SOURCE: China Auto Logistics Inc.

China Auto Logistics Inc.

April 10, 2014 07:45 ET

China Auto Logistics Reports 2013 Results

Company Managed Small Full Year Profit As it Competed to Maintain Industry Leadership in Slower Luxury Imported Auto Market; Difficult Comparisons Expected to Continue Through the First Half of 2014 Until New Airport Auto Mall Related Businesses Come on Stream

Company Aims to Diversify Profits with a Used Car Business and Other Auto-Related Sales and Services Businesses Capitalizing on Potential of Anticipated New Free Trade Zone in Tianjin

China Auto Logistics 2013 Year End Investor Conference Call Scheduled for Friday, April 11th at 8:00am ET

TIANJIN, CHINA--(Marketwired - Apr 10, 2014) - China Auto Logistics Inc. (the "Company" or "CALI") (NASDAQ: CALI), a top seller in China of luxury imported automobiles, and a leading provider of auto-related services, reported today a lower year over year small profit for the year ended December 31, 2013, as it sought to maintain leadership in China's highly competitive luxury imported vehicle market. In a slower and more restrictive economic environment in 2013, the Company's luxury imported automobile sales declined approximately 22% and largely were of less profitable, lower end luxury vehicles.

Diversification and Free Trade Zone Potential

On a positive note, the Company saw fee income from Financing Services continue to grow despite slower auto sales. Most significantly, in the final months of the year, a key building block for diversifying into a potentially fast growing used car business as well as other auto related businesses was put into place, with the successful acquisition for $91.4 million on November 30, 2013 of Zhonghe Auto Sales Service Co., Ltd., which owns and operates the Tianjin Airport International Automall. The auto mall is in a prime location earmarked as one of the key sites in a proposed new Free Trade Zone (FTZ) in Tianjin, similar to the FTZ in Shanghai, which boosted real estate values and the value of companies located there. This followed an agreement in November with Car King China to launch Tianjin Car King Used Car Trading Company in which the Company has a 40% interest.

Mr. Tong Shiping, Chairman and CEO of the Company, stated, "While in 2013 we again absorbed the impact on our bottom line from competitive pricing in order to maintain leadership in our imported luxury auto business, I'm very pleased we succeeded in establishing a new leg for our business with significant long term growth potential. Used cars sales have become a much bigger slice of the auto sales pie in China, and we see a major opportunity for Car King Tianjin in the years ahead. It will take a while to build and measure our success with this new business as well as with our further possible diversification into higher margin retail auto sales. While we will continue to focus on expanding our existing auto-related services businesses and stabilizing auto sales margins, diversification will greatly strengthen our Company, position us well for new successes -- especially if the Tianjin FTZ comes to fruition -- and provide investors with new reasons for optimism about our future."

Financial Highlights

  • 2013 revenues, which consisted primarily of luxury imported auto sales (98.30%), were $459,235,057, down 22.34% from $591,315,104 a year earlier, reflecting the year over year decline in Auto Sales.
  • Gross profit margins in 2013 decreased to 1.49% from 1.90% in 2012, primarily reflecting a continuing decline in Auto Sales pricing in order to remain an industry leader against strong competition.
  • Income from operations in 2013 was $2,929,747 compared with $3,582,194 a year earlier (including impairment changes for goodwill and intangible assets). The main contribution to income from operations came from Financing Services with operating income of $2,855,602 in 2013.
  • Net income attributable to shareholders in 2013 was $524,260, or $0.14 per share, compared with $2,567,087, or $0.69 per share in 2012.

Operations Overview

Sales of Automobiles declined 22.56% from a year earlier to $450,143,413 in 2013. The decline in volume was 26.58%, as the Company sold 4,837 imported luxury automobiles during the year compared with 6,588 a year earlier. Average unit selling prices, however, increased year over year in 2013 by 6.82% to approximately $94,000. Nevertheless, most of the Company's auto sales were of lower end luxury models where demand was stronger. Profit margins on these vehicles are lower and were further impacted by the Company's desire to maintain its leading position against strong competition by offering customers the lowest possible prices. In addition to the slower economy, two key factors influenced the declining sales of imported automobiles during 2013. The first was the implementation by PRC Customs of unified inspection standards, which prolonged purchasing cycles and led to insufficient inventories to meet customer's needs. Additionally, the PRC Motor Registration Office began strict enforcement of rules resulting in required alterations to imported automobiles to obtain registration permits. The additional costs to customers entailed by these alterations reduced demand for imported automobiles beginning in the second quarter.

Going forward, the Company is aiming to stabilize gross margins in 2014. At the same time, a new austerity program for government officials in effect is likely to extend the competitive environment in luxury auto sales.

Financing Services growth was impacted by the issues affecting Automobile Sales. Nevertheless, revenue from fee income increased 17.39% over 2012 results to $4,356,061. Revenue from the interest portion of this business was lower than in 2012 due to lower prevailing interest rates. The Company also was able to take advantage of available credit lines provided by banks, and does not foresee any difficulty in obtaining additional credit lines and loan facilities from its banks. As of April 7, 2014, the Company had a credit line of approximately $159 million and is regularly in negotiations for new credit lines.

Airport Auto Mall Automotive Services contributed a negligible amount to 2013 results as the Airport Auto Mall had only one month of operations following its acquisition near year-end. The Company anticipates selling used cars through Car King Tianjin at the Airport Auto Mall, as well as leasing a portion of the facility. As of February 28, 2014, as previously announced, the Company's contract for managing the International Auto Mall in Tianjin was not renewed, and the Company will instead focus on developing the Airport Auto Mall.

Potential for Tianjin Free Trade Zone (FTZ)

Considerable excitement is building in Tianjin about the potential for it becoming the second major FTZ in China after the recent opening of the Shanghai FTZ. The Company's recently purchased Airport Auto Mall is in the area of Tianjin earmarked for the FTZ. If the pattern that emerged in Shanghai is followed in Tianjin, real estate values could increase and significant new business opportunities could be created.

Outlook

Commenting on the outlook for 2014 and beyond, Mr. Tong stated, "Near term, the Company will face continuing competition and softer demand for its luxury imported automobile business and, at the same time, does not anticipate generating meaningful results from the Airport Auto Mall and Car King Tianjin until at least the second half of the year. We also will be looking at higher interest costs in connection with the payment of the remaining installments of the purchase price for the Airport Auto Mall. We therefore anticipate comparisons will continue to be difficult through the first six months of 2014."

"However," he continued, "we believe that we have established a stronger company, with a more diversified base of operations that, in time, will be worth the expense and major effort we are putting into bringing our strategy to fruition - - and our goal is to be a leader in each new area we enter. As successful business managers for many years, we welcome the possible opening of a Free Trade Zone in Tianjin, and the freeing up of capital this could entail in China's second major port city which already is a major hub of commercial activity."

Conference Call Invitation

The Company will discuss 2013 year end results during a live conference call and webcast on Friday, April 11, 2014 at 8:00 am Eastern Time.

To participate in the call, interested participants should call 1-877-941-1427 when calling within the United States or 1-480-629-9664 when calling internationally. Please ask for the China Auto Logistics 2013 Year End Earnings Conference Call, Conference ID: 4678872. There will be a playback available until April 18, 2014. To listen to the playback, please call 1-877-870-5176 when calling within the United States or 1-858-384-5517 when calling internationally. Use the Replay Pin Number: 4678872.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=108683 or at ViaVid's website at http://viavid.com

SEE ATTACHED TABLES

About China Auto Logistics Inc.

China Auto Logistics Inc. is one of China's top sellers of imported luxury vehicles. It also provides a growing variety of "one stop" automobile related services such as short term dealer financing. Additionally, in November, 2013, it acquired the owner and operator of the 26,000 square meter Airport International Automall in Tianjin for $91.4 million, with plans to develop it, among other things, as the flagship site for a used car business, with Car King (China) Used Car Trading Co., Ltd.

Information Regarding Forward-Looking Statements

Except for historical information contained herein, the statements in this press release are forward-looking statements that are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements involve known and unknown risks and uncertainties, which may cause our actual results in future periods to differ materially from forecasted results. These risks and uncertainties include, among other things, product demand, market competition, and risks inherent in our operations. These and other risks are described in our filings with the U.S. Securities and Exchange Commission.

 
 
CHINA AUTO LOGISTICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
 
    December 31,
    2013   2012
ASSETS:            
Current assets:            
  Cash and cash equivalents   $ 15,041,505   $ 8,888,749
  Restricted cash     29,665,536     27,015,351
  Receivable related to auto mall management fees     255,712     -
  Receivable related to financing services     68,568,562     57,134,815
  Notes receivable     -     1,587,024
  Inventories     15,343,671     27,141,004
  Advances to suppliers     38,074,096     43,019,343
  Prepaid expenses     12,311     19,071
  Value added tax receivable     283,478     338,513
  Deferred tax assets     48,345     714,161
    Total current assets     167,293,216     165,858,031
             
Property, plant, and equipment, net     72,977,985     314,126
Ownership interest in Car King Tianjin     577,904     -
Goodwill     20,159,365     -
Intangible assets, net     547,155     -
Other assets     -     23,559
Total assets   $ 261,555,625   $ 166,195,716
             
LIABILITIES AND SHAREHOLDERS' EQUITY:            
Current liabilities:            
  Bank overdraft   $ 2,439,429   $ -
  Lines of credit related to financing services     66,173,312     51,528,018
  Short term borrowings     6,259,598     19,673,128
  Notes payable to suppliers     21,275,203     12,696,196
  Accrued expenses     236,599     356,114
  Customer deposits     35,205,567     19,131,420
  Deferred revenue     202,428     241,598
  Payable related to acquisition of Zhonghe - current portion, net     15,706,581     -
  Due to shareholders     2,223,458     2,156,166
  Due to director     597,393     512,023
  Income tax payable     174,540     400,932
  Deferred tax liability     786,413     -
    Total current liabilities     151,280,521     106,695,595
             
Payable related to acquisition of Zhonghe, excluding current portion, net     35,306,223     -
Deferred tax liability     12,239,842     -
      Total liabilities     198,826,586     106,695,595
             
Commitments and contingencies (Note 17)            
             
             
             
CHINA AUTO LOGISTICS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Continued)
 
    December 31,
    2013   2012
             
Equity:            
China Auto Logistics Inc. shareholders' equity:            
  Preferred stock, $0.001 par value, 5,000,000 shares authorized, none issued and outstanding     -     -
  Common stock, $0.001 par value, 95,000,000 shares authorized, 4,034,394 shares and 3,694,394 shares issued and outstanding as of December 31, 2013 and 2012, respectively     4,034     3,694
  Additional paid-in capital     22,979,734     21,994,074
  Accumulated other comprehensive income     7,642,886     5,923,398
  Retained earnings     31,530,669     31,006,409
    Total China Auto Logistics Inc. shareholders' equity     62,157,323     58,927,575
Noncontrolling interests     571,716     572,546
    Total equity     62,729,039     59,500,121
             
    Total liabilities and shareholders' equity   $ 261,555,625   $ 166,195,716
                 
                 
                 
CHINA AUTO LOGISTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
 
    Year Ended December 31,  
    2013     2012  
                 
Net revenue   $ 459,235,057     $ 591,315,104  
Cost of revenue     452,379,416       580,057,718  
    Gross profit     6,855,641       11,257,386  
                 
Operating expenses:                
  Selling and marketing     751,114       977,555  
  General and administrative     3,174,780       2,036,436  
  Impairment loss of goodwill and intangible assets     -       4,661,201  
    Total operating expenses     3,925,894       7,675,192  
                 
Income from operations     2,929,747       3,582,194  
                 
Other income (expenses):                
  Interest income     515,212       230,916  
  Interest expense     (999,360 )     (531,301 )
  Loss on disposal of property and equipment     -       (172,043 )
  Gain on forgiveness of debt     -       1,139,861  
  Foreign exchange loss     (217,764 )     -  
  Equity loss - share of investee company loss     (76,660 )     -  
  Miscellaneous     -       (72,922 )
    Total other income (loss)     (778,572 )     594,511  
                 
Income before income taxes     2,151,175       4,176,705  
                 
Income taxes     1,634,518       1,596,179  
                 
Net income     516,657       2,580,526  
                 
Less: Net income (loss) attributable to noncontrolling interests     (7,603 )     13,439  
                 
Net income attributable to shareholders of China Auto Logistics Inc.   $ 524,260     $ 2,567,087  
                 
Earnings per share attributable to shareholders of China Auto Logistics Inc.                
  - basic and diluted   $ 0.14     $ 0.69  
                 
Weighted average number of common shares outstanding                
  - basic and diluted     3,723,271       3,694,394  
                 
                 
                 
CHINA AUTO LOGISTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
 
    Year Ended December 31,  
    2013     2012  
                 
Cash flows from operating activities:                
Net income   $ 516,657     $ 2,580,526  
                 
Adjustments to reconcile net income to net cash provided by (used in) operating activities                
Depreciation and amortization     314,126       341,483  
Loss on disposal of property and equipment     5,816       172,043  
Impairment loss of goodwill and intangible assets     -       4,661,201  
Gain on forgiveness of debt     -       (1,139,861 )
Equity loss - share of investee company loss     76,660       -  
Stock issuance related to Zhonghe acquisition     986,000       -  
Change of deferred tax liabilities     (32,418 )     (45,106 )
Inventory reserve     190,877       -  
                 
Changes in operating assets and liabilities:                
Restricted cash     (13,792,120 )     (8,207,076 )
Accounts receivable - trade     -       107,894  
Receivable related to auto mall management fees     (252,403 )     -  
Receivables related to financing services     (9,955,175 )     32,524,609  
Notes receivable     1,615,378       3,172,891  
Inventories     13,708,851       1,559,629  
Advances to suppliers     9,450,667       1,725,410  
Prepaid expenses, other current assets and other assets     33,003       136,617  
Value added tax receivable     305,993       287,087  
Deferred tax assets     679,201       (713,900 )
Accounts payable     -       (1,565 )
Lines of credit related to financing services     13,297,886       (36,588,686 )
Notes payable     3,230,757       12,691,563  
Accrued expenses     (137,505 )     (54,205 )
Accrued interest on payable related to Zhonghe acquisition     258,273       -  
Customer deposits     15,266,991       (27,722,918 )
Deferred revenue     (51,867 )     (78,336 )
Income tax payable     (235,813 )     (760,417 )
Net cash provided by (used in) operating activities     35,479,835       (15,351,117 )
                 
Cash flows from investing activities:                
Acquisition of Zhonghe, net of cash received of $194,445     (38,574,637 )     -  
Repayments of receivable from former owner of Zhonghe     7,111,260       -  
Purchase of property and equipment     (14,842 )     (6,058 )
Net cash used in investing activities     (31,478,219 )     (6,058 )
                 
Cash flows from financing activities:                
Bank overdraft     2,407,865       -  
Proceeds from short-term borrowings     28,444,740       32,464,014  
Repayments of short-term borrowings     (42,472,868 )     (16,902,607 )
Decrease of restricted cash related to short-term borrowings     13,462,283       -  
Proceeds from a director     862,200       852,075  
Repayment of amount due to director     (755,921 )     (352,335 )
Net cash flows provided by financing activities     1,948,299       16,061,147  
                 
                 
                 
CHINA AUTO LOGISTICS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Continued)
 
    Year Ended December 31,  
    2013   2012  
               
Effect of exchange rate change on cash     202,841     (16 )
               
Net increase in cash and cash equivalents     6,152,756     703,956  
               
Cash and cash equivalents at the beginning of year     8,888,749     8,184,793  
Cash and cash equivalents at the end of year   $ 15,041,505   $ 8,888,749  
               
Supplemental disclosure of cash flow information:              
Interest paid   $ 3,650,929   $ 3,905,767  
Income taxes paid   $ 1,062,331   $ 3,115,602  
               
Non cash investing activities:              
Payable related to the acquisition of Zhonghe   $ 52,197,645   $ -  
               

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