China Automotive Systems Reports Fourth Quarter and Fiscal 2016 Results

WUHAN, China, March 30, 2017 /PRNewswire/ -- China Automotive Systems, Inc. (NASDAQ: CAAS) ("CAAS" or the "Company"), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the fourth quarter and the audited results for fiscal year ended December 31, 2016.

Fourth Quarter 2016 Highlights

• Net sales were $149.6 million, up 24.6% from $120.1 million in the fourth quarter of 2015
• Gross margin was 14.6% reflecting the impact of a charge for a projected $5 million product recall in 2016, versus 16.8% in the fourth quarter of 2015
• Net income attributable to parent company's common shareholders was $5.8 million, or diluted earnings per share of $0.18

Fiscal Year 2016 Highlights

• Net sales were $462.1 million, compared to $443.5 million in 2015
• Gross margin was 17.5% reflecting the impact of a charge for a projected $5 million product recall in 2016, versus 17.9% in 2015
• Diluted earnings per share attributable to parent company's common shareholders was $0.70
• Cash and cash equivalents, pledged cash and short-term investments were $92.4 million as of December 31, 2016
• Net cash flow from operating activities was $11.8 million

Mr. Qizhou Wu, chief executive officer of CAAS, commented, "After regaining growth in the third quarter, we are encouraged by the acceleration of top line growth as nearly all subsidiaries of CAAS received increased orders from OEM customers during the fourth quarter. Many of our top 10 OEM customers such as Great Wall, Geely, and Chang'an posted robust growth in 2016. In addition, our product mix change continues to drive our growth and Electric Power Steering (EPS) sales grew nearly 45%, accounting for 28% of our total revenue in 2016. Entering 2017, we believe that the auto replacement cycle with new models coming into the market and ongoing tax incentives for fuel-efficient vehicles will help continue to propel the growth of auto sales in China. As the largest steering system provider in China, we are well positioned to ride the growth and create shareholder value."  

Mr. Jie Li, chief financial officer of CAAS, commented, "We took prudent measures to respond to product recalls as we recorded a charge to the cost of sales that affected our gross margin in the fourth quarter. However, we believe that this impact is short-lived. With the progress from our R&D program, especially the breakthrough in the key components for EPS systems, we expect our gross margin to recover in 2017."  

Fourth Quarter of 2016In the fourth quarter of 2016, net sales were $149.6 million, compared to $120.1 million in the same quarter of 2015, reflecting a 24.6% year-over-year growth. The net sales increase was mainly due to increased auto sales and a shift in the product mix to more electric power steering products ("EPS").

Gross profit was $21.8 million in the fourth quarter of 2016, compared to $20.2 million in the fourth quarter of 2015. The gross margin was 14.6% in the fourth quarter of 2016, versus 16.8% in the fourth quarter of 2015. The decrease in gross margin was mainly due to the impact of recalls by two customers related to the Company's products in January 2017. The Company has recorded a $5 million charge relating to anticipated costs for the recalls in cost of sales for the fourth quarter ended December 31, 2016.  The recalls were for 152,811 EPS steering units delivered between 2012 and 2015. In one instance, a torque sensor exhibited abnormal wear after long-term usage creating a potential risk. In a different steering model, an electronic-assist ECU may malfunction under certain circumstances.  No serious injuries from these component issues have been reported. The affected steering models were early versions of the Company's EPS technologies which have been superseded with more advanced models.  

Gain on other sales was $1.8 million, compared with $1.2 million in the fourth quarter of 2015.

Selling expenses were $4.9 million in the fourth quarter of 2016, compared to $4.0 million in the fourth quarter of 2015. The increase was primarily due to higher marketing expenses. Selling expenses represented 3.3% of net sales in the fourth quarter of each of 2016 and 2015.

General and administrative expenses ("G&A expenses") were $4.8 million in the fourth quarter of 2016, compared to $5.7 million in the same quarter of 2015. G&A expenses represented 3.2% of net sales in the fourth quarter of 2016 and 4.7% in the fourth quarter of 2015.  The decrease in G&A expenses and G&A expenses as a percentage of net sales during the fourth quarter was mainly due to more stringent cost control measures.

Research and development expenses ("R&D expenses") were $8.9 million in the fourth quarter of 2016, compared to $4.6 million in the fourth quarter of 2015. R&D expenses represented 5.9% of net sales in the fourth quarter of 2016 compared to 3.8% in the fourth quarter of 2015. The increase in R&D expenses was due to increased investment in EPS product research and development such as brushless motor and Advanced Driver Assistance Systems (ADAS) related projects. The Company has hired more engineers, acquired more technologies, and purchased more testing equipment. 

Income from operations was $5.0 million in the fourth quarter of 2016, compared to $7.1 million in the same quarter of 2015. The decrease was mainly due to lower gross profit and higher R&D and selling expenses.

Interest expense was $0.1 million in the fourth quarter of 2016, compared to interest expense of $0.3 million in the fourth quarter of 2015 due to the decrease in weighted average loans outstanding.

Net financial income was $0.2 million in the fourth quarter of 2016, compared to net financial income of $0.9 million in the fourth quarter of 2015 due to lower interest income.

Income before income tax expenses and equity in earnings of affiliated companies was $5.1 million in the fourth quarter of 2016, compared to $7.9 million in the fourth quarter of 2015. The decrease in income before income tax expenses and equity in earnings of affiliated companies was mainly due to lower operating income and reduced financial income in the fourth quarter of 2016, compared with the fourth quarter of 2015.

Net income attributable to parent company's common shareholders was $5.8 million in the fourth quarter of 2016, compared to net income attributable to parent company's common shareholders of $6.9 million in the fourth quarter of 2015. Diluted earnings per share were $0.18 in the fourth quarter of 2016, compared to diluted earnings per share of $0.22 in the fourth quarter of 2015.

The weighted average number of diluted common shares outstanding was 31,711,888 in the fourth quarter of 2016, compared to 32,131,453 in the fourth quarter of 2015.

Fiscal Year 2016 Annual net sales were $462.1 million in 2016, a 4.2% increase compared to $443.5 million in 2015. The overall increase was mainly due to higher volumes and a change in the product mix as electric power steering systems (EPS) sales grew 44.8% in 2016.

Gross profit in 2016 was $80.9 million, compared to $79.5 million in 2015. Gross margin was 17.5% in 2016, compared to 17.9% in 2015. The margin decrease was primarily due to the $5 million charge relating to anticipated costs for the recalls by two Company customers in cost of sales for the year ended December 31, 2016.  A shift in product mix and higher material costs also affected gross profit and margin in 2016.

Gain on other sales mainly consisted of the net amount retained from the sales of materials, property, plant and equipment and scraps. For the year ended December 31, 2016, gain on other sales amounted to $3.8 million, compared to $4.4 million in 2015.

Selling expenses were $17.2 million in 2016 compared with $15.0 million in 2015, which was mainly due to higher marketing expenses during the year. Selling expenses represented 3.7% in 2016, compared to 3.4% of net sales in 2015.

G&A expenses were $16.8 million in 2016, down slightly from $17.0 million in 2015. G&A expenses represented 3.6% in 2016, compared to 3.8% of net sales in 2015.

R&D expenses were $27.7 million in 2016 compared to $22.3 million in 2015. R&D expenses are primarily associated with the costs incurred with the Company's further development of its EPS technology, including transitioning advanced manufacturing equipment to EPS, expanding the EPS trial-production department, hiring technologists and installing advanced technology and test equipment. R&D expenses represented 6.0% of net sales in 2016, compared to 5.0% of net sales in 2015. The increase in R&D expenses was mainly due to increased expenditures on R&D activities for EPS products.

Operating income was $23.0 million in 2016, compared with $29.7 million in 2015. The decrease was due to higher operating expenses in 2016. The operating margin was 5.0% in 2016 compared with 6.7% in 2015.

Interest expense was $0.7 million in 2016, compared to interest expense of $1.3 million in 2015 due to the decrease in weighted average loans outstanding.

Net financial income was $1.4 million in 2016, compared to net financial income of $2.9 million in 2015 due to lower interest income.

Income before income tax expenses and equity in earnings of affiliated companies was $24.9 million for 2016 compared with $32.0 million for 2015. This decline was mainly due to a decrease in income from operations.

Income tax expense was $2.5 million for 2016, compared to $4.5 million for 2015. This tax decrease was mainly due to lower income before tax. The effective tax rate decreased to 10.0% for the year ended December 31, 2016 from 14.0% for the year ended December 31, 2015. The decrease was primarily due to an increase in the tax benefit from the super deduction of R&D expense.

Net income attributable to parent company's common shareholders was $22.5 million in 2016, compared to $27.4 million in 2015. Diluted earnings per share were $0.70 in 2016, compared to $0.85 in 2015. The weighted average number of diluted common shares outstanding was 31,957,052 in 2016, compared with 32,134,866 in 2015.

Balance Sheet

As of December 31, 2016, total cash and cash equivalents, pledged cash and short-term investments were $92.4 million, total accounts receivable including notes receivable were $306.7 million, accounts payable were $223.8 million and bank and government loans were $40.8 million. Total parent company stockholders' equity was $300.5 million as of December 31, 2016, compared to $299.0 million as of December 31, 2015. Net cash flow from operating activities was $11.8 million in 2016. 

Business Outlook

Management provided revenue guidance for the full year 2017 of US$485 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

Conference Call

Management will conduct a conference call on March 30, 2017 at 9:00 A.M. EDT/9:00 P.M. Beijing Time to discuss these results. A question and answer session will follow management's presentation. To participate, please call the following numbers 10 minutes before the call start time and ask to be connected to the "China Automotive Systems" conference call:

Phone Number: +1-877-407-8031 (North America)

Phone Number: +1-201-689-8031 (International)

Phone Number:  +86 4001 202 840 (China Toll Free)

A replay of the call will be available on the Company's website under the investor relations section.

About China Automotive Systems, Inc.

Based in Hubei Province, the People's Republic of China, China Automotive Systems, Inc. is a leading supplier of power steering components and systems to the Chinese automotive industry, operating through eight Sino-foreign joint ventures. The Company offers a full range of steering system parts for passenger automobiles and commercial vehicles. The Company currently offers four separate series of power steering with an annual production capacity of over 5.5 million sets of steering gears, columns and steering hoses. Its customer base is comprised of leading auto manufacturers, such as China FAW Group, Corp., Dongfeng Auto Group Co., Ltd., BYD Auto Company Limited, Beiqi Foton Motor Co., Ltd. and Chery Automobile Co., Ltd. in China, and Chrysler Group LLC in North America. For more information, please visit: http://www.caasauto.com.

Forward-Looking Statements

This press release contains statements that are "forward-looking statements" as defined under the Private Securities Litigation Reform Act of 1995. Forward-looking statements represent our estimates and assumptions only as of the date of this press release. These forward-looking statements include statements regarding the qualitative and quantitative effects of the accounting errors, the periods involved, the nature of the Company's review and any anticipated conclusions of the Company or its management and other statements that are not historical facts. Our actual results may differ materially from the results described in or anticipated by our forward-looking statements due to certain risks and uncertainties. As a result, the Company's actual results could differ materially from those contained in these forward-looking statements due to a number of factors, including those described under the heading "Risk Factors" in the Company's Form 10-K annual report filed with the Securities and Exchange Commission on March 30, 2017, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. We expressly disclaim any duty to provide updates to any forward-looking statements made in this press release, whether as a result of new information, future events or otherwise.

For further information, please contact:

Jie Li Chief Financial Officer China Automotive Systems, Inc. Email: [email protected]

Kevin TheissInvestor Relations +1-646-726-6511Email: [email protected]

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SOURCE China Automotive Systems, Inc.