China Automotive Systems Reports 2019 Second Quarter Unaudited Financial Results

WUHAN, China, Aug. 8, 2019 /PRNewswire/ -- China Automotive Systems, Inc. ("CAAS" or the "Company") (NASDAQ: CAAS), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the second quarter and six months ended June 30, 2019.

Second Quarter 2019 Highlights

    --  Net sales decreased 15.9% to $105.7 million from $125.8 million in the
        second quarter of 2018;
    --  Gross profit declined 10.8% to $15.2 million and the gross margin
        increased to 14.4% from 13.5% in the second quarter of 2018;
    --  Income from operations increased 369.2% to $2.7 million with an
        operating margin of 2.6% compared with $0.6 million and an operating
        margin of 0.5% in the second quarter of 2018;
    --  Net income attributable to parent company's common shareholders
        increased to $2.5 million or diluted earnings per share of $0.08,
        compared to net income attributable to parent company's common
        shareholders of $0.8 million, or diluted earnings per share of $0.03, in
        the second quarter of 2018.

First Six Months of 2019 Highlights

    --  Net sales decreased 17.3% to $214.9 million, compared to $259.8 million
        in the first six months of 2018;
    --  Gross profit decreased to $29.2 million, compared to $38.7 million in
        the first six months of 2018; gross margin decreased to 13.6% in the
        first six months of 2019, compared to 14.9% in the first six months of
        2018;
    --  Income from operations decreased to $3.8 million from $5.2 million with
        an operating margin of 1.8% compared with 2.0% in the second quarter of
        2018;
    --  Net income attributable to parent company's common shareholders was $4.0
        million compared to $5.2 million in the first six months of 2018;
        diluted earnings per share attributable to parent company's common
        shareholders was $0.13, compared to diluted earnings per share
        attributable to parent company's common shareholders of $0.16 in the
        first six months of 2018.

Mr. Qizhou Wu, chief executive officer of CAAS, commented, "Our sales in the second quarter of 2019 reflected the slowing economy in China and softer consumer spending. As a leading supplier of steering products to the Chinese automobile market, our sales are affected by the performance of the OEM market. Automobile production has been disrupted by a pre-buy of less expensive National V-compliant vehicles before the stricter National VI emission standards are nationally implemented. Chinese-branded passenger vehicle sales declined by 27.9% year-over-year in April 2019 followed by a decline in May 2019 of 28.1% year-over-year. We anticipate that our new product development with Hyoseong Electric Co. Ltd. to sell electric motors for electric power steering systems, and a new development program for a recirculating-ball steering system with a major client's autonomous vehicle development, will offer new growth opportunities for the future. We continue to build advanced steering products and broaden our product line to meet the needs of the marketplace and ensure our leadership position."

Second Quarter of 2019

In the second quarter of 2019, net sales decreased 15.9% to $105.7 million, compared to $125.8 million in the same quarter of 2018. Net sales of traditional steering products declined by 15.9% as demand weakened in the Chinese domestic brand automobile market. Additionally, Company's sales to its North American customers declined by $1.1 million. Sales of electric power steering ("EPS") represented 21.4% of total net sales.

Gross profit decreased to $15.2 million in the second quarter of 2019, compared to $17.0 million in the second quarter of 2018. The gross margin was 14.4% in the second quarter of 2019, versus 13.5% in the second quarter of 2018. The gross profit decrease was mainly due to lower sales, higher unit cost and a change in product mix.

Gain on other sales was $2.5 million in the second quarter of 2019, compared to $1.0 million in the second quarter of 2018.

Selling expenses were $3.9 million in the second quarter of 2019, compared to $4.9 million in the second quarter of 2018. The decrease was mainly due to lower logistics expenses related to decreased sales during the quarter. Selling expenses represented 3.7% of net sales in the second quarter of 2019 compared with 3.9% in the second quarter of 2018.

General and administrative expenses ("G&A expenses") were $4.4 million in the second quarter of each of 2019 and 2018. G&A expenses represented 4.2% of net sales in the second quarter of 2019 compared to 3.5% in the second quarter of 2018. The percentage increase was mainly due to reduced sales in the second quarter of 2019.

Research and development expenses ("R&D expenses") decreased 18.5% to $6.6 million in the second quarter of 2019, compared to $8.1 million in the second quarter of 2018. R&D expenses continue to focus on the development of the Company's EPS and other new products. R&D expenses represented 6.2% of sales in the second quarter of 2019, compared with 6.4% in the second quarter of 2018.

Income from operations was $2.7 million in the second quarter of 2019, compared to $0.6 million in the same quarter of 2018. The increase was primarily due to a higher gain on other sales and lower operating costs. As a percentage of net sales, the operating margin was 2.6% in the second quarter of 2019, compared to 0.5% in the second quarter of 2018.

Net financial income in the second quarter of 2019 was $1.6 million compared with $0.9 million in the second quarter of 2018.

Income before income tax expenses and equity in earnings of affiliated companies increased 143.5% to $3.1 million in the second quarter of 2019, compared to $1.3 million in the second quarter of 2018.

Net income attributable to parent company's common shareholders increased 196.3% to $2.5 million in the second quarter of 2019, compared to net income attributable to parent company's common shareholders of $0.8 million in the corresponding quarter of 2018. Diluted earnings per share were $0.08 in the second quarter of 2019, compared to diluted earnings per share of $0.03 in the second quarter of 2018. The weighted average number of diluted common shares outstanding was 31,499,577 in the second quarter of 2019, compared to 31,647,305 in the second quarter of 2018.

First Six Months of 2019

Net sales decreased 17.3% to $214.9 million in the first six months of 2019, compared to $259.8 million in the first six months of 2018. Six-month gross profit was $29.2 million, compared to $38.7 million in the corresponding period last year. Six-month gross margin was 13.6% in the first six months of 2019 compared to 14.9% in the corresponding period in 2018. The gain on other sales was $3.8 million in the first six months of 2019 compared with $2.5 million in the corresponding period last year. Income from operations was $3.8 million in the first six months of 2019, compared to $5.2 million in the first six months of 2018. Operating margin was 1.8% in the first six months of 2019, compared to 2.0% in the corresponding period of 2018.

Net income attributable to parent company's common shareholders was $4.0 million in the first six months of 2019, compared to $5.2 million in the corresponding period in 2018. Diluted earnings per share were $0.13 in the first six months of 2019, compared to diluted earnings per share of $0.16 in the corresponding period of 2018.

As of June 30, 2019, cash and equivalents, and pledged cash were $89.1 million. Total accounts receivable including notes receivable were $255.1 million. Accounts payable were $184.1 million and short-term loans were $71.0 million. Total parent company stockholders' equity was $308.5 million as of June 30, 2019, compared to $304.8 million as of December 31, 2018.

Net cash used in operating activities was $25.7 million in the first six months of 2019 compared with net cash used in operating activities of $5.4 million in the first six months of 2018. Payments to acquire property, plant and equipment were $10.3 million compared with $17.3 million in the first six months of 2018.

Business Outlook

Management revised its revenue guidance for the full year 2019 to $430 million from US$510 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

Unaudited Second Quarter 2019 Conference Call

Management will conduct a conference call on August 8, 2019 at 8:00 A.M. EDT/8:00 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)
China Toll Free: +86-400-120-2840

A replay of the call will be available on the Company's website in 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 nine 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 6 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 28, 2019, 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: jieli@chl.com.cn

Kevin Theiss
Investor Relations
+1-212-521-4050
Email: Kevin@awakenlab.com

-- tables follow -


                                                                                            
            
              China Automotive Systems, Inc. and Subsidiaries


                                                                               
            
         Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income


                                                                                          
         
              (In thousands of USD, except share and per share amounts)






                                                                                                                                                                                            Three Months Ended June 30,



                                                                                                                                                                                 2019                                   2018




            Net product sales ($14,310 and $10,856 sold to related parties for the three                                                                                             $
           105,748                         $
            125,782
    months ended June 30, 2019 and 2018)



            Cost of products sold ($6,130 and $7,428 purchased from related parties for                                                                                                        90,563                                   108,761
    the three months ended June 30, 2019 and 2018)




            Gross profit                                                                                                                                                                       15,185                                    17,021




            Gain on other sales                                                                                                                                                                 2,485                                       977




            Less: Operating expenses



            Selling expenses                                                                                                                                                                    3,859                                     4,887



            General and administrative expenses                                                                                                                                                 4,434                                     4,442



            Research and development expenses                                                                                                                                                   6,637                                     8,085




            Total operating expenses                                                                                                                                                           14,930                                    17,414




            Income from operations                                                                                                                                                              2,740                                       584



            Other (expense)/income, net                                                                                                                                                         (447)                                      600



            Interest expense                                                                                                                                                                    (731)                                    (801)



            Financial income, net                                                                                                                                                               1,552                                       897




            Income before income tax expenses and equity in earnings of affiliated                                                                                                              3,114                                     1,280
    companies



            Less: Income taxes                                                                                                                                                                    674                                       202



            Equity in loss of affiliated companies                                                                                                                                              (207)                                     (82)




            Net income                                                                                                                                                                          2,233                                       996



            Net (loss)/gain attributable to non-controlling interests                                                                                                                           (277)                                      149




            Net income attributable to parent company's common shareholders                                                                                                            $
           2,510                             $
            847




            Comprehensive income:



            Net income                                                                                                                                                                 $
           2,233                             $
            996



            Other comprehensive income:



            Foreign currency translation loss, net of tax                                                                                                                                     (6,881)                                 (17,467)




            Comprehensive loss                                                                                                                                                                (4,648)                                 (16,471)



            Comprehensive loss attributable to non-controlling interests                                                                                                                        (776)                                    (431)




            Comprehensive loss attributable to parent company                                                                                                                        $
           (3,872)                       $
            (16,040)






            Net income attributable to parent company's common shareholders per share





            Basic -                                                                                                                                                                     $
           0.08                            $
            0.03






            Diluted -                                                                                                                                                                   $
           0.08                            $
            0.03




            Weighted average number of common shares outstanding



            Basic                                                                                                                                                                          31,497,723                                31,644,004



            Diluted                                                                                                                                                                        31,499,577                                31,647,305


                                                                                                     
          
                China Automotive Systems, Inc. and Subsidiaries


                                                                                       
              
         Condensed Unaudited Consolidated Statements of Operations and Comprehensive Income


                                                                                                   
       
                (In thousands of USD, except share and per share amounts)






                                                                                                                                                                                                        Six Months Ended June 30,



                                                                                                                                                                                           2019                                   2018




              Net product sales ($27,146 and $21,702 sold to related parties for the six months                                                                                                $
           214,941                       $
            259,800
    ended June 30, 2019 and 2018)



              Cost of products sold ($11,634 and $15,677 purchased from related parties for the six                                                                                                     185,711                                 221,140
    months ended June 30, 2019 and 2018)




              Gross profit                                                                                                                                                                               29,230                                  38,660




              Gain on other sales                                                                                                                                                                         3,754                                   2,490




              Less: Operating expenses



              Selling expenses                                                                                                                                                                            6,944                                  10,714



              General and administrative expenses                                                                                                                                                         9,024                                   8,866



              Research and development expenses                                                                                                                                                          13,239                                  16,392




              Total operating expenses                                                                                                                                                                   29,207                                  35,972




              Income from operations                                                                                                                                                                      3,777                                   5,178



              Other income, net                                                                                                                                                                             960                                   1,221



              Interest expense                                                                                                                                                                          (1,299)                                (1,216)



              Financial income, net                                                                                                                                                                         887                                     132




              Income before income tax expenses and equity in earnings of affiliated companies                                                                                                            4,325                                   5,315



              Less: Income taxes                                                                                                                                                                            872                                     790



              Equity in earnings of affiliated companies                                                                                                                                                      4                                     503




              Net income                                                                                                                                                                                  3,457                                   5,028



              Net loss attributable to non-controlling interests                                                                                                                                          (520)                                  (131)




              Net income attributable to parent company's common shareholders                                                                                                                    $
           3,977                         $
            5,159




              Comprehensive income:



              Net income                                                                                                                                                                         $
           3,457                         $
            5,028



              Other comprehensive income:



              Foreign currency translation loss, net of tax                                                                                                                                               (518)                                (4,225)




              Comprehensive income                                                                                                                                                                        2,939                                     803



              Comprehensive loss attributable to non-controlling interests                                                                                                                                (562)                                  (195)




              Comprehensive income attributable to parent company                                                                                                                                $
           3,501                           $
            998






              Net income attributable to parent company's common shareholders per share





              Basic -                                                                                                                                                                             $
           0.13                          $
            0.16






              Diluted -                                                                                                                                                                           $
           0.13                          $
            0.16




              Weighted average number of common shares outstanding



              Basic                                                                                                                                                                                  31,501,889                              31,644,004



              Diluted                                                                                                                                                                                31,505,721                              31,645,655


                                                                                   
     
     China Automotive Systems, Inc. and Subsidiaries


                                                                                   
     
     Condensed Unaudited Consolidated Balance Sheets


                                                                                   
     
     (In thousands of USD unless otherwise indicated)






                                                                                                                                        June 30, 2019                December 31, 2018




              ASSETS



              Current assets:



              Cash and cash equivalents                                                                                                               $
         70,866                    $
          86,346



              Pledged cash                                                                                                                                   18,194                            29,623



              Accounts and notes receivable, net - unrelated parties                                                                                        225,681                           237,519



              Accounts and notes receivable - related parties                                                                                                29,449                            18,825



              Inventories                                                                                                                                    90,850                            88,021



              Other current assets                                                                                                                           30,880                            35,094




              Total current assets                                                                                                                          465,920                           495,428



              Non-current assets:



              Property, plant and equipment, net                                                                                                            142,008                           129,853



              Long-term investments                                                                                                                          35,459                            32,620



              Other non-current assets                                                                                                                       27,357                            32,598




              Total assets                                                                                                                           $
         670,744                   $
          690,499






              LIABILITIES AND STOCKHOLDERS' EQUITY



              Current liabilities:



              Short-term loans                                                                                                                        $
         70,976                    $
          60,952



              Accounts and notes payable - unrelated parties                                                                                                176,118                           205,643



              Accounts and notes payable - related parties                                                                                                    8,041                             4,477



              Accrued expenses and other payables                                                                                                            43,964                            47,032



              Other current liabilities                                                                                                                      21,154                            23,196




              Total current liabilities                                                                                                                     320,253                           341,300



              Long-term liabilities:



              Long-term government loan                                                                                                                         291                               291



              Other long-term payable                                                                                                                         6,905                             8,726



              Long-term tax payable                                                                                                                          26,693                            29,503



              Other non-current liabilities                                                                                                                   8,073                             5,852




              Total liabilities                                                                                                                      $
         362,215                   $
          385,672








              Stockholders' equity:



              Common stock, $0.0001 par value - Authorized - 80,000,000 shares;                                                                          $
           3                       $
            3
    Issued - 32,338,302 and 32,338,302 shares as of June 30, 2019 and
    December 31, 2018, respectively



              Additional paid-in capital                                                                                                                     64,429                            64,429



              Retained earnings-



              Appropriated                                                                                                                                   11,104                            11,104



              Unappropriated                                                                                                                                215,416                           211,439



              Accumulated other comprehensive income                                                                                                          1,379                             1,855



              Treasury stock - 840,579 and 711,698 shares as of June 30, 2019 and                                                                           (3,295)                          (2,953)
    December 31, 2018, respectively




              Total parent company stockholders' equity                                                                                                     289,036                           285,877



              Non-controlling interests                                                                                                                      19,493                            18,950




              Total stockholders' equity                                                                                                                    308,529                           304,827




              Total liabilities and stockholders' equity                                                                                             $
         670,744                   $
          690,499


                                                                                       
              
                China Automotive Systems, Inc. and Subsidiaries


                                                                                  
              
                Condensed Unaudited Consolidated Statements of Cash Flows


                                                                                       
              
                (In thousands of USD unless otherwise indicated)






                                                                                                                                                                       Six Months Ended June 30,



                                                                                                                                                      2019                                       2018




              Cash flows from operating activities:



              Net income                                                                                                                                           $
             3,457                   $
         5,028



              Adjustments to reconcile net income from operations to net
    cash provided by operating activities:



              Depreciation and amortization                                                                                                                                   9,277                          8,837



              (Reversal)/accrual of provision for doubtful accounts                                                                                                           (673)                           242



              Inventory write downs                                                                                                                                           2,232                          3,456



              Deferred income taxes                                                                                                                                         (1,124)                         (231)



              Equity in earnings of affiliated companies                                                                                                                        (4)                         (503)



              (Gain)/loss on fixed assets disposals                                                                                                                           (733)                             9



              Changes in operating assets and liabilities



              (Increase)/decrease in:



              Accounts and notes receivable                                                                                                                                     969                          6,644



              Inventories                                                                                                                                                   (5,526)                      (16,062)



              Other current assets                                                                                                                                            4,645                        (1,374)



              Increase/(decrease) in:



              Accounts and notes payable                                                                                                                                   (31,049)                      (15,574)



              Accrued expenses and other payables                                                                                                                           (3,055)                         2,245



              Long-term taxes payable                                                                                                                                       (2,810)



              Other current liabilities                                                                                                                                     (1,336)                         1,890




              
                Net cash used in operating activities                                                                                                           (25,730)                       (5,393)




              Cash flows from investing activities:



              Increase in demand loans and employee housing loans                                                                                                             1,057                          1,190
    included in other non-current assets



              Cash received from property, plant and equipment sales                                                                                                            700                            199



              Payments to acquire property, plant and equipment (including                                                                                                 (10,335)                      (17,299)
                                                                                $2,271 and $5,694 paid to related parties for the six months
    ended June 30, 2019 and 2018, respectively)



              Payments to acquire intangible assets                                                                                                                         (1,387)



              Investment under equity method                                                                                                                                (2,348)                       (5,957)



              Purchase of short-term investments                                                                                                                           (17,031)                      (18,502)



              Proceeds from maturities of short-term investments                                                                                                             17,087                         21,687



              Government subsidy received for purchase of property, plant                                                                                                     1,898
    and equipment



              Cash received from long-term investment                                                                                                                           579



              Cash received from repayment of the loan to a related party                                                                                                                                  20,430




              
                Net cash (used in)/provided by investing activities                                                                                              (9,780)                         1,748




              Cash flows from financing activities:



              Proceeds from bank loans                                                                                                                                       29,036                         19,672



              Repayments of bank loans                                                                                                                                     (18,910)                      (35,664)



              Proceeds from sale and leaseback transaction                                                                                                                                                 11,758



              Repayments of the borrowing for sale and leaseback                                                                                                            (2,116)                       (1,125)
    transaction



              Dividends paid to non-controlling interest holders of non-                                                                                                      (333)
    wholly owned subsidiaries



              Cash received from capital contributions by non-controlling                                                                                                     1,438
    interest holder



              Repurchase of common shares                                                                                                                                     (342)




              
                Net cash provided by/(used in) financing activities                                                                                                8,773                        (5,359)




              Effects of exchange rate on cash, cash equivalents and pledged                                                                                                  (172)                       (1,604)
    cash




              Net decrease in cash, cash equivalents and pledged                                                                                                           (26,909)                      (10,608)
    cash



              Cash, cash equivalents and pledged cash at beginning of the                                                                                                   115,969                         96,093
    period




              Cash, cash equivalents and pledged cash at end of the period                                                                                        $
             89,060                  $
         85,485

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SOURCE China Automotive Systems, Inc.