Sutor Tech Group (NASDAQ:SUTR)

Third Quarter 2012 Results

• For the three months ended March 31, 2012, revenue was $109.9 million, compared to $101.4 million for the same period last year, an increase of $8.5 million, or 8.4%.
• Net income, without including the foreign currency translation adjustment, decreased by approximately $2.3 million, or 65.7%, to $1.2 million in the three months ended March 31, 2012, from $3.5 million in the same period in 2011, as a cumulative result of the above factors.

Ms. Lifang Chen, Chairwoman and CEO, commented, "Our performance was lower than that in the same quarter last year due to a combination of factors including the slowing down of the Chinese economic growth, equipment shutdown for energy-saving related renovation as well as the timing of project completion. Further, continued appreciation of the Chinese Yuan and lingering financial crises in Europe resulted in slower export sales. It was one of the most challenging quarterly performances for the last several years. We understand every industry and company may have its ups and downs."

"That being said, we are pleased with the fact that sales from our main HDG products were up approximately 36.1% during the quarter compared with the same quarter last year because demand exceeded supplies. As a result, we built up inventories and engaged in spot sales. We fully expect sequentially improved performance in the fourth fiscal quarter in an otherwise challenging but improving economic environment. I am also pleased to report that the construction of the new 500,000 metric tons of high-precision cold-roll steel production line is progressing well. We anticipate trial production will start in July."

"On the capital market, we'll continue to closely monitor the tradeoff between trading liquidity and share prices. We may resume repurchasing shares to protect and maximize shareholder value when appropriate. We may also ask the Board of Directors to approve new buyback programs after the existing program expires. Our near-term priority is to complete the new cold-roll production line on time and then try to maximize the asset value," concluded Ms. Chen.

Outlook

We believe as the inflation pressure in China is under control and the Chinese government may gradually improve monetary liquidity, the Chinese economic growth is expected to gain momentum and maintain a reasonable growth rate. For the steel industry, especially the downstream segment of the industry where our company is located in, we believe the average product price has reached a local bottom and has been stable for the last several months. As we believe the demand for our product is gradually increasing, we anticipate sequentially improved performance for the fourth fiscal quarter and for the next fiscal year.

Unaudited financial results for the second quarter of fiscal year 2012 ended December 31, 2011.

Second-Quarter 2012 Highlights:

Revenues (million)     2QFY2012  2QFY2011  Change

Revenues (million)       $107.9         $99.4       8.6%

Gross profit (million)    $10.4           $9.5         9.5%

Gross Margin               9.6%             9.6%         -

Net income (million)     $2.8             $2.9          -3.4%

EPS                              $0.07           $0.07          -

• 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.

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.

Second Quarter 2012 Results

• Revenue was approximately $107.9 million, compared to $99.4 million for the same period last year, an increase of approximately 8.6%
• 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.
• EPS for Second Quarter 2012 were $0.07 vs $0.07 in prior year

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.

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.

First Quarter 2012 Results

Fiscal 2011 Results

• 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%.
• 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
• Earnings per share for fiscal 2011 $0.34 vs $0.29 in 2010

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.

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."

Fourth Quarter Preliminary Results

First Quarter Highlights:

"We are pleased to report another quarter of consistent profit and improved gross margin. The decline in total revenue was primarily due to our strategic decision to reduce our steel trading business. In addition, as the steel industry in China becomes more competitive and lower end products become more of a commodity, we are working hard to shift some of our high end capacity to more specialized, higher margin products. Our goal is to separate ourselves from the industry at the highest levels and to work as efficiently as possible.  As a result of this transition over the past quarter, we experienced a decrease from our overall pre-painted galvanized products. Going forward, we anticipate favorable top line growth on a year over year basis beginning next fiscal year," said Ms. Chen, Chairwoman and CEO of Sutor. "We are encouraged by the fact that demand for our products remained strong and the prices for our products increased between approximately 6.5% and 19.0% in the third fiscal quarter this year over the same quarter last year."

• Revenues were $101.4 million in the third fiscal quarter of 2011, compared to $114.5 million for the same period last year, a decrease of $13.1 million, or approximately 11.4%
• Income from operations was $5.6 million in the third fiscal quarter of 2011 as compared to $5.5 million in the same period last year, an increase of $0.1 million, or approximately 1.8%
• EPS of $0.09 vs. $0.09--flat on the year.

"We remain optimistic about the remainder of fiscal year 2011. In January, we received approximately 10,000 tons of international sales orders as compared with about 10,500 tons of such orders for the whole third quarter of FY2010. In the second quarter of FY2011, Sutor was honored as a High-Tech Enterprise by Jiangsu provincial government. This certification places Sutor among a selected few value-added steel producers in China that won both government and market recognition. Further, Sutor recently opened two new offices in metropolitan  Ningbo and Shanghai in an effort to attract talents, increase brand recognition and better service our customers," Ms. Chen further commented. "As we continue our strategies of expanding sales channels, optimizing product portfolio, enhancing research and development efforts, and improving brand recognition, we believe we can capitalize on the ongoing industrial upgrading and urbanization processes in China," concluded Ms. Chen.

    Fiscal Fourth quarter results highlights:

                                  4Q 2010    4Q 2009             Change
    Revenues (million):           $125.3     $109.8              14.1%
    Gross profit (million):       $10.5      $6.3                66.7%
    Net income (million):         $3.4       $1.8                88.9%
    EPS:                          $0.08      $0.05               60.0%

    Fiscal year 2010 results highlights:

                                  FY2010      FY2009             Change
    Revenues (million):           $478.7      $429.8             11.4%
    Gross profit (million)        $32.8       $36.3             -9.6%
    Net income (million)          $11.3       $18.7             -39.6%
    EPS                           $0.29       $0.49             -40.8%

Commenting on Sutor's operations, Ms. Lifang Chen, Chairwoman and CEO, said, "We are pleased with our performance in the fiscal fourth quarter which demonstrated significant improvement over the same period last year. The record high annual revenues were the result of our continued effort to expand our markets despite the uncertainties during economic recovery. In the fourth quarter sales volume increased approximately 3.9% over the same period last year. For the fiscal year, sales volume was approximately 27.1% higher than fiscal year 2009. Demand for our products remained strong as our products are extensively used in almost all major sectors of the economy. Last fiscal year was a year of consolidation and stabilization and hence we are optimistic about the overall performance in fiscal year 2011."

 Ms. Chen continued, "We are pleased to see the continued increase in annual revenue attributable to our efforts to expand market share in both domestic and overseas markets. Although the record annual revenue did not transform to increased annual net income as a result of rising production costs and increased selling expenses, the widened sales channels have laid a solid foundation to expand future sales. Additionally, we made significant efforts to differentiate ourselves from other competitors through investing in research and development. We applied for 15 patents in fiscal year 2010, two of which have been approved. As of June 30, 2010, we held 23 patents and had 36 patent applications pending and believe our R&D initiatives will enhance Sutor's long-term competitive edge."

"Looking to fiscal year 2011, our priority is to maximize the capacity utilization rate, especially for our 400,000 MT hot-dip galvanization production lines that began operations at the end of September 2008. While we expect lingering uncertainty regarding general economic conditions, we will focus on generating cash from operations, reducing expenses, and improving operations to grow Sutor from both the top and bottom line. In addition, we aim to take advantage of the overcapacity situation in the upstream segment of the Chinese steel industry and reduce the costs of production. Further, we plan to expand our research center to develop high-performance and high margin steel sheets and composite steel sheets to enhance our product offerings and profitability. Finally, even though we believe our current corporate transactions are transparent, we will take additional measures to further improve corporate transparency and earnings quality. We will continue to pursue our vision of becoming the largest private fine processed steel manufacturer and contribute to the on-going industrial upgrading and urbanization processes in China," concluded Ms. Chen.

Ms. Lifang Chen, Chairperson and CEO of Sutor said, 'Like many companies in our industry, we are affected by the current global economic downtown. Despite the fact that we continued to face challenges during our third fiscal quarter, we nonetheless realized profits in the quarter while many companies in the steel industry suffered losses. Compared to the second fiscal quarter of 2009, our revenue increased by 8.0% in the third fiscal quarter, which we view as a positive sign and as validation of our development strategy and that our reaction to the volatile economic crisis has been swift and effective. We anticipate that we will continue to grow by taking advantage of a long-awaited resurgence in manufacturing and industrial development and activity and favorable economic results from the implementation of PRC government's active stimulus policies during the coming quarters.'

Source: See Release, May 14, 2009