Q4 2020 China Automotive Systems Inc Earnings Call
[music].
Greetings and welcome to the China Automotive systems fourth quarter 2020 conference call.
At 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 of this conference is being recorded I would now like to turn the conference over to your host Mr. Kevin <unk> Investor Relations. Please go ahead Sir.
Thank you everyone for joining us today, welcome to China automotive systems, Twenty-twenty fourth quarter and annual conference call.
Joining us today are Mr. Xu Chief Executive Officer, and Mr. Jay Lee Chief Financial Officer of China Automotive systems, they will be available to answer the questions later in the conference call with the assistance of the translation.
Before we begin I'll remind all listeners that throughout this call. We may make statements that may contain forward looking statements for.
Forward looking statements represent the company's estimates and assumptions only as of the date of 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 in the company's form 10-K annual report for the year ended December 31, 2020, that's filed with Securities and exchange.
The commission today.
And then the other documents filed by the company from time to time with the Securities and Exchange Commission.
Since the outbreak of COVID-19 is that effectively in time the controlled.
Our business operations and the financial condition may be materially adversely affected as a result of the.
Deteriorating market outlook for automobile sales, the slow down of 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 inside of them environment caused the uncertainty in the regions, where we conduct business cadre of business. The softer in ways that we cannot predict and materially impacted our business financial condition and the results of operations.
The prolonged disruption for any further until the delay in our operations of the manufacturing delivery and the assembly of thought processes with.
Are there any of our production facilities could continue the result in delays in the.
For the product to our customers increased costs are reduced revenue.
The company expressly disclaims any duty to provide updates to any forward looking statements made in this call. One of the result of new information future events or otherwise.
On this call I looked like a brief.
The review and summary of the fourth quarter and annual financial results for the.
The period ended December 31, 2020 management will then conduct the Q&A session.
The following 2024th quarter financial results are unaudited and the annual results are all of the and both results are reported using U S GAAP accounting.
For the purposes of our call today I will review the financial results in U S dollars.
We will begin with review of the recent dynamics of the Chinese economy. All of you on the street in China automotive as market position.
The Chinese economy has fully recovered from the impact of the COVID-19 pandemic with G. D. P. Attaining a 6.5% growth rate in the fourth quarter of 2020.
The 2.3% growth rate for the full year of 2020.
Statistics from the China Association of all of the amusement automobile manufacturers C. I a M C.
So that in the 'twenty 'twenty fourth quarter for the month of October 2020, overall automobile sales rose by $12 five per cent year over year.
With passenger vehicle sales up by nine 3% commercial vehicle sales of 31% higher than the same month a year ago.
And November 'twenty 'twenty overall automobile sales of about 12, 6% year over year the.
Passenger vehicle sales of 11, 6% higher and commercial vehicle sales, 18% above last year's the member numbers.
In December 2020, overall automobile sales rose $6 four per cent year over year with passenger vehicle sales up seven 2% and commercial vehicle sales, 2.4% higher than last year the.
Remember it was the ninth strength, but the overall automobile vehicle sales rose.
For the full year 'twenty 'twenty.
Overall automobile sales were $25 3 million vehicles, representing a decline of one 9% year over year, primarily due to the impact of the COVID-19 pandemic earlier in the year.
Passenger vehicle sales of $20 2 million was 6% lower year over year, what's the dan's down by $9 90 per cent N. P V sales reduced by 23.8 per cent S E sales point.
Seven per cent.
The crossover vehicles down by two 9%.
First of the vehicle sales rose 18, 7% year over year with lot sales decreased by five 6% from truck sales 21.7 per cent higher.
New energy vehicle sales.
Roes kind of 9% year over year to $1 4 million vehicles. The passenger vehicle sales rising by $14 six per cent and commercial vehicle sales down 17, 2% in the 'twenty 'twenty year.
Okay.
Given the volatile sales during the 2020 year. We are pleased to report that our fourth quarter sales rose by $26 four per cent to $146 $5 million from $115 $9 million in the fourth quarter of 2019.
And the gross profit increase faster at 35, 7% the $22 $8 million.
From $16 $8 million in the fourth quarter of 2019 gross margin increased in the Twenty-twenty fourth quarter of 215, 6% compared with 14.5 per cent a year ago.
For the fourth quarter of 2020, our net loss attributable to parent company's common shareholders was $3 $2 million of diluted loss per share of 10 cents.
Net income of $1.7 million or diluted income per share.
The six cents in the fourth quarter of 2019.
Included in the net loss for the fourth quarter of 2021 of the nonrecurring for $25 million and expected credit loss provisions net of minority interest.
Due to the bankruptcy and reorganization proceedings of our customer brilliance auto.
Yeah.
We have decided to take the most conservative approach in the written off the entire accounts and notes receivable due from billions, even as we proceed with our collection process with them.
Okay.
For the year 'twenty 'twenty.
Net sales were $417 $6 million compared to $431 $4 million in 2019, reflecting the very weak sales in the first day of the year news of the impact of the COVID-19, pandemic and the automotive sales in China, and the international markets, including North America.
The company sales of steering gears for passenger vehicles decreased by seven 8% the sales of steering gears for commercial vehicles increased by $12 one per cent in 2020 compared to 2019 in China.
In November 2020, we shipped approximately 70000 of steering gears, the Chinese truck Oems and the aftermarket in North America. This amount of established the company's new monthly high sales record for our commercial vehicle steering products are.
Our commercial vehicle steering for production lines are running near full capacity to keep up with demand.
Hydraulic steering products grew by one 9%, while our electric power steering products sales declined in 2012.
Changes in product mix and selling prices impacted both sales and gross profit in the 'twenty 'twenty year.
The net loss attributable to the pair of company's shareholders.
<unk> was $5 million in 2020, which also included $4 $5 million, one time nonrecurring charge for bad debts due to the brings all of the bankruptcy of reorganization.
Our research and development has brought a number of advanced products to fruition in 2020 to address changes in automotive technologies. These new price will better serve current customers.
Attract new ones as well to position the C. A S for future growth.
We began shipping our EPS since the rest of great wall for the Oh, Our E. R 150, all electric small vehicle as the exclusive supplier of 'twenty 'twenty.
In fact, the approximate 140000 EPS steering U S were shipped to a number of Chinese Oems for other use in the electrical vehicles in 'twenty one.
And the outlook is for sales of approximately 200000 E. P. S J.
Just for electric vehicles in 2020 one.
The Chinese government has targeted the E vs electric vehicles should be 20 per cent of all new cars by 2025, we are well positioned to capture of this expected growth.
In addition.
We have developed a new steering systems for the daily van for Iveco S. P, a and Europe as far as supplying of new steering product with Jeep models in North America.
In addition of new Recirculating ball steering systems. The eye cash RCB program had been produced to be used in the global tier one customers future autonomous vehicles in North America.
New dedicated assembly line for our intelligent R. C. B M steering systems for commercial vehicles has been installed.
I RCB of specific design for autonomous driven commercial vehicles and will provide maximum assistance and parking and then lane keeping at highway speeds.
Recently, we announced the introduction of our new EPS system to empower advanced driver assistance systems a D. A S.
And the future of autonomous driving.
This new EPS product was developed using our proprietary technology developed by C. A S. As R&D team and it represents the first time of Chinese domestic steering producer drove the entire product development cycle in the house and developed proprietary algorithms for steering control software as well.
The company has begun mass production of this product for new vehicle models of the leading Chinese automaker great Wall Motors additional purchase orders have been received from J, a C chery auto and Fiat Chrysler automobiles with other Oems expressing interest.
Seamlessly connected with the old data C. A S of new EPS system enables drivers do without the different road conditions.
This new EPS system integrates and communicate with the vehicles main data architecture to fulfill Qi a D. A S functionality, including lane keeping assist automatic parking assist lane centering in traffic jam assist.
Also I hung saying.
Wuhan motion Mechatronics systems.
Joining venture the.
<unk> delivered net small power pack Russias motors to enhance our I R. C D.
Our C E T S and P class D. P E P S products.
The building financial strength remains the top priority for us to provide the resources to support future growth and enhance shareholder value. We continued to generate positive cash flow from operating activities in 2020 one.
Our cash flow.
Provided by operations increased almost 90%.
In 2020.
The $57 $4 million from $30 $3 million in 2019.
Our total cash cash equivalents.
Pledged cash and short term investments increased to $138 $2 million as of December 31, 2020, compared with 112 for $2 million in 2019.
We repurchased 322000 common shares in the market during the 2020 year as part of our share repurchase plans.
Total parent stockholders total parent company's.
Stockholders equity rose to $303 $2 million at December 31, 2020 from $289 $3 million at the end of 2019.
Okay.
Now the automotive market of 2020 are behind the scene conditions are improving in 2021 for the first two months of 2021 of commercial vehicles sales rose by $86 two percentage of approximately 757000 vehicles with.
With growth of all sizes of trucks and buses in the Chinese passenger vehicle market C. S. As main market Chinese branded vehicles sold $1.4 million of.
Oh, sorry, one 4 million units, representing an 87, 5% year over year growth. This increase correlated to a three 1% market share increase for Chinese branded passenger vehicles and accounted for 42, 6% of the Chinese market.
We have confidence that our extensive customer base in China growing international market presence long established hydraulic product line of new technology products addressing the emerging markets for electric vehicles, and autonomous driven vehicles position us well for future growth.
Now, let me review the financial results in the fourth quarter of 'twenty 'twenty.
Net sales increased by $26 four per cent to $146 $5 billion in the fourth quarter of 'twenty 'twenty compared to $115.9 million in the same quarter of 2019.
The net sales increase was mainly due.
So the change in product and 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% the $22 $8 million.
Compared to $16 $8 million in the fourth quarter of 2019.
Gross margin in the fourth for 2020 was $15 six per cent compared to $14 five per cent in the fourth quarter of 2019.
The increase in gross profit for gross margin was primarily due to higher volume of sales of changing the product mix and reduced costs compared with the fourth quarter of 2019.
Gain on the other sales was $1 4 million compared.
Compared to $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 three eight per cent of net sales in the fourth quarter of 2020 compared to three 3% in the fourth quarter of 2019.
General and administrative expenses were $14 $3 million compared to $6 $5 million in the fourth quarter of 2019 G&A expenses represented nine 8% of of net sales in the fourth quarter of 2020 compared to five 6% of net sales in the fourth quarter of 2019.
The significantly higher G&A expense in the fourth quarter for mainly attributable to a one time nonrecurring expected credit loss provision of $6 $4 million related to religion or brilliance auto bankruptcy reorganization of placebo.
Based upon the conservative accounting practices discharge other noncash in nature of accounted for all of the outstanding accounts receivable in notes receivable from brilliance order. The company continues to work with brilliance autos on the receivables collection.
Research and development expenses were $8 $3 million compared to $8 $6 million in the fourth quarter of 2019, R&D expenses represented $5 seven per cent of net sales in the fourth quarter of 2020 compared to settle a claim of 4% in the fourth quarter of 2019.
Sure.
Loss from operations.
Yeah.
It was $4 million in the fourth quarter of 2020, compared with the loss from operations of $1 $9 million in the fourth quarter of 2019, the higher loss was mainly due to the onetime non recurring expected loss provision related to brilliant autos.
Autos bankruptcy reorganization proceedings.
Interest expense was <unk> $4 million in the fourth quarter 2020, compared the point $9 million in the fourth quarter of 2019.
Net loss attributable to parent company's common shareholders was $3 $2 million of in the fourth quarter of 2020 compared to net income attributable to parent company's common shareholders.
At $1.7 million in the fourth quarter of 2019.
The net loss in the fourth quarter 2020 was mainly due to a onetime non recurring $4 $5 billion expected credit loss provision for brilliance auto net of minority interest.
Diluted loss per share.
It was 10 cents in the fourth quarter of 2020 compared to diluted income per share of six cents in the fourth quarter 2019.
Weighted average number of diluted common shares outstanding the was 31.077 million 196 in the fourth quarter of 'twenty 'twenty.
Compared to 31 million 333740 in the fourth quarter of 2019.
Now I will provide a summary of the annual results.
Net sales decreased by three 2% of $417 $6 million in 2020.
Third the $431 $4 million in 2019.
The decrease was mainly due to a $27 one per cent decrease in net sales in the first half of 'twenty 'twenty due to the COVID-19 pandemic impact on automobiles in China.
And North America in 'twenty, and 'twenty sales of hydraulic products increased 1.9%.
Total EPS systems declined by 24, 8%.
E P. H EPS sales represent 14 for native total revenue of 2020, compared with 19, 1% in 2019.
Net sales of vehicle steering systems to the company's North American customers decreased by four 7% in.
In 2020 compared with 2019.
Gross profit in 2020, with 55 minute pitch $5 $3 million compared to $63 $4 million in 2019, the gross margin decrease of 13, 3% for $14 seven present in 2019, mainly due a 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. The sales of property plant equipment and technical service revenue.
With the yearend December 31, Twenty-twenty gain on other sales amounted to $4 $3 million compared to $5 1 million.
The dollars in 2019.
The kind was primarily to do with the decrease in gain on disposal of property plant and equipment.
Selling expenses were $14 $5 billion in 'twenty 'twenty compared to $14.3 million in 2019, mainly due to higher marketing expenditures selling expenses represented three five per cent of net sales in 2020 compared to three 3% in 2019.
G&A expenses were $27 $6 million compared with $20 million in 2019. The increase was mainly due to a one time non recurring expected credit loss provision of $6 $4 million, reflecting all of accounts and notes receivable.
Ill brilliance auto.
That's the full for provision in accordance with the Conservative accounting practice, but we'll continue to spend efforts on collections. The bankruptcy bankruptcy reorganization proceedings of brilliance auto was still underway.
G&A expenses represented six six per cent of net sales in 'twenty 'twenty compared to $4 six per cent of net sales in 2019.
R&D expenses were $25 $7 million in 2020 compared to $28 million in 2019. The decrease was due primarily to reduced activity from the impact of the COVID-19 earlier in 2020 and tighter cost controls R&D expenses represented six 2% of net sales in 'twenty two.
Compared to 625% of net sales in 2019.
Operating loss was $8 $1 million in 2020 compared to operating income of $6 $2 million in 2019.
The losses, mainly due to lower sales and the onetime nonrecurring expected credit loss provision related the brilliance auto bankruptcy reorganization proceedings.
Interest expense was $1 $6 million in 2020, compared with $3 million in 2019 is resolved decrease loans and lower interest rates net financial expense was $4 $9 million in 2020 compared with net financial income of $2 $5 billion in 2019, primarily due to an increase in.
Foreign exchange losses, because of exchange rate fluctuations.
The loss before income taxes 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 million in 'twenty 'twenty compared to net income.
Attributable to parent company's common shareholders of $10 million in 2019 of the loss was primarily due to lower sales in the onetime nonrecurring for point 5 million dollar of expected credit loss provision with brilliance auto net of minority interest.
Diluted net loss per share was <unk> 16 cents in 2020 compared to diluted income per share of 32 cents in 2019.
The weighted average number of diluted shares outstanding was 31.077 million 196 in 2020 compared to 31 million force of 58009 of them 26 in 2019.
Net cash flow from the operating activities, the <unk> $7.4 million in 2020, compared with $33 million in 2019.
Payments to acquire property plant equipment were $15.8 million in 'twenty, and 'twenty compared with $34 $4 million in 2019.
Approximately 322000 shares of common stock were repurchased during the year 2020 of the company expects to repurchase more shares in the future reflecting market conditions.
We'll now go over a few balance sheet items.
As of December 31, 2020, total cash and.
The cash equivalents pledged cash cash and short term investments were $138 2 million.
Total accounts receivable until the notes receivable were $234 $1 million.
Accounts payable until the notes payable were $225 $3 million in short term bank and government loans were $44 $2 million.
Total type of.
The parent company's stockholders' equity was $303 2 million.
As of December 31, 2020, compared to $289 $3 million as of December 31, 2019.
The business outlook management provided revenue guidance of $470 million for the full year 2021. This target is based on the company's current views when operating and market conditions, which are subject to change.
With that operator, we're now ready to begin the Q&A.
Thank you at this time, we'll be conducting a question and answer session. If you'd like to ask the question. Please press star one on your telephone keypad.
A confirmation tone will indicate your line is in the question queue. You May press star two if you'd like to remove your question from the queue for participants using speaker equipment. It may be necessary to pick up your handset before pressing the star keys, one moment, please while we poll for questions.
Your first question comes from the line of William Bird cause that ski with Green Ridge Global. Please proceed with your question.
Hi, guys can you talk about what your working relationship with brilliance has been since they announced the restructuring and you know what likelihood of you think there'll be to recover some of that write off.
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So we are closely following the monitoring the the process.
Of the grains autos.
Okay.
The restructuring.
At the moment.
Also.
Very closely following up with the senior management team.
All day.
Outstanding.
Receivables.
So we are actively.
The question of collecting.
The receivables and we have collected some of the current receivables.
From brilliance auto.
We also.
The play.
Two.
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After the complete the restructuring proceedings.
Yeah. So that's all of our.
The plant and also we still all of the business side, we are still working with them.
And they have some new product lines coming and so.
We are very carefully managing the relationship.
Okay.
If you exclude the write off the G&A was still pretty high in the fourth quarter on an absolute dollar basis.
I mean, what's like a good G&A amount you guys expect going forward.
Excluding any write offs of recoveries.
Okay.
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Okay.
So excluding if you look at our 2000 Twenty's G&A expenses.
Excluding.
The one time.
The other recurring.
And non cash write off.
Related to the periods for all of those restructuring proceeding.
Our G&A expenses is.
In line it was two.
2019.
Now that we want you to be also mindful that.
In 2020.
There was a major COVID-19 event.
And which hit our operation.
Pretty hard, especially in the first quarter.
And during that time, we have to increase.
The two to facilitate the reopening of our Quebec should we you have to.
Increased of PPE.
And also the standardization of cost for all of our business operation.
The operation.
In addition to that we have to do.
The provide our worker.
And the housing the combination.
For the dining and because the specialty path, we need to make sure they do everything properly and to.
Contain any kind of to avoid any kind of spreading of the.
Covid.
So all of that.
Extra cost.
We bear that in 2020, and even with all of that we're still.
At the very similar level for 2019.
It's also in <unk> in December 2020, we started a program to further streamline our cost management.
Especially in the G&A category.
We reduced AR.
Some of the staffing staffs and also we cut back some of the expenses and G&A category. So.
Whereas in the months also maybe months of the house in January.
We see a.
Very evident.
Changes.
After the.
Implemented the cost control measures.
So we feel 2021.
We should be able to manage.
The G&A expenses pretty well.
Okay.
And then my last question is the last week, you guys discussed that new self developed EPS product.
What's going on with the JV that you're self developing EPS EPS products for the Chinese market again, so I thought that was all going to be done through the JV.
Okay.
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The two clear your.
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Production has always been.
Yeah.
The managed by the joint venture with <unk>.
We.
According to initial arrangement all contract.
C H will still lead the R&D of the EPS product.
And especially the new generation.
EPS product.
With our joint venture partner they will provide.
Some of the low house into technology, Knowhow as well as managing the.
Production.
So.
With our local team so that's the.
And and we for this particular new product, we just did the recently announced.
That's.
In the Adas area for the assist driving autonomous driving for.
Future.
We our team R&D team are.
The net the entire process and we.
We believe this is the way we will going forward and.
And in most of the high end product.
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R&D, so we're doing that and we're pretty pleased with the results.
Okay.
Okay alright. Thanks.
Thank you.
As a reminder, if you'd like to ask a question. Please press star one on your telephone keypad as a reminder, if you'd like to ask the question. Please press star one on your telephone keypad one moment, please while we poll for questions.
Okay.
As a reminder, if you'd like to ask the question. Please press star one on your telephone keypad as a reminder, if you'd like to ask a question. Please press <unk>.
Star one on your telephone keypad now one moment, please while we poll for questions.
Ladies and gentlemen, we have reached the end of the question and answer session and I would like to turn the call back to Mr. Kevin.
Keith for closing remarks.
We want to thank all of you for participating in today's conference call.
The wish you to be safe and we look forward to speaking with you again have a great day.
This concludes today's conference you may disconnect your lines at this time. Thank you for your participation.
Okay.
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Yeah.
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