BEIJING, March 16, 2010 -- 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, 2009.

 

 

Revenues for 2009 increased 17.5% to $81.2 million from $69.1 million for 2008, driven primarily by higher total solution and product sales.  During 2009, the Company recognized revenues from 445 total solutions, product sales and maintenance services contracts, compared to 319 contracts in 2008.  The iron and steel industry remains the Company’s largest vertical, having contributed 75% of the total revenues in 2009, followed by traditional power generation at 16%, and petrochemical and other verticals at 9%.

 

Gross margin for 2009 was 58.0%, 80 basis points higher than the gross margin of 57.2% in 2008.  The increase in the gross margin was primarily attributable to the Company’s successful execution of total solution contracts in the iron and steel industry during the year.

 

Operating income was $27.6 million for 2009, as compared to $23.6 million for 2008, an increase of $4.0 million, or 17.0%, driven by the strong revenue growth and higher gross margin in 2009.  Operating margin in 2009 was 34.0%, compared to 34.1% in 2008, as total operating expenses increased to $19.5 million in 2009, from $15.9 million in 2008.  The higher operating expenses were primarily due to increased marketing activities and the expansion into new markets, most notably the retrofitting market in the iron and steel industry.

 

Net income was $24.4 million for 2009, compared to $24.7 million for 2008, representing a slight decrease of $0.3 million, or 1.2%.  This decrease in net income was mainly attributable to the significant increase in the Company’s effective income tax rate during this year, as the Company’s main operating subsidiary, Sureland Industrial Fire Safety, Ltd., began to pay income tax at a rate of 12.5% after the expiration of its tax exemption period in 2008.  GAAP fully diluted EPS was $0.86 in 2009, compared to $0.88 in the prior year.   

 

 

For the fourth quarter of 2009, revenue decreased 19.4% year over year to $16.9 million, compared to $21.0 million for the same period in 2008. This decrease was mainly due to the delay in the signing and executing of the previously announced $92 million retrofitting contract with Wuhan Iron and Steel (Group) Corporation (“Wuhan Iron and Steel”).

 

Gross margin for the fourth quarter of 2009 was 48.8%, versus a gross margin of 54.3% for the same period of 2008.  The decrease in gross margin during the fourth quarter 2009 was primarily due to the lower contribution from the more profitable iron and steel vertical in the total revenue mix.  During the fourth quarter of 2009, the iron and steel vertical represented 53% of the total revenue, as compared to 74% in the same period of last year.

 

Operating income was $3.3 million, as compared to $6.2 million from the same period last year.  Operating margin for the period was 19.4%, versus 29.5% a year ago, primarily due to the decrease in gross margin this quarter.  Operating expenses were $5.0 million for the fourth quarter of 2009, compared to $5.2 million for the same period of 2008.  The improvement in operating expenses during this quarter benefited from lower administrative expenses.

 

Net income was $2.9 million for the fourth quarter of 2009, as compared to $6.8 million for the same period of 2008.  The decrease in net income was mainly due to the decrease in both revenue and gross margin during this quarter as well as the 12.5% income tax on our major operating subsidiary in China.  As a result, GAAP fully diluted EPS was $0.10 in the fourth quarter of 2009, versus $0.24 in the fourth quarter of the prior year.

 

Mr. Gangjin Li, chairman and chief executive officer of China Fire, commented, “In spite of lower than expected revenue in the fourth quarter of 2009, I am satisfied with our business momentum and with the groundwork that we laid out over the past year.  Due to the larger than expected size and scope of the Wuhan Iron and Steel retrofitting project, we had a delay in the signing of the contract, from which we had projected a $10 million revenue contribution during the fourth quarter of 2009.  The nature of our business as a total solution provider may occasionally result in unexpected changes in the recognition of certain large projects or contracts, thereby impacting our quarterly results.  At this point, however, we have successfully signed this record-high contract, as announced earlier this year, and I am more enthusiastic than ever about China Fire’s growth momentum in 2010.”

 

 

As of December 31, 2009, the Company had working capital of $87.1 million and zero debt.  Net cash provided by operating activities was $5.5 million in 2009, compared to $13.4 million in 2008.  As a result, net cash increased $8.3 million to $35.0 million at the end of 2009, from $26.7 million at the end of 2008.

 

 

 

For the full year 2010, the Company reaffirms its revenue will grow between 66% and 78% to a range of $135 million to $145 million. Net income is estimated to grow 89% to 105% to a range of $47 million to $49 million, or $1.65 to $1.70 per diluted share.

 

Mr. Li concluded, “We continue to be excited about the growth prospects in our core iron and steel market and customer base.  We are particularly excited that the new retrofit market opportunities are essentially an extension of our core iron and steel business, as the projects require our same core products, core technical and core vertical expertise that have made China Fire the market leader with the number one brand in China.  Furthermore, in addition to our core iron and steel vertical, we continue to pursue expansions into other verticals, including power generation, transportation, petrochemical, etc., as well as new international markets.”

 

 

The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, March 16, 2010.  The Company invites the participants to join the call by dialing +1-719-325-4763.  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 early to download and install any necessary audio software.

 

A replay of the call will be available from March 16, 2010 to March 23, 2010.  Listeners may access the replay by dialing +1-719-457-0820, passcode: 8104346.

 

 

 

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 .

 

 

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.

     Amy Gao, Investor Relations

     Tel:   +86-10-8441-7400

     Email: ir@chinafiresecurity.com

 

     ICR, Inc.

     In China:

     Michael Tieu  

     Tel:   +86-10-6599-7960  

     Email: michael.tieu@icrinc.com  

 

     In the U.S.:

     Bill Zima    

     Phone:+1-203-682-8200
     Email: bill.zima@icrinc.com