Solarfun Reports Fourth Quarter and Full Year 2008 Results

SHANGHAI--(BUSINESS WIRE)--Solarfun Power Holdings Co., Ltd. (“Solarfun” or “the Company” ) (NASDAQ:SOLF), a vertically integrated manufacturer of silicon ingots and photovoltaic (PV) cells and modules in China, today reported its unaudited financial results for the fourth quarter and full year ended December 31, 2008.

FOURTH QUARTER 2008 RESULTS

* Net revenue was RMB 1.12 billion (US$ 164.6 million), representing an increase of 13.7% from the fourth quarter of 2007, but down 11.9% from the third quarter of 2008.
* Results were influenced by a total non-cash provision of US$ 47.8 million for inventory write downs. Provisions were necessary as a result of a decline in inventory market values below carrying value. Additionally, provisions were made for unsalable products that could not be sold in the current market environment.
* PV module shipments showed good momentum, reaching 47.6 MW. This represents an increase of 69.4% from the fourth quarter of 2007 and an increase of 13.9% from 41.8 MW in the third quarter of 2008.
* Average selling price (“ASP”) declined, as expected, to US$ 3.37, from US$ 4.04 in the third quarter of 2008. This was primarily due to soft demand and high module inventories in the market. Business continued to be centered in Europe, with Germany accounting for 57%, France 19%, Switzerland 10%, and Portugal 9% of net revenue in this quarter. Spain accounted for only 2% of net revenue in this quarter.
* Gross loss was RMB 377.8 million (US$ 55.4 million), compared to a gross profit of RMB 174.5 million in the fourth quarter of 2007 and a gross profit of RMB 46.1 million in the third quarter of 2008.
* Gross margin was negative 33.7% and was adversely impacted by the aforementioned inventory provision, as well as the Company’s transition to a period of lower raw material prices.
* Operating loss was RMB 439.2 million (US$ 64.4 million). Selling expenses were RMB 20.2 million (US$ 3.0 million). The Company’s total operating expenses decreased by 14.7% from RMB 72.0 million (US$ 10.6 million) in the third quarter of 2008 to RMB 61.4 million (US$ 9.0 million) as it continues to focus on reducing costs.
* Interest expense increased approximately RMB 5.2 million (US$ 0.8 million), or 24.2%, from RMB 21.6 million (US$ 3.2 million) in the third quarter of 2008 to RMB 26.8 million (US$ 3.9 million) due to an increase in bank borrowings.
* The net impact of foreign currency exchange was a gain of RMB 21.5 million (US$ 3.2 million). The Company recorded a RMB 28.8 million (US$ 4.2 million) currency loss largely as a result of the impact of the declining Euro against the U.S. dollar, but was able to more than offset this loss through its foreign exchange hedging program, which resulted in a RMB 50.3 million (US$ 7.4 million) gain.
* Net loss was RMB 418.8 million (US$ 61.4 million). The loss per basic ADS was RMB 7.79 (US$1.14). The negative impact of the fourth quarter inventory provision was approximately $0.74 per fully diluted ADS

FULL YEAR 2008 RESULTS

* Net revenue was RMB 4.95 billion (US$ 725.4 million), representing an increase of 106.6% from 2007. This more than doubling in net revenues was primarily due to the strong operating environment that existed during much of 2008 and the Company’s ability to penetrate a broadened global customer base.
* Total PV module shipments were 172.8 MW, representing an increase of 120% from 78.4 MW in 2007.
* The ASP was $3.92 for 2008, which was an increase from $3.74 in 2007. This increase was primarily due to robust demand, particularly in Germany and Spain, and tight module and raw material supply during the first three quarters of 2008.
* Gross profit was RMB 43.9 million (US$ 6.4 million), a decrease of 89% from RMB 397.8 million (US$ 58.3 million) in 2007. The decline was largely due to provisions for inventory write-downs and unsalable products totaling RMB 414.0 million (US$ 60.7 million).
* Gross margin was 0.9 %, compared to 16.6% in 2007.
* Net loss was RMB 280.5 million (US$ 41.1 million), declining from net income of RMB 148.0 million in (US$ 21.7 million) 2007.
* Basic loss per ADS was RMB 5.55 (US$ 0.81), down from basic earnings per ADS of RMB 3.08 (US$ 0.42) in 2007. The negative impact of the full-year inventory provision was approximately $1.08 per fully diluted ADS

Harold Hoskens, Chief Executive Officer of Solarfun, commented, “Our current results reflect the global environment in which we operate. In the fourth quarter, funding for solar projects remained tight, excess inventories existed in many markets, and normal seasonal factors exacerbated softer demand. In this context, the industry is in a transition from a polysilicon supply-driven environment, to a demand-driven environment, and currently demand has been affected by the global economic situation. We see that module prices have declined at the same time as the cost of polysilicon, with the cost of polysilicon falling somewhat faster than module prices. We are confident that after turning over our higher cost inventories and with the further ramp-up of our internal ingot and wafer making facilities, we will be able to further expand business volumes, increase margins and return to profitability. We have contracts and good relations with key global customers. We recognize that this short-term turbulence requires close cooperation with these customers to create a mutually sustainable future. As we head into the coming year, we will continue to focus diligently on maintaining liquidity, strengthening customer relationships and expanding our geographic footprint, adjusting our raw material costs to reflect the current environment, and enhancing the efficiency and consistency of our manufacturing capabilities, including leveraging our vertical integration strategy.”