SORL Auto Parts Reports the Fourth Quarter and Fiscal Year 2015 Results

ZHEJIANG, China, March 31, 2016 /PRNewswire/ --  SORL Auto Parts, Inc. (NASDAQ: SORL) ("SORL" or the "Company"), a leading manufacturer and distributor of automotive brake systems as well as other key safety-related auto parts in China, announced today its financial results for the fourth quarter of 2015 and the year ended December 31, 2015.

Fourth Quarter 2015 Financial Highlights

• Net sales for the 2015 fourth quarter was $56.9 million;
• Gross profit margin was 27.2%;
• Net Income attributable to stockholders was $5.9 million, or $0.31 per diluted share, compared with $4.3 million, or $0.20 per diluted share in the fourth quarter of 2014;
• Cash, cash equivalents and short-term investments were $91.2 million with a current ratio of 2.7 to 1 at December 31, 2015.

2015 Full Year Highlights

• Net sales were $218.7 million compared to SORL's record high of $237.7 million in 2014;
• Gross margin was 27.2% compared with 28.1% a year ago;
• Net income attributable to stockholders for fiscal 2015 was $13.3 million, or $0.69 per diluted share compared with $13.8 million, or $0.71 per diluted share, in 2014.
  

Mr. Xiaoping Zhang, SORL's Chief Executive Officer and Chairman, stated, "We once again outperformed the overall commercial vehicle market in China by maintaining profitable operations and increasing operating cash flow generation in a challenging environment. Chinese economic growth deceleration in 2015 negatively impacted commercial vehicle sector. While overall commercial vehicle sales declined by 9.97% in 2015, the medium- and heavy-duty truck markets sustained double digit reductions in sales. The decline in real estate development and infrastructure projects has reduced the demand for new trucks and aftermarket parts." 

"In this environment, we have continued to build our portfolio of more advanced and higher-margin products to maintain our leadership position in the commercial vehicle braking market.  Strict cost controls and enhanced production techniques are helping us maintain our gross margin, among the highest in the industry," Mr. Zhang concluded.

Fourth Quarter 2015 Financial Results

For the fourth quarter of 2015, net sales decreased by 10.0% to $56.9 million from the fourth-quarter record high of $63.2 million in 2014. Revenues from the Company's domestic OEM customers were $25.5 million, a decrease of 7.6% from $27.6 million in the fourth quarter of 2014. The lower OEM sales were mainly due to lower sales of trucks in the fourth quarter of 2015. Total truck sales, excluding electric- powered vehicles, declined by 15.1% led by a reduction of 26.0% in the heavy-duty segment. Sales from China's domestic aftermarket decreased to $16.0 million, compared with $18.4 million in the same quarter of 2014. Aftermarket sales decreased as economic growth slowed and lower real estate and infrastructure construction lowered truck traffic reducing the demand for parts. Revenues from international markets decreased 11.0% to $15.3 million, compared to $17.2 million in the same quarter of 2014 due to lower commercial vehicle production and currency depreciation in several overseas markets.

The gross profit for the fourth quarter of 2015 decreased by 12.0% to $15.8 million from $17.5 million a year ago.  Gross margin was 27.2% compared with 27.7% in the fourth quarter of 2014.

In the fourth quarter of 2015, operating expenses decreased to $7.8 million from $12.5 million in the same quarter of 2014. The decrease reflected reduced general and administrative and research and development expenses partially offset by higher selling expenses. As a percentage of revenue, operating expenses were 13.8% in the fourth quarter of 2015, compared with 19.8% in the fourth quarter of 2014.

• Selling and distribution expenses were $7.4 million, or 13.1% of quarterly revenues, compared with $5.6 million, or 8.9% a year ago. The higher selling and distribution expenses were mainly due to the higher compensation to the sales team for outperforming the market and increasing the company's market share. 
• General and administrative ("G&A") expenses in the fourth quarter of 2015 were -1.7 million,  compared with $5.2 million, or 8.2% a year ago. The reduction in G&A expenses was mainly due to large amount of aged receivables was collected in the quarter which reversed bad debt provisions in the G&A expenses.
• Research and development ("R&D") expenses were $1.5 million in the fourth quarter of 2015 compared with $1.7 million in the fourth quarter of 2014. As a percentage of revenue, R&D expenses were 2.7% in the fourth quarter of 2015 compared with 2.6% of revenue in the fourth quarter of 2014.
  

Financial expenses were $0.4 million, compared with $0.4 million in the fourth quarter of 2014.

Income before income taxes was $6.2 million for the fourth quarter of 2015, including a $3.2 million loss on the sale of a subsidiary, compared to $5.7 million for the same quarter of 2014. The increase in income before income taxes reflected lower operating expenses during the fourth quarter of 2015 compared to the fourth quarter of 2014. The pretax income margin was 11.0% in the fourth quarter of 2015, compared with 9.0% in the fourth quarter of 2014.

The provision for income taxes was $0.2 million in the fourth quarter of 2015 from $1.3 million in the fourth quarter of last year.

Net income attributable to stockholders for the fourth quarter of 2015 was $5.9 million, or $0.31 per basic and diluted share, compared with $4.0 million, or $0.20 per basic and diluted share a year ago.

Full Year 2015 Financial Results

SORL's net sales for the fiscal year ended December 31, 2015 decreased 8.0% to $218.7 million from last year's record yearly high of $237.7 million in 2014.

For the fiscal year ended December 31, 2015, the Company's sales to domestic OEM market decreased by 10.9% to $99.9 million from $112.1 million in 2014. The 'pre-buy' of the less expensive Chinese commercial vehicles compatible with the National III emission standard resulted in higher sales during 2014, before the nationwide enforcement of the more stringent and more expensive National IV emission standard on January 1, 2015. The reduction in sales in the second half of 2015 was due to a growing number of localities requiring commercial vehicles to comply with the National IV emission standard. Aftermarket sales decreased by 6.3% to $57.7 million from $61.6 million in the 2014 year. Lower real estate and infrastructure construction resulted in less truck traffic, especially heavy-duty trucks, requiring fewer replacement parts. International sales decreased by 4.7% to $61.0 million compared with $64.0 million last year as truck production declined and currencies depreciated in certain foreign markets.

SORL's gross profit decreased 11.2% to $59.4 million in 2015 from $66.9 million in 2014 due to the decrease in sales. Gross margin was 27.2% compared with 28.1% in 2014.

SORL's operational expenses decreased to $44.7 million in 2015 from $49.3 million in 2014.

• Selling expenses decreased by approximately $1.0 million compared with 2014 primarily due to decreased freight and packaging expenses. As a percentage of sales revenue, selling expenses were 10.4% for the year ended December 31, 2015 compared with 10.0% in 2014.
• G&A expenses decreased by $3.9 million in 2015 mainly due to lower sales. G&A expenses decreased to 6.4% of sales revenue for the year ended December 31, 2015, as compared to 7.6% for the 2014 year.  The decrease in G&A expenses was mainly due to the successful collection of aged receivables which reversed total bad debt provision account under the G&A expenses.
• R&D costs decreased by $0.2 million from 2014 as SORL continued to build new products and advance traditional technologies. The Company's focus was on developing electronically controlled products to enhance braking performance in 2015 especially as the Company expands its global presence. As a percentage of sales revenue, R&D expenses were 3.3% for the year ended December 31, 2015 compared with 3.2% in the 2014 year.
  

Financial expenses increased to $1.3 million from $1.1 million in 2014, mainly due to higher short term bank loans.

Income before provision for income taxes was $16.6 million in 2015 including a $3.2 million loss from the sale of a subsidiary, compared with $18.0 million in 2014. The pretax income margin was 7.6% in both periods.

The provision for income taxes was $2.0 million, or a 13.0% tax rate in 2015, as compared to $2.9 million, or a 15.9% tax rate in 2014.

The net income attributable to stockholders in 2015 was $13.3 million, compared with $13.8 million in 2014. Earnings per share, both basic and diluted, for the full year ended December 31, 2015 and 2014, were $0.69 and $0.71 per share, respectively.

Balance Sheet

As of December 31, 2015, the Company had cash, cash equivalents, and short-term investments of $91.2 million compared to $48.8 million on December 31, 2014. Inventory was $73.7 million compared to $84.2 million on December 31, 2014.  Short term bank loans were $23.4 million compared to $9.5 million on December 31, 2014. Total equity increased to $222.4 million at December 31, 2015 compared with $220.2 million at December 31, 2014. On December 31, 2015, working capital was $169.8 million with a current ratio of 2.7 to 1. Net cash flow from operating activities increased to $39.3 million from $22.6 million in 2014.

Recent Events

The Special Committee of its Board of Directors received a letter from Mr. Xiaoping Zhang, Chairman and Chief Executive Officer of the Company, Ms. Shuping Chi and Mr. Xiaofeng Zhang, directors of the Company (collectively, the "Consortium Members") that they are withdrawing the non-binding going private proposal dated October 30, 2015. The Consortium Members stated in the letter that due to concerns over recent market conditions, they had determined not to proceed with the Proposal.

Business Outlook

For the fiscal year 2016, management expects net sales to be approximately $200 million and net income to be approximately $11.5 million. These targets are based on the Company's current views on the operating and market conditions, which are subject to change.

"We remain cautiously optimistic, although the recent strength in the heavy-duty truck and excavator markets may signal the beginning of higher construction spending which will increase the need for our products. We continue to build our product portfolio to capture market share in China, the second largest commercial vehicle market globally, even as we expand overseas. We also continue to focus on reducing our costs to ensure we are cost leaders in a competitive market environment," Ms. Jinrui Yu, SORL's Chief Operating Officer, stated.

Conference Call

Management will host a conference call on Thursday, March 31, 2016 at 8:00 A.M. EDT/ 8:00 P.M. Beijing Time to discuss its 2015 fourth quarter and year end results. Listeners may access the call by dialing U.S. toll free number +1-877-407-0778 and +1-201-689-8565 for international callers, and Mainland China toll free +86-400-120-2840. A live web cast of the conference call will also be available at http://www.sorl.cn.

A replay of the call will be available shortly after the conference call through 11:59 P.M. EDT on May 1, 2016, or 0:59 A.M. Beijing Time on May 2, 2016. The replay dial-in numbers are: U.S. toll free number +1-877-660-6853 or the international number +1-201-612-7415; using Conference ID "13633689" to access the replay.

About SORL Auto Parts, Inc.

As a global tier one supplier of brake and control systems to the commercial vehicle industry, SORL Auto Parts, Inc. is the market leader for commercial vehicles brake systems, such as trucks and buses in China. The Company distributes products both within China and internationally under the SORL trademark. SORL is listed among the top 100 auto component suppliers in China, with a product range that includes 65 categories with over 2000 specifications in brake systems and others. The Company has four authorized international sales centers in UAE, India, the United States and Europe. SORL is working to establish a broader global sales network. For more information, please visit http://www.sorl.cn. 

Safe Harbor Statement

This press release may include certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. Forward-looking statements can be identified by the use of forward-looking terminology such as "expects," "anticipates," "believes," "targets," "goals," "projects," "intends," "plans," "seeks," "estimates," "may," "will," "should" or similar expressions. For example, when the Company describes the evaluation of the preliminary non-binding proposal letter, it is using forward-looking statements. These forward-looking statements may also include statements about the Company's proposed discussions related to its business or growth strategy, which are subject to change. Such information is based upon expectations of the Company's management that were reasonable when made, but may prove to be incorrect. All of such assumptions are inherently subject to uncertainties and contingencies beyond the Company's control and upon assumptions with respect to future business decisions, which are subject to change. The Company does not undertake to update the forward-looking statements contained in this press release. These risks and uncertainties may include, but are not limited to general political, economic and business conditions which may impact the demand for commercial vehicles or passenger vehicles in China and the other significant markets where the Company's products are sold, uncertainty regarding such political, economic and business conditions, trends in consumer debt levels and bad debt write-offs, general uncertainty related to possible recessions, natural disasters, the political stability of China and the impact of any of those events on demand for commercial or passenger vehicles, changes in consumer confidence, new product development and introduction, competitive products and pricing, seasonality, availability of alternative sources of supply in the case of the loss of any significant supplier or any supplier's inability to fulfill the Company's orders, cost of labor and raw materials, the loss of or curtailed sales to significant customers, the Company's dependence on key employees and officers, the ability to secure and protect trademarks, patents and other intellectual property rights, potential effects of competition in the Company's business, the dependency of the Company upon the normal operation of its sole manufacturing facility, potential effect of the economic and currency instability in China and countries to which the Company sold its products, the ability of the Company to successfully manage its expenses on a continuing basis, the continued availability to the Company of financing and credit on favorable terms, business disruptions, disease, general risks associated with doing business in China or other countries including, without limitation, foreign trade policies, import duties, tariffs, quotas, political and economic stability, and the other factors discussed in the Company's Annual Report on Form 10-K and other filings with the Securities and Exchange Commission. For additional information regarding known material factors that could cause the Company's results to differ from its projected results, please see its filings with the SEC, including its Annual Report on Form 10-K, Quarterly Reports on Form 10-Q, and Current Reports on Form 8-K. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.

Contact Information

Raymond Lin
+86-139-6777-6556
+86-577-6581-7721
[email protected]

Phyllis Huang
+86-151-6770-5972
+86-577-6581-7721
[email protected]

Investor Relations
[email protected]

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SOURCE SORL Auto Parts, Inc.

Related Links

http://www.sorl.cn