China Precision Steel Announces First Quarter Fiscal 2013 Results

SHANGHAI, Nov. 19, 2012 /PRNewswire/ -- China Precision Steel, Inc. (NASDAQ: CPSL) ("China Precision Steel" or the "Company"), a niche precision steel processing Company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its fiscal year 2013 first quarter results for the period ended September 30, 2012. 

First Quarter Highlights

• Revenue was $6.0 million
• Gross loss was $1.5 million
• Net loss was $4.2 million
• Fully diluted loss per shares was $1.09
• International sales were $1.1 million, or 19% of total sales

"Since the beginning of calendar year 2012, Chinese steel companies have experienced an extremely challenging environment of overcapacity, sluggish demand and rising production costs resulting in a deterioration of profits.  In response to these industry pressures and in an effort to minimize our gross loss, we decided to only accept orders on products that meet specific price targets. As a result of this strategy, during the first quarter of fiscal year 2013, we significantly cut down the sales of our loss-making low-carbon, cold-rolled steel, which resulted in a sharp drop off in revenue," commented Mr. Hai Sheng Chen, CEO of China Precision Steel.  "While we remain selective in accepting new domestic orders, we have experienced an increase in exports sales as activity in the international markets has been showing some signs of strengthening."   

Revenue for the first quarter of fiscal year 2013 was $6.0 million, down from revenue of $42.2 million in the first quarter of fiscal year 2012.  The decrease in revenue was mainly attributable to the decrease in production and sales of low-carbon cold-rolled products in response to the company's strategy to reduce the loss-making products.  Total sales volume in the first quarter of fiscal year 2013 was 7,753 tons, down from total sales volume of 45,548 tons in the prior period.  High carbon and low carbon sales accounted for 42.9% and 53.4% of total sales, respectively, compared to 16.1% and 79.5%, respectively, period-on-period.  Exports represented 19% of total sales for the current period, up from 1% in the same period a year ago as the international market improved during the past few months. 

Gross loss in the first quarter was $1.5 million, compared to gross profit of $0.06 million in the same period a year ago.  Gross loss margin for the current period was 24.6%, compared to a gross margin of 0.1% in the first quarter of fiscal 2012. The increase in gross loss margin is due to a 17.1% period-on-period decrease in average selling prices and a 3.6% period-on-period increase in average cost per unit sold, as steel prices remained weak while production costs increased.  Average selling price for the quarter was $768 per ton, down from $926 per ton in the first quarter of fiscal 2012, and the average cost per unit sold was $957 per ton, up from $924 per ton in the same period a year ago.

Selling expenses for the first quarter of fiscal year 2013 were $29,273, compared to $68,304 in the first quarter of fiscal year 2012. The decline in selling expenses was primarily attributable to lower transportation costs and traveling expenses period-on-period.  Administrative expenses were $442,615, or 7.4% of revenue, compared to $294,076, or 0.7% of revenue period-on-period.  The increase in administrative expenses was primarily due to an increase in legal and professional fees period-on-period. 

Operating loss for the current quarter was $3.4 million, compared to an operating loss of $0.4 million in the first quarter of fiscal year 2012.

Net loss for the first quarter of fiscal year 2013 was $4.2 million, compared to net loss of $1.1 million for the first quarter of fiscal year 2012.  Fully diluted loss per share was $1.09, compared to fully diluted loss per share of $0.28 in the same period a year ago. 

Financial Condition

As of September 30, 2012, China Precision Steel had $1.6 million in cash and cash equivalents, $68.1 million in total liabilities and working capital of $47.5 million.  Stockholders' equity stood at $115.9 million, compared to $118.9 million as of June 30, 2012.  Cash generated from operating activities during the first three months of fiscal year 2013 was $0.2 million.

Business Outlook

China Precision Steel believes China's steel industry will continue to experience pressures from oversupply for the near-term and it will continue to be selective in accepting new orders.  As of September 30, 2012, China Precision Steel had a backlog of $6.2 million which is comprised of approximately 20% in exports, 30% in high-carbon steel and 50% in low-carbon steel products.

"While we anticipate continued difficulty in the steel industry for the foreseeable future, we are seeing signs that the industry is poised for a turnaround. Baosteel, China's largest listed steelmaker and a popular benchmark for the Chinese steel industry, raised steel prices for the first time since March 2012 on increased demand. Additionally, Mr. Wang Xiaoqi, Vice-Chairman of the China Iron and Steel Association, announced recently that the darkest time for the domestic steel industry should be over as the implementation of pro-growth measures rolled out by the government will begin to take effect on China's steel industry in the fourth quarter," Mr. Chen continued.  "We view these signs as a positive for the market and an indication that the industry downturn might have already reached its bottom.  In the meantime, we will continue to focus on reducing operating costs and improving working capital as well as planning our orders and production to reduce loss and contribute to profitability."

Forward-Looking Statements

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding The likelihood that the downturn in China's steel industry has halted and that the industry will experience a turnaround and increased demand; the significance of China's implementation of pro-growth measures and the likelihood that it will start benefiting the domestic steel industry in the fourth quarter; the Company's ability to reduce operating costs, improve working capital and increase profitability, and any other statements of non-historical information. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs but they involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, such as business conditions in China, weather and natural disasters, changing interpretations of generally accepted accounting principles; outcomes of government reviews; inquiries and investigations and related litigation; continued compliance with government regulations; legislation or regulatory environments, requirements or changes adversely affecting the businesses in which China Precision Steel is engaged; cyclicality of steel consumption including overcapacity and decline in steel prices, limited availability of raw material and energy may constrain operating levels and reduce profit margins, environmental compliance and remediation could result in increased cost of capital as well as other relevant risks not included herein. The information set forth herein should be read in light of such risks. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the Company's expectations. 

--  Financial Tables Follow --

Elite IR
Leslie J. Richardson, Partner
+852-3183-0283
[email protected]

SOURCE China Precision Steel Inc.

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