Chemspec International Limited Announces First Quarter 2011 Unaudited Financial Results

SHANGHAI, May 25, 2011 /PRNewswire-Asia-FirstCall/ -- Chemspec International Limited (NYSE: CPC; "Chemspec" or the "Company"), a leading China-based contract manufacturer of highly-engineered specialty chemicals, today announced its unaudited financial results(1) for the first quarter ended March 31, 2011.

First Quarter 2011 Financial Highlights

• Total sales reached RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.
• Gross profit totaled RMB76.8 million (US$11.7 million), representing a decrease of 20.3% and 22.2% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Income from operations was RMB28.4 million (US$4.3 million), representing a decrease of 52.4% and 44.9% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Net income attributable to the Company's shareholders was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% and 50.1% from the first quarter of 2010 and the fourth quarter of 2010, respectively.
• Basic and diluted earnings per ADS(2) were both RMB0.63 (US$0.10). Basic and diluted earnings per ADS were both RMB1.44 (US$0.21) in the first quarter of 2010. Basic and diluted earnings per ADS in the fourth quarter of 2010 were both RMB1.26 (US$0.19).

(1) Certain Renminbi (RMB) amounts in this press release have been translated into U.S. dollar (USD) solely for the convenience of the reader.  The conversion of RMB into USD in this release is based on the noon buying rate in the City of New York for cable transfers in RMB per U.S. dollar as certified for customs purposes by the Federal Reserve Bank of New York on March 31, 2011, which was RMB 6.5483 to USD1.00.  The percentages stated are calculated based on RMB.
(2) 1 ADS=60 ordinary shares

Dr. Jianhua Yang, Chairman and Chief Executive Officer of Chemspec, commented, "The total sales of the first quarter of 2011 was in line with the guidance we provided in April. Although the past quarter was not outstanding, especially compared with our relatively stronger performance in 2010, I want to emphasize two key factors that we value in our business. First, we have strong chemical process and development capabilities and are highly competitive compared to our global peers. Secondly, we have maintained a strong client relationship with our customers. Both factors will greatly help our business when the market demand grows."

Mr. Zixin Wang, Vice President of Finance, commented, "As the inventory level has been a concern for the management, we have closely monitored the inventory level and implemented certain measures. For the first quarter of 2011, we were able to slightly lower the inventory level. Going forward, we will continue our efforts to bring down the inventory level gradually."

First Quarter 2011 Financial Results

Total Sales

For the three months ended March 31, 2011, we generated total sales of RMB209.0 million (US$31.9 million), representing a decrease of 5.1% from the first quarter of 2010 and a decrease of 22.7% from the fourth quarter of 2010.

A strong recovery in the electronics end-market occurred in the first quarter of 2010 after the global financial crisis. However, our sales to the electronics end-market was relatively weaker in the first quarter of 2011, which caused the decline in the total sales compared with the first quarter of 2010. Compared with the fourth quarter of 2010, the decrease in our total sales was primarily attributable to seasonality, as the first quarter of each year usually has lower demand for chemicals used in the electronics end-market.

Gross Profit and Gross Margin

In the first quarter of 2011, we generated gross profit of RMB76.8 million (US$11.7 million), representing a decrease of 20.3% from the first quarter of 2010 and a decrease of 22.2% from the fourth quarter of 2010. We attribute the decreases in the gross profit primarily to the corresponding declines in the total sales in the corresponding quarters.

Our gross margin was 36.8% in the first quarter of 2011, as compared with 43.8% in the first quarter of 2010 and 36.5% in the fourth quarter of 2010. Compared with the first quarter of 2010, the gross margin decreased primarily due to a less favorable product mix in the first quarter of 2011. Compared with the fourth quarter of 2010, the gross margin slightly increased because minimal inventory was written down in the first quarter of 2011, but the effect was offset by the unfavorable product mix in the first quarter of 2011.

Operating Expenses

Selling expenses and general and administrative (SG&A) expenses were RMB36.5 million (US$5.6 million), representing an increase of 56.7% from RMB23.3 million in the first quarter of 2010 and an increase of 36.1% from RMB26.8 million in the fourth quarter of 2010. The increases were mainly attributed to the professional service fees involved in the proposed "going-private transaction", for which a Schedule 13E-3 has been filed with United States Securities and Exchange Commission ("SEC") on May 3, 2011. Going forward with the process, we expect to incur further professional service fees.

Research and development (R&D) expenses were RMB12.0 million (US$1.8 million), representing a decrease of 12.8% from RMB13.7 million in the first quarter of 2010 and a decrease of 46.0% from RMB22.1 million in the fourth quarter of 2010. The fluctuation in R&D expenses was mainly due to the change of material consumption expenses that were related to the number of active R&D projects during each period.

Income from Operations and Earnings Before Income Taxes

As a result of factors mentioned above, income from operations was RMB28.4 million (US$4.3 million) and earnings before income taxes was RMB28.2 million (US$4.3 million), respectively, in the first quarter of 2011, representing decreases of 52.4% and 53.1%, respectively, from the first quarter of 2010, and decreases of 44.9% and 45.3%, respectively, from the fourth quarter of 2010.

Net Income Attributable to Chemspec International Limited Shareholders

Net income attributable to Chemspec International Limited was RMB22.6 million (US$3.5 million), representing a decrease of 56.8% from the first quarter of 2010 and of 50.1% from the fourth quarter of 2010, respectively.

Basic and diluted earnings per ADS were RMB0.63 (US$0.10), as compared to RMB1.44 (US$0.21) in the first quarter of 2010 and RMB1.26 (US$0.19), in the fourth quarter of 2010.

Conference Call

The Company will not host a conference call for the first quarter of 2011 financial results.

Statement Regarding Unaudited Financial Information

The financial information set forth above is based on the Company's unaudited interim consolidated financial statements and is subject to adjustments that may be identified by us and/or our auditors during the audit of our annual consolidated financial statements.

About Chemspec

Chemspec is a leading China-based contract manufacturer of highly engineered specialty chemicals, especially, the fluorinated specialty chemicals. In manufacturing specialty chemicals, Chemspec also provides process design and process development services, which enable efficient and rapid production of specialty chemicals that are incorporated into the products of Chemspec's end users. Chemspec's customers and end users include electronics, pharmaceutical and agrochemical companies. For more information, please visit www.chemspec.com.cn.

Safe Harbor Statements

This announcement contains forward-looking statements. These statements constitute "forward-looking" statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements can be identified by terminology such as "will," "expects," "anticipates," "future," "intends," "plans," "believes," "estimates" and similar statements. Such statements involve certain risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements. Further information regarding these and other risks is included in Chemspec's filings with the U.S. Securities and Exchange Commission, as amended from time to time. Chemspec does not undertake any obligation to update any forward-looking statement, except as required under applicable law.

For further information, please contact:

Chemspec International Ltd.

In Shanghai

Carol Fang

Manager, Investor Relations

Tel: [phone]

Email: [e-mail]

Chemspec International Limited
Unaudited Consolidated Balance Sheets
	December 31,		March 31,		March 31,
	2010		2011		2011
	RMB'000		RMB'000		USD'000
ASSETS
Current assets
Cash	98,719		74,385		11,359
Pledged bank deposits	56,746		44,303		6,766
Accounts receivable, net	137,873		95,664		14,609
Bills receivable	1,200		150		23
Inventories	470,432		464,991		71,010
Prepayment and other receivables	73,449		60,267		9,203
Income tax recoverable	-		1,454		222
Deferred income tax assets	6,369		8,305		1,268
Total current assets	844,788		749,519		114,460
Property, plant and equipment, net	871,398		869,612		132,800
Land use rights	59,201		58,864		8,989
Deposit for purchases of intangible assets	-		9,000		1,374
Deposit for purchases of other investment	-		5,000		764
Intangible assets	730		703		107
Goodwill	7,446		7,446		1,137
Investment in an affiliate	12,793		12,668		1,935
Cost-method investment	-		25,026		3,822
Total assets	1,796,356		1,737,838		265,388
LIABILITIES AND EQUITY
Current liabilities
Bank borrowings	25,000		25,000		3,818
Accounts payable	142,319		111,460		17,022
Bills payable	64,340		52,994		8,093
Accrued expenses and other payables	148,238		89,376		13,649
Amounts due to related parties	5,559		58		9
Deferred income	14,215		16,315		2,491
Income taxes payable	5,408		-		-
Total current liabilities	405,079		295,203		45,082
Bank borrowings	-		30,000		4,581
Deferred income tax liabilities	21,517		22,043		3,366
Deferred income	3,280		1,380		211
Total liabilities	429,876		348,626		53,240
Equity
Equity attributable to Chemspec International Limited
Ordinary shares:    Par value: HK$ 0.01;    Authorized: 20,000,000,000 shares    as of December 31, 2010 and March 31,    2011;    Issued and outstanding:    2,163,190,740 shares    as of  December 31, 2010 and   March 31, 2011;	21,649		21,649		3,306
Additional paid-in capital	319,048		320,370		48,924
Statutory reserves	85,820		85,820		13,106
Accumulated other comprehensive income	5,197		5,037		769
Retained earnings	929,108		951,726		145,339
Equity attributable to Chemspec International Limited
	1,360,822		1,384,602		211,444
Noncontrolling interests	5,658		4,610		704
Total equity	1,366,480		1,389,212		212,148
Total liabilities and equity	1,796,356		1,737,838		265,388

Chemspec International Limited
Unaudited Quarterly Consolidated Statements of Income
			Three-month periods ended
			March 31,		December 31,		Mar 31,		Mar 31,
			2010		2010		2011		2011
			RMB'000		RMB'000		RMB'000		USD'000
Sales			220,151		270,357		208,967		31,912
Cost of sales			(123,813)		(171,629)		(132,139)		(20,179)
Gross profit			96,338		98,728		76,828		11,733
Selling expenses			(2,503)		(3,083)		(4,295)		(656)
General and administrative expenses			(20,761)		(23,719)		(32,170)		(4,914)
Research and development expenses			(13,705)		(22,129)		(11,952)		(1,825)
Other operating expenses			(551)		(1,205)		(204)		(31)
Other operating income			509		351		242		37
Government grants			450		2,684		-		-
Income from operations			59,777		51,627		28,449		4,344
Other income (expenses):
Interest income			558		525		471		72
Interest expense			(80)		-		(295)		(45)
Foreign currency exchange loss, net			(47)		(583)		(388)		(59)
Equity in loss of an affiliate			(98)		(150)		(125)		(19)
Other income			48		142		73		11
Earnings before income taxes			60,158		51,561		28,185		4,304
Income tax expense			(7,718)		(6,408)		(5,815)		(888)
Net income			52,440		45,153		22,370		3,416
Net (income) loss attributable to    noncontrolling interests
			(127)		141		248		38
Net income attributable to Chemspec    International Limited shareholders
			52,313		45,294		22,618		3,454
Basic earnings per share			RMB 0.02		RMB 0.02		RMB 0.01		USD 0.00
Diluted earnings per share			RMB 0.02		RMB 0.02		RMB 0.01		USD 0.00
Basic earnings per ADS			RMB 1.44		RMB 1.26		RMB 0.63		USD 0.10
Diluted earnings per ADS			RMB 1.44		RMB 1.26		RMB 0.63		USD 0.10

Chemspec International Limited
Unaudited Consolidated Statements of Cash Flows
	March 31,		March 31,		March 31,
	2010		2011		2011
	RMB'000		RMB'000		USD '000
Cash flows from operating activities
Net income	52,440		22,370		3,416
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization
of property, plant and equipment	17,358		21,771		3,325
Land use rights expenses	315		337		51
Loss on disposal of property, plant and equipment	188		162		25
Amortization of intangible assets	28		27		4
Equity in loss of an affiliate	98		125		19
Unrealized foreign exchange loss, net	32		248		38
Share-based compensation	1,872		1,322		202
Deferred income tax benefit	(1,651)		(1,410)		(215)
Changes in operating assets and liabilities, net of
effect of an acquisition
Pledged bank deposits related to purchase of inventories	(26,164)		14,189		2,167
Inventories	(54,285)		5,441		831
Accounts receivable	(19,992)		41,958		6,407
Bills receivable	1,279		1,050		160
Prepayment and other receivables	(8,172)		4,182		639
Accounts payable	22,072		(30,859)		(4,713)
Bills payable related to purchase of inventories	17,904		(12,850)		(1,962)
Accrued expenses and other payables	(4,371)		6,416		980
Deferred income	1,001		200		31
Income taxes payable	298		(6,862)		(1,048)
Net cash provided by operating activities	250		67,817		10,357
Cash flows from investing activities
Capital expenditures, including interest capitalized	(76,552)		(83,921)		(12,815)
Pledged bank deposits related to purchase of property,
plant and equipment	(1,542)		(1,746)		(267)
Payments for land use rights	(400)		-		-
Deposit for purchase of other investment	-		(5,000)		(764)
Purchase of investment	-		(25,026)		(3,822)
Net cash used in investing activities	(78,494)		(115,693)		(17,668)
Cash flows from financing activities
Dividend by a subsidiary to  noncontrolling shareholders
	-		(800)		(122)
Acquisition of additional equity interest in subsidiaries   from noncontrolling interests
	(26,300)		-		-
Proceeds from long-term bank borrowings	-		30,000		4,581
Repayments of  long-term bank borrowings	(5,000)		-		-
Repayments of non-interest bearing borrowings
from related parties	(1,000)		(5,500)		(840)
Net cash (used in) provided by financing activities	(32,300)		23,700		3,619
Effect of foreign currency exchange rate changes
on cash	(19)		(158)		(24)
Net decrease in cash	(110,563)		(24,334)		(3,716)
Cash at beginning of year	351,097		98,719		15,075
Cash at end of year	240,534		74,385		11,359
Supplemental disclosures of cash flow information:
Income taxes paid	9,071		14,087		2,151
Interest paid, net of amounts capitalized	80		295		45
Noncash investing and financing activities:
Payable for purchase of property, plant and equipment	86,848		64,045		9,780
Payable for acquisition of Kangpeng Nong Hua	25,000		-		-
Bills payable for purchase of property, plant and equipment	20,751		21,401		3,268

SOURCE Chemspec International Limited

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