China Sunergy Announces Financial Results for the First Quarter 2008

First Quarter Revenues of US$77.0 Million, up 7.8% from the Previous Quarter; Shipments Amounting to 24.0MW; Net Income US$0.5 million; Net Operating Cash Inflow of US$60.7 million

NANJING, China, May 20 /Xinhua-PRNewswire/ -- China Sunergy Co., Ltd.(Nasdaq: CSUN), ("China Sunergy" or the "Company") a specialized solar cell manufacturer based in Nanjing, China, announced today its financial results for the first quarter of 2008.

First Quarter Financial Results
-- Revenues were US$77.0 million, representing 32.3% and 7.8% increase compared to the first quarter and the fourth quarter of 2007, respectively; revenues generated from solar cell sales were US$75.0 million, representing 49.5% and 10.8% increase compared to the first quarter and the fourth quarter of 2007, respectively.
-- Gross profit was US$7.1 million compared to US$9.6 million and US$4.6 million during the first quarter and the fourth quarter of 2007, respectively. Gross margin was 9.2%, compared to 16.6% and 6.4% during the first quarter and the fourth quarter of 2007, respectively.
-- Quarterly net income was US$0.5 million, compared to net income of US$5.4 million and a net loss of US$2.3 million in the first quarter and fourth quarter of 2007, respectively.
-- Basic and diluted net earnings attributable to holders of ordinary shares were US$0.01 per ADS compared to a net income of US$0.17 and a net loss of US$0.06 per ADS in the first quarter and the fourth quarter 2007, respectively.

Commenting on the quarter, Allen Wang, CEO of China Sunergy remarked:"Despite the three-week interruption to our operations caused by the snowstorms in January, and the higher wafer costs during the quarter, wemanaged to turn around and get back to profitability in the first quarter.Our improved financial performance was largely a result of the higher ASP achieved by successfully ramping our high efficiency cell production levels, and the steady improvements made to our internal operations. In particular, I am delighted to report that the working capital management and control measures we began putting in place at the end of last year have improved our cashflow and liquidity position."

First Quarter and Recent Operational Highlights
-- Quarterly production of 22.6 megawatts ("MW") of solar cells represented a 13.0% increase on a year-over-year basis and a 1.3% increase sequentially. The relatively small increase over the fourth quarter of 2007 was due to the impact of the heavy snow storm in January 2008.
-- Shipments of our solar power products amounted to approximately 24.0 MW, representing a 31.1% increase on a year-over-year basis and a 3.4% increase sequentially.
-- Shipments of high efficiency cells during the first quarter of 2008 amounted to 9.1 MW, or 39% of total core cell shipments, up from 0.8 MW, or 3.6% of total core cell shipments, during the fourth quarter of 2007.
-- Average selective emitter cell conversion efficiency slightly decreased to 17.2% from 17.3% in the fourth quarter 2007.
-- Conversion of P-type lines to high efficiency ("HP") lines continued to progress smoothly. We have already completed the conversion of two mono-crystalline P-type lines and cells produced on these HP lines achieved an average conversion efficiency rate of over 16.8% during the first quarter of 2008.
-- Stricter working capital management and controls yielded a net operating cash inflow of US$60.7 million; the controls included more restrictive policies on pre-payments to suppliers, and tighter payment terms for receivables and payables, as well as better inventory management.

"I am increasingly optimistic about our long-term future, particularlygiven the success we are achieving with our high efficiency cells and thepositive impact they are having on our margins this year." Continued Dr.Wang, "I believe we are now in a better position to manage ourprofitability along with the various development programs we have for highefficiency cells."

Technological Developments

During the quarter the Company continued to make progress with theproduction of its high-efficiency cell technology.

Average selective emitter cell conversion efficiency decreased to 17.2%from 17.3% in the fourth quarter of 2007 due to the interruption toproduction caused by the snow storm in January 2008. A maximum conversionefficiency of 18.5% was recorded during the quarter.

The Company is continuing to upgrade its current P-type cell productionfacilities by converting existing mono-crystalline P-type lines to HP linesand will complete the conversion of its remaining two mono-crystallineP-type lines to HP-type lines by the end of the second quarter.

The Board has approved the establishment of a R&D center in Shanghaiwith an initial investment of US$8.0 million. The R&D center will focus onthe development of new high efficiency cell types, particularly N-typecells. The construction of the R&D center is scheduled to be completedduring the first half of 2009.

First Quarter 2008 Financial and Business Review

Revenues, shipment and production

During the first quarter of 2008, revenues increased 32.3% on ayear-over- year basis, and 7.8% sequentially to US$77.0 million.

Sales from solar cells, modules and processed cells under OEMarrangements and other sales accounted for 97.4%, 2.1%, 0.3% and 0.2%, oftotal revenues, respectively. Shipments, including 0.4 MW for module salesand 0.4 MW of solar cells processed under OEM arrangements, amounted toapproximately 24.0 MW, compared to 18.3 MW during the first quarter of 2007and 23.2 MW during the fourth quarter of 2007.

Revenues and Shipment Comparison between Q1 2008 and Q4 2007
Q1 2008 Q4 2007
Value Value
Volume* (US$mm) Volume* (US$mm)
Solar cell sales 23.2 75.0 22.4 67.7
Polysilicon sales -- -- 0.8 0.7
Module sales 0.4 1.6 0.8 3.1 OEM 0.4 0.2 -- --
Other sales 0.2 -- --

* All volumes are expressed in MW except for polysilicon sales which are expressed in metric tons.

During the first quarter of 2008, the Company increased its quarter-on-quarter sales of solar cell products by 10.8% as compared to the previousquarter. The percentage of solar cell sales in overseas markets as to thetotal solar cell sales was 37.4% in the first quarter of 2008 compared to24.1% and 40.6% in the first quarter and the fourth quarter of 2007,respectively.

Of the 23.2 MW of core cells shipped during the first quarter, 9.1 MWwere in the form of high efficiency cells (which we define as cells with aconversion efficiency rate of 17% and above) and 14.1 MW in the form ofnormal P-type cells. Of the 9.1 MW of high efficiency cells shipped, 4.0 MWwere selective emitter cells and 5.1 MW were HP cells (which we define asP-type cells with conversion efficiency rate of 17% and over).

Gross profit, gross margins and average selling price ("ASP")

Gross profit for the quarter was US$7.1 million, which led to a blendedgross margin of 9.2%, up from 6.4% in the previous quarter, as a result of thegross margin contribution from higher ASP resulting from the shipment of agreater volume of high efficiency cell products. The sequential increase ingross margin on solar cell sales from 6.3% to 8.8% was mainly attributable tohigher ASP as a result of increased shipment of high efficiency cells andstronger product demand from customers. However, our gross margin decreasedby 7.4% compared to the first quarter of 2007, mainly due to higher wafercosts.

Margin Breakdown
Gross margin
Q1 2008 Q4 2007
Solar cell sales 8.8 % 6.3 %
Polysilicon Sales -- 12.2 %
Module sales 11.7 % 7.8 %
OEM 65.1 % --
Other sales 90.3 % --
Blended 9.2 % 6.4 %

Blended ASP for the first quarter of 2008 rose from US$3.02 per watt inthe previous quarter to US$3.23 per watt due to a greater portion of highefficiency cells, strong product demand and the strengthening of theRenminbi against U.S. dollar. The blended ASP for the first quarter of 2007was US$2.95.

Wafer costs

Wafer costs continued to account for a large portion of our overallmanufacturing costs. In the first quarter of 2008, wafer costs rose toUS$2.64 per watt compared to US$2.23 and US$2.54 per watt in the firstquarter, and the fourth quarter of 2007, mainly due to the strengthening ofthe Renminbi against the U.S. dollar and an increase in the average costper wafer in Renminbi terms. Wafer costs per watt as a percentage of totalproduction costs per watt increased from 87.8% in the first quarter of 2007and 90.1% in the fourth quarter 2007 to 90.3% in the first quarter 2008.Other production costs, which mainly consisted of other raw materials,labor, depreciation and utilities, were US$0.28 per watt and largely thesame as those in the first quarter and the fourth quarter of 2007.

SG&A, operating profit and net income

Our SG&A expenses in the first quarter of 2008 were US$4.4 million,compared to US$2.8 million period-over-period and US$5.3 millionsequentially. The share based compensation charges were US$0.7 million,compared to US$0.1 million in the first quarter and the fourth quarter of2007.

Due primarily to higher gross margin, the Company made an operatingprofit of US$2.2 million. This compares to an operating profit of US$6.5million and an operating loss of US$1.2 million for the first and fourthquarters of 2007, respectively.

With a higher gross margin, the Company improved its net income toUS$0.5 million in the first quarter of 2008 compared to a net loss ofUS$2.3 million in the previous quarter. However, our net income decreasedby US$4.9 million period-over-period, mainly due to higher raw materialcosts and operating expenses.

Balance sheet and cash flow

As of March 31, 2008, the Company had cash and cash equivalents of US$110.4 million. Net operating cash in flow for the first quarter was US$60.7 million, mainly attributable to stricter control over prepayments to raw material suppliers, better management of both receivables and payables, and stricter enforcement of payment terms as well as better inventory management. In the first quarter of 2008, depreciation was US$1.3 million and capital expenditures were US$12.7 million. The capital expenditures were related to prepayments made for equipment relating to the expansion of our selective emitter cell lines.

Commenting on the financial results, Kenneth Luk, CFO of China Sunergy, said: "We continue to look for cost effective ways to strengthen our balance sheet and improve liquidity. Going forward, we will continue to do whatever we can to strengthen our cashflow, so that we can be in a better position to expand our production capacity, fund R&D, secure long-term supply contracts and pay down bank loans."

Outlook

Given the success of our first quarter production of HP cells, the company will convert the two remaining mono-crystalline P-type lines to HP lines. With the exception of one multi-crystalline P-type line, this conversion is expected to be completed by the end of the first half of2008. In addition, all four of our new selective emitter lines are expected to be in mass production during the fourth quarter of 2008. This will bring our total capacity to 320 MW by the end of the year based on six-inch wafers.

The Company maintains its full year 2008 production target at 125-145MW, with approximately 65 to 85 MW expected to come from high efficiency cell products. These high efficiency cell products are projected to comprise of approximately 25-35 MW of selective emitter cells and 40-50 MW of HP cells.

The Company anticipates its gross margin for the second quarter to be between 9% and 10%, and production volume in the range of 30-32 MW.

Recent Management Updates

During the quarter, China Sunergy announced the appointment of three new independent directors. Mr. Steven Morgan, 57, Mr. Wang Wenze, 66, and Ms. Jian Li, 55, joined the Company's board of directors on May 13th, 2008. Each brings with them approximately 25 years of experience and unique strengths in advisory roles.

Additionally, as of June 30th, 2008, Mr. Alan Smith, an independent director on the board of directors, will be stepping down from his role.