omniture

Sutor Technology Group Limited Reports Second Quarter of Fiscal Year 2014 Financial Results

2014-02-13 21:00 759

CHANGSHU, China, February 13, 2014 /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 used by a variety of downstream applications, today announced its unaudited financial results for the second quarter of fiscal year 2014 ended December 31, 2013.

Second Quarter of Fiscal 2014 Financial Results Highlights:


2QFY2014

2QFY2013

Change

Revenues (million):

$128.3

$157.9

-18.7%

Gross profit (million)

$13.6

$12.2

11.5%

Net income (million)

$6.4

$4.8

33.3%

EPS

$0.15

$0.12

25.0%

In the second quarter of fiscal 2014, our revenue decreased from $157.9 million to $128.3 million, as compared with the same period last year primarily due to reduced revenue of approximately $29.5 million from our acid-pickled (AP) products. During the second quarter of fiscal 2014, almost all of our AP steel was used internally for further processing. As the first stage of steel processing and being of low gross margin, acid-pickling historically had limited contribution to the Company's gross profits and its revenue fluctuated significantly from quarter to quarter. In general, depending on the requirements of our products, production scheduling and market conditions, we may use our AP products for the next stage of processing or sell them directly to the customers.

We improved our product specifications to meet the market demand. We produced more HDG steel with thicker zinc coatings than we previously produced. We gained more traction for our new Galvalume product and substantially increased its production. We delivered more value-added customized services to retain customer loyalty and to gain new customers by extending our one-stop solution services further down-stream to cover certain steel processing services for selected customers. As a result, our gross margin increased to 10.6% from 7.7% and net income increased to $6.4 million from $4.8 million in the second quarter of fiscal 2014 as compared with the same period last year.

Second Quarter of Fiscal 2014 Major Events Highlights:

  • Successfully completed the construction of the new cold-rolling production line of 500,000 metric tons annual capacity after more than two years of preparation, design and construction;
  • Our electronic commerce platform Jinying365.com continued to gain traction - the number of registered users has been doubled to more than 200,000since the end of the first quarter of fiscal 2014;
  • Made further progress on transitioning from a pure traditional finished steel manufacturer to a full service provider of fine finished steel products and related services - we now sell fine finished steel and conduct other activities both on-line and off-line;
  • Upgraded our Quick Response (QR) systems for better inventory and production management; and
  • Completed technological upgrading of certain production lines by improving the electric and electronic design and replacing the old components with new ones to establish a zero-incident management system; the new system is expected to reduce maintenance expenses, extend equipment life and improve the economic performance of the production lines.

Ms. Lifang Chen, Chairwoman of Sutor, commented, "We ended the second quarter of fiscal 2014 with solid performance. During the quarter, we grew net income, improved cash flow from operations and reduced bank borrowings. With the new cold-rolling facility completed, we believe the Company will be in a better financial and operating situation and the management will have more leeway to consider various options for corporate development. In the near term, we will focus on fine-tuning the new production line and starting commercial production. In the longer term, we will continue to develop advanced fine-finished steel products to meet the growing need of the on-going economic transition and development in China. Further, we will continue to steadily cultivate our newly developed e-commerce business and make it an important part of our integrated manufacturing and supply-chain products and services."

Second Quarter of Fiscal Year 2014 Results

Revenue. For the three months ended December 31, 2013, revenue was $128.3 million, compared to $157.9 million for the same period last year, a decrease of $29.6 million, or 18.7%. The decrease was mainly attributable to reduced revenue of approximately $29.5 million from our AP products. During the quarter, we produced 124,868 tons of AP steel and almost all of them were used internally for further processing. In comparison, we sold 58,904 tons of AP steel during the second quarter of fiscal 2013. Depending on our product requirements, market conditions or our production line scheduling, we may use some or all of our AP steel for further processing. Historically the gross margin for our AP products was about 3% and contributed very limited gross profits to the Company.

On a geographic basis, revenue from international sales was approximately $5.1 million, or 4.0% of the total revenue, for the three months ended December 31, 2013, as compared to $18.3 million, or 11.6% of the total revenue, for the same period in 2012. The reduction was mainly due to the timing of the contract delivery. During the second quarter of fiscal 2014, we signed more contracts than the same period last year, but some of them are to be delivered over the coming quarters. Historically international sales accounted for approximately 10% of our total sales and we anticipate a similar ratio for fiscal 2014.

Gross profit and gross margin. Gross profit increased by $1.4 million to $13.6 million in the three months ended December 31, 2013, from $12.2 million in the same period in 2012. Gross profit as a percentage of revenue (gross margin) was 10.6% for the three months ended December 31, 2013, as compared to 7.7% for the same period last year. The most significant factors affecting the gross margin were higher HDG production and PPGI production. During the second quarter of fiscal 2014, production was up 9.1% and 83.7%, respectively, for HDG steel and PPGI steel, than the same period last year. Better capacity utilization reduced product unit depreciation and amortization costs and hence improved gross margin.

Total operating expenses. Our total operating expenses decreased by $0.5 million to $4.0 million in the three months ended December 31, 2013, from $4.5 million in the same period in 2012. As a percentage of revenue, our total operating expenses increased to 3.1% in the three months ended December 31, 2013, from 2.8% in the same period in 2012.

Selling expenses. Our selling expenses decreased by $0.7 million to $1.3million in the three months ended December 31, 2013, from $2.0 million in the same period in 2012. As a percentage of revenue, our selling expenses decreased to 1.0% for the three months ended December 31, 2013, from 1.2% for the same period last year. The decreased selling expenses were mainly due to significantly reduced international sales. For the second quarter of fiscal quarter 2014, our export revenue was $5.1 million as compared with $18.3 million for the same period last year. Further, we shipped more products through our local harbor in Changshu to save transportation costs while in the past, some products were transported through the harbor in Shanghai.

General and administrative expenses. General and administrative expenses increased by $0.07 million to $2.62million, or 2.1% of the total revenue, in the three months ended December 31, 2013, from $2.55 million, or 1.6% of the revenue, in the same period in 2012. The increased general and administrative expenses were primarily due to increased miscellaneous local fees and taxes.

Interest expense. Our interest expense increased by $0.3 million to $2.6 million in the three months ended December 31, 2013, from $2.3 million in the same period in 2012. As a percentage of revenue, our interest expense was2.0% of total revenue in the three months ended December 31, 2013, compared to 1.5% in the same period in 2012. The increase in interest expense was mainly attributable to increased interest expenses on discounted bank notes. The average interest rate of our short-term bank loans was stable during these periods.

Provision for income taxes. Our income tax expense increased to $1.6 million in the three months ended December 31, 2013, from $1.4 million of income tax in the same period last year primarily due to the increased taxable income.

Net income. Net income, without including the foreign currency translation adjustment, increased by $1.6 million, or 33.3%, to $6.4 million in the three months ended December 31, 2013, from $4.8 million in the same period in 2012, as a cumulative result of the above factors.

Financial Condition and Liquidity

As of December 31, 2013, we had approximately $12.5 million in cash and $108.7 million in restricted cash. Our short-term loans plus the current portion of long-term loans were approximately $128.4 million. The long-term loans were approximately $2.9 million. As of December 31, 2013, the Company had an unused line of credit with banks of approximately $16.0 million. Under normal operating conditions, we believe we have sufficient liquidity to carry out our operations in the foreseeable future.

Conference Call Information

Sutor's management will host an earnings conference call today, February 13, 2014, at 9:00 a.m. U.S. Eastern time/10:00 p.m. Beijing/Hong Kong time. Listeners may access the call by dialing US: +18778470047, CN: 800 876 5011, HK +852 3006 8101, access code: SUTR. A recording of the call will be available shortly after the call through March 15, 2014. Listeners may access it by dialing US: +1866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 704213.

Functional Currency

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 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 in nature within the meaning of the Private Securities Litigation Reform Act of 1995. 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, 2013, 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:

Investor Relations
Sutor Technology Group Limited
Tel: +86-512-5268-0988
Email: investor_relations@sutorcn.com

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED BALANCE SHEETS




December 31,


June 30,



2013


2013






ASSETS





Current Assets:





Cash and cash equivalents

$

12,525,255

$

3,601,385

Restricted cash


108,741,521


108,825,425

Short-term investments


3,272,144


-

Trade accounts receivable, net of allowance for doubtful accounts of $753,383 and $623,742, respectively


9,622,962


7,331,291

Notes receivable


109,617


320,888

Other receivables and prepayments, net of allowance for doubtful accounts of $275,483 and $248,128, respectively


9,256,709


3,446,187

Advances to suppliers, unrelated parties, net of allowance for doubtful accounts of $780,924 and $796,026, respectively


25,943,158


43,175,047

Advances to suppliers, related parties, net of allowance for doubtful accounts of nil, and net of right to offset


153,903,862


185,615,973

Inventories, net


114,409,491


52,377,135

Deferred tax assets


1,050,243


952,417

Total Current Assets


438,834,962


405,645,748

Non-current Assets:





Advances for purchase of long term assets


85,857


17,085,958

Property, plant and equipment, net


92,366,660


71,508,912

Intangible assets, net


3,638,359


3,074,372

Equity method investments


7,029,062


6,686,539

Total Non-current Assets


103,119,938


98,355,781

TOTAL ASSETS

$

541,954,900

$

504,001,529






LIABILITIES AND STOCKHOLDERS' EQUITY





Current Liabilities:





Short-term loans

$

124,838,100

$

138,968,845

Long-term loans, current portion


3,542,760


7,418,003

Accounts payable, unrelated parties


130,117,238


82,602,243

Accounts payable, related parties


-


20,162,069

Other payables and accrued expenses


7,066,224


7,291,220

Advances from customers


21,644,382


11,008,550

Warrant liabilities


211,433


144,535

Total Current Liabilities


287,420,137


267,595,465

Long-Term Loans


2,859,995


1,180,877

Total Liabilities


290,280,132


268,776,342






Stockholders' Equity





Undesignated preferred stock - $0.001 par value; 1,000,000 shares authorized; nil shares outstanding


-


-

Common stock - $0.001 par value; authorized: 500,000,000 shares as of December 31, 2013 and June 30, 2013; issued: 42,107,267 and 40,965,602 shares as of December 31, 2013 and June 30, 2013.


42,107


40,965

Additional paid-in capital


43,521,086


41,793,142

Statutory reserves


20,426,971


20,426,971

Retained earnings


143,894,975


132,311,592

Accumulated other comprehensive income


44,441,138


41,304,026

Less: Treasury stock, at cost, 590,838 shares as of December 31, 2013 and June 30, 2013


(651,509)


(651,509)

Total Stockholders' Equity


251,674,768


235,225,187

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY

$

541,954,900

$

504,001,529

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

AND COMPREHENSIVE INCOME









For The Three Months Ended



For The Six Months Ended




December 31,



December 31,




2013


2012



2013


2012












Revenue:











Revenue from unrelated parties


$

102,230,215

$

103,844,847


$

204,412,337

$

191,073,017

Revenue from related parties



26,086,595


54,022,011



63,012,798


83,980,532




128,316,810


157,866,858



267,425,135


275,053,549












Cost of Revenue











Cost of revenue from unrelated parties



(91,296,065)


(94,105,510)



(183,571,592)


(174,320,698)

Cost of revenue from related parties



(23,395,036)


(51,552,002)



(58,025,289)


(79,976,521)




(114,691,101)


(145,657,512)



(241,596,881)


(254,297,219)












Gross Profit



13,625,709


12,209,346



25,828,254


20,756,330












Operating Expenses:






















Selling expenses



(1,337,918)


(1,978,916)



(3,332,774)


(4,292,168)

General and administrative expenses



(2,624,720)


(2,550,249)



(5,528,990)


(4,680,073)

Total Operating Expenses



(3,962,638)


(4,529,165)



(8,861,764)


(8,972,241)

Income from Operations



9,663,071


7,680,181



16,966,490


11,784,089












Other Incomes/(Expenses):











Interest income



786,544


1,059,709



1,836,766


2,022,050

Interest expense



(2,574,958)


(2,340,244)



(4,378,253)


(5,874,436)

Changes in fair value of warrant liabilities



(54,311)


(1,501)



(66,898)


14,523

Income from equity method investments



180,956


185,888



266,128


174,446

Other income



174,752


122,520



219,026


159,138

Other expense



(201,757)


(563,209)



(219,780)


(667,524)

Total Other Expenses, net



(1,688,774)


(1,536,837)



(2,343,011)


(4,171,803)












Income Before Taxes



7,974,297


6,143,344



14,623,479


7,612,286

Income tax expense



(1,579,161)


(1,371,012)



(3,040,096)


(1,004,609)

Net Income


$

6,395,136

$

4,772,332


$

11,583,383

$

6,607,677












Other Comprehensive Income:











Foreign currency translation adjustment



1,477,555


708,871



3,137,112


226,470

Comprehensive Income


$

7,872,691

$

5,481,203


$

14,720,495

$

6,834,147












Basic Earnings per Share


$

0.15

$

0.12


$

0.28

$

0.16

Diluted Earnings per Share


$

0.15

$

0.12


$

0.28

$

0.16












Basic Weighted Average Shares Outstanding



41,453,386


40,224,003



41,383,956


40,222,247

Diluted Weighted Average Shares Outstanding



41,453,386


40,224,003



41,383,956


40,222,247

SUTOR TECHNOLOGY GROUP LIMITED AND SUBSIDIARIES

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS




For The Six Months Ended



December 31,



2013


2012

Cash Flows from Operating Activities:





Net income

$

11,583,383

$

6,607,677

Adjustments to reconcile net income to net cash provided by/(used in) operating activities





Depreciation and amortization


4,510,854


4,408,037

Provision/(reversal) for doubtful accounts


123,435


(708,630)

Stock based compensation


238,320


71,524

Foreign currency exchange gain


(194,913)


(10,234)

(Gain)/loss on disposal of property, plant and equipment


(10,985)


85,198

Interest income from short-term investments carried at amortized cost


-


(30,900)

Income from equity method investments


(266,128)


(174,446)

Deferred income taxes


(86,678)


(179,476)

Changes in fair value of warrant liabilities


66,898


(14,523)

Changes in current assets and liabilities:





Restricted cash


(20,188,832)


2,221,324

Trade accounts receivable


(2,320,586)


3,910,051

Notes receivable


213,696


364,553

Other receivable and prepayments


(5,775,579)


868,254

Advances to suppliers, unrelated parties


17,643,081


(5,968,905)

Advances to suppliers, related parties


33,716,400


(15,026,467)

Inventories


(61,110,422)


(7,330,679)

Accounts payable, unrelated parties


46,830,652


(5,156,443)

Accounts payable, related parties


(20,276,893)


17,975,273

Other payables and accrued expenses


(293,095)


(1,078,382)

Advances from customers


10,458,615


5,368,031

Net Cash Provided byOperating Activities


14,861,223


6,200,837






Cash Flows from Investing Activities:





Purchase of property, plant and equipment


(7,818,783)


(3,217,771)

Proceeds from disposal of property, plant and equipment


15,052


523,761

Purchase of intangible assets


(567,268)


(3,560,563)

Payments for short-term investments


(3,254,308)


-

Proceeds from sale of short-term investments


-


4,884,009

Investment in affiliated company


-


(6,181,547)

Net Cash Used In Investing Activities


(11,625,307)


(7,552,111)






Cash Flows from Financing Activities:





Proceeds from loans


93,079,729


94,118,588

Repayment of loans


(110,464,374)


(94,530,050)

Proceeds from issuance of common stock


1,500,000


-

Changes in restricted cash


21,485,248


10,065,475

Payments on repurchase of common stock


-


(43,841)

Net Cash Provided by Financing Activities


5,600,603


9,610,172






Effect of Exchange Rate Changes on Cash and Cash Equivalents


87,351


8,980






Net Change in Cash and Cash Equivalents


8,923,870


8,267,878

Cash and Cash Equivalents at Beginning of Period


3,601,385


9,530,531

Cash and Cash Equivalents at End of Period

$

12,525,255

$

17,798,409






Supplemental Non-Cash Information:





Offset of notes payable to related parties against receivable from related parties

$

11,126,897

$

10,609,363

Accounts payable for purchase of long-term assets

$

(495,344)

$

(658,841)

Advances for purchase of long-term assets

$

17,097,874

$

(334,858)






Supplemental Cash Flow Information:





Cash paid during the period for interest expense

$

(4,430,640)

$

(5,025,598)

Cash paid during the period for income tax

$

(3,122,617)

$

(1,669,952)

Source: Sutor Technology Group Limited
Keywords: Mining/Metals
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