Yingli Green Energy Reports Third Quarter 2015 Results

Yingli Green Energy Holding Company Limited, one of the world’s leading photovoltaic (PV) module manufacturers, known as “Yingli Solar” or “Yingli”, recently announced its unaudited consolidated financial results for the quarter ended September 30, 2015.

Third Quarter 2015 Consolidated Financial and Operating Summary

– Total net revenues were RMB2,233.9 million (US$351.5 million).
– Total photovoltaic (“PV”) module shipments (including shipments to the Company’s own downstream PV projects[1]) were 460.4MW.
– Gross profit was RMB357.2 million (US$56.2 million), representing a gross margin of 16.0%. Excluding the impact of the long-lived assets impairment, which reduced the Company’s depreciation for fixed assets, the gross margin would be 8.6%.
– Operating loss was RMB2,863.0 million (US$450.5 million) including a non-cash impairment charge on long-lived assets of RMB3,804.1 million (US$598.5 million).
– On an adjusted non-GAAP basis, earnings before interest, tax expenses, depreciation and amortization (“EBITDA”) were negative RMB2,592.1 million (negative US$407.8 million).
– Net loss[2] was RMB3,200.2 million (US$503.5 million) and loss per ordinary share and per American depositary share (“ADS”) was RMB17.61 (US$2.77). On an adjusted non-GAAP[3] basis, net loss was RMB423.7 million (US$66.7 million) and loss per ordinary share and per ADS was RMB2.33 (US$0.37).

[1] Revenues were not recognized for internal shipments as required by U.S. GAAP.

[2] For convenience purposes, all references to “net loss/income” in this press release, unless otherwise specified, represent “net loss/income attributable to Yingli Green Energy” for all periods presented.

[3] All non-GAAP measures other than EBITDA exclude, as applicable, share-based compensation, interest expenses related to the changes in the fair value of the interest rate swap and the amortization of the debt discount, the amortization of intangible assets, inventory provision, impairment of long-lived assets, disposal gain from long- lived assets and land use rights held by Fine Silicon Co. Ltd., a wholly owned subsidiary of the Company and non-cash provision for inventory purchase commitments. EBITDA excludes interest, tax expenses, depreciation and amortization. For further details on non-GAAP measures, please refer to the reconciliation table and a detailed discussion of the Company’s use of non-GAAP information set forth elsewhere in this press release.

“Through our intense and concerted efforts, we managed to improve the overall utilization rate of production facilities (including production as original equipment manufacturer, or OEM) to approximately 70% in the third quarter of 2015 and increased our gross margin significantly despite of the cash shortage,” commented Mr. Liansheng Miao, Chairman and Chief Executive Officer of Yingli Green Energy.

“During the third quarter of 2015, the Company has deployed more flexible strategies by prioritizing full-payment orders or orders with competitive profit margins, aiming to accelerate working capital turnover. As of the end of third quarter, Yingli had signed a total of approximately 350MW of supply agreements with full cash prepayment in China. In Japan, through close communications with long term partners, the Company recorded the seventh straight quarter of delivering over 120MW with accumulative shipments exceeding 1.5GW in Japan. In the U.S., the Company is well positioned given competitive trading tariff rates applicable to its products and high brand recognition. Our sales in the distributed generation sector continued with a satisfying momentum while several megawatts utility sector deals began deliveries in the quarter.”

“As one of the world’s leading PV companies, Yingli is committed to all possible efforts to improve its operating fundamentals and has obtained recognition and dedicated support from all relevant parties including the government authorities and commercial banks. Through various measures including disposal of PV project assets, the potential introduction of strategic investors and potential new cooperation models with our business partners, we will continue to enhance our cash position in order to gradually improve our financial position in the future,” Mr. Miao concluded.

Third Quarter 2015 Financial Results

Total Net Revenues

Total net revenues were RMB2,233.9 million (US$351.5 million) in the third quarter of 2015, compared to RMB2,716.1 million in the second quarter of 2015 and RMB3,385.2 million in the third quarter of 2014. Total PV module shipments were 460.4MW in the third quarter of 2015, compared to 727.9MW in the second quarter of 2015 and 903.4MW in the third quarter of 2014.The decrease in total net revenues in the third quarter of 2015 compared to the second quarter of 2015 was mainly due to decreased PV module shipments, which was primarily due to the Company’s lower utilization of its production capacity for its in-house PV modules.

Gross Profit and Gross Margin

Gross profit was RMB357.2 million (US$56.2 million) in the third quarter of 2015, compared to RMB171.0 million in the second quarter of 2015 and RMB706.1 million in the third quarter of 2014.

Gross margin was 16.0% in the third quarter of 2015, compared to 6.3% in the second quarter of 2015 and 20.9% in the third quarter of 2014. The increase in gross profit and gross margin from the second quarter of 2015 to the third quarter of 2015 was mainly due to a decrease in depreciation cost as a result of the recognition of long-lived assets impairment in the quarter and a slight increase in the average selling price of PV modules. Excluding the impact of the long-lived assets impairment, which reduced the Company’s depreciation for fixed assets, the gross margin would be 8.6%.

Gross margin on sales of PV modules was 19.0% in the third quarter of 2015, compared to 7.9% in the second quarter of 2015 and 20.6% in the third quarter of 2014. Excluding the impact of decrease in depreciation cost as a result of the recognition of the long-lived assets impairment, the gross margin on sales of PV modules would be 9.0% in the third quarter of 2015. Management finalized its analysis on accounting application of the impact of the long-lived assets impairment to the third quarter of 2015 after the Company announced its preliminary financial results for the quarter on November 25, 2015.

Operating Expenses

Operating expenses increased to RMB3,220.2 million (US$506.7 million) in the third quarter of 2015 from RMB349.9 million in the second quarter of 2015, and compared to RMB506.4 million in the third quarter of 2014. The increase in operating expenses from the second quarter of 2015 to the third quarter of 2015 was mainly due to the recognition of a non-cash impairment charge on long-lived assets totaling RMB3,804.1 million (US$598.5 million), which was partially offset by a gain from disposal of the land use rights held by Fine Silicon. Excluding the impact of the impairment charge on long-lived assets and disposal gain, the operating expenses would be RMB425.0 million (US$66.9 million) in the third quarter of 2015 compared to RMB488.4 million in the second quarter of 2015.

Operating expenses as a percentage of total net revenues were 144.2% in the third quarter of 2015, increased from 12.9% in the second quarter of 2015 and 15.0% in the third quarter of 2014.

Operating Loss (Gain) and Margin

Operating loss was RMB2,863.0 million (US$450.5 million) in the third quarter of 2015, compared to operating loss of RMB178.9 million in the second quarter of 2015 and operating gain of RMB199.7 million in the third quarter of 2014.

Operating margin was negative 128.2% in the third quarter of 2015, compared to negative 6.6% in the second quarter of 2015 and 5.9% in the third quarter of 2014.

EBITDA

On an adjusted non-GAAP basis, earnings before interest, tax expenses, depreciation and amortization (“EBITDA”) were negative RMB2,592.1 million (US$407.8 million) in the third quarter of 2015, compared to RMB198.2 million in the second quarter of 2015 and RMB486.9 million in the third quarter of 2014. Excluding the impact of the long-lived assets impairment and disposal gain, the adjusted EBITDA would be RMB183.2million (US$28.8 million) in the third quarter of 2015.

Interest Expense

Interest expense was RMB252.1 million (US$39.7 million) in the third quarter of 2015, compared to RMB242.1 million in the second quarter of 2015 and RMB263.1million in the third quarter of 2014. The weighted average interest rate was 6.42% in the third quarter of 2015, compared to 6.75% in the second quarter of 2015 and 6.31% in the third quarter of 2014.

Foreign Currency Exchange Gain (Loss)

Foreign currency exchange gain was RMB37.7 million (US$5.9 million) in the third quarter of 2015, compared to foreign currency exchange loss of RMB10.3 million in the second quarter of 2015 and foreign currency exchange loss of RMB112.0 million in the third quarter of 2014. The foreign currency exchange gain recognized in the third quarter of 2015 was mainly due to the depreciation of Renminbi against US dollars and Euros in the quarter.

Income Tax Expense

Income tax expense was RMB365.4 million (US$57.5 million) in the third quarter of 2015, compared to income tax expense of RMB232.6 million in the second quarter of 2015 and income tax expense of RMB19.0 million in the third quarter of 2014. Income tax expense in the third quarter of 2015 was higher than that of the second quarter of 2015, which was mainly because recovery and additional valuation allowanceof deferred income tax assets of Fine Silicon were recorded in the third quarter of 2015.

Net Loss

Net loss was RMB3,200.2 million (US$503.5 million) in the third quarter of 2015, compared to RMB598.7 million in the second quarter of 2015 and RMB122.8 million in the third quarter of 2014. Loss per ordinary share and per ADS was RMB17.61 (US$2.77), compared to RMB3.29 in the second quarter of 2015 and RMB0.62 in the third quarter of 2014

On an adjusted non-GAAP basis, net loss was RMB423.7 million (US$66.7 million) in the third quarter of 2015, compared to RMB597.5 million in the second quarter of 2015 and RMB112.0 million in the third quarter of 2014. Adjusted non-GAAP loss per ordinary share and per ADS was RMB2.33 (US$0.37) in the third quarter of 2015, compared to RMB3.29 in the second quarter of 2015 and RMB0.62 in the third quarter of 2014.

Balance Sheet Analysis

As of September 30, 2015, the Company had RMB735.0 million (US$115.6 million) in cash and cash equivalents, compared to RMB575.0 million as of June 30, 2015.

As of September 30, 2015, the Company had RMB870.2 million (US$136.9 million) in restricted cash, compared to RMB1,201.8 million as of June 30, 2015.

As of September 30, 2015, the Company’s accounts receivable had increased to RMB4,356.4 million (US$685.4 million) from RMB3,854.4 million as of June 30, 2015. Days sales outstanding were 179 days in the third quarter of 2015, compared to 128 days in the second quarter of 2015.

As of September 30, 2015, the Company’s accounts payable had decreased to RMB4,802.8 million (US$755.7 million) from RMB5,432.2 million as of June 30, 2015. Days payable outstanding were 236 days in the third quarter of 2015, increased from 192 days in the second quarter of 2015.

As of September 30, 2015, the Company’s inventory had decreased to RMB1,285.6 million (US$202.3 million) from RMB1,522.4 million as of June 30, 2015. Inventory turnover days were 63 days in the third quarter of 2015, increased from 54 days in the second quarter of 2015.

As of the date of this press release, the Company had approximately RMB6,758 million in unutilized short-term lines of credit and approximately RMB1,269 million in committed long-term facilities. The Company repaid approximately 70% of the RMB1.0 billion five-year unsecured medium-term notes due in October 2015 and is exploring various measures for repayment of the remaining portion of the notes before October 2016. The Company is also working on a number of financing options to continue to manage the Company’s liquidity and to enhance its financial flexibility.

China

Due to China’s nationwide delay in subsidy allocation, long-term operation of large ground-mounted PV stations would require significant capital, and in consideration of the Company’s cash flow challenges, the Company decided to suspend the downstream development business in China since September 2015 until its recovery to a healthy financial position and continued to accelerate the disposition of downstream assets held by the Company in order to collect funds related to downstream business. As of the date of this press release, the Company has sold a total of approximately 115MW of PV projects and is negotiating with certain leading corporations in China for the sale of a total of approximately 200MW of PV projects.

Overseas

With focus on selling rather than holding to efficiently recycle cash back into the project development portfolio, the Company has developed a downstream project development business with a portfolio footprint in Europe, Africa and other markets outside of China.

In the third quarter, the Company expanded its Polish project portfolio by 30 MW to a total capacity of 60 MW, which will be developed for inclusion in the Polish auction system in 2016 through 2017. In Turkey, the Company entered into a new partnership to jointly develop a pipeline of 20 MW of utility scale projects. Therefore, as of the date of this press release the downstream project portfolio outside of China has reached a total capacity of over 200 MW.

Business Outlook for Fourth Quarter and Fiscal Year 2015

Fourth Quarter of 2015

Based on current market conditions, the Company’s current operating conditions, estimated production capacity and forecasted customer demand, the Company expects its PV module shipments to be in the estimated range of 420MW to 440MW for the quarter ending December 31, 2015.

Fiscal Year 2015

Based on current market conditions, the Company’s current operating conditions, estimated production capacity and forecasted customer demand, the Company expects its total PV module shipments to be 2.35GW to 2.40GW for the fiscal year ending December 31, 2015.