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| 8-K - CURRENT REPORT - China Precision Steel, Inc. | form8k.htm |
China Precision Steel Announces Second Quarter Fiscal 2013 Results
SHANGHAI, China, February 19, 2013 – 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 2013 second quarter results for the period ended December 31, 2012.
Second Quarter Highlights
| ● | Revenue was $8.2 million |
| ● | Gross loss was $1.3 million |
| ● | Net loss was $10.9 million |
| ● | Fully diluted loss per shares was $2.80 |
| ● | International sales were $0.8 million, or 10% of total sales |
“During the quarter, we continued to focus on our strategy to reduce production of negative margin products including many of our low carbon steel products which resulted in a decline of revenue period-over-period, However, compared with the immediate preceding quarter ended September 30, 2012, our revenue increased 37.1% as selling prices showed signs of stabilizing during the quarter and our sales volume increased 38.1%,” commented Mr. Hai Sheng Chen, CEO of China Precision Steel. “While we continue to remain cautious about the near-term as the Chinese steel industry works through its overcapacity, we believe that the Chinese economy and steel industry will continue to gradually improve throughout the calendar year 2013 as the new government implements its policies for economic growth.
Revenue for the second quarter of fiscal year 2013 was $8.2 million, down from revenue of $33.7 million in the second quarter of fiscal year 2012. The decrease in revenue was mainly attributable to the decrease in production and sales of low-carbon cold-rolled products in response to the company’s strategy to reduce its loss-making products. Sequentially, revenue increased 37.1% from revenue of $6.0 million in the first quarter of fiscal year 2013. Total sales volume in the second quarter of fiscal year 2013 was 10,705 tons, down from total sales volume of 39,907 tons in the prior period and up from total sales volume of 7,753 tons in the first quarter of 2013. High carbon and low carbon sales accounted for 32.4% and 65.6% of total sales, respectively, compared to 21.2% and 77.2%, respectively, period-on-period. Exports represented 10% of total sales for the current period, compared to 14% in the same period a year ago.
Gross loss in the second quarter was $1.3 million, compared to gross loss of $1.8 million in the same period a year ago. Gross loss margin for the current period was 15.9%, compared to a gross loss margin of 5.3% in the second quarter of fiscal 2012. The increase in gross loss margin is due to a 9.6% period-on-period decrease in average selling prices while the average cost per unit sold declined 0.9% period-on-period. Average selling price for the quarter was $763 per ton, down from $844 per ton in the second quarter of fiscal 2012, and the average cost per unit sold was $884 per ton, down slightly from $889 per ton in the same period a year ago.
Selling expenses for the second quarter of fiscal year 2013 were $25,063, compared to $40,185 in the second quarter of fiscal year 2012. The decline in selling expenses was primarily attributable to lower transportation costs and traveling expenses period-on-period. Administrative expenses were $401,797, or 4.9% of revenue, compared to $932,480, or 2.8% 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 $10.6 million, compared to an operating loss of $2.8 million in the second quarter of fiscal year 2012.
Net loss for the second quarter of fiscal year 2013 was $10.9 million, compared to net loss of $3.5 million for the second quarter of fiscal year 2012. Fully diluted loss per share was $2.80, compared to fully diluted loss per share of $0.91 in the same period a year ago.
Six Months Financial Results
Revenue for the first six months of fiscal year 2013 was $14.1 million compared to $75.8 million in the same period a year ago. Gross loss was $2.8 million, compared to a gross loss of $1.7 million for the six months of fiscal year 2012. Gross loss margin for the six months ended December 31, 2012 was 19.6% compared to 2.3% for the same period a year ago. Operating loss was $13.9 million compared to $3.2 million in the first six months of fiscal year 2012. Net loss was $15.1 million, compared to a net loss of $4.6 million in the same period a year ago. Fully diluted loss per share was $3.89, compared to fully diluted loss per share of $1.19 for the first six months of fiscal year 2012.
Financial Condition
As of December 31, 2012, China Precision Steel had $0.8 million in cash and cash equivalents, $67.8 million in total liabilities and working capital of $39.1 million. Stockholders’ equity stood at $106.0 million, compared to $118.9 million as of June 30, 2012.
Business Outlook
China Precision Steel will continue to focus on improving its gross margin by being selective in accepting new orders as well as improving cash flow through reducing accounts receivables. As of December 31, 2012, China Precision Steel had a backlog of $6.4 million.
“The China Iron and Steel Association (CISA) has prioritized a strict control of steel production capacity in a move to reduce the excess capacity that has contributed to the pressure on steel prices. Furthermore, CISA has stated that it anticipates steel demand for 2013 to be better than 2012 as the industry recovers from the worst slump in the past decade,” Mr. Chen continued. “As we expect market conditions will gradually improve during the calendar year, we will be focusing our efforts on improving our working capital and operating cash flow by implementing more aggressive policies to reduce our accounts receivables.”
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 in the fourth quarter; 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, 2012 | June 30, 2012 | |||||||
| Assets | ||||||||
| Current assets | ||||||||
| Cash and cash equivalents | $ | 799,887 | $ | 1,602,805 | ||||
| Accounts receivable | ||||||||
| Trade, net of allowances of $13,568,723 and $3,231,613 at December 31, 2012 and June 30, 2012, respectively | 47,789,399 | 59,116,931 | ||||||
| Bills receivable | 48,149 | 173,089 | ||||||
| Other | 1,027,119 | 1,117,243 | ||||||
| Inventories | 19,886,666 | 15,516,220 | ||||||
| Prepaid expenses | 262,943 | 668,867 | ||||||
| Advances to suppliers, net of allowance of $4,715,706 and $4,623,323 at December 31, 2012 and June 30, 2012, respectively | 37,096,316 | 37,384,684 | ||||||
| Total current assets | 106,910,479 | 115,579,839 | ||||||
| Property, plant and equipment | ||||||||
| Property, plant and equipment, net | 64,573,675 | 67,752,991 | ||||||
| Construction-in-progress | 243,167 | 233,512 | ||||||
| 64,816,842 | 67,986,503 | |||||||
| Intangible assets, net | 1,895,071 | 1,880,129 | ||||||
| Goodwill | 99,999 | 99,999 | ||||||
| Total assets | $ | 173,722,391 | $ | 185,546,470 | ||||
| Liabilities and Stockholders’ Equity | ||||||||
| Current liabilities | ||||||||
| Short-term loans | $ | 27,610,356 | $ | 27,246,477 | ||||
| Long-term loan - current portion | 16,200,000 | 16,200,000 | ||||||
| Accounts payable and accrued liabilities | 6,763,808 | 6,772,892 | ||||||
| Advances from customers | 3,054,617 | 2,253,956 | ||||||
| Other taxes payables | 8,233,263 | 8,446,373 | ||||||
| Current income taxes payable | 5,904,112 | 5,756,178 | ||||||
| Total current liabilities | 67,766,156 | 66,675,876 | ||||||
| Long-term loans | - | - | ||||||
| Stockholders’ equity: | ||||||||
| Preferred stock: $0.001 per value, 8,000,000 shares authorized, no shares outstanding at December 31, 2012 and June 30, 2012, respectively | - | - | ||||||
| Common stock: $0.001 par value, 62,000,000 shares authorized, 3,880,866 issued and outstanding at December 31, 2012 and June 30, 2012, respectively | 3,880 | 3,880 | ||||||
| Additional paid-in capital | 75,685,066 | 75,685,066 | ||||||
| Accumulated other comprehensive income | 21,289,724 | 19,097,295 | ||||||
| Retained earnings | 8,977,565 | 24,084,353 | ||||||
| Total stockholders’ equity | 105,956,235 | 118,870,594 | ||||||
China Precision Steel, Inc. and Subsidiaries
Consolidated Statements of Operations and Comprehensive Income
For the Three and Six Months Ended December 31, 2012 and 2011
(Unaudited)
| Three Months Ended | Six Months Ended | |||||||||||||||
| 2012 | 2011 | 2012 | 2011 | |||||||||||||
| Sales revenues | $ | 8,164,267 | $ | 33,662,335 | $ | 14,121,027 | $ | 75,829,178 | ||||||||
| Cost of goods sold | 9,466,225 | 35,461,052 | 16,889,934 | 77,566,125 | ||||||||||||
| Gross (loss) | (1,301,958 | ) | (1,798,717 | ) | (2,768,907 | ) | (1,736,947 | ) | ||||||||
| Operating expenses | ||||||||||||||||
| Selling expenses | 25,063 | 40,185 | 54,336 | 108,489 | ||||||||||||
| Administrative expenses | 401,797 | 932,480 | 844,412 | 1,226,556 | ||||||||||||
| Allowance for bad and doubtful debts | 8,786,214 | - | 10,159,214 | - | ||||||||||||
| Depreciation and amortization expense | 52,050 | 53,993 | 104,011 | 108,437 | ||||||||||||
| Total operating expenses | 9,265,124 | 1,026,658 | 11,161,973 | 1,443,482 | ||||||||||||
| (Loss) from operations | (10,567,082 | ) | (2,825,375 | ) | (13,930,880 | ) | (3,180,429 | ) | ||||||||
| Other income/(expense) | ||||||||||||||||
| Other revenues | 607,654 | 68,872 | 607,757 | 69,071 | ||||||||||||
| Interest and finance costs | (925,077 | ) | (808,650 | ) | (1,783,665 | ) | (1,478,578 | ) | ||||||||
| Total other (expense) | (317,423 | ) | (739,778 | ) | (1,175,908 | ) | (1,409,507 | ) | ||||||||
| (Loss) from operations before income tax | (10,884,505 | ) | (3,565,153 | ) | (15,106,788 | ) | (4,589,936 | ) | ||||||||
| Provision for income tax | ||||||||||||||||
| Current | - | -27,231 | - | 27,081 | ||||||||||||
| Total income tax (benefit)/expense | - | -27,231 | - | 27,081 | ||||||||||||
| Net (loss) | (10,884,505 | ) | (3,537,922 | ) | (15,106,788 | ) | (4,617,017 | ) | ||||||||
| Basic (loss) per share | $ | (2.80 | ) | $ | (0.91 | ) | $ | (3.89 | ) | $ | (1.19 | ) | ||||
| Basic weighted average shares outstanding | 3,880,866 | 3,880,866 | 3,880,866 | 3,880,866 | ||||||||||||
| Diluted (loss) per share | $ | (2.80 | ) | $ | (0.91 | ) | $ | (3.89 | ) | $ | (1.19 | ) | ||||
| 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, 2012 and 2011
(Unaudited)
| 2012 | 2011 | |||||||
| Cash flows from operating activities | ||||||||
| Net (loss) | (15,106,788 | ) | (4,617,017 | ) | ||||
| Adjustments to reconcile net income to net cash provided by operating activities | ||||||||
| Depreciation and amortization | 4,561,331 | 4,457,774 | ||||||
| Gain on disposal of property, plant and equipment | - | (16,575 | ) | |||||
| Allowance for bad and doubtful debts | 10,159,214 | - | ||||||
| Inventory provision | - | 442,383 | ||||||
| Net changes in assets and liabilities: | ||||||||
| Accounts receivable, net | 2,477,594 | (4,945,225 | ) | |||||
| Inventories | (4,060,401 | ) | (1,104,504 | ) | ||||
| Prepaid expenses | 412,031 | (299,326 | ) | |||||
| Advances to suppliers | 1,086,749 | 3,046,345 | ||||||
| Accounts payable and accrued expenses | (139,640 | ) | 1,400,057 | |||||
| Advances from customers | 755,623 | 3,601,384 | ||||||
| Other taxes payable | (381,886 | ) | 587,656 | |||||
| Current income taxes | 32,914 | - | ||||||
| Net cash (used in)/provided by operating activities | (203,259 | ) | 2,552,952 | |||||
| Cash flows from investing activities | ||||||||
| Purchase of property, plant and equipment, including construction in progress | (111,583 | ) | (298,802 | ) | ||||
| Proceeds from disposal of property, plant and equipment | - | 16,575 | ||||||
| Net cash (used in) investing activities | (111,583 | ) | (282,227 | ) | ||||
| Cash flows from financing activities | ||||||||
| Repayments of short-term loans | (504,269 | ) | - | |||||
| Repayments of long-term loan | - | (2,845,699 | ) | |||||
| Net cash (used in) financing activities | (504,269 | ) | (2,845,699 | ) | ||||
| Effect of exchange rate | 16,193 | 63,865 | ||||||
| Net (decrease) in cash | (802,918 | ) | (511,109 | ) | ||||
| Cash and cash equivalents, beginning of period | 1,602,805 | 2,707,754 | ||||||
| Cash and cash equivalents, end of period | $ | 799,887 | $ | 2,196,645 | ||||