China BAK Battery Provides Business Update, Restructures Business Units

May 03, 2007 by Jeff Shepard

China BAK Battery, Inc. provided a business update regarding results for the second quarter of fiscal 2007 (FY07) ended March 31, 2007. China BAK expects to report its quarterly financial results with the Securities and Exchange Commission on Form 10-Q by May 8, 2007. The financial results presented herein are preliminary, and it is possible that adjustments could be made before China BAK files its Form 10-Q for the quarter.

BAK expects to report revenues for the second quarter of FY07 of approximately $29.5 million, down 22.7% from $38.2 million for the second quarter of fiscal 2006 (FY06); gross profit of approximately $6.1 million, or 20.8% of revenues, for the second quarter of FY07, down from $12.2 million, or 32.0% of revenues, for the second quarter of FY06; and net income of approximately $0.4 million for the second quarter of FY07, down from $7.6 million for the second quarter of FY06. These declines were primarily due to lower sales volume for prismatic cells as it took time for the market to accept the rise in sales prices caused by a significant increase in the purchase cost of raw materials, especially lithium cobalt dioxide, which increased approximately 30%-40% in March quarter. Sales of high power lithium- ion cells, polymer cells and cylindrical cells increased in March quarter.

"During the quarter, our revenues declined due to increasing competition in the prismatic cell market. As the purchase cost of raw materials rose dramatically, many manufacturers attempted to pass these costs on to their customers in the form of higher prices. In response, customers delayed orders or sought alternate suppliers, causing a decline in sales volume. We recently modified our sales policies and made other internal organizational adjustments. As a result, the sales volume for prismatic cells has begun to improve. We are also seeing more orders for our laptop and lithium polymer cells, which should also improve our top line," said Xiangqian Li, China BAK’s Chief Executive Officer.

BAK also announced that in March, it restructured its operations in an effort to streamline corporate resources and improve internal efficiency, with a particular focus on manufacturing and sales. The new vertically-integrated structure is organized in three major business units focused on the company’s main product lines: prismatic, cylindrical and polymer cells. During the quarter, the company added two key members to its manufacturing engineering staff, each of whom has over 20 years’ experience in the lithium-ion industry, and will lead the BAK engineering team to become a world class engineering force.