Nanjing, ChinaChina Sunergy today announced its financial results for the first quarter ended March 31, 2011. Results reported reflect the Company's business transition at the end of last year, in which it moved from primarily selling solar cells to selling solar modules to end users.
For the first quarter of 2011, revenue amounted to US$165.7 million, a decrease of 2.3% over the fourth quarter of 2010. Revenue from module sales amounted to US$160.5 million and accounted for 96.9% of total revenue. Shipments for the first quarter were 98.0 MW, including 92.1 MW of solar modules. Revenues were held back primarily by uncertainty over feed-in tariffs in Italy, which led to banks' reluctance to release loans and project developers' deferral of module purchases. Seasonality due to winter weather installation difficulty was also a factor. On the positive side, the company's revenues reflect that it has largely transitioned from selling cells to selling modules.
Gross margin was 10.7% for the first quarter of 2011, compared to 16.0% for the fourth quarter of 2010, a drop that nevertheless beat the Company's prior guidance. Gross profit for the first quarter was US$17.8 million, representing a sequential decrease of 34.3%. Falling ASP levels and comparatively high raw material costs contributed to this decrease.
Blended module ASP during the first quarter was US$1.74 per watt, higher than the Company's previous guidance of US$1.70 per watt. ASP declined from US$1.93 per watt in the fourth quarter.
In the first quarter of 2011, blended wafer costs were US$0.92 per watt, representing a sequential decrease of 7.1%. The prices of polysilicon and wafers are expected to continue declining in the second quarter. Non-silicon costs for cells and modules for the first quarter of 2011 were US$0.22 and US$0.31 per watt respectively.
Inventories at the end of Q1 2011 reached US$124.1 million, a 71.6% increase over the end of 2010. The Company also experienced operating cash outflow of US$92.0 million. These results were directly related to slower than expected sales in Italy.
Regarding the ongoing dispute with REC, China Sunergy had served a writ upon REC Wafer, claiming it is not a party to the contract between China Sunergy and the dissolved REC Sitech AS. In July 2010, the Salten District Court in Norway ruled against China Sunergy in the case. The Company appealed the ruling in August 2010. An appeal hearing, originally scheduled for March 2011, will now be held in June 2011.
In parallel to the main dispute, the Supreme Court of Norway ruled on July 15, 2010 and overturned the Court of Appeal's order denying China Sunergy's injunction petition with regard to a US$50 million bank guarantee. The injunction petition was sent back to the Court of Appeal for a new ruling. The Court of Appeal decided that the injunction shall remain in force until the Court of Appeal has passed a judgment in the main case.
China Sunergy is a named defendant in three purported class actions filed in the United States District Court for the Southern District of New York. On September 29, 2008, the District Court appointed a lead plaintiff and consolidated the three cases.
On December 8, 2008, the lead plaintiff filed a consolidated amended complaint which purports to state class action claims against us in connection with our initial public offering and seeks unspecified damages. Specifically, the lead plaintiff alleges that the Company made false and misleading statements in our initial public offering registration statement and prospectus regarding, among other things, the procurement of polysilicon.
Several of the Company's directors and officers, along with the investment banks that underwrote the initial public offering, are also named defendants in the cases. On January 26, 2009, the defendants filed a motion to dismiss the consolidated amended complaint.
Defendants' motion remained outstanding when, on July 14, 2009, the parties reached an agreement in principle to settle the dispute in its entirety with an amount of $1.1 million. On May 12, 2011, the Court held that final hearing, and issued a final judgment for each of the three filed cases, dismissing each case with prejudice and approving the parties' settlement and plan of allocation. The parties are currently working to implement that settlement. All payments pursuant to the settlement will be made by the Company's insurers.
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