Yingli Green Energy Reports Third Quarter 2007 Financial Results

Yingli Green Energy Holding Company Limited (NYSE:YGE) (“Yingli Green Energy” or the “Company”), one of the leading vertically integrated photovoltaic (PV) product manufacturers in China, today announced its unaudited financial results for the quarter ended September 30, 2007.

Third Quarter 2007 Highlights

Total net revenues were RMB 1,276.5 million (US$170.4 million), an increase of 41.7% from the second quarter of 2007 and an increase of 129.5% from the combined1 third quarter of 2006.

Gross profit was RMB 302.9 million (US$40.4 million), an increase of 47.9% from the second quarter of 2007 and an increase of 90.2% from the combined third quarter of 2006.

Net income was RMB 179.0 million (US$23.9 million), a significant increase of 183.1% from the second quarter of 2007, as restated2.

Fully diluted earnings per ordinary share and per ADS were RMB 1.38 (US$0.18), an increase of 263.2% from the second quarter of 2007, as restated2.

PV module shipments were 45.9 MW, an increase from 31.1 MW in the second quarter of 2007 and 16.7 MW in the combined third quarter of 2006.

Mr. Liansheng Miao, Yingli Green Energy’s Chairman and Chief Executive Officer, said, “I am very pleased that we achieved another solid quarter of continued growth. Overall, the PV industry has maintained its momentum of rapid development and we have continued to experience robust demand from top tier customers for our high quality solar products. During the quarter, we successfully enhanced our market presence in Europe, which we believe will continue to be one of our most important markets. Our recent hiring of Mr. Stuart Brannigan as Managing Director for our European business will help us further solidify our market position in the European market. Mr. Brannigan has over 17 years of experience in the solar industry and has specific expertise in sales, marketing and procurement. We believe he will be a great asset for our continued success in the European market.”

“As one of our key strategic focuses, we continue to improve our quality control standards by utilizing cutting-edge testing equipment at each stage along our vertically integrated value chain, including ingots, wafers, PV cells and PV modules. We believe this will help assure that our high quality products satisfy the rising quality standards of our customers while also further enhancing our brand recognition,” continued Mr. Miao. “Additionally, although polysilicon supply remains tight in the market, we have already secured 100% of the polysilicon that we need for our expected output in 2007, and over half of our expected requirements in 2008.”

Third Quarter 2007 Financial Results

Net Revenues

Net revenues in the third quarter of 2007 were RMB 1,276.5 million (US$170.4 million), which increased by 41.7% from RMB 901.1 million in the second quarter of 2007 and by 129.5% from RMB 556.3 million in the combined third quarter of 2006. The increase was largely due to a rise in total shipments of PV modules, which increased to 45.9 MW in the third quarter, compared to 31.1 MW in the second quarter of 2007 and 16.7 MW in the combined third quarter of 2006. The rise in total shipments was primarily due to strong market demand and expanded sales and marketing efforts in Europe, which was supported by the launch of an additional 100 MW of total production capacity of polysilicon wafers, PV cells and PV modules in July 2007. The significant increase in shipments helped to offset a slight drop in the average selling price, which decreased from $3.76 per watt in the second quarter of 2007 to $3.70 per watt in the third quarter of 2007. Spain, Germany and Italy continued to be the Company’s largest markets, contributing significantly to total net revenues in the third quarter of 2007.

Gross Profit and Margin

Gross profit in the third quarter of 2007 was RMB 302.9 million (US$40.4 million), which increased by 47.9% from RMB 204.8 million in the second quarter of 2007 and by 90.2% from RMB 159.3 million in the combined third quarter of 2006. Gross margin was 23.7% in the third quarter of 2007, which rose from 22.7% in the second quarter of 2007, but decreased from 28.6% in the combined third quarter of 2006. The Company was able to increase its gross margin sequentially because of continued improvements in manufacturing processes as a result of successful R&D initiatives, which helped offset the increase in the average cost of polysilicon and a slight drop in the average selling price in the third quarter of 2007. The year-over-year decrease in gross margin was mainly due to the higher cost of polysilicon compared to the combined third quarter of 2006.

Operating Expenses

Operating expenses in the third quarter of 2007 were RMB 78.8 million (US$10.5 million) compared to RMB 57.2 million in the second quarter of 2007 and RMB 21.2 million in the combined third quarter of 2006. The increase in operating expenses was primarily attributable to the increased scale of business in the third quarter of 2007. While operating expenses as a percentage of revenue remained relatively consistent, declining from 6.3% in the second quarter of 2007 to 6.2% in the third quarter of 2007 as sales growth slightly outpaced increased operating expenses.

Operating expenses in the third quarter of 2007 also includes amortization of intangible assets of RMB 12.5 million (US$1.7 million) related to the acquisition of an additional 7.98% in the equity interest in the Company’s principal operating subsidiary, Baoding Tianwei Yingli New Energy Resources Co., Ltd. (“Tianwei Yingli”) on June 25, 2007 and RMB 6.8 million (US$0.9 million) related to share-based compensation expenses.

Operating Income and Margins

Operating income in the third quarter of 2007 was RMB 224.0 million (US$29.9 million), which increased by 51.8% from RMB 147.6 million in the second quarter of 2007 and by 62.2% from RMB 138.1 million in the combined third quarter of 2006. The operating margin increased to 17.6% in the third quarter of 2007 from 16.4% in the second quarter of 2007, but decreased from 24.8% in the combined third quarter of 2006. The increase from the second quarter of 2007 was primarily due to gross margin improvement and increased economies of scale. The decrease from the combined third quarter of 2006 was primarily due to a decrease in gross margin resulting from an increase in cost of polysilicon and operating expenses.

Interest Expense

Interest expense was RMB 5.8 million (US$0.8 million) in the third quarter of 2007, which decreased from RMB 20.2 million in the second quarter of 2007 and RMB 13.0 million in the combined third quarter of 2006. The decrease from the second quarter of 2007 was due to the redemption and conversion of the interest-bearing mandatory redeemable bonds and mandatory convertible bonds shortly after the completion of the Company’s IPO in June 2007. The Company also repaid a portion of its RMB loans and obtained U.S. dollar-denominated loans that carry a relatively lower interest rate. The average borrowing rate in the third quarter of 2007 was 6.18%, which decreased from 6.32% in the second quarter of 2007. Short term borrowings were RMB 1,152.0 million (US$153.7 million) at the end of the third quarter of 2007, which increased from RMB 988.4 million at the end of the second quarter of 2007.

Foreign Currency Exchange Gain/(Loss)

Foreign currency exchange gain was RMB 14.0 million (US$1.9 million) in the third quarter of 2007, compared to a foreign currency exchange loss of RMB 17.5 million as restated in the second quarter of 2007 and a foreign currency exchange loss of RMB 3.8 million in the combined third quarter of 2006. The foreign currency exchange gain in the third quarter of 2007 was primarily derived from an appreciation of the Euro on accounts receivables denominated in Euro and a depreciation of the U.S. dollar on the short-term loans denominated in U.S. dollars. The foreign currency exchange loss as restated in the second quarter of 2007 was primarily derived from the depreciation of the U.S. dollar and Euro on the accounts receivables denominated in U.S. dollars and Euro, respectively. See below “Restatement of Second Quarter 2007 Financial Information” for further explanation of a non-cash adjustment to the foreign currency exchange gain previously recognized in the second quarter of 2007.

Net Income before Minority Interest

Net income before minority interest was RMB 243.8 million (US$32.5 million) in the third quarter of 2007, which increased by 121.3% from RMB 110.2 million in the second quarter of 2007 as restated and by 115.4% from RMB 113.2 million in the combined third quarter of 2006. The minority interest in Tianwei Yingli held by Baoding Tianwei Baobian Electric Co., Ltd (“Tianwei Baobian”) decreased from 37.87% to 29.89% on June 25, 2007.

Net Income

Net income was RMB 179.0 million (US$23.9 million) in the third quarter of 2007, which increased by 183.1% from RMB 63.2 million in the second quarter of 2007 as restated. Fully diluted earnings per ordinary share and per ADS were RMB 1.38 (US$0.18) in the third quarter of 2007, compared to RMB 0.38 in the second quarter of 2007 as restated.

Balance Sheet Analysis

As of September 30, 2007, Yingli Green Energy had RMB 263.0 million (US$35.1 million) in cash and RMB 2,379.0 million (US$317.5 million) in working capital. This compares to RMB 1,638.2 million in cash and RMB 2,415.4 million in working capital as of June 30, 2007. The decrease of cash from the second quarter of 2007 was primarily due to prepayments of RMB 1,072.2 million on raw material contracts. Accounts receivable were RMB 1,307.9 million (US$174.6 million), up from RMB 584.8 million at the end of the second quarter of 2007, which was primarily due to the increase in total shipments in the third quarter of 2007, supported by the launch of an additional 100 MW production capacity in July 2007, and the extension of letters of credits and credit sales to our customers.

Recent Business Highlight

Entered into a 1,232 ton polysilicon supply contract and an associated supplementary contract with Sichuan Xinguang Silicon Science and Technology Co., Ltd (“Xinguang”) in October 2007 to provide a fixed unit price on the total committed volume of 2008 polysilicon deliveries as well as a unit price adjustment mechanism which had not been specified in prior supply arrangements with Xinguang.

Signed supply agreement with Wacker Chemie AG of Germany to provide enough polysilicon to allow Yingli Green Energy to produce over 80 MW of PV modules over the three-year life of the agreement from 2009 to 2011.

Signed a 16.5 MW PV module sales contract with ATERSA for delivery from October 2007 to January 2008.

Signed a 4 MW PV module sales contract with Mitsui Comtek Corp for delivery from January to March 2008.

Appointed Mr. Stuart Brannigan, Managing Director, in charge of European sales.

Added to NASDAQ Clean Edge U.S. Index on September 24, 2007.

Entered into an agreement to increase the equity interest in the Company’s primary operating subsidiary, Tianwei Yingli, from 70.11% to 74.01% on September 28, 2007. The amendment is subject to relevant PRC government approvals, which are expected to be obtained by the end of 2007.

Business Outlook

Based on the current operating conditions and its current customer forecast, the Company is raising its guidance for the full 2007 fiscal year as follows:

PV module shipments are expected to be in the estimated range of approximately 135MW and 140 MW, which represents a 163.2% to 172.9% increase compared to 2006. The original guidance called for shipments of 130 MW to 135 MW.

Net revenues are expected to be in the estimated range of approximately US$500 million – US$510 million, which represents a 135.8% to 140.6% increase compared to 2006. The original guidance called for net revenues of US$460 million to US$480 million.

Restatement of Second Quarter 2007 Financial Information

In connection with the preparation of our unaudited third quarter 2007 financial results, we identified that, due to an inadvertent error, we had improperly recognized a non-cash foreign currency exchange gain of RMB 13.5 million in the second quarter of 2007 relating to an intercompany foreign currency transaction. Specifically, since the intercompany foreign currency transaction, which involved certain shareholder loans extended from Yingli Green Energy to Tianwei Yingli in contemplating a capital injection subject to government approval, was of a long-term investment nature, the related foreign currency gains should not have been recognized in the statement of income. As a result, our previously reported foreign exchange loss of RMB 4.0 million for the second quarter 2007 was restated to RMB 17.5 million, with a corresponding restatement to increase the balance of accumulated other comprehensive income from RMB 8.3 million (as previously reported) to RMB 21.8 million (as restated) as of June 30, 2007. In addition, as a result of this correction, our minority interest in the second quarter of 2007 was restated from RMB 52.0 million to RMB 46.9 million, reflecting its proportional share of the adjustment, and our net income for the second quarter of 2007 was restated from RMB 71.6 million to RMB 63.2 million. For a summary of adjustments to our previously reported financial information for the second quarter of 2007, see Note 3 to the unaudited interim financial information below.

Currency Convenience Translation

The conversion of Renminbi into U.S. dollars for the third quarter of 2007 in this earning release, made solely for the purpose of reader’s convenience, is based on noon buying rate in the New York City for cable transfers of Renminbi as certified for customs purpose by the Federal Reserve Bank of New York as of September 28, 2007, which was RMB 7.4928 to US$1.00. No representation is intended to imply that the Renminbi amounts could have been, or could be, converted, realized or settled into U.S. dollars at such rate, or at any other rate. The percentages stated in this earning release are calculated based on Renminbi.

Conference Call

Yingli Green Energy will host a corresponding conference call and live webcast to discuss the result on November 8, 2007 at 8:00 AM Eastern Standard Time (EST), which corresponds to the same day at 9:00 PM Beijing/Hong Kong time.

The dial-in details for the live conference call are as follows:

– U.S. Toll Free Number +1-866-362-4832

– International dial-in number +1-617-597-5364

– Passcode: 56753765

A live and archived webcast of the conference call will be available on the Investors section of Yingli Green Energy’s website at http://www.yinglisolar.com. A replay will be available shortly after the call on Yingli Green Energy’s website for 90 days.

A replay of the conference call will be available until November 22, 2007 by dialing:

– U.S. Toll Free Number +1-888-286-8010

– International dial-in number +1-617-801-6888

– Passcode: 24791508

About Yingli Green Energy

Yingli Green Energy Holding Company Limited (“Yingli Green Energy”) is one of the leading vertically integrated photovoltaic (PV) product manufacturers in China. Through the Company’s principal operating subsidiary in China, Baoding Tianwei Yingli New Energy Resources Co., Ltd., Yingli Green Energy designs, manufactures and sells PV modules and designs, assembles, sells and installs PV systems that are connected to an electricity transmission grid or those that operate on a stand-alone basis. With 200 MW of total annual production capacity in each of polysilicon ingots and wafers, PV cells and PV modules, Yingli Green Energy is currently one of the largest manufacturers of PV products in China. Additionally, Yingli Green Energy is one of the limited number of large-scale PV companies in China to have adopted vertical integration as its business model. Yingli Green Energy currently plans to gradually expand annual production capacity of polysilicon ingots and wafers, PV cells and PV modules to 400 MW by the end of 2008 and to 600 MW by the end of 2009. Yingli Green Energy sells PV modules under its own brand name, Yingli Solar, to PV system integrators and distributors located in various markets around the world, including Germany, Spain, Italy, China and the United States.

Safe Harbor Statement

This press release contains forward-looking statements. These statements constitute “forward-looking” statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as “will,”"expects,”"anticipates,”"future,”"intends,”"plans,”"believes,”"estimates” and similar statements. Among other things, Yingli Green Energy’s business outlook for the year ending December 31, 2007, including its targets for its net revenue, gross margins, and PV module shipments, and Yingli Green Energy’s expectations with respect to its expansion plans and its business development in the PV markets mentioned above contain forward-looking statements. Such statements are based upon management’s current expectations and current market and operating conditions, and 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 filings with the U.S. Securities and Exchange Commission, including its registration statement on Form F-1. Yingli Green Energy does not undertake any obligation to update any forward-looking statement as a result of new information, future events or otherwise, except as required under applicable law.

1 See “Note 2″ to the unaudited interim financial information below for an explanation of year-over-year financial comparisons.

2 See “Restatement of Second Quarter 2007 Financial Information” for an explanation of certain restatements to our previously reported second quarter 2007 financial information.

YINGLI GREEN ENERGY HOLDING COMPANY LIMITED AND SUBSIDIARIES

 

Unaudited Condensed Consolidated Balance Sheets

(In thousands)

 

 

As of

December 31, 2006

As of

September 30, 2007

RMB

RMB

 

US$

 

ASSETS

Current assets:

Cash and restricted cash

400,235

270,641

36,120

Accounts receivable, net

281,921

1,307,919

174,557

Accounts receivable from related party

–

4,013

535

Inventories

811,746

1,059,143

141,355

Prepayments to suppliers

134,823

798,442

106,561

Prepaid expenses and other current assets

80,412

51,549

6,880

Deferred income taxes

3,590

8,172

1,091

Due from related parties

13,158

311,159

41,528

Total current assets

1,725,885

3,811,038

508,627

 

Amount due from a related party

–

21,600

2,883

Prepayments to supplier

226,274

430,372

57,438

Property, plant and equipment, net

583,498

1,294,424

172,756

Land use rights

53,862

55,257

7,375

Goodwill and Intangible assets, net

210,923

371,654

49,601

Investment in and advances to an affiliate

13,019

26,454

3,530

Total assets

2,813,461

6,010,799

802,210

 

LIABILITIES, MINORITY INTEREST, REDEEMABLE CONVERTIBLE PREFERRED SHARES AND SHAREHOLDERS’ EQUITY

Current liabilities:

Short-term borrowings

267,286

1,151,978

153,745

Borrowings from related parties

31,849

3,622

483

Accounts payable

123,225

197,192

26,318

Other current liabilities and accrued expenses

85,777

42,796

5,711

Advances from customers

113,638

20,520

2,739

Dividend payable

10,956

10,956

1,462

Income taxes payable

33,518

–

–

Other amounts due to related parties

1,992

4,962

662

Total current liabilities

668,241

1,432,026

191,120

 

Deferred income taxes

15,997

34,321

4,581

Mandatory convertible and redeemable bonds payable to Yingli Power

655,640

–

–

Total liabilities

1,339,878

1,466,347

195,701

 

Minority interest

387,716

687,939

91,813

Series A and B redeemable convertible preferred shares

1,017,337

–

–

 

Shareholders’ Equity:

Ordinary shares

4,745

9,884

1,319

Additional paid-in capital

35,342

3,611,655

482,017

Accumulated other comprehensive income

5,395

14,445

1,928

Retained earnings

23,048

220,529

29,432

Total shareholders’ equity

68,530

3,856,513

514,696

Total liabilities, minority interest, redeemable convertible preferred shares and shareholders’ equity

2,813,461

6,010,799

802,210

YINGLI GREEN ENERGY HOLDING COMPANY LIMITED AND SUBSIDIARIES

AND

BAODING TIANWEI YINGLI NEW ENERGY RESOURCES CO., LTD. AND SUBSIDIARY (“Predecessor”)

 

Unaudited Condensed Consolidated Income Statements

 

(In thousands, except for share, ADS, per share and per ADS data)

 

 

 

 

 

 

 

Predecessor

Combined

For the

period from July 1,

2006 to September

4, 2006

(Note 1)

 

For the

period from

August 7, 2006

to September

30, 2006

For the

three-month period

ended

September 30, 2006

For the

three-month

period ended

June 30, 2007

 

 

For the

three-month period ended

(Note 2)

(Note 3)

September 30, 2007

RMB

RMB

RMB

RMB

RMB

 

US$

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

(Unaudited)

Net revenues:

(Restated)

Sales of PV modules

322,947

196,425

519,372

891,200

1,270,851

169,610

Sales of PV systems

5

323

328

199

228

30

Other revenues

21,158

15,419

36,577

9,711

5,425

724

Total net revenues

344,110

212,167

556,277

901,110

1,276,504

170,364

Cost of revenues:

Cost of PV modules sales

(220,056)

(147,491)

(367,547)

(687,859)

(968,271)

(129,227)

Cost of PV systems sales

(147)

(103)

(250)

(192)

(194)

(26)

Cost of other revenues

(19,700)

(9,529)

(29,229)

(8,295)

(5,160)

(688)

Total cost of revenues

(239,903)

(157,123)

(397,026)

(696,346)

(973,625)

(129,941)

Gross profit

104,207

55,044

159,251

204,764

302,879

40,423

Selling expenses

(3,731)

(195)

(3,926)

(24,749)

(33,098)

(4,417)

General and administrative expenses

(10,710)

(3,028)

(13,738)

(29,263)

(40,411)

(5,393)

Research and development expenses

(2,980)

(511)

(3,491)

(3,176)

(5,322)

(710)

Total operating expenses

(17,421)

(3,734)

(21,155)

(57,188)

(78,831)

(10,520)

Income from operations

86,786

51,310

138,096

147,576

224,048

29,903

Other income (expense):

Equity in loss of an affiliate

(298)

(2)

(300)

(350)

(304)

(41)

Interest expense

(8,015)

(5,007)

(13,022)

(20,239)

(5,769)

(770)

Interest income

7

64

71

210

10,283

1,372

Foreign currency exchange gain (loss)

(2,665)

(1,172)

(3,837)

(17,454)

14,014

1,871

Income before income taxes and minority interest

75,815

45,193

121,008

109,743

242,272

32,335

Income tax benefit (expenses)

(808)

(7,001)

(7,809)

417

1,566

209

Income before minority interest

75,007

38,192

113,199

110,160

243,838

32,544

Minority interest

37

(19,100)

(19,063)

(46,914)

(64,791)

(8,647)

Net income

75,044

19,092

94,136

63,246

179,047

23,897

Accretion of Series A and Series B redeemable and convertible preferred shares to redemption value

–

–

–

(22,655)

–

–

Earnings allocated to participating preferred shareholders

–

–

–

(10,527)

–

–

Net income applicable to ordinary shareholders

75,044

19,092

94,136

30,064

179,047

23,897

 

Weighted average Shares and ADSs outstanding

Basic

–

52,450,000

–

74,423,535

126,923,609

126,923,609

Diluted

–

52,497,259

–

78,875,403

129,317,713

129,317,713

 

Earnings per share and per ADS

Basic

–

0.36

–

0.40

1.41

0.19

Diluted

–

0.36

–

0.38

1.38

0.18

Note 1

For financial reporting purposes, Tianwei Yingli is considered to be the predecessor (the “Predecessor”) of Yingli Green Energy, prior to September 4, 2006, which is the date immediately proceeding the transfer of the controlling equity interest in Tianwei Yingli from Yingli Group to Yingli Green Energy.

Note 2

Represents the addition of the amounts for the specified financial statement line items of Tianwei Yingli, our predecessor, for the period from July 1, 2006 through September 4, 2006 and the amounts for the corresponding line items of Yingli Green Energy, for the period from August 7, 2006 (date of inception) through September 30, 2006. The presentation of such combined financial data for the three months ended September 30, 2006 is not in accordance with U.S. GAAP. For the period from August 7, 2006 (date of inception) through September 4, 2006, during which the financial statements of the predecessor and those of Yingli Green Energy overlap, Yingli Green Energy did not engage in any business or operations.

Note 3

As a result of the aforementioned restatements, our previously reported unaudited financial information in the second quarter of 2007 has been restated as follows:

 

Previously

reported

 

Restated

RMB

RMB

(In thousands,

except for per share data)

Unaudited condensed consolidated balance sheet information as of June 30, 2006

 

Minority interest

629,180

624,072

 

Other comprehensive income

8,303

21,793

Retained earnings

49,864

41,482

Total shareholders’ equity

3,676,937

3,682,045

 

Unaudited condensed consolidated income statement information for the three-month period ended June 30, 2006

 

Foreign exchange loss

3,963

17,454

Income before income taxes and minority interest

123,234

109,743

Income before minority interest

123,651

110,160

Minority interest

52,023

46,914

Net income

71,628

63,246

 

Earnings per share and per ADS:

Basic

0.49

0.40

Diluted

0.46

0.38