Q4 2007 KHD HUMBOLDT WEDAG INTL LTD Earnings Conference Call - Final.

Original Source: FD (FAIR DISCLOSURE) WIRE

OPERATOR: Good day, ladies and gentlemen, and welcome to the fourth-quarter and year-end 2007 KHD Humboldt Wedag International Limited earnings conference call. My name is Stacy, and I will be your moderator for today.

At this time, all participants are in a listen-only mode. We will be facilitating a question-and-answer session towards the end of the conference. (OPERATOR INSTRUCTIONS). As a reminder, this conference is being recorded for replay purposes.

I would now like to turn the presentation over to your host, Mr. Joe Allen of Allen & Caron. Please proceed, sir.

JOE ALLEN, IR CONTACT, ALLEN & CARON: Thanks, Stacy. Good morning and welcome to the KHD conference call to discuss results for the fourth quarter and year ended December 31, 2007. As Stacy said, I'm Joe Allen of Allen & Caron. Before we start this morning's call, there are a couple of items I'd like to cover.

Many of you received a copy of the press release announcing the Company's results for its fourth quarter 2007; it was released this morning, March 31 at 6 AM Eastern. If you did not receive a copy of the press release, it is posted on KHD's Web site at www.KHDHumboldt.com, in the client section of our Web site at www.AllenCaron.com. You can call our office in New York at 212-691-8087 and we will e-mail it to you right away, and it is also posted on Yahoo! Finance and various other Internet sites.

As mentioned earlier, this call is being recorded. A replay will be available through April 7 and may be accessed from North America by calling 888-286-8010 and entering conference ID number 88252142. International callers should dial 617-801-6888 and use the same ID number, 88252142. This call is also being broadcast live over the Internet and may be accessed via the Company's Web site at www.KHDHumboldt.com. A replay of the webcast will be available immediately following the call and will continue for seven days.

Certain statements in this conference call will be forward-looking statements, which reflect the expectations of management regarding the Company's future growth, results of operations, performance and business prospects and opportunities. Forward-looking statements consist of statements that are not purely historical, including any statements regarding beliefs, plans, expectations or intentions regarding the future and include, without limitation, the following -- one, that the Company will distribute securities worth $92 million to its shareholders by distributing common shares of Mass Financial; two, the Company will perform partnerships to build, own and operate cement plants; three, that these built, owned and operated plants will generate revenue and such revenue will be constant and predictable; four, that order intake will increase to $1.1 billion; and five, that earnings per share for 2008 will be in the range of $2.05 to $2.15.

Such statements are subject to risks and uncertainties that may cause actual results, performance or developments to differ materially from those contained in the statements. No assurance can be given that any of the events anticipated by the forward-looking statements will occur, or if they do occur, what benefits the Company will obtain from them. These forward-looking statements reflect management's current views and are based on certain assumptions, including management's current expectations, estimates and assumptions about certain projects and the markets the Company operates in.

It is important to note that actual outcomes and the Company's actual results could differ materially from those in such forward-looking statements. Actual results could differ from those projected in any forward-looking statements due to numerous factors, including among others, one, that the Company will have sufficient paid up capital and that Mass Financial will have sufficient exempt surplus to affect the distribution of the common shares of Mass in a tax efficient manner; two, that the Company's shareholders approve the distribution of the common shares of Mass Financial; three, that the Company but can obtain all necessary regulatory approvals required for the distribution of the common shares of Mass Financial; four, that the Company identify appropriate partners to facilitate the Build, Own and Operate partnerships; five, that the Company obtain the necessary approvals and/or the financing necessary to build and operate such cement plants; six, a downturn in the general economic conditions in Asia, Europe, the United States and internationally; seven, a decreased demand for the Company's products; eight, a decrease in demand for cement minerals and related products; nine, the number of competitors with competitively priced products and services; ten, product development or other initiatives by the Company's competitors; eleven, shifts in industry capacity; twelve, fluctuations in foreign exchange and interest rates; thirteen, fluctuations in availability and cost of raw materials or energy; fourteen, delays in the start of projects included in our forecasts; fifteen, delays in the implementation of projects included in our forecasts and disputes regarding the performance of our services; sixteen, the uncertainty of government regulation and politics in Asia, Russia, Eastern Europe, the Middle East and other markets; seventeen, potential negative financial impact from regulatory investigations, claims, lawsuits and other legal proceedings and challenges, and other factors beyond the Company's control.

Additional information about these and other assumptions, risks and uncertainties is set out in the risks and uncertainties section in our Form 20-F filed with the Securities and Exchange Commission and our MD&A filed with Canadian Security regulators.

It is the Company's intention this morning to make a brief presentation on the results announced this morning and then to open the call to questions. Anyone who has questions on related entities should e-mail those questions to me at Joe@allenCaron.com and we will do our best to get back to you as soon as we came with answers.

I would like to turn the call over to Jim Busche, who is in Vancouver. Good morning, Jim.

JIM BUSCHE, PRESIDENT, CEO, KHD HUMBOLDT WEDAG INTERNATIONAL, LTD.: Good morning, everyone, and thank you for taking time to participate in this phone conference.

During this call, Alan Hartslief, KHD's CFO, and I, KHD President and CEO, will briefly present KHD's 2007 operating results and our achievements regarding several of our important initiatives. I will also take this opportunity to describe a number of new business opportunities to further diversify KHD's market offerings and income stream by expanding our horizons beyond our traditional markets to adjacent industries.

As a reminder, all financial values referred to during this call are U.S. dollars. Financial results are presented for the industrial plant and equipment supply business and the iron ore mining royalty. The legacy real estate subsidiary, SWA REIT and Investments, is now classified as a discontinued operation.

KHD continues to demonstrate strong growth in our business fundamentals with substantial increases in revenues and earnings, sustaining backlog at record levels and maintaining sound profitability.

Consolidated revenues for the full year ended December 31, 2007 were $580.4 million, up 44% and 83% respectively above 2006 and 2005 results. Cement revenues for 2007 were $518.6 million, 89% of the consolidated revenues, and grew 52% over the 2006 results. Coal and minerals revenues were $61.8 million for 2007, continuing the positive growth rate of this market.

Net operating income for 2007 was $51 million, or $1.68 per share, diluted, compared to our last guidance of $1.70 to $1.75. In 2006, earnings per share results were $1.12 and $0.84 in 2005, all on a diluted basis for the continuing operations and the resource property.

In 2007, order intake was 8$83.8 million, an increase of 19% and 84% over the 2006 and 2005 results for the same period. Over 50% of the 2007 order intake came from Russia, Eastern Europe and Asia, with an additional 34% of the orders coming from the Middle Eastern market.

Backlog at December 31, 2007 was $919.4 million. This represents a 38% increase over 2006 and 135% over 2005. The coal and minerals business backlog more than doubled during the last year. Almost 33% of the backlog going into 2008 is associated with projects in the Middle East, followed by 29% from Asia and 24% from Russia and Eastern Europe.

Subsequent to the issuance of our Form 6-K for the nine months ended September 30, 2007, we identified certain accounting errors that impacted the previously filed quarterly financial statements as of March 31, June 30, and September 30, 2007. These errors were caused by changes in the consolidation process, resulting in incorrect elimination of certain intercompany transactions and the implementation of a new software subsystem in a subsidiary. These adjustments had no effect on year-end results.

This year, we are issuing annual guidance on what we consider to be two key indicators, order intake, as it is an accurate indicator of future revenue and earnings of the Company, and earnings per share. For 2008, order intake will increase to $1.1 billion and earnings per share will grow to between $2.05 and $2.15 per share on a diluted basis.

Our backlog as of mid-March was over $1 billion. Please note that our financial results are reported in U.S. dollars, and the foreign exchange conversion assumptions applied to the 2008 forecast are based upon the prevailing currency rates at the end of 2007.

A number of you may be wondering how the recent downturn in the U.S. economy could influence our future business. Review of our 2007 operating results and the backlog going into 2008 are mostly dependent upon the industrial equipment and plant services market environment outside of North America. The U.S. market represents only 6% of our 2007 order intake and order backlog entering 2008.

Projects in the Middle East account for 34% of our order intake and 33% of our backlog, a region where cement consumption is expected to increase 10% to 15% in 2008. Similarly, Asia contributed 29% of our order intake. India in particular is expected to continue with production capacity expansions, fueled by a 12% projected consumption growth in 2008.

KHD's successful penetration of the Russian and Eastern European cement market represents 21% of the 2007 order intake and 29% of the backlog. Here again, …