JinkoSolar(JKS) - 2021 Q4 - Annual Report

PART I Key Information The company's Cayman Islands holding structure and China-based operations present significant regulatory, legal, and potential delisting risks - The company operates as a Cayman Islands holding company with primary operations conducted by its subsidiaries in China, exposing it to significant legal and operational risks related to PRC regulations[15] - The company's ADSs may be delisted from U.S. exchanges under the Holding Foreign Companies Accountable Act (HFCA Act) if the PCAOB is unable to inspect its auditor in China for three consecutive years[31][146] - As a holding company, JinkoSolar relies on dividends from its PRC subsidiaries, which are subject to PRC laws restricting the amount of funds that can be transferred to the parent company[19] Risk Factors The company faces substantial risks from industry volatility, trade barriers, PRC regulations, high indebtedness, and potential ADS delisting - The business is highly dependent on government subsidies and economic incentives, and reductions could materially reduce demand and profitability[36][37] - The company faces significant international trade barriers, including U.S. anti-dumping duties and enforcement of a ban on products made with forced labor, which could adversely affect business[51][54][59] - The company has substantial indebtedness, with RMB 13.34 billion in short-term borrowings and RMB 9.90 billion in long-term borrowings as of December 31, 2021, which could affect financial condition[102] - The listing of its principal operating subsidiary, Jiangxi Jinko, on the STAR Market creates complexity and potential conflicts of interest[110][111] Inventory Provisions (2019-2021) | Year | Provision Amount (RMB million) | Provision Amount (USD million) | | :--- | :--- | :--- | | 2019 | 135.9 | - | | 2020 | 270.9 | - | | 2021 | 701.7 | 110.1 | Information on the Company The company's history, vertically integrated business model, global manufacturing footprint, and sales strategies are detailed History and Development of the Company The company's evolution includes its 2010 NYSE IPO, global expansion, and the 2022 STAR Market listing of its main subsidiary - The company commenced operations in June 2006 and completed its initial public offering on the NYSE on May 19, 2010[211] - In January 2022, its principal operating subsidiary, Jiangxi Jinko, completed its IPO on the Shanghai STAR Market, raising approximately RMB 10.0 billion[244][259] - As of December 31, 2021, the company has a global footprint with 12 production facilities and 21 overseas subsidiaries[211] Business Overview The company operates a vertically integrated model with significant production capacity, focusing on solar modules for a global customer base - In 2021, sales of solar modules accounted for 92.4% of total revenues, while silicon wafers and solar cells accounted for 2.8% and 1.5%, respectively[246] Annual Production Capacity as of Dec 31, 2021 (GW) | Product | Capacity (GW) | | :--- | :--- | | Mono Wafers | 32.5 | | Solar Cells | 24.0 | | Solar Modules | 45.0 | Sales Volume by Product (MW) | Product | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Silicon wafers | 2,383.3 | 1,583.7 | 2,153.4 | | Solar cells | 478.1 | 670.6 | 856.4 | | Solar modules | 14,207.5 | 18,770.6 | 22,232.7 | Revenue by Geographic Region (as % of Total Revenue) | Region | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Inside China | 17.5% | 18.1% | 24.8% | | North America | 25.4% | 28.7% | 16.2% | | Europe | 17.5% | 13.2% | 18.3% | | Asia Pacific (ex-China) | 24.6% | 27.3% | 25.1% | | Rest of the world | 15.0% | 12.7% | 15.6% | Organizational Structure A list of the company's significant global subsidiaries is presented - The company's organizational structure includes numerous significant subsidiaries across the globe, reflecting its vertically integrated and international operations[376] Property, Plant and Equipment Information on material assets is detailed within the Business Overview section - Detailed information on the company's property, plant, and equipment is located in the 'Business Overview' section under 'Manufacturing—Manufacturing Capacity and Facilities'[376] Operating and Financial Review and Prospects This section analyzes financial performance, liquidity, capital resources, and critical accounting estimates for fiscal years 2019-2021 - The company's growth is driven by strong industry demand for solar power, but results are sensitive to government subsidies, raw material pricing, and trade policies[383][385][393] - The company has significantly expanded its integrated annual capacity, expecting to reach 60.0 GW for solar modules by the end of 2022[401] Key Financial Highlights (2019-2021) | Metric | 2019 (RMB B) | 2020 (RMB B) | 2021 (RMB B) | 2021 (USD B) | | :--- | :--- | :--- | :--- | :--- | | Revenues | 29.75 | 35.13 | 40.83 | 6.41 | | Gross Profit | 5.43 | 6.17 | 6.66 | 1.04 | | Net Income | 0.92 | 0.34 | 0.96 | 0.15 | Operating Results A comparative analysis of operating results for 2019-2021 highlights revenue growth, margin pressures, and net income fluctuations - 2021 vs. 2020: Revenues increased by 16.2% due to higher shipments, but gross margin decreased to 16.3% from 17.6% due to higher material costs[440][446][458] - 2020 vs. 2019: Revenues increased by 18.1% driven by a 32.2% increase in shipment volume, while net income decreased significantly due to a loss on convertible senior notes[459][466][479] Consolidated Statement of Operations Summary (2019-2021) | (RMB in thousands) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Revenues | 29,746,288 | 35,129,459 | 40,826,521 | | Gross Profit | 5,431,686 | 6,171,661 | 6,657,835 | | Gross Margin | 18.3% | 17.6% | 16.3% | | Income from Operations | 1,729,627 | 1,784,947 | 1,102,505 | | Net Income | 924,353 | 335,255 | 955,572 | Liquidity and Capital Resources The company's financial position is supported by debt financing and operations, with significant capital used for capacity expansion - As of December 31, 2021, the company had RMB 8.32 billion (US$1.31 billion) in cash and cash equivalents[481] - The company had total available credit facilities of RMB 30.28 billion, with RMB 8.81 billion available as of year-end 2021[483] - Capital commitments for manufacturing expansion amounted to RMB 7.81 billion (US$1.23 billion) as of December 31, 2021[482] Cash Flow Summary (2019-2021) | (RMB in millions) | 2019 | 2020 | 2021 | | :--- | :--- | :--- | :--- | | Net cash provided by operating activities | 1,410.6 | 591.5 | 430.6 | | Net cash used in investing activities | (6,025.3) | (4,918.7) | (11,309.2) | | Net cash provided by financing activities | 7,381.8 | 6,297.3 | 12,017.9 | Research and Development, Patents and Licenses, Etc. The company's R&D efforts focus on efficiency and quality, supported by rising expenses and a substantial intellectual property portfolio - The company actively protects its intellectual property, holding 1,159 granted patents and 374 pending patent applications in the PRC[532] - JinkoSolar collaborates with several universities and research institutes to advance its technology[530] R&D Expenses (2019-2021) | Year | R&D Expense (RMB million) | R&D Expense (USD million) | | :--- | :--- | :--- | | 2019 | 324.4 | - | | 2020 | 389.2 | - | | 2021 | 461.6 | 72.4 | Trend Information No significant trends or uncertainties are identified beyond those disclosed elsewhere in the report - The company reports no additional material trends, uncertainties, or commitments beyond those already discussed in the annual report[533] Critical Accounting Estimates Key accounting estimates involve significant judgment for expected credit losses and solar module warranty costs - The estimation of expected credit losses is a critical accounting estimate based on historical experience and future forecasts[536][538] - Accrued warranty cost is another critical estimate, relying on assumptions about product failure rates and replacement costs[539][540] Directors, Senior Management and Employees This section details corporate governance, management compensation, board structure, employee data, and major shareholders - As of March 31, 2022, the company's three founders collectively beneficially owned 19.7% of the company's outstanding ordinary shares[125][600] - The company had 31,030 employees as of December 31, 2021, a significant increase from 24,361 in 2020[594] - In 2021, the aggregate cash compensation paid to executive officers and directors was RMB 16.0 million (US$2.5 million)[550] - The company has multiple share incentive plans to attract and retain key personnel, with a total of 9,062,332 options outstanding as of the report date[551][558][565][579] Major Shareholders and Related Party Transactions Major shareholders are identified and transactions with related parties, primarily JinkoPower, are detailed - The company provides financial guarantees for JinkoPower's financing obligations, which amounted to RMB 401.4 million (US$63.0 million) as of December 31, 2021[613] - In 2021, the company recorded sales of solar module products to subsidiaries of JinkoPower amounting to RMB 27.1 million (US$4.3 million)[614] - The company engaged an affiliate, Jinko-Tiansheng, for OEM PV module processing services, incurring fees of RMB 5.3 million in 2021[611][615] Financial Information This section presents the consolidated financial statements, details legal proceedings, and outlines the company's dividend policy - The company is subject to long-standing U.S. anti-dumping and countervailing duty investigations on its products from China[622][624] - The company is involved in patent infringement lawsuits filed by Hanwha Q CELLS, with the U.S. case concluding in JinkoSolar's favor[633][635] - The company has never declared or paid dividends and does not plan to in the foreseeable future, intending to retain earnings for business expansion[639][641] Additional Information Supplementary details on the corporate framework, exchange controls, and taxation across key jurisdictions are provided - The company is incorporated in the Cayman Islands and is not subject to profits, income, gains, or appreciation taxes there[648] - Under PRC law, dividends paid by the company's PRC subsidiaries are subject to a 10% withholding tax, potentially reducible to 5%[169] - For U.S. federal income tax purposes, the company believes it was not a Passive Foreign Investment Company (PFIC) for 2020 or 2021[662] Quantitative and Qualitative Disclosures about Market Risk The company's primary market risk exposures are foreign exchange volatility and interest rate fluctuations on its substantial debt - The company faces significant foreign exchange risk as a majority of its sales are in foreign currencies while costs are largely in RMB[677][678] - As of December 31, 2021, the company had substantial borrowings, including RMB 13.34 billion in short-term debt and RMB 9.90 billion in long-term debt, exposing it to interest rate risk[682] - A sensitivity analysis indicates that a 5% change in the RMB/USD exchange rate would impact cash and cash equivalents by RMB 553.6 million[680] PART II Controls and Procedures Management and the independent auditor confirmed the effectiveness of disclosure controls and internal financial reporting controls - Management concluded that the company's disclosure controls and procedures were effective as of December 31, 2021[700] - Based on the COSO 2013 framework, management assessed the company's internal control over financial reporting as effective as of December 31, 2021[703][704] Corporate Governance and Other Information This section covers governance topics including accountant fees, share repurchases, and deviations from NYSE standards - As a foreign private issuer, the company follows home country (Cayman Islands) practices for corporate governance, which differ from NYSE standards[714][715] - Under a share repurchase program, the company purchased a total of 305,660 ADSs at an average price of US$13.58 per ADS[712] Principal Accountant Fees (RMB in thousands) | Fee Type | 2020 | 2021 | | :--- | :--- | :--- | | Audit Fees | 5,800 | 6,000 | | Audit-related Fees | 1,350 | — | | Tax Fees | 623 | 745 | | Total | 7,773 | 6,745 | PART III Financial Statements The complete audited consolidated financial statements for fiscal years 2019-2021 are presented - The independent auditor issued an unqualified opinion on the consolidated financial statements and the effectiveness of internal control[727] - The financial statements include critical audit matters related to the estimation of accrued warranty costs and the allowance for doubtful accounts[736][740] Consolidated Balance Sheet Summary (As of Dec 31) | (RMB in billions) | 2020 | 2021 | | :--- | :--- | :--- | | Total Assets | 53.23 | 72.98 | | Total Liabilities | 40.24 | 58.70 | | Total Shareholders' Equity | 12.99 | 14.29 | Exhibits A comprehensive list of exhibits filed with the annual report is provided - The report includes key corporate governance documents, such as the company's Amended and Restated Memorandum and Articles of Association[718][721] - Certifications from the CEO and CFO pursuant to the Sarbanes-Oxley Act of 2002 are filed as exhibits[721]