SOURCE: Highpower International, Inc.

Highpower International, Inc.

August 10, 2012 07:00 ET

Highpower International, Inc. Reports Second Quarter 2012 Financial Results

Record-Level Sales Across Battery Segments; Return to Profitability

NEW YORK, NY and SHENZHEN, CHINA--(Marketwire - Aug 10, 2012) - Highpower International, Inc. (NASDAQ: HPJ), a developer, manufacturer and marketer of nickel-metal hydride (Ni-MH) and lithium rechargeable batteries and battery solutions, today announced financial results for the second quarter ended June 30, 2012.

Second Quarter 2012 Highlights

  • Grew net sales by 43% sequentially for the second quarter of 2012 to $29.4 million from $20.6 million in the first quarter 2012
  • Achieved record-level sales in both major battery segments -- Lithium battery net sales up 56% over the second quarter of 2011 and 72% sequentially; Ni-MH battery net sales up 10% over the second quarter of 2011 and 32% sequentially
  • Improved gross margins to 20.5% in the second quarter of 2012 from 16.0% in the second quarter 2012
  • Returned to profitability; EPS attributable to Highpower International of $0.04 for second quarter of 2012
  • Completed new facility; production to begin in August 2012

Management Commentary

"We are pleased with the strong performance we saw across our business in the second quarter, with exceptional growth in both our major battery segments and a return to profitability for the first time in a year," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "Not only did our lithium business turn in its strongest results in the history of the company across all metrics, but we also had a nice recovery in our traditional Ni-MH business. We expect that our lithium business can grow rapidly for the foreseeable future with strong end-market demand for our cleaner lithium battery solutions. Moreover, we believe our Ni-MH business will continue to be a steady source of revenue and is well positioned to capitalize on consolidation trends emerging in the Ni-MH space. We are committed to building Highpower into a highly sustainable and profitable company and will achieve this by providing high-end, environmentally sound rechargeable batteries and future battery and e-waste recycling solutions."

"Lastly, we also achieved another major corporate milestone recently when we completed the long awaited build out of our factory in Huizhou, Guangdong Province. This new facility will allow us to more efficiently manufacture batteries for our customers while meeting the increasing demand for our products. Production will begin in August," concluded Mr. Pan.

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "The second quarter proved to be a positive turning point for Highpower despite weaker global macro concerns in both Europe and Asia. As expected, our Nickel-Metal Hydride battery business regained its growth momentum this quarter and we also benefited from lower commodity costs in comparison to the same period last year. Our Materials business continues the shift to a full-scale, more profitable battery and e-waste recycling model and we expect this business to begin to ramp up in 2013."

Second Quarter 2012 Financial Results

Net sales for the second quarter ended June 30, 2012 totaled $29.4 million, a year-over-year decrease of 1% compared with $29.7 million for the second quarter ended June 30, 2011 and a sequential increase of 43% from the first quarter 2012. The slight year-over-year decrease in sales for the second quarter was primarily due to a decline in revenues in the Materials segment as this business shifts to a full recycling platform, but was offset in part by strong year-over-year sales increases in both the Ni-MH and lithium battery segments.

Second quarter 2012 gross profit increased to $6.0 million, as compared with $4.8 million for the second quarter of 2011. Gross profit margin was 20.5% for the second quarter of 2012, as compared with 16.0% for the second quarter of 2011, or a 450 basis point increase. The year-over-year increase in gross profit margin for the second quarter of 2012 was primarily due to a shift in our revenue mix away from the low margin Materials business, lower commodity costs, and better factory utilization due to the increased production volumes. 

R&D spending was $1.2 million for the second quarter of 2012, as compared with $0.9 million for the comparable period in 2011, reflecting our continued increased investments in new product research activities and the expansion of our R&D workforce.

Selling and distribution costs were $1.3 million for second quarter of 2012 as compared with $1.0 million for the comparable period in 2011, primarily as a result of increased sales and marketing activities, including the expansion of our sales team with more experienced international sales personnel.

General and administrative expenses, including non-cash stock-based compensation, were $2.3 million for the second quarter of 2012, as compared with $2.1 million for the second quarter of 2011.

Income from operations for the second quarter of 2012 was $1.1 million as compared with income from operations of $0.7 million for the second quarter of 2011.

Net income attributable to Highpower International (exclusive of loss attributable to non-controlling interest) for the second quarter of 2012 was $0.5 million, or $0.04 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with second quarter 2011 net income attributable to Highpower International (exclusive of loss attributable to non-controlling interest) of $0.4 million, or $0.03 per diluted share, based on 13.6 million weighted average shares outstanding.

Balance Sheet

At June 30, 2012, Highpower International had cash, cash equivalents and restricted cash totaling $23.1 million, total assets of $106.3 million, and stockholders' equity of $30.1 million. Bank credit facilities totaled $63 million at June 30, 2012, of which $38 million was utilized and $25 million was available as unused credit.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2012 and our continued shift toward higher-end products, we expect revenues from our battery business to grow between 15% and 25% over 2011 revenue levels. The revenue growth in our Ni-MH and lithium businesses will be offset by the shift away from our traditional Materials business to a full scale materials recycling business that will ramp up in 2013. We expect to remain profitable for the remainder of fiscal 2012.

Conference Call and Webcast

The Company will host a conference call today at 7:00 a.m. Pacific time/10:00 a.m. Eastern time to discuss these results and answer questions.

Individuals interested in participating in the conference call may do so by dialing 877-941-0844 from the U.S. or 480-629-9835 from outside the U.S. and referencing the reservation code 4553100. Those interested in listening to the conference call live via the Internet may do so by visiting the Investor Relations section of the Company's Web site at www.highpowertech.com or www.InvestorCalendar.com.

About Highpower International, Inc.

Highpower International was founded in 2001 and produces Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries. With over 3,000 employees and prominent international customers, Highpower is committed to expanding its market through continuous research and development as well as increased vertical integration efforts. As a company, Highpower International is committed to clean technology, not only in the products it makes, but also in the processes used to make them. The majority of Highpower International's products are distributed worldwide to markets in the United States, Europe, China and Southeast Asia.

Forward-Looking Statements

This press release contains "forward-looking statements" within the meaning of the "safe-harbor" provisions of the Private Securities Litigation Reform Act of 1995 that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, and statements about industry trends and the Company's future performance, operations and products. Such statements involve known and unknown risks, uncertainties and other factors that could cause the Company's actual results to differ materially from the results expressed or implied by such statements. Such risks and uncertainties include, without limitation, the current economic downturn adversely affecting demand for the Company's products; fluctuations in the cost of raw materials; the Company's dependence on, or inability to attract additional, major customers for a significant portion of its net sales; the Company's ability to increase manufacturing capabilities to satisfy orders from new customers; changes in the laws of the People's Republic of China that affect the Company's operations; the devaluation of the U.S. Dollar relative to the Renminbi; the Company's dependence on the growth in demand for portable electronic devices and the success of manufacturers of the end applications that use the Company's battery products; the Company's responsiveness to competitive market conditions; the Company's ability to successfully manufacture lithium batteries in the time frame and amounts expected; the market acceptance of the Company's lithium products; changes in foreign, political, social, business and economic conditions that affect the Company's production capabilities or demand for our products; and various other matters, many of which are beyond the Company's control. For a more detailed discussion of these and other risks and uncertainties see "Risk Factors" and "Management's Discussion and Analysis of Financial Condition and Results of Operations" in the Company's public filings including the Company's Form 10-K for the fiscal year ended December 31, 2011 and its Form 10-Q for the quarter ended March 31, 2012 filed with the SEC and its Form 10-Q for the quarter ended June 30, 2012 to be filed with the SEC. 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. Any forward-looking statement made by us in this press release is based only on information currently available to the Company and speaks only as of the date on which it is made. The Company has no obligation to update the forward-looking information contained in this press release.

financial tables to follow -

   
   
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)  
(Stated in US Dollars)  
   
    Three months ended
 June 30,
    Six months ended
June 30,
 
    2012     2011     2012     2011  
    (Unaudited)     (Unaudited)     (Unaudited)     (Unaudited)  
    $     $     $     $  
                         
Net sales   29,377,682     29,708,154     49,980,465     56,658,820  
Cost of sales   (23,369,258 )   (24,942,124 )   (40,299,782 )   (47,892,431 )
                         
Gross profit   6,008,424     4,766,030     9,680,683     8,766,389  
Research and development costs   (1,233,585 )   (873,383 )   (2,117,931 )   (1,478,428 )
Selling and distribution costs   (1,282,499 )   (980,663 )   (2,481,399 )   (2,155,348 )
General and administrative costs, including stock-based compensation   (2,263,983 )   (2,098,497 )   (4,278,468 )   (4,205,335 )
Income (loss) on exchange rate difference   153,360     (297,768 )   122,030     (470,703 )
Gain (loss) on derivative instruments   (304,147 )   156,380     32,956     (234,196 )
Equity loss in an associate   -     (2,199 )   -     (3,971 )
                         
Income from operations   1,077,570     669,900     957,871     218,408  
Other income   61,185     66,119     228,218     218,255  
Interest expenses   (301,123 )   (170,591 )   (313,441 )   (260,142 )
                         
Income before taxes   837,632     565,428     872,648     176,521  
Income taxes expense   (362,941 )   (137,017 )   (416,266 )   (142,778 )
                         
Net income   474,691     428,411     456,382     33,743  
Less: net loss attributable to non-controlling interest   (29,023 )   -     (50,517 )   -  
Net income attributable to the Company   503,714     428,411     506,899     33,743  
                         
Comprehensive income                        
Net income   474,691     428,411     456,382     33,743  
Foreign currency translation (loss) gain   (282,868 )   3,015     (137,963 )   (15,768 )
Comprehensive income   191,823     431,426     318,419     17,975  
                         
Less: comprehensive loss attributable to non-controlling interest   (46,997 )   -     (68,449 )   -  
Comprehensive income attributable to the                        
Company   238,820     431,426     386,868     17,975  
                         
Earnings per share of common stock attributable to the Company                        
  - Basic   0.04     0.03     0.04     -  
  - Diluted   0.04     0.03     0.04     -  
                         
Weighted average common shares outstanding                        
  - Basic   13,582,106     13,582,106     13,582,106     13,582,106  
  - Diluted   13,582,106     13,585,661     13,582,106     13,582,578  
                         
 
 
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
 
    June 30,   December 31,
    2012   2011
    (Unaudited)    
    $   $
ASSETS        
  Current Assets:        
  Cash and cash equivalents   5,119,991   5,175,623
  Restricted cash   18,017,812   12,708,999
  Accounts receivable, net   25,753,706   21,129,418
  Notes receivable   1,731,336   515,107
  Prepayments   3,638,489   4,251,723
  Other receivables   789,134   1,041,614
  Inventories   16,368,579   13,512,942
         
  Total Current Assets   71,419,047   58,335,426
         
  Property, plant and equipment, net   28,979,438   25,462,656
  Land use right, net   4,384,150   3,132,965
  Intangible asset, net   725,000   750,000
  Deferred tax assets   745,328   857,209
  Foreign currency derivatives assets   -   15,653
         
TOTAL ASSETS   106,252,963   88,553,909
         
LIABILITIES AND EQUITY        
         
LIABILITIES        
  Current Liabilities:        
  Foreign currency derivatives liabilities   15,969   -
  Accounts payable   23,842,503   22,153,822
  Deferred revenue   648,298   -
  Notes payable   20,801,187   17,909,843
  Letter of credit   -   2,880,000
  Other payables and accrued liabilities   8,361,253   6,941,063
  Income taxes payable   477,770   411,536
  Short-term loan   14,179,842   9,545,383
         
  Total Current Liabilities   68,326,822   59,841,647
         
  Long-term loan   7,867,697   -
         
TOTAL LIABILITIES   76,194,519   59,841,647
         
 
 
HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS (CONTINUED)
(Stated in US Dollars)
 
    June 30,   December 31,
    2012   2011
    (Unaudited)    
    $   $
EQUITY        
  Stockholder's equity        
  Preferred Stock        
  (Par value: $0.0001, Authorized: 10,000,000 shares, Issued and outstanding: none)   -   -
  Common stock        
  (Par value : $0.0001, Authorized: 100,000,000 shares, 13,582,106 shares issued and outstanding at June 30, 2012 and December 31, 2011)  
1,358
 
1,358
  Additional paid-in capital   5,924,400   5,831,237
  Statutory and other reserves   2,726,390   2,726,390
  Retained earnings   16,145,555   15,638,656
  Accumulated other comprehensive income   4,376,658   4,514,621
         
  Total equity for the Company's stockholders   29,174,361   28,712,262
         
  Non-controlling interest   884,083   -
         
TOTAL EQUITY   30,058,444   28,712,262
         
TOTAL LIABILITIES AND EQUITY   106,252,963   88,553,909
         
   
   
HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES  
CONSOLIDATED STATEMENTS OF CASH FLOWS  
(Stated in US Dollars)  
   
    Six months ended June 30,  
    2012     2011  
    (Unaudited)     (Unaudited)  
    $     $  
Cash flows from operating activities            
Net income   456,382     33,743  
Adjustments to reconcile net loss to net cash provided by operating activities :            
  Depreciation and amortization   999,544     883,231  
  Allowance for doubtful accounts   282,127     61,026  
  Reversal of allowance for inventory obsolescence   (70,966 )   (46,705 )
  Loss on disposal of property, plant and equipment   56,703     6,636  
  Equity loss in an associate   -     3,971  
  (Gain) loss on derivative instruments   (32,956 )   234,196  
  Deferred income tax   106,643     -  
  Share based payment   93,164     277,180  
Changes in operating assets and liabilities :            
  Accounts receivable   (4,971,615 )   (629,177 )
  Notes receivable   (1,227,504 )   (550,505 )
  Prepayments   591,874     (3,889,931 )
  Other receivable   240,454     11,223  
  Inventories   (2,836,232 )   946,233  
  Accounts payable   5,680,116     (2,000,570 )
  Deferred revenue   652,157     -  
  Other payables and accrued liabilities   1,481,166     60,682  
  Income taxes payable   69,855     (1,072,317 )
Net cash flows provided by operating activities   1,570,912     (5,671,084 )
             
Cash flows from investing activities            
  Acquisition of plant and equipment   (8,484,171 )   (2,930,714 )
  Acquisition of land use right   (1,326,010 )   -  
Net cash flows used in investing activities   (9,810,181 )   (2,930,714 )
             
Cash flows from financing activities            
  Proceeds from short-term bank loans   5,871,646     7,086,802  
  Repayment of short-term bank loans   (1,196,676 )   (8,422,290 )
  Proceeds from long-term bank loans   7,914,523     -  
  Proceeds from notes payable   19,342,085     18,387,317  
  Repayment of notes payable   (16,633,527 )   (10,225,663 )
  Proceeds from letter of credit   -     5,508,490  
  Repayment of letter of credit   (2,880,000 )   -  
  Proceeds from non-controlling interest   949,743     -  
  Decrease in restricted cash   (5,387,117 )   (5,167,034 )
Net cash flows provided by financing activities   7,980,677     7,167,622  
Effect of foreign currency translation on cash and cash equivalents   202,960     466,547  
Net decrease in cash and cash equivalents   (55,632 )   (967,629 )
Cash and cash equivalents - beginning of period   5,175,623     8,490,629  
Cash and cash equivalents - end of period   5,119,991     7,523,000  
             
Supplemental disclosures for cash flow information :            
Cash paid for :            
  Income taxes   239,767     386,314  
  Interest expenses   590,399     386,313  
Non-cash transactions            
  Accounts payable for construction in progress   1,501,464     -  
             

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