SHANGHAI, February 20, 2014 /PRNewswire/ -- 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 year 2014 second quarter results for the period ended December 31, 2013.
Second Quarter Highlights
"We experienced an increase in demand for our high-carbon, hot-rolled steel in the second quarter as sales volume for the segment increased to 5,448 tons from 142 tons in the same period a year ago. However, as we ramped up production of high-carbon, hot-rolled steel used in automobile components, we scaled back production of our low-carbon, cold-rolled steel due to the rising cost of our raw material during the end of the year," commented Mr. Hai Sheng Chen, CEO of China Precision Steel. "We anticipate the price of steel will remain high in the near-term as China's steel industry adjusts to the closing of high polluting steel plants."
Revenue for the second quarter of fiscal year 2014 was $11.9 million, up 45.3% from revenue of $8.2 million in the second quarter of fiscal year 2013. The increase in revenue was mainly attributable to the increase in production and sales of high-carbon products as a result of increased marketing and sales to the automobile industry. Sequentially, revenue increased 0.9% from revenue of $11.8 million in the first quarter of fiscal year 2014. Total sales volume in the second quarter of fiscal year 2014 was 15,036 tons, up from total sales volume of 10,705 tons in the prior period. High carbon and low carbon sales accounted for 66.9% and 26.8% of total sales, respectively, compared to 32.4% and 65.6%, respectively, period-on-period. Exports represented 2% of total sales for the current period, compared to 10% in the same period a year ago.
Gross loss in the second quarter was $5.1 million, compared to gross loss of $1.3 million in the same period a year ago. Gross loss margin for the current period was 43.2%, compared to a gross loss margin of 15.9% in the second quarter of fiscal 2013. The increase in gross loss margin is due to a 27.8% period-on-period increase in average cost per unit sold as a result of a spike in steel prices due to an expectation of a reduction in steel produced during the quarter.
Selling expenses for the second quarter of fiscal year 2014 were $49,583, compared to $25,063 in the second quarter of fiscal year 2013. The increase in selling expenses was primarily attributable to higher transportation costs and traveling expenses period-on-period. Administrative expenses were $303,617, or 2.6% of revenue, compared to $401,797, or 4.9% of revenue period-on-period. The decrease in administrative expenses was primarily due to a decrease in traveling expenses and legal and professional fees period-on-period.
Operating loss for the current quarter was $12.0 million, compared to an operating loss of $10.6 million in the second quarter of fiscal year 2013.
Net loss for the second quarter of fiscal year 2014 was $13.0 million, compared to net loss of $10.9 million for the second quarter of fiscal year 2013. Fully diluted loss per share was $3.34, compared to fully diluted loss per share of $2.80 in the same period a year ago.
Six Months Financial Results
Revenue for the first six months of fiscal year 2014 increased 67.3% to $23.6 million from $14.1 million in the same period a year ago. Gross loss was $8.1 million, compared to a gross loss of $2.8 million for the six months of fiscal year 2013. Gross loss margin for the six months ended December 31, 2013 was 34.4% compared to 19.6% for the same period a year ago. Operating loss was $20.7 million compared to $13.9 million in the first six months of fiscal year 2013. Net loss was $22.5 million, compared to a net loss of $15.1 million in the same period a year ago. Fully diluted loss per share was $5.81, compared to fully diluted loss per share of $3.89 for the first six months of fiscal year 2013.
Financial Condition
As of December 31, 2013, China Precision Steel had $135,219 in cash and cash equivalents, $80.8 million in total liabilities and stockholders' equity stood at $30.8 million. Net cash generated from operations was $478,410.
Business Outlook
China Precision Steel has been working on improving cash flow and intends to stay conservative in regards to managing its balance sheet. The Company is also collaborating with one of its steel suppliers and a customer to develop new steel products using its high quality steel. As of December 31, 2013, China Precision Steel had a backlog of $3.6 million.
"The steel industry remains under a lot of pressure as the government is aggressively working to reduce the high amount of pollution the industry creates which has resulted in a temporary imbalance in supply and demand. During the last two months of 2013, the government began to shut down high polluting mills in the province of Hebei, the region where a quarter of China's steel is produced," Mr. Chen continued. "Subsequently, steel prices spiked on expectations steel output will experience a short term drop off in production. We anticipate the imbalance will be resolved within the first half of the year as larger more efficient mills ramp up production. In the meantime, we are working on strengthening our cash flow, expanding our sales for our high-carbon steel products and minimizing our gross loss by focusing on higher margin products."
Forward-Looking Statements
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press 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 likelihood that the downturn in China's steel industry has halted and that the industry will experience a turnaround and increased demand; the significance of China's implementation of pro-growth measures and the likelihood that it will start benefitting the domestic steel industry; the Company's ability to reduce operating costs, improve working capital and increase profitability, and any other statements of non-historical information. 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.
Elite IR
Leslie J. Richardson, Partner
+852-3183 0283
Leslie.richardson@elite-ir.com
- Financial Tables Follow -
China Precision Steel, Inc. and Subsidiaries | |||||||
Consolidated Balance Sheets | |||||||
(Unaudited) | |||||||
December 31, | June 30, | ||||||
2013 | 2013 | ||||||
Assets | |||||||
Current assets | |||||||
Cash and cash equivalents | $135,219 | $75,243 | |||||
Accounts receivable | |||||||
Trade, net of allowances of $42,495,764 and $30,642,373 | |||||||
at December 31 and June 30, 2013, respectively | 23,997,088 | 29,480,738 | |||||
Bills receivable | 49,554 | 94,089 | |||||
Other receivable | 980,049 | 1,041,255 | |||||
Inventories, net | 15,324,726 | 15,837,201 | |||||
Prepaid expenses | 269,180 | 467,890 | |||||
Advances to suppliers, net of allowance of $20,305,486 and | |||||||
$19,689,609 at December 31 and June 30, 2013, respectively | 10,833,214 | 9,304,847 | |||||
Total current assets | 51,589,030 | 56,301,263 | |||||
Property, plant and equipment | |||||||
Property, plant and equipment, net | 57,743,507 | 61,366,745 | |||||
Construction-in-progress | 295,857 | 255,996 | |||||
58,039,364 | 61,622,741 | ||||||
Intangible assets, net | 1,906,545 | 1,903,675 | |||||
Goodwill | 99,999 | 99,999 | |||||
Total assets | $111,634,938 | $119,927,678 | |||||
Liabilities and Stockholders' Equity | |||||||
Current liabilities | |||||||
Short-term loans | $28,415,772 | $28,028,722 | |||||
Long-term loan - current portion | 16,200,000 | 16,200,000 | |||||
Accounts payable and accrued liabilities | 12,342,164 | 7,044,007 | |||||
Advances from customers | 9,773,145 | 1,456,420 | |||||
Other taxes payables | 7,985,307 | 8,295,220 | |||||
Current income taxes payable | 6,076,339 | 5,993,574 | |||||
Total current liabilities | 80,792,727 | 67,017,943 | |||||
Long-term loan | - | - | |||||
Stockholders' equity: | |||||||
Preferred stock: $0.001 per value, 500,000 shares | |||||||
authorized, no shares outstanding | |||||||
at December 31 and June 30, 2013, respectively | - | - | |||||
Common stock: $0.001 par value, 10,000,000 shares | |||||||
authorized, 3,880,866 issued and outstanding | |||||||
at December 31 and June 30, 2013, respectively | 3,880 | 3,880 | |||||
Additional paid-in capital | 75,685,066 | 75,685,066 | |||||
Accumulated other comprehensive income | 22,544,421 | 22,075,822 | |||||
Accumulated deficit | (67,391,156) | (44,855,033) | |||||
Total stockholders' equity | 30,842,211 | 52,909,735 | |||||
Total liabilities and stockholders' equity | $111,634,938 | $119,927,678 | |||||
China Precision Steel, Inc. and Subsidiaries | |||||||||
Consolidated Statements of Operations and Comprehensive Income | |||||||||
For the Three and Six Months Ended December 31, 2013 and 2012 | |||||||||
(Unaudited) | |||||||||
Three Months Ended | Six Months Ended | ||||||||
2013 | 2012 | 2013 | 2012 | ||||||
Sales revenues | $11,866,008 | $8,164,267 | $23,631,395 | $14,121,027 | |||||
Cost of goods sold | 16,997,339 | 9,466,225 | 31,756,985 | 16,889,934 | |||||
Gross (loss) | (5,131,331) | (1,301,958) | (8,125,590) | (2,768,907) | |||||
Operating expenses | |||||||||
Selling expenses | 49,583 | 25,063 | 80,751 | 54,336 | |||||
Administrative expenses | 303,617 | 401,797 | 751,048 | 844,412 | |||||
Allowance for bad and doubtful debts | 6,546,832 | 8,786,214 | 11,668,609 | 10,159,214 | |||||
Depreciation and amortization expense | 40,500 | 52,050 | 88,642 | 104,011 | |||||
Total operating expenses | 6,940,532 | 9,265,124 | 12,589,050 | 11,161,973 | |||||
(Loss) from operations | (12,071,863) | (10,567,082) | (20,714,640) | (13,930,880) | |||||
Other income/(expense) | |||||||||
Other revenues | 57,536 | 607,654 | 60,064 | 607,757 | |||||
Interest and finance costs | (944,656) | (925,077) | (1,881,547) | (1,783,665) | |||||
Total other (expense) | (887,120) | (317,423) | (1,821,483) | (1,175,908) | |||||
(Loss) from operations before income tax | (12,958,983) | (10,884,505) | (22,536,123) | (15,106,788) | |||||
Provision for income tax | |||||||||
Current | - | - | - | - | |||||
Total income tax | - | - | - | - | |||||
Net (loss) | (12,958,983) | (10,884,505) | (22,536,123) | (15,106,788) | |||||
Basic (loss) per share | ($3.34) | ($2.80) | ($5.81) | ($3.89) | |||||
Basic weighted average shares outstanding | 3,880,866 | 3,880,866 | 3,880,866 | 3,880,866 | |||||
Diluted (loss) per share | ($3.34) | ($2.80) | ($5.81) | ($3.89) | |||||
Diluted weighted average shares outstanding | 3,880,866 | 3,880,866 | 3,880,866 | 3,880,866 | |||||
China Precision Steel, Inc. and Subsidiaries | |||||
Consolidated Statements of Cash Flows | |||||
For the Six Months Ended December 31, 2013 and 2012 | |||||
(Unaudited) | |||||
2013 | 2012 | ||||
Cash flows from operating activities | |||||
Net (loss) | ($22,536,123) | ($15,106,788) | |||
Adjustments to reconcile net income to net cash provided by operating activities | |||||
Depreciation and amortization | 4,498,491 | 4,561,331 | |||
Allowance for bad and doubtful debts | 11,668,609 | 10,159,214 | |||
Net changes in assets and liabilities: | |||||
Accounts receivable, net | (5,418,079) | 2,477,594 | |||
Inventories | 731,172 | (4,060,401) | |||
Prepaid expenses | 201,438 | 412,031 | |||
Advances to suppliers | (1,743,858) | 1,086,749 | |||
Accounts payable and accrued expenses | 5,204,609 | (139,640) | |||
Advances from customers | 8,296,613 | 755,623 | |||
Other taxes payable | (424,462) | (381,886) | |||
Current income taxes | - | 32,914 | |||
Net cash provided by/(used in) operating activities | 478,410 | (203,259) | |||
Cash flows from investing activities | |||||
Purchase of property, plant and equipment, including construction in progress | (80,759) | (111,583) | |||
Net cash (used in) investing activities | (80,759) | (111,583) | |||
Cash flows from financing activities | |||||
Repayments of short-term loans | (223,707) | (504,269) | |||
Net cash (used in) financing activities | (223,707) | (504,269) | |||