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General Steel Announces Third Quarter 2009 Financial Results

Posted on: Friday, 6 November 2009, 04:00 CST

BEIJING, Nov. 6 /PRNewswire-Asia-FirstCall/ -- General Steel Holdings, Inc. ("General Steel" or "the Company") (NYSE: GSI), one of China's leading non-state-owned producers of steel products and aggregators of domestic steel companies, today announced its financial results for the third quarter ended September 30, 2009.

Third Quarter of 2009 Highlights -- Aggregate shipment volume increased 67.2% year-over-year to a record 1,036,076 metric tons -- Total revenues increased 17.8% to a record $484.8 million from $411.5 million in the third quarter of 2008 -- Gross margin was 8.2%, compared to 5.5% in the previous quarter and -1.5% in the third quarter of 2008 -- Income from operations increased to a record $29.2 million -- Net income was $10.4 million, or earnings per basic and diluted share of $0.23 and $0.22, respectively -- Established a sales office in one of western China's key economic development zones, Guanzhong-Tianshui Economic Zone

"We achieved record total revenues, shipment volume and income from operations during the quarter," said Mr. Henry Yu, General Steel's chairman and chief executive officer. "Our Longmen JV continues to benefit from a micro-trend in the domestic steel space, delivering construction-related steel to an increasing number of rural development and infrastructure projects. This helped gross margin at the subsidiary expand to more than 8% during the quarter, which is four consecutive quarters of improvement. Going forward, the accelerating momentum for significant industry consolidation combined with our unique platform and ability to create 'win-win' partnerships, has positioned us as one of the most sought out partners within the industry."

Selected Financial Results for the Third Quarter and Nine Months Ended September 30, 2009

Total revenues for the third quarter of 2009 increased 17.8% year-over-year to $484.8 million from $411.5 million in the year-ago period. Total revenues for the nine months ended September 30, 2009 increased 11.6% year-over-year to $1.2 billion from $1.1 billion in the year-ago period.

The increase in total revenues was predominantly due to increased shipment volumes at the Company's Shaanxi Longmen Iron and Steel Co., Ltd. joint venture ("Longmen JV"), which in the nine months ended September 30, 2009, increased 61.0% year-over-year as well as the Company's Maoming Hengda Steel Group, Limited ("Maoming") subsidiary, which in the nine months ended September 30, 2009, increased 617.7% year-over-year. The Company noted that the increase in shipment volumes helped to offset lower selling prices and declines at its Daqiuzhuang Metal subsidiary and Baotou Steel Pipe joint venture. The increase in total revenues was also attributable to the Company's Maoming acquisition, which took place on June 25, 2008. Total revenues for the nine months ended September 30, 2009 reflect a full nine months of operations, whereas the subsidiary did not exist in the same period last year.

Cost of Sales

Total cost of sales for the third quarter of 2009 increased 6.5% year-over-year to $445.0 million from $417.9 million in the year-ago period. Total cost of sales for the nine months ended September 30, 2009 increased 7.6% year-over-year to $1.1 billion from $1.0 billion in the year-ago period. Cost of sales principally consists of the cost of raw materials, labor, utilities, manufacturing costs, manufacturing-related depreciation and other fixed costs. The increase in cost of sales was mostly attributable to an increase in shipment volumes at the Company's Longmen JV and Maoming subsidiary in response to demand created by earthquake reconstruction and infrastructure-related stimulus projects.

Gross Profit

Gross profit for the third quarter of 2009 was $39.7 million compared to a gross loss of $6.3 million in the year-ago period. Gross profit for the nine months ended September 30, 2009 increased 154.7% year-over-year to $75.2 million from $29.5 million in the year-ago period. Gross margin for the third quarter of 2009 was 8.2%, compared to -1.5% in the year-ago period. Gross margin for the nine months ended September 30, 2009 was 6.2%, compared to 2.7% in the year-ago period.

Operating Expenses

Selling, general and administrative expenses for the third quarter of 2009 decreased 14.9% to $10.5 million, compared to $12.3 million in the year-ago period. Selling, general and administrative expenses for the nine months ended September 30, 2009 increased 3.0% to $29.2 million from $28.4 million in the year-ago period. Selling, general and administrative expenses were 2.2% and 3.0% of total revenues in the third quarters of 2009 and 2008, respectively, compared to 2.4% and 2.6% in the nine months ended September 30, 2009 and 2008, respectively. The Company noted that the year-over-year increase in selling, general and administrative expenses in the nine months ended September 30, 2009 was attributable to the addition of the Company's Maoming subsidiary, which did not exist in the year-ago period as well as a 61% increase in shipment volume at the Company's Longmen JV.

Finance and interest expenses for the third quarter of 2009 were $4.2 million, compared to $6.9 million in the year-ago period. Finance and interest expenses for the nine months ended September 30, 2009 were $18.4 million, compared to $19.1 million in the year-ago period. The reduction in finance and interest expense for the nine months ended September 30, 2009 was primarily due to interest paid on bank loans and the early redemption of notes receivable and various bank fees.

Net Income

Net income for the third quarter of 2009 was $10.4 million, compared to net income of $20.5 million in the year-ago period. Net loss for the nine months ended September 30, 2009 was $14.2 million, compared to net loss of $1.6 million in the year-ago period. The decrease in net income was due to a $29.9 million derivative instrument-related gain which occurred in the third quarter of 2008 and is a non-operating, non-cash gain related to a convertible bond and warrants issued in December of 2007.

Basic earnings per share was $0.23 in the third quarter of 2009 and $0.57 in the year-ago period.

Diluted earnings per share was $0.22 in the third quarter of 2009 and $0.57 in the year-ago period. Basic and diluted losses per share were $0.35 in the nine months ended September 30, 2009, compared to $0.05 in the year-ago period.

Balance Sheet

As of September 30, 2009, General Steel had cash and restricted cash of $251.9 million, compared to $145.6 million as of December 31, 2008. Accounts receivable was $12.2 million and accounts receivables - related parties was $2.8 million as of September 30, 2009, compared to accounts receivable of $8.3 million as of December 31, 2008. Convertible notes payable decreased to $912 thousand as of September 30, 2009, compared to $7.2 million as of December 31, 2008. Because $8.3 million in notes were converted to 1,940,678 shares of common stock from June 30, 2009 to September 30, 2009, total outstanding shares increased to 45.8 million as of September 30, 2009.

Conference Call

General Steel management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on November 6, 2009 (9:00 p.m. Beijing/Hong Kong Time on November 6, 2009). On the call, management will discuss results and highlights from the quarter and answer questions.

The dial-in number and passcode for the conference call are as follows: U.S. Toll-free: +1-800-860-2442 Passcode: General Steel Holdings

The conference call will be broadcast live over the Internet and can be accessed by clicking the following link: http://www.visualwebcaster.com/event.asp?id=63645 . The Company has also posted a presentation on their corporate website which can be downloaded and used to follow along on the call.

Additionally, an archived webcast of this call will be available on General Steel's website at http://www.gshi-steel.com .

About General Steel Holdings, Inc.

General Steel Holdings, Inc., (NYSE: GSI), headquartered in Beijing, China, operates a diverse portfolio of Chinese steel companies. With 6.3 million metric tons aggregate production capacity, its companies serve various industries and produce a variety of steel products including rebar, hot-rolled carbon and silicon sheet, high-speed wire and spiral-weld pipe. General Steel Holdings, Inc. has steel operations in Shaanxi and Guangdong provinces, Inner Mongolia Autonomous Region and Tianjin municipality. For more information, please visit http://www.gshi-steel.com .

Information Regarding Forward-Looking Statements

This press release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management's current expectations or beliefs about future events and financial, political and social trends and assumptions it has made based on information currently available to it. The Company cannot assure that any expectations, forecasts or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. Actual results could differ materially from those projected in the forward-looking statements as a result of inaccurate assumptions or a number of risks and uncertainties. These risks and uncertainties are set forth in the Company's filings under the Securities Act of 1933 and the Securities Exchange Act of 1934 under "Risk Factors" and elsewhere, and include: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether the Company is able to manage its planned growth efficiently and operate profitable operations, including whether its management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether the Company is able to generate sufficient revenues or obtain financing to sustain and grow its operations; (d) whether the Company is able to successfully fulfill our primary requirements for cash and (e) other risks. Forward-looking statements contained herein speak only as of the date of this release. The Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether to reflect new information, future events or otherwise.

For investor and media inquiries, please contact: In China: Ms. Jing Ou-Yang General Steel Holdings, Inc. Tel: +86-10-5879-7346 Email: jing.ouyang@gshi-steel.com Mr. Justin Knapp Ogilvy Financial, Beijing Tel: +86-10-8520-6556 Email: gsi@ogilvy.com In the United States: Ms. Jessica Barist Cohen Ogilvy Financial, New York Tel: +1-646-460-9989 Email: gsi@ogilvy.com GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATION AND OTHER COMPREHENSIVE INCOME (UNAUDITED) (In thousands, except per share data) Three months ended Nine months ended September 30, September 30, 2009 2008 2009 2008 REVENUES $361,652 $325,911 $875,374 $781,918 REVENUES - RELATED PARTIES 123,099 85,610 341,118 308,198 TOTAL REVENUES 484,751 411,521 1,216,492 1,090,116 COST OF SALES 340,484 335,944 822,392 762,395 COST OF SALES - RELATED PARTIES 104,534 81,923 318,946 298,218 TOTAL COST OF SALES 445,018 417,867 1,141,338 1,060,612 GROSS PROFIT 39,733 (6,347) 75,154 29,504 SELLING, GENERAL AND ADMINISTRATIVE EXPENSES 10,487 12,328 29,219 28,364 INCOME(LOSS) FROM OPERATIONS 29,246 (18,675) 45,935 1,140 OTHER INCOME(EXPENSE), NET Interest income 826 646 2,468 2,104 Finance/interest expense (4,174) (6,872) (18,422) (19,149) Change in fair value of derivative liabilities (617) 29,885 (23,228) 4,769 Gain from debt extinguishment -- 7,169 2,932 7,169 Government grant -- -- 3,433 -- Income from equity investments 963 -- 3,661 -- Other non-operating income, net (2,984) 899 (2,331) 1,919 Total other (expense) income, net (5,986) 31,727 (31,487) (3,189) INCOME(LOSS) BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST 23,260 13,051 14,448 (2,049) PROVISION FOR INCOME TAXES Current 6,717 (813) 12,451 1,147 Deferred (2,925) (1,271) (5,265) (1,694) Total provision (benefit) for income taxes 3,792 (2,084) 7,186 (547) NET INCOME(LOSS) BEFORE NONCONTROLLING INTEREST 19,468 15,135 7,262 (1,502) Less: Net income (Loss) attributable to noncontrolling interest 9,088 (5,329) 21,421 116 NET INCOME(LOSS) ATTRIBUTABLE TO CONTROLLING INTEREST 10,380 20,464 (14,159) (1,618) OTHER COMPREHENSIVE INCOME (LOSS): Foreign currency translation adjustments (247) 96 (175) 6,554 Comprehensive (loss) income attributable to noncontrolling interest 1,441 (295) 334 3,911 COMPREHENSIVE INCOME(LOSS) $11,574 $20,266 $(14,000) $8,846 WEIGHTED AVERAGE NUMBER OF SHARES Basic 44,973,882 35,687,891 40,295,924 35,157,579 Diluted 45,040,143 35,687,891 40,295,924 35,157,579 EARNINGS PER SHARE Basic $0.23 $0.57 $(0.35) $(0.05) Diluted $0.22 $0.57 $(0.35) $(0.05) GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS AS OF SEPTEMBER 30, 2009 AND DECEMBER 31, 2008 (In thousands, except per share data) ASSETS September 30, December 31, 2009 2008 (Unaudited) CURRENT ASSETS: Cash $54,289 $14,895 Restricted cash 197,584 130,700 Notes receivable 27,373 38,207 Accounts receivable, net of allowance for doubtful accounts of $612 and $401 as of September 30, 2009 and December 31, 2008, respectively 12,151 8,329 Accounts receivable - related parties 2,784 -- Other receivables, net of allowance for doubtful accounts of $566 and $564 as of September 30, 2009 and December 31, 2008, respectively 6,855 5,099 Other receivables - related parties 420 523 Dividend receivable 4,957 630 Inventories 221,502 59,549 Advances on inventory purchases 39,230 47,154 Advances on inventory purchases - related parties 17,853 2,375 Prepaid expenses - current 926 494 Deferred tax assets 2,191 7,487 588,115 315,444 PLANT AND EQUIPMENT, net 558,405 491,705 OTHER ASSETS: Advances on equipment purchases 7,069 8,965 Investment in unconsolidated subsidiaries 17,640 13,959 Prepaid expenses - non current 500 1,195 Prepaid expenses related party - non current 172 211 Long term other receivable 2,674 4,873 Intangible assets, net of accumulated amortization 24,020 24,556 Note issuance cost 964 4,218 Plant and equipment to be disposed 6,455 587 Total other assets 59,494 58,564 Total assets $1,206,014 $865,713 LIABILITIES AND EQUITY CURRENT LIABILITIES: Short term notes payable $280,134 $206,040 Accounts payable 175,309 149,239 Accounts payable - related parties 19,324 15,327 Short term loans - bank 151,050 67,840 Short term loans - others 110,171 87,834 Short term loans - related parties 8,362 7,350 Other payables 8,655 3,183 Other payable - related parties 2,074 677 Accrued liabilities 14,716 7,779 Customer deposits 199,909 141,102 Customer deposits - related parties -- 7,216 Deposits due to sales representatives 39,286 8,149 Taxes payable 13,317 13,917 Distribution payable to former shareholders 15,934 18,765 Deferred tax liability 103 -- Total current liabilities 1,038,344 734,418 CONVERTIBLE NOTES PAYABLE, net of debt discount of $2,388 and $26,095 as of September 30, 2009 and December 31, 2008, respectively 912 7,155 DERIVATIVE LIABILITIES 4,933 9,903 COMMITMENT AND CONTINGENCIES Total liabilities 1,044,189 751,476 EQUITY: Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively 3 3 Common Stock, $0.001 par value, 200,000,000 shares authorized, 45,789,439 and 36,128,833 shares issued and outstanding as of September 30, 2009 and December 31, 2008, respectively 46 36 Paid-in-capital 79,924 37,129 Statutory reserves 6,827 4,903 Retained (deficits) earnings (5,992) 10,092 Contribution receivable -- (960) Accumulated other comprehensive income 8,531 8,706 Total equity 89,339 59,909 NONCONTROLLING INTERESTS 72,486 54,329 Total equity 161,825 114,237 Total liabilities and equity $1,206,014 $865,713

SOURCE General Steel Holdings, Inc.

Source: PR Newswire

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