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General Steel Reports 4th Quarter, Full Year 2008 Results
03/11/2009 - General Steel Holdings reports a net loss of $9.7 million on revenues of $261.1 million for the fourth quarter and a net loss of $11.3 million on revenues of $1.4 billion for the full year ended December 31, 2008.
General Steel Holdings, Inc. announced a net loss of $9.7 million on revenues of $261.1 million for the fourth quarter and a net loss of $11.3 million on revenues of $1.4 billion for the full year ended December 31, 2008.
Fourth Quarter Results—The $9.7 million net loss compares to net income of $12.1 million in the fourth quarter of 2007. Basic and diluted losses per share were $0.27.
Total revenues of $261.1 million reflect a 2.6% decrease from revenues of $268.2 million in the fourth quarter of 2007. The company said the year-over-year decrease in quarterly revenues was largely a result of the global financial crisis, which depressed both demand and prices for commodities in China and elsewhere.
Gross loss was $21.6 million, which compares to gross profit of $21.0 million in the fourth quarter of 2007. Gross margin was -8.3%, which compares to gross margin of 7.8% in the fourth quarter of 2007.
Full Year Results—The $11.3 million net loss compares to net income of $22.4 million in 2007. Basic and diluted losses per share were $0.32.
Total revenues of $1.4 billion reflect a 74.9% increase from $772.4 million in 2007. The company said the significant year-over-year increase in total revenues for the full year was largely the result of higher selling prices during the first three quarters, as well as the timing of acquisitions, including Baotou Steel Pipe Joint Venture, Longmen Joint Venture and Maoming, the operations of which began contributing to consolidated financial results on May 25, 2007, June 1, 2007 and June 25, 2008, respectively.
Gross profit was $7.9 million, an 86.0% decrease from $56.7 million in 2007. The company said the year-over-year decrease in gross profit was largely due to the economic slowdown in China's real estate and construction markets and in the overall domestic economy in the fourth quarter when steel prices abruptly dropped to levels below raw material inventory value.
Gross margin for the full year was 0.6%, compared to 7.3% in 2007. The company said that gross margins (both fourth quarter and full year) were primarily affected by price erosion during the time between the signing of supply contracts and fulfillment of customer orders.
Raw material prices in China fell through the fourth quarter along with those for finished products. The company noted that selling off higher-priced inventory as quickly as possible, even at prices resulting in a gross loss, allowed it to accommodate lower-cost inventory. The company began using lower-cost inventory at Longmen Joint Venture in December 2008, at which time margins there returned to positive territory, excluding the effects of a $1.8-million inventory write-down recorded in the fourth quarter of 2008.
Because General Steel purchases the majority of its iron ore supply on the domestic spot market, the company believes it was better able to quickly take advantage of falling raw material prices compared to many of its competitors with long-term, fixed-price supply contracts.
Operational Highlights for 2008—During 2008, General Steel completed construction of two new 1280-m3 blast furnaces at its Longmen Joint Venture that are more efficient and require less manpower, coke and energy. The company expects the new blast furnaces will help it to lower production costs and increase competitiveness in the long run.
In 2008, General Steel completed its acquisition of Maoming Hengda Steel Co, Ltd in Guangdong province, and celebrated the 20th anniversary of the company's founding subsidiary, Tianjin Daqiuzhuang Metal Sheet Co., Ltd. The company also opened new sales office in Sichuan province; migrated to the NYSE; and was selected by the national government as a "Preferred Supplier" of rebar for Sichuan earthquake rebuilding efforts.
Management Comments—''As evidenced by our record full-year revenues, our strategy to merge, create joint ventures, and acquire state-owned and private steel companies is generating results,'' said Henry Yu, General Steel's Chairman and CEO. ''While the economic slowdown inevitably had a significant effect on the steel industry during the fourth quarter, our strategic decision to keep inventory levels relatively low and sell-out of high priced inventory as quickly as possible led to a return to positive gross margins in December.
“Going forward, I'm confident that our unique focus and ideal geographic location will allow us to continue benefiting from stimulus-related construction and rural infrastructure development projects in China,” continued Yu. “Meanwhile, the catalysts for industry consolidation continue to strengthen and we have the experience, track record and management team to execute as opportunities arise.''
Headquartered in Beijing, China, General Steel Holdings Holdings is one of China's leading non-state-owned producers of steel products and aggregators of domestic steel companies. With 6.3 million tonnes aggregate production capacity through a diverse portfolio of Chinese steel companies, the company serves various industries and produces a variety of steel products including rebar, hot-rolled carbon and silicon sheet, high-speed wire and spiral-weld pipe. The company’s steel operations are located in Shaanxi and Guangdong provinces, Inner Mongolia Autonomous Region and Tianjin municipality.
