Longhai Steel reports unaudited highlights for 2010

Tuesday, 08 Mar 2011
Longhai Steel Inc a producer of steel wire products in the People Republic of China announced its preliminary unaudited financial highlights for the year ended December 31 2010.

The financial results provided in this news release are preliminary, unaudited, and subject to adjustment. Longhai Steel expects to release its audited financial results by March 15 2011.

Year 2010 preliminary unaudited highlights
1. Net revenues were USD 475.0 million up 27.1% from 2009.
2. Gross profit was USD 18.6 million up 10.4% from 2009.
3. Net income was USD 11.5 million down 2.0% from 2009.
4. Basic and diluted earnings per share were USD 1.15, down 3.4% from 2009.
5. Weighted average shares outstanding increased 1.2% in 2010 to 9,965,068 shares.

Mr Chaojun Wang Chairman and Chief Executive Officer of Longhai Steel said, "We are pleased with our operating performance for 2010 and expect to continue our good growth in 2011. Our fourth quarter 2011 was especially good, with revenues up 60.7% and net income up 28.5% from the fourth quarter 2009. During the summer of 2010, we reduced wire prices to respond to competitive pressures from a larger than expected local supply of wire. Since that situation appeared to be temporary, we believe that the spreads between billet costs and wire prices have returned to more normal relationships for 2011. As we did in 2010, we expect to benefit for the next several years from the growing demand for steel wire used for construction and infrastructure as China continues its dramatic urbanization and modernization."

Net revenues increased 27.1% to USD 475.0 million in the year ended December 31 2010 from USD 373.7 million in 2009 primarily due to a 17.8% increase in the average price for wire per ton. Longhai Steel's tonnage sold in 2010 increased 6.9% to 906,836 metric tons from 848,063 tons in 2009.

Cost of goods sold increased 27.9% to USD 456.4 million in 2010 from USD 356.8 million in 2009. Cost of goods sold as a percentage of net revenues was 96.1% in 2010 compared with 95.5% in 2009. The cost of goods sold is largely determined by movements in steel billet prices and by volume. Billets typically account for more than 95% of cost of goods sold. The weighted average cost of goods sold per ton of wire increased 18.8% in 2010 from 2009.

Gross profit increased 10.4% to USD 18.6 million in 2010 from USD 16.8 million in 2009. The gross profit margin decreased to 3.9% in 2010 from 4.5% in 2009 mainly due to narrowing of the spread between billet purchase prices and wire sales prices, as the company lowered prices to respond to competitive pricing pressures from larger-than-expected local supplies of wire during the summer of 2010.

General and administrative expenses increased 100.9% to USD 2.2 million in 2010 from USD 1.1 million in 2009 due to a stock option granted to an executive and higher expenses for social insurance, and expenses related to the company's preparation for a securities offering and for the trading of its common shares on NASDAQ.

Income tax increased 2.4% to USD 4.0 million in 2010 from USD 3.9 million in 2009, with the effective tax rate of 25.8% in 2010 and 25.0% in 2009. Net income decreased 2.0% to USD 11.5 million in 2010 from USD 11.7 million in 2009. Basic and diluted earnings per share decreased 3.4% to USD 1.15 in 2010 from USD 1.19 in 2009.

As of December 31 2010, cash and cash equivalents were USD 0.3 million, shareholders' equity was USD 44.5 million and total assets were USD 78.0 million.