Harbin Electric Releases 2009 Chairman Letter and Annual Report
Electric” or the “Company”, Nasdaq: HRBN), a leading developer and
manufacturer of a wide array of electric motors in
China
proxy statement for its 2010 annual meeting of shareholders. Both can be
obtained from the Company’s website at http://www.harbinelectric.com under the
investor relations section.
The annual report includes the letter from Mr.
Chief Executive Officer, to the Company’s shareholders. This letter is
reproduced below.
“Harbin Electric had the best year in its history in 2009. We saw higher
sales across our three major product lines and particularly from our new
subsidiary, Xi’an Tech Full Simo Electric Motor Co. Ltd. (“Xi’an Simo”), a
leading developer and manufacturer of industrial rotary motors widely used for
trains, power plants, and steel processing, as well as the materials,
construction, chemical, and machinery industries. The addition of Xi’an Simo
to our corporate family is a transformational event, doubling our revenues and
taking us a long step toward our goal of becoming China’s largest manufacturer
of electric motors.
“Sales in 2009 increased by 85% over 2008 to
Simo contributing
non-cash charges, we also saw a substantial increase in profitability to
million
With these items, net income was
share. We generated
47% over 2008, further strengthening the Company’s financial position. In
proceeds of
acquisition of Xi’an Simo.
“Our performance in 2009 was remarkable in part because the year began in
the full throes of a global financial crisis, which created a drag on
performance in the first half of the year. The domestic market recovered
swiftly, however, as the central government’s
program has been augmented by at least
trillion
benefits over the next two to three years. As a result, the year ended on a
far more optimistic note than it began. In 2010, we anticipate revenues in
excess of
infrastructure and urbanization programs.
Performance by Segment
Industrial Rotary Motors
“We have emerged as a diversified motor manufacturer following the
million
Weihai Tech Full Simo Electric Motor Co., Ltd. (“Weihai Tech Full”) in
2008
representing 52% of sales in 2009. Industrial rotary motors serve as the
backbone of the industrial economy, and are critical components for industrial
applications in the energy, agriculture, transport, construction, metallurgy,
machinery, and materials sectors. We anticipate specialization rather than
consolidation of our two main industrial motor manufacturing centers, in
large-scale motors while Weihai Tech Full will specialize in small to
mid-sized motors.
“The government’s stimulus program, which includes subsidies for rural
households to purchase agricultural equipment, consumer appliances and
vehicles, as well as major infrastructure spending, energized this segment of
our business. Sales of
and were more than four times our sales of industrial rotary motors in 2008,
which totaled
first time contributed a full year of revenues.
“We have begun the work of integrating Xi’an Simo, formerly a state
enterprise, into the Company, a process that requires some changes in
management and a new approach to cost controls. We are also continuing the
process of upgrading the relatively old and inefficient production equipment
at Weihai Tech Full and Xi’an Simo. Given that the two operations focus on
different types of industrial rotary motors, margins at Xi’an Simo and Weihai
Tech Full are very different. Xi’an Simo, with a focus on large, specialized
and customized products, had a gross profit margin of 31.6% in the fourth
quarter of 2009, the first quarter we reported it, while Weihai Tech Full,
with a focus on small to medium-sized motors and agricultural applications,
had a gross margin of 11.2% in 2009. We have identified ways to improve
margins at Weihai Tech Full, with a long-term target of 20%. Strong growth in
sales of industrial rotary motors last year demonstrated the importance of
these products to China’s core economic sectors and justifies our strategic
entry into this segment. In 2005, the latest year for which data is available,
China represented 17% of total global sales of industrial rotary motors, with
domestic sales growing at a rate of 9.5% per year. China’s fiscal stimulus
program is very clearly supporting similar levels of growth, even if the
global financial crisis provided a temporary interruption.
Linear Motors
“Our high-margin linear motors segment performed well in 2009, and we
anticipate strong demand as our products penetrate industrial markets across
China. This penetration is fueled by the advantages of this technology,
including energy efficiency, low operating costs, precision movements, and low
noise and vibration levels, compared to traditional rotary motors. Revenues
for the segment in 2009 were
2008. We improved our gross profit margin in this segment, from 54% to 59.3%,
reflecting the growing contribution of higher margin products such as oil
pumps and our newly-developed linear motor propulsion systems for coal
transport.
“The fastest growing product line in this segment in 2009 was our
proprietary linear motor oil pump. Our customer,
Co., our neighbor in
oil field, which has produced over 10 billion barrels of oil since it began
production in 1960. In 2009, we sold 540 of our proprietary linear motor oil
pumps to Daqing, up from 214 oil pumps in 2008. We expect that oil field
applications of our linear motor oil pumps will provide steady cash flow in
this segment for many years to come.
“One of our most exciting breakthroughs in 2009 was in linear motor
propulsion technology. After many years of research and development, we saw
the first revenues from this technology in the fourth quarter of 2009,
million
This first coal transportation line using linear motor technology will take
time to complete. Ultimately, it will be 32 kilometers long and, if successful,
provide a model for similar facilities throughout China.
“We are in the final stages of testing the first domestically manufactured
linear motor based metro train as part of a joint effort with Changchun
Railway Vehicles Co. and the Institute of Electrical Engineering of the
Chinese Academy of Sciences, which began more than two years ago. The market
is sending us a message that it wants the trains to be available as quickly as
possible because they are about half the cost of imported trains. We expect
the test phase to be completed in the near term. The lengthy startup phase is
due in part to strict requirements on the number of kilometers the new system
has to run before it can be approved for commercial release.
“The opportunities in this segment are significant, and we have the
enviable status of being first mover among domestic manufacturers. China is
building over 500 kilometers of urban rail lines annually, and its metro rail
network will exceed that of
has approved 25 cities to develop urban rail networks, and will spend over
1 trillion
kilometers at the end of 2009 to more than 3,000 kilometers by 2015.
Link have adopted linear motor propulsion technology, but to date have relied
on imported equipment. We expect that there will be keen interest in our
domestically developed and engineered products, with their significant pricing
advantages, once testing of the prototypes has been completed.
Automotive Micro-motors
“The global financial crisis took a heavy toll on the North American auto
industry, which severely impacted our auto micro-motor business in the last
year. Demand is rising for our high-end automotive products in the Chinese
automotive market, which is growing rapidly and now exceeds that of the US.
We are pleased to see that revenues began to move in the right direction in
the fourth quarter of 2009. We ended the year on a positive note, with
million
“Our brand-new automotive micro-motor manufacturing facility in
started production in October. We have also consolidated production in this
segment, moving the two automotive micro-motor production lines that were in
million units per year. We plan to add new production lines and bring the
facility to full capacity over the next two years as we launch new products
developed for existing and new customers.
Sound financial structure
“Cash on hand as of the end of 2009 was
million
stock during the third quarter provided net proceeds of
proceeds from the conversion of warrants and options totaled
Operating activities generated
2008, when cash from operations totaled
saw significant changes in current assets and current liabilities due to the
acquisition of Xi’an Simo, including an increase of
receivable, an increase of
increase in accounts payable. Short-term debt increased by
are confident that the opportunities presented by the acquisition of Xi’an
Simo were well worth our investment. The proceeds of our equity offering were
put to good use in retiring current debt and funding the acquisition of Xi’an
Simo. Our debt-to-equity ratio remains low.
Outlook
“In 2009, Harbin Electric was a major beneficiary of the central
government’s stimulus package, which budgeted substantial sums in sectors that
had a direct impact on our business –
rural investment,
highway construction, and
development and large-scale construction. Each of these spending packages
opened up broad new markets for us, and their impact will continue to be felt
in 2010 and beyond.
“We are not unduly concerned with policies aimed at curbing asset
inflation in the property sector. This is a recurring issue that is perhaps
inevitable given the historic scale of migration from China’s countryside to
its cities. Property prices rise and fall, but the urbanization of China’s
rural areas is an unstoppable force. Villages are literally on the move. Towns
that once contained 40 villages now have 20, and the other 20 have moved to
cities and established new communities. Since this is a planned migration,
there are major implications in terms of infrastructure such as water and
electricity supply. Meanwhile, urbanization has also provided new labor in
support of a range of industries, leading to industrial growth across the
country, including regions that were once predominantly rural.
“The combined effect has led to growth in demand for machinery production
equipment; equipment for power stations; construction equipment for highways,
railways, tunnels, bridges; and equipment for pipeline networks, pumps,
ventilation systems, air compressors. As these have been deployed, demand has
increased for our products.
“Government policy is supportive for us to develop energy-efficient
products. The government is enforcing new policies for energy conservation,
energy efficiency, and renewable energy. These programs are mutually
reinforcing. Nonetheless, the quickest way to achieve gains in energy
conservation is through energy efficiency. China is a developing country, and
virtually all the existing, vast inventory of machinery is energy intensive.
China has an estimated 1 billion motors, and the electricity they consume is
about 70% of all electricity consumed in the whole nation. Given this
astonishing number, it is no wonder that the government calls for energy
conservation, emissions reduction, and development of high efficiency motors.
“Our specialized linear motors and micro-motors are consistent with
government policy. We are also seeking ways to improve the quality and energy
efficiency for our industrial rotary motor product line. Our goal is to
provide industrial rotary motors with a quality and efficiency comparable to
those made by international companies in advanced countries, yet at lower cost.
This would open the entire international market for us in the high volume
industrial rotary motor line, while strengthening our leading position in the
domestic market.
“Finally, with the substantial acquisitions we have made in the last two
years, we believe we have built a solid manufacturing platform and diversified
business portfolio, significantly enhancing our competitiveness. As 2010
unfolds, we are shifting our focus from expansion to integrating,
consolidating, and optimizing operations. On the management side, our
priorities are to further enhance the management team, upgrade internal
controls for both operational and financial management, and strengthen
corporate governance. We believe that these efforts are essential for the
Company to move to a higher level and become a top-tier company.
A Note of Appreciation
“Last year, despite gloomy expectations at the beginning of 2009, was an
exceptional one for us. We have successfully managed the transition to become
one of China’s major manufacturers of electric motors, with a diversified
business portfolio and a high-technology edge. None of this would have been
possible without contributions from all of our stakeholders – our hard working
management team and advisors; our employees who are now spread across China;
our customers in China and around the world; and you, our shareholders. Let me
make a commitment to you that we at Harbin Electric will do everything in our
power to continue to create value for our shareholders. Thank you for your
support.”
About Harbin Electric, Inc.
Harbin Electric, headquartered in
and manufacturer of a wide array of electric motors with a focus on innovative,
customized, and value-added products. Its major product lines include
industrial rotary motors, linear motors, and specialty micro-motors. The
Company’s products are purchased by a broad range of domestic and
international customers, including those involved in the energy industry,
factory automation, food processing, packaging, transportation, automobile,
medical devices, machinery and tool manufacturing, chemical, petrochemical, as
well as in the metallurgical and mining industries. The Company operates four
manufacturing facilities in China located in
Harbin Electric has built a strong research and development capability by
recruiting talent worldwide and through collaborations with top scientific
institutions. The Company owns numerous patents in China and has developed
award-winning products for its customers. Relying on its own proprietary
technology, the Company developed an energy efficient linear motor driven oil
pump, the first of its kind in the world, for the largest oil filed in China.
Its self-developed linear motor propulsion system is powering China’s first
domestically made linear motor driven metro train. As China continues to grow
its industrial base, Harbin Electric aspires to be a leader in the
industrialization and technology transformation of the Chinese manufacturing
sector. To learn more about Harbin Electric, visit
http://www.harbinelectric.com .
Safe Harbor Statement
The actual results of Harbin Electric, Inc. could differ materially from
those described in this press release. Detailed information regarding factors
that may cause actual results to differ materially from the results expressed
or implied by statements in this press release may be found in the Company’s
periodic filings with the U.S. Securities and Exchange Commission, including
the factors described in the section entitled “Risk Factors” in its annual
report on Form 10-K for the year ended
undertake any obligation to update forward-looking statements contained in the
press release. This press release contains forward-looking information about
the Company that is intended to be covered by the safe harbor for forward-
looking statements provided by the Private Securities Litigation Reform Act of
1995. Forward-looking statements are statements 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.
For investor and media inquiries, please contact:
Christy Shue
Harbin Electric, Inc.
Executive VP, Finance & Investor Relations
Tel: +1-631-312-8612
Email: IR@HarbinElectric.com
Kathy Li
Christensen Investor Relations
Tel: +1-212-618-1978
Email: kli@christensenir.com
SOURCE Harbin Electric, Inc.