CHANGSHU, China, September 14, 2012 /PRNewswire-FirstCall/ -- Sutor Technology Group Limited (the "Company" or "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 fiscal year ended June 30, 2012.
Fiscal year 2012 results highlights:
FY2012 | FY2011 | Change | |
Revenues (million): | $531.6 | $431.7 | 23.1% |
Gross profit (million) | $41.7 | $40.5 | 3.0% |
Net income (million) | $12.1 | $14.6 | -17.1% |
EPS | $0.30 | $0.36 | -16.7% |
For the fiscal 2012 fourth quarter, Sutor generated revenue of approximately $183.6 million, net income of $3.3 million and EPS of $0.08. Sutor's fiscal 2012 fourth quarter results significantly improved over its fiscal 2012 third quarter results where it generated revenue, net income and EPS of $109.9 million, $1.2 million and $0.03, respectively. The substantial sequential quarterly improvement demonstrates the Company's strengths and resilience during difficult economic times when the Chinese and global economies have experienced high volatility and undergone significant changes. We believe Sutor's business will continue to remain strong and competitive because our products are used in a variety of sectors such as construction, infrastructure, household appliances, solar water heaters, information technology and medical instruments. We aim to further diversify our customer base and better position our Company to take advantage of the growing demand for our products.
We are in the process of completing the construction of our new 500,000 metric-ton (MT) cold-rolled production line. We expect this line to be completed and begin initial production in fiscal year 2013. At full capacity and demand, this new line could generate more than $300 million in external sales revenue at today's prices. However, as part of Sutor's integrated production process, a large portion of the production will be used internally to create additional value added products, with the goal of improving our profitability. Currently, Sutor has 500,000 MT of annual acid-pickled capacity, 250,000 MT of cold-rolled capacity, 700,000 MT of hot-dip galvanization capacity as well as additional pre-painted galvanized steel and steel pipe production capacity. Therefore, we believe the addition of the new 500,000 MT of cold-rolled capacity will further optimize the Company's integrated production facilities.
During fiscal 2012 fourth quarter, we repurchased 105,455 shares of the Company's common stock. As of August 31, 2012, we have bought back an aggregate of 590,838 shares of common stock at the average buyback price of approximately $1.10 per share. We intend to continue to buy back our stock.
Ms. Lifang Chen, Chairwoman and CEO of Sutor, commented, "We are pleased that despite the challenging economic conditions in China and abroad, we generated record revenue and have continued to grow our business by developing new products, increasing our customer base, and by establishing a joint venture, and therefore positioned our Company well for sustainable growth in fiscal 2013 and beyond."
Ms. Chen concluded, "We believe our stock is extremely undervalued. Although factors like investors' sentiment and macro-economic conditions are beyond our control, we are doing everything we can as a public company to restore investor confidence. We have taken steps to strengthen our internal control procedures, engaged a top five globally-ranked audit firm, maintained a complete Board of Directors of both U.S. and Chinese experts, retained a reputable U.S. law firm as our legal counsel, and hired a U.S. based IR firm to improve shareholder communications. We encourage investors to visit our website for additional corporate news and to learn more about our Company. We'll continue to explore all options to protect and maximize shareholder value."
Fiscal Year 2012 Results
Revenue. For the fiscal year ended June 30, 2012, revenue was $531.6 million compared to $431.7 million last year, an increase of approximately 23.1% due to increased sales volume. Total sales volume in metric tons increased approximately 18.0% in fiscal year 2012 as compared to fiscal 2011, which reflected higher capacity utilization of our production facilities. Production of hot-dip galvanized steel was up 31.1% in fiscal 2012 as compared to fiscal 2011 due to growing market demand for these products. Although lately investments in construction and infrastructure in China have slowed down, other sectors of the Chinese economy grew from fiscal 2011 to 2012 due to significant growth in the durable product replacement markets, demographic changes and urbanization trends in China which, we believe, create long-term and relatively stable demand for Sutor's fine finished steel products.
On a geographic basis, revenue generated from customers based outside of China was $60.1 million, or 11.3% of total revenue, for fiscal year 2012, as compared to $62.2 million, or 14.4% of total revenue, for fiscal year 2011. The decrease was mainly attributable to overall weak global economies which reduced near-term demand for our fine finished steel products.
Gross profit and gross margin. Gross profit increased $1.2 million to $41.7 million in fiscal year 2012 from $40.5 million in fiscal year 2011. Gross margin was approximately 7.8% in fiscal year 2012, as compared to 9.4% in fiscal year 2011. The decrease in gross margin was mainly due to changes in the mix of products sold in fiscal 2012. In fiscal 2012, we sold more acid-pickled steel but less pre-painted galvanized steel. Acid-pickled steel has a lower gross margin than pre-painted galvanized steel. In addition, gross margin was affected by lower exports sales in fiscal 2012 as compared to fiscal 2011. Of note, gross margin for our exported products was approximately 13.3% as compared to approximately 7.3% for our domestic sales.
Total operating expenses. Our total operating expenses increased $2.7 million to $18.0 million in fiscal year 2012 from $15.3 million in fiscal year 2011. As a percentage of revenue, our total operating expenses decreased to 3.3% in fiscal year 2012 from 3.5% in fiscal year 2011 as the increase in revenue outpaced the increase in total operating expenses due to operating leverage.
Selling expenses. Our selling expenses decreased $0.3 million to $7.2 million in fiscal year 2012 from $7.5 million in fiscal year 2011. As a percentage of revenue, our selling expenses were 1.3% in fiscal 2012 as compared to 1.7% in fiscal 2011. The decrease in selling expenses was primarily due to lower international sales and our effective cost control measures.
General and administrative expenses. General and administrative expenses increased $3.0 million to $10.8 million, or 2.0% of revenue, in fiscal year 2012, as compared to $7.8 million, or 1.8% of revenue, in fiscal year 2011. The increase was partially due to a number of factors including higher employee benefits of $0.8 million, higher building maintenance and repair expense of $0.2 million, and higher allowance for bad account receivables of $0.2 million, than those occurred last fiscal year.
Interest expense. Our interest expense increased $5.3 million to $13.3 million in fiscal 2012 from $8.0 million in fiscal 2011. As a percentage of revenue, our interest expense increased to 2.5% in fiscal 2012, from 1.8% in fiscal 2011. The increase in interest expense was mainly attributable to higher average principal amount of bank loans as well as higher discounted interest expenses on bank notes.
Provision for income taxes. We incurred income tax expense of $1.0 million in fiscal 2012 as compared to $3.4 million in fiscal 2011. The reduced income tax expense was primarily due to an income tax refund of approximately $2.1 million for purchasing certain equipment.
Net income. Net income, excluding a foreign currency translation adjustment, decreased $2.5 million, or approximately 17.1%, to $12.1 million in fiscal year 2012, from $14.6 million in fiscal year 2011, as a cumulative result of the above factors.
Financial Condition and Liquidity
As of June 30, 2012, we had approximately $9.5 million in cash and $111.6 million in restricted cash. Our short-term loans were approximately $139.0 million. We also had approximately $8.5 million long-term loans. As of June 30, 2012, the Company had an unused line of credit with banks of approximately $31.7 million.
For fiscal 2013, we estimate capital expenditures will be approximately $15 million consisting of approximately $7 million to be used for the completion of the construction of the 500,000 MT cold-rolled production line and $8 million for facility upgrades and technical innovation. Under normal operating conditions, we believe we can fund the planned capital expenditure through internally generated cash flows.
Conference Call Information
Sutor's management will host an earnings conference call today, September 14, 2012, at 9:00 a.m. U.S. Eastern time/9:00 p.m. Beijing/Hong Kong time. Listeners may access the call by dialing US: +1 877 847 0047, CN: 800 876 5011, HK +852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through October 14, 2012. Listeners may access it by dialing US: +1 866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 681088.
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 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 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 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, 2012, and other risks mentioned in our other reports filed with the Securities Exchange Commission ("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:
China | US | |||
Financial Tables Below:
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES | ||||
CONSOLIDATED BALANCE SHEETS
| ||||
June 30, | June 30, | |||
2012 | 2011 | |||
Audited | Audited | |||
ASSETS | ||||
Current Assets: | ||||
Cash and cash equivalents | $ | 9,530,531 | $ | 21,324,931 |
Restricted cash | 111,582,149 | 72,326,482 | ||
Short-term investments | 4,849,112 | - | ||
Trade accounts receivable, net of allowance for doubtful accounts of | 7,023,880 | 3,969,090 | ||
Notes receivable | 475,112 | 168,029 | ||
Other receivables and prepayments, net of allowance for doubtful | 4,275,817 | 2,004,044 | ||
Advances to suppliers, unrelated parties, net of allowance for | 27,446,626 | 42,067,716 | ||
Advances to suppliers, related parties, net of allowance for doubtful | 121,884,833 | 116,772,842 | ||
Inventories, net | 50,432,279 | 46,197,179 | ||
Deferred tax assets | 709,688 | 363,497 | ||
Total Current Assets | 338,210,027 | 305,193,810 | ||
Non-current Assets: | ||||
Advances for purchase of long term assets | 15,001,088 | 81,191 | ||
Property, plant and equipment, net | 77,231,273 | 79,103,131 | ||
Intangible assets, net | 3,082,877 | 3,083,569 | ||
Total Non-current Assets | 95,315,238 | 82,267,891 | ||
TOTAL ASSETS | $ | 433,525,265 | $ | 387,461,701 |
LIABILITIES AND STOCKHOLDERS' EQUITY | ||||
Current Liabilities: | ||||
Short-term loans | $ | 111,166,838 | $ | 95,494,490 |
Long-term loans, current portion | 27,762,975 | - | ||
Accounts payable | 57,079,617 | 55,674,454 | ||
Other payables and accrued expenses | 8,820,064 | 4,840,135 | ||
Other payables, related parties | - | 594,105 | ||
Advances from customers | 7,924,812 | 11,737,085 | ||
Warrant liabilities | 47,404 | 399,572 | ||
Total Current Liabilities | 212,801,710 | 168,739,841 | ||
Long-Term Loans | 8,490,772 | 23,626,900 | ||
Total Liabilities | 221,292,482 | 192,366,741 | ||
Stockholders' Equity | ||||
Undesignated preferred stock - $0.001 par value; 1,000,000 | - | - | ||
Common stock - $0.001 par value; authorized: 500,000,000 shares as of June 30, 2012 and | 40,805 | 40,745 | ||
Additional paid-in capital | 41,344,306 | 41,216,546 | ||
Statutory reserves | 18,100,361 | 15,662,039 | ||
Retained earnings | 117,732,738 | 108,106,069 | ||
Accumulated other comprehensive income | 35,622,241 | 30,069,561 | ||
Less: Treasury stock, at cost, 544,477 and nil shares as of June | (607,668) | - | ||
Total Stockholders' Equity | 212,232,783 | 195,094,960 | ||
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY | $ | 433,525,265 | $ | 387,461,701 |
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF OPERATIONS | ||||
AND COMPREHENSIVE INCOME
| ||||
For The Years Ended | ||||
June 30 | ||||
2012 | 2011 | |||
Audited | Audited | |||
Revenue: | ||||
Revenue from unrelated parties | $ | 375,947,830 | $ | 266,126,597 |
Revenue from related parties | 155,675,893 | 165,569,921 | ||
531,623,723 | 431,696,518 | |||
Cost of Revenue | ||||
Cost of revenue from unrelated parties | (347,052,327) | (240,847,808) | ||
Cost of revenue from related parties | (142,848,128) | (150,397,400) | ||
(489,900,455) | (391,245,208) | |||
Gross Profit | 41,723,268 | 40,451,310 | ||
Operating Expenses: | ||||
Selling expenses | (7,236,095) | (7,503,738) | ||
General and administrative expenses | (10,781,178) | (7,813,711) | ||
Total Operating Expenses | (18,017,273) | (15,317,449) | ||
Income from Operations | 23,705,995 | 25,133,861 | ||
Other Incomes/(Expenses): | ||||
Interest income | 2,831,798 | 901,511 | ||
Interest expense | (13,317,274) | (7,971,129) | ||
Changes in fair value of warrant liabilities | 352,168 | 607,331 | ||
Other income | 408,703 | 163,977 | ||
Other expense | (918,090) | (793,540) | ||
Total Other Incomes/(Expenses) | (10,642,695) | (7,091,850) | ||
Income Before Taxes | 13,063,300 | 18,042,011 | ||
Income tax expense | (998,309) | (3,429,507) | ||
Net Income | $ | 12,064,991 | $ | 14,612,504 |
Basic Earnings per Share | $ | 0.30 | $ | 0.36 |
Diluted Earnings per Share | $ | 0.30 | $ | 0.36 |
Basic Weighted Shares Outstanding | 40,533,158 | 40,726,123 | ||
Diluted Weighted Shares Outstanding | 40,533,158 | 40,726,123 | ||
Net Income | $ | 12,064,991 | $ | 14,612,504 |
Foreign currency translation adjustment | 5,552,680 | 10,537,629 | ||
Comprehensive Income | $ | 17,617,671 | $ | 25,150,133 |
SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES | ||||
CONSOLIDATED STATEMENTS OF CASH FLOWS
| ||||
For The Years Ended | ||||
June 30 | ||||
2012 | 2011 | |||
Cash Flows from Operating Activities: | Audited | Audited | ||
Net income | $ | 12,064,991 | $ | 14,612,504 |
Adjustments to reconcile net income to net cash provided by/(used in) operating activities | ||||
Depreciation and amortization | 8,623,056 | 7,684,071 | ||
(Reversal)/provision for doubtful accounts | (30,366) | 457,110 | ||
Write downs of inventories | 25,015 | - | ||
Stock-based compensation | 127,820 | 119,423 | ||
Foreign currency exchange gain | (402,700) | (48,495) | ||
Loss/(gain) on disposal of property, plant and equipment | 36,422 | (4,481) | ||
Interest income from short-term investments carried at amortized cost | (97,412) | - | ||
Deferred income taxes | (335,604) | (16,086) | ||
Changes in fair value of warrant liabilities | (352,168) | (607,331) | ||
Changes in current assets and liabilities: | ||||
Restricted cash | (16,778,737) | (20,899,568) | ||
Trade accounts receivable | (3,392,490) | 6,987,250 | ||
Notes receivable | (301,319) | (88,423) | ||
Other receivables and prepayments | (2,022,785) | (787,861) | ||
Advances to suppliers, unrelated parties | 15,660,580 | (32,418,331) | ||
Advances to suppliers, related parties | (2,051,343) | (13,399,681) | ||
Inventories | (3,149,913) | (3,757,906) | ||
Accounts payable | 6,196,904 | 29,686,859 | ||
Other payables and accrued expenses | 3,999,210 | (438,981) | ||
Other payables, related parties | (604,544) | 217,267 | ||
Advances from customers | (4,045,719) | 4,525,550 | ||
Net Cash Provided by/(Used In) Operating Activities | 13,168,898 | (8,177,110) | ||
Cash Flows from Investing Activities: | ||||
Purchase of property, plant and equipment | (25,868,522) | (12,908,403) | ||
Proceeds from disposal of property, plant and equipment | 63,526 | 6,067 | ||
Purchase of short-term investments | (4,722,996) | - | ||
Net Cash Used In Investing Activities | (30,527,992) | (12,902,336) | ||
Cash Flows from Financing Activities: | ||||
Proceeds from loans | 155,351,324 | 149,159,704 | ||
Payments of loans | (128,992,840) | (120,718,568) | ||
Changes in restricted cash | (20,545,678) | - | ||
Payments on repurchase of common stock | (607,668) | - | ||
Net Cash Provided By Financing Activities | 5,205,138 | 28,441,136 | ||
Effect of Exchange Rate Changes on Cash | 359,556 | 626,505 | ||
Net Change in Cash and Cash Equivalents | (11,794,400) | 7,988,195 | ||
Cash and Cash Equivalents at Beginning of Year | 21,324,931 | 13,336,736 | ||
Cash and Cash Equivalents at End of Year | $ | 9,530,531 | $ | 21,324,931 |
Supplemental Non-Cash Information: | ||||
Offset of notes payable to related parties against receivable from related parties | $ | 10,437,344 | $ | 10,051,691 |
Supplemental Cash Flow Information: | ||||
Cash paid during the year for interest expense | $ | (12,809,907) | $ | (7,441,918) |
Cash paid during the year for income tax | $ | (1,015,879) | $ | (2,118,597) |