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China Fire & Security Group Announces Fourth Quarter and Full Year 2008 Financial Results

Posted on: Wednesday, 11 March 2009, 16:00 CDT

BEIJING, March 11 /PRNewswire-Asia-FirstCall/ -- China Fire & Security Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading total solution provider of industrial fire protection systems in China, today announced its financial results for the fourth quarter and year ended December 31, 2008.

Fourth Quarter 2008 Results

For the fourth quarter of 2008, revenue increased 48.7% to $21.0 million compared to $14.1 million for the same period in 2007. The Company continued to benefit from its strong pipeline of new total solution projects, as well as, uninterrupted completion of milestones on large projects. Gross margin for the fourth quarter of 2008 was 54.0%, 110 basis points higher than the gross margin of 52.9% for the same period of 2007. The increase in gross margin was mainly due to the use of a higher percentage of the Company's proprietary products that tend to contribute higher margins and the higher selling price of some of the Company's proprietary products.

Operating income was $6.2 million, representing a 55.2% increase from the same period last year. Operating margins for the period expanded 120 basis points to 29.5% from 28.3% a year ago, primarily driven by the higher gross margin. Operating expenses were $5.2 million for the fourth quarter of 2008, or 24.8% of total revenue, compared to $3.5 million, or 24.7% of total revenue for the same period of 2007.

Net income was $6.8 million for the fourth quarter of 2008, an increase of $2.8 million, or 69.2%, as compared to $4.0 million for the same period of 2007. The increase was mainly driven by the strong revenue growth and higher gross margin. As a result, fully diluted EPS increased 72.9% to $0.24 in the fourth quarter of 2008, versus $0.14 in the fourth quarter of the prior year.

Mr. Brian Lin, Chief Executive Office of China Fire commented, "We are very pleased to report strong fourth quarter and full year financial results. Our record results in 2008 validate our organic growth strategy to increase market share in the rapidly growing Chinese industrial fire protection industry.

Despite general concerns of challenging times for the iron and steel industry, we are actually witnessing strong demand for our total solutions in this vertical, as some of our Tier-1 customers are receiving more government-subsidized funding, pickup in demand from the end of last year, and extra government support for consolidation. As China continues to invest in upgrading the country's infrastructure, we are seeing real spending initiated by the government in the iron and steel, nuclear, power, petrochemical, and transportation sectors. We believe that most of these infrastructure investments will directly benefit China Fire, as they all require fire protection products and services. As such, we continue to be excited with the growth prospects in our core iron and steel market, and we continue to command firm pricing for our total solutions. We also are excited with our success in winning sizeable contracts in the nuclear, power, petrochemical, and transportation verticals, as well as notable contract wins in the international market. We are delighted with our strong financial position, which includes a growing cash position, no debt, and healthy cash flows. We believe that we are in an excellent position to capture new revenue opportunities and benefit from strategic consolidation opportunities."

Full Year 2008 Results

Revenues for 2008 increased 47.8% to $69.1 million compared to $46.8 million for 2007. During 2008, the Company fulfilled 333 total solution and product sales contracts compared to 274 contracts in 2007, primarily due to the increase in revenues from system contracting projects and maintenance services. Gross margin for 2008 was 57.2%, 230 basis points higher than the gross margin of 54.9% in 2007, benefiting from a higher percentage of the Company's self-manufactured proprietary products sold, which contribute higher gross margins than outsourced products manufactured by the third party.

Operating income was $23.6 million for 2008, as compared to $14.9 million for 2007, an increase of $8.7 million or 58.3%, driven by the strong revenue growth and higher gross margin in 2008. Operating margins in 2008 expanded 230 basis points to 34.1% compared to 31.8% in 2007, even while total operating expenses increased to $15.9 million as compared to $10.8 million in 2007. The increase in operating expenses was mainly due to the increase in the Company's selling expense and R&D expenditure during the period.

GAAP net income was $24.7 million for 2008 as compared to $16.8 million for 2007, representing an increase of $7.9 million or 47.0%. Excluding a one-time non-cash gain of $1.2 million, or $0.05 per diluted share, for the change in fair value of derivative instrument in the full year 2007, non-GAAP net income in 2008 increased 58.4% from $15.6 million in 2007. GAAP fully diluted EPS increased 44.6% to $0.88 in 2008, compared to $0.61 in the prior year.

Liquidity and Capital Resources

As of December 31, 2008, the Company had working capital of $64.7 million and zero debt. Net cash provided by operating activities was $13.4 million in 2008, compared to $9.8 million in 2007. As a result, net cash increased $9.5 million to $26.7 million at the end of 2008, from $17.1 million at the end of 2007.

Financial Outlook for 2009

For the full year 2009, the Company anticipates revenue will grow between 28% to 38% to a range of $88 million to $95 million. Pre-tax income is expected to grow between 22% to 32% to a range of $30.2 million to $32.6 million. Assuming an effective tax rate of 13%, net income is estimated to grow between 7% to 15% to a range of $26.3 million to $28.4 million, or $0.93 to $1.00 per diluted share, based on 28.3 million shares. The Company's effective tax rate in 2008 was 0.2%.

"We remain confident about the business and the growth of the fire protection industry in China. Our strategy has been to focus on further expanding our brand, our market leadership, and our technical leadership in fire safety. To that extent, we have built our industry's leading brand, distribution, total solution offering, and manufacturing capabilities. We currently hold 76 patents with 37 patents pending. Our initiatives position us well for higher revenues, greater profits, and a stronger pipeline of expansion opportunities.

In the coming year, we will continue to implement our proven strategy, as demand in our core markets continues to grow, and our competitive advantages and leadership profile continue to expand. We will continue to focus on our core Tier-1 customers in China's iron and steel industry, expand into our targeted complementary verticals, invest in technology innovations, influence the development of new fire standards, and actively pursue domestic and international fire protection projects. As we pursue our future growth opportunities, we remain highly focused on optimizing our balance sheet and maximizing cash flows. We are encouraged with our opportunities in 2009 and look forward to expanding our market position in the year ahead," concluded Mr. Lin.

Conference Call

The Company will report its fourth quarter and full year 2008 earnings results on Thursday, March 12, 2009, at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing Time). Interested participants should call 1-800-860-2442 when calling within the United States, or 1-412-858-4600 when calling internationally. The pass code is "China Fire".

This call is being web cast by Multivu and can be accessed by clicking on this link http://www.visualwebcaster.com/event.asp?id=56531 .

About China Fire & Security Group, Inc.

China Fire & Security Group, Inc. (Nasdaq: CFSG), through its wholly owned subsidiaries, Sureland Industrial Fire Safety Limited ("Sureland") and Tianjin Tianxiao Fire Safety Equipment ("Tianxiao"), 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, manufacture, sales and maintenance services of a broad product portfolio including detectors, controllers, and fire extinguishers. Via its nationwide direct sales force, China Fire has built a solid client base including major companies in iron and steel, traditional power generation, petrochemical and nuclear power industries throughout China. China Fire has a seasoned management team with strong focus on standards and technologies. Currently, China Fire has 52 issued patents covering fire detection, system control and fire extinguishing technologies. Founded in 1995, China Fire is headquartered in Beijing with about 500 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. Shayla Suen, Investor Relations Tel: +86-10-8441-7400 Email: ir@chinafiresecurity.com ICR, Inc. In China: Michael Tieu or Bill Zima Tel: +86-10-6599-7960 or +86-10-6599-7969 Email: michael.tieu@icrinc.com or william.zima@icrinc.com In the U.S.: Brian M. Prenoveau, CFA Tel: +1-203-682-8200 Email: brian.prenoveau@icrinc.com CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.) CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME FOR THE QUARTERS ENDED DECEMBER 31, 2008 AND 2007 Expressed in U.S. dollars (Except for share and per share amounts) Three Months Ended December 31 2008 2007 REVENUES System contracting projects $ 16,041,738 $ 11,311,091 Products 4,279,980 1,764,761 Maintenance services 663,784 1,034,368 Total revenues 20,985,502 14,110,220 COST OF REVENUES System contracting projects 7,803,158 5,594,462 Products 1,382,206 623,769 Maintenance services 395,384 421,858 Total cost of revenues 9,580,748 6,640,089 GROSS PROFIT 11,404,754 7,470,131 OPERATING EXPENSE Selling and marketing 1,842,289 848,404 General and administrative 2,659,008 2,270,760 Depreciation and amortization 266,490 147,818 Research and development 445,993 215,253 Total operating expense 5,213,780 3,482,235 INCOME FROM OPERATIONS 6,190,974 3,987,896 OTHER INCOME (EXPENSE) Other income 428,182 3,657 Other expense (38,557) (7,115) Interest income 242,473 57604 Change in fair value of derivative instruments 0 0 Total other income 632,098 54,146 INCOME BEFORE PROVISION FOR INCOME TAXES 6,823,072 4,042,042 PROVISION FOR INCOME TAXES (5,936) 5,081 NET INCOME 6,829,008 4,036,961 CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.) CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007 2008 2007 REVENUES System contracting projects $ 57,101,984 $ 34,581,376 Products 9,673,922 10,592,683 Maintenance services 2,303,213 1,579,778 Total revenues 69,079,119 46,753,837 COST OF REVENUES System contracting projects 25,805,086 16,158,844 Products 2,558,844 4,329,067 Maintenance services 1,217,316 602,943 Total cost of revenues 29,581,246 21,090,854 GROSS PROFIT 39,497,873 25,662,983 OPERATING EXPENSE Selling and marketing 6,434,887 3,907,067 General and administrative 6,680,992 5,661,356 Depreciation and amortization 712,269 535,751 Research and development 2,102,976 672,379 Total operating expense 15,931,124 10,776,553 INCOME FROM OPERATIONS 23,566,749 14,886,430 OTHER INCOME (EXPENSE) Other income 929,919 581,192 Other expense (127,620) (14,932) Interest income 382,227 148,236 Interest expense -- -- Change in fair value of derivative instruments -- 1,205,791 Total other income (expense) 1,184,526 1,920,287 INCOME BEFORE PROVISION FOR INCOME TAXES 24,751,275 16,806,717 PROVISION FOR INCOME TAXES 47,423 5,081 NET INCOME 24,703,852 16,801,636 OTHER COMPREHENSIVE INCOME Foreign currency translation adjustment 3,737,027 2,502,595 COMPREHENSIVE INCOME $ 28,440,879 $ 19,304,231 BASIC EARNINGS PER SHARE Weighted average number of shares 27,568,214 26,873,742 Earnings per share $ 0.90 $ 0.63 DILUTED EARNINGS PER SHARE Weighted average number of shares 28,210,620 27,721,171 Earnings per share $ 0.88 $ 0.61 CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.) CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2008 AND 2007 ASSETS December 31, December 31, 2008 2007 CURRENT ASSETS: Cash and cash equivalents $ 26,655,333 $ 17,110,449 Restricted cash 5,377,933 3,829,927 Notes receivable 3,670,259 3,315,811 Accounts receivable, net of allowance for doubtful accounts of $4,370,362 and $2,483,359 as of December 31, 2008 and 2007, respectively 25,826,343 16,525,161 Receivables from related party 466,223 -- Other receivables 1,532,259 748,195 Inventories 6,538,938 4,048,283 Costs and estimated earnings in excess of billings 17,821,708 13,068,036 Employee advances 743,868 1,326,115 Prepayments and deferred expenses 2,816,976 2,218,391 Total current assets 91,449,840 62,190,368 PLANT AND EQUIPMENT, net 8,445,254 6,568,250 OTHER ASSETS: Restricted cash - non current 1,872,828 -- Accounts receivable - retentions 1,107,450 193,029 Deferred expenses - non current -- 21,234 Advances on building and equipment purchases 249,859 366,317 Investment in joint ventures 1,167,238 1,156,294 Intangible assets, net of accumulated amortization 1,116,449 1,150,935 Total other assets 5,513,824 2,887,809 Total assets $ 105,408,918 $ 71,646,427 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 6,664,090 $ 6,327,182 Customer deposits 6,102,026 4,757,179 Billings in excess of costs and estimated earnings 4,237,528 4,882,217 Other payables 837,973 168,868 Accrued liabilities 6,785,409 4,214,530 Taxes payable 2,092,745 1,088,335 Total current liabilities 26,719,771 21,438,311 COMMITMENTS AND CONTINGENCIES -- -- SHAREHOLDERS' EQUITY: Common stock, $0.001 par value, 65,000,000 shares authorized, 27,586,593 shares and 27,556,893 issued and outstanding as of December 31, 2008 and 2007, respectively 27,586 27,556 Additional paid-in-capital 19,357,409 19,317,287 Statutory reserves 7,148,827 5,067,061 Retained earnings 44,850,181 22,228,095 Accumulated other comprehensive income 7,305,144 3,568,117 Total shareholders' equity 78,689,147 50,208,116 Total liabilities and shareholders' equity $ 105,408,918 $ 71,646,427

SOURCE China Fire & Security Group, Inc.

Source: PR Newswire

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