China Precision Steel Announces Fourth Quarter and Fiscal 2011 Year End Results

SHANGHAI, September 29, 2011 /PRNewswire-Asia/ -- China Precision Steel, Inc. (NASDAQ: CPSL), a niche precision steel processing company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its financial results for the 2011 fourth quarter and fiscal year ended June 30, 2011.

Fourth Quarter 2011 Highlights

• Revenue increased 26.5% to a record $46.0 million
• Sales volume was a record 49,104 tons
• Gross profit was $1.7 million with 3.7% gross margin
• Net income was $283,155
• Fully diluted earnings per share of $0.01

Full Year 2011 Highlights

• Revenue increased 36.9% to a record $151.2 million
• Sales volume increased 30.9% to a record 175,328 tons
• Gross profit was $6.0 million with 3.9% gross margin
• Net income was $256,950
• Fully diluted earnings per share of $0.01
• Exports generated 3% of total sales

"We are pleased to experience a healthy growth in revenues throughout fiscal year 2011 and in particular a strong pickup in sales during the fourth quarter. The increased revenue for the fourth quarter was primarily due to orders realized that were delayed from the third quarter, as well as continued growth in demand for our low carbon, cold-rolled steel products and high carbon, cold-rolled products," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "Supporting our continued revenue growth is our increased production capacity, which contributed to record sales volume of 175,328 tons for fiscal year 2011. We plan to continue to gradually ramp up production capacity for our third mill over the next few years which we expect to reach up to approximately 80,000 tons, giving us a combined annual production capacity of approximately 260,000 tons."

Revenue for the fourth quarter of fiscal year 2011 was a record $46.0 million, up 26.5% from $36.4 million in the fourth quarter of fiscal year 2010. Increase in revenue is primarily due to continued increase in demand for the Company's low carbon, cold-rolled steel for use in home appliance products and food packaging and for high carbon, cold-rolled steel for use in automobile components. Sequentially, revenue increased 46.2% from $31.5 million in the third quarter of fiscal year 2011. High carbon and low carbon products accounted for 28.3% and 64.9% of sales, respectively, compared to 39.3% and 59.0%, respectively, from the same period of the prior year. Sales volume in the fourth quarter of fiscal year 2011 increased to 49,104 tons, up 25.5% from 39,112 tons, period-on-period, while average selling price per ton declined slightly from $965 to $964, period-on-period. Sales volume and average selling price for the third quarter of fiscal year 2011 was 36,475 and $863, respectively. Exports contributed 1.2% of total revenue, compared to 9.4% in the fourth quarter of fiscal year 2010.

Gross profit in the fourth quarter was $1.7 million, compared to gross profit of $2.5 million in the fourth quarter of fiscal year 2010. Gross margin was 3.7%, compared to 7.0% in the same period a year ago. Sequentially, gross profit and gross margin increased from a gross loss of $41,616 and gross margin of (0.1%) from the third quarter of fiscal year 2011. While sales volume increased during the quarter, the Company also experienced a rapid increase in raw material costs combined with stronger market competition for its precision steel products. Subsequently, the Company was unable to fully pass on the increased cost to its customers which resulted in compression in of gross margins period-over-period. The Company frequently experiences fluctuations in gross margin as a result of the recent volatility in raw material prices and changes in product mix due to market demand.

Selling expenses for the fourth quarter of fiscal year 2011 were $61,983, or 0.1% of revenue, compared to $173,805, or 0.5% of revenue, in the fourth fiscal quarter of 2010. Administrative expenses were $330,884, or 0.7% of revenue, down from $702,723, or 1.9% of revenue in the same period a year ago. Depreciation and amortization expenses for the quarter were $80,466, or 0.2% of revenue, up from $50,731, or 0.1% of revenue, in the same period a year ago.

Operating income for the fourth quarter was $1.2 million, compared to operating income of $1.6 million in the same period a year ago.

Net income for the fourth quarter of fiscal year 2011 was $283,155, compared to net income of $1.3 million in the same period of the prior year. Fully diluted earnings per share were $0.01, compared to $0.03 in the fourth quarter of fiscal year 2010.

Fiscal Year 2011 Results

Revenues for fiscal year 2011 were a record $151.2 million, up 36.9% from revenues of $110.5 million in fiscal year 2010. High carbon and low carbon products accounted for 23.3% and 69.5% of sales, respectively, compared to 32.4% and 58.5%, respectively, in the prior year. In fiscal year 2011, sales of low carbon, cold-rolled steel increased the greatest of all the Company's product lines to $100.6 million, or 66% of total sales, from $50.6 million, or 46% of total sales, year-on-year. International sales represented 3% of total sales, down from 13% in fiscal year 2010, as the Company continued to focus on strong domestic demand. Gross profit was $6.0 million, down 42.1% from gross profit of $10.3 million in fiscal year 2010. Gross margin was 3.9%, compared to 9.3% a year ago. Operating income was $3.4 million, compared to operating income of $6.8 million in fiscal year 2010. Net income was $256,950, compared to a net income of $5.6 million a year ago. Fully diluted earnings per share were $0.01, compared to $0.12 for fiscal year 2010.

Financial Condition

As of June 30, 2011, China Precision Steel had $2.7 million in cash and cash equivalents, $14.4 million in long term debt, total liabilities of $65.2 million and working capital of $70.6 million. Stockholders' equity was $133.5 million, compared to $127.1 million as of June 30, 2010.

Recent Events

On September 16, 2011, China Precision Steel received notice from the Listing Qualifications Department of the NASDAQ Stock Market, LLC indicating that, for the last 30 consecutive business days, the bid price for its common stock had closed below the minimum $1.00 per share required for continued inclusion on the NASDAQ Capital Market. The Company has 180 calendar days, or until March 14, 2012, to regain compliance with the minimum bid price requirement. China Precision Steel intends to actively monitor the bid price for its common stock through March 14, 2012, and will consider all available options, including a reverse stock split, to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirements.

Business Outlook

China Precision Steel is actively working on expanding its customer base to increase total demand and reduce it's per unit cost. The Company is also focused on optimizing its product mix by carrying out research and development ("R&D") to improve profitability of existing products and launch new high value-add products. Total Company backlog as of June 30, 2011 was $25,658,170.

"We are very proud of the great strides we have made over the past decade in expanding our production capacity and market share. However, the current global economy continues to be sluggish and China's economy is possibly facing a slowdown. Moreover, as a manufacturer of components for consumer products we are generally considered a leading economic indicator, in that we are among the first in the supply chain to experience economic slowdowns, as well as the first to experience increased demand when the economy rebounds. While we anticipate a slowdown in demand in the near-term, our long-term outlook remains optimistic. According to International Monetary Fund estimates, China is expected to surpass the United States and become the world's largest economy as early as 2016, and we believe that we are firmly positioned to benefit as China's economy resumes its strong growth."

With respect to the Company's NASDAQ listing status, Mr. Chen continued, "We have been a NASDAQ listed company since December 2006 and we take our responsibilities as a US listed company seriously. We remain committed to our NASDAQ listing and we are monitoring our share price movements closely and will consider all options to maintain NASDAQ compliance including a reverse stock split."

About China Precision Steel

China Precision Steel 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, steel roofing and textile needles. The Company sells to manufacturers in the People's Republic of China as well as overseas markets such as Nigeria, Ethiopia, Thailand and Indonesia. 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 Thursday, September 29, 2011 at 9:00 am ET to discuss fiscal year 2011 fourth quarter and year end results. To participate in the live conference call, please dial 888-339-2688 fifteen minutes prior to the scheduled conference call time. International callers should dial 617-847-3007. When prompted by the operator, provide Conference Passcode 424 872 09.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Thursday, September 29, 2011 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 67061791. 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: the ability of the Company to resolve the deficiency and regain compliance with the NASDAQ minimum bid price requirements; the ability of the Company to successfully ramp up production capacity at its third mill over the next few years; the likelihood that China's economy will resume its strong growth as overall economic conditions improve and that the Company will be able to benefit from growth; 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, 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.

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