Chemspec International Limited Announces Third Quarter 2009 Unaudited Financial Results
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SHANGHAI, Nov. 5 /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 quarter ended September 30, 2009.
Third Quarter 2009 Financial Highlights
-- Total sales were RMB212.6 million (US$31.1 million), a decrease of
25.4% from the third quarter of 2008 and a decrease of 9.0% from the
second quarter of 2009
-- Gross profit was RMB89.9 million (US$13.2 million), a decrease of 25.4%
from the third quarter of 2008 and a decrease of 5.6% from the second
quarter of 2009
-- Income from operations was RMB63.4 million (US$9.3 million), a decrease
of 33.9% from the third quarter of 2008 and a decrease of 5.7% from the
second quarter of 2009
-- Net income attributable to Chemspec International Limited shareholders
was RMB52.6 million (US$7.7 million), a decrease of 58.3% from the
third quarter of 2008 and a decrease of 2.3% from the second quarter of
2009. Net income attributable to Chemspec International Limited
shareholders for the third quarter 2009 would have decreased 37.2% from
the same period last year excluding a one-time income tax refund of RMB
42.5 million in the third quarter of 2008
-- Basic and diluted earnings per ADS (1 ADS = 60 ordinary shares) were
RMB1.45 (US$0.21), as compared to RMB4.21 in the third quarter of 2008
and RMB1.77 in the second quarter of 2009. Excluding a one-time income
tax refund of RMB 42.5 million for the third quarter of 2008, basic and
diluted earnings per ADS would have been RMB 2.79 in the third quarter
of 2008.
Recent Business Developments
-- Expanded production capacity, as planned, in expectation of an eventual
economic recovery. Added a total of 687K liters of reactor volume, net
of certain reductions of volume due to facility revamping, from the
beginning of the year 2009 through the end of third quarter of 2009.
This includes the partial completion of the first phase of construction
of two new factories, Binghai Kangjie and Quzhou Kangpeng, and
completion of new workshops at two existing factories, Wei Er and Wan
Su.
-- Initiated facility improvements at the Taixing and Huajing factories.
-- Completed and moved in October 2009 into a new Headquarters and an R&D
Center capable of housing up to 350 scientists.
-- Hired two new vice presidents, both of whom have strong overseas
industrial backgrounds that will help enhance marketing and sales
functions.
-- Acquiring Kangpeng Nonghua and the remaining non-controlling interests
in the Company's Wei Er subsidiary and merging the two agrochemical
subsidiaries to facilitate the Company's application for a Chinese
Agriculture Active Ingredient ("AI") Production License in order to
expand in the agriculture AI business. The Company expects that the
necessary government approvals for the close of the transactions can be
obtained around the end of 2009.
Dr. Jianhua Yang, Chairman and CEO of Chemspec, commented: "As we cautioned in our last earnings announcement, the third quarter turned out to be an extremely challenging period, and our financial performance reflects the pressure. Electronics industry sales recovered somewhat since the second quarter of 2009, but are not expected to reach the same level in the second half of 2009 compared to the second half of 2008. Our customers in the agrochemical and pharmaceutical end-markets around the world were clearly impacted by the global downturn and bad weather patterns that affected agriculture. They experienced a significant slowdown in the second quarter of 2009, and then saw a further decline in orders in the third quarter of 2009 from their customers. As a result, we believe they decided to primarily focus on cleaning up their inventories to adjust for excessive orders at the start of 2009 in anticipation of another year of short supply. They also have postponed the launch of new products, which has caused them to reduce their purchases from us in the third quarter of 2009, and possibly beyond."
Mr. Bing Zhu, Chief Financial Officer of Chemspec, commented: "Our customers in some industries are less able to accurately forecast demand under these uncertain conditions, and as a result, we have as little visibility as we have ever had since we started operating as a company. However, despite these challenges, we are pleased that we continue to remain in fine financial shape, with stable gross margins, strong capabilities in generating operating cash flows and an extremely solid balance sheet. The fundamentals of our company remain unchanged: we hold a leading position in organic specialty chemical technologies, our products and services remain world-class in terms of quality, we maintain competitive cost advantages as a China-based contract manufacturing organization (CMO) that is well positioned for the rising demand from global outsourcing trends, and we cater to a solid blue-chip end-user base."
Dr. Yang concluded, "Looking forward, we believe the recovery could be slow and it could stretch out to the end of the year and even into the beginning of next year. However, we are taking full advantage of this downturn to press ahead with a number of initiatives. With an eye on future business expansion, we are in the process of adding direct product offerings that will supplement our current CMO project model. We also plan to expand our product line to include agricultural and pharmaceutical new chemical entities (NCEs) and other downstream active ingredients (APIs and AIs). Additionally, we are stepping up our focus on the China market. We believe our strong track record of delivering high quality products and services along with a long-standing focus on environmental, health and safety (EHS) standards will appeal to the China market where such attributes are becoming increasingly important. And lastly, we partially completed the first phase of construction of two new factories and added capacity at two existing facilities, bringing a net 687K liters of new reactor capacity online since the start of the year. We are also taking actions to strengthen our business development team and supporting R&D capabilities. While we are clearly in the depths of a downturn, we believe it is in the best interest of the company to take a long-term view and plan for the inevitable up-cycle. We believe our investments now will pay dividends in the future, and the low depreciation costs on capital spending should not significantly impact our results over the next few quarters. While we do not currently have visibility on the timing of a turnaround within some of the industries to which we supply, we believe we are prudently positioning ourselves for the long term growth of our business."
Third Quarter 2009 Financial Results
Total Sales
For the three months ended September 30, 2009, the Company generated total sales of RMB212.6 million (US$31.1 million), a decrease of 25.4% from the third quarter of 2008 and a decrease of 9.0% from the second quarter of 2009. The decrease in sales in the third quarter of 2009 mainly reflects the slow-down in sales of electronic and agrochemical products, and in agrochemical-related sales of goods purchased.
Gross Profit and Gross Margin
Gross profit was RMB89.9 million (US$13.2 million), a decrease of 25.4% from the third quarter of 2008 and a decrease of 5.6% from the second quarter of 2009. Gross margin was 42.3% in the third quarter of 2009, as compared to 42.3% in the third quarter of 2008 and 40.8% in the second quarter of 2009. The steady gross margin in the third quarter of 2009 reflects the higher average unit selling price and the Company's continued efforts to improve manufacturing processes and cost controls.
Operating Expenses
Selling expenses and general and administrative expenses were RMB19.0 million (US$2.8 million) during the third quarter of 2009, representing an increase of 1.7% from RMB18.7 million in the third quarter of 2008 and a decrease of 5.9% from RMB20.2 million in the second quarter of 2009. The changes were caused primarily by an increase in administrative headcount due to the fast growth and personnel needs of the Company as compared to the third quarter of 2008, a decrease in share-based compensation due to the amortization effect of unconditional share options with graded vesting and decreased shipping costs associated with the decrease in sales volumes to customers as compared to the second quarter of 2009.
Research and development (R&D) expenses increased by 10.1% to RMB7.1 million (US$1.0 million) during the third quarter of 2009 from RMB6.4 million in the third quarter of 2008 and were unchanged from the second quarter of 2009. The increase compared with the same period in 2008 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 the Company's customers, in addition to fluctuations in material consumption for R&D activities.
Income from operations and earnings before income taxes
As the result of the above, income from operations was RMB63.4 million (US$9.3 million) and earnings before income taxes was RMB64.2 million (US$9.4 million) in the third quarter of 2009, decreases of 33.9% and 28.5%, respectively, from the third quarter of 2008, and decreases of 5.7% and 5.9%, respectively, from the second quarter of 2009.
Net income attributable to Chemspec International Limited shareholders
Net income attributable to Chemspec International Limited shareholders was RMB52.6 million (US$7.7 million) in the third quarter of 2009, a decrease of 58.3% from the third quarter of 2008 and a decrease of 2.3% from the second quarter of 2009. The decrease in year-over-year net income attributable to Chemspec International Limited shareholders was mainly caused by (1) a one-time tax refund in the third quarter of 2008 of RMB42.5 million, (2) the increase of effective income tax rate, and (3) the decrease in sales.
Basic and diluted earnings per ADS were RMB1.45 (US$0.21), as compared to RMB4.21 in the third quarter of 2008 and RMB1.77 in the second quarter of 2009.
Cash Flows
As of September 30, 2009, the Company had RMB409.7 million (US$60.0 million) of cash, as compared to RMB176.8 million as of September 30, 2008. The increase in the Company's cash position was primarily due to the proceeds of approximately RMB389.0 million from the Company's IPO. During the nine months ended September, 2009, the Company generated operating cash flows of RMB198.8 million (US$29.1 million) as compared to RMB238.6 million for the same period of 2008. Significant cash outflows for the nine-month period ended September 30, 2009 included capital expenditures of RMB 188.1 million (US$27.5 million) for production facility expansion and net repayment of the Company's bank borrowings of RMB55.0 million (US$8.1 million) from RMB60.0 million as of December 31, 2008.
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 the Company and/or Chemspec's auditors during the audit of the Company's annual consolidated financial statements.
Business Outlook
Based on the Company's current operations, total revenues for year 2009 are expected to be between RMB815 million and RMB825 million.
Conference Call Details
The company will host a conference call and live webcast to discuss its third quarter results and forward outlook at 8:00am Eastern Time (9:00 pm Beijing time) on Friday, November 6, 2009.
- U.S. Toll Free Number: 1-866-519-4004
- International Dial-in Number: +656-735-7955
- Mainland China Toll Free Number: 800-819-0121 (land line)
400-620-8038 (Mobile)
- Hong Kong Toll Free Number: 852-247-50994
- U.K. Toll Free Number: 080-8234-6646
- 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 after the conclusion of the conference call through midnight, November 13, 2009, Eastern Time.
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
- China North Dial-In +86 108007140386
- China South Dial-In +86 108001400386
- Conference ID: 37453488
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.
(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 September 30,
2009, which was RMB6.8262 to USD1.00. The percentages stated are
calculated based on RMB.
For further information, please contact:
Chemspec International Ltd.
In Shanghai
Bing Zhu
Chief Financial Officer
Tel: +86-21-6363-8108
Email: ir@chemspec.com.cn
Christensen
In New York
Kathy Li
Tel: +1-212-618-1978
Email: kli@christensenir.com
In Hong Kong
Tip Fleming
Tel: +852-9212-0684
Email: tfleming@christensenir.com
Chemspec International Limited
Unaudited Consolidated Balance Sheets
December 31, September 30, September 30,
2008 2009 2009
RMB'000 RMB'000 USD'000
ASSETS
Current assets
Cash 180,081 409,743 60,025
Pledged bank deposits 21,536 35,513 5,202
Accounts receivable, net 142,535 131,042 19,197
Bills receivable -- 200 29
Inventories 197,742 223,633 32,761
Prepayment and other
receivables 16,865 24,757 3,627
Deferred income tax assets 345 1,219 179
Total current assets 559,104 826,107 121,020
Equity method investment -- 13,387 1,961
Property, plant and
equipment, net 385,526 623,835 91,388
Land use rights 53,105 53,543 7,844
Goodwill 6,942 6,942 1,017
Deferred offering costs 9,843 -- --
Deferred income tax assets 360 400 59
Total assets 1,014,880 1,524,214 223,289
LIABILITIES AND EQUITY
Current liabilities
Bank borrowings 60,000 -- --
Accounts payable 77,785 96,010 14,065
Bills payable 27,562 40,770 5,973
Amounts due to related
parties 38,019 59 9
Accrued expenses and other
payables 55,714 126,042 18,463
Income taxes payable 6,213 7,970 1,168
Total current liabilities 265,293 270,851 39,678
Bank borrowings -- 5,000 732
Deferred income tax
liabilities 14,851 23,215 3,401
Deferred income 5,565 9,912 1,452
Total liabilities 285,709 308,978 45,263
Equity
Ordinary shares: HK$ 0.01 par
value; 20,000,000,000 shares
authorized as of December 31,
2008 and September 30, 2009;
1,800,000,000 and
2,179,680,000 shares issued
and outstanding as of
December 31, 2008 and
September 30, 2009,
respectively 18,446 21,792 3,192
Additional paid-in capital 30,597 369,189 54,085
Statutory reserves 45,837 45,837 6,715
Accumulated other
comprehensive income 6,749 7,023 1,029
Retained earnings 619,521 758,726 111,149
Total Chemspec International
Limited shareholders' equity 721,150 1,202,567 176,170
Non-controlling interests 8,021 12,669 1,856
Total equity 729,171 1,215,236 178,026
Total liabilities and equity 1,014,880 1,524,214 223,289
Chemspec International Limited
Unaudited Quarterly Consolidated Statements of Income
Three-month periods ended
September 30, June 30, September 30, September 30,
2008 2009 2009 2009
RMB'000 RMB'000 RMB'000 USD'000
Sales 284,921 233,520 212,577 31,141
Cost of sales (164,283) (138,258) (122,635) (17,965)
Gross profit 120,638 95,262 89,942 13,176
Selling expenses (2,900) (2,780) (2,267) (332)
General and
administrative
expenses (15,800) (17,429) (16,743) (2,453)
Research and
development
expenses (6,425) (7,056) (7,073) (1,036)
Other operating
expenses (69) (1,384) (775) (114)
Other operating
income 456 212 311 45
Government grants -- 398 11 2
Income from
operations 95,900 67,223 63,406 9,288
Other income
(expenses):
Equity in net loss
of an equity
method investee -- -- (85) (12)
Interest income 678 679 464 68
Interest expense (622) (53) (218) (32)
Foreign currency
exchange (loss)
gain, net (5,883) 328 222 33
Other (expense)
income (335) 29 375 55
Earnings before
income taxes 89,738 68,206 64,164 9,400
Income tax benefit
(expense) 37,735 (12,746) (11,202) (1,641)
Net income 127,473 55,460 52,962 7,759
Net income
attributable to
non-controlling
interests (1,173) (1,588) (335) (49)
Net income
attributable to
Chemspec
International
Limited
shareholders 126,300 53,872 52,627 7,710
Basic earnings per
share RMB 0.07 RMB 0.03 RMB 0.02 US$ 0.00
Diluted earnings
per share RMB 0.07 RMB 0.03 RMB 0.02 US$ 0.00
Basic earnings per
ADS RMB 4.21 RMB 1.77 RMB 1.45 US$ 0.21
Diluted earnings
per ADS RMB 4.21 RMB 1.77 RMB 1.45 US$ 0.21
Chemspec International Limited
Unaudited Consolidated Statements of Cash Flows
Nine-month period ended
September 30, September 30, September 30,
2008 2009 2009
RMB'000 RMB'000 USD'000
Cash flows from operating
activities
Net income 244,078 144,753 21,206
Adjustments to reconcile net
income to net cash provided by
operating activities:
Depreciation and amortization
of property, plant and equipment 16,579 24,647 3,611
Land use rights 522 726 106
Loss on disposal of property,
plant and equipment 484 2,482 364
Equity in net loss of an
equity method investee -- 85 12
Bad debt expense (309) -- --
Unrealized foreign exchange
loss (gain), net 1,005 (200) (29)
Gain on transfer of land use
right to an equity method
investee -- (290) (43)
Share-based compensation 12,444 12,506 1,832
Deferred income tax expense 12,096 7,450 1,091
Changes in operating assets
and liabilities, net of
effects of divestiture of a
subsidiary:
Pledged bank deposits related
to purchase of inventory (15,103) 5,317 779
Inventories (85,275) (25,891) (3,793)
Accounts receivable 18,497 11,751 1,721
Bills receivable (500) (200) (29)
Prepayment and other receivables 18,086 (7,892) (1,156)
Accounts payable 10,050 18,225 2,670
Bills payable related to
purchase of inventory 17,056 3,666 537
Accrued expenses and other
payables (2,906) (71) (10)
Income taxes payable (8,210) 1,757 257
Net cash provided by
operating activities 238,594 198,821 29,126
Cash flows from investing
activities
Capital expenditures,
including interest
capitalized (85,827) (188,052) (27,549)
Proceeds from the sale of a
subsidiary 3,420 -- --
Proceeds from sale of
property, plant and equipment 46 -- --
Investment in an equity
method investee -- (11,225) (1,644)
Non-interest bearing advances
to related parties (24,400) -- --
Non-interest bearing
advances repaid by
related parties 41,080 -- --
Net cash assumed from
acquisition of a subsidiary 2,255 -- --
Payments for land use rights (16,966) (3,121) (457)
Pledged bank deposit related
to purchase of property,
plant and equipment -- (19,294) (2,826)
Net cash used in investing
activities (80,392) (221,692) (32,476)
Cash flows from financing
activities
Acquisition of additional
equity interest in a
subsidiary (8,000) -- --
Capital contributions to a
subsidiary by a
non-controlling shareholder -- 1,600 234
Proceeds from issuance of
ordinary shares -- 389,022 56,990
Payments for initial public
offering costs (6,292) (42,846) (6,277)
Proceeds from bank loans 70,000 15,000 2,197
Repayments of bank loans (40,000) (70,000) (10,255)
Dividend paid by a
subsidiary to
non-controlling shareholders -- (2,500) (366)
Proceeds from non-interest
bearing borrowings from
related parties 20,400 -- --
Repayments of non-interest
bearing borrowings from
related parties (74,747) (37,943) (5,558)
Net cash (used in) provided by
financing activities (38,639) 252,333 36,965
Effect of foreign currency
exchange rate changes on cash 303 200 29
Net increase in cash 119,563 229,462 33,615
Cash at beginning of period 56,929 180,081 26,381
Cash at end of period 176,795 409,743 60,025
Supplemental disclosures of
cash flow information:
Income taxes paid 10,936 25,609 3,752
Income taxes refund 58,767 -- --
Interest paid, net of
amounts capitalized 1,739 1,042 153
Supplemental schedule of
noncash investing and
financing activities:
Payable for purchase of
property, plant and equipment 37,301 102,943 15,081
Bills payable for purchase
of property, plant and
equipment -- 15,002 2,198
Land use right contributed to
an equity method investee -- 1,957 287
SOURCE Chemspec International Limited
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