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Full Year 2008 Highlights -- Record revenue increase of 62.6% to $87.7 million, from $54.0 million during the fiscal year 2007 -- Gross profit increased 49.6% to $22.5 million, with gross margin of 25.6% -- Operating income increased 101.9% to $18.4 million -- Operating margin of 20.9%, improved from 16.9% for fiscal year 2007 -- Net income increased 123.8% to $18.6 million, or $0.43 per fully diluted share -- Exports accounted for 18.2% of revenues, up from 1.5% a year ago
"We are pleased to report strong revenue and net income growth due to continuously strong market demand for our high precision steel products," commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. "Despite rising raw material costs and steel prices, we achieved strong top and bottom line growth. During fiscal year 2008, we expanded our international sales footprint in Ethiopia, Nigeria, the Philippines and Thailand. In addition, we ramped up production at our second mill, which is currently operating at 55- 60% utilization rate and is expected to reach full capacity within the next two to three years."
Sales revenue for the 2008 fiscal year was $87.7 million, up 62.6% from $54.0 million in the last fiscal year. The rapid growth of sales revenue was mainly attributable to the increased production of high-carbon cold-rolled products, and to an increase in exports of low carbon hard-rolled steel coils and in subcontracting income during fiscal year 2008. High carbon and low carbon products accounted for 40.3% and 49.5% of sales, respectively, compared to 27.3% and 42.4%, respectively, a year ago. Subcontracting income accounted for 7.3% of sales, increased from 1.7% of sales in fiscal year 2007, due primarily to sales of stainless steel produced from the new annealing line established in the fourth quarter of fiscal year 2008.
Gross profit for the year was $22.5 million, up 49.6% from $15.0 million in the last fiscal year. Gross margin was 25.6%, down from 27.9% in fiscal year 2007. The decrease in gross profit margin was due to increases in raw material prices during the year, the majority of which the Company was successful in passing on to its customers.
Operating expenses were $4.1 million, down 30.6% from $5.9 million in fiscal year 2007. The decline in operating expenses was primarily due to a $3.8 million provision for doubtful accounts recorded in fiscal year 2007 as a partial reserve against advances to suppliers as the goods ordered were not received within ninety days. The Company recorded a provision for bad debts of only $686,955 for fiscal year 2008. Selling expenses increased during the 2008 year due to increased delivery charges associated with increase in the sales volume of export products. Administrative expenses increased primarily due to higher legal and professional expenses related to the Company's admission to the NASDAQ Capital Market in December 2006. As a percentage of revenue, operating expenses were 4.7% in fiscal year 2008, compared to 11.0% in last year.
Operating income was $18.4 million, up 101.9% from $9.1 million in fiscal year 2007. Operating margin increased to 20.9%, from 16.9% a year ago. Excluding the $3.8 million provision for bad debt, operating margin in fiscal year 2007 was 23.9%.
During fiscal year 2008, interest and finance costs increased to $1.2 million, up from $0.3 million in the last fiscal year, primarily due to a $0.8 million decrease in capitalized interest. The Company recorded other revenue of $2.0 million in fiscal year 2008, primarily due to a $1.7 million one-time reversal of consumable items impairment.
Net income for the fiscal year 2008 was $18.6 million, or $0.43 per diluted share, up from $8.3 million, or $0.29 per diluted share, last year. Fully diluted weighted average shares outstanding increased to 43.3 million for the year from 28.8 million in fiscal year 2007, due to private placement financings in February and November 2007.
Financial Condition
As of June 30, 2008, China Precision Steel had $18.6 million in cash and cash equivalents, no long term debt, total liabilities of $45.2 million and working capital of $62.9 million. Shareholders' equity was $120.3 million, compared to $51.1 million as of June 30, 2007. Cash flow used in operating activities was $12.6 million in fiscal 2008, due to increase in accounts receivables and cash used in relation to raw material purchase. As the Company's production facilities are currently fully occupied with up to three months of advanced bookings, a regular and stable supply of raw materials is essential for production in relation to these advance orders. Accounts receivable rose to $33.8 million, up from $8.2 million at the end of fiscal 2007, primarily due to the overall increase in the scale of the Company's operations. The Company's management reviews its accounts receivable on a monthly basis and an allowance is provided for doubtful accounts. As of June 30, 2008, approximately 80% of the account receivables are current and are due within 180 days.
Business Outlook
China Precision Steel has ramped up capacity at its second mill, a 1,400 mm cold-rolling mill, established in October 2006. The designed annual capacity is 150,000 metric tons and as of September 2008 the facility is operating at a utilization rate of approximately 55% to 60%. The Company plans to reach 100% utilization rate within the next two to three years. The Company's new continuous annealing line commenced processing of high quality stainless steel products in the third quarter of fiscal 2008, resulting in a positive growth in subcontracting income during the year. The growth in subcontracting income was primarily due to the inclusion of stainless steel products.
The Company has started construction of a third mill, a 1,450 mm cold- rolling mill, which is expected to commence production in the first half of calendar year 2009. This mill will have a design capacity of 120,000 metric tons, bringing the Company's aggregate designed production capacity to approximately 300,000 metric tons, based on our current product mix and specifications. The Company plans to commence the installation of the third rolling mill in the first half of fiscal year 2009, which is expected to be complete in a four to six month period from the commencement date. In fiscal year 2008, the Company invested $7.0 million in relation to the 1,450 mm cold- rolling mill. Planned capital expenditures for fiscal year 2009 will be in the range of $16 million to $18 million, of which approximately $11 million will be spent on construction costs and the remainder will be spent on working capital for the 1,450 mm cold-roll mill.
During the year the Company successfully entered into the Ethiopian market. The Company also increased sales in existing international markets, including Nigeria, the Philippines and Thailand. The Company continues to see a strong growth in demand in the African markets and plans to further explore new markets.
"Demand for our precision steel products continues to grow, both in domestic and international markets as we ramp up our production capacity. We have seen an increase in orders from our existing customers and have experienced increased orders from new customers, that we believe is a result of our brand name and reputation in the precision steel industry for producing high quality products at internationally competitive prices," commented Dr. Li. "We have made significant adjustments to our sales mix in the last year and have heightened our focus on producing high-carbon and hard-rolled products with higher selling prices. We strive to achieve an optimal sales mix to improve profitability and ensure stable cash flows. We are pleased with the successful launch of our continuous annealing line and have begun realizing revenue and profit from the sale of stainless steel products, which is expected to further improve our overall profit margins. We also plan to continue increasing exports in 2009."
About China Precision Steel
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 in providing value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel, Inc. 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. China Precision Steel, Inc. 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. For more information visit http://www.chinaprecisionsteelinc.com .
Conference Call
The Company will host a conference call at 9:00 a.m. EDT on Tuesday, September 16, 2008 to discuss its results for the fourth quarter and full fiscal year 2008. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888-419-5570. International callers should dial 617-896-9871. When prompted by the operator, mention Conference Passcode 508 552 56.
If you are unable to participate in the call at this time, a replay will be available for fourteen days, starting on Tuesday, September 16, 2008 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter Passcode 592 312 59. 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 who are 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, Inc. 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: the continued growth in demand for the Company's precision steel products in domestic and international markets; the ability of the Company to continue its ramp up of production capacity; the impact that the Company's new continuous annealing line will have on its future profit margins; the general ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; predictions and guidance relating to the Company's future financial performance; and any other statements of non-historical information. 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 Consolidated Balance Sheets June 30, June 30, 2008 2007 Assets Current assets Cash and equivalents $ 18,568,842 $ 5,504,862 Accounts receivable Trade, net of allowances of $1,033,479 and $273,461 at June 30, 2008 and 2007, respectively 33,783,074 8,242,044 Bank acceptance notes 4,309,703 -- Other 571,746 85,708 Inventories 17,815,087 15,723,704 Deposits -- 82,758 Prepaid expenses 58,105 -- Advances to suppliers, net of allowance of $2,522,837 and $2,269,328 at June 30, 2008 and 2007, respectively 33,027,365 11,699,918 Total current assets 108,133,922 41,338,994 Property and equipment Property and equipment, net 39,199,305 29,238,227 Construction-in-progress 16,476,454 10,355,763 55,675,759 39,593,990 Intangible assets, net 1,625,690 1,124,583 Goodwill 99,999 99,999 Total assets $ 165,535,370 $ 82,157,566 Liabilities and Stockholders' Equity Current liabilities Accounts payable and accrued liabilities $ 12,047,981 $ 4,855,932 Advances from customers 6,996,996 1,720,812 Other taxes payables 3,976,239 816,553 Current income taxes payable 4,742,387 1,892,866 Deferred income taxes payable -- 1,064,028 Amounts due to directors -- 408,620 Current portion of long-term debt -- 6,163,445 Notes payable 17,465,799 9,842,520 Total current liabilities 45,229,402 26,764,776 Long-term debt, net of current portion shown above -- 6,878,714 Stockholders' equity: Preferred stock: $0.001 per value, 8,000,000 shares authorized, no shares outstanding at June 30, 2008 and 2007; Common stock: $0.001 par value, 62,000,000 shares authorized, 46,472,955 and 37,378,143 issued and outstanding June 30, 2008 and 2007 46,473 37,378 Additional paid-in capital 75,372,488 31,867,063 Accumulated other comprehensive income 9,295,658 2,192,160 Retained earnings 35,591,349 17,008,238 Total stockholders' equity 120,305,968 51,104,839 Amounts due from directors -- (2,590,763) Total liabilities and stockholders' Equity $ 165,535,370 $ 82,157,566 China Precision Steel, Inc. and Subsidiaries Consolidated Statements of Operations For the Years Ended June 30. 2008, 2007 and 2006 2008 2007 2006 Revenues Sales revenues $87,739,326 $53,960,243 $34,881,141 Cost of goods sold 65,241,825 38,925,987 24,892,154 Gross profit 22,497,501 15,034,256 9,988,987 Operating expenses Selling expenses 608,060 245,695 122,220 Administrative expenses 2,758,536 1,863,994 505,764 Provision for bad debts 686,955 3,775,645 -- Depreciation and amortization expense 64,253 44,375 40,005 Total operating expenses 4,117,804 5,929,709 667,989 Income from continuing operations 18,379,697 9,104,547 9,320,998 Other income (expense) Other revenues 2,006,777 103,388 -- Other expenses (1,362) Interest and finance costs (1,231,040) (312,222) (271,693) Total other income (expense) 775,737 (210,196) (271,693) Net income from continuing operations before income tax 19,155,434 8,894,351 9,049,305 Provision for (benefit from) income tax Current 1,636,351 1,892,866 -- Deferred (1,064,028) (471,176) 1,535,204 Total income tax expense 572,323 1,421,690 1,535,204 Net income before discontinued operations 18,583,111 7,472,661 7,514,101 Net income from discontinued operations -- 831,448 900,469 Net income $18,583,111 $8,304,109 $8,414,570 Basic earnings per share From continuing operations $0.43 $0.26 $0.31 From discontinued operations $-- $0.03 $0.04 Total $0.43 $0.29 $0.35 Basic weighted average shares outstanding 43,044,420 28,438,313 24,283,725 Diluted earnings per share From continuing operations $0.43 $0.26 $0.31 From discontinued operations $-- $0.03 $0.04 Total $0.43 $0.29 $$0.35 Diluted weighted average shares outstanding 43,256,434 28,759,553 24,283,725 The Components of comprehensive income: Net income $18,583,111 $8,304,109 $8,414,570 Foreign currency translation adjustment 7,103,498 1,446,577 745,583 Comprehensive income $25,686,609 $9,750,686 $9,160,153 China Precision Steel, Inc. and Subsidiaries Consolidated Statements of Cash Flows For the Years Ended June 30, 2008, 2007 and 2006 2008 2007 2006 Cash flows from operating activities Net Income $18,583,111 $8,304,109 $8,414,570 Adjustments to reconcile net income to net cash provided by operating activities Depreciation 2,214,643 1,527,211 823,862 Less income from discontinued operations - Oralabs, Inc -- (831,448) (900,469) Allowance for bad and doubtful debts 686,955 3,775,645 -- Warrants issued for consulting -- 447,993 -- Net changes in assets and liabilities: Accounts receivable, net (30,186,787) 5,523,369 (6,790,827) Inventories (511,151) (9,133,893) (4,018,854) Deposits 82,758 (3,504) (75,575) Prepayments (58,105) -- -- Advances to suppliers (19,898,096) (10,677,692) (1,440,047) Accounts payable and accrued expenses 6,704,028 2,966,771 435,337 Advances from customers 5,103,242 (229,495) 1,296,647 Other taxes payable 3,077,622 (188,367) 670,313 Current income taxes 2,659,288 1,892,866 -- Deferred income taxes (1,064,028) (471,176) 1,135,204 Net cash (used in) provided by operating activities (12,606,520) 2,902,389 (449,839) Cash flows from investing activities Purchases of goodwill -- (99,999) -- Purchases of property, plant and equipment including construction in progress (14,705,302) (9,896,145) (10,049,870) Net cash (used in) investing activities (14,705,302) (9,996,144) (10,049,870) Cash flows from financing activities Proceeds from sale of common stock 44,375,282 19,326,878 -- Exercise of common stock warrants 1,730,001 -- -- Advances from/(to) directors, net (189,315) (7,610,426) (1,763,994) Notes payable proceeds 16,702,976 10,040,633 13,245,762 Repayments of notes payable (24,421,766) (10,157,728) (4,251,719) Net cash provided by financing activities 38,197,178 11,599,357 7,230,049 Effect of exchange rate 2,178,624 812,305 323,289 Net increase in cash 13,063,980 5,317,907 (2,946,371) Cash and cash equivalents, beginning of year 5,504,862 186,955 3,133,326 Cash and cash equivalents, end of year $18,568,842 $5,504,862 186,955 Supplemental disclosure of cash flow information Cash paid during the period for: Interest paid $1,231,040 $312,222 $395,134 Taxes paid $-- $-- $-- Major non-cash transactions: Issuance of 2,798,191 shares of stock for syndication fees $-- $8,394,573 $-- Issuance of 100,000 warrants for services $-- $447,993 $-- Issuance of 1,216,667 warrants for syndication fees $-- $2,770,349 $-- Contribution of director's loans to additional paid in capital $-- $3,953,794 $-- Shareholder loans contributed for contributed construction costs $-- $8,840,990 $-- For more information, please contact: CCG Investor Relations Crocker Coulson, President Tel: +1-646-213-1915 Email: crocker.coulson@ccgir.com Web: http://www.ccgir.com China Precision Steel Leada Li, CFO Email: leadali@biznetvigator.com
SOURCE China Precision Steel
http://www.chinaprecisionsteelinc.com
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