Hanwha Solarone Co (NASDAQ:HSOL)

Fourth Quarter 2011 Results

• Total net revenues were RMB978.3 million (US$155.4 million), a decrease of 31.9% from 3Q11, and a decrease of 53.8% from 4Q10.
• Net loss per basic ADS on a GAAP basis was RMB9.88 (US$1.57), compared with net loss per basic ADS on a GAAP basis of RMB2.11 in 3Q11 and a net income per basic ADS on a GAAP basis of RMB5.02 in 4Q10.

Mr. Ki-Joon HONG, Chairman and CEO of Hanwha SolarOne, commented, "The year 2011 was a period of adjustment and consolidation for the industry. Excess capacity throughout the solar value chain, combined with incentive reductions in key markets, drove selling prices down at a rate faster than input costs, resulting in pressure on profitability. We believe the Company continued to make progress in a number of areas, including growing synergies with our largest shareholder Hanwha. We continued to invest in branding, technology, management systems and people. We also made progress in reducing non-poly processing costs in spite of reduced utilization, penetrated new important growth markets including the US and China, and increased shipments nearly 20%. Hanwha remains unwavering in its support for the solar market overall and for our Company. The business environment will remain challenging for much, if not all, of 2012. Our balance sheet is strong and our access to additional capital remains in place. Looking forward, we believe that lower prices will drive additional demand, the industry will consolidate at an accelerated pace, and we will exit this downturn in a strong competitive position."

Second Quarter 2011 Results

• Total net revenues were RMB1,791.2 million (US$277.1 million), a decrease of 18.4% from 1Q11 and an increase of 2.2% from 2Q10.
• Net loss per basic ADS on a non-GAAP basis(1) was RMB0.77 (US$0.12), compared with net income per basic ADS on a non-GAAP basis of RMB1.84 in 1Q11 and RMB4.00 in 2Q10(US$0.61)

Mr. Ki-Joon HONG, Chairman and CEO of Hanwha SolarOne, commented, "We were not insulated from the difficult operating environment during the second quarter. Regulatory changes in Italy, rapidly falling module prices, industry overcapacity and large channel inventories all negatively affected our second quarter results. We consciously reduced our manufacturing activities for a period of time to control expenses, manage working capital, and prevent the build-up of high cost inventory. We did not retreat from our aggressive posture towards the future. We moved forward with our capacity expansion plan, invested in management systems and personnel and made good progress in branding initiatives and research and development. We expect that demand will improve for the remainder of the year."

BUSINESS OUTLOOK

The Company provides the following guidance based on current operating trends and market conditions.

For the full year 2011, the Company expects:

• Module shipments to be at the lower end of the previously announced range of 1GW to 1.2GW, of which about 20 to 25% will be for PV module processing services.
• Capital expenditures to be approximately US$400 million.

We have financed our operations primarily through cash flows from operations and also through bank loans and related-party loans and proceeds from our initial public offering, the convertible bond offering in January 2008, the continuous ADS offerings from July 2008 to August 2008 and from September 2009 to November 2009 and our ADS offering in November 2010. We believe our working capital is sufficient for our present requirements.

Our capital expenditures were RMB1,169.0 million, RMB324.7 million and RMB670.8 million (US$101.6 million) in 2008, 2009 and 2010, respectively, all of which related primarily to the purchases of manufacturing equipment and facility construction costs. Based on the current market conditions, we expect to incur capital expenditures of US$450.0 million for 2011, which will be used primarily for purchasing manufacturing equipment and building production facilities in Nantong, Qidong and Lianyungang, Jiangsu Province. We plan to fund the balance of our capital expenditure requirements for 2011 with cash from operations, additional bank borrowings, and other forms of financing, if necessary.

Fourth Quarter Results:

• Total net revenues were RMB2,112.7 million (US$320.1 million), a decrease of 3.3% from 3Q10, but an increase of 68.7% from 4Q09.
• Gross profit decreased 13.6% to RMB428.7 million (US$64.9 million) from RMB496.4 million in 3Q10, but increased 82.0% from RMB235.6 million in 4Q09.  
• Net income per basic ADS on a non-GAAP basis was RMB1.82 (US$0.28), a decrease of 60.6% from RMB4.62 in 3Q10, but an increase of 9.0% from RMB1.67 in 4Q09.

Dr. Peter Xie, President and CEO of Hanwha SolarOne, commented, " We concluded the year 2010 with another profitable quarter, a stronger balance sheet, and diversified our shipments towards new longer term growth markets. For the full year, our revenues nearly doubled to over $1 billion, our shipments rose 155%, and we returned to a healthy level of profitability. We enter 2011 with a high degree of enthusiasm and confidence: our capabilities and brand is strengthened with our strategic partnership with Hanwha, we have good visibility of orders into mid-year, new technology initiatives are progressing towards completion, and significant new capacity will come on stream soon enhancing our ability to meet customer demand and to improve our cost structure."

Preliminary Results

• Total net revenues are expected to be between USD325 to 330 million.
• Gross margins are expected to be approximately 20%.

Dr. Peter Xie, President and CEO of the Company, commented, "We are pleased with our operating performance during the 2010 fiscal year and expect continued growth throughout 2011.  We have good order visibility and expect to regain our momentum in shipment growth quarter-to-quarter.  We also expect to benefit from relatively stable pricing as well as improved availability of purchased wafers and cells, which we believe will help to meet incremental demand."

"In the second half of 2011, we plan to increase our production capacity with heightened vertical integration, allowing us to improve our cost structure.  We also plan to continue to make significant headway in our geographic diversification, growing beyond Germany to reach key overseas markets including China, Italy and the U.S."

THIRD QUARTER 2010 HIGHLIGHTS

• Total net revenues were RMB 2,185.7 million (US$326.7 million), an increase of 24.7% from 2Q10 and an increase of 121.5% from 3Q09.
  
• Net income per basic ADS on a non-GAAP basis was RMB 4.62 (US$0.69), an increase of 15.6% from RMB 4.00 in 2Q10 and an increase of 266.0% from RMB 1.26 in 3Q09.  

• On a non-GAAP basis, net income attributable to shareholders was RMB 273.7 million (US$40.9 million), compared with RMB 231.7 million in 2Q10 and RMB 68.2 million in 3Q09.
• Net income per basic ADS, on a non-GAAP basis, was RMB 4.62 (US$0.69) in 3Q10, compared with RMB 4.00 in 2Q10 and net loss per basic ADS of RMB 1.26 in 3Q09.

Peter Xie, President of Solarfun, commented, "We are pleased with the results we achieved in the third quarter, particularly our record shipments and revenues as well as our increased gross margin, operating cost control and continued strong return on equity. In the first nine months of 2010, we have achieved non-GAAP earnings per basic ADS of US$1.70. We continue to see healthy market demand in the fourth quarter and beyond, and with increased scale and further vertical integration in 2011, we believe we will continue to be well-positioned for further profitable growth"

BUSINESS OUTLOOK

The Company provides the following guidance based on current operating trends and market conditions.

For 4Q10, the Company expects:

• Total module shipments to be 205 MW to 215 MW, of which about 25% to 30% will be for PV module processing services.

• ASP excluding PV module processing services to increase slightly from 3Q10, assuming that the average Euro/US dollar exchange rate stays at approximately 1.35 during 4Q10.

For the fourth quarter of 2010, the Company expects a slight decline in module shipments compared with the previous quarter.   This does not reflect the strength of market demand nor the Company's competitive position.  The decline in the forecast module shipments is due to the following reasons:

• As previously announced, the Company will be converting some of its existing cell lines into high-efficiency cell capacity with the installation of selective emitter technology.   This will cause some temporary loss of internal cell capacity in the fourth quarter.

• The Company has made a conscious business decision to balance customer needs with corporate profitability goals and will therefore reduce its purchase of externally sourced cells, which are more expensive than internally sourced cells.

Peter Xie, President of Solarfun, commented, "We are very pleased with our strong performance in the first quarter of 2010. Quarterly revenues for the first time in the Company's history exceeded $200 million, and net income per diluted ADS on a non-GAAP basis reached US$0.40, a substantial increase of over 63.9% compared to the fourth quarter of 2009. The strong performance was attributable to our ability to take advantage of favorable industry demand while keeping a keen focus on cost control and risk management.

To keep up our momentum, we plan to ramp up our internal cell capacity to 500MW by July, and our module capacity to 900MW by August of this year. This progress, along with our ongoing efforts to reduce our manufacturing costs and increase our cell efficiencies while expanding our R&D efforts, makes us optimistic about our future."

For 2Q10, the Company expects:

• Total module shipments to be 160MW to 170MW, of which approximately 35% will be for PV module processing services.
• ASP for PV module shipments to stay flat in constant currency but decline by approximately 6.5% from 1Q10 on the assumption that the Euro/US dollar exchange rate stays at approximately 1.25 for the rest of the quarter.

For 2010 full year shipment, the Company is raising its guidance from 600MW to 650MW   based on strong demand from customers for 2010.  Module processing services is expected to represent approximately 20-30% of the total shipments.