CSUN

China Sunergy Co., Ltd. (CSUN)

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China Sunergy Co., Ltd. (CSUN)

Q2 2010 Earnings Call Transcript

August 6, 2010 8:00 am ET

Executives

Tom Evrard – IR, Financial Dynamics

Stephen Cai – CEO

Marcus Cheng – Senior IR Manager

Richard Gu – VP & General Manager, Sales & Marketing Division

Analysts

Vishal Shah – Barclays Capital

Kelly Dougherty – Macquarie

Sanjay Shrestha – Lazard Capital

Adam Wiseman [ph] – Numis [ph]

Presentation

Operator

Good day, ladies and gentlemen, and welcome to the China Sunergy's second quarter 2010 earnings conference call. My name is Alika and I will be your operator for today. At this time, all participants are in listen-only mode. We will have a question-and-answer session at the end of the conference. (Operator instructions) As a reminder, this conference call is being recorded for replay purposes. At this time, I would now like to turn the call over to Mr. Tom Evrard. Please proceed, sir.

Tom Evrard

Thank you, operator, and good evening, everyone. Welcome to China Sunergy’s second quarter conference call.

Before we continue, please note that the discussion today will include forward-looking statements made under the Safe Harbor provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward-looking statements involve inherent risks and uncertainties. As such, our results may be materially different from the views expressed today.

A number of potential risks and uncertainties are outlined in our public filings with the SEC. China Sunergy does not undertake any obligation to update any forward-looking statements, except as required under applicable law.

And as a reminder, as the operator said, this conference is being recorded. With that, I'd like to turn the call over to the Mr. Stephen Cai, China Sunergy’s CEO. Steven?

Stephen Cai

Thank you, Tom. And I welcome everyone to our second quarter conference call. Joining me on the call is our CTO, Dr. Zhao; VP of the Sales and Marketing, Richard Gu; and Senior Investor Relations Manager, Marcus Cheng. Due to the health condition of our CFO Siegfried Hsu, he cannot join our earning call today.

I will be reviewing some of the highlights of our operational and financial progress before turning the call over to Marcus who will then provide a deep look at our financials as well as what we are seeing for the third quarter and beyond.

I am glad to announce that the accelerated solar market has been greatly beneficial to China Sunergy performance in the past quarter. And with operational enhancements, the company was able to reach its high end shipment guidance of 20 to 90 megawatts, which was actually 87.3 megawatt during the second quarter, generating a revenue of $117.6 million and a year-over-year growth of 67.8%.

Our outlook for this near term is very encouraging with strong expectations of rubber [ph] industry wide fundamentals.

Our gross margin has risen to 19.8 percentage in the quarter, nicely contributing to the around eight times year-over-year bottom line growth. These results were a primary function of the strategic action taken since the beginning of the year, together with solid market fundamentals. In addition, our success in exploring innovative sales strategies, and in thinking downstream partnership has widened our client scope and opened the door to a number of the value adding relationships.

During the past quarter, our focus on cell refinement in our internal operations has continued to help establish greater efficiencies, allowing us to bring more desirable solar products to our clients. This had helped China Sunergy maintain a stable ASP to most of the domestic clients, including our related parties, while slightly lowering the ASP in Renminbi to certain overseas clients due to foreign exchange losses and different product mix.

Throughout the quarter, we had continued to control our cost base due to higher utilizations of the capacity and high efficiency of 17.7% versus 17.6% in the previous quarter. China Sunergy long term strategic plans are to consume most of the solar cells produced internally with our module business, gradually transferring the company into downstream vertical integration in order to lower cost and enhance profits.

Furthermore, on a long term basis, we plan to expand into the upstream of the solar chain through merger and acquisition, finally being fully vertically integration. In the second quarter of the 2010, China Sunergy reported an operating cash outflow of $17.2 million. The main driver for this outflow has been the increase of the accounts receivable in connection with the sales to related parties as planned by the company’s long term (inaudible) strategy.

These related parties are composed of the two solar module companies, which are currently in the process of being acquired. Although China Sunergy had entered into the acquisition renegotiations, we anticipate an agreement that maximizes shareholder value will be reached by the end of this year.

Regarding the ongoing dispute with REC Wafer, the Norwegian District Court ruled in July 2010 in favor of REC Wafer. In response, China Sunergy is preparing an appeal against the ruling to be filed in August 2010.

In the mean time, China Sunergy’s injunction petition with regard to $15 million bank guarantee was sent back to the court of appeal for a new ruling after the superior court of Norway ruled in the favor of China Sunergy and overturned the court of appeals through the order, which denied China Sunergy’s petition. This result clearly demonstrates our capabilities in taking advantage of current market dynamics and driving growth through continued enhancements in internal systems and operations without losing sight of the company’s long term objective.

Read the rest of this transcript for free on seekingalpha.com