China Gerui Advanced Materials Group Limited Announces Second Quarter 2013 Results PR Newswire ZHENGZHOU, China, Aug. 28, 2013 ZHENGZHOU, China, Aug. 28, 2013 /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 its unaudited financial results for the three months ended June 30, 2013. Mr. Mingwang Lu, Chairman and Chief Executive Officer of China Gerui, commented, "Second quarter results reflected the continuing weakness in demand for steel in China and the pricing pressure resulting from the over-capacity of steel production in China. Our average selling price declined by 15.7% year-over-year in the 2013 second quarter, which exceeded the reduction in our raw material prices. The highly competitive pricing environment prevented us from increasing prices, which resulted in a lower 8.2% gross margin due to lower selling prices in the second quarter of 2013 compared with the same quarter in 2012. We continue to market our steel products on their premium performance qualities, but price sensitivity has become a factor with our customers. "However, we believe we are maintaining our market share as all production lines are in operation and we are outperforming most of our competitors. The China Iron and Steel Association ("Association") reported that for the first 6 months of 2013, its members reported a revenue increase of 0.94% with an average gross margin of 0.13%. For the month of June, members of the Association reported their first monthly net loss totaling RMB699 million due to decreasing steel prices.In contrast, we achieved another quarter of positive EBITDA with more stable volumes in this challenging environment.This temporary period of oversupply has forced us to postpone using our full production capacity, and to more aggressively introduce new products, to protect our pricing structure for the future. "We remain optimistic for our chromium-plated steel and new laminating steel lines as we are building their presence in the steel markets. New products carry higher margins that will improve our average gross margin as sales grow in the future. The Company believes the utilization of its wide- and narrow-strip cold-rolled steel capacity was 46%-48% in the second quarter of 2013 compared with approximately 68%-72% during the first quarter of 2013. The Company's utilization of its chromium-plating production lines was approximately 43% in the second quarter of 2013 compared to 62% during the first quarter of 2013. "With these new products, we offer a greater range of cold-rolled steel products to our current customers that can compete with higher-priced imports, and we can now provide steel solutions to new customers we could not service before. Our more comprehensive steel product line differentiates us from many smaller steel producers who do not have the technology, financial resources, or customer relationships to effectively compete with us. "Our steel volume has been stable at approximately 62,000 tons per quarter over the first half of 2013. We have avoided increasing production to prevent more aggressive pricing being necessary. We expect recent pricing concessions are reversible when the market improves. Our specialty steel products continue to receive more interest and we remain optimistic that exports will become a more meaningful growth channel. We are seeking accretive acquisitions and partnerships to become a larger, more powerful global metals processor in the future, and to generate substantial positive cash flow which will translate into greater shareholder value for our investors," Mr. Lu concluded. Second Quarter 2013 Results Revenue decreased 43.9% to $43.1 million in the second quarter of 2013 from $76.8 million in the second quarter of 2012. The decrease in revenue was primarily due to a 15.7% decrease in the Company's average selling price to $692 per ton for the second quarter of 2013 as compared to an average selling price of $821 for the second quarter of 2012 as well as a 33.2% decrease in sales volume to approximately 62,500 tons for the second quarter of 2013 as compared to approximately 93,500 tons for the same quarter of 2012. Gross profit decreased 82.2% to $3.5 million in the second quarter of 2013 from $19.8 million in the same quarter of 2012. Gross margin was 8.2% in the second quarter of 2013 compared to 25.8% in the second quarter of 2012.The decrease in gross profit compared with a year ago was due to lower sales as the economic slowdown in China continued and domestic consumption declined in the second quarter of 2013. Excess capacity and reduced steel demand continued to create the intense competition and pricing pressures currently in the marketplace during the quarter. Operating income decreased 93.4% to $1.1 million in the second quarter of 2013, from operating income of $16.8 million for the second quarter of 2012. The decrease in operating income in the second quarter of 2013 was primarily due to an 82.2% decrease in gross profit. Net loss was $0.64 million in the second quarter of 2013, or nil per fully diluted share, compared to a net profit of $10.3 million, or $0.18 per share in the second quarter of 2012. Non-GAAP EBITDA was $4.0 million in the second quarter of 2013, or 9.3% of revenue, compared to $19.6 million, or 25.6% of revenue, in the second quarter of 2012. Non-GAAP EBITDA is defined as earnings before net interest expense, taxes, depreciation, and amortization incurred in the second quarter of fiscal year 2013.* * Please see the section below entitled "Use of Non-GAAP Adjusted Financial Measures" and the reconciliation table at the end of this press release for an explanation and quantitative comparison of the non-GAAP measures used in this press release to their GAAP equivalents. Financial Condition As of June 30, 2013, the Company had $203.6 million in unrestricted cash, $28.0 million in current certificates of deposit, and an additional $169.8 million in restricted cash, as compared to $228.9 million in unrestricted cash, $16.4 million in current certificates of deposit and an additional $145.4 million in restricted cash as of December 31, 2012. The Company's short-term debt consisted of notes payable and term loans that totaled $377.5 million at June 30, 2013, compared to $317.0 million as of December 31, 2012. The Company had no long-term liabilities.Shareholders' equity was $334.4 million at June 30, 2013 as compared to $330.1 million as of December 31, 2012. Net cash used in operating activities for the first six months ended June 30, 2013 was $22.5 million compared with $25.0 million of net cash flow provided during the first six months of 2012. Recent Developments In June 2013, China Gerui was a gold sponsor at the AMM Steel Success Strategies XXVIII Conference which had attendees from major steel and steel-related companies and associations from around the world and was a virtual who's-who of the global steel industry. Participants benefitted from a high level conference program as well as expanded networking opportunities. China Gerui's CFO, Edward Meng was a panel presenter at the conference during two sessions. In May 2013, China Gerui engaged Cambelle-Inland LLC, a company founded by Craig T. Bouchard to advise it on strategic planning and expansion in North America and around the world. Mr. Bouchard is an investor of China Gerui and he has expertise in building steel operations, especially through acquisitions. China Gerui is seeking accretive acquisitions to increase its market share domestically and to globalize the Company's operations over time. In April 2013, China Gerui announced it had captured three international customers placing regular commercial orders for its high-end and narrow-strip steel. Two customers are located in India and one customer is located in Turkey. The products purchased were both wide- and narrow-strip high-precision, chromium-plated, cold-rolled strip steel. Total orders could reach 3,000 tons based on current order rates.Three additional potential customers are currently engaged in trials with China Gerui's specialized steel products in three other countries, including the U.S. Since the launch of the share repurchase program in April 2011, as of June 30, 2013 the Company had repurchased a total of 2,010,918 ordinary shares at an average price of $3.06 per share for a total repurchase price of approximately $6.2 million. 2013 Financial Guidance Given current market conditions, volatility of raw material costs and the slower than anticipated price recovery for premium processed steel, the Company revised its full year 2013 revenue guidance to the range of $165 million to $170 million. The Company may adjust such guidance as changing macroeconomic conditions and operational and competitive challenges dictate. Industry and Business Update "Chinese GDP growth declined further to 7.5% in the second quarter of 2013 from 7.7% in the 2013 first quarter and 7.9% in the fourth quarter of 2012 according to the National Bureau of Statistics. This slowing growth combined with excess steel production capacity is causing severe price competition in China. "However, in the first half of 2013, total consumption of crude steel increased by 6.8% year-over-year to 364.6 million tons, but national production of crude steel rose faster at 7.4% to 389.9 million tons according to the China Iron and Steel Association. Crude steel production has recently been running at a high average daily rate of 2.15 million tons rate, which equals approximately 786 million tons for the 2013 year. Additionally, the production of iron increased by 5.7% to 357.5 million tons and steel production rose by 10.2% to 517.0 million tons. Steel inventories in China decreased during the 2013 second quarter from the first quarter of 2013, but remained at a high level and were 3.6 million tons above the amount at the end of the second quarter of 2012. "The central government is taking actions to encourage consolidation in the steel industry to create a more balanced steel production and price environment to alleviate the current market conditions over time.Smaller steel companies or those with older technologies may be forced to merge or cease operations. China Gerui will be a beneficiary of these actions with its comprehensive product line, high-quality brand name, established market position and management capabilities. "Continued investment in real estate and fixed assets as well as relatively steady demand from certain industries such as automotive and heavy-duty equipment, offer the prospect of stronger steel demand in China in the future. We are further positioning China Gerui to become a substantial player in the global steel industry with a much larger global customer base through our comprehensive product mix and potential future opportunistic acquisitions to further our diversification and quickly build market share. By improving our production efficiency we expect to become an even more effective competitor and benefit from the next recovery in the Chinese steel market," Mr. Lu concluded. Conference Call Information The Company will also host a conference call at 9:00 am EDT (9:00 pm Beijing Time) on Wednesday, August 28, 2013.^ Listeners may access the call by dialing +1 (877) 407-8133 five to ten minutes prior to the scheduled conference call time. International callers should dial +1 (201) 689-8040. A replay of the conference call will be available for 14 days starting from 12:00 pm EDT on Wednesday, August 28, 2013. To access the replay, dial +1 (877) 660-6853.International callers should dial at +1 (201) 612-7415. The pass code is 419874. A live and archived webcast of the call will be available on the Company's website at http://www.geruigroup.com/Investors.html.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 software. Use of Non-GAAP Financial Measures This earnings release includes the use of non-GAAP EBITDA, which are financial measures that are not defined by U.S. generally accepted accounting principles, or U.S. GAAP. For purposes of Regulation G, a non-GAAP financial measure is a numerical measure of a registrant's historical or future financial performance, financial position or cash flows that excludes amounts, or is subject to adjustments that have the effect of excluding amounts, that are included in the most directly comparable measure calculated and presented in accordance with U.S. GAAP in the statement of income, balance sheet, or statement of cash flows (or equivalent statements) of the issuer; or includes amounts, or is subject to adjustments that have the effect of including amounts, that are excluded from the most directly comparable measure so calculated and presented. Pursuant to the requirements of Regulation G, the Company has included with this press release a table which includes a reconciliation of non-GAAP EBITDA to the most directly comparable respective U.S. GAAP financial measures. Non-GAAP EBITDA is defined in this earnings release as earnings before interest, taxes, depreciation, and amortization that were incurred in the second quarter of 2013. The Company's management believes that the presentation of these non-GAAP financial measures provides useful information regarding the Company's results of operations because it assists in analyzing and benchmarking the performance and value of the Company's business. The Company's calculation of non-GAAP EBITDA may not be consistent with similarly titled measures of other companies. 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, with an emerging presence in international markets, in a diverse range of industries, including the food packaging, telecommunication, electrical appliance, and construction materials industries. For more information, please visit http://www.geruigroup.com. 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, 2012 and otherwise in our SEC reports and filings. Such reports are available upon request from the Company, or from the SEC, including through the SEC's Internet website at http://www.sec.gov. 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: IR Contacts: Email: Vivian Chen Kevin Theiss email@example.com Website: Managing Director Account Director www.geruigroup.com Grayling Grayling Phone: 646-284-9427 Phone: 646-284-9409 Email: Email: firstname.lastname@example.org email@example.com - Financial Tables Follow - CHINA GERUI ADVANCED MATERIALS GROUP LIMITED CONSOLIDATED BALANCE SHEETS (IN US DOLLARS) (Unaudited) June 30, 2013 December31,2012 Assets Current assets Cash $ 203,573,315 $ 228,861,009 Certificates of deposit 27,971,127 16,372,128 Restricted cash 169,845,051 145,413,726 Accounts receivable, net 7,528,934 2,276,153 Notes receivable - 433,379 Inventories 24,598,947 22,762,545 Prepaid purchases 120,454,584 76,268,597 Prepaid expenses 950,389 382,569 Other receivables 1,049,489 2,270,073 Total current assets 555,971,836 495,040,179 Non-current assets Property, plant and 138,983,868 134,110,657 equipment, net Land use right, net 57,310,003 13,625,738 Deposit on acquisition of - 24,076,660 business Deposit on acquisition of 790,087 266,312 property, plant and equipment Other receivable 3,075,738 3,039,835 Certificates of deposit 3,258,708 3,210,221 Total non-current assets 203,418,404 178,329,423 Total assets $ 759,390,240 $ 673,369,602 Liabilities and stockholders' equity Current Liabilities Accounts payable $ $ 2,279,246 17,067,680 Notes payable 315,878,059 259,546,395 Term loans 61,589,598 57,462,962 Land use right payable 1,440,751 1,419,314 Income tax payable 1,771,519 5,140,306 Customers deposits 20,467,262 11,635,999 Accrued liabilities and other 6,786,234 5,818,060 payables Total current liabilities 425,001,103 343,302,282 Total liabilities 425,001,103 343,302,282 Stockholders' equity Common stock, 100,000,000 shares authorized with no par value; 59,823,730 and 59,823,730 shares issued, 140,418,118 140,418,118 59,522,910 and 59,561,899 shares outstanding as of June 30, 2013 and December 31, 2012, respectively Additional paid-in capital 5,011,589 4,978,698 Treasury stock, at cost, 300,820 and 261,831 shares, (498,799) (414,063) as of June 30, 2013 and December 31, 2012, respectively Retained earnings 162,536,868 163,276,046 Accumulated comprehensive 26,921,361 21,808,521 income Total stockholders' equity 334,389,137 330,067,320 Total liabilities and $ 759,390,240 $ 673,369,602 stockholders' equity CHINA GERUI ADVANCED MATERIALS GROUP LIMITED CONSOLIDATED STATEMENTS OF (LOSS) INCOME (IN US DOLLARS) (UNAUDITED) For the Three Months Ended For the Six Months Ended June 30, June 30, 2013 2012 2013 2012 Revenue $ 43,078,588 $ 76,783,963 $ 88,689,295 $ 145,473,530 Cost of revenue (39,557,743) (56,975,825) (79,961,858) (104,172,570) Gross Profit 3,520,845 19,808,138 8,727,437 41,300,960 Operating expenses: General andadministrative (2,330,607) (2,511,170) (4,733,708) (4,880,531) expenses Selling and (73,666) (506,711) (808,013) (613,797) marketingexpenses Total operating (2,404,273) (3,017,881) (5,541,721) (5,494,328) expenses Operating income 1,116,572 16,790,257 3,185,716 35,806,632 Other income and (expense): Interest 845,618 624,578 2,082,157 1,250,829 income Interest (2,580,151) (2,028,459) (5,939,682) (3,059,376) expenses Sundry income 3,423 24,911 102,021 183,648 (Loss)/Income before (614,538) 15,411,287 (569,788) 34,181,733 income taxes Income tax expense (29,566) (5,136,010) (169,390) (9,895,848) Net (loss) / $ (644,104) $ 10,275,277 $ (739,178) $ 24,285,885 income Earnings per share - Basic $ Nil $ 0.18 $ $ 0.42 Nil - Diluted $ $ 0.18 $ $ 0.42 Nil Nil Weighted average common shares outstanding - Basic 59,556,396 58,203,179 59,559,133 58,230,054 - Diluted 59,556,396 58,203,179 59,559,133 58,230,054 CHINA GERUI ADVANCED MATERIALS GROUP LIMITED CONSOLIDATED STATEMENTS OF CASH FLOWS (IN US DOLLARS) (UNAUDITED) For The Six Months Ended 2013 2012 Cash flows from operating activities: Net (loss) / income $ (739,178) $ 24,285,885 Adjustments to reconcile net (loss) / income to net cash provided by operating activities: Depreciation of property, plant and equipment 5,602,740 5,445,665 Amortization of land use right 168,271 164,662 Amortization of intangible asset - 2,730 Stock-based compensation 32,891 - Changes in assets and liabilities: Accounts receivable, net (5,181,508) 2,688,177 Notes receivable, net 436,815 75,515 Inventories (1,482,042) 723,341 Prepaid expenses (1,074,146) (2,240,101) Prepaid purchases (42,729,770) (30,503,908) Other receivable 147,453 143,083 Accounts payable 14,649,698 26,426,165 Income tax payable (3,422,061) 3,329,166 Customers deposit 8,594,318 (5,288,776) Accrued liabilities and other payables 2,538,767 (276,963) Net cash (used in) / provided by operating (22,457,752) 24,974,641 activities Cash flows from investing activities: Cash paid for property, plant and equipment (7,855,584) (1,646,177) Payment of purchases intangible asset - (16,435) Advance to unrelated third parties - (3,689,485) Repayment of advance to unrelated third 772,012 5,237,692 parties Repayment of advance to related party 315,177 - Repayment of advance from unrelated third (1,617,835) - party Cash paid for acquisition of land use right (19,214,984) - Investment in certificates of deposit (11,271,457) (4,432,764) Changes in restricted cash (22,077,780) (28,048,733) Net cash used in investing activities (60,950,451) (32,595,902) Cash flows from financing activities: Repayment of term loans (14,560,515) (14,248,171) Proceeds from term loans 17,796,185 17,414,432 Proceeds from notes payable 313,644,821 247,601,558 Repayments from notes payable (261,603,922) (204,144,635) Purchase of treasury stock (84,736) (571,496) Net cash provided by financing activities 55,191,833 46,051,688 Net (decrease)/increase in cash (28,216,370) 38,430,427 Effect on change of exchange rates 2,928,676 (2,191,610) Cash as of January 1 228,861,009 246,600,917 Cash as of June 30 $ 203,573,315 $ 282,839,734 Supplemental disclosures of cash flow information: Cash paid during the year for: Interest paid $ 5,895,801 $ 3,153,604 Income tax paid $ 3,591,451 $ 6,566,682 CHINA GERUI ADVANCED MATERIALS GROUP LIMITED RECONCILIATION OF NON-GAAP FINANCIAL DATA (UNAUDITED) (IN US DOLLARS) Non-GAAP EBITDA Second Quarter Ended June 30, 2013 2012 Net (Loss) / Income, GAAP amount per $(644,104) $10,275,277 consolidatedstatement of income Interest income (845,618) (624,578) Interest expenses 2,580,151 2,028,459 Income tax expense 29,566 5,136,010 Depreciation of property, plant and 2,818,472 2,724,266 equipment Amortization of land use right 84,620 82,110 Non-GAAP EBITDA $4,023,087 $19,621,544 SOURCE China Gerui Advanced Materials Group Limited Website: http://www.geruigroup.com Website: http://www.geruigroup.com/Investors.html
China Gerui Advanced Materials Group Limited Announces Second Quarter 2013 Results
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