China Fire & Security Group, Inc. (Nasdaq:CFSG) ("China Fire"
or "the Company"), a leading total solution provider of industrial
fire protection systems in China, today announced its financial
results for the fourth quarter and fiscal year ended December 31,
2010.
2010 Highlights
- As of December 31, the Company had a backlog valued at $151.3
million;
- In February, CFSG signed a $92 million contract with Wuhan Iron
and Steel;
- In July, the Company won a $10 million contract with China
Nuclear Power;
- In the end of December, the Company received preliminary
contract win notice of $8.2 million from Beijing Infrastructure
Investment Co., the Company's first contract win in China's Subway
industry; and,
- The Company also successfully enriched its product portfolio,
including infrared and ultraviolet composite flame detectors,
electric fire monitoring systems and high-pressure water mist
fire-extinguishing systems.
Full Year 2010 Results
Revenues for 2010 decreased 1.5% to $80.0 million from $81.2
million for 2009. The decrease in revenues was primarily due to a
decrease in the Company's revenues from system contracting
projects; this was offset by an increase in the Company's product
sales and sales from the Company's maintenance services during the
period. The reduction in revenues from the Company's system
contracting projects was mainly attributable to the slower
execution of projects in the iron and steel industry, which has
generally been under pressure during the period.
Gross margins for the year ended December 31, 2010 was 51.6%,
which is lower than the gross margin of 58.0% for the year ended
December 31, 2009. The decrease in the Company's overall gross
margin was primarily attributable to the contract mix during the
period.
Operating income was $17.5 million in 2010, as compared to $27.6
million in 2009, a decrease of $10.1 million, or negative 36.6%.
The operating margin in 2010 was 21.9%, compared to 34.0% in 2009,
as total operating expenses increased to $23.8 million in 2010,
from $19.5 million in 2009. The higher operating expenses were
mainly due to two factors. Firstly, the increase in sales-related
activities in the iron and steel, power generation and
petrochemical industries, as well as new industries such as nuclear
power, transportation and international markets. And, secondly, the
increase in non cash stock based compensations which amounted to
$4.1 million during the period.
Net income was $15.4 million in 2010, compared to $24.4 million
in 2009, representing a decrease of $9.0 million, or
36.9%. This decrease in net income was attributable to the
decreases in both revenue and gross margin during the period. GAAP
fully diluted EPS was $0.52 in 2010, compared to $0.86 in the prior
year.
Fourth Quarter 2010 Results
For the fourth quarter of 2010, the Company's revenue was $11.4
million, as compared to $16.9 million during the same period in
2009, representing a decrease of $5.5 million or 32.5%. This
significant decrease in the Company's revenue was mainly due to the
decrease in revenue from the Company's system contracting projects,
offset by the increase in the Company's revenue from the Company's
product sales. The 53.0% decrease in revenue from the Company's
system contracting projects was mainly attributable to the slower
construction progress in the large-scale Wuhan Iron and Steel
retrofitting project, where $2.4 million was recognized as revenue
during this quarter. The Company's revenue from product sales
continued to grow during the fourth quarter, as the Company further
expanded its business in the Company's OEM product supply of linear
heat detectors as well as the Company's successful execution of
product sales contracts in India.
The gross margin during the fourth quarter of 2010 was 41.4%,
which was lower than 48.8% during the fourth quarter of last year.
This significant decrease in the Company's overall gross margin was
due to the decrease in the Company's gross margins from all three
of the Company's business segments during this quarter. The gross
margin of the Company's system contracting projects was 29.8%,
compared to 42.7% last year. This significant decrease was mainly
due to the negative $1.1 million gross profit contribution during
this quarter from the Capital Iron and Steel's Caofeidian Project
(contract value of $32 million), where a one-time budget adjustment
was accounted for due to increased installation costs and other
expenses to meet the customer's stricter requirements for the final
acceptance of the project. The gross margin of the Company's
product sales was 58.3% during this quarter, compared to 72.4% of
the same period of last year. This decrease in the gross margin of
product sales was due to the contract mix during the period, as a
lower percentage of self-manufactured, higher margin proprietary
products were sold. The gross margin of maintenance contracts also
dropped to 28.9%, compared to 43.6% last year. This was mainly
attributable to the increase in the unit labor cost during the
period.
Operating income for the fourth quarter of 2010 was negative
$2.3 million, compared to $3.3 million for the same period last
year.
Net income was negative $2.1 million for the fourth quarter of
2010, as compared to $2.9 million for the same period of 2009. As a
result, GAAP fully diluted EPS was negative $0.08 in the fourth
quarter of 2010, versus $0.10 in the fourth quarter of the prior
year.
Liquidity and Capital Resources
As of December 31, 2010, net accounts receivable of $41.8
million decreased by $8.4 million sequentially, from $50.2 million
of the end of last quarter, due to the Company's cash collection
activities. The Company's working capital increased by $0.2 million
to $106.5 million, up from $106.3 million at the end of the third
quarter. The Company currently has no bank loans or long-term
debt.
Backlog
As of December 31, 2010, the Company's total backlog was $151.3
million. Among that backlog, the iron and steel industry was
still the major vertical, contributing approximately 51.8%, while
traditional power generation and nuclear power contributed
approximately 4.7% and 18.7% of current backlog, respectively.
International market contributed to 14.6% while the petrochemical
and other verticals together represented the remaining
10.2%.
Mr. Brian Lin, Chief Executive Officer of China Fire, commented,
"In spite of lower than expected revenue in the fourth quarter and
the full year of 2010, I am satisfied with our business momentum
and with the groundwork that we laid out over the past year. In
2010, we have signed over $170 million worth of new contracts – a
new record in company's history. In addition to our continuous
success in iron and steel industry, we have made significant
progress in nuclear power sector, transportation sector and
international markets. We have demonstrated our capabilities in
penetrating into new industrial verticals by leveraging our strong
brand name, excellent technical expertise and project management
track records. However, the nature of our business as a total
solution provider may occasionally depend on the profitability and
cash position of our major customers, thereby impacting our revenue
and consequently our quarterly and annual financial results. With
strong visibility from the $151 million backlog and our more
diversified customer base, China Fire's management team continues
to be excited with our growth prospects in our core iron and steel
market and other industrial sectors."
Conference Call
The Company will hold a conference call to discuss financial
results at 8:00 a.m. ET today, March 16, 2011. The Company
invites the participants to join the call by dialing
+1-719-457-2629. To listen to the live webcast of the event,
please go to http://www.chinafiresecurity.com and click on the
"Investor Relations" section where conference calls are posted.
Please go to the website 15 minutes prior to download and install
any necessary audio software.
A replay of the call will be available from March 16, 2011 at
11:00 am Eastern Time to March 23, 2011 at 11:59 pm Eastern
Time. Listeners may access the replay by dialing
+1-858-384-5517, pass code: 1122561.
About China Fire & Security Group, Inc.
China Fire & Security Group, Inc. (Nasdaq:CFSG), through its
wholly owned subsidiary, Sureland Industrial Fire Safety Limited
("Sureland"), is a leading total solution provider of industrial
fire protection systems in China. Leveraging on its proprietary
technologies, China Fire is engaged primarily in the design,
manufacture, sales and maintenance services of a broad product
portfolio including detectors, controllers, and fire extinguishers.
Via its nationwide direct sales force, China Fire has built a solid
client base including major companies in iron and steel, power,
petrochemical and transportation industries throughout China. China
Fire has a seasoned management team with strong focus on standards
and technologies. Currently, China Fire has a comprehensive
portfolio of patents covering fire detection, system control and
fire extinguishing technologies. Founded in 1995, China Fire is
headquartered in Beijing with about 430 employees in more than 30
sales and project offices throughout China. For more information
about the Company, please go to http://www.chinafiresecurity.com
.
Cautionary Statement Regarding Forward Looking
Information
This presentation may contain forward-looking information about
China Fire & Security Group, Inc. and its wholly owned
subsidiary Sureland which are intended to be covered by the safe
harbor for forward-looking statements provided by the Private
Securities Litigation Reform Act of 1995. Forward-looking
statements are statements that are not historical facts. These
statements can be identified by the use of forward-looking
terminology such as "believe," "expect," "may," "will," "should,"
"project," "plan," "seek," "intend," or "anticipate" or the
negative thereof or comparable terminology, and include discussions
of strategy, statements about industry trends and China Fire &
Security Group's future performance, operations and products. This
and other "Risk Factors" are contained in China Fire & Security
Group's public filings with the SEC.
CHINA FIRE & SECURITY
GROUP, INC. AND SUBSIDIARIES |
CONSOLIDATED BALANCE
SHEETS |
AS OF DECEMBER 31, 2010 AND
2009 |
|
|
|
|
December 31, 2010 |
December 31, 2009 |
|
|
|
|
|
|
ASSETS |
|
|
|
|
|
CURRENT ASSETS: |
|
|
Cash and cash equivalents |
$28,151,689 |
$34,976,880 |
Restricted cash |
1,935,979 |
1,837,134 |
Notes receivable |
14,428,802 |
4,274,268 |
Accounts receivable, net of allowance for
doubtful accounts of $8,153,727 and $6,539,787 as of December 31,
2010 and 2009, respectively |
41,840,062 |
30,989,569 |
Receivables from and prepayments to
related parties |
2,448,066 |
551,792 |
Other receivables |
792,386 |
368,679 |
Refundable bidding and system contracting
project deposits |
1,667,437 |
1,774,330 |
Inventories |
6,713,448 |
5,360,520 |
Costs and estimated earnings in excess of
billings |
40,660,013 |
36,562,573 |
Employee advances |
1,114,080 |
953,625 |
Prepayments and deferred expenses |
10,281,292 |
3,397,358 |
Total current assets |
150,033,254 |
121,046,728 |
|
|
|
PLANT AND EQUIPMENT, net |
9,641,119 |
8,617,521 |
|
|
|
OTHER ASSETS: |
|
|
Restricted cash - non current |
7,533,407 |
3,602,906 |
Accounts receivable - retentions |
2,845,559 |
3,463,998 |
Deferred expenses - non current |
-- |
116,045 |
Investment in joint ventures |
496,834 |
477,837 |
Intangible assets, net |
985,643 |
1,041,156 |
Total other assets |
11,861,443 |
8,701,942 |
|
|
|
Total assets |
$171,535,816 |
$138,366,191 |
|
|
|
LIABILITIES AND EQUITY |
|
|
|
|
|
CURRENT LIABILITIES: |
|
|
Accounts payable |
$7,666,967 |
$6,903,961 |
Accounts payable to related party |
-- |
272,994 |
Customer deposits |
3,023,329 |
2,182,790 |
Billings in excess of costs and estimated
earnings |
2,872,706 |
1,429,999 |
Other payables |
838,413 |
333,121 |
Accrued liabilities |
19,737,906 |
13,841,300 |
Taxes payable |
9,416,829 |
9,002,470 |
Total current liabilities |
43,556,150 |
33,966,635 |
|
|
|
COMMITMENTS AND CONTINGENCIES |
|
|
|
|
|
Equity: |
|
|
Common stock, $0.001 par value,
65,000,000 shares authorized, 27,855,934 and 27,595,541 shares
issued and outstanding as of December 31, 2010 and 2009,
respectively |
27,855 |
27,595 |
Additional paid-in-capital |
24,771,143 |
20,601,138 |
Contribution receivables |
-27,570 |
-- |
Statutory reserves |
7,147,795 |
7,147,795 |
Retained earnings |
84,703,984 |
69,266,049 |
Accumulated other comprehensive
income |
11,349,619 |
7,324,237 |
Total shareholders' equity |
127,972,826 |
104,366,814 |
Noncontrolling interest |
6,840 |
32,742 |
Total equity |
127,979,666 |
104,399,556 |
|
|
|
Total liabilities and equity |
$171,535,816 |
$138,366,191 |
|
CHINA FIRE & SECURITY
GROUP, INC. AND SUBSIDIARIES |
CONSOLIDATED STATEMENTS
OF INCOME AND OTHER COMPREHENSIVE INCOME |
FOR THE YEARS ENDED DECEMBER
31, 2010, 2009 AND 2008 |
|
|
|
|
|
|
|
|
|
2010 |
2009 |
2008 |
REVENUES |
|
|
|
System contracting projects |
$59,544,090 |
$62,514,475 |
$57,101,984 |
Products |
16,834,582 |
15,718,815 |
9,673,922 |
Maintenance services |
3,598,010 |
2,947,908 |
2,303,213 |
Total revenues |
79,976,682 |
81,181,198 |
69,079,119 |
|
|
|
|
COST OF REVENUES |
|
|
|
System contracting projects |
28,897,445 |
26,769,508 |
25,805,086 |
Products |
7,342,962 |
5,589,310 |
2,558,844 |
Maintenance services |
2,457,833 |
1,769,104 |
1,217,316 |
Total cost of revenues |
38,698,240 |
34,127,922 |
29,581,246 |
|
|
|
|
GROSS PROFIT |
41,278,442 |
47,053,276 |
39,497,873 |
|
|
|
|
OPERATING EXPENSES |
|
|
|
Selling and marketing |
10,135,884 |
8,908,697 |
6,434,887 |
General and
administrative |
10,822,596 |
8,154,801 |
6,680,992 |
Depreciation and amortization |
851,036 |
773,907 |
712,269 |
Research and development |
1,966,557 |
1,631,435 |
2,102,976 |
Total operating expenses |
23,776,073 |
19,468,840 |
15,931,124 |
|
|
|
|
INCOME FROM OPERATIONS |
17,502,369 |
27,584,436 |
23,566,749 |
|
|
|
|
OTHER INCOME (EXPENSES) |
|
|
|
Other income, net |
617,553 |
671,623 |
802,299 |
Interest income, net |
443,063 |
269,081 |
382,227 |
Total other income, net |
1,060,616 |
940,704 |
1,184,526 |
|
|
|
|
INCOME BEFORE PROVISION FOR INCOME TAXES
AND |
|
|
|
NONCONTROLLING INTEREST |
18,562,985 |
28,525,140 |
24,751,275 |
|
|
|
|
PROVISION FOR INCOME TAXES |
3,210,378 |
4,165,548 |
47,423 |
|
|
|
|
NET INCOME BEFORE NONCONTROLLING
INTEREST |
15,352,607 |
24,359,592 |
24,703,852 |
|
|
|
|
Less: Net loss attributable to noncontrolling
interest |
-85,328 |
-55,244 |
-- |
|
|
|
|
NET INCOME ATTRIBUTABLE TO CONTROLLING
INTEREST |
15,437,935 |
24,414,836 |
24,703,852 |
|
|
|
|
OTHER COMPREHENSIVE INCOME |
|
|
|
Foreign currency translation
adjustment |
4,025,382 |
19,093 |
3,737,027 |
Comprehensive (income) loss
attributable to noncontrolling interest |
986 |
-17 |
-- |
|
|
|
|
COMPREHENSIVE INCOME |
$ 19,464,303 |
$ 24,433,912 |
$ 28,440,879 |
|
|
|
|
BASIC EARNINGS PER SHARE |
|
|
|
Weighted average number of
shares |
27,618,465 |
27,590,523 |
27,568,214 |
Earnings per share |
$0.56 |
$0.88 |
$0.90 |
|
|
|
|
DILUTED EARNINGS PER SHARE |
|
|
|
Weighted average number of
shares |
29,568,429 |
28,311,955 |
28,210,620 |
Earnings per share |
$0.52 |
$0.86 |
$0.88 |
CONTACT: China Fire & Security Group, Inc.
Bin Gu, Investor Relations
Tel: +86-10-8441-7400
Email: ir@chinafiresecurity.com
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