Chemspec International Limited Announces First Quarter 2011 Unaudited Financial Results

News provided by

Chemspec International Limited

May 25, 2011, 08:00 ET

SHANGHAI, May 25, 2011 /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, 2011.

First Quarter 2011 Financial Highlights

  • Total sales reached RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.
  • Gross profit totaled RMB76.8 million (US$11.7 million), representing a decrease of 20.3% and 22.2% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
  • Income from operations was RMB28.4 million (US$4.3 million), representing a decrease of 52.4% and 44.9% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
  • Net income attributable to the Company's shareholders was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% and 50.1% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
  • Basic and diluted earnings per ADS(2) were both RMB0.63 (US$0.10). Basic and diluted earnings per ADS were both RMB1.44 (US$0.21) in the first quarter of 2010. Basic and diluted earnings per ADS in the fourth quarter of 2010 were both RMB1.26 (US$0.19).

(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 noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2011, which was RMB 6.5483 to USD1.00.  The percentages stated are calculated based on RMB.

(2) 1 ADS=60 ordinary shares

Dr. Jianhua Yang, Chairman and Chief Executive Officer of Chemspec, commented, "The total sales of the first quarter of 2011 was in line with the guidance we provided in April. Although the past quarter was not outstanding, especially compared with our relatively stronger performance in 2010, I want to emphasize two key factors that we value in our business. First, we have strong chemical process and development capabilities and are highly competitive compared to our global peers. Secondly, we have maintained a strong client relationship with our customers. Both factors will greatly help our business when the market demand grows."

Mr. Zixin Wang, Vice President of Finance, commented, "As the inventory level has been a concern for the management, we have closely monitored the inventory level and implemented certain measures. For the first quarter of 2011, we were able to slightly lower the inventory level. Going forward, we will continue our efforts to bring down the inventory level gradually."

First Quarter 2011 Financial Results

Total Sales

For the three months ended March 31, 2011, we generated total sales of RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.

A strong recovery in the electronics end-market occurred in the first quarter of 2010 after the global financial crisis. However, our sales to the electronics end-market was relatively weaker in the first quarter of 2011, which caused the decline in the total sales compared with the first quarter of 2010. Compared with the fourth quarter of 2010, the decrease in our total sales was primarily attributable to seasonality, as the first quarter of each year usually has lower demand for chemicals used in the electronics end-market.

Gross Profit and Gross Margin

In the first quarter of 2011, we generated gross profit of RMB76.8 million (US$11.7 million), representing a decrease of 20.3% from the first quarter of 2010 and a decrease of 22.2% from the fourth quarter of 2010. We attribute the decreases in the gross profit primarily to the corresponding declines in the total sales in the corresponding quarters.

Our gross margin was 36.8% in the first quarter of 2011, as compared with 43.8% in the first quarter of 2010 and 36.5% in the fourth quarter of 2010. Compared with the first quarter of 2010, the gross margin decreased primarily due to a less favorable product mix in the first quarter of 2011. Compared with the fourth quarter of 2010, the gross margin slightly increased because minimal inventory was written down in the first quarter of 2011, but the effect was offset by the unfavorable product mix in the first quarter of 2011.

Operating Expenses

Selling expenses and general and administrative (SG&A) expenses were RMB36.5 million (US$5.6 million), representing an increase of 56.7% from RMB23.3 million in the first quarter of 2010 and an increase of 36.1% from RMB26.8 million in the fourth quarter of 2010. The increases were mainly attributed to the professional service fees involved in the proposed "going-private transaction", for which a Schedule 13E-3 has been filed with United States Securities and Exchange Commission ("SEC") on May 3, 2011. Going forward with the process, we expect to incur further professional service fees.

Research and development (R&D) expenses were RMB12.0 million (US$1.8 million), representing a decrease of 12.8% from RMB13.7 million in the first quarter of 2010 and a decrease of 46.0% from RMB22.1 million in the fourth quarter of 2010. The fluctuation in R&D expenses was mainly due to the change of material consumption expenses that were related to the number of active R&D projects during each period.

Income from Operations and Earnings Before Income Taxes

As a result of factors mentioned above, income from operations was RMB28.4 million (US$4.3 million) and earnings before income taxes was RMB28.2 million (US$4.3 million), respectively, in the first quarter of 2011, representing decreases of 52.4% and 53.1%, respectively, from the first quarter of 2010, and decreases of 44.9% and 45.3%, respectively, from the fourth quarter of 2010.

Net Income Attributable to Chemspec International Limited Shareholders

Net income attributable to Chemspec International Limited was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% from the first quarter of 2010 and of 50.1% from the fourth quarter of 2010, respectively.

Basic and diluted earnings per ADS were RMB0.63 (US$0.10), as compared to RMB1.44 (US$0.21) in the first quarter of 2010 and RMB1.26 (US$0.19), in the fourth quarter of 2010.

Conference Call

The Company will not host a conference call for the first quarter of 2011 financial results.

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, especially, the fluorinated specialty chemicals. 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 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, 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
Carol Fang
Manager, Investor Relations
Tel: +86-21-63638108
Email: [email protected]

Chemspec International Limited

Unaudited Consolidated Balance Sheets







December 31,

March 31,

March 31,

2010

2011

2011

RMB'000

RMB'000

USD'000






ASSETS




Current assets




Cash

98,719

74,385

11,359

Pledged bank deposits

56,746

44,303

6,766

Accounts receivable, net

137,873

95,664

14,609

Bills receivable

1,200

150

23

Inventories

470,432

464,991

71,010

Prepayment and other receivables

73,449

60,267

9,203

Income tax recoverable

-

1,454

222

Deferred income tax assets

6,369

8,305

1,268

Total current assets

844,788

749,519

114,460

Property, plant and equipment, net

871,398

869,612

132,800

Land use rights

59,201

58,864

8,989

Deposit for purchases of intangible assets

-

9,000

1,374

Deposit for purchases of other investment

-

5,000

764

Intangible assets

730

703

107

Goodwill

7,446

7,446

1,137

Investment in an affiliate

12,793

12,668

1,935

Cost-method investment

-

25,026

3,822

Total assets

1,796,356

1,737,838

265,388






LIABILITIES AND EQUITY




Current liabilities




Bank borrowings

25,000

25,000

3,818

Accounts payable

142,319

111,460

17,022

Bills payable

64,340

52,994

8,093

Accrued expenses and other payables

148,238

89,376

13,649

Amounts due to related parties

5,559

58

9

Deferred income

14,215

16,315

2,491

Income taxes payable

5,408

-

-

Total current liabilities

405,079

295,203

45,082

Bank borrowings

-

30,000

4,581

Deferred income tax liabilities

21,517

22,043

3,366

Deferred income

3,280

1,380

211

Total liabilities

429,876

348,626

53,240

Equity




Equity attributable to Chemspec International Limited




Ordinary shares:
   Par value: HK$ 0.01;
   Authorized: 20,000,000,000 shares
   as of December 31, 2010 and March 31,
   2011;
   Issued and outstanding:
   2,163,190,740 shares
   as of  December 31, 2010 and
  March 31, 2011;

21,649

21,649

3,306

Additional paid-in capital

319,048

320,370

48,924

Statutory reserves

85,820

85,820

13,106

Accumulated other comprehensive income

5,197

5,037

769

Retained earnings

929,108

951,726

145,339

Equity attributable to Chemspec International Limited




1,360,822

1,384,602

211,444

Noncontrolling interests

5,658

4,610

704






Total equity

1,366,480

1,389,212

212,148

Total liabilities and equity

1,796,356

1,737,838

265,388

Chemspec International Limited

Unaudited Quarterly Consolidated Statements of Income













Three-month periods ended



March 31,

December 31,

Mar 31,

Mar 31,



2010

2010

2011

2011



RMB'000

RMB'000

RMB'000

USD'000










Sales

220,151

270,357

208,967

31,912

Cost of sales

(123,813)

(171,629)

(132,139)

(20,179)

Gross profit

96,338

98,728

76,828

11,733

Selling expenses

(2,503)

(3,083)

(4,295)

(656)

General and administrative expenses

(20,761)

(23,719)

(32,170)

(4,914)

Research and development expenses

(13,705)

(22,129)

(11,952)

(1,825)

Other operating expenses

(551)

(1,205)

(204)

(31)

Other operating income

509

351

242

37

Government grants

450

2,684

-

-

Income from operations

59,777

51,627

28,449

4,344

Other income (expenses):







Interest income

558

525

471

72

Interest expense

(80)

-

(295)

(45)

Foreign currency exchange loss, net

(47)

(583)

(388)

(59)

Equity in loss of an affiliate

(98)

(150)

(125)

(19)

Other income


48

142

73

11

Earnings before income taxes

60,158

51,561

28,185

4,304










Income tax expense

(7,718)

(6,408)

(5,815)

(888)

Net income

52,440

45,153

22,370

3,416

Net (income) loss attributable to
   noncontrolling interests








(127)

141

248

38

Net income attributable to Chemspec
   International Limited shareholders








52,313

45,294

22,618

3,454




















Basic earnings per share

RMB 0.02

RMB 0.02

RMB 0.01

USD 0.00










Diluted earnings per share

RMB 0.02

RMB 0.02

RMB 0.01

USD 0.00










Basic earnings per ADS

RMB 1.44

RMB 1.26

RMB 0.63

USD 0.10










Diluted earnings per ADS

RMB 1.44

RMB 1.26

RMB 0.63

USD 0.10










Chemspec International Limited

Unaudited Consolidated Statements of Cash Flows







March 31,

March 31,

March 31,

2010

2011

2011

RMB'000

RMB'000

USD '000






Cash flows from operating activities




Net income

52,440

22,370

3,416

Adjustments to reconcile net income to net cash






  provided by operating activities:




Depreciation and amortization






of property, plant and equipment

17,358

21,771

3,325

Land use rights expenses

315

337

51

Loss on disposal of property, plant and equipment

188

162

25

Amortization of intangible assets

28

27

4

Equity in loss of an affiliate

98

125

19

Unrealized foreign exchange loss, net

32

248

38

Share-based compensation

1,872

1,322

202

Deferred income tax benefit

(1,651)

(1,410)

(215)

Changes in operating assets and liabilities, net of






  effect of an acquisition




Pledged bank deposits related to purchase of inventories

(26,164)

14,189

2,167

Inventories

(54,285)

5,441

831

Accounts receivable

(19,992)

41,958

6,407

Bills receivable

1,279

1,050

160

Prepayment and other receivables

(8,172)

4,182

639

Accounts payable

22,072

(30,859)

(4,713)

Bills payable related to purchase of inventories

17,904

(12,850)

(1,962)

Accrued expenses and other payables

(4,371)

6,416

980

Deferred income

1,001

200

31

Income taxes payable

298

(6,862)

(1,048)

Net cash provided by operating activities

250

67,817

10,357






Cash flows from investing activities




Capital expenditures, including interest capitalized

(76,552)

(83,921)

(12,815)

Pledged bank deposits related to purchase of property,




  plant and equipment

(1,542)

(1,746)

(267)

Payments for land use rights

(400)

-

-

Deposit for purchase of other investment

-

(5,000)

(764)

Purchase of investment

-

(25,026)

(3,822)

Net cash used in investing activities

(78,494)

(115,693)

(17,668)






Cash flows from financing activities




Dividend by a subsidiary to
 noncontrolling shareholders






-

(800)

(122)

Acquisition of additional equity interest in subsidiaries
  from noncontrolling interests




(26,300)

-

-

Proceeds from long-term bank borrowings

-

30,000

4,581

Repayments of  long-term bank borrowings

(5,000)

-

-

Repayments of non-interest bearing borrowings




  from related parties

(1,000)

(5,500)

(840)

Net cash (used in) provided by financing activities

(32,300)

23,700

3,619






Effect of foreign currency exchange rate changes




   on cash

(19)

(158)

(24)






Net decrease in cash

(110,563)

(24,334)

(3,716)

Cash at beginning of year

351,097

98,719

15,075

Cash at end of year

240,534

74,385

11,359






Supplemental disclosures of cash flow information:










Income taxes paid

9,071

14,087

2,151

Interest paid, net of amounts capitalized

80

295

45






Noncash investing and financing activities:










Payable for purchase of property, plant and equipment

86,848

64,045

9,780

Payable for acquisition of Kangpeng Nong Hua

25,000

-

-

Bills payable for purchase of property, plant and equipment

20,751

21,401

3,268

SOURCE Chemspec International Limited

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