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Cogo Reports Unaudited Earnings for Second Quarter 2013
Aug 15, 2013 (12:08 PM EDT)


SHENZHEN, China, Aug. 15, 2013 /PRNewswire/ -- Cogo Group, Inc. (NASDAQ: COGO) ("Cogo" or the "Company"), one of the leading gateways for global semiconductor companies to access the industrial and technology markets in China, today announced unaudited financial results for its second quarter ended June 30, 2013.

Unaudited revenue in the second quarter was $184.9 million, down 4.1% year-over-year from $192.9 million in the second quarter of 2012.

Jeffrey Kang, CEO and Chairman of Cogo, commented, "The Audit Committee, comprising the three independent board members of Cogo, continues to make progress in the due diligence process on my proposal to purchase certain of Cogo's net assets."

Mr. Kang said: "If the transaction is approved, it is expected that Cogo would dispose most of its components business while all services and technical solutions businesses would become Cogo's core business. The bulk of Cogo's accounts receivable, inventories, accounts payable and bank loans would be sold to the buyer under the proposal. The disposal of the net assets in a cash transaction is expected to increase Cogo's net cash position. The sale would allow the company to focus on developing a higher margin service and technical solution business, thus creating greater value for shareholders."

Mr. Kang added, "Management believes that retaining the Company's listing will provide greater return for its shareholders than privatization. While the proceeds could also fund the Company's buyback program for investors who wish to sell their shares of the Company, it allows the Company to continue to leverage its listed status to develop higher margin business and venture to new business to generate greater value to shareholders."

Financial Results

Cogo's net income in the second quarter of 2013 was $1.7 million, down 6.2% from $1.8 million in the same period in 2012, with non-GAAP net income at $4.4 million down 14.4% from $5.2 million a year earlier. Diluted EPS was $0.05, unchanged from the second quarter of 2012, and non-GAAP diluted EPS was $0.13, down 7.1% from the second quarter of 2012.

Key Financial Indicators

(all numbers in USD thousands, except share data)






Q2 2013 (1)

(unaudited)

Q2 2012(1)

(unaudited)

Percentage Change

Net Revenue

$184,928

$192,861

-4.1%


Cost of Sales

$172,762

$179,104

-3.5%


Gross Profit

$12,166

$13,757

-11.6%


Operating Expenses

$9,111

$9,923

-8.2%


Net Income attributable to Cogo Group, Inc.

$1,684(2)

$1,796

-6.2%


Diluted EPS attributable to Cogo Group, Inc.

$0.05

$0.05

0.0%


Non-GAAP Diluted EPS attributable to Cogo Group, Inc.

$0.13

$0.14

7.1%



 

(1)

The US dollar ("USD") amounts are calculated based on the conversion rate of $1 to RMB6.1374 as of June 30, 2013 and $1 to RMB6.353 as of June 30, 2012.

(2)

Included in the Q2 2013 net income attributable to Cogo Group, Inc. was $1.9 million of share-based compensation expenses recognized in accordance with Accounting Standards Codification ("ASC") 718, Compensation-Stock Compensation and $0.9 million of amortization of intangible assets and related deferred taxation. Non-GAAP net income attributable to Cogo Group, Inc. was $4.4 million.

Revenue Review

Revenue for the second quarter was $184.9 million, a decrease of 4.1% from $192.9 million in the same period in 2012. The revenue breakdown includes: $69.1 million, or 37.4% of total sales for digital media (including the mobile handset business), down 5.2% year-over-year; $79.8 million or 43.2% of total sales for telecommunications equipment, representing a 5.7% decrease year-over-year; and $35.2 million or 19.0% of total sales relating to industrial business, down 0.6% year-over-year. The Company recorded $0.8 million or 0.4% of total sales from the service business in the second quarter of 2013, increased 100% from $0.4 million recorded in the first quarter of 2013.

Cost of sales, which includes the aggregate purchase of components from suppliers and the direct cost of services, was $172.8 million, down 3.5% from $179.1 million in the second quarter of 2012. Gross profit for the second quarter was $12.2 million, down 11.6% from $13.8 million in the second quarter of last year. The gross margin for the second quarter of 2013 was 6.6%, down from 7.1% a year earlier.

Operating expenses, including selling, general and administrative, and research and development expenses, totaled $9.1 million, down 8.2% from $9.9 million in the second quarter of 2012.

Income from operations was $3.1 million, down 20.3% from $3.8 million in the same period of 2012. The operating margin was 1.7%, down from 2.0% in the second quarter of 2012. Excluding the effects of share-based compensation expenses and amortization of intangible assets and related deferred taxation, operating margin would have been 3.2% for the second quarter of 2013, compared to 3.8% in the second quarter of 2012. The effective tax rate for the second quarter of 2013 was 12.0%, up from 10.8% a year earlier.

Cogo's net income for the second quarter of 2013 was $1.7 million, with diluted EPS of $0.05 on a GAAP basis, compared to net income of $1.8 million and diluted EPS $0.05, in the second quarter of 2012. Included in the second quarter of 2013 were $1.9 million for share-based compensation expenses and $0.9 million for amortization of intangible assets and related deferred taxation. Excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, the non-GAAP net income would have been $4.4 million, or Non-GAAP Diluted EPS of $0.13. The weighted average number of shares used in the calculation of diluted EPS was 33.1 million compared to 36.4 million in the second quarter of 2012.

For the six-month period ended June 30, 2013, the Company reported revenue of $369.5 million, up 2.4% from $360.7 million in the first-half year of 2012. Gross profit was $24.3 million, down 3.2% from $25.1 million in the first-half year of 2012. The gross margin was 6.6%, compared to 7.0% in the same period last year. Net operating expenses were $18.1 million, down 4.7% from $19.0 million in the first half of 2012. Income from operations was $6.2 million, down 1.6% from the $6.1 million reported a year earlier. The non-GAAP operating margin, excluding share-based compensation expenses and amortization of intangible assets, was 3.3%, compared to 3.6% in the same period last year, as a result of a lower gross margin. The Company had an effective tax rate of 11.4% compared to 11.9% during the same period last year. Non-controlling interests' share of income was $1.9 million, up from $1.7 million in the first-half of 2012. Cogo's net income for the half-year period was up 3.3% at $3.1 million from the same period last year.

Balance Sheets and Cash Flows
Total cash, including pledged bank deposits, was $140.8 million at the end of the second quarter, down from $141.5 million as of December 31, 2012. Bank borrowings decreased to $90.1 million as of June 30, 2013, from $98.6 million at the end of 2012. The Company has a current ratio of 2.6 to 1 and has operating cash outflow of $6.8 million during the second quarter of 2013. 

Inventories decreased from $82.9 million as of December 31, 2012, to $67.2 million as of June 30, 2013. Inventory turnover days numbered 35 days in the second quarter of 2013 down from 41 days in the fourth quarter of 2012. Accounts receivable increased from $113.2 million as of December 31, 2012, to $170.6 million as of June 30, 2013, and the Days Sales Outstanding increased from 52 days in the fourth quarter of 2012 to 84 days. Accounts payable increased from $16.5 million at the end of 2012 to $23.2 million as of June 30, 2013, and Days Payable Outstanding increased from 8 days to 12 days. Cogo's cash conversion cycle increased from 85 days in the fourth quarter of 2012 to 107 days in the second quarter of 2013.

Total equity was $261.3 million as of June 30, 2013, an increase of 2.4% from $255.3 million as of December 31, 2012. During the second quarter of 2013, the Company repurchased approximately 2.2 million ordinary shares at an average price of $1.98 per share and a total cost of more than $4.3 million pursuant to the current stock repurchase program. Cogo has repurchased almost 6.4 million shares since September 24, 2012. Under the current repurchase program, and there are approximately 3.6 million shares left out of the 10 million shares authorized for the program. Cogo continues to view share buybacks as a strategic use of cash.

Cogo 2013 Q2 Earnings Results Conference Call

Date/ Time:
August 15, 2013 (Thursday) @ 8:00 PM (ET)

Conference Call:
Toll-Free   1-877-941-4774
Toll/International   +1-480-629-9760

Webcast/ Audio Recording:
http://public.viavid.com/index.php?id=105721

Replay (from 8/15/2013 at 11:00 pm to 8/17/2013 at 11:59 pm ET):
US/ Canada Toll-Free: 1-877-870-5176 (Passcode: 4635093)
International: +1-858-384-5517 (Passcode: 4635093)

About Cogo Group, Inc.:
Cogo Group, Inc. (Nasdaq: COGO) is the leading gateway for global semiconductor companies to access the rapidly growing Industrial and Technology sectors in China. Through its unique business-to-business services platform, Cogo designs customized embedded solutions using technology from suppliers including Broadcom, Xilinx, Atmel and others for a customer base of over 2,100 Chinese OEMs/ODMs. Cogo's customer list includes approximately 100 blue-chip companies, including ZTE, BYD and NARI, as well as nearly 2,000 Small and Medium Enterprises (SMEs). The Company serves a broad list of rapidly growing end-markets in China, including 3G Smartphones, Tablets, Automotives, High-Speed Railway, Smart Meter/Smart Grid, Healthcare and High Definition Television "HDTV."

For further information:
Investor Relations
www.cogo.com.cn/investorinfo.html
communications@cogo.com.cn
H.K.:    +852 2730 1518 
U.S.:    +1 (646) 291 8998
Fax:     +86 755 2674 3522

Safe Harbor Statement:
This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933 and Section 21E of the Securities and Exchange Act of 1934. These forward-looking statements may include statements about our proposed discussions related to our business or growth strategy such as growth in digital media, telecommunications and industrial applications businesses, as well as our potential acquisitions which are subject to change. Such information is based upon expectations of our management that were reasonable when made, but may prove to be incorrect. All such assumptions are inherently subject to uncertainties and contingencies beyond our control and upon assumptions with respect to future business decisions, which are subject to change. For further descriptions of other risks and uncertainties, see our most recent Annual Report filed with the Securities and Exchange Commission (SEC) on Form 20-F, and our subsequent SEC filings. Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at www.sec.gov.

About Non-GAAP Financial Measures:
To supplement Cogo's unaudited consolidated financial results presented in accordance with GAAP, Cogo uses the following measures defined as Non-GAAP financial measures by the SEC: 1) Non-GAAP net income attributable to Cogo Group, Inc. which is net income attributable to Cogo Group, Inc. excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation, and 2) Non-GAAP diluted EPS attributable to Cogo Group, Inc., which is diluted EPS excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation. The presentation of these Non-GAAP financial measures is not intended to be considered in isolation or as a substitute for the financial information prepared and presented in accordance with GAAP. For more information on these Non-GAAP financial measures, please see the table captioned "Unaudited Reconciliation of Non-GAAP measures to the most comparable GAAP measures" set forth at the end of this release.

Cogo believes that these Non-GAAP financial measures provide meaningful supplemental information regarding its performance and liquidity by excluding share-based compensation expenses and amortization of intangible assets and related deferred taxation that may not be indicative of its operating performance from a cash perspective. Cogo believes that both management and investors benefit from referring to these Non-GAAP financial measures in assessing its performance and when planning and forecasting future periods. These Non-GAAP financial measures also facilitate management's internal comparisons to Cogo's historical performance and liquidity. Cogo computes its Non-GAAP financial measures using the same consistent method from quarter to quarter.

Cogo believes these Non-GAAP financial measures are useful to investors in allowing for greater transparency with respect to supplemental information used by management in its financial and operational decision making. A limitation of using Non-GAAP net income attributable to Cogo Group, Inc., Non-GAAP diluted Earnings Per Share attributable to Cogo Group, Inc., Non-GAAP income from operations and Non-GAAP operating margin is that these Non-GAAP measures exclude share-based compensation expenses and amortization of intangible assets and related deferred taxation that have been and will continue to be for the foreseeable future a recurring expense in our business. Management compensates for these limitations by providing specific information regarding the GAAP amounts excluded from each Non-GAAP measure. The accompanying tables have more details on the reconciliations between GAAP financial measures that are most directly comparable to Non-GAAP financial measures.

Tables Attached

 

FINANCIAL INFORMATION

UNAUDITED CONDENSED CONSOLIDATED FINANCIAL STATEMENTS

COGO GROUP, INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Balance Sheets as of June 30, 2013

and December 31, 2012





June 30, 2013


December 31,

2012



USD'000



RMB'000


RMB'000

Assets









Current assets:









Cash



30,169



185,159


324,839

Pledged bank deposits



110,648



679,091


556,941

Accounts receivable, net



170,592



1,046,993


704,968

Bills receivable



4,064



24,943


27,945

Amount due from related party






35,743

Inventories



67,230



412,616


516,372

Income taxes receivable



581



3,566


2,098

Prepaid expenses and other receivables



7,883



48,384


56,266

Total current assets



391,167



2,400,752


2,225,172

Property and equipment, net



4,504



27,645


17,515

Intangible assets, net



18,927



116,162


128,810

Other assets



6



35


261

Total Assets



414,604



2,544,594


2,371,758

Liabilities and equity









Current liabilities:









Accounts payable



23,249



142,690


102,878

Bank borrowings



90,074



552,823


614,045

Income taxes payable



1,105



6,781


7,155

Amount due to related party



27,966



171,638


Accrued expenses and other liabilities



7,799



47,865


35,734

Total current liabilities



150,193



921,797


759,812

Deferred tax liabilities



3,123



19,167


21,254

Total liabilities



153,316



940,964


781,066

Equity









Common stock:









Par value: USD0.01

Authorized: 200,000,000 Shares

Issued: 44,579,871 shares in 2013, 43,423,556 shares in 2012

Outstanding: 29,518,358 shares in 2013, 31,110,922 shares in 2012



567



3,481


3,409

Additional paid in capital



240,163



1,473,976


1,448,396

Retained earnings



98,331



603,498


584,364

Accumulated other comprehensive loss



(21,441)



(131,594)


(122,513)




317,620



1,949,361


1,913,656

Less cost of common stock in treasury, 15,061,513 shares in 2013 and 12,312,634 shares in 2012



(65,755)



(403,566)


(369,217)

Total Cogo Group, Inc. equity



251,865



1,545,795


1,544,439

Noncontrolling interests



9,423



57,835


46,253

Total equity



261,288



1,603,630


1,590,692

Total liabilities and equity



414,604



2,544,594


2,371,758










 

 

 

COGO GROUP, INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income and

Comprehensive Income for the three months ended June 30, 2013 and 2012




Three months ended June 30,



2013


2013


2012



USD'000


RMB'000


RMB'000








Net Revenue



184,928



1,134,978



1,225,247

Cost of sales



(172,762)



(1,060,311)



(1,137,850)

Gross profit



12,166



74,667



87,397











Selling, general and administrative expenses



(6,765)



(41,521)



(39,023)

Research and development expenses



(3,100)



(19,023)



(24,009)

Other operating income (expense)



754



4,630



(12)

Income from operations



3,055



18,753



24,353

Interest expense



(753)



(4,621)



(6,741)

Interest income



511



3,135



3,608

Earnings before income taxes



2,813



17,267



21,220

Income tax expense



(337)



(2,067)



(2,286)

Net income



2,476



15,200



18,934

Less net income attributable to noncontrolling interests



(792)



(4,858)



(7,528)

Net income attributable to Cogo Group, Inc.



1,684



10,342



11,406











Earnings per share attributable to Cogo Group, Inc.










  Basic



0.05



0.31



0.31

  Diluted



0.05



0.31



0.31











Weighted average number of common shares outstanding










  Basic






33,002,573



36,379,789

  Diluted






33,111,295



36,379,789











Comprehensive income:










Net income



2,476



15,200



18,934

Other comprehensive income, net of nil tax










Foreign currency translation adjustments



(1,227)



(7,528)



2,624

Total comprehensive income



1,249



7,672



21,558











Less comprehensive income, net of nil tax, attributable to Noncontrolling interests



(742)



(4,556)



(6,783)

Comprehensive income attributable to Cogo Group, Inc.



507



3,116



14,775

 

 

 

COGO GROUP, INC. and SUBSIDIARIES

Unaudited Condensed Consolidated Statements of Income and

Comprehensive Income for the Six months ended June 30, 2013 and 2012




Six months ended June 30,



2013


2013


2012



USD'000


RMB'000


RMB'000








Net Revenue



369,507



2,267,815



2,291,688

Cost of sales



(345,182)



(2,118,517)



(2,131,953)

Gross profit



24,325



149,298



159,735











Selling, general and administrative expenses



(12,914)



(79,254)



(74,823)

Research and development expenses



(6,530)



(40,078)



(47,898)

Other operating income



1,303



7,998



1,729

Income from operations



6,184



37,964



38,743

Interest expense



(1,433)



(8,795)



(12,110)

Interest income



946



5,803



7,627

Earnings before income taxes



5,697



34,972



34,260

Income tax expense



(647)



(3,969)



(4,082)

Net income



5,050



31,003



30,178

Less net income attributable to noncontrolling interests



(1,934)



(11,869)



(10,836)

Net income attributable to Cogo Group, Inc.



3,116



19,134



19,342











Earnings per share attributable to Cogo Group, Inc.










  Basic



0.09



0.57



0.53

  Diluted



0.09



0.57



0.53











Weighted average number of common shares outstanding










  Basic






33,557,265



36,201,755

  Diluted






33,762,091



36,201,755











Comprehensive income:










Net income



5,050



31,003



30,178

Other comprehensive income, net of nil tax










  Foreign currency translation adjustments



(1,526)



(9,368)



2,926

Total comprehensive income



3,524



21,635



33,104











Less comprehensive income, net of nil tax, attributable to Noncontrolling interests



(1,887)



(11,582)



(10,835)

Comprehensive income attributable to Cogo Group, Inc.



1,637



10,053



22,269

 

 

COGO GROUP, INC. and SUBSIDIARIES


UNAUDITED RECONCILIATION OF NON-GAAP MEASURES TO THE MOST COMPARABLE GAAP MEASURES





Three Months ended June,




2013


2012




$'000


$'000

Net Income






GAAP net income attributable to Cogo Group, Inc.


1,684


1,796


Share-based compensation expenses


1,903


2,569


Amortization of intangible assets and related deferred taxation


860


831


Non-GAAP net income attributable to Cogo Group, Inc.


4,447


5,196






Income from operations






GAAP income from operations


3,055


3,834


Share-based compensation expenses


1,903


2,569


Amortization of intangible assets


1,030


995


Non-GAAP income from operation


5,988


7,398







Operating Margin






GAAP operating margin


1.7%


2.0%


Non-GAAP operating margin


3.2%


3.8%







Earnings per share


$


$


       GAAP net income attributable to Cogo Group, Inc. per common share-Diluted


0.05


0.05


       Non-GAAP net income attributable to Cogo Group, Inc. per common share-Diluted


0.13


0.14













Weighted average number of common shares outstanding






        Basic


33,002,573


36,379,789


        Diluted    


33,111,295


36,379,789














 

SOURCE Cogo Group, Inc.