Longhai Steel Reports Preliminary Unaudited Highlights for the Year 2010

XINGTAI CITY, China, March 7, 2011 /PRNewswire-Asia-FirstCall/ -- Longhai Steel Inc. ("Longhai Steel" or "the company," OTC Bulletin Board: ACTN), a producer of steel wire products in the People's Republic of China, today announced its preliminary unaudited financial highlights for the year ended December 31, 2010.

The financial results provided in this news release are preliminary, unaudited, and subject to adjustment. Longhai Steel expects to release its audited financial results by March 15, 2011.

Year 2010 preliminary unaudited highlights

• Net revenues were $475.0 million, up 27.1% from 2009.
• Gross profit was $18.6 million, up 10.4% from 2009.
• Net income was $11.5 million, down 2.0% from 2009.
• Basic and diluted earnings per share were $1.15, down 3.4% from 2009.
• Weighted average shares outstanding increased 1.2% in 2010 to 9,965,068 shares.

Mr. Chaojun Wang, Chairman and Chief Executive Officer of Longhai Steel, said, "We are pleased with our operating performance for 2010 and expect to continue our good growth in 2011. Our fourth quarter 2011 was especially good, with revenues up 60.7% and net income up 28.5% from the fourth quarter 2009. During the summer of 2010, we reduced wire prices to respond to competitive pressures from a larger-than-expected local supply of wire. Since that situation appeared to be temporary, we believe that the spreads between billet costs and wire prices have returned to more normal relationships for 2011. As we did in 2010, we expect to benefit for the next several years from the growing demand for steel wire used for construction and infrastructure as China continues its dramatic urbanization and modernization."

Net revenues increased 27.1% to $475.0 million in the year ended December 31, 2010 from $373.7 million in 2009 primarily due to a 17.8% increase in the average price for wire per ton. Longhai Steel's tonnage sold in 2010 increased 6.9% to 906,836 metric tons from 848,063 tons in 2009.

Cost of goods sold increased 27.9% to $456.4 million in 2010 from $356.8 million in 2009. Cost of goods sold as a percentage of net revenues was 96.1% in 2010 compared with 95.5% in 2009. The cost of goods sold is largely determined by movements in steel billet prices and by volume. Billets typically account for more than 95% of cost of goods sold. The weighted average cost of goods sold per ton of wire increased 18.8% in 2010 from 2009.

Gross profit increased 10.4% to $18.6 million in 2010 from $16.8 million in 2009. The gross profit margin (gross profit divided by net revenues, as a percent) decreased to 3.9% in 2010 from 4.5% in 2009 mainly due to narrowing of the spread between billet purchase prices and wire sales prices, as the company lowered prices to respond to competitive pricing pressures from larger-than-expected local supplies of wire during the summer of 2010.

General and administrative expenses increased 100.9% to $2.2 million in 2010 from $1.1 million in 2009 due to a stock option granted to an executive, higher expenses for social insurance, and expenses related to the company's preparation for a securities offering and for the trading of its common shares on NASDAQ.

Income tax increased 2.4% to $4.0 million in 2010 from $3.9 million in 2009, with the effective tax rate of 25.8% in 2010 and 25.0% in 2009.

Net income decreased 2.0% to $11.5 million in 2010 from $11.7 million in 2009. Basic and diluted earnings per share decreased 3.4% to $1.15 in 2010 from $1.19 in 2009.

As of December 31, 2010, cash and cash equivalents were $0.3 million, shareholders' equity was $44.5 million, and total assets were $78.0 million.

About Longhai Steel

Longhai Steel Inc., is a leading producer of high-quality steel wire in diameters from 6.5 to 10.0 millimeters. Downstream manufacturers process Longhai Steel's wire into screws, nails, and wire mesh used to reinforce concrete and for fencing. Demand is based on spending in the construction and infrastructure industries in China. All of its sales are delivered in China. Longhai Steel competes using advanced production equipment and process technology, high product quality, fast order fill, and competitive prices. Its rolling and drawing facilities are among the most advanced in the world.

Safe harbor statement

Certain statements in this news release are forward-looking statements made pursuant to the safe harbor provision of the Private Securities Litigation Reform Act of 1995, which involve a number of risks and uncertainties that could cause actual results to differ materially from those in such forward-looking statements. These forward-looking statements can be identified by terminology such as "anticipate," "believe," "could," "estimates," "expect," "future," "intends," "may," "plans," "should," "will," and similar statements.

The risks and uncertainties relating to these statements include, but are not limited to, risks and uncertainties regarding China's economic growth, general industry conditions including local supply of wire, Longhai Steel's business or growth strategy, the success of Longhai Steel's investments, risks, and uncertainties regarding fluctuations in earnings, its ability to sustain its previous levels of profitability including on account of its ability to manage growth, intense competition, wage increases in China, its ability to attract and retain highly skilled professionals, time and cost overruns on fixed-price, fixed-time frame contracts, client concentration, its ability to successfully complete and integrate potential acquisitions, withdrawal of governmental financial incentives, political instability and regional conflicts, and legal restrictions on raising capital or acquiring companies outside China. Although the Company believes that its expectations stated in this press release are based on reasonable assumptions, actual results may differ from those projected in the forward-looking statements. These and additional risks that could affect Longhai Steel's future operating and financial results are more fully described in its filings with U.S. Securities and Exchange Commission. These filings are available at www.sec.gov.

Longhai Steel may, from time to time, make additional written or oral forward-looking statements in its periodic reports to the U.S. Securities and Exchange Commission on forms 10-K, 10-Q, and 8-K, in its annual report to shareholders, in news releases and other written materials, and in oral statements made by its officers, directors, or employees to third parties. The company does not undertake to update any forward-looking statements that may be made from time to time by or on its behalf, except as required by law.

SOURCE Longhai Steel Inc.