Ossen Innovation Announces Fourth Quarter and Full Year 2011 Financial Results

Apr 16, 2012, 16:15 ET from Ossen Innovation Co., Ltd.

SHANGHAI, April 16, 2012 /PRNewswire-Asia-FirstCall/ -- Ossen Innovation Co., Ltd. ("Ossen" or the "Company") (Nasdaq: OSN), a China-based manufacturer of an array of plain surface, rare earth and zinc coated pre-stressed steel materials, today announced financial results for the three and twelve months ended December 31, 2011.

"The past couple of months have been challenging," stated Dr. Liang Tang, Chairman of Ossen Innovation. "After the July railway accident in Wenzhou, many high-speed railway related projects have been halted, including those already in the middle of construction. In addition, the tightened credit environment in China, as well as the funding difficulties faced by the Ministry of Railways (MOR), has both impacted our business and our clients' business. There have been signs of improvement in the past months, especially aid from the central government to the MOR. In the near term, our business growth will be adversely affected for the reasons mentioned. Nevertheless, we remain confident and optimistic about the medium to long term market outlook."

Financial Summary

(in millions ex- EPS)

Q4 2011

Q4 2010

Chg.

FY 2011

FY 2010

Chg.

Revenue

$26.8

$27.9

-4%

$118.6

$117.5

+1%

Gross Profit

$2.0

$6.4

-69%

$22.0

$25.2

-12%

Net Income

$0.1

$3.0

-98%

$11.5

$14.6

-21%

EPS

$0.00

$0.15

-98%

$0.58

$0.97

-40%

Shares Outstanding*

20.0

20.0

-

20.0

15.2

+32%

*20 million shares were outstanding as of December 31, 2011 and 2010. Calculation of EPS for fiscal year 2011 and 2010 is based on weighted average shares outstanding.

Fourth quarter 2011 Financial Results

Revenue was $26.8 million in the fourth quarter of 2011, down 4.1% from $27.9 million in the same period a year ago. Sales of coated pre-stressed steel materials, including rare earth coated products, were $8.1 million, representing 30.4% of total sales for the three months ended December 31, 2011. This number was down 23.7% compared to $10.7 million in the fourth quarter of 2010 due to the industry wide suspension of railway projects following the high speed rail accident in July 2011 in China and the funding difficulties the Ministry of Railways ("MOR") faced at the same time.

Gross profit decreased by $4.4 million to $2.0 million, a 69% year-over-year decline. Consolidated gross margin fell from 22.9% to 7.3%. The primary causes of the declines in gross profit and gross margin were the nationwide suspension of railway projects and the tightened credit environment in China in the second half of 2011, which forced Ossen to increase sales of products with lower margins but a larger customer base.

Gross margin for the fourth quarter of 2011 were 15.5% and 5.7% for coated pre-stressed steel products and plain surface pre-stressed steel products, respectively.

Selling expenses increased 44.6% to $0.4 million due to higher salaries, marketing and transportation costs. General and administrative expenses increased approximately 23% to $1.2 million due to costs related to being a public company. Operating income fell 94% to $0.3 million in the fourth quarter of 2011 with operating margin of 1.2%, compared to $5.1 million and 18.3% in the fourth quarter of 2010.

Net income attributable to controlling interest fell 98% to $0.1 million in the fourth quarter of 2011 from $3.0 million in the fourth quarter of 2010. Earnings per share were $0.00 for the fourth quarter of 2011 versus $0.15 for the fourth quarter of 2010.

Twelve months 2011 Financial Results

Revenue for the twelve months ended December 31, 2011 was $118.6 million, with $56.5 million or 47.7% generated from the sale of coated pre-stressed steel materials. This represented a decrease of $4.1 million or 6.8% over the $60.7 million in sales of coated pre-stressed steel products during the same period of 2010. Within the $56.5 million sales of coated products, sales of rare earth coated products were $50.8 million.

Gross profit fell by $3.1 million to $22.0 million in the twelve months of 2011, representing a gross margin of 18.6%. Gross margin for rare earth coated products were 25.6% in the twelve months ended December 31, 2011.

Operating expenses increased by $1.5 million in the twelve months of 2011 to $4.0 million. Selling and distribution expenses and general and administrative expenses were $1.2 million and $2.7 million, respectively. Operating income declined 20.4% to $18.1 million in the twelve months ended December 31, 2011, with operating margin of 15.2%.

Net income attributable to controlling interest was down 21.2% to $11.5 million in the twelve months of 2011 compared to $14.6 million in the twelve months ended December 31, 2010. Earnings per share were $0.58 compared to $0.97 in the same period a year ago.

Balance Sheet and Cash Flows

Ossen had approximately $21.3 million of cash and restricted cash at December 31, 2011 compared to $26.1 million at December 31, 2010. Total accounts receivable increased from $13.3 million to $48 million as of December 31, 2011. The average accounts receivable days sales outstanding were 94 days in the twelve months of 2011. Total working capital was $70.8 million at December 31, 2011 compared to $48.8 million at the end of 2010.

For the full year of 2011, the Company used approximately $20.1 million of cash from operations due to higher accounts receivable and advances to suppliers, which was partially offset by reduction in inventories.

The Company raised approximately $22 million from its IPO in December 2010. The funds are being used to fund its 30,000-ton rare earth coated production facility expansion. Through December 31, 2011, Ossen has spent $7.6 million for equipment purchases related to this project. Given the current industry outlook, the Company has adjusted its expansion plan and postponed the completion date of new production lines to around the end of 2012.

2012 Outlook

Management expects the following:

  • Suspended MOR projects will gradually resume construction during the year when supporting funds are provided, as promised by central government.
  • Customer demand will remain solid for Ossen's products, especially rare earth coated products, in the medium and long terms.
  • Addition of the 30,000 ton production lines for rare earth coated products will be postponed to the end of 2012 as a result of current adverse industry conditions. Such expansion, however, remains a key element of the Company's strategic growth plan.

Business Updates

The infrastructure sector witnessed tremendous uncertainties in 2011, especially during the second half following the highly publicized high speed railway accident in Wenzhou in July 2011. The investigation of the accident, funding difficulties faced by the PRC Ministry of Railways ("MOR"), and the overall tightened credit environment in China temporarily halted construction activity for all existing and new MOR related projects. Ossen and its customers were impacted by the situation as the MOR was unable to honor its payables to suppliers and manufacturers who were working on the railway projects across the country. Because many MOR-related projects previously awarded to Ossen included construction of bridges, the Company's production and sales of higher margin coated pre-stressed steel products declined significantly during second half of 2011. MOR and our other customers' inability to make payments in time caused Ossen's accounts receivables balance to increase significantly in 2011. As of the date of the Company's 20-F filing, Ossen has collected approximately $17.7 million, or 36.8%, out of the total accounts receivable balance of $48 million. Given the uncertainties involved, the timing of complete collections cannot be predicted.

Since the beginning of 2012, there have been positive actions taken by the Chinese central government in response to overall difficult situations in the infrastructure sector. In one of his recent public statement, Chinese Premier Wen reassured the public about the government's plan for railway network construction in China and announced that the government will help raise the funds necessary to continue funding railway construction. Funding solutions will include funds directly from the government, bond issuances guaranteed by the government and introduction of private capital into the sector. Total funding to be provided could reach RMB500 billion ($79 billion). While there are still uncertainties, management is cautiously optimistic that halted projects, including those Ossen is involved with, will resume construction in the near future.

Ossen has maintained strong relationships with multiple Chinese banks. The Company has been able to obtain bank financing to fund its working capital needs, even during a tightened credit environment. On December 31, 2011, the Company had $48.0 million short term RMB loans and $4.7 million long term RMB loans outstanding. The Company does not expect difficulty in renewing these loans or existing credit lines.

Conference Call

To attend the call, please use the information below for dial-in access. When prompted on dial-in, please utilize the conference ID or ask for the "Ossen Innovation Fourth Quarter 2011 Earnings Conference Call".

Conference Call

Date:

Tuesday, April 17, 2012

Time:

9:00 am Eastern Time, US

Conference Line Dial-In (U.S.):

+1-718-354-1231

International Toll Free:

United States: +1-866-519-4004 China, Domestic Mobile: 4006208038 China, Domestic: 8008190121

Conference ID:

68030239

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through April 24, 2012. To listen, please call +1-866-214-5335 within the United States or +1-718-354-1232 if calling internationally. Utilize the pass code 68030239 for the replay.

This call is being webcast and can be accessed by clicking on this link: http://www.media-server.com/m/p/rnenfnsh

About Ossen Innovation Co., Ltd.

Ossen Innovation Co., Ltd. manufactures and sells a wide variety of plain surface pre-stressed steel materials and rare earth coated and zinc coated pre-stressed steel materials. The Company's products are mainly used in the construction of bridges, as well as in highways and other infrastructure projects. Ossen has two manufacturing facilities located in Maanshan, Anhui Province, and Jiujiang, Jiangxi Province.

Safe Harbor Statements

This press release may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. These forward-looking statements involve inherent risks and uncertainties that could cause actual results to differ materially from those projected or anticipated, including risks outlined in the Company's public filings with the Securities and Exchange Commission, including the Company's annual report on Form 20-F. All information provided in this press release is as of the date hereof. Except as required by law, the Company undertakes no obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise, after the date on which the statements are made or to reflect the occurrence of unanticipated events.

For more information, please contact:

Ossen Innovation Co., Ltd.

Alan Jin, Chief Financial Officer

Email: alanjin@osseninnovation.com  

Phone: +86 (21) 6888-8886

Web:   www.osseninnovation.com

Investor Relations

MZ North America

Ted Haberfield, President

Phone: +1-760-755-2716

Email: thaberfield@mzgroup.us

Web: www.mzgroup.us

 

OSSEN INNOVATION CO., LTD AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS AS OF DECEMBER 31, 2011 AND 2010

December 31,

2011

2010

ASSETS

Current Assets

Cash and cash equivalents

$

1,568,261

$

12,322,982

Restricted cash

19,764,900

13,799,018

Notes receivable – bank acceptance notes

10,851,616

17,636,928

Accounts receivable, net of allowance for doubtful accounts of $384,311 and $37,347 respectively

48,049,722

13,332,492

Inventories

17,222,664

27,949,781

Advance to suppliers

41,391,174

25,072,350

Other current assets

6,495,241

3,343,302

Notes receivable from related party – bank acceptance notes

-

3,024,895

Accounts receivable from related party

20,799

707,487

  Total Current Assets

145,364,377

117,189,235

Property, plant and equipment, net

11,022,916

12,029,612

Land use rights, net

4,380,708

4,306,091

Prepayment for plant and equipment

7,869,529

7,562,237

TOTAL ASSETS

$

168,637,530

$

141,087,175

December 31,

2011

2010

LIABILITIES AND SHAREHOLDERS' EQUITY

Current Liabilities

Notes payable – bank acceptance notes

$

24,848,628

$

26,014,096

Short-term bank loans

47,966,209

38,325,414

Accounts payable

948,475

2,493,665

Customer deposits

459,915

833,768

Income tax payable

4,792

662,585

Other payables and accrued expenses

324,423

94,510

  Total Current Liabilities

74,552,442

68,424,038

Long-term bank loans

4,718,094

-

TOTAL LIABILITIES

79,270,536

68,424,038

EQUITY

Shareholders' Equity

Ordinary shares, $0.01 par value: 100,000,000 shares authorized, 20,000,000 shares issued and outstanding as of December 31, 2011 and 2010, respectively

200,000

200,000

Additional paid-in capital

33,884,656

33,338,096

Statutory reserve

3,884,808

2,674,457

Retained earnings

36,224,467

25,887,113

Accumulated other comprehensive income

5,295,641

2,192,996

TOTAL SHAREHOLDERS' EQUITY

79,489,572

64,292,662

Non-controlling interest

9,877,422

8,370,475

TOTAL EQUITY

89,366,994

72,663,137

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY

$

168,637,530

$

141,087,175

 

OSSEN INNOVATION CO., LTD AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31, 2011, 2010 AND 2009

Year Ended December 31,

2011

2010

2009

REVEUNUES

$

118,616,971

$

117,453,024

$

101,087,796

COST OF GOODS SOLD

96,588,172

92,298,319

86,559,925

GROSS PROFIT

22,028,799

25,154,705

14,527,871

Selling expenses

1,216,504

660,934

503,724

General and administrative expenses

2,747,514

1,796,995

2,243,672

  Total Operating Expenses

3,964,018

2,457,929

2,747,396

INCOME FROM OPERATIONS

18,064,781

22,696,776

11,780,475

Financial expenses, net

(3,480,766)

(2,437,426)

(1,496,712)

Other income, net

609,666

151,757

183,495

INCOME BEFORE INCOME TAX

15,193,681

20,411,107

10,467,258

INCOME TAX

(2,139,029)

(2,865,372)

(740,053)

NET INCOME

13,054,652

17,545,735

9,727,205

LESS: NET INCOME ATTRIBUTABLE TO NON-CONTROLLING INTEREST

 

1,506,947

 

2,897,397

 

1,714,670

NET INCOME ATTRIBUTABLE TO CONTROLLING INTEREST

 

11,547,705

 

14,648,338

 

8,012,535

OTHER COMPREHENSIVE INCOME

Foreign currency translation gain

3,102,645

1,649,960

31,146

TOTAL OTHER COMPREHENSIVE INCOME

3,102,645

1,649,960

31,146

COMPREHENSIVE INCOME

$

14,650,350

$

16,298,298

$

8,043,681

EARNINGS PER ORDINARY SHARE

Basic and diluted

$

0.58

$

0.97

$

0.53

WEIGHTED AVERAGE ORDINARY SHARES  OUTSTANDING

Basic and diluted

20,000,000

15,150,685

15,000,000

 

OSSEN INNOVATION CO., LTD. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

Year Ended December 31,

2011

2010

2009

CASH FLOWS FROM OPERATING ACTIVITIES:

 Net income

$

13,054,652

$

17,545,735

$

9,727,205

 Adjustments to reconcile net income to net cash provided by / (used in) operating activities:

 Depreciation and amortization

2,007,263

1,838,794

1,457,784

 Share-based compensation expense

105,605

19,096

-

Changes in operating assets and liabilities:

(Increase) Decrease In:

 Accounts receivable

(34,717,230)

1,824,595

(10,443,599)

 Inventories

10,727,118

(17,742,920)

(906,600)

 Advance to suppliers

(16,318,824)

(5,238,789)

(562,867)

 Other current assets

(3,151,939)

(2,378,426)

(671,517)

 Notes receivable - bank acceptance notes

6,785,312

(17,486,720)

(150,208)

 Notes receivable from related party - bank acceptance notes

3,024,895

(1,196,661)

 

(1,828,234)

 Accounts receivable from related party

686,688

(707,487)

Increase (Decrease) In:

 Accounts payable

(1,545,190)

2,253,390

(188,166)

 Customer deposits

(373,853)

(4,355,991)

2,253,492

 Income tax payable

(657,793)

552,092

104,028

 Other payables and accrued expenses

229,913

62,037

(1,442,999)

 Due to shareholder

-

-

(117,649)

Net cash used in operating activities

(20,143,383)

(25,011,255)

(2,769,330)

CASH FLOWS FROM INVESTING ACTIVITIES:

 Purchases of plant and equipment

(156,288)

(73,466)

(209,511)

 Prepayment for purchases of plant and equipment

(5,941)

(7,562,237)

-

Net cash used in investing activities

(162,229)

(7,635,703)

(209,511)

Year Ended December 31,

2011

2010

2009

CASH FLOWS FROM FINANCING ACTIVITIES:

 Increase in restricted cash

(5,965,883)

(1,974,804)

(1,847,122)

 Proceeds from short-term bank loans

75,184,567

57,578,620

35,687,123

 Repayments of short-term bank loans

(65,543,772)

(46,603,583)

(27,789,153)

 Proceeds from Long-term bank loans

4,718,094

-

-

 Proceeds from notes payable-bank acceptance notes

50,433,168

50,216,280

50,771,789

 Repayment of notes payable-bank acceptance notes

(51,598,637)

(43,947,109)

(49,263,858)

 Proceeds from issuance of ordinary shares to public, net of issuance cost

-

20,345,000

 

-

 IPO compensation

440,955

-

-

Net cash provided by financing activities

7,668,492

35,614,404

7,558,779

INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS

(12,637,120)

2,967,446

 

4,579,938

 Effect of exchange rate changes on cash

1,882,399

946,069

68,214

 Cash and cash equivalents at beginning of period

12,322,982

8,409,467

3,761,315

CASH AND CASH EQUIVALENTS AT END OF PERIOD

$

1,568,261

$

12,322,982

$

 

8,409,467

SUPPLEMENTARY CASH FLOW INFORMATION

Cash paid during the periods:

 Income taxes paid

$

2,863,026

$

2,355,451

$

637,267

 Interest paid

$

2,998,929

$

1,949,982

$

1,492,404

Non-cash transactions:

Appropriation to statutory reserve

$

1,210,351

$

1,581,126

$

431,734

 Debt forgiven by shareholder

$

-

$

12,924,000

$

-

SOURCE Ossen Innovation Co., Ltd.



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