Suntech Reports Fourth Quarter and Full Year 2010 Financial Results

WUXI, China, March 9, 2011 /PRNewswire-Asia/ -- Suntech Power Holdings Co., Ltd. (NYSE: STP), the world's largest producer of solar panels, today announced financial results for its fourth fiscal quarter and full year ended December 31, 2010.

Fourth Quarter 2010 Highlights

• Total net revenues were $945.1 million in the fourth quarter of 2010, representing growth of 27.1% sequentially and 61.9% year-over-year.
• Total PV shipments increased 19.8% sequentially and 87.3% year-over-year.
• Gross profit margin for the core wafer to module business was 17.4% in the fourth quarter of 2010.
• Consolidated gross profit margin was 16.2% in the fourth quarter of 2010.
• Net income after taxes before non-controlling interest and equity in earnings of affiliates was $61.1 million in the fourth quarter of 2010.
• Suntech realized $24 million equity income from the earnings of the recently acquired wafer business in the fourth quarter of 2010.
• Equity in earnings of affiliates in the fourth quarter of 2010, inclusive of the $24 million equity income from earnings of the wafer business, increased to $322.9 million.
• Net income attributable to holders of ordinary shares was $383.4 million, or $2.02 per diluted American Depository Share (ADS). Each ADS represents one ordinary share.

Full Year 2010 Highlights

• Total net revenues were $2,901.9 million in 2010, representing 71.4% growth year-over-year.
• Total PV shipments were 1,572MW, representing 124.5% growth year-over-year.
• Gross profit margin for the core wafer to module business was 18.6%.
• Consolidated gross profit margin was 17.4%.
• Net income attributable to holders of ordinary shares was $262.3 million, or $1.44 per diluted American Depository Share (ADS). Each ADS represents one ordinary share.
• Suntech achieved 1.8 GW of PV cell and module capacity, and 500MW of silicon ingot and wafer capacity as of December 31, 2010.

"2010 was another landmark year for Suntech and the solar industry," said Dr. Zhengrong Shi, Chairman and CEO. "We surpassed our shipment and revenue targets by setting new solar industry records for both quarterly and annual solar panel shipments.

"We maintained a strong position in established markets, while continuing to diversify into regions that will drive the next stage of growth in the solar industry. Within Europe we entered new partnerships with industry leaders such as Siemens and became the first company to ship more than 1,000MW in the region. We achieved a leading market share in the Americas and were recently selected to supply a 150MW (AC) project for Sempra Generation, just down the road from our new Arizona manufacturing facility. And we continue to gain ground in key growth markets such as Australia, China, India and Thailand.

"We successfully closed our acquisition of a wafer production facility, which will drive cost reduction and margin expansion in 2011. The integration is progressing well and the wafer acquisition is already generating returns for Suntech. In the fourth quarter, Suntech achieved $24 million equity income from the wafer business. With the rapid expansion of wafer capacity -- to 1.2GW by the end of 2011 -- and subsequent wafer cost reductions, we expect this contribution to grow through the course of the year.

"Our investment in the Global Solar Fund continues to generate value. GSF investee companies successfully completed 95MW of projects during the fourth quarter resulting in an increase in the fair value of GSF's investments. The eventual sale of these projects should be a source of cash for Suntech going forward.

"The opportunities ahead of us have never been greater. We are confident that our investments in our global sales channels, integrated manufacturing capabilities and technology initiatives will expand our position as the global market leader."

Recent Business Highlights

• Sempra Generation selected Suntech and Zachry to design and construct the Mesquite Solar I project in Arizona.  The renewable electricity generated will be sold to Pacific Gas & Electric under a 150MW (AC), 20-year power purchase agreement pending California Public Utilities Commission approval.
• Suntech closed the acquisition of wafer manufacturer Rietech Solar, which was spun-off from Glory Silicon, in the fourth quarter of 2010. Suntech recognized $24 million equity income from earnings of the acquired wafer business in the fourth quarter of 2010.
• Suntech signed a framework agreement with Siemens Energy.  Siemens has a pipeline to develop 80MW of PV plants in six different countries.
• GSF investee companies completed construction of 95MW of PV projects in the fourth quarter of 2010. In accordance with ASC 323-10-35-1, Suntech recognized its share of the earnings or losses of the equity investment in GSF. As GSF is an investment company, its net income or loss is affected by the changes in the fair value of its investee companies. Due to the completion of the projects, GSF’s fair value substantially increased and Suntech realized equity income of $250 million in the fourth quarter of 2010.
• In line with Suntech's strategy to focus on its core competencies of PV wafer, cell and module manufacturing, Suntech divested its 20% investment in Asia Silicon for a total consideration of $20 million. Suntech will continue to procure polysilicon from Asia Silicon through a long term contract.

Fourth Quarter 2010 Results

Total net revenues for the fourth quarter of 2010 were $945.1 million, an increase of 27.1% from $743.7 million in the third quarter of 2010 and an increase of 61.9% from $583.6 million in the fourth quarter of 2009.

Total net revenues from investee companies of GSF were $53.6 million in the fourth quarter of 2010.

For the fourth quarter of 2010, consolidated gross profit was $153.4 million and gross margin was 16.2% compared to consolidated gross profit of $122.0 million and gross margin of 16.4% in the third quarter of 2010.

Operating expenses for the fourth quarter of 2010 increased to $63.2 million compared to $59.5 million in the third quarter of 2010.

Income from operations was $90.2 million for the fourth quarter of 2010, an increase of 44.2% compared to $62.6 million in the third quarter of 2010.

Net interest expense was $23.5 million in the fourth quarter of 2010 compared to net interest expense of $23.1 million in the third quarter of 2010. Net interest expense in the fourth quarter of 2010 included $10.7 million in non-cash expenses of which $9.5 million was related to the adoption of FASB Codification 470-20-65, Accounting for Convertible Debt Instruments that May be Settled in Cash Upon Conversion. This compares to $9.4 million in non-cash net interest expense in the third quarter of 2010.

Foreign exchange loss was $2.8 million in the fourth quarter of 2010 compared to a foreign exchange gain of $42.0 million in the third quarter of 2010. The foreign exchange gain in the third quarter was primarily related to the appreciation of the Euro versus the US Dollar during the third quarter of 2010.

Net other expense was $0.4 million in the fourth quarter of 2010, compared with net other expense of $74.1 million in the third quarter of 2010. The net other expense in the third quarter of 2010 was mainly due to mark to market losses from foreign exchange hedging activities.

Net income after taxes before non-controlling interest and equity in earnings of affiliates was $61.1 million in the fourth quarter of 2010 compared to $10.2 million in the third quarter of 2010.

Equity in earnings of affiliates in the fourth quarter of 2010 increased to $322.9 million compared to equity in earnings of affiliates of $23.1 million in the third quarter of 2010. The equity in earnings of affiliates in the fourth quarter of 2010 was primarily related to a $250 million non-cash increase in the fair value of GSF's investments in projects and of GSF in accordance with ASC 323-10-35-1, due to GSF investee companies' completion of construction of 95MW of projects in the fourth quarter of 2010; $49.5 million equity income on consolidation of the wafer acquisition which is equivalent to the difference between the fair value of the equity investment previously held and its carrying value in accordance with ASC 323-10-35-4; and a $24 million equity income from earnings of the acquired wafer business in the fourth quarter of 2010.

The fair value of GSF investments was determined according to discounted cash-flow analysis of the future energy revenues of completed solar projects and with reference to target returns of project buyers. The inputs and assumptions used in the discounted cash flow models reflect the best estimate of assumptions that market participants would use in pricing the same or similar investments in a current transaction as of the measurement date. GSF management believes that all the projects completed by GSF investee companies in 2010 will be connected to the grid in order to receive the 2010 feed in tariff in Italy.

Net income attributable to holders of ordinary shares increased to $383.4 million, or $2.02 per diluted ADS for the fourth quarter of 2010, compared to net income of $33.1 million, or $0.18 per ADS, for the third quarter of 2010.

In the fourth quarter of 2010, the major non-cash related expenses were share-based compensation charges of $4.4 million; $10.7 million of non-cash interest expenses, as mentioned above; and depreciation and amortization expenses of $18.9 million.

In the fourth quarter of 2010, capital expenditures, which were primarily for the addition of new production equipment, totaled $50.5 million.

Cash and cash equivalents totaled $872.5 million as of December 31, 2010, compared with $946.2 million as of September 30, 2010.

Inventory was $558.2 million as of December 31, 2010, compared with $447.4 million as of September 30, 2010. The increase in inventory was in line with the growth in production. Inventory turnover days improved to 65 days in the fourth quarter of 2010 from 66 days in the third quarter of 2010.

Accounts receivable totaled $515.9 million as of December 31, 2010, compared with $443.7 million as of September 30, 2010. The increase was in line with the increase in revenue. Days sales outstanding improved to 47 days in the fourth quarter of 2010, compared to 52 days in the third quarter of 2010.

Accounts receivable due from investee companies of GSF was $10.4 million as of December 31, 2010, compared with $59.7 million as of September 30, 2010. The sequential decrease in the related accounts receivable was due to the collection of all GSF investee companies' receivables incurred prior to the fourth quarter of 2010, and the collection of the majority of GSF investee companies' receivables incurred in the fourth quarter of 2010.

Short-term borrowings were $1,400.8 million as of December 31, 2010, compared with $1,024.2 million as of September 30, 2010. The increase in borrowings was mainly related to the balance sheet consolidation of Rietech Solar, the recently acquired wafer facility; and working capital requirements. Suntech intends to transition approximately $400 million of short-term borrowings into mid-term loans in the first half of 2011.

Accounts payable totaled $457.0 million as of December 31, 2010, compared with $394.6 million as of September 30, 2010. The increase in accounts payable was primarily due to increased material procurement to meet production requirements. Accounts payable days decreased to 54 days in the fourth quarter of 2010 from 58 days in the third quarter of 2010 due to year end accounts payable settlement with suppliers.

Full Year 2010 Results

Total net revenues for the full year 2010 were $2,901.9 million, compared with $1,693.3 million in 2009.  The year-over-year increase was primarily due to a 124.5% increase in shipments of PV products, which was offset by a decline in the average selling price of PV products.

For the full year 2010, consolidated gross profit was $503.8 million and gross margin was 17.4% compared to consolidated gross profit of $338.8 million and gross margin of 20.0% for the full year 2009. The decrease in gross margin was primarily a result of the reduction in the average selling price of PV products.

Operating expenses for the full year 2010 were $306.7 million compared to $164.8 million for the full year 2009. The increase in operating expenses in 2010 was primarily due to expansion of production capacity and global sales infrastructure; and a non-cash impairment of thin film equipment of $54.6 million.

Income from operations was $197.2 million for the full year 2010 compared to $174.0 million for the full year 2009.

Net income after taxes before non-controlling interest and equity in earnings of affiliates was $13.4 million in 2010 compared to $89.0 million in 2009.

Equity in earnings of affiliates was $250.0 million in 2010 compared to equity in loss of affiliates of $3.3 million in 2009. The equity in earnings of affiliates in 2010 was primarily related to a $269.5 million non-cash increase in the fair value of GSF's investments in projects and of GSF in accordance with ASC 323-10-35-1, due to GSF investee companies' completion of construction of 105MW of projects in 2010; $49.5 million equity income on consolidation of the wafer acquisition which is equivalent to the difference between the fair value of the equity investment previously held and its carrying value; and a $24 million equity income from earnings of the acquired wafer business in the fourth quarter of 2010. This was offset by an equity loss related to the impairment of the investment in Shunda Holdings of $101.1 million.

Net income attributable to holders of ordinary shares increased to $262.3 million, or $1.44 per diluted ADS for the full year 2010, compared to net income of $85.6 million, or $0.50 per diluted ADS for the full year 2009.

In the full year 2010, capital expenditures, which were primarily related to the construction of production facilities in Shanghai and other infrastructure projects to support expansion of Pluto capacity, totaled $335.6 million. Depreciation and amortization expenses totaled $84.9 million.

Business Outlook

In the first quarter of 2011, Suntech expects PV shipments to be relatively flat compared with the fourth quarter of 2010. Due to the integration of wafer manufacturing capacity, consolidated gross margin in the first quarter of 2011 is expected to increase to approximately 20%.

For the fiscal year ending December 31, 2011, Suntech expects to ship at least 2.2GW of solar products and generate revenues of $3.4 billion to $3.6 billion, subject to changes in foreign exchange rates. Consolidated gross margin for the full year 2011 is expected to be approximately 20% to 22%.

Suntech expects to achieve 2.4GW of installed cell and module production capacity by the end of 2011. Suntech expects to achieve 1.2GW of installed wafer capacity by the end of 2011. Full year 2011 capital expenditures are expected to be in the range of $250 million to $270 million.

Guidance is based on an assumed exchange rate of $1.33USD to the Euro.

2010 Results Preliminary and Unaudited

The Company acquired Rietech Solar on December 31, 2010 and is in the process of performing the purchase price allocation associated with the consolidation of Rietech. In conjunction with the acquisition, and as noted previously in this release, the Company recognized a $49.5 million gain on consolidation which is equivalent to the difference between the fair value of the equity investment previously held and its carrying value.  Given the purchase price allocation has not yet been completed, the value of long-lived and intangible assets, goodwill and, potentially, the fair value associated with the previous equity interest held, are subject to adjustment.  Accordingly, upon finalization of the purchase price allocation, certain balance sheet accounts and the gain on disposition of the previously held equity interest included in this release are subject to change.

The results presented in this press release are preliminary and unaudited. The Company is in the process of completing its 2010 audit, and adjustments to the results set forth in this press release may be identified as a result of this process. The Company's 2010 audited financial statements will be included in its 2010 Annual Report on Form 20-F to be filed with the U.S. Securities and Exchange Commission.

Fourth Quarter and Full Year 2010 Conference Call Information

Suntech management will host a conference call today, Tuesday, March 8, 2011 at 6:00p.m. U.S. Eastern Time (which corresponds to 11:00p.m. Greenwich Mean Time on March 8, 2011 and 7:00a.m. Beijing/Hong Kong time on March 9, 2011) to discuss the company's results.

Dial-in details for the earnings conference call are as follows:

A replay of the conference call may be accessed until March 24, 2011 by dialing:

Additionally, a live and archived webcast of this conference call will be available on the Investors section of Suntech's website at http://ir.suntech-power.com.

About Suntech

Suntech Power Holdings Co., Ltd. (NYSE: STP) produces industry-leading solar products for residential, commercial, industrial, and utility applications. With regional headquarters in China, Switzerland, and the United States, and gigawatt-scale manufacturing worldwide, Suntech has delivered more than 15,000,000 photovoltaic panels to over a thousand customers in more than 80 countries. Suntech's pioneering R&D creates customer-centric innovations that are driving solar to grid parity against fossil fuels. Suntech's mission is to provide everyone with reliable access to nature's cleanest and most abundant energy source.

For more information about Suntech's people and products visit http://www.suntech-power.com.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in 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, and includes the ability to increase PV cell production capacity to 2.4GW and wafer capacity to 1.2GW by the end of 2011; expected first quarter 2011 shipments and gross margin; full year 2011 shipment, revenue and gross margin expectations; and 2011 capacity and capital expenditures. Such statements involve certain 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 filings with the U.S. Securities and Exchange Commission, including its annual report on Form 20-F. Suntech does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.