Sutor Technology Group Limited Announces Third Quarter Financial Results of Fiscal Year 2011

CHANGSHU, China, May 9, 2011 /PRNewswire-Asia/ -- Sutor Technology Group Limited (the "Company", "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 year 2011, ended March 31, 2011.

Overview

"We are pleased to report another quarter of consistent profit and improved gross margin. The decline in total revenue was primarily due to our strategic decision to reduce our steel trading business. In addition, as the steel industry in China becomes more competitive and lower end products become more of a commodity, we are working hard to shift some of our high end capacity to more specialized, higher margin products. Our goal is to separate ourselves from the industry at the highest levels and to work as efficiently as possible.  As a result of this transition over the past quarter, we experienced a decrease from our overall pre-painted galvanized products. Going forward, we anticipate favorable top line growth on a year over year basis beginning next fiscal year," said Ms. Chen, Chairwoman and CEO of Sutor. "We are encouraged by the fact that demand for our products remained strong and the prices for our products increased between approximately 6.5% and 19.0% in the third fiscal quarter this year over the same quarter last year."

"Our priority continues to be pursuing quality of product and services and profitability. At the same time, we are taking proactive and prudent measures to address growth issues. We are constructing a cold-rolling facility with an annual designed capacity of 500,000 metric tons which will supplement our existing cold-rolling production line which has a designed annual capacity of 250,000 metric tons and has been running at more than 100% of its designed capacity lately. We expect that the new facility will alleviate our current capacity constraint, contribute to higher gross margins, and enhance our product offerings. The integrated new facility will include an annealing process and can process wider steel strips than the existing cold-rolling production line. The new facility is expected to commence operation in the first half of calendar year 2012. We continue to explore other corporate strategic initiatives including seeking strategic partners and/or investors when appropriate. We will prudently implement these measured growth strategies in order to maintain financial strengths, liquidity and protect and improve shareholder value. We are excited about the future of Sutor as management and as shareholders," concluded Ms. Chen.

Third Fiscal Quarter 2011 Financial Results

Revenues. Revenues were $101.4 million in the third fiscal quarter of 2011, compared to $114.5 million for the same period last year, a decrease of $13.1 million, or approximately 11.4%. The decrease was primarily attributable to significantly reduced steel trading business at our subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. ("Ningbo Zhehua"). During the quarter, revenue from Ningbo Zhehua decreased by approximately $9.2 million from approximately $16.0 million for the three months ended March 31, 2010 to $6.8 million for the three months ended March 31, 2011. This accounted for most of our decreased revenues. In addition, reduced production volume for our PPGI products also contributed to lower revenue due to a shift in product mix.

Gross profit. Gross profit was $8.6 million in the third fiscal quarter of 2011, compared to $9.3 million in the same period last year, a decrease of $0.7 million, or approximately 7.5%. Gross margins increased to 8.5% for the third fiscal quarter of 2011 from 8.1% for the same period last year. The increased gross margin mainly resulted from changes in product mix and significantly reduced lower margin steel trading business. In addition, we also improved capacity utilization at our subsidiary Jiangsu Cold-Rolled Technology Co., Ltd. ("Jiangsu Cold-Rolled") by moving more HDG production from our subsidiary Changshu Huaye Steel Strip Co., Ltd. ("Changshu Huaye") to Jiangsu Cold-Rolled as the HDG production lines at the latter are newer and more efficient.

Selling expenses. Selling expenses were $1.3 million for the third fiscal quarter of 2011 compared to approximately $1.8 million in the same period last year, a decrease of 27.8%. The decrease was mainly attributable to the reduced shipping costs related to our international sales as a result of using more the FOB (Free on Board) method than the CIF (Cost, Insurance and Freight) method in this quarter.

General and administrative expenses. General and administrative expenses were $1.7 million in the third fiscal quarter of 2011, compared to $2.0 million in the same period last year, a decrease of $0.3 million, or approximately 15.0%. The decrease was primarily due to an approximately $0.4 million decrease in bad debt allowance in the third fiscal quarter of 2011 than that in the same period last year.

Income from operations. Income from operations was $5.6 million in the third fiscal quarter of 2011 as compared to $5.5 million in the same period last year, an increase of $0.1 million, or approximately 1.8%.

Interest expenses. Interest expense increased approximately $0.5 million to approximately $2.0 million for the three months ended March 31, 2011, from approximately $1.5 million for the same period last year.   Interest expenses primarily consist of interest expenses on bank loans and amount discounted in connection with bank acceptance notes which accounted for approximately $0.3 million and $0.2 million of the increase in interest expenses in this quarter, respectively.

Net income. Net income was $3.5 million in the third quarter of fiscal 2011, compared to $3.4 million in the same period last year, an increase of $0.1 million, or approximately 2.9%. The increased net income was positively affected by lower income tax provisions and included an adjustment for income tax provision of approximately $0.4 million. Changshu Huaye was recognized as a High-Tech Enterprise by the Jiangsu provincial government last October and therefore enjoys a preferential income tax rate of 15% for three years starting 2010 as compared to the normal statutory rate of 25%.

The Chinese currency Renminbi had a greater appreciation against the U.S. dollar during the quarter than the same period last year. As a result, the Company booked a foreign currency translation adjustment of approximately $1.2 million and comprehensive income of $4.7 million as compared to $0.03 million and $3.4 million for foreign currency translation adjustment and comprehensive income, respectively, for the same period last year.

Financial Condition

As of March 31, 2011, the Company had cash and cash equivalents of $12.2 million plus $62.9 million in restricted cash and working capital of $133.2 million. Stockholders' equity increased 9.8% to $187.6 million, compared to $170.8 million as of June 30, 2010. The management expects to have sufficient capital for normal operations at its current level for the remainder of fiscal year 2011.

Conference Call Information

Sutor's management will host an earnings conference call today, May 9, 2011, at 8:30 a.m. Eastern time. Listeners may access the call by dialing US: 1-877-847-0047, or 1-212-444-0133; China: 800-876 -5011, passcode: SUTR. A recording of the call will be available shortly after the call through June 8, 2011. Listeners may access it by dialing US: 1-866-572-7808, China: 800-876-5013, HK: 852-3012-8000, access code: 647838

Functional Currency and Translating Press Release

The functional currency of the Company is the Chinese Yuan Renminbi ("RMB"); however, the accompanying financial information has been expressed in U.S. Dollar ("USD").  The consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date.  The consolidated statements of operations and cash flows have been translated using the weighted-average exchange rates prevailing during the periods of each statement. Transactions in the Company's equity securities have been recorded at the exchange rate existing at the time of the transaction.

About Sutor Technology Group Limited

Sutor (Nasdaq: SUTR) is 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. 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 waters heaters, automobiles, IT, construction, etc. 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. It has regional offices in Changshu, Jiangsu province, Ningbo, Zhejiang province, and Shanghai. 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 new facility, our expected growth and growth strategies in the future, our ability to separate ourselves from the industry, 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. Our projection for top line growth assumes the continuance of the current trend and stable raw material prices. 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, 2010, and other risks mentioned in our other reports filed with the Securities and Exchange Commission, or 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.

SOURCE Sutor Technology Group Limited