Sutor Technology Group Limited Reports Third Quarter Fiscal 2013 Financial Results Continues its Profitable Growth: 203% Increase in Third Quarter Net Income on 27% Increase in Revenues

CHANGSHU, China, May 13, 2013 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its financial results for the third quarter of fiscal 2013 ended March  31, 2013.

Third quarter fiscal 2013 results highlights:


Change


3Q FY2013

3Q FY2012

Revenue (million)

$139.6

$109.9

27.0%

Gross profit (million)

$10.9

$7.9

38.0%

Net income (million)

$3.88

$1.28

203.1%

EPS (fully diluted)

$0.10

$0.03

233.3%

Nine months Fiscal 2013 results highlights:                                               


9M FY2013

9MFY2012

Change

Revenue (million)

$414.6

$348.0

19.1%

Gross profit (million)

$31.7

$29.3

8.2%

Net income (million)

$10.49

$9.06

15.8%

EPS (fully diluted)

$0.26

$0.22

18.2%

Ms. Lifang Chen, CEO and Chairwoman of Sutor, commented: "Following a successful second quarterof fiscal 2013, we are pleased to report that the result of the third quarter exceeded our expectations. Further, we are on track to carry out our strategy to organically grow our production capacity, expand the asset-light B2B electronic commerce platform exclusively for the heavy industries, and selectively pursue merger and acquisition and joint-venture opportunities to accelerate our growth."

Third Quarter Fiscal 2013 vs. Third Quarter Fiscal 2012 Highlights

  • The 27% increase in revenue was mainly due to significantly increased production of acid-pickled steel and cold-rolled steel products. Although the output of PPGI and pipe products were also up, their impact on the revenue was partially offset by lower average selling price ("ASP") due to lower costs of raw materials. For the quarter ended on March 31 2013, total sales volume in tons was up approximately 54% whereas the ASP was down approximately 22% when compared with the same period last year.
  • Revenue generated from domestic sales increased by 25% to $129.7 million, while revenue generated from international sales increased by 56% to $9.9 million. As a percentage of total revenue, international sales accounted for 7.1%, as compared to 5.7% in the same quarter of fiscal 2012.
  • Our gross margin increased to 7.8% as compared to 7.2% primarily due to increased sales of higher-margin products like PPGI and pipe products. 
  • Total operating expenses (selling expenses and general and administrative expenses) as a percentage of revenue slightly decreased to 2.8% as compared to 2.9%. Of note, the third quarter fiscal 2013 selling expenses increased as compared to the same period of 2012 due to increased international shipping rate.
  • Higher revenue, lower operating expenses, lower interest expenses and higher interest income contributed to over 204% increase in net income.

Liquidity

  • As of March 31, 2013, cash and cash equivalents (excluding restricted cash) were $18.5 million and restricted cash were $98.2 million.
  • As of March 31, 2013, short-term loans totaled approximately $130.8 million, and the current portion of long-term loans was $14.1 million. The Company also had approximately $2.3 million long-term loans. 
  • As of March 31, 2013, Sutor had an unused line of credit with banks of approximately $20.6million which entitles the Company to draw bank loans for general corporate purposes.  Sutor expects sufficient liquidity to carry out normal operations for fiscal 2013.

Ms. Chen concluded, The Chinese economy had a weak recovery during the last two quarters after several consecutive quarters' decline in GDP growth rate. China Purchasing Managers' Index (PMI) for the manufacturing sector has been above 50% for seven consecutive months since last October. Although the latest economic indicators showed some weakness, we believe the overall trend remains healthy.  Based on the year-to-date results, we feel optimistic that we can end fiscal 2013 on a positive note. In the longer term, we believe our new cold-rolled production line of 500,000 tons annual capacity, which is expected to commence trial production later this year, our recent joint venture with China Railway Materials Wuhan Company, and our new galvolume steel products launched in January this year will become the additional drivers for our future growth. We look forward to reporting our progress in the coming months.

Conference Call Information

Sutor's management will host an earnings conference call today, May 13, 2013, at 9:00 a.m. U.S. Eastern time/9:00 pm Beijing/Hong Kong time. Listeners may access the call by dialing US: +1 877 847 0047, CN: 800 876 5011, HK +852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through June 14, 2013. Listeners may access it by dialing US: +1 866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 693127.

Functional Currency and Translating Press Release

The reporting currency of the Company is the United States Dollars (USD). Sutor and Sutor BVI maintain their books and records in USD, their functional currency. The PRC subsidiaries maintain their books and records in its local currency, the Renminbi Yuan (RMB), which is their functional currencies as being the primary currency of the economic environment in which these entities operate. In general, for consolidation purposes, assets and liabilities of its subsidiaries whose functional currency is not the USD are translated into USD, in accordance with ASC Topic 830-30, Translation of Financial Statement, using the exchange rate on the balance sheet date. Revenues and expenses are translated at average rates prevailing during the period. The gains and losses resulting from translation of financial statements of foreign subsidiaries are recorded as a separate component of accumulated other comprehensive income.

About Sutor Technology Group Limited

Sutor is one of the leading China-based manufacturers and distributors of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications. The Company utilizes a variety of in-house developed processes and technologies to convert steel manufactured by third parties into fine finished steel products, including hot-dip galvanized steel, pre-painted galvanized steel, acid-pickled steel, cold-rolled steel and welded steel pipe products. To learn more about the Company, please visit http://www.sutorcn.com/en/index.php.

Forward-Looking Statements

This press release includes certain statements that are not descriptions of historical facts, but are forward-looking statements.  Such statements include, among others, those concerning our expected financial performance, liquidity and strategic and operational plans, our future operating results, our expectations regarding the market for our products, our expectations regarding the steel market, as well as all assumptions, expectations, predictions, intentions or beliefs about future events.  You are cautioned that any such forward-looking statements are not guarantees of future performance and that a number of risks and uncertainties could cause our actual results to differ materially from those anticipated, expressed or implied in the forward-looking statements.  These risks and uncertainties include, but not limited to, the factors mentioned in the "Risk Factors" section of our Annual Report on Form 10-K for the year ended June 30, 2012, and other risks mentioned in our other reports filed with the Securities Exchange Commission (SEC).  Copies of filings made with the SEC are available through the SEC's electronic data gathering analysis retrieval system (EDGAR) at http://www.sec.gov.  The words "believe," "expect," "anticipate," "project," "targets," "optimistic," "intend," "aim," "will" or similar expressions are intended to identify forward-looking statements. All statements other than statements of historical fact are statements that could be deemed forward-looking statements.  The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

For more information, please contact:

China

US

Jason Wang, Director of IR

Lena Cati, IR Representative

Sutor Technology Group Limited

The Equity Group

Tel: +86-512-5268-0988

Tel: 212 836-9611

Email: investor_relations@sutorcn.com

Email: lcati@equityny.com

Financial Tables Below:


SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS




March 31,


June 30,



2013


2012






ASSETS





Current Assets:                                                                                                                                     





Cash and cash equivalents

$

18,531,950

$

9,530,531

Restricted cash


98,166,557


111,582,149

Short-term investments


-


4,849,112

Trade accounts receivable, net of allowance for doubtful accounts of $598,197 and $1,306,099
         as of March 31, 2013 and June 30, 2012, respectively


4,133,807


7,023,880

Notes receivable


210,446


475,112

Other receivables and prepayments, net of allowance for doubtful accounts of $331,090 and
         $351,372 as of March 31, 2013 and June 30, 2012, respectively


2,635,181


4,275,817

Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $393,740 and
         $366,697 as of March 31, 2013 and June 30, 2012, respectively


17,460,469


27,446,626

Advances to suppliers, related parties, net of right to offset


166,450,458


121,884,833

Inventories, net


64,948,147


50,432,279

Deferred tax assets


757,931


709,688

Total Current Assets


373,294,946


338,210,027

Non-current Assets:





Advances for purchase of long term assets


15,571,485


15,001,088

Property, plant and equipment, net


73,047,748


77,231,273

Intangible assets, net


6,560,403


3,082,877

Equity method investments


6,442,406


-

Total Non-current Assets


101,622,042


95,315,238

TOTAL ASSETS

$

474,916,988

$

433,525,265






LIABILITIES AND STOCKHOLDERS¡¯ EQUITY





Current Liabilities:





Short-term loans

$

130,835,913

$

111,166,838

Long-term loans, current portion


14,066,114


27,762,975

Accounts payable, unrelated parties


67,633,671


57,079,617

Accounts payable, related parties


13,486,508


-

Other payables and accrued expenses


7,725,033


8,820,064

Advances from customers


14,229,545


7,924,812

Warrant liabilities


179,357


47,404

Total Current Liabilities


248,156,141


212,801,710

Long-Term Loans


2,319,979


8,490,772

Total Liabilities


250,476,120


221,292,482

Commitments and contingencies





Stockholders' Equity





Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares 
         outstanding




-

Common stock - $0.001 par value;

authorized: 500,000,000 shares as of March 31, 2013 and June 30, 2012;

issued: 40,865,602 and 40,805,602 shares as of March 31, 2013 and June 30, 2012.


40,865


40,805

Additional paid-in capital


41,455,713


41,344,306

Statutory reserves


18,100,361


18,100,361

Retained earnings


128,220,435


117,732,738

Accumulated other comprehensive income


37,275,003


35,622,241

Less: Treasury stock, at cost, 590,838 and 544,477 shares as of March 31, 2013 and June 30,
         2012, respectively


(651,509)


(607,668)

Total Stockholders' Equity


224,440,868


212,232,783

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

474,916,988

$

433,525,265

 


SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME





For The Three Months Ended



 For The Nine Months Ended




March 31,



March 31,




2013


2012



2013


2012












Revenue:











Revenue from unrelated parties


$

84,994,226

$

77,293,342


$

280,587,798

$

258,760,839

Revenue from related parties



54,554,833


32,641,713



134,014,810


89,264,631




139,549,059


109,935,055



414,602,608


348,025,470












Cost of Revenue











Cost of revenue from unrelated parties



(77,127,522)


(71,781,784)



(255,617,288)


(237,734,303)

Cost of revenue from related parties



(51,488,687)


(30,282,224)



(127,296,140)


(81,019,969)




(128,616,209)


(102,064,008)



(382,913,428)


(318,754,272)












Gross Profit



10,932,850


7,871,047



31,689,180


29,271,198












Operating Expenses:






















Selling expenses



(1,417,039)


(874,867)



(5,709,207)


(5,289,139)

General and administrative expenses



(2,490,828)


(2,272,424)



(7,170,901)


(7,776,539)

Total Operating Expenses



(3,907,867)


(3,147,291)



(12,880,108)


(13,065,678)

Income from Operations



7,024,983


4,723,756



18,809,072


16,205,520












Other Incomes/(Expenses):











Interest income



967,706


368,561



2,989,756


1,046,976

Interest expense



(2,579,181)


(3,484,944)



(8,453,617)


(7,652,460)

Changes in fair value of warrant liabilities



(146,476)


56,502



(131,953)


288,968

Income from equity method investments



50,998


-



225,444


-

Other income



159,520


85,323



318,658


105,273

Other expense



72,639


79,488



(594,885)


(779,179)

Total Other Expenses, net



(1,474,794)


(2,895,070)



(5,646,597)


(6,990,422)












Income Before Taxes



5,550,189


1,828,686



13,162,475


9,215,098

Income tax (expense)/benefit



(1,670,169)


(553,515)



(2,674,778)


(153,186)

Net Income


$

3,880,020

$

1,275,171


$

10,487,697

$

9,061,912












Other Comprehensive Income:











Foreign currency translation adjustment



1,426,292


1,444,247



1,652,762


5,306,694

Comprehensive Income


$

5,306,312

$

2,719,418


$

12,140,459

$

14,368,606












Basic Earnings per Share


$

0.10

$

0.03


$

0.26

$

0.22

Diluted Earnings per Share


$

0.10

$

0.03


$

0.26

$

0.22












Basic Weighted Average Shares Outstanding



40,267,431


40,345,780



40,237,142


40,531,461

Diluted Weighted Average Shares Outstanding



40,267,431


40,345,780



40,237,142


40,531,461












 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




For The Nine Months Ended



March 31,



2013


2012

Cash Flows from Operating Activities:





Net income

$

10,487,697

$

9,061,912

Adjustments to reconcile net income to net cash used in operating activities





Depreciation and amortization


6,628,874


6,492,260

Reversal for doubtful accounts


(711,175)


-

Stock based compensation


111,467


93,602

Foreign currency exchange gain


(145,186)


(392,608)

Loss on disposal of property, plant and equipment


81,228


72,892

Interest income from short-term investments carried at amortized cost


(30,944)


-

Income from equity method investments


(225,444)


-

Deferred income taxes


(43,516)


10,738

Changes in fair value of warrant liabilities


131,953


(288,968)

Changes in current assets and liabilities:





Restricted cash for notes payable


(14,483,765)


(50,475,674)

Trade accounts receivable


3,635,648


(8,291,096)

Notes receivable


266,610


(350,930)

Other receivable and prepayments


1,683,384


264,671

Advances to suppliers, unrelated parties


10,095,647


4,718,122

Advances to suppliers, related parties


(43,541,260)


13,630,723

Inventories


(14,134,383)


(36,851,431)

Accounts payable, unrelated parties


11,033,692


54,402,504

Accounts payable, related parties


13,431,063


-

Other payables and accrued expenses


(1,133,841)


(1,133,980)

Other payables, related parties


-


(608,674)

Advances from customers


6,230,157


(1,619,409)

Net Cash Used In Operating Activities


(10,632,094)


(11,265,346)






Cash Flows from Investing Activities:





Purchase of property, plant and equipment, net of value added tax refunds received


(3,818,123)


(13,558,760)

Proceeds from disposal of property, plant and equipment


529,721


26,025

Purchase of intangible assets


(3,565,706)


-

Equity method investments


(6,190,476)


-

Payments for short-term investments


-


(4,755,262)

Proceeds from sale of short-term investments


4,891,063


-

Net Cash Used In Investing Activities


(8,153,521)


(18,287,997)






Cash Flows from Financing Activities:





Proceeds from loans


117,233,696


143,934,932

Repayment of loans


(118,055,195)


(114,432,824)

Restricted cash for bank loans


28,556,205


(15,621,037)

Payments on repurchase of common stock


(43,841)


(534,269)

Net Cash Provided by Financing Activities


27,690,865


13,346,802






Effect of Exchange Rate Changes on Cash and Cash Equivalents


96,169


425,014






Net Change in Cash and Cash Equivalents


9,001,419


(15,781,527)

Cash and Cash Equivalents at Beginning of Period


9,530,531


21,324,931

Cash and Cash Equivalents at End of Period

$

18,531,950

$

5,543,404






Supplemental Non-Cash Information:





Offset of notes payable to related parties against receivable from related parties

$

10,696,709

$

10,352,131

Supplemental Cash Flow Information:





Cash paid during the period for interest expense

$

(7,106,565)

$

(7,230,874)

Cash (paid)/received during the period for income tax

$

(2,339,344)

$

(476,495)






SOURCE Sutor Technology Group Limited



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