BEIJING, May 11, 2009 -- 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 first quarter ended March 31, 2009.

 

 

For the first quarter of 2009, revenue increased 13.7% to $16.7 million compared to $14.7 million for the same period in 2008, benefiting from higher sales of system contracting projects and maintenance services during the period.

 

Gross margin for the first quarter of 2009 expanded 690 basis points to 61.6%, versus gross margin of 54.7% for the same period of 2008.  The higher gross margin was mainly driven by enhanced execution efficiency in completing total solution contracting projects.

 

Operating income grew 33.5% to $6.2 million, from $4.6 million for the same period last year.  Driven by the increase in revenue and higher gross margin, operating margin expanded 550 basis points to 37.1% from 31.6% a year ago. Operating expenses were $4.1 million for the first quarter of 2009, or 24.5% of total revenue, compared to $3.4 million, or 23.1% of total revenue for the same period of 2008.  Tax expense was $0.8 million for an effective tax rate of 12.3%, compared to 1.0% a year ago.

 

Net income was $5.6 million, an increase of $0.9 million, or 19.1%, as compared to $4.7 million for the same period of 2008.  As a result, fully diluted EPS increased 18.8% to $0.20 in the first quarter of 2009, versus $0.17 in the first quarter of the prior year.

 

Mr. Brian Lin, Chief Executive Office of China Fire commented, “Given that the first quarter is seasonally the slowest period due to the Chinese New Year holidays, I am pleased that our first quarter results validate our growth strategy and demonstrate our sound execution.  Despite a tendency of customers to defer starting projects around the holiday season, during the quarter, we successfully executed large projects for two of our Tier-1 customers, Xinyu Iron and Steel Group and Capital Iron and Steel Group.  With our greater and deeper expertise, we significantly improved our efficiency in the execution of these key projects and substantially lowered our costs. Consequently, our gross margin for the first quarter was a record high. We also successfully expanded our customer base in product sales and maintenance services, and we exceeded our internal target for new contract wins during the quarter.  Our backlog, which includes winning bids, grew by $13 million, or 18%, sequentially, to $85 million at the end of March 2009.  We expect to convert a majority of the total backlog to revenue in the remainder of 2009, which provides extra confidence to our existing forecast.”

 

 

As of March 31, 2009, the Company had working capital of $70 million and zero debt.  Net cash provided by operating activities was $2.5 million in the first quarter of 2009, compared to net cash used by operating activities of $ 1.8 million in the same period of 2008.  As a result, net cash increased $2.7 million to $29.4 million at the end of March 31, 2009, from $26.7 million at the end of 2008.

 

 

For the full year 2009, the Company reaffirms its revenue projection of $88 million to $95 million.  The Company also reaffirms that revenue will grow between 28% to 38%, and pre-tax income will grow between 22% to 32% to a range of $30.2 million to $32.6 million. The Company estimates that assuming an effective tax rate of 13%, net income will grow between 7% to 15% to a range of $26.3 million to $28.4 million, or $0.93 to $1.00 per diluted share, based on 28.3 million shares. 

 

“Supported by our strong new contract wins and record backlog, we remain confident about the business and the growth of the fire protection industry in China.  In our view, the Chinese government’s stimulus plan has shown early signs of success, as bidding activities at our Tier-1 customers continue to trend up, and we continue to benefit from the accelerated infrastructure upgrades across our targeted verticals.  The recent sharp rise in CLAS’s purchasing managers’ index for China is another indicator that manufacturing in China is heading towards reacceleration.  We believe we are well positioned to capture revenue opportunities arising from improving market conditions.

 

We continue to be excited with the growth prospects in our core iron and steel market, and we continue to command firm pricing for our total solutions, as our gross margin continues to exceed our target range.  We also are excited with our contract wins in the nuclear, power, and petrochemical, as well as in the international market. 

 

It is worth noting again that our strategy has been to focus on further expanding our brand, our market leadership, and our technical leadership in fire safety.  To that extent, we have built our industry’s leading brand, distribution, total solution offering, and manufacturing capabilities.  We currently hold 76 patents with 37 patents pending.  We are confident that our growing cash position, healthy cash flows, and zero debt position us well for higher revenues, greater profits, and a stronger pipeline of expansion prospects, including strategic consolidation opportunities,” concluded Mr. Lin.

 

 

 

The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET on May 11, 2009.  The Company invites you to join the call by dialing 1-480-629-9692.  To listen to the live webcast of the event, please go to www.chinafiresecurity.com and click on the Investor Relations section where conference calls are posted. A replay of the call will be available from May 11, 2009 to May 18, 2009.  Listeners may access the replay by dialing 1-303-590-3030, passcode: 4068548.

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A replay of the call will be available from May 11, 2009 to May 18, 2009.  Listeners may access the replay by dialing 1-303-590-3030, passcode: 4068548.

 

 

About China Fire & Security Group, Inc.

 

China Fire & Security Group, Inc. (NASDAQ: CFSG), through its wholly owned subsidiaries, Sureland Industrial Fire Safety Limited ("Sureland") and Tianjin Tianxiao Fire Safety Equipment ("Tianxiao"), 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, traditional power generation, petrochemical and nuclear power industries throughout China. China Fire has a seasoned management team with strong focus on standards and technologies. Currently, China Fire has 52 issued patents covering fire detection, system control and fire extinguishing technologies. Founded in 1995, China Fire is headquartered in Beijing with about 500 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 Groups' future performance, operations and products. This and other "Risk Factors" are contained in China Fire & Security Groups' public filings with the SEC.

 

 

    For more information, please contact:

 

     China Fire & Security Group, Inc.

     Shayla Suen, Investor Relations

     Tel:   +86-10-8441-7400

     Email: ir@chinafiresecurity.com

 

     ICR, Inc.

     In China:

     Michael Tieu or Bill Zima

     Tel:   +86-10-6599-7960 or +86-10-6599-7969

     Email: michael.tieu@icrinc.com or william.zima@icrinc.com

 

     In the U.S.:

     Brian M. Prenoveau, CFA

     Tel:   +1-203-682-8200

     Email: brian.prenoveau@icrinc.com