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Chemspec International Limited Announces Third Quarter 2009 Unaudited Financial Results

November 5, 2009

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 pmBeijing 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


Source: newswire