CBAK Energy Technology Inc (CBAT) 2011 Q4 法說會逐字稿

Good morning, everyone, and thank you for joining us on the China BAK Battery's fourth quarter and fiscal year ended September 30, 2011 conference call. During today's call, we will provide details on the Company's fourth quarter and the fiscal year 2011 financial results, as well as provide a corporate update about recent activities. Today's call will be limited to one hour.

With me today on the call are Mr. Xiangqian Li, China BAK's Chairman, Chief Executive Officer; Dr. Huanyu Mao, China BAK's Chief Technology Officer and General Manager of BAK Tianjin; and Mr. Ke Marcus Cui, China BAK's Chief Financial Officer. Mr. Li, Dr. Mao and Mr. Cui will be available to answer questions during the Q&A section.

Our agenda for today is as follows. CEO, Mr. Li, will make remarks about the Company's business outlook and then, on behalf of the management team, CFO, Mr. Cui, will comment on the Company's financial performance and discuss current business strategy. Finally, we will open the call to your questions.

Before we get started I'd like to remind our listeners that management's comments today will contain forward-looking statements and management may make additional forward-looking statements in response to your questions. Such written and verbal disclosures are made pursuant to the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995.

Investors are cautioned that such forward-looking statements involve risks and uncertainties that could cause actual results to differ materially from the anticipated results. These types of statements and underlying factors, as well as risks and uncertainties, are listed in filings with the Securities and Exchange Commission, as well as the news release that was distributed earlier today.

Statements made on this call are made as of December 7, 2011 and the Company undertakes no obligations to update any of the forward-looking statements contained herein, whether as a result of new information, future events, changes in expectations or otherwise.

With those initial formalities out of the way, it is my pleasure to turn the call over to Mr. Li who will provide some initial remarks that will be translated by Mr. Cui. Mr. Li, you may proceed.

(Interpreted) Thank you, operator. I would like to welcome all of our shareholders to China BAK's fourth quarter and fiscal year 2011 earnings call.

The year 2011 was an important milestone for China BAK, as we celebrated our 10th anniversary in September 2011 with the saying, new powers, new start.

Over the last 10 years, China BAK has established itself as a reputable supplier of battery cells for the EV industry and this (technical difficulty) batteries (technical difficulty) cellular phone market.

With the continual Government support, our capability to develop new and innovative products and our management team's supervision and their leadership, we have made a sizeable contribution to the development of lithium-ion batteries industry in China.

In September 2011, we announced the production launch of the first single battery and the battery module with the capacity of 100 amp hour for use in electric [vehicles]. We believe our new high-power battery solutions will strengthen our position in the gradually growing EV industry.

Recently, in November 2011, we were recognized as the National-certified Enterprise Technology Center at the China Hi-Tech Fair 2011. We believe it is a great honor for China BAK to be invited to the China Hi-Tech Fair 2011 as a representative of enterprises in Tianjin and to receive one of the most prestigious technological awards in China.

This award has recognized our strong R&D capabilities and the technical strength in the lithium-ion battery industry. We believe that this recognition reflects well on our industry standing and potential.

Fiscal 2011 has been a year of challenges and opportunities. The introduction of (inaudible) high capacity polymer batteries used in mobile phones and (inaudible) laptops impacted the sales of traditional prismatic batteries and [standard] cylindrical batteries. We therefore adjusted our sales strategy to target additional domestic and international Tier 1 customers and developed new products to meet market demand.

In fiscal 2012, we are confident to achieve top line growth by expanding sales in each segment and to improve the bottom line by reducing the operating costs. We are confident that China BAK will deliver a very good result in the turnaround program by the end of fiscal year 2012.

Lastly, I would like you to know that we haven't received any negative feedback on our battery packs from customers. We are aware of the battery explosion incident and understand that our shareholders and investors are concerned about this impact on our products. I, therefore, want to take this opportunity and assure that China BAK has not been impacted by such incident.

Thank you, Mr. Li, and welcome, everyone, to China BAK's fourth quarter and fiscal year 2011 earnings conference call.

For fiscal 2011, we reported net revenue of approximately $219 million, up 1.9% from $214.8 million in fiscal 2010. The slight increase was mainly due to the increase of sales volumes in cylindrical cells produced in Shenzhen facility and high-power lithium batteries produced in Tianjin facility.

In fiscal 2011 we maintained a sustainable positive operating cash flow by active [fund] management and in the fourth quarter we reported another quarter of positive operating cash flow of $9.6 million in free cash flow.

Now I will review this quarter's financial performance in fuller detail. Our net revenues for the fourth quarter of fiscal 2011 were $61.6 million, up 10.8% from $55.6 million for same period in fiscal 2010.

Even though we encountered intensive competition from cell phone markets, caused by the new introduction of (inaudible) batteries with high energy, we still saw a robust growth in our prismatic products.

Revenues from our prismatic products, which are used in mobile phones and in certain personal electronic devices, were $47.2 million; up 83.1% from $25.8 million last quarter and up almost 10% from $43.1 million for same period last year.

With the growth of demand for smartphones, we produced new prismatic batteries with higher capacity for use in smartphones, and it is expected that the demand for such batteries will increase continually.

Our revenue from cylindrical cells, used in notebook computers and certain electronic devices and the electric vehicles, were $10.2 million, which is down about 41% from $17.3 million sequentially and almost up 15% from $8.9 million for the same period in fiscal 2010.

Such sequential decline in revenue was mainly attributable to the decrease in our average selling prices of batteries used for laptops, due to temporary pricing competition strategy caused by the flat market growth, to maintain our market share.

In order to reduce such adverse impact to sales, we are developing a new type of product for thinner laptops, which is used by a couple of [other] companies, and the being active to extend applications for cylindrical batteries as well, such as power tools market and EV markets.

Our revenue from lithium polymer cells used in personal electronic devices, such as PDAs, MP3 players and Bluetooth devices, were $3 million, up 50.2% from $2 million in the last quarter and increased about 2% from $3 million in the same period last year.

Revenue from high-power lithium batteries cells used in electric vehicles, such as electric bicycles, power tools and uninterruptable power supplies, manufactured at our Tianjin facility were $1.2 million, which is down almost 43% from last quarter and up almost 90% from the same period in fiscal 2010. For fiscal 2011, revenue from this segment reached $6.1 million compared to only $1.8 million in fiscal 2010.

With Government strong support and growing market [access] to high-power lithium-ion batteries, we are confident to catch the attractive growth opportunity and to gain more market share.

Gross profit for the fourth quarter of fiscal year 2011 was $8.3 million, or 13.4% of net revenues, in comparison with gross profit of $3.6 million in the last quarter and gross profit of $5.3 million, or 9.5% of net revenues, in the fourth quarter of fiscal 2010.

Operating expenses totaled $13.5 million, or 21.9% of revenue, in the fourth quarter, compared to $8.9 million, or 18.9% of revenue, in the last quarter and (multiple speakers) operating expenses in the fourth quarter of fiscal 2011 include impairment charge of $6.5 million, compared with an impairment charge of $2.0 million in the fourth quarter of fiscal 2010.

We reported an operating loss of $5.2 million, compared to $5.3 million in the last quarter and $7.3 million in the same quarter of fiscal 2010.

Net loss was $9.6 million, or diluted loss per share of $0.15, in the fourth quarter of fiscal 2011 in comparison with a net loss of $7.2 million, or diluted loss per share of $0.12, in the last quarter and net loss of $8.6 million, or diluted loss per share of $0.14, in the same quarter of the last year.

I will now provide some highlights from fiscal year 2011 financial results. For fiscal year 2011 we had a net revenue of $219 million, which is up about 1.9% from $214.8 million in fiscal year of 2010.

Gross profit was $26.3 million, or 12% of net revenues, which is up 16.1% from $22.7 million, or 10.6% of net revenues, for the same period last year.

Operating loss was $14.2 million compared to $27.8 million in fiscal 2010. Net loss was $24.5 million, or diluted loss per share of $0.39, compared to net loss of $32.8 million, or diluted loss per share of $0.53, in fiscal 2010.

Now I would like to discuss some key balance sheet items. On September 30, 2011 we had $24.9 million in cash and cash equivalents.

For the fourth quarter of fiscal year 2011, days sales outstanding decreased to 116 days, from 155 days last quarter. And days sales of inventory decreased to 123 days, from 151 days last quarter.

Short-term bank loans and long-term bank loans totaled $178.2 million, as compared to $176.1 million on June 30, 2011. Shareholders' equity totaled $135.3 million. And China BAK generated $35.3 million in cash flow from operating activities in fiscal year 2011.

At the end of the quarter, we had $59.5 million available for borrowing under our credit facilities.

In conclusion, I would like to note that we are exploring and capitalizing on available opportunities to generate additional revenue growth. We will (inaudible) to improve [admission] level of polymer cells to satisfy the performance requirement for smartphones and other ultrathin products; for example, tablet PCs and e-book.

In the meanwhile, our plan is to focus on the cylindrical cells and high-power lithium battery cells. This is because there is strong growth and market demand for this product, due to the Government's strong support and global environment-friendly requirements.

We have signed some strategic cooperation contracts, for example with HAITEC, to develop the batteries using EVs and we have initiated shipments since October this year.

We believe the strong EV market trends, including the growing acceptance of lithium-ion applications and the increased demand for batteries with high quality, will definitely favorably impact our EV business.

Since June of 2011, Tianjin facility experienced increased demand for its e-bike battery business due to the Government suspension of lead-acid battery manufacturing in China. We expect that the revenues from high-power lithium batteries will be significantly increased, based on a sales forecast in e-bikes and EVs for 2012.

As noted by Mr. Li earlier, in fiscal 2012 we will continue to implement our current plans. In addition to our top line growth strategy, we will keep reinforcing the cost-control measures to improve our profitability.

Our plan is to carry out stringent financial budget policy and improve [oversight] and accountability. We are very confident in our ability to keep growing and make very good progress in current plan for fiscal 2012.

On that note, I would like to thank you all for your participation on the call today. Mr. Li, Dr. Mao and I now are happy to answer questions you may have. Operator?

(Operator Instructions). Michael Martina.

I am with Reuters, based in Beijing. I have one question, in two parts. The Chinese government has pledged support for a number of strategic industries, especially in clean technology. I know EV batteries is a growing part of your business, and I believe the Chinese government has pledged $1.5 billion a year to support that industry. So my first question is, does your company have a strategy to take advantage of that Government support?

And the second part of that is that we have seen some international trade tension impact other strategic industries, most recently the solar industry, because of complaints over government subsidies, both in the US and in China. And I'm wondering, is your Company concerned that your industry and that your business could be impacted by similar trade disputes? Thank you.

Dr. Mao, would you mind answering this question regarding the EV market and new energy market?

Yes. Well, for your first part of your question about the strategic EV project issued by -- initiated by the Government, we have been get some funding from Government. For instance, last year we got about $7 million from the Government. And also, we anticipate some more Government programs, so we actually benefitted by the Government initiatives about the EV program.

That's the -- but I don't know about the $15 billion of the whole overall supporting, but we are getting some from the Government; not only from the cash, but also from some policy supports. So we are in the range of supporting by the Government.

Your second part of your question about solar problems in the -- just recently happened in the US, we don't see any imminent threat for now because we are not all exporting our products to many countries, to the -- not many to the US. So our basic EV products are for domestic applications. So I don't think that will have any impact to us for now, at least for a year, I'd say.

[Hopefully], I answered all your questions.

[Bill Connolly].

NASDAQ recently fired a warning shot over your bow regarding the non-compliance of your Company. Can you tell us what you're doing in regards to that?

And a second part is, maybe you could put this to rest, but there's a rumor out there circulating that your Company is on the verge of bankruptcy and that you're going to do a reverse split to throw that -- kind of throw things off, throw a curve ball at everybody. And can you remark on that, please?

So we did receive a deficiency notice from the NASDAQ in October. We are trying to improve our financial performances, given the -- during the grace period, which is 180 days. And we do have some plans to improve.

For example, we are going to release a guidance for our new fiscal year, which will include some new strategies for the cylindrical batteries, prismatic batteries and high-power batteries. And we are also planning on doing some road shows to tell people what the Company has been doing and what we'll do next. And I think, through these kind of efforts and plans, we will bring some confidence and new look of this Company to the investors.

And for your second question, reverse split is one option. But we have talked about this with our attorney, the legal counsel of the Company. We are trying to comply -- be in compliance with the NASDAQ requirements. This is just one of the options.

Well, I hope that's not one of the options you're considering.

I've also heard rumors that Apple is looking at acquiring your Company. Any truth to that?

No.

Marcus, it's Mr. Li there and he answered some of these questions about rumors and his confidence.

But that would definitely be a boost to your stock, that's for sure, if there was any truth to it. But even if you can dispel the other myth about the bankruptcy, [is that happening]?

No.

No.

That's good to hear. All right, that's all I have to ask. Thanks.

(Operator Instructions). We appear to have no questions at this time, so I hand the conference back to yourselves.

Okay. So if there is no further questions to the management, we may end today's call. Thank you very much.

Thank you.

Okay, bye-bye.

On behalf of the entire China BAK Battery team, thank you for your interest and participation on this call. This concludes China BAK Battery's third quarter fiscal year 2011 earnings conference call. Thank you.

Portions of this transcript that are marked (interpreted) were spoken by an interpreter present on the live call. The interpreter was provided by the Company sponsoring this Event.