omniture

Suntech Power Reports Third Quarter 2006 Financial Results

Suntech Power Holdings Co., Ltd.
2006-11-21 09:30 1813


-- Third quarter total net revenue was up 27.2 % sequentially and 187.8%

year-over-year to $163.0 million. Non-GAAP(1) Suntech Group net income

grew 11.7% sequentially and 164.5% year-over-year to $32.8 million, or

$0.21 per non-GAAP diluted American Depository Share (ADS).

-- Excluding newly acquired MSK, Suntech's third quarter total net revenue

was up 15.9% sequentially and 162.2% year-over-year to $148.5 million.

Non-GAAP net income excluding MSK grew 13.5% sequentially and 168.8%

year-over-year to $33.3 million, or $0.22 per non-GAAP diluted ADS.

-- Suntech excluding MSK increased annualized PV cell production capacity

from 210MW to 270MW.

-- Construction commenced at the Company's Phase II facility in Wuxi which

is expected to accommodate up to 1,000MW future production capacity.

-- Building upon its 180 micron thick wafer production capabilities,

Suntech made advances in production technology capable of utilizing 150

micron thick wafers.

-- Suntech and the University of New South Wales signed a new $1.2 million

collaborative research agreement through 2007 with a $3 million

extension through 2010.

Note 1: All non-GAAP measures exclude share-based compensation expenses

and the amortization expenses incurred from purchase price allocation related

to the acquisition of MSK Corporation as of August 11, 2006. For further

details on non-GAAP measures, please refer to the reconciliation table and a

detailed discussion of management’s use of non-GAAP information below.

WUXI, China, Nov. 20 /Xinhua-PRNewswire/ -- Suntech Power Holdings Co.,

Ltd. (NYSE: STP), one of the world’s leading manufacturers of photovoltaic

(PV) cells and modules, today announced total net revenue for the third

quarter 2006 of $163.0 million and net income for the same quarter of $28.7

million, or $0.19 per diluted American Depository Share (ADS). Non-GAAP Group

net income for the third quarter 2006 was $32.8 million, or $0.21 per non-

GAAP diluted ADS.

“Suntech experienced another quarter of strong growth in our core

business within a silicon constrained environment. We continued to outpace

our production capacity expectations through increased silicon purchases in

the spot market and we achieved broad sales wins and expanded market share in

our increasingly diverse PV markets,” said Dr. Zhengrong Shi, Suntech’s

Chairman and CEO.

Dr. Shi added, “The long-term silicon wafer supply agreements we

recently entered into are favourably priced relative to spot market prices.

In fact, in 2007 a majority of our silicon supply is expected to come from

our multiple long-term silicon supply agreements. This will help ensure that

Suntech achieves its growth objectives and will enhance Suntech’s

competitiveness and profit leadership as PV module prices are reduced in the

future.”

Commenting on MSK Corporation’s results, Dr. Shi said, “MSK’s results

were lower than our expectations as they experienced an unexpected shortfall

in PV cell supplies during the quarter and moved to GAAP standard accounting

methods. Looking forward, increased integration of Suntech’s operations into

MSK’s production is expected to facilitate significant increases in MSK’s

profitability as we expand sales of high margin BIPV products in MSK’s key

geographies, particularly Japan and Europe.”

Dr. Shi noted that the Company anticipates achieving key milestones of

its 180-day MSK integration plan earlier than scheduled. Synergies are

expected to be realized from alignment of sales and marketing initiatives,

sales channels and customer bases, as well as cost reduction from

consolidation of back-office functions and sharing of best practices in

production and R&D. Areas of early progress include refining marketing

strategies, joint sales channel initiatives, implementing the Sarbanes-Oxley

audit project and the installation of Suntech’s ERP system at MSK.

Additional Business Highlights

-- The majority of Suntech’s silicon supply in 2007 is expected to come

from multiple long-term silicon supply agreements with an average wafer

cost measurably below 2006 current spot market prices. Suntech has

secured multi-year silicon wafer supply agreements set to begin in 2007

with MEMC, REC and several leading China-based silicon suppliers.

-- Suntech continued to execute upon its long term strategy of

diversifying sales among various geographical regions and distributors.

During the third quarter of 2006, sales to Spain grew to 11.6% of total

sales for the quarter, compared with 9.6% in the second quarter of

2006. In addition, Suntech continued to build relationships with key

distributors in the United States and recently secured a multi-year

contract to supply PV modules with an aggregate output of up to 25.5MW.

-- Suntech is on track to begin construction in early 2007 on

manufacturing and R&D facilities in Shanghai to produce new thin film

solar technologies and value-added PV solutions. These facilities are

expected to begin ramping up production in 2008 with a capacity of 20MW

to 40MW.

-- In October 2006, Suntech continued to expand its system integration

presence in China with the establishment of Shenzhen Suntech, which has

already secured initial commitments for several solar power grid

integration projects.

-- Suntech’s CEO Dr. Shi established the China Solar Photovoltaic Suntech

Prize, an annual award to honor engineers, scientists, entrepreneurs

and government officials who have made substantial contributions to the

development of China’s PV industry.

-- Suntech’s CTO Dr. Stuart Wenham received the 2006 World Technology

Award in recognition of innovation for Suntech’s special semiconductor

finger technology that Dr. Wenham architected. This follows the award

granted by the 15th International PV Science and Engineering Conference

to Dr. Shi in 2005 for outstanding promotion of international science

and engineering.

Third Quarter 2006 Group Results

Income Statement Summary (In $ millions, except for per ADS data)

Suntech Suntech Suntech Non-

Group Group Non- GAAP

GAAP GAAP Excluding

MSK

Net revenues 163.0 163.0 148.5

Gross profit 37.2 38.0 38.6

Income from

operations 25.3 29.8 31.6

Net income 28.7 32.8 33.3

Net income per

diluted ADS $0.19 $0.21 $0.22

Suntech Group Results for the Third Quarter of 2006 Excluding MSK

Suntech Group’s net revenues excluding MSK for the third quarter of 2006

were $148.5 million, an increase of 15.9% sequentially and 162.2% year-over-

year. Excluding MSK, Suntech recorded a non-GAAP gross profit of $38.6

million, representing an increase of 5.4% over the second quarter of 2006 and

122.9% over the third quarter of 2005. Non-GAAP gross margin excluding MSK,

for the third quarter of 2006 was 26.0%, compared with 28.6% in the second

quarter of 2006 and 30.6% in the third quarter of 2005. Gross margins

excluding MSK in the third quarter 2006 decreased primarily due to the

increase in the cost of silicon as Suntech purchased additional silicon from

the spot market in order to accelerate production and expand its market

share. Excluding MSK, Suntech’s non-GAAP income from operations for the

third quarter of 2006 was $31.6 million and the operating margin for the

quarter was 21.3%, compared with 24.2% in the second quarter of 2006 and

24.8% in the third quarter of 2005. Additional operating expenses were

incurred during the quarter to broaden the geographical sales regions and

further the MSK integration. Excluding MSK, non-GAAP net income

attributable to holders of ordinary shares for the third quarter of 2006 was

$33.3 million, or $0.22 per non-GAAP diluted ADS.

Breakdown of Third Quarter 2006 Net Revenues (Excluding MSK) (In $

millions)

Q3 2006 % of Q3 Growth Growth

US$ 2006 Net vs. Q3 vs. Q2

(in millions) Revenues 2005 2006

PV Cells 39.9 26.8 185.4 14.7

Standard PV

Modules 107.9 72.7 156.0 16.9

PV System

Integration,

BIPV and Others 0.7 0.5 43 -35.0

Total $148.5 100.0 % +162.2 % +15.9 %

Suntech excluding MSK shipped 40.0MW of PV cells and modules during the

quarter; average sales prices for PV cells and PV modules were $3.34 and

$3.86 per watt, respectively, compared with $3.22 and $3.78 per watt,

respectively, in the second quarter of 2006 and $3.10 and $3.34,

respectively, in the third quarter of 2005.

Suntech Group Consolidated Results for the Third Quarter of 2006

Including MSK

Suntech Group’s non-GAAP gross profit for the third quarter of 2006 was

$38.0 million and the non-GAAP gross margin was 23.3%. Non-GAAP income from

operations for the third quarter of 2006 was $29.8 million and the non-GAAP

operating margin was 18.3%.

As of September 30, 2006, Suntech had cash and cash equivalents of $314.2

million compared with $312.8 million at the end of the second quarter of

2006. Short-term debt rose to $212.7 million at the end of the third quarter

of 2006 from $82.8 million at the end of the second quarter of 2006 primarily

as a result of the $100 million bridge loan obtained in connection with the

MSK acquisition. The ongoing short-term debt is related to transactions made

by the Company to address issues relating to foreign currency controls of the

PRC Renminbi. Capital expenditures were $15.7 million in the third quarter

of 2006 which were primarily related to production capacity expansion.

New Senior Hires

-- Mr. Steven Chan joined Suntech in September 2006 as its Vice President

of Business Development. Mr. Chan’s responsibilities include heading

the investor relations function as well as focusing on key corporate

initiatives such as strategic partnerships, investments and mergers and

acquisitions. Prior to joining Suntech, Mr. Chan worked at CDC Corp.,

most recently serving as its Acting CEO and General Counsel. Prior to

that, Mr. Chan was a New York-qualified corporate attorney with

Morrison & Foerster LLP and Milbank, Tweed, Hadley & McCloy LLP. Mr.

Chan graduated from the University of California at Berkeley and also

received a JD law degree from the Boston College Law School.

-- Ms. Vivian Chan joined Suntech in November 2006 as Financial Controller

of MSK. Before joining MSK, Ms. Chan was Financial Controller at Dell

Japan. Ms. Chan has more than 15 years experience in areas including

Sarbanes Oxley compliance, GAAP, corporate governance, internal audit,

business planning and financial reporting. Ms. Chan was also an auditor

with Deloitte. Ms. Chan graduated from the Chinese University of Hong

Kong and is a fellow member of the ACCA.

-- Mr. YK Chang joined Suntech in September 2006 as Director of

Operations/Production. Mr. Chang’s responsibility is to focus on

ensuring that the production teams meet Suntech’s capacity growth

objectives. He brings with him rich experience in industrial

production management including plant layout, production control

planning, productivity monitoring, and quality control measures. Prior

to joining Suntech, Mr. Chang acted as Operations Director for Pentex-

Schweizer Circuits for over 16 years. Mr. Chang received certificates

and diplomas in Mechatronics, Industrial Management and Mechanical

Engineering.

-- Mr. Zhi Hao joined Suntech as Investment Controller in September 2006.

Mr. Hao was previously a Senior Manager with PricewaterhouseCoopers

Corporate Finance in Singapore, specializing in financial advisory on

cross-border M&A and capital market transactions. From 2003 to 2005,Mr.

Hao was a Manager with Daiwa Securities SMBC Singapore, and from 2002

to 2003, he served as an Investment Analyst with Kim Eng Securities in

Singapore. Mr. Hao received an MBA degree from the National University

of Singapore.

Annual General Meeting

Suntech will convene its annual general meeting of shareholders on

December 22, 2006. Ordinary shareholders of record as of November 10, 2006

will be entitled to attend the meeting.

Outlook for Fourth Quarter 2006

Based on current operating and other conditions, Suntech expects its

total net revenue, excluding MSK, in the fourth quarter 2006 to be in the

estimated range of $166 million to $170 million, representing year-over-year

growth of 87% to 91%.

Suntech expects its total production output, excluding MSK, to be in the

estimated range of 45MW to 46MW in the fourth quarter of 2006 and 250MW for

the full year 2007.

In the fourth quarter 2006, MSK is expected to contribute $60 to $64

million, or approximately 27% to Suntech’s total net revenue, and production

output to be in the estimated range of 14MW to 15MW. In 2007, the Company

expects the volume of PV modules shipped by MSK to be flat to down as it

focuses on growing the sales of MSK’s higher value-added BIPV products.

Conference Call Information

Suntech’s earnings announcement conference call will take place on

November 20, 2006 at 8:00 a.m., Eastern Time, which corresponds to November

20, 2006 at 9:00 p.m., Beijing/Hong Kong time. To access the conference call,

please dial +1 617 213 8845 (for U.S. callers) or +852 3002 1672 (for

international callers) and ask to be connected to the Suntech earnings

conference call.

A live webcast of the conference call will be available on the investor

relations section of Suntech Power’s website at http://www.suntech-

power.com .

A replay of the conference call will be available on the investor

relations section of Suntech Power’s website or by dialing +1 617 801 6888

(passcode: 10412557).

About Suntech

Suntech Power Holdings Co., Ltd. is a leading global solar energy company

as measured by both production output and capacity of solar cells and

modules. Suntech provides solar solutions for a green future. Suntech

designs, develops, manufactures, and markets a variety of high quality, cost

effective and environmentally friendly PV cells and modules for electric

power applications in the residential, commercial, industrial, and public

utility sectors. Suntech’s majority-owned subsidiary, MSK Corporation is one

of Japan’s largest PV manufacturers and one of the top-ranked companies in

the building-integrated photovoltaics (BIPV) space. Suntech’s customers are

located in various markets worldwide, including key markets throughout

Europe, Japan, China and the United States. For more information, please

visit http://www.suntech-power.com .

Safe Harbor Statement

This announcement contains forward-looking statements. These statements

are made under the “safe harbor” provisions of the U.S. Private Securities

Litigation Reform Act of 1995. These forward-looking statements can be

identified by terminology such as “will,” “expects,” “anticipates,”

“future,” “intends,” “plans,” “believes,” “estimates” and similar

statements. Among other things, the business outlook and quotations from

management in this announcement, as well as Suntech’s strategic and

operational plans, contain forward-looking statements. Such statements

involve inherent risks and uncertainties that could cause actual results to

differ materially from those in the forward-looking statements. Further

information regarding these and other risks is included in Suntech’s annual

report on Form 20-F filed with the U.S. Securities and Exchange Commission

which can be found on Suntech’s website at http://www.suntech-power.com .

Suntech does not undertake any obligation to update any forward-looking

statement, except as required under applicable law.

About Non-GAAP Financial Measures

To supplement its consolidated financial results presented in accordance

with GAAP, Suntech uses the following non-GAAP measures which are adjusted

from the most directly comparable GAAP results to exclude items related to

share-based compensation and the purchase price allocation effect related to

the MSK Corporation acquisition. Management believes these non-GAAP measures

are useful to investors in enabling them to better assess changes in Suntech’

s core business across different reporting periods on a consistent basis,

independently of stock-based compensation expenses and the purchase price

allocation effect related to the MSK acquisition. Thus, the non-GAAP

financial measures provide investors with another method for assessing

Suntech’s operating results in a manner that is focused on the performance

of its ongoing operations. Management also uses these non-GAAP measures

internally to make an apples-to-apples comparison of the business and

financial performances of current and historical results, for strategic

decision making, forecasting future results and evaluating the Company’s

current performance. Many analysts covering Suntech use the non-GAAP

measures as well. These non-GAAP measures are not in accordance with or an

alternative for GAAP financial data, the non-GAAP results should be reviewed

together with the GAAP results and are not intended to serve as a substitute

for results under GAAP, and may be different from non-GAAP measures used by

other companies. For more information on these non-GAAP financial measures,

please see the tables captioned "Reconciliations of non-GAAP results of

operations measures to the nearest comparable GAAP measures" set forth at the

end of this release and which shall be read together with the preceding

financial statements prepared under GAAP.

Note: The quarterly consolidated income statements are unaudited. The

summary consolidated balance sheet as of September 30, 2006 is derived from

Suntech’s unaudited consolidated financial statements. The summary

consolidated balance sheet data as of December 31, 2005 is derived from

Suntech’s audited consolidated financial statements. The condensed income

statements of reportable segments is also unaudited.

SUNTECH POWER HOLDINGS CO., LTD.

CONSOLIDATED BALANCE SHEETS

(In $’000)

Suntech Group Suntech Group

Consolidated Consolidated

December 31, September 30

2005 2006

Unaudited

ASSETS

Current assets:

Cash and cash equivalents 359,324 314,178

Restricted cash 7,997 21,489

Inventories 40,428 134,171

Accounts receivable 1,660 44,781

Other receivables 2,408 3,641

Value-added tax recoverable 339 12,365

Advances to suppliers 24,001 87,471

Deferred tax assets 322 350

Short-term investment -- 2,937

Total current assets 436,479 621,383

Property, plant and equipment, net 39,718 103,312

Intangible assets, net 2,923 80,865

Goodwill 135 22,654

Investments in affiliates 1,059 2,704

Non-current advances to suppliers

and other assets -- 16,084

Non-current receivables -- 21,875

Deferred compensation charges

to suppliers -- 117,828

Deferred tax assets 1,350 2,668

TOTAL ASSETS 481,664 989,373

LIABILITIES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term borrowings, including

current portion of long-term bank

borrowings 52,193 215,223

Accounts payable 3,522 17,857

Other payables 4,770 14,962

Payables in respect of purchase of

property, plant and equipment 550 4,153

Advances from customers 3,059 4,943

Accrued payroll and welfare 1,408 2,672

Government grants 4,107 4,528

Amounts due to related parties 468 191

Income tax payable 1,899 2,667

Deferred taxes liability -- 70

Total current liabilities 71,976 267,266

Long-term bank borrowings 3,717 38,505

Accrued warranty costs 2,619 6,954

Other liabilities -- 12,472

Deferred tax liability -- 30,948

Total liabilities 78,312 356,145

Minority interest 1,429 22,439

Shareholders’ equity:

Ordinary share of par value $0.01:

authorized 465,332,948 shares;

147,487,707 and 149,529,163 shares

issued and outstanding as of

December 31, 2005 and as of

September 30, 2006, respectively 1,475 1,495

Additional paid-in capital 364,043 483,815

Deferred compensation (12,716) --

Retained earnings 47,603 122,187

Accumulated other comprehensive

income 1,518 3,292

Total shareholders’ equity 401,923 610,789

TOTAL LIABILITIES AND SHAREHOLDERS’

EQUITY 481,664 989,373

SUNTECH POWER HOLDINGS CO., LTD.

CONSOLIDATED INCOME STATEMENT (*)

(In $’000, except share, per share, and per ADS data)

Suntech Group Suntech Group Suntech Group

Consolidated Consolidated Consolidated

2005 2006 2006

Q3 Q2 Q3

Unaudited Unaudited Unaudited

Net revenues 56,624 128,154 162,969

Total cost of revenues 39,728 92,034 125,742

Gross profit 16,896 36,120 37,227

Operating expenses

Selling expenses 1,017 1,547 2,889

General and administrative expenses 4,720 4,751 7,050

Research and development expenses 826 1,632 2,038

Income from operations 10,333 28,190 25,250

Interest expenses (570) (1,177) (1,869)

Interest income 25 3,030 4,119

Other income (expense) (161) (1,387) 1,707

Income before income taxes 9,627 28,656 29,207

Tax provision (859) (2,153) (1,617)

Net income after taxes before minority

interest and equity in earnings of

affiliates 8,768 26,503 27,590

Minority interest (5) (30) 301

Equity in (loss) earnings of

affiliates (103) 63 838

Net income 8,660 26,536 28,729

Deemed dividend on Series A

Redeemable convertible preferred

shares (972) -- --

Net income attributable to holders

Of ordinary shares 7,688 26,536 28,729

Net income per share and per ADS:

- Basic 0.09 0.18 0.19

- Diluted 0.07 0.17 0.19

Shares used in computation:

- Basic 90,000,000 148,240,382 148,324,230

- Diluted 128,342,026 156,012,742 154,930,224

(*) Purchase price allocation is preliminary and will be finalised by the

end of this year.

SUNTECH POWER HOLDINGS CO., LTD.

CONSDENSED INCOME STATEMENT OF REPORTABLE SEGMENTS

(In $’000)

MSK

Corporation

Suntech Excluding Effect

Group Effect of of Purchase

Excluding Purchase Price Suntech

MSK Price Allocation Group

Corporation Allocation Consolidated

2006 2006 2006 2006

Q3 Q3 Q3 Q3

Unaudited Unaudited Unaudited Unaudited

Net revenues 148,482 14,488 -- 162,970

Total cost of revenues 110,194 15,091 458 125,743

Gross profit 38,288 (603) (458) 37,227

Operating expenses

Selling expenses 2,509 380 -- 2,889

General and administrative

expenses 5,689 807 554 7,050

Research and development

expenses 2,004 34 -- 2,038

Income from operations 28,086 (1,824) (1,012) 25,250

Interest expenses (1,330) (508) (31) (1,869)

Interest income 4,055 64 -- 4,119

Other income 140 1,494 73 1,707

Income before income taxes 30,951 (774) (970) 29,207

Tax provision (2,029) (13) 425 (1,617)

Net income after taxes before

minority interest and equity

in earnings of affiliates 28,922 (787) (545) 27,590

Minority interest 40 261 -- 301

Equity in earnings

Of affiliates 838 -- -- 838

Net income 29,800 (526) (545) 28,729

Reconciliations of non-GAAP results of operations measures to the nearest

comparable GAAP measures (*)

(in $ millions, except margin data, per share and per ADS data, unaudited)

Three months ended September 30, 2005

Suntech

Suntech Share- Effect of Group

Group based Purchase Non-

GAAP Compen Price GAAP

Results sation Allocation Results

Gross profit 16.9 0.4 -- 17.3

Gross margin 29.8% 30.6%

Income from operations 10.4 3.7 -- 14.1

Income from operations margin 18.2% 24.8%

Net income attributable to holders of

ordinary shares 8.7 3.7 -- 12.4

Net income margin 15.3% 21.9%

Net income per share and per ADS

-Basic 0.09 0.13

-Diluted 0.07 0.10

Three months ended June 30, 2006

Suntech

Suntech Share- Effect of Group

Group based Purchase Non-

GAAP Compen Price GAAP

Results sation Allocation Results

Gross profit 36.1 0.5 -- 36.6

Gross margin 28.2% 28.6%

Income from operations 28.2 2.8 -- 31.0

Income from operations margin 22.0% 24.2%

Net income attributable to holders of

ordinary shares 26.5 2.8 -- 29.3

Net income margin 20.4% 22.9%

Net income per share and per ADS

-Basic 0.18 0.20

-Diluted 0.17 0.19

Three months ended September 30, 2006

Suntech

Effect Group

Of Suntech Excluding

Suntech Share- Purchase Group

Group based Price Non- Non-

GAAP Compen Alloc GAAP MSK GAAP

Results sation ation Results Results Results

Gross profit 37.2 0.3 0.5 38.0 0.6 38.6

Gross margin 22.8% 23.3% 26.0%

Income from operations 25.3 3.5 1.0 29.8 1.8 31.6

Income from operations

margin 15.5% 18.3% 21.3%

Net income attributable to

Holders of ordinary shares 28.7 3.5 0.6 32.8 0.5 33.3

Net income margin 17.6% 20.1% 22.4%

Net income per share and

per ADS

-Basic 0.19 0.22 0.22

-Diluted 0.19 0.21 0.22

(*) The adjustment is for share-based compensation and amortization

expenses incurred from purchase price allocation related to the

acquisition of MSK Corporation.

Source: Suntech Power Holdings Co., Ltd.
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