ZK International Group Co., Ltd. Announces Record Revenue of $63.9 Million for Fiscal Full Year 2019

    As measured in RMB, Revenue Increased by Approximately 22.4% to RMB 439 Million

    WENZHOU, China, Jan. 31, 2020 /PRNewswire/ -- ZK International Group Co., Ltd. (ZKIN) ("ZK International" or the "Company"), a designer, engineer, manufacturer, and supplier of patented high-performance stainless steel and carbon steel pipe products primarily used for water and gas supplies, today announced its audited financial results for the fiscal year ended September 30, 2019.

    Financial Highlights for Fiscal Year Ended September 30, 2019

    • Revenue increased by $9 million, or 16.4%, year-over-year to a record level of $63.88 million, as compared to $54.88 million for the prior fiscal year.
    • As measured in RMB, revenue increased by approximately 22.4% to RMB 439 million.
    • Gross profit decreased by 14.5% to $15.64 million, as compared to $18.29 million for the prior fiscal year. Gross margin was 24.5%, as compared to 33.3% for the prior fiscal year.
    • Income from operations decreased by 10.1% to $8.65 million, as compared to $9.62 million for the prior fiscal year; Operating margin was 13.5%, as compared to 17.5% for the prior fiscal year.
    • Net income attributable to ZK International increased by 15.5% to $8.11 million, as compared to $7.02 million for the prior fiscal year.
    • Earnings per diluted share was $0.49, as compared to $0.51 for the prior fiscal year.
    • Net book value per share was 2.63, as compared to $2.24 for the prior fiscal year.


    For the Twelve Months Ended September 30,

    ($ millions, except per share data)


    2019


    2018


    % Change

    Revenue


    $63.88


    $54.88


    16.4%

    Gross profit


    $15.64


    $18.29


    -14.5%

    Gross margin


    24.5%


    33.3%


    -8.8 percentage points

    Income from operations


    $8.65


    $9.62


    -10.1%

    Operating margin


    13.5%


    17.5%


    -4.0 percentage points

    Net income attributable to ZK International


    $8.11


    $7.02


    15.5%

    Diluted earnings per share


    $0.49


    $0.51


    -3.9%

    Mr. Jiancong Huang, Chairman and Chief Executive Officer of ZK International, commented, "Our record revenue for the fiscal year ended September 30, 2019 highlighted continued strength in our business with significantly increase in overall sales volume, particular for stainless coil and strip, that more than offset the decrease in weighted average selling price ("ASP") and the negative impact of RMB depreciation against the US Dollar. As measured in RMB, revenue increased by 22.4% to RMB 439 million for the fiscal year ended September 30, 2019. Looking forward, despite macroeconomic uncertainties, we remain cautiously optimistic in our growth prospects and expect our strong order book to continue to drive double-digit growth in both top and bottom-lines." 

    Financial Results for Fiscal Year Ended September 30, 2019

    Revenue

    For the fiscal year ended September 30, 2019, revenue increased by $9 million, or 16.4%, to $63.88 million from $54.88 million for the prior fiscal year. The increase in revenue is primarily attributable to the increased sales volume of stainless steel coil and strip.

    Gross Profit

    Gross profit decreased by $2.65 million, or 14.5%, to $15.64 million for the fiscal year ended September 30, 2019 from $18.29 million for the prior fiscal year. As a result, gross margin decreased by 8.84 points to 24.5% for the fiscal year ended September 30, 2019 from 33.3% for the prior fiscal year. The decrease in gross margin, as measured in USD, was primarily due to (1) RMB depreciation against the US Dollar, and (2) increased sales percentage of low gross margin products such as stainless steel coil and strip and decreased sales percentage of high gross margin products such as stainless steel piping and fitting products. During fiscal year ended September 30, 2019, our sales of high gross margin products were significantly limited by our manufacturing capacity and we plan to expand capacity by acquiring companies in the same industry in order to take advantage of the existing production lines and experienced management team of the target company.

    Operating Expenses

    Selling and marketing expenses decreased by $0.30 million, or 10.2%, to $2.65 million for the fiscal year ended September 30, 2019 from $2.95 million for the prior fiscal year. As a percentage of sales, selling and marketing expenses was 4.1% for the fiscal year ended September 30, 2019, compared to 5.4% for the prior fiscal year.

    General and administrative expenses decreased by $1.17 million, or 28.8%, to $2.90 million for the fiscal year ended September 30, 2019 from $4.07 million for the prior fiscal year. As a percentage of sales, general and administrative expenses was 4.5% for the fiscal year ended September 30, 2019, compared to 7.4% for the prior fiscal year.

    Research and development expenses was $1.45 million for the fiscal year ended September 30, 2019, compared to $1.65 million for the prior fiscal year. As a percentage of sales, research and development expenses was 2.3% for the fiscal year ended September 30, 2019, compared to 3.0% for the prior fiscal year.

    Total operating expenses decreased by $1.68 million, or 19.3%, to $7.00 million for the fiscal year ended September 30, 2019 from $8.67 million for the prior fiscal year. As a percentage of sales, total operating expenses was 11.0% for the fiscal year ended September 30, 2019, compared to 15.8% for the prior fiscal year.

    Income from Operations

    Income from operations decreased by $0.97 million, or 10.1%, to $8.65 million for the fiscal year ended September 30, 2019 from $9.62 million for the prior fiscal year. As a result, operating margin decreased by 4.0 points to 13.5% for the fiscal year ended September 30, 2019 from 17.5% for the prior fiscal year. The decrease in operating margin was primarily due to decrease in overall gross margin and was partially offset by lowered operating expenses as a percentage of sales.

    Other Income (Expenses)

    Interest expenses was $1.15 million for the fiscal year ended September 30, 2019, compared to $1.24 million for the prior fiscal year. Other income was $0.92 million for the fiscal year ended September 30, 2019, compared to $0.11 million for the prior fiscal year. As a result, total net other expenses were $0.20 million for the fiscal year ended September 30, 2019, compared to $1.12 million for the prior fiscal year. 

    Income before Income Taxes

    Income before income taxes decreased by $0.06 million, or 0.7%, to $8.44 million for the fiscal year ended September 30, 2019 from $8.50 million for the prior fiscal year.

    Net Income and EPS

    Net income increased by $1.09 million, or 15.4%, to $8.19 million for the fiscal year ended September 30, 2019 from $7.10 million for the prior fiscal year. Net margin decreased by 0.1 percentage point to 12.8% for the fiscal year ended September 30, 2019 from 12.9% for the prior fiscal year.

    After deducting for non-controlling interests, net income attributable to ZK International was $8.11 million, or $0.49 per basic and diluted share for the fiscal year ended September 30, 2019, compared to $7.02 million, or $0.52 per basic and $0.51 per diluted share for the prior fiscal year. Weighted average number of shares outstanding was 16,551,708 as of September 30, 2019, compared to 13,629,517 (diluted) at the end of prior fiscal year. The increase of shares outstanding was primarily attributable to debt settlement with Jiancong Huang, CEO and Chairman of the Board of the Company, with the issuance of 3,280,525 ordinary shares priced at $2.82 per share on August 15, 2018.

    Financial Condition

    As of September 30, 2019, cash and cash equivalents and short-term investments totaled $3.73 million, compared to $8.53 million as of September 30, 2018. Short-term bank borrowings were $16.28 million as of September 30, 2019, compared to $19.27 million as of September 30, 2018.

    Accounts receivable was $25.12 million as of September 30, 2019, compared to $27.13 million as of September 30, 2018. Inventories were $20.80 million as of September 30, 2019, compared to $17.79 million as of September 30, 2018. Accounts payable was $4.18 million as of September 30, 2019, compared to $1.67 million as of September 30, 2018.

    Total current assets and current liabilities were $58.85 million and $34.58 million, respectively, leading to current ratio of 1.70 as of September 30, 2019. This compared to total current assets and current liabilities were $64.35 million and $39.13 million, respectively, and current ratio of 1.64 as of September 30, 2018.

    Recent Developments

    On August 20, 2019, the Company announced that the Chinese government started implementing a new Assessment Standard for Green Buildings ('the New Standard"), which provides a favorable catalyst for the stainless steel pipe industry for years to come and could potentially benefit companies such as ZK International. The New Standard, coded with National Standard No.: GB/T50378-2019, was promulgated by the Ministry of Housing and Urban-Rural Development and the State Administration for Market Regulation on March 13, 2019 (Notice No. 61) and went into effect on August 1, 2019. As part of the New Standard, it requires the mandatory use of stainless steel or copper pipes over more traditional PPR, synthetic plastic or galvanized pipes for water supply. 

    On April 17, 2019, the Company provided revenue guidance for the fiscal year 2019, anticipating revenue to increase by $13.7 million, or 25%, to approximately $68.6 million for the fiscal year ending September 30, 2019 from $54.9 million for the fiscal year ended September 30, 2018.

    On December 11, 2018, the Company announced that it was selected by China Railway First Bureau Group Construction and Installation Engineering Co., Ltd. to supply its premium thin-walled, stainless steel piping products for Phase II of Beijing's Rail Transit Line 7. The bid, valued at $580,000 (RMB 3.98 million), marked the Company's entry into China's $116 billion rail transportation infrastructure market.

    On October 9, 2018, the Company announced that it won leading bid to supply up to $3 million of stainless steel piping to Zhuhai Water Environment Holding Group Co., Ltd., one of China's Top 40 Most Influential Water Companies.

    About ZK International Group Co., Ltd.
    ZK International Group Co., Ltd. is a China-based designer, engineer, manufacturer, and supplier of patented high-performance stainless steel and carbon steel pipe products that require sophisticated water or gas pipeline systems. The Company owns 33 patents, 21 trademarks, 2 Technical Achievement Awards, and 10 National and Industry Standard Awards. ZK International is Quality Management System Certified (ISO9001), Environmental Management System Certified (ISO1401), and a National Industrial Stainless Steel Production Licensee that is focused on supplying steel piping for the multi-billion dollar industries of Gas and Water sectors. ZK has supplied stainless steel pipelines for over 2,000 projects, including the Beijing National Airport, the "Water Cube", and "Bird's Nest", which were venues for the 2008 Beijing Olympics.  Emphasizing superior properties and durability of its steel piping, ZK International is providing a solution for the delivery of high quality, highly sustainable, environmentally sound drinkable water not only to the China market but also to international markets such as Europe, East Asia, and Southeast Asia.

    For more information please visit www.ZKInternationalGroup.com. Additionally, please follow the Company on TwitterFacebookYouTube, and Weibo. For further information on the Company's SEC filings please visit www.sec.gov.

    Safe Harbor Statement 
    This news release contains forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, and as defined in the U.S. Private Securities Litigation Reform Act of 1995. Without limiting the generality of the foregoing, words such as "may," "will," "expect," "believe," "anticipate," "intend," "could," "estimate" or "continue" or the negative or other variations thereof or comparable terminology are intended to identify forward-looking statements. In addition, any statements that refer to expectations, projections or other characterizations of future events or circumstances are forward-looking statements. These forward-looking statements are not guarantee of future performance and are subject to certain risks, uncertainties, and assumptions that are difficult to predict and many of which are beyond the control of ZK International. Actual results may differ from those projected in the forward-looking statements due to risks and uncertainties, as well as other risk factors that are included in the Company's filings with the U.S. Securities and Exchange Commission. Although ZK International believes that the assumptions underlying the forward-looking statements are reasonable, any of the assumptions could prove inaccurate and, therefore, there can be no assurance that the results contemplated in forward-looking statements will be realized.  In light of the significant uncertainties inherent in the forward-looking information included herein, the inclusion of such information should not be regarded as a representation by ZK International or any other person that their objectives or plans will be achieved. ZK International does not undertake any obligation to revise the forward-looking statements contained herein to reflect events or circumstances after the date hereof or to reflect the occurrence of unanticipated events.

    Investor Contact:
    Tony Tian, CFA 
    Weitian Group LLC
    Phone: +1 (732) 910-9692 
    Email: [email protected]

     

     

    ZK International Group Co., Ltd. and Subsidiaries

    Consolidated Statements of Income and Comprehensive Income (Loss)

    For the Year ended September 30, 2019, 2018 and 2017


     (IN U.S. DOLLARS, EXCEPT SHARE DATA)




    For the year ended September 30,




    2019



    2018



    2017


    Revenues


    $

    63,883,520



    $

    54,884,381



    $

    44,951,740


    Cost of sales



    (48,239,478)




    (36,593,792)




    (31,843,337)


    Gross profit



    15,644,042




    18,290,589




    13,108,403















    Operating expenses:













    Selling and marketing expenses



    2,647,429




    2,949,204




    1,915,127


    General and administrative expenses



    2,897,995




    4,071,116




    1,782,318


    Research and development costs



    1,452,061




    1,652,633




    1,331,111


    Total operating expenses



    6,997,485




    8,672,953




    5,028,556















    Operating Income



    8,646,557




    9,617,636




    8,079,847















    Other income (expenses):













    Interest expenses



    (1,151,045)




    (1,239,170)




    (1,245,385)


    Interest income



    24,437




    10,702




    24,459


    Other income, net



    921,973




    112,099




    69,772


    Total other expenses, net



    (204,635)




    (1,116,369)




    (1,151,154)















    Income before income taxes



    8,441,922




    8,501,267




    6,928,693















    Income tax provision



    (248,228)




    (1,398,210)




    (995,005)















    Net income


    $

    8,193,694



    $

    7,103,057



    $

    5,933,688


    Net income attributable to non-controlling interests



    (86,828)




    (84,943)




    (59,412)















    Net income attributable to ZK International Group Co., Ltd.



    8,106,866




    7,018,114



    $

    5,874,276















    Net income



    8,193,694



    $

    7,103,057



    $

    5,933,688















    Other comprehensive income (loss):













    Foreign currency translation adjustment



    (1,694,278)




    (818,468)




    272,237















    Total comprehensive income


    $

    6,499,416



    $

    6,284,589



    $

    6,205,925


    Comprehensive loss (income) attributable to non-controlling interests



    (73,919)




    (75,719)




    (61,100)















    Comprehensive income attributable to ZK International Group Co., Ltd.


    $

    6,425,497



    $

    6,208,870



    $

    6,144,825















    Basic and diluted earnings per share













    Basic


    $

    0.49



    $

    0.52



    $

    0.56


    Diluted



    0.49




    0.51




    0.56


    Weighted average number of shares outstanding













    Basic



    16,551,708




    13,610,046




    10,970,000


    Diluted



    16,551,708




    13,629,517




    10,973,674


     

     

    ZK International Group Co., Ltd. and Subsidiaries

    Consolidated Balance Sheets

    As of September 30,2019 and 2018


    (IN U.S. DOLLARS)




    As of September 30,




    2019



    2018


    Assets









    Current assets









    Cash and cash equivalents


    $

    3,451,138



    $

    7,682,589


    Short-term Investment



    279,810




    850,829


    Accounts receivable, net of allowance for doubtful accounts of $1,919,152 and $1,997,310,
    respectively



    25,115,040




    27,134,237


    Notes receivable



    385,519




    414,352


    Other receivables



    1,866,321




    2,624,022


    Due from related parties



    110,990




    22,278


    Inventories



    20,796,075




    17,792,187


    Advance to suppliers



    6,848,143




    7,826,679


    Total current assets



    58,853,036




    64,347,173


    Property, plant and equipment, net



    6,595,704




    6,280,412


    Intangible assets, net



    918,717




    938,221


    Deferred tax assets



    289,756




    299,596


    Long-term deposit



    11,453,690




    4,229,827


    Long-term investment



    291,464




    303,334


    TOTAL ASSETS


    $

    78,402,367



    $

    76,398,563


    LIABILITIES AND SHAREHOLDERS' EQUITY









    Current liabilities:









    Accounts payable


    $

    4,182,530



    $

    1,670,427


    Accrued expenses and other current liabilities



    4,438,570




    5,934,733


    Accrued payroll and welfare



    1,340,060




    887,201


    Advance from customers



    2,422,776




    3,410,322


    Due to related parties



    1,446,461




    3,694,469


    Short-term bank borrowings



    16,281,461




    19,270,530


    Notes payables



    296,267




    -


    Income tax payable



    4,176,537




    4,263,289


    TOTAL LIABILITIES


    $

    34,584,662



    $

    39,130,971











    Equity









      Common stock, no par value, 50,000,000 shares authorized, 16,558,037 and 16,528,037 shares
        issued and
        outstanding, respectively









    Additional paid-in capital



    18,049,630




    17,998,933


    Statutory surplus reserve



    2,904,699




    2,031,775


    Retained earnings



    24,372,535




    17,138,593


    Accumulated other comprehensive income (loss)



    (1,808,825)




    (127,456)


    Total equity attributable to ZK International Group Co., Ltd.



    43,518,039




    37,041,845


    Equity attributable to non-controlling interests



    299,666




    225,747


    Total equity



    43,817,705




    37,267,592


    TOTAL LIABILITIES AND EQUITY


    $

    78,402,367



    $

    76,398,563


     

     

    ZK International Group Co., Ltd. and Subsidiaries

    Consolidated Statements of Cash Flows

    For the Year ended September 30, 2019, 2018 and 2017


    (IN U.S. DOLLARS)




    For the year ended September 30,




    2019



    2018



    2017


    Cash Flows from Operating Activities:













    Net income


    $

    8,193,694



    $

    7,103,057



    $

    5,933,688


    Adjustments to reconcile net income to net cash used in operating activities:













    Depreciation expense



    375,286




    395,604




    425,696


    Amortization expense



    13,638




    12,137




    12,705


    Loss on disposal of fixed assets



    2,244




    -




    -


    Bad debt expense



    -




    286,606




    160,944


    Deferred tax benefits



    (1,958)




    (37,311)




    (24,142)


    Non-cash service expense



    50,679




    -




    -


    Changes in operating assets and liabilities:













    Accounts receivable



    995,327




    (7,151,260)




    2,419,491


    Other receivables



    680,970




    (1,215,167)




    411,554


    Notes receivable



    13,119




    (216,478)




    (121,937)


    Inventories



    (3,846,722)




    (9,065,712)




    (3,505,158)


    Advance to suppliers



    698,903




    1,580,700




    (6,153,011)


    Accounts payable



    2,593,103




    861,192




    (417,453)


    Accrued expenses and other current liabilities



    (1,314,005)




    1,698,015




    791,312


    Accrued payroll and welfare



    506,894




    600,619




    (49,512)


    Advance from customers



    (887,934)




    1,563,693




    282,817


    Income tax payable



    83,250




    1,349,310




    979,288


    Net cash provided (used in) operating activities



    8,156,488




    (2,234,995)




    1,146,282















    Cash Flows from Investing Activities:













    Purchases of property, plant and equipment



    (880,289)




    (467,138)




    (155,152)


    Proceed from disposal of property, plant and equipment



    5,963




    -




    -


    Disposal of intangible asset



    -




    257,863




    -


    Purchases of intangible assets



    (11,149)




    (501,000)




    (6,704)


    Net proceeds placed into long-term deposit



    (7,682,151)




    (4,444,170)




    -


    Net cash used in investing activities



    (8,567,626)




    (5,154,445)




    (161,856)















    Cash Flows from Financing activities:













    Net proceeds released from (placed into) bank acceptance notes



    308,005




    (380,000)




    5,582,099


    Net proceeds released from (placed into) short-term investment



    559,030




    (893,945)




    -


    Net proceeds released from restricted cash



    -




    539,381




    2,651,704


    Proceeds from short-term bank borrowings



    25,875,962




    24,056,279




    (499,904)


    Repayments of short-term bank borrowings



    (28,199,497)




    (25,529,488)




    (3,816,458)


    Net proceeds received from (repaid to) related parties



    (2,279,911)




    5,665,914




    6,051,523


    Net cash provided by (used in) financing activities



    (3,736,411)




    3,458,141




    9,968,964















    Effect of exchange rate changes on cash



    (83,902)




    335,413




    201,436















    Net change in cash and cash equivalents



    (4,231,451)




    (3,595,886)




    11,154,826


    Cash and cash equivalents at the beginning of year



    7,682,589




    11,278,475




    123,649


    Cash and cash equivalents at the end of year


    $

    3,451,138



    $

    7,682,589



    $

    11,278,475















    Supplemental disclosures of cash flows information:













     Non-cash financing activities


    $

    -



    $

    9,842,676



    $

    -


    Cash paid for income taxes


    $

    170,331



    $

    38,218



    $

    54,215


    Cash paid for interest expenses


    $

    1,197,504



    $

    1,218,757



    $

    1,233,066


     

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