Chemspec International Limited Announces Third Quarter 2010 Unaudited Financial Results

SHANGHAI, Nov. 12, 2010 /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 third quarter ended September 30, 2010.

Third Quarter 2010 Financial Highlights

• Total sales increased 53.7% from the third quarter of 2009(2) and 21.7% from the second quarter of 2010 to RMB 324.7 million (US$ 48.5 million), which was a new quarterly record for the Company.
• Gross profit totaled RMB 123.4 million (US$ 18.5 million), an increase of 38.0% from the third quarter of 2009(2) and 25.0% from the second quarter of 2010.
• Income from operations was RMB 85.9 million (US$ 12.8 million), an increase of 38.7% from the third quarter of 2009(2) and 23.4% from the second quarter of 2010.
• Net income attributable to the Company's shareholders was RMB 70.4 million (US$ 10.5 million), an increase of 34.6% from the third quarter of 2009(2) and 22.4% from the second quarter of 2010.
• Basic and diluted earnings per ADS(3) were RMB 1.95 (US$ 0.29) and RMB 1.94 (US$ 0.29), respectively.  Both basic and diluted earnings per ADS were RMB 1.44 (US$ 0.22) in the third quarter of 2009(2) and RMB 1.59 (US$ 0.24) in the second quarter of 2010.

Dr. Jianhua Yang, Chairman and Chief Executive Officer of Chemspec, commented, "I am pleased to announce our third quarter financial results, which set a new record high in our Company's history. These results reflect a continued upswing in demand in our end markets, particularly in the electronics sector where our highly engineered specialty chemical products are used. Our pharmaceutical business remained stable and we started to see a mild recovery in the agrochemical business. The improved performance in both revenue and gross margin during the period was mainly attributed to the strong growth in our electronics chemical business, an active realignment of customer inventory, and an effective shift in product mix."

Mr. Zixin Wang, Vice President of Finance, commented, "We are happy to report our strong financial results for the third quarter of 2010. While our inventories increased in absolute terms in the third quarter of 2010, primarily as a result of the increase in total sales, inventories as a percentage of total sales decreased compared with the second quarter of 2010. We attribute the decrease in inventories as a percentage of total sales to our continued efforts in managing our inventories efficiently. We have also been able to maintain fairly stable operating margins as a result of strict cost control measures over the past quarters. We expect to continue these efforts during the remainder of the year.  Overall, we have experienced a strong recovery in our business over the first three quarters of this year and we expect to carry this momentum into the end of the year. Currently, we expect full fiscal year 2010 revenue to be approximately RMB 1,060 – 1,100 million, which represents growth of approximately 29% – 34% compared with fiscal year 2009."

Third Quarter 2010 Financial Results

Total Sales

During the three months ended September 30, 2010, the Company generated total sales of RMB 324.7 million (US$ 48.5 million), representing an increase of 53.7% from RMB 211.3 million in the third quarter of 2009 and an increase of 21.7% from RMB 266.8 million in the second quarter of 2010. We attribute the increase in sales primarily to strong demand in the electronics chemical market during the third quarter of 2010.

Gross Profit and Gross Margin

Gross profit was RMB 123.4 million (US$ 18.5 million), which was an increase of 38.0% from RMB 89.5 million in the third quarter of 2009 and 25.0% from RMB 98.7 million in the second quarter of 2010. Gross margin was 38.0% in the third quarter of 2010, compared with 42.3% in the third quarter of 2009 and 37.0% in the second quarter of 2010. The changes in gross margin from the same period last year and the previous quarter were mainly due to the shift in product mix and price adjustments for certain products.

Operating Expenses

Selling expenses and general and administrative (SG&A) expenses were RMB 23.0 million (US$ 3.4 million) during the third quarter of 2010, representing an increase of 18.1% from RMB 19.4 million in the third quarter of 2009 and an increase of 44.8% from RMB 15.9 million in the second quarter of 2010. The increase in SG&A expenses compared with the same period of 2009 was primarily due to an increase in depreciation expenses related to the Company's new headquarters, and the payment of consulting fees related to Sarbanes–Oxley (SOX) compliance. The sequential increase was because the Company recognized a reversal in share-based compensation expenses in the second quarter of 2010 due to the forfeiture of options that were granted to former employees.    

Research and development expenses increased by 113.2% to RMB 15.1 million (US$ 2.3 million) from RMB 7.1 million in the third quarter of 2009 and by 2.1% from RMB 14.8 million in the second quarter of 2010. The increase in R&D expenditures compared with the same period in 2009 was primarily due to higher material consumption as well as an increase in R&D headcount as the Company hired additional experienced scientists and engineers. Compared with the second quarter of 2010, R&D expenses remained stable.

Net income attributable to Chemspec International Limited shareholders

Net income attributable to Chemspec International Limited shareholders increased to RMB 70.4 million (US$ 10.5 million), a rise of 34.6% from RMB 52.3 million in the third quarter of 2009 and 22.4% from RMB 57.5 million in the second quarter of 2010. The increase in net income attributable to Chemspec International Limited shareholders was primarily due to the increase in sales.

Basic and diluted earnings per ADS were RMB 1.95 (US$ 0.29) and RMB 1.94 (US$ 0.29), respectively.  Both basic and diluted earnings per ADS were RMB 1.44 (US$ 0.22) in the third quarter of 2009 and RMB 1.59 (US$ 0.24) in the second quarter of 2010.

Cash Flows

As of September 30, 2010, the Company had RMB 145.3 million (US$ 21.7 million) of cash, compared with RMB 351.1 million as of December 31, 2009. Significant cash outflows for the nine-month period ended September 30, 2010 included capital expenditure payments of RMB 181.1 million (US$ 27.1 million) for the expansion of production facilities and the increase in inventory to RMB 439.5 million (US$ 65.7 million) from RMB 393.6 million at the end of second quarter of 2010. The higher inventory was due to a rise in the production and sales of more complex products, primarily for the electronics end-market.

Business Outlook

Overall, the Company experienced a strong recovery in business during the first three quarters of 2010 and management expects that revenue for fiscal year 2010 will be between RMB 1,060 and RMB 1,100 million, which represents an increase of approximately 29% – 34% compared with fiscal year 2009.

Conference Call Details

The Company will host a conference call and live webcast to discuss its third quarter financial results at 8:00 am Eastern Standard Time (9:00 pm Shanghai Time) on Friday, November 12, 2010.

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 from 11:59 pm Eastern Standard Time on November 12, 2010 through 11:59 pm Eastern Standard Time on November 19, 2010.

(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 noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York on September 30, 2010, which was RMB 6.6905 to USD1.00.  The percentages stated are calculated based on RMB.

(2)2009 financial data have been adjusted to reflect the retrospective adjustment of the Company's financial data due to the acquisition of Jiangsu Kangpeng Nong Hua Limited on November 9, 2009. The transaction was considered a combination between entities under common control.

(3) 1 ADS=60 ordinary shares

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.