Seeking Alpha
We cover over 5K calls/quarter
Profile| Send Message| ()  

Executives

Scott Powell - IR

Amit Gupta - Chairman

You-Su Lin - Interim CEO

Liya Chen - CFO

Analysts

Sam John - Terra Firma Value Advisors

China Hydroelectric Corporation (CHC) Q4 2012 Earnings Conference Call April 11, 2013 9:00 AM ET

Operator

Good day and welcome to the China Hydroelectric Corporation fourth quarter and full year 2012 earnings conference call. (Operator Instructions). At this time I would like to turn the conference over to Mr. Scott Powell, Investor Relations and Corporate Communications Department. Please go ahead.

Scott Powell

Thank you and we appreciate everyone who has taken the time to join today’s China Hydroelectric Corporation’s fourth quarter and full year 2012 earnings conference call. Also joining us today are Amit Gupta, Chairman of China Hydroelectric Corporation, Dr. You-Su Lin the company’s interim CEO and Ms. Liya Chen, the company’s CFO.

Before management’s presentation I would like to refer to the Safe Harbor Statement in conjunction with today’s conference call. This call will contain certain statements that address operating results, performance, events or developments that we expect or anticipate will occur in the future. These forward-looking statements include among other things statements relating to our business strategies and plan of operations, our ability to acquire Hydroelectric assets, our capital expenditure and funding plans, our operations and business prospects, projects under development, construction or planning and the regulatory environment. The forward-looking statements are based on our current expectations and involve a number of risks, uncertainties and contingencies many of which are beyond our control which may cause actual results, performance or achievements to differ materially from those anticipated.

Should one or more of these risks or uncertainties materialize or should underline assumptions prove incorrect, actual results may vary materially from those anticipated, estimated or projected. Among the factors that could cause actual results to materially differ include supply and demand changes in the electric markets, changes in electricity tariffs, hydrological conditions, our relationship with and other conditions affecting the power grids reservice, our production and transmission capabilities, availability of sufficient and reliable transmission resources. Our plans and objectives for future operations and expansion or consolidation, interest rate and exchange rate changes, the effectiveness of our cost control measures, our liquidity and financial condition, environmental laws and changes in political, economic, legal and social conditions in China and other factors affecting our operations that are set forth in the company’s Form 20(f) for the fiscal year ended December 31, 2011 and filed with the Securities and Exchange Commission on April 27, 2012 and in our future filings with the SEC.

Unless required by law the company undertakes no obligation to publically update or revise any forward-looking statements whether as a result of new information, future events or otherwise. Following management’s discussion you will have the opportunity to ask questions. I would now like to turn the call over to Mr. Amit Gupta, Chairman of China Hydroelectric Corporation. Mr. Gupta you may begin.

Amit Gupta

Thanks Scott and thank you everyone for joining the call today. Though I would like to start my expressing my gratitude to all the shareholders, all the employees past and present who have contributed significantly to China Hydroelectric Corporation to be where it is and be able to start results in 2012 expect that we had few challenges and I’m happy to know that we’ve successfully addressed our liquidity and personal issues and have entered 2013 as a substantially stronger company them we were at the same time last year. Having said that there is much work left to the company’s and we’re pleased that some of the operating performance and of course which the management has made and have started to reflect in the operating results. Our financial and operating performance was solid in 2012, certification will enable the company to achieve record revenues and efforts from the management has helped to do our balance sheet.

Management and board member transitions occur smoothly. We continue to seek a permanent CEO, I know a lot of the shareholders want us to have a permanent CEO, we continue to valuate several highly qualified candidates and we have the right person, know what his job is. Having said that I think I would like to highlight that your company is working towards building a full professional management team rather than just a CEO and we have made a lot of progress in this regard. In last six months some of these senior management hires we had done as Chief Operating Officer whom I should welcome he has joined us today from one of the most successful IPP players in China. We recently hired the head of legal department, we have senior engineer who is going to be onboard soon and we have accountant helping us with a lot of which was being done outside the ERC (ph). Having said that the company has kept its focus on managing the cost savings as we have had mandated the board in the management, in which regard we have successfully closed down the New York office and shifted most of its function very, very smoothly back to Asia.

In addition to that the company refinanced more than $120 million of debt in 2012 and continues to implement cost cutting measures to streamline operations. One of our key objectives in 2013 is to continue to strengthen our liquidity. We believe the banking environment is improving in China and with the team network I’m very optimistic that at any small remaining liquidity concerns that is today with China Hydroelectric can be addressed very, very soon.

Having said that I think I will not take a lot more time and will now turn the call over to Dr. Lin who will update you on--

You-Su Lin

Okay thank you. As Amit Gupta highlighted China Hydroelectric Corporation had an excellent year of year 2012 demonstrating strong operational performance. Two factors contributed to this excellent year 2012 the first is the benefit of above average gain in several of our provinces in which we operate and second our commitment operations is start in America successfully work to optimize these chart measures. These factors contributed to our record year of production selling over 1.7 billion kW hours and the record year for revenue of over $5 million.

Additionally several of our products traffic increased and our high quality workforce he assured the consistent operation of our assets. Our operations are largely dependent on variable weather patterns and therefore we operate our business conservatively by maintaining a low expenses space.

Recently we experienced work we would consider relative change in expectation this year 2011 being exceptionally dry therefore it was above average and the year 2012 being fairly wet. In both cases we managed the business with the objective of sustaining our long term financial ability.

As far as in the first quarter of this year, year 2013 Yunnan Province has continued to face drought like conditions but in Zhejiang province and (inaudible) province experienced the above average levels of expectation. Although not as favorable as the first quarter of the year 2012. We’re quite optimistic on the prospective of macro-level developments in China affecting the hydro industry. The new (inaudible) which has been selected in last months in China has addressed that the (inaudible) of renewable energy development as (inaudible) the growth of environmentally friendly GDP.

Also the administration is becoming the economic reform which could positively influence the power and the utility industry. Now I will turn over the call to Ms. Liya Chen our CFO who will discuss our financial results in detail.

Liya Chen

I will discuss our first quarter and financial and we will move on to our full year audited results. For greater detail on these results I encourage you to refer to our press release filed as of today. And our first quarter 2012 net revenue was 12.4 million an increase of 25.3% year-over-year. The company’s consolidated in fact the utilization rate from continuing operation for the fourth quarter of 2012 was 25% compared to 20% in the fourth quarter of 2011. The traffic increased 1.4 million from 1.3 million in the fourth quarter of 2011 to 2.7 million in 2012 primarily due to increase in revenue and the fixed nature of rising expenses included in cost revenue.

Our G&A expenses for the first quarter of 2012 was 6.4 million a decrease of 7.9 million from the prior year period primary into a lower non-cash employee stock based compensation expense, partially offset by termination of expenses for the company foremost senior management.

Adjusted EBITDAR of non-GAAP measures which includes interest, excess, depreciation and amortization and certain non-cash charges increased by 97.2% year-over-year to 4.3 million for the first quarter and in December 31, 2012. And the GAAP net loss for the fourth quarter of 2012 was 8.1 million compared to 34.3 million in the comparable five year period. And a non-GAAP net loss for the first quarter was 7.1 million compared to an 11.2 million at loss in the comparable five year period.

Now I will attend to our full year ending December 31, 2012 our audited financial and operational results. Net revenue from continuing operations over full year 2012 were 85.4 million an increase of 66% over 30.8 million from 64.6 million for the full year 2011 being primarily to our better than average presentation into Zhejiang and Fujian provinces and our higher impacted tariff rates due to a tariff increases at some of our projects in Fujian and in Yunnan provinces. The company’s sold 1768 million kW hours from continuing operations in the year 2012, an increase of 505.7 million kW hours over 40% from 1262.3 million kW hours sold in the year 2011.

The consolidated effective utilization rate from continuing operations over year 2012 was 39.2% compared to 28.1% in the year 2011, cost relating above average expectation (inaudible) and Fujian provinces and partially offset by below average expectation in Yunnan province.

And the affected tariff increased 10% from $0.30 R&D per kW hour in 2011 to $0.33 R&D per kW hours in the year 2012. Finally attributing to tariff increases to higher revenue contribution from project located in Fujian and Zhejiang provinces their tariffs are higher than in Zhejiang province and the gross profit increased 113% from 23.3 million in the full year 2011 to 49.6 million for the full year 2012 and G&A expenses for the full year 2012 decreased to 20.3 million due to lower stock based compensation expense offset by extra-ordinary general meeting related cost and (inaudible) expenses for the company’s foremost senior management.

The adjusted EBITDAR increased by 86% year-over-year to 58.5 million, in GAAP net loss for the year 2012 was 1.2 million compared to 45.4 million loss in the comparable prior year period principally I think two more favorable ideal condition and (inaudible) projects partially offset by the accrual UGA related cost and exactly (inaudible) termination cost.

Non-GAAP net income for the year 2012 was 0.1 million compared to net loss of 19 million in the comparable prior year period. Now I worked into our balance sheet as of December 31, 2012 we had cash and cash equivalents of 13.1 million compared with 8.4 million at December 31, 2011. Accounts receivable were 5.8 million and total current assets were 36.7 million. We had 57.2 million in short term and current portion of lump sum (inaudible). Before the year ended December 31, 2012 we generated 22.7 million in cash from operations. Before I conclude I want to mention the fact that the unaudited results which I’m sure you noticed in the press release. Our auditors were unable to complete the audit before today’s report stage and it doesn’t make sense to deliver the report. As we’re already into April and we wanted to get results to our investors as soon as possible and we estimated the audit to be completed soon and we will file the 20(f) at that time. So with that on behalf of China Hydroelectric Corporation and the entire management team I would like to thank all of you (inaudible) thanks for your participation on this call.

We will now open the call for Q&A from the audience. Operator?

Question-and-Answer Session

Operator

(Operator Instructions) We will take our first question from (inaudible).

Unidentified Analyst

Looks like it's mostly one time item that caused the higher cost of revenue and operating expenses in Q4, how should we think about run-rate operating cost and SG&A looking into 2013 going forward?

Amit Gupta

Yes I think as we likely said generally in Q4 the company has well of onetime items which is added to the SG&A and then it was particularly there was some box related and (inaudible) related cost added this time. I think going forward the way we look at things are essentially cash SG&A and I think our company is essentially aims at reducing the cash SG&A by about 20% to 25% in (inaudible) and cash SG&A numbers should be last year were upwards of $16 million and in 2013 it will fair to assume that this should have 30% to 35%.

Unidentified Analyst

And then you have been working on the debt refinancing for a while can you explain why it's taking a little bit longer that you had originally anticipated and then additionally can you also provide a little bit more detail on the current breakout of debt, how much is short term versus long term? Higher interest versus lower interest?

Amit Gupta

Sure John I will let Liya explain the details what’s our expectation and what’s our interest versus your interest but I think over the last six months company had several refinancing’s and as a result as I mentioned I think we’re in a significant better position than we were at the start of 2012. At this point in time I think there are several discussions going on where we expect that we should be able to successfully close sometimes and we are left with pretty much no liquidity gap in 2013 and first half of 2014. Most of the debt again we will be replacing the high interest debt, we’re aiming that this year we should not have any debt which is higher than 8% to 9%. Having said that we think we have a cost of new debt in the range between 7% and 9% for our new facilities that is little bit higher than I think what we would like to wait for but having said that I think it's also we need to also be (inaudible) of the fact that the debt which we have raised prior to 2012 was some of those debt was short duration debt and indeed that’s the tenures range from 5 years upto 12 years.

So the kind of interest cost partly the changed banking and the environment and partly the higher tenure.

Unidentified Analyst

And you saw soon on the news of that refinancing you’re saying in the second quarter couple months? Couple of weeks?

Amit Gupta

I think you will see when you see Q1 number you will see what progress we have made in Q1, I think it's just as we keep doing these refinancing of 25 million to 50 million sometimes higher RMB loans. It just becomes difficult to keep sending a press release on those numbers but if you add up I think they are significant numbers and I think when we speak on Q1 numbers I think you would be able to achieve more like on exactly we have achieved this year.

Unidentified Analyst

And one final question from me, do you have any kind of guidance on expected range of EBITDA for 2013 and strong performance in 2012 relative to ’11 just kind of wondering if it's actually going to trend up in ’13 as well given the good precipitation for the start of the year.

Amit Gupta

I think as Su Lin mentioned precipitation levels are better than normal years but they are still not as capable as it was in 2012, 2012 was an exceptional year. I think what company has focusing on is to ensure that you know we’re prepared to see slightly above average which is what you have seen in Q1 as well as sufficient in 2009 in precipitation and we’re prepared to, our company is prepared to be with all those (inaudible). In terms of the revenues that are good I think company does not provide guidance because it's largely relates to precipitation but I think it will generally precipitation wise it's hard to replicate a year like 2012.

You-Su Lin

(Inaudible) that means it's between – somewhere between years 2011 and year 2012.

Operator

(Operator Instructions). We will take our next question from Sam John with Terra Firma Value Advisors.

Sam John - Terra Firma Value Advisors

Can you just shed some light on perhaps what your cash taxes and maintenance CapEx might look like going forward?

Amit Gupta

Sure I think our cash CapEx for last few years has ranged between $1.5 million per annum from the maintenance perspective and at this point in time and based on the initial that we have done I think in our last company we do a more comprehensive (inaudible) that needs to be done in the next 3 to 5 years and then kind of we limit every year.

We don’t believe there is this number is on a board, we’re going to be significantly off this range. I think I should highlight that our availability of our plan I think which is probably the best measure from an operation perspective for the management to be, for the management to see if the plants are running continues to be in the high 90s and it reflects that we’re not trying to delay CapEx in months.

Sam John - Terra Firma Value Advisors

And then on the cash taxes?

Amit Gupta

The cash taxes again I think the cash taxes which is where? The 2012?

Liya Chen

I think cash taxes for 2012 around 1 million to 2 million roughly 1.8 million.

Sam John - Terra Firma Value Advisors

Is there a cash tax rate we should be using going forward?

Amit Gupta

So I think it's difficult because we have the (inaudible) subsidiaries and all of them has produced in a very different manner for example Zhejiang subsidies have good precipitation and hence produce a lot of revenues whereas Yunnan subsidiaries are not the exact level of precipitation. So the fact is the find that in each of the subsidiary level and then gets, some of it is difficult to avoid as much as this is (inaudible) because and like to see at a company level but even the way we have structured in the recent it was the best efforts and it continues to vary depending upon what kind of precipitation would be in those years. So you know when you started to have cash taxes we will have 1 million to 2 million and we imply like it is there unless and until we see getting up in the former percent in Yunnan we have said but it's not like that which is I mean that is theoretically impossible but that’s actually tax is strategically (inaudible).

Sam John - Terra Firma Value Advisors

Yunnan sales?

Amit Gupta

Yunnan sales I think it's processing well we have already received about 80% of the net proceeds, it's we’re supposed to receive. I think it's going to usual conditions incidents of getting all the approvals. We should be able to get them soon but as we know these things are beyond control of the company but I’m kind of happy to know that the sales were structures and you have already seen more than 80% of that we have received and hence we have not kind of struggling for cash just it was last year.

Sam John - Terra Firma Value Advisors

And the Q4 balance does not; does it reflect any of the 80% of the proceeds from the sales?

Liya Chen

Part of the proceeds already reflected in balance sheet.

Sam John - Terra Firma Value Advisors

Part of the proceeds?

Liya Chen

Yes.

Sam John - Terra Firma Value Advisors

How much of the proceeds are reflected on the balance sheet?

Liya Chen

Around 6 million to 7 million already with the cash received already reflecting in our balance sheet.

Sam John - Terra Firma Value Advisors

And then just last question, there is a mention the precipitation data have been refined. Can you just shed some light on that as well?

Amit Gupta

Sorry can you say that again?

Sam John - Terra Firma Value Advisors

There is a mention of the precipitation data having debt refined suddenly can you explain about that?

Amit Gupta

I think it's kind of reflects the change in our portfolios from year-over-year to and also I think our data which we receive input data which we received previously used to come from a consulting firm and now essentially it's coming from Chinese regulatory lobby, so as a result probably are not apple to apple comparison but I would think this is pretty much the precipitation. So there might be few variances but does not I wouldn’t too concerned about methodology. It just reflects the base data being dependent we have used it.

Operator

(Operator Instructions). We will take our next question from (inaudible).

Unidentified Analyst

Just one more question. I kind of look at your cost of sales, I understand that the bulk of that is hardly going to be your depreciation but even if I sort of strip that out it still looks like your cost of sales continue to creep up sort of quarter-on-quarter and given that you’re not really adding any new capacity I’m kind of puzzled as to why that number is creeping up. I would actually think that if you’re focused on cost study you probably can bring some extra cost out of the cost of sales on it as well. Maybe you can explain what’s going on there and how should we think about that trending for 2013 is it up, down from here?

Liya Chen

Yeah I try to talk about the cost of sales for the last quarter, it is slightly increased about 1.1 million compared with the increase in last year. So about this 1.1 million it's about 0.8 million increase on major repairs why so? Because last year in 2011 we saw (inaudible) so we have to postpone our major repairs to 2012 and another reason is that because we have received favorable rainfall in first three quarters and our machine was sort of overrun so there is slightly increase on the major repairs and the remaining the important three medium is just increased in depreciation.

Unidentified Analyst

Okay so then kind of looking at 2013 if you have done all those major repairs we shouldn’t have that kind of incident again so the cost of sales should come down?

Liya Chen

We have some cost cutting measures. Going forward we will take that the major repairs is going down as well as there are some other operating cost? I think the another reason for the increase of the cost of revenues for whole year 2012 is because some cost the variable cost, if you received a great rainfall therefore you will have a great revenue and then the cost of sales will of course increase, does that answer your question?

Unidentified Analyst

Yes. Thank you.

Operator

At this time there are no further questions. I would like to turn the conference over to Mr. Powell for any closing remarks.

Scott Powell

Thank you everyone for taking the time today to join China Hydroelectric Corporation fourth quarter and full year 2012 earnings conference call. This company looks forward to updating you on its progress in the near future. Good bye.

Operator

This does conclude today’s conference. Thank you for your participation.

Copyright policy: All transcripts on this site are the copyright of Seeking Alpha. However, we view them as an important resource for bloggers and journalists, and are excited to contribute to the democratization of financial information on the Internet. (Until now investors have had to pay thousands of dollars in subscription fees for transcripts.) So our reproduction policy is as follows: You may quote up to 400 words of any transcript on the condition that you attribute the transcript to Seeking Alpha and either link to the original transcript or to www.SeekingAlpha.com. All other use is prohibited.

THE INFORMATION CONTAINED HERE IS A TEXTUAL REPRESENTATION OF THE APPLICABLE COMPANY'S CONFERENCE CALL, CONFERENCE PRESENTATION OR OTHER AUDIO PRESENTATION, AND WHILE EFFORTS ARE MADE TO PROVIDE AN ACCURATE TRANSCRIPTION, THERE MAY BE MATERIAL ERRORS, OMISSIONS, OR INACCURACIES IN THE REPORTING OF THE SUBSTANCE OF THE AUDIO PRESENTATIONS. IN NO WAY DOES SEEKING ALPHA ASSUME ANY RESPONSIBILITY FOR ANY INVESTMENT OR OTHER DECISIONS MADE BASED UPON THE INFORMATION PROVIDED ON THIS WEB SITE OR IN ANY TRANSCRIPT. USERS ARE ADVISED TO REVIEW THE APPLICABLE COMPANY'S AUDIO PRESENTATION ITSELF AND THE APPLICABLE COMPANY'S SEC FILINGS BEFORE MAKING ANY INVESTMENT OR OTHER DECISIONS.

If you have any additional questions about our online transcripts, please contact us at: transcripts@seekingalpha.com. Thank you!

Source: China Hydroelectric Corporation CEO Discusses Q4 2012 Results - Earnings Call Transcript
This Transcript
All Transcripts