SOURCE: China Auto Logistics Inc.

China Auto Logistics Inc.

November 14, 2013 07:25 ET

China Auto Logistics Reports Third Quarter Results

TIANJIN, CHINA--(Marketwired - Nov 14, 2013) - China Auto Logistics Inc. (the "Company" or "CALI") (NASDAQ: CALI)

  • Aggressive Pricing Strategy Continued in the Quarter Despite Reduced Year Over Year Sales and Profit Dips Resulting From Continued
  • Stringent Enforcement of Imported Auto Regulations; Maintaining Imported Luxury Auto Leadership Still is Seen As Paramount to Future Success
  • Potential Acquisition of Tianjin Airport Auto Mall Remains Key Focus of Auto-related Services Expansion Strategy
  • Investor Conference Call Scheduled for Friday, November 15th at 8:00am ET

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 results for its third quarter and nine months ended September 30, 2013.

During the quarter, the Company kept in place its aggressive pricing strategy to provide customers in China with the lowest possible prices on imported luxury autos and to maintain the Company's leadership position in this industry segment. As anticipated, this strategy led to a further reduction during the quarter in the traditionally thin margins in this business. Imported vehicle sales (approximately 98.4% of third quarter revenues), while up from sales levels in the second quarter this year, also continued to be impacted in a still slow economic environment by the increased customs standards and tighter rule enforcement at the motor registration office initiated in the prior quarter.

Year over year revenues and profits in the Company's highly profitable Financing Services segment were impacted by lower year over year auto sales, in the quarter. Of note, however, through the first nine months of 2013, operating income from this business remained ahead of operating income generated in the comparable period of 2012.

A key management focus in the third quarter was the continued due diligence investigation relating to the potential acquisition for an estimated $65 million to $130 million of the Airport International Automall, which includes the 26,000 square meter facility and the land use rights on which it is situated in Tianjin. If completed, this acquisition is expected to constitute a major element in the Company's strategy to expand its auto-related services businesses to fuel future growth.

Financial Highlights

  • Net revenues in the quarter were $125,489,366, compared with $170,456,821 in the same period last year. A decrease in Auto Sales revenue to $123,468,011 from $168,360,743 in the third quarter last year, as well as reduced revenues from Web-based Advertising, a segment the Company made the strategic decision to shrink, as well as lower revenues from Financing Services were the key reasons for the decline.

  • The gross profit margin in Auto Sales in the third quarter continued to be squeezed by the Company's decision to be very competitive in its Auto Sales pricing to maintain industry leadership in the face of significant competition. The contribution to income from operations from Auto Sales in the quarter decreased to $193,793 from $1,124,528 a year earlier. The largest contributor to operating income continued to be Financing Services, which saw its third quarter contribution reduced to $579,371 from $771,255 a year earlier, while contributions in the quarter also came from Auto Mall Management services, Automobile Value Added Services and Web-based Advertising Services of $181,550, $127,039 and $89,331 respectively.

  • Reflecting the reduced contributions to operating income, net income attributable to shareholders in the third quarter was $553,275 compared with $1,517,549 in the year earlier period. Earnings per share in the 2013 third quarter attributable to shareholders was $0.15, compared with $0.41 in the third quarter of 2012.

  • For the nine months ended September 30, 2013, net revenues were $343,370,742, compared with $427,950,375 a year earlier. Net earnings attributable to shareholders in the first nine months of 2013 were $2,361,094, or $0.64 per share, compared with $4,748,487, or $1.29 per share in the first nine months of 2012.

  • In all periods noted above, there were 3,694,394 diluted weighted average common shares outstanding.

Segment Review

  • The number of automobiles sold by the Company in the quarter was 1,253, compared with 2,004 in the third quarter of 2012. This decrease was a result of several factors, not least of which was the softening in the Chinese economy. Another key issue was the implementation by the PRC customs department in the second quarter of unified standards to complete their inspection process. In the third quarter, this continued to prolong the Company's purchasing cycles such that it took longer than usual to fill customer orders. During the third quarter, inventory levels eventually increased to a stable level and, reflecting the Company's progress, the number of automobiles sold in the quarter slightly exceeded the 1,240 automobiles sold in the second quarter of 2013 and quarter over quarter revenues were correspondingly higher.

    A further hindrance to imported auto sales in the quarter was the additional cost faced by customers due to vehicle alterations required by the PRC motor registration office as a consequence of stricter enforcement of existing rules. The Company has taken steps to help customers to minimize these costs and anticipates this will continue to ease some of their concerns.

    Additionally, sales in the third quarter continued to reflect a higher demand for lower end luxury models, with typically lower margins, for the Company's top selling brands. During the quarter, however, the Company began to see increased demand for certain higher end models which increased their average selling prices. As a consequence, following a long decline, the overall average unit selling price in the 2013 third quarter increased to $99,000 from $84,000 in the same period in 2012. Profit margins continued to decline in the quarter, however, as the Company continued to fight competition with the best possible prices coupled with its auto-related services. While continuing to focus on sales of higher end automobiles, the Company anticipates a continuation of low profit margins through the remainder of the year.

  • As previously noted, following the decline in Auto Sales revenues and profits, Financing Services also experienced a slight (1.4%) decline in revenues in the quarter, as interest income grew, and fee income decreased. Through the first nine months of 2013, however, the fee income portion of revenues from this key segment increased 13.97% over the same period of 2012, but overall revenue declined 6.3% as the contribution from interest income decreased. Gross margin in the business was 62.42% in the nine month period, up from 51.24% a year earlier and together with the increase in fee income is indicative of the continuing future growth potential of this important auto-related service. Further to this, as of September 30, 2013, the business was supported by aggregate credit lines of approximately $139 million, on which it had drawn approximately $49.7 million. In addition to the facility lines of credit agreements with several major banks in the PRC, the Company had $13.7 million of short term foreign currency borrowings as of September 30, 2013 with Agricultural Bank of China. At this date (Nov. 14, 2013), the Company does not anticipate any difficulties in obtaining credit lines and loan facilities from its banks on an "as needed" basis.

  • As previously noted, contributions to revenues and net income from the Company's web-based advertising services continued to decline as planned during 2013. Only minimal future contributions are anticipated from the Company's two remaining informational websites following the closing of its portal in 2013.

  • In May 2013, Shisheng signed a non-binding Letter of Intent to acquire a company which operates the Airport International Automall in Tianjin, and made a refundable deposit of RMB 100 million (approximately $16,296,200) related to this potential acquisition which the Company believes will cost between $65 million and $130 million, and could become a key springboard for expanding its auto-related services. The Company is continuing its due diligence with a decision on possible next steps anticipated by the end of the year.

Outlook

Mr. Tong Shiping, CEO and Chairman of the Company, commented, "We continue to believe in the growth potential for imported luxury vehicles in China as the economy continues to rebound. Consequently, painful as it is in the short-term, we will continue to press ahead at least through the remainder of the year with our aggressive pricing. Coupled with the provision of our auto-related financing this will make it difficult, if not impossible, for competitors to match what we can offer customers. Maintaining our leadership will facilitate the growth of our existing and planned auto-related services, as would the successful completion of the acquisition of the automall in Tianjin, although a final decision on the latter has not been reached as yet."

Conference Call Invitation

The Company will discuss 2013 third quarter results during a live conference call and webcast on Friday, November 15th, 2013 at 8:00 am Eastern Time.

To participate in the call, interested participants should call 1-877-941-4774 when calling within the United States or 1-480-629-9760 when calling internationally. Please ask for the China Auto Logistics 2013 Third Quarter Earnings Conference Call, Conference ID: 4650138. There will be a playback available until November 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: 4650138.

This call is being webcast by ViaVid Broadcasting and can be accessed by clicking on this link http://public.viavid.com/index.php?id=106886 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 manages China's largest imported auto mall in Tianjin and 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
 
    September 30,
2013
(Unaudited)
 
December 31,
2012
ASSETS            
Current assets            
  Cash and cash equivalents   $ 5,973,548   $ 8,888,749
  Restricted cash     40,528,915     27,015,351
  Accounts receivable - trade     128,838     -
  Receivable related to auto mall management fees     254,628     -
  Receivables related to financing services     68,048,048     57,134,815
  Notes receivable     -     1,587,024
  Inventories     23,077,715     27,141,004
  Advances to suppliers     42,842,131     43,019,343
  Prepaid expenses     25,437     19,071
  Value added tax refundable     1,583,649     338,513
  Deferred tax assets     733,329     714,161
    Total current assets     183,196,238     165,858,031
             
Property and equipment, net     251,322     314,126
Acquisition deposit     16,296,200     -
Other assets     -     23,559
    Total Assets   $ 199,743,760   $ 166,195,716
             
LIABILITIES AND SHAREHOLDERS' EQUITY            
Current liabilities            
  Bank overdraft   $ 2,421,468   $ -
  Lines of credit related to financing services     63,401,567     51,528,018
  Short term borrowings     19,602,915     19,673,128
  Accounts payable     80,207     -
  Notes payable to suppliers     13,036,960     12,696,196
  Accrued expenses     361,077     356,114
  Customer deposits     34,312,328     19,131,420
  Deferred revenue     138,589     241,598
  Due to shareholders     2,214,037     2,156,166
  Due to director     501,597     512,023
  Income tax payable     335,768     400,932
    Total current liabilities     136,406,513     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 September 30, 2013 and December 31, 2012     3,694     3,694
  Additional paid-in capital     21,994,074     21,994,074
  Accumulated other comprehensive income     7,403,250     5,923,398
  Retained earnings     33,367,503     31,006,409
    Total China Auto Logistics Inc. shareholders' equity     62,768,521     58,927,575
Noncontrolling interests     568,726     572,546
    Total equity     63,337,247     59,500,121
             
    Total liabilities and shareholders' equity   $ 199,743,760   $ 166,195,716
                 
                 
                 
CHINA AUTO LOGISTICS INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
 
    Three Months Ended September 30,     Nine Months Ended September 30,  
    2013     2012     2013     2012  
                         
Net revenue   $ 125,489,366     $ 170,456,821     $ 343,370,742     $ 427,950,375  
Cost of revenue     123,918,829       167,673,580       337,757,403       418,587,823  
    Gross profit     1,570,537       2,783,241       5,613,339       9,362,552  
                                 
Operating expenses:                                
  Selling and marketing     159,492       287,372       522,334       715,762  
  General and administrative     479,922       343,749       1,432,621       1,583,544  
    Total operating expenses     639,414       631,121       1,954,955       2,299,306  
                                 
Income from operations     931,123       2,152,120       3,658,384       7,063,246  
                                 
Other income (expenses)                                
  Interest income     124,540       128,167       367,186       156,839  
  Interest expense     (234,552 )     (154,883 )     (453,627 )     (381,527 )
  Loss on disposal of property and equipment     -       (12,719 )     -       (84,793 )
  Foreign exchange loss     (12,254 )     -       (198,624 )     -  
  Miscellaneous     -       -       -       (114 )
    Total other expenses     (122,266 )     (39,435 )     (285,065 )     (309,595 )
                                 
Income before income taxes     808,857       2,112,685       3,373,319       6,753,651  
                                 
Income taxes     257,518       591,893       1,014,166       1,991,566  
                                 
Net income     551,339       1,520,792       2,359,153       4,762,085  
                                 
Less: Net income (loss) attributable to noncontrolling interests     (1,936 )     3,243       (1,941 )     13,598  
                                 
Net income attributable to shareholders of China Auto Logistics Inc.   $ 553,275     $ 1,517,549     $ 2,361,094     $ 4,748,487  
                                 
Earnings per share attributable to shareholders of China Auto Logistics Inc. - basic and diluted   $ 0.15     $ 0.41     $ 0.64     $ 1.29  
                                 
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)
 
    Nine Months Ended September 30,  
    2013     2012  
Cash flows from operating activities                
Net income   $ 2,359,153     $ 4,762,085  
                 
Adjustments to reconcile net income to net cash provided by (used for) operating activities                
Depreciation on property and equipment     83,826       123,233  
Amortization on intangible assets     -       178,920  
Loss on disposal of property and equipment     -       84,793  
                 
Changes in operating assets and liabilities:                
Restricted cash     (12,735,438 )     (10,342,558 )
Accounts receivable - trade     (88,091 )     107,738  
Receivable related to auto mall management fees     (253,599 )     -  
Receivables related to financing services     (9,571,239 )     28,805,018  
Notes receivable     1,631,363       (13,153,761 )
Inventories     4,516,046       (9,355,312 )
Advances to suppliers     1,868,155       (13,213,116 )
Prepaid expenses, other current assets and other assets     17,843       88,709  
Value added tax receivable     (1,236,134 )     (1,685,533 )
Accounts payable     72,540       285,704  
Line of credit related to financing services     10,386,661       (27,188,268 )
Notes payable to suppliers     -       19,044,809  
Accrued expenses     (1,904 )     (48,001 )
Value added tax payable     (1,572 )     -  
Customer deposits     14,354,058       (3,277,890 )
Deferred revenue     (108,670 )     (34,158 )
Income tax payable     (76,845 )     (468,182 )
Deferred tax liability     -       (45,045 )
Net cash provided by (used in) operating activities     11,216,153       (25,330,815 )
                 
Cash flows from investing activities                
Purchase of property and equipment     (13,502 )     (1,958 )
Acquisition deposit     (16,122,531 )     -  
Net cash used in investing activities     (16,136,033 )     (1,958 )
                 
Cash flows from financing activities                
Bank overdraft     2,395,570       -  
Proceeds from short-term borrowings     25,383,484       30,959,992  
Repayments of short-term borrowings     (26,023,210 )     (8,469,915 )
Decrease in restricted cash related to short-term borrowings     136,027       -  
Proceeds from director     502,201       699,086  
Repayments to director     (496,089 )     (210,209 )
Net cash provided by financing activities     1,897,983       22,978,954  
                 
Effect of exchange rate change on cash     106,696       391  
                 
Net decrease in cash and cash equivalents     (2,915,201 )     (2,353,428 )
                 
Cash and cash equivalents at the beginning of period     8,888,749       8,184,793  
Cash and cash equivalents at the end of period   $ 5,973,548     $ 5,831,365  
                 
Supplemental disclosure of cash flow information                
Interest paid   $ 2,398,901     $ 3,059,236  
Income taxes paid   $ 937,321     $ 2,458,979  
                 
                 

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