Sutor Technology Group Limited Reports Fiscal Year 2012 Financial Results

CHANGSHU, China, Sept. 14, 2012 /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 fiscal year ended June 30, 2012.

Fiscal year 2012 results highlights:


         FY2012

            FY2011

Change

Revenues (million):        

$531.6

$431.7

23.1%

Gross profit (million)      

$41.7

$40.5

3.0%

Net income (million)      

$12.1

$14.6

-17.1%

EPS                                  

$0.30

$0.36

-16.7%

For the fiscal 2012 fourth quarter, Sutor generated revenue of approximately $183.6 million, net income of $3.3 million and EPS of $0.08.  Sutor's fiscal 2012 fourth quarter results significantly improved over its fiscal 2012 third quarter results where it generated revenue, net income and EPS of $109.9 million, $1.2 million and $0.03, respectively. The substantial sequential quarterly improvement demonstrates the Company's strengths and resilience during difficult economic times when the Chinese and global economies have experienced high volatility and undergone significant changes. We believe Sutor's business will continue to remain strong and competitive because our products are used in a variety of sectors such as construction, infrastructure, household appliances, solar water heaters, information technology and medical instruments.  We aim to further diversify our customer base and better position our Company to take advantage of the growing demand for our products.

We are in the process of completing the construction of our new 500,000 metric-ton (MT) cold-rolled production line. We expect this line to be completed and begin initial production in fiscal year 2013.  At full capacity and demand, this new line could generate more than $300 million in external sales revenue at today's prices.  However, as part of Sutor's integrated production process, a large portion of the production will be used internally to create additional value added products, with the goal of improving our profitability. Currently, Sutor has 500,000 MT of annual acid-pickled capacity, 250,000 MT of cold-rolled capacity, 700,000 MT of hot-dip galvanization capacity as well as additional pre-painted galvanized steel and steel pipe production capacity. Therefore, we believe the addition of the new 500,000 MT of cold-rolled capacity will further optimize the Company's integrated production facilities.

During fiscal 2012 fourth quarter, we repurchased 105,455 shares of the Company's common stock. As of August 31, 2012, we have bought back an aggregate of 590,838 shares of common stock at the average buyback price of approximately $1.10 per share. We intend to continue to buy back our stock.

Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "We are pleased that despite the challenging economic conditions in China and abroad, we generated record revenue and have continued to grow our business by developing new products, increasing our customer base, and by establishing a joint venture, and therefore positioned our Company well for sustainable growth in fiscal 2013 and beyond."

Ms. Chen concluded, "We believe our stock is extremely undervalued. Although factors like investors' sentiment and macro-economic conditions are beyond our control, we are doing everything we can as a public company to restore investor confidence.  We have taken steps to strengthen our internal control procedures, engaged a top five globally-ranked audit firm, maintained a complete Board of Directors of both U.S. and Chinese experts, retained a reputable U.S. law firm as our legal counsel, and hired a U.S. based IR firm to improve shareholder communications.  We encourage investors to visit our website for additional corporate news and to learn more about our Company. We'll continue to explore all options to protect and maximize shareholder value."

Fiscal Year 2012 Results

Revenue. For the fiscal year ended June 30, 2012, revenue was $531.6 million compared to $431.7 million last year, an increase of approximately 23.1% due to increased sales volume. Total sales volume in metric tons increased approximately 18.0% in fiscal year 2012 as compared to fiscal 2011, which reflected higher capacity utilization of our production facilities. Production of hot-dip galvanized steel was up 31.1% in fiscal 2012 as compared to fiscal 2011 due to growing market demand for these products.  Although lately investments in construction and infrastructure in China have slowed down,  other sectors of the Chinese economy grew from fiscal 2011 to 2012 due to  significant growth in the durable product replacement markets, demographic changes and urbanization trends in China which, we believe, create long-term and relatively stable demand for Sutor's fine finished steel products.

On a geographic basis, revenue generated from customers based outside of China was $60.1 million, or 11.3% of total revenue, for fiscal year 2012, as compared to $62.2 million, or 14.4% of total revenue, for fiscal year 2011. The decrease was mainly attributable to overall weak global economies which reduced near-term demand for our fine finished steel products.

Gross profit and gross margin. Gross profit increased $1.2 million to $41.7 million in fiscal year 2012 from $40.5 million in fiscal year 2011. Gross margin was approximately 7.8% in fiscal year 2012, as compared to 9.4% in fiscal year 2011.  The decrease in gross margin was mainly due to changes in the mix of products sold in fiscal 2012.  In fiscal 2012, we sold more acid-pickled steel but less pre-painted galvanized steel.  Acid-pickled steel has a lower gross margin than pre-painted galvanized steel.  In addition, gross margin was affected by lower exports sales in fiscal 2012 as compared to fiscal 2011.  Of note, gross margin for our exported products was approximately 13.3% as compared to approximately 7.3% for our domestic sales.

Total operating expenses. Our total operating expenses increased $2.7 million to $18.0 million in fiscal year 2012 from $15.3 million in fiscal year 2011.  As a percentage of revenue, our total operating expenses decreased to 3.3% in fiscal year 2012 from 3.5% in fiscal year 2011 as the increase in revenue outpaced the increase in total operating expenses due to operating leverage.

Selling expenses. Our selling expenses decreased $0.3 million to $7.2 million in fiscal year 2012 from $7.5 million in fiscal year 2011.  As a percentage of revenue, our selling expenses were 1.3% in fiscal 2012 as compared to 1.7% in fiscal 2011. The decrease in selling expenses was primarily due to lower international sales and our effective cost control measures.

General and administrative expenses.  General and administrative expenses increased $3.0 million to $10.8 million, or 2.0% of revenue, in fiscal year 2012, as compared to $7.8 million, or 1.8% of revenue, in fiscal year 2011. The increase was partially due to a number of factors including higher employee benefits of $0.8 million, higher building maintenance and repair expense of $0.2 million, and higher allowance for bad account receivables of $0.2 million, than those occurred last fiscal year. 

Interest expense. Our interest expense increased $5.3 million to $13.3 million in fiscal 2012 from $8.0 million in fiscal 2011. As a percentage of revenue, our interest expense increased to 2.5% in fiscal 2012, from 1.8% in fiscal 2011.  The increase in interest expense was mainly attributable to higher average principal amount of bank loans as well as higher discounted interest expenses on bank notes.

Provision for income taxes. We incurred income tax expense of $1.0 million in fiscal 2012 as compared to $3.4 million in fiscal 2011. The reduced income tax expense was primarily due to an income tax refund of approximately $2.1 million for purchasing certain equipment.

Net income. Net income, excluding a foreign currency translation adjustment, decreased $2.5 million, or approximately 17.1%, to $12.1 million in fiscal year 2012, from $14.6 million in fiscal year 2011, as a cumulative result of the above factors.

Financial Condition and Liquidity

As of June 30, 2012, we had approximately $9.5 million in cash and $111.6 million in restricted cash. Our short-term loans were approximately $139.0 million. We also had approximately $8.5 million long-term loans.  As of June 30, 2012, the Company had an unused line of credit with banks of approximately $31.7 million.

For fiscal 2013, we estimate capital expenditures will be approximately $15 million consisting of approximately $7 million to be used for the completion of the construction of the 500,000 MT cold-rolled production line and $8 million for facility upgrades and technical innovation.  Under normal operating conditions, we believe we can fund the planned capital expenditure through internally generated cash flows.

Conference Call Information

Sutor's management will host an earnings conference call today, September 14, 2012, at 9:00 a.m. U.S. Eastern time/9:00 p.m. 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 October 14, 2012. Listeners may access it by dialing US: +1 866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 681088.

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 United States Dollars ("USD").  The accompanying consolidated balance sheets have been translated into USD at the exchange rates prevailing at each balance sheet date.  The accompanying 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 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
Jason Wang, Director of IR 
Sutor Technology Group Limited
Tel: +86-512-5268-0988
Email: investor_relations@sutorcn.com

US
Lena Cati, IR Representative
The Equity Group
Tel: +1-212-836-9611
Email: lcati@equityny.com

Financial Tables Below:

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS

 



June 30,


June 30,



2012


2011



Audited


Audited

ASSETS





Current Assets:





Cash and cash equivalents

$

9,530,531

$

21,324,931

Restricted cash


111,582,149


72,326,482

Short-term investments


4,849,112


-

Trade accounts receivable, net of allowance for doubtful accounts of
      $1,306,099 and $856,554, respectively


7,023,880


3,969,090

Notes receivable


475,112


168,029

Other receivables and prepayments, net of allowance for doubtful
      accounts of $351,372 and $529,068, respectively


4,275,817


2,004,044

Advances to suppliers, unrelated parties, net of allowance for
      doubtful accounts of $366,697 and $493,761, respectively


27,446,626


42,067,716

Advances to suppliers, related parties, net of allowance for doubtful
      accounts of nil and $127,903, respectively


121,884,833


116,772,842

Inventories, net


50,432,279


46,197,179

Deferred tax assets


709,688


363,497

Total Current Assets


338,210,027


305,193,810

Non-current Assets:





Advances for purchase of long term assets


15,001,088


81,191

Property, plant and equipment, net


77,231,273


79,103,131

Intangible assets, net


3,082,877


3,083,569

Total Non-current Assets


95,315,238


82,267,891

TOTAL ASSETS

$

433,525,265

$

387,461,701






LIABILITIES AND STOCKHOLDERS' EQUITY





Current Liabilities:





Short-term loans

$

111,166,838

$

95,494,490

Long-term loans, current portion


27,762,975


-

Accounts payable


57,079,617


55,674,454

Other payables and accrued expenses


8,820,064


4,840,135

Other payables, related parties


-


594,105

Advances from customers


7,924,812


11,737,085

Warrant liabilities


47,404


399,572

Total Current Liabilities


212,801,710


168,739,841

Long-Term Loans


8,490,772


23,626,900

Total Liabilities


221,292,482


192,366,741

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 June 30, 2012 and
         June 30, 2011;
issued: 40,805,602 shares and 40,745,602
         shares as of June 30, 2012 and June 30, 2011, respectively


40,805


40,745

Additional paid-in capital


41,344,306


41,216,546

Statutory reserves


18,100,361


15,662,039

Retained earnings


117,732,738


108,106,069

Accumulated other comprehensive income


35,622,241


30,069,561

Less: Treasury stock, at cost, 544,477 and nil shares as of June 
      30, 2012 and June 30, 2011, respectively


(607,668)


-

Total Stockholders' Equity


212,232,783


195,094,960

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

433,525,265

$

387,461,701








SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

 



 For The Years Ended



June 30



2012


2011



Audited


Audited

Revenue:





Revenue from unrelated parties

$

375,947,830

$

266,126,597

Revenue from related parties


155,675,893


165,569,921



531,623,723


431,696,518






Cost of Revenue





Cost of revenue from unrelated parties


(347,052,327)


(240,847,808)

Cost of revenue from related parties


(142,848,128)


(150,397,400)



(489,900,455)


(391,245,208)






Gross Profit


41,723,268


40,451,310






Operating Expenses:










Selling expenses


(7,236,095)


(7,503,738)

General and administrative expenses


(10,781,178)


(7,813,711)

Total Operating Expenses


(18,017,273)


(15,317,449)

Income from Operations


23,705,995


25,133,861






Other Incomes/(Expenses):





Interest income


2,831,798


901,511

Interest expense


(13,317,274)


(7,971,129)

Changes in fair value of warrant liabilities


352,168


607,331

Other income


408,703


163,977

Other expense


(918,090)


(793,540)

Total Other Incomes/(Expenses)


(10,642,695)


(7,091,850)






Income Before Taxes


13,063,300


18,042,011

Income tax expense


(998,309)


(3,429,507)

Net Income

$

12,064,991

$

14,612,504






Basic Earnings per Share

$

0.30

$

0.36

Diluted Earnings per Share

$

0.30

$

0.36






Basic Weighted Shares Outstanding


40,533,158


40,726,123

Diluted Weighted Shares Outstanding


40,533,158


40,726,123






Net Income

$

12,064,991

$

14,612,504

Foreign currency translation adjustment


5,552,680


10,537,629

Comprehensive Income

$

17,617,671

$

25,150,133







 

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

 



For The Years Ended



June 30



2012


2011

Cash Flows from Operating Activities:


Audited


Audited

Net income

$

12,064,991

$

14,612,504

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





Depreciation and amortization


8,623,056


7,684,071

(Reversal)/provision for doubtful accounts


(30,366)


457,110

Write downs of inventories


25,015


-

Stock-based compensation


127,820


119,423

Foreign currency exchange gain


(402,700)


(48,495)

Loss/(gain) on disposal of property, plant and equipment


36,422


(4,481)

Interest income from short-term investments carried at amortized cost 


(97,412)


-

Deferred income taxes


(335,604)


(16,086)

Changes in fair value of warrant liabilities


(352,168)


(607,331)

Changes in current assets and liabilities:





Restricted cash


(16,778,737)


(20,899,568)

Trade accounts receivable


(3,392,490)


6,987,250

Notes receivable


(301,319)


(88,423)

Other receivables and prepayments


(2,022,785)


(787,861)

Advances to suppliers, unrelated parties


15,660,580


(32,418,331)

Advances to suppliers, related parties


(2,051,343)


(13,399,681)

Inventories


(3,149,913)


(3,757,906)

Accounts payable


6,196,904


29,686,859

Other payables and accrued expenses


3,999,210


(438,981)

Other payables, related parties


(604,544)


217,267

Advances from customers


(4,045,719)


4,525,550

Net Cash Provided by/(Used In) Operating Activities


13,168,898


(8,177,110)






Cash Flows from Investing Activities:





Purchase of property, plant and equipment


(25,868,522)


(12,908,403)

Proceeds from disposal of property, plant and equipment                       


63,526


6,067

Purchase of short-term investments


(4,722,996)


-

Net Cash Used In Investing Activities


(30,527,992)


(12,902,336)






Cash Flows from Financing Activities:





Proceeds from loans


155,351,324


149,159,704

Payments of loans


(128,992,840)


(120,718,568)

Changes in restricted cash


(20,545,678)


-

Payments on repurchase of common stock


(607,668)


-

Net Cash Provided By Financing Activities


5,205,138


28,441,136






Effect of Exchange Rate Changes on Cash


359,556


626,505






Net Change in Cash and Cash Equivalents


(11,794,400)


7,988,195

Cash and Cash Equivalents at Beginning of Year


21,324,931


13,336,736

Cash and Cash Equivalents at End of Year

$

9,530,531

$

21,324,931






Supplemental Non-Cash Information:





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

$

10,437,344

$

10,051,691

Supplemental Cash Flow Information:





Cash paid during the year for interest expense

$

(12,809,907)

$

(7,441,918)

Cash paid during the year for income tax

$

(1,015,879)

$

(2,118,597)

SOURCE Sutor Technology Group Limited

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