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Highpower International, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results


Highpower International, Inc. Reports Fourth Quarter and Full Year 2012 Financial Results

Strong Gross Margin Improvement; Achieved Full Year Profitability

NEW YORK, NY and SHENZHEN, CHINA -- (Marketwire) -- 03/21/13 -- 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 fourth quarter and year-ended December 31, 2012.

Fiscal Year 2012 Highlights


 
--  Net sales of $112.6 million for fiscal year 2012, an increase of 2%
    over fiscal year 2011 sales of $110.6 million
--  Continued strong performance in Lithium battery segment -- lithium
    battery net sales up 67% in fiscal year 2012 over fiscal year 2011;
    total lithium battery pieces sold increased 48%; and a 74% increase in
    volume per ampere hour
--  Gross margins of 21% in fiscal year 2012, compared to 16% in fiscal
    year 2011, a 500 basis point improvement
--  Achieved full-year profitability; EPS attributable to Highpower
    International of $0.13 for fiscal year 2012, compared with a loss of
    ($0.18) in fiscal year 2011

Management Commentary

"We are pleased with our return to full year profitability in 2012 while we continued to make important investments to advance our position in the rechargeable battery industry," said Mr. George Pan, Chairman and Chief Executive Officer of Highpower International. "During the past year, we continued to shift into higher margin lithium batteries, which has proven to be a very successful strategy with another year of 67% sales growth in this segment. We believe lithium and higher capacity batteries will continue to be a sustainable long-term growth driver for Highpower as we capitalize on robust end-market demand for mobile phones, tablets, energy storage and small-sized transportation vehicles.

"We believe 2013 will be a pivotal year for Highpower and have never felt more excited about our business. There are a number of important catalysts coming to fruition in the latter half of the year, which include the build out of our new battery and e-waste recycling business as well as the ramp up of our new manufacturing facility in Huizhou, Guangdong Province, which is expected to become fully operational at the end of the 2013. This will position us to better meet future demand in the years ahead," concluded Mr. Pan.

Mr. Henry Sun, Chief Financial Officer of Highpower International, added, "We are delighted that Highpower returned to profitability in 2012 despite some softness in world economies and our ongoing investments in our business. In 2013, we expect continued strong growth in our lithium battery business and stable performance in our Ni-MH segment. While we will continue to make capital investments in 2013 for manufacturing equipment at our new facility in Huizhou and our recycling facility in Ganzhou, we believe that we will be able to remain profitable for the year, while at the same time positioning us for increased profitability and growth in 2014 and beyond."

Fourth Quarter 2012 Financial Results

Net sales for the fourth quarter ended December 31, 2012 totaled $30.8 million, a year-over-year increase of 19% compared with $25.9 million for the fourth quarter ended December 31, 2011. The increase in sales for the fourth quarter of 2012 was primarily due to a 74% year-over-year sales increase in our lithium battery segment, which was offset with a slight decline in Ni-MH battery sales.

Fourth quarter 2012 gross profit increased to $6.4 million, as compared with $5.1 million for the fourth quarter of 2011. Gross profit margin was 21% for the fourth quarter 2012, as compared with 20% for the fourth quarter of 2011. The year-over-year increase in gross profit margin for the fourth quarter of 2012 was primarily due to higher sales volumes, lower commodity costs, and a greater percentage of higher-end battery products.

R&D spending was $1.3 million for the fourth quarter of 2012, as compared with $0.9 million for the comparable period in 2011, due to the increase in our workforce to expand our research and development and management functions.

General and administrative expenses, including non-cash stock-based compensation, were $3.2 million for the fourth quarter of 2012, as compared to $3.3 million for the fourth quarter of 2011.

Income from operations for the fourth quarter of 2012 was $0.8 million, as compared with loss from operations of $1.6 million for the fourth quarter of 2011.

Net income attributable to Highpower International for the fourth quarter of 2012 was $0.6 million, or $0.04 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with fourth quarter 2011 net loss of ($1.9) million, or ($0.14) per diluted share, based on 13.6 million weighted average shares outstanding.

Full Year 2012 Financial Results

Net sales for the year ended December 31, 2012 totaled $112.6 million, a year-over-year increase of 2% compared with $110.6 million for the year ended December 31, 2011. The year-over-year increase was primarily due to a $15.2 million increase in net sales of lithium batteries and a $1.3 million increase in net sales of Ni-MH batteries, which was partly offset by a $14.5 million decrease in revenues from the Materials business as we shift away from materials trading to preparing for a materials processing and recycling platform.

Gross profit for 2012 increased to $23.7 million, as compared with $17.7 million for 2011. Gross profit margin was 21% for 2012, as compared with 16% for 2011. The higher gross profit margins in 2012 were primarily due to lower raw material costs and less revenue from the lower margin Materials business.

R&D spending was $4.6 million for 2012, as compared with $3.2 million for 2011, due to the increase in our workforce to expand our research and development and management functions. Selling and distribution costs were $5.3 million for 2012, as compared with $4.5 million for 2011, reflecting increased investment in sales and marketing, including participation in industry trade shows and expanded international sales efforts.

General and administrative expenses, including stock-based compensation, were $11.5 million for 2012, as compared to $9.7 million for 2011. The increase was primarily due to a $1.6 million increase in the provision for bad debt expenses for the year ended December 31, 2012.

Income from operations for 2012 was $2.8 million, as compared with loss from operations of $2.2 million for 2011.

Net income attributable to Highpower International for the year-ended December 31, 2012 was $1.7 million, or $0.13 per diluted share, based on 13.6 million weighted average shares outstanding. This compares with 2011 net loss attributable to Highpower International of $2.5 million, or ($0.18) per diluted share, based on 13.6 million weighted average shares outstanding.

Balance Sheet

At December 31, 2012, Highpower International had cash, cash equivalents and restricted cash totaling $34.3 million, total assets of $120.4 million, and stockholders' equity of $31.2 million. Total debt was $54.6 million at December 31, 2012. Bank credit facilities totaled $69.2 million, of which $34.7 million was available at the end of the year.

Outlook

Based on our current expectations for global demand for the rechargeable battery market in 2013 and our continued shift toward mobile power sources, higher-value energy storage systems an d transportation products, we expect revenues to grow between 15% to 20% over 2012 revenue levels. We expect to remain profitable for the full year in 2013.

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 877-941-8609 from the U.S. or 480-629-9645 from outside the U.S. and referencing the reservation code 4608669. 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 high-quality Nickel-Metal Hydride (Ni-MH) and lithium-based rechargeable batteries used in a wide range of applications such as mobile devices, computer tablets, electric bikes, energy storage systems, power tools, medical equipment, digital and electronic devices, personal care products, and lighting, etc. With over 3,000 employees and advanced manufacturing facilities located in Shenzhen and Huizhou of China, Highpower is committed to clean technology, not only in the products it makes, but also in the processes of production. The majority of Highpower International's products are distributed to worldwide markets mainly 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 and uncertainty in the European economy 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; the Company's ability to complete the construction of its new facilities within the time frames and cost estimates currently anticipated; the Company's ability to maintain increased margins; 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 its battery products in the time frame and amounts expected; the Company's ability to successfully develop products for and penetrate the electric transportation market; the Company's ability to continue R&D development to keep up with technological changes; 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, its Form 10-Q reports for the quarters ended March 31, 2012, June 30, 2012 and September 30, 2012 filed with the SEC and its Form 10-K report for the year ended December 31, 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 the Company 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)                           
                                                                            
                          For the three months                              
                                 ended               For the year ended     
                              December 31,               December 31,       
                            2012         2011         2012          2011    
                                                                            
Net sales                30,800,194   25,850,327   112,648,705  110,600,477 
Cost of sales           (24,384,461) (20,747,722)  (88,942,281) (92,852,899)
                        -----------  -----------  ------------  ----------- 
                                                                            
Gross profit              6,415,733    5,102,605    23,706,424   17,747,578 
                        -----------  -----------  ------------  ----------- 
Research and                                                                
 development expenses    (1,345,764)    (937,273)   (4,611,054)  (3,239,436)
Selling and                                                                 
 distribution expenses   (1,442,921)    (797,245)   (5,347,692)  (4,451,548)
General and                                                                 
 administrative                                                             
 expenses, including                                                        
 stock-based                                                                
 compensation            (3,164,804)  (3,333,259)  (11,478,541)  (9,739,554)
Litigation expenses               -   (1,500,000)            -   (1,500,000)
Loss on exchange rate                                                       
 difference                (142,139)    (194,318)     (220,597)    (851,899)
Gain (loss) on                                                              
 derivative instruments     490,059       82,557       730,591      (54,229)
Equity loss in an                                                           
 associate               
         -            -             -     (108,346)
                        -----------  -----------  ------------  ----------- 
Total operation                                                             
 expenses                (5,605,569)  (5,179,538)  (20,927,293) (19,945,012)
                        -----------  -----------  ------------  ----------- 
                                                                            
Income (loss) from                                                          
 operations                 810,164   (1,576,933)    2,779,131   (2,197,434)
                                                                            
Other income                226,359      294.789       630,842      752,875 
Interest expenses          (327,842)    (180,627)     (705,218)    (545,884)
                        -----------  -----------  ------------  ----------- 
                                                                            
Income (loss) before                                                        
 taxes                      708,681   (1,462,771)    2,704,755   (1,990,443)
Income taxes expense       (189,126)    (394,461)   (1,132,340)    (463,556)
                        -----------  -----------  ------------  ----------- 
                                                                            
Net income (loss)           519,555   (1,857,232)    1,572,415   (2,453,999)
                        -----------  -----------  ------------  ----------- 
                                                                            
Less: net loss                                                              
 attributable to non-                                                       
 controlling interest       (46,207)           -      (144,607)           - 
Net income (loss)                                                           
 attributable to the                                                        
 Company                    565,762   (1,857,232)    1,717,022   (2,453,999)
                        -----------  -----------  ------------  ----------- 
                                                                            
Comprehensive income                                                        
Net income (loss)           519,555   (1,857,232)    1,572,415   (2,453,999)
Foreign currency                                                            
 translation gain           307,049      751,829       532,918    1,972,214 
                        -----------  -----------  ------------  ----------- 
Comprehensive income                                                        
 (loss)                     826,604   (1,105,403)    2,105,333     (481,785)
                        ===========  ===========  ============  =========== 
                                                                            
Less: comprehensive                                                         
 loss attributable to                                                       
 non-controlling                                                            
 interest                   (39,922)           -      (146,932)           - 
Comprehensive income                                                        
 (loss) attributable to                                                     
 the Company                866,526   (1,105,403)    2,252,265     (481,785)
                        ===========  ===========  ============  =========== 
                                                                            
Earnings (loss) per                                                         
 share of common stock                                                      
 attributable to the                                                        
 Company                                                                    
  - Basic and diluted          0.04        (0.14)         0.13        (0.18)
                        ===========  ===========  ============  =========== 
                                                                            
Weighted average common                                                     
 shares outstanding                                                         
  - Basic and diluted    13,582,106   13,582,106    13,582,106   13,582,106 
                        ===========  ===========  ============  =========== 
                                                                            
                                                                            
                                                                            
                                                                            
               HIGHPOWER INTERNATIONAL, INC. AND SUBSIDIARIES               
                         CONSOLIDATED BALANCE SHEETS                        
                           (Stated in US Dollars)                           
                                                                            
                                                   December 31, December 31,
                                                       2012         2011    
                                                   ------------ ------------
ASSETS                                                                      
  Current Assets:                                                           
  Cash and cash equivalents                           6,627,334    5,175,623
  Restricted cash                                    27,695,569   12,708,999
  Accounts receivable, net                           25,323,899   21,129,418
  Notes receivable                                      392,242      515,107
  Prepayments                                         3,223,795    4,251,723
  Other receivables                                     802,907    1,041,614
  Inventories                                        16,719,807   13,512,942
                                                   ------------ ------------
                                                                            
  Total Current Assets                               80,785,553   58,335,426
                                                   ============ ============
                                                                            
  Property, plant and equipment, net                 33,462,369   25,462,656
  Land use right, net                                 4,423,348    3,132,965
  Intangible asset, net                                 700,000      750,000
  Deferred tax assets                                   762,954      857,209
  Foreign currency derivatives assets                   255,508       15,653
                                                   ------------ ------------
                                                                            
TOTAL ASSETS                                        120,389,732   88,553,909
                                                   ============ ============
                                                                            
LIABILITIES AND STOCKHOLDERS' EQUITY                                        
                                                                            
LIABILITIES                                                                 
  Current Liabilities:                                                      
  Accounts payable                                   27,509,195   22,153,822
  Deferred revenue                                      661,178            -
  Short-term bank loan                               20,478,604    9,545,383
  Notes payable                                      26,397,200   17,909,843
  Letter of credit                                            -    2,880,000
  Other payables and accrued liabilities              4,485,918    6,941,063
  Income taxes payable                                1,180,469      411,536
  Current portion of long-term loan                   1,925,762            -
                           
                        ------------ ------------
                                                                            
  Total Current Liabilities                          82,638,326   59,841,647
                                                   ------------ ------------
                                                                            
  Long-term bank loan                                 5,777,286            -
                                                                            
TOTAL LIABILITIES                                    88,415,612   59,841,647
                                                   ============ ============
                                                                            
COMMITMENTS AND CONTINGENCIES                                               
                                                                            
                                                                            
                                                                            
                                                                            
                HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES               
                   CONSOLIDATED BALANCE SHEETS (CONTINUED)                  
                           (Stated in US Dollars)                           
                                                                            
                                                   December 31, December 31,
                                                       2012         2011    
                                                   ------------ ------------
EQUITY                                                                      
  Stockholder's equityPreferred 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 December 31, 2012 and 2011)             1,358        1,358
  Additional paid-in capital                          6,035,230    5,831,237
  Statutory and other reserves                        2,790,484    2,726,390
  Retained earnings                                  17,291,584   15,638,656
  Accumulated other comprehensive income              5,049,864    4,514,621
                                                   ------------ ------------
                                                                            
Total Equity for the Company's Stockholders          31,168,520   28,712,262
                                                   ------------ ------------
                                                                            
  Non-controlling interest                              805,600            -
                                                                            
TOTAL EQUTIY                                         31,974,120   28,712,262
                                                   ============ ============
                                                                            
TOTAL LIABILITIES AND EQUITY                        120,389,732   88,553,909
                                                   ============ ============
                                                                            
                                                                            
                                                                            
                                                                            
               HIGHPOWER INTERNATIONAL, INC AND SUBSIDIARIES                
                   CONSOLIDATED STATEMENTS OF CASH FLOWS                    
                           (Stated in US Dollars)                           
                                                                            
                                                     For the year ended     
                                                        December 31,        
                                                     2012          2011     
Cash flows from operating activities                                        
  Net income (loss)                                 1,572,415    (2,453,999)
  Adjustments to reconcile net income to net                                
   cash provided by operating activities:                                   
    Depreciation and amortization                   2,090,403     1,848,824 
    Allowance for doubtful accounts                 1,744,655       387,734 
    Loss on disposal of property, plant and                                 
     equipment                                         71,473        24,279 
    Equity loss in an associate                             -       108,346 
    Loss on derivative instruments                   (236,709)       54,229 
    Deferred income tax                               102,614       (27,532)
    Share based payment                               203,993       650,919 
  Changes in operating assets and liabilities:                              
    Accounts receivable                            (5,650,965)      179,538 
    Notes receivable                                  127,414      (241,465)
    Prepayments                                     1,063,693    (1,936,925)
    Other receivables                                 248,026      (225,015)
    Inventories                                    (3,020,127)    1,380,674 
    Accounts payable                                6,624,896     3,107,868 
    Deferred revenue                                  653,015               
    Other payables and accrued liabilities         (2,503,482)    1,630,890 
    Income taxes payable                              754,589      (793,633)
                                                 ------------  ------------ 
Net cash flows provided by operating activities     3,845,903     3,694,732 
                                                 ------------  ------------ 
                                                                            
Cash flows from investing activities                                        
  Acquisition of property, plant and equipment    (11,646,583)   (7,674,215)
  Acquisition of land use right                    (1,327,754)            - 
                                                 ------------  ------------ 
Net cash flows used in investing activities       (12,974,337)   (7,674,215)
                                                 ------------  ------------ 
                                                                            
Cash flows from financing activities                                        
  Proceeds from bank borrowings                    14,627,171    13,936,095 
  Repayment of bank borrowings                     (3,776,533)  (16,186,300)
  Proceeds from notes payable                      46,359,978    36,655,387 
  Repayment of notes payable                      (38,188,330)  (29,407,905)
  Proceeds from letter credit                               -    11,403,244 
  Repayment of letter credit                       (2,880,000)   (9,916,133)
  Proceeds from long term bank loans                7,924,935             - 
  Repayment of long term bank loans                  (316,997)            - 
  Proceeds from non-controlling interest              950,992             - 
  Increase in restricted cash                     (14,696,735)   (6,279,671)
                                                 ------------  ------------ 
Net cash flows provided by financing activities    10,004,481       204,717 
                                                 ------------  ------------ 
Effect of foreign currency tr
anslation on cash                              
 and cash equivalents                                 575,664       459,760 
                                                 ------------  ------------ 
Net increase (decrease) in cash and cash                                    
 equivalents                                        1,451,711    (3,315,006)
Cash and cash equivalents - beginning of year       5,175,623     8,490,629 
                                                 ------------  ------------ 
Cash and cash equivalents - end of year             6,627,334     5,175,623 
                                                 ============  ============ 

Financial Profiles, Inc. Tricia Ross +1-916-939-7285 HPJ@finprofiles.com

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