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China Precision Steel Inc. Reports Operating Results (10-Q)

November 16, 2012 | About:
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10qk

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China Precision Steel Inc. (CPSL) filed Quarterly Report for the period ended 2012-09-30.

China Precision Steel, Inc. has a market cap of $5.5 million; its shares were traded at around $1.41 .

Highlight of Business Operations:

During the three months ended September 30, 2012, we sold a total of 7,753 tons of products, a decrease of 37,795 tons from 45,548 tons a year ago, largely due to the decrease in sales of low-carbon cold-rolled steel products mentioned above. Despite a downward trend in steel prices during the quarter, our average cost per unit sold increased 3.6% while average selling prices decreased 17.1% period-on-period, mainly due to increases in factory overhead and direct labor per unit sold as a result of the substantially reduced units sold. Decreased sales volume coupled with high costs led to a gross loss of $1,466,949 and a net loss of $4,222,283 for the three months ended September 30, 2012. Total company backlog as of September 30, 2012 was $6,558,731.

Sales volume decreased by 39,795 tons, or 83.0%, period-on-period, to 7,753 tons for the three months ended September 30, 2012, from 45,548 tons for the three months ended September 30, 2011 and as a result, sales revenues decreased by $36,210,083, or 85.9%, period-on-period, to $5,956,760 for the three months ended September 30, 2012, from $42,166,843 for the three months ended September 30, 2011. The decrease in sales revenues period-on-period is mainly attributable to the decrease in production and sales of our low-carbon cold-rolled products in an effort to reduce the sales of these loss-making products.

During the three months ended September 30, 2012, domestic sales decreased across all product categories although there was a small increase in the sales of the exported low carbon hard-rolled steel products. Low-carbon cold-rolled steel products accounted for 34% of the current sales mix at an average selling price of $583 per ton for the three months ended September 30, 2012, compared to 79% of the sales mix at an average selling price per ton of $898 for the three months ended September 30, 2011. The decrease in sales in this category during the quarter was mainly due to streamlined production to reduce the sales of these loss-making products. Low-carbon hard-rolled steel products accounted for 19% of the current sales mix at an average selling price of $771 per ton for the three months ended September 30, 2012, compared to 1% of the sales mix at an average selling price per ton of $919 for the three months ended September 30, 2011, due to an increase in demand in the export market as a result of our more competitive selling prices in the global market during the period. High-carbon cold-rolled steel products accounted for 43% of the current sales mix at an average selling price of $897 per ton for the three months ended September 30, 2012, compared to 10% of the sales mix at an average selling price of $995 for the three months ended September 30, 2011. The products in this category are mainly used in the automobile industry and the decrease in sales volume period-on-period was a result of the slowing demand for automobiles in the PRC market. Subcontracting income revenues accounted for $9,024, or less than 1%, of the sales mix for the three months ended September 30, 2012, decreased from $1,032,321, or 2%, of the sales mix for the three months ended September 30, 2011, due to reduced demand. The negative quantity was due to the return of one batch of sample products with a small sales revenue.

Cost of sales decreased by $34,681,364, or 82.4%, period-on-period, to $7,423,709 for the three months ended September 30, 2012, from $42,105,073 for the three months ended September 30, 2011. Cost of sales represented 124.6% of sales revenues for the three months ended September 30, 2012, compared to 99.9% for the three months ended September 30, 2011. Average cost per unit sold increased to $957 for the three months ended September 30, 2012, compared to $924 for the three months ended September 30, 2011, representing an increase of $33 per ton, or 3.6%, period-on-period.

Gross profit in absolute terms decreased by $1,528,719 or 2,474.9%, period-on-period, to a gross loss of $1,466,949 for the three months ended September 30, 2012, from a gross profit of $61,770 for the three months ended September 30, 2011. Gross profit margin decreased to (24.6%) for the three months ended September 30, 2012, from 0.1% for the three months ended September 30, 2011. The decrease in gross profit margin is mainly attributable to a 17.1% period-on-period decrease in average selling prices and a 3.6% period-on-period increase in average cost per unit sold.

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