China Precision Steel Announces Second Quarter Fiscal 2011 Results

SHANGHAI, Feb. 14, 2011 /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 2011 second quarter results for the period ended December 31, 2010.  

Second Quarter Highlights

• Revenue increased 47.2% period-on-period to a record $39.8 million
• Sales volume was a record 47,236 tons sold
• Gross profit was $2.0 million
• Net income was $0.2 million

"We are pleased to experience another record quarter in terms of revenue and sales volume." commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "The strong sales for the quarter are primarily attributable to $28 million in record sales of our low carbon products and a record 47,236 tons in total sales volume."  "Going forward, we expect that the demand in China for home appliances and in turn, our low carbon steel, will remain robust as the home appliance stimulus program implemented by China in 2008 continues to stimulate the demand for new appliances in China."

Revenue for the second quarter of fiscal 2011 was $39.8 million, up 47.2% from revenue in the second quarter of fiscal 2010 of $27.0 million. The increase in revenue was mainly attributed to the increase in demand for low-carbon cold-rolled products used in the production of home appliances.  Total sales volume and average selling price per ton in the second quarter of fiscal 2011 increased to 47,236 tons and $842, respectively, compared to total sales volume and average selling price per ton of 35,588 and $759, respectively, in the second quarter of fiscal 2010. High carbon and low carbon sales accounted for 20.4% and 70.2% of total sales, respectively, compared to 32.0% and 54.9%, respectively, period-on-period. Exports represented 1.8% of total sales for the current period, down from 13.0% in the same period a year ago as the Company had been shifting its focus on supplying precision steel products to the growing demand in the domestic market.  

Gross profit in the second quarter was $2.0 million, compared to gross profit of $3.6 million in the same period a year ago. Gross margin for the current period was 4.8% compared to 13.5% last year.  The decreases in gross profit and gross margin were mainly due to the fast increasing raw material costs which the Company had not been able to fully reflect in its selling prices. As a result, the average cost per unit sold increased 22.1% to $802 from $657, while average selling price increased only 10.9% period-on-period.    

Selling expenses for the second quarter of fiscal 2011 were ($1,823), compared to $70,605, in the second quarter of fiscal 2010. The decline in selling expenses was primarily attributable to a refund of commissions during the current quarter. Administrative expenses were $725,650, or 1.8% of revenue, compared to $654,041, or 2.4% of revenue period-on-period.  The increase in administrative expenses was due to increased travelling costs during the period.  

Operating income for the current quarter was $1.1 million, compared to an operating income of $2.8 million in the second quarter of fiscal 2010.    

Net income for the second quarter of fiscal 2011 was $201,781, compared to net income of $2.6 million for the second quarter of fiscal 2010. Fully diluted earnings per share were $0.00, compared to fully diluted earnings per share of $0.06 in the same period a year ago.  

Six Months Financial Results

Revenue for the first six months of fiscal 2011 was $73.7 million, up 67.2% from $44.1 million in the same period a year ago. Gross profit was $4.3 million, compared to gross profit of $4.3 million for the six months of fiscal 2010. Gross margin for the six months ended December 31, 2010 was 5.8%, down from 9.8% for the comparable period a year ago for similar reasons discussed above. Operating income was $2.5 million, down 8.6% from $2.7 million in the first six months of fiscal 2010.  Net income was $0.8 million, compared to $2.3 million in the same period a year ago. Fully diluted earnings per share were $0.02 compared to $0.05 in the first six months of fiscal 2010.  

Financial Condition

As of December 31, 2010, China Precision Steel had $14.2 million in cash and cash equivalents, $18.7 million in long term debt, total liabilities of $62.2 million and working capital of $69.6 million.  Stockholders' equity stood at $131.4 million, compared to $127.1 million as of June 30, 2010.  

Business Outlook

China Precision Steel continues to ramp up production capacity with the addition of its third mill, which commenced production in January 2010. Total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011 as the new mill continues to ramp up production. Once all mills reach full design capacity in approximately three to four years, total annual production capacity is expected to be approximately 260,000 tons. China Precision Steel had a backlog as of December 31, 2010 of $28.2 million for contracts signed but not yet delivered.

"Demand for our low-carbon steel products remains robust as China's stimulus program for appliances continues to be a success," Mr. Chen continued. "However, we anticipate that the rising price of raw materials may lead to an increase in our cost of production and continue to put pressure on our gross margin". "Overall, we expect our production capacity to continue to increase as we ramp up production at our new mill and expand our position in the domestic market."  

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 Tuesday, February 15, 2011 at 9:00 a.m. Eastern Time to discuss fiscal 2011 second 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 178 895 24.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, February 15, 2011 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 28361821. 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.  

- Financial Tables Follow -

SOURCE China Precision Steel Inc.