Full-year revenue increases 75% year-over year to record $1.35 billion
BEIJING, March 10 /PRNewswire-Asia-FirstCall/ -- General Steel Holdings, Inc. (“General Steel” or “the Company”) (NYSE: GSI), one of China’s leading non-state-owned producers of steel products and aggregators of domestic steel companies, today announced its financial results for the full year and fourth quarter ended December 31, 2008.
Operational Highlights for 2008
-- Completed construction of two, 1,280 cubic meter blast furnaces at
Longmen Joint Venture. The new blast furnaces are more efficient,
require less manpower, coke and energy, which the Company expects will
lower production costs and increase competitiveness in the long run;
-- Opened new sales office in Sichuan province;
-- Selected as a “Preferred Supplier” of rebar by the national
government for Sichuan earthquake rebuilding efforts;
-- Completed acquisition of Maoming Hengda Steel Co, Ltd in Guangdong
province;
-- Migrated to NYSE;
-- Celebrated the 20th anniversary of the Company’s founding subsidiary,
Tianjin Daqiuzhuang Metal Sheet Co., Ltd.
“As evidenced by our record full-year revenues, our strategy to merge, create joint ventures, and acquire state-owned and private steel companies is generating results,” said Mr. Henry Yu, General Steel’s chairman and chief executive officer. “While the economic slowdown inevitably had a significant effect on the steel industry during the fourth quarter, our strategic decision to keep inventory levels relatively low and sell-out of high priced inventory as quickly as possible led to a return to positive gross margins in December. Going forward, I’m confident that our unique focus and ideal geographic location will allow us to continue benefiting from stimulus-related construction and rural infrastructure development projects in China. Meanwhile, the catalysts for industry consolidation continue to strengthen and we have the experience, track record and management team to execute as opportunities arise.”
Selected Financial Results for the Full Year and Fourth Quarter Ended December 31, 2008
Total revenues for the full year increased 74.9% to $1.4 billion from $772.4 million in 2007. Total revenues in the fourth quarter decreased 2.6% to $261.1 million from $268.2 million in the fourth quarter of 2007.
The significant year-over-year increase in total revenues for the full year was largely the result of higher selling prices during the first three quarters of the year as well as the timing of acquisitions, including Baotou Steel Pipe Joint Venture, Longmen Joint Venture and Maoming, the operations of which began contributing to consolidated financial results on May 25, 2007, June 1, 2007 and June 25, 2008, respectively. The fourth quarter
year-over-year decrease in revenues was largely a result of the global financial crisis, which depressed both demand and prices for commodities in China and elsewhere.
Cost of Sales
Total cost of sales for the full year increased 87.7% to $1.3 billion from $715.8 million in 2007. Total cost of sales for the fourth quarter increased 14.3% to $282.7 million from $247.2 million in the fourth quarter of 2007.
Cost of sales principally consists of the cost of raw materials, labor, utilities, manufacturing costs, manufacturing-related depreciation and other fixed costs. The year-over-year increase over the full year was mostly due to the increase in the Company’s primary raw material in the first three quarters of the year, and the timing of the acquisitions, including Baotou Steel Pipe Joint Venture, Longmen Joint Venture and Maoming, the operations of which began contributing to consolidated financial results on May 25, 2007, June 1, 2007 and June 25, 2008, respectively. The fourth quarter year-over-year increase in the cost of sales was primarily the result of using up
higher-priced inventory of raw materials acquired during times of rising prices.
Gross Profit
Gross profit for the full year was $7.9 million, an 86.0% decrease from $56.7 million in 2007. Gross loss for the fourth quarter was $21.6 million, compared to gross profit of $21.0 million in the fourth quarter of 2007.
The year-over-year decreases in gross profit for the full year and fourth quarter were largely due to the economic slowdown in China’s real estate and construction markets and in the overall domestic economy in the fourth quarter when steel prices abruptly dropped to levels below raw material inventory value.
Gross margin for the full year was 0.6%, compared to 7.3% in 2007. Gross margin for the fourth quarter was -8.3%, compared to 7.8% in the fourth quarter of 2007. Gross margins in the full year and fourth quarter ended December 31, 2008 were primarily affected by price erosion during the time between the signing of supply contracts and the fulfillment of customer orders.
During the fourth quarter, raw material prices in China were dropping along with those of finished products. The Company noted that selling off higher-priced inventory as quickly as possible, even at prices resulting in a gross loss, allowed it to accommodate lower-cost inventory. The Company began using lower-cost inventory at Longmen Joint Venture in December 2008, at which time margins there returned to positive territory, excluding the effects of a $1.8 million inventory write-down recorded in the fourth quarter of 2008.
Longmen Joint Venture Gross Profit Margin Percentage
October 2008 -19.1 %
November 2008 -3.7 %
December 2008 1.3 %
Because General Steel purchases the majority of its iron ore supply on the domestic spot market, the Company believes it was better able to quickly take advantage of falling raw material prices compared to many of its competitors with long-term, fixed-price supply contracts.
Operating Expenses
Selling, general and administrative expenses for the full year increased 128.5% to $36.9 million from $16.2 million in 2007. Selling, general and administrative expenses for the fourth quarter increased 45.5% to $8.6 million from $5.9 million in the fourth quarter of 2007. Selling, general and administrative expenses were 2.7% and 3.3% of total revenues in the full year and fourth quarter ended December 31, 2008, respectively, versus 2.1% and 2.2% in the full year and fourth quarter ended December 31, 2007.
A large portion of the year-over-year increases in selling, general and administrative expenses for the full year and fourth quarter was attributable to the timing of General Steel’s acquisitions, most notably the Maoming subsidiary, which did not exist in the fourth quarter of 2007.
Finance and interest expenses for the full year increased 149.2% to $23.2 million from $9.3 million in 2007. Finance and interest expenses for the fourth quarter increased 53.2% to $4.0 million from $2.6 million in the fourth quarter of 2007. The increase was primarily due to make-whole interest on the conversion of the convertible debt.
Net Income
Net loss for the full year was $11.3 million, compared to net income of $22.4 million in 2007. Net loss for the fourth quarter was $9.7 million, compared to net income of $12.1 million in the fourth quarter of 2007.
Basic and diluted losses per share were $0.32 for full year of 2008. Basic and diluted losses per share were $0.27 in the fourth quarter of 2008.
Balance Sheet
As of December 31, 2008 General Steel had cash and restricted cash of $145.6 million, compared to $52.1 million as of December 31, 2007. Accounts receivable and accounts receivable - related parties were $8.3 million as of December 31, 2008, compared to $11.8 million as of December 31, 2007.
Conference Call
General Steel management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on March 10, 2009. Management will discuss results and highlights from the quarter and full year and answer questions. The
dial-in number and passcode for the conference call are as follows:
U.S. Toll Free: +1-800-860-2442
Passcode: General Steel Holdings
The conference call will be broadcast live over the Internet and can be accessed by clicking the following link: http://www.visualwebcaster.com/event.asp?id=56532
Additionally, an archived Web cast of this call will be available on the Investor Relations section of General Steel’s website at
http://www.gshi-steel.com.
About General Steel Holdings, Inc.
General Steel Holdings, Inc., (NYSE: GSI), headquartered in Beijing, China, operates a diverse portfolio of Chinese steel companies. With 6.3 million tons aggregate production capacity, its companies serve various industries and produce a variety of steel products including rebar, hot-rolled carbon and silicon sheet, high-speed wire and spiral-weld pipe. General Steel Holdings, Inc. has steel operations in Shaanxi and Guangdong provinces, Inner Mongolia Autonomous Region and Tianjin municipality. For more information, please visit http://www.gshi-steel.com .
Information Regarding Forward-Looking Statements
This press release may contain certain forward-looking statements within the meaning of the Private Securities Litigation Reform Act of 1995. These statements are based on management’s current expectations or beliefs about future events and financial, political and social trends and assumptions it has made based on information currently available to it. The Company cannot assure that any expectations, forecasts or assumptions made by management in preparing these forward-looking statements will prove accurate, or that any projections will be realized. Such forward-looking statements may be affected by inaccurate assumptions or by known or unknown risks or uncertainties. Actual results may vary materially from those expressed or implied by the statements herein. For factors that could cause actual results to vary, perhaps materially, from these forward-looking statements, please refer to the Company’s Form 10-K, filed with the Securities and Exchange Commission, and other subsequent filings. Forward-looking statements contained herein speak only as of the date of this release. The Company does not undertake any obligation to update or revise publicly any forward-looking statements, whether to reflect new information, future events or otherwise.
For investor and media inquiries please contact:
In China:
Ms. Jing Ou-Yang
General Steel Holdings, Inc.
Tel: +86-10-5879-7346
Email: jing.ouyang@gshi-steel.com
Mr. Justin Knapp
Ogilvy Financial, Beijing
Tel: +86-10-8520-6556
Email: justin.knapp@ogilvy.com
In the United States:
Ms. Jessica Barist Cohen
Ogilvy Financial, New York
Tel: +1-646-460-9989
Email: jessica.cohen@ogilvypr.com
GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF DECEMBER 31, 2008 AND 2007
ASSETS
December 31, December 31,
2008 2007
CURRENT ASSETS:
Cash $14,895,442 $43,713,346
Restricted cash 130,700,335 8,391,873
Notes receivable 38,207,312 4,216,678
Notes receivable - restricted -- 12,514,659
Note receivable - related party -- --
Accounts receivable, net of
allowance for doubtful accounts of
$401,109 and $148,224 as of
December 31, 2008 and December 31,
2007, respectively 8,329,040 11,225,678
Accounts receivable -
related parties -- 565,631
Short term loan receivable -
related parties -- 1,233,900
Other receivables, net of allowance
for doubtful accounts of $684,767
and $0 as of December 31, 2008 and
December 31, 2007, respectively 5,099,469 1,280,853
Other receivables - related parties 523,024 1,913,448
Dividend receivable 630,481 -
Inventories 59,548,915 77,928,925
Advances on inventory purchases 47,153,869 58,170,474
Advances on inventory purchases -
related parties 2,374,637 9,944,012
Prepaid expenses - current 441,558 1,059,866
Prepaid expenses related
party - current 52,812 49,356
Deferred tax assets 7,487,380 399,751
Plant and equipment to be disposed 586,508 --
316,030,782 232,608,450
PLANT AND EQUIPMENT, net 491,705,028 218,263,367
OTHER ASSETS:
Advances on equipment purchases 8,965,382 742,061
Investment in unconsolidated
subsidiaries 13,959,432 822,600
Prepaid expenses - non current 1,195,073 506,880
Prepaid expenses related party -
non current 211,248 142,467
Long term other receivable 4,872,584 --
Intangible assets, net of
accumulated amortization 24,555,655 21,756,709
Note issuance cost 4,217,974 3,564,546
Total other assets 57,977,348 27,535,263
Total assets $865,713,158 $478,407,080
LIABILITIES AND SHAREHOLDERS’ EQUITY
CURRENT LIABILITIES:
Short term notes payable $206,040,150 $15,163,260
Accounts payable 149,239,317 102,241,708
Accounts payable - related parties 15,326,524 14,302,738
Short term loans - bank 67,840,256 93,019,608
Short term loans - others 87,833,706 26,473,097
Short term loans - related parties 7,349,670 --
Other payables 3,182,661 3,343,684
Other payable - related parties 677,013 2,126,383
Accrued liabilities 7,779,488 5,248,863
Customer deposits 141,101,584 37,872,698
Customer deposits - related parties 7,216,319 9,211,736
Deposits due to sales representatives 8,149,279 3,068,298
Taxes payable 13,916,636 27,576,240
Distribution payable to former
shareholders 18,765,209 9,401,603
Total current liabilities 734,417,812 349,049,916
NOTES PAYABLE, net of debt discount
of $26,094,942 and $34,559,584 as of
December 31, 2008 and December 31,
2007, respectively 7,155,058 5,440,416
DERIVATIVE LIABILITIES 9,903,010 28,483,308
Total liabilities 751,475,880 382,973,640
MINORITY INTEREST 49,397,915 42,044,266
SHAREHOLDERS’ EQUITY:
Preferred stock, $0.001 par value,
50,000,000 shares authorized,
3,092,899 shares
issued and outstanding 3,093 3,093
Common Stock, $0.001 par value,
200,000,000 shares authorized,
36,128,833 and
34,634,765 shares issued and
outstanding as of December 31,
2008 and 2007, respectively 36,129 34,635
Paid-in-capital 37,128,641 23,429,153
Retained earnings 10,752,235 22,686,590
Statutory reserves 4,242,235 3,632,325
Contribution receivable (959,700) (959,700)
Accumulated other comprehensive income 13,636,730 4,563,078
Total shareholders’ equity 64,839,364 53,389,174
Total liabilities and
shareholders’ equity $865,713,158 $478,407,080
GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND OTHER COMPREHENSIVE INCOME
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 2007 2006
REVENUES $1,004,847,767 $416,900,597 $139,494,624
REVENUES - RELATED PARTIES 346,355,382 355,538,568 --
TOTAL REVENUES 1,351,203,149 772,439,165 139,494,624
COST OF SALES 999,318,491 389,614,876 135,324,190
COST OF SALES - RELATED
PARTIES 343,956,867 326,135,528 --
TOTAL COST OF SALES 1,343,275,358 715,750,404 135,324,190
GROSS PROFIT 7,927,791 56,688,761 4,170,434
SELLING, GENERAL AND
ADMINISTRATIVE EXPENSES 36,941,996 16,163,956 2,421,285
(LOSS) INCOME FROM OPERATIONS (29,014,205) 40,524,805 1,749,149
OTHER INCOME (EXPENSE), NET
Interest income 4,251,287 871,221 182,780
Interest/finance (expense) (23,166,055) (9,296,601) (2,345,031)
Change in fair value of
derivative liabilities 12,820,578 6,235,754 --
Gain from debt extinguishment 7,168,500 -- --
Income from equity investments 1,895,941 -- --
Other nonoperating income
(expense), net 766,560 927,809 2,245,081
Total other income
(expense), net 3,736,811 (1,261,817) 82,830
(LOSS) INCOME BEFORE PROVISION
FOR INCOME TAXES (25,277,394) 39,262,988 1,831,979
AND MINORITY INTEREST
PROVISION (BENEFIT) FOR INCOME
TAXES
Current 1,423,737 5,224,722 --
Deferred (6,834,849) (388,525) --
Total provision for
income taxes (5,411,112) 4,836,197 --
(LOSS) INCOME BEFORE MINORITY
INTEREST (19,866,282) 34,426,791 1,831,979
LESS MINORITY INTEREST (8,541,837) 12,000,870 798,771
NET (LOSS) INCOME (11,324,445) 22,425,921 1,033,208
FOREIGN CURRENCY TRANSLATION
GAIN 9,073,652 3,486,390 677,500
COMPREHENSIVE (LOSS) INCOME $(2,250,793) $25,912,311 $1,710,708
WEIGHTED AVERAGE NUMBER OF
SHARES
Basic 35,381,210 32,424,652 31,250,000
Diluted 35,381,210 32,558,350 31,250,000
EARNINGS PER SHARE
Basic $(0.32) $0.69 $0.03
Diluted $(0.32) $0.69 $0.03
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED DECEMBER 31, 2008, 2007 AND 2006
2008 2007 2006
CASH FLOWS FROM OPERATING
ACTIVITIES:
Net (loss) income $(11,324,445) $22,425,921 $1,033,208
Adjustments to reconcile net
income (loss) to cash
provided by (used in)
operating activities:
Minority interest (8,541,837) 12,000,870 798,771
Depreciation 21,505,614 9,740,317 1,619,267
Amortization 908,183 596,538 297,933
Bad debt allowance 704,261 1,510 132,895
Gain from debt extinguishment (7,168,500) -- --
(Gain) Loss on disposal of
equipment 306,210 10,404 28,137
Inventory Allowance 2,204,239 -- --
Stock issued for services and
compensation 2,722,937 595,776 --
Income from investment (1,895,942) -- --
Interest expense accrued on
mandatory redeemable stock -- 114,135 458,904
Amortization of deferred note
issuance cost 49,762 29,954 --
Amortization of discount on
convertible notes 782,987 159,478 --
Change in fair value of
derivative instrument (12,820,578) (6,235,754) --
Make whole shares interest
expense on notes conversion 2,310,312 -- --
Deferred tax assets (6,936,924) (383,918) --
Changes in operating assets
and liabilities
Accounts receivable 2,090,784 16,247,520 (15,871,902)
Accounts receivable - related
parties (18,274,799) (543,228) --
Notes receivable (33,063,540) (9,491,608) (521,888)
Other receivables (4,124,334) (453,072) (152,111)
Other receivables - related
parties 2,422,837 (990,037) (850,400)
Loan receivable 1,297,350 (1,185,030) --
Inventories 29,219,660 (8,853,823) (1,366,266)
Advances on inventory
purchases 19,916,130 (45,012,751) 8,581,191
Advances on inventory
purchases - related parties 7,814,408 (9,550,168) --
Prepaid expense - current 1,075,336 (949,243) --
Prepaid expense - current-
related parties -- (47,401) --
Prepaid expense - non current (616,490) 252,872 44,559
Prepaid expense - non current
- related parties (57,783) (136,825) --
Accounts payable 11,974,753 88,355,643 2,106,005
Accounts payable - related
parties 44,724,582 13,736,262 --
Other payables (1,752,319) 823,345 135,275
Other payable - related
parties (1,482,156) (76,863,715) (980,000)
Accrued liabilities 214,305 2,440,134 259,000
Dividends payable (815,412) -- --
Customer deposits 95,131,910 2,559,598 (221,532)
Customer deposits - related
parties (2,286,955) 8,846,895 --
Taxes payable (22,443,176) 20,799,845 3,577,364
Net cash provided by (used
in) operating activities 113,771,370 39,040,444 (891,590)
CASH FLOWS FROM INVESTING
ACTIVITIES:
Cash acquired from subsidiary 2,782,058 508,906 --
Notes receivable - related
party -- -- 3,013,680
Proceeds from short term
investment -- -- 37,671
Increase in investment payable -- 6,320,160 --
Acquire long term investment -- (790,020) --
Advance on equipment purchases (8,029,323) (712,671) 1,066,504
Advance on land use right
purchases -- -- (72,031)
Deposits due to sales
representatives 4,781,548 840,055 732,073
Long term other receivable (4,787,887) -- --
Cash proceeds from sale of
equipment 598,137 63,422 --
Equipment purchases (195,303,329) (21,523,962) (9,267,419)
Intangible assets purchases (245,081) -- --
Payment to original
shareholders (7,290,000) -- --
Net cash used in provided by
investing activities (207,493,877) (15,294,110) (4,489,522)
CASH FLOWS FINANCING ACTIVITIES:
Restricted cash (87,120,615) 236,655 (1,374,495)
Notes receivable- restricted 13,158,192 -- --
Borrowings on short term
loans - bank 71,057,301 56,812,972 29,663,401
Payments on short term
loans - bank (103,640,664) (53,111,728) (27,462,159)
Borrowings on short term
loan - others 87,207,494 5,230,372 --
Payments on short term
loans - others (53,031,087) (12,640,320) --
Borrowings on short term loans
- related parties 7,221,915 -- --
Payments on short term loans -
related parties (7,693,286) (17,117) --
Borrowings on short term
notes payable 335,869,500 14,562,702 7,986,252
Payments on short term
notes payable (200,415,606) (38,210,634) (5,474,852)
Cash received on stock issuance 700,000 -- --
Cash received from issuance of
convertible note -- 36,855,500 --
Cash contribution received from
minority shareholders -- 790,020 --
Cash received from warrants
conversion -- 5,300,000 --
Payment to minority
shareholders -- (2,813,644) --
Net cash provided by
financing activities 63,313,144 12,994,778 3,338,147
EFFECTS OF EXCHANGE RATE CHANGE
IN CASH 1,591,459 140,685 226,142
INCREASE (DECREASE) IN CASH (28,817,904) 36,881,797 (1,816,824)
CASH, beginning of period 43,713,346 6,831,549 8,648,373
CASH, end of period $14,895,442 $43,713,346 $6,831,549
GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS’ EQUITY
Preferred stock Common stock
Paid-in
Shares Par value Shares Par value capital
BALANCE, January 1,
2006 -- $ -- 31,250,000 $31,250 $6,871,358
BALANCE, December 31,
2006 -- $ -- 31,250,000 $31,250 $6,871,358
Common stock issued
for service,
$1.32/share 18,000 18 23,742
Preferred stock
issued for
acquisition of
minority interest,
net of dividend
distribution to
Victory New 3,092,899 3,093 8,370,907
Common stock
issued for
conversion of
redeemable stock,
$1.95/share 1,176,665 1,177 2,293,320
Conversion of
warrants, $2.50 2,120,000 2,120 5,297,880
Common stock issued
for compensation,
$8.16 70,100 70 571,946
BALANCE, December
31, 2007 3,092,899 $3,093 34,634,765 $34,635 $23,429,153
Common stock issued
for compensation,
$7.16 76,600 77 548,379
Common stock issued
for compensation,
$10.43 150,000 150 1,564,350
Common stock issued
for compensation,
$6.66 87,400 87 581,997
Common stock issued
for compensation,
$10.29 90,254 90 928,582
Common stock issued
for consulting
fee, $3.6 100,000 100 359,900
Common stock issued
for public
relations, $3.6 25,000 25 89,975
Common stock issued
for compensation,
$3.5 87,550 88 306,337
Common stock
transferred by CEO
for compensation,
$6.91 -- -- 207,300
Common stock issued
at $5/share 140,000 140 699,860
Notes converted to
common stock 541,299 541 6,102,691
Make whole shares
issued on notes
conversion 195,965 196 2,310,117
BALANCE, December
31, 2008 3,092,899 $3,093 36,128,833 $36,129 $37,128,641
Retained earnings
Statutory Subscriptions
reserves Unrestricted receivable
BALANCE, January 1, 2006 $840,753 $4,207,236 $ --
Net income 1,033,208
Adjustment to statutory reserve 266,257 (266,257)
BALANCE, December 31, 2006 $1,107,010 $4,974,187 $ --
Net income 22,425,921
Adjustment to statutory reserve 2,525,315 (2,525,315)
Registered Capital to be received
from Baotou Steel by 05/21/09 (959,700)
Preferred stock issued for
acquisition of minority interest,
net of dividend distribution to
Victory New (2,188,203)
BALANCE, December 31, 2007 $3,632,325 $22,686,590 $(959,700)
Net loss (11,324,445)
Adjustment to statutory reserve 609,910 (609,910)
BALANCE, December 31, 2008 $4,242,235 $10,752,235 $(959,700)
other
comprehensive
income Total
BALANCE, January 1, 2006 $399,188 $12,349,785
Net income 1,033,208
Adjustment to statutory reserve --
Foreign currency translation gain 677,500 677,500
BALANCE, December 31, 2006 $1,076,688 $14,060,493
Net income 22,425,921
Adjustment to statutory reserve --
Registered Capital to be received from
Baotou Steel by 05/21/09 (959,700)
Common stock issued for service, $1.32/share 23,760
Preferred stock issued for acquisition of
minority interest, net of dividend
distribution to Victory New 6,185,797
Common stock issued for conversion
of redeemable stock, $1.95/share 2,294,497
Conversion of warrants, $2.50 5,300,000
Common stock issued for compensation, $8.16 572,016
Foreign currency translation gain 3,486,390 3,486,390
BALANCE, December 31, 2007 $4,563,078 $53,389,174
Net loss (11,324,445)
Adjustment to statutory reserve --
Common stock issued for compensation, $7.16 548,456
Common stock issued for compensation, $10.43 1,564,500
Common stock issued for compensation, $6.66 582,084
Common stock issued for compensation, $10.29 928,672
Common stock issued for consulting fee, $3.6 360,000
Common stock issued for public relations, $3.6 90,000
Common stock issued for compensation, $3.5 306,425
Common stock transferred by CEO for
compensation, $6.91 207,300
Common stock issued at $5/share 700,000
Notes converted to common stock 6,103,232
Make whole shares issued on notes conversion 2,310,313
Foreign currency translation adjustments 9,073,652 9,073,652
BALANCE, December 31, 2008 $13,636,730 $64,839,363
