Chemspec International Limited Announces First Quarter 2011 Unaudited Financial Results

First Quarter 2011 Financial Highlights

• Total sales reached RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.
• Gross profit totaled RMB76.8 million (US$11.7 million), representing a decrease of 20.3% and 22.2% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Income from operations was RMB28.4 million (US$4.3 million), representing a decrease of 52.4% and 44.9% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Net income attributable to the Company's shareholders was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% and 50.1% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Basic and diluted earnings per ADS(2) were both RMB0.63 (US$0.10). Basic and diluted earnings per ADS were both RMB1.44 (US$0.21) in the first quarter of 2010. Basic and diluted earnings per ADS in the fourth quarter of 2010 were both RMB1.26 (US$0.19).

Dr. Jianhua Yang, Chairman and Chief Executive Officer of Chemspec, commented, "The total sales of the first quarter of 2011 was in line with the guidance we provided in April. Although the past quarter was not outstanding, especially compared with our relatively stronger performance in 2010, I want to emphasize two key factors that we value in our business. First, we have strong chemical process and development capabilities and are highly competitive compared to our global peers. Secondly, we have maintained a strong client relationship with our customers. Both factors will greatly help our business when the market demand grows."

Mr. Zixin Wang, Vice President of Finance, commented, "As the inventory level has been a concern for the management, we have closely monitored the inventory level and implemented certain measures. For the first quarter of 2011, we were able to slightly lower the inventory level. Going forward, we will continue our efforts to bring down the inventory level gradually."

First Quarter 2011 Financial Results

Total Sales

For the three months ended March 31, 2011, we generated total sales of RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.

A strong recovery in the electronics end-market occurred in the first quarter of 2010 after the global financial crisis. However, our sales to the electronics end-market was relatively weaker in the first quarter of 2011, which caused the decline in the total sales compared with the first quarter of 2010. Compared with the fourth quarter of 2010, the decrease in our total sales was primarily attributable to seasonality, as the first quarter of each year usually has lower demand for chemicals used in the electronics end-market.

Gross Profit and Gross Margin

In the first quarter of 2011, we generated gross profit of RMB76.8 million (US$11.7 million), representing a decrease of 20.3% from the first quarter of 2010 and a decrease of 22.2% from the fourth quarter of 2010. We attribute the decreases in the gross profit primarily to the corresponding declines in the total sales in the corresponding quarters.

Our gross margin was 36.8% in the first quarter of 2011, as compared with 43.8% in the first quarter of 2010 and 36.5% in the fourth quarter of 2010. Compared with the first quarter of 2010, the gross margin decreased primarily due to a less favorable product mix in the first quarter of 2011. Compared with the fourth quarter of 2010, the gross margin slightly increased because minimal inventory was written down in the first quarter of 2011, but the effect was offset by the unfavorable product mix in the first quarter of 2011.

Operating Expenses

Selling expenses and general and administrative (SG&A) expenses were RMB36.5 million (US$5.6 million), representing an increase of 56.7% from RMB23.3 million in the first quarter of 2010 and an increase of 36.1% from RMB26.8 million in the fourth quarter of 2010. The increases were mainly attributed to the professional service fees involved in the proposed "going-private transaction", for which a Schedule 13E-3 has been filed with United States Securities and Exchange Commission ("SEC") on May 3, 2011. Going forward with the process, we expect to incur further professional service fees.

Research and development (R&D) expenses were RMB12.0 million (US$1.8 million), representing a decrease of 12.8% from RMB13.7 million in the first quarter of 2010 and a decrease of 46.0% from RMB22.1 million in the fourth quarter of 2010. The fluctuation in R&D expenses was mainly due to the change of material consumption expenses that were related to the number of active R&D projects during each period.

Income from Operations and Earnings Before Income Taxes

As a result of factors mentioned above, income from operations was RMB28.4 million (US$4.3 million) and earnings before income taxes was RMB28.2 million (US$4.3 million), respectively, in the first quarter of 2011, representing decreases of 52.4% and 53.1%, respectively, from the first quarter of 2010, and decreases of 44.9% and 45.3%, respectively, from the fourth quarter of 2010.

Net Income Attributable to Chemspec International Limited Shareholders

Net income attributable to Chemspec International Limited was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% from the first quarter of 2010 and of 50.1% from the fourth quarter of 2010, respectively.

Basic and diluted earnings per ADS were RMB0.63 (US$0.10), as compared to RMB1.44 (US$0.21) in the first quarter of 2010 and RMB1.26 (US$0.19), in the fourth quarter of 2010.

Conference Call

The Company will not host a conference call for the first quarter of 2011 financial results.

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 us and/or our auditors during the audit of our annual consolidated financial statements.

About Chemspec

Chemspec is a leading China-based contract manufacturer of highly engineered specialty chemicals, especially, the fluorinated specialty chemicals. 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 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, as amended from time to time. Chemspec does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For further information, please contact:

Chemspec International Ltd.
In Shanghai
Carol Fang
Manager, Investor Relations
Tel: +86-21-63638108
Email: ir@chemspec.com.cn