Earnings Recap:China Fire & Security Group Announces Fourth Quarter and Full Year 2008 Financial Results

Thursday, March 19, 2009, 7:04 PM ET -

-- 4Q08 Revenue Increases 48.7% to $21.0 Million --

-- 4Q08 Net Income Increases 69.2% to $6.8 Million --

-- 4Q08 Diluted EPS Increases 72.9% to $0.24 --

-- FY08 Revenue Increases 47.8% to $69.1 Million

-- FY08 Net Income Increases 47.0% to $24.7 Million --

-- FY08 Diluted EPS Increases 44.6% to $0.88 --

BEIJING, March 11 /PRNewswire-Asia-FirstCall/ -- 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 year ended December 31, 2008.

Fourth Quarter 2008 Results

For the fourth quarter of 2008, revenue increased 48.7% to $21.0 million compared to $14.1 million for the same period in 2007. The Company continued to benefit from its strong pipeline of new total solution projects, as well as, uninterrupted completion of milestones on large projects. Gross margin for the fourth quarter of 2008 was 54.0%, 110 basis points higher than the gross margin of 52.9% for the same period of 2007. The increase in gross margin was mainly due to the use of a higher percentage of the Company's proprietary products that tend to contribute higher margins and the higher selling price of some of the Company's proprietary products.

Operating income was $6.2 million, representing a 55.2% increase from the same period last year. Operating margins for the period expanded 120 basis points to 29.5% from 28.3% a year ago, primarily driven by the higher gross margin. Operating expenses were $5.2 million for the fourth quarter of 2008, or 24.8% of total revenue, compared to $3.5 million, or 24.7% of total revenue for the same period of 2007.

Net income was $6.8 million for the fourth quarter of 2008, an increase of $2.8 million, or 69.2%, as compared to $4.0 million for the same period of 2007. The increase was mainly driven by the strong revenue growth and higher gross margin. As a result, fully diluted EPS increased 72.9% to $0.24 in the fourth quarter of 2008, versus $0.14 in the fourth quarter of the prior year.

Mr. Brian Lin, Chief Executive Office of China Fire commented, 'We are very pleased to report strong fourth quarter and full year financial results. Our record results in 2008 validate our organic growth strategy to increase market share in the rapidly growing Chinese industrial fire protection industry.

Despite general concerns of challenging times for the iron and steel industry, we are actually witnessing strong demand for our total solutions in this vertical, as some of our Tier-1 customers are receiving more government-subsidized funding, pickup in demand from the end of last year, and extra government support for consolidation. As China continues to invest in upgrading the country's infrastructure, we are seeing real spending initiated by the government in the iron and steel, nuclear, power, petrochemical, and transportation sectors. We believe that most of these infrastructure investments will directly benefit China Fire, as they all require fire protection products and services. As such, 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. We also are excited with our success in winning sizeable contracts in the nuclear, power, petrochemical, and transportation verticals, as well as notable contract wins in the international market. We are delighted with our strong financial position, which includes a growing cash position, no debt, and healthy cash flows. We believe that we are in an excellent position to capture new revenue opportunities and benefit from strategic consolidation opportunities.'

Full Year 2008 Results

Revenues for 2008 increased 47.8% to $69.1 million compared to $46.8 million for 2007. During 2008, the Company fulfilled 333 total solution and product sales contracts compared to 274 contracts in 2007, primarily due to the increase in revenues from system contracting projects and maintenance services. Gross margin for 2008 was 57.2%, 230 basis points higher than the gross margin of 54.9% in 2007, benefiting from a higher percentage of the Company's self-manufactured proprietary products sold, which contribute higher gross margins than outsourced products manufactured by the third party.

Operating income was $23.6 million for 2008, as compared to $14.9 million for 2007, an increase of $8.7 million or 58.3%, driven by the strong revenue growth and higher gross margin in 2008. Operating margins in 2008 expanded 230 basis points to 34.1% compared to 31.8% in 2007, even while total operating expenses increased to $15.9 million as compared to $10.8 million in 2007. The increase in operating expenses was mainly due to the increase in the Company's selling expense and R&D expenditure during the period.

GAAP net income was $24.7 million for 2008 as compared to $16.8 million for 2007, representing an increase of $7.9 million or 47.0%. Excluding a one-time non-cash gain of $1.2 million, or $0.05 per diluted share, for the change in fair value of derivative instrument in the full year 2007, non-GAAP net income in 2008 increased 58.4% from $15.6 million in 2007. GAAP fully diluted EPS increased 44.6% to $0.88 in 2008, compared to $0.61 in the prior year.

Liquidity and Capital Resources

As of December 31, 2008, the Company had working capital of $64.7 million and zero debt. Net cash provided by operating activities was $13.4 million in 2008, compared to $9.8 million in 2007. As a result, net cash increased $9.5 million to $26.7 million at the end of 2008, from $17.1 million at the end of 2007.

Financial Outlook for 2009

For the full year 2009, the Company anticipates revenue will grow between 28% to 38% to a range of $88 million to $95 million. Pre-tax income is expected to grow between 22% to 32% to a range of $30.2 million to $32.6 million. Assuming an effective tax rate of 13%, net income is estimated to 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. The Company's effective tax rate in 2008 was 0.2%.

'We remain confident about the business and the growth of the fire protection industry in China. 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. Our initiatives position us well for higher revenues, greater profits, and a stronger pipeline of expansion opportunities.

In the coming year, we will continue to implement our proven strategy, as demand in our core markets continues to grow, and our competitive advantages and leadership profile continue to expand. We will continue to focus on our core Tier-1 customers in China's iron and steel industry, expand into our targeted complementary verticals, invest in technology innovations, influence the development of new fire standards, and actively pursue domestic and international fire protection projects. As we pursue our future growth opportunities, we remain highly focused on optimizing our balance sheet and maximizing cash flows. We are encouraged with our opportunities in 2009 and look forward to expanding our market position in the year ahead,' concluded Mr. Lin.

Conference Call

The Company will report its fourth quarter and full year 2008 earnings results on Thursday, March 12, 2009, at 8:00 a.m. U.S. Eastern Time (8:00 p.m. Beijing Time). Interested participants should call 1-800-860-2442 when calling within the United States, or 1-412-858-4600 when calling internationally. The pass code is 'China Fire'.

This call is being web cast by Multivu and can be accessed by clicking on this link http://www.visualwebcaster.com/event.asp?id=56531 .

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



              CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
             (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
          CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME
              FOR THE QUARTERS ENDED DECEMBER 31, 2008 AND 2007

                          Expressed in U.S. dollars
                   (Except for share and per share amounts)

                                                  Three Months Ended
                                                     December 31
                                                2008                2007
    REVENUES
      System contracting projects          $  16,041,738       $  11,311,091
      Products                                 4,279,980           1,764,761
      Maintenance services                       663,784           1,034,368
          Total revenues                      20,985,502          14,110,220
    COST OF REVENUES
      System contracting projects              7,803,158           5,594,462
      Products                                 1,382,206             623,769
      Maintenance services                       395,384             421,858
          Total cost of revenues               9,580,748           6,640,089
    GROSS PROFIT                              11,404,754           7,470,131
    OPERATING EXPENSE
      Selling and marketing                    1,842,289             848,404
      General and administrative               2,659,008           2,270,760
      Depreciation and amortization              266,490             147,818
      Research and development                   445,993             215,253
          Total operating expense              5,213,780           3,482,235
    INCOME FROM OPERATIONS                     6,190,974           3,987,896
    OTHER INCOME (EXPENSE)
       Other income                              428,182               3,657
       Other expense                             (38,557)             (7,115)
       Interest income                           242,473               57604
       Change in fair value of
        derivative instruments                         0                   0
          Total other income                     632,098              54,146
    INCOME BEFORE PROVISION FOR
    INCOME TAXES                               6,823,072           4,042,042
    PROVISION FOR INCOME TAXES                    (5,936)              5,081

    NET INCOME                                 6,829,008           4,036,961



              CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
             (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
       CONSOLIDATED STATEMENTS OF INCOME AND OTHER COMPREHENSIVE INCOME
                FOR THE YEARS ENDED DECEMBER 31, 2008 AND 2007

                                                  2008              2007
    REVENUES

      System contracting projects            $  57,101,984     $  34,581,376

      Products                                   9,673,922        10,592,683

      Maintenance services                       2,303,213         1,579,778
          Total revenues                        69,079,119        46,753,837

    COST OF REVENUES

      System contracting projects               25,805,086        16,158,844

      Products                                   2,558,844         4,329,067

      Maintenance services                       1,217,316           602,943
          Total cost of revenues                29,581,246        21,090,854


    GROSS PROFIT                                39,497,873        25,662,983

    OPERATING EXPENSE
      Selling and marketing                      6,434,887         3,907,067
      General and administrative                 6,680,992         5,661,356
      Depreciation and amortization                712,269           535,751
      Research and development                   2,102,976           672,379

          Total operating expense               15,931,124        10,776,553


    INCOME FROM OPERATIONS                      23,566,749        14,886,430

    OTHER INCOME (EXPENSE)
       Other income                                929,919           581,192

       Other expense                              (127,620)          (14,932)

       Interest income                             382,227           148,236

       Interest expense                                 --                --
       Change in fair value of derivative
        instruments                                     --         1,205,791

          Total other income (expense)           1,184,526         1,920,287

    INCOME BEFORE PROVISION FOR INCOME
     TAXES                                      24,751,275        16,806,717

    PROVISION FOR INCOME TAXES                      47,423             5,081


    NET INCOME                                  24,703,852        16,801,636

    OTHER COMPREHENSIVE INCOME
       Foreign currency translation
        adjustment                               3,737,027         2,502,595


    COMPREHENSIVE INCOME                     $  28,440,879     $  19,304,231

    BASIC EARNINGS PER SHARE

       Weighted average number of shares        27,568,214        26,873,742

       Earnings per share                    $        0.90     $        0.63

    DILUTED EARNINGS PER SHARE

       Weighted average number of shares        28,210,620        27,721,171

       Earnings per share                    $        0.88     $        0.61



              CHINA FIRE & SECURITY GROUP, INC. AND SUBSIDIARIES
             (FORMERLY KNOWN AS UNIPRO FINANCIAL SERVICES, INC.)
                         CONSOLIDATED BALANCE SHEETS
                       AS OF DECEMBER 31, 2008 AND 2007

                          ASSETS
                                                December 31,    December 31,
                                                   2008             2007
    CURRENT ASSETS:

     Cash and cash equivalents                 $  26,655,333   $  17,110,449
     Restricted cash                               5,377,933       3,829,927
     Notes receivable                              3,670,259       3,315,811
     Accounts receivable, net of
      allowance for doubtful
      accounts of $4,370,362 and
      $2,483,359 as of December
      31, 2008 and 2007,
      respectively                                25,826,343      16,525,161
     Receivables from related party                  466,223              --
     Other receivables                             1,532,259         748,195
     Inventories                                   6,538,938       4,048,283
     Costs and estimated earnings
      in excess of billings                       17,821,708      13,068,036
     Employee advances                               743,868       1,326,115
     Prepayments and deferred
      expenses                                     2,816,976       2,218,391
       Total current assets                       91,449,840      62,190,368

    PLANT AND EQUIPMENT, net                       8,445,254       6,568,250

    OTHER ASSETS:
     Restricted cash - non current                 1,872,828              --
     Accounts receivable -
      retentions                                   1,107,450         193,029
     Deferred expenses - non
      current                                             --          21,234
     Advances on building and
      equipment purchases                            249,859         366,317
     Investment in joint ventures                  1,167,238       1,156,294
     Intangible assets, net of
      accumulated amortization                     1,116,449       1,150,935
       Total other assets                          5,513,824       2,887,809

         Total assets                          $ 105,408,918   $  71,646,427

          LIABILITIES AND SHAREHOLDERS' EQUITY

    CURRENT LIABILITIES:

     Accounts payable                          $   6,664,090   $   6,327,182
     Customer deposits                             6,102,026       4,757,179
     Billings in excess of costs
      and estimated earnings                       4,237,528       4,882,217
     Other payables                                  837,973         168,868
     Accrued liabilities                           6,785,409       4,214,530
     Taxes payable                                 2,092,745       1,088,335
       Total current liabilities                  26,719,771      21,438,311

    COMMITMENTS AND CONTINGENCIES                         --              --

    SHAREHOLDERS' EQUITY:
     Common stock, $0.001 par value,
      65,000,000 shares authorized,
      27,586,593 shares and 27,556,893
      issued and outstanding as of
      December 31, 2008 and 2007,
      respectively                                    27,586          27,556
     Additional paid-in-capital                   19,357,409      19,317,287
     Statutory reserves                            7,148,827       5,067,061
     Retained earnings                            44,850,181      22,228,095
     Accumulated other comprehensive income        7,305,144       3,568,117
       Total shareholders' equity                 78,689,147      50,208,116

         Total liabilities and shareholders'
          equity                               $ 105,408,918   $  71,646,427

SOURCE China Fire & Security Group, Inc.