China Automotive Systems (CAAS) 28 Mar 192018 Q4 Earnings call transcript

Greetings. Welcome to China Automotive Systems' Fourth Quarter 2018 Conference Call. At this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] Please note, this conference is being recorded. the to turn Theiss. now would conference Kevin over I Mr. begin. Theiss, now you may

Call. joining Thank Quarter XXXX Conference Systems' you, and us Year Welcome everyone, for today. to China Automotive Fiscal Fourth

Chief Joining call assistance Executive Chief us with Officer Automotive to the be China of They of Mr. in answer today Qizhou questions Financial Officer; Mr. later Jie are and Li, will available Systems. translation. Wu, the conference

that we may will remind all that may Before make call, statements forward-looking we I begin, contain throughout listeners statements. this

Forward-looking estimates of statements assumptions the and date the represents company's only of as this call.

XX, today, reported financial U.S. I'll XXXX call results quarter audited. following call, session. quarter results unaudited purposes future and result, a actual including company's with XXXX, year brief XX annual provide report to are company a by conduct time months. the a results any this As Risk described fourth March Commission. differ whether in of U.S. The dollars. and financial ended a will due new the summary Exchange result in XX, documents Commission updates of information, Form company Exchange XX-K and the December and overview and with factors, of made statements of from I on GAAP Securities fiscal under heading filed will fourth company's duty forward-looking the for results those events in are to time XXXX in disclaims materially to the any contained this On other Securities the from in the those otherwise. as number and statements a for are XXXX question-and-answer or under to as call, could provide forward-looking the the then the These these review results financial the for Management expressly our results filed Factors The the year

slowest quarter recent the the X.X% industry the last This Fourth a market slowing X.X% quarter. industrial the to review XXXX. production growth were been MPV GDP China We and XX.X% December Automotive's the sales models quarter China's begin were in dynamics slowed down sales in of position. third vehicles down from was in and fourth by fourth the Automobile automotive year-over-year. growth from in of quarter will SUV weakest data year-over-year Association XX.X% decade. has X.X% year-over-year. reported second of declined XXXX, Manufacturers, year-over-year with sales According XXXX the the to sedans the of the quarter the the XX.X% XX.X% China by and in quarter GDP in CAAM, passenger of down growth with

bus were vehicle and Commercial to by sales For announced commercial and market XX% Sales were automobile sales year-over-year million standards stock heavy-duty volatile in compared of total by year-over-year affected behavior. sales of and sales as X.X% in brand sales prices in vehicle the industry up a market units, year, car the share. January the sales, recorded spending X%. XXXX. XXXX curves decreased X% truck XX.X decrease diesel except as improve in confidence year, Chinese X% diesel declined year-over-year the automaker XXXX year-over-year. approximately million did XXXX in $X.X increased vehicles is approximately X.X% fourth quarter Credit January to government of maybe down XXXX that sales despite quarter bus sales volume. of XXXX. fourth approximately new truck believed the in It The unit traditional passenger declining consumer lost

hydraulic Net XXXX standard of economic higher vehicle affected of steering total our X.X% X.X% fiscal products, XX.X% XXXX our our million fourth and its tax XXXX power year. tax revenue. our former traditional was levy sales to of declined represented sales in $XXX.X in steering, growth, as combined year. by from to the sales sales levies, vehicle electric to continue increased In products addition, of in in XXXX, Net EPS Slower sales by passenger lead quarter with XX%. sales and the $XX.X million raised

production opportunities We several Electric KYB, KYB made our EPS venture operations and number strategic systems. for Company Japan to improve with have of moves Limited, Company, created KYB joint Hubei of the of Henglong development Hubei subsidiary a future. We the a growth Automobile in new and a Steering

business have all joint our We venture. transferred EPS to our

city. Our new Jingzhou joint venture our in compound are facilities at in operation

position on ventures EPS We focused market that and new confident generate sales. our will China enhance our in are joint export stronger

these RXXX. of entered customers and new are sell electric Tier supply March We Electric provide cost for units manufacture reach that North sales CAAS's Limited, joint joint EPS. us automotive America development of autonomous Company producers, in contract with in Mass in start awarded new with steer program Electric development. design, RCB is and our for XXX,XXX systems small vehicle Hyoseong recirculating EPS steering expected model venture new X products. a XXXX. production Hyoseong annual electric Motor to i-RCB China's quality Wall in units. to venture vehicle ball, shipments will to one better auto system, also Great XX,XXX Wall's joint program, that products expected new for XXXX Total - into for all control company's venture This motors Great we approximating us ORA exclusive awarded a to a EPS In Furthermore, XXXX, August one for announced to use product leading an of Company

XXXX million XX.X% by the which were approximately customers to the company's QX quarter Tier XXXX $X.X operation OEM attributable sales was million highest hydraulic XXXX to the Net XXXX. XXXX, quarter advanced XXXX grew of in in our distribution America, dividend the two U.S. gross the a of total order reform fourth ADAS, accrued vehicles $XX.X for export $X supply primarily from we U.S. XXXX In tax for the planned parent to XXXX. by quarter due loss and North honor share a fourth new onetime driver to per $XX from PRC such withholding technology sales Ford in supplier X in accrued loss the $X.X products, our Ford. was subsidiaries XXXX our a Most payment year-over-year, quarter in was the XXXX. diluted fourth tax. to steering XXXX Award and year, million. $XX.X and received Fourth the to in onetime Research in representing million developing future. was development $XX.X sales the as XXXX in the is related products fourth expenses and $X.XX export EPS fourth compared was the million mainly mandated quarter assistance per fourth of shareholders tax North loss for income compared Diluted were quarter that to $X.XX quarter America. $XX.X and fulfill tax loss advanced profit systems, million of million of of share other The million XX.X% our accrued from from Our in the common in

with Investments centers property, National from XX, investments were operating cash December total - taxes announced It short-term new in XXXX. compact in million emission compliant the and and lower equivalents, in for trading million. rural flow areas. in includes cash plant has was China's Reform venture. joint EPS Development also million used-car wheels transactions. in vehicles our monitoring and in standards older As cash equipment $XXX.X activities Net vehicles and mostly of develop was on to $XX.X $XX.X Commission pledged cash XXXX, XXXX,

years. XX for liters to As engines rural market, downturn areas. smaller plan replacement XXXX the subsidize cars China X point in world's largest its in of automobile standards cars The with first will emission or experienced conforming of

broad steering add portfolio to expand products, We product a of have continues technology. which and

to and In addition we steering over markets. the and customers provide reliable American high-performance South high-quality, in customers in XX North China, highly to products premier

joint Our new enhance our opportunities venture market new create EPS well share China in as as internationally. will

in distribution XXXX fourth to Selling $X.X net expenses a million for subsidiaries compared G&A of quarter in diluted $X.X XXXX and in common in represented XXXX X.X% Loss per quarter the due were fourth parent expenses compared in quarter XXXX $X.X quarter the the related fourth in quarter X.X% financial $XX.X million $X XXXX. to of of lower the personnel volume. decrease fourth to transportation due XXXX. the net the was $XX quarter sales and to quarter compared of due and tax compared of was were mainly same higher XXXX. quarter fourth XXXX X.X% million expenses shares The the of Selling sales was order the expenses tax with in million million the fourth the from of Research XXXX. reform to the $X.X sales quarter PRC fulfill compared of million XXXX, Now of sales quarter the to of profit primarily mandated XXXX. to in of quarter net $X.X due of quarter XXXX. the to quarter in to from primarily increased in lower was quarter to in quarter fourth G&A fourth onetime sales the in of outstanding - financial common quarter XXXX. fourth $XX.X in loss fourth $XX.X expenses average compared and XXXX XXXX administrative XXXX. XXXX. million million was other of fourth In sales sale was of XXXX X.X% of to in U.S. fourth the results fourth quarter fourth of percentage fourth XXXX to profit $X.XX fourth fourth in $XXX.X quarter tax XXXX mainly XX.X% net increase onetime in in profit gross payment to XXXX of $XXX.X fourth million of the XXXX. net compared (sic) The the XXXX XXXX quarter XXXX. fourth of million quarter and million to fourth the auto the primarily compared of of XXXX. review represented $XX.X million of of X.X% change in XXXX. the The in to to margin accrued by the was fourth of to quarter fourth of R&D attributable in decline fourth $X.X the a compared compared in of $X.X net expenses a as fourth million mainly the million was compared operations in quarter let the accrued the $X.X quarter The fourth due decreased mix. XXXX. the fourth compared XXXX loss G&A in share fourth XX,XXX,XXX net number the accrued sales fourth due $XX.X to quarter quarter Gain Chinese the XXXX quarter the related fourth $X.X compared to million million development in income Gross a the sales in planned the company's net higher XXXX. in to in was lower The in of loss General was X.X% of was withholding in million Net market quarter quarter the expenses expenses fourth of and in represented to fourth quarter of compared quarter [X.X%] of The loss $X million to million million XX,XXX,XXX fourth weaker Gross Dilutive the loss quarter quarter $X quarter the XXXX. to me product XXXX. Net compared sales expenses XXXX. in the The $X.X in of was shareholders a decrease sales net the on $X.X costs. the were gross was the dividend in compared decrease from million to to $X.XX of tax. of decline of the of to in of weighted of million and was the

gross product loss profit shareholders XXXX. XXXX to $XX.X of advanced sales, compared for million $XX.X compared Net in is Operating net mix due and million in The company's share was common was attributable of income year. of products. $XX.X common in income in legacy to profit in go of lower to sales to XXXX. $X.X primarily XX.X% in XXXX. over hydraulic in gross million compared results net diluted million sales in loss change loss lower higher to was due The in attributable was raw net to let by fiscal total decrease XXXX. XXXX. materials. in EPS sales XXXX was systems, Gross represented $X.X XXXX me to decrease compared XXXX revenue parent lower offset per operating primarily XXXX. compared parent million in $X.XX were million XXXX was a XXXX. in to $XX.X per to due million profit shareholders overall of a XXXX EPS of higher million income Diluted Now in Annual share net partially $XXX.X in to $XXX.X $X.XX decrease sales mainly the The company's

balance Our highlights. sheet

$X.X loans were total was company $XX.X million and we're XXXX current year are were to cash $XXX XXX,XXX revenue market Q&A XXXX. Total the million payable $XX.X were Total that, the on shares XX, $XXX.X XXXX as bank cash and of XXXX, and Business for of been December XX, is on $XXX.X as and cash December notes This million. short-term under $XXX.X on ready was consideration based have which in to session. Management to government equity million of operating date, December receivable, provided change. approved million. guidance accounts program of XX, With target accounts a from activities begin full has December company's and receivable, including To Net investments XXXX. pledged were operating $XXX.X cash million. operator, subject for conditions, equivalents, $XXX.X repurchase million repurchased outlook. million, the stockholders' X, XXXX. million flow compared As of total of views

Thank you. [Operator Instructions] Thank you.

from proceed questions. of is with Gregozeski question William your Greenridge line Global. with First the Please

how which on - your Can talk Hi. XXXX, share I you have like sales than few Looks below domestic was X.X% domestic the more about questions. a decline. OEMs? market the is with looking industry or fell the your

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[Foreign Language]

Okay.

of - have products. EPS So million - models no old lot model, these about on is - first side. our used are models vehicles a production. old longer EPS X Those not old are There - are over we in

XXXX. models, new EPS started a have their model there was product the causing our between sales However, gap so decline so not new this here, during they transition,

So the overall sales that's volume. been driving now

are competition. mechanic other those the On steering, the some hand, to price on price - sectors are intensify - going

are some for there fighting companies are survival. So desperately

this So been we have affected due to competition.

[Foreign Language]

Okay.

have other in and the pretty performance on stable So been hand, our others areas business had XXXX. solid a

For instance, business, been been commercial the has vehicle very doing as very products well. it's well. well Other steering into our doing serve export that

steering mechanic a are to So mechanic just that mixed competition result due that's - hydraulic certain a largely the degree - EPS and in the to system. price

Okay. and can With split guidance, revenue about talk the regard to domestic your between what be international you then revenue? would

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[Foreign Language]

are year-over-year, domestic. is remaining the of terms guidance, of flat the In sales international breakdown the probably

me international that still as China of of So is we're and is business mean, give the dispute. you let why know U.S. side midst you flat. I in some trade color

we're so being still following decisions And very cautious. closely and optimistically

are our XXXX. terms is be hand, other their launch, product in - products, about of a of the in models North a in product America, talking customers there to launch there new their are of number XXXX are On going customers - -

contracts. XXXX a XXXX due be - in But those is got So to already lighter product lighter. going launch high year, we to are - comparison

has working for model XXXX. So a only Chrysler on new

that expect we flat reason. for sales will international So be 'XX

Can year your coming bit you and the margins, the about in declines on warranty from talk gross fourth years? big a down the pretty for the Okay. what had With big are ago And period's regards ago year charge. a margin these is from? where next in are to was period, quite margins quarter outlook X

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Okay.

there So the gross quarter. XXXX margin, four in negatively reasons are four factors fourth affect

is First the pricing.

a have We ASP fourth quarter. drop in price decline, the

also that's the have affecting the up, gone costs margin. Secondly,

last The up. gone is [Foreign has - warranty the the Thirdly, one Language]

exchange. Foreign

for exchange. as impact has gross - our well, the foreign margin ForEx for

So quarter. having we're fourth an margin weak gross combining the four, exceptionally those in

and also, reduce adjust to forward, going cost. pricing, going we're to Going we're our

going gross grow we're believe we be So margin. to side able turn positive the back to a to

up on Is - reason? last and in are going going are just And quarter. just R&D question fourth were Okay. are some to bit of figures the that were my that we is quite forward G&A expenses. high the sales a something be look for a operating those forward? Or abnormally percentage can they

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[Foreign Language]

mainly experiencing higher So to in were the expenses, the expenses we legal some G&A associated category, go-private with due proposal.

a of it's event, sort now that's So behind us. onetime

percentage to of management down the of G&A rolling streamline we'll In - G&A proactively and a our of we're our different see basically And revenue, will lot down start also And expenses to we're a revenue percentage recover. cut as total expenses. cutting will programs improve. so cost

expect So On also back which closely have satisfactory return are projects going a expenses a XXXX. giving projects us. or few improve to we're category cut of their G&A will we you at on - going performance, should reviewed not forward in and projects for proper looking and we R&D are number side,

to we're projects. So reduce going of some the

So as to - you percentage as start revenue reduce should well see will R&D go of down well. a as

there XXXX. improvement we should So have in

Okay. guys. Thank you,

Thank you.

comes proceed Please Sollbach with with question. of The Spartan. the line your next question Ed from

Hello?

ahead. go Yes,

the on line. You're

on if idea America, I'm North of and that's Yes. just you cars the Yes, cars can color an you're us driving sales? globally? what what's wondering give we it. Europe, China both in what and so And in some get systems

what is Your - kind brought in? is question of vehicles are

model. make Yes, and

model. and Make

China? North You in or in America mean

both. In

Okay. This [Foreign Language] big is question. a

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Wrangler we believe Dodge are RAM exclusive all the the Jeep North the systems. RAM. vehicles exclusive have And on - supply on Chrysler. we Ford on the is JAC, side, supply models America models to large side, We FAW, the trucks. Dodge in on the Also, those we we're the that's also, Jeep different and - all Also, the which China, So China. are steering domestically Wrangler Chrysler's large automakers, are on vehicles about Auto, And maker major supply - which producers. we just truck Dongfeng vehicle commercial pickup in commercial three to largest Changhe, include to those - supplier

we with Auto, China, venture to venture joint supply Chery On supply Brilliance side, in the joint passenger to Auto, with a We we a have we them. them. have

supply largest We also the and to last Geely. We Wall, producer of the bestseller more. couple supply in Great in to China, the years SUV

- we China, XX are those XX about customers OEM So have to customers. in XX

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Yes. Anything else?

color. good That's

So briefly is opportunities North - there's can in that America? you maybe have in nothing the is talk guess, about And you Europe, I correct?

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Okay.

We are AI, in support continuing with the to steering We pursue anything to the and North America. mechanic artificial see lies in system intelligence-driven opportunities opportunity driving, autonomous product the quality that.

We on well. that working as are

we for the us it's - growth So to new a target. area think that's

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now. Okay. been Also good with been - quality with Ford track recently. won have We a top-notch. very They and Motor, - progress. the has we meanwhile, the pretty have than a the record have number of model are secure pleased award we We've development done quality we we

side, expect, And should Ford coming order in. some more purchase we so see on we

So some new purchase order come in, yes.

Language] [Foreign

In Fiat We're XXXX a Okay. a with - model have vehicle. for XXX. Fiat. number This are working Europe, we we project is

some doing right are now. testing We

quarter production XXXX. the I will begin think the first mass in

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can the European Okay. play angle There is vehicles. another for we

European We discussing of in automakers, are with branch. grew the we we -- this headquarter, some are European there Asia now

up another local channel in growth Language] we the hope open [Foreign our can we for So markets.

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Okay.

question, right? your So that should answer

Yes.

And That's really on that's are you any globally? yes, vehicle programs electric that last are question. good. of part - the Just going

vehicles, okay. Electric

of know vehicle, in to terms want right? You electric

Yes.

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old installment product vehicle electric And traditional engine-powered both of our installation be the steering, side, On combustion EPS. what call mostly vehicle. as we I electric will - in as EPS, - mean, well the in power has course, EV

future opportunity So for even see electric the we vehicle more. growth

And the product our so company on other this with of were mechanic, power systems. integrate mechanic partner the systems steering some to software using also and now to steering the technology

producers. working in are electric channels different with So vehicle we

Okay.

much. Thank you very

Thank you.

from comes question Li next Tracy HSBC. Our line the of with

hear you me? Hello? Hello? Can

the on are your Tracy, line.

This is for taking Thank my you Hi. from HSBC. Tracy question.

also a quick by can question that, the by get first breakdown my margin you So me for products region? is and

region, China U.S.? the By and and right, Europe

and by regions also Yes, products.

Okay. [Foreign Language]

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Okay.

for the - margin domestic XX%, XX%. market So international gross margin XX% is to the is about market about

margins RCB HPS, is On breakdown, the products and the product, EPS lower. higher are the margin

over - XX%. EPS and So is XX% is it's about HPS

Okay. you. Thank

So question a follow-up the margin. on

Is the a EPS we can because our it lower So margin see China now? international in So OEMs lot leaders in from EPS competitive landscape because like also actually domestic EPS the more in the why is seeing we talk than you taking competition are are traditional steering space of, products? the like, China? orders

Okay. [Foreign Language]

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EPS partly having is margins lower traditional price for Really competition. due to Okay. products in the

because ecosystem. thing of outside fulfillment - other the we in the due The other still procure system a -- are lot from to suppliers, is the of mostly components this

we So we ventures are problem. joint partners Asian for tackle that's why - with this to our formed have a years,

going on I So believe forward, EPS improve as side the our will margin well.

to Okay. has Thanks. mentioned largely And plan. lot costs last to quarter year G&A our the question privatization our first due is just Management privatization proposal. in increased -- last the related a

give can color what the and more plan, on the So line time at like price? you also us

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Okay.

proposal, So on proposal. party a largest the shareholder the withdrawn led the has by buying privatization

longer. the off not table, higher the legal forward any it's going so we that expect costs should So

not anymore. sort occurring event, So it's a this of onetime is

down As a come should forward. going G&A result, expense

Thank Okay. you.

you. Thank

to for floor Thank closing remarks. questions you. I will time. There are turn this back no at additional the management

Have want thank the good you. to everyone, us today, joining quarter. forward day. we and for a We next to after Thank you look you, with speaking

today's This concludes teleconference.

You this you may for participation. time. at your disconnect your lines Thank