China Automotive Systems Reports Fourth Quarter and Fiscal Year 2020 Results

WUHAN, China, March 30, 2021 /PRNewswire/ -- China Automotive Systems, Inc. (NASDAQ: CAAS) ("CAAS" or the "Company"), a leading power steering components and systems supplier in China, today announced its unaudited financial results for the fourth quarter and the audited results for the fiscal year ended December 31, 2020.

Fourth Quarter 2020 Highlights

• Net sales rose 26.4% to $146.5 million from $115.9 million in the fourth quarter of 2019
• Gross profit increased 35.7% to $22.8 million from $16.8 million in the fourth quarter of 2019; gross margin increased to 15.6% compared with 14.5% in the fourth quarter of 2019
• An increase in general and administrative expenses was primarily due to a one-time, non-recurring $6.4 million expected credit loss provision related to the bankruptcy and reorganization proceedings of the Company's customer, Brilliance Auto
• Net loss attributable to parent company's common shareholders was $3.2 million, or diluted loss per share of $0.10, compared to net income of $1.7 million, or diluted income per share of $0.06, in the fourth quarter of 2019.  Included in the net loss for the fourth quarter of 2020 was a non-recurring $4.5 million expected credit loss provision, net of minority interests.

Fiscal Year 2020 Highlights

• Net sales were $417.6 million compared to $431.4 million in 2019
• Net loss attributable to parent company's common shareholders was $5.0 million in 2020 compared to net income attributable to parent company's common shareholders of $10.0 million in 2019.  Included in the net loss for the 2020 year was a $6.4 million one-time, non-recurring expected credit loss provision for all outstanding account and notes receivables related to the bankruptcy and reorganization of its customer, Brilliance Auto
• Cash and cash equivalents, pledged cash and short-term investments were $138.2 million as of December 31, 2020
• Net cash flow provided by operating activities was $57.4 million in 2020 compared to $30.3 million for 2019
• Approximately 322,269 shares of common stock were repurchased during 2020.

Mr. Qizhou Wu, chief executive officer of CAAS, commented, "The automobile industry in China suffered in the first half of 2020 due to the COVID-19 pandemic. Nevertheless, with a strong rebound beginning in the late second quarter, the world's largest auto market staged a remarkable comeback with total annual automobile sales down only 1.9% for the full year 2020.  Passenger vehicles sales declined by 6.0% year-over-year while the commercial vehicle market achieved an 18.7% year-over-year growth including a 21.7% increase in truck sales due to higher infrastructure spending and the introduction of a new emission standard.  We have participated in the commercial vehicle growth as we registered a record monthly sales of 70,000 units of commercial vehicle steering systems in November alone.  Our growth in the Chinese commercial vehicle market remains strong in early 2021. We continued to maintain strong relationships with our large North American OEMs and in South America and believe 2021 will be an even better year."

"New energy vehicle (NEV) sales in China grew by approximately 11.0% to nearly 1.4 million vehicles in 2020 and the government's target is to have NEVs account for 20% of auto sales by 2025.  We shipped over 120,000 units of our electric power steering ("EPS") for Chinese new energy vehicles in 2020.  The major Chinese OEMs used our EPS products in 2020, including Great Wall Motors, Chery Automobile, BAIC, JAC Motors and Dongfeng Motor as well as emerging full-electric vehicle OEM Hozon Motors, which laid a solid foundation for our EPS products to gain greater market share in China."

"We continue to emphasize new technologies and products.  To improve penetration into the Chinese new energy vehicle space, our Henglong KYB joint venture is further advancing our EPS technology to better empower the Chinese electric vehicle market.  And our Hyoseong (Wuhan) joint venture with Hyoseong Electric Co. Ltd. began manufacturing small electric motors which will further improve the capabilities of our EPS to address the needs of electric vehicles. To embrace the future of autonomous-driven commercial vehicles, our proprietarily designed intelligent RCB steering systems ("iRCB") are being mass-produced and undergoing testing, and they have drawn interest from a list of large Chinese OEMs," Mr. Wu concluded.

Mr. Jie Li, chief financial officer of CAAS, commented, "Despite of pandemic induced challenges, we increased our cash flow from operations by almost 90% in 2020 compared with 2019. We continued to maintain our financial strength as we increased our cash, cash equivalent and short-term investments, and controlled inventory and receivable levels. During 2020, we purchased 322,269 of our common shares in the public market to enhance our shareholder value."

Fourth Quarter of 2020

Net sales increased by 26.4% to $146.5 million in the fourth quarter of 2020 compared to $115.9 million in the same quarter of 2019.  The net sales increase was mainly due to a change in the product mix and higher demand for Chinese domestic-branded automobiles in the fourth quarter of 2020 compared with the fourth quarter of 2019.   

Gross profit rose by 35.7% to $22.8 million compared to $16.8 million in the fourth quarter of 2019. Gross margin in the fourth quarter of 2020 was 15.6% compared to 14.5% in the fourth quarter of 2019.  The increase in gross profit and gross margin was primarily due to higher volume of sales, a change in the product mix and reduced costs compared with the fourth quarter of 2019.

Gain on other sales was $1.4 million, compared to $0.2 million in the fourth quarter of 2019.

Selling expenses were $5.6 million compared to $3.8 million in the fourth quarter of 2019. Selling expenses represented 3.8% of net sales in the fourth quarter of 2020 compared to 3.3% in the fourth quarter of 2019.

General and administrative expenses ("G&A expenses") were $14.3 million compared to $6.5 million in the fourth quarter of 2019. G&A expenses represented 9.8% of net sales in the fourth quarter of 2020 compared to 5.6% of net sales in the fourth quarter of 2019.   The significantly higher G&A expenses in the fourth quarter were mainly attributable to a one-time, non-recurring expected credit loss provision of $6.4 million related to Brilliance Auto's bankruptcy reorganization proceeding. Based upon conservative accounting practices, this charge, although non-cash in nature, accounted for all of the outstanding account receivables and note receivables from Brilliance Auto. The Company continues to work with Brilliance Auto on the receivables collection.

Research and development expenses ("R&D expenses") were $8.3 million compared to $8.6 million in the fourth quarter of 2019.  R&D expenses represented 5.7% of net sales in the fourth quarter of 2020 compared to 7.4% in the fourth quarter of 2019. 

Loss from operations was $4.0 million in the fourth quarter of 2020 compared with a loss from operations of $1.9 million in the fourth quarter of 2019. The higher loss was mainly due to the one-time, non-recurring expected loss provision related to Brilliance Auto's bankruptcy reorganization proceeding.

Interest expense was $0.4 million in the fourth quarter of 2020, compared to $0.9 million in the fourth quarter of 2019.

Net loss attributable to parent company's common shareholders was $3.2 million in the fourth quarter of 2020 compared to net income attributable to parent company's common shareholders of $1.7 million in the fourth quarter of 2019.  The net loss in the fourth quarter of 2020 was mainly due to a one-time, non-recurring $4.5 million expected credit loss provision for Brilliance Auto, net of minority interests. Diluted loss per share was $0.10 in the fourth quarter of 2020 compared to diluted income per share of $0.06 in the fourth quarter of 2019.

The weighted average number of diluted common shares outstanding was 31,077,196 in the fourth quarter of 2020 compared to 31,333,740 in the fourth quarter of 2019.

Fiscal Year 2020

Net sales decreased by 3.2% to $417.6 million in 2020 compared to $431.4 million in 2019.  The decrease was mainly due to a 27.1% decrease in net sales in the first half of 2020 due to the COVID-19 pandemic's impact on automobile sales in China and North America. In 2020, sales of hydraulic products increased 1.9% while total EPS systems declined by 24.8%.  EPS sales represented 14.8% of total revenue in 2020 compared with 19.1% in 2019.  Net sales of vehicle steering systems to the Company's North American customers decreased by 4.7% in 2020 compared with 2019.

Gross profit in 2020 was $55.3 million compared to $63.4 million in 2019. The gross margin decreased to 13.3% from 14.7% in 2019 mainly due to a change in product mix and lower average selling prices. 

Gain on other sales mainly consisted of the net amount retained from rental income, gain on disposal of intangible assets and the sales of property, plant and equipment and technical service revenue. For the year ended December 31, 2020, gain on other sales amounted to $4.3 million compared to $5.1 million in 2019. This decline was primarily due to a decrease in gain on disposal of property, plant and equipment.

Selling expenses were $14.5 million in 2020 compared to $14.3 million in 2019, mainly due to higher marketing expenditures.  Selling expenses represented 3.5% of net sales in 2020 compared to 3.3% in 2019.

G&A expenses were $27.6 million compared with $20.0 million in 2019. The increase was mainly due to a one-time, non-recurring expected credit loss provision of $6.4 million reflecting all accounts and notes receivables. CAAS took the full provision in accordance with a conservative accounting practice, but will continue to spend effort on collection as the bankruptcy reorganization proceeding of Brilliance Auto is still underway. G&A expenses represented 6.6% of net sales in 2020 compared to 4.6% of net sales in 2019.

R&D expenses were $25.7 million in 2020 compared to $28.0 million in 2019.  The decrease was due primarily to reduced activity from the impact of the COVID-19 earlier in the 2020, and tighter cost controls. R&D expenses represented 6.2% of net sales in 2020, compared to 6.5% of net sales in 2019.

Operating loss was $8.1 million in 2020 compared to operating income of $6.2 million in 2019. The loss was mainly due to lower sales and the one-time, non-recurring expected credit loss provision related to Brilliance Auto's bankruptcy reorganization proceeding.

Interest expense was $1.6 million in 2020 compared with $3.0 million in 2019 as a result of decreased loans and lower interest rates.

Net financial expense was $4.9 million in 2020 compared with net financial income of $2.5 million in 2019 primarily due to an increase in foreign exchange losses because of exchange rate fluctuations.

Loss before income tax expenses and equity in earnings of affiliated companies was $12.2 million compared to income before income tax expenses and equity in earnings of affiliated companies of $7.6 million in 2019. 

Net loss attributable to parent company's common shareholders was $5.0 million in 2020 compared to net income attributable to parent company's common shareholders of $10.0 million in 2019.  The loss was mainly due to lower sales and a one-time, non-recurring $4.5 million expected credit loss provision with Brilliance Auto, net of minority interests. Diluted net loss per share was $0.16 in 2020 compared to diluted income per share of $0.32 in 2019.

The weighted average number of diluted common shares outstanding was 31,077,196 in 2020 compared to 31,458,926 in 2019.

Balance Sheet

As of December 31, 2020, total cash and cash equivalents, pledged cash and short-term investments were $138.2 million, total accounts receivable including notes receivable were $234.1 million, accounts payable including notes payable were $225.3 million and short-term bank and government loans were $44.2 million. Total parent company stockholders' equity was $303.2 million as of December 31, 2020, compared to $289.3 million as of December 31, 2019. During 2020, a total of 322,269 shares were repurchased for aggregate consideration of approximately $1.0 million under a repurchase program approved on August 13, 2020.  Net cash flow from operating activities was $57.4 million in 2020. 

Business Outlook

Management provides revenue guidance for the full year 2021 of $470 million. This target is based on the Company's current views on operating and market conditions, which are subject to change.

Conference Call

Management will conduct a conference call on March 30, 2021 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:

A replay of the call will be available on the Company's website under 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 30, 2021, and in documents subsequently filed by the Company from time to time with the Securities and Exchange Commission. If the outbreak of COVID-19 is not effectively and timely controlled, our business operations and financial condition may be materially and adversely affected as a result of the deteriorating market outlook for automobile sales, the slowdown in regional and national economic growth, weakened liquidity and financial condition of our customers or other factors that we cannot foresee. Any of these factors and other factors beyond our control, could have an adverse effect on the overall business environment, cause uncertainties in the regions where we conduct business, cause our business to suffer in ways that we cannot predict and materially and adversely impact our business, financial condition and results of operations. 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.  
jieli@chl.com.cn

Kevin Theiss
Awaken Advisors
+1-212-521-4050
Kevin@awakenlab.com 

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