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Edited Transcript of YGE earnings conference call or presentation 19-Dec-17 1:00pm GMT

Q3 2017 Yingli Green Energy Holding Co Ltd Earnings Call

Baoding Dec 20, 2017 (Thomson StreetEvents) -- Edited Transcript of Yingli Green Energy Holding Co Ltd earnings conference call or presentation Tuesday, December 19, 2017 at 1:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fernando Calisalvo

* Jingfeng Xiong

Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director

* Pengsong Yuan

* Yiyu Wang

Yingli Green Energy Holding Company Limited - CFO and Executive Director

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Conference Call Participants

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* Justin Lars Clare

Roth Capital Partners, LLC, Research Division - Research Associate

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Presentation

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Operator [1]

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Hello, ladies and gentlemen. This is Yvonne. I'll be the operator for this conference call. I would like to welcome everyone to Yingli Green Energy Holding Company Limited's Third Quarter 2017 Financial Results Conference Call. (Operator Instructions)

Now I would like to transfer the call to the host for today's call, Mr. Pengsong Yuan, General Counsel of Yingli Green Energy. Mr. Yuan, please proceed.

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Pengsong Yuan, [2]

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Thank you, everyone. Thank you, operator, and thank you, everyone, for joining us today for Yingli's Third Quarter 2017 Financial Results Conference Call. The third quarter 2017 earnings release was issued earlier today and available on the company's website at www.yinglisolar.com.

On the call today from Yingli Green Energy are Mr. Miao Liansheng, Chairman and Chief Executive Officer; Mr. Xiong Jingfeng, Vice President and Executive Director; Mr. Wang Yiyu, Chief Financial Officer; Mr. Miao Qing, Vice President of Corporate Communications; Mr. Fernando Calisalvo, Managing Director of Yingli Europe; and Mr. Laurence Wang, Financial Controller.

The call today will feature a presentation from Mr. Xiong, covering business and operational developments. Mr. Calisalvo will talk about the development of Japan, American and other international markets. And then Mr. Wang Yiyu will take you through the company's financial performance. After that, we will open the floor to questions from the audience.

Before beginning, Yingli Green Energy's management team would like to remind the audience that this presentation contains forward-looking statements within the meaning of Section 21E of the Securities Exchange Act of 1934, as amended and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as will, expects, anticipates, future, intends, plans, believes, estimates and similar phrases. Such statements are based upon management's current expectation and current market and operating conditions, and they relate to events that involve [many of] known or unknown risks, uncertainties and other factors, all of which are difficult to predict and many of which are beyond Yingli Green Energy's control, which may cause Yingli Green Energy's actual result, performance or achievements to differ materially from those in the forward-looking statements. Further information regarding this and other risks, uncertainties or factors is included in Yingli Green Energy's filing with U.S. Securities and Exchange Commission. Yingli Green Energy does not undertake any obligation to update any forward-looking statements as a result of new information, future events or otherwise, except as required under applicable law.

I would now like to turn the call over to Mr. Xiong. Please begin.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [3]

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(foreign language)

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Unidentified Company Representative, [4]

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Good morning, and thank you for joining us today.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [5]

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(foreign language)

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Unidentified Company Representative, [6]

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After June 30, 2017, the overall demand from China slowed down with more intense competition at the [district] of the [Lasbigao] solar plant. To strike a balance between operating cash flow and shipment volume, the company conducted a prudent market strategy and recorded a 597.4 megawatts of PV module shipments in Q3, which is at the high end of our previous guidance. At this time, given the internal and the external factors such as market demand, production capacity and cash flow, we expect the PV module shipments in Q4 to be in the range of 700 to 800 megawatts. Therefore, we raised full year shipment guidance to 2.8 to 2.9 gigawatts from previous 2.5 to 2.8 gigawatts.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [7]

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(foreign language)

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Unidentified Company Representative, [8]

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In the third quarter, demand from DG sector maintained strong and became the main driver of China market, with a positive momentum going into the fourth quarter. To cope with the complicated market in Asia, on one hand, the company's finance, production, procurement, sales and technical covenants (inaudible) as we deliver clients through a close collaboration and coordination to optimize the location of resources and ensure the execution of orders. On the other hand, in addition to continuing to consolidate and build out corporation relationships with powerful, large-scale customers, the company also vigorously developed or enhanced medium- and small-sized customers, driving the construction of the distributor network to actively develop various DG markets.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [9]

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(foreign language)

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Unidentified Company Representative, [10]

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Thanks to this effort, our customer numbers increased by more than 10% compared to the second quarter. At the same time, distributor network was also expanded to cover nearly 20 provisional level regions, including [Ampoi], Jiangsu. In the third quarter, our PV module shipment through the distributor network grew about 10% from the previous quarter.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [11]

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(foreign language)

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Unidentified Company Representative, [12]

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In addition, we were also awarded a distributed PV poverty alleviation project in Zhangbei County of Hebei Province (inaudible) PV modules for the project. The said project includes 128 rural distributed PV poverty alleviation plants in one site, and each plant has a capacity of 300 kilowatts. Especially some clients of the project will utilize Yingli's patented Panda Bifacial panels, multi-crystalline 12 bus-bars panels and multi-crystalline black silicon panels, which will make a demonstration project for the PV poverty alleviation and take a leading job to promote the PV poverty alleviation.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [13]

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(foreign language)

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Unidentified Company Representative, [14]

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In terms of project and technology, the company continued to tap internal potential to improve projects efficiently and further reduce cost. For example, we released the application of the diamond wire sawing technology in Q3 and have upgraded all these company equipments on production lines. It is expected to reduce about 5% of the production cost and gradually realize grid cost effective, along with the stabilization of the production index.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [15]

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(foreign language)

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Unidentified Company Representative, [16]

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Through continued optimization of production process and equipment dispatching, the efficiency of multi-crystalline black silicon panels achieved a 0.51% increase compared to the conventional polycrystalline sales on production lines in the third quarter. On the technology side, we completed the research and development of half-cell n-type 5 bus-bars PV module in the third quarter. The [polypeptoid] of the 144 half-cell n-type 5 bus-bars module could achieve up to 345 [watts], which totally meets the requirements of China Quality Certification Centers, Top Runner Program level-one energy efficiency certification. Now it is in the days of trial production. At the same time, the company also began to develop its 12 bus-bars, high-efficient multi-crystal module in Q3, with a power up to 200 megawatts on the power line, reaching an industry-leading level.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [17]

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(foreign language)

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Unidentified Company Representative, [18]

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In view of properties, the government continued to increase price for PV and other renewable energy. Recently, NDRC and NEA joined (inaudible) to effectively improve curtailment of hydroelectric, wind power and PV power before 2020 through annual renewable portfolio standard, the promotion of renewable energy power participating in market trading and other effective measures. The others have proposed to carry out this (inaudible) much efficient for DG projects in February 2018, which means the owners of DG projects, including in the valleys, can sell electricity to the near power users. This policy will contribute to the resolution of problems such as deferred payment of subsidy and renewable electricity procurement, thereby promoting the long-term sustainable development of PV and other renewable energies.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [19]

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(foreign language)

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Unidentified Company Representative, [20]

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Regarding (inaudible) have been continued to build strong points to the company. At present, we are still actively communicating with the creditors and strategy investors, driving to find a solution that can totally handle the interests of all parties as soon as possible and create better conditions for future development of the company.

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Jingfeng Xiong, Yingli Green Energy Holding Company Limited - Chief Climate Officer, VP and Executive Director [21]

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(foreign language)

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Unidentified Company Representative, [22]

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On the operations side, the company has recently completed the incorporation and optimization for European sales network. As instructed, the new regional has ordered a moderate fine to improve the operational efficiency of Europe subsidiary and reduce operating cost. The new managing director in Europe, Mr. Fernando, has been in the PV industry for more than 30 years and joined Yingli for 11 years ago with great influence and outstanding ability. With the [lean backs], he can lead an excellent [loyalty] to better serve the customers in Europe as well as Africa and Latin America.

Now I will hand over the call to him for our international market update. Thank you.

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Fernando Calisalvo, [23]

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Thank you, Mr. Xiong. Firstly, on Europe, that we have recently completed the restructure of our European sales team in Q4. The new structure will allow us to adapt our teams faster and efficiently to the new market conditions. I am enthusiastic and confident on the bright future of the growing PV demand trend and the good positioning of Yingli due to our high quality [of all] our products recognized worldwide.

While we proceed with the sales team restructure during Q3, we also focused on the market expansion in Europe, Latin America, Africa and other regions. On one hand, by leveraging our long-term relationship with European customers, we have obtained orders for projects in other regions. For example, we deepened our cooperation with an important Spanish customer through the delivery of a mega agreement for its projects in Japan in Q3, with another agreement secured for Q4 period.

On the other hand, we were also paying attention to develop new customers in other regions. For example, we have been in the active negotiation with several customers for mega projects in Latin America and Asia, and expect to make great progress soon.

In Japan, the new feed-in-tariff law has stopped constructions for many projects in Q2 and in Q3 due to the delay in approval. Constructions will be started from December or next January. Therefore, the Japanese market volume in 2017 have decreased by 30% to 50% due to the delay of construction. However, we continue to develop new customers with the small- and medium-sized projects and got a [premium] on our EPC project composed of 30 low-budget plants. In addition, we will also promoting the newly development of grid house for residential customers.

Moving to the Americas, our presence in the U.S. market continued to strengthen as we closed at the end of the year on our strategic partnerships on the residential, commercial and the utility growth even stronger moving into 2018. The high demand for Yingli modules is expanding across North America, and we are tracking to meet our statement goal for the Americas in 2017.

Our sales performance in Q3 and Q4 is driving our Q1 2018 pipeline and already on pace with our 2018 megawatt targets. In addition, we have moved into our U.S. headquarters to Philadelphia in November 2017, and continuing to grow the team over 2018 with additional sales and operations staff to support our growth plans. Looking at the new year, our growth in North America will continue to improve for Yingli Americas with the leadership team in place currently.

Now I will hand over the call to our CFO, Mr. Wang Yiyu. Thank you.

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [24]

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Thank you, Fernando. Thanks, everyone, for joining our Q3 2017 earnings call. First, I would like to walk you through our financial results for Q3 2017, followed by the guidance for Q2 -- Q4 and the full year 2017.

In Q3, mainly due to the decline of the demand from China as a result of the feed-in-tariff reduction after June 30, 2017, the company's strategy to strike a balance between the operating cash flow and the shipment volume, the company delivered 597.7 megawatts of PV modules, which was at the high end of our previous guidance and represented a [48%] decrease sequentially.

Total revenue were USD 252.3 million in Q3 2017, decreased from USD 468.1 million in Q2 2017. The decrease of total revenue quarter-over-quarter was mainly due to the decrease of PV module shipments sequentially, mainly as a result of decline of demand in China due to the feed-in-tariff reduction after June 30, 2017; and a slight decrease of the average selling price of the company's PV modules.

Gross profit and gross margin were USD 4.4 million and 1.6% in Q3 2017 compared to $7.9 million and 1.7% in Q2 2017. The decrease in the gross profit sequentially was mainly due to the decrease of PV module shipments [in] after June 30, 2017, as well as a slightly decrease in the average selling price.

The gross margin on sales of PV modules was 3.4% in Q3 2017 compared to 3.9% in Q2 2017, mainly because our average selling price decreased by 3.2% from last quarter.

Meanwhile, our blended cost decreased by 2.7% from last quarter as a result of the company's continued efforts on the cost reduction. In addition, by promoting the application of the diamond wire sawing technology and other cost-reduction measures, we expect our module cost will further decrease by USD 0.01 in Q4 after the USD 0.34 level.

Total operating expenses were USD 344.7 million in Q3 2017, increased from USD 34.6 million in Q2 2017. The significant increase in the operating expenses was mainly because the company provided an impairment loss of USD 306.9 million for property, plant and equipment and project assets, primarily as a result of the lower gross margin and the continuous decrease of the average selling price in recent quarters and the lower-than-expected power output of the company's some of the solar power plants, while such impairment loss were recorded -- while no such kind of impairment loss was recorded in Q2 2017.

Excluding the impact of the above-mentioned impairments of the long-lived assets, the operating expenses slightly increased to $37.8 million in Q3 from USD 34.6 million in Q2, mainly due to the increase of some bad debt provision for [accounted for] accounts receivable, around RMB 14.4 million to RMB 27.8 million in Q3 2017; and also some staff redundancy costs as a result of the restructure of overseas subsidiaries in Europe.

Operating loss and operating margin were negative USD 340.7 million in Q3 and 135 percentage in Q3 2017 compared to USD 26.7 million and a negative 5.7% in Q2 2017.

Net loss in the prior year were USD 350.3 million and USD 19.4 in Q3 compared to USD 43.9 million and USD 2.4 in Q2. On an adjusted non-GAAP basis, adjusted net loss and adjusted loss per ADS were USD 49.6 million and USD 2.7 in Q3 compared to USD 47 million and USD 2.6 in Q2.

Now let's looking at the balance sheet. As of September 30, 2017, the company has USD 116.7 million in cash and cash equivalents and restricted cash compared to USD 144.6 million as of June 30, 2017. As of September 30, 2017, the company's accounts receivable had increased to $451.7 million from USD 429.4 million at June 30, 2017.

Days sales outstanding were U.S. dollar 161 days in Q3 2017, increased from 83 days in Q2 2017. It was mainly because in Q2 2017, the company received significant amount of down payment of our customers due to the high demand of PV module in China, while such -- while no such high proportion of down payment was received in Q3 2017. As of September 30, 2017, the company's accounts payable had increased to USD 339.9 (sic) [379.9] million from USD 355.3 million as of June 30, 2017.

Days payable outstanding were U.S. dollar 138 days in Q3 2017, increased from 69 days in Q2 2017. It's really mainly because the company has made a payment to supply (sic) [suppliers] in a longer period in Q3 2017.

As of September 30, 2017, the company's inventory has increased to USD 159 million from USD 153.4 million as of June 30, 2017. Inventory turnover days were U.S. dollar -- were 58 days in Q3 2017, increased from 30 days in Q2 2017. It's mainly because of the decrease of total cost of revenue as a result of the decrease of [module] demand in Q3 2017.

Regarding the payment of medium-term notes, one of the holders has filed a lawsuit against Tianwei Yingli, and the company notified all the holders of the lawsuit. Therefore, the company is actively communicating with note holders about the company's operational process of restructure and has not received any other legal proceedings initiated by the note holders in the company or any of its subsidiaries.

Now let's move to the guidance for Q4 2017. In Q4, mainly driven by the low-voltage ground projects and the demand from China's continues to remain a positive momentum, based on current market conditions, the company's current operating conditions, estimated the production capacity and the forecasted customer demand, the company expects its PV module shipments to be in the estimated range from 700 megawatts to 800 megawatts for Q4 2017 and raised the shipment guidance for full year of 2017 to 2.8 and -- to 2.9 gigawatts from the original guidance, 2.5 to 2.8 gigawatts.

Now I'd like to open calls for questions. Operator, please proceed.

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Questions and Answers

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Operator [1]

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(Operator Instructions) Your first question comes from the line of Justin Clare from Roth Capital Partners.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Research Associate [2]

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So first, we calculate an implied ASP of about $0.37 per watt in the quarter. I was just wondering if you could confirm if this is correct. And then, can you give us a sense for how ASPs will trend in Q4 and what your expectations are in 2018?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [3]

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Thanks for the question. Your estimation about the ASP in Q3 is correct. And we expect in Q4, the ASP is [even] flat. For the 2018, we will [discuss of] this later. Now it's too early for us to give the guidance for the ASP in 2018. We somehow expect that it will be in the -- somehow in the same range compared to Q4 2017.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Research Associate [4]

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Okay. And then given your expectation of flat ASPs into Q4, can you give us a sense for your margin expectation? Should we expect margins to also be flat versus Q3?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [5]

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As we mentioned, we have been fully implementing the development on the diamond wire saw upgrades. So we expect that our costs should be slightly decreasing in Q4 and it will be continue to decreasing in Q1 next year because the fully development of the -- diamond wire saw was completed in the late of November this year. Therefore, we expect that our module cost should be decrease in Q4, and that continues to decrease in Q1. And as a result, our module margins for, especially for internal produced module, should be increased somehow in the range from -- in the range around the 5% -- 6% to 7%, 8% in Q4 and the next Q1.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Research Associate [6]

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Okay, great. And then looking into 2018, I know you haven't provided guidance, but could you talk about your expectations for shipment volumes and help us understand your ability to fully utilize your production capacity?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [7]

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I think, generally speaking, we don't -- we think that the demand in next year should be smoothly increased, especially considering the module cost and the shipment cost have been smoothly decreased globally, which will be driving more demand globally. Our company does not increase our capacity significantly in recent years. Therefore, firstly, we expected that we should be able to utilize the majority of our current expansion -- capacity. Meanwhile, we are also starting to working with some business partners on some kind of OEM business while -- with our partners, without the increase significant in the CapEx, but trading for some kind of cooperation for the OEM capacity. This can be treated as a cushion for our company to catch more marketed demand when the demand increase.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Research Associate [8]

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Okay. And then you talked a little bit about demand. If we look specifically at the China market for next year, can you talk about your expectations there? And is the demand of potentially 50-plus gigawatts sustainable into 2018?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [9]

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Yes, I think at this moment, we feel confident about the China demand because first, China has been very strongly -- has a very strong momentum for the PV module, for the PV project and the demand. Second, and given the recent -- the efforts on decrease the cost per kilowatt hour, the China government have seen the more active and positive future of the PV base in China. So therefore, I think the China demand should be increased very -- increased smoothly year-by-year.

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Justin Lars Clare, Roth Capital Partners, LLC, Research Division - Research Associate [10]

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Okay. And then one more question from me. In the release, you indicated that some of the polysilicon supply contracts were terminated, and there's a claim of close to $900 million from your supplier. Can you just help us understand what the risk to the company is as a result of this claim and just help us understand how this came about?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [11]

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I think, firstly, we somehow already disclosed this kind of fact in the last annual report. This kind of fact, because of the company's stressed financial position, but also because of this kind of long-term contract issue has been -- is not an isolated case for our company. Some of our peer companies have the same issue. So we already disclosed this kind of risk [in affecting] the previous annual reporting. Meanwhile, we have been continuing a very active communication with poly suppliers quarter-by-quarter. And always, both of us are trying to reach a mutual result for both of us. At this moment, I think to receive this kind of letter from the company who's purchasing, we don't feel surprised given all the requests and all the demand that's illustrated in the letter has been the same as before and also had been already initiated by our suppliers in the previous discussion. So I will say, it's a kind of a formality communication, which may present a more formal request from the suppliers. So I think our company will continuously proceed with the negotiation with the supplier. I believe, as long as the company can somehow reach some significant milestone on the restructure and can prove that we have the capability to have a long-term business relationship with the supplier, we believe we have the chance to reach a mutual agreement with our suppliers. But this is, of course, subject to the further discussion with our poly supplier.

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Operator [12]

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(Operator Instructions) There are no further questions at this time. Now I would like to transfer the call back to Mr. Yuan for closing remarks.

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Pengsong Yuan, [13]

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Thank you, everyone. If you have any questions, please do not hesitate to contact us through e-mail or phone. Thank you.