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Sutor Technology Group Limited Announces Second Fiscal Quarter Financial Results of Fiscal Year 2010

2010-02-09 21:15 1171

DONGBANG TOWN, China, Feb. 9 /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 down-stream applications, today announced its financial results for the second fiscal quarter 2010, ended December 31, 2009.

Second Fiscal Quarter 2010 Financial Highlights:

-- Total revenue was US$115.2 million in the second fiscal quarter 2010,

an increase of US$21.1 million or 22.4% compared to the same period

last year

-- Gross profit was US$8.6 million in the second fiscal quarter 2010, an

increase of US$0.55 million, or 6.8% compared to the same period last

year

-- Net income was US$4.0 million for the second fiscal quarter 2010, an

increase of US$0.8 million or 24.5% compared to the same period last

year

-- Fully diluted earnings per share were US$0.11 for the second fiscal

quarter 2010, an increase of US$0.02 or 22.2% compared to the same

period last year

Ms. Lifang Chen, Chairwoman and CEO of Sutor said, "We are pleased with the second fiscal quarter financial performance and believe our financial results demonstrate a rebound in the steel industry and improved operations at Sutor. Market demand was driven partially by the Chinese government's stimulus-related spending and on-going industrialization in China, combined with the recovery in the global markets. Sutor also benefited from the 13% export tax rebate issued by the Chinese government for the purpose of encouraging high-tech and high-quality product exports."

Speaking about the Company's operations, Ms. Chen continued, "We continue to diversify our customer base and introduce new, innovative product lines and look for business expansion opportunities. In the second fiscal quarter we launched three new products including decorative PPGI steel plate,

nano-antibacterial PPGI steel plate and heat insulation PPGI. We expect to launch more new products in calendar year 2010 and our R&D team strives to align green energy with technologically innovative products.

"In November 2009 we completed the acquisition of Ningbo Zhehua Heavy Steel Pipe Manufacturing Co., Ltd. which reinforced our optimistic outlook about our leading position in the Chinese fine steel industry thanks to the integration of the two companies' business operations, sales channels, and supply chains. While we are working on a plan to expand capacity and promote our one stop solution for customers, we expect synergies of the acquisition will be maximized."

"Our philosophy of providing one-stop solution for fine finished steel is being fully implemented. Our one-stop solution means that we integrate high quality production, valued-added follow-on steel processing services, sales channels, logistics and delivery systems, all of which help to diversify our revenue stream and maximize customer value."

Second Fiscal Quarter 2010 Financial Results

Revenues. Revenues were US$115.2 million in the second fiscal quarter 2010 compared to US$94.1 million in the same period last year, a 22.4% increase. Domestic sales were US$99.8 million, a 24.8% increase, accounting for 87% of total revenues. International sales were US$15.4 million, a 9.3% increase, accounting for 13% of total revenue.

Total sales volume was 188,786 metric tons in the second fiscal quarter 2010 compared to 121,159 metric tons in the same period last year, a 55.8% increase. The increase of revenues and sales volume were mainly attributable to the company's new 400,000 metric ton HDG Steel production lines which contributed approximately $23.8 million in revenue during the second fiscal quarter 2010.

Gross Profit. Gross profit in the second fiscal quarter 2010 was US$8.6 million compared to US$8.1 million in the same period last year, a 6.8% increase. Gross margin was 7.5% for the second fiscal quarter 2010 compared to 8.6% for the same period last year. The decrease in gross margin was the result of the decrease in per unit sales price as well as a larger proportion of smaller sized orders received in the second fiscal quarter 2010 compared to the same period last year.

Operating Expenses. Operating expenses, which comprise general and administrative expenses and selling expenses, in the second fiscal quarter 2010 were US$2.2 million compared to US$3.2 million in the same period last year, a 31.3% decrease. General and administrative expenses in the second fiscal quarter 2010 were US$1.2 million, compared to US$2.0 million in the same period last year, a 38.9% decrease. The decrease was primarily the result of higher start up expenses associated with the new HDG Steel productions lines that began operations at the end of September 2008. Selling expenses in the second fiscal quarter 2010 were US$1.0 million compared to US$1.2 million in the same period last year, a 16.7% decrease. The decrease was primarily the result of increased cost controls at the Company.

Income from Operations. Income from operations was US$6.4 million in the second fiscal quarter 2010 compared to US$4.9 million in the same period last year, a 30.6% increase.

Net Income. Net income was US$4.0 million in the second fiscal quarter 2010, compared to US$3.2 million in the same period last year, a 24.5% increase.

Financial Condition

As of December 31, 2009, the Company had cash and cash equivalents of US$13.5 million plus US$61.5 million in restricted cash. The Company had working capital of US$83.4 million.

Recent Developments

On February 1, 2010, the Company hired Naijiang (Eric) Zhou as Vice President of Finance. Mr. Zhou's responsibilities include finance, strategic planning and analysis, investor communications, corporate development, and mergers and acquisitions. Mr. Zhou has more than fifteen years of financial and industrial experience with U.S. and Chinese companies as an investor, analyst and executive at multinational corporations.

Effective January 20, 2010, Gerard Pascale was appointed to serve as an Independent Director on the Board of Directors, Mr. Gerry Pascale also serves as Chairman of the Audit Committee. Mr. Pascale has extensive experience in financial accounting, financial analysis and planning, marketing research, corporate governance and securities.

Conference Call

The dial-in number for the conference call, which will begin today, Tuesday, February 9, 2010 at 9:00 a.m. U.S. Eastern Time (10:00 p.m. February 9, 2010 in Beijing/Hong Kong), is the U.S.: +1-877-847-0047; China:

+800-8765011; Hong Kong +852 30068101. The conference call passcode is Sutr. A live webcast of the conference call will also be available on our website at http://www.sutorcn.com . All related materials such as PowerPoint can be downloaded by investors from the website of Sutor.

About Sutor Technology Group Limited

Sutor (Nasdaq: SUTR) 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 down stream applications. Sutor utilizes a variety of processes and technological methodologies to convert steel manufactured by third parties into fine finished steel products, including hot-dipped 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 .

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 our relative strength and 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, including developments in the world economy and in our industry, 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, 2009, 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.

For more information, please contact:

Mr. Jason Wang

Sutor Technology Group Limited

Tel: +86-512-5268-0988

Web: http://www.sutorcn.com

Mr. Brian M. Prenoveau, CFA

ICR, Inc.

Tel: +1-203-682-8200

-- FINANCIAL TABLES FOLLOW --

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS

(Unaudited)

December 31, June 30,

2009 2009

ASSETS

Current Assets:

Cash and cash equivalents $13,462,559 $10,653,438

Restricted cash 61,538,740 64,811,741

Trade accounts receivable, net of

allowance for doubtful accounts of

$400,104 and $816,268, respectively 4,548,951 12,107,602

Other receivables 431,327 463,916

Advances to suppliers, related parties 78,229,793 76,391,552

Advances to suppliers, net of allowance

of $718,085 and $817,159, respectively 11,375,273 25,039,763

Inventory 41,270,322 44,163,502

Notes receivable 409,524 178,237

Deferred income taxes 289,458 397,998

Total Current Assets 211,555,947 234,207,749

Property and Equipment, net of

accumulated depreciation of $22,131,122

and $18,799,763, respectively 72,869,531 77,242,707

Intangible Assets, net of accumulated

amortization of $379,477 and $345,130,

respectively 3,016,922 3,047,498

TOTAL ASSETS $287,442,400 $314,497,954

LIABILITIES AND STOCKHOLDERS' EQUITY

Current Liabilities:

Accounts payable $7,836,041 $16,077,413

Advances from customers 10,699,480 18,805,901

Other payables and accrued expenses 4,592,180 3,950,327

Short-term notes payable 103,464,041 104,338,736

Short-term notes payable - related

parties 1,570,380 9,900,727

Total Current Liabilities 128,162,122 153,073,104

Long-Term Notes Payable 2,859,995 2,859,995

Long-Term Notes Payable - Related Parties -- 249,996

Total Liabilities 131,022,117 156,183,095

Stockholders' Equity

Undesignated preferred stock - $0.001 par

value;

1,000,000 shares authorized; no shares

outstanding -- --

Common stock - $0.001 par value;

500,000,000 shares authorized;

37,955,602 shares outstanding 37,955 37,955

Additional paid-in capital 35,617,482 42,233,307

Statutory reserves 12,601,921 12,601,921

Retained earnings 89,393,605 84,865,780

Accumulated other comprehensive income 18,769,320 18,575,896

Total Stockholders' Equity 156,420,283 158,314,859

TOTAL LIABILITIES AND STOCKHOLDERS'

EQUITY $287,442,400 $314,497,954

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME

(Unaudited)

For the Three Months Ended For the Six Months Ended

December 31, December 31,

2009 2008 2009 2008

Revenue:

Revenue $55,735,197 $59,076,972 $112,539,762 $151,914,456

Revenue from

related parties 59,439,545 34,994,039 126,443,302 72,213,917

115,174,742 94,071,011 238,983,064 224,128,373

Cost of Revenue

Other cost of

revenue 46,105,949 46,668,073 109,748,484 97,821,119

Purchases from

related parties 60,441,799 39,328,152 116,199,098 103,451,621

106,547,748 85,996,225 225,947,582 201,272,740

Gross Profit 8,626,994 8,074,786 13,035,482 22,855,633

Operating Expenses:

Selling expense 1,044,382 1,226,596 2,648,478 1,962,761

General and

administrative

expense 1,192,212 1,950,939 2,486,427 2,615,235

Total Operating

Expenses 2,236,594 3,177,535 5,134,905 4,577,996

Income from

Operations 6,390,400 4,897,251 7,900,577 18,277,637

Other Income

(Expense):

Interest income 102,767 503,088 583,339 995,438

Other income 47,161 237,012 366,964 292,584

Interest expense (1,268,151) (1,792,095) (2,615,049) (3,323,141)

Other expense (82,689) (413,122) (322,278) (544,985)

Total Other

Income (Expense) (1,200,912) (1,465,117) (1,987,024) (2,580,104)

Income Before

Taxes 5,189,488 3,432,134 5,913,553 15,697,533

Provision for

income taxes (1,162,339) (197,260) (1,385,728) (1,600,357)

Net Income $4,027,149 $3,234,874 $4,527,825 $14,097,176

Basic and

Diluted

Earnings per

Common Share $0.11 $0.09 $0.12 $0.37

Net Income $4,027,149 $3,234,874 $4,527,825 $14,097,176

Foreign currency

translation

adjustment 16,635 (4,588) 193,424 370,392

Comprehensive

Income $4,043,784 $3,230,286 $4,721,249 $14,467,568

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Unaudited)

For the Six Months Ended December 31,

2009 2008

Cash Flows from Operating Activities:

Net income $4,527,825 $14,097,176

Adjustments to reconcile net income

to net cash provided by (used in)

operating activities:

Depreciation and amortization 3,407,563 2,689,333

Deferred income taxes 108,960 177,496

Gain on sale of assets -- (161,340)

Changes in current assets and liabilities:

Trade accounts receivable, net 7,570,593 4,474,096

Other receivables, net 33,099 (719,793)

Advances to suppliers 13,689,581 34,307,460

Inventories 2,941,681 7,737,497

Accounts payable (6,173,319) (401,533)

Advances from customers (8,125,696) (12,783,041)

Other payables and accrued expenses 1,364,563 (983,921)

Advances to suppliers - related parties (11,259,630) (5,383,047)

Net Cash Provided by Operating Activities 8,085,220 43,050,383

Cash Flows from Investing Activities:

Changes in notes receivable (231,042) (4,378)

Purchase of property and equipment,

net of value added tax refunds received (999,732) (17,388,802)

Proceeds from sale of assets -- 782,464

Net change in restricted cash 3,344,374 26,535,382

Net Cash Provided by Investing Activities 2,113,600 9,924,666

Cash Flows from Financing Activities:

Proceeds from issuance of notes

payable 84,726,744 73,688,527

Payments on notes payable (85,716,426) (128,568,239)

Proceeds from issuance of notes

payable - related parties 199,932 5,787,323

Distribution to shareholders (6,615,825) --

Net Cash Used in Financing Activities (7,405,575) (49,092,389)

Effect of Exchange Rate Changes on

Cash 15,876 13,780

Net Change in Cash 2,809,121 3,896,440

Cash and Cash Equivalents at Beginning

of Year 10,653,438 12,494,339

Cash and Cash Equivalents at End of

Year $13,462,559 $16,390,779

Supplemental Non-Cash Financing

Activities

Offset of notes payable to related

party against receivable

from related parties $9,508,621 $--

Supplemental Cash Flow Information

Cash paid during the period for

interest $2,046,656 $2,965,696

Cash paid during the period for taxes $1,366,124 $2,181,554

Source: Sutor Technology Group Limited
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