General Steel Holdings (NYSE:GSI)

Second Quarter 2011 Results

• Revenue increased approximately 100% year-over-year to approximately $1billion in the second quarter of 2011, from $502 million in the second quarter of 2010.
• Net loss attributable to the Company was approximately $(1.5) million, or $(0.03) per diluted share based on 55.2 million weighted average shares outstanding, compared with a net loss of $(2.1) million, or $(0.04) per diluted share based on 52.1 million weighted average shares outstanding in the second quarter of 2010.

"The second quarter of 2011 was one in which we had a number of milestone achievements, including our first-ever quarter of over $1 billion in revenue, significant expansion of our crude steel production capacity and ongoing efficiency improvements, all of which position the Company well for continued success going forward," said General Steel Chairman and Chief Executive Officer Mr. Henry Yu. "Although our bottom line was negative primarily due to commencement of the operation of new equipment at Longmen Joint Venture and increased operating expenses associated with the overall expansion of our business, we view these as strategic investments that will bear significant fruit over the long-term. As the operating efficiency of this equipment continues to improve and we continue executing on our initiatives to improve raw material sourcing and energy efficiency, we are confident in the Company's ability to improve margins and generate sustainable profitability going forward."

"Demand in China for construction-grade steel was strong throughout the second quarter, and has remained solid into the early part of the third quarter. In addition to continued investment in infrastructure and transportation, the government has made the construction of low-income housing a high priority, with the goal of building 10 million state-subsidized housing units this year. As the largest rebar provider in the Shaanxi region, with annual capacity of seven million metric tons of crude steel, we believe these initiatives will support stable demand for our products, and enable GSI to increase our share in these and other end markets." Mr. Yu concluded.

First Quarter Results:

• Revenue increased 57% year-over-year to $710.5 million, from $453.0 million in the first quarter of 2010.
• First quarter 2011 production volume totaled 1.2 million metric tons, compared with 1.0 million metric tons in the first quarter of 2010.
• Gross profit totaled $28.3 million, or 4.0% of total revenue, up from $5.7 million, or 1.3% of total revenue in the first quarter of 2010.
• Operating income for the quarter was $13.8 million, compared with an operating loss of $(6.4) million in the first quarter of 2010.
• Net income attributable to the Company was $2.6 million, or $0.05 per diluted share based on 54.8 million weighted average shares outstanding, compared with a net loss of $(5.5) million, or $(0.11) per diluted share based on 51.7 million weighted average shares outstanding in the first quarter of 2010.
• As of March 31, 2011, the Company had cash and restricted cash of $292.3 million and total stockholders' equity of $102.7 million.

GeoTeam® Note: 2011 First quarter analyst EPS estimates were $0.09.

"Based on our increased capacity, we entered 2011 with strong revenue growth in what is typically a slow quarter for construction activity. We are also making important gains to our bottom line and are well positioned to continue the trend of profitable growth, as we make additional progress toward increasing capacity, production efficiency and cost structure at Longmen JV," said General Steel Chairman and Chief Executive Officer Mr. Henry Yu. "The new production equipment at Longmen JV, which has been operational since the beginning of the year, has contributed to significant improvements in operating expenses and reductions of energy consumption per ton of steel produced. These improvements contributed to a healthy margin expansion, with our first quarter gross margin of 4.0% which was well ahead of the same quarter last year."

Fourth Quarter Highlights:

• Revenue increased 6% year-over-year to $478.6 million in the fourth quarter of 2010, from $452.0 million in the fourth quarter of 2009.
• Gross profit increased by 223% year-over-year to $43.2 million, or 9.0% of revenue, up from $13.4 million, or 3.0% of revenue in the fourth quarter of 2009.
• Operating income for the quarter was $25.7 million, compared with $1.5 million operation income in the fourth quarter of 2009.
• Net income attributable to the Company was $2.2 million, or $0.04 per diluted share based on 54.7 million weighted average shares outstanding, compared with a net loss of $11.1 million, or ($0.26) per diluted share based on 41.9 million weighted average shares outstanding in the fourth quarter of 2009.

Full-Year 2010 Financial Highlights

• Revenue increased by 13% year-over-year to $1.9 billion, up from $1.7 billion in 2009.
• Production volume for the year totaled 4.0 million metric tons, compared with 3.8 metric tons in 2009.
• Gross profit for the year was $71.9 million, or 3.8% of revenue, compared with $88.6 million, or 5.3% of revenue in 2009. Gross margins were impacted by interruption of production for which General Steel received compensation.
• Operating income totaled $19.0 million, compared with $47.5 million in 2009.
• Net loss attributable to the Company was $7.7 million, or ($0.14) per diluted share, based on 53.1 million weighted average shares outstanding, compared with a net loss of $25.2 million, or $(0.60) per diluted share, based on 41.9 million weighted average shares outstanding in 2009.

"2010 was a year of progress and positioning for General Steel, as we grew revenue in a challenging environment. We commenced several initiatives aimed at expanding our production capacity to capture what we believe will be a considerable increase in demand in 2011," said General Steel Chairman and Chief Executive Officer Mr. Henry Yu. "We made considerable improvements to our bottom-line during the year and we expect to continue to demonstrate financial gains based on our newly expanded capacity, which was not reflected in our fourth quarter results. Now that this construction is complete, along with our upgrades to existing production equipment and improved raw materials procurement, we expect to increase production levels and attain profitability. In addition, our improved raw materials sourcing is designed to insulate us from pricing volatility, providing greater stability and visibility, supporting our overall goal of margin improvement, and creating a platform to support sustainable profitability."

Highlights from the Third Quarter of 2010:

Revenues

• Total revenues for the third quarter of 2010 decreased 5.0% to $460.3 million from $484.8 million in the third quarter of 2009.

• The decrease in total revenues was predominantly due to changes in the operating model at the Company's subsidiary, General Steel (China) Co., Ltd., and only executing processing contracts at another of General Steel's subsidiaries, Maoming Hengda Steel Company, Ltd., which generated less sales revenue.

• Income from operations increased to $6.0 million for the third quarter 2010 from a loss of $6.3 million in the second quarter of 2010 and a loss of $6.4 million in the first quarter of 2010. The increase in income from operations was primarily due to the improvement of gross margin.

• Net loss attributable to General Steel for the third quarter of 2010 was $2.3 million compared to a net income of $10.4 million in the third quarter of 2009.
    
• Basic and diluted losses per share for the third quarter of 2010 were $0.04 compared to basic earnings per share of $0.23 and diluted earnings per share of $0.22 in the third quarter of 2009.

"We witnessed continued strong demand for our steel products and a subsequent gross margin improvement for our business, despite a challenging market," said General Steel Chairman and Chief Executive Officer Henry Yu. "This quarter we focused on cost-saving measures to improve profitability that included cutting production of less efficient blast furnaces at our Longmen Joint Venture. At the same time, this quarter we announced the successful formation of a new joint venture with Tianjin Materials and Equipment Group. This newly formed joint venture will give us more flexibility and better quality in our supply of raw materials, something especially important in an industry experiencing volatile raw material costs. We believe that in addition to improving our gross margin, this joint venture is aligned with our strategy of increasing profitability and delivering long-term shareholder value."

GeoTeam® Note:  The loss for the quarter was mainly due to an increase in interest expense to $10.2 million.

 Net loss attributable to General Steel Holdings, Inc. for the second quarter of 2010 was $2.1 million compared to a net loss of $31.8 million in the second quarter of 2009. Net loss attributable to General Steel Holdings, Inc. for the first half of 2010 was $7.6 million compared to net loss of $24.5 million in the first half of 2009.

    Basic and diluted losses per share for the second quarter of 2010 were $0.041 compared to basic and diluted losses per share of $0.80 in the second quarter of 2009. Basic and diluted losses per share for the first half of 2010 were $0.15 compared to basic and diluted losses per share of $0.64 in the first half of 2009

"Demand continues to be robust," said General Steel's Chairman and Chief Executive Officer Henry Yu. "Located in central China, our largest subsidiary, Longmen Joint Venture, is relatively insulated from the slowdown in the real estate industry and allows us to continue benefiting from infrastructure development projects in western China. In fact, this year alone, there are over 235 construction and infrastructure projects scheduled to begin in Shaanxi province, including nine new railways, one new airport, the expansion of the Xi'an airport, two new ring subway systems and four new dams. These projects will take place over many years and drive our growth in the quarters and years to come. In the meantime, the industry continues to experience ups and downs as average selling prices and key input costs for iron ore and coking coal continue to fluctuate. Regardless, our focus is to continue vetting high-quality acquisition targets while putting an equal effort on controlling our costs and increasing profitability. The fundamentals of our business remain strong and I'm confident in our ability to deliver long-term shareholder value."