Sutor Technology Group Limited a leading China-based non-state-owned manufacturer and distributor of high-end fine finished steel products and welded steel pipes used by a variety of downstream applications announced its unaudited financial results for the third quarter of fiscal year 2012 ended March 31 2012.
Third Quarter 2012 Highlights
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In USD million
Revenue. For the three months ended March 31, 2012, revenue was USD 109.9 million, compared to $101.4 million for the same period last year, an increase of $8.5 million, or 8.4%. The increase was mainly attributable to higher revenue from our HDG and acid-pickled steel products. During the three months ended March 31, 2012, revenue from our HDG and acid-pickled steel products increased by 36.1% and 39.3%, respectively, as compared to the same period last year. The higher revenue from HDG products was primarily due to the higher sales volume, which increased by approximately 37.1%. The higher revenue of acid-pickled steel was primarily due to higher sales volume and higher average selling price, which increased by 30.3% and 6.9%, respectively. The increased demands for HDG and acid picked products mainly resulted from our successful efforts to expand the group of end-customers. We recently established a special division to target and service large and end-user customers. During the quarter, we added more than one hundred end-customers. Further, demand for thick-spec HDG products exceeded supplies during the most recent quarter.
However, we experienced a decrease in sales of cold rolled steel products by approximately 86.0% mainly because we used more of them internally for the production of our other products. Furthermore, sales of PPGI and steel pipe products also decreased during the third fiscal quarter of 2012 due to the timing of the Chinese New Year, which limited the number of working days during the month of January and longer-than-normal facilities renovation, which caused a reduction of production of these products during this quarter. Revenues from PPGI and steel pipe products decreased 65.6% and 39.2%, respectively. We renovated the furnace of the PPGI production line in order to achieve long-term energy savings. The declined pipe product revenue was mainly due to the timing of projects. The average selling price was down 1.4% for the PPGI products and up 14.7% for the pipe products during the third-quarter ended March 31, 2012 as compared with the same period last year.
Cost of revenue
Cost of revenue increased by USD 9.3 million or 10.0% to USD 102.1 million in the three months ended March 31 2012 from USD 92.8 million in the same period in 2011. As a percentage of revenue, cost of revenue increased to 92.8% in the three months ended March 31 2012 as compared to 91.5% in the same period last year. The increased amount of the cost of revenue was generally in line with the increased sales revenue.
Gross profit and gross margin
Gross profit decreased by USD 0.7 million to USD 7.9 million in the three months ended March 31 2012 from USD 8.6 million in the same period in 2011. Gross profit as a percentage of revenue was approximately 7.2% for the three months ended March 31, 2012 as compared with approximately 8.5% for the same period last year. The lower gross margin was due to the fact that we sold more lower gross margin products for the quarter ended March 31, 2012 than the same quarter last year. For instance, we sold more HDG products than PPGI products whereas HDG's gross margin is usually lower than that of PPGI. As a result, the overall gross margin was reduced. In addition, our adoption of sales promotion policies to some extent negatively affected our profit margin.
Total operating expenses
Our total operating expenses increased approximately USD 0.1 million to USD 3.2 million in the three months ended March 31 2012 from USD 3.1 million in the same period in 2011. As a percentage of revenue, our total operating expenses decreased to 2.9% in the three months ended March 31 2012 from 3.0% in the same period in 2011.
Our selling expenses decreased by USD 0.4 million to USD 0.9 million in the three months ended March 31 2012 from USD 1.3 million in the same period in 2011. As a percentage of revenue, our selling expenses decreased to 0.8% for the three months ended March 31 2012, from 1.3% for the same period last year. The lower selling expenses were mainly due to lower international sales for the quarter ended March 31, 2012 than the same period last year.
General and administrative expenses
General and administrative expenses increased by USD 0.6 million to USD 2.3 million, or 2.1% of the total revenue, in the three months ended March 31 2012 from USD 1.7 million or 1.7% of the revenue, in the same period in 2011. The increased general and administrative expenses were primarily due to increased employee compensation and benefits, new office building maintenance expenses, depreciation for office supplies, and expenses for renovating employee dormitories in the amount of approximately USD 0.13 million, USD 0.1 million, USD 0.13 million and USD 0.14 million respectively.
Our interest expense increased by USD 1.5 million to USD 3.5 million in the three months ended March 31 2012 from USD 2.0 million in the same period in 2011. As a percentage of revenue, our interest expense was approximately 3.2% of total revenue in the three months ended March 31 2012 compared to 2.0% in the same period in 2011. Among the total increase, approximately USD 1 million of the increased amounts was due to discounted interest expenses for bank notes and the remaining USD 0.5 million was due to higher interest rates and the increased loan amount.
Provision for income taxes
Our income tax expense increased to approximately USD 0.6 million in the three months ended March 31 2012 from USD 0.08 million in the same period last year, primarily due to the expiration of the preferential income tax rate of 12.5% for Jiangsu Cold-rolled. Starting 2012, its statutory income tax rate increased to 25%.
Net income, without including the foreign currency translation adjustment, decreased by approximately USD 2.3 million, or 65.7%, to USD 1.2 million in the three months ended March 31, 2012 from USD 3.5 million in the same period in 2011 as a cumulative result of the above factors.
Ms Lifang Chen Chairwoman and CEO said “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."
She said "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."
She added that "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."
Source - Sutor Technology