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Operator
Ladies and gentlemen, thank you for standing by, and welcome to the China Yuchai International Ltd Unaudited Fourth Quarter FY 2014 ended 31st December 2014 Conference Call and Webcast.
At this time all participants are in listen-only mode.
There will be a presentation, followed by a question and answer session.
(Operator Instructions).
I'd like to advice all that this conference is being recorded today, 26th of February 2015.
With that, I would now like to hand the conference over to your first speaker for today, Mr. Kevin Theiss.
Thank you.
Please go ahead.
Kevin Theiss - Grayling IR
Thank you for joining us today and welcome to China Yuchai International Limited's fourth quarter and fiscal year 2014 conference call and webcast.
My name is Kevin Theiss and I am with Grayling, China Yuchai's US investor relations advisor.
Joining us today are Mr. Weng Ming Hoh and Mr. Kok Ho Leong, President, and Chief Financial Officer of CYI, respectively.
In addition, Mr. Kelvin Lai, VP of operations of CYI, is joining us today.
Before we begin, I will remind all listeners that throughout this call, we may make statements that may contain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995.
The words believe, expect, anticipate, project, targets, optimistic, intend, aim, will, or similar expressions are intended to identify forward-looking statements.
All statements other than statements of historical fact are statements that may be deemed forward-looking statements.
These forward-looking statements are based on current expectations or beliefs, including, but not limited to, statements concerning the Company's operations, financial performance and condition.
The Company cautions that these statements by their nature involve risks and uncertainties, and actual results may differ materially depending on a variety of important factors, including those discussed in the Company's reports filed with the Securities and Exchange Commission from time to time.
The Company specifically disclaims any obligation to maintain or update the forward-looking information, whether of the nature contained in this script or otherwise, in the future.
Mr. Hoh will provide a brief overview and summary and then Mr. Leong will review the financial results for the fourth quarter and fiscal year ended December 31, 2014.
Thereafter, we will conduct a question and answer session.
For the purposes of today's call, the financial results for fiscal year 2014 are unaudited and they will be presented in RMB and US dollars.
All the financial information presented is reported using International Financial Reporting Standards as issued by the International Accounting Standards Board.
Mr. Hoh, please start your presentation.
Weng Ming Hoh - President
Thank you, Kevin.
Net revenues in the fourth quarter of 2014 reflected lower sales volume.
However, the effect of lower sales volume was offset against the shift in product mix towards increased sales of engines compliant with National IV emission standards which was strictly enforced nationwide from January 1st, 2015.
All commercial vehicles are now required to meet the more stringent National IV emission standards in order to be registered for on-road use in 2015.
The latest standard will further help to control emissions and reduce air pollution from automotive vehicles in China's many cities.
Net revenue for the fourth quarter of 2014 decreased by 6.4% to RMB3.9 billion or $640.8 million compared with RMB4.2 billion in the fourth quarter of 2013.
Sales revenue declined less than unit sales due to higher sales of higher-priced natural gas and National IV-compliant engines.
Our unit sales of off-road engines rose in the fourth quarter of 2014 as well.
Our ability to sell engines for both on-road and off-road applications to different market segments such as truck, bus, marine and agriculture, reduced our market risk and created additional growth opportunities.
Lowered growth expectations have also affected commercial vehicle sales.
China's GDP growth for fiscal year 2014 slowed to 7.4%, the slowest annual expansion growth since 1990.
Real estate development and infrastructure spending slowed as government policies transitioned the economy toward more domestic consumption, and away from fixed asset investments and exports.
It is anticipated that China's economic growth will continue to moderate in the near future.
Research and development R&D expenses declined in the fourth quarter of 2014 to RMB132.6 million $21.7 million from RMB146.3 million in the same quarter of 2013.
However, for full year 2014, R&D expenses increased to RMB494.6 million or $80.8 million compared with RMB468.6 million in 2013, an increase of 5.5%.
As a percentage of net revenue, R&D spending was 3.0%, a slight increase compared with 2.9% in 2013.
Technology is becoming an important purchasing decision by customers.
Since 2012, we have introduced approximately 30 new engine models including a new plug-in hybrid engine, larger engines for the off-road markets, new natural gas engines and innovative diesel engines compliant with National IV, V and VI emission standards to maintain our leadership in the bus market and further penetrate the truck market in China.
Our portfolio of advanced engines provides more solutions to strengthen our customer relationships and attract new customers.
Trucks propelled with our YC6K12 diesel and YC6K13N liquid natural gas LNG engines won first place in their respective categories at the Seventh China International Truck Fuel Economy Competition held in Beijing in 2014.
These engines were produced by Y&C Engine Co., Ltd.
Y&C, which is a joint venture of our main operating subsidiary, Guangxi Yuchai Machinery Company Limited GYMCL.
The YC6K13N engine has the highest torque power among similar-sized gas engines and by utilizing lean-burn technology, this engine can reduce average energy consumption by 25% versus a diesel engine of comparable size and power.
A K-Gold model C&C truck equipped with the YC6K1340N liquid natural gas LNG engine, won the Fuel Efficient Heavy-Duty Truck of the Year 2014 award at China's largest annual commercial vehicle event that was hosted by Commercial Motor World Magazine, the leading commercial vehicle publication.
In the fourth quarter of 2014, over 10,400 natural gas engines were sold resulting in total sales of over 36,400 units in 2014.
This represented an annual growth rate of approximately 12.3%.
Natural gas engines are ideal for China's cities and our large engine portfolio provides multiple solutions to maintain our leadership position in the bus market.
Our successful strategy of producing a broad spectrum of leading advanced engines resulted in us winning a competitive tender from the Beijing Public Transportation Group.
Under the terms of the tender, we are to supply 587 units of National V natural gas engines consisting of three natural gas models, and 48 units of National VI diesel engines.
This contract represents the first purchase of YC6K13N engines in the Chinese bus market and positions us for new orders from other bus operators in China.
Our position in the agricultural engine market has further strengthened in 2014 with record sales of over 84,000 units, representing a growth of 18.5% from 71,000 units in 2013.
This growth has helped to offset the weakness in other segments.
To showcase our expertise in the bus market, our engines were used in approximately 85% of the over 3,000 public transportation vehicles that served the Second Summer Youth Olympic Games held in Nanjing, China.
We also supplied the first units of our new C4FA130-50 light-duty diesel engines compliant with National V emission standards, for transit buses in Shanghai.
Also, Fushun City's purchase of 800 new-energy buses from Zhengzhou Yutong Bus Company had 600 buses installed with our gas-electric hybrid engines and 200 buses using our liquefied natural gas engines.
We continue to be the engine leader in the bus market.
During 2014, we saw strategic changes in our joint ventures across the group.
We acquired full control of our remanufacturing operations in Suzhou and HL Global Enterprises Ltd.
increased its shareholding interest in a jointly controlled entity involved in the hotel business, to 100%.
As a result of these acquisitions, we generated RMB95.2 million $15.6 million in pre-tax profit in 2014.
We continue to regularly review our options in the changing financial markets to ensure the most effective financing costs for our requirements.
Given the slowing growth of the commercial vehicle business, we reduced our inventories to RMB1.9 billion from RMB2.3 billion.
Cash has been reduced to RMB2.5 billion from RMB3.6 billion in 2013.
Our operations continued to generate healthy positive cash flow from operations in 2014.
In May 2014, we declared a dividend of US$1.20 per ordinary share to be paid either wholly in cash or in new shares at the election of shareholders.
Pursuant to the shareholders' elections, our outstanding share capital increased 2.5% to 38,195,706 shares.
Our investments in product development and greater manufacturing efficiencies position us to remain a leading engine company in China.
We are encouraged by sales of our natural gas engines and we remain the market leader in the more stable bus market.
We have seen a market share increase in certain off-road markets as well.
We are well positioned with a broad engine portfolio, leading technologies and the largest service network across China.
With that, let me now turn the call over to Kok Ho Leong, our CFO, to provide more details on the financial results.
Kok Ho Leong - CFO
Thank you, Weng Ming.
I will now proceed to report on our financial performance for the fourth quarter of 2014 and full year ended December 31st, 2014.
Net revenue for the fourth quarter of 2014 decreased by 6.4% to RMB3.9 billion, $640.8 million compared with RMB4.2 billion in the fourth quarter of 2013.
The decrease in unit sales exceeded the decline in net revenue.
This was due to a higher proportion of National IV engine sales in the fourth quarter of 2014.
The total number of engines sold by GYMCL during the fourth quarter of 2014 was 93,094 units compared with 110,583 units in the same quarter of 2013, representing a decrease of 17,489 units, or 15.8%.
The decrease was mainly due to a decline in engine sales in the truck segment as well as construction applications.
According to the China Association of Automobile Manufacturers, sales for commercial vehicles excluding gasoline-powered vehicles declined by 14.9% in the fourth quarter of 2014.
Gross profit decreased 0.7% to RMB970.1 million, $158.5 million compared with RMB976.6 million in the same quarter of 2013.
Gross margin increased to 24.7% in the fourth quarter of 2014 compared with 23.3% in the same quarter in 2013.
The increase in gross margin was attributable to reduced sales of lower margin engines.
Other operating income was RMB13.8 million, $2.3 million, a decrease of RMB56.1 million from RMB69.9 million in the fourth quarter of 2013.
The decrease was mainly due to lower government grants, less interest income from bank deposits and higher foreign exchange revaluation loss.
Research and development R&D expenses were RMB132.6 million, $21.7 million compared with RMB146.3 million in the same quarter of 2013.
As a percentage of net revenue, R&D spending was 3.4% in the fourth quarter of 2014, as compared with 3.5% in the fourth quarter of 2013.
Selling, general & administrative SG&A expenses were RMB460.2 million, $75.2 million, up from RMB423.3 million in the fourth quarter of 2013, an increase of RMB36.9 million or 8.7%.
SG&A expenses represented 11.7% of net revenue compared with 10.1% in the fourth quarter of 2013.
The increase in the SG&A percentage was mainly due to higher depreciation costs and impairment charges relating to an intangible asset.
Operating profit decreased by 18.0% to RMB391.1 million, $63.9 million from RMB477.0 million in the fourth quarter of 2013.
This decline was mainly due to lower other income and higher SG&A expenses, partially offset by lower R&D expenses.
The operating margin was 10.0% in the fourth quarter of 2014 compared with 11.4% in the fourth quarter of 2013.
Finance costs increased to RMB36.5 million, $6.0 million from RMB25.9 million in the same quarter in 2013, an increase of RMB10.6 million.
The share of joint ventures was a loss of RMB3.6 million, $0.6 million compared with a loss of RMB46.3 million in the same quarter in 2013.
The decrease in loss of RMB42.7 million was mainly due to impairments in the fourth quarter of 2013.
In the fourth quarter of 2014, total net profit attributable to China Yuchai's shareholders decreased 5.1% to RMB241.2 million, $39.4 million, or earnings per share of RMB6.31 $1.03, compared with RMB254.1 million, or earnings per share of RMB6.82 in the same quarter in 2013.
Earnings per share in the fourth quarter of 2014 was based on a weighted average of 38,195,706 shares compared with earnings per share in the fourth quarter of 2013 which was based on a weighted average of 37,267,673 shares.
In July 2014, we issued 928,033 new shares to shareholders who elected to receive shares in lieu of dividend in cash.
Let me now go over the results for the twelve months ended December 31, 2014.
Net revenue increased 3.4% to RMB16.4 billion, $2.7 billion compared with RMB15.9 billion in 2013.
The total number of engines sold by GYMCL during 2014 was 483,825 units compared with 500,756 units in 2013, representing a decrease of 16,931 engine units, or 3.4%.
This decrease compared favorably against the industry decline of 10.8% in unit sales of commercial vehicles excluding gasoline-powered vehicles in 2014, as reported by the China Association of Automobile Manufacturers.
The decrease in engine units was mainly attributable to a decline in engine sales to the truck and industrial engine markets, offset by higher sales of engines for agriculture applications.
In 2014, approximately 36,400 natural gas engines were sold compared with approximately 32,400 units in 2013.
Gross profit was RMB3.29 billion, $537.8 million, higher than the RMB3.26 billion in 2013.
Gross profit margin was 20.0% compared with 20.5% in 2013.
The lower gross margin was attributable to a change in the sales mix to higher engine sales for light-duty engines and a more competitive commercial vehicle market.
Other operating income was RMB94.9 million, $15.5 million compared with RMB156.4 million in 2013, a decrease of RMB61.5 million.
This was mainly due to lower interest income from bank deposits and a decrease in government grants.
Research and development R&D expenses were RMB494.6 million, $80.8 million compared with RMB468.6 million in 2013, an increase of 5.5%.
As a percentage of net revenue, R&D spending was 3.0% compared with 2.9% in 2013.
R&D expenses were mainly related to ongoing research and development of new and existing engine products as well as continued initiatives to improve engine quality.
Selling, general & administrative SG&A expenses were RMB1.6 billion, $261.3 million, which was similar to 2013.
SG&A expenses represented 9.7% of net revenue in 2014 and 2013.
Operating profit declined by 7.8% to RMB1.3 billion, $211.2 million from RMB1.4 billion in 2013.
This decrease was mainly due to lower other income, and higher expenses for SG&A and R&D, which was partially offset by an increase in gross profit.
The operating margin was 7.9% compared with 8.8% in 2013.
Finance costs declined to RMB156.7 million, $25.6 million from RMB161.2 million in 2013, a decrease of RMB4.5 million, or by 2.8%.
The decline in finance costs was primarily due to lower interest expenses from the outstanding short-term and medium-term notes and less bills discounting in 2014, as compared with 2013.
The gains arising from acquisitions were RMB95.2 million, $15.6 million.
This was due to GYMCL increasing its shareholding interest in Yuchai Remanufacturing Services Suzhou Co., Ltd., a jointly controlled entity, from 51% to 100% which resulted in a fair value gain and negative goodwill of RMB64.8 million.
The remaining gain was due to HL Global Enterprises Ltd increasing its shareholding interest in a jointly controlled entity involved in the hotel business, from 45% to 100%.
The share of joint ventures was a loss of RMB30.7 million, $5.0 million as compared with a loss of RMB79.2 million in 2013.
The decrease of RMB48.5 million was mainly due to a reduction of the loss in the joint ventures of GYMCL.
In 2013, there were also impairment costs arising from the joint ventures.
Total net profit attributable to China Yuchai's shareholders increased 4.3% to RMB730.3 million $119.3 million, or earnings per share of RMB19.36 $3.16, compared with RMB700.4 million, or earnings per share of RMB18.79 in 2013.
Earnings per share were based on a weighted average of 37,720,248 shares compared with earnings per share in 2013 which was based on a weighted average of 37,267,673 shares.
In July 2014, we issued 928,033 new shares to shareholders who elected to receive shares in lieu of dividend in cash.
Balance Sheet Highlights as of December 31, 2014
Cash and bank balances were RMB2.5 billion, $410.0 million compared with RMB3.6 billion at December 31, 2013.
Trade and bills receivable were RMB8.1 billion, $1.3 billion compared with RMB7.4 billion at the end of 2013.
Short- and long-term borrowings were RMB2.3 billion, $373.7 million at the end of 2014 and 2013.
Net inventory was RMB1.9 billion,$314.0 million compared with RMB2.3 billion at the end of 2013.
We continue to expand our broad offerings of advanced engines to capture market share and maintain our leading position.
We have robust financial resources to support our manufacturing operations and achieve our strategic goals.
With that, operator, we are ready to begin the Q&A session.
Operator
Thank you.
Ladies and gentlemen, we will now begin to question-and-answer session.
(Operator Instructions).
And the first question comes from the line of David Raso of Evercore ISI.
Please ask your question.
David Raso - Analyst
Thank you for taking my call.
Can you help us with what percent of your engines in 2015 do you think will be National IV and if you can remind me of the percentage it was in 2014?
And the follow-up on that will be, how do you expect that change to impact your margin -- the mix impact?
Weng Ming Hoh - President
Hi, David.
This is Weng Ming.
Okay.
Starting from 2015, all on-road vehicles that are in China will have to use National IV engine for diesels and National V for gas.
So, we expect all on-road diesel vehicles will be on National IV.
In 2014 towards the end of the year, [we believed most of our engines sold towards the end of the year were on National IV.
We are talking about 50% to 60%.
Throughout the year, I mean in relation to] (corrected by company after the call) the overall engine portfolio, it's about nearly 50%.
David Raso - Analyst
And sorry, was that the quarter, it was 50% or the 2014 full year?
Weng Ming Hoh - President
Oh, quarter.
David Raso - Analyst
Do you have the number for the full year?
What percent was that in--
Weng Ming Hoh - President
So, full year will be much lower because the first half of the year they've been not more than high -- I will say between about 40% to 50%.
David Raso - Analyst
Okay.
Weng Ming Hoh - President
Of on-road vehicles.
And in terms of mix, as you know the National IV engines average selling prices are higher than National III.
So, in the year of 2014, we saw an increase in net revenue despite a small drop in the unit sales.
In terms of margin, there's not going to be too much difference.
David Raso - Analyst
So, the mix to 2015 being largely on-road literally sounds like you're saying almost 100% going to be NS IV.
Weng Ming Hoh - President
Yes.
David Raso - Analyst
So, you're going to essentially go from, you know, 40%-ish or less, to 100%?
Weng Ming Hoh - President
Yes.
David Raso - Analyst
So, when it comes to revenue, can you help us with at least -- I know you don't want to give exact number, but roughly what is the price point you're selling the NS IV versus the older engines and obviously so we can extrapolate that implication on your revenue.
Weng Ming Hoh - President
Right.
It depends.
So, I think if you look at our 2014 or even second quarter, In fourth quarter, our engine sales are lower but our revenue, is a little lower but not that much lower, because of a higher average selling price.
So, and if you look at the overall, despite a 3% drop in new sales, our overall revenue has gone up at about 3 percentage points.
So, I would think if you factor in, close to about 5% to 10% you should be close.
David Raso - Analyst
Okay and again, on margin, you're saying don't think of the mix...
Weng Ming Hoh - President
Don't expect that...
David Raso - Analyst
-- or in change in margin profile?
Weng Ming Hoh - President
That's right.
Margin profile was broadly the same.
David Raso - Analyst
Okay.
Terrific.
Thank you very much.
Weng Ming Hoh - President
Thank you, David.
Operator
Thank you.
And the next question comes from the line of Alex Potter of Piper Jaffray.
Please ask your question.
Winnie Dong - Analyst
Hi.
This is Winnie in for Alex Potter actually.
I was wondering if you could elaborate a little bit more on gross margin.
It seems like if I look this quarter in the past Q4s, gross margin seems to be higher than the rest of the quarters.
Is there any seasonality or factors that we should be considering there?
Weng Ming Hoh - President
Yes.
Okay.
Carry on.
Are you finished?
Winnie Dong - Analyst
Yes, that's my first question.
Weng Ming Hoh - President
Okay.
This happens every year.
Also, that the way our sales contracts work is that, we encourage all customers to make sure to pay up all the amount of receivables outstanding to bring their receivables current by / towards the end of the year.
Okay.
So, the way we have been doing that all long is by giving -- sort of using the rebate, sales rebates as what you call a tool to encourage them to pay.
So, in order for them to qualify for the rebate, they have to achieve two things.
One, they have to achieve the volume -- targeted volume, of course; and two, they have to bring their receivables current.
So, we, throughout the year from the first three-quarters, initially, we have to estimate what the rebate is going to be.
And we will finalize it in the fourth quarter once we know the actual status of each customer.
So as a result, we would see a higher margin in the fourth quarter because of adjustments.
Winnie Dong - Analyst
Okay.
Thanks for that.
Can you also provide an update on your outlook for 2015, truck and bus market, and then any take on 2016?
Weng Ming Hoh - President
Okay.
Well, I won't mention the 2016.
But in terms of 2015, the way we look at the market is because of the National IV implementation enforcement that took about a year-and-a-half, in 2013/2014, we expect the first half of 2015 truck market to slow.
However, we believe that it will pick up again back in the, perhaps in the second half of the year, once what we call the Pre-buys have been digested.
The bus market in way reaching for the maturity point, we expect that to be quite a little bit flat this year.
Winnie Dong - Analyst
Okay.
And what do you think about the new energy bus market now in China.
And I think buses had historically been an area of strength.
Do you think this would potentially be a risk going forward given the energy bus market development?
Weng Ming Hoh - President
For the new energy, our natural gas engines are, I mean, growing very well.
In the last few years, it's been growing in double digits.
That's largely because the government, particularly those in big cities, want to clear out the environment.
They've been encouraging the inner-city buses especially to use the natural gas engine.
So we have been selling quite a fair bit there and also some hybrid engines as well.
Winnie Dong - Analyst
Okay and then specifically I guess on the truck obligation for natural gas vehicles, what is your take given the falling oil price this year or in the past four quarters?
Weng Ming Hoh - President
Well we believe the oil market shouldn't change the situation too much.
I think with the drop in oil prices to the level that it is now, we should see a slowdown in the natural gas market even though it's not that big right now.
However, whatever decline you're seeing in the natural gas markets we should see a pickup in the diesel markets.
Winnie Dong - Analyst
Okay.
Thank you.
Weng Ming Hoh - President
All right.
Winnie Dong - Analyst
That's all.
Thanks.
Weng Ming Hoh - President
Thank you.
Operator
Thank you.
And the next question comes from the line of Paul Gong of Citi.
Please ask your question.
Paul Gong - Analyst
Hi Weng Ming.
Hi Kok Ho.
Kok Ho Leong - CFO
Hey hi Paul.
Paul Gong - Analyst
Yes.
Thanks a lot for taking my question.
The first one I just want to follow up with Winnie's question just now.
You mentioned like for the 2015 full year you expect flat for the full year in terms of the sales units, can you just have a brief breakdown of how that would be played within truck, within bus and construction machinery, different categories?
Weng Ming Hoh - President
Okay, just now Winnie was referring to just truck and buses.
Okay.
Now, in terms of buses, this level, mainly relating to the bus market, now, and the bus market I think the growth rate is not going to be too high even if there's going to be some.
Now, one of the growth areas we'll probably see is in the inner-city bus and the natural gas segment.
Now, this will only be because it is largely driven by the environment.
But however, in the intercity buses that would be affected by what we call the high-speed rail that's been built across China.
So, that in away, eats away the bus market for the intercity buses.
In terms of trucks, it's a bit hard to get proper estimates right now largely because of the enforcement of the National IV engine.
So we expect the first half to slow compared to the previous year.
The previous year, you know, in 2014, the first half was pretty strong OK.
Paul Gong - Analyst
Yes.
Weng Ming Hoh - President
In 2014, the second half in a way slowdown quite considerably, so we expect another slowdown will continue into the second half -- certainly the first half.
But second half, we should see it stabilize or maybe some pickup because the pre-buy effect is digested.
Paul Gong - Analyst
Yes.
Weng Ming Hoh - President
Okay.
In terms of industrial engines, it was bad last year.
We think that it will continue to slow this year as well.
Paul Gong - Analyst
So basically we have to pick an order, bus, truck and industrial, some stimulate.
It's difficult to find the other which one is going clearly faster, which one is clearly slow, or it's more like a certain case but similar growth rate from your point of view --
Weng Ming Hoh - President
Yes, just, the building industry in China is really weak right now.
But in our case, we have -- we have quite a positive, I mean last year especially, we had a quite strong sales in the agriculture segment.
Paul Gong - Analyst
Yes.
Weng Ming Hoh - President
So we expect this to continue.
I mean we haven't seen it yet, but we think the government may come up with an incentive that should drive it.
Our marine diesel engines are doing well.
Last year, we have seen some quite good growth there.
Now with the gasification of the marine engines, we think this market will grow as well.
Paul Gong - Analyst
Okay, yes, okay.
My second question is regarding the contribution of natural gas engine and I think you just mentioned you have developed a plug-in hybrid engine, can you remind us how much contribution of this to our revenue right now especially for the plug-in, is it contributing now?
Weng Ming Hoh - President
The hybrid, yes, that's something that contributing.
Now, I think in total this year we sold at least up to 36,000 units of natural gas engines.
Many of them will have some hybrid in it, all right.
So the contribution of, and this from, hybrid engines and natural gas engines is definitely higher than our diesel engines right now.
In terms of contribution, it will / it had improved our performance this year.
Paul Gong - Analyst
Okay so the natural gas was 6,000?
Weng Ming Hoh - President
Natural gas is about 36,000.
Paul Gong - Analyst
36,000 and the hybrid was?
Weng Ming Hoh - President
The hybrid right now is not that big; small right now.
Paul Gong - Analyst
Okay so very small, okay.
Weng Ming Hoh - President
Yes.
Paul Gong - Analyst
And the third question is -- actually there's more question.
I noticed that in the first quarter the tax rate has been significantly lower than one year ago, can you -- can you briefly explain what was the reason behind?
Kok Ho Leong - CFO
Yes.
Weng Ming Hoh - President
Okay.
I think I'll let Kok Ho to answer the question.
Kok Ho Leong - CFO
Yes, this is mainly because we have lower losses in other joint venture that and also the defer tax resulting from some of these government grants that we have -- that resulting in the tax effect.
But, by the way, you look at our history, our tax effect is always ranging from 17% to 19% range around there.
This is because the main operating entity GYMCL is -- to continue to enjoy a preference in tax rate of 15% that's the overall picture that we have.
Yes.
Paul Gong - Analyst
So the effective tax rate or outlook doesn't change, it remains to be 17% to 19%?
Kok Ho Leong - CFO
Yes.
Paul Gong - Analyst
But your fourth quarter, it was because net loss on the JV category.
I assume the JV while their tax rate was already like on JV's level so the equity income contribution is already net of the taxes so that shouldn't affect our effective tax rate if that's okay, so is there another reason.
Kok Ho Leong - CFO
The other part is what I would say the deferred tax resulting from -- some of this is government tax grants that we had that helped -- that caused the shift.
Paul Gong - Analyst
Okay so some tax credits so we had some.
Kok Ho Leong - CFO
Yes.
Paul Gong - Analyst
Okay.
Thank you very much.
Operator
Thank you.
And the next question comes from the line of Mohit Khanna of Value Investment Principals.
Please ask your question.
Mohit Khanna - Analyst
Hi guys.
Could you please just elaborate what is the age -- average age of the trade receivables on the balance sheet and what is the average trade payables figure that you would see?
And also what are the free cash flow yields for the Company this year and '14?
Thank you.
Kok Ho Leong - CFO
Yes, maybe on the -- on the AR days, and let me give you a quick understanding.
If you look at the total trade and bill receivables, we are around about 180 day plus.
But bear in mind that in all this trade and bill receivable, about 90% are bank-backed bills.
It is bank backed, this means that we can choose at our own timing to discount them into cash.
But usually we will watch the market and depending on the discounting rate before we discount it.
This is because discounting rate is not like a bank lending, which is set by the government, it can swing in a large range even from 3.5%, sometimes even go up to close to 7% range.
So when AR days you look at it -- when I say the AR days it's [trade and bill] receivable.
It may be big, but 90% are backed by the bank.
Yes.
AP we have -- we have shortened our days from 150.
This is a general / overall situation that we see in China.
Many of these suppliers that we work with them for a long term -- so this is the moment we help out each other.
For the cash generating ability, if you look at our numbers, our EBITDA generation is always goes about RMB1.6 billion to RMB1.7 billion, consistently for both 2014 and 2013.
We have remained so consistently throughout the year.
Yes.
Weng Ming Hoh - President
Let me add to that a little bit.
Now if you remove the bank bills, which is in a way guaranteed by the big banks that issued it, what's left on open cash credit is less than a month.
In terms of open credit, we have very low AR days.
Mohit Khanna - Analyst
Okay.
Okay.
Thank you.
Operator
Thank you.
And the next question comes from the line of Stephen Vaughen of Pacific Investment Advisor.
Please ask your question.
Stephen Vaughen - Analyst
Okay.
Good morning gentlemen.
Weng Ming Hoh - President
Good morning Steve.
Stephen Vaughen - Analyst
Good morning.
OK, the question I have is as I see it the CMC joint venture is doing pretty well.
It looks like a good one and I'm also wondering about the China North joint venture, they were -- you were saying that it was going to be 150,000 engines per year when it was up and running.
And my question is actually pretty simple, when are those joint ventures going to start contributing to our earnings in your opinion?
Weng Ming Hoh - President
Okay, first for Y&C joint venture.
Y&C joint venture is doing quite well.
We have sold about over 6,000 units last year.
We expect to sell more this year and achieve at least a breakeven point this year.
Now, if you look at on our, what we call the company's share of associate companies, the total loss comes down significantly.
Okay.
So they're moving in the right direction, we think it will get better.
In terms of the joint venture (inaudible) we have not -- we haven't taken it to the next step yet.
So we are still, what we call exploring and looking at the market and talking to our JV partner.
So this one we haven't really started the -- investing in this joint JV yet.
Stephen Vaughen - Analyst
Do you have any idea when the Y&C joint venture will contribute to earnings?
Any idea?
Weng Ming Hoh - President
Well we expect, if not this year, next year.
Stephen Vaughen - Analyst
Okay.
Well that was my only question.
Thank you very much.
Weng Ming Hoh - President
Okay.
Operator
Thank you.
Ladies and gentlemen thank you for your questions.
We have now reached the end of our Q&A session.
With that, I will now like to turn the call back over to Mr. Hoh.
Please continue.
Weng Ming Hoh - President
Thank you all for participating in our conference call.
We look forward to speaking with all of you again.
Thank you.
Operator
Ladies and gentlemen that does conclude our conference for today.
Thank you for your participation.
You may all now disconnect.