China GengSheng Minerals Reports Third Quarter 2011 Financial Results Company Returns to Profitability on Record Quarterly Revenue of $21.5 Million with Growth Across All Core Business Segments

New Fracture Proppant Facility Commenced Production in September 2011

GONGYI, China, Nov. 10, 2011 /PRNewswire-Asia-FirstCall/ -- China GengSheng Minerals, Inc. (NYSE Amex: CHGS), a leading China-based high-tech industrial materials manufacturer producing heat resistant, energy efficient materials for a variety of industrial applications, today announced its financial results for the third quarter ended September 30, 2011.

Third Quarter 2011 Financial Highlights:

  • Revenue increased 28.2% year-over-year to approximately $21.5 million.
    • Fracture proppant sales totaled approximately $5.7 million, an increase of 13.4% year-over-year, compared with approximately $5.0 million in the third quarter of 2010.
    • Refractories sales were approximately $13.4 million, an increase of 17.6% year-over-year, compared with approximately $11.4 million in the third quarter of 2010.
    • Sales of fine precision abrasives totaled approximately $2.2 million, compared with approximately $184,000 in the third quarter of 2010.

  • Gross profit increased 11.3% to approximately $5.5 million, or 25.6% of total sales, compared with approximately $4.9 million, or 29.5% of total sales in the same period a year ago.
  • Operating income was flat at approximately $1.4 million compared with the third quarter of 2010.
  • Net income attributable to the Company's common stockholders decreased slightly to approximately $853,000, or $0.03 per fully diluted share, compared with approximately $905,000 million, or $0.04 per fully diluted share in the third quarter of 2010.
  • As of September 30, 2011, the Company had cash and cash equivalents of approximately $7.9 million, stockholders' equity of approximately $61.3 million and working capital of approximately $19.2 million.

First Nine Months of 2011 Financial Highlights:

  • Revenue increased 33.2% year-over-year to approximately $58.1 million.
    • Fracture proppant sales totaled approximately $16.8 million, an increase of 80.6% year-over-year, compared with approximately $9.3 million in the first nine months of 2010.
    • Refractories sales were approximately $35.9 million, an increase of 8.3% year-over-year, compared with approximately $33.1 million in the first nine months 2010.
    • Fine precision abrasives products generated sales totaling approximately $4.5 million, compared with approximately $184,000 during the year-ago period. The Company launched its fine precision abrasives products in September 2010.

  • Gross profit increased 9.3% to approximately $15.1 million, or 26.0% of total sales, compared with approximately $13.8 million, or 31.7% of total sales in the same period a year ago.
  • Net operating income totaled approximately $2.9 million, compared with approximately $3.6 million in the first nine months of 2010.
  • Net income attributable to the Company' s common stockholders was approximately $526,000 or $0.02 per fully diluted share, compared with net income of approximately $2.3 million, or $0.10 per fully diluted share in the first nine months of 2010.

Third Quarter 2011 and Recent Business Highlights

  • GengSheng's new fracture proppant manufacturing facility, Henan Yuxing Proppant Co., Ltd., commenced production in September 2011. With designed fracture proppant capacity of 60,000 metric tons per year, the facility's current monthly production reached 3,000 metric tons, and the Company expects to ramp up production to reach optimal utilization in the first half of 2012.
  • Signed a fine precision abrasives supply contract with a leading solar panel manufacturer in China, with monthly shipments expected to be above 200 metric tons in the fourth quarter of 2011.
  • In October 2011, fine precision abrasives output increased to 800 metric tons per month through ongoing equipment upgrades and improved production efficiency.
  • Appointed Mr. Ningfang Liang as Chief Financial Officer to improve communication, financial controls and transparency.

"We achieved record quarterly revenue of approximately $21.5 million, generating top-line growth from all three primary business segments in the third quarter. Importantly, we made significant improvements across key operating metrics and returning to profitability following three consecutive quarters of losses," said Mr. Shunqing Zhang, China GengSheng's Chairman and Chief Executive Officer. "We achieved meaningful improvements in our business despite challenges in the steel and solar industries, as well as tightening monetary policy in China and domestic and international macroeconomic uncertainties which have impacted customer demand. We are pleased by our team's ability to execute on the primary strategic growth initiatives for each of our business segments, contributing to our solid performance in the third quarter and positioning the Company well to address the opportunities and challenges lies in ahead of us.

"During the quarter, we signed a number of supply contract renewals with key steel mill customers for our refractories products, successfully negotiating price increases in most cases. Our R&D efforts in the refractories space remain aggressive as we work to expand margins and add value for our customers. Through our strategic marketing partnership, we have begun low-volume trial shipments of our fracture proppants to multiple oil and gas drillers in North America, and expanded our manufacturing capacity and sales force to better address the growing worldwide demand for these products. Our fine precision abrasive business continues to progress as well, through ongoing initiatives aimed at improving our manufacturing efficiency to drive margin expansion and profitability, as well as engagements with leading Chinese solar panel manufactures.

"Overall, we are excited by the Company's improved performance in the third quarter, particularly given the macro-level challenges we faced. We have a clearly defined growth strategy for each of our primary business segments, and are confident that our continued successful execution of these initiatives, coupled with prudent operating expense controls, will position the Company to achieve continued growth and sustainable profitability."

Financial Results for the Three Months Ended September 30, 2011

For the third quarter of 2011, sales revenue was approximately $21.5 million, an increase of 28.2%, over approximately $16.7 million in the third quarter of 2010. The year-over-year increase was mainly attributable to increased sales from fine precision abrasives and strong demand from steel producers, oil and gas drillers and solar panel manufacturers.

  • Sales of the Company's core refractory products reached approximately $13.4 million, or 62.4% of total sales, an increase of 17.6%, compared with approximately $11.4 million, or 68.0% of total sales in the third quarter of 2010. The sales increase was primarily due to an increase in average selling price, which reached approximately $454 per metric ton in the third quarter of 2011, representing a 16.4% increase compared with approximately $390 per metric ton in the same period of 2010.
  • Sales of fracture proppants totaled approximately $5.7 million, or 26.6% of sales, an increase of 13.4 %, compared with approximately $5.0 million in the third quarter of 2010. The increase in sales was primarily driven by strong international demand, as well as increase in average selling prices, which was attributable to the change of product mix and the favorable impact of foreign exchange rate. Average selling price increased to approximately $384 per metric ton in the third quarter of 2011, compared with approximately $363 per metric ton in the same period of 2010.
  • Sales of industrial ceramic products totaled approximately $157,000, or 0.7% of sales, compared with approximately $144,000 in the third quarter of 2010.
  • Sales of the Company's fine precision abrasives products, which launched in the third quarter of 2010, totaled approximately $2.2 million, or 10.3 % of total sales, compared with approximately $184,000 in the third quarter of 2010.

Cost of goods sold totaled approximately $16.0 million, an increase of 35.3%, compared with approximately $11.8 million for the third quarter of 2010. The increase in cost of goods sold was mainly due to the increased sales, higher raw materials costs and labor costs compared with the same period in 2010.

Gross profit for the three months ended September 30, 2011, totaled approximately $5.5 million, or 25.6% of revenue, compared with approximately $4.9 million, or 29.5% of revenue in the third quarter of 2010. The percentage decrease in gross profit was primarily attributable to the relatively lower gross margin in fine precision abrasives products as we sold obsolete and lower-quality products to reduce the inventory level.

For the three months ended September 30, 2011, total operating expenses were approximately $4.1 million, compared with approximately $3.5 million in the year-ago period. General and administrative expenses increased to approximately $1.7 million for the third quarter of 2011, compared with approximately $1.5 million for the third quarter in 2010. The increase in general and administrative expenses was primarily due to the higher salary expenses as a result of increase in the average salary level. Selling expenses increased by 21.7% year-over-year, to approximately $2.1 million for the three months ended September 30, 2011, compared with approximately $1.7 million for the third quarter of 2010. The increase in selling expenses was primarily attributable to business expansion in the fine precision abrasives and fracture proppant segments. As a percentage of net revenues, selling expenses decreased to 9.8% for the three months ended September 30, 2011, as compared to 10.3% for the same period in 2010.

Finance costs totaled approximately $1.4 million for the three months ended September 30, 2011, compared with approximately $563,000 in the third quarter in 2010. This significant increase was primarily attributable to an increase of approximately $0.5 million in bills discounting charges as we discounted more bills receivable instead of holding them to maturity; and an increase of approximately $0.4 million in interest expenses as we increased borrowing activities for the three months ended September 30, 2011.

Income taxes were approximately $176,000 for the three months ended September 30, 2011, an increase of approximately $89,000 or 102.3% from approximately $87,000 for the three months ended September 30, 2010.

Net income attributable to Company's common stockholders was approximately $853,000 or $0.03 per diluted share, based on weighted average shares outstanding of approximately 26.8 million for the third quarter of 2011. This compares with net income of approximately $905,000, or $0.04 per diluted share, based on weighted average shares outstanding of approximately 24.3 million for the third quarter in 2010. The increase in share count compared with the third quarter of 2010 was related to the completion of the Company's registered direct offering in January 2011.

Liquidity and Capital Resources

As of September 30, 2011, the Company had cash and cash equivalents totaling approximately $7.9 million, compared with approximately $925,000 as of December 31, 2010. The increase in cash and cash equivalents was primarily due to approximately $9.3 million in net proceeds from the Company's registered direct offering in January 2011. Current assets totaled approximately $134.0 million, with working capital of approximately $19.2 million and total shareholders' equity of approximately $61.3 million as of September 30, 2011, respectively.

Conference Call

Management will hold a conference call on Friday, November 11, 2011 at 8:00 a.m. EST (9:00 p.m. BJ time) to discuss third quarter 2011 results.

To participate in the call please dial (877) 407-9205 from the U.S. and Canada, or (201) 689-8054 for international calls, approximately 10 minutes prior to the scheduled start time. The call will also be available as a live, listen-only webcast at http://www.gengsheng.com/english/affair.aspx.

A telephone replay of the call will be available through November 25, 2011. To access the replay, please dial (877) 660-6853 in the U.S. and Canada, or (201) 612-7415 internationally; account number 286 and conference ID 381628. Additionally, a webcast archive will be available for a period of one year.

About China GengSheng Minerals, Inc.

China GengSheng Minerals, Inc. ("GengSheng") develops, manufactures and markets a broad range of high-tech industrial material products, including monolithic refractories, industrial ceramic, fracture proppants and fine precision abrasives. A market leader offering customized solutions, GengSheng sells its products primarily to the iron and steel industry as heat-resistant components for steel-making furnaces, industrial kilns and other high-temperature vessels to guarantee and improve the productivity of those expensive pieces of equipment while reducing their consumption of energy. Founded in 1986 and based in China's Henan province, GengSheng currently has over 200 customers in the iron, steel, oil, glass, cement, aluminum and chemical businesses located in China and other countries. GengSheng conducts business through GengSheng International Corporation, a British Virgin Islands company, and its Chinese subsidiaries, which are Henan GengSheng Refractories Co., Ltd., Zhengzhou Duesail Fracture Proppant Co., Ltd., Henan GengSheng Micronized Powder Materials Co., Ltd, Guizhou Southeast Prefecture Co., Ltd., GengSheng New Materials Co., Ltd, Henan GengSheng High Temperature Materials Co., Ltd. and Henan Yuxing Proppant Co., Ltd.

For more information about the Company, please visit http://www.gengsheng.com.

To be added to the Company's email distribution for future press releases, please send your request to gengsheng@tpg-ir.com.

Safe Harbor Statement

This press release may contain certain "forward-looking statements" relating to the business of China GengSheng Minerals, Inc., and its subsidiary companies. All statements other than statements of historical fact included herein are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995, including statements regarding the Company's ability to meet its projected output for the term of the supply contract; the general ability of the Company to achieve its commercial objectives; the business strategy, plans and objectives of the Company and its subsidiaries; and any other statements of non-historical information. These forward-looking statements are often identified by the use of forward-looking terminology such as "believes," "expects" or similar expressions, involve known and unknown risks and uncertainties. Although the Company believes that the expectations reflected in these forward-looking statements are reasonable, they do involve assumptions, risks and uncertainties, and these expectations may prove to be incorrect. Investors should not place undue reliance on these forward-looking statements, which speak only as of the date of this press release. The Company's actual results could differ materially from those anticipated in these forward-looking statements as a result of a variety of factors, including those discussed in the Company's periodic reports that are filed with the Securities and Exchange Commission and available on its website at http://www.sec.gov. All forward-looking statements attributable to the Company or persons acting on its behalf are expressly qualified in their entirety by these factors. Other than as required under the securities laws, the Company does not assume a duty to update these forward-looking statements.

For more information, please contact:


In the US:

China GengSheng Minerals, Inc.

Chief Financial Officer

Mr. Ningfang Liang

+1-201-210-2753


The Piacente Group, Inc.

Investor Relations

Brandi Floberg or Lee Roth

+1-212-481-2050

gengsheng@tpg-ir.com


In China:

The Piacente Group, Inc.

Investor Relations

Wendy Sun

+86-10-6590-7991

gengsheng@tpg-ir.com


China GengSheng Minerals, Inc.

Investor Relations      

Mr. Shuai Zhang

gszs@gengsheng.com

+86-135-2551-0415



China GengSheng Minerals, Inc.

Condensed Consolidated Balance Sheets



As of


As of



September 30,


December 31,



2011


2010



(Unaudited)


(Audited)

ASSETS





Current assets:





Cash and cash equivalents

$

7,881,051

$

925,052

Restricted cash


38,521,310


21,693,100

Trade receivables, net


47,306,966


43,240,996


Bills receivable


8,630,508


3,074,156


Other receivables, prepayments and payment in advance


10,095,785


7,024,142

Advances to senior management


-


51,449

Inventories


21,543,346


15,679,492

Deferred tax assets


60,588


244,046






Total current assets


134,039,554


91,932,433






Deposits for acquisition of a non-consolidated affiliate


2,343,000


2,275,500

Deposits for acquisition of land use right, property, plant and equipment


3,712,419


1,061,502

Goodwill


472,229


441,089

Intangible assets, net


332,862


379,250

Property, plant and equipment, net


34,578,481


26,188,235

Land use rights, net


954,856


944,166






TOTAL ASSETS

$

176,433,401

$

123,222,175






LIABILITIES AND EQUITY










Current liabilities:





Trade payables

$

17,003,155

$

14,279,568

Bills payable


32,349,020


8,495,200

Other payables and accrued expenses


6,291,205


5,198,131

Deferred revenue - Government grants


217,118


394,420

Provision for warranty


71,807


69,739

Income taxes payable


487,328


606,877

Non-interest-bearing loans


1,626,152


1,062,114

Collateralized bank loans


53,568,790


41,641,650

Loan from a third party


3,124,000


-

Deferred tax liabilities


102,150


149,578

Warrant liabilities


-


-






TOTAL LIABILITIES

$

114,840,725


71,897,277






COMMITMENTS AND CONTINGENCIES










STOCKHOLDERS' EQUITY





Preferred stock - par value $0.001 per share





 Authorized 50,000,000 shares; none issued and outstanding

$

-

$

-

Common stock - par value $0.001 per share










 Authorized 100,000,000 shares; issued and outstanding 26,794,386 shares as

of September 30, 2011 and 24,294,386 shares as of December 31, 2010


26,794


24,294

Additional paid-in capital


28,189,354


19,903,388

Statutory and other reserves


7,521,114


7,521,114

Accumulated other comprehensive income


7,443,024


5,949,455

Retained earnings


18,162,691


17,636,730






Total China GengSheng Minerals, Inc. (the "Company") stockholders' equity


61,342,977


51,034,981

NONCONTROLLING INTEREST


249,699


289,917






TOTAL EQUITY


61,592,676


51,324,898






Total liabilities and equity

$

176,433,401

$

123,222,175




China GengSheng Minerals, Inc.
Condensed Consolidated Statements of Income and Comprehensive Income



Three months ended
September 30,


Nine months ended
September 30,



(Unaudited)


(Unaudited)



2011


2010


2011


2010

Sales revenue

$

21,462,618

$

16,739,173

$

58,082,369

$

43,594,852

Cost of goods sold


(15,959,253)


(11,794,922)


(42,956,698)


(29,761,067)










Gross profit


5,503,365


4,944,251


15,125,671


13,833,785










Operating expenses









General and administrative expenses


1,682,541


1,542,786


4,816,139


4,391,438

Research and development expenses


271,961


264,578


558,490


762,285

Selling expenses


2,100,249


1,725,262


6,833,306


5,030,818










Total operating expenses


4,054,751


3,532,626


12,207,935


10,184,541










Net operating income


1,448,614


1,411,625


2,917,736


3,649,244










Other income (expenses)









Government grant income


359,971


51,752


377,656


122,784

Guarantee income


174,378


-


384,626


-

Guarantee expenses


(66,761)


-


(243,153)


-

Interest income


368,273


27,777


550,654


186,276

Change in fair value of warrant liabilities


60,000


-


970,000


-

Other income (expenses)


35,884


56,412


(31,838)


60,108

Finance costs


(1,364,692)


(562,878)


(3,901,791)


(1,311,836)










Total other expenses


(432,947)


(426,937)


(1,893,846)


(942,668)










Income before income taxes and noncontrolling interest


1,015,667


984,688


1,023,890


2,706,576

Income taxes


(175,837)


(86,684)


(538,147)


(371,294)










Net income before noncontrolling interest


839,830


898,004


485,743


2,335,282

Net income (loss) attributable to noncontrolling interest


13,103


6,990


40,218


(20,075)










Net income attributable to Company's common stockholders

$

852,933

$

904,994

$

525,961

$

2,315,207










Net income before noncontrolling interest

$

839,830

$

898,004

$

485,743

$

2,335,282

Other comprehensive income









Foreign currency translation adjustments


502,329


805,236


1,493,569


1,002,653










Comprehensive income


1,342,159


1,703,240


1,979,312


3,337,935

Comprehensive income (loss) attributable to noncontrolling interest


13,103


2,171


40,218


(26,558)



















Comprehensive income attributable to Company's common stockholders

$

1,355,262

$

1,705,411

$

2,019,530

$

3,311,377










Earnings per share - Basic and diluted attributable to Company's common stockholders

$

0.03

$

0.04

$

0.02

$

0.10

Weighted average number of shares - Basic and diluted


26,794,386


24,269,727


26,739,440


24,294,366




China GengSheng Minerals, Inc.
Condensed Consolidated Statements of Cash Flows



Nine months ended September 30,



(Unaudited)



2011


2010

Cash flows from operating activities





Net income before noncontrolling interest

$

485,743

$

2,335,282

Adjustments to reconcile net income before noncontrolling interest to net cash provided by (used in) operating activities:





Depreciation


1,573,547


1,157,129

Amortization of land use right


16,117


16,665

Amortization of intangible assets


57,638


40,118

Deferred taxes


137,513


7,258

Allowance for (reversal of) doubtful accounts


444,454


(16,390)

Share-based compensation


-


287,000

Deferred revenue amortised


(185,977)


-

Loss (Gain) on disposal of property, plant and equipment


32,200


(57,860)

   Change in fair value of warrant liabilities


(970,000)


-

Changes in operating assets and liabilities:





Restricted cash


(7,595,746)


(8,826,000)

Trade receivables


(3,183,185)


(4,507,792)

Bills receivable


(5,377,690)


940,251

Other receivables, prepayments and payment in advance


(2,864,932)


(2,634,294)

Inventories


(5,311,908)


(4,126,827)

Other payables and accrued expenses


961,825


3,190,654

Trade payables


2,263,189


(840,238)

Bills payable


23,224,070


12,413,100

Income taxes payable


(135,349)


140,847






Net cash flows provided by (used in) operating activities


3,571,509


(481,097)






Cash flows from investing activities





Payments for deposits of acquisition of land use right, property, plant and equipment


(2,577,505)


(560,447)

Proceeds from disposal of property, plant and equipment


68,991


-

Payments for acquisition of property, plant and equipment


(9,173,385)


(5,078,730)






Net cash flows used in investing activities


(11,681,899)


(5,639,177)






Cash flows from financing activities





Net proceeds from issue of shares


9,258,466


-

(Increase) decrease in restricted cash


(8,329,925)


3,089,100

Loan from a third party


3,074,000


-

Proceeds from bank loans


78,117,410


36,113,050

Repayment of bank loans


(67,596,645)


(28,537,400)

Proceeds from non-interest-bearing loans


1,014,420


2,232,488

Repayment of non-interest-bearing loans


(490,412)


(588,646)

Government grant received


-


179,462






Net cash flows provided by financing activities


15,047,314


12,488,054






Effect of foreign currency translation on cash and cash equivalents


19,075


132,286






Net increase in cash and cash equivalents


6,955,999


6,500,066

Cash and cash equivalents - beginning of period


925,052


992,204






Cash and cash equivalents - end of period

$

7,881,051

$

7,492,270






Supplemental disclosure of cash flow information:





Cash paid for:





Interest

$

3,901,791

$

700,569

Income taxes

$

369,015

$

277,463






Non-cash investing and financing transactions:





Receivables for disposal of property, plant and equipment settled by offsetting accounts payable

$

-

$

158,066

Warrants issued to investors in connection with the private placement

$

970,000

$

-




SOURCE China GengSheng Minerals, Inc.



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