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

CHANGSHU, China, Feb. 14, 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 second quarter of fiscal year 2011, ended December 31, 2010.

"Our gross profit and gross margin increased in the second quarter of fiscal year 2011 over the same period last year primarily as a result of a change in product mix and our strategic decision to significantly reduce our lower-margin steel trading business. During the quarter, we performed technological upgrades to our production lines in an effort to produce higher value-added products. We believe focusing on higher gross margin products will improve our competitive position in the long run. During the quarter we also saw strength in our product prices and higher average sale prices more than offset the increased cost of raw materials. The decline in total revenue was primarily due to the strategic reduction in our steel trading business. In addition, higher shipping costs on international sales and increased G&A expenses reduced net income," said Ms. Chen, Chairwoman and CEO of Sutor.

"We remain optimistic about the remainder of fiscal year 2011. In January, we received approximately 10,000 tons of international sales orders as compared with about 10,500 tons of such orders for the whole third quarter of FY2010. In the second quarter of FY2011, Sutor was honored as a High-Tech Enterprise by Jiangsu provincial government. This certification places Sutor among a selected few value-added steel producers in China that won both government and market recognition. Further, Sutor recently opened two new offices in metropolitan Ningbo and Shanghai in an effort to attract talents, increase brand recognition and better service our customers," Ms. Chen further commented. "As we continue our strategies of expanding sales channels, optimizing product portfolio, enhancing research and development efforts, and improving brand recognition, we believe we can capitalize on the ongoing industrial upgrading and urbanization processes in China," concluded Ms. Chen.

Second Fiscal Quarter 2011 Financial Results

Revenues. Revenues were $99.4 million in the second fiscal quarter of 2011, compared to $115.2 million for the same period last year, a decrease of $15.8 million, or approximately 13.7%. The decrease was primarily attributable to significantly reduced steel trading business at our subsidiary Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. During the quarter, revenue from Ningbo Zhehua decreased by approximately $10.2 million from approximately $18.6 million for the three months ended December 31, 2009 to $8.4 million for the three months ended December 31, 2010. This accounted for most of our decreased revenues. In addition, lower production volume for our PPGI products also contributed lower revenue. Our advanced color-patterned PPGI products required sophisticated processing procedures and hence more production time than in the same period of the previous fiscal year. But the lower production volume was partially offset by higher average sales prices. Our goal is to gradually transition to greater production of higher-end and higher-margin products. We believe this strategy will improve our competitiveness in the long run.

Gross profit. Gross profit was $9.5 million in the second fiscal quarter of 2011, compared to $8.6 million in the same period last year, an increase of $0.9 million, or approximately 9.6%. Gross margin increased to 9.5% for the second fiscal quarter of 2011 from 7.5% for the same period last year. The increased gross margin mainly resulted from greater production of higher-margin products and significantly reduced 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 production from our subsidiary Changshu Huaye Steel Strip Co., Ltd. to Jiangsu Cold-Rolled as the HDG production lines at the latter are newer and more efficient.

Selling expenses. Selling expenses were $2.0 million for the second fiscal quarter of 2011 compared to approximately $1.0 million in the same period last year, an increase of 89.8%. The increase was mainly attributable to the increased shipping costs of our international sales. Shipping and shipping related expenses at Ningbo Zhehua were approximately $1.2 million for the three months ended December 31, 2010 as compared to approximately $0.08 million for the same period last year.

General and administrative expenses. General and administrative expenses were $1.7 million in the second fiscal quarter of 2011, compared to $1.2 million in the same period last year, an increase of $0.5 million, or approximately 44.3%. The increase was primarily due to the opening of two new offices located in metropolitan Ningbo and Shanghai in an effort to attract talents, increase brand recognition and improve customer services, attending international trade shows, increased allowance for bad debt in the second fiscal quarter of 2011, and reversing of bad debt allowance in the second fiscal quarter of 2010.

Income from operations. Income from operations was $5.8 million in the second fiscal quarter of 2011 compared to $6.4 million in the same period last year, a decrease of $0.6 million, or approximately 10.0%.

Interest expenses. Interest expense increased approximately $1.0 million to about $2.3 million for the three months ended December 31, 2010, from approximately $1.3 million for the same period last year. As a percentage of revenue, our interest expenses increased to 2.3% for the three months ended December 31, 2010, from 1.1% for the same period last year.  Interest expenses consist of interest expenses on bank loans and expenses on discounting bank acceptance notes. The amount increase was mainly due to the higher cost of discounting bank acceptance notes during the quarter. The interest expenses on bank loans remained relatively stable.

Net income. Net income was $2.9 million in the second quarter of fiscal 2011, compared to $4.0 million in the same period last year, a decrease of $1.1 million, or approximately 27.2%.

Financial Condition

As of December 31, 2010, the Company had cash and cash equivalents of $9.1 million plus $45.0 million in restricted cash and working capital of $110.7 million. Stockholders' equity increased 7.0% to $182.8 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, February 14, 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 March 16, 2011. Listeners may access it by dialing US: 1-866-572-7808, China: 800-876-5013, HK: 852-3012-8000, access code: 643117.

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 US Dollars ("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. 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 ability to capitalize on China's industrial upgrading and urbanization processes, 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, 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.