China Precision Steel Announces Third Quarter Fiscal 2012 Results

SHANGHAI, May 16, 2012 /PRNewswire-Asia/ -- China Precision Steel, Inc. (NASDAQ: CPSL) ("China Precision Steel" or the "Company"), a niche precision steel processing Company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its fiscal year 2012 third quarter results for the period ended March 31, 2012. 

Third Quarter Highlights

  • Revenue was $29.5 million
  • Gross loss was $1.1 million
  • Net loss was $3.3 million
  • Fully diluted loss per share was $0.07
  • International sales increased to $1.6 million, up from $0.3 million in third quarter fiscal year 2011
  • Sales volume increased to 38,898 tons from 36,475 period-over-period

"While total sales volume is up period-over-period, it was another challenging quarter for us as the domestic demand for precision steel remains soft due to the slowdown of China's  growth rate.   Subsequently, the softening steel demand resulted in steel prices sharply dropping 10.2% from the second quarter of fiscal year 2012.  Our revenue for the quarter was also impacted by the Chinese New Year holiday which shortened the quarter's production period by ten days," commented Mr. Hai Sheng Chen, CEO of China Precision Steel.  "While we continue to remain cautious for the rest of calendar year 2012, we are experiencing a gradual increase in demand for our low carbon, cold-rolled steel and could experience a turnaround in demand for high-carbon steel before the end of the calendar year should the government enacts new stimulus policies."

Revenue for the third quarter of fiscal year 2012 was $29.5 million, down 6.3% from revenue in the third quarter of fiscal year 2011 of $31.5 million.  The decrease in revenue was mainly attributed to the 12.2% decline in average selling price to $758 ton from $863 ton in the third quarter of fiscal 2011.  Total sales volume in the third quarter of fiscal year 2012 increased to 38,898 tons from total sales volume of 36,475 tons in the prior period.  High carbon and low carbon sales accounted for 11.9% and 86.2% of total sales, respectively, compared to 23.8% and 74.0%, respectively, period-on-period.  Exports represented 5.4% of total sales for the current period, up from 0.9% in the same period a year ago as the Company has been experiencing strengthening global demand. 

Gross loss in the third quarter was $1.1 million, compared to gross loss of $0.04 million in the same period a year ago.  Gross loss margin for the current period was 3.8% compared to 0.1% in the third quarter of fiscal 2011. The increase in gross loss margin principally resulted from the a decline in average selling price per unit sold of 12.2%, which was partially offset by a decline in average cost per unit sold of 8.9%, period-on-period. 

Selling expenses for the third quarter of fiscal year 2012 were $63,734, compared to $93,172 in the third quarter of fiscal year 2011. The decline in selling expenses was primarily attributable to a decrease in sales commissions during the quarter compared to the same period a year ago. Administrative expenses were $781,221, or 2.6% of revenue, compared to $111,068, or 0.4% of revenue period-on-period.  The increase in administrative expenses was primarily due to inventory write down in the amount of $636,405 during the period. 

Operating loss for the current quarter was $2.5 million, compared to an operating loss of $0.3 million in the third quarter of fiscal year 2011.    

Net loss for the third quarter of fiscal year 2012 was $3.3 million, compared to net loss of $872,497 for the third quarter of fiscal year 2011.  Fully diluted loss per share was $0.07, compared to fully diluted loss per share of $0.02 in the same period a year ago. 

Nine Months Financial Results

Revenue for the first nine months of fiscal year 2012 was $105.3 million, up 0.2% from $105.2 million in the same period a year ago.  Gross loss was $2.9 million, compared to a gross profit of $4.3 million for the nine months of fiscal year 2011.  Gross profit margin for the nine months ended March 31, 2012 was (2.7%), down from 4.0% for the comparable period a year ago.  Operating loss was $5.7 million, down from an operating income of $2.2 million in the first nine months of fiscal year 2011.  Net loss was $7.9 million, compared to a net loss of $0.03 million in the same period a year ago.  Fully diluted loss per share was $0.17, compared to fully diluted loss per share of $0.00 for the first nine months of fiscal year 2011. 

Financial Condition

As of March 31, 2012, China Precision Steel had $2.2 million in cash and cash equivalents, $12.6 million in long-term debt, total liabilities of $70.8 million and working capital of $69.2 million.  Stockholders' equity stood at $129.1 million, compared to $133.5 million as of June 30, 2011.  Cash generated from operating activities during the first nine months of fiscal year 2012 was $2.7 million.

Business Outlook

China Precision Steel anticipates that the market demand for precision steel used in home appliance would gradually strengthen while demand for high carbon precision steel used in automobile components and low carbon steel used in roofing materials would continue to be soft throughout calendar year 2012. Additionally, the Company expects to experience more competitive pressures in the international markets if the Chinese RMB continues to strengthen against US Dollars.  As of March 31, 2012, China Precision Steel had a backlog of $19.0 million, of which approximately 70% are orders for low-carbon steel products.

"We anticipate a difficult operating environment throughout calendar year 2012 due to a weakening Chinese economy.  However, in response to the slowing of China's growth rate, the Chinese government is looking at new ways to stimulate consumption and spending.  Currently, it is taking steps to accelerate some infrastructure projects, such as railway, roads, airports and electricity projects, to help boost the economy," Mr. Chen continued.  "We view these new infrastructure projects as a potential opportunity to drive sales for our high carbon steel products which are used in automobile parts for transportation vehicles.  Furthermore, despite the economic slowdown, urbanization is still going strong in China and will continue to drive demand for home appliances which combined with a potential new round of subsidies could enhance demand for our low-carbon, cold-rolled steel products."

About China Precision Steel, Inc.

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 provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades and textile needles. The Company primarily sells to manufacturers in the People's Republic of China and overseas markets such as Indonesia, Thailand, the Caribbean, Nigeria and Ethiopia. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com.

Conference Call

China Precision Steel will host a conference call on Wednesday, May 16, 2012 at 9:00 a.m. Eastern Time to discuss fiscal 2011 third quarter results. To participate in the live conference call, please dial the following number fifteen minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. When prompted by the operator, mention conference passcode 335 847 90.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Wednesday, May 16, 2012 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 18783351. 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 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 China Precision Steel's ability to prepare the Company for growth, the Company's planned manufacturing capacity expansion, predictions regarding the ability of China's home appliance stimulus program to continue stimulating the demand for the Company's products, predictions about improvements in the global economy 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, such as 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. 

 

Elite IR
Leslie J. Richardson, Partner
+852-3183 0283
Leslie.richardson@elite-ir.com

 

- Financial Tables Follow -

 

China Precision Steel, Inc. and Subsidiaries

Consolidated Balance Sheets

(Unaudited)




March 31,


June 30,




2012


2011

Assets




Current assets





Cash and cash equivalents

$2,244,609


$2,707,754


Accounts receivable






Trade, net of allowances of $1,091,900 and $1,063,620






  at March 31, 2012 and June 30, 2011, respectively

45,250,344


41,335,759



Bills receivable

182,656


201,133



Other

1,570,111


1,420,192


Inventories, net

28,518,286


25,077,449


Prepaid expenses

725,445


633,416


Advances to suppliers, net of allowance of $2,297,554 and






$1,724,275 at March 31, 2012 and June 30, 2011, respectively

48,933,681


50,034,590

Total current assets

127,425,132


121,410,293

Property, plant and equipment





Property, plant and equipment, net

70,389,316


75,311,221


Construction-in-progress

80,191


64,762




70,469,507


75,375,983

Intangible assets, net

1,908,973


1,892,249

Goodwill

99,999


99,999

Total assets

$199,903,611


$198,778,524

Liabilities and Stockholders' Equity




Current liabilities





Short-term loans

$27,502,237


$27,370,648


Long-term loan - current portion

3,600,000


3,600,000


Accounts payable and accrued liabilities

8,543,271


5,599,323


Advances from customers

6,423,836


2,275,241


Other taxes payable

6,320,262


6,297,227


Current income taxes payable

5,842,782


5,691,456

Total current liabilities

58,232,388


50,833,895

Long-term loans

12,600,000


14,400,000

Stockholders' equity:





Preferred stock: $0.001 per value, 8,000,000 shares authorized,






no shares outstanding at March 31, 2012 and June 30, 2011, respectively

-


-


Common stock: $0.001 par value, 62,000,000 shares authorized,






46,562,955 and 46,562,955 issued and outstanding at






March 31, 2012 and June 30, 2011, respectively

46,563


46,563


Additional paid-in capital

75,642,383


75,642,383


Accumulated other comprehensive income

20,278,819


16,822,185


Retained earnings

33,103,458


41,033,498

Total stockholders' equity

129,071,223


133,544,629

Total liabilities and stockholders' equity

$199,903,611


$198,778,524

 

China Precision Steel, Inc. and Subsidiaries

Consolidated Statements of Operations and Comprehensive Income

For the Three and Nine Months Ended March 31, 2012 and 2011

(Unaudited)



Three Months Ended


Nine Months Ended



March 31,


March 31,


March 31,


March 31,



2012


2011


2012


2011

Sales revenues

$29,494,865


$31,489,118


$105,324,043


$105,154,101

Cost of goods sold

30,612,073


31,530,734


108,178,198


100,902,769

Gross (loss)/profit

(1,117,208)


(41,616)


(2,854,155)


4,251,332

Operating expenses









Selling expenses

63,734


93,172


172,223


201,554


Administrative expenses

781,221


111,068


2,007,777


1,708,188


Allowance for bad and doubtful debts

522,118


126


522,118


19,823


Depreciation and amortization expense

54,173


50,173


162,610


143,884


Total operating expenses

1,421,246


254,539


2,864,728


2,073,449

(Loss)/income from operations

(2,538,454)


(296,155)


(5,718,883)


2,177,883

Other income/(expense)









Other revenues

20,434


627


89,505


3,239


Interest and finance costs

(794,895)


(591,118)


(2,273,473)


(1,908,969)


Total other (expense)

(774,461)


(590,491)


(2,183,968)


(1,905,730)

(Loss)/income from operations before income tax

(3,312,915)


(886,646)


(7,902,851)


272,153

Provision for income tax









Current

108


(14,149)


27,189


298,358


Total income tax expense/(benefit)

108


(14,149)


27,189


298,358

Net (loss)

(3,313,023)


(872,497)


(7,930,040)


(26,205)

Basic (loss) per share

(0.07)


(0.02)


(0.17)


$0.00

Basic weighted average shares outstanding

46,562,955


46,562,955


46,562,955


46,562,955

Diluted (loss) per share

(0.07)


(0.02)


(0.17)


$0.00

Diluted weighted average shares outstanding

46,562,955


46,562,955


46,562,955


46,562,955

 

China Precision Steel, Inc. and Subsidiaries

Consolidated Statements of Cash Flows

For the Nine Months Ended March 31, 2012 and 2011

(Unaudited)



2012


2011

Cash flows from operating activities





Net (loss)

(7,930,040)


(26,205)


Adjustments to reconcile net income to net cash provided by operating activities




  Depreciation and amortization

6,763,799


5,931,643


  Gain on disposal of property, plant and equipment

(36,945)


-


  Allowance for bad and doubtful debts

522,118


-


  Inventory provision

636,405


-


Net changes in assets and liabilities:





  Accounts receivable, net

(3,448,433)


18,758,490


  Inventories

(3,416,954)


(3,171,550)


  Prepaid expenses

(86,378)


(236,418)


  Advances to suppliers

2,365,370


(21,066,432)


  Accounts payable and accrued expenses

3,343,901


(4,980,726)


  Advances from customers

4,088,100


478,006


  Other taxes payable

(144,398)


212,193


  Current income taxes

-


138,962

Net cash provided by/(used in) operating activities

2,656,545


(3,962,037)

Cash flows from investing activities





  Purchase of property, plant and equipment, including construction in progress

(365,568)


(9,635,527)


  Proceeds from disposal of property, plant and equipment

55,933


-

Net cash (used in) investing activities

(309,635)


(9,635,527)

Cash flows from financing activities





Loan proceeds

-


497,816


Repayment of short-term loans

-


(771,106)


Repayment of long-term loan

(2,874,740)


-

Net cash (used in) financing activities

(2,874,740)


(273,290)

Effect of exchange rate

64,685


1,242,139

Net (decrease) in cash

(463,145)


(12,628,715)

Cash and cash equivalents, beginning of period

2,707,754


29,036,706

Cash and cash equivalents, end of period

$2,244,609


$16,407,991

SOURCE China Precision Steel Inc.

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