Power steering components and systems supplier China Automotive Systems (CAAS) on Thursday said second quarter 2012 gross profit increased 13.0% year on year to US$15.6m while gross margin rose to 19.4% from 17.7% and operating margin was 10.7% compared with 9.2%.

Opearting earnings per share rose to $0.21 from $0.13. Sales rose 2.8% to $80.4m.

However, first half sales slipped to $161.3m, from $164.6m in the first six months of 2011. Gross profit also fell to $31.0m, from $32.5m and gross margin was down to 19.2% from 19.7%. Operating margin was 9.2%, compared with 11.0% and earnings fell to $0.31 from $0.38.

CAAS CEO Qizhou Wu said: "The passenger vehicle sector in China is gradually reaching its cyclical bottom. We are encouraged by the stability in both unit sales volume and raw material costs. We continue to increase our market share in both the passenger and commercial vehicle markets in China."

He added that the supplier had "streamlined" its operations by selling its pump business.

CFO Jie Li added, "While we aggressively expanded our R&D programme to develop new products to address global market trends, our rigorous cost control measures showed results in many areas. Through our improved accounts receivable management, we continue to generate solid cash flow."

The supplier said the second quarter sales increase was due mainly to higher volume including exports to North America, higher sales to Chinese OEMs resulting from lower oil prices and government subsidies for low-emission and fuel-efficient domestic cars since May 2012, and the appreciation of the yuan against the US.

Outlook

CAAS said it had lowered its guidance for full year 2012 "due to a significant slacking of demand for automotive vehicles in the [PRC]" and now expects sales to be flat versus 2011.

Show the press release

China Automotive Systems Reports Higher 2012 Second Quarter Net Sales And Earnings



WUHAN, China, Aug. 9, 2012 /PRNewswire-Asia-FirstCall/ -- China Automotive Systems, Inc. ("CAAS" or the "Company") (NASDAQ: CAAS), a leading power steering components and systems supplier in China, today announced financial results for the second quarter and six months ended June 30, 2012. All results are for continuing operations, unless stated otherwise.

Second Quarter 2012 Highlights


    --  Net sales rose 2.8% to $80.4 million, compared with $78.2 million in the
        second quarter of 2011

    --  Gross profit increased 13.0% to $15.6 million, compared with $13.8
        million in the second quarter of 2011; gross margin was 19.4% in the
        second quarter of 2012 compared with 17.7% in the same quarter of 2011

    --  Operating margin was 10.7%, compared with 9.2% in the second quarter of
        2011
    --  Diluted earnings per share from continuing operations were $0.21,
        compared with diluted earnings per share from continuing operations of
        $0.13 in the second quarter of 2011
First Six Months of 2012 Highlights


    --  Net sales were $161.3 million, compared with $164.6 million for the
        first six months of 2011

    --  Gross profit was $31.0 million, compared with $32.5 million in the first
        six months of 2011; gross margin was 19.2% in the first six months of
        2012, compared with 19.7% in the same period last year

    --  Operating margin was 9.2%, compared with 11.0% in the first six months
        of 2011

    --  Diluted earnings per share from continuing operations were $0.31,
        compared with diluted earnings per share from continuing operations of
        $0.38 in the first six months of 2011

    --  Net cash flow from operations was $6.9 million, compared with $16.5
        million in the first six months of 2011
    --  Cash and cash equivalents were $77.7 million at June 30, 2012, up from
        $73.0 million at December 31, 2011
Mr. Qizhou Wu, chief executive officer of CAAS, commented: "The passenger vehicle sector in China is gradually reaching its cyclical bottom. We are encouraged by the stability in both unit sales volume and raw material costs. We continue to increase our market share in both the passenger and commercial vehicle markets in China. Our specialty focus and our ability to develop advanced products with consistently high quality validate our technology and production prowess as a global tier one supplier for safety-related automotive components. With the help of our superior engineering team, we have further penetrated the North America market by beginning to supply another award-winning brand, Dodge Ram® trucks. We streamlined our operations by divesting our pump business as we quickly embrace emerging technologies to further position CAAS as the market leader in China. In the context of a difficult global market environment, we strive to expand our market share and to enhance our brand equity."

Mr. Jie Li, chief financial officer of CAAS, added, "While we aggressively expanded our R&D program to develop new products to address global market trends, our rigorous cost control measures showed results in many areas. Through our improved accounts receivable management, we continue to generate solid cash flow. We also successfully redeemed our convertible notes before their maturity dates, which provides more financial flexibility to leverage our balance sheet to create shareholder value."

Second Quarter of 2012

For the second quarter of 2012, net sales increased 2.8% to $80.4 million, compared with $78.2 million in the same quarter of 2011. The increase was primarily due to higher sales volume including export sales to customers in North America, the improvement of China's automotive market resulting from lower oil prices and government subsidies granted to customers who purchase low-emission cars and fuel-efficient domestic cars since May 2012, and the appreciation of the Chinese RMB versus the U.S. dollar.

Gross profit was $15.6 million in the second quarter of 2012, compared with $13.8 million in the second quarter of last year. Gross margin improved to 19.4% in the second quarter of 2012, compared with 17.7% in the same quarter of 2011, primarily due to lower raw materials prices, lean production management and rigorous cost control measures.

Selling expenses decreased 14.0% to $2.1 million from $2.4 million in the second quarter of 2011, which were mainly due to tightened cost controls imposed this quarter compared with the same quarter of last year. As a percentage of net sales, selling expenses were 2.6% in the second quarter of 2012, compared with 3.1% in the same quarter of 2011.

General and administrative expenses ("G&A expenses") decreased 7.1% to $3.1 million in the second quarter of 2012, from $3.4 million in the same quarter of 2011. The decrease in G&A expenses was primarily due to lower wage and salary expenses, and lower performance bonuses. As a percentage of net sales, G&A expenses decreased to 3.9% in the second quarter of 2012 from 4.3% in the same quarter of 2011.

Research and development expense ("R&D expense") increased 168.4% in the second quarter of 2012, to $3.7 million from $1.4 million in the same quarter of 2011, mainly due to the continued development of the Company's electric power steering ("EPS") systems. Higher expenses were incurred for additional R&D staff, mold improvement and external technical support in the second quarter of 2012, compared with the same quarter last year. As a percentage of net sales, R&D expense rose to 4.5% from 1.7% in the second quarter of 2011.

Income from operations was $8.6 million in the second quarter of 2012, compared with $7.2 million in the same quarter of 2011. The increase was primarily due to increased gains on other sales and higher gross profit combined with lower G&A and selling expenses in the second quarter of 2012 as compared with the same quarter in 2011. As a percentage of net sales, income from operations was 10.7%, compared with 9.2% in the second quarter of 2011.

Net financial expenses were slightly lower at $0.5 million, compared with $0.6 million in the second quarter of 2011, mainly due to the Company's early redemption of the convertible notes reducing the Company's interest expenses.

The gain on the change of fair value of derivatives in the second quarter of 2012 was $3.4 million compared with a loss of $0.1 million in the same quarter last year as the Company's stock price declined during the second quarter of 2012. The gain on the change of fair value of derivatives was related to the convertible notes and was non-cash in nature.

On May 24, 2012, the Company and the holder of the convertible notes reached a settlement agreement whereby CAAS made an early redemption of the convertible notes on May 25, 2012. A gain of $1.4 million was recorded in the second quarter of 2012 for early redemption of the convertible notes. No convertible notes were redeemed during the second quarter of 2011.

Income before income taxes and equity in earnings of affiliated companies was $12.9 million in the second quarter of 2012, compared with $6.5 million in the same quarter of 2011. The increase in income before income taxes and equity in earnings of affiliated companies was primarily due to higher income from operations of $1.4 million, an increase in the gain on the change in fair value of derivatives of $3.6 million, and a gain of $1.4 million on redemption of the convertible notes in the second quarter of 2012, as compared with the same quarter in 2011.

Income tax expense was $1.3 million for the quarter ended June 30, 2012, compared with $1.2 million for the second quarter of 2011. The effective tax rate decreased to 10.2% for the second quarter of 2012, from 17.7% for the same period in 2011, which was primarily due to utilization of the tax losses carried forward against the gain on change in the fair value of derivative and the gain on the redemption of convertible notes.

Income from continuing operations was $11.6 million for the second quarter of 2012, compared with $5.4 million for the same quarter last year. The increase was mainly due to higher income before income tax expenses and equity in earnings of affiliated companies.

In May 2012, CAAS discontinued its operations at Zhejiang and sold its 51% equity interest in Zhejiang. Accordingly, the Zhejiang business is now recorded as a discontinued operation. Net income from the discontinued operations was $2.6 million for the second quarter of 2012, which included the transaction income recorded in connection with the sale of Zhejiang of $2.5 million (after tax). Net operational results of the Zhejiang business for the second quarter of 2012 were after-tax income of $0.1 million, and $0.3 million for the same period last year.

Net income attributable to parent company's common shareholders, including net income from discontinued operations, was $12.2 million in the second quarter of 2012, compared with $3.9 million in the same quarter in 2011. Diluted earnings per share were $0.29 in the second quarter of 2012, compared with $0.14 in the corresponding period of 2012. The weighted average number of basic common shares outstanding was 28,260,302 in the second quarter of 2012, compared with 28,083,534 in the same quarter of 2011. The weighted average number of diluted common shares outstanding was 30,257,347 in the second quarter compared with 28,202,989 in the same quarter of 2011. Diluted earnings per share from continuing operations were $0.21 in the second quarter of 2012, compared with diluted earnings per share from continuing operations of $0.13 in the second quarter of 2011.

First Six Months of 2012

Net sales for the first six months of 2012 decreased 2.0% to $161.3 million, compared with $164.6 million in the first six months of last year. Six-month gross profit was $31.0 million, compared with $32.5 million in the same period a year ago. Six-month gross margin was 19.2%, compared with 19.7% for the same six-month period in 2011. Income from operations was $14.9 million, compared with $18.1 million in the first six months of 2011. Operating margin was 9.2%, compared with 11.0% for the same period of 2011. Income from continuing operations was $11.9 million in the first six months of 2012, compared with $26.7 million in the same period in 2011. Diluted earnings per share for continuing operations were $0.31 in the first six months of 2012, compared with diluted earnings per share for continuing operations of $0.38 in the first six months of 2011. Net income attributable to the parent company´s common shareholders, including net income from discontinued operations, decreased to $11.2 million from $21.2 million in the first six months of 2011. Diluted earnings per share were $0.40 for both the 2012 and the 2011 first six-month periods.


As of June 30, 2012, total cash and cash equivalents were $77.7 million, compared with $73.0 million at December 31, 2011. Working capital was $123.9 million as of June 30, 2012. Net cash flows from operating activities in the first six months of 2012 were approximately $6.9 million, reflecting the payment of $8.8 million of interest expenses for the redemption of the convertible notes.

Business Outlook



Due to a significant slacking of demand for automotive vehicles in the People's Republic of China, management has lowered its guidance and now expects annual revenues to be even with that of year 2011. This target is based on the Company´s current views on operating and market conditions, which are subject to change.

Recent Developments

On May 25, 2012, the Company redeemed all of its outstanding senior convertible notes before their maturity dates. The negotiated total redemption price was $32.4 million, which includes all principal, accrued and unpaid interest and the make-whole amounts as of the date of redemption. The five-year senior convertible notes were issued in February 2008 with an original total principal amount of $35 million, a scheduled maturity date of February 15, 2013 and a conversion price per share of $7.0822. In April 2009, the Company redeemed $5 million of the principal amount of the convertible notes. On March 1, 2011, upon the conversion of $6.4 million of the principal amount of the convertible notes, 907,708 common shares were issued at a conversion price of $7.0822 per share. The remaining total principal amount of the senior convertible notes before redemption was $23.6 million.

On May 23, 2012, the Companyannounced that its wholly owned subsidiary, Great Genesis Holdings Limited ("Great Genesis"), had entered into a definitive agreement (the "Agreement") to sell its equity interest in Zhejiang Henglong & Vie Pump-Manu Co., Ltd. ("Zhejiang"), to the Zhejiang Vie Group ("Vie Group"), Great Genesis´ joint venture partner in Zhejiang. This transaction is subject to local regulatory authority approval. Founded in 2002, Zhejiang, which designs, manufactures and markets power steering pumps, is located in Zhuji City, Zhejiang Province. According to the Agreement, Great Genesis will sell its 51% stake in Zhejiang to Vie Group for RMB52 million, which represents a 53% premium as compared with the May 20, 2012 estimated net book value of approximately RMB34 million. The transaction is expected to close in September, 2012.

On May 15, 2012, the Company announced that Mr. Arthur Wong was appointed to the board of directors of the Company (the "Board") on May 15, 2012, where he will serve as chairman of the audit committee of the Board and as a member of the nominating and compensation committees of the Board. He currently serves as a member of the boards of directors of VisionChina Media Inc. (NASDAQ:VISN) and Besunyen Holdings Company Limited (HKG: 926), and as chairman of the audit committees for both companies´ boards of directors. He worked at Deloitte Touche Tohmatsu ("Deloitte"), from 1982 to 2008, and he rose to become a partner in Deloitte´s Beijing office.   While serving at Deloitte, Mr. Wong acted as the audit partner for various companies, including international auto and auto parts manufacturers.

Original source: via PR Newswire