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China Precision Steel Announces Second Quarter Fiscal 2008 Results

Posted on: Wednesday, 20 February 2008, 12:01 CST

SHANGHAI, China, Feb. 15 /Xinhua-PRNewswire/ -- China Precision Steel , a niche precision steel processing company principally engaged in producing and selling high precision cold-rolled steel products, announced today its results for the second quarter of fiscal 2008 ended December 31, 2007.

2008 Second Fiscal Quarter Highlights -- Revenues were $11.9 million -- Gross profit was $3.4 million; gross margin improved 570 basis points to 28.4% -- Net income was $2.4 million, or $0.05 per diluted share -- New cold-rolled mill currently operating at approximately 50% design capacity -- Completed $47.9 million registered direct financing

''During the quarter, our margins improved significantly as our sales mix included higher margin high-carbon cold-rolled products. Because of the complexity and longer production times involved with these products, our overall sales volume declined, resulting in lower revenues from the year ago period. Our revenues were also adversely impacted by a $2.0 million VAT and sales tax adjustment,'' commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. ''Production capacity of our second cold-rolled mill reached 50% at quarter end. The increased capacity will enable us to expand production of high quality and value-added precision steel products, which will enhance profitability in the future.''

Revenues for the second quarter of 2008 were $11.9 million, down 20.6% from $15.0 million in the second quarter of fiscal 2007. The decrease in sales revenue is attributed to changes in sales mix to high quality and high margin products. The complexity and longer production times for the higher margin products resulted in the less volume sold in the second quarter compared to the same quarter a year ago. Volume of precision steel products decreased to 14,010 tons, down 28.6% from 19,634 tons in the second quarter of fiscal 2007. High carbon and low carbon products accounted for 37.9% and 46.9%, respectively, compared to 52.3% and 47.7%, respectively, in the same period a year ago. Revenues were also impacted by a $2.0 million adjustment as a result of an under provision of VAT and sales tax in the first quarter of fiscal 2008.

Gross profit for the quarter was $3.4 million, unchanged from the same period a year ago. Gross margin increased to 28.4% from 22.7% in the second quarter of fiscal 2007. The improved gross profit margin is attributed to the increased sales of higher margin, higher quality products.

Selling expenses were $180,744, or 1.5% of revenues, compared to $64,693, or 0.4% of revenues, in the second quarter of fiscal 2007. The increase in selling expenses was the result of increased transportation expenses and frequency of deliveries from a broader customer base. Administrative expenses were $846,218, or 7.1% of revenue, compared to $498,737, or 3.3% of revenue, in the same period a year ago. The increased administrative expenses were due to costs associated with being a public company as well as increases in wages and salaries.

Operating income was $2.3 million, compared to $2.8 million in the second quarter of fiscal 2007. Operating margin improved to 19.4% from 18.9% in the year ago period.

Net income was $2.4 million, down 18.3% from $2.9 million in the comparable period a year ago. Fully diluted earnings per share for the quarter were $0.05, compared to $0.11 in the second quarter of fiscal 2007. Diluted earnings per share reflects an increase of 16.7 million weighted average diluted shares outstanding from the year ago period due to private placements of common stock in February and November 2007.

Six Months Financial Results

Revenues for the first six months of fiscal 2008 were $37.2 million, up 45.9% from revenues of $25.5 million in the first six months of fiscal 2007. Gross profit was $8.5 million, up 18.8% from gross profit of $7.1 million for the six months of fiscal 2007. Gross margin was 22.7% compared to 27.9% for the comparable period a year ago. Operating income was $6.2 million, unchanged from $6.0 million in the first six months of fiscal 2007. Net income was $5.3 million, compared to $5.8 million in the same period a year ago. Fully diluted earnings per share were $0.13 compared to $0.22 in the first six months of fiscal 2007. Diluted weighted average shares outstanding were 40.8 million compared to 27.0 million in the first six months of fiscal 2007.

Financial Condition

As of December 31, 2007, China Precision Steel had $40.2 million in cash and cash equivalents, total liabilities of $40.4 million and working capital of $56.8 million. Shareholders' equity stood at $100.2 million compared to $51.1 million as of June 30, 2007.

Business Outlook

China Precision Steel's new 1400 mm cold-roll mill with 150,000 metric tons of design capacity became operational at the beginning of October 2006 and is currently operating at 50% utilization. The cold-roll mill is expected to take two to three years to realize its maximum production capacity. The Company has installed a continuous annealing line used for production of precision stainless steel. The annealing line is in trial production and is expected to begin contributing to revenues in third quarter Fiscal 2008.

During the current calendar year, the Company plans to use a portion of the proceeds from its recent financing to make additional investments in a new continuous annealing line for producing high quality stainless steel and a new 1700mm cold roll mill at the facilities in Shanghai, eventually enriching production offerings and developing new markets. Capital expenditure for the new cold rolled mill is expected to be $16 million.

''The addition of the continuous annealing line will expand our product line to include high margin cold-rolled stainless steel,'' commented Dr. Li. ''We continue to carry out R&D and strive to launch new products that could potentially lead to new segments and new customers. We believe our unique capabilities give us competitive advantages to strengthen our higher margin product business in China's precision steel industry.''

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 February 19, 2008 at 9:00 am EST to discuss second quarter of fiscal 2008 results. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 800-688-0796. International callers should dial 617-614-4070. When prompted by the operator, mention conference pass code 414 930 33.

If you are unable to participate in the call at this time, a replay will be available for seven days starting on February 19, 2008 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the pass code 79534645. International callers should dial 617-801-6888 and enter the same pass code 79534645.

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 our ability to prepare the company for growth, the Company's planned manufacturing capacity expansion in 2008 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 Subsidiaries Condensed Consolidated Statements of Operations For the Three and Six Months Ended December 31. 2007 and 2006 (Unaudited) Three Months Ended Six Months Ended December 31, December 31, December 31, December 31, 2007 2006 2007 2006 Revenues Sales revenues $11,913,718 $15,007,582 $37,226,416 $25,510,930 Cost of goods sold 8,528,852 11,594,852 28,773,987 18,394,950 Gross profit 3,384,866 3,412,730 8,452,429 7,115,980 Operating expenses Selling expenses 180,744 64,693 281,449 104,390 Administrative expenses 846,218 498,737 1,332,145 684,925 Provision for bad debts 25,782 -- 651,780 -- Depreciation and amortization expense 15,798 10,845 29,430 21,262 Total operating expenses 1,068,542 574,275 2,295,254 810,577 Income from continuing operations 2,316,324 2,838,455 6,157,175 6,305,403 Other income (expense) Other revenues 783,255 -- 792,410 -- Interest and finance costs (316,860) (114,743) (759,001) (318,082) Total other income (expense) 466,395 (114,743) 33,409 (318,082) Net income from continuing operations before income tax 2,782,719 2,723,712 6,190,584 5,987,321 Provision for (benefit from) income tax Current 194,873 (34,057) 11,896 895,313 Deferred 226,977 389,604 917,093 (85,405) Total income tax expense 421,850 355,547 928,989 809,908 Net income before discontinued operations 2,360,869 2,368,165 5,261,595 5,177,413 Net income from discontinued operations -- 519,879 -- 639,072 Net income $2,360,869 $2,888,044 $5,261,595 $5,816,485 Basic earnings per share From continuing operations $0.05 $0.09 $0.13 $0.19 From discontinued operations $ -- $0.02 $ -- $0.03 Total $0.05 $0.11 $0.13 $0.22 Basic weighted average shares outstanding 43,031,346 26,981,916 40,204,745 26,981,916 Diluted earnings per share From continuing operations $0.05 $0.09 $0.13 $0.19 From discontinued operations $ -- $0.02 $ -- $0.03 Total $0.05 $0.11 $0.13 $0.22 Diluted weighted average shares outstanding 43,639,342 26,981,916 40,809,437 26,981,916 The Components of comprehensive income: Net income $2,360,869 $2,888,044 $5,261,595 $5,816,485 Foreign currency translation adjustment 557,213 557,213 2,004,339 654,985 Comprehensive income $2,918,082 $3,445,257 $7,265,934 $6,471,470 China Precision Steel, Inc. and Subsidiaries Condensed Consolidated Balance Sheets (Unaudited) December 31, June 30, 2007 2007 Assets Current assets Cash and equivalents $40,205,111 $5,504,862 Accounts receivable Trade, net of allowances of $955,086 and $273,461 at December 31, and June 30, 2007, respectively 19,888,272 8,242,044 Bank acceptance notes 15,383,562 -- Other 469,925 85,708 Inventory 10,671,635 15,723,704 Deposits 68,493 82,758 Prepaid expenses 326,065 -- Advances to suppliers, net of allowance of $2,368,805 and $3,502,184 at December 31, and June 30, 2007, respectively 10,256,715 11,699,918 Total current assets 97,269,778 41,338,994 Property and equipment Land use rights 1,795,461 1,124,583 Property and equipment, net 32,305,573 29,238,227 Construction-in-progress 11,503,835 10,355,763 45,604,869 40,718,573 Goodwill 99,999 99,999 Total assets $142,974,646 $82,157,566 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $6,196,314 $4,855,932 Advances from customers 3,807,354 1,720,812 Other taxes payables 2,946,169 716,554 Current income taxes payable 3,171,889 1,892,866 Deferred income taxes payable 1,981,121 1,064,028 Amounts due to directors 2,543,019 -- Current portion of long-term debt 3,086,758 6,163,445 Notes payable 16,713,720 9,842,520 Total current liabilities 40,446,344 26,256,157 Long-term debt, net of current portion shown above 2,315,069 6,878,714 Stockholders' equity: Preferred stock: $0.001 per value, 8,000,000 shares authorized, no shares outstanding at December 31, and June 30, 2007; Common stock: $0.001 par value, 62,000,000 shares authorized, 45,896,288 and 37,378,143 issued and outstanding December 31, and June 30, 2007 45,896 37,378 Additional paid-in capital 73,701,004 31,867,063 Accumulated other comprehensive income 4,196,499 2,192,160 Retained earnings 22,269,834 17,008,238 Total stockholders' equity 100,213,233 51,104,839 Amounts due from directors -- (2,082,144) Total liabilities and stockholders' equity $142,974,646 $82,157,566 China Precision Steel, Inc. and Subsidiaries Condensed Consolidated Statements of Cash Flows For the Six Months Ended December 31, 2007 and 2006 (Unaudited) 2007 2006 Cash flows from operating activities Net Income $5,261,595 $5,816,485 Adjustments to reconcile net income to net cash provided by (used in) operating activities Depreciation 992,570 617,405 Less income from discontinued operations - Oralabs, Inc -- (639,072) Provision for doubtful accounts 651,780 -- Net changes in assets and liabilities: Accounts receivable, net (27,990,004) 4,059,814 Inventories 5,195,155 (8,207,665) Deposits 15,018 (3,661) Prepayments (326,065) -- Advances to suppliers 1,549,672 (4,410,823) Advances from customers 2,070,883 2,919,124 Other taxes payable 2,223,094 4,622,396 Current income taxes 1,261,798 937,307 Deferred income taxes 907,410 (85,405) Net cash provided by operating activities (6,890,900) 5,473,819 Cash flows from investing activities Purchases of fixed assets including construction in progress (5,508,327) (10,212,328) Net cash (used in) investing activities (5,508,327) (10,212,328) Cash flows from financing activities Sale of common stock 44,433,222 -- Capital and restructuring contributions -- 558,797 Advances from directors, net 2,053,348 (3,237,243) Notes payable proceeds 16,446,667 7,748,990 Repayments of notes payable (17,424,050) -- Net cash provided by financing activities 45,509,187 5,070,544 Effect of exchange rate 1,590,289 654,985 Net increase (decrease) in cash 34,700,248 987,020 Cash and cash equivalents, beginning of year 5,504,862 186,955 Cash and cash equivalents, end of year $40,205,111 $1,173,975 For more information, please contact: CCG Elite Crocker Coulson, President, or Leslie Richardson, Financial Writer Tel: +1-310-231-8600 Email: crocker.coulson@ccgir.com / leslie.richardson@ccgir.com China Precision Steel Leada Li, CFO Email: leadali@biznetvigator.com

China Precision Steel, Inc.

CONTACT: Crocker Coulson, President of CCG Elite, +1-310-231-8600, orcrocker.coulson@ccgir.com; Leslie Richardson, Financial Writer at CCG Elite,+1-310-231-8600, or leslie.richardson@ccgir.com; Leada Li, CFO of ChinaPrecision Steel, leadali@biznetvigator.com, all for China Precision Steel,Inc.

Web site: http://www.chinaprecisionsteelinc.com/

Source: PRNewswire

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