ReneSola Ltd: Second Quarter 2008 Results

Tuesday August 19, 7:57 am ET
Second Quarter Revenues Increased 289.0% Year-Over-Year; Second Quarter Net Income Increased 294.6% Year-Over-Year

JIASHAN, China, Aug. 19 / -- ReneSola Ltd ("ReneSola" or the "Company"), a leading global manufacturer of solar wafers, today announced its unaudited financial results for the second quarter of 2008.

    Financial and Business Highlights

    -- Second quarter 2008 net revenues were US$173.0 million (US$171.9
       million under the equity accounting method for ReneSola's investment in
       the joint venture in Henan province, China (the "Equity Accounting
       Method")), an increase of 289.0% from US$44.5 million in the second
       quarter of 2007, and an increase of 40.7% from US$123.0 million in the
       first quarter of 2008.

    -- Second quarter 2008 gross margin was 24.7% (22.4% under the Equity
       Accounting Method) compared to 22.1% in the first quarter of 2008.

    -- Second quarter 2008 net income was US$23.3 million (US$23.3 million
       under the Equity Accounting Method), an increase of 294.6% from US$5.9
       million in the second quarter of 2007, and an increase of 31.9 % from
       US$17.7 million in the first quarter of 2008.

    -- Second quarter 2008 basic and diluted earnings per share were US$0.20
       and US$0.19, respectively, and basic and diluted earnings per ADS were
       US$0.40 and US$0.38, respectively.  Each ADS represents two shares.

    -- Second quarter production output was 82.5 MW, an increase of 24.1% from
       66.5 MW in the first quarter of 2008, exceeding previously issued
       guidance of 75 MW to 80 MW.

    -- Silicon consumption rate decreased to 6.24 grams per watt in the second
       quarter of 2008 from 6.3 grams per watt in the first quarter of 2008.



                                        Three          Three          Three
                                       months         months         months
                                        ended          ended          ended
                                       6/30/07        3/31/08        6/30/08

    Net revenue (US$000)                44,471        122,982        173,007
    Gross profit (US$000)                9,950         27,234         42,786
    Gross margin (%)                      22.4           22.1           24.7
    Operating profit (US$000)            8,062         23,187         34,535
    Foreign exchange loss(US$000)       (2,241)           (56)          (797)

    Profit for the period (US$000)       5,907         17,675         23,309
    Production output (MW)                23.0           66.5           82.5


"We achieved significant growth and exceeded our targeted output for the quarter as we continued to execute our growth strategies," said Mr. Xianshou Li, ReneSola's chief executive officer. "We experienced strong market demand for our wafer products and successfully extended our customer base by entering into a number of wafer sales contracts during the quarter."

"We are excited about the results from our operational and R&D efforts. By the end of the quarter, our annualized production capacity reached 450 MW and it remains on track to achieve the targeted capacity of 645 MW by the end of the year. We continued to improve our production efficiency by further reducing our average silicon consumption rate to 6.24 grams per watt in the second quarter of 2008 from 6.3 grams per watt in the previous quarter. In addition, with a strong focus on R&D, we made significant advancements in the utilization of alternative silicon materials for future wafer production including the use of metallurgical grade silicon."

"We completed our equity follow-on offering in June 2008, generating net proceeds of approximately US$185.2 million. The additional funding provides ReneSola with sufficient cash sources to fund our 2009 expansion plan," continued Mr. Li.

Financial Results for the Second Quarter

Change in Accounting Treatment

In August 2007, ReneSola and Linzhou Zhongsheng Steel Co., Ltd. ("Zhongsheng Steel") established a joint venture company, Linzhou Zhongsheng Semiconductor, to engage in virgin polysilicon production in Linzhou, Henan Province, China (the "Joint Venture"). Under the Joint Venture agreement, ReneSola, which holds a 49% interest, was obligated to purchase 90% of the Joint Venture's output, at 97% of the market price, for a period of 30 years. As a result of the terms of the Joint Venture agreement, ReneSola had previously consolidated the results of the Joint Venture within its own consolidated accounts.

On June 28, 2008, following a reassessment of the Joint Venture's position under the Company's multi-pronged feedstock strategy and the Company's raw material supply sufficiency, ReneSola and Zhongsheng Steel amended the agreement to reduce the contracted obligation of the Company to purchase the output of the Joint Venture to a minimum of 55% output at market price for a period of three years. As a result, the Joint Venture is no longer considered a variable interest entity under the US GAAP. Effective from June 28, 2008, the Company no longer consolidates the Joint Venture and records its 49% interest as "Equity Investment in Joint Venture" on the consolidated balance sheet. Consequently, the Company's consolidated balance sheet at June 30, 2008 does not include consolidated figures for the Joint Venture. However, the income statement includes consolidated figures for the Joint Venture up to June 28, 2008. For clarity and comparison purposes, the discussion of figures from the income statement set out below shows figures with the consolidation of the Joint Venture and figures calculated using the Equity Accounting Method to account for the Company's investment in the Joint Venture in the quarter.

With recent developments in our feedstock procurement strategy, the amendments to the Joint Venture agreement are not expected to have a negative impact on ReneSola's raw material sufficiency for the planned production output in 2008. The feedstock procurement contracts recently signed are expected to provide additional buffer to the Company's raw material sufficiency in 2008 and beyond.

Net revenues

Net revenues for the second quarter of 2008 were US$173.0 million, an increase of 40.7% sequentially and 289.0% year-over-year. Under the Equity Accounting Method, net revenues for the second quarter of 2008 were US$171.9 million, an increase of 39.9% sequentially and 286.5% year-over-year. The increase in second quarter revenues was primarily attributable to an increase in output from the expanded production capacity and increasing wafer ASPs.

Gross profit

Gross profit for the second quarter of 2008 was US$42.8 million, a 57.1% increase sequentially and 330.0% year-over-year. The gross margin for the second quarter 2008 was 24.7% compared to 22.1% in the first quarter of 2008. Under the Equity Accounting Method, the gross margin for the second quarter of 2008 increased to 22.4% from 22.1% in the first quarter of 2008 despite the increase in average feedstock costs of 6.4% sequentially. The increase in gross margin was primarily attributable to a further reduction in the silicon consumption rate to 6.24 grams per watt from 6.30 grams per watt in the first quarter of 2008, the continuing reduction in non-raw material related production costs, and increases in wafer ASPs due to a high demand for our wafer products.

Operating profit

Operating profit for the second quarter of 2008 was US$34.5 million, an increase of 48.9% sequentially and 328.4% year-over-year. The operating margin was 20.0% in the second quarter compared to 18.9% in the first quarter of 2008. Under the Equity Accounting Method, the operating margin for the second quarter of 2008 was 17.8% compared to 19.0% in the first quarter of 2008. Total operating expenses in the second quarter of 2008 increased to US$8.3 million from US$4.0 million in the first quarter of 2008. The increase in operating expenses was primarily attributable to a substantial increase in R&D expenditure relating to our investment in developing alternative silicon feedstock materials.

Profit before tax

Profit before tax for the second quarter of 2008 was US$31.2 million, a 46.6% increase sequentially and 442.6% year-over-year. Under the Equity Accounting Method, profit before tax for the quarter was US$28.2 million, an increase of 32.0% sequentially and 389.7% year-over-year. Finance costs increased by 28.5% sequentially, reflecting increased bank borrowings and interest rates. Finance costs as a percentage of net revenue decreased from 1.7% in the first quarter of 2008 to 1.6% in the second quarter of 2008. The second quarter foreign exchange loss was US$0.8 million compared to a foreign exchange loss of US$0.06 million in the first quarter of 2008.

Taxation

We recognized a tax expense of US$6.8 million in the second quarter of 2008, compared to a tax expense of US$3.6 million in the first quarter of 2008. Under the Equity Accounting Method, our tax expense was US$4.8 million. The effective tax rate was 21.9% with consolidation of the Joint Venture and 17% applying the Equity Accounting Method.

Net profit

Net profit during the second quarter of 2008 increased 31.9% sequentially and 294.6% year-over-year to US$23.3 million. Net profit for the quarter was the same applying the Equity Accounting Method.

Other Recent Business Developments

Sichuan Polysilicon Project

On May 14, 2008 ReneSola announced that it had increased the planned annual polysilicon manufacturing capacity to 3,000 tonnes at the wholly-owned facility in Meishan, Sichuan Province, China. Construction of this facility is on track, with completion expected in early 2009. The facility is expected to be operational in the first half of 2009.

Feedstock procurement

As a part of ReneSola's diverse feedstock procurement strategy, the Company recently signed a number of polysilicon procurement contracts with international and domestic suppliers with terms ranging from one to five years. With two long term polysilicon procurement contracts signed in 2007, a total of 2,500 tonnes of polysilicon will be delivered during 2008 and 2009, with the majority to be delivered in 2009.

Sales contracts

ReneSola has signed a number of substantial long term sales contracts since June 24, 2008. The key contracts signed are as follows:

    -- An agreement with Suntech Power Co. Ltd. ("Suntech") for the supply
       of approximately 1.5 GW of wafers over an eight-and-half-year period
       beginning in July 2008.  In October 2007, ReneSola and Suntech signed a
       four-year contract for the supply of 510MW of silicon wafers.  The new
       contract provides for the supply of additional wafers to Suntech in
       2008 and replaces the remaining term of the contract signed in October.

    -- An agreement with Jetion Holdings Ltd. ("Jetion") to deliver 120 MW
       of solar wafers over a six-year period beginning in the third quarter
       of 2008.  This agreement replaces a three-year wafer sales contract
       signed in August 2007 with Jetion for 2008 to 2010.

    -- A wafer tolling service contract with CSG PV Tech Co., Ltd in Guangdong
       province, China to deliver 266 MW of solar wafers over a four-year
       period beginning in the third quarter of 2008.

    -- A wafer sales contract with a cell manufacturer in northern China to
       deliver 225 MW of solar wafers over a five-year period beginning in the
       third quarter of 2008.

    -- A wafer sales contract with ShanShan Ulica Science & Technology Co.,
       Ltd in Jiangsu province, China to deliver 105 MW of solar wafers over a
       six-year period beginning in the third quarter of 2008.

Production Capacity

As a part of ReneSola's ingot manufacturing capacity expansion to 645 MW by the end of 2008, the construction of a facility to house 160 MW of multicrystalline furnaces is now complete and ready for delivery of the furnaces which will occur during the third and fourth quarters of 2008.

Construction has begun on a new multicrystalline wafer facility that will hold an additional 355 MW of multicrystalline furnaces as a part of ReneSola's 2009 wafer manufacturing capacity expansion plan. The facility is expected to be complete in January 2009. The furnaces are contracted to be delivered in batches, and the last shipment is expected to be delivered in early third quarter of 2009.

Third Quarter, 2008 and 2009 Outlook

Production output in the third quarter of 2008 is expected to be in the range of 90 MW to 95 MW, compared to 82.5 MW in the second quarter of 2008 and 36.0 MW in the third quarter of 2007. Gross margin for the second half of 2008 is expected to remain stable at the level under the Equity Accounting Method for the Company's investment in the Joint Venture.

Based on strengthened wafer ASPs and increased production output we are once again increasing our annual production output and revenue estimates for 2008 and expect output to be in the range of 340 MW to 350 MW from the previously guided 330 MW to 340 MW, and expect estimated annual net revenues to be in the range of US$640 million to US$670 million from the previously guided US$570 million to US$590 million.

We maintain our wafer production capacity target to be 1 GW by the end of 2009 and our 2009 annual production output is expected to be in the range of 650 MW to 750 MW, including output from tolling arrangements in the range of 100 MW to 150 MW.

Conference Call Information

ReneSola's management will host an earnings conference call on Tuesday, August 19, 2008 at 8 AM U.S. Eastern Daylight Time / 8 PM Beijing/Hong Kong time / 1 PM British Summer Time.

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

    U.S. & International: +1-617-597-5313
    United Kingdom:       +44-207-365-8426
    Hong Kong:            +852-3002-1672

Please dial in 10 minutes before the call is scheduled to begin and provide the passcode to join the call. The passcode is "ReneSola Call."

A replay of the conference call may be accessed by phone at the following number until August 26, 2008:

    International:  +1-617-801-6888
    Passcode:       85970723

About ReneSola

ReneSola Ltd ("ReneSola") is a leading global manufacturer of solar wafers based in China. Capitalizing on proprietary technologies and technical know- how, ReneSola manufactures monocrystalline and multicrystalline solar wafers. In addition, ReneSola strives to enhance its competitiveness through upstream integration into virgin polysilicon manufacturing. ReneSola possesses a global network of suppliers and customers that include some of the leading global manufacturers of solar cells and modules. ReneSola's shares are currently traded on the New York Stock Exchange (NYSE: SOL - News) and the AIM of the London Stock Exchange (AIM: SOLA). For more information about ReneSola, please visit http://www.renesola.com .


    For investor and media inquiries, please contact:

    In China:
     Mr. Charles Bai
     ReneSola Ltd
     Tel:   +86-573-8477-3061
     Email: [email protected]

     Mr. Derek Mitchell
     Ogilvy Financial, Beijing
     Tel:   +86-10-8520-6284
     Email: [email protected]

    In the United States:
     Mr. Thomas Smith
     Ogilvy Financial, New York
     Tel:   +1-212-880-5269
     Email: [email protected]

    In the UK:
     Mr. Tim Feather / Mr. Richard Baty
     Hanson Westhouse Limited
     Tel:   +44-207-601-6100
     Email: [email protected] / [email protected]

Source: ReneSola Ltd

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