China Fire & Security Group Announces Second Quarter 2010 Financial Results
BEIJING, Aug. 9 /PRNewswire-Asia/ -- China Fire & Security Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading industrial fire protection product and solution provider in China, today announced its financial results for the second quarter ended June 30, 2010.
Highlights for the second quarter of 2010:
-- Revenue increased 0.4% year-over-year to $22.8 million
-- Backlog totaled $145 million as of June 30th, 2010, an increase of $4
million from the end of the first quarter of 2010
(in US Dollars) Second Quarter, Second Quarter, Change (%)
2010 2009
GAAP Net Income 6,333,660 8,336,222 -24.0%
Non-Cash Option and
Restricted 1,035,674 245,049 322.6%
Stock Expenses
Non-GAAP Net Income 7,369,334 8,581,271 -14.1%
GAAP Diluted EPS 0.22 0.29 -24.3%
Non-GAAP Diluted EPS 0.26 0.30 -14.4%
Second Quarter 2010 Results
For the second quarter of 2010, the Company's total revenue increased 0.4% year over year to $22.8 million, compared to $22.7 million for the same period in 2009. This slight increase was primarily attributable to the increase in the Company's revenues from maintenance services, offset by the decrease in the Company's revenue from system contracting projects and product sales.
Revenues from system contracting projects decreased by 0.1% to $18.3 million during the second quarter of 2010, compared to $18.3 million for the same period of last year, while revenues from product sales were $3.6 million during the second quarter of 2010, compared to $3.8 million for the same period of 2009. The decrease in revenues from both system contracting projects and product sales were attributable to the slowdown in the execution of projects from the iron and steel industry, which experienced industry weakness with lower steel selling prices and rising costs of iron ore during the period.
Gross margin for the second quarter of 2010 was 54.3%, compared to a gross margin of 63.8% for the second quarter of 2009. The decrease in the Company's gross margin was mainly due to the lower revenue contribution from iron and steel industry during the period. System contracting projects from the iron and steel industry generally contribute higher gross margins than the projects from other industries, due to a higher percentage of the Company's self- manufactured proprietary products being utilized in the iron and steel projects.
The Company's operating income for the second quarter of 2010 was $7.0 million, compared to $9.6 million for the same period last year. The decrease in the operating income was mainly attributable to the decrease in the Company's gross profit and the increase in the Company's operating expenses during the period.
The Company's GAAP net income for the second quarter of 2010 was $6.3 million, compared to $8.3 million for the same period of 2009, representing an annual decrease of 24.0%. The decrease in net income was mainly due to the decrease in gross profit and increase in operating expenses during the period. As a result, the Company's fully diluted EPS was $0.22 in the second quarter of 2010, versus $0.29 in the second quarter of 2009.
If the non-cash option and restricted stock expenses are excluded, then the Company's non-GAAP net income was $7.4 million during the second quarter of 2010, compared to $8.6 million during the second quarter of 2009, representing an annual decrease of 14.1%. The Company's non-GAAP diluted EPS was $0.26 for the second quarter of 2010, compared to $0.30 for the same period of 2009.
Liquidity and Capital Resources
As of June 30, 2010, the Company had cash and cash equivalents of $27.8 million, a sequential increase of $2.6 million from $25.1 million at the end of the first quarter of 2010. During the second quarter, the Company generated $2.8 million cash from operations as compared to a positive operating cash flow of $0.4 million in the same period of last year.
Mr. Brian Lin, chief executive officer of China Fire, commented, "I am pleased with the progress we have achieved during this quarter, particularly in light of the unexpected softness in the iron and steel vertical. As we continue to build up our backlog, we remain optimistic, having seen significant opportunities and demand for our fire protection total solutions."
Financial Outlook for 2010
Based on the Company's current backlog and contract pipeline, for full year 2010, the Company now expects to achieve revenues of $118 million to $125 million, representing an annual top line growth of 45%-54%. The Company estimates that GAAP net income will be in the range of $34 million to $36 million, or EPS of $1.20 to $1.26 based on fully diluted shares outstanding of 28.5 million, representing an annual bottom line growth of 39% - 47%. This is in comparison to the previous targets of revenue of $135 million to $145 million, net income of $47 million to $49 million and EPS of $1.65 to $1.70.
Mr. Lin concluded, "We believe that the current setback within China's iron and steel industry is only a short-term challenge to our business. We find it prudent to revise our 2010 outlook accordingly. We remain fully confident in our ability to grow our business and expand our market share in different verticals. The long-term $2 billion market potential of retrofitting opportunities within the iron and steel industry has not changed, and in our view, we are well-positioned to capture tremendous business opportunities from the industry recovery and from China's industrialization process overall. As such, we believe that China Fire's current stock price level does not reflect the intrinsic value of our Company, and so we intend to actively implement our existing share buy-back plan of $10 million. We are confident that by leveraging our proprietary products, leading brand name and strong track record, China Fire will continue to gain significant market shares from the iron and steel, power generation, chemical, transportation and international markets."
Conference Call
The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, August 9, 2010. The Company invites the participants to join the call by dialing +1-719-325-4841. 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 August 9, 2010 to August 16, 2010. Listeners may access the recording by dialing +1-719-457-0820, passcode: 4879502.
About China Fire & Security Group, Inc.
China Fire & Security Group, Inc. (NASDAQ: CFSG), through its wholly owned subsidiary, Sureland Industrial Fire Safety Limited, 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, manufacturing, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. The Company owns a comprehensive portfolio of patents covering fire detection, system control and fire extinguishing technologies, and via its nationwide direct sales force, has built a solid client base including major companies in iron and steel, power, petrochemical and transportation industries throughout China. 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
Tel: +1-203-682-8200
Email: [email protected]
CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
ASSETS
June 30, December 31,
2010 2009
CURRENT ASSETS: (Unaudited)
Cash and cash equivalents $ 27,773,889 $ 34,976,880
Restricted cash 4,324,670 1,837,134
Notes receivable 2,836,706 4,274,268
Accounts receivable, net of
allowance for doubtful accounts
of $7,274,109 and $6,539,787 as
of June 30, 2010 and December
31, 2009, respectively 34,350,836 30,989,569
Receivables from related party 156,069 156,599
Other receivables 616,311 368,679
Other receivables from related
parties 1,217,736 395,193
Refundable bidding and system
contracting project deposits 1,596,790 1,774,330
Inventories 5,528,866 5,360,520
Costs and estimated earnings
in excess of billings 55,302,042 36,562,573
Employee advances 1,407,024 953,625
Prepayments and deferred
expenses 3,667,230 3,397,358
Total current assets 138,778,169 121,046,728
PLANT AND EQUIPMENT, net 8,887,674 8,617,521
OTHER ASSETS:
Restricted cash - non current 3,566,050 3,602,906
Accounts receivable -
retentions 2,941,189 3,463,998
Deferred expenses - non
current 116,519 116,045
Investment in joint ventures 482,502 477,837
Intangible assets, net 1,005,912 1,041,156
Total other assets 8,112,172 8,701,942
Total assets $ 155,778,015 $ 138,366,191
LIABILITIES AND EQUITY
CURRENT LIABILITIES:
Accounts payable $ 8,769,594 $ 6,903,961
Accounts payable to related
party -- 272,994
Customer deposits 2,476,834 2,182,790
Billings in excess of costs
and estimated
earnings 1,488,334 1,429,999
Other payables 472,175 333,121
Accrued liabilities 15,861,264 13,841,300
Taxes payable 8,181,622 9,002,470
Total current liabilities 37,249,823 33,966,635
COMMITMENTS AND CONTINGENCIES
EQUITY:
Common stock, $0.001 par value,
65,000,000 shares authorized,
27,595,541 shares issued and
outstanding as of June 30,
2010 and December 31, 2009,
respectively 27,595 27,595
Additional paid-in-capital 22,672,485 20,601,138
Statutory reserves 7,147,795 7,147,795
Retained earnings 80,846,934 69,266,049
Accumulated other
comprehensive income 7,791,584 7,324,237
Total shareholders' equity 118,486,393 104,366,814
Noncontrolling interest 41,799 32,742
Total equity 118,528,192 104,399,556
Total liabilities and
equity $ 155,778,015 $ 138,366,191
CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED JUNE 30, 2010 AND 2009
UNAUDITED
Three Months Ended June 30,
2010 2009
REVENUES
System contracting projects $ 18,267,248 $ 18,290,930
Products 3,556,422 3,791,491
Maintenance services 1,009,761 649,447
Total revenues 22,833,431 22,731,868
COST OF REVENUES
System contracting projects 7,876,558 6,970,283
Products 1,856,133 865,395
Maintenance services 705,688 395,619
Total cost of revenues 10,438,379 8,231,297
GROSS PROFIT 12,395,052 14,500,571
OPERATING EXPENSES
Selling and marketing 2,209,162 2,237,873
General and administrative 2,618,664 1,983,443
Depreciation and amortization 202,055 183,456
Research and development 399,701 519,987
Total operating expenses 5,429,582 4,924,759
INCOME FROM OPERATIONS 6,965,470 9,575,812
OTHER INCOME (EXPENSES)
Other income 302,269 110,301
Interest income 99,548 7,206
Total other income (expenses) 401,817 117,507
INCOME BEFORE PROVISION FOR
INCOME TAXES AND
NONCONTROLLING INTEREST 7,367,287 9,693,319
PROVISION FOR INCOME TAXES 1,051,259 1,357,097
NET INCOME BEFORE
NONCONTROLLING INTEREST 6,316,028 8,336,222
Less: Net loss attributable to
noncontrolling interest (17,632) --
NET INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST 6,333,660 8,336,222
OTHER COMPREHENSIVE INCOME
Foreign currency translation
adjustment 487,820 69,294
COMPREHENSIVE INCOME $ 6,821,480 $ 8,405,516
BASIC EARNINGS PER SHARE
Weighted average number of shares 27,595,541 27,588,598
Earnings per share $ 0.23 $ 0.30
DILUTED EARNINGS PER SHARE
Weighted average number of shares 28,405,959 28,298,850
Earnings per share $ 0.22 $ 0.29
SOURCE China Fire & Security Group, Inc.
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