Lihua International's CEO Discusses Q2 2012 Results - Earnings Call Transcript

Lihua International, Inc. (LIWA)

Q2 2012 Earnings Conference Call

August 09, 2012, 08:00 a.m. ET


Jianhua Zhu - Chairman and CEO

Daphne Huang - CFO


Dmitriy Shapiro - Global Hunter Securities

Steve Emerson - Emerson Investment Group



Welcome to the Lihua International Second Quarter 2012 Earnings Conference Call. During today’s presentation all parties will be in a listen-only mode. Following the presentation the call will be opened for questions from professional investors. (Operator Instructions) This conference is being recorded today August 9, 2012.

I’d now like to turn the conference over to (inaudible), please go ahead ma’am.

Unidentified Participant

Thank you, operator and good day everyone. This is [Alyssa Akroft] with Investor Relations of Lihua International. Thank you all for joining us today by telephone and over the internet.

Before we begin I’d like to remind you that the comments made during today’s call may contain forward-looking statements that are within the meaning of Section 27A of the Securities Act of 1933 as amended in Section 21E of the Securities Exchange Act of 1934 as amended. All statements other than statements of historical fact that address activities, events for development, the company expects, projects, believes or anticipate will or may occur in the future according and without limitation to statements about Lihua’s business or growth strategy, now industry conditions including the availability of copper or recycled scrap copper, future operating results of the company, capital expenditures, expansion and growth opportunities, bank borrowings, financing activities and other matters are forward-looking statements. Although the company (inaudible) expectations made during today’s call are based on reasonable assumptions or actual results may differ from those projected in the forward-looking statements.

With that said it's now my pleasure to turn the call over to Lihua’s Chairman and Chief Executive Officer, Mr. Jianhua Zhu, who will provide an overview of recent operational highlights in Mandarin, I will then translate Mr. Zhu’s remarks and provide some additional comments on his behalf before turning the call over to Daphne Huang, Lihua’s Chief Financial Officer to discuss the second quarter 2012 financial results. Then we will open the call up to your questions.

Mr. Zhu, please go ahead.

Jianhua Zhu

In the second quarter we continue to grow our sales by capturing new opportunities within the large and growing end markets of our copper alternative products. We achieved another quarter of double-digits sales growth over last year and have set the stage for continued strong performance over the longer term. Although our bottom-line performance was impacted by ongoing ASP pressures, demand for our industry leading copper anode, rod and wire products remains strong and we are well equipped the cash remover of the unmet demand in the market following the launch of our two new copper anode smelters in June.

These two smelters have more than doubled our copper anode capacity to 85,000 tons per year, while increasing total refine copper production capacity by nearly 60% to 135,000 metric tons per year. We produced approximately 1,000 tons of copper anodes from the two new smelters following the launch of production in June, as to reach output close to full capacity at the end of the third quarter.

The (inaudible) completion and longer than anticipated ramp up of the two new smelters as well as a reduced assumption in profitability of our CCA copper wire and copper anode products, we are revising our 2012 guidance to gross profit of 84 to $87 million and non-GAAP net income of 54 to 57 million. While this is softer than our initial expectations, we remain on-track (inaudible) another year of solid growth and have taken additional steps to further solidify our long-term process.

Our copper rod production continues to generate strong sales following it's reintroduction in the fourth quarter of 2011. With 50,000 tons of copper rod production capacity and 20,000 to 25,000 tons of copper wire drawing capacity and our ability (inaudible) pure copper rod to other wire producers will be a meaningful contributor to our top and bottom-line growth.

In addition to our near-term growth objective, we are working on initiatives that will support our company’s sustainable growth for the longer term. We completed the second quarter with a strong balance sheet including approximately $125 million in cash and we are putting the cash to use for investments that will solidify Lihua’s ability to continue growing within our current markets, while introducing new products that will gain entry into new factoring markets that have significant unmet needs for these types of products we produce.

The new CCA cable and wire products are designed to address the cost sensitivities of customers in the electric power delivery and transmission markets, this segment of the market generate sales of [several] billion dollars annually. And there are currently no alternative to pure copper cable and wire for electric power transmission. With our partners at the Shanghai Electric Cable Research Institute, we are going to change this. We plan to introduce bi-metallic cable and wire product comprised approximately 50% copper and 50% aluminum by weight which can provide the same press release even higher connectivity as the pure copper cable and wire currently being used in the under 1000 voltage electric transmission market.

The 50-50 ratio of aluminum to copper differs from traditional CCA and requires an entirely new binding product to produce a product capable of maintaining the required structural integrity and conductivity. We are currently working with our partners at SECRI to secure the necessary patents and establish industry standards for the use of this new bi-metallic CCA cable and wire products. Feedback from prospective customers has been very positive and I’m confident that these products will represent another important growth engines for Lihua.

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