LIUYANG FIREWORKS RELEASES 2010 FINANCIAL RESULTS - EARNINGS GROWTH 40%YEAR-OVER-YEAR

TORONTO, May 2 /CNW/ - Liuyang Fireworks Limited (TSX-V: FWK), a leading China-based manufacturer of consumer fireworks, released its three- and twelve-month results today. The results, ending December 31, 2010, are in Canadian dollars unless otherwise stated.

Selected 2010 Financial Highlights

In thousands except share and % data FY 2010 FY 2009 Change (%)
Revenue $14,081 $13,408 5%
Gross margins 37.6% 41.3% -9%
EBITDA $1,293 $1,590 -19%
Net Income $894 $637 40%
Earnings per share (Basic) $0.021 $0.016 31%
Cash and Cash equivalents $2,031 $1,999 2%
Working capital $3,806 $4,507 -16%

Liuyang Fireworks Limited 2010 Operating Highlights:

  • Launched fireworks display company in March 2010;

  • Established two wholesale JVs in Zhejiang Province to enter the fireworks wholesale market;

  • Received Canadian Explosives Regulatory Division (CERD) approval for additional three products (15 in total as of December 2010) to distribute within Canada;

  • Received a confirmed order from one US wholesaler for US$1.4 million to deliver in 2011.

"We are very pleased with our company's achievements and our ability to present positive earnings growth to our shareholders." said Miao Hu, President and Chief Executive Officer, Liuyang Fireworks. "We continue to capitalize on the domestic market through new product offerings and acquisitions. Although we have faced the negative impact of strong Canadian dollars, our revenues continue to increase steadily in 2010."

Highlights subsequent to the year-end:

  • Completed a non-brokered private placement of 12,033,700 shares for gross proceeds of $2.17 million;

  • Announced record sales of $3.6 million for the 2011 Chinese New Year selling season;

  • Hunan Liuyang Fireworks Display Art Company (100% owned subsidiary of the company) successfully presented fireworks displays at eight different events during first two months of 2011.

Review of Fourth Quarter and Fiscal Year 2010 Financial Results

Selected Fourth Quarter Financial Highlights

In thousands except share and % data Q4 2010 Q4 2009 Change (%)
Revenue $4,986 $4,709 6%
Gross margins 37% 35% 6%
EBITDA $226 ($71) ---
Net Income $83 ($338) ---
Earnings per share (Basic) $0.002 ($0.01) ---

Revenue

Revenue for the fourth quarter was $4.99 million, compared with $4.71 million for the same period last year, representing an increase of 6%. The increase was due to a slight increase in Chinese domestic sales over the same period in 2009.

Revenue for 2010 was $14.1 million, an increase of $0.67 million or 5% over the $13.4 million generated in 2009. Liuyang Fireworks Limited receives most of its international orders in U.S. dollars. Conversely, the company incurs most of its expenses in Chinese RMB. Strong Canadian dollar appreciation during 2010 has significantly reduced the reported revenues. If 2010 revenue was converted at the prior year's average exchange rate, revenue for 2010 would have been $15.6 million, a 16% increase over 2009 results.

Gross Profit

Gross profit for the fourth quarter was $1.84 million compared with $1.67 million for the same period last year, an increase of 11%. As a percentage of revenue, gross profit margin for the fourth quarter was 37% compared to 35% for the fourth quarter of 2009. The increase was due to higher margin products sold during this period.

The gross profit for 2010 was $5.29 million, compared with $5.55 million for 2009. The decrease was due to higher raw material cost incurred over the year. Management believes that the company will continue to control these production costs by establishing an alliance with the subcontractors used for raw materials purchasing. Liuyang Fireworks Limited also plans to improve upon the historical levels of gross margin by optimizing product mix and improving production efficiency.

EBITDA

EBITDA for the fourth quarter increased to $0.23 million from a negative $0.07 million for the same period in 2009. The improvement in EBITDA for the fourth quarter of 2010 was mainly attributed to low non-cash stock-based compensation costs and higher revenue in 2010.

EBITDA for 2010 was $1.3 million, while in 2009 it was $1.59 million. The change was due to the significant decrease of amortization expense and interest expense, which were offset by the increase of net income in 2010.

Net Income

Net income for the fourth quarter increased to $0.08 million from a negative $0.34 million for the same period last year.

Luiyang Fireworks Limited's net income for 2010 was 0.9 million, a 40% increase over the $0.64 million earned in 2009. This net income growth was due to slightly higher revenue and cost savings from operation expenses. After successful integration of two wholesaler joint venture companies, Liuyang Fireworks Limited enters into the domestic Chinese market for the second year. It is believed that the company will continue its success and is expected to generate higher net income in the future.

Cash and Cash Equivalents

As of December 31, 2010, the company has cash and cash equivalents totaling $2.03 million, representing an increase of $0.03 million, or 2% compared with the balance as of December 31, 2009. The Company also had $0.1 million of restricted cash.

Outlook

"We are very pleased with our progress and will continue the two-pronged strategy designed to accelerate our long-term growth. Internationally, we continue to see strong demand for our safe, high quality consumer fireworks." said Mr.Hu. "Domestically, we have successfully integrated our two recently acquired wholesale companies into our operation over the past year. As a result, our revenues from international markets and domestic markets are 70% and 30% respectively. We expect a dramatic increase in domestic sales for Q1, 2011 as we continue to expand our domestic sales network. We are also in the process of evaluating a third acquisition candidate. Our display company has begun establishing some key client relations and we are very confident that we can fulfill our goal of 30 displays over 2011."

About Liuyang Fireworks Limited

Liuyang Fireworks Limited is a leading China-based manufacturer of consumer fireworks distributed domestically and in more than 15 countries in North America, South America and Europe. The company has more than 16 years of experience in the fireworks industry, and is a supplier to the world's top five fireworks wholesalers and retailers. Liuyang's ISO9001-certified manufacturing facilities are located in the Liuyang area of Hunan, China, where more than half of the world's fireworks are produced.

The forward-looking information contained in this news release represents the expectations of the Company as of the date of this news release and, accordingly, is subject to change after such date. Readers should not place undue importance on forward-looking information and should not rely upon this information as of any other date. While the Company may elect to, it does not undertake to update this information at any particular time except as required in accordance with applicable securities legislation.

Neither TSX Venture Exchange nor its Regulation Services Provider (as that term is defined in the policies of the TSX Venture Exchange) accepts responsibility for the adequacy or accuracy of this release.

SOURCE Liuyang Fireworks Limited

For further information:

Jacky Long
Chief Financial Officer
Liuyang Fireworks Limited
Tel : 416-613-0208 ext 206
jackylong@farocean.com

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Liuyang Fireworks Limited

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