China Fire & Security Group Announces Fourth Quarter and Full Year 2009 Financial Results
- FY09 Revenue Increases 18% to $81.2 Million -
-FY09 Operating Income Increases 17% to $27.6 Million -
- Reaffirms FY10 Forecast of 66% - 78% Revenue Growth -
- Reaffirms FY10 Forecast of 89% - 105% Net Income Growth -
BEIJING, March 16 /PRNewswire-Asia/ -- China Fire & Security Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading total solution provider of industrial fire protection systems in China, today announced its financial results for the fourth quarter and fiscal year ended December 31, 2009.
Full Year 2009 Results
Revenues for 2009 increased 17.5% to $81.2 million from $69.1 million for 2008, driven primarily by higher total solution and product sales. During 2009, the Company recognized revenues from 445 total solutions, product sales and maintenance services contracts, compared to 319 contracts in 2008. The iron and steel industry remains the Company's largest vertical, having contributed 75% of the total revenues in 2009, followed by power generation at 16%, and petrochemical and other verticals at 9%.
Gross margin for 2009 was 58.0%, 80 basis points higher than the gross margin of 57.2% in 2008. The increase in the gross margin was primarily attributable to the Company's successful execution of total solution contracts in the iron and steel industry during the year.
Operating income was $27.6 million for 2009, as compared to $23.6 million for 2008, an increase of $4.0 million, or 17.0%, driven by the strong revenue growth and higher gross margin in 2009. Operating margin in 2009 was 34.0%, compared to 34.1% in 2008, as total operating expenses increased to $19.5 million in 2009, from $15.9 million in 2008. The higher operating expenses were primarily due to increased marketing activities and the expansion into new markets, most notably the retrofitting market in the iron and steel industry.
Net income was $24.4 million for 2009, compared to $24.7 million for 2008, representing a slight decrease of $0.3 million, or 1.2%. This decrease in net income was mainly attributable to the significant increase in the Company's effective income tax rate during this year, as the Company's main operating subsidiary, Sureland Industrial Fire Safety, Ltd., began to pay income tax at a rate of 12.5% after the expiration of its tax exemption period in 2008. GAAP fully diluted EPS was $0.86 in 2009, compared to $0.88 in the prior year.
Fourth Quarter 2009 Results
For the fourth quarter of 2009, revenue decreased 19.4% year over year to $16.9 million, compared to $21.0 million for the same period in 2008. This decrease was mainly due to the delay in the signing and executing of the
previously announced $92 million retrofitting contract with Wuhan Iron and Steel (Group) Corporation ("Wuhan Iron and Steel").
Gross margin for the fourth quarter of 2009 was 48.8%, versus a gross margin of 54.3% for the same period of 2008. The decrease in gross margin during the fourth quarter 2009 was primarily due to the lower contribution from the more profitable iron and steel vertical in the total revenue mix. During the fourth quarter of 2009, the iron and steel vertical represented 53% of the total revenue, as compared to 74% in the same period of last year.
Operating income was $3.3 million, as compared to $6.2 million from the same period last year. Operating margin for the period was 19.4%, versus 29.5% a year ago, primarily due to the decrease in gross margin this quarter. Operating expenses were $5.0 million for the fourth quarter of 2009, compared to $5.2 million for the same period of 2008. The improvement in operating expenses during this quarter benefited from lower administrative expenses.
Net income was $2.9 million for the fourth quarter of 2009, as compared to $6.8 million for the same period of 2008. The decrease in net income was mainly due to the decrease in both revenue and gross margin during this quarter as well as the 12.5% income tax on our major operating subsidiary in China. As a result, GAAP fully diluted EPS was $0.10 in the fourth quarter of 2009, versus $0.24 in the fourth quarter of the prior year.
Mr. Gangjin Li, chairman and chief executive officer of China Fire, commented, "In spite of lower than expected revenue in the fourth quarter of 2009, I am satisfied with our business momentum and with the groundwork that we laid out over the past year. Due to the larger than expected size and scope of the Wuhan Iron and Steel retrofitting project, we had a delay in the signing of the contract, from which we had projected a $10 million revenue contribution during the fourth quarter of 2009. The nature of our business as a total solution provider may occasionally result in unexpected changes in the recognition of certain large projects or contracts, thereby impacting our quarterly results. At this point, however, we have successfully signed this record-high contract, as announced earlier this year, and I am more enthusiastic than ever about China Fire's growth momentum in 2010."
Liquidity and Capital Resources
As of December 31, 2009, the Company had working capital of $87.1 million and zero debt. Net cash provided by operating activities was $5.5 million in 2009, compared to $13.4 million in 2008. As a result, net cash increased $8.3 million to $35.0 million at the end of 2009, from $26.7 million at the end of 2008.
Financial Outlook for 2010
For the full year 2010, the Company reaffirms its revenues will grow between 66% and 78% to a range of $135 million to $145 million. Net income is estimated to grow 89% to 105% to a range of $47 million to $49 million, or $1.65 to $1.70 per diluted share.
Mr. Li concluded, "We continue to be excited about the growth prospects in our core iron and steel market and customer base. We are particularly excited that the new retrofit market opportunities are essentially an extension of our core iron and steel business, as the projects require our same core products, core technical and core vertical expertise that have made China Fire the market leader with the number one brand in China. Furthermore, in addition to our core iron and steel vertical, we continue to pursue expansions into other verticals, including power generation, transportation, petrochemical, etc., as well as new international markets."
Conference Call
The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, March 16, 2010. The Company invites the participants to join the call by dialing +1-719-325-4763. To listen to the live webcast of the event, please go to http://www.chinafiresecurity.com and click on the Investor Relations section where conference calls are posted. Please go to the website 15 minutes early to download and install any necessary audio software.
A replay of the call will be available from March 16, 2010 to March 23, 2010. Listeners may access the replay by dialing +1-719-457-0820, passcode: 8104346.
About China Fire & Security Group, Inc.
China Fire & Security Group, Inc. (NASDAQ: CFSG), through its wholly owned subsidiary, Sureland Industrial Fire Safety Limited ("Sureland"), is a leading total solution provider of industrial fire protection systems in China. Leveraging on its proprietary technologies, China Fire is engaged primarily in the design, manufacture, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. Via its nationwide direct sales force, China Fire has built a solid client base including major companies in iron and steel, power, petrochemical and transportation industries throughout China. China Fire has a seasoned management team with strong focus on standards and technologies. Currently, China Fire has a comprehensive portfolio of patents covering fire detection, system control and fire extinguishing technologies. Founded in 1995, China Fire is headquartered in Beijing with about 430 employees in more than 30 sales and project offices throughout China. For more information about the Company, please go to http://www.chinafiresecurity.com .
Cautionary Statement Regarding Forward Looking Information
This presentation may contain forward-looking information about China Fire & Security Group, Inc. and its wholly owned subsidiary Sureland which are intended to be covered by the safe harbor for forward-looking statements provided by the Private Securities Litigation Reform Act of 1995. Forward-looking statements are statements that are not historical facts. These statements can be identified by the use of forward-looking terminology such as "believe," "expect," "may," "will," "should," "project," "plan," "seek," "intend," or "anticipate" or the negative thereof or comparable terminology, and include discussions of strategy, statements about industry trends and China Fire & Security Groups' future performance, operations and products. This and other "Risk Factors" are contained in China Fire & Security Groups' public filings with the SEC.
For more information, please contact: China Fire & Security Group, Inc. Amy Gao, Investor Relations Tel: +86-10-8441-7400 Email: [email protected] ICR, Inc. In China: Michael Tieu Tel: +86-10-6599-7960 Email: [email protected] In the U.S.: Bill Zima Phone: +1-203-682-8200 Email: [email protected] CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2009 AND 2008 December 31, December 31, 2009 2008 ASSETS CURRENT ASSETS: Cash and cash equivalents $34,976,880 $26,655,333 Restricted cash 1,837,134 5,377,933 Notes receivable 4,274,268 3,670,259 Accounts receivable, net of allowance for doubtful accounts of $6,539,787 and $4,370,362 as of December 31, 2009 and 2008, respectively 30,989,569 25,826,343 Receivables from related party 551,792 466,223 Other receivables 368,679 419,419 Refundable bidding and system contracting project deposits 1,774,330 1,112,840 Inventories 5,360,520 6,538,938 Costs and estimated earnings in excess of billings 36,562,573 17,821,708 Employee advances 953,625 743,868 Prepayments and deferred expenses 3,397,358 2,816,976 Total current assets 121,046,728 91,449,840 PLANT AND EQUIPMENT, net 8,617,521 8,445,254 OTHER ASSETS: Restricted cash - non current 3,602,906 1,872,828 Accounts receivable - retentions 3,463,998 1,107,450 Deferred expenses - non current 116,045 -- Advances on building and equipment purchases -- 249,859 Investment in joint ventures 477,837 1,167,238 Intangible assets, net 1,041,156 1,116,449 Total other assets 8,701,942 5,513,824 Total assets $138,366,191 $105,408,918 LIABILITIES AND EQUITY CURRENT LIABILITIES: Accounts payable $6,903,961 $6,664,090 Accounts payable to related party 272,994 -- Customer deposits 2,182,790 6,102,026 Billings in excess of costs and estimated earnings 1,429,999 4,237,528 Other payables 333,121 837,973 Accrued liabilities 13,841,300 6,785,409 Taxes payable 9,002,470 2,092,745 Total current liabilities 3,966,635 26,719,771 COMMITMENTS AND CONTINGENCIES EQUITY: Common stock, $0.001 par value, 65,000,000 shares authorized, 27,595,541 and 27,586,593 shares issued and outstanding as of December 31, 2009 and 2008, respectively 27,595 27,586 Additional paid-in-capital 20,601,138 19,357,409 Statutory reserves 7,147,795 7,148,827 Retained earnings 69,266,049 44,850,181 Accumulated other comprehensive income 7,324,237 7,305,144 Total shareholders' equity 104,366,814 78,689,147 Noncontrolling interest 32,742 -- Total equity 104,399,556 78,689,147 Total liabilities and equity $138,366,191 $105,408,918 CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2009, 2008 AND 2007 2009 2008 2007 REVENUES System contracting projects $62,514,475 $57,101,984 $34,581,376 Products 15,718,815 9,673,922 10,592,683 Maintenance services 2,947,908 2,303,213 1,579,778 Total revenues 81,181,198 69,079,119 46,753,837 COST OF REVENUES System contracting projects 26,769,508 25,805,086 16,158,844 Products 5,589,310 2,558,844 4,329,067 Maintenance services 1,769,104 1,217,316 602,943 Total cost of revenues 34,127,922 29,581,246 21,090,854 GROSS PROFIT 47,053,276 39,497,873 25,662,983 OPERATING EXPENSES Selling and marketing 8,908,697 6,434,887 3,907,067 General and administrative 8,154,801 6,680,992 5,661,356 Depreciation and amortization 773,907 712,269 535,751 Research and development 1,631,435 2,102,976 672,379 Total operating expenses 19,468,840 15,931,124 10,776,553 INCOME FROM OPERATIONS 27,584,436 23,566,749 14,886,430 OTHER INCOME (EXPENSES) Other income 678,530 929,919 581,192 Other expenses (6,907) (127,620) (14,932) Interest income 269,081 382,227 148,236 Change in fair value of derivative instruments -- -- 1,205,791 Total other income (expenses) 940,704 1,184,526 1,920,287 INCOME BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST 28,525,140 24,751,275 16,806,717 PROVISION FOR INCOME TAXES 4,165,548 47,423 5,081 NET INCOME BEFORE NONCONTROLLING INTEREST 24,359,592 24,703,852 16,801,636 Less: Net loss attributable to noncontrolling interest (55,244) -- -- NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST 24,414,836 24,703,852 16,801,636 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment 19,093 3,737,027 2,502,595 COMPREHENSIVE INCOME $24,433,929 $28,440,879 $19,304,231 BASIC EARNINGS PER SHARE Weighted average number of shares 27,590,523 27,568,214 26,873,742 Earnings per share $0.88 $0.90 $0.63 DILUTED EARNINGS PER SHARE Weighted average number of shares 28,311,955 28,210,620 27,721,171 Earnings per share $0.86 $0.88 $0.61
SOURCE China Fire & Security Group, Inc.
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