OREANDA-NEWS. November 18, 2013. General Steel Holdings, Inc. ("General Steel" or the "Company") (NYSE: GSI), a leading non-state-owned steel producer in China, announced financial results for the third quarter.

"I am delighted that we achieved positive gross and net margins during the third quarter," said Henry Yu, Chairman and Chief Executive Officer of General Steel. "We also significantly enhanced our cost structure with the launch of two additional continuous-rolling production lines, with one commencing production in July and the other entering trial production earlier this month."

"We also observed positive market momentum for China's steel industry. The average selling prices of key steel products rebounded moderately during the third quarter, driven by the robust demand from multi-sectors including infrastructure construction and automotive sectors. In addition, manufacturing activities in China grew at its fastest pace in the most recent seven months, with the Purchasing Managers Index reaching 50.9 this October, as the government readies a series of key economic reforms. Given our improving profitability, enhanced cost structure and positive momentum in the industry, we feel optimistic about our business in the quarters ahead."

John Chen, Chief Financial Officer of General Steel, commented, "I'm very pleased with our execution this third quarter. We generated a positive quarterly operating cash inflow of \\$75 million and vastly improved profitability. Additionally, we further cut finance expenses and enhanced our financing flexibility, through better planning, budgeting and securing additional working capital support through favorable payment terms granted by our stakeholders.  I believe we are at the beginning of a sustainable business turn-around."

Third Quarter 2013 Financial Information

Sales decreased by 14.2% year-over-year to USD610.1 million, from USD 711.4 million in the third quarter of 2012.

Sales volume decreased by 10.0% year-over-year to approximately 1.3 million metric tons, compared with 1.4 million metric tons in the third quarter of 2012.

Gross profit was USD 8.2 million, or 1.3% of revenue, compared with a gross loss of USD (13.6) million, or negative (1.9%) of revenue in the third quarter of 2012.

Operating income was USD 30.4 million, compared with an operating loss of USD (36.4) million in the third quarter of 2012.

Net income attributable to the Company was USD 3.8 million, or USD 0.07 per diluted share, compared with a net loss of USD (41.6) million, or USD (0.76) per diluted share in the third quarter of 2012.

Net operating cash inflow was USD 75.5 million, compared with USD 9.5 million in the third quarter of 2012.

As of September 30, 2013, the Company had cash and restricted cash of USD 467.9 million.

First Nine Months 2013 Financial Information

Sales decreased by 10.5% year-over-year to USD 1.9 billion, from USD 2.1 billion in the same period of 2012.

Sales volume increased by 0.9% year-over-year to approximately 3.95 million metric tons, compared with 3.91 million metric tons in the same period of 2012.

Gross loss was USD (23.2) million, or negative (1.2%) of revenue, compared with a gross profit of USD 20.1 million, or 0.9% of revenue in the same period of 2012.

Operating income was USD 25.2 million, compared with an operating loss of USD (41.5) million in the same period of 2012.

Net loss attributable to the Company narrowed to USD (32.9) million, or USD (0.60) per diluted share, compared with USD (102.8) million, or USD (1.87) per diluted share in the same period of 2012.

Net operating cash inflow was USD 14.0 million, compared with a net outflow of \\$(90.1) million in the same period of 2012.

Third Quarter 2013 Financial and Operating Results

Total Sales

Total sales for the third quarter of 2013 decreased by 14.2% year-over-year to USD 610.1 million, compared with USD 711.4 million in the third quarter of 2012. The year-over-year revenue decreases were due to less sales volume and a decrease in average selling price of the products.

Total sales volume in the third quarter of 2013 was 1.3 million metric tons, a decrease of 10.0% compared with 1.4 million metric tons in the third quarter of 2012.

The average selling price of rebar decreased 6.1% to approximately USD 489.6 per ton in the third quarter of 2013 from approximately USD 521.2 per ton in the same period of 2012.

Gross Profit and Gross Margin

Gross profit for the quarter was USD 8.2 million, compared with a gross loss of USD (13.6) million in the third quarter of 2012. The gross margin increased to 1.3% of total sales in the third quarter of 2013, compared with gross loss margin of negative (1.9%) of total sales in the same period a year ago, which reflects our production efficiency improvement and a slower decrease in ASP compared with cost of rebar.

Operating Expenses and Operating Income

Selling, general and administrative expenses for the third quarter of 2013 decreased 13.7% to USD 19.7 million, compared to USD 22.8 million in the third quarter of 2012. General and administrative expenses decreased to USD 12.4 million, compared with USD 14.1 million in the same period of 2012.

The decrease in general and administrative expense was mainly due to a decrease of USD 1.7 million in bad debt expenses, partially offset by an additional write-off of a prepaid special fund of USD 0.6 million in the third quarter of 2013, compared with the same period of last year. Selling expenses decreased 16.5% to USD 7.3 million, compared to USD 8.7 million in the same period of 2012. The decrease in selling expense was primarily attributable to savings in a special fund related to the sales of the Company's products, which was no longer imposed by the PRC tax authorities in 2013, while USD 1.6 million of the special fund was imposed in the third quarter of 2012. 

The Company recognized other operating income of USD 41.8 million due to change in the fair value of profit sharing liability during the third quarter of 2013, compared with USD 0 in the same period of last year, which reflects a change in the estimated fair value of the Company's profit sharing liability.

Correspondingly, income from operations for the third quarter of 2013 was USD 30.4 million, compared with a loss from operations of USD (36.4) million in the third quarter of 2012.

Finance Expense

Finance and interest expense in the third quarter of 2013 decreased USD 11.1 million to USD 25.5 million, of which, USD 7.8 million was the non-cash interest expense on capital lease, as compared with USD 10.7 million in the same period of 2012, and USD 17.7 million was the interest expense on bank loans and discounted note receivables as compared with USD 25.9 million in the third quarter of 2012. The decrease in interest expense on bank loans and discounted note receivables was primarily attributable to a reduction in the amount of bank notes receivable redeemed early, and less interest-bearing loans from banks and third parties, benefiting from additional financing support from suppliers and vendors during the third quarter of 2013.

Net Income and Net Income per Share

Net income attributable to General Steel for the third quarter of 2013 was USD 3.8 million, or USD 0.07 per diluted share, based on 55.1 million weighted average shares outstanding. This compares to a net loss of USD (41.6) million, or USD (0.76) per diluted share, based on 54.5 million weighted average shares outstanding in the third quarter of 2012.