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Article Excerpt
OPERATOR: Good day everyone and welcome to the Fushi Copperweld fourth quarter 2008 earnings conference call. As a reminder, today's call is being recorded. Now, for opening remarks and introductions I would like to turn the conference over to Nathan Anderson, Director of Investor Relations and Corporate Development. Please go ahead, sir.
NATHAN ANDERSON, DIRECTOR IR, FUSHI COPPERWELD INC: Thank you, Augusta. Good morning, ladies and gentlemen and thank you for joining us for Fushi Copperweld's 2008 fourth quarter and full year conference call. Joining me on today's call are Chris Wang, our President and CFO, and Dwight Berry, our Chief Operating Officer.
Many of you have already seen a copy of our press release this morning highlighting today's financial results. If not, it is available on FirstCall and our website, www.fushicopperweld.com.
During this conference call, we may make forward looking statements concerning Fushi Copperweld's financial position, plans, outlooks that are based on the information currently available to management, management's beliefs and a number of assumptions concerning future events. The actual results may differ materially depending on a number of risk factors including, but not limited to, general economic and business conditions, development, shipment, market acceptance, additional competition existing with new competitors, changes in technology and various other factors beyond the Company's control.
All forward looking statements are expressly qualified in their entirety by this cautionary statement under risk factors detailed in the Company's filings with the SEC. Fushi Copperweld undertakes no duty to revise or update any of the forward looking statements to reflect events or circumstances after the date of this conference.
On today's call, Dwight Berry will discuss our operations, the impact of current economic conditions on our business and our strategic plans for the future. Followed by Chris Wang, who will provide a summary of our fourth quarter and full year 2008 financial and operating metrics. Then we will open the lines to questions.
I would like to turn the call over to Dwight Berry, COO of Fushi Copperweld. Dwight?
DWIGHT BERRY, COO, FUSHI COPPERWELD INC: Thank you, Nathan. We are very pleased to see solid growth in our business for 2008 especially considering that we achieved this growth during a time when the market environment has become more challenging.
Net revenues for 2008 increased 73% to $221m from the prior year. Income before taxes for 2008 increased 17.1% to $31.3m from $26.6m, excluding litigation accrual expenses.
Additionally, income from operations for 2008 increased 21%.
We have continued to diversify our revenue base. The telecom market in 2008 represented 51% of total revenues, which is down from 60% of total revenues a year ago.
Growth in other markets of our business is not at the expense of telecom as sales into telecom grew year over year despite a slowdown in telecom market in the North America and Europe.
We believe that growth in the under penetrated consumer broadband and mobile markets in China are significant drivers for investment into telecom infrastructure even with the slowing Chinese economy. More specifically, the G3 mobile testing beginning later this year in China are expected to begin a new round of telecom spending.
Revenues into the utility market for 2008 represented 44% of total revenues, up from 33% of total revenues a year ago due primarily to the overall integration of Fushi Copperweld and an increase in shipments from Dalian.
The utility and tracer wire markets includes single 3 wire, 7 wire and 19 wire CCS conductors, as well as CCA for use in transformer coils, magnet wire and low voltage power cables.
We believe that we are market leaders in CCS for grounding cables and tracer wire and at the forefront of CCA technology for flat wire use and transformer coils and power cables.
Utility products continue to represent a significant growth opportunity for us in all major markets throughout the world. The transportation market is still relatively new for us. Users of CCA and CCS products in this market include automotive aftermarket products, and overhead catenary cables for electrified railways.
While this segment represented only 2% of revenue for 2008, we believe this can be a significant opportunity going forward. The reduced weight of CCA, roughly two-thirds that of solid copper, provides opportunities to increase fuel efficiency in automobiles through its use of wiring harnesses. We also expect China's economic stimulus package to play a role in helping spur demand.
According to the Ministry of Railways, China plans to spend approximately $88m in 2009 on railway construction as part of a goal of increasing railway transport capacity by 2012.
Total railway lines should increase to 110,000 kilometers by 2012 up from 78,000 kilometers in 2007, and with much of this investment directed to electrified railways.
We continue to broaden our customer base further diluting revenue concentration. In 2008, our five largest customers represented 18% of total revenues down from almost 25% in 2007. We expect continued revenue concentration and dilution of our top customers over time as a percentage of total sales as new organic growth initiatives allow us to move to global markets and new applications and industries.
In the fourth quarter, our business growth around the world was impacted by the global economic slowdown. The demand for bimetallic products in the Chinese teleco markets remained relatively steady, while we experienced a slowdown in North America and European markets.
As global demand for raw materials weakened, we experienced a dramatic decline in copper prices beginning late in the third quarter of 2008 and continuing to the fourth quarter. While copper prices are currently rebounding from their fourth quarter lows, pricing is still far below the peaks of mid 2008.
I want to provide some highlights on how we are impacted by copper pricing declines. Volatility of copper pricing is the key reason for price variations in our products. As the standard pricing practice in our industry, we generally pass metal price changes through to our customers. Typically, we set a base price for our products with the understanding that as prices of raw materials change, they are passed through to our customers. Therefore, when prices of raw materials decrease, our customers' prices decrease and the amount of our total sales decreases.
Since we have a predetermined base price established with our customers from the products, which includes our manufacturing conversions costs, the impact on earnings from volatile raw material prices is minimal.
There can however, be timing delays or price changes depending on the volatility of metal prices as we saw in the fourth quarter.
Secondly, our working capital requirements are reduced, which allows us to sustain a strong balance sheet through the slowdown.
With a combination of lower copper prices as a general economic slowdown, we have seen a lot of our competitors feeling pressure to lower prices in order to liquidate...
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