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Edited Transcript of YGE earnings conference call or presentation 13-Apr-17 12:00pm GMT

Thomson Reuters StreetEvents

Q4 2016 Yingli Green Energy Holding Co Ltd Earnings Call

Baoding Apr 13, 2017 (Thomson StreetEvents) -- Edited Transcript of Yingli Green Energy Holding Co Ltd earnings conference call or presentation Thursday, April 13, 2017 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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Conference Call Participants

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* Justin Clare

Roth Capital Partners, LLC, Research Division - Research Associate

* Maheep Mandloi

Crédit Suisse AG, Research Division - Research Analyst

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Presentation

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Operator [1]

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Ladies and gentlemen, this is Leslie. I will be the operator for this conference call. I would like to welcome everyone to Yingli Green Energy Holding Company Limited Fourth Quarter and Full Year 2016 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, operator, and thank you, everyone, for joining us today for Yingli's Fourth Quarter and Full Year 2016 Financial Results Conference Call. The fourth quarter and the full year 2016 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. Wang Yiyu, Chief Financial Officer; Mr. Xiong Jingfeng, Vice President and Executive Director; Mr. Miao Qing, Vice President of Corporate Communications; Mr. Laurence Wang, Financial Controller; and Mr. Fernando Calisalvo, Managing Director of Yingli Spain.

The call today will feature a presentation from Mr. Miao covering the business and operational developments. Mr. Calisalvo 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 our 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 terminologies 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 operational conditions as 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 these 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 take 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)

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Pengsong Yuan, [4]

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Good morning, and thank you for joining us today.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [5]

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(foreign language)

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Pengsong Yuan, [6]

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In 2016, the Chinese economy was undergoing transitions from further implementing structural reforms and approaches, such as working off inventories and reducing excess capacity. China tops the world in the PV installation capacity over 4 consecutive years, mainly attributed to the Top Runner program, DG system and the PV poverty alleviation incentive supported by the government.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [7]

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(foreign language)

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Pengsong Yuan, [8]

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Thanks to the rebound of Chinese domestic market and our nimble adjustment in marketing policies, our total shipment in Q4 2016 reached 635 megawatts, an increase of almost 80% sequentially. Our shipments for the full year 2016 were 2,200 megawatts. And both met our guidance. As a result, in Q4, total net revenues were USD 300 million, a 33% increase sequentially.

Inventories and AR turnover days were shortened significantly so that our liquidity and the capital turnover improved. Our general and administrative expenses for the full year 2016 was slashed by around 35% year-by year, demonstrating our effort in organizational and operational restructuring activities.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [9]

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(foreign language)

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Pengsong Yuan, [10]

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For us, 2016 presented a combination of both challenges and opportunities. In such an intense competition in high-efficiency modules and with the decline worldwide of module price, we adjusted our tactics in marketing, pricing and R&D to flexibly meet the market demand. Those adjustments included a strong presence in the Indian solar market, more flexible pricing policies and prioritizing the marketing of PANDA N-type Bifacial PV modules.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [11]

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(foreign language)

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Pengsong Yuan, [12]

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In 2016, we attached great importance to the investment in R&D for new products and technologies and achieved mass production and sales traction for PANDA N-type Bifacial PV modules. The 50 megawatts Top Runner project in Datong, Shanxi is the largest solar project that is powered by bifacial modules. Our PANDA N-type Bifacial PV modules were awarded by CGC the first certificate in the world for bifacial feature PV products.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [13]

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(foreign language)

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Pengsong Yuan, [14]

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In Q4 2016, we finished the R&D of Smart Hot-spot Free module. In March 2017, we launched the new product at PV Expo Japan and drew wide positive attention. The Smart Hotspot Free module is a result of 3-year investment by our R&D staff and eliminates the risk of hotspot, leading to enhanced reliability of the module and, therefore, increased returns of the PV system.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [15]

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(foreign language)

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Pengsong Yuan, [16]

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In addition, we also have a pipeline of advanced technology development. Currently, the average [ test ] efficiency for multicrystalline cells that combine black silicon and PERC is 20%. This [ represents ] technologies of PANDA N-type modules.

We partnered with ECN on the R&D of IBC monocrystalline cells with an initial efficiency at 21.1%. Our 60 Cell N-type bifacial high-density encapsulating modules has passed the test of CGC with front face power output of 323 watts and front and rear face power output of 352 watts. These technology developments will further facilitate our expansion in international and domestic markets.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [17]

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(foreign language)

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Pengsong Yuan, [18]

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In 2017, we will see steadier and broader growth for the solar industry. With UHV power transmission lines forming in China, the abundant and new energy power will be partially consumed so that the solar industry will be advocated. The recently launched green certificates and the prevailing green bonds have relieved financial pressure from -- on solar manufacturers from parity subsidies and helped them raise bonds.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [19]

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(foreign language)

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Pengsong Yuan, [20]

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NEA is reviewing candidates for the Top Runner projects in 2017. The Ministry of Finance recently announced that solar companies may file their projects eligible for the seventh batch of renewable energy subsidies now. All this shows the government's strong support for the solar industry in China. We will make full use of this support to further expand our market share.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [21]

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(foreign language)

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Pengsong Yuan, [22]

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In addition, thanks to favorable national policies, especially increased provincial subsidies, DG systems will witness robust growth on the Chinese domestic market in 2017. Therefore, we are expanding our sales network nationwide to better serve our clients. As of today, we have secured orders over 1 gigawatt on the Chinese domestic market.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [23]

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(foreign language)

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Pengsong Yuan, [24]

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In regard to R&D, we will continue to invest in R&D of high-efficiency N-type monocrystalline PV modules to further enhance our competitive advantages and ensure that these best-in-class modules meet the requirements of several Top Runner projects.

For the first half of 2017, we plan to upgrade our 60 Cell PANDA N-type monocrystalline bifacial PV modules optically and electrically to increase their front power output from 290 watts to 300 watts. We also plan to launch commercial production of Smart Hotspot Free module and currently has started equipment upgrading and ISE certification.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [25]

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(foreign language)

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Pengsong Yuan, [26]

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Regarding our debt challenges you are concerned about, in March, we formed a special committee wholly comprised of independent directors to develop and recommend strategic alternatives and financial plans available in order to improve our balance sheet structure. For our loans, in consideration of our improved operational results in Q4 2016, the majority of our creditors has signed borrowing extension contracts, reflecting their continuous support of Yingli. This further relieves our pressure in repaying borrowings in the time being -- for the time being.

For midterm notes, we are still active in negotiating with note holders for mutually beneficial solutions and repayments. Hopefully, in the near future, we will eventually reach a satisfactory solution through our persistent effort.

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Liansheng Miao, Yingli Green Energy Holding Company Limited - Chairperson and CEO [27]

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(foreign language)

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Pengsong Yuan, [28]

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We are currently undergoing a major restructuring of our international sales network. And this time, I would like to turn the call over to Mr. Fernando Calisalvo, Managing Director of Yingli Spain, for international market update. Thank you.

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Fernando Calisalvo, [29]

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Thank you, Mr. Miao. Starting with Japan. We continue to maintain our strong momentum across all segments during Q4 and achieved another strong quarter, with 7th straight quarters in Japan with over 110 megawatts of shipments and a share of global shipments of approximately 20%.

In Q4, Setouchi Kirei Solar Power Plant Japan, Japan's largest scale solar power plant, began construction. The project will install approximately 230 megawatts of solar panels. 50% of the modules will be supplied by Yingli. Supply commenced during Q4 2016 and will be completed during Q2 2017.

In addition, we continue our growth within the residential segment by signing new residential partners across Japan. And the Kiwami net-zero energy home program gained traction with 80 new customers during Q4.

For full year 2016, our shipments to Japan accounted for 27% of our global shipments, and Yingli holds 7% market share, ranking as a top 3 PV module supplier in Japan. For 2017, Yingli expects to achieve 6% market share in Japan. In addition, we are paying more attention to the small and middle-sized projects with EPC solutions due to the decreasing number of mega solar projects.

Moving to the Americas. Yingli Americas has adjusted its market strategy to include the DG segment, which resulted in substantial growth. The potential high demand of our 1,500-volt frame [ph] module and high-efficiency modules, after the successful introduction into the market during 2016, enable Yingli Americas to take advantage of demand drivers that match with Yingli's product development road map.

Our presence in the U.S. market benefited from the strengthening of a strategic partnership with renowned companies such as DuPont and Picasolar in the development of a new module architecture designed for high-voltage applications and the process development for efficiency boost of N-type cells, the project in collaboration with Picasolar and funded by the SunShot program at DOE. We also joined (inaudible) organization as an active member to continue our commitment as an industry leader in the solar sector.

We continue to invest resources to build strategic partnership with our OEM partners for the U.S.A. and LatAm. We remain optimistic about the market prospects for 2017, and we also expand our local team with new talent and introduced new products, which are being requested from a diverse range of developers in 2017 and 2018 on gigawatt level in the U.S. alone.

For other international markets, on one hand, we are in the process of restructuring our overseas sales network, such as in Europe, in order to reduce operating expenses, maintain a healthy cash flow and focus on our core modules/cells business. And on the other hand, we are actively exploring business opportunities in emerging markets.

For example, in India, we have invested in a local team with the aim of further penetrating this fast-growing market. Members of the team are based in Delhi for the northern part of India and Bangalore for the southern part. This will provide local presence to cover almost all parts of the Indian geography.

Currently, we are actively engaged in business development and sales discussion with almost 100 customers across India. These customers are a mix of a small- to large-scale EPC players, project developers and rooftop clients. We have managed to form and maintain a healthy business relationship with at least 30 to 40 players in the Indian market.

In Australia, we have recently completed the delivery of 13.3 megawatts of 1,500-volt multicrystalline solar panels to a utility-scale project and we'll continue to work closely and serve our local clients by leveraging our high-quality products together with the market experience of our local team.

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 [30]

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Thank you, Fernando, and thanks for everyone joining our Q4 2016 earnings call.

As Mr. Miao mentioned, mainly due to the strong demand from China in Q4, our PV module shipments significantly increased to 635.1 megawatts from 365.3 megawatts in Q3, bringing our total PV module shipments for year 2016 to 2.2 gigawatts, which is in line with our previous guidance. As a result of the increase of PV module shipment, our total revenues in Q4 significantly increased by approximately 40% quarter-over-quarter to USD 294 million.

In addition, along with the increase of revenue, we have managed to improve our capital efficiency through various measures, such as focusing on accounts receivable management in China market. Our accounts receivable continued to decrease to USD 379.5 million in Q4 from USD 404.5 million in Q3. Days sales outstanding decreased to 116 days in Q4 from 166 days in Q3. Meanwhile, due to the increase of the PV module shipment, our inventory decreased to USD 189.4 million in Q4 from USD 248.6 million in Q3, and the inventory turnover days decreased to 62 days in Q4 from 108 days in Q3.

Gross profit and gross margin were increased to USD 20.5 million and 7%, respectively, in Q4 from USD 12 million and 5.5% in Q3. The significant increase in gross profit quarter-over-quarter was mainly due to the increase of the PV module shipment from Q3 to Q4, and the increase of gross margin quarter-over-quarter was mainly due to the decrease in the unit manufacturing cost as a result of the increase of utilization ratio of the production facilities, which was partially offset by the continuous decline of the PV module selling price worldwide in this quarter, including China and Japan, which these 2 markets are our majority markets at this moment.

In addition, we have been committed to enhance the cost control. In Q4, our non-polysilicon cost per watt peak slightly decreased to USD 0.27 from USD 0.28 in Q3, and the in-house cost of our PV module also decreased by 11% compared to Q3.

Total operating cost was USD 271.6 million compared to USD 46.1 million in Q3. Operating expenses as a percent of net revenue was 92.4% in Q4 compared to 21% in Q3. The significant increase quarter-over-quarter was mainly because the company recorded an impairment loss for property, plant and equipment at an amount of USD 184 million. It's mainly due to the company currently have a lower-than-expected utilization ratio in 2016 and also because of the decrease of the selling price in later 2016.

We also provided a USD 33.5 million loss on bad debt and a USD 7.6 million provision for reserve for the inventory purchase commitment recorded in Q4 while in Q3, the company recorded a USD 3.9 million loss for bad debt and USD 1.6 million provision for the repayment of certain suppliers under the company's long-term party [ph] supply contracts as a result of reassessment of the purchase commitments under those supply contracts.

In Q3, we also provided a USD 1.4 million provision for the reversal of inventory purchase commitments.

Excluding the impact of those noncash impairment and provisions, operating expenses were USD 46.5 million in Q4 compared to USD 39.1 million in Q3. The operating expenses as a revenue of -- as a percentage of net revenue was 15.8% in Q4 compared to 17.9% in Q3.

Foreign currency exchange loss was USD 15.0 million in Q4 compared to a gain of USD 4.1 million in Q3. This is mainly due to the depreciation of RMB against the U.S. dollar in this quarter.

Net loss was USD 267.1 million, and the loss per share was USD 14.70 in Q4. On an adjusted non-GAAP basis, adjusted net loss was USD 75.5 million and adjusted loss per ADS was USD 4.30 in Q4.

In addition, the company continued to pay off some of its overdue accounts payable. At Q4, our cash and restricted cash did slightly decrease to USD 125.1 million from USD 144.9 million as of Q3. Our accounts payable also decreased to USD 356 million from USD 404.5 million as of Q3.

For the full year 2016, the total revenue in 2016 was USD 1.2 billion, a decrease from USD 1.54 billion in 2015, which was primarily due to the general decline of the average selling price of PV module in the market and also -- the decrease of PV module shipment also slightly decreased. Gross profit and gross margin in 2016 were USD 165.9 million and 13.8% compared to USD 183 million and 11.9% in 2015.

Total operating expenses were USD 400 million, compared -- decreased from USD 836 million in 2015. Operating (sic) [ operating expenses ] as a percentage of the net revenue was 33.2% in 2016, a decrease from 54.3% in 2015. Excluding the impact of noncash impairment and provision, operating expenses in U.S. -- in 2016 were USD 162.4 million, a decrease from USD 274.5 million in 2015. And operating expenses as a percentage of total revenue was 6 -- 13.5% in 2016, a decrease from 17.8% in 2015, which is mainly due to a lower freight and the insuring [ph] cost as a result of our total PV module shipments and also the effective control on the selling and the general -- and the G&A expenses as well as the enhanced control of the R&D expenses.

Currently, we have 3 tranche of medium notes. Two of them had not been paid after they matured, and one of them will become due on May 3, 2017. We have been actively negotiating with the holders of those notes and the related banks about the revision of the repayment schedule of those notes. So far, we are still working on the potential solutions,our refinancing plan or extension plan. In addition, we have successfully renewed or extended the majority of our bank loan from the major lending banks and also reduced the interest rates -- of some of these loans.

Lastly, I would like to talk about the guidance for Q1 and the full year 2017. Based on the current market condition, the company's operating conditions and estimated production capacity and the forecast customer demand, the management expects our PV module shipments to be in the range from 380 megawatts to 400 megawatts in Q1 2017 and 2.1 to 2.2 gigawatts for the full year 2017.

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

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Questions and Answers

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Operator [1]

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(Operator Instructions) We have the first question from the line of Justin Clare.

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

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So could you share what your expectations are for your blended module ASP in Q1? And then could you talk about where module ASPs are for delivery in Q2 and in Q3?

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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. I think the average selling price in Q1 compared to Q4 2016 was decreased slightly. And it seems the range -- average is in the range of around USD 0.14 [ph]. Currently, our market is mainly in China and Japan and China which is roughly 60% of our overall shipments. Therefore, the price (inaudible). And I -- currently, in Q2, you won't see the price will be dropped significantly. So it will be somehow in the same level (inaudible). But in the second half of this year, it's a little bit early to predict the price. Somehow given the current market situation, maybe the price will be declined in the second half of this year, especially in China, because, currently, in the first half of this year, there are still a lot of projects that's being rushed to install to catch up the June end -- deadline.

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Operator [4]

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We have the next question from the line of Maheep Mandloi.

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Maheep Mandloi, Crédit Suisse AG, Research Division - Research Analyst [5]

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It's Maheep Mandloi. So could you just talk more about the medium-term loans? How is the discussion progressing with the lenders? And has anything changed versus what you told us the last time? And what could have caused you to provide additional clarity on going concern in the press release?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [6]

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I think -- thank you for the question. I think, currently, there is no -- everything is still ongoing basis. Basically, it does not -- there is no significant progress on the discussion with the medium note holders. Regarding to the disclosure of the going-concern doubt, actually the description of the situation is most likely the same for -- by the end of this year compared to end of last year. So this year, it's mainly due to the new announced (inaudible) -- disclosure of health [ph] , we have to include this paragraph in the earnings release. Somehow, if you compare this to the last year annual report disclosure wordings and paragraphs, it's almost the same meaning. Thank you.

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Maheep Mandloi, Crédit Suisse AG, Research Division - Research Analyst [7]

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And a follow-up question just on your shipment guidance. Can you tell us if -- the decline in shipments versus Q4, is it rather driven by your capacity utilization or the production limits at the factory? Or is it driven by a weaker demand environment in China?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [8]

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Thank you for the question. I think it's mainly decrease -- mainly due to the China market's seasonal fluctuation. Currently, as I mentioned, more than -- close to 60% of our shipment is to the China market. The first quarter normally is the slack [ph] season of the China market given the winter which somehow restricted the installation plus the Chinese New Year. So in Q2, our -- we expect our shipment will be significantly increased based on the Q1 volume level.

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Operator [9]

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(Operator Instructions) We have another question from the line of Maheep Mandloi.

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Maheep Mandloi, Crédit Suisse AG, Research Division - Research Analyst [10]

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So just wanted to touch on the technology upgrades you had announced on the call about the bifacial and the IBC technologies. Can you tell us like how much nameplate capacity would be added because of that? And how much CapEx do you think would be required to upgrade your existing lines to either the bifacial or the IBC?

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

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So I think, of course, the bifacial module is using our high-efficiency panel cells. Currently, our panel cells capacity is roughly 400 megawatts annually. So in the module lines, there's no significant changes. We can upgrade [ph] a module with a kind of line (inaudible). So the capacity for bifacial annually is roughly 400 megawatts -- for the bifacial N-type module, 400 megawatts, yes.

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Maheep Mandloi, Crédit Suisse AG, Research Division - Research Analyst [12]

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And for the IBC, given the new announcement you plan to upgrade the other lines to that capacity -- to that technology?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [13]

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Yes. Given this upgrade to work is taking some time, gradually [ph], so next year, this volume will not be very significant compared to the total module shipments. But we will increase the capacity [ph].

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Maheep Mandloi, Crédit Suisse AG, Research Division - Research Analyst [14]

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And so given the technology upgrades you are doing and the visibility in pricing, where do you see gross margins on the module sales in Q2 and the later half of this year?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [15]

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I think if you look at the annual expected gross margin forecast, we believe it should be somehow in the range -- in the high single -- the high single-digit ratio, which is slightly higher than the Q4 gross margin level.

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Operator [16]

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We have the next question from the line of Joel Ryan.

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Unidentified Analyst, [17]

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Can you give us any more clarity on the timing when you expect to know more about the midterm notes, particularly the tranche of CNY 300 million that you have coming up, due May 3?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [18]

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I think given -- at this moment, we are still negotiating. I mean, it's -- we cannot precisely predict the timing about that. But I think during the past negotiations, we do -- we actually believe that the note holders is willing to work with us to find a solution, and we will disclose the significant milestone when we reach any commitments or any significant progress with the note holders. It will take some time.

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Unidentified Analyst, [19]

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Okay. And could you also speak a little bit about overcapacity industry-wide and whether or not you think that, that will continue to have a significant impact on pricing in the quarters to come?

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Yiyu Wang, Yingli Green Energy Holding Company Limited - CFO and Executive Director [20]

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I think the -- if you look at the market, some company are still expanding their capacity. Our company's capacity has not been expanding year-by-year since 2015 to next year. We mainly focus on increasing the quality of the product by its efficiency, especially the N-type module. Therefore, such kind of overcapacity pressure to us is not very significant. But given the China market anyway, the feed-in tariff will be dropped year-by-year. And currently, in other markets like in South America or India, the demand is growing year by year, but there is also pricing pressure. But I think the decline on the ASP, especially in 2017, will be a fair percentage. It's not going to be -- it will not be dropped significantly, so -- which means it should give all manufactures a reasonable timing to decrease costs accordingly during the module price decrease.

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Operator [21]

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(Operator Instructions) As there are no further questions at this time, that concludes our call today. Now I would like to transfer the call to Mr. Pengsong Yuan for closing remarks.

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Pengsong Yuan, [22]

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Okay. Thank you, everyone. Thank you, everyone, for joining us today. Bye-bye. And if you have further questions, please do not hesitate to contact us through e-mail or phone. We would like to answer your questions.

And have a good day. Bye.

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Operator [23]

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