Monday, April 7, 2014

Armco Metals Holdings, Inc. (AMCO) Posts Q4 and FY13 Financial Results, Outlines Strategy for Growth

Armco Metals Holdings, a U.S.-based company engaged in the import, sale, and distribution of metal ore and non-ferrous metals in the People’s Republic of China, the recycling of scrap metals, and sourcing and pricing services for various metals, today reported financial results for its Q4 and fiscal year ended December 31, 2013, reflecting strong sales growth for both periods.

Weaker steel prices impacted Armco’s performance, though the company has countered the challenge with strength in its recycling business and a route of growth for the future.

“2013 proved to be another very challenging year for the China steel industry,” Kexuan Yao, chairman and CEO of China Armco, stated in the news release. “While we made significant sales gains and reduced overall expenses, we suffered the effects of rapidly declining prices in the second half of 2013, which negatively impacted gross margins in both metal trading and metal recycling. The recycling business continued to be our largest source of revenue and we continue to believe the metal recycling business will continue to be the major growth driver for our company.”

Revenue for Q4 2013 increased 74 percent to $66.2 million, compared to $1.1 million in the same period in 2012. The company attributes the increase to strength in sales of its metal trading business, which contributed $40.0 million to total revenues. Gross profit for Q4 2013 was $2.2 million, as compared to $4.4 million in Q4 2012. The company reported a Q4 2013 net loss of $0.4 million, or $0.01 per diluted share, as compared to net income of $0.6 million, or $0.03 per diluted share, in the comparable quarter of the prior year.

Full-year 2013 net revenues increased 21 percent to $128.7 million, compared to revenues of $106.6 million in 2012. Armco’s recycling business accounted for approximately 50.4 percent of total revenue and topped the company’s metal trading business as the largest source of net revenue. Gross profit for the full year 2013 was $3.3 million, compared to $8.5 million for the year ended December 31, 2012. The company reported a full-year net loss of $4.1 million, compared to net loss of $2.6 million in 2012. The company attributes the increase in net loss primarily to a decrease in gross profit of $5.2 million as a result of a decline in gross margin, which was partially offset by a decrease in total operating expenses of $1.7 million, a decrease in other expenses of $1.6 million, and a decrease in tax expense of $0.31 million.

As of December 31, 2013, Armco had $0.6 million in cash and cash equivalents, compared to $1.4 million at year-end 2012.

Armco’s growth strategy will start with focused improvement on cost control, developing and streamlining its supply chain, and establishing long-term strategic partnership with key clients.

“As we position the company for a cyclical recovery in the steel industry we will continue our efforts to obtain additional qualifications and licenses to increase our business, and build our brand in the industry. We have driven sales growth in a very challenging environment while reducing costs significantly. We believe this will serve as a springboard for significant financial improvement when our end markets improve,” Yao stated.

Looking forward, the company sees several opportunities for growth and improvement, in both the short and long term. While Armco anticipates a slow-down in China’s steel demand, the company expects that low income housing construction, ongoing urbanization, and increasing domestic consumption in China to offset declines and support the growth of the steel industry. The company also expects its recycling business to benefit from the Chinese government’s 12th Five Year Plan (2011-2015), under which the nation looks to restructure its iron and steel industry to enhance energy efficiency and to increase environmental protection by adopting and developing advanced technology.

In regards to its metal recycling business, the company said, “We intend to devote a significant amount of our resources towards the improvement of our operations and if appropriate, its expansion. At the same time, we will continue to pursue our strategy to create a local network of raw material suppliers for our recycling facility and expand our oversea supply channels. In addition, we will continue to develop our new sale and operation model in recycling business described above to obtain more customers and business opportunities under the model in the coming years.”

Furthermore, Armco intends to explore potential merger and acquisition opportunities within the steel industry to diversify its revenue streams and leverage the strength of its current customer base. As of March 2014, Armco has entered into negotiations with one such candidate for a potential merger opportunity.

For more information, visit www.armcometals.com

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