China Precision Steel Announces Third Quarter Fiscal 2011 Results

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May 16, 2011, 09:00 ET

SHANGHAI, May 16, 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 third quarter results for the period ended March 31, 2011.

Third Quarter Highlights

Revenue increased 5.0% period-over-period to $31.5 million
Net loss was $0.9 million
Fully diluted loss per share was $0.02
Backlog as of March 31, 2011 was $21.8 million

"During the third quarter of fiscal 2011, we experienced some challenges due to the rapid increase in steel prices which resulted in a sharp increase in our average cost per ton. Additionally, while overall near-term demand remains healthy, some of our customers chose to temporary delay their orders until steel prices leveled off," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Towards the end of the quarter, steel prices began to stabilize which contributed to a slight increase in customer orders. We anticipate that orders will increase from both domestic and international customers through the fourth quarter of fiscal 2011."

Revenue for the third quarter of fiscal 2011 increased to $31.5 million, up 5.0% from $30.0 million in the third quarter of fiscal 2010. The revenue increase was mainly attributable to a 6.3% increase in average sales price to $863 per ton, from $812 per ton in the comparable period in 2010. Sales volume in the third quarter decreased 1.3% to 36,475 tons, from 36,953 tons in the third quarter of 2010. The third fiscal quarters are usually slower than other quarters of the fiscal year due to the approximately 10 days of lost production in connection with a shorter February month and the Chinese New Year holidays. High carbon and low carbon products accounted for 23.8% and 74.0% of sales, respectively, compared to 23.1% and 63.0%, respectively, from the prior year period. Exports contributed to 0.9% of total revenue, compared to 13.6% in the third quarter of fiscal 2010.

Gross loss in the third quarter was $41,616, compared to gross profit of $3.4 million in the third quarter of fiscal 2010. Gross margin was (0.1)%, down from 11.4% in the same period a year ago. Gross margin was unfavorably impacted by compressed spreads between selling prices and raw material costs. Period-over-period, the average cost per unit sold increased 20.0%, compared to the increase of average selling price of 6.3%. Sequentially, the average cost of raw materials increased 7.7% from the second quarter of fiscal 2011, compared to an increase of 2.5% in the average selling price for the same period. The Company is taking steps to widen the spread between the average selling price and average cost of goods sold, but expects gross margins to remain under pressure for the near-term.

Selling expenses for the third quarter of fiscal 2011 were $93,172, compared to $124,589, in the third quarter of fiscal 2010. The decline in selling expenses was primarily attributable to lower exports and associated sales commissions during the 2011 period. Administrative expenses were $111,068, or 0.4% of revenue, compared to $773,102, or 2.6% of revenue period-on-period. The decline in administrative expenses is associated with the gain in foreign currency exchange due to the strength in RMB against U.S. dollar which favorably impacted the Company's US dollar denominated loan during the 2011 period.

Operating loss for the third quarter was $296,155, compared to operating income of $2.5 million in the same period a year ago.

Net loss for the third quarter of fiscal 2011 was $872,497, compared to net income of $2.0 million in the prior year period. Fully diluted loss per share was $0.02, compared to fully diluted earnings per share of $0.04 in the comparable period a year ago.

Nine Months Financial Results

Revenues for the first nine months of fiscal 2011 were $105.2 million, up 42.0% from revenues of $74.0 million in the first nine months of fiscal 2010. Gross profit was $4.3 million, compared to gross profit of $7.8 million in the first nine months of fiscal 2010. Gross margin was 4.0%, compared to 10.5% for the comparable period a year ago. Operating income was $2.2 million, compared to operating income of $5.2 million in the first nine months of fiscal 2010. Net loss was $26,205, compared to net income of $4.3 million in the same period a year ago. Fully diluted earnings per share were $0.00, compared to fully diluted earnings per share of $0.09 in the first nine months of fiscal 2010.

Financial Condition

As of March 31, 2011, China Precision Steel had $16.4 million in cash and cash equivalents, $18.0 million in long term debt, total liabilities of $64.4 million and working capital of $67.6 million. Stockholders' equity stood at $131.9 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. As the new mill continues to ramp up production, total production capacity is expected to increase by approximately 35,000 tons to 195,000 tons by the end of fiscal 2011. Once the three mills reach full design capacity in approximately two to three years, total annual production capacity is expected to be approximately 260,000 tons. As of March 31, 2011, China Precision Steel had a backlog of $21.8 million for contracts signed but not yet delivered.

"We have a cautiously optimistic outlook for the near-term as growth in demand for precision steel products resumed in response to the stabilization of steel prices towards the end of the quarter. We also anticipate an increase in exports in the fourth quarter of fiscal 2011 as we are in negotiations with several new potential international customers," Mr. Chen continued. "While uncertainties remain in respect to the macro environment, we will continue to focus on our operating fundamentals and those factors we can control, such as expanding markets, improving margins of existing product groups, developing higher margin products, maintaining our strong balance sheet and financial flexibility, and positioning ourselves to capitalize on any strategic growth opportunities that may develop."

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, May 17, 2011 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 682 689 70.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, May 17, 2011 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 98871923. 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

This release and oral statements made by China Precision Steel on its conference call in relation to this release, may contain certain "forward-looking statements" relating to the business of China Precision Steel, Inc., and its subsidiary companies. All statements, other than statements of historical fact included herein are "forward-looking statements" including, without limitation, statements regarding: the general ability of the Company to achieve its commercial objectives, including the likelihood that orders will increase from both domestic and international customers through the fourth quarter of 2011; the ability of the Company to continuously increase the production capacity of its new mill; the continued stabilization of steel prices; and the ability of the Company to win new international customers and increase in exports in the fourth quarter of fiscal 2011; 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 (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.

– Financial Tables Follow –


China Precision Steel, Inc. and Subsidiaries
Consolidated Balance Sheets
			March 31,	June 30,
			2011	2010
Assets
Current assets
	Cash and cash equivalents		$16,407,991	$29,036,706
	Accounts receivable
		Trade, net of allowances of $1,049,782 and $1,013,744
		at March 31, 2011 and June 30, 2010, respectively	27,272,741	39,598,845
		Bills receivable	553,324	4,760,816
		Other	769,968	1,369,219
	Inventories		32,707,700	28,522,198
	Prepaid expenses		777,248	534,882
	Advances to suppliers, net of allowance of $1,701,841
		and $1,643,419 at March 31, 2011 and June 30, 2010, respectively	35,521,882	13,959,206
Total current assets			114,010,852	117,781,872
Property, plant and equipment
	Property, plant and equipment, net		73,477,212	69,907,194
	Construction-in-progress		6,844,726	3,983,450
			80,321,938	73,890,644
Intangible assets, net			1,878,394	1,844,995
Goodwill			99,999	99,999
Total assets			$196,311,185	$193,617,510
Liabilities and Stockholders' Equity
Current liabilities
	Short-term loans		$27,333,697	$25,965,421
	Accounts payable and accrued liabilities		5,302,263	9,952,109
	Advances from customers		3,860,501	3,266,377
	Other taxes payables		4,217,926	3,868,220
	Current income taxes payable		5,723,681	5,393,000
Total current liabilities			46,438,068	48,445,127
Long-term loan			18,000,000	18,075,914
Stockholders' equity:
	Preferred stock: $0.001 per value, 8,000,000 shares
		authorized, no shares outstanding at March 31, 2011 and
		June 30. 2010, respectively
	Common stock: $0.001 par value, 62,000,000 shares
		authorized, 46,562,955 issued and outstanding at
		March 31, 2011 and June 30, 2010, respectively	46,563	46,563
	Additional paid-in capital		75,642,383	75,642,383
	Accumulated other comprehensive income		15,433,828	10,630,975
	Retained earnings		40,750,343	40,776,548
Total stockholders' equity			131,873,117	127,096,469
Total liabilities and stockholders' equity			$196,311,185	$193,617,510


China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations
For the Three and Nine Months Ended March 31, 2011 and 2010
		Three Months Ended		Nine Months Ended
		March 31,	March 31,	March 31,	March 31,
		2011	2010	2011	2010
Sales revenues		$31,489,118	$29,990,596	$105,154,101	$74,046,423
Cost of goods sold		31,530,734	26,560,721	100,902,769	66,277,234
Gross (loss)/profit		(41,616)	3,429,875	4,251,332	7,769,189
Operating expenses
	Selling expenses	93,172	124,589	201,554	227,003
	Administrative expenses	111,068	773,102	1,708,188	2,005,841
	Allowance for bad and doubtful debts	126	16	19,823	218,200
	Depreciation and amortization expense	50,173	37,857	143,884	118,350
	Total operating expenses	254,539	935,564	2,073,449	2,569,394
(Loss)/income from operations		(296,155)	2,494,311	2,177,883	5,199,795
Other income/(expense)
	Other revenues	627	9,790	3,239	120,753
	Interest and finance costs	(591,118)	(171,928)	(1,908,969)	(675,362)
	Total other (expense)	(590,491)	(162,138)	(1,905,730)	(554,609)
(Loss)/income from operations before income tax		(886,646)	2,332,173	272,153	4,645,186
Provision for income tax
	Current	(14,149)	320,819	298,358	319,586
	Total income tax expense	(14,149)	320,819	298,358	319,586
Net (loss)/income		(872,497)	2,011,354	(26,205)	4,325,600
Basic (loss)/earnings per share		($0.02)	$0.04	$0.00	$0.09
Basic weighted average shares outstanding		46,562,955	46,562,955	46,562,955	46,562,955
Diluted (loss)/earnings per share		($0.02)	$0.04	$0.00	$0.09
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, 2011 and 2010
		2011	2010
Cash flows from operating activities
	Net (loss)/income	($26,205)	$4,325,600
	Adjustments to reconcile net income to net cash provided by operating activities
	Depreciation and amortization	5,931,643	3,850,697
	Allowance for bad and doubtful debts	-	218,200
	Inventory provision	-	42,537
	Net changes in assets and liabilities:
	Accounts receivable, net	18,758,490	4,173,882
	Inventories	(3,171,550)	(16,187,073)
	Prepaid expenses	(236,418)	(198,228)
	Advances to suppliers	(21,066,432)	3,047,186
	Accounts payable and accrued expenses	(4,980,726)	(1,261,253)
	Advances from customers	478,006	5,244,952
	Other taxes payable	212,193	(3,062,421)
	Income taxes payable	138,962	518,499
Net cash (used in)/provided by operating activities		(3,962,037)	712,578
Cash flows from investing activities
	Purchase of property, plant and equipment, including construction in progress	(9,635,527)	(4,927,077)
Net cash (used in) investing activities		(9,635,527)	(4,927,077)
Cash flows from financing activities
	Loan proceeds	497,816	3,735,771
	Repayments of short-term loans	(771,106)	(444,471)
Net cash (used in)/provided by financing activities		(273,290)	3,291,300
Effect of exchange rate		1,260,268	8,583
Net (decrease) in cash		(12,628,715)	(914,616)
Cash and cash equivalents, beginning of period		29,036,706	13,649,587
Cash and cash equivalents, end of period		$16,407,991	$12,734,971