JinkoSolar Holding Co., Ltd. — FY2014 Form 20-F
Period note: This is an annual report for the fiscal year ended December 31, 2014, not a standalone fourth-quarter filing. It presents audited U.S. GAAP results for 2012–2014 and balance-sheet comparisons for December 31, 2013 and 2014. USD figures are convenience translations at RMB6.2046 per US$1.
Business context and reporting period
JinkoSolar manufactures photovoltaic products and develops, constructs, and operates solar projects. Solar modules supplied 91.8% of 2014 revenue. At year-end, annual capacity was 2.5 GW each for ingots and wafers, 2.0 GW for cells, and 3.2 GW for modules; its attributable completed project portfolio was 503 MW. Overseas markets generated 56.3% of revenue.
Key financial metrics
| Metric | FY2014 | FY2013 |
|---|---|---|
| Revenue | RMB9,978.5 million (US$1,608.2 million) | RMB7,078.8 million |
| Gross profit / margin | RMB2,240.0 million / 22.4% | RMB1,437.4 million / 20.3% |
| Operating income / margin | RMB931.6 million / 9.3% | RMB645.5 million / 9.1% |
| Net income | RMB726.2 million | RMB189.5 million |
| Net income attributable to JinkoSolar / margin | RMB673.0 million (US$108.5 million) / 6.7% | RMB188.0 million / 2.6% |
| Operating cash flow | RMB187.1 million | RMB625.1 million |
| Investing cash flow | (RMB4,158.8 million) | (RMB1,286.1 million) |
| Financing cash flow | RMB5,303.7 million | RMB841.1 million |
| Cash and cash equivalents at year-end | RMB1,777.0 million | RMB456.1 million |
| Total assets / total liabilities | RMB19,087.6 million / RMB14,119.2 million | RMB10,611.2 million / RMB8,590.6 million |
At December 31, 2014, current assets were RMB10,407.3 million against current liabilities of RMB10,523.4 million, indicating negative working capital. Restricted cash was RMB517.1 million and restricted short-term investments were RMB1,599.3 million; these should not be treated as freely available cash. Short-term borrowings, including current maturities, were RMB2,606.9 million; long-term borrowings were RMB956.5 million; bonds payable were RMB800.0 million; and convertible senior notes were carried at RMB1,540.4 million. The filing says management expected available cash, operating cash generation, financing proceeds, and bank facilities to cover working capital and capital expenditure needs for at least 12 months after year-end, while also warning that funds might not be sufficient for near-term debt obligations.
Material changes versus prior comparable period
- Revenue rose 41.0%, chiefly as module shipments increased 37.3% to 2,423.1 MW. Module average selling price edged down from RMB3.80 to RMB3.78 per watt.
- Gross profit increased 55.8% and gross margin expanded 2.1 percentage points, which management attributed to improved operating efficiency and higher margins from electricity generation, partly offset by lower module prices.
- Operating expenses increased 65.2% to RMB1,308.4 million, including higher selling, marketing, and administrative costs. Operating income rose 44.3%.
- Attributable net income increased substantially, with contributions from operating growth and a RMB134.3 million income tax benefit. The benefit included a RMB222.2 million reversal of deferred-tax valuation allowance. Fair-value gains on convertible notes and capped call options also contrasted with a loss in 2013; these items are sensitive to share-price and valuation assumptions.
- Operating cash flow fell to RMB187.1 million as receivables and inventories grew. Investing outflow increased with project construction: cash paid for project assets was RMB2,511.7 million. Capital expenditures were RMB3,011.0 million.
- Cash increased largely alongside substantial financing: the company reported RMB5,303.7 million net financing inflow, including borrowings, convertible-note proceeds, an ordinary-share offering, and preferred-share investment in its power subsidiary.
Outlook, commentary, risks, and unusual items
- Outlook: Management expects solar demand and the downstream project business to grow over time, citing lower production costs and supportive Chinese policy. It expects module sales to remain the largest revenue source and sees project generation and integration as potentially higher-margin activities. The filing provides no specific quantified company revenue or earnings guidance.
- Subsidies and project execution: Demand and project economics depend materially on government incentives. Central subsidy payments require projects to be listed in the Subsidy Catalog; unpaid project subsidies included RMB150.7 million of receivables at year-end. Grid constraints curtailed the 20 MW Longchang project, which operated at an average 58% of installed capacity in 2014.
- Trade measures: U.S. and EU trade restrictions may affect export economics. The filing reports a RMB12.9 million provision for preliminary U.S. duties in 2014. In February 2015, after year-end, U.S. orders set cash-deposit rates of 65.36% anti-dumping and 38.43% countervailing for specified merchandise; final assessed rates may differ. EU sales were subject to a price undertaking and quota arrangement.
- Legal matters: A shareholder class action concerning alleged disclosures, including environmental compliance, was remanded for further proceedings in July 2014; a renewed motion to dismiss remained pending, and the company could not reliably estimate the outcome or liability. Litigation with Wuxi Zhongcai over a polysilicon prepayment also remained pending; RMB93.2 million had been fully provided for.
- Other exposures: Risks include volatile module and silicon prices, supplier concentration and prepayments, customer credit and collection, foreign-exchange losses, high debt and variable-rate interest exposure, and reliance on Chinese policy and grid companies. The company reported a RMB147.1 million 2014 exchange loss. Certain PRC social insurance and housing-fund contributions were below statutory requirements; the estimated unpaid balance was RMB210.3 million at year-end, with provisions recorded.
- Capital structure and governance: A July 2014 investment brought US$225 million into the majority-owned project subsidiary in exchange for preferred shares representing about 45% on an as-converted basis. The shares are redeemable in specified circumstances and accrue a 13% simple annual return toward redemption; the parent company guaranteed redemption. The filing also reports increased share-based compensation expense of RMB42.7 million.
- Controls and audit: Management and the independent auditor concluded internal control over financial reporting was effective as of December 31, 2014. The auditor issued an unqualified opinion on the financial statements and controls.
Most important facts for investors to verify
- Whether receivables, especially subsidy-related receivables, are collected on schedule and whether inventory growth converts into sales without further write-downs.
- Liquidity after separating unrestricted cash from restricted cash and investments, and the timing and terms of bank, bond, convertible-note, and preferred-share obligations.
- How U.S. and EU trade measures affect shipment eligibility, pricing, sales volumes, and actual duties assessed.
- Whether project subsidies are received and grid curtailment, particularly in Gansu, limits generation and cash returns.
- The status and potential financial impact of the shareholder and Wuxi Zhongcai litigation, and any required employee benefit contributions.
- The sustainability of FY2014 earnings given the tax valuation-allowance reversal, fair-value movements, subsidies, and increased financing.