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China Automotive Systems (CAAS)

Participants
Kevin Theiss Manager of Investor Relations
Qizhou Wu Chief Executive Officer
William Gregozeski Greenridge Global
Robert Pavlovich Private Investor
Call transcript
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Operator

Greetings. And welcome to the China Automotive Systems Fourth Quarter 2019 Earnings 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].

conference recorded. this reminder, a is being As

I to Relations your like to for conference over turn the host, Automotive would Systems. now China Mr. Theiss, Investor

You begin. may

Kevin Theiss

Automotive us Thank for call. today. Systems XXXX Welcome you, fourth joining to everyone, conference quarter China

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

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

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

under the a result, the with the in XXXX, by the as heading time Form those time due from ended Securities forward-looking March December Risk in XX-K to As and materially the other company's statements for XX, annual XX, company's XXXX, Commission. on described filed and Exchange documents the to a from could factors, and the differ in of Commission filed these year results company Factors contained number Securities Exchange report actual with those including

of this The to any in provide company to as or call future information, updates whether disclaims a made statements expressly events forward-looking any result otherwise. new duty

Management I then this On year. quarter session. call, conduct of for and XXXX a summary and financial will brief results fiscal overview will provide a first the question-and-answer XXXX

GAAP. and are XXXX periods are results The financial fourth reported and unaudited fiscal are financial following US quarter XXXX both audited year under results

I in of financial dollars. For results call, today's the review purposes the will US

Automotive's the dynamics automobile review a with market of will We recent the of industry China position. and begin

the X%, GDP of quarter rate the China's XXXX. For of growth quarter the was unchanged third from fourth XXXX, in

the China's year, XX years. in last the was For growth GDP was slowest which annual the X.X%, XXXX

XXXX. sales the $XX.X sales the the Automobile a X.X% X.X% compared XXXX with This global car vehicle China year. China, to in Association Manufacturers, decrease million were largest in to market, decline of in followed passenger sales CAAM, automotive in down According XXXX

total vehicles by vehicle sedans, buses, year. car MPVs. X.X% decline registered XX.X% for XXXX Including decreased million types, sales sedans XX.X% type trucks year. to compared XX.X minivans, of SUV to X.X% smallest and and vehicles the XXXX decreased for in SUVs and at a decline the Crossover Sales of a including all and in decline of

market decline and MPVs are of led crossover sharp declined market share, having The branded in of share. record but share, market a the car Chinese Sedans vehicle the market X.X% share X.X% lost in domestic of sedans largest vehicles car MPVs SUV with and with reaching to market. the a XXXX. passenger XX.X% Chinese sales segment sales gaining by XX.X% still XX.X%, only

in the half as plug-in include electric plug-in declined these million Within X.X EVs year. sales of the XXXX X% segments, vehicle first the to passenger different in and of of electric subsidies and Sales energy hybrids government units XXXX new hybrids year time. for the in vehicles, annual the cut second vehicles which fell

according with but to the overcrowded XX%, this declined EV the in number level to government subsidies for EV region vehicle XXXX, manufacturers sales data. Last vehicles reduce again new wants reduced large XXth sales CAAM model. the year's and exact impact of central In of The the emerging energy industry. substantial as month April consecutive by a as by reduced EV determined were on much as subsidies the had

decisions impacted consumers, created subsidy sales reduction anxiety intensified of as among Automobile The Slower which growth trade to the well. between factors. EV and economic number purchase in consumers' a China. lagged tensions by XXXX the substantially due was US Chinese above-mentioned

provinces in vehicles, Henan. Shandong, of phase the powered Shanghai, passenger XXXX standards phase Hebei, cities for and Guangdong, Beijing, first began emission VI on first July the gasoline X, and include Anhui engine Chongqing, more the Additionally, Shenzhen, national vehicles. Tianjin, stringent Hangzhou, The

the XXXX our of product XXXX, sales the due change The the with decline a With climate, domestic and a net industry XXXX. in for mix in quarter fourth in compared quarter were X.X% fourth was lower to the $XXX.X this quarter decrease. same mainly of quarter fourth demand Chinese XXXX $XXX.X in branded to automobiles of million million the in compared of

due million full XXXX of hydraulic lower sales to XX.X% XXXX sales million total $XXX.X year, in annual the to system EPS in and declined legacy by products XXXX, For mainly $XXX.X compared sales. our to

$XX with XXXX. EPS of Decline December our However, EPS of sales products, our million vehicle sales XXXX. million in total compared reflected Henglong XX, the KYB supplies subsidy. passenger net XXXX of in for EPS EPS ended transfer primarily our the our represented had $XX.X also KYB sales revenue Henglong into business in XX.X% which subsidiary, year

were customers hydraulic American only compared overall vehicle North of Sales systems our steering soft with America. North in though in were to sales down XXXX even slightly XXXX

KYB with joint on advanced EPS Our Henglong Japan Limited venture Company KYB systems. concentrates providing

exclusive Great demonstrates electric to our vehicle RXXX the EPS contract Company's Wall Our Motor small EPS new and for performance systems supply ORA all systems. their with of supply capabilities

typically years, VI standard were in implemented higher retail on standard National the are This sold is stricter implemented nationwide emission even standards July to become with VI-b Due National being X technology, XXXX years. VI added the air National a quality. stricter price. to at during compliant few a to The improve progressively vehicles a new

C-EPS that its Ltd. products. Hyoseong report Co. to (Wuhan) powerpack joint mass commence motors brushless electric Mechatronics venture Hyoseong phase owned of XXXX, and plan In Motion XX% our joint pleased will motors. one venture System our production P/DP-EPS small completed proprietary with its these development for June successfully for are i-RCB, We brushless

performance of own another the our provide In small these channel the to improved motors future. addition electric products, for sales

SUV become to products. also our In Motor, preferred Type to and of us commercial quality performance and subsidiary the vehicle A Maxus, supplier XXXX, an of SAIC upgraded a SAIC due excellent

over presence for auto European Daily Daily iconic most market. commercial duty steering the the significantly million we Europe, of van into model. X development began drive in XXX for world have Fiat XXX for all-wheel increases vehicle vans as plug-in Europe XXXX in Also, the made in sold units the been The than one electric hybrid the SpA in include of van products shipments Italian markets. new in light IVECO Other more our geographic large is which the

used the RCB, X In us to for their customer made a i-RCB tier lead program, global steering autonomous new in a Americas, vehicles. developer North America be headquartered future recirculating-ball, the in system,

Automobiles the contracts with market the FCA winning the Fiat largest CAS American America. further penetrated OEM, South Chrysler and South by region's

products XXXX, month to third per jeep sale a in addition, in approached JXXX XXXX. and late the been new selected units we've the In of of XX,XXX to supply FCA product series starting quarter our models

subsidiary as the Henglong our three finalists of to Year. being one product's – Thanks for performance, South was the chassis nominated America for South nominated America's as our FCA of by superior as Chassis Supplier well XXXX Brazil Best Supplier

For operating XXXX. loss the income research in operating of selling and versus million We XXXX year, our more development our streamlined and million expenses $X.X was XXXX. efficient in $X.X become an to

net XXXX. of income per to diluted XXXX in compared Diluted $X.XX in share $X.XX per share income was

$XX.X million. equivalents, of were and XXXX As Net was fiscal million cash investments cash operating in XX, cash, activities pledged XXXX, cash the year. $XXX.X December flow from total short-term

on consideration the $X.X of for December repurchase For of XXX,XXX approved XXXX. total million year, shares program under X, XXXX a were a a repurchased

the Year And were struck COVID-XX headquartered quarter were of the New mid-March, the of panic In first Since China. operations affected. in January late we the interrupted. XXXX, until being beginning Wuhan, Chinese in our

Chongqing Wuhu in to (Wuhu, We were lockdown Henglong the in our respective Henglong that report in Province) center restrictions Brilliance Province), operations are the production pleased mid-March resumed lifted Liaoning City by full governments. Henglong (Shenyang, and Chongqing local after Anhui

Wuhan we temporary operating reopened relocation in facilities, our including at Jingzhou the March. with We and to after Wuhan are capacity presently City all full headquarters

quarter has The coronavirus impact auto of an and production economy the XXXX. Chinese on first had in

and While both have taken the we is and company the vehicle growth passenger commercial XXXX new clouded position markets opportunities advantage vehicle diversified action to in to outlook take across of markets. for challenging,

the coronavirus may quarter gradually economy production following we regain quarters second Chinese the of the growth we the and sales auto As believe is weakening in and impact XXXX. in recovers,

industry. policies tax the a for policies. Going and monetary loosened are the auto initiated government Chinese regulations central several forward, improved promising The there cut, economy and

including smaller. Subsidies or incentives New the of in areas, vehicles purchase rural liters purchase autos electric stimulate to subsidy new X.X now implemented the to been for further have of engines are with cars extended.

business The US Chinese agreement confidence. should trade help

China's the first automobile million a X.X% increase in fact, since sales units, June monthly X.X reached in ago, In XXXX. same sales the up year April month XXXX

of compared quarter let XXXX results million compared review quarter in financial the for and quarter of mix in the to mainly lower fourth branded same for was with million $XXX.X XXXX. quarter sales the to due of Now, XXXX. the The the decrease of fourth $XXX.X me quarter of XXXX. were in fourth Net in sales change the Chinese a product the XXXX fourth domestic automobiles demand net

Gross profit reduced the in change and the the mix due and in the gross $XX.X quarter quarter quarter of Gross of XXXX. million gross fourth compared was The was margin $XX.X increase margin fourth to a million the fourth X.X% compared to XX.X% XXXX. costs in of fourth product XXXX compared to in in quarter primarily of profit with XXXX.

was $X fourth compared XXXX. other the on to sales of quarter Gain in million $X.X million

fourth primarily of fourth million expenses the XXXX quarter quarter in XXXX. compared were lower $X.X and the in costs to $X.X fourth decline decreased expenses was reduced XXXX. volume. quarter to cost the X.X% Selling of the expenses due to better the net quarter The of of represented million of with controls personnel in compared XXXX in to sales transportation related fourth X.X% Selling

net million in represented expenses, The of million of G&A net General in the due X.X% XXXX XXXX the in the to fourth X.X% $X.X cost to was of expenses X.X% $X.X improved XXXX. of fourth to the mainly XXXX. fourth quarter decreased decrease of compared quarter by G&A, in and quarter in administrative controls. quarter sales of expenses from G&A fourth sales

Research million of of fourth and in sales the XXXX in fourth X.X% [XXXX] development quarter net of expenses, $X.X the expenses in compared to were X.X% of R&D $XX.X (sic) in to million fourth fourth quarter R&D of represent the compared XXXX. quarter the quarter XXXX XXXX. expenses,

to compared operations higher operating $X.X Loss was XXXX. and fourth mainly from quarter operations in to a loss expenses of of loss $X.X much-reduced due The lower of in quarter the fourth XXXX compared quarter profit XXXX. fourth gross of from was million million the to the

of company's in to in quarter common the in compared net XXXX compared $X.X shareholders fourth attributable expense loss quarter million of the quarter common attributable the fourth million was in to to fourth was a quarter Interest $X.X million million to parent of $X.X $X.X shareholders fourth XXXX. company's Net income the of of XXXX parent XXXX.

of share the quarter Diluted income $X.XX number quarter in fourth quarter Weighted was the the common the XX,XXX,XXX fourth XXXX. in was XXXX per fourth compared share diluted compared fourth average to of quarter in to XXXX. of shares loss $X.XX of in outstanding per XX,XXX,XXX diluted XXXX of

XX-month the XXXX. $XXX.X over represented legacy of go due in financials. systems. Annual XX.X% hydraulic to I'll million in revenue decrease sales and EPS was net to sales Now, XXXX The in EPS XXXX. products total compared total compared system with $XXX.X sales in lower was XXXX of million XX.X%

vehicle North to steering of customers XXXX. American with sales compared down Net in were company's slightly the XXXX systems

million increased mainly profit products. of from sales to compared in XXXX. in $XX.X gross increased to $XX.X margin in margin XXXX, to XX.X% was Gross The million higher XXXX due XX.X%

and of consisted disposal net from other and gain sales income, on of technical the of property, service and sales Gain assets, revenue. amount mainly of plant intangible retained equipment rental

gain ended primarily XX, was increase $X.X December on of million amounted due million to to disposal other sales property, XXXX, in plant XXXX. on in to the gain year and $X.X equipment. the increase This For compared

compared X.X% Selling represented $XX.X Selling XXXX in lower in due of sales X.X% expenditures. personnel to million mainly in expenses decreased sales and net expenses in net resulting million XXXX, compared were to marketing XXXX to $XX.X XXXX. in expenses

$XX.X of XXXX were G&A X% net generally with million, in X.X% of compared in consistent expenses sales sales in XXXX. represented the million $XX XXXX. to net G&A expenses

expenses R&D net were sales expenses XXXX $XX.X sales X.X% XXXX. of in to in compared net R&D X.X% to million in of represented XXXX. XXXX compared million $XX in

primarily was due an operating income million in compared $X.X research lower XXXX. Operating loss million development in in selling expenses of $X.X and XXXX. change is XXXX to and to The

$X.X XXXX. million million consistent Interest generally with in $X expense was in XXXX,

million financial Net $X.X to was with in in compared XXXX $X.X increase income. due XXXX income interest in million

companies affiliated to before mainly was equity Income to expenses profit. increase due operating and affiliated expenses tax income a before of was compared tax earnings million the higher and and companies and $X.X for equity million loss $X.X of This XXXX. loss from

million million $XX was parent XXXX. shareholders company's common company's $X.X income attributable XXXX parent in in to compared attributable income Net shareholders net to common to of

$X.XX was per to $X.XX in The income was share outstanding per compared number income weighted XXXX common to of diluted XX,XXX,XXX XXXX. in net of average shares in XXXX diluted share Diluted compared XXXX. XX,XXX,XXX in

sheet go we'll some and over Now, cash balance items. flow

December XX, were investments XXXX, cash short-term total of pledged cash and and As $XXX.X cash equivalents, million.

receivable loans accounts And $XXX were Total including were Accounts government $XXX.X notes were notes receivable including payable million. and short-term bank million. payable $XX.X million.

equity to of $XXX.X XX, company million stockholders' XX, compared as parent $XXX.X was of XXXX. Total million December as XXXX December

Net from million operating $XX.X cash in flow activities was XXXX.

consideration total XXX,XXX December program of During of aggregate X, XXXX, $X repurchase million were approved a under on shares repurchased, XXXX.

to and year. of million during plant acquire property, and We the cash also paid rights $XX.X use equipment land

target of based coronavirus' and are This provided business outlook, view subject to for economies the guidance on operating impact US. especially management which in conditions, company's million. light the and of change, China the For XXXX $XXX the on the of current full-year market revenue the is of

that, are With the begin we Q&A. to operator, ready

Operator

[Operator Instructions].

comes Our question. with question the with line first proceed of Global. from your Please William Greenridge Gregozeski

William Gregozeski

you what sales you're and the from and Can expecting at sales talk for guidance, that the how year? about revenue you number Hi. arrived EPS international

Qizhou Wu

Language] [Foreign

Okay.

revenue business guidance is XXXX for based the XXXX. our current for on our So, visibility in

As in were know, the quarter, affected the about revenue We in all the first first XX% particular. pandemic COVID-XX negatively during we by the saw was overall we down quarter.

the of quarter first negatively Difficulty] due the to about is $XXX months [Technical three of but during the million, that outbreak. XXXX is XXXX first In affected revenue

US also by the first were COVID-XX. quarter sales, the during and international Also, Europe affected the

in XX%. the down two So, these we regions sales saw are about

vehicle a passenger segment, commercial remain to The on very increase a vehicle we see Domestically, we soft. pleased business. year-over-year are it for see sales, very our

in So, those are picture we're the general XXXX. seeing

and EPS as international few quarter, the a quite lot in damage business back passenger vehicle adjust. soft probably commercial electric in and better steering market, and business significant. is in product some business China domestic up XXXX And to well. digest will soft impact Chinese continue our The come the are the going will first to also, the vehicle sales will have Because But power domestic be will hold is following quarters.

William Gregozeski

parts other that? question any back can anything talk like Okay. All supply everything right. normal? Is you having the issues I the are with was, had And about to chain? getting you or Or

Qizhou Wu

[Foreign Language]

Okay.

quite March, months to in the During of the supply the Starting April, the everything first quarter, especially evident. of disruption month from normal. to February is chains and back

So, we are having – auto components are coming into our production.

William Gregozeski

Thank you, Okay. All guys. right.

Kevin Theiss

you. Thank

Operator

Thank instructions]. [Operator you.

Thank you.

Our Investor. next question line Pavlovich, Private your comes from Please proceed with Robert question.

Robert Pavlovich

morning. good Yes,

Kevin Theiss

morning. Good

Robert Pavlovich

motors. I was just venture. EPS, this. Will for produce? lineup guess, applications, used systems? the of motors steering get steering systems assist all be this see you that insight you I And should I Hyoseong from margins wondering not just including just applications these about on improving see little want do driver a or but about to the be the joint how throughout you do question the – brushless What percentage how

Qizhou Wu

[Foreign Language]

this joint joint planned EPS venture, April. initially To the question Hi. Hyoseong the Okay. of particular in production venture, to on we commence month your

month advisors [Technical due and of However, disruption June. the our to technician of COVID-XX are Korean Difficulty]

so, we're months the they're the up system a and And wait have during production. but couple line, us for -- of begin more we'll remote helping doing tune production to to our

we'll So, start the June, of production. month

our product. It the all C-EPS year units produce margin EPS through and XX,XXX motor. higher be expand and and particular also the looking and for of particular joint motor product XXXX to about this looking a ship all we're million this this X will brushless use of the gross carries will venture To application, to motors RMB that for we're brushless in

So, Difficulty] this venture component is EPS key joint systems. [Technical a particular

Robert Pavlovich

Okay. Thank you.

How Chrysler merger like to that Fiat, Peugeot [Technical going will question. feel look Difficulty] affect still Another they're and merge. you Automotive? do that China

Qizhou Wu

Language] [Foreign

such to penetration our merger global network. us Looking forward into sourcing expand help will Peugeot's

years, winning Chrysler. also, we record. place consistently Chrysler Over And have track supplier through are award Fiat the throughout years, Fiat our the impeccable from won our in we

Fiat Peugeot's are into And expand confident very very Peugeot, optimistic takes will able that to production. merger we so, be we Chrysler place if and and between

to we're So, forward looking that.

Robert Pavlovich

Okay. moderate this this that China year? share Automotive any unique during I is Is – guess buyback difficult times. a they another would possibility question there do

Qizhou Wu

[Foreign Language]

current shares completed of the In we buyback until valid around the still end from XXXX. open So, share XXX,XXX the of is XXXX, plan purchase market.

blackout to will We shares we're in we're certain buy repurchase There long are continue to as meeting have such back a in able XXXX share. compliance window do to requirement, as –you be not to period, as the that.

in restrictions of also, to can the less amount And price regulation. meet requirement average terms we of XX% well the to also, there volume. than And buy, according had of the as are

– So, active. the how regulatory we to guidance are And back It's to terms of the strictly shares. ongoing. continue it's following guidance buy in

Robert Pavlovich

you. Thank Okay.

Kevin Theiss

you. Thank

Operator

you. Thank Instructions]. [Operator

you. back concludes any for final our session. and Thank to I'll that Ladies Theiss floor comments. gentlemen, question-and-answer turn the Mr.

Kevin Theiss

We today's future. again speaking Please thank your for And to with forward our in be look the you we safe. in conference you participation call.

Operator

Thank you. teleconference. concludes This today's

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