Q1 2020 China Automotive Systems Inc Earnings Call
Greetings and welcome to the China Automotive systems first quarter 2020 conference call.
This time all participants are in a listen only mode. A question and answer session will follow the formal presentation. If anyone should require operator assistance. During the conference. Please press star zero on your telephone keypad.
As a reminder, this conference is being recorded I would now like to turn the conference over to your host Mr., Kevin piece Investor Relations for China Automotive systems. Thank you you may begin.
Thank you everyone for joining us today welcome to China automotive systems.
The first quarter conference call.
Joining us today are Mr., Kwazulu Chief Executive Officer.
Greatly chief financial Officer of China automotive systems.
They will be available to answer questions later, when the conference call what Pos system of translation.
Before we begin I will remind all listeners that throughout this call. We may make statements that may contain forward looking statements.
Covered up your statements represent the Companys estimates and assumptions only a though the data this call.
As a result, the companys 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 and the company's form 10-K annual report for the year ended December 31 2019.
That's filed with Securities Exchange Commission on May 14.
Oh, that's what you're talking.
And then other documents filed by the company from time to time with the Securities and Exchange Commission.
Yes, the outbreak look over thinking is that effectively your friends. So this is operationally, it's financial condition may be materially and adversely affected.
The results of the this uranium market outlook for automobile sales to slow down or regional and national economic growth weaken the liquidity and financial condition of our customers or other factors that we cannot foresee any.
Any of these factors and other factors beyond our control could have an adverse effect on the overall business environment calls uncertainties in the regions, where we conduct business calls I've been supposed to suffer a ways that we cannot predict immaterially.
Adversely impact our business financial condition results of operations, a pro long just for the disruption.
For any further unforeseen delay in our operations Oh, the manufacturing delivery in the somebody process with any of our production facilities could result in delays in the shipment of products to our customers increased cost and reduce revenues. The company expressly disclaims any duty to provide updates to any forward looking statements made.
In this call whether it is also new information future events or otherwise.
In this presentation and then the press release, we provide comparisons between the first quarter.
What do you 28, once you Nike, respectively, and we must caution that any comparison <unk> operational and financial data between the two quarters well they could be a very limited value due to the impact of Kobin 19 infection on business conditions didn't want to watch it.
Well I'll just call I would like to brief overview in summary of financial results for the 2021st quarter.
Well then conduct a question answer session.
The following 12 to 21st quarter financial results are unaudited and I reported on the U.S. GAAP.
Purposes, all our call today.
With a financial results the U.S. dollars.
Well begin with review with the recent dynamics of the Chinese economy automobile industry in China automotive was market position.
In the first quarter, the coping lighting pandemic created major disruptions in the Chinese economy in automotive industry.
Well the Chinese new year in late January the mid March our operations were severely disrupted due to the pandemic. There's the movement of people in products are subject to a nationwide locked down as mandated by the Chinese central government to limit the spread of the Cobiz 19 outbreak.
Sales to customers supplies of music components of materials.
Workers commute to work.
Temporarily closed factories and service networks and the other auto related occupations, we're all impacted and unprecedented manner.
During the first quarter would.
Being the epicenter of covert 19 pandemic outbreak in China.
No I wouldn't be automobile hub of China, but it's also where our headquarters are located.
We had to temporarily relocate our headquarters to Jim's, though where I mean manufacturing operations are located any affect your rate was significantly lower during this period.
Not surprisingly for the first quarter of Twentytwenty, China's GDP declined by 6.8% the worst year over year quarterly decline in decades.
The government's nationwide travel restrictions and lock down directors.
<unk> unavoidable interruptions unemployment consumer spending industrial corporate services and transportation.
Your second nearly all industrial production.
And distribution from first quarter could be funny.
Unemployment rose to 6.2% in February 2020, the highest rate ever reported.
The good mating pandemic worsen already.
Slowing Chinese economy, and declining auto sales in China.
I'm going to trade cancers.
Since I know I've been waiting on the Chinese economy, and the auto industry business confidence declined to six axis.
Investments declined by reported 16.1%.
First quarter of 20 Twond.
Yes.
According to the Chinese Association of all built automobile manufacturers see a passenger car sales in China fell 45.4%.
Commercial vehicle sales declined 28.4% in the first quarter Twentytwenty tails off sedans excuse me actually these mpvs and crossover vehicles were all down in first quarter two on each one U.S. energy vehicle sales fell 56.4% in the first quarter talking 20 as government subsidies.
These were reduced.
Automobile sales were already decline you that's passenger vehicle sales for the 2019 year decreased by 9.6%.
Following a 2.8% decline in car sales in 2000 and they.
Including trucks and buses total vehicle sales decreased 8.2% into 2019 year.
In addition, electric vehicle subsidy reduction and the impact or the first implementation phase for the more stringent national 60 emission standards for gasoline engine powered lead passenger vehicles also affected auto sales in China.
With this industry environment, our net sales in the first quarter of 2020 or $73.6 million suffered a decline of 32.6% year over year.
Domestic passenger vehicle and commercial vehicle markets experienced reduced sales volume and I would sell selling prices decline as we sold more lower price politics and price competition increased.
That's a result in addition to lower sales of our hydraulic steering products are headlong key why these joint venture, which mainly provides passenger electric power steering, yes products to domestic through the domestic China market buffered, a significant decline than let's say.
However, our sales to see at Chrysler in Florida, North and Matt North America, where steadfast in the first quarter of Twentytwenty.
On a positive note we've begun shipping aren't you P.S. system, it's a great wall for their Oh law Ray or Onefifty, all electric small vehicle on an exclusive contract also Ohio, saying well on motion Becker Tronic systems Company Joint venture also recently began delivering its small powerpack.
Brushless Motors or Hi Arts RCB.
C S and piece last DP, yes products.
We have made progress in our development programs, including new steering, where the daily band for Iveco SP, <unk> and Europe, a new recirculating ball steering system. The I RCD program to be used in.
Global tier one customers future autonomous vehicles in North America, as well as supply and a new scaring product for FC a deep.
Model starting in the late third quarter.
Twentytwenty also in North America.
Despite devastating impact of the pandemic, we remain profitable as we improved our revenue mix increased our clobber. Your products are reduced expenses in the first quarter 20, Twond. Our gross margin increased in the first quarter and we have maintained our profitability during this crisis.
During the most difficult order in the company's history, our operations continued to generate positive cash flow and our cash position improved.
With our strong balance sheet and effective cash flow management, we remain financially sound.
As of March 31, 2020, total cash cash equivalents and pledged class, but cash were $132.6 million.
Net cash flow from operating activities was $29.2 million in the first quarter out twentytwenty.
Total parent company stockholders' equity was $283.8 million as of March 31 Twentytwenty.
Oh, well production centers resumed full operations in mid March after the go with 19 left salaries restrictions were removed.
Yeah, we are operating with full capabilities that all facilities. It also reopened our one headquarters.
We have seen evidence that economic conditions are slowly improving although we believe there's still a challenging economic environment and the outlook remains cloud.
However, we expect progress over the remainder of this once or twice a year barring any unforeseen circumstances. The central government has initiated a tax cuts revise regulations and loosen monetary policy.
You mean set those have been implemented to stimulate the purchase.
Autos in rural areas and subsidies to new energy vehicles had been reinstated.
The U.S. Chinese trade agreement and a reopening of the U.S. should help boost business activities.
What are your two statistics I see a him.
China's overall automobile sales increased in both.
Equaled 2020 by 4.4%.
And then maybe by 14.5%.
We remain cautiously hopeful that the resilience of the Chinese economy in large consumer base will propel a reasonable recovery of the auto sector in the remaining part of the year.
It was I think all employees suppliers customers government officials in health care providers, who work to ensure we successfully reopened our factories without in danger in our workers.
Now, let me review the financial results for the first quarter of 20 to one [laughter].
In the first quarter of 2020, net sales were $73.6 million compared to $109.2 million in the same quarter of 2019, reflecting a 32.6% year over year decline. The decrease in net sales was mainly due to lower sales volume for legacy hydraulic products due to.
The cobot 19.
Locked down and lower average selling prices domestic markets. The one of the pandemic crisis.
Gross profit was $11.2 million into first quarter 2020, compared with $14 million into first quarter of 2019, the gross margin increased 15.2% and the first quarter 2020 compared to 12.9% in the first quarter of 2019, mainly due to changes in the product mix gay.
One other sales was <unk> point sixmillion in the first quarter 2020, compared to 1.3 million in the first quarter of 2019, reflecting lower scrap poly.
Selling expenses were $2.1 million into first quarter of twentytwenty compared to $3.1 million into first quarter of 2019.
The decrease was primarily due to lower freight expenses, resulting from this is a result to a suspension of the company's operations for most of the quarter due to the outbreak of the cobot 19 pandemic selling expenses represented 2.9% on net sales in the first quarter 2020 compared to 2.8% in the first quarter.
<unk> of 2019.
General and administrative expenses were $3.4 million into first quarter of Twentytwenty.
Compared to 4.6 million the same store that was pointing I think the decrease was primarily due to low lower office expenses Gionee expenses represented 4.6% or net sales in the first quarter of twentytwenty compared with 4.2% in the first quarter 2019.
Research and development expenses were $5.1 billion in the first quarter Twentys wanni compared to $6.6 million in the first quarter of 2019 R&D expenses represented 6.9% of net sales in the first quarter 220 compared to 6% in the first quarter of 2019 no.
R&D expenses were primarily due to increased cost controls.
Other income was point women $1 million plays a pretty much set the March 31, 2020 compared to $1.4 million plus the three months ended March 31, 2019, representing a decrease of $1.3 million, primarily due to lower government subsidies in a donation made to combat.
Golden 19 pandemic in the first quarter of 2020.
Income from operations was $1.2 million in the first quarter 2020, compared to $1 billion. The same quarter out 2019. The increase was primarily due to higher gross margin and decreased operating expenses offsetting the impact of lumber sales volume.
First quarter 20 Twond.
Interest expense was point $4 million into first quarter 2020, compared to <unk> point $6 million in the same quarter of 2019. The decrease was primarily due to decreased loans.
Net financial expenses point $5 million into first quarter 2020, compared to <unk> point $7 million in the first quarter of 2019. The increase in net financial expenses was primarily due to a decrease of foreign exchange loss in the first quarter 20 Twond.
Income before income tax expense in equity in earnings of associated companies was <unk> point $4 million in the first quarter 2020 compared to $1.2 million. The first quarter of 2019. The decrease in income before income tax expense in equity in earnings although still yet to companies in the first.
Quarter, 2020 was mainly due to lower income from operations and lower other income.
Net income attributable to parent Companys common shareholders was.
0.0, 5 million in first quarter 2020, compared to $1.5 million in the first quarter of 2019.
Diluted earnings per share or nil for share in the first quarter 2020 compared to five cents in the first quarter 2019.
Weighted average number of diluted common shares outstanding was 31 million Manhattan 74119, the first quarter 2020, compared to 31 million 513 Q1 97.
First quarter of 2019 [laughter].
Well now go over some balance sheet items and cash flow.
At March 31, 2020, total cash cash equivalents, a pledged cash were $132.6 million total accounts receivable, including notes receivable EUR $196.5 million accounts payable were $165.8 million and banking government loans were $51.1 million.
Total parent company stockholders' equity was $283.8 million at the March 31, 2020, compared to $289.2 million as of December 31, 2018.
That's cash flow from operating activities with $29.2 million in the first quarter Twentytwenty.
Management brief what's your to reiterate.
Its revenue guidance for the full year 2020 of $360 million. This target is based on the company's current views of operating and market conditions, which are subject to change, especially in light of the covered nineteens impact on the economic economies of the you are trying to U.S.
With that operator, we're ready to begin question.
Correct.
Thank you.
If you'd like to ask a question. Please press star one on your telephone keypad.
Confirmation Turnbull indicate your line is in the question Q.
You mean first start to if you'd like to remove your question from the Q for participants using speaker equipment. It may be necessary to pick up your handset before pressing the starkey.
It seems like poll for questions.
Once again, ladies and gentlemen, its star one to ask a question at this time.
Thank you. Our first question comes from the line of Robert Polivich Private Investor. Please proceed with your question.
Oh, yes, good morning.
I had a question regarding the brushless motors.
For the electric power steering and.
You mentioned that.
They were they could potentially be sold to.
Two other automotive stealing a suppliers and what kind of potential do you see for these motors.
Just all my gut tells the no one's yeah, I was wondering who saw PNG Oh Kindle machine when you mention I know we thought Angie.
Hey, Mike a she Todd to cool.
She taught us Chicago or trying to tell she told us since Santos yeah.
It sounds as always you articulate any men, we like the changing to somebody else enough form and since I know one truck engine.
Or why didn't you seem quite up on that how far is a big I'm.
If I remember you thought house.
Right. So usually on their Hudson woman <unk> I'm certain that you haven't done babies are geared yesterday.
Yeah.
So we can see figure a month or so.
So to do that she'll now called say, how many of whom you that you won't see comedy Sharon I'm supposed to see quite a time MACI Hawkins if I'm told you that sorry.
Sure.
[noise] Dynegy merger.
Okay. We wish him found in July we like the war.
So you're talking maybe they should pets.
So.
The the brushless motor are widely used in.
Automotive sector.
For Us a bus this motor as one of the important.
Component.
The electric power steering systems.
As we are wrapping up.
The production of U.P.S. electric power system also so bulk of the.
The product.
Oh, the brushless motor production I will go to our internal use well we have.
Any additional which we expect that as well and then we'll plan to sell to other steering producers.
Okay. Thank you.
Thank you.
Thank you once again, ladies and gentlemen, if you'd like to ask a question. Please press star one I'm telephone keypad, well pause a moment to allow for any other questions.
Thank you. Our next question comes from the line of stem cell lobby private Investor. Please proceed with your question.
Uh-huh congratulations to the management team for his job well done for quarter one.
My question is related to the communications between the leadership all this organization.
And the shareholders.
I'd love to hear some comments from the top leadership of the company.
Regarding moving forward crowd is going to communicate with the shareholders or to make sure that we promote or the <unk> products and a I mean, we [laughter] and marketing Oh products through.
The shareholders.
The organizations that are audible disappearance of the products on both national and international markets.
Hi, Tom once you should take a connie.
Toy potential consequently quality palmdale are they.
And Oh, I don't know Cioloş the summit.
Since the Michelle's, though.
Hi, how cut all too close you always get console. So take a court t., though going into South America Coachella, John just a shallow you just hung pizza MACI controller lie Tucker Malgir well of course when to of course.
Okay.
Well, there's been quite up on I'd say, we're after I got one they seem that you care or she bought a lot to get together and topics you won't wait Shimon outweighs I'll call. It upon I didn't see there for you. It's a good switching back to find out we will see let me offer or Bob Evans metrics engine.
Sounds good up on maybe a quick or countries either one.
You can see Oh.
And can talk there can seem consider its way too much on Pompano Beach again, the fundamental changes or does it box, where they could be down today, it's a great County.
And can be so oh, maybe gord being quite all I know I mean somebody being able to your father Naco anyway to get you to make room shocks. What are you sort of financing gearing woman. She members and won some forget it seems and just each o'neil.
And you can just what's called a one element Creek hobby and tell me what you do get NAXI <unk>.
Okay.
So we are HM.
Thank you for your question, we are diligently fulfilling our duty to make announcement quarterly and annual reporting a was the regulator.
And to and also make announcements in the shareholder and in addition to that we and also make a periodic updates through announcement to inform.
Shareholders and investors analyst when Oh, we have a any kind of business development news, whether we signing a new customer or a new product coming offline.
[noise], then and we also keeping a close contact with our analyst just to update and and to help him to better understand the company so for him to.
To educate.
Investors out there.
And lastly, we did we did have planned to to do a bit more marketing.
But due to the pandemic the end.
Subsequent travel restrictions.
That pie that's been I'll hold.
But you know at the meantime, we're doing a causing and and.
Video cause.
Interested investors.
And.
When when this things over what have plans to come to visit a investors and in the U.S.
Thank you.
Thank you.
Thank you, ladies and gentlemen, once again star one to ask a question well pause a moment longer.
Thank you ladies.
And gentlemen, our next question is a problem from Samsung lobby.
<unk> private Investor. Please proceed with your question.
AH Yes, it's me again, a couple of years ago. The chairman was planning to take the company private.
And after a lot of investigative work it was decided.
Not to do that.
Moving forward.
Someone please elaborate on.
The possibility of but in this company you probably that again.
Sometime in the future.
Oh Tesla TNK two could also down certain genes houses.
That's it still hard because touchdowns, there's always Josh.
Women's soccer, which eletropaulo or this is to go towards the high Oh, we lapped the when you ship turnaround Michelle.
[laughter], Jim what's your national I've learned here or there about how exactly how many days since.
Right and I are all sorts of such amounts to be it should you are you not to do that hadn't when there.
Also decline and <unk> merchant measures and making the onto a common shares.
Uh huh.
So at this moment time, there's no plan to go.
Two for the large shareholder and chairman too.
Two.
To go private.
[music].
And and we don't have any.
We don't have any visibility in terms of.
His intention going forward into future, whether he wants to go there or not.
We have not receive any indication or notice.
Okay.
Thank you very much.
Thank you.
Thank you. Our next question is another follow up from an airline I've Robert Polivich private Investor. Please proceed with your question.
Oh, Yes Ah.
As it relates to electric power steering system.
Maybe.
Major automotive manufacturers I know Volkswagen Corporation.
A big program.
For our E b.
Production.
And I was wondering.
If China automotive.
Systems would be a part of that program.
And I guess, what other key company or.
Do you feel that you'd have you PS.
Business with.
A in the U.S. and Europe, and possibly Japan.
Thank you.
Thank you.
HM.
Pat answer, though you'll recall that council in P.S.. So that's project or Kalydeco TV. She hasn't been a material tracing team saw an uptick or thoughts on site tally the trade from the tandem tool.
That sounds as though it will meet with you mentioned switching or thoughts on the t. sheet, though on a tick off highway said she so lets say you were higher who may wish it should how to achieve quick.
Today, you want to go you PS one point I'd make war.
Total since it but we should see away WPS some consumer to his huh.
Okay [noise] since yeah. Since you guys Im so I mean again you can actually go wants a young guys again right you'd be something I'm on the good answers on the yes.
I'd now like in the best yesterday quite.
And so once you get a Jim Sheehan without getting too what's your national Mi Yeah, I'd say on each also Badger mountains. What are you quantify I honestly being the one that she's I'm sure you.
Yeah.
Im going back to give you assign to comment.
So you got this a woman see what do you see calling them on where you see she that's you know Thompson, who go to satellite upon the older did you end up on the free genes children, just circling back on kind of in the one that although feminists also just [noise].
Yeah actually should you should we would you can also add some richardson alcohol I mentioned, the conceded that biologically MPS I actually be RCB. She lives.
Okay. So one make it clarification here.
As part of <unk>.
Can use.
Mboes electric vehicle and traditional internal combustion powered vehicle.
And.
And our S product our.
Are now being used in it or why rental vehicles in China and our so our IR CB product are now developed to target.
The.
Commercial vehicle those are the electric power commercial vehicles, and and mostly in international market.
And also Oh in particular, Oh, we see opportunity for US is in Europe and also our Oh, we take a few steps to getting to that TV market, we are providing the mechanic as steering systems.
And for those.
Oh, yes, and with our new product and going to these markets like I RCB E. RCB, we'll see more and more involvement for us to getting to the b.
Sector.
Okay. Thank you.
Thank you.
Thank you once again, ladies and gentlemen, as a final reminder.
Our one to ask a question at this time, a pause a moment longer.
Thank you ladies and gentlemen, this concludes our question and answer.
First question I'll turn the floor back to Mr. fees for any final comment.
We want to thank you for your participation in todays conference call.
Each and everyone here to be safe and we look forward to speaking with you again.
[noise] Goodbye.
Thank you. This concludes todays conference you may disconnect. Your lines at this time. Thank you for your participation.