Sutor Technology Group Limited Announces First Quarter of Fiscal Year 2012 Financial Results

Nov 14, 2011, 16:20 ET from Sutor Technology Group Limited

CHANGSHU, China, Nov. 14, 2011 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state-owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its unaudited financial results for the first quarter of fiscal year 2012 ended September 30, 2011.

Fiscal first quarter results highlights:


1QFY2012

1Q FY2011

Change

Revenues (million):          

$130.2

$101.9

27.8%

Gross profit (million):      

$11.0

$8.4

31.0%

Gross margin                    

8.4%

8.3%

1.2%

Net income (million):      

$4.8

$3.4

41.2%

EPS:                                  

$0.12

$0.08

50.0%



"We are pleased with our first quarter results as we achieved outstanding results despite unstable political and economic situations overseas and slowdown in economic growth in China during the past quarter," commented by Ms. Lifang Chen, Chief Executive Officer and Chairwoman of Sutor. "Once again our integrated production processes and diversified product portfolio enabled us to maintain stable growth when certain sectors of the Chinese economy were experiencing a difficult time. We are particularly pleased with the fact that our quarterly international sales were historically high. We believe that we are positioned to capitalize on our intensified marketing efforts when the global economy eventually recovers."

Ms. Chen continued, "We believe we have in place an achievable plan for near-term and mid-term growth. We will constantly evaluate rewards and risks to maintain sustainable growth.  The construction progress of our new cold-roll production line of 500,000 metric tons designed annual capacity is on track.  We have completed the construction of the workshop building and plan to start commercial operations in July 2012. We have been repurchasing our shares since the announcement of the program in September.  We take very seriously our responsibilities as a U.S. public company. We will continue to take measures to improve our corporate governance and evaluate all options to maximize shareholder value."

Revenue. For the three months ended September 30, 2011, revenue was $130.2 million compared to $101.9 million for the same period last year, an increase of approximately 27.8%. The increase was mainly attributable to the increased production capacity utilization and output of our 400,000 metric tons HDG production lines at Jiangsu Cold-Rolled which generated approximately $47.5 million for this quarter as compared to $27.0 million for the same period last year.  In addition, we also benefited from higher sales volume and higher prices for our PPGI products due to higher demand and raw material prices in this quarter which was partially offset by lower revenue from cold-rolled steel products as most of them were used internally for the production of our higher end products in the quarter ended on September 30, 2011.

On a geographic basis, revenue generated from outside of China was $24.8 million, or 19.1% of total revenue, for the three months ended September 30, 2011, as compared to $7.0 million, or 6.9% of total revenue, for the same period in 2010. The increase mainly resulted from our successful efforts to expand product penetration into new markets, increase brand recognition and foster acceptance of our products in the international markets.

Cost of revenue. Cost of revenue increased $25.7 million, or 27.5%, to $119.2 million in the three months ended September 30, 2011 from $93.5 million in the same period in 2010. As a percentage of revenue, cost of revenue decreased slightly to 91.6% in the three months ended September 30, 2011 from 91.7% in the same period last year.  We believe the increase in cost of revenue was generally in line with the increase in sales revenue.

Gross profit and gross margin. Gross profit increased $2.6 million to $11.0 million in the three months ended September 30, 2011 from $8.4 million in the same period in 2010. Gross profit as a percentage of revenue (gross margin) was 8.4% in the three months ended September 30, 2011, as compared to 8.3% in the same period in 2010.

Total operating expenses. Our total operating expenses increased approximately $2.3 million to $5.3 million in the three months ended September 30, 2011 from $3.0 million in the same period in 2010. As a percentage of revenue, our total operating expenses increased to 4.1% in the three months ended September 30, 2011 from 2.9% in the same period in 2010.

Selling expenses. Our selling expenses increased approximately $0.9 million to $2.3 million in the three months ended September 30, 2011, from $1.4 million in the same period in 2010. As a percentage of revenue, our selling expenses increased to 1.8% for the three months ended September 30, 2011, from 1.4% for the same period last year. The dollar and percentage increase of selling expenses was primarily due to the increased international sales which generally had relatively higher shipping costs than domestic sales.

General and administrative expenses. General and administrative expenses increased $1.3 million, or 81.3%, to $2.9 million, or 2.2% of the total revenue, in the three months ended September 30, 2011, from $1.6 million, or 1.6% of revenue, in the same period in 2010. Several factors contributed to the increased general and administrative expenses, including banking related fees related to a line of credit from an overseas financial institution, increased insurance premiums, and administrative and startup expenses associated with our subsidiary, Sutor Technology Co., Ltd.   Furthermore, the management expenses at the three other operating subsidiaries in this quarter were also higher than the same period last year due to overall inflationary environment in China.  

Provision for income taxes. Our provision for income taxes decreased $1.5 million as compared to $0.6 million in the same period last year primarily due to tax refunds. In the three months ended September 30, 2011, Changshu Huaye and Jiangsu Cold-Rolled received tax refunds of $0.3 million and $1.1 million, respectively.

Net income. Net income, without including the foreign currency translation adjustment, increased approximately $1.4 million, or 41.2%, to $4.8 million in the three months ended September 30, 2011, from $3.4 million in the same period in 2010, as a cumulative result of the above factors.

Liquidity and Capital Resources

As of September 30, 2011, our total short-term loans were approximately $110.3 million. We also had approximately $36.1 million under long-term notes payable. We had approximately $26.0 million cash and cash equivalents and $85.8 million restricted cash. In addition, we also had an unused line of credit with banks of approximately $15 million which entitled us to draw bank loans for general corporate purposes.  As of September 30, 2011, our current assets were approximately $369.9 million and current liabilities $213.3 million. The current ratio was approximately 1.7.  We believe that we have sufficient liquidity and capital resources to carry out normal operating activities for the remainder of fiscal year 2012.

Business Outlook

We maintain our anticipation that both revenue and net income of the Company will grow at a compound annual growth rate (CAGR) of approximately 25% to 35% for the next two fiscal years. Although Chinese GDP growth rate is expected to decline from approximately 9% this year to around 8% next year partially due to anticipated lower infrastructure spending next year, we believe that the benefits from our larger exposure to the growing consumer durables sector will offset the disadvantages that may be caused by our limited exposure to the construction sector.

Conference Call Information

Sutor's management will host an earnings conference call on Tuesday, November 15, 2011, at 9:00 a.m. eastern time. Listeners may access the call by dialing US: 1 877 847 0047, China: 800 876 5011, Hong Kong 852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through December 14, 2011. Listeners may access it by dialing US: 1 866 572 7808, China: 800 876 5013, Hong Kong: 852 3012 8000, access code: 658119.

About Sutor Technology Group Limited

Sutor is a leading China-based non-state-owned manufacturer and distributor 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. These products are used for household appliances, solar water heaters, automobiles, information technology, construction, and other applications. Currently Sutor has three operating subsidiaries located in two provinces with 12 major production lines capable of processing approximately 2 million metric tons of steel products annually. To learn more about the company, please visit http://www.sutorcn.com/en/index.php.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements include, among others, those concerning our financial and business outlook in the next two years, our expectation regarding cash flow and liquidity, our new facility and capacity expansion, and its expected impact on the Company's business and financial performance, our expectations regarding the market for our existing products and new products, our expected financial performance and strategic and operational plans, 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 actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. 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. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China and the current global economic crisis on our business and on our customers' business, and any of the factors and risks mentioned in the "Risk Factors" sections of our Annual Report on Form 10-K for the year ended June 30, 2011 and subsequent SEC filings. 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:

Mr. Jason Wang, Director of IR
Sutor Technology Group Limited
Tel: +86-512-5268-0988    
Email: investor_relations@sutorcn.com

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)




September 30,


June 30,



2011


2011

ASSETS





Current Assets:





   Cash and cash equivalents

$

26,007,330

$

21,324,931

   Restricted cash


85,798,276


72,326,482

   Trade accounts receivable, net of allowance for doubtful accounts
     of $1,046,557 and $856,554, respectively


15,213,255


3,969,090

   Other receivables and prepayments, net of allowance for doubtful accounts
     of $540,577 and $529,068, respectively


2,897,704


2,004,044

   Advances to suppliers, related parties, net of allowance of $223,042 and $127,903, respectively


128,949,825


116,772,842

   Advances to suppliers, net of allowance of $392,363 and $493,761, respectively


52,029,455


42,067,716

   Inventory, net of allowance for obsolescence of $89,289 and $88,346, respectively


58,266,818


46,197,179

   Notes receivable


297,098


168,029

   Deferred income taxes


402,416


363,497

Total Current Assets


369,862,177


305,193,810






Advances for Purchase of Long Term Assets


82,058


81,191

Property, Plant and Equipment, net of accumulated depreciation
 of $37,565,344 and $35,081,522, respectively


79,121,503


79,103,131

Intangible Assets, net of accumulated amortization of $532,794 and $509,200, respectively


3,098,345


3,083,569

TOTAL ASSETS

$

452,164,083

$

387,461,701






LIABILITIES AND STOCKHOLDERS' EQUITY





Current Liabilities:





   Accounts payable

$

88,934,576

$

55,674,454

   Advances from customers


9,627,165


11,737,085

   Other payables and accrued expenses


4,480,445


4,840,135

   Other payables - related parties


-


594,105

   Short-term notes payable


110,259,352


95,494,490

Total Current Liabilities


213,301,538


168,340,269






Long-Term Notes Payable


36,136,282


23,626,900

Total Liabilities


249,437,820


191,967,169






Stockholders' Equity





   Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; no shares
     outstanding


-


-

   Common stock - $0.001 par value; authorized: 500,000,000 shares at September 30, 2011 and June
     30, 2011; issued: 40,745,602 shares at September 30, 2011 and June 30, 2011; outstanding:
     40,688,667 and 40,745,602 at September 30, 2011 and June 30, 2011, respectively


40,745


40,745

   Additional paid-in capital


42,615,603


42,584,974

   Statutory reserves


15,662,039


15,662,039

   Retained earnings


111,911,160


107,137,213

   Accumulated other comprehensive income


32,556,962


30,069,561

   Treasury stock, at cost, 56,935 and 0 shares at September 30, 2011 and June 30, 2011, respectively


(60,246)


-

Total Stockholders' Equity


202,726,263


195,494,532

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

452,164,083

$

387,461,701









SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)




For The Three Months Ended



September



2011


2010






Revenue:





Revenue

$

98,396,515

$

39,560,159

Revenue from related parties


31,799,102


62,386,937



130,195,617


101,947,096






Cost of Revenue





Cost of revenue


91,021,596


31,930,290

Cost of revenue from related party sales


28,185,164


61,581,246



119,206,760


93,511,536






Gross Profit


10,988,857


8,435,560






Operating Expenses:










Selling expenses


2,335,780


1,380,478

General and administrative expenses


2,925,498


1,643,145

Total Operating Expenses


5,261,278


3,023,623

Income from Operations


5,727,579


5,411,937






Other Incomes/(Expenses):





Interest income


290,208


189,313

Other income


5,358


22,037

Interest expense


(1,728,540)


(1,534,810)

Other expense


(381,491)


(65,714)

Total Other Income/(Expense)


(1,814,465)


(1,389,174)






Income Before Taxes


3,913,114


4,022,763

Provision for income taxes


860,833


(610,195)

Net Income

$

4,773,947

$

3,412,568






Basic Earnings per Share

$

0.12

$

0.08

Diluted Earnings per Share

$

0.12

$

0.08






Basic Weighted Shares Outstanding


40,717,135


40,715,602

Diluted Weighted Shares Outstanding


40,717,135


40,715,602






Net Income

$

4,773,947

$

3,412,568

Foreign currency translation adjustment


2,487,401


3,076,798

Comprehensive Income

$

7,261,348

$

6,489,366









SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)




For The Three Months Ended



September 30



2011


2010

Cash Flows from Operating Activities:





Net income

$

4,773,947

$

3,412,568

Adjustments to reconcile net income to net cash provided by/(used in) operating activities





   Depreciation and amortization


2,121,341


1,876,098

   Deferred income taxes


(34,938)


33,807

   Foreign currency exchange (gain)/loss


(388,019)


31,603

   Stock based compensation


30,629


31,368

   Gain on sale of assets


-


(4,670)

Changes in current assets and liabilities:





   Trade accounts receivable, net


(11,186,323)


2,680,916

   Other receivable and prepayment


(871,213)


(267,941)

   Advances to suppliers


(9,485,762)


(3,789,606)

   Advances to suppliers - related parties


(10,883,325)


(24,309)

   Inventory


(11,543,767)


3,978,750

   Accounts payable


32,573,843


(11,340,879)

   Advances from customers


(2,219,686)


4,590,240

   Other payables and accrued expenses


(276,183)


293,252

   Other payables - related parties


(598,765)


53,095

Net Cash Provided by/(Used In) Operating Activities


(7,988,221)


1,554,292






Cash Flows from Investing Activities:





   Changes in notes receivable


(126,917)


(472,525)

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


(1,279,114)


(371,661)

   Proceeds from sale of assets


-


5,899

   Net change in restricted cash


(12,663,713)


3,967,261

Net Cash Provided by/(Used In) Investing Activities


(14,069,744)


3,128,974






Cash Flows from Financing Activities:





   Proceeds from issuance of notes payable


64,089,630


41,910,402

   Payments on notes payable


(37,490,466)


(43,092,361)

   Payments on repurchase of common stock


(60,246)


-

Net Cash Provided by/(Used In) Financing Activities


26,538,918


(1,181,959)






Effect of Exchange Rate Changes on Cash


201,446


245,993






Net Change in Cash


4,682,399


3,747,300

Cash and Cash Equivalents at Beginning of Year


21,324,931


13,336,736

Cash and Cash Equivalents at End of Year

$

26,007,330

$

17,084,036






Supplemental Non-Cash Financing Activities:





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

$

10,174,023

$

9,779,078

Supplemental Cash Flow Information:





   Cash paid during the year for interest

$

1,501,992

$

1,396,978

   Cash paid/(refund) during the year for income taxes

$

(620,007)

$

377,064









SOURCE Sutor Technology Group Limited



RELATED LINKS

http://www.sutorcn.com/en/index.php