BEIJING, May 10, 2010 -- China Fire & Security Group, Inc. (Nasdaq: CFSG) ("China Fire" or "the Company"), a leading total solutions provider for industrial fire protection systems in China, today announced its financial results for the first quarter ended March 31, 2010.

 

Highlights for the first quarter of 2010:

 

-          Successfully signed and executed the first retrofitting contract of $92 million with Wuhan Iron and Steel Group.

-          Revenue increased 25.3% year-over-year to $20.9 million.

-          Gross margin increased to 55.5%, from 48.8% in the previous quarter.

-          Non-GAAP Net income increased 6.7% year-over-year to $6.3 million.

-          Non-GAAP Diluted EPS increased 6.0% year-over-year to $0.22.

 

 

 

 

For the first quarter of 2010, the Company’s revenue increased 25.3% year over year to $20.9 million, compared to $16.7 million for the same period in 2009.  This increase was primarily driven by an increase in all business segments including system contracting projects, product sales and maintenance services and the successful implementation of the Wuhan Iron and Steel’s retrofitting contract during the period.

 

Gross margin for the first quarter of 2010 was 55.5%, compared to a gross margin of 61.6% for the first quarter of 2009. The decrease in the Company’s gross margin was primarily due to the contract mix during the period where lower margin contracts contributed to a higher percentage of revenues.

 

The Company’s operating expenses were $5.5 million for the first quarter of 2010, compared to $4.1 million for the same period of 2009. The increase in the Company’s operating expenses was primarily due to an increase of $0.8 million in non-cash option and restricted stock expenses during this quarter. If this non-cash item is excluded, then operating expenses only increased 17.0% on annual basis, which is slower than the Company’s growth in revenue.   

 

The Company’s operating income for the first quarter of 2010 was $6.1 million, compared to $6.2 million for the same period last year.

 

The Company’s GAAP net income for the first quarter of 2010 was $5.2 million, compared to $5.6 million for the same period of 2009, representing an annual decrease of 7.1 %. This decrease in GAAP net income was mainly attributable to a lower gross margin and higher operating expenses. As a result, the Company’s fully diluted EPS was $0.19 in the first quarter of 2010, versus $0.20 in the first quarter of 2009.

 

If the non-cash option and restricted stock expenses are excluded, then the Company’s non-GAAP net income was $6.3 million during the first quarter of 2010, compared to $5.9 million during the first quarter of 2009, representing an annual increase of 6.7%. The Company’s non-GAAP diluted EPS was $0.22 for the first quarter of 2010, compared to $0.21 for the same period of 2009.

 

 

As of March 31, 2010, the Company had cash and cash equivalents of $25.1 million, a decrease of $9.8 million from $34.9 million at the end of 2009. During the first quarter, the Company used $7.1 million cash for operations as compared to a positive operating cash flow of $2.5 million in the same period of last year. This quarterly decrease in the Company’s cash position and negative operating cash flow during the first quarter of 2010 were due to a temporary delay in the initial payment of $18 million from the Wuhan Iron and Steel’s retrofitting project. The Company is expected to receive the initial payment during the second quarter of 2010.

 

 

Based on the current backlog of $141 million, the Company reaffirms that for the year 2010, its revenue is expected to increase by between 66% to 78% to a range of $135 million to $145 million. Net income is estimated to grow 89% to 105% or between $47 million to $49 million， $1.65 to $1.70 per diluted share.

 

Mr. Weigang Li, executive chairman of China Fire commented, “We are pleased with our first quarter results as we successfully signed and implemented our first retrofitting project in the iron and steel industry. Through our internal marketing research, we have found the huge potential in the retrofitting market for iron and steel industry, which is approximately $2 billion. We are confident that China Fire will be able to secure more retrofitting contracts in future. Furthermore, in addition to our core iron and steel vertical, we continue to pursue expansions into other verticals, including power, transportation, petrochemical as well as international markets.”

 

 

The Company will hold a conference call to discuss the financial results at 8:00 a.m. ET today, May 10, 2010.  The Company invites the participants to join the call by dialing +1-719-325-4814.  To listen to the live webcast of the event, please go to http://www.chinafiresecurity.com and click on the Investor Relations section or the link http://viavid.net/dce.aspx?sid=000074D5 where conference calls are posted. Please go to the link 15 minutes early to download and install any necessary audio software.

 

A replay of the call will be available from May 10, 2010 to May 17, 2010.  Listeners may access the recording by dialing +1-719-457-0820, passcode: 3688604.

 

 

 

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, manufacturing, 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