China Precision Steel Announces Second Quarter Fiscal 2010 Results
SHANGHAI, Feb. 16 /PRNewswire-Asia/ -- 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 2010 second quarter results for the period ended December 31, 2009.
Second Quarter Highlights
-- Revenue increased 53.7% year-over-year to $27.0 million
-- Gross profit was $3.6 million with 13.5% gross margin
-- Net income was $2.6 million, versus a net loss of $2.0 million in
second quarter 2009
-- Fully diluted earnings per share were $0.06
"We are very pleased with our results for the second quarter. During the quarter, we experienced a significant increase in demand from our current customers along with a ramp up of orders from new customers. Specifically, our sales volumes benefited from an increase in the domestic demand for home appliances and automobile components as a result of China's economic stimulus programs which drove orders for both our low and high carbon precision steel products," commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. "Additionally, we are experiencing a rebound in international sales as our customers' businesses appear to be recovering from the impact of the economic crisis."
Revenue for the second quarter of fiscal 2010 was $27.0 million, up 53.7% from revenue in the second quarter of fiscal 2009 of $17.6 million. The increase in revenue was mainly attributed to the increase in sales volume which offset a decline in average selling price. Total sales volume in the second quarter was 35,588 tons, up 139.5% from total sales volume of 14,862 in the second quarter of 2009. Sales volume increased 59.6% from 22,293 tons in the first quarter of fiscal 2010. Average selling price per ton was $759, down 35.8% from $1,182 in the second quarter of fiscal 2009. The decline in average selling price parallels the overall decline in global steel prices. High carbon and low carbon sales accounted for 32.0% and 54.9% of total sales, respectively, compared to 6.1% and 87.3%, respectively, in the second quarter of fiscal 2009. Exports represented 13.0% of total sales for the quarter.
Gross profit in the second quarter was $3.6 million, up 5.3% from gross profit in the same period a year ago of $3.5 million. Gross margin was 13.5% compared to 19.6% in the second quarter of fiscal 2009. The decline in gross margin was mainly due to decrease in average selling prices, which was partially offset by decrease in average cost per unit sold period-on-period.
Selling expenses for the second quarter of fiscal 2010 were $70,605, or 0.3% of revenue, compared to $1.1 million, or 6.4% of revenue, in the second fiscal quarter of fiscal 2009. The decline in selling expenses was primarily attributable to higher commission costs associated with export products in the second quarter of fiscal 2009. Administrative expenses were $654,041, or 2.4% of revenue, compared to $578,105, or 3.3% of revenue in second quarter of fiscal 2009. The increase in administrative expenses is due to an increase in salaries as a result of an increase in the average number of staff as well as an increase in stock and listing fees and travel expenses period-on-period. China Precision Steel also recognized an allowance for bad and doubtful debts in the amount of $101,067 during the quarter in accordance with its policy for allowance for bad and doubtful debts, as compared to $3.8 million for the same period a year ago.
Operating income for the quarter was $2.8 million, compared to operating loss of $2.1 million in the second quarter of fiscal 2009.
Net income for the second quarter of fiscal 2010 was $2.6 million, compared to net loss of $2.0 million for the second quarter of fiscal 2009. Fully diluted earnings per share were $0.06 compared to fully diluted loss per share of $0.04 in the same period a year ago.
Six Months Financial Results
Revenue for the first six months of fiscal 2010 was $44.0 million, up 2.6% from $42.9 million in the same period a year ago. Gross profit was $4.3 million, down 41.4% from gross profit of $7.4 million for the six months of fiscal 2009. Gross margin was 9.8% compared to 17.2% for the comparable period a year ago. Operating income was $2.7 million, up 137.1% from $1.1 million in the first six months of fiscal 2009. Net income was $2.3 million, up 156.9% from $0.9 million in the same period a year ago. Fully diluted earnings per share were $0.05 compared to $0.02 in the first six months of fiscal 2009.
Financial Condition
As of December 31, 2009, China Precision Steel had $12.8 million in cash and cash equivalents, no long-term debt, total liabilities of $42.8 million and working capital of $42.5 million. Net cash provided by operating activities for the first six months of fiscal 2010 was $0.6 million. Stockholders' equity stood at $123.0 million compared to $120.6 million as of June 30, 2009.
Subsequent Events
On January 29, 2010, China Precision Steel's subsidiary, Shanghai Blessford, entered into a Senior Loan Agreement with DEG-Deutsche Investitions-Und Entwicklungsgesellschaft Mbh ("DEG") for a loan amount up to $18,000,000 at an annual interest rate of 4.5% above the six-month USD LIBOR rate. The loan is to be repaid semi-annually over five years starting on December 15, 2011 and is secured on a mortgage of the new cold rolling line and annealing furnaces at Shanghai Blessford's facilities.
Business Outlook
China Precision Steel began initial production runs at its new mill in January 2010, and is currently in the process of ramping up production capacity. The mill is expected to reach its full design capacity of 100,000 tons in approximately four years; increasing the Company's total production design capacity by 33%. China Precision Steel expects to incur an additional $900,000 in capital expenditure for the completion of the new mill and annealing furnaces.
"We are optimistic that market activity will improve throughout the first half of 2010 because our business has been gradually stabilizing and our visibility on customer orders has improved considerably. As of December 31, 2009, we had a backlog of $23.9 million in orders that are to be delivered over the next three to four months and we anticipate our monthly production will be approximately 10,000 tons," Dr. Li commented. "Moreover, we have liquidated our higher cost inventory and strengthened our balance sheet which gives us flexibility to rapidly respond to changing market conditions."
About China Precision Steel, Inc.
China Precision Steel, Inc. is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold- rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades and textile needles. The Company primarily sells to manufacturers in the People's Republic of China and overseas markets such as Nigeria, Thailand, Indonesia and the Philippines. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com .
Conference Call
China Precision Steel will host a conference call on Tuesday, February 16, 2010 at 9:00 a.m. Eastern Time to discuss fiscal 2010 second quarter results. To participate in the live conference call, please dial the following number fifteen minutes prior to the scheduled conference call time: 888-339-2688. International callers should dial 617-847-3007. When prompted by the operator, mention conference passcode 493 644 31.
If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, February 16, 2010 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 20808534. International callers should dial 617-801-6888 and enter the same passcode.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.chinaprecisionsteelinc.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.
Forward-Looking Statements
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by China Precision Steel on its conference call in relation to this 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 China Precision Steel's ability to prepare the Company for growth, the Company's planned manufacturing capacity expansion, predictions about improvements in the global economy and predictions and guidance relating to the Company's future financial performance. 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 -
China Precision Steel, Inc.
and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
December 31, June 30,
2009 2009
Assets
Current assets
Cash and cash equivalents $12,752,288 $13,649,587
Accounts receivable
Trade, net of allowances of
$1,006,973 and $830,127
at December 31 and June 30,
2009, respectively 23,524,856 25,140,834
Bills receivable 317,391 6,131,143
Other 920,274 881,153
Inventories 25,149,536 16,275,070
Prepaid expenses 161,427 75,917
Advances to suppliers, net of
allowance of $1,632,442 and
$1,631,557 at December 31 and
June 30, 2009, respectively 22,491,830 21,878,047
Total current assets 85,317,602 84,031,751
Property, plant and equipment
Property, plant and equipment,
net 72,880,841 46,812,484
Deposits for building, plant
and machinery -- 8,348,496
Construction-in-progress 5,656,934 22,245,173
78,537,775 77,406,153
Intangible assets, net 1,852,015 1,871,211
Goodwill 99,999 99,999
Total assets $165,807,391 $163,409,114
Liabilities and Stockholders'
Equity
Current liabilities
Short-term loans $25,791,988 $22,489,031
Accounts payable and accrued
liabilities 6,346,626 7,144,242
Advances from customers 2,786,380 1,742,944
Other taxes payables 2,921,706 6,650,668
Current income taxes payable 4,978,877 4,778,767
Total current liabilities 42,825,577 42,805,652
Stockholders' equity:
Preferred stock: $0.001 per
value, 8,000,000 shares
authorized, no shares
outstanding at December 31
and June 30, 2009, respectively -- --
Common stock: $0.001 par value,
62,000,000 shares
authorized, 46,562,955 and
46,562,955 issued and
outstanding December 31 and
June 30, 2009, respectively 46,563 46,563
Additional paid-in capital 75,642,383 75,642,383
Accumulated other comprehensive
income 9,795,611 9,731,505
Retained earnings 37,497,257 35,183,011
Total stockholders' equity 122,981,814 120,603,462
Total liabilities and
stockholders' equity $165,807,391 $163,409,114
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Six Months Ended December 31, 2009 and 2008
(Unaudited)
Three Months Ended Six Months Ended
December December December December
31, 31, 31, 31,
2009 2008 2009 2008
Revenues
Sales revenues $27,013,838 $17,573,959 $44,055,827 $42,924,378
Cost of goods
sold 23,377,883 14,122,622 39,716,513 35,520,383
Gross profit 3,635,955 3,451,337 4,339,314 7,403,995
Operating expenses
Selling expenses 70,605 1,122,532 102,414 1,333,830
Administrative
expenses 654,041 578,105 1,232,739 1,040,205
Allowance for bad
and doubtful
debts 101,067 3,829,462 218,184 3,829,462
Depreciation and
amortization
expense 36,755 33,318 80,493 59,521
Total operating
expenses 862,468 5,563,417 1,633,830 6,263,018
Income/(loss) from
operations 2,773,487 (2,112,080) 2,705,484 1,140,977
Other
income/(expense)
Other revenues 91,041 138,998 110,963 259,701
Interest and
finance costs (275,091) (320,777) (503,434) (648,182)
Total other
(expense) (184,050) (181,779) (392,471) (388,481)
Net income/(loss)
from operations
before income
tax 2,589,437 (2,293,859) 2,313,013 752,496
Provision
for/(benefit
from) income tax
Current -- (318,878) (1,233) (148,257)
Deferred -- -- -- --
Total income tax
(benefit) -- (318,878) (1,233) (148,257)
Net income/(loss) $2,589,437 ($1,974,981) $2,314,246 $900,753
Basic
earnings/(loss)
per share $0.06 ($0.04) $0.05 $0.02
Basic weighted
average shares
outstanding 46,562,955 46,562,955 46,562,955 46,559,531
Diluted
earnings/(loss)
per share $0.06 ($0.04) $0.05 $0.02
Diluted weighted
average shares
outstanding 46,562,955 46,562,955 46,562,955 46,566,423
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Cash Flows
For the Six Months Ended December 31, 2009 and 2008
(Unaudited)
2009 2008
Cash flows from operating activities
Net income 2,314,246 900,753
Adjustments to reconcile net income to
net cash provided by operating
activities
Depreciation and amortization 2,181,380 1,825,544
Allowance for bad and doubtful debts 218,184 3,829,462
Inventory impairment 42,534 --
Net changes in assets and liabilities:
Accounts receivable, net 7,189,783 3,801,518
Inventories (8,908,192) (461,094)
Prepaid expenses (85,504) (50,382)
Advances to suppliers (601,926) 2,890,245
Accounts payable and accrued expenses (801,406) (147,831)
Advances from customers 1,042,492 (3,006,670)
Other taxes payable (2,236,478) (426,823)
Current income taxes 197,520 (491,584)
Net cash provided by operating activities 552,633 8,663,138
Cash flows from investing activities
Purchase of property, plant and
equipment including construction in
progress (4,746,139) (12,954,497)
Net cash (used in) investing activities (4,746,139) (12,954,497)
Cash flows from financing activities
Exercise of common stock warrants -- 269,985
Short-term loan proceeds 3,735,169 --
Repayments of short-term loans (444,400) (87,690)
Net cash provided by financing activities 3,290,769 182,295
Effect of exchange rate 5,438 303,887
Net (decrease) in cash (897,299) (3,805,177)
Cash and cash equivalents, beginning of
period 13,649,587 18,568,842
Cash and cash equivalents, end of period 12,752,288 14,763,665
For more information, please contact:
China Precision Steel
Dan Carlson,
Email: [email protected]
Elite IR
Leslie J. Richardson, Partner
Tel: +852-3183-0283
Email: [email protected]
SOURCE China Precision Steel, Inc.
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