Sutor Technology Group Limited Reports Second Quarter of Fiscal Year 2015 Financial Results

CHANGSHU, China, February 17, 2015 /PRNewswire/ -- Sutor Technology Group Limited (the "Company" or "Sutor") (Nasdaq: SUTR), one of the leading China-based manufacturers and service providers for fine finished steel products used by a variety of downstream applications, today announced its unaudited financial results for the second quarter of fiscal year 2015 ended December 31, 2014.

Second Quarter of Fiscal 2015 Financial Results Highlights:

Ms. Lifang Chen, CEO and President of Sutor, commented, "We are pleased to see our performance turned from net loss for the first quarter of fiscal 2015 to profit for the second quarter. Although our second quarter revenue and net income decreased as compared with same period last year, both of them increased by 124.5% and 100.6%, respectively, compared with the first quarter of this fiscal year, which demonstrates the initial success of our business transformation as we are focusing more on sales quality improvement. We anticipate that we will continue to see improved results in the coming quarters both in overall gross margin and international sales after our PPGI production line upgrading is finished and operation of that line resumes, which are expected to be in the third fiscal quarter."

Ms. Chen continued, "The Chinese economy is undergoing a structural adjustment and experiencing a slowdown. However, we believe this process provides opportunities for Chinese steel enterprises to carry out business transformation and upgrading and we are trying to capitalize on this historical opportunity to change our business model, strengthen our brand awareness and enhance innovation with a goal to develop new markets and cultivate new drivers of profit growth of our company."

"Besides that, our PRC subsidiary, Sutor Technology engages in the development of online-to-offline (O2O) E-commerce. We believe that the combination of online promotional trading platform and traditional offline sales service not only maximizes our sales opportunity, but also reduces our procurement and sales cost. Following the trend of structural transformation and specialization in the world steel industry, we have made significant progress in taking potential merger and acquisition to consolidate resources of upstream and downstream. Our goal is to integrate all functions of R&D, sales, processing and logistics service together and upgrade ourselves from a traditional manufacturer of fine finished steel to a customized processing service provider. We will update the market on this development when it is appropriate," Ms. Chen concluded.

Second Quarter of Fiscal Year 2015 Results

Revenue. For the three months ended December 31, 2014, our revenue was $85.3 million, compared to $128.3 million for the same period last year, a decrease of $43.0 million, or 33.5%. The decrease was mainly attributable to the change in our business model. In the past, our revenue was primarily derived from selling manufactured products and the sales price included the cost of steel sheets plus a gross profit. With the fee-based processing services, the price of pure processing services does not include the cost of steel sheets as the customers are responsible for procurement of the raw materials. As a result, revenue from processing one ton of fine finished steel products is only a fraction of the revenue from the traditional business model. We believe that the fee-based model is more measurable and allows us to better adapt to the changes in the Chinese economy and improve company competitiveness.

On a geographic basis, revenue generated from outside of China was $1.5 million, or 1.7% of the total revenue, for the three months ended December 31, 2014, as compared to $5.1 million, or 4.0% of the total revenue, for the same period in 2013. The decrease was mainly because of the decline in demand for our products and the upgrading of PPGI production line. As a result, we did not produce the PPGI products which are our main exported products.

Cost of revenue. Cost of revenue decreased by$34.7 million, or 30.3%, to $80.0 million in the three months ended December 31, 2014, from $114.7 million in the same period in 2013. As a percentage of revenue, cost of revenue increased to 93.8% in the three months ended December 31, 2014, as compared to 89.4% in the same period last year. The decrease in cost of revenue was mainly due to our new fee-based processing model that part of our business became pure processing service, which significantly reduced our cost of revenue However, its percentage of revenue increased because those fixed costs including depreciation and amortization cost did not decrease at the early stage of our transformation period.

Gross profit and gross margin. Gross profit decreased by$8.3 million to $5.3 million in the three months ended December 31, 2014, from $13.6 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was 6.2% for the three months ended December 31, 2014, as compared to 10.6% for the same period last year. The main reason for the declined gross margin was the scheduled technical upgrading of our PPGI production line and as a result, we did not produce high margin PPGI products. In addition, in order to speed up our transformation, we offered more competitive prices for processing services to attract more customers.

Total operating expenses. Our total operating expenses decreased by $1.4 million to $2.6 million in the three months ended December 31, 2014, from $4.0 million in the same period in 2013. As a percentage of revenue, our total operating expenses remained 3.1% in the three months ended December 31, 2014, the same as in the same period last year.

Selling expenses. Our selling expenses decreased by $0.5 million to $0.8 million in the three months ended December 31, 2014, from $1.3 million in the same period in 2013. As a percentage of revenue, our selling expenses decreased to 0.9% for the three months ended December 31, 2014, from 1.0% for the same period last year. The decrease was mainly due to reduced shipping, handling and miscellaneous expenses of approximately $0.65 million as a result of our declined sales.

General and administrative expenses. General and administrative expenses was $1.9 million, or 2.2% of the total revenue, in the three months ended December 31, 2014, as compared with $2.62 million, or 2.1% of the revenue, in the same period in 2013. The decrease was primarily due to reduced office expenses and miscellaneous local fees resulted from the reduction of our sales.

Interest Income. Our interest Income decreased by $0.6 million to $0.2 million in the three months ended December 31, 2014, from $0.8 million in the same period in 2013. As a percentage of revenue, our interest expense was 0.2% of total revenue in the three months ended December 31, 2014, compared to 0.6% in the same period in 2013. The decrease was mainly due to a change in financing structure. Our notes payable decreased during the three months ended December 31, 2014, which resulted in less restricted cash and accordingly lower interest income. The decrease of notes payable reduced our discounted cost and financial cost.

Interest expense. Our interest expense decreased by $0.2 million to $2.4 million in the three months ended December 31, 2014, from $2.6 million in the same period in 2013. As a percentage of revenue, our interest expense was 2.9% of total revenue in the three months ended December 31, 2014, compared to 2.0% in the same period in 2013. The decrease was mainly due to the fact that some of our bank acceptances were converted to short term loans, which reduced our interest expense.

Provision for income taxes. Our income tax expense decreased to $0.2 million in the three months ended December 31, 2014, from $1.6 million of income tax benefit in the same period last year, mainly due to the decreased taxable profit amount.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $6.37 million, or 99.5%, to $0.03 million in the three months ended December 31, 2014, from $6.4 million in the same period in 2013, as a cumulative result of the above factors.

Liquidity and Capital Resources

As of December 31, 2014, we had cash and cash equivalents (excluding restricted cash) of $3.3 million and no restricted cash. Our short-term loans were approximately $202.9 million. We also had approximately $11.0 million long-term loans. As of December 31, 2014, the Company had an unused line of credit with banks of approximately $30.9 million which entitled us to draw bank loans for general corporate purposes. We do not have any large capital expenditure for new investment projects for the coming months.

Conference Call Information

Sutor's management will host an earnings conference call today, February 17, 2015, at 9:00 a.m. U.S. Eastern time/10:00 pm 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 20, 2015. Listeners may access it by dialing US: +1866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 712647.

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 service providers for 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. The Company also offers fee-based steel processing services and sells products through electronic commerce platforms. 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, 2014, 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

Financial Tables Below:

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