China BAK Reports First Quarter Fiscal Year 2010 Financial Results

Jan 28, 2010, 05:00 ET from China BAK Battery, Inc.

SHENZHEN, China, Jan. 28 /PRNewswire-Asia-FirstCall/ -- China BAK Battery, Inc. ("China BAK", the "Company", or "we") (Nasdaq: CBAK), one of the largest lithium-ion battery cell manufacturers in the world, as measured by production output, today announced its financial results for the first quarter of fiscal year 2010 ("Q1 2010").

    Recent Achievements and Highlights
    -- Gross Margin rose to 19.0% because of improved production yields and
       cost reduction;
    -- BAK Tianjin won its first major contract for high power batteries for
       electric buses;
    -- We won a $27M bid to directly supply cell phone batteries to ZTE
       Corporation ("ZTE") in the first half of 2010; and
    -- Capital structure is strengthened by $20M registered direct offering

First Quarter FY10 Financial Results

Net revenues for the first quarter of FY10 were $50.2 million, down 12.7% from $57.6 million last quarter and down 26.2% from $68.1 million in the same quarter of last year.

Revenues from cylindrical cells used in notebook computers were $8.1 million, down 46.1% from $15.0 million last quarter and down 55.9% from $18.4 million in the same quarter of last year.

Revenues from prismatic products, including aluminum-case cells, steel- case cells and battery packs, which are used in mobile phones and certain personal electronic devices, were $38.8 million, up 3.3% from $37.5 million last quarter and down 15.1% from $45.7 million in the same quarter of last year.

Revenues from lithium polymer cells, used in personal electronic devices such as PDAs, MP3 players and Bluetooth devices, were $3.2 million in the first quarter of FY10, down 35.3% from last quarter, and down 21.2% from the same quarter of last year.

Gross profit for the first quarter of FY10 was $9.6 million, up 18.1% from $8.1 million last quarter and down 9.8% from $10.6 million in the same quarter of last year. Gross margin was 19.0%, compared to 14.1% last quarter and 15.6% in the same quarter of last year. Improved production yield and cost reduction contributed to the rise in gross margin.

Operating expenses totaled $12.4 million or 24.8% of revenues in the first quarter of FY10, as compared to $9.0 million or 15.7% of revenues last quarter and $9.8 million or 14.4% of revenues in the same quarter of last year. Research and development expenses were $1.8 million or 3.5% of revenues, as compared to $1.6 million or 2.8% of revenues last quarter and $1.4 million or 2.1% of revenues in the same quarter of last year. Sales and marketing expenses were $2.0 million or 4.0% of revenues, as compared to $1.8 million, or 3.2% of revenues last quarter and $1.6 million or 2.3% of revenues in the first quarter of last year. General and administrative expenses were $8.6 million or 17.2% of revenues, as compared to $5.6 million or 9.7% of revenues last quarter and $6.8 million or 9.9% of revenues in the same quarter of last year.

Operating loss for the first quarter of FY10 was $2.9 million, as compared to operating loss of $0.9 million last quarter and operating income of $0.8 million in the same quarter of last year.

Net loss was $3.4 million in the first quarter of FY10, as compared to net loss of $1.4 million last quarter and net loss of $1.7 million in the same quarter of last year. Diluted earnings per share were negative $0.06 compared with negative $0.02 per diluted share last quarter and negative $0.03 per diluted share in the same quarter of last year.

For the first quarter of FY10, Days Sales Outstanding ("DSO") increased to 139 from 120 last quarter, and Days Sales of Inventory decreased to 162 from 116 last quarter.

Financial Condition

On December 31, 2009 China BAK had $18.3 million in cash and cash equivalents and negative $37.4 million in working capital, reflecting a current ratio of 0.85:1. Short-term bank loans and long-term bank loans totaled $171.9 million as compared to $194.8 million on September 30, 2009. Shareholders' equity totaled $173.9 million. China BAK had $152.5 million available for borrowing under its credit facilities.

Business Outlook

"Looking back at Q1 2010, we are glad to see that we have established ourselves as a strong competitor in the OEM domestic market by supplying batteries directly to branded mobile phone manufacturers. We have also made significant progress in the New Energy/Clean Tech sector. We believe that high power cells will become a significant revenue source in the near future," commented Mr. Xiangqian Li, CEO of China BAK.

"We are pleased to see a strong rebound in gross margin, but we also recognize the challenges ahead. We will continue to improve our operation and prepare for future growth," commented Tony Shen, CFO of China BAK.

Conference Call

China BAK will host a conference call at 8:00 a.m. ET on Thursday, January 28, 2010 to discuss results for the first quarter of FY10 ended December 31, 2009. Joining Xiangqian Li, China BAK's President and Chief Executive Officer on the call will be Tony Shen, Chief Financial Officer. To participate in the conference call, please dial the following number approximately fifteen minutes prior to the scheduled conference call time: 888-419-5570. International callers should dial (617) 896-9871. The pass code for the call is 819-291-86. If you are unable to participate in the call at this time, a replay will be available from 10:00 a.m. ET on Thursday, January 28, 2010 through 10:00 a.m. ET, Thursday, February 11, 2010. To access the replay, please dial 888-286-8010. International callers should dial (617) 801-6888. The pass code for the replay is 629-51-180. The conference call will be broadcast live over the Internet and can be accessed by all interested parties on the China BAK website at http://www.bak.com.cn/ . To listen to the live webcast, please go to the China BAK's website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software. For those unable to participate during the live broadcast, shortly after the call a replay will be made available on China BAK's website for 90 days.

About China BAK Battery Inc.

China BAK Battery, Inc. is one of the largest manufacturers of lithium-based battery cells in the world, as measured by production output. It produces battery cells that are the principal component of rechargeable batteries commonly used in cellular phones, notebook computers and portable consumer electronics, such as digital media devices, portable media players, portable audio players, portable gaming devices, and PDAs. China BAK Battery, Inc.'s 3.0-million-square-foot facilities are located in Shenzhen and Tianjin, PRC, and have been recently expanded to produce new products.

Safe Harbor Statement

This press release contains forward-looking statements, which are subject to change. The forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. All "forward-looking statements" relating to the business of China BAK Battery, Inc. and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties which could cause actual results to differ. These factors include but are not limited to: risks related to China BAK's business and risks related to operating in China. Please refer to China BAK's Annual Reports on Form 10-K for the fiscal years ended September 30, 2009 for specific details on risk factors. Given these risks and uncertainties, you are cautioned not to place undue reliance on forward-looking statements. China BAK's actual results could differ materially from those contained in the forward-looking statements. China BAK undertakes no obligation to revise or update its forward-looking statements in order to reflect events or circumstances that may arise after the date of this release.


                          --Financial Tables Follow--


                   China BAK Battery, Inc. and Subsidiaries
            Condensed Interim Consolidated Statements of Operations and
                          Comprehensive Income/(Loss)
           For the Three Months Ended December 31, 2009, September 30, 2009
                            and December 31, 2008
                (Amounts in thousands, except per share data)

                                               Three Months Ended
                                   December 31,   September 30,    December 31,
                                      2009            2009            2008
                                   (Unaudited)     (Unaudited)     (Unaudited)

    Net Revenues                     $50,228         $57,551         $68,090
    Cost of revenues                 (40,668)        (49,457)        (57,497)
    Gross profit                       9,560           8,094          10,593

    Operating expenses:
        Research and
         development costs            (1,768)         (1,629)         (1,417)
        Sales and marketing
         expenses                     (2,028)         (1,842)         (1,599)
        General and
        administrative
         expenses                     (8,637)         (5,563)         (6,760)
           Total operating
            expenses                 (12,433)         (9,034)         (9,776)

    Operating (loss) / income         (2,873)           (940)            817

    Finance costs, net                (2,153)         (2,255)         (2,840)
    Government grant income              355             244             102
    Other income                           7             717               6
    Loss before income taxes          (4,664)         (2,234)         (1,915)

    Income tax benefit                 1,272             874             176
    Net loss                         $(3,392)        $(1,360)        $(1,739)

    Other comprehensive income /
     (loss)
     - Foreign currency
       translation adjustment           (107)           (112)            160
    Comprehensive loss               $(3,499)        $(1,472)        $(1,579)

    Net loss per share:
        Basic                         $(0.06)         $(0.02)         $(0.03)
        Diluted                       $(0.06)         $(0.02)         $(0.03)

    Weighted average shares
     outstanding:
        Basic                         61,108          56,971          56,958
        Diluted                       61,108          56,971          56,958



                    China BAK Battery, Inc. and Subsidiaries
                  Condensed Interim Consolidated Balance Sheets
                 As of December 31, 2009 and September 30, 2009
                             (Amounts in thousands)

                                                 December 31,    September 30,
                                                     2009             2009
                                                 (Unaudited)        (Audited)
    Assets
    Current assets
    Cash and cash equivalents                       $18,303          $30,678
    Pledged deposits                                 19,040           31,115
    Trade accounts receivable, net                   74,080           83,292
    Inventories                                      79,391           65,535
    Prepayments and other receivables                12,820            4,632
    Deferred tax assets                               5,411            3,895
    Assets held for sale                                804              804
            Total current assets                    209,849          219,951

    Property, plant and equipment, net              218,586          219,685
    Lease prepayments, net                           31,886           32,166
    Intangible assets, net                              224              239
    Deferred tax assets                                  50               43
    Total assets                                   $460,595         $472,084

    Liabilities
    Current liabilities
    Short-term bank loans                          $125,044         $139,159
    Current maturities of long-term bank
     loans                                           17,577           16,114
    Accounts and bills payable                       88,563           92,572
    Accrued expenses and other payables              16,075           18,425
             Total current liabilities              247,259          266,270

    Long-term bank loans, less current
     maturities                                      29,295           39,553
    Deferred revenue                                  7,383            7,442
    Other long-term payables                          2,488            1,940
    Deferred tax liabilities                            308              278
    Total liabilities                               286,733          315,483

    Commitments and contingencies

    Shareholders' equity:
    Ordinary shares US$ 0.001 par value;
     100,000,000 authorized; 57,737,481
     and 63,601,276 issued and outstanding
     as of September 30, 2009 and
     December 31, 2009, respectively                     64               58
    Donation Shares                                  14,102           14,102
    Additional paid-in-capital                      121,917          101,161
    Statutory reserves                                7,314            7,227
    Retained earnings                                 9,848           13,328
    Accumulated other comprehensive income           24,684           24,791
      Less: Treasury shares                          (4,067)          (4,066)
             Total shareholders' equity             173,862          156,601
    Total liabilities and shareholders'
     equity                                        $460,595         $472,084



                    China BAK Battery, Inc. and Subsidiaries
             Condensed Interim Consolidated Statements of Cash Flows
           For the Three Months Ended December 31, 2009, September 30, 2009
                             and December 31, 2008
                             (Amounts in thousands)

                                              Three Months Ended
                                   December 31,   September 30,   December 31,
                                       2009           2009           2008
                                   (Unaudited)     (Unaudited)    (Unaudited)
    Cash flow from operating
     activities
    Net loss                          $(3,392)        $(1,360)       $(1,739)
    Adjustments to reconcile net
     loss to net cash provided
     by / (used in) operating
     activities:
    Depreciation and amortization       4,193           1,328          3,627
    Provision for doubtful debts        4,736           1,864          2,347
    Provision for / (recovery of)
     obsolete inventories                (280)          1,059           (550)
    Share-based compensation            1,145           1,622            818
    Deferred income taxes              (1,495)         (1,020)          (271)
    Deferred revenue                      (59)            (58)           (58)
    Exchange loss / (gain)               (150)           (458)           704
    Loss on disposal of Property,
     plant and equipment                   --               6             --
    Changes in operating assets
     and liabilities:
        Trade accounts receivable       4,475         (15,306)          (956)
        Inventories                   (13,573)         (4,705)         1,279
        Prepayments and other
         receivables                   (8,197)          5,509         (5,602)
        Accounts and bills
         payable                       (4,795)         19,460         20,230
        Accrued expenses and
         other payables                   131          (2,162)          (499)
    Net cash provided by / (used
     in) operating activities        $(17,261)         $5,779        $19,330

    Cash flow from investing
     activities
    Purchases of property, plant
     and equipment                     (3,905)         (6,807)       (19,528)
    Payment in lease prepayment            --              --           (466)
    Purchases of intangible
     assets                                (1)            (13)           (58)
    Proceeds from disposal of
     property, plant and
    equipment                              --              10             --
    Net cash used in investing
     activities                       $(3,906)        $(6,810)      $(20,052)

    Cash flow from financing
     activities
    Proceeds from borrowings           38,008           3,309         84,077
    Repayment of borrowings           (60,896)            (22)       (81,884)
    Decrease / (increase) in
     pledged deposits                  12,071          (1,488)        (1,664)
    Proceeds from issuance of
     capital stock, net                19,616             150             --
    Net cash provided by
     financing activities              $8,799          $1,949           $529

    Effect of exchange rate
     changes on cash and cash
     equivalents                           (7)            121          1,694
    Net (decrease) / increase in
     cash and cash equivalents        (12,375)          1,039          1,502
    Cash and cash equivalents at
     the beginning of the period       30,678          29,639         35,707
    Cash and cash equivalents at
     the end of the period            $18,303         $30,678        $37,209

SOURCE China BAK Battery, Inc.