China Armco Metals Announces Fourth Quarter and Full Year 2010 Financial Results
Metal Recycling Production is Ramping While Company Secures Large Trading Partners
SAN MATEO, Calif., March 31, 2011 (GLOBE NEWSWIRE) -- China Armco Metals, Inc. (AMEX:CNAM) ("China Armco" or the "Company"), a distributor of imported metal ore and metal recycler with a new state-of-the-art scrap metal recycling facility in China, today announced its financial results for its fourth quarter and full year 2010.
SUMMARY FINANCIALS
Fourth Quarter 2010 Results
Q4 2010 Q4 2009 CHANGE
Sales $24.5 million $31.7 million -23%
Gross Profit $0.8 million $3.2 million -76%
Net Income ($1.6) million $3.1 million N/A
EPS (Fully Diluted) (Loss) ($0.11) $0.31 N/A
Full Year 2010 Results
FY 2010 FY 2009 CHANGE
Sales $68.8 million $86.9 million -21%
Gross Profit $2.5 million $8.9 million -72%
Net Income (Loss) ($2.2) million $5.1 million -137%
EPS (Fully Diluted) (Loss) ($0.16) $0.51 N/A
Fourth Quarter of 2010 Financial Results
For the quarter ended December 31, 2010, net revenue decreased 29% to $24.5 million due to the Lianyungang provincial government imposing power restrictions starting in September 2010. China Armco's metal recycling operations were substantially curtailed throughout the fourth quarter of 2010. The power restrictions were lifted starting in January 2011, and as a result the recycling operations have resumed normal production. The Company sold 106,668 metric tons of iron ore through its trading business compared to 157,894 metric tons in the fourth quarter of 2009 at an average price of $153 compared to $94 in the year ago period.
"We made progress during 2010 despite unforeseen industry challenges," said Mr. Kexuan Yao, Chairman and CEO of China Armco. "We finished construction of our state-of-the-art metal recycling production facility and secured new iron ore trading customers. The relationships we are developing with key customers and suppliers worldwide provide a solid foundation in which to grow both of these businesses. As more steel mills in China increase their use of scrap metal to comply with the government's mandate to reduce harmful emissions, we are optimistic in capturing market share while ramping production volumes and associated operating profits."
Gross profit for the fourth quarter of 2010 decreased 76% to $0.8 million, compared to $3.2 million in the fourth quarter of 2009. Gross margin decreased to 3.1%, compared to 10.1% in the same period in 2009.
Operating expenses increased to $1.9 million for the fourth quarter of 2010 from $0.3 million for the fourth quarter of 2009.
Operating income for the fourth quarter of 2010 was a loss of $1.1 million compared to operating income of $3 million in the fourth quarter of 2009.
Net income for the fourth quarter of 2010 was a loss of $1.6 million, or $0.11 per diluted share, compared to $3.1 million or $0.31 per share for the same period last year. Diluted earnings per share was a $0.16 loss and $0.51 for the year ended December 31, 2010 and December 31, 2009, respectively.
Results for the Year Ended December 31, 2010
Net revenues in 2010 decreased by $18.2 million to $68.8 million compared to 2009, primarily due to an approximately $28.5 million decrease in the sale of iron ore, a $7.4 million decrease in sale of iron pellets, a $2.4 million decrease in the sale of chrome ore and a $2.3 million decrease in the sale of coke (charcoal made from coal). The decreases in iron ore sales were attributable to lower demand for these products due to reduced production volumes by Chinese steel and alloy manufacturers that began midway through the second quarter of 2010 and continued through the third quarter. These declines were partially offset by sales $19.1 million of recycled scrap metal from our new recycling operations and an increase in manganese ore sales of $3.4 million.
Gross profit for the full year 2010 was $2.5 million, a decrease of 72% from $ 8.9 million for the year ended December 31, 2009. Gross margins decreased to 3.6% in 2010 compared to 10.3% in 2009, which was attributable to unfavorable pricing conditions during the first half of 2010 and to the energy restrictions imposed in the third and fourth quarters.
Operating expenses of $4.8 million in 2010 increased by $3.1 million, or 182%, over 2009 due to higher selling and general and administrative expenses. Selling expenses increased by $0.71 million mainly due to increased port charges and warehouse fees, which were partially offset by decreases in selling expenses associated with lower volumes. General and administrative costs significantly increased by $2.4 million in 2010 as compared to 2009, primarily related to increases in operating costs relating to increased activities to establish our U.S. corporate office, increases in professional fees, increases in salaries, expenses associated with being a publicly-traded company and stock based compensation costs.
Net loss was $2.2 million for 2010 with ($0.16) in diluted loss per share compared to net income of $5.1 million, or $0.51 per share for the same period last year. Calculations were base using weighted average shares of 13.8 million and 10.1 million for the year ended December 31, 2010 and December 31, 2009, respectively.
Financial Condition
As of December 31, 2010, the Company had $3.1 million in cash and cash equivalents, compared to $0.7 million at year-end 2009. The Company had working capital of $12.2 million and a current ratio of 1.3:1 on December 31, 2010 compared to 5.3 million and 1.2:1 on December 31, 2009. As of December 31, 2010, shareholders' equity was $42.8 million, up from $17.1 million at the end of 2009. The Company received approximately $9.1 million of net proceeds from the sale of 1.53 million shares of common stock and 5-year warrants on April 20, 2010 and an additional $13.2 million through the exercise of outstanding warrants and common stock options.
The Company had a $5.7 million net cash outflow from operations in 2010 compared to a net outflow of $6.9 million in 2009. The Company increased inventories by $9.9 million in the second half of 2010 to take advantage of lower scrap steel prices in anticipation of higher production from its recycling facilities in 2011. Approximately $14.2 million was spent on property, equipment and construction related to its new 1 million metric ton metal recycling production facility in 2010. The company has a long term loan of $8.3 million with Bank of China which $4.5 million is due August 25 of this year. In addition, The company has bank facilities which provide for cash borrowings or the issuance of commercial letters of credit that we require in our operations in the aggregate amount of $87.5 million. Approximately $50.1 million was available under these facilities at December 31, 2010.
Business Outlook
China Armco continues to make steady progress in both its metal trading and recycling businesses. In the fourth quarter of 2010, the Company secured and delivered two orders of iron ore with a combined volume of 42,000 metric tons and an aggregate value of $4.7 million. On March 17, 2011, the Company delivered its first shipment of 150,000 metric tons of iron value valued at $19.8 million from Mineracao Usinimas S.A. ("Usiminas"), one of the largest steel producers in Brazil. The strategic relationship with Usiminas provides China Armco with a significant potential growth conduit as it is the first company to help Usiminas to export its iron ore to China.
The metal recycling business resumed normal operations in January 2011 after the provincial government eliminated power restrictions that were in effect from September to December of 2010. In addition, it has added 6 new metal cutting machines since the beginning of 2011, bringing the total to 18. We expect these machines will allow the Company to reach its designed recycling capacity of one million metric tons per year.
Management began migrating its metal recycling customers to its pre-sold model starting in January 2011. Under this new sales strategy, customers pay China Armco approximately 100% of the total purchase price in advance by issuing a commercial bill from a related bank, thereby locking in a set volume and price. This allows the Company to use the proceeds to pay for raw materials, thereby reducing its working capital needs and providing enhanced visibility into future production volumes. 2 customers have transitioned to the pre-selling model so far, and the Company continues to actively solicit existing and new customers.
Conference Call
The Company will conduct a conference call at 5:00 p.m. ET on Thursday, March 31, 2011. To attend the call, please use the dial-in information below. When prompted, ask for the "China Armco Metals call" and/or be prepared to provide the conference ID.
Conference Call
Date: Thursday, March 31, 2011
Time: 5:00 p.m. Eastern Time, US
Conference Line Dial-In (U.S.): 1-877-407-9210
International Dial-In: 1-201-689-8049
Conference ID# 370152: CNAM 2010 Earnings Conference Call
Webcast link: http://www.investorcalendar.com/IC/CEPage.asp?ID=163956
The playback of the webcast can be accessed until July 31, 2011. To access the webcast, you will need to have the Windows Media Player on your desktop. For the free download of the Media Player, please visit: http://www.microsoft.com/windows/windowsmedia/en/download/default.asp
The Teleconference will be available for replay until 11:59 PM April 7, 2011
-- Replay Number (Toll Free): (877) 660-6853
-- Replay Number (international): (201) 612-7415
-- Account #: xxx
-- Conference ID: xxx
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