Sutor Technology Group Limited a leading China based manufacturer and distributor of high end fine finished steel products and welded steel pipes used by a variety of downstream applications announced its financial results for the fiscal year ended June 30 2012.
Fiscal year 2012 results highlights:
FY'12 FY'11 Change
Revenues 531.6 431.7 23.10%
Gross profit 41.7 40.5 3.00%
Net income 12.1 14.6 -17.10%
EPS 0.3 0.36 -16.70%
In USD million except EPS
For the fiscal 2012 fourth quarter, Sutor generated revenue of approximately USD 183.6 million, net income of USD 3.3 million and EPS of USD 0.08. Sutor fiscal 2012 fourth quarter results significantly improved over its fiscal 2012 third quarter results where it generated revenue, net income and EPS of USD 109.9 million, USD 1.2 million and USD 0.03 respectively. The substantial sequential quarterly improvement demonstrates the Company strengths and resilience during difficult economic times when the Chinese and global economies have experienced high volatility and undergone significant changes.
We believe Sutor business will continue to remain strong and competitive because our products are used in a variety of sectors such as construction, infrastructure, household appliances, solar water heaters, information technology and medical instruments. We aim to further diversify our customer base and better position our Company to take advantage of the growing demand for our products.
We are in the process of completing the construction of our new 500,000 tonnes cold rolled production line. We expect this line to be completed and begin initial production in fiscal year 2013. At full capacity and demand, this new line could generate more than USD 300 million in external sales revenue at today prices. However, as part of Sutor integrated production process a large portion of the production will be used internally to create additional value added products, with the goal of improving our profitability.
Currently, Sutor has 500,000 MT of annual acid pickled capacity, 250,000 MT of cold rolled capacity, 700,000 MT of hot dip galvanization capacity as well as additional pre painted galvanized steel and steel pipe production capacity. Therefore, we believe the addition of the new 500,000 MT of cold rolled capacity will further optimize the Company integrated production facilities.
During fiscal 2012 fourth quarter, we repurchased 105,455 shares of the Company common stock. As of August 31 2012 we have bought back an aggregate of 590,838 shares of common stock at the average buyback price of approximately USD 1.10 per share. We intend to continue to buy back our stock.
Ms Lifang Chen Chairwoman and CEO of Sutor said "We are pleased that despite the challenging economic conditions in China and abroad, we generated record revenue and have continued to grow our business by developing new products increasing our customer base, and by establishing a joint venture and therefore positioned our Company well for sustainable growth in fiscal 2013 and beyond."
Ms Chen concluded that "We believe our stock is extremely undervalued. Although factors like investors sentiment and macro economic conditions are beyond our control, we are doing everything we can as a public company to restore investor confidence. We have taken steps to strengthen our internal control procedures engaged a top five globally ranked audit firm, maintained a complete Board of Directors of both US and Chinese experts retained a reputable US law firm as our legal counsel and hired a US based IR firm to improve shareholder communications. We encourage investors to visit our website for additional corporate news and to learn more about our Company. We'll continue to explore all options to protect and maximize shareholder value."
1. Fiscal Year 2012 Results
I. Revenue
For the fiscal year ended June 30 2012 revenue was USD 531.6 million compared to USD 431.7 million last year an increase of approximately 23.1% due to increased sales volume. Total sales volume in metric tons increased approximately 18.0% in fiscal year 2012 as compared to fiscal 2011 which reflected higher capacity utilization of our production facilities. Production of hot dip galvanized steel was up 31.1% in fiscal 2012 as compared to fiscal 2011 due to growing market demand for these products. Although lately investments in construction and infrastructure in China have slowed down, other sectors of the Chinese economy grew from fiscal 2011 to 2012 due to significant growth in the durable product replacement markets, demographic changes and urbanization trends in China which, we believe, create long term and relatively stable demand for Sutor fine finished steel products.
On a geographic basis, revenue generated from customers based outside of China was USD 60.1 million or 11.3% of total revenue for fiscal year 2012 as compared to USD 62.2 million or 14.4% of total revenue for fiscal year 2011.The decrease was mainly attributable to overall weak global economies which reduced near term demand for our fine finished steel products.
II. Gross profit and gross margin
Gross profit increased USD 1.2 million to USD 41.7 million in fiscal year 2012 from USD 40.5 million in fiscal year 2011. Gross margin was approximately 7.8% in fiscal year 2012 as compared to 9.4% in fiscal year 2011. The decrease in gross margin was mainly due to changes in the mix of products sold in fiscal 2012. In fiscal 2012, we sold more acid pickled steel but less pre painted galvanized steel. Acid pickled steel has a lower gross margin than pre-painted galvanized steel. In addition, gross margin was affected by lower exports sales in fiscal 2012 as compared to fiscal 2011. Of note, gross margin for our exported products was approximately 13.3% as compared to approximately 7.3% for our domestic sales.
III. Total operating expenses
Our total operating expenses increased USD 2.7 million to USD 18.0 million in fiscal year 2012 from USD 15.3 million in fiscal year 2011. As a percentage of revenue, our total operating expenses decreased to 3.3% in fiscal year 2012 from 3.5% in fiscal year 2011 as the increase in revenue outpaced the increase in total operating expenses due to operating leverage.
IV. Selling expenses
Our selling expenses decreased USD 0.3 million to USD 7.2 million in fiscal year 2012 from USD 7.5 million in fiscal year 2011. As a percentage of revenue our selling expenses were 1.3% in fiscal 2012 as compared to 1.7% in fiscal 2011. The decrease in selling expenses was primarily due to lower international sales and our effective cost control measures.
V. General and administrative expenses
General and administrative expenses increased USD 3.0 million to USD 10.8 million or 2.0% of revenue in fiscal year 2012 as compared to USD 7.8 million or 1.8% of revenue in fiscal year 2011. The increase was partially due to a number of factors including higher employee benefits of USD 0.8 million, higher building maintenance and repair expense of USD 0.2 million and higher allowance for bad account receivables of USD 0.2 million than those occurred last fiscal year.
VI. Interest expense
Our interest expense increased USD 5.3 million to USD 13.3 million in fiscal 2012 from USD 8.0 million in fiscal 2011. As a percentage of revenue, our interest expense increased to 2.5% in fiscal 2012 from 1.8% in fiscal 2011. The increase in interest expense was mainly attributable to higher average principal amount of bank loans as well as higher discounted interest expenses on bank notes.
VII. Provision for income taxes
We incurred income tax expense of USD 1.0 million in fiscal 2012 as compared to USD 3.4 million in fiscal 2011. The reduced income tax expense was primarily due to an income tax refund of approximately USD 2.1 million for purchasing certain equipment.
2. Net income
Net income excluding a foreign currency translation adjustment, decreased USD 2.5 million or approximately 17.1% to USD 12.1 million in fiscal year 2012 from USD 14.6 million in fiscal year 2011 as a cumulative result of the above factors.
3. Financial Condition and Liquidity
As of June 30 2012, we had approximately USD 9.5 million in cash and USD 111.6 million in restricted cash. Our short term loans were approximately USD 139.0 million. We also had approximately USD 8.5 million long term loans. As of June 30 2012, the Company had an unused line of credit with banks of approximately USD 31.7 million.
For fiscal 2013, we estimate capital expenditures will be approximately USD 15 million consisting of approximately USD 7 million to be used for the completion of the construction of the 500,000 MT cold rolled production line and USD 8 million for facility upgrades and technical innovation. Under normal operating conditions, we believe we can fund the planned capital expenditure through internally generated cash flows.
Source - Sutor Technology Group
(www.steelguru.com)
