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Article Excerpt
OPERATOR: Welcome to the Fushi Copperweld Third Quarter 2008 Earnings Conference Call on the 13th of November 2008. Throughout today's presentation, all participants will be in a listen-onoy mode. After the presentation, there will be an opportunity to ask questions. (Operator Instructions).
I will now hand the conference over to Nathan Anderson. Please go ahead, sir.
NATHAN ANDERSON, DIRECTOR, IR, FUSHI COPPERWELD INC.: Thank you, Simil. Good morning, ladies and gentlemen, and thank you for joining us for Fushi Copperweld's 2008 Third Quarter Conference Call. Chris Wang, our President and CFO, and Jim Todd, our Executive Vice President and Financial Controller will join me on today's call. 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, Chris Wang will discuss our operations, the impact of current economic conditions on our business and our strategic plans for the future, followed by Jim Todd, our Executive Vice President and Controller, who will provide a summary of third quarter financial and operating metrics and full year 2008 guidance. Then, we will open the lines to questions.
I would like to turn the call over to Chris Wang, President and CFO of Fushi Copperweld. Chris, please go ahead.
CHRIS WANG, PRESIDENT AND CFO, FUSHI COPPERWELD INC.: Thank you, Nathan. We were very pleased to see solid growth in our business in the third quarter during a time when the market environment has turned more challenging. Net revenues for the third quarter of '08 almost doubled to $63.8 million from the prior year's quarter. During the third quarter, approximately 72.8% of our revenues were generated from customers in China who are supplied and serviced by our Dalian facility. The remaining 27.2% was generated from operations, primarily originating from our Fayetteville facility and a small amount from Telford.
Revenues in the telecom market represented 44.8% of total revenues in the third quarter, down from 68.5% of total revenues a year ago. However, shipments to Telco increased by 27.6% or approximately 1,000 metric tons over the same period. We're committed to maximizing revenue and the profitability in this business. And the belief that growth in the under penetrated broadband and the mobile markets in China are significant drivers for investment into telecom infrastructure, even with a slowing Chinese economy.
Revenues to the utility market represented 46.3% of total revenues in the third quarter, up from 29.9% of total revenues a year ago, due primarily to (inaudible - technical difficulty) Copperweld as well as increased shipments from Dalian. The utility business is truly global in scope as we continue shipping to customers on five continents while pursuing new opportunities. The utility market includes single and three-wire, seven-wire and the 19-wire grounding cables as well as electrified railway cables, transformer lining, magnet wire, tracing wire and the power cables.
We believe that we're the market leader in CCS for grounding cables and the tracing wire and at the forefront for CCA technology for flat wire for transformer coils and the power cables. Utility products represent a significant growth opportunity for us in Southeast Asia.
The automotive market is still a relatively new product application for us, representing only 2% of revenue. Current sales into this product application are primarily derived from customers who utilize bimetallic wire in automotive aftermarket products. However, we continue to believe this is a significant opportunity for us going forward. The continued demand for reduced weight in automobiles to increase fuel efficiency has lead to demand for a product such as ours.
We continue to broaden our customer base, becoming less and less reliant on any one customer. In the third quarter '08, our five largest customers represented 17% of total revenues, down from 27% in the third quarter 2007. We expect the contribution of our top customers to continue to trend down over time as a percentage of total sales, as our new organic growth initiatives will allow us to move into global geographic markets, new applications and industries.
In the third quarter, our business around the world was impacted somewhat by the global economic slowdown. Additionally, during the quarter the Chinese government limited production by capping use of electricity in support of the Beijing Olympics.
During the third quarter, copper prices continued to rise until the end of the quarter. Since the close of the quarter, copper prices have dropped off dramatically. And while Jim will discuss our expectations for the impact on our business in the fourth quarter, I just want to provide you with a little color on how we're affected in mixed ways by the copper price declines.
The price of copper directly affects the amount of working capital to run the business. If copper prices decline as they did after the third quarter, several things happen. First, our revenues can be negatively impacted when copper prices are low as customers are not as incentivized to search for copper substitutes, such as bimetallic wire. Conversely, our working capital requirements are reduced, which cushions the impact to our balance sheet. Still, when we combine the lower copper prices with the general economic slowdown, we see a lot of our competitors feeling pressured to lower price in order to liquidate their inventory.
In the short term, this can negatively impact our ability to generate strong revenue growth. But in the long run, we believe this under capitalized competitors will have a difficult time staying in business and then, we would expect the industry to consolidate to a smaller number of healthier competitors.
Considering our strong capital position, we expect to be one of the beneficiaries as we manage our capital carefully during this time. Nonetheless, we continue to proactively look for ways to broaden the markets into which we sell and to find new opportunities for growth. With the markets being as uncertain as they are, this is an important time for Fushi Copperweld to be proactive about a certain current and future conditions.
We're in regular discussions with our customers regarding their current and future spending plans. Order demand has softened among our customers and we therefore expect that our output, measured by metric tons shipped, in the fourth quarter will likely be flat or declining compared to Q3.
We continue to keep lines of communication open with our suppliers and others who can help us identify ways to optimize future opportunities for Fushi Copperweld. In the short term, as we look at our revenue mix,...
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