International sales increased to $1.6 million, up from $0.3 million in third quarter fiscal year 2011
Sales volume increased to 38,898 tons from 36,475 period-over-period
"While total sales volume is up period-over-period, it was another challenging quarter for us as the domestic demand for precision steel remains soft due to the slowdown of China's growth rate. Subsequently, the softening steel demand resulted in steel prices sharply dropping 10.2% from the second quarter of fiscal year 2012. Our revenue for the quarter was also impacted by the Chinese New Year holiday which shortened the quarter's production period by ten days," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "While we continue to remain cautious for the rest of calendar year 2012, we are experiencing a gradual increase in demand for our low carbon, cold-rolled steel and could experience a turnaround in demand for high-carbon steel before the end of the calendar year should the government enacts new stimulus policies."
Revenue for the third quarter of fiscal year 2012 was $29.5 million, down 6.3% from revenue in the third quarter of fiscal year 2011 of $31.5 million. The decrease in revenue was mainly attributed to the 12.2% decline in average selling price to $758 ton from $863 ton in the third quarter of fiscal 2011. Total sales volume in the third quarter of fiscal year 2012 increased to 38,898 tons from total sales volume of 36,475 tons in the prior period. High carbon and low carbon sales accounted for 11.9% and 86.2% of total sales, respectively, compared to 23.8% and 74.0%, respectively, period-on-period. Exports represented 5.4% of total sales for the current period, up from 0.9% in the same period a year ago as the Company has been experiencing strengthening global demand.
Gross loss in the third quarter was $1.1 million, compared to gross loss of $0.04 million in the same period a year ago. Gross loss margin for the current period was 3.8% compared to 0.1% in the third quarter of fiscal 2011. The increase in gross loss margin principally resulted from the a decline in average selling price per unit sold of 12.2%, which was partially offset by a decline in average cost per unit sold of 8.9%, period-on-period.
Selling expenses for the third quarter of fiscal year 2012 were $63,734, compared to $93,172 in the third quarter of fiscal year 2011. The decline in selling expenses was primarily attributable to a decrease in sales commissions during the quarter compared to the same period a year ago. Administrative expenses were $781,221, or 2.6% of revenue, compared to $111,068, or 0.4% of revenue period-on-period. The increase in administrative expenses was primarily due to inventory write down in the amount of $636,405 during the period.
Operating loss for the current quarter was $2.5 million, compared to an operating loss of $0.3 million in the third quarter of fiscal year 2011.
Net loss for the third quarter of fiscal year 2012 was $3.3 million, compared to net loss of $872,497 for the third quarter of fiscal year 2011. Fully diluted loss per share was $0.07, compared to fully diluted loss per share of $0.02 in the same period a year ago.
Nine Months Financial Results
Revenue for the first nine months of fiscal year 2012 was $105.3 million, up 0.2% from $105.2 million in the same period a year ago. Gross loss was $2.9 million, compared to a gross profit of $4.3 million for the nine months of fiscal year 2011. Gross profit margin for the nine months ended March 31, 2012 was (2.7%), down from 4.0% for the comparable period a year ago. Operating loss was $5.7 million, down from an operating income of $2.2 million in the first nine months of fiscal year 2011. Net loss was $7.9 million, compared to a net loss of $0.03 million in the same period a year ago. Fully diluted loss per share was $0.17, compared to fully diluted loss per share of $0.00 for the first nine months of fiscal year 2011.
As of March 31, 2012, China Precision Steel had $2.2 million in cash and cash equivalents, $12.6 million in long-term debt, total liabilities of $70.8 million and working capital of $69.2 million. Stockholders' equity stood at $129.1 million, compared to $133.5 million as of June 30, 2011. Cash generated from operating activities during the first nine months of fiscal year 2012 was $2.7 million.
China Precision Steel anticipates that the market demand for precision steel used in home appliance would gradually strengthen while demand for high carbon precision steel used in automobile components and low carbon steel used in roofing materials would continue to be soft throughout calendar year 2012. Additionally, the Company expects to experience more competitive pressures in the international markets if the Chinese RMB continues to strengthen against US Dollars. As of March 31, 2012, China Precision Steel had a backlog of $19.0 million, of which approximately 70% are orders for low-carbon steel products.
"We anticipate a difficult operating environment throughout calendar year 2012 due to a weakening Chinese economy. However, in response to the slowing of China's growth rate, the Chinese government is looking at new ways to stimulate consumption and spending. Currently, it is taking steps to accelerate some infrastructure projects, such as railway, roads, airports and electricity projects, to help boost the economy," Mr. Chen continued. "We view these new infrastructure projects as a potential opportunity to drive sales for our high carbon steel products which are used in automobile parts for transportation vehicles. Furthermore, despite the economic slowdown, urbanization is still going strong in China and will continue to drive demand for home appliances which combined with a potential new round of subsidies could enhance demand for our low-carbon, cold-rolled steel products."
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.
China Precision Steel will host a conference call on Wednesday, May 16, 2012 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 335 847 90.
If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Wednesday, May 16, 2012 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 18783351. 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.
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.