China BAK Battery, Inc. (CBAK)

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China BAK Battery Inc. (CBAK)

F2Q09 (Qtr End 03/31/09) Earnings Call Transcript

April 28, 2009 8:00 pm ET

Executives

Tony Shen – CFO, Treasurer and Secretary

Analysts

Mark Tobin – Roth Capital Partners

Doug Ruth – Lenox Financial

Presentation

Operator

Good evening, and thank you for joining us on China Battery second quarter fiscal year 2009 ended March 31st, 2009 Conference Call. During today’s call, we will provide details on the company’s second quarter fiscal year 2009 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 in China BAK’s senior management team including Mr. Li, China BAK’s Chairman and Chief Executive Officer; and Mr. Tony Shen, China BAK’s Chief Financial Officer. All of them will be available to answer questions during the Q&A section.

Our agenda for today is as follows. Mr. Shen will make remarks on behalf of the management team on the company’s financial performance and discuss current business strategies, and he then will make remarks about China BAK’s business outlook. Finally, we will open the call to your questions.

Before we get started, I’d like to remind our listeners that our 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 risk and uncertainties that could cause actual results to differ materially from the anticipated result. These types of statements and underlying factors as well as risks and uncertainty are listed in filings with the Securities and Exchange Commission as well as the news release that was distributed earlier this morning.

Our statements on this call are made as of April 28, 2009 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 exceptions or otherwise.

With that said, it is my pleasure to turn the call over to China BAK’s CFO, Mr. Shen.

Tony Shen

Thanks, Carla. I would like to extend a warm welcome to everyone joining us on the call today. Unfortunately, Mr. Li is on sick leave and couldn’t join us. We just found that out. So, I will be the only one hosting the call.

First, some highlights. China BAK was accepted into the approved vendor list of an international first-tier OEM notebook computer manufacturer during the quarter. We continued to optimize this business of our operation and to implement measures to reduce our costs and operational expenses. We’ve maintained positive operating cash flow during this quarter which has historically been a seasonally slow quarter.

Our Tianjin facility received positive market feedback to samples of our lithium-phosphate cells, used in electric bicycles, power tools, uninterruptible power supplies, and other applications

Now I will review the quarter’s financial performances in more details. All of the dollar numbers will be in US dollars. Net revenues for this quarter were $40.8 million, down 40.1% from last quarter and down 20.5% from the same quarter of last year. The substantial decrease in net revenue over – as compared to last period was generally due to the global financial crisis and recession, which weakened demand for many of the products that our customers sell.

Revenue from cylindrical sales used in notebook computers and other applications were $9.2 million, down 49.8% from last quarter and up $37.5% from the same quarter of last year. Revenue from lithium polymer cells, used in personal electronics devices such as PDAs, MP3 players, and Bluetooth devices were $2.0 million in the second quarter of FY ‘09, down 49.8% from last quarter and up 3.8% from the second of last year.

Revenues from prismatic cells, including aluminum-case cells, steel-case cells and battery packs, were $29.6 million, down 35.4% from last quarter and down 30.7% from the same quarter of last year. Revenue from aluminum-case cells were $23.3 million, down 37.5% from last quarter and down 23.0% from the same quarter of last year.

Revenue from battery packs were $4.8 million, down 11.1% from the last quarter and down 26.8% from the same quarter of last year. Revenues from steel-case cells were $1.5 million, down 52.6% from last quarter, and down 35.0% from the same quarter of last year.

Gross profit for the second quarter of FY ‘09 was $3.0 million, down 71.5% from last quarter and down 22.8% from the same quarter of last year. Gross margin was 7.4%, compared to 15.6% last quarter and 7.6% in the same quarter of last year. The decrease in gross margin from the last quarter and from the same quarter of last year was the result of lower average selling prices and lower average manufacturing costs, offset by lower average material cost.

Operating expenses totaled $6.4 million or 15.7% of revenue this quarter, as compared to 14.4% of revenue last quarter and 14.8% of revenue in the same quarter of last year. R&D expenses were $1.1 million or 2.8% of revenue, as compared to 2.1% of revenue last quarter and 2.7% of revenue in the same quarter of last year. Sales and marketing expenses were $1.2 million or 2.8% of revenue, as compared to 2.3% of revenue last quarter and 2.7% of revenue in the same quarter of last year.

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