SOURCE: China Auto Logistics Inc.

China Auto Logistics Inc.

August 14, 2013 07:30 ET

China Auto Logistics Reports 2013 Second Quarter Results; Also Provides Update on Previously Announced Letter of Intent to Acquire Tianjin Automall

TIANJIN, CHINA--(Marketwired - Aug 14, 2013) -

Auto Sales Slipped in the Quarter as New Government Enforcement Procedures Reduced Imported Vehicle Availability and Increased Customer Costs; Company Sees Easing Ahead and is Continuing Aggressive Pricing Strategy

Informal Discussions With Banks Are Proceeding for Financing Automall Acquisition for Estimated Purchase Price of $65 Million to $130 Million;
$16.13 Million (USD) Refundable Deposit Was Made Toward the Acquisition in June

2013 Second Quarter Investor Conference Call Scheduled for Thursday, August 15th at 8:00am ET

China Auto Logistics Inc. (the "Company") (NASDAQ: CALI), a top seller in China of luxury imported automobiles, a leading provider of auto-related services, and developer and operator of a leading automobile portal and auto-related websites, today reported new enforcement procedures for imported vehicles, and a slower economic environment, contributed to a 27% year over year decline in Auto Sales in its second quarter ended June 30, 2013. While instituting programs it believes will ease this situation, the Company also continued its aggressive pricing strategy aimed at maintaining industry leadership. The resulting anticipated reduction in profit margins, combined with reduced sales volume, led to an approximately 51% decrease in year over year net income for the quarter despite another solid performance by the Company's high margin Financing Services business. 

In line with the Company's strategy to expand its higher margin auto-related services businesses, discussions and due diligence have continued with respect to the non-binding Letter of Intent signed in May to acquire and operate the Airport International Automall in Tianjin. The Company reported it made a refundable deposit of $16,122,531 U.S. dollars (RMB 100 million) on the acquisition in June. In the event the acquisition is completed, it anticipates a purchase price of between $65 million (USD) and $130 million (USD) for the Airport International Automall and the land use rights on which it is situated. Additionally, the Company believes it has the informal backing of banks with which it has engaged in discussions regarding mortgage financing to acquire the automall. It believes this financing could be coupled with cash from the Company's operating cash flow and/or installment payments to the seller which would not entail any dilution of the Company's equity to complete the acquisition.

Generating Bottom Line Growth

Mr. Tong Shiping, CEO and Chairman of the Company, commented, "With the expectation that imported luxury auto sales in China will continue to exceed the anticipated growth in auto sales overall, we are determined to maintain our leadership in this niche and are continuing our aggressive pricing strategy. We believe by sacrificing some profits over the near term, we will attain a much stronger position in the future."

"With respect to the problems posed by new procedures and requirements for imports," Mr. Tong added, "we are working with our customers and our suppliers to normalize the situation, while also anticipating further strengthening of the economic environment."

"Meanwhile," he continued, "our key focus continues to be on generating bottom line growth through the expansion of our more profitable auto related services. If successful, we believe acquiring the Airport International Automall would be a significant step in this direction."

Financial Highlights

  • Net revenues in the 2013 second quarter declined 27% to $110,256,310 compared with $150,047,968 in the same period last year. The sharp decline in Auto Sales in the quarter, as explained below, was the key reason for the decline in overall revenues. The remaining contributors to revenues were the Company's auto related services businesses, led by Financing Services and also including Automobile Value-added Services, Automall Management Services and Web-based Advertising Services. During the quarter, the contribution from Web-based Advertising Services continued to shrink in line with the Company's strategic decision to utilize its industry leading websites to provide news and information to auto dealers and their customers to help build the Company's other businesses, rather than to generate revenue from online advertising.
  • The gross profit margin in the 2013 second quarter was 1.65% compared with 2.03% in the second quarter of 2012. With lower auto sales in the quarter, income from operations decreased 48.82% compared with a year earlier to $1,262,939. The largest contribution to operating income in the 2013 second quarter of $900,190 came from Financing Services, followed by $227,392 from Sales of Automobiles.
  • Net income attributable to shareholders in the 2013 second quarter declined 51.47% to $800,484, or $0.22 per share, compared with $1,649,461, or $0.45 per share, in the same period last year. Diluted weighted average number of common shares in both periods was 3,694,394.
  • For the six months ended June 30, 2013, net revenues were $217,881,376 compared with $257,493,554, a decline of 15.38%. Net income attributable to shareholders in the first six months of 2013 was $1,807,819, or $0.49 per share, down 44.05% from $3,230,938, or $0.88 per share a year earlier. Diluted weighted average number of common shares outstanding in both periods was 3,694,394.

Segment Review

  • In the 2013 second quarter, the Company sold 1,240 automobiles compared with 1,675 automobiles a year earlier resulting in a volume decrease of 26%. Average unit selling prices per vehicle in the same periods decreased slightly to $87,000 from $88,000. There were a few key reasons for the decline in addition to the somewhat softer economic environment. In particular, the Company's suppliers experienced delays importing vehicles that were beyond their control, and new inspection standards were implemented by the PRC's customs department. These factors prolonged the Company's purchasing cycles and thinned its inventories so that customers' demands could not always be met. The Company is actively attempting to overcome these hurdles by working more closely with suppliers to ensure prompt deliveries in order to maintain a stable inventory level. 

Additionally, beginning in March, 2013, the enforcement of rules relating to the registration of imported vehicles was tightened requiring alterations to certain imported vehicles. This caused approvals to be delayed and imposed additional costs on customers. The Company has begun a program of providing advice to its customers regarding alteration requirements at the registration offices in each province, and believes this will significantly ease customer concerns. 

In order to continue to expand its market share, in view of forecasts for continuing growth in luxury imported auto sales over the next few years, as well as increased competition, the Company has continued to implement a very aggressive pricing policy. The resulting decrease in gross margins on auto sales is expected to continue through the remainder of 2013, as the Company aims to further weaken competitors while providing its customers with the lowest possible prices.

  • Financing Services remained strong in the second quarter, as reflected by the 8.6% growth in fee revenue compared with the same quarter last year. During this time gross margin increased to 62.57% from 51.14% helped by the introduction of new types of financing and higher fees. Interest income in the 2013 second quarter declined to $672,185 from $989,723 in the year earlier quarter in line with the decline in prevailing interest rates. As of June 30, 2013, the Company had approximately $60 million drawn on the $138 million lines of credit it has established with some of China's leading commercial banks. In addition, as of June 30, 2013, the Company had $16.9 million of short term foreign currency borrowings with Agricultural Bank of China. In mid-June, while some banks in China experienced liquidity issues, China's Central Bank pledged assistance to any banks facing cash shortages. The Company has not been notified by any bank it works with about any changes in its credit lines, or any changes in requirements to maintain good relationships with these banks. Further, the Company does not foresee any difficulty at this time in obtaining credit lines and loan facilities from its banks.
  • As previously noted, the contributions to revenues and operating income in the 2013 second quarter from the Company's Web-based Advertising Services declined year over year as anticipated, and a slight year over year increase in operating income in Automall Management Services was solely the result of exchange rate differences. Automobile Value Added Services declined compared with the prior year's second quarter as its revenues tend to fluctuate.

Outlook

Mr. Tong concluded, "We see luxury imported auto sales outperforming the anticipated growth in China's auto sales over the next few years, but with stronger competition, at least through the current year, we do not anticipate margin expansion. Our continuing goal is to offset this with growth in our other services businesses where we see significant possibilities for profit growth, especially as the economy stabilizes further. Near term, we remain focused on achieving further progress on our announced acquisition plans which, if successful, should clearly demonstrate the soundness of our growth strategy."

Conference Call Invitation

The Company will discuss 2013 second quarter results during a live conference call and webcast on Thursday, August 15th at 8:00am ET.

To participate in the call, interested participants should call 1-888-846-5003 when calling within the United States or 1-480-629-9856 when calling internationally. Please ask for the China Auto Logistics 2013 Second Quarter Earnings Conference Call, Conference ID: 4635648. There will be a playback available until August 22, 2013. 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: 4635648.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=105749 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, and also manages China's largest imported auto mall in Tianjin. Additionally, it operates www.cali.com.cn, one of the leading automobile portals in China, which integrates the Company's websites that provide extensive information and news to China's auto dealers and their customers. The Company also provides a growing variety of "one stop" automobile related services such as short term dealer financing. Additional information about the Company is available at www.chinaautologisticsinc.com.

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.
CONDENSED CONSOLIDATED BALANCE SHEETS
 
    June 30, 2013
(Unaudited)
  December 31,
 2012
ASSETS            
Current assets            
  Cash and cash equivalents   $ 3,290,206   $ 8,888,749
  Restricted cash     50,168,435     27,015,351
  Receivables related to financing services     62,634,088     57,134,815
  Notes receivable     -     1,587,024
  Inventories     14,576,119     27,141,004
  Advances to suppliers     67,254,233     43,019,343
  Prepaid expenses     10,392     19,071
  Value added tax refundable     194,836     338,513
  Deferred tax assets     728,957     714,161
    Total current assets     198,857,266     165,858,031
             
Property and equipment, net     274,313     314,126
Acquisition deposit     16,199,054     -
Other assets     -     23,559
    Total Assets   $ 215,330,633   $ 166,195,716
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Bank overdraft   $ 2,420,893   $ -
  Lines of credit related to financing services     75,475,013     51,528,018
  Short term borrowings     22,316,497     19,673,128
  Accounts payable     630,424     -
  Notes payable to suppliers     12,959,243     12,696,196
  Accrued expenses     317,771     356,114
  Customer deposits     35,378,062     19,131,420
  Deferred revenue     205,902     241,598
  Due to shareholders     2,200,839     2,156,166
  Due to director     506,116     512,023
  Income tax payable     398,042     400,932
    Total current liabilities     152,808,802     106,695,595
             
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, 3,694,394 shares issued and outstanding as of June 30, 2013 and December 31, 2012     3,694     3,694
  Additional paid-in capital     21,994,074     21,994,074
  Accumulated other comprehensive income     7,138,066     5,923,398
  Retained earnings     32,814,228     31,006,409
    Total China Auto Logistics Inc. shareholders' equity     61,950,062     58,927,575
Noncontrolling interests     571,769     572,546
    Total equity     62,521,831     59,500,121
             
    Total liabilities and shareholders' equity   $ 215,330,633   $ 166,195,716
                 
                 
 
CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
    Three Months Ended June 30,     Six Months Ended June 30,  
    2013     2012     2013     2012  
                         
Net revenue   $ 110,256,310     $ 150,047,968     $ 217,881,376     $ 257,493,554  
Cost of revenue     108,441,227       146,999,242       213,838,574       250,914,243  
    Gross profit     1,815,083       3,048,726       4,042,802       6,579,311  
                                 
Operating expenses:                                
  Selling and marketing     192,808       182,713       362,842       428,390  
  General and administrative     359,336       398,519       952,699       1,239,795  
    Total operating expenses     552,144       581,232       1,315,541       1,668,185  
                                 
Income from operations     1,262,939       2,467,494       2,727,261       4,911,126  
                                 
Other income (expenses)                                
  Interest income     20,358       15,308       242,646       28,672  
  Interest expense     (142,439 )     (140,620 )     (219,075 )     (226,644 )
  Loss on disposal of property and equipment     -       (26,478 )     -       (72,074 )
  Foreign exchange loss     (20,219 )     -       (186,370 )     -  
  Miscellaneous     -       (114 )     -       (114 )
    Total other expenses     (142,300 )     (151,904 )     (162,799 )     (270,160 )
                                 
Income before income taxes     1,120,639       2,315,590       2,564,462       4,640,966  
                                 
Income taxes     321,148       663,084       756,648       1,399,673  
                                 
Net income     799,491       1,652,506       1,807,814       3,241,293  
                                 
Less: Net income (loss) attributable to noncontrolling interests                                
  (993 )     3,045       (5 )     10,355  
                                 
Net income attributable to shareholders of China Auto Logistics Inc.                                
$ 800,484     $ 1,649,461     $ 1,807,819     $ 3,230,938  
                                 
Earnings per share attributable to shareholders of China Auto Logistics Inc. - basic and diluted                                
                             
$ 0.22     $ 0.45     $ 0.49     $ 0.88  
                                 
Weighted average number of common share                                
  Outstanding - basic and diluted                                
  3,694,394       3,694,394       3,694,394       3,694,394  
                                   
                                   
 
CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
 
    Six Months Ended June 30,  
    2013     2012  
             
Cash flows from operating activities            
Net income   $ 1,807,814     $ 3,241,293  
                 
Adjustments to reconcile net income to net cash provided by (used for) operating activities                
             
Depreciation on property and equipment     56,661       84,153  
Amortization on intangible assets     -       119,389  
Loss on disposal of property and equipment     -       72,074  
                 
Changes in operating assets and liabilities:                
Restricted cash     (19,633,033 )     (1,122,831 )
Accounts receivable - trade     -       66,124  
Receivables related to financing services     (4,444,767 )     18,782,833  
Notes receivable     1,631,363       (4,767,685 )
Inventories     12,896,225 )     (1,953,934 )
Advances to suppliers     (22,846,983 )     (6,954,361 )
Prepaid expenses, other current assets and other assets     72,991       19,490  
Value added tax receivable     145,902       (658,126 )
Accounts payable     624,299       648,174  
Line of credit related to financing services     22,862,005 )     (27,457,158 )
Notes payable to suppliers     -       19,044,809  
Accrued expenses     (43,416 )     (136,701 )
Value added tax payable     (1,572 )     -  
Customer deposits     15,626,790       (10,321,412 )
Deferred revenue     (40,399 )     (124,887 )
Income tax payable     (12,445 )     (131,897 )
Deferred tax liability     -       (30,049 )
Net cash provided by (used in) operating activities     8,701,435       (11,580,702 )
                 
Cash flows from investing activities                
Purchase of property and equipment     (10,873 )     (1,958 )
Acquisition deposit     (16,122,531 )     -  
Net cash used in investing activities     (16,133,404 )     (1,958 )
                 
Cash flows from financing activities                
Bank overdraft     2,409,457       -  
Proceeds from short-term borrowings     22,152,978       6,242,480  
Repayments of short-term borrowings     (19,944,736 )     (848,538 )
Increase in restricted cash related to short-term borrowings     (2,866,586 )     -  
Proceeds from director     402,203       699,086  
Repayments to director     (396,537 )     (200,336 )
Net cash flows provided by financing activities     1,756,779       5,892,692  
                 
Effect of exchange rate change on cash     76,647       3,519  
                 
Net decrease in cash and cash equivalents     (5,598,543 )     (5,686,449 )
                 
Cash and cash equivalents at the beginning of period     8,888,749       8,184,793  
Cash and cash equivalents at the end of period   $ 3,290,206     $ 2,498,344  
           
Supplemental disclosure of cash flow information          
Interest paid   $ 1,538,774     $ 2,343,553  
Income taxes paid   $ 744,203     $ 1,530,800  
                 

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