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General Steel Optimistic on Second Half as It Reports Second Quarter Results

08/30/2013 - General Steel Holdings, Inc., a leading non-state-owned steel producer in China, announced financial results for the second quarter noting that it is encouraged to see an improvement in the pricing trend of steel in China and is optimistic about its ability to enhance profitability in the second half of 2013.

"During the second quarter, the average selling price of rebar decreased over 5% sequentially to near the year's lowest level, and as a result, despite a higher shipping volume, our total sales and profit margins declined, causing widened net losses," said Henry Yu, chairman and chief executive officer of General Steel. "However, this August, we were encouraged to witness an improvement in the pricing trend of steel in China, and since we have significantly improved our efficiency and cost structure, we feel very positive about our ability to enhance profitability in the second half of 2013."
"In addition, the filing of our quarterly results for the second quarter of 2013 marks the final milestone in our persistent efforts to regaining full compliance with the SEC's reporting requirements. Given our regained filing status, we are once again able to restart our share repurchase program. Personally, and on behalf of the company, we are confident about our long-term prospects, and are committed to enhance shareholders' value and wealth."
Second Quarter 2013 Financial Information
  • Sales decreased by 16.3% year-over-year to US$653.7 million, from US$780.7 million in the second quarter of 2012.
  • Sales volume increased by 3.4% year-over-year to approximately 1.4 million metric tons, compared with 1.3 million metric tons in the second quarter of 2012.
  • Gross loss was US$(35.5) million, or negative (5.4%) of revenue, compared with a gross profit of US$28.0 million, or 3.6% of revenue in the second quarter of 2012.
  • Operating loss was US$(42.2) million, compared with an operating income of US$7.9 million in the second quarter of 2012.
  • Net loss attributable to the company was US$(39.8) million, or US$(0.72) per diluted share, compared with a net loss of US$(26.4) million, or US$(0.48) per diluted share in the second quarter of 2012.
  • Operating cash net outflow was US$(65.3) million, compared with a net inflow of US$67.4 million in the second quarter of 2012.
  • As of 30 June 2013, the company had cash and restricted cash of US$448.5 million.
First Six Months 2013 Financial Information
  • Sales decreased by 8.7% year-over-year to US$1.3 billion, from US$1.4 billion in the first six months of 2012.
  • Sales volume increased by 7.0% year-over-year to approximately 2.7 million metric tons, compared with 2.5 million metric tons in the first six months of 2012.
  • Gross loss was US$(31.5) million, or negative (2.4%) of revenue, compared with a gross profit of US$33.7 million, or 2.4% of revenue in the first six months of 2012.
  • Operating loss was US$(5.2) million, compared with an operating loss of US$(5.1) million in the first six months of 2012.
  • Net loss attributable to the company was US$(36.7) million, or US$(0.67) per diluted share, compared with a net loss of US$(61.2) million, or US$(1.11) per diluted share in the first six months of 2012.
  • Operating cash net outflow was US$(61.4) million, compared with a net outflow of US$(99.6) million in the first six months of 2012.
John Chen, chief financial officer of General Steel, commented, "Although the steeper drop in average selling price of rebar caused a decline in sales and gross losses, we continued to strongly execute on our internal objectives. We achieved continued improvements in inventory efficiency, and outstanding savings in finance expense by over US$28 million compared with the same period of last year. As our new continuous rolling rebar lines enter full production, we are poised to achieve greater profitability improvement and positive gross margins in the second half of 2013."
Second Quarter 2013 Financial and Operating Results
Total Sales
Total sales for the second quarter of 2013 decreased by 16.3% year-over-year to US$653.7 million, compared with US$780.7 million in the second quarter of 2012. The year-over-year revenue decreases were due to a decrease in the average selling price of the products despite an increased sales volume.
  • Total sales volume in the second quarter of 2013 was 1.4 million metric tons, an increase of 3.4% compared with 1.3 million metric tons in the second quarter of 2012.
  • The average selling price of rebar decreased 19.0% to approximately US$482.7 in the second quarter of 2013 from approximately US$596.2 in the same period of 2012.
Gross Profit and Gross Margin
Gross loss for the quarter was US$(35.5) million, compared with a gross profit of US$28.0 million in the second quarter of 2012. The decrease in gross profit was mainly attributable to a steeper decrease in average selling price of rebar, with the gross margin decreased to negative (5.4%) of total sales in the second quarter of 2013, compared with 3.6% of total sales in the same period a year ago.
Operating Expenses and Operating Income
Selling, general and administrative expenses for the second quarter of 2013 increased 3.6% to US$20.8 million, compared to US$20.1 million in the second quarter of 2012. General and administrative expenses increased toUS$11.6 million, compared with US$9.8 million in the same period of 2012, due to increased expense in human resources and a US$1.2 million write-off of prepared special fund. Selling expenses decreased by 9.9% to US$9.3 million, compared to US$10.3 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 US$1.6 million of the special fund was imposed in the second quarter of 2012.
The company recognized other operating income of US$14.2 million due to change in the fair value of profit sharing liability during the second quarter of 2013, compared with US$0 in the same period of last year. On 29 April 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 US$14.2 million during the second quarter of 2013 accordingly.
Correspondingly, loss from operations for the second quarter of 2013 was US$(42.2) million, compared with an income from operations of US$7.9 million in the second quarter of 2012.
Finance Expense
Finance and interest expense in the second quarter of 2013 decreased by US$28.1 million to US$25.9 million, of which, US$9.8 million was the non-cash interest expense on capital lease as compared with US$10.8 million in the same period of 2012, and US$16.1 million was the interest expense on bank loans and discounted note receivables as compared with US$43.2 million in the second quarter of 2012. The decrease in interest expense on bank loans and discounted note receivables was primarily attributable to a reduction in the amount of bank notes receivable redeemed early, and less interest-bearing loans from banks and third parties, benefiting from additional financing support from suppliers and vendors during the second quarter of 2013.
Net Income and Net Income per Share
Net loss attributable to General Steel for the second quarter of 2013 was US$(39.8) million, or US$(0.72) per diluted share, based on 55.0 million weighted average shares outstanding. This compares to a net loss of US$(26.4) million, or US$(0.48) per diluted share, based on 54.9 million weighted average shares outstanding in the second quarter of 2012.
First Six Months 2013 Financial Results and Operating Results
Total Sales
Total sales for the first six months of 2013 decreased by 8.7% year-over-year to US$1.3 billion, compared withUS$1.4 billion in the first six months of 2012. The year-over-year revenue decreases were due to a decrease in the average selling price of the products despite an increased sales volume.
  • Total sales volume in the first six months of 2013 was 2.7 million metric tons, an increase of 7.0% compared with 2.5 million metric tons in the first six months of 2012.
  • The average selling price of rebar decreased 15.9% to approximately US$498.4 in the first six months of 2013 from approximately US$592.8 in the same period of 2012.
Gross Profit and Gross Margin
Due to the steeper decrease in average selling price, gross loss for the first six months of 2013 was US$(31.5) million, or (2.4%) of total sales, compared with a gross profit of US$33.7 million, or 2.4% of total sale in the first six months of 2012.
Operating Expenses and Operating Income
Selling, general and administrative expenses for the first six months of 2013 increased 2.7% to US$39.8 million, compared to US$38.8 million in the first six months of 2012. General and administrative expenses increased toUS$22.5 million, compared with US$19.6 million in the same period of 2012. Selling expenses decreased by 9.7% to US$17.3 million, compared to US$19.2 million in the same period of 2012. There was a US$2.9 million special fund imposed in the first six months of 2012.
The company recognized other operating income of US$66.1 million due to change in the fair value of profit sharing liability during the first six months of 2013, compared with US$0 in the same period of last year.
Correspondingly, loss from operations for the first six months of 2013 was US$(5.2) million, compared with US$(5.1) million in the first six months of 2012.
Finance Expense
Finance and interest expense in the first six months of 2013 was US$55.9 million, of which, US$20.0 million was the non-cash interest expense on capital lease as compared with US$21.6 million in the same period of 2012, andUS$35.9 million was the interest expense on bank loans and discounted note receivables as compared withUS$80.7 million in the first six months of 2012.
Net Income and Net Income per Share
Net loss attributable to General Steel for the first six months of 2013 was US$(36.7) million, or US$(0.67) per diluted share, based on 54.9 million weighted average shares outstanding. This compares to a net loss of US$(61.2) million, or US$(1.11) per diluted share, based on 55.2 million weighted average shares outstanding in the first six months of 2012.
Balance Sheet
As of 30 June 2013, the company had cash and restricted cash of approximately US$448.5 million, compared toUS$369.9 million as of December 31, 2012. The company had an inventory balance of approximately US$160.2 million as of 30 June 2013, compared to US$212.7 million as of December 31, 2012. As of 30 June 2013, the company had total liabilities of approximately US$3.0 billion.
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 7 million metric tons of crude steel production capacity under management.