General Steel Reports Profitable First Quarter 2013 Financial Results
GAAP EPS of $0.06 on Net Income of $3.1 Million
GAAP Operating Income of $37.0 Million
Operating Cash Flow of $3.9 Million
BEIJING – August 6, 2013 – General Steel Holdings, Inc. (“General Steel” or the “Company”) (NYSE: GSI), a leading non-state-owned steel producer in China, today announced financial results for the first quarter ended March 31, 2013. The Company will file its Form 10-Q for the quarter ended March 31, 2013 with the Securities and Exchange Commission after market closes on Tuesday, August 6, 2013.
“We are very pleased the first quarter marked significant milestones in our returning to profitability and quarterly reporting,” said Henry Yu, Chairman and Chief Executive Officer of General Steel. “Despite the challenging macro environment, we were able to forge ahead with our strategies and operations, as we increased shipment, gained market share in our key market in Western China, improved internal purchasing, and won additional credit support from our suppliers.”
“During the first quarter, we also began construction of an additional continuous advanced-rebar-rolling production line with capacity of 1.2 million metric tons scheduled to commence production in the fourth quarter of 2013. This is in addition to our newly-completed 900,000 seismic-grade rebar-rolling production line that had already started trial productions in July. We believe the expanded capacity will further lower our production costs, thereby further improve our bottom line and market competitiveness in the second half of 2013.”
First Quarter 2013 Financial Information
| · | Sales increased by 0.5% year-over-year to $651.3 million, from $648.0 million in the first quarter of 2012. |
| · | Sales volume increased by 11.0% year-over-year to approximately 1.3 million metric tons, compared with 1.2 million metric tons in the first quarter of 2012. |
| · | Gross profit totaled $4.1 million, or 0.6% of revenue, compared with $5.6 million, or 0.9% of revenue in the first quarter of 2012. |
| · | Operating income turned positive to $37.0 million, compared with an operating loss of $(13.0) million in the first quarter of 2012. |
| · | Net income attributable to the Company was $3.1 million, or $0.06 per diluted share, compared with a net loss of $(34.8) million, or $(0.63) per diluted share in the first quarter of 2012. |
| · | Operating cash inflow improved to $3.9 million, compared with a net outflow of $(167.0) million in the first quarter of 2012. |
| · | As of March 31, 2013, the Company had cash and restricted cash of $336.0 million. |
John Chen, Chief Financial Officer of General Steel, commented, “The profitable financial results in the first quarter is a solid start for the new year, as we continued to grow sales, drive operational efficiencies, and lower finance expenses. Benefiting from a year-over-year improvement of nearly 600 basis points in our net margin and disciplined cash management, we were able to generate positive operating cash flow during the quarter. We anticipate a notable improvement in our overall gross margin in the second half of 2013, as our newly added rolling line will reduce unit production cost by up to approximately RMB 70 per metric ton, and as such, we feel confident that we can further build on the momentum achieved in the first quarter and generate healthy profits and cash flows in the second half of this year.”
General Steel Holdings, Inc.
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First Quarter 2013 Financial and Operating Results
Total Sales
Total sales for the first quarter of 2013 increased 0.5% year-over-year to $651.3 million, compared with $648.0 million in the first quarter of 2012. The year-over-year revenue increases were primarily attributable to increased sales volume, partially offset by a decrease in the average selling price of rebar.
| · | Total sales volume in the first quarter of 2013 was 1.3 million metric tons, an increase of 11.0% compared with 1.2 million metric tons in the first quarter of 2012. |
| · | The average selling price of rebar decreased 12.5% to approximately $515.3 in the first quarter of 2013 from approximately $588.7 in the same period of 2012. |
Gross Profit and Gross Margin
Gross profit for the quarter totaled $4.1 million, compared with $5.6 million in the first quarter of 2012. The decrease in gross profit was mainly attributable to a steeper decrease in average selling price, with the gross margin decreased to 0.6% of total sales in the first quarter of 2013, compared with 0.9% the same period a year ago.
Operating Expenses and Operating Income
Selling, general and administrative expenses for the first quarter of 2013 increased 1.7% to $19.0 million, compared to $18.6 million in the first quarter of 2012. General and administrative expenses increased to $10.9 million, compared with $9.7 million in the same period of 2012, due to increased expense in human resources and higher facility maintenance expense. Selling expenses decreased by 9.6% to $8.1 million, compared to $8.9 million in the same period of 2012. The decrease in selling expense was primary attributable to a savings in a special fund related to the sales of our products, which was no long imposed by the PRC tax authorities in 2013, while $1.3 million of the special fund was imposed in the first quarter of 2012.
The Company recognized other operating income of $51.9 million due to change in the fair value of profit sharing liability during the first quarter of 2013, compared with $0 in the same period of last year. On April 29, 2011, the Company’s subsidiary, Longmen Joint Venture entered into a capital lease agreement with Shaanxi Steel and Shaanxi Coal for the use of new equipment. The profit sharing liability is recognized initially at its estimated fair value at the lease commencement date, and the value of the profit sharing liability is reassessed each reporting period with any change in fair value accounted for on a prospective basis. As such, and in consideration of the recent changes in China economic situation, the fair value of the Company’s profit sharing liability has been reduced as compared to its previous estimates, and the Company recognized a gain of $51.9 million accordingly.
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Correspondingly, income from operations for the first quarter of 2013 totaled $37.0 million, compared with a loss from operations of $(13.0) million in the first quarter of 2012.
Finance Expense
Finance and interest expense in the first quarter of 2013 was $30.0 million, of which, $10.2 million was the non-cash interest expense on capital lease as compared with $10.8 million in the same period of 2012, and $19.8 million was the interest expense on bank loans and discounted note receivables as compared with $37.5 million in the first quarter of 2012. The decrease in interest expense on bank loans and discounted note receivables was primarily attributable to less bank loans, benefiting from positive operating cash flow and financing support from suppliers during the first quarter of 2013.
Net Income and Net Income per Share
Net income attributable to General Steel for the first quarter of 2013 was $3.1 million, or $0.06 per diluted share, based on 54.8 million weighted average shares outstanding. This compares to a net loss of $(34.8) million, or $(0.63) per diluted share, based on 55.5 million weighted average shares outstanding in the first quarter of 2012.
Balance Sheet
As of March 31, 2013, the Company had cash and restricted cash of approximately $336.0 million, compared to $369.9 million as of December 31, 2012. The Company had an inventory balance of approximately $247.9 million as of March 31, 2013, compared to $212.7 million as of December 31, 2012. As of March 31, 2013, the Company had total liabilities of approximately $2.9 billion.
Outlook
“Looking ahead, we will continue to execute on our strategy to further upgrade our production capabilities, improve operating efficiencies and further strengthen our competitiveness in Western China. In addition, we will also explore other strategic opportunities to expand our scale and scope in the steel industry. Lastly, we intend to pursue other strategies and initiatives to enhance shareholder value, which may include restarting our share repurchase program. We aim to enhance shareholders’ wealth, and we would like to thank our shareholders for their continued support,” Mr. Yu concluded.
Conference Call and Webcast:
General Steel will hold a corresponding conference call and live webcast at 8:00 a.m. EDT on Tuesday, August 6, 2013 (which corresponds to 8:00 p.m. Beijing/Hong Kong Time on Tuesday, August 6, 2013) to discuss the results and answer questions from investors. Listeners may access the call by dialing 1-800-860-2442 in the U.S., and 1-412-858-4600 internationally.
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The call will be also be available as a live, listen-only webcast under the “Events and Presentations” page on the “Investor Relations” section of the Company's website at http://www.mzcan.com/us/GSI/irwebsite/index.php?mod=event. Following the live webcast, an online archive will be available for 90 days.
About General Steel Holdings, Inc.
General Steel Holdings, Inc., headquartered in Beijing, China, produces a variety of steel products including rebar, high-speed wire and spiral-weld pipe. The Company has operations in China’s Shaanxi and Guangdong provinces, Inner Mongolia Autonomous Region and Tianjin municipality with seven million metric tons of crude steel production capacity under management. For more information, please visit www.gshi-steel.com.
To be added to the General Steel email list to receive Company news, or to request a hard copy of the Company’s Annual Report on Form 10-K, please send your request to generalsteel@asiabridgegroup.com.
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. Actual results could differ materially from those projected in the forward-looking statements as a result of inaccurate assumptions or a number of risks and uncertainties. These risks and uncertainties are set forth in the Company's filings under the Securities Act of 1933 and the Securities Exchange Act of 1934 under “Risk Factors” and elsewhere, and include: (a) those risks and uncertainties related to general economic conditions in China, including regulatory factors that may affect such economic conditions; (b) whether the Company is able to manage its planned growth efficiently and operate profitable operations, including whether its management will be able to identify, hire, train, retain, motivate and manage required personnel or that management will be able to successfully manage and exploit existing and potential market opportunities; (c) whether the Company is able to generate sufficient revenues or obtain financing to sustain and grow its operations; (d) whether the Company is able to successfully fulfill our primary requirements for cash; and (e) other risks, including those disclosed in the Company’s Form 10-K, filed with the SEC. 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.
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Contact Us
General Steel Holdings, Inc.
In China:
Jenny Wang
Tel: +86-10-5775-7691
Email: jenny.wang@gshi-steel.com
In the US:
Joyce Sung
Tel: +1-347-534-1435
Email: joyce.sung@gshi-steel.com
Asia Bridge Capital Limited
Carene Toh
Tel: +1-888-957-3362
Email: generalsteel@asiabridgegroup.com
General Steel Holdings, Inc.
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| GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED BALANCE SHEETS |
|
AS OF MARCH 31, 2013 AND DECEMBER 31, 2012 (UNAUDITED) |
| (In thousands) |
| March 31, | December 31, | |||||||
| 2013 | 2012 | |||||||
| CURRENT ASSETS: | ||||||||
| Cash | $ | 65,799 | $ | 46,467 | ||||
| Restricted cash | 270,167 | 323,420 | ||||||
| Notes receivable | 118,527 | 145,502 | ||||||
| Restricted notes receivable | 260,531 | 357,900 | ||||||
| Loans receivable | 6,000 | 69,319 | ||||||
| Accounts receivable, net | 17,154 | 6,695 | ||||||
| Accounts receivable - related parties | 8,231 | 14,966 | ||||||
| Other receivables, net | 11,455 | 8,407 | ||||||
| Other receivables - related parties | 89,015 | 68,382 | ||||||
| Inventories | 247,930 | 212,671 | ||||||
| Advances on inventory purchase | 57,341 | 79,715 | ||||||
| Advances on inventory purchase - related parties | 5,259 | 46,416 | ||||||
| Prepaid expense | 1,494 | 450 | ||||||
| Prepaid taxes | 23,202 | 24,116 | ||||||
| Short-term investment | 2,633 | 2,619 | ||||||
| TOTAL CURRENT ASSETS | 1,184,738 | 1,407,045 | ||||||
| PLANT AND EQUIPMENT, net | 1,172,318 | 1,167,836 | ||||||
| OTHER ASSETS: | ||||||||
| Advances on equipment purchase | 14,549 | 6,499 | ||||||
| Long-term other receivable Investment in unconsolidated entities | 43,252 958 | 43,008 1,166 | ||||||
| Long-term deferred expense | 807 | 1,062 | ||||||
| Intangible assets, net of accumulated amortization | 23,976 | 24,066 | ||||||
| TOTAL OTHER ASSETS | 83,542 | 75,801 | ||||||
| TOTAL ASSETS | $ | 2,440,598 | $ | 2,650,682 | ||||
| LIABILITIES AND DEFICIENCY | ||||||||
| CURRENT LIABILITIES: | ||||||||
| Short term notes payable | $ | 785,519 | $ | 983,813 | ||||
| Accounts payable | 411,776 | 352,052 | ||||||
| Accounts payable - related parties | 154,492 | 177,432 | ||||||
| Short term loans - bank | 117,124 | 147,124 | ||||||
| Short term loans - others | 148,023 | 147,323 | ||||||
| Short term loans - related parties | 104,390 | 79,557 | ||||||
| Current maturities of long-term loans - related party Other payables and accrued liabilities | 59,984 56,785 | 54,885 54,589 | ||||||
| Other payable - related parties | 82,232 | 73,025 | ||||||
| Customer deposits | 104,609 | 125,890 | ||||||
| Customer deposits - related parties | 12,649 | 21,998 | ||||||
| Deposit due to sales representatives | 40,484 | 33,870 | ||||||
| Deposit due to sales representatives - related parties | 1,772 | 1,238 | ||||||
| Taxes payable | 12,334 | 16,674 | ||||||
| Deferred lease income, current | 2,132 | 2,120 | ||||||
| TOTAL CURRENT LIABILITIES | 2,094,305 | 2,271,590 | ||||||
| NON-CURRENT LIABILITIES: | ||||||||
| Long-term loans - related party | 33,516 | 38,088 | ||||||
| Long-term other payable - related party Deferred lease income, noncurrent | 43,252 74,971 | 43,008 75,079 | ||||||
| Capital lease obligations, noncurrent | 337,075 | 330,099 | ||||||
| Profit sharing liability, noncurrent | 283,831 | 328,827 | ||||||
| Other noncurrent liabilities | 1,373 | |||||||
| TOTAL NON-CURRENT LIABILITIES | 774,018 | 815,101 | ||||||
| TOTAL LIABILITIES | 2,868,323 | 3,086,691 | ||||||
| COMMITMENTS AND CONTINGENCIES | ||||||||
| DEFICIENCY: | ||||||||
| Preferred stock, $0.001 par value, 50,000,000 shares authorized, 3,092,899 shares issued and outstanding as of March 31, 2013 and December 31, 2012 | 3 | 3 | ||||||
| Common stock, $0.001 par value, 200,000,000 shares authorized, 57,444,738 and 57,269,838 shares issued, 54,972,432 and 54,797,532 shares outstanding as of March 31, 2013 and December 31, 2012 | 57 | 57 | ||||||
| Treasury stock, at cost, 2,472,306 and 2,472,306 shares as of March 31, 2013 and December 31, 2012 | (4,199 | ) | (4,199 | ) | ||||
| Paid-in-capital | 105,958 | 105,714 | ||||||
| Statutory reserves | 6,103 | 6,076 | ||||||
| Accumulated deficits | (378,679 | ) | (381,782 | ) | ||||
| Accumulated other comprehensive income | 8,621 | 10,185 | ||||||
| TOTAL GENERAL STEEL HOLDINGS, INC. DEFICIENCY | (262,135 | ) | (263,946 | ) | ||||
| NONCONTROLLING INTERESTS | (165,590 | ) | (172,063 | ) | ||||
| TOTAL DEFICIENCY | (427,725 | ) | (436,009 | ) | ||||
| TOTAL LIABILITIES AND DEFICIENCY | $ | 2,440,598 | $ | 2,650,682 | ||||
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| GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES |
| CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS) |
| FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 |
| (UNAUDITED) |
|
(In thousands, except per share data)
|
| 2013 | 2012 | |||||||
| SALES | $ | 502,431 | $ | 383,797 | ||||
| SALES - RELATED PARTIES | 148,860 | 264,244 | ||||||
| TOTAL SALES | 651,291 | 648,041 | ||||||
| COST OF GOODS SOLD | 498,626 | 381,726 | ||||||
| COST OF GOODS SOLD - RELATED PARTIES | 148,598 | 260,685 | ||||||
| TOTAL COST OF GOODS SOLD | 647,224 | 642,411 | ||||||
| GROSS PROFIT (LOSS) | 4,067 | 5,630 | ||||||
| SELLING, GENERAL AND ADMINISTRATIVE EXPENSES | (18,955 | ) | (18,629 | ) | ||||
| CHANGE IN FAIR VALUE OF PROFIT SHARING LIABILITY | 51,892 | |||||||
| INCOME (LOSS) FROM OPERATIONS | 37,004 | (12,999 | ) | |||||
| OTHER INCOME (EXPENSE) | ||||||||
| Interest income | 2,439 | 5,556 | ||||||
| Finance/interest expense | (29,970 | ) | (48,366 | ) | ||||
| Change in fair value of derivative liabilities | 1 | (13 | ) | |||||
| Gain (loss) on disposal of equipment | 331 | (119 | ) | |||||
| Income from equity investments | (42 | ) | (43 | ) | ||||
| Foreign currency transaction gain | 28 | 385 | ||||||
| Lease income | 532 | 530 | ||||||
| Other non-operating expense, net | 268 | (143 | ) | |||||
| Other expense, net | (26,413 | ) | (42,213 | ) | ||||
| INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST | 10,591 | (55,212 | ) | |||||
| PROVISION FOR INCOME TAXES | ||||||||
| Current | 71 | 367 | ||||||
| Deferred | - | 169 | ||||||
| Provision for income taxes | 71 | 536 | ||||||
| NET INCOME (LOSS) | 10,520 | (55,748 | ) | |||||
| Less: Net income (loss) attributable to noncontrolling interest | 7,417 | (20,964 | ) | |||||
| NET INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL HOLDINGS, INC. | $ | 3,103 | $ | (34,784 | ) | |||
| NET INCOME (LOSS) | $ | 10,520 | $ | (55,748 | ) | |||
| OTHER COMPREHENSIVE LOSS | ||||||||
| Foreign currency translation adjustments | (2,526 | ) | (1,469 | ) | ||||
| COMPREHENSIVE INCOME (LOSS) | 7,994 | (57,217 | ) | |||||
| Less: Comprehensive income (loss) attributable to noncontrolling interest | 6,455 | (21,440 | ) | |||||
| COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL HOLDINGS, INC. | $ | 1,539 | $ | (35,777 | ) | |||
| WEIGHTED AVERAGE NUMBER OF SHARES | ||||||||
| Basic and Diluted | 54,805 | 55,520 | ||||||
| EARNINGS (LOSS) PER SHARE | ||||||||
| Basic and Diluted | $ | 0.06 | $ | (0.63 | ) | |||
General Steel Holdings, Inc.
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| GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES | |
| CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS | |
|
FOR THE THREE MONTHS ENDED MARCH 31, 2013 AND 2012 (UNAUDITED) |
|
| (In thousands) | |
| Three months ended March 31, | ||||||||
| 2013 | 2012 | |||||||
| CASH FLOWS FROM OPERATING ACTIVITIES: | ||||||||
| Net income (loss) | $ | 10,520 | $ | (55,748 | ) | |||
| Adjustments to reconcile net income (loss) to cash provided by (used in) operating activities: | ||||||||
| Depreciation, amortization and depletion | 21,358 | 20,559 | ||||||
| Change in fair value of derivative liabilities | (1 | ) | 13 | |||||
| (Gain) loss on disposal of equipment | (331 | ) | 119 | |||||
| Provision for doubtful accounts | (42 | ) | 5 | |||||
| Reservation of mine maintenance fee | 45 | 254 | ||||||
| Stock issued for services and compensation | 245 | 262 | ||||||
| Amortization of deferred financing cost on capital lease | 10,208 | 10,839 | ||||||
| Loss from equity investments | 42 | 43 | ||||||
| Foreign currency transaction gain | (28 | ) | (385 | ) | ||||
| Deferred tax assets | - | 169 | ||||||
| Deferred lease income | (532 | ) | (530 | ) | ||||
| Changes in fair value of profit sharing liability | (51,892 | ) | ||||||
| Changes in operating assets and liabilities | ||||||||
| Notes receivable | 27,752 | 22,048 | ||||||
| Accounts receivable | (9,426 | ) | (5,887 | ) | ||||
| Accounts receivable - related parties | 6,808 | (32,374 | ) | |||||
| Other receivables | (2,826 | ) | 3,371 | |||||
| Other receivables - related parties | (20,212 | ) | (5,999 | ) | ||||
| Inventories | (37,526 | ) | (61,814 | ) | ||||
| Advances on inventory purchases | 22,786 | (36,580 | ) | |||||
| Advances on inventory purchases - related parties | (46,883 | ) | (68,061 | ) | ||||
| Prepaid expense and other | (1,039 | ) | 32 | |||||
| Long-term deferred expense | 260 | 88 | ||||||
| Prepaid taxes | 1,049 | 5,513 | ||||||
| Accounts payable | 57,648 | (104,700 | ) | |||||
| Accounts payable - related parties | 39,661 | 103,918 | ||||||
| Other payables and accrued liabilities | 1,887 | (5,924 | ) | |||||
| Other payables - related parties | 8,789 | 72,220 | ||||||
| Customer deposits | (21,956 | ) | (10,653 | ) | ||||
| Customer deposits - related parties | (9,457 | ) | (11,467 | ) | ||||
| Taxes payable | (4,427 | ) | (6,355 | ) | ||||
| Other noncurrent liabilities | 1,370 | - | ||||||
| Net cash provided by (used in) operating activities | 3,850 | (167,024 | ) | |||||
| CASH FLOWS FROM INVESTING ACTIVITIES: | ||||||||
| Restricted cash | 54,991 | (54,126 | ) | |||||
| Loans to related parties | - | (65,359 | ) | |||||
| Cash proceeds from (made to) short term investment | - | 79 | ||||||
| Cash proceeds from sales of equipment | 4 | - | ||||||
| Equipment purchase and intangible assets | (24,093 | ) | (10,729 | ) | ||||
| Effect on cash due to deconsolidating of a subsidiary | - | (2,977 | ) | |||||
| Net cash provided by (used in) investing activities | 30,902 | (133,112 | ) | |||||
| CASH FLOWS FINANCING ACTIVITIES: | ||||||||
| Restricted notes receivable | 99,224 | (19,891 | ) | |||||
| Borrowings on short term notes payable | 289,548 | 467,269 | ||||||
| Payments on short term notes payable | (493,064 | ) | (341,435 | ) | ||||
| Borrowings on short term loans - bank | 32,563 | 150,252 | ||||||
| Payments on short term loans - bank | (63,315 | ) | (87,102 | ) | ||||
| Borrowings on short term loan - others | 21,296 | 119,089 | ||||||
| Payments on short term loans - others | (21,432 | ) | (65,486 | ) | ||||
| Borrowings on short term loan - related parties | 142,999 | 85,197 | ||||||
| Payments on short term loans - related parties | (30,430 | ) | (54,453 | ) | ||||
| Deposits due to sales representatives | 6,411 | 10,481 | ||||||
| Deposit due to sales representatives - related parties | 526 | 286 | ||||||
| Net cash provided by (used in) financing activities | (15,674 | ) | 264,207 | |||||
| EFFECTS OF EXCHANGE RATE CHANGE IN CASH | 254 | 429 | ||||||
| INCREASE (DECREASE) IN CASH | 19,332 | (35,500 | ) | |||||
| CASH, beginning of period | 46,467 | 120,016 | ||||||
| CASH, end of period | $ | 65,799 | $ | 84,516 | ||||
