China Gerui Advanced Materials Group Limited Announces Second Quarter 2010 Results

Aug 31, 2010, 07:00 ET from China Gerui Advanced Materials Group Limited

ZHENGZHOU, China, Aug. 31 /PRNewswire-Asia-FirstCall/ -- China Gerui Advanced Materials Group Limited (Nasdaq: CHOP) ("China Gerui" or the "Company"), a leading niche and high value-added steel processing company that produces specialty steel products in China, today announced financial results for the second quarter and first half of 2010.

    Second Quarter 2010 Summary
    -- Revenue increased 15.5% to $64.0 million compared to the same period
       last year
    -- Gross profit increased 13.0% to $19.1 million
    -- Gross margin decreased 60 basis points to 29.9%
    -- Net income increased 5.8% to $12.1 million, or $0.26 per diluted share

"Our second quarter results were driven by increased sales volume as compared to the same period last year," said Mr. Mingwang Lu, Chairman and Chief Executive Officer. "During the quarter, we fulfilled large orders for some of our lower margin products. This enabled us to post a double-digit increase in sales as well as higher net income, but also resulted in a decrease in our margins. We continue to see strong demand for our products and as our new production lines focused on higher priced, higher margin products commence production later this year, we expect to achieve sustained increases in sales, margins, and earnings performance."

Second Quarter 2010 Results

Revenue for the three months ended June 30, 2010, was $64.0 million compared to $55.4 million for the same period in 2009, an increase of 15.5%. The increase in revenue was due to higher sales volume of the Company's products.

Gross profit was $19.1 million compared to $16.9 million for the three months ended June 30, 2009, an increase of 13.0%. Gross margin was 29.9% compared to 30.5% for the same period last year. The decrease in gross margin was mostly due to the Company fulfilling large orders for lower margin products during the quarter.

Total operating expenses were $1.8 million, or 2.8% of sales, compared to $1.2 million, or 2.1% of sales, in last year's second quarter. Operating income was $17.4 million, or 27.1% of sales, compared to $15.8 million, or 28.4% of sales, in the same period last year, an increase of 10.2%. The decrease in operating margin was primarily due to expenses related to being a public company that were not incurred in the second quarter of last year.

Net income was $12.1 million, or $0.26 per diluted share, an increase of 5.8% from $11.4 million, or $0.33 per diluted share, in the same period last year.

First Half 2010 Results

Revenue for the six months ended June 30, 2010, was $125.9 million compared to $102.4 million for the same period in 2009, an increase of 22.9%. Gross profit was $37.8 million compared to $30.6 million for the six months ended June 30, 2009, an increase of 23.4%. Gross margin was 30.0% compared to 29.9% for the same period last year. Total operating expenses were $4.1 million, or 3.3% of sales, compared to $2.2 million, or 2.1% of sales, in the same period last year. Operating income was $33.7 million, or 26.7% of sales, compared to $28.4 million, or 27.8% of sales, in the same period last year, an increase of 18.3%. Net income was $23.6 million, or $0.51 per diluted share, an increase of 14.8% from $20.6 million, or $0.59 per diluted share, in the same period last year.

Financial Condition

As of June 30, 2010, the Company had $109.9 million in cash and an additional $75.2 million in restricted cash, compared to $79.6 million and $37.5 million, respectively, as of December 31, 2009. Accounts receivable was $5.0 million as of June 30, 2010, compared to $4.8 million as of December 31, 2009. Working capital was $66.0 million versus $49.3 million at the end of 2009. Shareholder's equity was $136.5 million, compared to $87.0 million at the end of 2009. The Company has no long-term debt.

Business Outlook

As previously announced, by December 2011, the Company plans to double its existing production capacity to 500,000 tons per annum, and increase its chromium plating capability to 250,000 tons per annum, covering 50% of its total annual steel production capacity. Phase I of the expansion plan involves the construction of two new cold-rolled, wide-strip steel production lines with 150,000 tons of total annual capacity and a chromium plating line capable of processing 200,000 tons of cold-rolled steel per annum. The Company expects total capital expenditures for Phase I to be $42 million, of which approximately 65% has been spent to date. The foundation for the building housing the two new cold-rolled steel production lines was completed in August 2010 and the building will be completed by mid-September 2010. The two cold-rolling machines are expected to be completed by October 2010. The acid pickling, annealing, and temper rolling facilities relating to the Company's new steel production lines are expected to be completed by the end of September 2010. As for the chromium plating line, the building to house this line was completed in August 2010; installation is currently underway; testing is scheduled for mid-September 2010; and the line is expected to be ready to begin production in mid-October 2010. The chromium plating line can handle both narrow and wide-strip cold-rolled steel.

For Phase II of the project, the Company expects to construct a third cold-rolled wide strip steel production line with 100,000 tons of capacity by the end of the third quarter of 2011. The Company expects the capital expenditures for Phase II to total $12 million.

Mr. Lu commented, "Our expansion project remains on track and we look forward to bringing this new capacity online later this year. Our business outlook remains strong as the sale of our products are driven by domestic purchasing power in China, which continues to rise, and the import replacement trend in our industry. With our new facility we will be able to produce both narrow and wide-strip cold-rolled steel for a wider range of high-end applications than we do currently. We see the demand in the market and are confident in our ability to ramp up production once our expansion is complete."

Conference Call Information

The Company will host a conference call to discuss its second quarter 2010 financial results at 9:00 am ET on Tuesday, August 31, 2010. Listeners may access the call by dialing (877) 456-7316 five to ten minutes prior to the scheduled conference call time. International callers should dial +1 (706) 758-1304. The conference participant pass code is 96447787. A replay of the conference call will be available for 14 days starting from 10:00 am ET on Tuesday, August 31, 2010. To access the replay, dial +1 (800) 642-1687. International callers should dial +1 (706) 645-9291. The passcode is 96447787. A live and archived webcast of the call will be available on the Company's website at http://www.geruigroup.com/Investors.html . To listen to the live webcast, please go to the Company's website at least fifteen minutes prior to the start of the call to register, download and install any necessary audio software.

About China Gerui Advanced Materials Group Limited

China Gerui Advanced Materials Group Limited is a leading niche and high value-added steel processing company in China. The Company produces high-end, high-precision, ultra-thin, high- strength, cold-rolled steel products that are characterized by stringent performance and specification requirements that mandate a high degree of manufacturing and engineering expertise. China Gerui's products are not standardized commodity products. Instead, they are tailored to customers' requirements and subsequently incorporated into products manufactured for various applications. The Company sells its products to domestic Chinese customers in a diverse range of industries, including the food packaging, telecommunication, electrical appliance, and construction materials industries. For more information, please visit http://www.geruigroup.com .

Safe Harbor Statement

Certain of the statements made in this press release are "forward-looking statements" within the meaning and protections of Section 27A of the Securities Act of 1933, as amended and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Forward-looking statements include, among others, statements with respect to our beliefs, plans, objectives, goals, expectations, anticipations, assumptions, estimates, intentions, and future performance, and involve known and unknown risks, uncertainties and other factors, which may be beyond our control, and which may cause the actual results, performance, capital, ownership or achievements of the Company to be materially different from future results, performance or achievements expressed or implied by such forward-looking statements. All statements other than statements of historical fact are statements that could be forward- looking statements. You can identify these forward-looking statements through our use of words such as "may," "will," "anticipate," "assume," "should," "indicate," "would," "believe," "contemplate," "expect," "estimate," "continue," "plan," "point to," "project," "could," "intend," "target" and other similar words and expressions of the future.

All written or oral forward-looking statements attributable to us are expressly qualified in their entirety by this cautionary notice, including, without limitation, those risks and uncertainties described in our annual report on Form 20-F for the year ended December 31, 2009 and otherwise in our SEC reports and filings. Such reports are available upon request from the Company, or from the Securities and Exchange Commission, including through the SEC's Internet website at http://www.sec.gov . We have no obligation and do not undertake to update, revise or correct any of the forward-looking statements after the date hereof, or after the respective dates on which any such statements otherwise are made.

    For more information, please contact:

    Company Contact:
     Email: investors@geruigroup.com
     Web:   http://www.geruigroup.com

    Investor Relations Contact:
     CCG Investor Relations
     Mr. Athan Dounis
     Phone: +1-646-213-1916
     Email: athan.dounis@ccgir.com


                          Financial tables to follow



    CHINA GERUI ADVANCED MATERIALS GROUP LIMITED
    CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
    (IN US DOLLARS)


                        For the Three Months Ended   For the Six Months Ended
                                 June 30,                    June 30,
                            2010         2009          2010          2009

     Revenue             $64,040,727  $55,435,241  $125,862,079  $102,408,628

     Cost of revenue     (44,911,879) (38,500,417)  (88,068,703)  (71,773,082)

     Gross Profit         19,128,848   16,934,824    37,793,376    30,635,546

     Operating expenses:
         General and
          administrative
          expenses        (1,531,098)    (801,383)   (3,507,208)   (1,654,792)
         Selling and
          marketing
          expenses          (240,295)    (381,843)     (635,551)     (539,097)
     Total operating
      expenses            (1,771,393)  (1,183,226)   (4,142,759)   (2,193,889)

     Operating income     17,357,455   15,751,598    33,650,617    28,441,657

     Other income and
      (expense):
         Interest income     102,007      192,033       379,481       426,542
         Interest
          expenses        (1,292,889)    (718,434)   (2,377,783)   (1,569,568)
         Sundry income            91       64,694        84,998       152,450

    Income before income
     taxes                16,166,664   15,289,891    31,737,313    27,451,081

    Income tax expense    (4,089,356)  (3,871,225)   (8,132,185)   (6,897,115)

    Net income           $12,077,308  $11,418,666   $23,605,128   $20,553,966

    Earnings per share
        - Basic                $0.28        $0.35         $0.56         $0.64

        - Diluted              $0.26        $0.33         $0.51         $0.59

        Weighted average
         common shares
         outstanding
        - Basic           43,056,215   32,245,723    42,208,807    32,245,723

        - Diluted         46,964,095   35,063,501    46,116,687    35,063,501



    CHINA GERUI ADVANCED MATERIALS GROUP LIMITED
    CONSOLIDATED BALANCE SHEETS
    (IN US DOLLARS)

                                                  June 30,      December 31,
                                                    2010            2009
                                                 (Unaudited)
    Assets

    Current assets
        Cash                                    $109,943,132     $79,607,369
        Restricted cash                           75,249,948      37,498,169
        Accounts receivable, net                   5,025,711       4,808,184
        Inventories                                6,250,823       5,958,880
        Prepaid expenses and other deposits       29,496,751      16,473,710
        Other receivables                          2,399,555       2,292,133

    Total current assets                         228,365,920     146,638,445

    Non-current assets
        Property, plant and equipment, net        55,566,275      22,338,210
        Prepaid machinery deposits                        --      13,973,966
        Land use right, net                       14,916,747       1,399,026

    Total non-current assets                      70,483,022      37,711,202

    Total assets                                $298,848,942    $184,349,647

    Liabilities and stockholders' equity

    Current Liabilities
        Accounts payable                          $4,841,302      $7,617,953
        Notes payable                             91,470,787      41,013,622
        Term loans                                39,003,745      33,982,715
        Land use right payable                    10,667,778              --
        Income tax payable                         4,107,617       3,817,304
        Customers deposits                         8,505,618       8,146,611
        Accrued liabilities and other payables     3,732,111       2,728,585

    Total current liabilities                    162,328,958      97,306,790

    Total liabilities                            162,328,958      97,306,790

    Stockholders' equity

    Common stock,
        Common stock, 100,000,000 shares
         authorized with no par value;
         45,424,209 and 40,692,323 shares
         outstanding as of June 30, 2010
         and December 31, 2009 respectively       70,370,023      45,261,630
        Additional paid-in capital                 6,930,944       6,930,944
        Retained earnings                         56,044,110      32,438,982
        Accumulated other comprehensive income     3,174,907       2,411,301

    Total stockholders' equity                   136,519,984      87,042,857

    Total liabilities and stockholders' equity  $298,848,942    $184,349,647



    CHINA GERUI ADVANCED MATERIALS GROUP LIMITED
    CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
    (IN US DOLLARS)

                                                    For The Six Months Ended
                                                            June 30,
                                                       2010          2009
    Cash flows from operating activities:

    Net income                                     $23,605,128    $20,553,966

    Adjustments to reconcile net income to net
     cash provided by operating activities:
    Depreciation of property,
     plant and equipment                             1,458,116      1,381,460
    Amortization of land use right                     105,997         15,368

    Changes in assets and liabilities:
    Accounts receivable, net                          (217,527)     4,105,526
    Inventories                                       (291,943)       122,540
    Prepaid expenses and other deposits            (13,023,041)     1,107,069
    Other receivables                                 (107,422)    (1,259,586)
    Accounts payable                                (2,776,651)     2,353,429
    Income tax payable                                 290,313      1,681,227
    Customers deposit                                  359,007     (9,902,587)
    Accrued liabilities and other payables           1,003,526       (421,988)

    Net cash provided by operating activities       10,405,503     19,736,424

    Cash flows from investing activities:
    Capital expenditures for addition of property,
     plant and equipment                           (34,444,321)    (4,503,489)
    Payment of purchases of land use right          (2,849,943)       (28,521)
    Changes in restricted cash                     (37,751,779)   (18,636,063)
    Changes in prepaid machinery deposits           13,973,966             --

    Net cash used in investing activities          (61,072,077)   (23,168,073)

    Cash flows from financing activities:
    Repayment of term loans                        (16,073,377)   (15,964,917)
    Proceeds from term loans                        21,094,407     18,592,531
    Proceeds received from common stock
     issued and warrant conversion, net of
     offering costs of $863,676                     25,108,393      1,955,386
    Proceeds from notes payable                     50,457,165     19,365,413
    Dividends paid                                          --     (9,601,549)


    Net cash provided by financing activities       80,586,588     14,346,864

    Net increase in cash                            29,920,014     10,915,215

    Effect on change of exchange rates                 415,749         20,490

    Cash as of January 1                            79,607,369     42,622,404

    Cash as of June 30                            $109,943,132    $53,558,109

    Supplemental disclosures of cash flow
     information:

    Cash paid during the period for:
     Interest paid                                  $2,377,783     $1,569,568
     Income tax paid                                $7,868,996     $5,213,632
    Non-cash paid during the period for:
     Acquisition of land use rights with issuance
     of promissory note                            $10,667,778     $       --

SOURCE China Gerui Advanced Materials Group Limited



RELATED LINKS

http://www.geruigroup.com