Chemspec International Limited Announces First Quarter 2010 Unaudited Financial Results
SHANGHAI, May 14 /PRNewswire-Asia-FirstCall/ -- Chemspec International Limited (NYSE: CPC; "Chemspec" or the "Company"), a leading China-based contract manufacturer of highly-engineered specialty chemicals, today announced its unaudited financial results(1) for the first quarter ended March 31, 2010.
First Quarter 2010 Financial Highlights
-- Total sales were RMB220.2 million (US$32.3 million), an increase of
9.7% from the first quarter of 2009(2) and an increase of 24.3% from
the fourth quarter of 2009
-- Gross profit was RMB96.3 million (US$14.1 million), an increase of
24.2% from the first quarter of 2009(2) and an increase of 52.8% from
the fourth quarter of 2009
-- Income from operations was RMB59.8 million (US$8.8 million), an
increase of 17.2% from the first quarter of 2009(2) and an increase of
108.8% from the fourth quarter of 2009
-- Net income attributable to Chemspec International Limited shareholders
was RMB52.3 million (US$7.7 million), an increase of 60.0% from the
first quarter of 2009(2) and an increase of 50.5% from the fourth
quarter of 2009
-- Basic and diluted earnings per ADS(3) were RMB1.44 (US$0.21), as
compared to RMB1.09 in the first quarter of 2009(2) and RMB0.96 in the
fourth quarter of 2009
(1) Certain Renminbi (RMB) amounts in this press release have been
translated into U.S. dollar (USD) solely for the convenience of the
reader. The conversion of RMB into USD in this release is based on
the Federal Reserve Board certified exchange rate on March 31, 2010,
which was RMB6.8258 to USD1.00. The percentages stated are
calculated based on RMB.
(2) 1Q2009 financial data have been adjusted to reflect the retrospective
adjustment of the company's financial data due to the acquisition of
Jiangsu Kangpeng Nong Hua Limited on November 9, 2009, which
transaction is considered a combination between entities under common
control.
(3) 1 ADS=60 ordinary shares
Dr. Jianhua Yang, Chairman and CEO of Chemspec, commented, "The first quarter of 2010 turned out to be a particularly strong period that came in ahead of our optimistic expectations. We are pleased to report record first quarter revenue performance. As a result of the many internal changes and improvements that we made during the low points of the downturn, in addition to the extensive work we did to expand our customer base, we believe that we are well positioned to take advantage of the improved business conditions. Our leading position in chemical process research and development, and contract manufacturing capabilities in China gives our operations significant advantages compared to our global peers. While we still have fairly limited visibility looking out to the end of 2010, we are cautiously optimistic that we will be able to pick up momentum as the global economy continues to recover."
Mr. Bing Zhu, Chief Financial Officer of Chemspec, commented, "We are happy to see our gross margins recover following the dip that started in the first quarter last year. As we discussed in our fourth quarter 2009 earnings release, our inventory level increased, as expected, to RMB325.7 million at the end of the first quarter of 2010 because our products in the electronics chemical field are technically highly complex and involve a long in-house production cycle."
First Quarter 2010 Financial Results
Total Sales
For the three months ended March 31, 2010, the Company generated total sales of RMB220.2 million (US$32.3 million), an increase of 9.7% from the first quarter of 2009 and an increase of 24.3% from the fourth quarter of 2009. The increase in sales from the fourth quarter of 2009 reflects the strong recovery in demand in various end markets, particularly in the electronics chemical market.
Gross Profit and Gross Margin
Gross profit was RMB96.3 million (US$14.1 million), an increase of 24.2% from the first quarter of 2009 and an increase of 52.8% from the fourth quarter of 2009. Gross margin was 43.8% in the first quarter of 2010, as compared to 38.7% in the first quarter of 2009 and 35.6% in the fourth quarter of 2009. The increased gross margin in the first quarter of 2010 reflects the higher average unit selling price and the Company's continued efforts to improve manufacturing processes and cost control.
Operating Expenses
Selling expenses, general and administrative expenses was RMB23.3 million (US$3.4 million) during the first quarter of 2010, representing an increase of 36.1% from RMB17.1 million in the first quarter of 2009 and a decrease of 1% compared with RMB23.6 million in the fourth quarter of 2009. The year-over- year increase was caused primarily by an increase in administrative headcount due to the growth and personnel needs of the Company.
Research and development expenses increased by 56.24% to RMB13.7 million (US$2.0 million) during the first quarter of 2010 from RMB8.8 million in the first quarter of 2009 and RMB8.0 million in the fourth quarter of 2009. The increase compared with the same period in 2009 was due primarily to an increase in hiring of highly experienced scientists, especially from overseas, to enhance the Company's R&D capabilities to meet the growing needs of customers. The increase compared with the previous quarter was mainly due to the increase of R&D material consumption as the Company enhances its efforts in new R&D initiatives for future growth, the increase of personnel cost, and to some extent, the increased depreciation expense after the full completion of the Company's new R&D center in Shanghai.
Income from operations and earnings before income taxes
As a result of the factors mentioned above, income from operations was RMB59.8 million (US$8.8 million) and earnings before income taxes was RMB 60.2 million (US$8.8 million) in the first quarter of 2010, representing increase of 17.2% and 25.6%, respectively, from the first quarter of 2009, and increase of 108.8% and 107.2%, respectively, from the fourth quarter of 2009. In addition, the year-over-year increase of earnings before income taxes was caused by the decrease of interest expenses as a result of repayment of bank borrowings and the decrease of foreign exchange loss due to the elimination of the Company's foreign exchange exposure to currencies other than US Dollars.
Income tax expenses
Income tax expense was RMB7.72 million (US$1.13 million) for the first quarter of 2010 as compared with an income tax benefit of RMB6.17 million for the fourth quarter of 2009 and an income tax expense of RMB11.3 million for the first quarter of 2009. Our effective income tax rate was 12.8% for the first quarter of 2010. The 2009 annual effective income tax rate was 14.0%.
The income tax benefit in the fourth quarter of 2009 was due to a reversal of withholding tax accrued for undistributed earnings of our PRC subsidiaries as we plan to indefinitely reinvest a portion of such earnings in the PRC.
Net income attributable to Chemspec International Limited shareholders
Net income attributable to Chemspec International Limited shareholders was RMB52.3 million (US$7.7 million), an increase of 60.0% from the first quarter of 2009 and an increase of 50.5% from the fourth quarter of 2009. The increases in net income attributable to Chemspec International Limited shareholders were mainly caused by the increase in sales.
Basic and diluted earnings per ADS were RMB1.45 (US$0.21), as compared to RMB1.09 in the first quarter of 2009 and RMB0.96 in the fourth quarter of 2009.
Cash Flows
As of March 31, 2010, the Company had RMB240.5 million (US$35.2 million) of cash, as compared to RMB351.1 million as of December 31, 2009. Significant cash outflows for the three-month period ended March 31, 2010 include capital expenditure payments of RMB 78.5 million (US$11.5 million) for the production facility expansion, partial payments for the Company's acquisition of the remaining shares of Jiangsu Wei Er, and the increase of inventory to RMB325.7 million due to the change in the Company's product mix.
Changes in Management
Chemspec today announced the resignation of Mr. Bing Zhu as Chief Financial Officer ("CFO") of the Company, effective June 30, 2010. Mr. Zhu has decided to leave for personal reasons. Mr. Zhu will continue to serve as the CFO until June 30th, 2010 to facilitate a smooth transition. The board of directors of the Company has appointed David Yunhung Tang, our Executive Vice President, as interim CFO while the Company searches for a suitable replacement. Additionally, Mr. Zixin Wang has been appointed as the Vice President of Finance, effective today.
Dr. Tang will oversee the Company's financial operations and investor relations, and will be supported by the Company's strong finance and IR team. Dr. Tang received his MBA degree from the State University of New York at Buffalo, and a Ph.D in Chemistry from Indiana University. Before he joined the Company, Dr. Tang served at Occidental Chemical Corporation (USA) for more than 20 years, including as general manager of its joint venture business from 1990 to 1995.
Mr. Wang will manage the company's day-to-day financial operations. Mr. Wang worked as financial controller for the Company from 2006 to 2007 then the Vice President of Human Resources and Administration since 2008. He played important roles in the acquisition of JiangSu Wei'er Chemical Company and the Company's initial public offering on the NYSE, and helped upgrade the financial management system. He obtained his bachelor's and master's degrees in international accounting from Shanghai Jiaotong University.
"We greatly appreciate the contributions Bing made during his tenure at the Company," said Dr. Jianhua Yang, Chemspec's Chairman and Chief Executive Officer. "He played a significant role in completing our initial public offering, improving Chemspec's financial management and internal control systems, communicating effectively with our analysts and investors, as well as in shaping the Company's growth strategy. We thank him and wish him and his family the very best for the future."
Mr. Zhu said, "It has been my pleasure to serve at Chemspec over the past few years. I am proud of the progress that has been made during my tenure and believe that the Company's is well positioned to continue its growth into the future."
Dr. Yang added, "We have initiated our search for a new CFO. Meanwhile, Dr. Tang's appointment will ensure a smooth transition and help us maintain transparent communications with our investors. We have a strong management team and a solid balance sheet, and we will continue to execute according to our growth strategy."
Business Outlook
The Company's management believes that the second quarter of 2010 will be a better quarter in terms of total sales with a similar gross profit margin as compared to the first quarter of 2010.
Conference Call Details
The dial-in details for the live conference call are as follows:
U.S. Toll Free Number: 1-866-590-5622
International Dial-in Number: +65-6723-9381
Mainland China Toll Free Number: 800-819-0121 (land line)
400-620-8038 (Mobile)
Hong Kong Toll Free Number: +852-2475-0994
Conference ID: CPC
A live and archived webcast of the conference call will be available on the Investor Relations section of Chemspec's website at http://www.chemspec.com.cn .
A telephone replay of the call will be available two hours after the completion of the conference call through midnight, May 20, 2010.
The dial-in details for the replay are as follows:
U.S. Toll Free Number: +1-866-214-5335
International Dial-in Number: +61-2-8235-5000
Conference ID: # 69664745
Statement Regarding Unaudited Financial Information
The financial information set forth above is based on the Company's unaudited interim consolidated financial statements and is subject to adjustments that may be identified by us and/or our auditors during the audit of our annual consolidated financial statements.
About Chemspec
Chemspec is a leading China-based contract manufacturer of highly engineered specialty chemicals and the largest manufacturer of fluorinated specialty chemicals in China based on sales. In manufacturing specialty chemicals, Chemspec also provides process design and process development services, which enable efficient and rapid production of specialty chemicals that are incorporated into the products of Chemspec's end users. Chemspec's customers and end users include electronics, pharmaceutical and agrochemical companies. For more information, please visit http://www.chemspec.com.cn .
Safe Harbor Statements
This announcement contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in Chemspec's filings with the U.S. Securities and Exchange Commission, including its registration statement on Form F-1, as amended from time to time. Chemspec does not undertake any obligation to update any forward-looking statement, except as required under applicable law.
For further information, please contact:
Chemspec International Ltd.
In Shanghai
Bing Zhu
Chief Financial Officer
Tel: +86-21-6363-8108
Email: [email protected]
Christensen
In New York
Kathy Li
Tel: +1-212-618-1978
Email: [email protected]
In Hong Kong
Tip Fleming
Tel: +852-9212-0684
Email: [email protected]
Chemspec International Limited
Unaudited Consolidated Balance Sheets
December 31, March 31, March 31,
2009 2010 2010
RMB'000 RMB'000 USD'000
ASSETS
Current assets
Cash 351,097 240,534 35,239
Pledged bank deposits 37,919 65,625 9,614
Accounts receivable, net 94,154 114,118 16,719
Bills receivable 1,327 48 7
Inventories 271,434 325,719 47,719
Prepayment and other receivables 38,738 46,910 6,872
Amounts due from related parties 64 64 9
Deferred income tax assets 3,424 5,777 846
Total current assets 798,157 798,795 117,025
Investment in an affiliate 13,296 13,198 1,934
Property, plant and equipment,
net 699,181 719,506 105,410
Land use rights 56,064 56,149 8,226
Intangible assets 839 811 119
Goodwill 7,446 7,446 1,091
Deferred income tax assets 300 200 29
Total assets 1,575,283 1,596,105 233,834
LIABILITIES AND EQUITY
Current liabilities
Accounts payable 81,870 103,942 15,228
Bills payable 49,738 60,288 8,832
Amounts due to related parties 23,659 22,659 3,320
Accrued expenses and other
payables 183,266 124,068 18,176
Deferred income -- 2,555 374
Income taxes payable 1,298 1,596 234
Total current liabilities 339,831 315,108 46,164
Bank borrowings 10,000 5,000 733
Deferred income tax liabilities 18,056 18,658 2,733
Deferred income 15,136 13,582 1,990
Total liabilities 383,023 352,348 51,620
Equity
Ordinary shares: HK$ 0.01 par
value; 20,000,000,000 shares
authorized as of December 31,
2009 and March 31, 2010;
2,167,620,000 shares issued and
outstanding as of December 31,
2009 and March 31, 2010; 21,686 21,686 3,177
Additional paid-in capital 326,948 327,055 47,915
Statutory reserves 63,422 63,422 9,292
Accumulated other comprehensive
income 6,803 6,788 994
Retained earnings 767,393 819,706 120,089
Total Chemspec International
Limited shareholders' equity 1,186,252 1,238,657 181,467
Non-controlling interests 6,008 5,100 747
Total equity 1,192,260 1,243,757 182,214
Total liabilities and equity 1,575,283 1,596,105 233,834
Chemspec International Limited
Unaudited Quarterly Consolidated Statements of Income
Three-month periods ended
March 31, December 31, March 31, March 31,
2009 2009 2010 2010
RMB'000 RMB'000 RMB'000 USD'000
(As
adjusted)
Sales 200,694 177,050 220,151 32,253
Cost of sales (123,113) (114,022) (123,813) (18,139)
Gross profit 77,581 63,028 96,338 14,114
Selling expenses (2,950) (2,817) (2,503) (367)
General and administrative
expenses (14,143) (20,792) (20,761) (3,041)
Research and development
expenses (8,772) (8,012) (13,705) (2,008)
Other operating expenses (1,084) (3,380) (551) (81)
Other operating income 194 236 509 75
Government grants 200 362 450 66
Income from operations 51,026 28,625 59,777 8,758
Other income (expenses):
Equity in loss of an
affiliate -- (91) (98) (14)
Interest income 663 482 558 81
Interest expense (1,070) (309) (80) (12)
Foreign currency exchange
(loss) gain, net (2,740) 230 (47) (7)
Other income 23 91 48 7
Earnings before income
taxes 47,902 29,028 60,158 8,813
Income tax (expense)
benefit (11,261) 6,169 (7,718) (1,130)
Net income 36,641 35,197 52,440 7,683
Net income attributable to
non-controlling interests (3,951) (433) (127) (19)
Net income attributable to
Chemspec International
Limited shareholders 32,690 34,764 52,313 7,664
Basic earnings per share RMB 0.02 RMB 0.02 RMB 0.02 USD 0.00
Diluted earnings per share RMB 0.02 RMB 0.02 RMB 0.02 USD 0.00
Basic earnings per ADS RMB 1.09 RMB 0.96 RMB 1.45 USD 0.21
Diluted earnings per ADS RMB 1.09 RMB 0.96 RMB 1.45 USD 0.21
Chemspec International Limited
Unaudited Consolidated Statements of Cash Flows
Three-month periods ended
March 31, March 31, March 31,
2009 2010 2010
RMB'000 RMB'000 USD '000
(As
adjusted)
Cash flows from operating activities
Net income 36,641 52,440 7,683
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation and amortization of
property, plant and equipment 8,577 17,358 2,543
Land use rights 269 315 46
Amortisation of intangible assets 27 28 4
Loss on disposal of property, plant
and equipment 674 188 28
Equity in loss of an affiliate -- 98 14
Inventory writedowns 847 (1,938) (284)
Unrealized foreign exchange
(gain) loss, net (215) 32 5
Share-based compensation 5,296 1,872 274
Deferred income tax expense
(benefit) 1,517 (1,651) (242)
Changes in operating assets and
liabilities:
Pledged bank deposits
related to purchase
of inventory (8,367) (26,164) (3,833)
Inventories (4,866) (52,347) (7,669)
Accounts receivable 37,881 (19,992) (2,929)
Bills receivable (500) 1,279 187
Prepayment and other
receivables (1,221) (8,172) (1,197)
Accounts payable (13,662) 22,072 3,234
Bills payable related to
purchase of inventory (8,772) 17,904 2,623
Accrued expenses and
other payables (7,562) (3,370) (494)
Income taxes payable 3,277 298 44
Net cash provided by
operating activities 49,841 250 37
Cash flows from investing activities
Capital expenditures, including
interest capitalized (58,435) (76,552) (11,215)
Non-interest bearing advances repaid
by related parties 2,500 -- --
Payments for land use rights (643) (400) (59)
Pledged bank deposit related to
purchase of property, plant
and equipment -- (1,542) (226)
Net cash used in investing
activities (56,578) (78,494) (11,500)
Cash flows from financing activities
Acquisition of additional equity
interests in subsidiaries -- (26,300) (3,853)
Payments for initial public
offering costs (30) -- --
Proceeds from bank loans 15,000 -- --
Repayments of bank loans (20,000) (5,000) (732)
Proceeds from non-interest bearing
borrowings from related parties 3,000 -- --
Repayments of non- interest bearing
borrowings from related parties (5,367) (1,000) (147)
Net cash used in financing
activities (7,397) (32,300) (4,732)
Effect of foreign currency exchange
rate changes on cash 188 (19) (3)
Net decrease in cash (13,946) (110,563) (16,198)
Cash at beginning of period 180,602 351,097 51,437
Cash at end of period 166,656 240,534 35,239
Supplemental disclosures of cash
flow information:
Income taxes paid 6,467 9,071 1,329
Interest paid, net of amounts
capitalized 1,070 80 12
Noncash investing and financing
activities:
Payable for purchase of property,
plant and equipment 33,207 86,848 12,723
Payable for acquisitions of
non-controlling interests in
subsidiaries -- 25,000 3,663
Bills payable for purchase of
property, plant and equipment 1,671 20,751 3,040
SOURCE Chemspec International Limited
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