Highpower International Inc (HPJ)

HPJ 
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Highpower International Inc. (HPJ)

Q4 2013 Earnings Conference Call

March 25, 2014 10:00 AM ET

Executives

Larry Clark - IR, Financial Profiles

Henry Sun - CFO

George Pan - CEO

Bryan Bai - VP, Sales

Analysts

Walter Ramsley with Walrus Partners

Mike Simmons [ph]

Presentation

Operator

Ladies and gentlemen thank you for standing by and welcome to the Highpower International Fourth Quarter and Fiscal Year 2013 Financial Results Conference Call. At this time, all participants are in a listen-only mode. Following management’s prepared remarks, we will conduct a question-and-answer session. (Operator Instructions) And as a reminder, this call is being recorded today, March 25, 2014. I’d now like to turn the conference over to Larry Clark of Financial Profiles. Please go ahead sir.

Larry Clark

Thank you and good morning. This is Larry Clark, 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 us at 310-622-8235 or by email at lclark@finprofiles.com.

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 Litigation Reform Act of 1995. The forward-looking statements are identified through the use of the 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 the actual results of Highpower International 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 the Risk Factors and Management's Discussion and Analysis of financial conditions and results of 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 assurances 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 today on the call from management is George Pan, Chairman and Chief Executive Officer; Henry Sun, Chief Financial Officer and Bryan Bai, Vice President of Sales.

With that, I would now like to turn the call over to Henry Sun.

Henry Sun

Thank you, Larry and thank you all for joining us today. Welcome to Highpower International’s fourth quarter and fiscal year end 2013 earnings conference call. I will begin with an overview of both our full year 2013 and fourth quarter financial results which we have reported in our press release issued this morning. Then we will turn the call over to the Chairman Pan for some brief remarks and next to turn to Bryan, who will tell some of our recent sales and marketing initiatives. Finally, I will discuss our guidance for fiscal year 2014 before opening up the call for your questions.

Let me start by stating that 2013 was a transformative year for Highpower, as we continued to position the company through investments in R&D and infrastructure to capitalize of future growth opportunities for lithium batteries, including electric vehicles all at the same time achieving top-line growth and profitability. We are excited to end the year on such an exceptional note, having once again generated record revenues in our lithium battery segment and overall record revenues for the company.

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 pace and is driven by long term consumer demand trend. Lithium battery net sales were up 53% in fiscal year 2013 as compared to 2012. Our total lithium battery volume per ampere hour increased by an impressive 50% year-over-year. We continue to benefit from selling higher capacity large format batteries and increased orders from both new and existing customers. Nickel-Metal Hydride net sales were up slightly in 2013 by just under 2%. We continue to gain market share with volume increase of approximately 10% but this was offset by an average selling price decline of approximately 8% due to cost savings from lower commodity prices and competition. We continue to believe this business is stable and important source of revenue for our company but it will not experience the similar growth in volume that our lithium battery business is expected to achieve.

Total net sales for our fiscal year 2013 were $132.8 million, a year-over-year increase of 18% compared with $112.6 million for fiscal year 2012. The year-over-year increase was primarily due to a $20 million increase in net sales of lithium batteries and $1.1 million increase in net sales of Nickel-Metal Hydride batteries which was partly offset by an $800,000 decrease in revenues from the materials business as we shift away from materials trading to preparing for a materials processing and reflecting type 1 [ph] in our Ganzhou facility.

Gross profit for 2013 increased to $26.4 million compared with $23.7 million for 2012. Our gross profit margin was 20% for 2013 compared to 21% for 2012. The lower gross margin in 2013 was primarily due to decreases in the average selling prices of Nickel-Metal Hydride battery and an increase in labor costs for the comparable period.

R&D spending was $5.7 million for 2013 as compared with $4.6 million for 2012 which reflects our ongoing commitment to R&D activities and the expansion of our workforce in research focused on basic materials and electrochemical platforms and the development of complex battery management systems. Selling and distribution costs were $6.2 million for 2013 as compared to $5.3 million for 2012, reflecting increased investment in sales and marketing, including participation in industry trade shows and expanded international sales efforts.

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