Highpower International Inc (HPJ)

HPJ 
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Hong Kong Highpower Technology, Inc. (HPJ)

Q4 2009 Earnings Call Transcript

March 30, 2010 11:00 am ET

Executives

Tricia Ross – IR, Financial Profiles, Inc.

Henry Ngan – CFO

Analysts

Amit Dayal – Rodman & Renshaw

Presentation

Operator

Good morning. My name is Adam, and I will be your conference operator today. At this time, I would like to welcome everyone to the Hong Kong Highpower Technology fourth quarter and year-end 2009 conference call. All lines have been placed on mute to prevent any background noise. After the speakers’ remarks, there will be a question-and-answer session. (Operator instructions)

Thank you. Tricia Ross of Financial Profiles, you may begin your conference.

Tricia Ross

Thank you and good morning. This is Tricia Ross, Investor Relations for Hong Kong Highpower Technology. Before we begin, I would like to remind you that comments on today’s call contains forward-looking statements within the meaning for the Safe Harbor provisions of the Private Securities Litigation 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 factors that could cause actual results Hong Kong Highpower Technology to differ materially from the results expressed or implied by such statements.

For a discussion of risks and uncertainties that could cause actual results to differ from those contained in the forward-looking statements, see "Risk Factors" and "Management's Discussion and Analysis of Financial Conditions and Results and Operations" in the company's annual report on Form 10-K and other reports the company files 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 be proved to be correct. The company has no obligation to update the forward-looking information discussed during today’s call.

With that, I would now like to turn over the call to Henry Ngan, Chief Financial Officer of Hong Kong Highpower Technology.

Henry Ngan

Thank you Tricia and thank you all for joining us today. Welcome to Hong Kong Highpower Technology’s 2009 fourth quarter and year-end earnings conference call. With me today is our Chairman and Chief Executive Officer, Mr. George Pan; and our Corporate Controller, Mr. Sam Qui.

I will begin my remarks today by making some general comments on our business and reviewing our full-year and fourth quarter 2009 results, which we reported in our press release issued this morning. Overall, 2009 was an extremely successful year for Hong Kong Highpower Technology, especially considering the global macro environment in which we have been operating over the past 18 months.

In fiscal year 2009, we were able to exceed our internal operating and financial targets, and we would like to thank all of our employees for helping the company achieve its goals. We more than doubled our net income in 2009. In addition, we significantly increased our gross profit and margins despite negative economic headwinds. Most importantly in 2009, we achieved record profitability and highest level of unit volumes sold in the company’s history.

As a company, we strongly focused on cost containment efforts over the past year. Successful execution and these cost savings initiatives including detailed budget planning and forecast with each department and careful production costs proved invaluable in helping us weather the most severe economic crisis in recent history, while at the same time achieving record profitability. As we look forward to fiscal year 2010, we believe we are well positioned within our industry to capitalize on growth opportunities.

We estimate that we currently have well over 10% share of global nickel-metal hydride battery market. Moreover, we have excellent and stable customer relationships with many good chip names. We anticipate demand for our products will continue to increase in 2010 over last year's levels as the remaining effects of the recession appear to be fading away.

Overall, we remain cautiously optimistic for 2010. We believe Hong Kong Highpower Technology is an excellent position to continue with these positive business trends in the coming year. Though we know that as the global economy continues to improve and consumer demand begins to return, the inflation environment might serve as potential headwinds for our business and the world economy.

Now, on to a more detailed review of our financial results. Net sales for the year ended December 31st, 2009 totaled $70.3 million, a year-over-year decrease of 6% compared with $75 million for 2008. The year-over-year decrease was due to lower average selling prices, but was partially offset by an increase in unit volumes sold.

Gross profit for 2009 increased 18% to $15 million, compared with $12.8 million for 2008. Gross margin was 21% for 2009, compared with 17% for 2008. The year-over-year improvement in gross margin is attributable to implemented manufacturing efficiencies and a decrease in the average per unit cost of goods sold. Selling and distribution costs were $2.4 million for 2009, which was unchanged from 2008. General and administrative expenses, including stock-based compensation, were $6.4 million or 9.1% of net sales in 2009, compared to $6.1 million or 8.1% of net sales for 2008.

The slight year-over-year increase as a percentage of net sales was due to costs associated with continuing obligations as a public company and stock-based compensation expenses. We reported a loss on the exchange rate difference between the US Dollar and the Renminbi of $60,300 for 2009 compared with $1.2 million for 2008.

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