SHANGHAI, China, May 15 /Xinhua-PRNewswire/ -- China Precision Steel (Nasdaq: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision cold-rolled steel products, announced today its third quarter results for the period ending March 31, 2007.
Third Quarter Highlights
-- Revenue increased 36% year-over-year to $11.6 million
-- Newly launched export program accounted for 14.4% of total revenue,
began shipments to Indonesia and the Philippines
-- Gross profit was $3.4 million, up 8.4% year-over-year
-- New cold-rolled mill currently operating at 30% capacity
-- Raised $20.3 million in additional capital to fund capacity expansion
program
Revenue for the third quarter of 2007 was $11.6 million, up 36% from $8.5 million in the third quarter of 2006. The increase in revenue was driven by increased sales of both high carbon and low carbon precision steel. Gross profit for the quarter was $3.4 million, up 8.4% from $3.1 million in the same period a year ago. Net income was $1.4 million, down 55.4% from $3.1 million in the comparable period a year ago. Fully diluted earnings per share for the quarter were $0.05.
“We continue to experience strong demand for our cold-rolled precision steel from our current customers and new customers both domestically and internationally, resulting in our strong revenue growth. Our second cold-rolled mill with 150,000 metric tons of capacity is operating at 30% capacity, and we anticipate it will reach 50% by the end of calendar 2007,” commented Dr. Wo Hing Li, China Precision Steel’s Chairman and CEO. “The market environment remains favorable for our products as we continue to see demand outpacing domestic supply.”
Revenue growth in the quarter was driven by increased volume of precision steel products to 16,110 tons, up 53% from 10,534 tons in the third quarter of 2006. High carbon and low carbon products accounted for 53% and 47%, respectively, compared to 58% and 42%, respectively, in the same period a year ago. Revenue from exports was $1.7 million, or 14.4% of total revenues. China Precision Steel began to export low carbon steel products in the second quarter of 2007. During the third quarter of 2007, the company expanded its exports to include the Philippine and Indonesian markets.
Gross profit in the third quarter of 2007 was $3.4 million, up 8.4% from gross profit in the third quarter of 2006 of $3.1 million. Gross margin was 29.0% compared to 36.4% from the prior year period. Gross margin was impacted by higher amortization costs associated with the addition of a second mill in August 2006. In addition, gross margin in the third quarter of 2006 was favorably impacted by a special order of higher margin, high carbon and nickel steel, which is not a standard product for the company.
For the third quarter of 2007, selling expenses were $92,315, or 0.8% of revenue, up 68% from $54,795, or 0.6% of revenue, in the same period a year ago. The increase in selling expenses was primarily due to higher transportation expense offset by a decline in traveling expense.
General and administrative (“G&A”) expenses for the quarter were $1.4 million, or 12.2% of revenue, compared to $250,200, or 2.9% of revenue, in the third quarter of 2006. The increase in G&A is due to a combination of increased cost of being a U.S. publicly-traded company including associated one-time professional fees of $447,993 and an allowance for doubtful accounts of $519,614. China Precision Steel has a strict collection policy which includes a bad debt provision for all receivables outstanding 90 days or more.
Operating income for the third quarter was $1.9 million, down 33.8% from operating income of $2.8 million in the same quarter last year.
Net income for the third quarter of 2007 was $1.4 million, down 55.4% from $3.1 million in the third quarter of 2006. Fully diluted earnings per share were $0.05 compared to $0.13 in the comparable period a year ago. Weighted average diluted shares outstanding for the quarter increased to 29.4 million, reflecting an increase of about 8 million shares related to a $20.8 million private placement in February 2007. Weighted-average diluted shares outstanding were 24.3 million in the third quarter of 2006.
Nine Months Results
Revenues for the first nine months of fiscal 2007 were $37.1 million, up 42% from $26.2 million in the first nine months of fiscal 2006. Gross profit for the same period was $10.5 million, up 21% from $8.7 million in the first nine months of fiscal 2006. Operating income for the first nine months of fiscal 2007 was $8.2 million, up 4.6% from $7.8 million in the same period last year. Net income declined to $7.4 million in the first nine months of fiscal 2007, down 11.8% from net income of $8.4 million in the comparable period a year ago. Weighted-average diluted earnings per share were $0.29 for the first nine months of fiscal 2007 compared to $0.32 in the first nine months of fiscal 2006.
Financial Condition
As of March 31, 2007, China Precision Steel had $11.6 million in cash and cash equivalents, total liabilities of $36.3 million and working capital of $11.6 million. Cash flow from operating activities was $3.0 million and days sales outstanding were 54 days for the third quarter 2007. Shareholders’ equity stood at $39.1 million compared to $11.7 million as of June 30, 2006.
Business Outlook
China Precision Steel has been increasing its production capacity for cold-rolled precision steel as demand in China outpaces domestic supply. The company began production of its second cold-rolled mill with 150,000 metric tons of capacity in October 2006 and has plans to add a third mill with 150,000 metric tons of capacity by the end of calendar year 2007. Each mill takes approximately two to three years to ramp up in order to ensure smooth operations and optimal quality results before achieving full production. Currently, the new mill is operating at 30% capacity and is expected to reach 50% capacity by the end of calendar year 2007. For fiscal year 2007, the company currently anticipates revenue to be approximately $50.5 million, gross profit to be about $15.6 million and net income to be about $10.9 million. For fiscal year 2008, the company anticipates revenue to be approximately $62.5 million, gross profit to be about $20.3 million and net income to be about $14.1 million.
“We are currently a dominant producer in China of cold-rolled precision steel with 50% of the domestic production market and 5% of the total market in China. We have developed a state-of-the-art, patent-protected process that enables us to produce high quality precision steel at competitive prices both domestically and internationally,” commented Mr. Li. “Moreover, the market demand in China for high quality precision steel has grown 20% annually for the past five years, and we expect it will continue expanding as our target industries, such as the automotive and appliance industries, benefit from China’s robust economic growth.”
About China Precision Steel
China Precision Steel 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 produces high precision ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products primarily for automotive components, food packaging materials, saw blades and textile needle manufacturing companies in the People’s Republic of China. However, China Precision Steel is expanding into overseas markets such as Nigeria, Thailand, Indonesia and the Philippines, and intends to expand into Japan, the European Union and the United States in the future.
Conference Call
China Precision Steel will host a conference call on Wednesday, May 16th at 8:00 am EST to discuss third quarter results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888-482-0024. International callers should dial 617-801-9702. When prompted by the operator, mention Conference Passcode 343 183 36.
If you are unable to participate in the call at this time, a replay will be available for seven days starting on Wednesday, May 16, 2007 at 10:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 47746446. International callers should dial 617-801-6888 and enter the same passcode 47746446.
This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://phx.corporate-ir.net/playerlink.zhtml?c=114741&s=wm&e=1557706 . 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 our ability to prepare the company for growth, the Company’s planned manufacturing capacity expansion in 2007 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, 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 Subsidiary
Condensed Consolidated Statements of Operations
(Unaudited)
Three Months Ended: Nine Months Ended:
March 31, March 31, March 31, March 31,
2007 2006 2007 2006
Revenues
Sales revenues $11,610,673 $8,548,765 $37,121,603 $26,154,013
Cost of goods
sold 8,240,743 5,441,194 26,635,693 17,475,559
Gross profit 3,369,930 3,107,571 10,485,910 8,678,454
Operating expenses
Selling expenses 92,315 54,795 196,705 97,173
Administrative
expenses 1,411,106 250,200 2,096,031 749,591
Depreciation
and amortization
expense 11,062 115 32,324 29,769
Total operating
expenses 1,514,483 305,110 2,325,060 876,533
Income from continuing
operations 1,855,447 2,802,461 8,160,850 7,801,921
Other income (expense)
Other revenues 53,436 -- 53,436 177,714
Other expenses -- (4,564) -- (2,024)
Interest and
finance costs (196,787) (1,873) (514,869) (25,214)
Total other
income (expense) (143,351) (6,437) (461,433) 150,476
Net income from
continuing operations
before income tax 1,712,096 2,796,024 7,699,417 7,952,397
Provision for (benefit
from) income tax
Current 1,196,573 -- 2,091,886 --
Deferred (880,694) -- (966,099) --
Total income
tax expense 315,879 -- 1,125,787 --
Net income before
discontinuing
operations 1,396,217 2,796,024 6,573,630 7,952,397
Net income from
discontinued operations -- 333,895 831,448 446,477
Net income $1,396,217 $3,129,919 $7,405,078 $8,398,874
Basic earnings per
share
From continuing
operations $0.05 $0.12 $0.26 $0.30
From discontinued
operations $ -- $0.01 $0.03 $0.02
Total $0.05 $0.13 $0.29 $0.32
Basic weighted average
shares outstanding 28,946,086 24,283,725 25,815,157 24,283,725
Diluted earnings per
share
From continuing
operations $0.05 $0.12 $0.26 $0.30
From discontinued
operations $ -- $0.01 $0.03 $0.02
Total $0.05 $0.13 $0.29 $0.32
Diluted weighted
average shares
outstanding 29,387,360 24,283,725 25,960,101 24,283,725
The Components of
comprehensive income:
Net income $1,396,217 $3,129,919 $7,405,078 $8,398,874
Foreign currency
translation
adjustment 335,929 67,235 990,914 510,341
Comprehensive income $1,732,146 $3,197,154 $8,395,992 $8,909,215
China Precision Steel, Inc. and Subsidiary
Condensed Consolidated Balance Sheets
March 31,
2007 June 30,
(Unaudited) 2006
Assets
Current assets
Cash and equivalents $ 11,585,601 $ 186,955
Accounts receivable
Trade, net of allowances
of $519,614 and $138,837
at March 31, 2007 and June
30, 2006, respectively 4,600,075 13,399,003
Other 148,579 69,913
Inventory 17,831,976 6,283,910
Deposits 301,462 75,575
Advances to suppliers 9,336,756 3,138,759
Total current assets 43,804,449 23,154,115
Property and equipment
Property and equipment, net 18,517,748 8,664,417
Construction-in-progress 13,132,806 13,752,954
31,650,554 22,417,371
Total assets $75,455,003 $45,571,486
Liabilities and Stockholders’ Equity
Current liabilities
Accounts payable $ 3,240,995 $ 1,801,466
Advances from customers 2,844,296 1,859,773
Other taxes payables 971,364 862,914
Current income taxes
payable 2,513,992 --
Deferred income taxes
payable 574,942 1,535,204
Amounts due to directors 2,188,221 5,896,943
Current portion of long-
term debt 10,923,671 8,918,939
Notes payable 8,959,330 9,862,672
Total current liabilities 32,216,811 30,737,911
Long-term debt, net of current
portion shown above 4,127,962 3,152,415
Stockholders’ equity:
Preferred stock: $0.001 per
value, 8,000,000 shares
authorized, no shares
outstanding at March 31,
2007 or June 30, 2006
Ordinary stock: $0.001
par value, 62,000,000
shares authorized, 35,361,543
and 24,283,725 issued and
outstanding at March
31, 2007 and June 30, 2006 35,362 24,284
Additional paid-in
capital 21,229,164 1,375,716
Accumulated other
comprehensive income 1,736,497 745,583
Retained earnings 16,109,207 9,535,577
Total stockholders’ equity 39,110,230 11,681,160
Total liabilities and stockholders’
equity $ 75,455,003 $ 45,571,486
China Precision Steel, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
China Precision Steel, Inc. and Subsidiary
Condensed Consolidated Statements of Cash Flows
(Unaudited)
For the Nine Months Ended:
March 31, March 31,
2007 2006
Cash flows from operating activities
Net Income $7,405,078 $8,398,874
Adjustments to reconcile net income to net
cash provided by
(used in) operating activities
Depreciation 1,095,981 939,150
Less income from discontinued operations
- Oralabs, Inc (831,448) (446,477)
Provision for doubtful accounts 519,614 --
Warrants issued for consulting 447,993 --
Net changes in assets and liabilities:
Accounts receivable, net 8,200,648 (1,069,471)
Inventories (11,548,066) (3,169,067)
Advances to suppliers (6,197,997) 1,483,036
Deposits (225,887) (86,061)
Accounts payable and accrued expenses 1,439,529 (156,032)
Advances from customers 984,523 4,098,607
Deferred income taxes (960,262) --
Current income taxes 2,513,992 --
Taxes payable 108,450 (94,433)
Net cash provided by operating activities 2,952,148 9,898,126
Cash flows from investing activities
Purchases of fixed assets including
construction in progress (10,329,164) (22,130,609)
Net cash (used in) investing activities (10,329,164) (22,130,609)
Cash flows from financing activities
Advances from directors, net (3,708,722) 1,908,251
Notes payable proceeds 12,280,943 8,607,551
Repayments of notes payable (10,204,006) --
Proceeds from sale of common stock 19,416,533 --
Net cash provided by financing activities 17,784,748 10,515,802
Effect of exchange rate 990,914 510,341
Net increase (decrease) in cash 11,398,646 (1,206,340)
Cash and cash equivalents, beginning of year 186,955 3,133,326
Cash and cash equivalents, end of year $11,585,601 $1,926,986
For more information, please contact:
Crocker Coulson, President, or
Leslie Richardson, Financial Writer
CCG Elite
Tel: +1-310-231-8600
Email: crocker.coulson@ccgir.com or leslie.richardson@ccgir.com
