12. Gross margin in 3Q11 was negative 10.8%. Gross loss in 3Q12 included the non-cash charges from inventory write-down of RMB32.0 million (US$5.1 million).
The blended cost of goods sold ("COGS") per watt, excluding module processing services, was US$0.71, representing a 1.4% decrease from US$0.72 in 2Q12. 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$0.67 per watt, representing a 5.6% decrease from US$0.71 per watt in 2Q12. The decrease was primarily due to reduced polysilicon costs as well as operational improvements.
Operating loss was RMB251.2 million (US$40.0 million), compared with an operating loss of RMB82.8 million in 2Q12 and an operating loss of RMB327.8 million in 3Q11. Operating margin was negative 26.0%, compared to negative 7.7% in 2Q12 and negative 22.8% in 3Q11.
Operating expenses as a percentage of total net revenues were 20.2% in 3Q12, compared with 14.0% in 2Q12 and 12.0% in 3Q11. The higher percentage in 3Q12 compared with 2Q12 was primarily due to a large increase in freight charges.
Interest expense was RMB79.9 million (US$12.7 million), compared with RMB76.6 million in 2Q12 and RMB47.2 million in 3Q11, as a result of the Company's higher debt levels.
The Company recorded a net gain of RMB18.1 million (US$2.9 million), which combined the effect of a foreign exchange gain with a loss from the change in fair value of derivatives. The Company recorded a net loss of RMB34.3 million in 2Q12 and a net gain of RMB0.4 million in 3Q11, 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 gain of RMB1.1 million in 2Q12 and a gain of RMB131.4 million in 3Q11. 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 benefit in 3Q12 was RMB15.8 million (US$2.5 million), compared with income tax expense of RMB77.8 million in 2Q12 and income tax benefit of RMB65.4 million in 3Q11.
Net loss attributable to shareholders on a non-GAAP basis[1] was RMB301.9 million (US$48.0 million), compared with a net loss attributable to shareholders of RMB245.9 million in 2Q12 and net loss attributable to shareholders of RMB295.7 million in 3Q11.
Net loss per basic ADS on a non-GAAP basis was RMB3.57 (US$0.57), compared with a net loss per basic ADS on a non-GAAP basis of RMB2.91 in 2Q12 and a net loss per basic ADS on a non-GAAP basis of RMB3.51 in 3Q11.
Net loss attributable to shareholders on a GAAP basis was RMB322.1 million (US$51.3 million), compared with a net loss attributable to shareholders of RMB266.7 million in 2Q12 and net loss attributable to shareholders of RMB177.6 million in 3Q11.
Net loss per basic ADS on a GAAP basis was RMB3.81 (US$0.61), compared with a net loss per basic ADS on a GAAP basis of RMB3.16 in 2Q12 and net loss per basic ADS of RMB2.11 in 3Q11.
Annualized ROE on a non-GAAP basis was negative 38.5%, compared with negative 28.8% in 2Q12 and negative 24.6% in 3Q11.
Annualized ROE on a GAAP basis was negative 36.0%, compared with negative 27.6% in 2Q12 and negative 13.6% in 3Q11.
FINANCIAL POSITION
The Company is in the process of assessing potential impairments of its long-lived assets, deferred tax assets and the provision for certain accounts receivable and advanced payments. The Company will report its outcome and any impairment when it is completed. If impairment charges are made, they will be non-cash accounting charges.
As of September 30, 2012, the Company had cash and cash equivalents of RMB1,607.2 million (US$255.7 million) and net working capital of RMB915.4 million (US$145.6 million), compared with cash and cash equivalents of RMB1,789.3 million and net working capital of RMB1,280.4 million as of June 30, 2012. Total short-term bank borrowings (including the current portion of long-term bank borrowings) were RMB1,917.7 million (US$305.1 million), compared with RMB1,941.6 million as of June 30, 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.
As of September 30, 2012, the Company had total long-term debt of RMB2,757.9 million (US$438.8 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 3Q12 was RMB 322.1 million (US$51.2 million), compared with net cash used in operating activities of RMB335.4 million in 2Q12 and net cash used in operating activities of RMB432.1 million in 3Q11.
As of September 30, 2012, accounts receivable were RMB 1,154.6 million (US$183.7 million), compared with RMB 802.9 million as of June 30, 2012 and RMB 537.5 million as of December 31, 2011. Days sales outstanding were 126 days in 3Q12, compared with 77 days in 2Q12 and 80 days in 3Q11. The Company increased its payment terms as a market strategy.
As of September 30, 2012, inventories increased to RMB757.0 million (US$120.4 million) from RMB684.9 million as of June 30, 2012, and from RMB684.0 million as of December 31, 2011. Days inventory were 63 days in 3Q12, compared with 60 days in 2Q12 and 59 days in 3Q11.
Capital expenditures were RMB80.1 million (US$12.7 million) in 3Q12. In 3Q12, 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 September 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 the full year 2012, the Company expects:
Module shipments reduced from the previous forecast (900 MW to 1 GW) to a range of 825 to 850 MW.
Capital expenditures of US$100 million (Reduced from 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.