Cogo Reports Highest Ever First Quarter Revenue
- Q1 Net Revenue: $169.3 million in accordance with Generally Accepted Accounting Principles ("GAAP") (a year-over-year increase of 62.2%) and Diluted Earnings per share ("EPS") attributable to Cogo Group, Inc. of $0.03 GAAP and $0.13 Non-GAAP (a year-over-year decrease of 36.7% Non-GAAP)
- Audit committee reviewing Cogo Chairman and CEO's proposed purchase of 30% of Cogo's total assets, liabilities and business operations; Management expects to close the deal during second quarter of 2012
SHENZHEN, China, May 15, 2012 /PRNewswire/ -- Cogo Group, Inc. (NASDAQ: COGO) ("Cogo" or the "Company"), one of the leading gateways for global semiconductor companies to access the industrial and technology markets in China, today announced unaudited financial results for its first quarter ended March 31, 2012. The Company reported quarterly revenue of $169.3 million, up 62.2% year-over-year compared to $104.4 million reported in the first quarter of 2011.
Jeffrey Kang, CEO and Chairman of Cogo, commented, "I am pleased with our continued solid execution in these difficult economic conditions. We achieved strong year-over-year growth in each of our three business end-markets and continued to show good control of operating costs. However, as we have indicated on previous calls, the tight credit environment in China continues to negatively affect our SME business and consequently suppresses our gross margin. We continue to believe that the tight credit environment in China will not materially improve in 2012. Therefore, this year will likely remain a transition year for Cogo due to these macro uncertainties."
Mr. Kang said, "I am pleased with our internal working capital controls. We reduced our cash conversion cycle from 128 days in the third quarter of 2011 to 98 days in the quarter just ended. We generated $4.8 million of operating cash flow in the first quarter of 2012 and we increased our net cash position sequentially from $23.8 million as of December 31, 2011 to $28.5 million as of March 31, 2012. By our own internal calculations, we sequentially increased our tangible book value from approximately $6.33 a share to over $6.45 per share as of March 31, 2012."
Mr. Kang added, "I am also pleased to report that the audit committee is currently reviewing my personal proposal to purchase certain Cogo assets, liabilities and operating business units. We expect to complete the review of my personal proposal before the end of the second quarter of 2012, subject to the successful negotiation of deal terms, the approval of the audit committee and other contingencies. Target companies of the deal roughly account for 26% of the group's revenue, with a gross margin of approximately 5% in the first quarter of 2012. I continue to believe that this purchase, which may possibly place an overall value of Cogo at $6-$8 a share, will help to legitimize the value of our financial assets."
Financial Results
Net income attributable to Cogo Group, Inc. for the first quarter of 2012 was $1.3 million, down 69.5% from $4.1 million reported in the same period in 2011, with Non-GAAP net income attributable to Cogo Group, Inc. of $4.5 million down 41.8% over $7.8 million reported for the same period in 2011. Diluted EPS attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.03, and Non-GAAP Diluted EPS attributable to Cogo Group, Inc. was $0.13, down 36.7% from the first quarter of 2011.
| Key Financial Indicators (all numbers in USD thousands, except share data) |
||||
| Q1 2012(1) (unaudited) |
Q1 2011(1) (unaudited) |
Percentage Change |
||
| Net Revenue |
$169,344 |
$104,418 |
62.2% |
|
| Cost of Sales |
$157,857 |
$89,584 |
76.2% |
|
| Gross Profit |
$11,487 |
$14,834 |
-22. 6% |
|
| Operating Expenses |
$9,202 |
$9,787 |
-6.0% |
|
| Net Income attributable to Cogo Group, Inc. |
$1,260(2) |
$4,132 |
-69.5% |
|
| Diluted EPS attributable to Cogo Group, Inc. |
$0.03 |
$0.11 |
-66.8% |
|
| Non-GAAP Diluted EPS attributable to Cogo Group, Inc. |
$0.13 |
$0.20 |
-36.7% |
|
| (1) |
The US dollar ("USD") amounts are calculated based on the conversion rate of $1 to RMB6.2975 as of March 31, 2012 and $1 to RMB6.5483 as of March 31, 2011. |
| (2) |
Included in the Q1 2012 net income attributable to Cogo Group, Inc. was $2.5 million of share-based compensation expenses recognized in accordance with Accounting Standards Codification ("ASC") 718, Compensation-Stock Compensation and $0.8 million of amortization of intangible assets and related deferred taxation. Non-GAAP net income attributable to Cogo Group, Inc. was $4.5 million. |
Revenue Review
Revenue for the first quarter was $169.3 million, an increase of 62.2% compared to $104.4 million reported for the same period in 2011. The revenue breakdown includes: $63.8 million, or 37.6% of total sales for digital media (including the mobile handset business), representing a 11.4% increase year-over-year; $77.6 million, or 45.8% of total sales for telecommunications equipment, representing a 232.4% increase year-over-year; and $28.0 million, or 16.6% of total sales relating to industrial business, representing a 17.5% increase year-over-year. The Company did not record any revenue from the service business in the first quarter of 2012 and 2011. The Company is currently participating in what management believes to be some of the fastest growing end-markets in China, including the smart grid, wind power, smart meter, automotive, high-speed railway and medical equipment sectors. Over time, the Company expects to expand into other verticals in the industrial business end-market, such as electronic security.
Customers Update
In the first quarter of 2012, blue-chip customers accounted for approximately 73% of the Company's total revenue, up from approximately 66% for the same period in 2011. Small and medium enterprise ("SME") customers accounted for the remaining approximately 27% of total revenue in the quarter. Management's goal is to achieve 50% of total sales from SME customers in the longer term.
Cost of sales, which includes the aggregate purchase of components from suppliers and the direct cost of services, was $157.9 million compared to $89.6 million in the first quarter of 2011, representing an increase of 76.2% year-over-year. Gross profit for the first quarter was $11.5 million, down 22.6%, compared to $14.8 million during the first quarter of last year. Gross margin for the first quarter of 2012 was 6.8%, compared to 14.2% reported for the first quarter of 2011.
Operating expenses, including selling, general and administrative, and research and development expenses, totaled $9.2 million, down 6.0%, compared to $9.8 million reported for the first quarter of 2011.
Income from operations was $2.3 million, a decrease of 54.7% from $5.0 million reported in the same period of 2011. Operating margin for the first quarter of 2012 was 1.3% compared to 4.8% for the first quarter of 2011. Excluding the effects of share-based compensation expenses and amortization of intangible assets and related deferred taxation, operating margin would have been 3.4% for the first quarter of 2012, compared to 8.5% for the same period in 2011. The effective tax rate for the first quarter of 2012 was 13.8%, compared to 10.8% for the same period in 2011. Included in the income tax expense for the quarter ended March 31, 2012 was a deferred income tax benefit of $0.2 million as a result of the amortization of intangible assets of $1.0 million. Non-controlling interests' share of income was $0.5 for the first quarter of 2012 as compared with $0.4 million for the first quarter of 2011.
Net income attributable to Cogo Group, Inc. for the first quarter of 2012 was $1.3 million or Diluted EPS attributable to Cogo Group, Inc. of $0.03 on a U.S. GAAP basis, compared to net income of $4.1 million, or Diluted EPS attributable to Cogo Group, Inc. of $0.11, in the first quarter of 2011. Included in the first quarter of 2012 was $2.5 million attributable to share-based compensation expenses and $0.8 million attributable to amortization of intangible assets and related deferred taxation. Excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, the Non-GAAP net income would have been $4.5 million, or $0.13 Non-GAAP Diluted EPS attributable to Cogo Group, Inc. for the first quarter of 2012. The weighted average number of shares used in the calculation of diluted EPS was 36.0 million compared to 39.2 million in the first quarter of 2011.
Balance Sheets and Cash Flows
Total cash, including pledged bank deposits, was $146.3 million at the end of the first quarter of 2012, down from $159.5 million as of December 31, 2011. Bank borrowings decreased from $135.7 million as of December 31, 2011 to $117.8 million as of March 31, 2012. The Company has a current ratio of 2.5 to 1 and generated operating cash flow of $4.8 million during the first quarter of 2012.
Inventories decreased from $52.0 million as of December 31, 2011 to $50.8 million as of March 31, 2012 as the Company continued to exercise effective inventory control measures. Consequently, inventory turnover days was 30 days in the first quarter of 2012 compared to 31 days in the prior quarter. Accounts receivable decreased from $149.6 million as of December 31, 2011 to $147.7 million as of March 31, 2012 and the Days Sales Outstanding kept at 80 days. Accounts payable increased from $19.3 million at the end of 2011 to $20.4 million as of March 31, 2012 and Days Payable Outstanding increased slightly from 11 to 12 days sequentially. Cogo's cash conversion cycle decreased from 100 days in the fourth quarter of 2011 to 98 days in the first quarter of 2012.
Cogo Group, Inc. equity was $245.7 million as of March 31, 2012, an increase of 1.7% from $241.5 million as of December 31, 2011. During the first quarter of 2012, the Company did not repurchase any shares due to insider trading and blackout restrictions. The Company continues to view share buybacks as a strategic use of cash.
About Cogo Group, Inc.:
Cogo Group, Inc. (Nasdaq: COGO) is one of the leading gateways for global semiconductor companies to access the rapidly growing Industrial and Technology sectors in China. Through its unique business-to-business services platform, Cogo designs customized embedded solutions using technology from suppliers including Intel, Broadcom, Xilinx, SanDisk, Freescale, Atmel and others for a customer base of over 1,800 Chinese OEMs/ODMs. Cogo's customer list includes approximately 100 blue-chip companies, including ZTE, BYD and NARI, as well as over 1,700 Small and Medium Enterprises (SMEs). The Company serves a broad list of rapidly growing end-markets in China, including 3G Smart phones, Tablets, Automotives, High-Speed Railway, Smart Meter/Smart Grid, Healthcare and High Definition Television ("HDTV").
For further information:
Investor Relations
www.cogo.com.cn/investorinfo.html
[email protected]
H.K.: +852 2730 1518
U.S.: +1 (646) 291 8998
Fax: +86 755 2674 3522
Safe Harbor Statement:
This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our proposed discussions related to our business or growth strategy such as growth in digital media, telecommunications and industrial applications businesses, as well as our potential acquisitions which are subject to change. Such information is based upon expectations of our management that were reasonable when made, but may prove to be incorrect. All such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. For further descriptions of other risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 20-F, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.
About Non-GAAP Financial Measures:
To supplement Cogo's unaudited consolidated financial results presented in accordance with GAAP, Cogo uses the following measures defined as Non-GAAP financial measures by the SEC: 1) Non-GAAP net income attributable to Cogo Group, Inc. which is net income attributable to Cogo Group, Inc. excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, and 2) Non-GAAP diluted EPS attributable to Cogo Group, Inc., which is diluted EPS excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation. The presentation of these Non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these Non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of Non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.
Cogo believes that these Non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation that may not be indicative of its operating performance from a cash perspective. Cogo believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These Non-GAAP financial measures also facilitate management's internal comparisons to Cogo's historical performance and liquidity. Cogo computes its Non-GAAP financial measures using the same consistent method from quarter to quarter.
Cogo believes these Non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using Non-GAAP net income attributable to Cogo Group, Inc., Non-GAAP diluted EPS attributable to Cogo Group, Inc., Non-GAAP income from operation and Non-GAAP operating margin is that these Non-GAAP measures exclude share-based compensation expenses and amortization of intangible assets and related deferred taxation that have been and will continue to be for the foreseeable future a recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each Non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.
Tables Attached
| COGO GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS
|
|||||
| March 31, 2012 |
December 31, 2011 |
||||
| USD'000 |
RMB'000 |
RMB'000 |
|||
| Assets |
|||||
| Current assets: |
|||||
| Cash |
77,714 |
489,406 |
572,364 |
||
| Pledged bank deposits |
68,589 |
431,941 |
431,695 |
||
| Accounts receivable, net |
147,734 |
930,355 |
941,798 |
||
| Bills receivable |
9,050 |
56,993 |
39,889 |
||
| Inventories |
50,826 |
320,079 |
327,482 |
||
| Income taxes receivable |
282 |
1,776 |
1,932 |
||
| Prepaid expenses and other receivables |
9,142 |
57,565 |
51,507 |
||
| Total current assets |
363,337 |
2,288,115 |
2,366,667 |
||
| Property and equipment, net |
2,508 |
15,796 |
17,891 |
||
| Land use rights, net |
3,061 |
19,275 |
— |
||
| Intangible assets, less accumulated amortization, RMB157,593 thousand (USD25,025 thousand) in 2012 and RMB151,268 thousand in 2011 |
23,467 |
147,781 |
154,105 |
||
| Other assets |
292 |
1,839 |
21,325 |
||
| Total Assets |
392,665 |
2,472,806 |
2,559,988 |
||
| Liabilities and equity |
|||||
| Current liabilities: |
|||||
| Accounts payable |
20,446 |
128,758 |
121,538 |
||
| Bank borrowings |
117,755 |
741,560 |
854,234 |
||
| Income taxes payable |
2,927 |
18,431 |
16,046 |
||
| Accrued expenses and other liabilities |
1,991 |
12,544 |
22,593 |
||
| Total current liabilities |
143,119 |
901,293 |
1,014,411 |
||
| Deferred tax liabilities |
3,872 |
24,384 |
25,427 |
||
| Total liabilities |
146,991 |
925,677 |
1,039,838 |
||
| Equity |
|||||
| Common stock: Par value: USD0.01 Authorized: 200,000,000 Shares Issued: 42,618,285 shares in 2012, 42,309,285 shares in 2011 Outstanding: 33,869,467 shares in 2012, 33,560,467 shares in 2011 |
533 |
3,359 |
3,340 |
||
| Additional paid in capital |
221,983 |
1,397,935 |
1,382,521 |
||
| Retained earnings |
90,222 |
568,170 |
560,234 |
||
| Accumulated other comprehensive loss |
(20,436) |
(128,696) |
(128,254) |
||
| 292,302 |
1,840,768 |
1,817,841 |
|||
| Less cost of common stock in treasury, 8,748,818 shares in 2012 and 2011 |
(50,818) |
(320,025) |
(320,025) |
||
| Total Cogo Group, Inc. equity |
241,484 |
1,520,743 |
1,497,816 |
||
| Noncontrolling interests |
4,190 |
26,386 |
22,334 |
||
| Total equity |
245,674 |
1,547,129 |
1,520,150 |
||
| Total liabilities and equity |
392,665 |
2,472,806 |
2,559,988 |
||
| COGO GROUP, INC.
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME |
||||||
|
Three Months ended March 31, |
||||||
| 2012 |
2012 |
2011 |
||||
| USD'000 |
RMB'000 |
RMB'000 |
||||
| Net Revenue |
||||||
| Product sales |
169,344 |
1,066,441 |
683,762 |
|||
| Service revenue |
— |
— |
— |
|||
| 169,344 |
1,066,441 |
683,762 |
||||
| Cost of sales |
||||||
| Cost of goods sold |
(157,857) |
(994,103) |
(586,624) |
|||
| Cost of service |
— |
— |
— |
|||
| (157,857) |
(994,103) |
(586,624) |
||||
| Gross profit |
11,487 |
72,338 |
97,138 |
|||
| Selling, general and administrative expenses |
(5,685) |
(35,800) |
(42,331) |
|||
| Research and development expenses |
(3,793) |
(23,889) |
(21,745) |
|||
| Other operating income (expense) |
276 |
1,741 |
(10) |
|||
| Income from operations |
2,285 |
14,390 |
33,052 |
|||
| Interest expense |
(853) |
(5,369) |
(3,103) |
|||
| Interest income |
638 |
4,019 |
3,130 |
|||
| Earnings before income taxes |
2,070 |
13,040 |
33,079 |
|||
| Income tax expense |
(285) |
(1,796) |
(3,573) |
|||
| Net income |
1,785 |
11,244 |
29,506 |
|||
| Less net income attributable to noncontrolling interests |
(525) |
(3,308) |
(2,450) |
|||
| Net income attributable to Cogo Group, Inc. |
1,260 |
7,936 |
27,056 |
|||
| Earnings per share attributable to Cogo Group, Inc. |
||||||
| Basic |
0.03 |
0.22 |
0.71 |
|||
| Diluted |
0.03 |
0.22 |
0.69 |
|||
| Weighted average number of common shares outstanding |
||||||
| Basic |
36,023,931 |
37,994,774 |
||||
| Diluted |
36,023,931 |
39,174,483 |
||||
| Comprehensive income: |
||||||
| Net income |
1,785 |
11,244 |
29,506 |
|||
| Other comprehensive income |
||||||
| Foreign currency translation adjustments |
48 |
302 |
(1,078) |
|||
| Comprehensive income |
||||||
| Less: comprehensive income attributable to noncontrolling interests |
(643) |
(4,052) |
(2,394) |
|||
| Comprehensive income attributable to Cogo Group, Inc. |
1,190 |
7,494 |
26,034 |
|||
| COGO GROUP, INC. and SUBSIDIARIES
UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES |
||||||
|
Three Months ended March 31, |
||||||
| 2012 |
2011 |
|||||
| $'000 |
$'000 |
|||||
| Net Income |
||||||
| GAAP net income attributable to Cogo Group, Inc. |
1,260 |
4,132 |
||||
| Share-based compensation expenses |
2,451 |
2,889 |
||||
| Amortization of intangible assets and related deferred taxation |
838 |
800 |
||||
| Non-GAAP net income attributable to Cogo Group, Inc. |
4,549 |
7,821 |
||||
| Income from operation |
||||||
| GAAP income from operations |
2,285 |
5,047 |
||||
| Share-based compensation expenses |
2,451 |
2,889 |
||||
| Amortization of intangible assets |
1,004 |
958 |
||||
| Non-GAAP income from operation |
5,740 |
8,894 |
||||
| Operating Margin |
||||||
| GAAP operating margin |
1.3% |
4.8% |
||||
| Non-GAAP operating margin |
3.4% |
8.5% |
||||
| Earnings per share |
$ |
$ |
||||
| GAAP net income attributable to Cogo Group, Inc. per common share-Diluted |
0.03 |
0.11 |
||||
| Non-GAAP net income attributable to Cogo Group, Inc. per common share-Diluted |
0.13 |
0.20 |
||||
| Weighted average number of common shares outstanding |
||||||
| Basic |
36,023,931 |
37,994,774 |
||||
| Diluted |
36,023,931 |
39,174,483 |
||||
SOURCE Cogo Group, Inc.
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