Chemspec International Limited Announces Fourth Quarter and Full Year 2010 Unaudited Financial Results

SHANGHAI, April 11, 2011 /PRNewswire-Asia-FirstCall/ -- Chemspec International Limited (NYSE: CPC; "Chemspec" or the "Company", incorporated in the Cayman Islands), a leading China-based contract manufacturer of highly-engineered specialty chemicals, today announced its unaudited financial results(1) for the fourth quarter and full year ended December 31, 2010.

Fourth Quarter 2010 Financial Highlights

• Total sales reached RMB270.4 million (US$41.0 million), representing an increase of 52.7% from the fourth quarter of 2009 and a decrease of 16.7% from the third quarter of 2010.
• Gross profit totaled RMB98.7 million (US$15.0 million), an increase of 56.6% from the fourth quarter of 2009 and a decrease of 20.0% from the third quarter of 2010.
• Income from operations was RMB51.6 million (US$7.8 million), an increase of 80.4% from the fourth quarter of 2009 and a decrease of 39.9% from the third quarter of 2010.
• Net income attributable to the Company's shareholders was RMB45.3 million (US$6.9 million), an increase of 30.3% from the fourth quarter of 2009 and a decrease of 35.7% from the third quarter of 2010.
• Basic and diluted earnings per ADS(2) were both RMB1.26 (US$0.19). Basic and diluted earnings per ADS were both RMB0.96 (US$0.15) in the fourth quarter of 2009. Basic and diluted earnings per ADS in the third quarter of 2010 were RMB1.95 (US$0.29) and RMB1.94 (US$0.29), respectively.

Full Year 2010 Financial Highlights

• Total sales reached RMB1,082.0 million (US$163.9 million), an increase of 31.9% from RMB820.3 million in 2009.
• Gross profit was RMB417.2 million (US$63.2 million), an increase of 28.5% from RMB324.7 million in 2009.
• Income from operations was RMB266.7 million (US$40.4 million), an increase of 28.6% from RMB207.5 million in 2009.
• Net income attributable to the Company's shareholders was RMB225.5 million (US$34.2 million), an increase of 30.8% from RMB172.4 million in the prior year.
• Basic and diluted earnings per ADS were both RMB6.24 (US$0.95), as compared with both being RMB5.18 (US$0.78) in the prior year.

Completion of Share Repurchase Program

The Company has substantially completed its share repurchase plan announced on September 22, 2010. The total funds used in the share repurchase plan were RMB11.0 million (US$1.6 million).

Dr. Jianhua Yang, Chairman and Chief Executive Officer of Chemspec, commented, "I am very pleased to announce our fourth quarter and full year financial results. In 2010, we set a new record that our sales passed the one-billion-RMB milestone. This is a testimony of our relentless effort in the year to expand our business development and strengthen the relationship with our customers, especially after the downturn of 2009. "

Dr. Yang continued, "In the fourth quarter of 2010, the total revenue grew 52.7% year over year and became the second highest in history for the same period of the year. With regard to the first quarter of 2011, our management estimates that our total sales to be between RMB205 and 210 million."

Mr. Zixin Wang, Vice President of Finance, commented, "We came out of the trough in 2009 and achieved record-high sales in 2010. The total revenue was in line with our guidance announced in November 2010. During the year, we increased our R&D expenses to meet the higher expectations of our customers and expanded the production facilities to meet potential demand in future. In addition, as a result of a rise in the production and sales of more complex products, our inventories rose to RMB 470.4 million as of December 31, 2010 from RMB271.4 million as of December 31, 2009. We will implement a number of inventory control measures that strive to reduce the inventory level gradually in the near future."

Fourth Quarter 2010 Financial Results

Total Sales

For the three months ended December 31, 2010, we generated total sales of RMB270.4 million (US$41.0 million), representing an increase of 52.7% from the fourth quarter of 2009 and a decrease of 16.7% from the third quarter of 2010. The increase from the fourth quarter of 2009 resulted from an increase in sales for chemicals used in both electronics and agrochemicals end-markets. The decrease in total sales compared to the third quarter of 2010 was mainly due to seasonally weakened sales in the electronics end-market.

Gross Profit and Gross Margin

In the fourth quarter of 2010, we generated gross profit of RMB98.7 million (US$15.0 million), representing an increase of 56.6% from the fourth quarter of 2009 and a decrease of 20.0% from the third quarter of 2010. We attribute the changes in the gross profit primarily to the corresponding fluctuations in the total sales in the corresponding quarters.

Our gross margin was 36.5% in the fourth quarter of 2010, as compared with 35.6% in the fourth quarter of 2009 and 38.0% in the third quarter of 2010. Compared with the fourth quarter of 2009, our gross margin increased slightly mainly because fewer inventories were written down in the fourth quarter of 2010. Compared to the third quarter of 2010, the decrease in our gross margin in the fourth quarter of 2010 was mainly due to the shift of the overall product mix.

Operating Expenses

Selling expenses and general and administrative expenses were RMB26.8 million (US$4.1 million), representing an increase of 13.5% from RMB23.6 million in the fourth quarter of 2009 and an increase of 16.7% from RMB23.0 million in the third quarter of 2010. We primarily attribute these increases in our general and administrative expenses to the increases in depreciation expenses for the Company's new headquarters and increased consulting fees related to Sarbanes–Oxley (SOX) compliance.

Research and development (R&D) expenses were RMB22.1 million (US$3.4 million), representing an increase of 176.2% from RMB8.0 million in the fourth quarter of 2009 and an increase of 46.7% from RMB15.1 million in the third quarter of 2010. The increases in R&D expenses were due to a greater amount of material consumption expenses that were related to an increase in the number of active R&D projects.

Income from Operations and Earnings Before Income Taxes

As a result of factors mentioned above, income from operations was RMB51.6 million (US$7.8 million) and earnings before income taxes was RMB51.6 million (US$7.8 million), respectively, in the fourth quarter of 2010, representing increases of 80.4% and 77.6%, respectively, from the fourth quarter of 2009, and decreases of 39.9% and 39.1%, respectively, from the third quarter of 2010.

Net Income Attributable to Chemspec International Limited Shareholders

Net income attributable to Chemspec International Limited was RMB45.3 million (US$6.9 million), an increase of 30.3% from the fourth quarter of 2009 and a decrease of 35.7% from the third quarter of 2010. The changes mainly reflected the changes in the total sales in the corresponding periods.

Basic and diluted earnings per ADS were RMB1.26 (US$0.19), as compared to RMB0.96 (US$0.15) in the fourth quarter of 2009 and RMB1.95 (US$0.29) and RMB1.94 (US$0.29), respectively, in the third quarter of 2010.

Full Year 2010 Financial Results

Total Sales

For the year ended December 31, 2010, we generated total sales of RMB1,082.0 million (US$163.9 million), representing an increase of 31.9% from the year ended December 31, 2009. The increase was mainly due to the general recovery of the global business environment, especially an increase in demand for chemicals used in the electronics end-market.

Gross Profit and Gross Margin

Our gross profit was RMB417.2 million (US$63.2 million) for 2010, representing an increase of 28.5% from 2009. We attribute the increase in gross profit primarily to the corresponding increase in our total sales.

Our gross margin was 38.6% in 2010, as compared to 39.6% in 2009. We attribute the decrease in the gross margin primarily to price adjustments for certain products.

Operating Expenses

Selling expenses and general and administrative expenses were RMB88.9 million (US$13.5 million) in 2010, representing an increase of 9.6% from RMB81.1 million in 2009. We attribute this increase primarily to the increase in our depreciation expenses as a result of our new headquarters that started operations in the second half of 2009 and an increase in the amount of consulting fees related to Sarbanes-Oxley (SOX) compliance in 2010.  

Research and development (R&D) expenses were RMB65.7 million (US$10.0 million) in 2010, representing an increase of 112.5% from RMB30.9 million in 2009. The increase in R&D expenses was due to a greater amount of material consumption expenses that were related to an increase in the number of active R&D projects to meet the anticipated demand from our customers.

Income from Operations and Earnings Before Income Taxes

For 2010, our income from operations was RMB266.7 million (US$40.4 million), representing an increase of 28.6% from RMB207.5 million in 2009.

Our earnings before income taxes was RMB265.2 million (US$40.2 million) in 2010, representing an increase of 28.8% from RMB206.0 million in 2009.

Net Income Attributable to Chemspec International Limited Shareholders

The net income attributable to Chemspec International Limited shareholders was RMB225.5 million (US$34.2 million), representing an increase of 30.8% from RMB172.4 million in 2009.

Basic and diluted earnings were both RMB6.24 (US$0.95), as compared to basic and diluted earnings of RMB5.18 (US$0.78) in 2009.

Cash Flows

As of December 31, 2010, we had RMB98.7 million (US$15.0 million) of cash, compared with RMB351.1 million as of December 31, 2009. Net cash outflows for 2010 mainly included capital expenditures of RMB248.7 million (US$37.7 million) for the expansion of production facilities.

First Quarter 2011 Guidance

Our management estimates that our total sales for the first quarter of 2011 to be between RMB205 and 210 million.

Conference Call Details

The Company will host a conference call and live webcast to discuss its fourth quarter financial results at 8:00 am Eastern Time (8:00 pm Shanghai time) on Monday, April 11, 2011.

The dial-in details for the live conference call are as follows:

A live and archived webcast of the conference call will be available in the Investor Relations section of Chemspec's website at http://www.chemspec.com.cn .

A telephone replay of the call will be available from 11:00 pm Eastern Standard Time on April 11, 2011 through 11:59 pm Eastern Standard Time on April 17, 2011.

The dial-in details for the replay are as follows:

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, including its registration statement on Form F-1, as amended from time to time. Chemspec does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

SOURCE Chemspec International Limited