Ossen Innovation Announces Fourth Quarter and Full Year 2011 Financial Results

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."

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".

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.

SOURCE Ossen Innovation Co., Ltd.