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Yingli Green Energy Holding Company Limited. (NYSE:YGE)

Q4 2013 Earnings Conference Call

March 18, 2014 8:00 AM ET

Executives

Zhen Hua Fan – Director-Legal Affairs

Liansheng Miao – Chairman and Chief Executive Officer

Yi Yu Wang – Chief Financial Officer

Zong Wei Li – Chief Strategy Officer and Executive Director

Qing Miao – Vice President of Investor Relations and Corporate Communications

Robert Petrina – Managing Director and Vice President of Sales Americas

Darren Thompson – Managing Director and Vice President of sales International AG

Analysts

Vishal Shah – Deutsche Bank AG

Matt Koranda – Roth Capital Partners, LLC

Andrew Hughes – Bank of America Merrill Lynch

James Medvedeff – Cowen & Co. LLC

Patrick S. Jobin – Credit Suisse Securities

Operator

Hello, ladies and gentlemen, this is Hon. 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 Full Year 2013 Financial Results Conference Call. All lines have been placed on mute to prevent background noise. After today’s presentation, there will be a question-and-answer session. Please follow the instructions given at that time if you would like to ask a question.

Now I would like to transfer the call to the host for today's call, Zhen Hua Fan, Director of Legal Affairs of Yingli Green Energy. Fan, please proceed.

Zhen Hua Fan

Thank you, Operator and thank you everyone for joining us today for Yingli’s fourth quarter and full year 2013 financial results conference call. The fourth quarter and full year 2013 earnings release was issued earlier today and available on the company’s website at www.yinglisolar.com. We have already provided supplemental presentation for today’s earnings call, which can also be found on our IR website. I hope you all had the chance to read it by now.

On the call today from Yingli Green Energy are Mr. Miao Liansheng, Chairman and Chief Executive Officer; Mr. Wang Yiyu, Chief Financial Officer; Mr. Bryan Li, Executive Director and Chief Strategy Officer; Ms. Miao Qing, Vice President of Corporate Communications; Mr. Robert Petrina Vice President of Sales and Managing Director of Yingli America and Mr. Darren Thompson, Vice President of Sales and Managing Director of Yingli Europe.

The call today will feature a presentation from Mr. Miao, covering business and operational developments. Mr. Petrina and Mr. Thompson will talk about the development of American, European and other emerging markets, respectively; and then Mr. Wang will take you through a discussion of 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 terminologies such as will, expect, anticipate, future, intends, plans, believes, estimates, and similar phrases.

Such statements are based upon management’s current expectations and current market operating conditions and relate to events that involves 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 the Yingli Green Energy’s filings 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 like now turn the call over to Mr. Miao. Please begin.

Liansheng Miao

[Foreign Language]

Hello everyone. Thank you for joining us today.

[Foreign Language]

I’m pleased to share with you that we don’t for the first quarter and full year of 2013, robust demand from China and U.S., Japan and other emerging markets, grew our shipments in the fourth quarter to a new historical high with increasing of approximately 11% quarter-over-quarter. In 2013, we sold more than 3.2 gigawatt, of PV modules, which represents an increase of approximately 40% from last year. According to independent market research, Yingli is positioned to retain the worlds largest the PV module supplier for the second consecutive year. This success is due to our exceptional results in several defined markets, specifically be a top supplier in China, the United States and Germany, importantly our fourth quarter gross margin for sales of PV module improved to 14.2% from 13.7% in the third quarter, due to continuously pricing stability in our ongoing focus on continuous cost reduction.

[Foreign Language]

2013 was our transformative year for China’s PV industry; the government accelerated the deployment of solar power by straight lining the grid connection counters, the engineering and new national feed-in tariff and improving the financing environment with favorable policies. The combination of support mechanisms demand for clear and supportive financing environment catapulted China PV markets to the top of global demand, our shipment in China in the first quarter of 2013 increased by over 60% compared to of that in 2012, and the proportion of China sales in our total shipments also increased significantly. Furthermore we have also managed improved receivables collection and significantly reduced the base outstanding in China.

[Foreign Language]

The major evolution of our business strategy, we have been productively expand our downstream business trade-ins [ph] and are transforming into a provider of solar energy solutions,, by the end of 2013, we had completed the construction of 128 megawatt of PV projects in China, and had successfully connect to two-thirds of these projects to the grid. The remaining portion is expected to connect to the grid by the end of April this year.

Through continuous efforts, we have approximately 1 gigawatt of PV projects pipeline under different approval stages across more than 10 provinces in China such as Hebei, Xinjiang and Yunnan. In 2014, we plan to complete the construction of 400 megawatts to 600 megawatts of project. In parallel, we are preparing for selling those projects to arrive at these items, including as published joint venture and enter into strategic framework agreement.

In addition, we are looking at opportunities to develop overseas utility-scale project through overseas subsidiaries and have received the certificate for contracting foreign energy link project issued by China Government. As of now, we have approximately 200 megawatts of project pipelines overseas and are expecting to complete the construction of 30 megawatts to 50 megawatts of this project in 2014.

[Foreign Language]

In February, the National Energy Administration officially outlined the installation target of 14 gigawatts. So 2014 comprises of those utility scale projects and distributed generation projects. In the past few months, owners have distributed PV projects in Hebei province and other provinces successfully received monthly settlement of FIT and utility charge from stage grade.

We believe that the installation target of 14 gigawatts and the settlements of FIT and utility targets not only indicated strong national support that distributed PV project is moving forward, but also pushed the stakeholders’ confidence in the economics of PV applications. In the recent NPC and the CPPCC meetings, China’s Prime Minister, Li Keqiang said, in his government what we report that China will continue to develop a smart power group, promote distributed energy resources, especially encourage the development of solar input energy.

[Foreign Language]

In addition to establishing our leading position in the largest solar markets, such as China, U.S., Europe and Japan, we have also achieved significantly balanced in new and emerging solar markets. In 2013, we sell our projects to approximately 50 countries that were previously considered emerging markets.

Results in year-over-year shipments increased of 600% in this market. specifically, we have operated a total contract of 258 megawatts for multiple projects in Algeria, comprised of multiple projects. We achieved that this led mark success to cooperation with Sinohydro and CNTIC. These demonstrate the success of our evolution to deploying a more active role in downstream, and it is anchored in the strength of Yingli Solar brand. the success is achieved across the world in the replication it stands for.

[Foreign Language]

Throughout 2013, the company continued its efforts to join technology innovation at all levels of our operation and further integrated the most innovative materials coupled with investments in our top line workers’ materials. Our non-silicon costs in 2013 decreased by 14% year-over-year. our manufacturing cell efficiency in 2013 reached to 17.6%. Our mono-crystalline cell efficiency in 2013 reached to 19.7%. notably, PANDA sale reached a record conversion efficiency of 21% on the turnaround. In 2014, we expect to mass produce a variety of new generation of other PANDA series modules, bigger but lighter weighted and high efficiency. our proprietary goal is to create differentiated products that provide more value for our customers and accelerated the deployment of solar across the world.

[Foreign Language]

2014 will show continued growth in the traditional markets, such as – as well as exceptional growth in emerging markets such as Africa, South America and South East Asia. We expect that global new installed PV capacity will reach approximately 45 gigawatts in 2014, and stable our leading position in these markets. Yingli’s target to achieve 4 gigawatts to 4.2 gigawatts of PV market shipments in 2014, including 400 megawatts to 600 megawatts downstream projects.

With the beginning of 2014 World Cup in Brazil, we will launch series of marketing activities in major markets to promote our leading technology and a superior product quality to further building our brands.

[Foreign Language]

Next Robert and Darren will walk you through American and European other markets. Thanks.

Robert Petrina

Thanks you, Mr. Miao Liansheng. In the Americas, Yingli concluded the fourth quarter on a high note and accomplished a record setting 2013. the third quarter, which saw us ship the highest quarterly volume ever in the Americas. we finished off the year with another solid quarter and a very healthy pipeline for the first half of 2014 and beyond. Overall, we benefited from the strength and diversification of the U.S. market across all segments, the secured contracts in place in Canada, as all the tremendous growth across Latin America and the Caribbean.

Operationally, we made tremendous progress in optimizing our supply chain and taking cost out of our fulfillment process that’s driving higher margins for our business and creating more value for our customers. Furthermore, we continued to strengthen our efforts to build our brand and better support our customers across the various segments in which they operate.

In the United States, the fourth quarter was our second best quarter ever and overall in 2013. Unit sales increased by over 150% year-over-year to reach Yingli Green Energy Americas highest annual volume and quite possibly, the largest annual supply of crystalline, silicon PV modules in the United States. Our sustained efforts to diversify our customer base are paying off. and in Q4, we transacted with 35 customers, but in the full year, customer figure at 67.

Our momentum in the utility segment continued throughout year, and we were successful in not only concluding those projects are right on their way in 2013, but also secure significant contracts for delivery in 2014. Importantly sales in the non-utility segment grew by 22% quarter-over-quarter, as we continued to maintain a balanced exposure to the market. In the residential segment we continued to build on the strengths of our diverse customer base and the strong demand that the segment is exhibiting.

In Canada, the fourth quarter sales is complete a set of large-scale projects in Ontario in which Yingli shipped over 125megawatts of OPA FIT-compliant modules for major developer, through our locally-based contract manufacturing partner. In Latin America, our results in the region were strong and demonstrate our commitment to becoming the leading modules supplier in that region. Total sales volume increased 114% quarter-over-quarter while sales to the distributed generation market segment increased nearly 200% year-over-year. Our customer base increased by 118% through the addition of 44 new customers across the region.

In 2013, the Yingli sold its first utility-scale products in Chile and Ecuador and supplied megawatt-scale projects in Brazil. The company’s operations expanded within the region as we established permanent officers and local inventory in Mexico and Brazil, which have allowed us to be more responsive to our customer needs and more nimble to adjusted business market conditions evolve and mature.

Looking towards 2014, we will further expand our operations by establishing a permanent sales office in Chile to support that market’s substantial utility-scale opportunities, we optimistic about the prospects of the Mexican market, where we significant volume moving to prior utility-scale PPAs. We also recognized high potential utility-scale markets in central America countries such El Salvador, Honduras, Costa Rica and Panama while tremendous [indiscernible] opportunities exists throughout America especially in Peru.

As the industry evolves, we’re determined to provide even more value to our customers above and beyond the module supplier of choice. As an example, we announced our partnership with U.S women’s, national soccer team legend Mia Hamm to promote the solar energy nationwide, Mia and her husband baseball star Nomar Garciaparra are currently promoting affordable home solar solutions to radio ads and signage at numerous youth soccer tournaments in major markets such as California and New York. In Peru we initiated a formal lead distribution partnership to provide higher quality leads to our key residential customers which are driven to targeted online ads.

Looking ahead, we’re optimistic on the state of the solar industry in the U.S., Latin America and the overall region. 2014 is picking up where 2013 left off, demand is strong in our book of businesses filled and well balanced. The momentum we are witnessing we will be enduring and we believe that we are just getting started in what will be a tremendous end market for years to come. We are confident that with cooperation and support of our customers and other key stakeholders, we will navigate the uncertainty of this new trade petition and soon be able to focus on our key mission, which is drive adoption of solar energy across the continent and the world.

I’ll now pass it over Darren, who will walk you through Europe and the other regions.

Darren Thompson

Thank you, Roberts. As guided in our Q3 earnings call, Q4 European shipment demand softened as a result of the build up in channel inventory before implementation of the undertaking agreement on the 6th of August and the reluctance of trade channels to carry inventory into the New Year. This was further compounded by monthly installations in Germany declining by a third, versus the previous quarter to an average of 200 megawatts per month.

In addition, rising ASPs as a result to the undertaking agreement reduced the attractiveness of solar investments in segments in countries where solar support mechanisms have been weakened. In combination with growth in Yingli’s shipments in Q4 globally, Europe’s contribution to global shipments was diluted to 11% in Q4. According to HIS in 2013, Yingli became a number one solar PV panel supplier to Germany, shipping twice as much volume on nearest competitor.

In addition, recent EUPD research confirmed that Yingli have become the most purchased solar of PV brand by German installers, with one in three installers having installed a system powered by Yingli panels during 2013, nearly twice as high as our nearest competitor. Our long-term investments in our customer base, products, brand and employees paid dividends during a difficult 2013 providing a strong platform to convert opportunities in 2014.

We expect the German market will stabilize at 200 megawatts per month with upside towards 250 megawatts per month, inline with the governments target corridor on subject to any EEG adjustments that would enter into force on the 1st of August. Demand in Germany will predominately take a form of rooftop installations as will most Europe as large-scale policy support wanes and economics suffer from the rise in ASPs.

The transition to a predominately rooftop market across Europe will require products with high efficiency to deliver incremental power to area-constrained roofs and support balance of system reductions in a higher module cost environment. Yingli’s high efficiency Panda technology is ideally positioned to capitalize on this trend and is reflected in forecast demand levels and customers that are at historical highs in the first half of the year.

The U.K project market threw a significant demand head of the Q2 work adjustment exemplified by Yingli’s success in securing panel supply for portfolio of projects totaling 64 megawatts in Q1. Rooftop distribution demand continues to establish and grow based on existing FIT scheme and rooftop aggregation models begin to make traction to low financing costs.

Diversification in Europe continues as more countries deploy solar to meet 2020 binding National and Renewable Energy Action Plan targets and these new markets begin to grow as [indiscernible] and investors gain confidence in the technology and economics. The South East European region although fragmented provides opportunities for rooftop demand through typical distribution modules on medium-size projects such as the 1 megawatts Serbian project where Yingli was selected as preferred panel supplier.

In terms 2013 Yingli shipped product to over 20 countries in Europe nearly double after 2012, clearly illustrating the increasing diffusion of solar deployments across the region. Europe will remain a challenging market in 2014 giving incentive scheme adjustments including retroactivity, regulatory uncertainty such as grid cost recovery, lobbying from entrenched incumbents on the MIP, the Chinese manufactures that raises cost for solar electricity.

Giving the current decline in demand from Europe compared to historical levels, we’ve completed restructuring of a European organization to scale resources commensurate of European demand. This will ensure Yingli retains a strong commitment to material presence in the European market at a level that is economically justified. In parallel we [indiscernible] resources to focus on supporting Yingli’s business development in emerging markets in Africa and the Middle East where solar is competitive with alternatives. The model supply contracts announced for Israel and Algeria 27.5 megawatts and 258 megawatts respectively are example of Yingli’s investments in emerging markets to capture these new opportunities.

In the Middle East we continue to establish our presence as a leading player, demonstrating our ability to gain rapid traction in countries such as Jordan where we announced in Q4 a panel supply contract for 1 mega watt project. We anticipate growth in the region based predominantly smaller projects less than 1 megawatt during the first half of the year with acceleration in the later part of 2014 with large utility-scale projects reach construction phase.

Moving deep into Africa, Yingli has had a successful 2013 securing module supply for 96 megawatt project in around two and the other countries in Sub-Sahara Africa are looking to emulate South Africa’s lead in utility-scale segment in the attractive economics so fuel displacement and related [indiscernible] begin to create grass roots demand.

Yingli is closely working on these opportunities with traditional and new local partners to capture the early establishments in growth phase of solar PV in this region. In Southeast Asia, we’ve achieved successful market penetration in several countries including a 10-megawatt project that contributed to our Yingli market share of 12% in Malaysia in 2013. The region remains challenging due to political risk profile of several countries, subsidized electricity prices in others distorting the competitiveness in solar PV.

However, with the region supporting a population of over 600 million people with intermittent electricity, high penetration of diesel generation and urban peak electricity prices approaching $1 per kilowatt hour in countries like Philippines, we believe that the region has the fundamentals to grow strongly. Yingli will increase its resource footprints in Indonesia and Philippines during 2014 to further build our bond presence and grow sales.

Last but not least, in Australia the change in government created some uncertainty given the review of the energy target that underpins incentives support for solar systems less than a 100 kilowatt peak. Pricing remains aggressive, although more attention is now being given to quality as consumers became more educated. We achieved close to a 5% market share in 2013 from a standing start and now have an established local team to further develop our channels to market and our value proposition particularly in the area of financing that has proven a demand bottleneck.

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

Yiyu Wang

Thank you, [indiscernible]. Thank you all for participating our fourth quarter and the full-year 2013 earnings update. I am glad to report this quarter’s results especially a historical high quarterly module shipment, the increased net revenues and the steady improving gross margin of PV module.

Exceeding our previous guidance of that a mid to high single-digit percentage increase, total PV module shipments including shipments for PV systems in Q4 increased by 11.4% quarter-over-quarter. This was driven by the lowest demand in traditional market like China, U.S., Japan and the emerging markets like South Africa, India, Middle East and Australia.

Total net revenues increased by 2.8% quarter-over-quarter to US$613 million. The slight increase in the net revenues was primarily attributed to the increased PV module shipments, which was partially offset by a decline in [indiscernible] revenue in Q4 of 2013. Meanwhile, we continue to focus on driving panel manufacture costs in Q4.

Our non-product costs per watt peak was including the non-cash depreciation expenses was US$42, which increased by US$2 essentially from US$0.44 in Q3 2013. Overall gross margin was US$74.6 million in Q4 compared to a US $81.5 million in Q3 2013.

Overall gross margin was 12.2% in Q4 of 2013 decrease from 13.7% in third quarter of 2013. In the fourth quarter of 2013, the company recognized a year-end tax adjustment as a result of the implementation of revised VAT exemption, offset and refund policy in China. Excluding the year-end tax adjustment, gross margin for sales of PV modules would be 14.2% in fourth quarter of 2013, slightly increased from 13.7% in the third quarter of 2013.

Moving down to the operating loss. Operating expenses were US$172.8 million in Q4, which were impacted by a non-cash provision. In the fourth quarter, the company recognized a provision of RMB 480.2 million, US$79.3 million on its inventory purchase commitment under long-term poly supply contracts.

As a result of the company's re-assessment of its purchase commitments under long-term poly contracts. Based on current market price of polysilicon and current status of the company's performance and negotiations with its suppliers under the long-term supply contracts. The management has been negotiating with its suppliers on adjusting pricing under these long-term contracts. Should the negotiation progress be different from the current assessment, the provision would be adjusted accordingly to reflect a new assessment.

Excluding this non-cash provision, operating expenses would be US$93.4 million in Q4 2013, compared to US$93 million in Q3 2013. This quarter we expanded our operation scale and the meanwhile decrease our selling expenses slightly to US$45.1 million in Q4 from $46.6 million in Q3 2013. In addition, the company continue to reimpose tighter cost control in Q4 and as a result, G&A expenses decreased slightly quarter-over-quarter from $34.3 million in Q3 to $30.3 million in Q4.

Excluding the non-cash provision mentioned above, operating expenses as a percentage of total revenues was 15.2% in Q4 2013 further improved from 15.6% in the third quarter of 2013. As a result, operating loss was US$98.1 million with an operating margin of negative 16%. Excluding the non-cash provision, operating margin would be negative 3.1% in the fourth quarter compared to the negative 1.9% in the third quarter of 2013.

Interest expenses in Q4 was US$42.4 million, which decreased slightly from US$43.8 million compared to previous quarter. The weighted average interest rate of the company’s borrowing was 6.33% in Q4, increased slightly from 6.29% in Q3. The company’s efforts on reducing its debt amount result a slight increase in Q4 interest expenses.

By December 31, the company had an aggregate of US$2.4 billion bank borrowings and medium notes, compared to US$2.6 billion by the end of Q3. Given a net Euro nominated monetary assets position and the appreciation of the euro-dollar against RMB. Foreign currency exchange gain was US$2 million in Q4. Income tax expenses of US$0.4 million. Net loss in Q4 was US$128 million and loss per ordinary share and per ADS was US$0.82 GAAP basis. On an adjusted non-GAAP basis, net loss was US$47.9 million and loss per ordinary share and per ADS was US$0.31.

Let’s move to the balance sheet. As of December 31, 2013, our cash and cash equivalents were US$462.2 million improved from US$442.7 million. As of September 30, 2013, operating cash flow in fourth quarter was positive and continuously improved since the beginning of 2013. As of the end of Q4, our accounts receivable decreased to US$771.9 million from US$811 million at the end of Q3. As a result, the days sales outstanding were 113 days in Q4, improved from 122 days in the previous quarter. Inventory was US$335.7 million as of the end of Q4 significantly reduced from the US$467.5 million as of September 30, 2013.

Inventory turnover days were 56 days in Q4, improved from 82 days in Q3. Accounts payable were US$910.4 million as of December 31, compared to US$810.2 million as of September 30. Days payable outstanding were 150 days in Q4, which increased from a 142 days in the third quarter of 2013. Furthermore, we maintain positive relationship with major banks in China.

As of today, we have approximately US$1.1 billion in unutilized short-term lines of credit in the US$327 million, committed a long-term facility that can be drawn now in near future. Let’s move to the full-year 2013 results. As Miao commented earlier, we are prouder to retain the largest PV module suppliers across the world in the second consecutive year. Our module shipment increased by 40.8% from 2012 to 2013.

Total net revenue for the full-year 2013 were US$2.2 billion compared to US$1.8 billion in 2012. The increase in total net revenue year-over-year was mainly due to the significant increase in the PV module shipments volume partially offset by an industry-wide decline in the average selling price for the PV modules compared to 2012. Gross profit was US$241 million in 2013 compared to a gross loss of US$59.2 million in 2012. Overall gross margin was 10.9% significantly improved from 3.2% in 2012. Net loss was US$321 million in 2013 loss for ordinary share in the ADS was US$2.05.

On an adjusted non- GAAP basis, net loss was US$237 million and adjusted non-GAAP loss to ordinary share in the per ADS was US$1.52. Now I would like to discuss our guidance for Q1 and full year 2014. Based on the current market condition and forecasted customer demand, we expect our module shipment in Q1 2014 decrease by a mid-20% from Q4, 2013. Currently we have an annual name plated capacity of 2.45 gigawatts covering the Photovoltaic value chain from ingots casting wafering through the solar sale production and the module assemble.

As a result of our efforts in continues technology innovation and all levels of our operation and equipment upgrade by degrees. We can achieve round 130% of production utilization rate based on the [indiscernible] even high rates for module assemble now our actual module capacity can reach approximately 4 gigawatt.

For the full year 2014 shipment were expected to be in the estimated range from 4 gigawatt to 4.2 gigawatt representing an increase of 29.4% to 32.6% from 2013. From a geographical breakdown of 2014 we expect around 29% of the total shipment will be come from China around 16% from U.S., around 15% from Europe and around 40% from the rest of the world.

In 2014, we expect to continuously improve our probability in the coming quarters based our current forecast of module price, volumes and overall manufacturing cost. We expect our gross margin in Q1 2014 to be in the range of 14% to 16%. In order to further leverage our Yingli’s core competitiveness downstream project investment opportunities. Yingli Green Energy would consider various strategies in downstream business, including [indiscernible] sale projects to third-parties, retaining and operating sales development PV project, forming joint ventures to develop and operating project and providing EPC services.

Currently the company had approximately 1 gigawatt of PV project pipeline under different approval stages according – across 10 province in China such a [indiscernible] province and continue to develop actively new pipelines for PV projects in the other providence including in Qinghai in Mongolia, Qinghai, Gansu and [indiscernible] province, Yingli Green Energy plans to complete the construction of approximately 400 to 600 megawatt of those project by the end of 2014. And are expecting to construct up to 25 projects in the first quarter of 2014, of which we have obtained project loan approvals from domestic banks probably with several large enterprises, the company is evaluating various approaches to hold or sell those projects.

Besides project opportunities in Europe, Yingli Green Energy is expanding into emerging markets like Africa, the Middle East, Central and South America, through various models including co-development and joint ventures with existing or new partners. Currently, the company has a pipeline of 200 megawatts utility-scale projects outside China and aims to complete the construction of 30 megawatts to 50 megawatts in 2014.

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

Question-and-Answer Session

Operator

(Operator Instructions) Your first question comes from the line of Vishal Shah from Deutsche Bank. Please ask your question.

Vishal Shah – Deutsche Bank AG

Yes, hi thanks for taking my question. I wanted to ask you Robert on what you are seeing in the U.S. market right now in light of some of the uncertainty around the trade agreement, have you seen prices go up, are you doing business with your customers or what kind of negotiation are you having right now with your customers. And then Yiyu you mentioned China will be pretty strong this year can you talk about the year, how you think about the demand in China through the rest of the year I mean what do you think Q1 is looking like in China? Thank you.

Robert Petrina

Sure I’ll take the first one Vishal. I think you’ve seen in the U.S. over the last two months really attrition has been sort of forming through the information channels throughout the market, pricing has certainly begun to change in the second half of the year, people are taking different approach understanding that there is going to be a need to be more collaborative around how the deals are structured. So there is an equitable sharing of the risk of any potential preliminary tariffs, there is still a lot of uncertainty with respect to work scope color. So I think to answer your question simply, pricing is moving up and I think for the second half of the year people are going to be working to strength deals that make [indiscernible] round any potential outcomes of the preliminary tariffs.

Yiyu Wang

[Indiscernible] question. I think for 2014, we believe that China will be a very, very attractive and important market. We based on a current guidance announced by the government; we expect that China will have maybe at least 14 gigawatts market for 2014. Based on the recent announcement and the guidance in the relating solar industry policies feed-in tariff systems and relating policies. The China has become a more and more market [indiscernible] downstream policies to ensure the solar project has become a very reliable investments. Current in the China government are not only encouraging the solar project, but also even more encouraging the distribution roofing market.

Based on the recent message that we heard and we obtain from the people’s congress just finished few days ago. Different levels of many – different levels of government officials including from the people’s congress from grid company. They are become very open to the solar market; even our Chairman is saying to make the solar enter into every family’s home. So, I think we’re very positive.

So going to Q1 given China [indiscernible] seasonal installation quarters through the whole year, normally Q1 is slightly down and then normally ramp-up in Q2 Q3 and continue to be through the November even first of December through the whole year. Actually in this year, we found the trends has been pick up much early before, normally in previous quarter – previous year people would start to plan for the project since the end of Q2, but now we even see people already start to open biddings of our projects to be supplied since Q2. so all-in-all we are looking for a very exciting market in China for 2014.

Vishal Shah – Deutsche Bank AG

Thank you Yiyu, one last question at what levels of volumes can you achieve profitability? Thank you.

Yiyu Wang

So, I think based on our current forecast, we expected to ship roughly 4 gigawatt to 4.2 gigawatt through the whole year. We will continue to low our project manufactures of panels. We will continue to decrease our operation expenses, and we expect regarding to the 400 megawatts to 600 megawatts project, we will construct and complete this year, probably 50% will be roughly sold to third parties and based on our debt and based on that, and based on order current feed-in tariff system, IR et cetera. We expected our company will be started to catching breakeven through end of Q2 and start to make profit from early Q3.

Vishal Shah – Deutsche Bank AG

Thank you.

Yiyu Wang

You are welcome.

Operator

Thank you for your question. Your next question comes from the line of Philip Shen from Roth Capital. Please ask your question.

Matt Koranda – Roth Capital Partners, LLC

Hi, guys it’s Matt on for Phil. Thanks for taking our questions. Just wanted to start with project economics in China. Could you give us a sense for where project ASPs currently stand in China and where could they get hit more large institutional buyers enter the market in 2014?

Yiyu Wang

Okay. Thank you for your question. I think currently in China based on the current feed-in tariff level and by different regions and the current finance costs you can obtain in China for up to 15 years project finance. So, you can achieve a roughly 9% to 10% IR based on a system price to be sold above US$1.3 per watt peak without any reach in China.

Based on this kind of IR 9% to 8% operating leverage with all the financial loss I think there is already hit the sweet spot for a lot of that utility company found in the other big groups to hold the project. Since the end of last year through the Q1, we have been successfully signed joint-venture agreement and the strategic agreement for setting project with different companies, some of them are from the utility industry, some of them are from the non-utility industry like mining industry, like big trading companies in China.

And even there is some overseas fund raised from Hong Kong or Singapore to invest project in China. Based on this kind of assumption and based on our module cost and based on the current US cost in China, we expect it can generate a mid-teen percentage if you’re setting system in China. Thank you.

Matt Koranda – Roth Capital Partners, LLC

Okay. That’s helpful and one more if I may. Can you share with us your module ASPs by major region during Q4, and provide an outlook for each of those regions for 2014 as well. Thank you.

Yiyu Wang

Our Q4 ASP is slightly below $65 like $0.01 to $0.02 below 65%. Among that the U.S. and the Japan pricing is above this level and European as well. The China and the rest of the world average a slightly below this level.

For 2014, we expect our ASP in Q1 will be slightly increased in based on Q4 2013 level, given we shipped less volume to China among the total output. And at the end through the whole year, we expect the ASP price will be maybe $0.01 higher than in the Q4 2013 level and could be maintained flattish or maybe slightly up slow quarter-by-quarter.

Matt Koranda – Roth Capital Partners, LLC

Okay. That’s it from us. Thanks to you.

Yiyu Wang

You’re welcome.

Operator

Thanks you for your question. The next question comes from the line of Krish Sankar from Bank of America. Please ask your question.

Andrew Hughes – Bank of America Merrill Lynch

Thanks guys. Andrew on for Krish, I’m just curious given your confidence and your liquidity position currently given some credit downgrades and some of your own notes on the recent default we saw. I’m sorry just how do you judge your confidence level in your liquidity position going forward?

Yiyu Wang

I think we’re quite confident to maintain our liquidity at a very safe level, due to the following reasons. The first is through 2014 based our efforts on increased our volumes and continue to decrease our costs and also the control effort on reducing the operating expenses, we will continue to cut down our loss and looking forward to make net profit through the mid and Q3 of this year.

The second is, at this year we don’t have too much CapEx to expand our facility and our CapEx will be decreased more than 20% based on 2013 level. We will continue to increase our operating cash flow through 2014. Then based on our development and achievement to the downstream business in 2014, this can help us to further enhance our probability and operating cash flow for the downstream business. And we have been successfully cooperate with some big companies in China through joint venture to co-invest the project, which can also release our CapEx through the accurate portion investing the project.

In the 2013, when the market had at the most downturn, we have already successfully to rotate all the facilities with majority of our banks and even we have been introducing some new banks to providing our facilities in the downstream and also for the operation of the private PV manufacturers. So, put all these together I think we feel quite comfortable to increase our liquidity in 2014 continuously and will be continuously do that in the following years.

Andrew Hughes – Bank of America Merrill Lynch

Yes, I appreciate the color. And then just a follow-up. For the 25 megawatts in China project completion slated for Q1, do you have a sense of how the sellers hold breakdown for those will be. I know you are evaluating strategies more broadly, but just curious on those Q1 megawatts? Thanks.

Bryan Li

In Q1, I think we expect to amount our total shipment. We expect up to 25 megawatts will be shipped to this two projects. These two project at this moment has been secured from bank for the project finance over 15 years. One of the projects has already brought a commitment from a joint venture partner to acquire them account to some countries of the, with the connections. And the another project is we will be start construction now and we expect this can be also maybe sold or maybe self owned through our short-term period and can be sold maybe through the – through the remaining quarters of this year.

Andrew Hughes – Bank of America Merrill Lynch

Okay. Thanks, guys.

Bryan Li

You’re welcome.

Operator

Thanks for your question. The next question comes from the line of James Medvedeff from Cowen & Company. Please ask your question.

James Medvedeff – Cowen & Co. LLC

Hi, good evening.

Yiyu Wang

Hi, good evening.

James Medvedeff – Cowen & Co. LLC

My question is on the 4.2 gigawatt to 4.4 gigawatt target for this year. One is the, how is your visibility on that, how much of it is booked, how much of it is already booked?

Robert Petrina

I think the first is, we have our guidance is from 4 gigawatt to 4.2 gigawatt.

James Medvedeff – Cowen & Co. LLC

Yes, pardon me.

Robert Petrina

No problem. At this movement, we have almost close to around – close to 1.5 gigawatts with the commitment, but that strongly indicative commitment to be shipped.

James Medvedeff – Cowen & Co. LLC

And my follow-up question is on the 2.45 gigawatts of capacity of running a 30% of about name plate is about 3.2 gigawatts. How do you intend to make up the additional 800 megawatts to 1 gigawatt?

Yiyu Wang

Okay, your calculation is right, I mean this two 2.5 gigawatt name plated with the actual output around 3.2 fully vertical from ingot wafer sales and module, actually we already have additionally around 1 gigawatt assemble facility, already ramp up through the 2013, because we needed to buy some third-party sales to supply to some markets when is necessary.

James Medvedeff – Cowen & Co. LLC

Okay and finally what was the dollar amount of the tax adjustment in cost of goods sold?

Yiyu Wang

It’s around $7.5 million.

James Medvedeff – Cowen & Co. LLC

Thank you. Congratulations.

Yiyu Wang

You are welcome.

Operator

Thank you for your question, your next question comes from the line of Patrick Jobin from Credit Suisse. Please ask your question.

Patrick S. Jobin – Credit Suisse Securities

Hi, thanks for taking my question. I’m trying to understand that gross margin of PV system sales. Its looks like a negative 19.5% gross margin, could you maybe help us understand anything specific in the fourth quarter, was this VAT adjustment going through that line or is that more in the module sales? And then how many megawatts were recognized for systems sales in Q4. And then I have a follow-up. Thanks.

Yiyu Wang

First to your last question in 2013 Q4 we’ve recognized roughly 8.5 megawatts systems for this quarter.

Patrick S. Jobin – Credit Suisse Securities

Okay and then give a gross margin target for PV system sales and any reason why Q4 margin had any one-time items for system sales?

Yiyu Wang

Because this PV system sales with the system costs, because some modules cost adjustments, we’ve made for these small PV system, we made in Q4.

Patrick S. Jobin – Credit Suisse Securities

Okay and then last question when you think about cash flow for 2014, presumably the project that you are building and retaining and putting on balance sheet you are going to have an equity component roughly what do you think that investment is by Yingli for those projects, would you be thinking about maybe 25% equity investments in those projects. Thank you.

Yiyu Wang

I think maybe you can forecast like this way, so our PV system costs we develop could be around $1.1 per watt peak, so I assume 25% of them is through equity and you can use them to modeling if we develop like 400 megawatts to 600 megawatts, but as I mentioned, we already formed several joint ventures to develop and the project with some big companies and for this joint ventures most some of them that we own are minority shareholders and but we were provided the whole PV system construction and development services. So, actually this can significantly help us to saving our equity investors. I would like to say amount of total equity for the 400 megawatts to 600 megawatts if needed, maybe we just needed to prepare maybe around a 50% to 60% of the cash, because the remaining can be injected by our joint venture partners.

Patrick S. Jobin – Credit Suisse Securities

Okay. And just a clarifying question, you said 50% of projects you anticipate selling to third parties, with the other 50% be purchased by these joint ventures you are mentioning. Thanks.

Robert Petrina

Yes, I think currently based on the current expectation and all the negotiations and achievement we have at this moment. We expect we will sell 50% of our downstream projects to the third-parties including joint ventures. However, at this moment we have been also see a very active demand of fine projects even from some very active demand on fine projects even from some of the existing module customers, who are utility company. So, we believe to sell the project is our first priority in the 2014 and we are looking forward to achieve a more percentage of our project to be sold to the third-parties.

Patrick S. Jobin – Credit Suisse Securities

Thank you very much.

Robert Petrina

You are welcome.

Operator

Thank you for your question. Your final question comes from the line of Vishal Shah from Deutsche Bank. Please ask the question.

Vishal Shah – Deutsche Bank AG

Yes, hi Yiyu, I just wanted to clarify a comment on the cash flow and just the need for more financing this year. Can you talk about what your expectations are for operating cash flow in Q1 and then how you think about the rest of the year and whether you need to raise more capital in order to support the existing business operations. Thank you.

Yiyu Wang

I think we have a positive cash flow in Q4 2013 and for the whole year 2013, our operating cash flow is also positive. Given the seasonally slowdown in Q1, our cash flow will be somehow breakeven in Q1 2014 and we will be start to increase quarter-by-quarter again from Q2 to Q4, when the shipments started to be growing. And for the whole year 2014 we expected our operating cash flow will be significantly increased based on the full-year 2013 basis, including those sales of the system to the third-parties. So, based on that, given we don’t have any significant impact and we can be successfully to we will pay most of the loan and we believe we should be have enough sales generated net cash for the whole year.

Vishal Shah – Deutsche Bank AG

Okay. Thank you.

Yiyu Wang

You are welcome.

Operator

And that concludes our call today. Now I would like to transfer the call back to Ms. Miao Qing for closing remarks.

Qing Miao

Thanks for joining us today and if you have any further questions please e-mail us or call us. And this the end of the today's conference call. Thank you.

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