CHANGSHU, China, October 13, 2011 /PRNewswire-Asia-FirstCall/ -- Sutor Technology Group Limited (the "Company", "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 audited financial results for the fiscal year ended June 30, 2011.
Fiscal year 2011 results highlights:
FY 2011 | FY2010 | Change | ||
Revenues (million): | $431.7 | $478.7 | -9.8% | |
Gross profit (million) | $40.5 | $32.8 | 23.5% | |
Gross margin | 9.4% | 6.9% | 36.2% | |
Net income (million) | $14.0 | $11.3 | 23.9% | |
EPS | $0.34 | $0.29 | 17.2% | |
Commenting on Sutor's operations, Ms. Lifang Chen, Chairwoman and CEO, said, "We ended fiscal year 2011 with improved gross margin, net income and earnings per share despite challenging economic condition. The fiscal year 2011 is a year of both challenges and achievements with the following highlights:
Ms. Chen continued: "Since we were listed on Nasdaq Capital Market in February 2008, we have added 400,000 metric tons of hot-dipped galvanization and 400,000 metric tons of heavy steel pipe production capacities. In addition, a cold-roll production line of 500,000 metric tons annual capacity is planned for commercial operations next year. We would like to invite our investors to visit our manufacturing facilities and witness themselves how their investments are put into use. Despite the high volatility in the capital markets, we will remain focused on seeking operating excellence and pursuing outstanding customer services. We are committed to our shareholders, employees, and customers for the years to come."
Fiscal Year 2011 Results
Revenue. For the fiscal year ended June 30, 2011, revenue was $431.7 million compared to $478.7 million last year, a decrease of approximately 9.8%. Total sales volume in tons decreased approximately 18.6% in fiscal year 2011 as compared to the same period last year, which reflected the Company's continuing efforts to exit the lower-margin steel trading business and optimize its product mix, leading to improved profit margins. The impact of the lower sales volumes on revenue was partially offset by an increase of approximately 10.8% in overall average selling price.
The following table sets forth revenue by geography and the percentage of our total revenue and total revenue by business segments for fiscal years 2011 and 2010.
(All amounts, other than percentages, in thousands of U.S. dollars) | |||||||||
June 30, 2011 | June 30, 2010 | ||||||||
Amount | Percentage | Amount | Percentage | ||||||
Geographic Data: | |||||||||
China | $ | 369,507 | 85.6% | $ | 425,009 | 88.8% | |||
Other Countries | 62,190 | 14.4% | 53,679 | 11.2% | |||||
Segment Data: | |||||||||
Changshu Huaye | $ | 185,304 | 42.9% | $ | 217,631 | 45.5% | |||
Jiangsu Cold-Rolled | 214,868 | 49.8% | 198,564 | 41.5% | |||||
Ningbo Zhehua | 31,525 | 7.3% | 62,493 | 13.0% | |||||
On a geographic basis, revenue generated from outside of China was $62.2 million, or 14.4% of total revenue, for fiscal year 2011, as compared to $53.7 million, or 11.2% of total revenue, for fiscal year 2010. The increase was mainly attributable to our efforts to expand product penetration into new markets, increase brand recognition and foster acceptance of our products in the international markets.
On a segment basis, after eliminating intercompany sales, revenue contributed by Changshu Huaye Steel Strip Company Ltd. (Changshu Huaye) decreased to $185.3 million for fiscal year 2011, a decrease of $32.3 million, or 14.8%, from $217.6 million in fiscal year 2010. Due to increasing market demand, we produced more advanced PPGI products in fiscal year 2011 which resulted in decrease of sales volume and revenue, but an increase in our gross margin. In addition, more HDG steel products were produced at Jiangsu Cold-Rolled Technology Company Ltd. (Jiangsu Cold-Rolled) to take advantage of its newer production lines which generally have lower production costs. As a result, the overall production volume at Changshu Huaye was reduced during fiscal year 2011.
After eliminating the inter-company sales, revenues contributed by Jiangsu Cold-Rolled were $214.9 million for fiscal year 2011, an increase of $16.3 million from $198.6 million last year, mainly as a result of higher sales volume and the increased output of our 400,000 MT HDG production lines.
Revenues contributed by Ningbo Zhehua Heavy Steel Pipe Manufacturing Company Ltd. (Ningbo Zhehua) were $31.5 million for fiscal year 2011, a decrease of approximately $31.0 million from $62.5 million in fiscal year 2010, primarily resulting from our strategic decision to reduce its lower-margin steel trading businesses and focus on higher-margin production businesses.
In terms of sales to related parties as compared with sales to unrelated parties, our direct sales to unrelated parties in fiscal year 2011 increased $31.5 million, or 13.4%, to $266.1 million from $234.6 million in fiscal year 2010.
Cost of revenue. Cost of revenue decreased $54.7 million, or 12.3%, to $391.2 million in fiscal year 2011 from $445.9 million in fiscal year 2010. As a percentage of revenue, cost of revenue decreased to 90.6% in fiscal year 2011 from 93.1% last year. Decreased cost of revenue was mainly due to the decreased sales volume.
Gross profit and gross margin. Gross profit increased $7.7 million to $40.5 million in fiscal year 2011 from $32.8 million in fiscal year 2010. Gross profit as a percentage of revenue (gross margin) was 9.4% in fiscal year 2011, as compared to 6.9% in fiscal year 2010. The increased gross margin mainly resulted from increased international sales volume and increased sales volume of higher margin products by Changshu Huaye. In addition, improved capacity utilization at Jiangsu Cold Rolled, which reduced the average cost of production, combined with the elimination of the lower margin steel trading business of Ningbo Zhehua, also contributed to the increase in gross margin. Finally, higher average selling prices year-over-year also improved gross margin.
On a segment basis, gross margin for Changshu Huaye increased to 13.5% in fiscal year 2011 from 10.4% last year, mainly because it produced and sold more higher-margin advanced PPGI products and exported more products in fiscal year 2011 than the same period last year. Gross margin for Jiangsu Cold-Rolled increased to 5.3% in fiscal year 2011 from 4.1% last year, mainly due to the higher capacity utilization of the new HDG production lines and higher average selling prices. Gross margin for Ningbo Zhehua increased to 13.7% in fiscal year 2011, as compared to 4.8% in fiscal year 2010, mainly because we reduced our lower-margin steel trading business.
Total operating expenses. Our total operating expenses increased approximately $0.9 million to $15.3 million in fiscal year 2011 from $14.4 million in fiscal year 2010. As a percentage of revenue, our total operating expenses increased to 3.5% in fiscal year 2011 from 3.0% in fiscal year 2010.
Selling expenses. Our selling expenses decreased approximately $0.6 million to $7.5 million in fiscal year 2011, from $8.1 million in fiscal year 2010. As a percentage of revenue, our selling expenses remained stable at approximately 1.7% of total revenue in fiscal year 2011. The dollar decrease of selling expenses was primarily due to effective cost control measures and lower international shipping costs.
General and administrative expenses. General and administrative expenses increased $1.5 million, or 22.9%, to $7.8 million, or 1.8% of revenue, in fiscal year 2011, from $6.4 million, or 1.3% of revenue, in fiscal year 2010. Higher general and administrative expenses were primarily due to higher bad debt allowance of approximately $1.7 million resulting from more direct sales and higher office expenses of $0.7 million for fiscal year 2011 than the same period last year. During fiscal year 2011, we relocated our headquarters into a new office building to prepare for anticipated future business needs.
Interest expense. Our interest expense increased $2.2 million to $8.0 million in fiscal year 2011, from $5.8 million in fiscal year 2010. As a percentage of revenue, our interest expenses increased to 1.8% in fiscal year 2011, from 1.2% in fiscal year 2010. The increase in interest expense was mainly attributable to the increase in benchmark interest rates. From October 2010 and continuing through the end of the 2011 fiscal year, China Central Bank raised its one-year lending interest rate by 1.0%, or 20.0% increase as compared with the interest rate during the 2010 fiscal year.
Provision for income taxes. We incurred income tax expense of $3.4 million in fiscal year 2011 as compared to $2.4 million last year, partially due to the higher taxable income.
Net income. Net income, without including the foreign currency translation adjustment, increased $2.7 million, or approximately 23.9%, to $14.0 million in fiscal year 2011, from $11.3 million in fiscal year 2010, as a cumulative result of the above factors.
Financial Condition and Liquidity
The Company's cash, restricted cash and cash equivalents as of June 30, 2011 were $93.7 million, compared to $61.7 million as of June 30, 2010. The total debt was approximately $119.1 million. As of June 30, 2011, the Company had working capital of approximately $138.1 million. Stockholders' equity increased 14.5% to $195.5 million, compared to $170.8 million as of June 30, 2010.
In September 2010, Sutor established a non-binding strategic cooperation framework with China Construction Bank. With the cash and cash equivalents on the balance sheet and existing lines of credit, the management expects to have sufficient liquidity to carry out normal operations for the foreseeable future.
Outlook
The management anticipates both revenue and net income to 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 October 14, 2011, at 8:30 a.m. eastern time. Listeners may access the call by dialing US: +1-877-847-0047, CN: 800 876 5011, HK: +852 30068101, access code: SUTR. A recording of the call will be available shortly after the call for through November 13, 2011. Listeners may access it by dialing US: +1-866-572-7808, CN: 800 876 5013, HK: +852 3012 8000 access code: 656546
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; the factors discussed in the "Management's Discussion and Analysis of Financial Condition and Results of Operations" section in this report, 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.
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS | |||||
June 30, | June 30, | ||||
2011 | 2010 | ||||
ASSETS | |||||
Current Assets: | |||||
Cash and cash equivalents | $ | 21,324,931 | $ | 13,336,736 | |
Restricted cash | 72,326,482 | 48,315,962 | |||
Trade accounts receivable, net of allowance for doubtful accounts of $856,554 and $498,620, respectively | 3,969,090 | 10,913,736 | |||
Other receivables and prepayments, net of allowance for doubtful accounts of $529,068 and $279,885, respectively | 2,004,044 | 929,507 | |||
Advances to suppliers, related parties | 116,772,842 | 96,776,181 | |||
Advances to suppliers, net of allowance of $493,761 and $542,490, respectively | 42,067,716 | 8,304,246 | |||
Inventory, net of allowance for obsolescence of $88,346 and $102,028, respectively | 46,197,179 | 40,179,358 | |||
Notes receivable | 168,029 | 73,437 | |||
Deferred income taxes | 363,497 | 329,414 | |||
Total Current Assets | 305,193,810 | 219,158,577 | |||
Advances for Purchase of Long Term Assets | 81,191 | - | |||
Property, Plant and Equipment, net of accumulated depreciation of $35,081,522 and $25,914,352, respectively | 79,103,131 | 70,018,522 | |||
Intangible Assets, net of accumulated amortization of $509,200 and $415,178, respectively | 3,083,569 | 2,995,488 | |||
TOTAL ASSETS | $ | 387,461,701 | $ | 292,172,587 | |
LIABILITIES AND STOCKHOLDERS' EQUITY | |||||
Current Liabilities: | |||||
Accounts payable | $ | 55,674,454 | $ | 23,954,009 | |
Advances from customers | 11,737,085 | 6,769,481 | |||
Other payables and accrued expenses | 4,840,135 | 4,688,324 | |||
Other payables - related parties | 594,105 | 352,495 | |||
Short-term notes payable | 95,494,490 | 82,128,484 | |||
Short-term notes payable - related parties | - | 587,492 | |||
Total Current Liabilities | 168,340,269 | 118,480,285 | |||
Long-Term Notes Payable | 23,626,900 | 2,859,995 | |||
Total Liabilities | 191,967,169 | 121,340,280 | |||
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, 40,745,602 and 40,715,602 shares outstanding at June 30, 2011 and 2010, respectively | 40,745 | 40,715 | |||
Additional paid-in capital | 42,584,974 | 42,465,581 | |||
Statutory reserves | 15,662,039 | 12,629,151 | |||
Retained earnings | 107,137,213 | 96,164,928 | |||
Accumulated other comprehensive income | 30,069,561 | 19,531,932 | |||
Total Stockholders' Equity | 195,494,532 | 170,832,307 | |||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 387,461,701 | $ | 292,172,587 | |
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME | |||||
For The Years Ended | |||||
June 30 | |||||
2011 | 2010 | ||||
Revenue: | |||||
Revenue | $ | 266,126,597 | $ | 234,633,835 | |
Revenue from related parties | 165,569,921 | 244,053,884 | |||
431,696,518 | 478,687,719 | ||||
Cost of Revenue | |||||
Cost of revenue | 240,847,808 | 216,663,282 | |||
Cost of revenue from related party sales | 150,397,400 | 229,216,965 | |||
391,245,208 | 445,880,247 | ||||
Gross Profit | 40,451,310 | 32,807,472 | |||
Operating Expenses: | |||||
Selling expenses | 7,503,738 | 8,066,336 | |||
General and administrative expenses | 7,813,711 | 6,358,399 | |||
Total Operating Expenses | 15,317,449 | 14,424,735 | |||
Income from Operations | 25,133,861 | 18,382,737 | |||
Other Incomes/(Expenses): | |||||
Interest income | 901,511 | 1,106,114 | |||
Other income | 159,496 | 448,465 | |||
Interest expense | (7,971,129) | (5,840,518) | |||
Other expense | (793,540) | (363,376) | |||
Gain/(loss) on sale of assets | 4,481 | (3,550) | |||
Total Other Income/(Expense) | (7,699,181) | (4,652,865) | |||
Income Before Taxes | 17,434,680 | 13,729,872 | |||
Provision for income taxes | (3,429,507) | (2,403,494) | |||
Net Income | $ | 14,005,173 | $ | 11,326,378 | |
Basic Earnings per Share | $ | 0.34 | $ | 0.29 | |
Diluted Earnings per Share | $ | 0.34 | $ | 0.29 | |
Basic Weighted Shares Outstanding | 40,726,123 | 38,804,588 | |||
Diluted Weighted Shares Outstanding | 40,726,123 | 38,806,363 | |||
Net Income | $ | 14,005,173 | $ | 11,326,378 | |
Foreign currency translation adjustment | 10,537,629 | 956,036 | |||
Comprehensive Income | $ | 24,542,802 | $ | 12,282,414 | |
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS | |||||
For The Years Ended | |||||
June 30 | |||||
2011 | 2010 | ||||
Cash Flows from Operating Activities: | |||||
Net income | $ | 14,005,173 | $ | 11,326,378 | |
Adjustments to reconcile net income to net cash provided by/(used in) operating activities | |||||
Depreciation and amortization | 7,684,071 | 7,117,592 | |||
Deferred income taxes | (16,086) | 70,410 | |||
Foreign currency exchange gain | (48,495) | - | |||
Stock based compensation | 119,423 | 36,663 | |||
(Gain)/loss on sale of assets | (4,481) | 3,550 | |||
Changes in current assets and liabilities: | |||||
Trade accounts receivable, net | 7,291,694 | 1,253,074 | |||
Other receivable and prepayment | (559,428) | (461,222) | |||
Advances to suppliers | (32,494,098) | 16,863,747 | |||
Advances to suppliers - related parties | (13,399,681) | (19,856,665) | |||
Inventory | (3,757,906) | 4,201,631 | |||
Accounts payable | 29,686,859 | (14,370,322) | |||
Advances from customers | 4,525,550 | (12,085,352) | |||
Other payables and accrued expenses | (438,981) | 716,464 | |||
Other payables - related parties | 217,267 | 351,048 | |||
Net Cash Provided by/(Used In) Operating Activities | 12,810,881 | (4,833,004) | |||
Cash Flows from Investing Activities: | |||||
Changes in notes receivable | (88,423) | 105,314 | |||
Purchase of property, plant and equipment, net of value added tax refunds received | (12,908,403) | (1,519,153) | |||
Proceeds from sale of assets | 6,067 | - | |||
Net change in restricted cash | (20,899,568) | 16,771,227 | |||
Net Cash Used In Investing Activities | (33,890,327) | 15,357,388 | |||
Cash Flows from Financing Activities: | |||||
Proceeds from issuance of notes payable | 149,159,704 | 100,047,386 | |||
Payments on notes payable | (120,718,568) | (97,999,281) | |||
Proceeds from issuance of notes payable - related parties | - | 199,932 | |||
Payments on notes payable - related parties | - | (10,352,520) | |||
Distribution to shareholders | - | (6,615,825) | |||
Net proceeds from issuance of common stock and warrants | - | 6,814,196 | |||
Net Cash Provided By Financing Activities | 28,441,136 | (7,906,112) | |||
Effect of Exchange Rate Changes on Cash | 626,505 | 65,026 | |||
Net Change in Cash | 7,988,195 | 2,683,298 | |||
Cash and Cash Equivalents at Beginning of Year | 13,336,736 | 10,653,438 | |||
Cash and Cash Equivalents at End of Year | $ | 21,324,931 | $ | 13,336,736 | |
Supplemental Non-Cash Financing Activities: | |||||
Offset of notes payable to related parties against receivable from related parties | $ | 10,051,691 | $ | 9,687,935 | |
Supplemental Cash Flow Information: | |||||
Cash paid during the year for interest | $ | 7,441,918 | $ | 5,305,877 | |
Cash paid during the year for income taxes | $ | 2,118,597 | $ | 1,761,019 | |
For more information, please contact: | |
Mr. Jason Wang, Director of IR | |
Sutor Technology Group Limited | |
Tel: +86-512-5268-0988 | |
