Sutor Technology Group Limited Announces Second Quarter of Fiscal Year 2012 Financial Results

CHANGSHU, China, Feb.14, 2012 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), a leading China-based non-state-owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications, today announced its unaudited financial results for the second quarter of fiscal year 2012 ended December 31, 2011.

Second-Quarter 2012 Highlights:

• Engaged Grant Thornton, the China member firm of Grant Thornton International, as its independent registered public accounting firm;
• Continued construction of the Company's new cold-roll production line of 500,000-tons designed annual capacity, which is expected to start commercial operations in the summer 2012;
• Repurchased 402,887 shares of the Company's common stock at the open market according to the Company's previously announced shares repurchase program; and
• Started to build a B2B (business to business) electronic trading platform exclusively for the steel industry; it is anticipated that the platform will initially be used to market Sutor's products with the option of expanding into a profit center via hosting other companies' trading activities.

Ms. Lifang Chen, Chairlady and CEO, commented, "During the second fiscal quarter, we focused on seeking operating excellence and achieved growth in both revenue and gross profits despite the challenging macro-economic environment both at home and abroad. As China gradually transits from an export and investment-driven economy to a domestic-consumption economy, we will proactively develop new products to serve the growing consumer goods industries like solar water heaters, high-end household appliances, information technology and automobiles. Positioned in the downstream segment of the steel industry, we believe our businesses are affected more by the general conditions of the economy than the changes to the upstream iron and steel refining segment. We believe our integrated business model and superior geographic location near consumer centers and transportation hubs will enable us to benefit from the ongoing economic transition in China. We are looking forward to milestone events to celebrate the Company's 10th anniversary in 2012."

"Closely working with our new auditor, we will continue to enhance our corporate governance and provide timely and accurate financial information to our shareholders. We also intend to improve our communications with our shareholders and further reach out to the investment community in general. Finally, we will explore all options to improve shareholder value," concluded Ms. Chen.

Revenue. For the three months ended December 31, 2011, revenue was approximately $107.9 million, compared to $99.4 million for the same period last year, an increase of approximately 8.6%. The increase was mainly attributable to both the increased sales volumes and the average selling prices, or ASP, for our HDG products. During the fiscal second quarter of 2012, sales volumes and the ASP of our HDG products went up approximately 10.5% and 10.4%, respectively. In addition, we benefited from the significant improvement in steel pipe manufacturing business at Ningbo Zhehua, whose revenue rose by approximately 82.1% as compared to the same period last year. However, we experienced lower sales from cold rolled steel products as we used more of them internally for the production of our other products during the second fiscal quarter and from PPGI products due to changes in product mix as compared to the same period last year, which partially offset higher revenue from other products.

On a geographic basis, revenue generated from outside of China was approximately $14.4 million, or 13.3% of the total revenue, for the three months ended December 31, 2011, as compared to $7.6 million, or 7.6% of the total revenue, for the same period in 2010. The increase was mainly resulted from our efforts to expand product penetration, increase brand recognition, and foster acceptance of our products in the international markets.

Cost of revenue. Cost of revenue increased approximately $7.5 million, or 8.3%, to $97.5 million in the three months ended December 31, 2011, from $90.0 million in the same period in 2010. As a percentage of revenue, cost of revenue was approximately 90.4% in the three months ended December 31, 2011, as compared with approximately 90.4% in the same period last year. The increased amount of the cost of revenue was generally in line with the increased sales revenue.

Gross profit and gross margin. Gross profit increased approximately $0.9 million to $10.4 million in the three months ended December 31, 2011 from $9.5 million in the same period in 2010. Gross profit as a percentage of revenue (gross margin) was 9.6% in the three months ended December 31, 2011, as compared to approximately 9.6% in the same period last year.

Total operating expenses. Our total operating expenses increased approximately $1.0 million to $4.7 million in the three months ended December 31, 2011, from $3.7 million in the same period in 2010. As a percentage of revenue, our total operating expenses increased to approximately 4.3% in the three months ended December 31, 2011 from 3.7% in the same period in 2010.

Selling expenses. Our selling expenses increased approximately $0.1 million to $2.1 million in the three months ended December 31, 2011, from $2.0 million in the same period in 2010. As a percentage of revenue, our selling expenses decreased to 1.9% for the three months ended December 31, 2011, from 2.0% for the same period last year.

General and administrative expenses. General and administrative expenses increased $0.9 million to $2.6 million, or 2.4% of the total revenue, in the three months ended December 31, 2011, from $1.7 million, or 1.7% of the revenue, in the same period in 2010. The increased general and administrative expenses were primarily due to business expansion, increased labor costs and insurance premiums, and higher management expenses.

Interest expense. Our interest expense increased $0.1 million to $2.4 million in the three months ended December 31, 2011, from $2.3 million in the same period in 2010. As a percentage of revenue, our interest expense was approximately 2.3% of the total revenue in the three months ended December 31, 2011, compared to approximately 2.3% in the same period in 2010.

Provision for Income taxes. Our income tax expenses decreased to approximately $0.5 million due to lower taxable income in the three months ended December 31, 2011 from $0.6 million in the same period last year.

Net income. Net income, without including the foreign currency translation adjustment, decreased approximately $0.1 million, or 3.4%, to $2.8 million in the three months ended December 31, 2011, from $2.9 million in the same period in 2010, as a cumulative result of the above factors.

Liquidity and Capital Resources

As of December 31, 2011, our total short-term loans were approximately $108.6 million. We also had approximately $38.1 million under long-term notes payable. We had approximately $7.0 million cash and cash equivalents and $124.4 million restricted cash. In addition, we also had an available line of credit with banks of approximately $31.4 million which entitled us to draw bank loans for general corporate purposes. As of December 31, 2011, our current assets were approximately $393.1 million and current liabilities $237.8 million. We believe that we have sufficient liquidity and capital resources to carry out normal operating activities for the remainder of fiscal year 2012.

Business Outlook

We maintain our previously announced anticipation that both revenue and net income of the Company will grow at a compound annual growth rate (CAGR) of approximately 25% to 35% for the next two fiscal years.

Conference Call Information

Sutor's management will host an earnings conference call on Tuesday, February 14, 2012, at 9:00 a.m. eastern time. Listeners may access the call by dialing US: 1 877 847 0047, China: 800 876 5011, Hong Kong 852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through March 15, 2012. Listeners may access it by dialing US: 1 866 572 7808, China: 800 876 5013, Hong Kong: 852 3012 8000, access code: 668195.

About Sutor Technology Group Limited

Sutor is a leading China-based non-state-owned 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 water heaters, automobiles, information technology, construction, and other applications. 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. To learn more about the company, please visit http://www.sutorcn.com/en/index.php.

Forward-Looking Statements

This press release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended (the "Exchange Act"). Such statements include, among others, those concerning our financial and business outlook in the next two years, our expectation regarding cash flow and liquidity, our new facility and capacity expansion, and its expected impact on the Company's business and financial performance, our expectations regarding the market for our existing products and new products, our expected financial performance and strategic and operational plans, 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 actual results of the Company to differ materially from those anticipated, expressed or implied in the forward-looking statements. 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. Risks and uncertainties that could cause actual results to differ materially from those anticipated include risks related to new and existing products, any projections of sales, earnings, revenue, margins or other financial items, any statements of the plans, strategies and objectives of management for future operations, any statements regarding future economic conditions or performance, uncertainties related to conducting business in China and the current global economic crisis on our business and on our customers' business, and any of the factors and risks mentioned in the "Risk Factors" sections of our Annual Report on Form 10-K for the year ended June 30, 2011 and subsequent SEC filings. The Company assumes no obligation and does not intend to update any forward-looking statements, except as required by law.

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