Highpower International Inc (HPJ)

HPJ 
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Highpower International, Inc. (HPJ)

Q4 2012 Earnings Results

March 21, 2013 10:00 AM ET

Executives

Tricia Ross - IR

Henry Sun - CFO

Analysts

Presentation

Operator

Ladies and gentlemen thank you for standing by and welcome to the Highpower International Fourth Quarter and Fiscal Year 2012 Conference Call. (Operator Instructions). Today’s conference is been recorded March 21, 2013. I would now like to turn the conference over to Tricia Ross of Financial Profiles. Please go ahead.

Tricia Ross

Thank you and good morning this is Tricia Ross, Investor Relations for Highpower International. By now you should have all received a copy of the press release we put out earlier this morning. If you need one please feel free to contact my office at 310-478-2700. Before we begin I would like to remind you that comments on today’s call contain forward-looking statements within the meaning of the Safe Harbor Provisions of the Private Securities Reform Act of 1995. The forward-looking statements are identified through the use of words expect, project, target, continue, believe and other words of similar meaning. Such statements involve known and unknown risks uncertainties and other facts that could cause the actual results of Highpower International to defer materially from the results expressed or implied by such statements. Before a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, key risk factors and management’s discussion and analysis of financial condition and results of operation. In the company’s annual report on Form 10K and other reports of the company filed under the securities and exchange act of 1934. Although the company believes that the expectations reflected in such forward-looking statements are reasonable there can be no assurance that such expectations will prove to be correct. The company has no obligation to update the forward-looking information discussed during today’s call. With us on the call today from management is Henry Sun, Chief Financial Officer. With that I would now like to turn the call over to Henry.

Henry Sun

Thank you Tricia, and thank you all for joining us today. Welcome to Highpower International’s fourth quarter and a fiscal year end 2012 earnings conference call. I will begin with an overview of both our full year 2012 and fourth quarter financial results which we report in our press release issued this morning. Then I will provide some commentary on our businesses and trends. Finally I will discuss our guidance for fiscal year 2013 before opening up the call to your questions.

Let me start with some top-line comments on our full year results. Most importantly we’re pleased that we were able to achieve full year profitability in 2012 coupled with a 500 basis point improvement in our gross margins. This marks our fourth quarter in a row of generating a profit and we’re confident that we have turned the corner and are well positioned for a sustained yearly profitability.

We also saw an uptick in overall revenues in 2012. To put our revenue growth in some perspective we were able to achieve revenue growth in a year where we experienced a nearly $50 million decline in revenues from our materials segment which we transitioned into a full recycling business.

We also faced some macro-economic headwinds in Europe and Asia as well as some lumpiness in our Nickel-Metal Hydride business. So overall we’re quite pleased with our revenue performance in 2012.

As we have mentioned before much of our growth is coming from the strength of our Lithium battery business which continues to grow at a very rapid speed and is driven by long term consumer demand trend. Lithium battery net sales were up 67% in fiscal year 2012 as compared to 2011. Our total Lithium battery volume per amp hour increased by an impressive 74% year-over-year.

We continue to benefit from selling higher capacity batteries of large formats and increased orders from both new and existing customers. Nickel-Metal Hydride net sales were up slightly in 2012 by approximately 2%. We continue to believe this business is a stable and important source of revenue for our company in the long run, although at low growth rates.

Net sales for fiscal year 2012 were $112.6 million a year-over-year increase of 2% compared with $110.6 million for fiscal year 2011. The year-over-year increase was primarily due to a $15.2 million increase in net sales of lithium batteries and a $1.3 million increase in net sales of Nickel-Metal Hydride batteries which was probably offset by an $14.5 million decrease in revenues from the materials business as we shift away from materials trading to preparing for a materials processing and recycling platform in our Ganzhou facility.

Gross profit for 2012 increased to $23.7 million compared with $17.7 million for 2011. Our growth profit margin was 21% for 2012 compared to 16% for 2011. The higher gross profit margin in 2012 were primarily due to lower raw material cost and less revenue from the lower margin materials business. R&D spending was $4.6 million for 2012 as compared with $3.2 million for 2011. Due to the increase in our workforce to extend our research and development and management functions.

Selling and distribution cost were $5.3 million for 2012 as compared with $4.5 million for 2011 reflecting increased investment in sales and marketing including participation in industry trade shows and expanded international sales efforts.

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