China Gerui Advanced Materials Group Limited Announces Third Quarter 2012 Results

  China Gerui Advanced Materials Group Limited Announces Third Quarter 2012

PR Newswire

ZHENGZHOU, China, Nov. 20, 2012

ZHENGZHOU, China, Nov. 20, 2012 /PRNewswire-FirstCall/ --China Gerui Advanced
Materials Group Limited (NASDAQ: CHOP) ("China Gerui," or the "Company"), a
leading high precision, cold-rolled steel producer in China, today announced
unaudited financial results for the three and nine months ended September 30,

"We recorded disappointing financial results in the third quarter of the year
due to the continued decline in our raw material costs in the third quarter
that contributed to an intensified pricing environment and increased
competitive pressures. This resulted in the contraction of both our sales
volume and average selling price as the pricing pressure that had been present
in the domestic steel industry at large entered a portion of our specialized
steel sector. This led us to enact a temporary reduction in the output of some
of our steel products in order to avoid predatory pricing and the further
migration of thin margin pricing to ensure our reputation as a high quality
precision cold-rolled steel producer," said Mr. Mingwang Lu, Chairman and
Chief Executive Officer.

"Despite the quarter's results, we believe that the fundamentals of our
business remain sound. We are cautiously optimistic about a significant
rebound in pricing and resultant turnaround in our specialized steel segment
starting from the second quarter of 2013 that will enable us to leverage our
strong productive capabilities and product synergies. We will continue to
enhance our product offerings and competitive profile in order to reach more
customers with an expanded range of end-use products and materials," Mr. Lu
continued. "Our strategic decision to focus upon exports to reach a wider and
more diversified wider customer gained further traction in the most recent
quarter and fits our strategy of being a high-end global steel producer."

Third Quarter 2012 Results

Revenue decreased 44.5% to $56.1 million in the third quarter of 2012 from
$101.1 million in the third quarter of 2011. The decrease in revenue was
primarily due to a 33.1% decrease in the Company's average selling price of
$698 per ton for the third quarter of 2012 as compared to an average selling
price of $1,044 for the same period of 2011 as well as a 17.3% decrease in
sales volume to approximately 80,386 tons for the third quarter of 2012 as
compared to approximately 97,185  tons for the same period of 2011.

Gross profit decreased 72.6% to $8.8 million in the third quarter of 2012 from
$32.1 million in the same period of 2011. Gross margin was 15.7% in the third
quarter of 2012 compared to 31.7% in the same period of 2011. The decrease in
gross margin was due to significant market driven price declines of the
Company's raw materials, a slowdown in China's economic growth and demand for
our products and intensified competition in the Company's segment of the steel
sector. Further, there was additional testing of both the chromium plating
line that was temporarily taken offline during August of 2012 as well as the
added 100,000-ton wide-strip production line to ensure its improved precision
and successful ramp-up.

Operating income decreased 79.6% to $5.9 million in the third quarter of 2012,
or 10.5% of revenue, from operating income of $28.7 million, or 28.4% of
revenue, in the same period of 2011. The decrease in operating income in the
third quarter 2012 as compared to operating income in the comparable year-ago
period is primarily due to the corresponding decrease in gross profit and
relatively higher operating expenses as a percent of revenue in the third
quarter of 2012 compared to the same period of 2011.

Net income was $2.4 million in the third quarter of 2012, or $0.04 per fully
diluted share, compared to $21.4 million, or $0.37 per share in the same
period of 2011.

Financial Condition

As of September 30, 2012, the Company had $229.9 million in unrestricted cash,
$12.6 million in current certificates of deposit and an additional $166.0
million in restricted cash, as compared to $246.6 million in unrestricted cash
and $118.1 million in restricted cash as of December 31, 2011. Working capital
was $175.8 million as of September 30, 2012, compared to $142.5 million as of
fiscal year end 2011. The Company's short-term debt consisted of notes payable
and term loans that totaled $327.8 million as of September 30, 2012, compared
to $249.1 million as of December 31, 2011. The Company has no long-term debt.
Shareholders' equity was $324.6 million as of September 30, 2012 as compared
to $298.4 million as of December 31, 2011. The net cash used in operating
activities for the nine months ended September 30, 2012 was $29.4 million
compared to net cash provided by operating activities of $47.9 million in the
same period of 2011.

Recent Developments

During the third quarter of 2012, the Company had repurchased 286,997 ordinary
shares at an average price of $1.98 per share for a total repurchase price of
approximately $0.57 million. Since the launch of its share repurchase program
in April 2011, and as of September 13, 2012 the Company had repurchased a
total of 1,710,098 ordinary shares at an average price of $3.31 per share for
a total repurchase price of approximately $5.7 million.

2012 Guidance Revision

Given current market conditions, the Company is revising its guidance for the
year 2012. For the year of 2012, we are lowering our revenue guidance to be in
the $265 million to $270 million range, below our previously announced revenue
guidance range of $290 million to $305 million. The Company is also lowering
its earnings per share guidance range to $0.65 to $0.70 per share for the year
2012, below its previously announced guidance range of $0.75 to $0.85 per

Industry and Business Update

In the third quarter of 2012, the Company experienced a continued contraction
in its average selling price relative to previous quarters. Raw material costs
experienced a marked decrease in the third quarter, continuing the trend of
rapidly decreasing raw material prices since the second quarter of 2012. As is
widely known, China's steel sector has been operating at a loss with problems
of oversupply amid a general domestic economic slowdown where major China
steel makers have cut prices due to low demand. Plans for and investment in
capital-intensive infrastructure projects have been cut back significantly at
both national and provincial levels, which negatively impacted demand for
steel products from key industries including real estate, steel-making,
railway construction, ship-building and so on. The Chinese government has
recently introduced an RMB four trillion stimulus plan which we believe will
help stem the price erosion that resulted in a severe cut back in the
aggregate productive capacity of the steel sector and a collapse in its

The price of iron ore, the base material from which the Company's raw material
of hot-rolled steel coil is derived, has steadily decreased during 2012 from a
spot price of $147.65 per metric ton in April of 2012 to a price of $127.94
per metric ton as of July 2012, a drop of 13.3%. In the third quarter, iron
ore prices fell further to $99.47 per metric ton as of September 2012, a 32.6%
drop from April iron ore prices, before a recent rebound to October's $113.95

The substantial fall-off of pricing in the steel industry was compounded by
generally weaker customer demand due to a contraction in general domestic
business activity in certain key sectors in which our customers operate such
as the construction industry that the Company serves. In addition, the
difficult pricing environment that affected most of our product segments was
exacerbated by sustained price cuts enacted by large Chinese steel companies
as a means to maintain their own viability albeit at reduced production

These factors combined with the Company's cost-plus pricing methodology
compelled us to lower the average selling price of our cold-rolled steel
products so as to remain competitive and maintain a reasonably sound level of
business activity. We made a strategic decision in the third quarter to cut
back on the output of some of our products so as to avoid a head-to-head
pricing war with lower-grade cold-rolled steel producers. The Company believes
that once made, pricing concessions are often difficult to rollback, with the
additional concern that deep pricing cuts might degrade our highly favorable
reputation as a high-end cold-rolled steel strip producer. The Company
believes that its decision not to engage in a price war with such competitors
will enable it to revert back to its former pricing strategy where it can
charge a premium for its products relative to its competitors when market
conditions improve.

During the third quarter, the Company continued to test its new wide-strip
capacity to ensure that it has reached its design specifications, which
improves its prospects for procuring new business domestically as well as
internationally. In addition, the Company took its chromium plating lines
offline for maintenance for a two-week period in August for further testing
and refinement. These factors also contributed to the Company's lower gross
margin in the third quarter, although to a lesser extent than the reasons
previously cited.

Given current market conditions, we found it necessary to revise our guidance
for the year 2012. We plan to adapt our strategic focus to more effectively
compete in our market segment despite a macroeconomic environment reflective
of highly volatile material prices, slower consumer demand and large company
industry participants. Towards that end, we are intent upon continuing to
enrich and diversify our product platform to offer our customers additional
specialization and customization options. For instance, our chromium plating
business continued to generate relatively high margins in the third quarter
and is representative of a value-added product that warrants continued premium

We are also focused upon widening our customer base so as to be less
vulnerable to the change in domestic demand and are committed to procuring a
larger number of customers on a more diversified basis. We are now engaged in
active discussions with potential domestic and international customers who are
currently testing our products, which is a standard procedure prior to
entering into new contracts.

As previously announced, the Company completed its addition of 100,000 tons of
annual cold-rolled steel production capacity during the first quarter of 2012
as part of Phase II of its capacity expansion plan. The Company's total
production capacity now totals 500,000 tons of specialized wide- and
narrow-strip cold-rolled steel which are all fully operational. The Company
estimates that the utilization of its wide- and narrow-strip cold-rolled steel
productive capacity was approximately 75-80% in the third quarter, down from
the 83% utilization rate of the second quarter, attributable to the predatory
price competition. The Company also estimates that the utilization of its
chromium-plating production lines was approximately 65% during the third
quarter, up from the 55% utilization rate of the second quarter.

We believe that the Chinese economy is going to stabilize and that the demand
for steel products in the domestic market will turn stronger in the coming
quarters, reversing the declining trend that had occurred over the last four
to five quarters. We believe that beginning from the first quarter of 2013, we
could see an inflection point in the fundamentals of the sector and that new
Company materials products and applications will enable us to migrate away
from low-end cold-rolled competitors to more specialized segments and enable
us to achieve a higher utilization rate of our production lines.

"We are confident that our productive capacity, value-added technologies and
new strategies will enable us to adapt to the currently challenging market
conditions. While we are cautiously optimistic as to a return to more
normalized operating environment, we believe that our current initiatives will
enable us to effectively compete on a wider scale and that a diversified
product platform will enable us to reach a larger and more varied customer
base," Mr. Lu concluded.

Conference Call Information

The Company will also host a conference call at 8:00 am ET (9:00 pm Beijing
Time) on Tuesday, November 20, 2012.

Listeners may access the call by dialing +1 (866) 395-5819 five to ten minutes
prior to the scheduled conference call time. International callers should dial
+1 (706) 643-6986. The conference participant pass code is 68790010.

A replay of the conference call will be available for 14 days starting from
10:00 pm ET on Tuesday, November 20, 2012. To access the replay, dial +1 (855)
859-2056. International callers should dial +1 (404) 537-3406. The passcode is

A live and archived webcast of the call will be available on the Company's
website at To listen to the live
webcast, please go to the Company's website at least fifteen minutes prior to
the start of the call to register, download and install any necessary audio

About China Gerui Advanced Materials Group Limited

China Gerui Advanced Materials Group Limited is a leading niche and high
value-added steel processing company in China. The Company produces high-end,
high-precision, ultra-thin, high- strength, cold-rolled steel products that
are characterized by stringent performance and specification requirements that
mandate a high degree of manufacturing and engineering expertise. China
Gerui's products are not standardized commodity products. Instead, they are
tailored to customers' requirements and subsequently incorporated into
products manufactured for various applications. The Company sells its products
to domestic Chinese customers in a diverse range of industries, including the
food and industrial packaging, construction and household decorations
materials, electrical appliances, and telecommunications wires and cables. For
more information, please visit

Safe Harbor Statement

Certain of the statements made in this press release are "forward-looking
statements" within the meaning and protections of Section 27A of the
Securities Act of 1933, as amended and Section 21E of the Securities Exchange
Act of 1934, as amended, or the Exchange Act. Forward-looking statements
include statements with respect to our beliefs, plans, objectives, goals,
expectations, anticipations, assumptions, estimates, intentions, and future
performance, and involve known and unknown risks, uncertainties and other
factors, which may be beyond our control, and which may cause the actual
results, performance, capital, ownership or achievements of the Company to be
materially different from future results, performance or achievements
expressed or implied by such forward-looking statements. All statements other
than statements of historical fact are statements that could be
forward-looking statements. You can identify these forward-looking statements
through our use of words such as "may," "will," "anticipate," "assume,"
"should," "indicate," "would," "believe," "contemplate," "expect," "estimate,"
"continue," "plan," "point to," "project," "could," "intend," "target" and
other similar words and expressions of the future.

All written or oral forward-looking statements attributable to us are
expressly qualified in their entirety by this cautionary notice, including,
without limitation, those risks and uncertainties described in our annual
report on Form 20-F for the year ended December 31, 2011 and otherwise in our
SEC reports and filings, including the final prospectus for our offering. Such
reports are available upon request from the Company, or from the SEC,
including through the SEC's Internet website at We have no
obligation and do not undertake to update, revise or correct any of the
forward-looking statements after the date hereof, or after the respective
dates on which any such statements otherwise are made.

Company Contact:                Investor Relations Contact:
Email: CCG Investor Relations
Website:    David Rudnick
                                 Phone: 1-646-626-4172

- Financial Tables Follow -

                                         September 30, 2012  December 31, 2011
Current assets
 Cash                                 $              $     
                                         229,928,657        246,600,917
 Certificates of Deposit              12,570,010          -
 Restricted cash                      165,985,047         118,130,253
 Accounts receivable, net             3,696,847           6,382,630
 Notes receivable                     402,558             568,328
 Inventories                          25,478,108          24,463,142
 Prepaid purchases                    96,958,665          45,805,423
 Prepaid expenses and other deposits  4,230,122           385,131
 Other receivables                    1,568,521           2,850,601
Total current assets                     540,818,535         445,186,425
Non-current assets
 Property, plant and equipment, net   116,231,588         122,695,246
 Land use right, net                  13,581,312          13,807,056
 Deposit on acquisition of future     12,729,124          12,710,719
land use right
 Other receivable                     3,013,378           3,499,083
 Certificates of deposit              3,182,281           3,177,679
Total non-current assets                 148,737,683         155,889,783
Total assets                             $             $     
                                         689,556,218         601,076,208
Liabilities and stockholders' equity
Current Liabilities
 Accounts payable                     $           $        
                                         3,490,329           8,074,432
 Notes payable                        275,585,539         204,880,916
 Term loans                           52,189,409          44,169,751
 Land use right payable               1,406,961           1,404,926
 Income tax payable                   6,424,813           5,458,482
 Customers deposits                   14,147,525          23,383,849
 Accrued liabilities and other        11,730,708          15,276,016
Total current liabilities                364,975,284         302,648,372
Total liabilities                        364,975,284         302,648,372
Stockholders' equity
Common stock,
 Common stock, 100,000,000 shares
authorized with no par value;
 59,433,828 shares issued,
57,723,730 and 58,256,930 shares
 outstanding as of September 30,
2012 and December 31, 2011,              140,418,118         140,418,118
 Additional paid-in capital           6,930,944           6,930,944
 Treasury stock, at cost, 1,710,098
shares and 1,176,898 shares, as of       (5,657,355)         (4,516,744)
 September 30, 2012 and December
31, 2011
 Retained earnings                    163,810,429         137,142,958
 Accumulated comprehensive income     19,078,798          18,452,560
Total stockholders' equity               324,580,934         298,427,836
Total liabilities and stockholders'      $             $      
equity                                   689,556,218         601,076,208

                   For the Three Months Ended      FortheNineMonthsEnded
                   September 30,                   September 30,
                   2012             2011            2012
Revenue           $  56,123,028  $ 101,073,420   $ 201,596,558
Cost of revenue   (47,331,341)     (69,018,246)    (151,503,911)
Gross Profit      8,791,687        32,055,174      50,092,647
 General and
administrative     (2,548,672)      (2,750,140)     (7,429,203)
 Selling and
marketing          (374,818)        (602,364)       (988,615)
compensation       -                -               -
Total operating   (2,923,490)      (3,352,504)     (8,417,818)
Operating income  5,868,197        28,702,670      41,674,829
Other income and
 Interest      1,233,910        425,824         2,484,739
 Interest      (3,105,412)      (621,145)       (6,164,788)
 Sundry        21,310           401,884         204,958
Income before      4,018,005        28,909,233      38,199,738
income taxes
Income tax         (1,636,419)      (7,518,632)     (11,532,267)
Net income         $              $  21,390,601  $  26,667,471
Earnings per
 - Basic and    $         $         $        0.46
Diluted            0.04            0.37
Weighted average
common shares
 - Basic and    57,935,604       58,428,146      58,131,188

                                        For The Nine Months Ended
                                        September 30,
                                        2012                2011
Cash flows from operating activities:
Net income                              $   26,667,471   $   39,428,955
Adjustments to reconcile net income to
Cash (used in) / provided by operating
Depreciation of property, plant and     8,129,037           4,689,078
Amortization of land use right          246,801             240,661
Changes in assets and liabilities:
Accounts receivable, net                2,679,379           1,824,157
Notes receivable, net                   165,625             -
Inventories                             (973,858)           (6,002,591)
Prepaid expenses and other deposits     (3,822,113)         (1,181,198)
Prepaid purchases                       (50,790,330)        (27,459,387)
Other receivables                       219,656             1,121,774
Accounts payable                        (4,569,113)         9,313,975
Income tax payable                      952,863             2,639,637
Customers deposit                       (9,216,363)         16,069,127
Accrued liabilities and other payables  896,983             7,193,894
Net cash (used in) / provided by        (29,413,962)        47,878,082
operating activities
Cash flows from investing activities:
Cash paid for property, plant and       (5,887,409)         (30,912,597)
Payment of purchases of land use right  -                   (9,023,879)
Payment of acquisition of future land   -                   (10,157,648)
use right
Cash reserved for potential strategic   -                   (5,000,000)
partnership program
Advance to unrelated third party        (3,686,625)         -
Repayment of advance to unrelated third 5,233,632           -
Investment in certificates of deposit   (12,497,034)        -
Changes in restricted cash              (47,406,917)        (34,731,906)
Net cash used in investing activities   (64,244,353)        (89,826,030)
Cash flows from financing activities:
Repayment of term loans                 (31,638,061)        (24,290,245)
Proceeds from term loans                39,547,576          12,457,400
Proceeds received from exercise of      -                   66,473,875
Proceeds from notes payable, net        69,999,209          85,018,819
Purchase of treasury stock              (1,140,611)         (4,319,777)
Net cash provided by financing          76,768,113          135,340,072
Net (decrease) / increase in cash       (16,890,202)        93,392,124
Effect on change of exchange rates      217,942             12,006,373
Cash as of January 1                    246,600,917         119,477,298
Cash as of September 30                 $  229,928,657    $  224,875,795
Supplemental disclosures of cash flow
Cash paid during the period for:
          Interest paid                 $    6,258,243  $    5,215,902
          Income tax paid               $   10,579,405   $   13,902,975

SOURCE China Gerui Advanced Materials Group Limited

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