China BAK Battery, Inc. (China BAK) has reported net revenues of $68.1 million for the first quarter of fiscal 2009, up 29%, compared with the net revenues of $ 52.8 million in the year-ago quarter. It has also reported a net loss of $1.7 million, or $0.03 loss per share, for the first quarter of fiscal 2009, compared with the net loss of $0.94 million, or $0.02 loss per share, in the year-ago quarter.
Revenues from cylindrical cells used in notebook computers were $18.4 million, down 6.5% from $19.7 million last quarter and up 615.7% from $2.6 million in the year-ago quarter. Market demand from notebook computer manufacturers weakened slightly due to the global financial crisis and recession.
Revenues from prismatic cells, including aluminum-case cells, steel-case cells and battery packs, were $45.8 million, up 1.7% from $45.0 million last quarter and up 2.1% from $44.8 million in the year-ago quarter. Revenues from aluminum-case cells were $37.3 million, up 3.6% from $36.0 million last quarter and up 24.0% from $30.1 million in the year-ago quarter. Revenues from battery packs were $5.4 million, up 0.2% from $5.4 million last quarter and up 8.1% from $5.0 million in the year-ago quarter. Revenues from steel-case cells were $3.1 million, down 15.1% from $3.6 million last quarter, and down 68.3% from $9.8 million in the year-ago quarter. The company started to phase out the production of steel-case cells in the quarter, so revenue from steel-case cells is expected to be minimal in coming quarters.
Revenues from lithium polymer cells, used in personal electronic devices such as personal digital assistants (PDAs), MP3 players and Bluetooth devices, were $3.9 million in the first quarter of FY09, down 51.2% from $8.0 million last quarter, and down 27.4% from $5.4 million in the year-ago quarter. Market demand from our largely U.S.-based lithium polymer cell customers weakened due to the financial crisis and recession.
Gross profit for the first quarter of FY09 was $10.6 million, down 7.7% from $11.5 million last quarter and up 49.1% from $7.1 million in the year-ago quarter. Gross margin was 15.6%, compared to 15.8% last quarter and 13.5% in the year-ago quarter. The slight decrease in gross margin from the previous quarter was the result of lower average selling prices offset mostly by lower average costs. The increase in gross margin from the previous year’s first fiscal quarter was attributable to improvements in our product mix and increased average selling prices, which outweighed the impact of average cost increases.
Operating expenses totaled $9.8 million or 14.4% of revenues in the first quarter of FY09, as compared to $8.4 million or 11.6% of revenues last quarter and $6.9 million or 13.1% of revenues in the year-ago quarter. Research and development expenses were $1.4 million or 2.1% of revenues, as compared to $1.7 million or 2.3% of revenues last quarter and $1.3 million or 2.5% of revenues in the year-ago quarter. Sales and marketing expenses were $1.6 million or 2.3% of revenues, as compared to $1.6 million, or 2.2% of revenues last quarter and $1.3 million or 2.6% of revenues in the year-ago quarter. General and administrative expenses were $6.8 million or 9.9% of revenues, as compared to $5.1 million or 7.1% of revenues last quarter and $4.2 million or 8.0% of revenues in the year-ago quarter. The $6.8 million number includes nearly $3 million of bad debt expense, most of which was related to delayed collection of accounts receivable relating to the timing of the Chinese New Year holiday.
Operating income for the first quarter of FY09 was $0.8 million, as compared to $3.0 million last quarter and $0.2 million in the year-ago quarter.
Net loss was $1.7 million in the first quarter of FY09, as compared to net income of $1.5 million last quarter and net loss of $0.9 million in the year-ago quarter. Diluted earnings per share were negative $0.03 compared with $0.03 per diluted share last quarter and negative $0.02 per diluted share in the year-ago quarter.
For the first quarter of FY09, Days Sales Outstanding (”DSO”) decreased to 103 as compared to 104 last quarter; and inventory turns increased to 3.64 from 3.6 last quarter.
Financial Condition
On December 31, 2008, China BAK had $37.2 million in cash and cash equivalents and negative $18.3 million in working capital, reflecting a current ratio of 0.92:1. Short-term bank loans and long-term bank loans totaled $172.2 million as compared to $170.1 million on September 30, 2008. Shareholders’ equity totaled $166.3 million. China BAK had $24.1 million available for borrowing under its credit facilities.
Cost-Cutting Efforts
In Q1FY09, China BAK initiated a number of actions to cut down cost and expenses. These included reduction in total headcount, work hours for hourly workers, and compensation packages for salaried employees, including senior executives. Employees were also required to take unpaid leaves and will be required to take longer holiday leaves during the Chinese New Year holiday. In addition, the company are suspending prismatic cell production for the month of January 2009 to reduce inventory and to lower energy costs. All these measures are expected to bring at least $1.5 million reduction in operating expenses per quarter for the rest of FY09.
Business Outlook
”The company are pleased to see stable revenue and gross margin this quarter. Revenues from cylindrical cells remained strong, and revenues from prismatic cells continued to grow. This performance is remarkable in light of the difficult market situation. However, the crisis has affected many markets our customers serve. Looking at weakened demand from our customers, the company feel it necessary to take a more cautious look at our revenue guidance for FY09. The company now expect FY09 revenue to fall in the range of $270 million to $300 million, which, at the midpoint of the range, will represent a 16% growth from FY08 levels,” commented Xiangqian Li, CEO of China BAK.
”In the face of such a challenging environment, the company will continue to exercise prudent and disciplined management. With cost-cutting measures the company initiated last quarter and more to be adopted in the coming months, the company expect to achieve operating expense reductions totaling at least $1.5 million per quarter for the rest of FY09,” commented Tony Shen, CFO of China BAK.