Income from Operations Increase of 80%
Home System Group (OTCBB: HSYT; "Home System" or the "Company"), a Chinese-based manufacturer of a variety of household appliances sold by large retailers, today announced its financial results for the three and six months ended June 30, 2010.
2010 Second Quarter Financial Highlights
-- Revenue recorded $27 million, a 33% increase from $20.5 million recorded in the second quarter of 2009.
-- The Fans and Lightings segment contributed significantly to the Company's revenue and operating results with revenues of $23.2 million for the three months ended June 30, 2010, nearby double the $12.2 million of the prior year's comparable period.
-- Gross profit was $6.3 million, up from the $4.0 million of the second quarter of 2009, reflecting the higher revenues and improved gross margin.
-- Income from operations in the second quarter of 2010 increased by 80.2% over the corresponding 2009 period.
-- The Company had an equity for debt exchange in April, 2010, resulting in a non-cash loss on the conversion of $1.7 million.
-- Net income and earnings per share in the second quarter of 2010 were relatively flat as compared to net income in the second quarter of 2009 due to the loss on debt exchange.
Results Commentary
Home System Group's second quarter 2010 revenue of $27 million benefited from the strong performance of its Fans and Lightings segment, which recorded $23.2 million in sales, an increase of $11 million over corresponding 2009 level, and $3.9 million of revenue from the sales of skateboards, an increase of $3.5 million, as compared to the corresponding period in 2009. These were partially offset by the lower sales of barbeque grills, which were down $8.2 million from the comparable 2009 period. This dramatic shift in revenues from grills to fans reflects a decision that the Company made last year to reallocate more of production resources to fans, which management felt had better sales prospects and a higher gross margin.
Gross profit for the second quarter of 2010 was $6.3 million compared to $4.0 million for the same period last year, an increase of 56.7%. The gross profit margin for the second quarter of 2010 was 23.2%, an increase from the 20% for the same period last year.
General, selling and administrative expenses for the second quarter of 2010 were $1.8 million, an increase of 20% as compared to $1.5 million for the same period in 2009 driven by the higher revenue levels.
As a result, income from operations for the second quarter of 2010 was $4.5 million, an increase of 80.2% compared with $2.5 million for the corresponding quarter of 2009. Operating margin was 16.5% for the second quarter of 2010, increasing significantly from 12.1% for the second quarter of 2009.
Home System's CEO, Mr. Yu, observed, "During the second quarter of 2010, product demand continued to be robust and Home System benefited from the substantial increase in sales of ceiling fans and decorative lightings. I am particularly pleased by how smoothly the operational transition from grills to fan production was accomplished and with the strong financial results. Building upon this performance, the Company is opportunistically seeking acquisition targets. Over the past three months, we announced the planned acquisitions of two fan manufacturers. We believe both of these acquisitions will be completed in early October, upon the finalization of due diligence. Through these two manufacturers, Home System expects to expand its geographic market coverage into Southeast Asia and Japan, which will diversify our customer base as well as reduce the seasonality impact on the Company's operation. We believe that this will have positive effect by maintaining production on a more constant basis over the year. Moreover, by combining product procurements requirements, we can further improve our gross margin and earnings. In the future, we expect to further expand our sales network and diversify our product lines. We are confident in our business strategy and believe that Home system is very well positioned for continued growth."
2010 First Half Year Financial Highlights
-- Revenue was $57.3 million for the first half year of 2010, an increase of $21.3 million or 59.4% over the corresponding 2009 level.
-- The Fans and Lightings segment significantly benefited the Company's revenue and operating results with segment revenue of $46.3 million for the six months ended June 30, 2010 as compared to $20.2 million in prior year comparable period.
-- Gross profit was $13.3 million for the first half year of 2010, up 69.9% compared to $7.8 million in the first half year ended June 30, 2009.
-- Income from operations of $9.8 million for the six months ended June 30, 2010 was more than double the $4.8 million of the corresponding 2009 period.
-- Net income for the first half year of 2010 was $6.0 million, increased by $3.0 million as compared to net income in the first half year of 2009, in spite of the adverse effect of the debt conversion, which had no associated tax benefit.
Financial Condition
On April 1, 2010, Home System converted debt totaling $17.5 million into common shares at the rate of $3.50, resulting a non-cash charge of $1.7 million, which is not tax deductible. Home System Group's CEO, Mr. Yu commented: "The conversion of $17.5 million of debt into equity represents a strong endorsement by the debt holders of the Company's prospects and significantly strengthen the Company's financial structure, which will benefit the Company's operation in long term."
As of June 30, 2010, Home System Group had cash and cash equivalents of $6.0 million. Current assets and current liabilities as of June 30, 2010, were $70.8 million and $54.4 million, respectively, yielding working capital of $16.4 million.
About Home System Group
Home System Group is primarily engaged in the production of a variety of small household appliances, stainless steel gas grills and ovens, ceiling and table fans, and decorative lamps, LEDs and energy-saving lamps. Its products are sold through distributors and direct to retailers located in America, Europe, Australia, Africa, Southeast Asia and China. For more information, please visit: http://www.homesystemgroup.com.
FORWARD-LOOKING STATEMENTS:
This release contains "forward-looking statements" for purposes of the Securities and Exchange Commission's "safe harbor" provisions under the Private Securities Litigation Reform Act of 1995 and Rule 3b-6 under the Securities Exchange Act of 1934. These forward-looking statements are subject to various risks and uncertainties that could cause Home System Group's actual results to differ materially from those currently anticipated, including the risk factors identified in Home System Group's filings with the Securities and Exchange Commission.
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Home System Group and Subsidiaries (in millions, except per share amounts) | |||||||||||||
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| Three months ended June 30, | Six months ended June 30, | ||||||||||||
| 2010 | Â | 2009 | 2010 | Â | 2009 | ||||||||
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| Net sales | $ | 27.3 | $ | 20.5 | $ | 57.3 | $ | 36.0 | |||||
| Cost of sales | 20.9 | 16.5 | 44.0 | 28.2 | |||||||||
| Gross profit | 6.3 | 4.0 | 13.3 | 7.8 | |||||||||
| General, selling and administrative expenses | 1.8 | 1.5 | 3.5 | 3.0 | |||||||||
| Income from operations | 4.5 | 2.5 | 9.8 | 4.8 | |||||||||
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| Other income | - | 0.2 | 0.8 | 0.2 | |||||||||
| Loss on debt conversion * | 1.7 | - | 1.7 | - | |||||||||
| Interest expense, net | 0.4 | 0.7 | 0.8 | 1.1 | |||||||||
| Provision for income taxes | 0.9 | 0.5 | 2.1 | 1.0 | |||||||||
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| Net income | $ | 1.4 | $ | 1.4 | $ | 6.0 | $ | 3.0 | |||||
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| Basic and diluted earnings per share | $ | 0.02 | $ | 0.02 | $ | 0.09 | $ | 0.05 | |||||
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| Basic and diluted weighted average shares | 67.5 | 62.5 | 65.0 | 62.5 | |||||||||
| Gross Margin | 23.3% | 20.0% | 23.2% | 21.7% | |||||||||
| Operating Margin | 16.5% | 12.1% | 17.1% | 13.5% | |||||||||
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| * Not deductible for tax purpose | |||||||||||||
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| NOTE: The above numbers may not equal the total due to rounding. | |||||||||||||
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Revenues in Segments (in millions) | ||||||||||||||
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| Three months ended June 30, | Six months ended June 30, | |||||||||||||
| 2010 | Â | 2009 | Â | Â | 2010 | Â | 2009 | |||||||
| Fans & Lightings | $ | 23.2 | $ | 12.2 | $ | 46.4 | $ | 20.2 | ||||||
| Barbeque Grills & Skateboards | 3.9 | 8.7 | 7.0 | 14.9 | ||||||||||
| Other Trading | 0.1 | (0.3) | 4.0 | 0.9 | ||||||||||
| Total | $ | 27.3 | $ | 20.5 | $ | 57.3 | $ | 36.0 | ||||||
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NOTE: The above numbers may not equal the total due to rounding. | ||||||||||||||
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Home System Group and Subsidiaries | ||||||||||
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| Â | June 30, 2010 | December 31, 2009 | ||||||||
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| Cash and cash equivalents | $ | 5.8 | $ | 4.0 | ||||||
| Accounts receivable - trade | 40.8 | 23.9 | ||||||||
| Notes receivables | 8.2 | 3.7 | ||||||||
| Inventories | 11.2 | 18.3 | ||||||||
| Property, plant & equipment - net | 8.8 | 9.0 | ||||||||
| Goodwill | 25.0 | 25.0 | ||||||||
| Trade and related payables | 21.7 | 22.3 | ||||||||
| Total debt | 26.1 | 35.8 | ||||||||
| Total stockholders' equity | 47.6 | 22.2 | ||||||||
| Net Debt to Capital | 29.9 | % | 58.9 | % | ||||||
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Home System Group and Subsidiaries (in millions) | ||||||||
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| Six months ended June 30, | ||||||||
| 2010 | 2009 | |||||||
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| Net cash used in operating activities | $ | (1.4 | ) | $ | (3.1 | ) | ||
| Net cash used in investing activities | (0.6 | ) | - | |||||
| Net cash provided by financing activities | 3.8 | Â | 9.2 | Â | ||||
| Net change in cash and cash equivalents | $ | 1.8 | Â | $ | 6.1 | Â | ||
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NOTE: The above numbers may not equal the total due to rounding. | ||||||||
Contacts:
Home System Group
Eva Wang, 347-624-5699
vp@hsytgroup.com
