Solarfun Power Holdings Co. ( SOLF) Q1 2011 Earnings Call May 24, 2011 8:00 a.m. ET Executives Paul Combs - VP, Strategic Planning Gareth Kung - CFO Ping Peter Xie - President and CEO Sung Sunli - CSO Analysts Kelly Dougherty - Macquarie Sam Dubinsky - Wells Fargo Jesse Pichel - Jefferies Dan Ries - Collins Stewart Edwin Mok - Needham Josh Baribeau - Canaccord Brian Gamble - Simmons & Company Lou Young - UBS Rob Stone - Cowen & Company Paul Klegg - Mizzuo Presentation Operator
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Before we continue I need to remind you that you can download a PowerPoint file that will accompany this presentation on our Web site. If you are on our mailing list you should have received this file in conjunction with our earnings release. I need also to take a moment and remind you of our Safe Harbor policy, which is also included in the earnings release and posted in its entirety on Slide 2 of the slide package. Now Gareth will walk us through the details of the 2011 first quarter.Gareth Kung Thanks Paul. Good morning everyone. Hopefully you have had the opportunity to review our release before the cal. I’ll provide some summary comments here with focus on the key financial metrics. (Unintelligible) - the presentation my comments cover Slides 3-7, Slides 3-5 outline the financial highlights of the first quarter 2011. Revenue for the first quarter was up 3.9% from the prior quarter reaching 335.2 million. ASP decreased as forecast to 1.71 as compared to 1.79 reported for the fourth quarter. Total shipments including module processing services reached 248.5 megawatts in the first quarter, above our forecast range of 235-245 megawatts and showed good quarter over quarter growth of 13.6%. We are particularly pleased with this accomplishment when considering the relatively tough demand environment for the industry encountered for much of the quarter. Module processing services accounted for approximately 11% of total revenue for the first quarter. As illustrated in the pie chart on Slide 4 you can see that shipments to Germany picked up. Italy was impacted by the incentive change, intensified by incentive change uncertainties. And new growth markets like China and the US remain vibrant. We continued to do well in Australia where we have maintained a relatively strong brand for some time. (Note better) shipments to the Netherlands at 10% (unintelligible). The Netherlands is a popular port destination for many of our European customers.
Based on shipment data and excluding module processing services for the first quarter of 2011 Germany increased from 35% to 39% of shipments compared to the fourth quarter last year. Italy declined from 19% to 11%. China and the US accounted for 9% and 10% of shipments respectively. (Unintelligible) - market were Australia at 10%, France 6% and Netherlands at 10%.Gross profit totaled 54.5 million for the first quarter and was down 16.7% quarter over quarter due primarily to lower ASP and a gross margin of 16.3% as compared to 20.3% of the previous quarter. Slide 6 outlines our cost structure. Raw materials along the value chain remain relatively tight and increasingly more expensive, especially for core silicon. This accounted for the increase in the blended COGS award excluding module processing services from $1.41 in the fourth quarter to $1.43 for the first quarter. Blended COGS into account the production costs, core silicon and non-silicon, using internal wafers and internal cells as a cause of external resource wafer and cell platform costs. For modules made with internal wafers and cells we experienced an increase in the manufacturing cost per watt to $1.27 from $1.20, again primarily due to higher silicon costs and additional other raw materials, particularly (silver paste). For the first quarter we averaged a positive cost of approximately $73 per KG, up from $67 per KG in the fourth quarter. Portfolio prices have begun to ease in second quarter and we expect the trend to continue into the second half of 2011. Operating profit totaled 30.8 million with operating margin contracting some in the first quarter to 11.6% from the 14% recorded in the fourth quarter of 2010. Note that operating expenses as a percentage of revenue were likely lower than most of you would model and what we have previously indicated at 4.7% in the first quarter.
Lastly due to reversal of (accrual), this is largely due to reversal of accrued operating expenses. We expect this category will return to a more normalized level of 6-7% for the remainder of the year as we continue to invest in strengthening our brand, distribution and research and development. Interest expense remained flat at 6.4 million.Read the rest of this transcript for free on seekingalpha.com