LOS ANGELES and KAIFENG, China, April 1, 2008 /Xinhua-PRNewswire/ -- China Valves Technology, Inc. (OTC Bulletin Board: CVVT) ("China Valves" or the "Company"), a leading metal valve manufacturer with operations in the People's Republic of China, today reported financial results for its fiscal year ended December 31, 2007.
Fiscal Year 2007 Financial Highlights
-- Revenue reached $37.0 million, up 45.1% from 2006
-- Gross profit reached $15.0 million, up 36.1% from 2006
-- Operating income totaled $8.6 million, up 32.0% from 2006
-- Net income rose to $7.1 million, up 52.6% from 2006
-- Earnings per diluted weighted average share were $0.18
-- On December 16, 2007, the Company became a public company through a
share exchange transaction
Fiscal Year 2007 Results
"China Valves had a successful fiscal year 2007. We achieved impressive growth in our top and bottom lines, maintained our strong position in our traditional markets and prepared the Company for growth in 2008," said Mr. Siping Fang, China Valves' CEO and Chairman. "We became a U.S. listed public company in December 2007, and introduced our Company to the financial community and new investors."
Revenues for the twelve months ended December 31, 2007 were $37.0 million, a 45.1% increase from $25.5 million in 2006. This increase was driven by a 25.0% increase in the average selling price of products and a 75.0% increase in the volume of products sold. The increase in average selling price in 2007 was primarily due to an increase in raw material prices, particularly steel metal prices. Increased sales volume was a result of increased overall demand for products caused by China's rapid industrialization and manufacturing development, the Company's successful marketing efforts that led to gaining a few new big customers while retaining long term customers, and the Company starting to sell products to the nuclear power station industry.
Gross profit for fiscal year 2007 was $15.0 million, up 36.1% from $11.0 million in 2006. Gross profit increased because of increased overall sales. Gross margin was 40.5% in 2007, compared to 43.1% in 2006. The decline in gross margin reflects the slightly higher cost of materials that were not passed on to customers.
Operating expenses for fiscal year 2007 were $6.3 million, up 42.3% from $6.5 million in 2006. Operating expenses increased in proportion to overall revenue growth. Operating expenses were 17.1% of revenues in 2007, basically unchanged from 17.5% in 2006.
Operating income in 2007 was $8.6 million, an increase of 32.0% from $6.5 million in 2006. Operating margin was 23.3% in 2007, compared to 25.6% in 2006.
Net income was $7.1 million in 2007, up 52.6% from $4.7 million in 2006. Net margin was 19.3% in 2007, up from 18.3% in 2006. Earnings per diluted share were $0.18 in 2007, up from $0.12 in 2006.
Financial Condition
On December 31, 2007, the Company had $2.8 million in cash and cash equivalents and $9.3 million in working capital. Accounts receivable were $16.8 million, up from $9.1 million as of December 31, 2006. The Company had current liabilities of $26.5 million as of December 31, 2007, down from $30.6 million at the end of 2006. The Company paid off $4.3 million in notes payable, and had long-term debt of $1.1 million at year end. Shareholders' equity as of December 31, 2007 was $37.2 million, up from $26.9 million at the end of 2006.
The Company generated $5.1 million in cash from operating activities in 2007, compared to using $3.3 million in 2006. In 2007, the Company had capital expenditures of $2.1 million, for the acquisition of plant and equipment and construction.
Outlook
China Valves anticipates that the industrialization of China will continue to drive demand for metal valves in the domestic market. While the cost of materials used in manufacturing has risen, the Company will be able to pass along those increases to customers. Low manufacturing costs and recognized, high quality branded products allow the Company to compete successfully against foreign companies seeking to enter the Chinese market.
Over the course of the next few years, the Company intends to grow and expand its business, both organically and through acquisitions. China Valves intends to increase market development and strengthen its hold as the leader of valve manufacturers by improving the quality of existing valves and developing newer, better quality valves.
The Company expects to acquire high-growth small and medium size companies, and will also evaluate the benefits of acquiring larger competitors where it can combine brand names and consolidate market share in the valve industry.
"Our customers appreciate the high quality of China Valves' products. Our sales team will continue to sell our high-end technologically sophisticated valves to our well-established customer base and develop new customers throughout China for our current products. In 2008, we will increase our expenditures on research and development to produce better and new products and introduce new products for new industries, including the nuclear and petrochemical industries. We also plan to increase our sales to neighboring Asian countries, and eventually distribute our products all over the world," said Mr. Siping Fang. "We also plan to pursue a number of strategic acquisitions in 2008 that will expand the product offerings available under the brand name China Valves."
Recent Events
2007: The Company successfully entered into the nuclear power station valve market by signing deals with two large nuclear power stations.
December 2007: China Valves Holding, Ltd, the holding company for Zhengzhou Zhengdie Valve Co, Ltd. and Henan Kaifeng High Pressure Valve Co., Ltd., and Intercontinental Resources, Inc. formed China Valves Technology, Inc. through a share exchange.
January 2008: The Company's stock started trading on the Over the Counter Bulletin Board under the ticker symbol "CVVT." The Company's stock previously traded under the ticker symbol "INCL."
February 2008: The Company announced that it changed its auditors from Madsen & Associates CPAs, Inc. to Moore Stephens Wurth Frazer And Torbet, LLP.
About China Valves Technology, Inc.
China Valves Technology, Inc. through its subsidiaries, Zhengzhou Zhengdie Valve Co, Ltd. and Henan Kaifeng High Pressure Valve Co., Ltd., is engaged in the development, manufacture and sale of high-quality metal valves for the electricity, petroleum, chemical, water, gas and metallurgy industries. One of the best known brand names in China's valve industry, the Company's history can be traced back to when it was formed as a state-owned enterprise in 1959. The Company's products are a result of extensive research and development which also led to a number of patented products and manufacturing processes. China Valves has significant market shares of valve sales to a number of domestic industries, and exports to the rest of Asia and Europe. The Company's website is http://www.cvalve.net.en/ .
Safe Harbor Statement
Certain statements set forth in this press release constitute "forward-looking statements." Forward-looking statements include, without limitation, any statement that may predict, forecast, indicate, or imply future results, performance or achievements, and may contain the words "estimate," "project," "intend," "forecast," "anticipate," "plan," "planning," "expect," "believe," "will likely," "should," "could," "would," "may" or words or expressions of similar meaning. Such statements are not guarantees of future performance and are subject to risks and uncertainties that could cause the company's actual results and financial condition to differ materially from what is included within the forward-looking statements. Forward-looking statements involve risks and uncertainties, including those relating to the Company's ability to grow its business. Actual results may differ materially from the results predicted and reported results should not be considered as an indication of future performance. Potential risks and uncertainties include, among others, currently unknown and unforeseeable constraints on the Company's ability to continue operations, domestic or global economic conditions -- especially those relating to China, activities of competitors and the presence of new or additional competition, and changes in United States Federal or State laws, restrictions and regulations on doing business in a foreign country, in particular China, and conditions in equity markets. More information about the potential factors that could affect the Company's business and financial results is included in the Company's filings, available via the United States Securities and Exchange Commission.
--FINANCIAL TABLES FOLLOW--
CHINA VALVES TECHNOLOGY INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF INCOME AND OTHER
COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
2007 2006
SALES $37,036,282 $25,530,183
COST OF GOODS SOLD 22,050,041 14,522,202
GROSS PROFIT 14,986,241 11,007,981
EXPENSES:
Selling expense 2,998,585 2,248,613
General and
administrative 3,245,954 2,181,294
Research and
development 104,502 33,260
Total Operating
Expenses 6,349,041 4,463,167
INCOME FROM OPERATIONS 8,637,200 6,544,814
OTHER EXPENSE (INCOME) :
Other income (393,686) (13,729)
Interest expense
(Finance costs) 528,498 537,562
Other expense 22,053 183,441
Total Other Expense
(Income) 156,865 707,274
INCOME BEFORE PROVISION
FOR INCOME TAXES 8,480,335 5,837,540
INCOME TAX EXPENSE 1,337,743 1,158,161
NET INCOME 7,142,592 4,679,379
OTHER COMPREHENSIVE
INCOME
Foreign currency
translation gain 1,869,648 823,057
COMPREHENSIVE INCOME $9,012,240 $5,502,436
WEIGHTED AVERAGE NUMBER
OF SHARES 40,003,550 40,000,000
EARNINGS PER COMMON SHARE $0.18 $0.12
CHINA VALVES TECHNOLOGY INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2007 AND DECEMBER 31, 2006
A S S E T S
December 31, December 31,
2007 2006
CURRENT ASSETS:
Cash and cash equivalents $2,773,262 $5,591,211
Restricted cash 40,856 --
Accounts receivable, net of
allowance for doubtful accounts of
$274,167 16,789,383 9,171,675
and $0 as of December 31, 2007 and
December 31, 2006, respectively
Other receivables 4,638,477 3,689,926
Inventories 10,539,087 14,739,845
Advances on inventory purchases 458,699 --
Prepaid expenses 519,043 554,031
Total current assets 35,758,807 33,746,688
PLANT AND EQUIPMENT, net 7,523,788 4,373,362
OTHER ASSETS:
Accounts receivable - retainage,
long-term 559,368 469,229
Advances on equipment purchases 324,858 --
Goodwill - purchased 19,449,851 18,187,242
Intangibles, net of accumulated
amortization 435,633 54,405
Other investments, at lower of cost
or market 714,485 668,104
Total other assets 21,484,195 19,378,980
Total assets $64,766,790 $57,499,030
L I A B I L I T I E S A N D S H A R E H O L D E R S' E Q U I T Y
CURRENT LIABILITIES:
Accounts payable - trade $6,452,517 $8,843,663
Short-term loans 6,479,291 10,105,186
Short-term loans - related parties 671,188 491,366
Other payables 4,435,982 2,169,379
Other payable - related parties 2,848,032 1,805,389
Notes payable - 4,195,651
Accrued liabilities 1,734,679 514,941
Customer deposits 2,810,352 2,053,498
Taxes payable 1,064,512 408,759
Total current liabilities 26,496,553 30,587,832
Long-term liabilities:
Long-term debt 1,096,800 --
Total long-term liabilities 1,096,800 --
SHAREHOLDERS' EQUITY:
Common Stock, $0.001 par value;
300,000,000 shares authorized
40,106,500 shares and 40,000 000
issued and outstanding as of
December 31, 2007
and December 31, 2006,
respectively 40,107 40,000
Additional paid-in-capital 16,365,029 15,115,137
Statutory reserves 1,749,601 1,032,933
Retained earnings 15,844,953 9,419,029
Accumulated other comprehensive
income 3,173,747 1,304,099
Total shareholders' equity 37,173,437 26,911,198
Total liabilities and
shareholders' equity $64,766,790 $57,499,030
CHINA VALVES TECHNOLOGY INC. AND SUBSIDIARIES
AUDITED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2007 AND 2006
2007 2006
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net income $7,142,592 $4,679,379
Adjustments to reconcile net income
to cash provided by (used in)
operating activities:
Depreciation 551,252 409,441
Amortization of intangible assets 18,917 17,763
Provision for losses on accounts
receivable 263,308 --
Loss on disposal of fixed assets 1,364 10,992
Change in operating assets and
liabilities:
Accounts receivable - trade,
other receivables and prepaid
expenses (8,087,872) (4,595,754)
Inventories 3,215,501 (5,094,953)
Accounts payable - trade (2,886,077) 809,056
Other payables and accrued
liabilities 2,805,919 216,717
Other payables - related party 880,977 --
Customer deposits 589,965 (408,796)
Taxes payable 602,528 202,153
Others -- 443,745
Net cash provided by (used in)
operating activities 5,098,373 (3,310,257)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Intangible assets (381,419) (597,842)
Advance on equipment purchases (311,992) --
Purchases of plant and equipment (628,934) (1,485,832)
Construction in progress (768,388) (94,068)
Proceeds from sale of equipment -- 15,384
Investment -- (21,888)
Net cash used in investing
activities (2,090,732) (2,184,246)
CASH FLOWS FINANCING ACTIVITIES:
Restricted cash due to export
covenant (39,238) --
Proceeds from short-term debt 4,747,066 3,339,178
Proceeds from short-term loans-
related party 139,939 --
Repayments of short-term debt (8,724,565) --
Proceeds from long-term debt 1,053,360 2,579,666
Repayment of (proceeds from)
notes payable (4,309,215) 2,858,931
Increase in long-term accounts
payable -- 230,760
Increase in other long-term
liabilities -- 271,784
Contributed capital 1,249,999 --
Net cash (used in) provided by
financing activities (5,882,654) 9,280,319
EFFECTS OF EXCHANGE RATE CHANGE IN
CASH 57,064 330,861
(DECREASE) INCREASE IN CASH (2,817,949) 4,116,677
CASH, beginning of year 5,591,211 1,474,534
CASH, end of year $2,773,262 5,591,211
SUPPLEMENTAL DISCLOSURES OF CASH
FLOW INFORMATION:
Cash paid for interest $665,213 $550,808
Cash paid for income taxes $1,005,265 $1,117,724
