DONGBANG TOWN, China, Nov. 15 /Xinhua-PRNewswire/ -- Sutor Technology Group Limited (“Sutor” or “the Company”) (OTC Bulletin Board: SUOT), a leading provider of steel finishing fabrication products in China, today announced its unaudited financial results for the first fiscal quarter ended September 30, 2007.
First Fiscal Quarter 2008 Financial Highlights:
-- Total net revenues increased 62.0% over the first fiscal quarter of
2007 to US$99.5 million
-- Income from operations increased 142.1% over the first fiscal quarter
of 2007 to US$8.3 million
-- Net income increased 118.4% over the first fiscal quarter of 2007 to
US$6.6 million
-- Fully-diluted earnings per common share for the first fiscal quarter
2008 was US$0.17, compared to US$0.09 for the first fiscal quarter 2007
Ms. Lifang Chen, Chairman of Sutor said, “I am pleased to report another strong quarter of growth driven by solid execution of business strategy focusing on vertical integration to provide a total solution for our customers. We completed Phase I of our vertical integration plan by installing the cold-rolled steel and acid-pickled steel production lines. The addition of these production lines diversified our product portfolio, enhanced the quality of our sourcing, and mitigated our supply chain risks. As part of Phase II, we will be expanding into a high-end hot-dipped galvanizing steel production system that will be capable of galvanizing both hot-rolled and cold-rolled steel with both zinc and aluminium, allowing us to better meet the needs of our customers. We expect this additional production line to be operational in February 2008, adding an incremental annual capacity of 400,000 metric tons. As we continue implementing our vertical strategy, we expect to add new production lines and increase capacity, allowing us to better meet the needs of our customers. I look forward to updating our shareholders as we continue our progress.”
Mr. Yongfei Jiang, Chief Financial Officer of Sutor, said, “Our first fiscal quarter 2008 performance continued to demonstrate our execution capability in capturing the growth opportunities in the market segment. The completion of the Phase I of vertical integration plan expanded our revenue base significantly and enhanced our gross margin by reducing the overall costs. New cold-rolled steel and acid-pickled steel production lines contributed significantly to our strong performance during this first fiscal quarter.”
Business Highlights
Production Updates: First Fiscal Quarter 2008
-- 67,900 metric tons of hot-dipped galvanized (HDG) steel
-- 37,600 metric tons of pre-painted galvanized (PPGI) steel
-- 67,900 metric tons of cold-rolled steel
-- 102,500 metric tons of acid-pickled (AP) steel
Vertical Integration Plan Phase II
-- The Company is on track to complete its vertical integration process
and expects its hot-rolled galvanizing steel production system with a
designed manufacturing capacity of 400,000 metric tons to become
operational in February 2008.
First Fiscal Quarter 2008 Unaudited Financial Results
Revenues. Revenues amounted to US$99.5 million in the first fiscal quarter 2008, compared to US$61.4 million net revenues for the first fiscal quarter 2007, representing an increase of 62.0%. This increase is primarily attributable to the additions of the acid-pickled and cold-rolled steel production lines toward the end of 2006 and early 2007, respectively. These two lines contributed US$35.4 million revenue for the first fiscal quarter 2008.
Gross Profit. Gross profit increased 135.4% to US$11.4 million for the first fiscal quarter 2008 from US$4.8 million in the first fiscal quarter 2007. Gross margin was 11.4% in the first fiscal quarter 2008, up from 7.9% in the first fiscal quarter 2007. The improved margins resulted from both the improved product mix and the reduced costs from our vertical integration. For the first fiscal quarter 2008, our PPGI products, which generally command higher gross margins than our HDG products, contributed approximately 33.8% of the total revenue, as compared to 26.4% for the same period last year. In addition, the added integration of the acid-pickling and cold-rolling production lines allowed us to ensure high-quality internal sourcing at a lower cost.
Income from Operations. Income from operations for the first fiscal quarter 2008 was US$8.3 million, representing a 142.1% increase, compared to US$3.4 million in the first fiscal quarter 2007, primarily due to increased revenue and enhanced gross margins. Operating margin for the first fiscal quarter 2008 was 8.4%, up from the 5.6% in the first fiscal quarter 2007, attributable to improved gross margins.
Operating Expenses. Our total operating expenses increased by 118.9% from US$3.1 million in the first fiscal quarter of 2008, compared to US$1.4 million in the first fiscal quarter 2007. This increase was primarily due to significant increase in general and administrative expenses which resulted from the increased bad debt allowance and the associated expenses for being a U.S. public company.
Other Expense. Other expense increased to US$0.9 million in the first fiscal quarter of 2008, compared to net other expense of US$0.03 million in the first fiscal quarter of 2007, primarily as a result of the increased interest expense from the current loan amount.
Income before Tax and Minority Interests. As a result of the foregoing, our income before tax and minority interests increased by 118.6% from US$3.4 million in the first fiscal quarter 2007 to US$7.4 million for the first fiscal quarter 2008.
Provision for Income Tax. Our provision for income tax increased by 112.7% from US$0.4 million for the first fiscal quarter 2007 to US$0.8 million for the first fiscal quarter 2008, mainly due to increased taxable income in the first fiscal quarter 2008 as a result of our increased profitability. The effective tax rate was 11.2% for the first fiscal quarter 2008, about the same level as for the prior year period.
Net Income. Net income increased by 118.4% from US$3.0 million for first fiscal quarter 2007 to US$6.6 million for the first fiscal quarter 2008 as a result of all the factors described above.
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 (OTC Bulletin Board: SUOT.OB) is one of the leading private manufacturers of steel finishing fabrication products in China. Sutor utilizes a variety of processes and technological methodologies to convert steel manufactured by third parties into steel finishing fabrication products, including hot-dipped galvanized steel, pre-painted galvanized steel, acid-pickled steel, and cold-rolled steel. To learn more about the Company, please visit http://www.sutorcn.com .
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 and strategic and operational plans, our future operating results, our expectations regarding the market for our steel finishing fabrication products, our expectations regarding the continued growth of 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, 2007, and other risks mentioned in our other reports filed with the Securities 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.
(in USD)
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
September 30, June 30,
2007 2007
ASSETS
Current Assets:
Cash and cash equivalents $ 13,112,895 $ 8,832,942
Restricted cash 41,779,514 27,799,475
Trade accounts receivable, net of
allowance for doubtful accounts
of $2,990 and $2,947, respectively 4,361,953 14,768,954
Other receivables 56,762 44,226
Advances to suppliers, net of
allowance of $2,796,546 and
$499,842, respectively 63,806,991 32,791,928
Inventory 38,695,008 22,703,304
Notes receivable -- 203,546
Total Current Assets 161,813,123 107,144,375
Property and Equipment, net of
accumulated depreciation 47,855,952 47,571,353
Intangible Assets, net of accumulated
amortization 3,004,714 2,988,589
TOTAL ASSETS $ 212,673,789 $ 157,704,317
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current Liabilities:
Accounts payable $6,113,151 $3,916,596
Advances from customers 11,085,648 8,414,629
Other payables and accrued expenses 1,292,247 2,707,473
Short-term loans 65,723,453 50,954,916
Short-term loans - related party 31,134,049 2,325,802
Total Current Liabilities 115,348,548 68,319,416
Minority Interest in Net Assets of
Subsidiary 29,524 32,812
Stockholders’ Equity
Series A voting convertible preferred
stock - $0.001 par value;
185,000 shares authorized; no shares
outstanding -- --
Series B voting convertible preferred
stock - $0.001 par value;
500,000 shares authorized; no shares
outstanding and 304,182.73 shares
outstanding at September 30, 2007 -- --
Undesignated preferred stock - $0.001
par value; 315,000 shares authorized;
no shares outstanding -- --
Common stock - $0.001 par value;
500,000,000 shares authorized;
outstanding: 37,955,602 37,955 37,955
Additional paid-in capital 37,170,164 37,170,164
Statutory reserves 7,748,269 7,748,269
Retained earnings 46,095,721 39,475,731
Accumulated other comprehensive
income 6,243,608 4,919,970
Total Stockholders’ Equity 97,295,717 89,352,089
TOTAL LIABILITIES AND STOCKHOLDERS’
EQUITY $ 212,673,789 $ 157,704,317
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF
OPERATIONS AND COMPREHENSIVE INCOME
(unaudited)
For the Three Months Ended
September 30,
2007 2006
Revenue:
Revenue $ 57,780,488 $ 20,102,912
Revenue from related parties 41,709,604 41,294,271
99,490,092 61,397,183
Cost of Revenue
Cost of revenue 57,609,991 17,062,644
Purchases from related parties 30,495,510 39,497,868
88,105,501 56,560,512
Gross Profit 11,384,591 4,836,671
Operating Expenses:
Selling expense 573,745 670,717
General and administrative expense 2,489,943 728,680
Total Operating Expenses 3,063,688 1,399,397
Income from Operations 8,320,903 3,437,274
Other Income (Expense):
Interest income 131,591 219,620
Other income 31,479 17,633
Interest expense (915,337) (263,525)
Other expense (121,090) (4,396)
Total Other Income (Expense) (873,357) (30,668)
Income Before Taxes and
Minority Interest 7,447,546 3,406,606
Provision for income taxes (830,843) (390,671)
Minority interest in loss of
consolidated subsidiary 3,287 14,582
Net Income $ 6,619,990 $ 3,030,517
Basic and Diluted Earnings per
Common Share $ 0.17 $ 0.09
Net Income $ 6,619,990 $ 3,030,517
Foreign currency translation
adjustment 1,323,638 662,700
Comprehensive Income $ 7,943,628 $ 3,693,217
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
For the Three Months Ended
September 30,
2007 2006
Cash Flows from Operating Activities:
Net income $ 6,619,990 $ 3,030,517
Adjustments to reconcile net income
to net cash used in operating
activities:
Depreciation and amortization 896,324 310,463
Minority interest in loss of
consolidated subsidiary (3,287) (14,582)
Changes in current assets and
liabilities:
Trade accounts receivable, net 10,545,441 731,256
Other receivables, net (11,824) (7,850)
Advances to suppliers (30,339,433) 4,258,268
Inventories (15,561,230) (7,705,078)
Accounts payable 2,126,117 5,528,388
Advances from customers 2,533,624 5,514,549
Other payables and accrued expenses (1,443,957) (746,869)
Related party payables -- (21,039,423)
Net Cash Used in Operating Activities (24,638,235) (10,140,361)
Cash Flows from Investing Activities:
Changes in notes receivable 205,045 39,162
Purchase of property and equipment,
net of value added tax refunds
received (478,660) (3,253,982)
Purchase of land use rights -- (187,593)
Net change in restricted cash (13,491,049) 4,897,614
Net Cash (Used in) Provided by
Investing Activities (13,764,664) 1,495,201
Cash Flows from Financing Activities:
Proceeds from issuance of notes
payable 33,293,434 20,367,025
Proceeds from issuance of notes
payable - related party 28,583,343 --
Payment on notes payable (19,347,322) (9,297,377)
Capital contribution from
shareholders -- 1,500,000
Net Cash Provided by Financing
Activities 42,529,455 12,569,648
Effect of Exchange Rate Changes on
Cash 153,397 145,636
Net Change in Cash 4,279,953 4,070,124
Cash and Cash Equivalents at
Beginning of Period 8,832,942 6,534,493
Cash and Cash Equivalents at End of
Period $ 13,112,895 $ 10,604,617
Supplemental Cash Flow Information
Cash paid during the period for
interest $ 915,337 $ 180,224
Cash paid during the period for taxes $ 1,073,189 $ 711,112
