Suntech Analyst Event

Transcription

1 Solar Powering a Green Future Suntech Analyst Event Sofitel Munich Bayerpost Hotel 13 June 2008

2 Forward Looking Statements This presentation, and accompanying slides, contains statements regarding the Company s projected financial and operating results, market opportunity and business prospects that are individually and collectively forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities Exchange Act of Any forward-looking statements and projections made by others in this presentation are not adopted by the Company and the Company is not responsible for the forward-looking statements and projections of others. These forward-looking statements are not guarantees of future performance and are subject to known and unknown risks, uncertainties and assumptions that are difficult to predict. Therefore the Company s actual results, levels of activity, performance or achievements could differ materially and adversely from results expressed in or implied by this presentation, including, among others: whether we can successfully develop new products and the degree to which these gain market acceptance; the sustainability of recent growth rates; the anticipation of the growth of certain market segments; the positioning of our products in those segments; the competitive environment in the PV industry; the amount of silicon procured under existing contracts; general market conditions; acquisition-related risks; and fluctuations in currency exchange rates. Additional information concerning these and other risk factors is contained in the Risk Factors section of our Form 20-F for the year ended December 31, We assume no obligation to update any forward-looking information contained in this presentation.

3 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

4 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

5 Leading Market Position with High Growth Potential Strong Annual Industry Growth Expected Global PV Demand GW Photon Consulting CAGR 81% E 2008E 2009E 2010E Solarbuzz CAGR 47% Large range of analyst demand estimates for 2007 to 2010 and beyond Conservative Solarbuzz estimate projects CAGR of 47%

6 Leading Market Position with High Growth Potential Industry Just Beginning Total 2007 Market Less than 4 average coal fire plants Huge Growth Potential Solar energy currently contributes less than 0.1% of total global energy output Growing # of countries start solar subsidies Reduced silicon costs enable ASP reduction 47-81% Growth (1) Scarcity of fossil fuels and national energy security issues Global warming and pollution generated from fossil fuels Concerns (1) Solarbuzz and Photon Consulting range of demand projections for

7 Leading Market Position with High Growth Potential Leading Independent Solar Player 2005 Output MW¹ 2006 Output MW¹ 2007 Output MW¹ Photon International named Suntech the world s #1 PV module producer and #3 PV cell producer in 2007 (2) (1) Based on PV cell output, Photon International (2) Estimates from Photon International

8 Leading Market Position with High Growth Potential Recognized For Exceptional Product Quality Large QC Team Suntech has over 700 quality control staff focused on ensuring Suntech s products are of the highest standard Stringent Raw Material Testing Suntech has very strict quality criteria for raw materials and sample tests all materials received International Quality Certification International Collaboration Long Term Product Guarantee All exported products certified by international quality institutions including UL, IEC, CE, Tuv, ISO Extensive collaborations with international quality institutions ISO, IEC, Sandia, UL to ensure continuous quality improvement 25 year module power output guarantee Low Return Rates Strict quality control ensures extremely low return rate of products with quality issues

9 Leading Market Position with High Growth Potential Strong Brand Name and Customer Base Key Differentiator Broad brand recognition in key solar markets and extensive distribution channels Participated in a number of large and highprofile PV installations in Europe and ensured sufficient module supplies for these projects Extensive track record of supplying high quality and cost-effective PV modules to high profile customers Extensive Quality Customer Base PV Module BIPV High-Profile Projects San Francisco Airport T3 (450KW) On-Grid Solar Park for Atersa in Spain (23MW) Kanazawa Bus Terminal, Japan (120KW BIPV) Solar Farm in Samrangjin, South Korea (2MW)

10 Leading Market Position with High Growth Potential Diversified Geographic Coverage 05~06 06~ Growth Rate 2006 Growth Rate 2007 ROW 46% Germany 45% Germany 150% Spain USA 580% 1084% ROW 33% Spain 21% Germany 43% Germany 170% Spain USA 277% 325% USA 6% Spain 35% ROW 8% Germany 51% USA 1% Spain 8% USA 3% Total 165% Total 125% Total Net Revenues = $226 mm Total Net Revenues = $599 mm Total Net Revenues = $1,348 mm We intend to further diversify our geographic presence and customer base in order to achieve a balanced and sustainable growth

11 Intersolar Highlights Continued Strong Demand in 2H08 and 2009 Strong demand in 2H % of revenues expect to be generated from Spain in 2H08 Demand environment for 2009 extremely strong Initial indications for well above 800MW+ of demand for Suntech products with ASPs declining by less than 10% Significant interest and growing pipeline for BIPV projects

12 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

13 Sustainable Cost Advantage Path to Grid Parity and Differentiated Margins Low Cost Per Watt Producer Cost Leading Silicon Procurement Rapid Growth + Economies of Scale High Efficiency, Low Cost Technology = Grid Parity Solar Solutions = Global Cost Leader Time

14 Sustainable Cost Advantage Integrated Silicon Sourcing Strategy Two key components Upstream Investments Develop strategic relationships with upstream suppliers that target low cost of production Long Term Contracts Lock in large volumes of silicon with declining price curve to support Suntech capacity expansion plans and accelerate path to grid parity

15 Sustainable Cost Advantage Upstream Investments Virtual Integration Close relationships with the upstream provide Suntech with long term access to cheap and reliable silicon supplies Family of Suppliers Suntech s silicon needs will be too great for just one supplier Suntech will foster a family of close suppliers Independently Managed Independently managed silicon and wafer suppliers allow Suntech to focus on core competence of technology innovation and PV cell & module production Financial Support Capital injections enable silicon partners to build capacity and initiate production in short time frame Common Vision Suntech s family of suppliers share a common vision of the needs of the solar industry and will work together to meet this goal. Example Asia Silicon will supply polysilicon at less than $40 per kg.

16 Sustainable Cost Advantage Upstream Investments Company Investment Description Glory Silicon 18% equity stake China-based wafer manufacturer. Target capacity: YE MW YE MW Hoku Materials $20 million investment US-based polysilicon producer. 1 st phase capacity: 3,000 metric tons Initiate production in 2009 Nitol Solar Shunda Holdings Up to $100 million investment $98.9 million investment Russia-based polysilicon producer. 1 st phase capacity: 3,700 metric tons Initiate scale production in early 2009 China-based wafer manufacturer and polysilicon producer. First phase silicon production capacity: 1,500 metric tons Initiate silicon production in 2H 2008

17 Sustainable Cost Advantage Transformational Silicon Contracts Secured Due to Sourcing Leverage Strong Sourcing Leverage Our Silicon Pipeline Outlook Large Scale Market Position Financial Stability Multi-year Agreements Strategic Alliances Expect manufacturing capacity of 1GW by the end of 2008 Established reputation as a global leading solar company Strong balance sheet and cash position Publicly-listed company Balanced silicon procurement strategy Strategic alliances with silicon suppliers to ensure sufficient supply, including Hoku Materials and Asia Silicon (Qinghai) Expected full year silicon mix of 60% contract priced and 40% spot priced 800MW of silicon secured for 2009 at 20% below average silicon cost in 2007 Multi-year contracts with favorable pricing Various contracts with MEMC, DC Chemical, Shunda, Asia Silicon (Qinghai), Hoku Materials, Nitol Solar, ReneSola, Deutsche Solar AG, and a Korean conglomerate will reduce our reliance on purchases from spot market Strategic investments in Shunda, Nitol Solar, Hoku Materials and Glory Silicon to secure long term silicon needs Our established international reputation, large scale manufacturing capabilities, solid financial position and balanced sourcing strategy enables us to secure sufficient silicon supply at favorable terms

18 Sustainable Cost Advantage Long Term Silicon Contracts Supplier Timeframe Volume MEMC $5-6 billion REC $180 million Sunlight $366-$670 million Nitol Solar Asia Silicon 2H H 2015 $1.5 billion ReneSola MW Hoku $678 million Shunda ,000MW DC Chemical $631 million

19 Sustainable Cost Advantage Trend Towards Increasing Proportion of ST-LT Contracted Silicon Average Silicon Wafer Cost Per Watt (USD) Percentage of Contracted Silicon Vs Spot Silicon 1 % of ST, MT & LT contract priced silicon % of spot priced silicon $/watt of silicon wafers 2008E 2009E 2010E 2011E Increasing percentage of silicon purchased through short to long term silicon contracts decreases dependence on spot market and significantly reduces silicon cost

20 Strong R&D Capabilities Large Cost-Effective R&D Team Leading R&D Capabilities Management Expertise 4 out of 7 members of our senior management are prominent experts in the PV industry with extensive research experience Strong R&D Team 241 dedicated R&D staff, including 130 global PV experts from China and abroad, led by Dr. Stuart Wenham¹ Cooperative relationships with domestic and international institutions Pluto cells based on PERL technology developed by the University of New South Wales in Australia ($ mm) 3.4 R&D Investment 8.4 Dedicated R&D Team Other R&D staff CAGR 110% PV technology experts >50% Total Staff: 241 (1) Chief technology officer of Suntech, who has over 15 years experience in PV technologies

21 Strong R&D Capabilities Pluto - Next Generation PV Cells Pluto technology has a conversion efficiency of 18% to 19% in pilot production, compared to 16.4% for standard mono-pv cell Based on PERL technology developed by the University of New South Wales in Australia, the PERL PV cell holds the world record for conversion efficiency of 24.7% Retains high conversion efficiency attributes while maintaining low production costs Increases the surface area of photovoltaic cells exposed to the sun rays, which converts more light to energy Can be applied to a variety of grades of polysilicon and silicon wafers, including monocrystalline and polycrystalline silicon wafers and lower grades of silicon Standard Cell n + n p-silicon p + rear contact p + oxide oxide PERL Cell Structure Pluto Cell + p + p

22 Strong R&D Capabilities Impact of Increasing Conversion Efficiency on Gross Margin Absolute % Improvement in Gross Margin 20.0% 15.0% 15-17% 10.0% 10-12% 5.0% 5-6% GM Improvement % 0.0% +1% +2% +3% Assumptions: Everything else remaining equal including ASP, APP, wafer thickness, production cost etc. Absolute % Improvement in Conversion Efficiency

23 Increasing Scale, Improving Operating Efficiency Rapid Expansion of PV Cell Capacity MW Year-end PV Cell Production Capacity (MW) Expected Suntech PV Cell Capacity Growth CAGR 79% 2,000 1,400 1, E 2009E 2010E Rapid capacity expansion will enable Suntech to penetrate new markets faster than competitors and expand market share

24 Increasing Scale, Improving Operating Efficiency Moving to Low Cost, Low Breakage Automation PV Cell and Module Production In Line Processing Status Gradual transition to automation over the next 1-2 years Scalable Production Lines Multi-Gigawatt manufacturing requires greater automation to improve scalability Higher Throughput Eliminate Multi-Handling In-line processing increases wafer throughput and cost efficiencies Current process involves loading and unloading for each key process. Automated production line eliminates multi-handling and reduces breakage rate. Reduce Incremental Headcount Reduction of up to 60% of headcount in module production Compatible with Pluto All automation plans designed to be compatible with Pluto technology.

25 Increasing Scale, Improving Operating Efficiency Differentiated Low-Cost Manufacturing Low Capex Lower CAPEX costs than competitors of $0.30/W or $10 million per 30MW production line In-House R&D and Commercialization Expertise Suntech process engineers and R&D scientists design production equipment and processes to suit Suntech production. Recently acquired Kuttler will provide additional expertise. Growing IP Portfolio In-house designed equipment and process innovations are patented Unique Path to Automation In-line low cost processing techniques reduce wafer breakage rate without need for expensive robotics or handling equipment Rapid Capacity Expansion Accelerated 1GW expansion plans by two years from 2010 to 2008 Industry Low Breakage Rate Suntech s yield is approximately 97% - well below industry average of 95%

26 2012 Grid Parity Solar Moving to Grid Parity System Costs 1,2 Suntech s combination of lower cost silicon, increasing efficiency and significant economies of scale are expected to enable significant reduction in module pricing by 2012 Advances in technology and mass production of balance of system components (BOS); including racking, inverters, labor saving technologies etc. expected to reduce BOS to grid parity compatible costs by 2012 $7.50 $4.00 $4.00/watt system cost in 2012 with irradiation of 1600 hrs per year leads to solar electricity cost of $0.18/kWhr² GRID PARITY SOLAR E 2012E Balance of System Cost Silicon Cost Module Non-silicon Costs Gross Profit (1) COGS declining based on Company expectations of PV cell conversion efficiency improvement from Pluto technology, improvements in operating efficiency, expectations of declining cost of wafers, and no significant foreign currency exchange fluctuation. Assumes Balance of System Costs fall by approximately 15% YOY (2) Based on Company estimates

27 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

28 Flexible Sales Strategy Four Distinct Sales Models Suntech employs four distinct sales models to bring products to market: - Distributor Network - Project Sales - Dealer Network - Direct Sales and System Integration Key Benefits: - Select business model to suit local subsidy and market structure - Collaboration with local partners enables Suntech to rapidly build strong sales platform and defendable market position - Avoids channel conflict - Flexible structure allows Suntech to quickly modify sales strategy to respond to market changes Solar industry still evolving Suntech will continue to monitor most effective sales model to suit each individual solar market

29 Flexible Sales Strategy Distributor and Value Added Reseller Network Quickly move large volumes of solar products into high growth regions Particularly suited to regions with high proportion of residential and commercial rooftop demand Regular monthly shipments Germany, Italy, United States, France

30 Flexible Sales Strategy Project Sales Solar Farm in Samrangjin, South Korea 2MW Campo, Spain 8MW Collaboration with leading Engineering, Procurement and Construction companies Multi-MW projects with project deadline Spain, Germany, Italy, United States, France

31 Flexible Sales Strategy Growing Dealer Network Building Downstream Brand Recognition On the ground warehousing and ability to supply multi-kw orders in short time frame Build brand recognition at installer/system integrator level Access residential roof top market and small project United States

32 Flexible Sales Strategy Direct Sales and System Integration Beijing Bird s Nest Olympic Stadium 130kW Beijing Jing Ya Hotel BIPV Installation Suntech #1 Solar Brand in China Strongest on-the-ground system integration capability High profile installations and superior market intelligence Huge market potential China conservative targets are 300MW in 2010 and 1.8GW in 2020

33 Flexible Sales Strategy First Mover Building Diverse Sales Infrastructure SPAIN #1 PV module supplier 2007* Target team of 5+ by 2009 ITALY Sales office by 2008 Target team of 5+ by 2009 Building international sales presence to cement downstream relationships CHINA Sales and system integration team of 50+ NORTH AMERICA #2 or 3 PV module supplier 2007* Sales Office since 2006 U.S. headquarters in San Francisco Target team of 30 by 2009 GERMANY #2 PV module supplier 2007* Target team of 5+ by 2009 SOUTH KOREA Sales office by 2008 Target team of 5+ by 2009 JAPAN International MSK BIPV headquarters BIPV sales + R&D team of 30+ Leading positions in key solar markets Germany, Spain and U.S. AUSTRALIA New sales office late 2007 Target sales team of 5+ by 2009 *Company estimates

34 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

35 Broad Product Portfolio BIPV- A Growing Market Opportunity Cutting-Edge BIPV Capabilities Entered into BIPV market through acquisition of MSK Higher margin for BIPV products Higher subsidies for BIPV: France 0.55/kWh, Italy 0.49/kWh Growing network of design, architectural and building product supply partners Developing thin-film technologies for BIPV products Collaborations with Downstream Partners OEM of patented products to reduce cost Joint marketing and promotion programs Potential to license and distribute products to other geographies Solid sales and distribution relationships

36 Broad Product Portfolio BIPV- A Growing Market Opportunity Black Label Module 175W all black module for residential market Target 20MW+ sales in 2008 Developing network of distributors

37 Broad Product Portfolio BIPV- A Growing Market Opportunity Amorphous silicon thin film in between two plates of glass Photovol Glass 2-10% light transmission creates indoor shading and soft lighting Uniform, dark finish, similar to tinted glass, and ideal for use in curtain walls, skylights, canopies, atria and all other vertical or sloped glazed surfaces Light Thru Glass Encapsulates crystalline PV cells between two plates of glass Light Thru is made to order, allowing designers flexibility in specifying the desired size, cell type, and cell spacing

38 Broad Product Portfolio BIPV- A Growing Market Opportunity Just Roof Ideal for new homes with gabled or pitched roofs. The modules replace all roof materials to create a weatherproof roof Over 4,000 installations in Japan Can be installed together with flat roofing material Re Roof Integrated for new construction or when remodeling homes High aesthetic appeal

39 Broad Product Portfolio BIPV- A Growing Market Opportunity

40 Broad Product Portfolio Thin Film - Next Generation PV Extensive in-house expertise in thin film commercialization Initiate production by end of 2008 Initial 6-7% conversion efficiency on single junction amorphous silicon thin film 50MW line Move to tandem thin film design early 2010 with target conversion efficiency approaching 10% Target to use in range of applications including BIPV Low cost per watt

41 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

42 The Oversupply Scenario Why Customers Choose Suntech Leading Position in Major Solar Markets Based on internal estimates, we believe we were the #1 PV module supplier to Spain, #2 to Germany and #3 to the United States in Diversified & Flexible Sales Model Investments in developing sales capability in new and emerging markets will give Suntech greater reach to rapidly adapt to new market conditions Strong Industry Contacts Easily financed projects, and strong relations with financial institutions and political constituents Scale Secures Warranty 25-year power output warranty will encourage customers to purchase from large scale solar producers with strong financials to guarantee operation of their investment Low-Cost Manufacturing Base Unlikely that competitors will have the ability to undercut Suntech on price due to low-cost manufacturing base.

43 The Oversupply Scenario Demand and Growth Opportunities Healthy catalyst to bring the industry closer to grid parity The Solar Solution Driving cost down to grid parity is the goal of the solar industry. Oversupply would simply accelerate our path to this goal and increase solar s attractiveness as an alternative energy solution Grid Parity Demand Profile Demand projected to spike as we approach grid parity economics. Potential solar market increases dramatically. Potential module clearance price with reasonable margins. M&A Opportunities Suntech is one of the best capitalized companies in the solar industry and well placed to benefit from M&A opportunities to consolidate market position. When will oversupply occur?

44 Analyst Day Agenda 1. Welcome 2. Leading Market Position 3. Sustainable Cost Advantage 4. Flexible Sales Strategy 5. Diversified Product Portfolio 6. The Oversupply Scenario 7. Financial Snapshot 8. Q&A

45 Ample Capacity to Meet Shipments Consolidate Position in Global Solar Landscape PV Cell Capacity (MW) 1,000 CAGR 106% E PV Shipments¹ (MW) 530 CAGR 179% E (1) In addition to PV cells and modules, we also sold 0.5 MW and 0.4 MW of PV system integration services in 2006 and 2007, respectively

46 Strong Financial Track Record Revenue Gross Profit and Margin ($ mm) 1,348 ($ mm) CAGR 144% CAGR 100% YoY: 125% YoY: 84% % % 20% Operating Income and Margin Net Income and Margin ($ mm) 172 ($ mm) CAGR 101% YoY: 66% CAGR 136% YoY: 62% % % 13% 14% % 13%

47 Financial Snapshot Strong Balance Sheet Balance Sheet (US$ million, unless otherwise stated) As of Dec 31, 2007 As of Mar 31, 2008 Cash and cash equiv ,020.3 Inventories Account receivables Net PP&E Long-term prepayments Total assets 1, ,742.0 Note: Total debt (1) ,530.6 Total shareholders' equity Current ratio (2) Net debt / Equity Total debt / Total assets Total debt / Capitalization (3) Interest coverage ratio (4) (1) Total debt includes short-term, long-term bank borrowings and bonds (2) Current ratio: Current assets / Current liabilities (3) Total debt/capitalization=total debt/(total debt + total shareholders equity) (4) Interest coverage ratio: Non-GAAP operating income/interest expense Key Financial Ratios

48 Financial Snapshot Cash Flow Management Initiatives Gradually reduce the prepayment as percentage of total purchase Minimize prepayment for non-silicon raw material purchases Obtain longer credit terms from non-silicon raw material suppliers As raw material supply becoming steady and sufficient, gradually reduce inventory levels Increase L/C or advanced TT payment from clients to minimize the receivable collection risk and discount L/C via factoring to facilitate cash flow management when necessary Fully utilize other purchasing instruments, e.g. financial lease and operating lease, to avoid significant one-off upfront cash paid for CAPEX and to improve the ROA ratio Propose a solar production park in Wuxi, and invite major raw material suppliers to set up subsidiaries in the neighborhood. Target is to achieve Zero Inventory for other materials in the future through next door delivery and supply chain

49 Financial Snapshot Cash Flow Management Initiatives Inventory Turnover # of Days Q07 2Q07 3Q07 4Q07 1Q08

50 Financial Snapshot Cash Flow Management Initiatives Days Sales Outstanding # of Days Q07 2Q07 3Q07 4Q07 1Q08

51 Company Guidance Q Revenues US$ mm Non-GAAP gross margin Flat with Q Revenues US$ bn 2008 Total PV shipments 530MW Total PV cell production capacity 1GW Capital expenditures US$ mm

52 Solar Powering a Green Future Suntech Analyst Event Q&A