General Steel Reports Third Quarter 2013 Financial Results

 

Company Achieves Positive Gross and Net Margins,

Generates $75 Million Quarterly Operating Cash Flows and

Enhances Production Costs

 

BEIJING – November 12, 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 third quarter ended September 30, 2013.

 

“I am delighted that we achieved positive gross and net margins during the third quarter,” said Henry Yu, Chairman and Chief Executive Officer of General Steel. “We also significantly enhanced our cost structure with the launch of two additional continuous-rolling production lines, with one commencing production in July and the other entering trial production earlier this month.”

 

“We also observed positive market momentum for China’s steel industry. The average selling prices of key steel products rebounded moderately during the third quarter, driven by the robust demand from multi-sectors including infrastructure construction and automotive sectors. In addition, manufacturing activities in China grew at its fastest pace in the most recent seven months, with the Purchasing Managers Index reaching 50.9 this October, as the government readies a series of key economic reforms. Given our improving profitability, enhanced cost structure and positive momentum in the industry, we feel optimistic about our business in the quarters ahead.”

 

John Chen, Chief Financial Officer of General Steel, commented, “I’m very pleased with our execution this third quarter. We generated a positive quarterly operating cash inflow of $75 million and vastly improved profitability. Additionally, we further cut finance expenses and enhanced our financing flexibility, through better planning, budgeting and securing additional working capital support through favorable payment terms granted by our stakeholders. I believe we are at the beginning of a sustainable business turn-around.”

 

Third Quarter 2013 Financial Information

 

·

Sales decreased by 14.2% year-over-year to $610.1 million, from $711.4 million in the third quarter of 2012.

·

Sales volume decreased by 10.0% year-over-year to approximately 1.3 million metric tons, compared with 1.4 million metric tons in the third quarter of 2012.

·

Gross profit was $8.2 million, or 1.3% of revenue, compared with a gross loss of $(13.6) million, or negative (1.9%) of revenue in the third quarter of 2012.

·

Operating income was $30.4 million, compared with an operating loss of $(36.4) million in the third quarter of 2012.

·

Net income attributable to the Company was $3.8 million, or $0.07 per diluted share, compared with a net loss of $(41.6) million, or $(0.76) per diluted share in the third quarter of 2012.

 

 

General Steel Holdings, Inc.

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·

Net operating cash inflow was $75.5 million, compared with $9.5 million in the third quarter of 2012.

·

As of September 30, 2013, the Company had cash and restricted cash of $467.9 million.

 

First Nine Months 2013 Financial Information

 

·

Sales decreased by 10.5% year-over-year to $1.9 billion, from $2.1 billion in the same period of 2012.

·

Sales volume increased by 0.9% year-over-year to approximately 3.95 million metric tons, compared with 3.91 million metric tons in the same period of 2012.

·

Gross loss was $(23.2) million, or negative (1.2%) of revenue, compared with a gross profit of $20.1 million, or 0.9% of revenue in the same period of 2012.

·

Operating income was $25.2 million, compared with an operating loss of $(41.5) million in the same period of 2012.

·

Net loss attributable to the Company narrowed to $(32.9) million, or $(0.60) per diluted share, compared with $(102.8) million, or $(1.87) per diluted share in the same period of 2012.

·

Net operating cash inflow was $14.0 million, compared with a net outflow of $(90.1) million in the same period of 2012.

 

Third Quarter 2013 Financial and Operating Results

 

Total Sales

 

Total sales for the third quarter of 2013 decreased by 14.2% year-over-year to $610.1 million, compared with $711.4 million in the third quarter of 2012. The year-over-year revenue decreases were due to less sales volume and a decrease in average selling price of the products.

 

·

Total sales volume in the third quarter of 2013 was 1.3 million metric tons, a decrease of 10.0% compared with 1.4 million metric tons in the third quarter of 2012.

·

The average selling price of rebar decreased 6.1% to approximately $489.6 per ton in the third quarter of 2013 from approximately $521.2 per ton in the same period of 2012.

 

Gross Profit and Gross Margin

 

Gross profit for the quarter was $8.2 million, compared with a gross loss of $(13.6) million in the third quarter of 2012. The gross margin increased to 1.3% of total sales in the third quarter of 2013, compared with gross loss margin of negative (1.9%) of total sales in the same period a year ago, which reflects our production efficiency improvement and a slower decrease in ASP compared with cost of rebar.

 

 

General Steel Holdings, Inc.

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Operating Expenses and Operating Income

 

Selling, general and administrative expenses for the third quarter of 2013 decreased 13.7% to $19.7 million, compared to $22.8 million in the third quarter of 2012. General and administrative expenses decreased to $12.4 million, compared with $14.1 million in the same period of 2012. The decrease in general and administrative expense was mainly due to a decrease of $1.7 million in bad debt expenses, partially offset by an additional write-off of a prepaid special fund of $0.6 million in the third quarter of 2013, compared with the same period of last year. Selling expenses decreased 16.5% to $7.3 million, compared to $8.7 million in the same period of 2012. The decrease in selling expense was primarily attributable to savings in a special fund related to the sales of the Company’s products, which was no longer imposed by the PRC tax authorities in 2013, while $1.6 million of the special fund was imposed in the third quarter of 2012.

 

The Company recognized other operating income of $41.8 million due to change in the fair value of profit sharing liability during the third quarter of 2013, compared with $0 in the same period of last year, which reflects a change in the estimated fair value of the Company’s profit sharing liability.

 

Correspondingly, income from operations for the third quarter of 2013 was $30.4 million, compared with a loss from operations of $(36.4) million in the third quarter of 2012.

 

Finance Expense

 

Finance and interest expense in the third quarter of 2013 decreased $11.1 million to $25.5 million, of which, $7.8 million was the non-cash interest expense on capital lease, as compared with $10.7 million in the same period of 2012, and $17.7 million was the interest expense on bank loans and discounted note receivables as compared with $25.9 million in the third quarter of 2012. The decrease in interest expense on bank loans and discounted note receivables was primarily attributable to a reduction in the amount of bank notes receivable redeemed early, and less interest-bearing loans from banks and third parties, benefiting from additional financing support from suppliers and vendors during the third quarter of 2013.

 

Net Income and Net Income per Share

 

Net income attributable to General Steel for the third quarter of 2013 was $3.8 million, or $0.07 per diluted share, based on 55.1 million weighted average shares outstanding. This compares to a net loss of $(41.6) million, or $(0.76) per diluted share, based on 54.5 million weighted average shares outstanding in the third quarter of 2012.

 

First Nine Months 2013 Financial Results and Operating Results

 

Total Sales

 

Total sales for the first nine months of 2013 decreased 10.5% year-over-year to $1.9 billion, compared with $2.1 billion in the first nine months of 2012. The year-over-year revenue decreases were due to a decrease in the average selling price.

 

·

Total sales volume in the first nine months of 2013 was 3.95 million metric tons, an increase of 0.9% compared with 3.91 million metric tons in the first nine months of 2012.

·

The average selling price of rebar decreased 12.6% to approximately $495.6 per ton in the first nine months of 2013 from approximately $566.8 per ton in the same period of 2012.

 

 

General Steel Holdings, Inc.

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Gross Profit and Gross Margin

 

Due to a steeper decrease in average selling price in the first half of 2013, gross loss for the first nine months of 2013 was $(23.2) million, or (1.2%) of total sales, compared with a gross profit of $20.1 million, or 0.9% of total sale in the first nine months of 2012.

 

Operating Expenses and Operating Income

 

Selling, general and administrative expenses for the first nine months of 2013 decreased 3.4% to $59.5 million, compared to $61.5 million in the first nine months of 2012. General and administrative expenses increased slightly to $34.9 million, compared with $33.7 million in the same period of 2012. Selling expenses decreased 11.9% to $24.6 million, compared to $27.9 million, which included a $4.5 million special fund imposed in the same period of 2012.

 

The Company recognized other operating income of $107.9 million due to change in the fair value of profit sharing liability during the first nine months of 2013, compared with $0 in the same period of last year.

 

Correspondingly, income from operations for the first nine months of 2013 was $25.2 million, compared with a loss from operations of $(41.5) million in the first nine months of 2012.

 

Finance Expense

 

Finance and interest expense in the first nine months of 2013 was $81.4 million, of which, $27.8 million was the non-cash interest expense on capital lease as compared with $32.4 million in the same period of 2012, and $53.6 million was the interest expense on bank loans and discounted note receivables, as compared with $106.6 million in the first nine months of 2012.

 

Net Income and Net Income per Share

 

Net loss attributable to General Steel for the first nine months of 2013 was $(32.9) million, or $(0.60) per diluted share, based on 55.0 million weighted average shares outstanding. This compares to a net loss of $(102.8) million, or $(1.87) per diluted share, based on 55.0 million weighted average shares outstanding in the first nine months of 2012.

 

Balance Sheet

 

As of September 30, 2013, the Company had cash and restricted cash of approximately $467.9 million, compared to $369.9 million as of December 31, 2012. The Company had an inventory balance of approximately $177.4 million as of September 30, 2013, compared to $212.7 million as of December 31, 2012.

 

Conference Call and Webcast:

 

General Steel will hold a corresponding conference call and live webcast at 8:00 a.m. EST on Tuesday, November 12, 2013 (which corresponds to 9:00 p.m. Beijing/Hong Kong Time on Tuesday, November 12, 2013) to discuss the results and answer questions from investors. Listeners may access the call by dialing 1-877-870-4263 in the U.S., and 1-412-317-0790 internationally.

 

 

General Steel Holdings, Inc.

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The call will 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.

 

 

General Steel Holdings, Inc.

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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

(UNAUDITED)

(In thousands)

 

		September 30,				December 31,
		2013				2012
ASSETS
CURRENT ASSETS:
Cash		$	62,091			$	46,467
Restricted cash			405,781				323,420
Notes receivable			116,900				145,502
Restricted notes receivable			357,250				357,900
Loans receivable - related parties			4,540				69,319
Accounts receivable, net			8,577				6,695
Accounts receivable - related parties			3,252				14,966
Other receivables, net			56,494				8,407
Other receivables - related parties			51,501				68,382
Inventories			177,383				212,671
Advances on inventory purchase			79,855				79,715
Advances on inventory purchase - related parties			29,667				46,416
Prepaid expense and other			1,490				450
Prepaid taxes			16,415				24,116
Short-term investment			2,771				2,619
TOTAL CURRENT ASSETS			1,373,967				1,407,045
PLANT AND EQUIPMENT, net			1,250,542				1,167,836
OTHER ASSETS:
Advances on equipment purchase			21,715				6,499
Long-term other receivable			-				43,008
Investment in unconsolidated entities			1,161				1,166
Long-term deferred expense			713				1,062
Intangible assets, net of accumulated amortization			23,928				24,066
TOTAL OTHER ASSETS			47,517				75,801
TOTAL ASSETS		$	2,672,026			$	2,650,682
LIABILITIES AND DEFICIENCY
CURRENT LIABILITIES:
Short term notes payable		$	987,988			$	983,813
Accounts payable			495,488				352,052
Accounts payable - related parties			172,259				177,432
Short term loans - bank			254,929				147,124
Short term loans - others			130,170				147,323
Short term loans - related parties			48,889				79,557
Current maturities of long-term loans - related party			47,896				54,885
Other payables and accrued liabilities			52,272				54,589
Other payable - related parties			106,153				73,025
Customer deposits			95,695				125,890
Customer deposits - related parties			14,512				21,998
Deposit due to sales representatives			28,184				33,870
Deposit due to sales representatives - related parties			1,809				1,238
Taxes payable			9,716				16,674
Deferred lease income, current			2,178				2,120
TOTAL CURRENT LIABILITIES			2,448,138				2,271,590
NON-CURRENT LIABILITIES:
Long-term loans - related party			24,450				38,088
Long-term other payable - related party			-				43,008
Deferred lease income, noncurrent			75,480				75,079
Capital lease obligations			354,576				330,099
Profit sharing liability			241,090				328,827
Other noncurrent liabilities			1,402				-
TOTAL NON-CURRENT LIABILITIES			696,998				815,101
TOTAL LIABILITIES			3,145,136				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 September 30, 2013 and December 31, 2012			3				3
Common stock, $0.001 par value, 200,000,000 shares authorized, 57,771,038 and 57,269,838 shares issued, 55,298,732 and 54,797,532 shares outstanding as of September 30, 2013 and December 31, 2012, respectively			58				57
Treasury stock, at cost, 2,472,306 shares as of September 30, 2013 and December 31, 2012			(4,199	)			(4,199	)
Paid-in-capital			106,405				105,714
Statutory reserves			6,263				6,076
Accumulated deficits			(414,696	)			(381,782	)
Accumulated other comprehensive income			2,471				10,185
TOTAL GENERAL STEEL HOLDINGS, INC. DEFICIENCY			(303,695	)			(263,946	)
NONCONTROLLING INTERESTS			(169,415	)			(172,063	)
TOTAL DEFICIENCY			(473,110	)			(436,009	)
TOTAL LIABILITIES AND DEFICIENCY		$	2,672,026			$	2,650,682

 

 

General Steel Holdings, Inc.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

(UNAUDITED)

(In thousands, except per share data)

 

		For the Three months ended September 30,								For the Nine months ended September 30,
		2013				2012				2013				2012
SALES		$	514,549			$	518,542			$	1,534,330			$	1,441,325
SALES - RELATED PARTIES			95,546				192,883				380,707				698,824
TOTAL SALES			610,095				711,425				1,915,037				2,140,149
COST OF GOODS SOLD			511,932				528,586				1,550,829				1,426,589
COST OF GOODS SOLD - RELATED PARTIES			89,932				196,435				387,446				693,482
TOTAL COST OF GOODS SOLD			601,864				725,021				1,938,275				2,120,071
GROSS PROFIT (LOSS)			8,231				(13,596	)			(23,238	)			20,078
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES			(19,661	)			(22,787	)			(59,464	)			(61,548	)
CHANGE IN FAIR VALUE OF PROFIT SHARING LIABILITY			41,825				-				107,877				-
INCOME (LOSS) FROM OPERATIONS			30,395				(36,383	)			25,175				(41,470	)
OTHER INCOME (EXPENSE)
Interest income			2,835				4,337				8,657				13,039
Finance/interest expense			(25,503	)			(36,615	)			(81,355	)			(138,929	)
Change in fair value of derivative liabilities			-				(55	)			1				(48	)
Gain on disposal of equipment			17				293				113				177
Income from equity investments			47				44				137				80
Foreign currency transaction gain (loss)			322				(581	)			448				(1,169	)
Lease income			542				528				1,613				1,588
Other non-operating income (expense), net			770				2,314				1,559				3,316
Other expense, net			(20,970	)			(29,735	)			(68,827	)			(121,946	)
INCOME (LOSS) BEFORE PROVISION FOR INCOME TAXES AND NONCONTROLLING INTEREST			9,425				(66,118	)			(43,652	)			(163,416	)
PROVISION FOR INCOME TAXES
Current			25				100				201				510
Deferred			-				-				-				169
Provision for income taxes			25				100				201				679
NET INCOME (LOSS)			9,400				(66,218	)			(43,853	)			(164,095	)
Less: Net income (loss) attributable to noncontrolling interest			5,599				(24,620	)			(10,939	)			(61,336	)
NET INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL HOLDINGS, INC.		$	3,801			$	(41,598	)		$	(32,914	)		$	(102,759	)
NET INCOME (LOSS)		$	9,400			$	(66,218	)		$	(43,853	)		$	(164,095	)
OTHER COMPREHENSIVE INCOME (LOSS)
Foreign currency translation adjustments			(2,547	)			(698	)			(12,283	)			(577	)
COMPREHENSIVE INCOME (LOSS)			6,853				(66,916	)			(56,136	)			(164,672	)
Less: Comprehensive income (loss) attributable to noncontrolling interest			4,782				(24,888	)			(15,508	)			(61,721	)
COMPREHENSIVE INCOME (LOSS) ATTRIBUTABLE TO GENERAL STEEL HOLDINGS, INC.		$	2,071			$	(42,028	)		$	(40,628	)		$	(102,951	)
WEIGHTED AVERAGE NUMBER OF SHARES
Basic and Diluted			55,141				54,466				54,976				54,946
EARNINGS (LOSS) PER SHARE
Basic and Diluted		$	0.07			$	(0.76	)		$	(0.60	)		$	(1.87	)

 

 

General Steel Holdings, Inc.

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GENERAL STEEL HOLDINGS, INC. AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

(In thousands)

 

		For the Nine months ended September 30,
		2013				2012
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss		$	(43,853	)		$	(164,095	)
Adjustments to reconcile net loss to cash provided by (used in) operating activities:
Depreciation, amortization and depletion			64,955				62,538
Change in fair value of derivative liabilities			(1	)			48
Gain on disposal of equipment			(113	)			(177	)
Provision for doubtful accounts			(251	)			2,316
Reservation of mine maintenance fee			315				3
Stock issued for services and compensation			692				679
Amortization of deferred financing cost on capital lease			27,778				32,363
Income from equity investments			(137	)			(80	)
Foreign currency transaction gain			(448	)			1,169
Deferred tax assets			-				169
Deferred lease income			(1,613	)			(1,588	)
Changes in fair value of profit sharing liability			(107,877	)			-
Changes in operating assets and liabilities
Notes receivable			32,138				(99,337	)
Accounts receivable			(483	)			5,429
Accounts receivable - related parties			11,968				(7,607	)
Other receivables			(3,466	)			(5,460	)
Other receivables - related parties			(55,744	)			4,784
Inventories			4,191				73,024
Advances on inventory purchases			1,996				(23,365	)
Advances on inventory purchases - related parties			(27,882	)			(88,412	)
Prepaid expense and other			(1,016	)			(183	)
Long-term deferred expense			373				119
Prepaid taxes			8,250				4,168
Accounts payable			113,592				(48,059	)
Accounts payable - related parties			54,364				31,353
Other payables and accrued liabilities			(3,742	)			34,286
Other payables - related parties			(12,844	)			95,746
Customer deposits			(33,185	)			(9,490	)
Customer deposits - related parties			(7,981	)			14,740
Taxes payable			(7,317	)			(5,195	)
Other noncurrent liabilities			1,384				-
Net cash provided by (used in) operating activities			14,043				(90,114	)
CASH FLOWS FROM INVESTING ACTIVITIES:
Restricted cash			(72,676	)			(35,094	)
Loans to related parties			1,460				(69,247	)
Cash proceeds from (made to) short term investment			(80	)			40
Cash proceeds from sales of equipment			16				19
Equipment purchase and intangible assets			(75,326	)			(15,909	)
Effect on cash due to deconsolidating of a subsidiary			-				(2,972	)
Net cash used in investing activities			(146,606	)			(123,163	)
CASH FLOWS FINANCING ACTIVITIES:
Capital contributed by noncontrolling interest			18,028				-
Payments made for treasury stock acquired			-				(1,404	)
Notes receivable - restricted			10,218				521,866
Borrowings on short term notes payable			1,348,631				1,382,976
Payments on short term notes payable			(1,370,832	)			(1,637,570	)
Borrowings on short term loans - bank			258,357				237,535
Payments on short term loans - bank			(155,390	)			(355,008	)
Borrowings on short term loan - others			148,678				160,554
Payments on short term loans - others			(169,558	)			(193,964	)
Borrowings on short term loan - related parties			362,202				269,362
Payments on short term loans - related parties			(274,718	)			(221,134	)
Deposits due to sales representatives			(6,521	)			11,939
Deposit due to sales representatives - related parties			531				285
Payments on long-term loans - related party			(22,856	)			-
Net cash provided by financing activities			146,770				175,437
EFFECTS OF EXCHANGE RATE CHANGE IN CASH			1,417				1,426
INCREASE (DECREASE) IN CASH			15,624				(36,414	)
CASH, beginning of period			46,467				120,016
CASH, end of period		$	62,091			$	83,602