Company achieves first quarter net income growth of 235.2% year-over-year
BEIJING, May 11 /PRNewswire-Asia/ -- 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 first quarter of 2009 ended March 31, 2009.
Highlights from the First Quarter of 2009:
-- Shipment volume at Shaanxi Longmen Iron and Steel Co., Ltd. ("Longmen
Joint Venture") reached record high of 654,681 metric tons, a 39.4%
year-over-year increase
-- Total revenues increased 10.7% to $322.8 million from $291.6 million in
the first quarter of 2008
-- Gross margin was 4.0%, compared to 4.5% in the first quarter of 2008
and -8.3% in the previous quarter
-- Net income increased 235.2% to $7.3 million, or $0.20 per basic and
diluted share
-- Net income less derivative impact (non-GAAP), defined as net income
less impact of derivative gain or loss, was $3.2 million, or $0.09 per
basic and diluted share
"I'm pleased to report a return to positive gross margin and net income in the first quarter," said Mr. Henry Yu, General Steel's chairman and chief executive officer. "Our investment in two, modern blast furnaces at our Longmen Joint Venture is allowing us to meet stimulus and earthquake rebuilding-related demand in our largest addressable market of Shaanxi and Sichuan provinces while decreasing our requirements for major inputs such as energy, coke and manpower. In fact, this increased demand resulted in record production and shipment volumes for the quarter. These achievements are indicative of our ability to consolidate state-owned and private companies with outstanding potential and improve their efficiency with modern equipment and management techniques."
Mr. Yu continued, "As we look at the remainder of 2009, I'm confident that spending on earthquake rebuilding and stimulus projects will continue to drive demand for our products. While the economic slowdown has made for challenging times for many steel companies, it is also creating numerous opportunities to acquire quality assets with excellent growth potential at attractive valuations. We were founded on an M&A platform, and will continue to play a significant role in the industry's consolidation as catalysts strengthen."
Selected Financial Results for the First Quarter of 2009
Revenues
Total revenues in the first quarter of 2009 increased 10.7% to $322.8 million from $291.6 million in the first quarter of 2008.
The year-over-year increase in total revenues was due to a significant increase in shipment volumes at the Company's Longmen Joint Venture, which were partially offset by decreases at other locations, as well as the timing of the acquisition of Maoming Hengda Steel Group Limited ("Maoming"), which began contributing to the Company's consolidated financial results on June 25, 2008.
Cost of Sales
Total cost of sales for the first quarter of 2009 increased 11.2% to $309.9 million from $278.6 million in the first quarter of 2008.
Cost of sales principally consists of the cost of raw materials, labor, utilities, manufacturing costs, manufacturing-related depreciation and other fixed costs. The increase in cost of sales was mostly attributable to an increase in production volume at the Company's Longmen Joint Venture facility in response to demand created by earthquake reconstruction and stimulus measures. The timing of the Maoming acquisition also contributed to the increase.
Gross Profit and Margin
Gross profit for the first quarter of 2009 decreased 0.5% year-over-year to $12.9 million from $13.0 million in the first quarter of 2008. The year-over-year decrease in gross profit was largely due to the lower average selling price of steel products caused by the economic slowdown in China's real estate and construction markets and in the overall domestic economy.
Gross margin for the first quarter of 2009 was 4.0%, compared to 4.5% in the first quarter of 2008 and to gross margin of -8.3% in the fourth quarter of 2008. The Company noted that a strategic decision to sell-out of high-cost inventory in the fourth quarter of 2008 and an increase in aggregate demand in the Company's main markets of Shaanxi and Sichuan provinces due to stimulus and earthquake reconstruction-related spending resulted in a return to positive gross margin.
Operating Expenses
Selling, general and administrative expenses for the first quarter of 2009 increased 40.3% to $9.2 million from $6.5 million in the first quarter of 2008. Selling, general and administrative expenses were 2.8% of total revenues in the first quarter of 2009, compared to 2.2% of total revenues in the first quarter of 2008.
A large portion of the increase in selling, general and administrative expenses for the first quarter of 2009 was attributable to increased production volume at the Company's Longmen Joint Venture and the timing of the Maoming acquisition.
Finance and interest expenses for the first quarter of 2009 decreased 50.9% to $2.9 million from $6.0 million in the first quarter of 2008. The decrease was primarily due to lower interest rates and capitalized interest expense related to the two new blast furnaces at Longmen Joint Venture.
Net Income
Net income for the first quarter of 2009 increased 235.2% to $7.3 million from $2.2 million in the first quarter of 2008. Basic and diluted earnings per share for the first quarter of 2009 were $0.20, compared to $0.06 in the first quarter of 2008.
Net income during the first quarter of 2009 was also impacted by a gain of $4.1 million from a derivative instrument; $2.9 million from debt waivers to the Maoming subsidiary, a result of negotiations with a key creditor; and a $3.5 million government grant at our Longmen Joint Venture, a benefit of the national steel industry revitalization plan.
The Company noted that it believes that net income less derivative impact (non-GAAP), which is calculated as GAAP net earnings before the impact of a derivative gain or loss is a better measurement of its performance. Net income less derivative impact (non-GAAP) for the first quarter of 2009 was $3.2 million, or $0.09 per basic and diluted share, based on 36.3 million basic and diluted shares.
The derivative instrument gain is a non-operating, non-cash gain related to the convertible bond and related warrants issued in December 2007. According to accounting rules, the derivative instrument value and associated gain or loss is linked to the Company's stock price. The gain or loss of this instrument has no impact on cash (i.e. no cash was paid out or received).
Balance Sheet
As of March 31, 2009 General Steel had cash and restricted cash of $213.4 million, compared to $145.6 million as of December 31, 2008. Accounts receivable was $20.1 million as of March 31, 2009, compared to $8.3 million as of December 31, 2008.
Explanation of Non-Cash Derivative Expenses
Pursuant to SFAS 133 and EITF 00-19, the Company determined that both the warrants and the conversion option embedded in the Notes issued on December 13, 2007 met the definition of a derivative instrument and must be carried as a liability and marked to market each reporting period. As such, depending upon the price of the Company's common stock at the end of the quarter or year there could be an associated gain or loss, which is non-cash in nature but will be recurring until such time as the Notes are either redeemed or converted and the warrants are exercised.
As of March 31, 2009, the balance of derivative liabilities was $5.8 million, which consisted of $1.8 million for the warrants and $4.0 million for the carrying value of the Convertible Notes.
Conference Call
General Steel management will hold an earnings conference call at 8:00 a.m. U.S. Eastern Time on May 11, 2009. Management will discuss results and highlights from the quarter 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=58517
Additionally, an archived Web cast of this call will be available on 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 metric 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.
GENERAL STEEL HOLDINGS INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
AS OF MARCH 31, 2009 AND DECEMBER 31, 2008
ASSETS
March 31, December 31,
2009 2008
Unaudited
CURRENT ASSETS:
Cash $39,128,494 $14,895,442
Restricted cash 174,321,481 130,700,335
Notes receivable 17,318,812 38,207,312
Accounts receivable, net of
allowance for doubtful accounts
of $400,571 and $401,109 as of
March 31, 2009 and December 31,
2008, respectively 20,082,659 8,329,040
Other receivables, net of
allowance for doubtful accounts
of $683,826 and $684,767 as of
March 31, 2009 and December 31,
2008, respectively 2,479,717 5,099,469
Other receivables - related
parties 1,395,616 523,024
Dividend receivable 629,621 630,481
Inventories 107,858,572 59,548,915
Advances on inventory purchases 36,840,793 47,153,869
Advances on inventory purchases -
related parties 13,863,922 2,374,637
Prepaid expenses - current 704,162 494,370
Deferred tax assets 6,488,093 7,487,380
421,111,942 315,444,274
PLANT AND EQUIPMENT, net 527,298,591 491,705,028
OTHER ASSETS:
Advances on equipment purchases 7,755,163 8,965,382
Investment in unconsolidated
subsidiaries 20,476,409 13,959,432
Prepaid expenses - non current 1,153,027 1,195,073
Prepaid expenses related party -
non current 197,775 211,248
Long term other receivable 4,563,423 4,872,584
Intangible assets, net of
accumulated amortization 24,461,096 24,555,655
Note issuance cost 4,197,058 4,217,974
Plant and equipment to be
disposed -- 586,508
Total other assets 62,803,951 58,563,856
Total assets $1,011,214,484 $865,713,158
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term notes payable $244,428,086 $206,040,150
Accounts payable 150,364,523 149,239,317
Accounts payable - related
parties 32,026,694 15,326,524
Short term loans - bank 85,931,040 67,840,256
Short term loans - others 90,928,371 87,833,706
Short term loans - related
parties 7,339,650 7,349,670
Other payables 10,407,709 3,182,661
Other payable - related parties 8,191,474 677,013
Accrued liabilities 11,652,374 7,779,488
Customer deposits 147,012,299 141,101,584
Customer deposits - related
parties 6,690,802 7,216,319
Deposits due to sales
representatives 43,858,305 8,149,279
Taxes payable 14,087,859 13,916,636
Distribution payable to former
shareholders 18,739,625 18,765,209
Total current liabilities 871,658,811 734,417,812
CONVERTIBLE NOTES PAYABLE, net of
debt discount of $25,625,326 and
$26,094,942 as of March 31, 2009
and December 31, 2008, respectively 7,624,674 7,155,058
DERIVATIVE LIABILITIES 5,788,442 9,903,010
COMMITMENT AND CONTINGENCIES
Total liabilities 885,071,927 751,475,880
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,
36,390,323 and 36,128,833 shares
issued and outstanding as of
March 31, 2009 and December 31,
2008, respectively 36,390 36,129
Paid-in-capital 37,957,453 37,128,641
Retained earnings 17,166,701 10,091,829
Statutory reserves 5,162,401 4,902,641
Contribution receivable (959,700) (959,700)
Accumulated other comprehensive
income 8,230,428 8,407,359
Total shareholders' equity 67,596,766 59,609,992
NONCONTROLLING INTERESTS 58,545,791 54,627,286
Total equity 126,142,557 114,237,278
Total liabilities and
shareholders' equity $1,011,214,484 $865,713,158
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
2009 2008
REVENUES $262,414,416 $178,492,167
REVENUES - RELATED PARTIES 60,379,480 113,073,832
TOTAL REVENUES 322,793,896 291,565,999
COST OF SALES 252,002,104 166,714,663
COST OF SALES - RELATED PARTIES 57,869,673 111,869,221
TOTAL COST OF SALES 309,871,777 278,583,884
GROSS PROFIT 12,922,119 12,982,115
SELLING, GENERAL AND ADMINISTRATIVE
EXPENSES 9,168,261 6,532,821
INCOME FROM OPERATIONS 3,753,858 6,449,294
OTHER INCOME (EXPENSE), NET
Interest income 878,633 580,318
Finance/interest (expense) (2,938,778) (5,986,507)
Change in fair value of
derivative liabilities 4,114,568 2,670,764
Gain from debt extinguishment 2,930,200 --
Government grant 3,519,890 --
Income from equity investments (54,632) --
Other non-operating income
(expense), net 510,216 369,270
Total other income
(expense), net 8,960,097 (2,366,155)
INCOME BEFORE PROVISION FOR INCOME
TAXES
AND NONCONTROLLING INTEREST 12,713,955 4,083,139
PROVISION FOR INCOME TAXES
Current 164,221 666,356
Deferred 1,221,850 (216,533)
Total provision for income
taxes 1,386,071 449,823
NET INCOME BEFORE NONCONTROLLING
INTEREST 11,327,884 3,633,316
Less: Net income attributable to
noncontrolling interest 3,993,252 1,444,856
NET INCOME ATTRIBUTABLE TO
CONTROLLING INTEREST 7,334,632 2,188,460
OTHER COMPREHENSIVE (LOSS) INCOME:
Foreign currency translation
adjustments (176,931) 1,615,950
Comprehensive (loss)income
attributable to noncontrolling
interest (74,746) 2,706,989
COMPREHENSIVE INCOME $7,082,955 $6,511,399
WEIGHTED AVERAGE NUMBER OF SHARES
Basic 36,285,312 34,836,394
Diluted 36,285,312 34,923,614
EARNING PER SHARE
Basic $0.20 $0.06
Diluted $0.20 $0.06
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED MARCH 31
(UNAUDITED)
2009 2008
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income attributable to
controlling interest $7,334,632 $2,188,460
Net income attributable to
noncontrolling interest 3,993,252 1,444,856
Consolidated net income 11,327,884 3,633,316
Adjustments to reconcile net income
to cash provided by (used in) operating
activities:
Depreciation 6,024,757 4,499,873
Amortization 224,416 205,146
Debt waiver (2,930,200) --
(Gain)Loss on disposal of
equipment (3,517,774) 9,492
Stock issued for services and
compensation 271,212 548,456
Amortization of deferred note
issuance cost 20,917 8,894
Amortization of discount on
convertible notes -- 697,628
Change in fair value of derivative
instrument (4,114,568) (2,670,763)
Deferred tax assets 989,146 (216,533)
Changes in operating assets and
liabilities
Accounts receivable (11,764,035) (1,459,682)
Accounts receivable - related
parties -- 7,631,355
Notes receivable 20,837,833 (13,832,292)
Notes receivable - restricted -- 8,491,027
Other receivables 2,915,525 1,533,823
Other receivables - related
parties (1,736,108) (148,056)
Inventories (48,394,144) (17,647,149)
Advances on inventory purchases 10,249,490 6,516,616
Advances on inventory purchases -
related parties (7,552,281) (26,563,452)
Prepaid expense - current (156,475) (220,516)
Accounts payable 1,285,289 11,144,259
Accounts payable - related parties 21,860,581 (6,951,111)
Other payables 7,229,879 (2,579,136)
Other payable - related parties 8,179,890 (2,118,101)
Accrued liabilities 3,882,827 522,377
Customer deposits 6,103,498 20,885,570
Customer deposits - related
parties (5,120,847) (9,391,133)
Taxes payable 190,208 (9,585,924)
Net cash provided by (used in)
operating activities 16,306,920 (27,056,016)
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquired long term investment (6,592,950) --
Cash acquired from subsidiary -- 702,237
Deposits due to sales
representatives 35,722,574 (451,457)
Advance on equipment purchases 1,198,078 416,045
Cash proceeds from sale of equipment 440 --
Equipment purchases (41,415,299) (28,097,609)
Intangible assets purchases (163,329) 143,465
Net cash used in investing
activities (11,250,486) (27,287,319)
CASH FLOWS FINANCING ACTIVITIES:
Restricted cash (43,802,323) (33,726,504)
Borrowings on short term loans -
bank 51,732,681 24,893,037
Payments on short term loans - bank (33,548,167) (28,568,988)
Borrowings on short term loans -
related parties -- 6,168,050
Payments on short term loans -
related parties -- (5,153,320)
Borrowings on short term loan -
others 13,295,533 23,147,344
Payments on short term loans -
others (7,150,703) (16,733,731)
Borrowings on short term notes
payable 158,809,676 62,896,500
Payments on short term notes payable (120,138,200) (11,614,887)
Borrowings on employee loans -- 2,306,205
Payment to noncontrolling
shareholders -- (594,336)
Net cash provided by financing
activities 19,198,497 23,019,370
EFFECTS OF EXCHANGE RATE CHANGE IN
CASH (21,879) 857,715
INCREASE (DECREASE) IN CASH 24,233,052 (30,466,250)
CASH, beginning of period 14,895,442 43,713,346
CASH, end of period $39,128,494 $13,247,096
GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
Preferred stock Common stock
Shares Par value Shares Par value
BALANCE, January 1, 2008 3,092,899 $3,093 34,634,765 $34,635
Net income
Acquired noncontrolling
interest
Adjustment to statutory
reserve
Preferred stock issued
for acquisition of
minority interest,
net of dividend
distribution to
Victory New
Conversion of redeemable
stock, $1.95
Common stock issued for
service, $1.32
Common stock issued by
$2.50
Common stock issued for
compensation, $8.16 76,600 77
Common stock issued for
compensation, $10.43 150,000 150
Foreign currency
translation adjustments
BALANCE, March 31, 2008,
unaudited 3,092,899 $3,093 34,861,365 $34,862
Net loss
Acquired noncontrolling
interest
Adjustment to statutory
reserve
Common stock issued for
compensation, $6.66 87,400 87
Common stock issued for
compensation, $10.29 90,254 90
Common stock issued for
consulting fee, $3.6 100,000 100
Common stock issued for
public relations, $3.6 25,000 25
Common stock issued for
compensation, $3.5 87,550 88
Common stock transferred
by CEO for compensation,
$6.91
Common stock issued at
$5/share 140,000 140
Notes converted to common
stock 541,299 541
Make whole shares issued
on notes conversion 195,965 196
Foreign currency
translation adjustments
BALANCE, December 31, 2008 3,092,899 $3,093 36,128,833 $36,129
Net income
Adjustment to statutory
reserve
Common stock issued for
compensation, $1.85 109,250 109
Common stock issued for
interest payment, $3.66 152,240 152
Common stock transferred
by CEO for compensation,
$6.91
Foreign currency
translation adjustments
BALANCE, March 31, 2009,
unaudited 3,092,899 $3,093 36,390,323 $36,390
Retained earnings
Paid-in Statutory Subscriptions
capital reserves Unrestricted receivable
BALANCE, January 1, 2008 $23,429,153 $3,632,325 $22,686,590 $(959,700)
Net income 2,188,460
Acquired noncontrolling
interest
Adjustment to statutory
reserve 347,747 (347,747)
Preferred stock issued
for acquisition of
minority interest,
net of dividend
distribution to
Victory New
Conversion of
redeemable stock,
$1.95
Common stock issued for
service, $1.32
Common stock issued by
$2.50
Common stock issued for
compensation, $8.16 548,379
Common stock issued for
compensation, $10.43 1,564,350
Foreign currency
translation
adjustments
BALANCE, March 31, 2008,
unaudited $25,541,882 $3,980,072 $24,527,303 $(959,700)
Net loss (13,512,905)
Acquired noncontrolling
interest
Adjustment to statutory
reserve 922,569 (922,569)
Common stock issued for
compensation, $6.66 581,997
Common stock issued for
compensation, $10.29 928,582
Common stock issued for
consulting fee, $3.6 359,900
Common stock issued for
public relations, $3.6 89,975
Common stock issued for
compensation, $3.5 306,337
Common stock
transferred by CEO for
compensation, $6.91 207,300
Common stock issued at
$5/share 699,860
Notes converted to
common stock 6,102,691
Make whole shares
issued on notes
conversion 2,310,117
Foreign currency
translation
adjustments
BALANCE, December 31, 2008 $37,128,641 $4,902,641 $10,091,829 $(959,700)
Net income 7,334,632
Adjustment to statutory
reserve 259,760 (259,760)
Common stock issued for
compensation, $1.85 202,003
Common stock issued for
interest payment,
$3.66 557,709
Common stock
transferred by CEO for
compensation, $6.91 69,100
Foreign currency
translation
adjustments
BALANCE, March 31, 2009,
unaudited $37,957,453 $5,162,401 $17,166,701 $(959,700)
Accumulated
other
comprehensive Noncontrolling
income interest Totals
BALANCE, January 1, 2008 $3,285,278 $43,322,066 $95,433,440
Net income 1,444,856 3,633,316
Acquired noncontrolling
interest 14,973,544 14,973,544
Adjustment to statutory
reserve --
Preferred stock issued for
acquisition of minority
interest, net of dividend
distribution to Victory
New --
Conversion of redeemable
stock, $1.95 --
Common stock issued for
service, $1.32 --
Common stock issued by $2.50 --
Common stock issued for
compensation, $8.16 548,456
Common stock issued for
compensation, $10.43 1,564,500
Foreign currency translation
adjustments 1,615,950 2,706,989 4,322,939
BALANCE, March 31, 2008,
unaudited $4,901,228 $62,447,455 $120,476,195
Net loss (9,986,693) (23,499,598)
Acquired noncontrolling
interest 921,942 921,942
Adjustment to statutory
reserve --
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 3,506,131 1,244,582 4,750,713
BALANCE, December 31, 2008 $8,407,359 $54,627,286 $114,237,278
Net income 3,993,251 11,327,883
Adjustment to statutory
reserve --
Common stock issued for
compensation, $1.85 202,112
Common stock issued for
interest payment, $3.66 557,861
Common stock transferred by
CEO for compensation, $6.91 69,100
Foreign currency translation
adjustments (176,931) (74,746) (251,677)
BALANCE, March 31, 2009,
unaudited $8,230,428 $58,545,791 $126,142,557
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