China Precision Steel Announces Fourth Quarter and Fiscal 2009 Year End Results

SHANGHAI, Sept. 29 /PRNewswire-Asia/ -- China Precision Steel (Nasdaq: CPSL), a niche precision steel processing Company principally engaged in producing and selling high precision, cold-rolled steel products, announced today its financial results for the fourth quarter and 2009 fiscal year ended June 30, 2009.

    Fourth Quarter 2009 Highlights

    -- Revenue was $25.7 million
    -- Gross profit was $2.3 million with 9.0% gross margin
    -- Net income was $2.2 million
    -- Fully diluted earnings per share of $0.05

    Full Year 2009 Highlights

    -- Revenue was $76.3 million
    -- Gross profit was $7.7 million with 10.1% gross margin
    -- Net loss of $0.4 million resulting from a $3.8 million provision for
       bad debt
    -- Fully diluted loss per share of $0.01
    -- Exports generated 27.6% of total sales

"We are extremely pleased with the rebound in our business during the fourth quarter of fiscal year 2009 as the Chinese steel industry recovers from its lowest level since the global economic crisis began," commented Dr. Wo Hing Li, China Precision Steel's Chairman and CEO. "While our business has not recovered to the levels achieved during fiscal year 2008 and there are still uncertainties within the steel industry, we have experienced a significant improvement in demand for our precision steel products over our 2009 fiscal third quarter and our inventory destocking continues to run its course. Our high carbon business is also benefiting from the implementation of a series of stimulus policies for automobiles by the Chinese government which has bolstered demand for automobiles and construction vehicles and subsequently precision steel clutch discs. Moreover, we have successfully acquired 123 new customers for the entire fiscal year."

Revenue for the fourth quarter of fiscal 2009 was $25.7 million, down 9.9% from $28.6 million in the fourth quarter of fiscal 2008. Revenue for the 2009 fourth quarter benefited from a $3.2 million subcontracting order, which represented 14.8% of total sales for the quarter. High carbon and low carbon products accounted for 30.4% and 51.8% of sales, respectively, compared to 30.4% and 61.3%, respectively, from the same period of the prior year.

Gross profit in the fourth quarter was $2.3 million, down 57.9% from gross profit of $5.5 million in the fourth quarter of fiscal 2008. Gross margin was 9.0%, compared to 19.2% in the same period a year ago. The decline in gross margin was mainly attributable to the higher cost of raw materials incurred in connection with the inventory build up during the first half of calendar year 2008 when demand and steel prices were both high. Subsequently, selling prices declined dramatically amid the worldwide industry downturn resulting in a tightening of gross margin.

Selling expenses for the fourth quarter of fiscal 2009 were $46,961, or 0.2% of revenue, compared to $123,134, or 0.4% of revenue, in the fourth fiscal quarter of 2008. Administrative expenses were $656,632, or 2.6% of revenue, compared to $726,720, or 2.5% of revenue in the same period a year ago. Depreciation and amortization expenses for the quarter were $103,648, or 0.4% of revenue, up from $17,668 or 0.1% of revenue in the same period a year ago.

Operating income for the fourth quarter was $1.5 million, compared to operating income of $4.6 million in the same period a year ago.

Net profit for the fourth quarter of fiscal 2009 was $2.2 million, compared to net income of $5.6 million in the same period of the prior year. Fully diluted earnings per share were $0.05, compared to fully diluted earnings per share of $0.12 in the fourth quarter of fiscal 2008.

Fiscal Year 2009 Results

Revenues for the fiscal year 2009 were $76.3 million, down 13.1% from revenues of $87.7 million in fiscal year 2008. Exports contributed to 27.6% of total revenue, compared to 18.2% in fiscal year 2008. Gross profit was $7.7 million, down 65.6% from gross profit of $22.5 million in fiscal year 2008. Gross margin was 10.1%, compared to 25.6% a year ago. Operating loss was $0.2 million, compared to operating income of $18.4 million in fiscal year 2008. Net loss was $0.4 million, compared to net income of $18.6 million a year ago. Fully diluted loss per share was $0.01, compared to fully diluted earnings per share of $0.43 for fiscal year 2008.

Financial Condition

As of June 30, 2009, China Precision Steel had $13.6 million in cash and cash equivalents, no long term debt, total liabilities of $42.8 million and working capital of $41.2 million. Stockholders' equity was $120.6 million, compared to $120.3 million as of June 30, 2008. The Company generated $15.1 million in cash flow from operating activities during the full year of fiscal 2009.

Business Outlook

China Precision Steel has completed the construction of its third cold rolling mill and has begun testing and commissioning of the mill. The new mill is a tandem mill with best in class gauge control and shape performance capable of producing high quality cold rolled steel for exposed and unexposed products and will be used primarily in the production of high carbon cold- rolled steel products. The Company expects the new mill to begin production in the third fiscal quarter of 2010 and reach its full design capacity of 100,000 tons within four years. As of June 30, 2009, China Precision Steel expects to incur an additional $2.5 million in capital expenditures in relation to the new mill and annealing furnaces.

"We remain optimistic about our future growth as we have built a strong foundation with our state-of-the-art patented technology process and our experienced management team which has served us well in these difficult times," Dr. Li commented. "Currently, we have a backorder of $9.3 million of which 50% is for our high carbon precision steel products which we believe is an indicator of a steady improvement in both demand and margins as overall economic conditions gradually improve. Furthermore, we remain committed to executing our long-term growth strategy and expanding our market penetration as demand for precision steel rebounds in China and the global market."

About China Precision Steel

China Precision Steel is a niche precision steel processing company principally engaged in the production and sale of high precision cold-rolled steel products and provides value added services such as heat treatment and cutting medium and high carbon hot-rolled steel strips. China Precision Steel's high precision, ultra-thin, high strength (7.5 mm to 0.05 mm) cold-rolled steel products are mainly used in the production of automotive components, food packaging materials, saw blades, steel roofing and textile needles. The Company sells to manufacturers in the People's Republic of China as well as overseas markets such as Nigeria, Ethiopia, Thailand and Indonesia. China Precision Steel was incorporated in 2002 and is headquartered in Sheung Wan, Hong Kong. Additional information can be found at the Company's website http://chinaprecisionsteelinc.com .

Conference Call

China Precision Steel will host a conference call on Tuesday, September 29, 2009 at 9:00 am ET to discuss fiscal 2009 fourth quarter and year end results. To participate in the live conference call, please dial 888-419-5570 fifteen minutes prior to the scheduled conference call time. International callers should dial 617-896-9871. When prompted by the operator, provide Conference Passcode 529 178 60.

If you are unable to participate in the call at this time, a replay will be available for 14 days starting on Tuesday, September 29, 2009 at 11:00 a.m. Eastern Time. To access the replay, dial 888-286-8010 and enter the passcode 47792275. International callers should dial 617-801-6888 and enter the same passcode.

This conference call will be broadcast live over the Internet and can be accessed by all interested parties by clicking on http://www.chinaprecisionsteelinc.com . Please access the link at least fifteen minutes prior to the start of the call to register, download, and install any necessary audio software. For those unable to participate during the live broadcast, a 90-day replay will be available shortly after the call by accessing the same link.

Forward-Looking Statements

Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by China Precision Steel on its conference call in relation to this 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 impact of the Company's newly constructed facility on the Company's business and operations, and the Company's ability to expand manufacturing capacity in 2009 and 2010 as a result of the new facility; the significance of the Company's backorder on the future business and operations of the Company and the Company's ability to optimize growth as overall economic conditions improve; and predictions and guidance relating to the Company's future financial performance. 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, 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.

                        -- Financial Tables Follow --


                 China Precision Steel, Inc. and Subsidiaries
                         Consolidated Balance Sheets
                                   Audited

                                                  June 30,        June 30,
                                                    2009            2008
                       Assets

    Current assets
        Cash and equivalents                     $13,649,587     $18,568,842
        Accounts receivable
            Trade, net of allowances of
             $830,127 and $1,033,479
             at June 30, 2009 and 2008,
             respectively                         25,140,834      33,783,074
            Bills receivable                       6,131,143       4,309,703
            Other                                    881,153         571,746
        Inventories                               16,275,070      17,815,087
        Prepaid expenses                              75,917          58,105
        Advances to suppliers, net of
         allowance of $1,631,557 and
         $2,522,837 at June 30, 2009
         and 2008, respectively                   21,878,047      33,027,365
    Total current assets                          84,031,751     108,133,922

    Property, plant and equipment
        Property, plant and equipment, net        46,812,484      39,199,305
        Deposits for plant and machinery           8,348,496              --
        Construction-in-progress                  22,245,173      16,476,454
                                                  77,406,153      55,675,759
    Intangible assets, net                         1,871,211       1,625,690

    Goodwill                                          99,999          99,999

    Total assets                                $163,409,114    $165,535,370

        Liabilities and Stockholders' Equity

    Current liabilities
        Short-term loans                         $22,489,031     $17,465,799
        Accounts payable and accrued liabilities   7,144,242      12,047,981
        Advances from customers                    1,742,944       6,996,996
        Other taxes payables                       6,650,668       3,976,239
        Current income taxes payable               4,778,767       4,742,387
    Total current liabilities                     42,805,652      45,229,402
    Stockholders' equity:
        Preferred stock: $0.001 per value,
         8,000,000 shares authorized, no shares
         outstanding at June 30, 2009 and 2008
        Common stock: $0.001 par value,
         62,000,000 shares authorized, 46,562,955
         and 46,472,955 issued and outstanding
         June 30, 2009 and 2008, respectively         46,563          46,473
        Additional paid-in capital                75,642,383      75,372,488
        Accumulated other comprehensive income     9,731,505       9,295,658
        Retained earnings                         35,183,011      35,591,349
    Total stockholders' equity                   120,603,462     120,305,968

    Total liabilities and stockholders' equity  $163,409,114    $165,535,370


                 China Precision Steel, Inc. and Subsidiaries
                    Consolidated Statements of Operations

                          For the Three Months Ended   For the Years Ended
                                    June 30,                 June 30,
                                  (Unaudited)               (Audited)
                               2009         2008         2009        2008
    Revenues
          Sales revenues   $25,734,034   28,550,266  $76,281,621 $87,739,326
          Cost of goods
           sold             23,423,791   23,068,828   68,549,426  65,241,825
          Gross profit       2,310,243    5,481,438    7,732,195  22,497,501

    Operating expenses
          Selling expenses      46,961      123,134    1,679,283     608,060
          Administrative
           expenses            656,632      726,720    2,238,088   2,758,536
          Allowance for
           bad and
           doubtful debts        1,344       25,025    3,831,478     686,955
          Depreciation and
           amortization
           expense             103,648       17,668      196,793      64,253
          Total operating
           expenses            808,585      892,547    7,945,642   4,117,804

    Income/(loss) from
     operations              1,501,658    4,588,891     (213,447) 18,379,697
    Other income/(expense)
          Other revenues     1,061,001    1,061,473    1,397,258   2,006,777
          Interest and
           finance costs      (323,360)     (56,176)  (1,228,665) (1,231,040)
          Total other
           Income  (expense)   737,641    1,005,297      168,593     775,737

    Net (loss)/income
     before income tax       2,239,299    5,594,188      (44,854) 19,155,434

    Provision for/(benefit
     from) income tax
          Current               29,937      (23,866)     363,484   1,636,351
          Deferred                  --           --           --  (1,064,028)
          Total income tax
           expense              29,937      (23,866)     363,484     572,323

    Net income/(loss)        2,209,362    5,618,054     (408,338) 18,583,111

    Basic earnings/(loss)
     per share                   $0.05        $0.12       ($0.01)      $0.43
    Basic weighted average
     shares outstanding     46,561,229   43,044,420   46,561,229  43,044,420
    Diluted earnings/
     (loss)per share             $0.05        $0.12       ($0.01)      $0.43
    Diluted weighted
     average shares
     outstanding            46,561,229   43,256,434   46,561,229  43,256,434


                 China Precision Steel, Inc. and Subsidiaries
                    Consolidated Statements of Cash Flows
                  For the Years Ended June 30, 2009 and 2008
                                   Audited

                                                         2009        2008
    Cash flows from operating activities
             Net (loss)/income                         ($408,338) $18,583,111
             Adjustments to reconcile net income to
              net cash provided by operating
              activities
               Depreciation and amortization           3,565,422   2,214,643
               Allowance for bad and doubtful debts    3,831,478     686,955
               Reversal of provision for doubtful
                accounts                              (1,105,866)         --
             Net changes in assets and liabilities:
               Accounts receivable, net                3,016,777 (30,186,787)
               Inventories                             1,601,568    (511,151)
               Deposits                                       --      82,758
               Prepayments                               (17,861)    (58,105)
               Advances to suppliers                  12,163,423 (19,898,096)
               Accounts payable and accrued expenses  (4,944,049)  6,704,028
               Advances from customers                (5,278,228)  5,103,242
               Other taxes payable                     2,660,691   3,077,622
               Current income taxes                       19,995   2,659,288
               Deferred income taxes                          --  (1,064,028)
    Net cash provided by/(used in) operating
     activities                                       15,105,012 (12,606,520)

    Cash flows from investing activities
               Deposit for plant and machinery        (8,348,496)         --
               Purchase of land use rights              (340,066)         --
             Purchase of property, plant and
              equipment including
              construction in progress               (16,642,038)(14,705,302)
    Net cash used in investing activities            (25,330,600)(14,705,302)

    Cash flows from financing activities
             Exercise of common stock warrants           269,985   1,730,001
             Proceeds from sale of common stock               --  44,375,282
             Advances from/(to) directors, net                --    (189,315)
             Short-term loan proceeds                  5,050,727  16,702,976
             Repayments of short-term loan               (87,839)(24,421,766)
    Net cash provided by financing activities          5,232,873  38,197,178

    Effect of exchange rate                               73,460   2,178,624
    Net (decrease)/increase in cash                   (4,919,255) 13,063,980
    Cash and cash equivalents, beginning of year      18,568,842   5,504,862
    Cash and cash equivalents, end of year            13,649,587  18,568,842
    Supplemental disclosure of cash flow information:
    Cash paid during the year for:
             Interest                                  1,228,665   1,231,040
             Taxes                                       343,508          --



    For more information, please contact:

    China Precision Steel
     Dan Carlson,
     Email: DanielCarlson@comcast.net

    Elite IR
     Leslie J. Richardson, Partner
     Tel:   +852-3183-0283
     Email: Leslie.richardson@elite-ir.com

SOURCE China Precision Steel