Cogo Posts Record Annual Revenue for 2012

SHENZHEN, China, April 30, 2013 /PRNewswire/ -- Cogo Group, Inc. ("Cogo", or the "Company") (NASDAQ: COGO), a leading gateway for global semiconductor companies to access the industrial and technology markets in China, today reported record revenues in both the fourth quarter of 2012 and the full year 2012. Fourth quarter revenue was $198.8 million, up 17.3% year-over-year from $169.5 million reported a year earlier. Full year revenue in 2012 was $785.0 million, a 39.0% increase from $564.7 million in 2011.

Net income attributable to Cogo Group, Inc. for the fourth quarter of 2012 was $0.2 million, up from net loss of $35.8 million reported in the same period last year, while Non-GAAP net income attributable to Cogo Group, Inc. was $3.9 million, down 17.0% from the same period in 2011. Diluted earnings per share ("EPS") attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.01. Diluted EPS attributable to Cogo Group, Inc. on a Non-GAAP basis was $0.11, down 15.4% from the fourth quarter of 2011.

Net income attributable to Cogo Group, Inc. for 2012 was $3.9 million, compared to $24.9 million of net loss attributable to Cogo Group, Inc. in 2011. Diluted EPS attributable to Cogo Group, Inc. on a U.S. GAAP basis was $0.11 for the year, up from $(0.67) in 2011.

Jeffrey Kang, CEO and Chairman of Cogo, remarked, "Cogo generated record revenue in both the fourth quarter of 2012 and the full year 2012, and we remained profitable in these uncertain economic times. Management believes that the stock is currently trading far below the Company's net asset value. We will continue to seek ways to improve and maximize shareholder value."    

Financial Results

Revenue for the fourth quarter was $198.8 million, an increase of 17.3% from $169.5 million reported for the same period in 2011. The revenue breakdown includes: $75.3 million, or 37.9 % of total sales, for digital media, representing a 24.5% increase year-over-year; $86.7 million, or 43.6% of total sales, for telecommunications equipment, representing a 15.6% increase year-over-year; $36.8 million, or 18.5% of total sales, for industrial business, representing an 8.2% increase year-over-year. The Company did not report any service revenue for the quarter. Management believes the industrial business end-market is among the fastest growing markets in China, and the Company is currently targeting opportunities in the electrical grid, smart meter, automotive, railway, clean technology and medical sectors.

Cost of sales, which includes the aggregate purchase of components from suppliers and the direct cost of services, was $186.1 million compared to $154.2 million in the fourth quarter of 2011, representing a year-over-year increase of 20.7%. Gross profit for the fourth quarter was $12.7 million, down 17.2% compared to $15.3 million during the fourth quarter of last year. Gross margin for the fourth quarter was 6.4% compared to 9.1% reported for the fourth quarter of 2011.

Operating expenses, including selling, general and administrative, and research and development (R&D) expenses, totaled $10.8 million, down 78.5%, compared to $50.4 million reported for the fourth quarter of last year.

Net income attributable to Cogo Group, Inc. for the fourth quarter of 2012 was $0.2 million or diluted EPS attributable to Cogo Group, Inc. of $0.01 on a U.S. GAAP basis, compared to net loss attributable to Cogo Group, Inc. of $35.8 million, or  Diluted EPS attributable to Cogo Group, Inc. of $(0.99), in the fourth quarter of 2011. Non-GAAP net income attributable to Cogo Group, Inc. was $3.9 million, or $0.11 Non-GAAP diluted EPS attributable to Cogo Group, Inc. for the fourth quarter of 2012. The weighted average number of shares used in the calculation of diluted EPS was 36.8 million compared to 36.0 million in the fourth quarter of 2011.

For the full year 2012, the Company reported revenue of $785.0 million, up 39.0% from the year ended 2011. Cost of sales was $733.0 million, an increase of 46.1% from the $501.6 million reported last year. Gross profit was $52.0 million, a decrease of 17.6%, from $63.1 million in 2011. Gross margin was 6.6% of sales, compared to 11.2% last year.

Operating expenses, including selling, general and administrative expenses, research and development expenses as well as provision for doubtful accounts, and impairment loss of goodwill and intangible assets totaled $41.3 million, as compared to $84.2 million in 2011. Income from operations was $10.7 million, as compared to loss from operations of $21.0 million reported in the prior year.

Income attributable to noncontrolling interest was $3.9 million during the year, compared to $1.2 million for 2011. Net income attributable to Cogo Group, Inc. for 2012 was $3.9 million or $0.11 per fully diluted share, compared to net loss attributable to Cogo Group, Inc. of $24.9 million or $(0.67) per fully diluted share for the same period last year.

Balance Sheet

The Company continues to be in a strong financial position with a current ratio of 2.9 to 1 and a cash position of $52.1 million. The Company had operating cash outflow of $38.7 million in the year ended December 31, 2012.

Inventories increased from $52.0 million on December 31, 2011 to $82.9 million as of December 31, 2012 as the Company continued to target new revenue growth opportunities. Inventory turnover days were 41 days in the fourth quarter of 2012 compared to 27 days in the prior quarter. Accounts receivable decreased from $149.6 million on December 31, 2011 to $113.2 million as of December 31, 2012 as a result of faster settlement from customers, while Days Sales Outstanding decreased from 61 days in the third quarter to 52 days in the fourth quarter of 2102. Accounts payable decreased from $19.3 million as of December 31, 2011 to $16.5 million as of December 31, 2012 and Days Payable Outstanding increased slightly from 7 days in the prior quarter to 8 days in the current quarter sequentially. Cogo's cash conversion cycle increased from 81 days in the third quarter of 2011 to 85 days in the fourth quarter of 2012.

Total cash, including pledged bank deposits, decreased to $141.5 million reported at the end of the fourth quarter of 2012 from $159.5 million as of December 31, 2011. Bank borrowings decreased from $135.7 million as of December 31, 2011 to $98.6 million as of December 31, 2012.

Cogo Group, Inc. equity was $255.3 million as of December 31, 2012, an increase of 5.7% from $241.5 million as of December 31, 2011. During the trading days of January 1 2013 to April 26, 2013, the Company repurchased approximately 1.5 million shares of its common stock at an average price of $2.02 and a total cost of approximately $3.0 million pursuant to a stock repurchase plan. We repurchased approximately 5.1 million shares since September 24, 2012 under the current repurchase plan, and there are approximately 4.9 million shares left of the 10 million shares authorized for the plan. Cogo continues to view share buybacks as a strategic use of cash.

About Cogo Group, Inc.:

Cogo Group, Inc. (Nasdaq: COGO) is one of the leading gateways for global semiconductor companies to access the rapidly growing Industrial and Technology sectors in China. Through its unique business-to-business services platform, Cogo designs customized embedded solutions using technology from suppliers including Broadcom, Xilinx, Atmel and others for a customer base of over 2,100 Chinese OEMs/ODMs. Cogo's customer list includes approximately 100 blue-chip companies, including ZTE, BYD and NARI, as well as over 2,000 Small and Medium Enterprises (SMEs). The Company serves a broad list of rapidly growing end-markets in China, including 3G Smart phones, Tablets, Automotives, High-Speed Railway, Smart Meter/Smart Grid, Healthcare and High Definition Television ("HDTV").  

For further information:
Investor Relations
www.cogo.com.cn/investorinfo.html
[email protected]
H.K.: +852 2730 1518 
U.S.: +1 (646) 291 8998
Fax: +86 755 2674 3522

Safe Harbor Statement:

This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our proposed discussions related to our businesses such as businesses with Broadcom, Atmel and Freescale or growth strategy such as growth in digital media, telecommunications and industrial applications businesses, as well as our potential acquisitions which are subject to change. Such information is based upon expectations of our management that were reasonable when made, but may prove to be incorrect. All such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. For further descriptions of other risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 10-K, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.

About Non-GAAP Financial Measures:

To supplement Cogo's consolidated financial results presented in accordance with GAAP, Cogo uses the following measures defined as Non-GAAP financial measures by the SEC: 1) Non-GAAP net income attributable to Cogo Group, Inc. which is net income attributable to Cogo Group, Inc. excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation; and 2) Non-GAAP diluted earnings per share attributable to Cogo Group, Inc., which is diluted earnings per share excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation. The presentation of these Non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these Non-GAAP financial measures, please see the table captioned "Unaudited Reconciliations of Non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

Cogo believes that these Non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses, amortization of intangible assets and related deferred taxation that may not be indicative of its operating performance from a cash perspective. Cogo believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These Non-GAAP financial measures also facilitate management's internal comparisons to Cogo's historical performance and liquidity. Cogo computes its Non-GAAP financial measures using the same consistent method from quarter to quarter.

Cogo believes these Non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using Non-GAAP net income attributable to Cogo Group, Inc., Non-GAAP diluted earnings per share attributable to Cogo Group, Inc., Non-GAAP income from operation and Non-GAAP operating margin is that these Non-GAAP measures exclude share-based compensation expenses and amortization of intangible assets and related deferred taxation that have been and will continue to be for the foreseeable future a recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each Non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.

Tables Attached

SOURCE Cogo Group, Inc.