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

CHANGSHU, China, May 14, 2014 /PRNewswire/ -- 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 third quarter of fiscal year 2014 ended on March 31, 2014.

Third Quarter of Fiscal 2014 Financial Results Highlights:

Mr. Zhuo Wang, CEO of Sutor, commented, "While the total revenue was down as we reduced sales of low margin products like acid-pickled (AP) steel and focused on producing high-end products, the reduction in the gross margin for our main product HDG steel was larger than expected. We were affected by the recent decelerated GDP growth in China.  During the quarter, the prices of steel products declined sharply as the steel industry was undergoing transition to improve performance and due to reduced economic activities in several sectors. Many of Sutor's customers are small and medium-sized downstream manufacturers and some are steel trading companies. When the prices of steel products reached a multi-year low level and the overall liquidity in China was contracting, they were affected most and some faced liquidity reduction. To minimize the risks, some of our customers reduced procurements and others took a wait-and-see approach. "

Mr. Wang continued, "We believe we are exposed to an economic slowdown, which may remain for some time.  As the on-going economic restructuring begins to yield positive results and China's economy resumes its upward trajectory, we anticipate the performance of the Chinese industrial sectors will start to improve. "

"To cope with the near term challenges, we have taken a number of initiatives to transform Sutor from a manufacturing company to a product and service provider: (1) Shift our strategy from pursuing sales volume and scale to providing more fee-based processing services and quality-centered product offerings; (2) Reduce sales of low gross margin products like AP steel and develop high growth and high margin products; (3) Improve procurement efficiency and reduce purchasing costs through competitive bidding on our Internet B2B platform; (4) Seek strategic industrial and financial partners to strengthen our market position and financial ability; and (5) Enhance our investor relations efforts and increase our exposure to the investment community." Mr. Wang concluded.

Third Quarter of Fiscal Year 2014 Results

Revenue. For the three months ended March 31, 2014, revenue was $96.4 million, compared to $139.5 million for the same period last year, a decrease of $43.1 million, or 30.9%. The decrease was mainly attributable to the reduced revenue of approximately $34.6 million from our AP steel products.  Except for limited fee-based processing services for AP products, we did not sell any AP steel products.  Instead, the AP products were used internally for further processing. Historically AP steel had a gross margin of about 3%.  Reduced sales of this product may help improve our overall gross margin. Our strategy is to phase out sales of low margin products like AP steel and focus on high margin and high growth products. In addition, reduced sales of cold-rolled steel products of approximately $7 million also contributed to the overall decrease in our revenue during the third quarter of fiscal 2014.

Gross profit and gross margin. Gross profit decreased by $3.6 million to $7.3 million in the three months ended March 31, 2014, from $10.9 million in the same period in 2013. Gross profit as a percentage of revenue (gross margin) was 7.6% for the three months ended March 31, 2014, as compared to 7.8% for the same period last year.   The decreased gross margin was primarily due to decreased gross margin for our main product HDG steel which contributed to approximately 70% of the total revenue.  During the quarter ended on March 31, 2014, the gross margin of our HDG steel was 6.6% as compared with approximately 9.9% for the same period last year.  During the third quarter of fiscal 2014, the sale volume of HDG steel was up approximately 6.9%, but its impact on the revenue was offset by lower average selling price of approximately 9.7%.

Total operating expenses. Our total operating expenses decreased by $0.2 million to $3.7 million in the three months ended March 31, 2014, from $3.9 million in the same period in 2013. As a percentage of revenue, our total operating expenses increased to 3.8% in the three months ended March 31, 2014, from 2.8% in the same period in 2013.

        Selling expenses. Our selling expenses decreased by $0.4 million to $1.0 million in the three months ended March 31, 2014, from $1.4 million in the same period in 2013. As a percentage of revenue, our selling expenses was approximately 1.0% for the three months ended March 31, 2014, as compared with approximately 1.0% for the same period last year.  The reduced dollar amount of selling expenses was primarily due to reduced shipping and handling expenses of approximately $0.4 million as a result of lower sales volumes, particularly our international sales.

        General and administrative expenses. General and administrative expenses increased by $0.2 million to $2.7million, or 2.8% of the total revenue, in the three months ended March 31, 2014, from $2.5 million, or 1.8% of the revenue, in the same period in 2013. The increased general and administrative expenses were primarily due to higher employee benefits of approximately $0.14 million.

Interest expense. Our interest expense decreased by $0.6 million to $2.0 million in the three months ended March 31, 2014, from $2.6 million in the same period in 2013. As a percentage of revenue, our interest expense was 2.1% of the total revenue in the three months ended March 31, 2014, compared to 1.8% in the same period in 2013.  The reduced interest expenses were primarily due to reduced interest expenses on discounted bank notes.

Provision for income taxes. Our income tax expense decreased to $0.6 million in the three months ended March 31, 2014, from $1.7 million of income tax taxes in the same period last year, due to lower taxable income and valuation allowance provided for the entities that incurred losses.

Net income. Net income, without including the foreign currency translation adjustment, decreased by $2.8 million, or 71.8%, to $1.1 million in the three months ended March 31, 2014, from $3.9 million in the same period in 2013, as a cumulative result of the above factors.

Financial Condition and Liquidity

As of March 31, 2014, we had approximately $6.7 million in cash and $95.6 million in restricted cash. Our short-term loans plus the current portion of long-term loans were approximately $116.9 million. The long-term loans were approximately $11.0 million.  As of March 31, 2014, the Company had an unused line of credit with banks of approximately $17.8 million.

Conference Call Information

Sutor's management will host an earnings conference call today, May 14, 2014, at 9:00 a.m. U.S. Eastern time/9:00 pm 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 June 13, 2014.  Listeners may access it by dialing US: +1866 572 7808, CN: 800 876 5013, HK: +852 3012 8000, access code: 706791.

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 fiscal year ended June 30, 2013, and other risks mentioned in our other reports filed with the Securities and 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: [email protected]               

Financial tables below:

SOURCE Sutor Technology Group Limited