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Edited Transcript of YGE earnings conference call or presentation 26-Apr-18 12:00pm GMT

Q4 2017 Yingli Green Energy Holding Co Ltd Earnings Call

Baoding May 1, 2018 (Thomson StreetEvents) -- Edited Transcript of Yingli Green Energy Holding Co Ltd earnings conference call or presentation Thursday, April 26, 2018 at 12:00:00pm GMT

TEXT version of Transcript

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Corporate Participants

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* Fernando Calisalvo

* Liansheng Miao

Yingli Green Energy Holding Company Limited - Chairperson and CEO

* Pengsong Yuan

* Yiyu Wang

Yingli Green Energy Holding Company Limited - CFO and Executive Director

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Presentation

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Operator [1]

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

Now I'd 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, operator, and thank you, everyone, for joining us today for Yingli Green Energy's Fourth Quarter and Full Year 2017 Financial Results Conference Call. The fourth quarter and full year 2017 earnings release was issued earlier today and available on 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 Spain -- of Yingli Europe; and Mr. Laurence Wang, Financial Controller.

The call today will feature a presentation from Mr. Miao, covering business and operational developments. Mr. [Kelly Silva] will talk about the development of 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 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 results, 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 the 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. Miao. Please begin.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [3]

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(foreign language) Good morning, and thank you for joining us today.

(foreign language) In Q4, China market maintained strong momentum, driven by the power in demand from DG sector. The promotion of PV poverty alleviation program and is a great connection deadline -- I'm sorry, activity power station at end of 2017. We also made great achievements in overseas markets through flexible strategies and active exploration efforts, driven by the surge of shipments to India. Our shipments to market out of China were more than tripled over Q3. Therefore, our total PV modules shipments reached 837 megawatts in Q4. And we are close to (inaudible) for full year 2017, representing an increase of approximately 40% compared to Q3 financial year 2016, respectively.

(foreign language) With the continuous decline in cost of solar power and increasing supports from governments, 2017 became a milestone for the development of DG market in China. The DG projects contributed to over 30% of new PV installation of China in 2017, more than the throughput than that in 2016.

(foreign language) In view of that, we adopted the risk means develop the DG market. For instance, we have established a distributor network, which was around 100 distributors in Q4. The shipments through the distributor network have almost doubled. In addition, through the strengthening of sales management platform, we continue to improve the solar efficiency to distributors and other medium, small-scale customers. Those orders are accounted over 30% of our total shipments to China in 2017. Moreover, those orders are delivered against the payment providing strong guarantees for the cash tenure.

(foreign language) In addition, we continue to strengthen the cooperation with the developers where developers saw utilities (inaudible), and the contractors and the priority holders will show the payment term to ensure capital tenure and they started operation. In 2017, top 20 customers in China accounted for about 45 of total domestic shipments, which is an important driving force of the substantial increase in shipments year-over-year. Meantime, we have said how the sales office in (inaudible), (inaudible) and (inaudible) to cover Eastern China, South China and North West of China and to develop more new customers with better service -- services for those markets.

(foreign language) On product and technology side, we continue to make great efforts on cost reduction and the conversion efficiency improvement. So R&D projects an equipment upgrading. In Q4, we completed the introduction of diamond wire sawing, cutting in-house wafer cost down by 10% and contributing a lot to the continuous decrease overall cost. Also, the average conversion efficiency of sale has been improved by 0.3% in 2017, sales application of new technologies and the new materials.

(foreign language) In terms of model, we developed and commercialized several service of high-efficiency products. For instance, the power output of the multi-crystalline module, combining black silicon and (inaudible) technology that reached 300 watts in lab. With 67 multi-crystalline 12 bus-bar panels was designed to reduce the sale of (inaudible) consumption during the processing of PV cells with approximately 5 to 7 watts increase of power output compared to our traditional multi-crystalline panels. The development and the promotion of those -- of these products were within reach of our product portfolio, in-house product competitiveness and the better mix that diversified market demands. What's more, the first technology standard innovation phase of PV industry in China was approved by standardization and administration of China, and (inaudible) lead to the building of the pace, which is a significant for the standardization and the long-term development of China PV industry.

(foreign language) In 2017, China continued to support PV applications focusing on PV poverty alleviation, solutions for curtailment and the technology innovation and so on. For example, village-level PV poverty alleviation plant is designed to be the main model -- mode of PV poverty alleviation during the 13th five-year period. The policies about the renewable energy quota system and the power materialization for DG projects will help address the curtailment of PV power. (inaudible) program continued to enhance the requirement for product, conversion efficiency and the focus on indicators affecting the overall cost of PV power generation.

(foreign language) In addition, the transform in heating from coal to electricity in northern China has again strongly supported by governments and grid. The combination of PV power and heating have not only reduced the emission of air pollutants and improved the environment, but also could further broaden the application of PV power. What's more, the government recently published the development action plan of smart PV industry, 2018 to 2020, to encourage the deep integration of PV industry with Internet, Big Data and artificial intelligence, and promote the PV application in poverty alleviation, agriculture, architecture, transportation and the more other fields.

(foreign language) In terms of capital restructuring, we have made a great efforts. We have been in active discussions with the creditors and the potential investors, and is actively trying to get series of key problem moving forward. If there is any substantial progress, we will announce to public in timely manner according to the relevant laws and requirements.

(foreign language) Now I'll hand over the call to Fernando, Management Director of Yingli international Europe, for our international market updates. Thank you.

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Fernando Calisalvo, [4]

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Thank you, Mr. Miao. Firstly, after finishing the restructuring on the European region in terms of entities and operational resources, Yingli Green Energy Europe came back to Europe by achieving present incoming orders, and renew some partnership agreements with Pan European distributors. In addition, sales resources have been allocated within Europe and more to come within 2018, including other markets such as Tokyo or Sweden where market demand is relevant.

We are expecting an increase in volume demand in Europe. The aftersales teams have been centralized and strengthened in order to increase the service-level agreement, which has been proved to be an important sales tool as well. We have carried out the third training of qualification of PV professionals focusing on design and OEM of systems in collaboration with the local authorities.

Regarding to Latin Americas. In Mexico, we signed a distribution agreement with a strategical partner in order to facilitate volume availability, and therefore, improve customer service in an efficient way across the country.

In addition, we achieved a (inaudible) registered company, which facilitates the financing of our products throughout the senior commission program.

In Chile, we supply extra volume into the larger scale, 120 megawatts PV plant, where our modules were installed in 2015. In addition, we signed a 144 megawatt EPC contract with full scope and working in other projects. The momentum on the EPC business unit will provide further contrast within 2018.

In Brazil, we keep developing new opportunities in the distribution segment, but we also are enhancing resources to consolidate our positioning in the utility scale 1. The increasing demand in the region has been reflected in our books within 2017, and we expect a significant increase during 2018.

Both in Europe and LatAm, we also closed agreements with the small engineering companies and installers in order to approach self-consumption opportunities with a more efficient service and a higher development structure.

Moving to the Americas. Our presence in the U.S. market continue to strengthening as we close out the end of 2017, and our strategic partnerships on the residential, commercial and the utility grow even stronger moving into 2018.

The high demand for Yingli modules is expanding across North America and Canada. We are on track to meet the shipment goals for the Americas in 2017. Our sales performance in Q4 is driving our Q1 2018 pipeline and already on pace on our 2018 Q1 targets.

In addition, over 2018, we are adding additional sales team members across the U.S. and operation staff in the U.S. office in Philadelphia to support our growth plan across the U.S.

In new year, our growth in North America will continue to improve for Yingli Americas as we grow in opposed to (inaudible) Americas as a leader in the U.S. market.

In India, we reached cooperation with several key customers in 2017 on further strengthening our relationships. As a result, India accounted approximately 15% of our total PV shipments in the fourth quarter of 2017. In addition, we are conducting very closely with some -- with more customers and aims to promote our sales further so and expand Indian team and diversified product solutions.

Lastly, the Japan is still one of the most important international markets, where the company continue to pay a lot of attention, especially in the system sales, product developing and consulting. Our shipments to Japan in the fourth quarter more than doubled compared to the third quarter. Overall, the Japanese market volume in 2017 has decreased by 20% to 30% due to the delay of construction as we -- by waiting for mid-year approvals. And it is expected to keep a stable momentum through 2018.

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 [5]

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Thank you, Fernando, and thanks, everyone, for joining our Q4 and full year 2017 earnings call.

In Q4, mainly driven by the strong demand in China as well as our efforts in overseas market, including India, Japan, U.S. and the Europe, we delivered 837.9 megawatts of PV modules, representing 40% increase over Q3 and enabling the company total revenue increase to USD 349.4 million in Q4 from USD 252.3 million in Q3. Consequently, our total PV module shipments for full year 2017 reached to 2.95 gigawatts, higher than the upper end of the guidance of 2.9 gigawatts, and represents an increase of 36% compared to 2016. In Q4, our gross margin on sales of our PV module increased to 8.1% from 3.4% in Q3.

In addition to the decrease of depreciation expense as a result of impairments provided in Q3, other major elements drive, including our great efforts on the cost of reduction through equipment upgrades and R&D projects and the improvement of the utilization of the production capacity in Q4. For example, majority of our manufacturing costs reduction in Q4 resulted from the introduction of the diamond sawing technology, while brought our in-house labor cost down by more than 10%. Although, the price increase for most of the parts of material, other than polycrystalline silicon in second half of 2017, partially offset our efforts on the cost reduction.

Our in-house costs module -- our in-house cost of PV module continue to decline by approximately USD 0.01 compared to Q3. Our total gross profit and the gross margin were USD 25.1 million and the 7.2% in Q4 2017 compared to USD 4 million and 1.6% in Q3 2017, mainly due to the increase of the gross margin on sales of PV module and the increase of the PV module shipments quarter-over-quarter.

In Q4, our total operating expenses decreased to USD 85.3 million from USD 344.7 million in Q3, excluding the impact of the impairment and the provisions slightly, increased our operating expenses from Q3 to Q4 was mainly due to the increase of the saving expense and G&A along with the increase of PV module shipments, while our operating expenses as a percentage of net revenues slightly decreased to 13.2% in Q4 from 15% in Q3.

In addition, excluding the impact of provision impairment and a gain on this (inaudible), our saving and G&A expenses for the full year 2017 slightly decreased from 2016, which was primarily due to the more strict and effective control on those expenses and the restructure of the European sales network. Net loss and the loss per ADS were USD 75.6 million and USD 4.2 million in Q2 -- Q4 compared to USD 352.3 million and USD 19.4 million in Q3.

Now moving to the balance sheet. As of Q4, our accounts receivable have decreased to USD 408.5 million from USD 451.7 million as of Q3. Day sales outstanding decreased from 105 days in Q4 from 161 days in Q3, which was mainly due to the enhanced control on overdue accounts receivable and the increase of orders with some better payment terms. As of Q4, our accounts payable had decreased to USD 356.9 million from USD 679.9 million in Q3. Days payable outstanding decreased to 99 days in Q4 from 138 days in Q3, which was mainly because we settled some -- settled down Asian accounts payable in Q4.

As of Q4, our inventory has increased to USD 174 million from USD 159 million as of Q3. Inventory turnover days were 48 days in Q4, decreased from 58 days in Q3, which was mainly due to the increase of PV module shipments in Q4.

As of Q4, we have total shareholder deficit attributable to shareholders of YGE of USD 2.8 billion and a deficit in working capital of USD 1.48 billion. At December 2017, we had a short-term borrowing of USD 1.59 billion and a long-term debt of USD 141.4 million. While maintaining good relations with many banks and other financial institutions in China, we have always in debate to find these solutions properly to evolve our debt payment -- repayment issues and increase -- improve our liquidity and the debt restructuring.

We have been in active discussions with our creditors and some potential investors about a potential debt restructuring plan with certain consensus. Currently, we are doing our best to promote key issues to move the debt restructuring forward. All details about the debt restructuring has been disclosed in our Q4 and the full year 2017 earnings release announced earlier before this earnings call.

If there's any further material progresses, we will announce to the public in a timely manner according to the relevant law and the requirements.

Our markets

(technical difficulty)

first quarter of 2018. We have seen a continuous price decrease along the value chain, primarily as a result of the (inaudible) in China. However, the situation has been improved in the second quarter of 2018, based on the preliminary data, we estimate our PV module shipments in Q1 2018 were in the range from 400 megawatts to 420 megawatts.

Now I would like to move to open calls to the questions. Operator, please proceed.

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Questions and Answers

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Operator [1]

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(Operator Instructions)

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Unidentified Company Representative, [2]

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Operator, if there's no one to ask, we can end it now.

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Operator [3]

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Yes. At this time, we don't have any question. So I'd now like to transfer the call back to Mr. Yiyu Wang for closing remarks.

And that concludes the presentation today...

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Unidentified Company Representative, [4]

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Operator?

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Operator [5]

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Yes, sir. For those who wish to ask...

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Unidentified Company Representative, [6]

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Could you repeat the remarks again to see if someone would like to ask questions?

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Operator [7]

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Okay, sure. (Operator Instructions) There are no questions at this time. I'd like to transfer the call back to Mr. Yuan for closing remarks.

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Pengsong Yuan, [8]

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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.

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Operator [9]

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Thank you. Ladies and gentlemen, that does conclude this conference for today. Thank you for participating. You may now all disconnect.