Deyu Agriculture Corp. Announces Second Quarter 2012 Results

BEIJING, Aug. 15, 2012 /PRNewswire-Asia-FirstCall/ -- Deyu Agriculture Corp. (OTCBB: DEYU) (the "Company"), a Beijing, China based vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains, today announced its financial results for the second quarter ended June 30, 2012.

Second Quarter (Q2) Highlights:

• From Q2 2011 to Q2 2012, revenue increased 12.9% to $55.8 million;
• Corn division sales grew 7.7% to $37.4 million;
• Grain division sales rose 90.5% to $14.6 million;
• Gross profit improved 17.8% to $10.5 million;
• Net income available to common stockholders decreased 9.5% to $2.8 million;
• Earning per diluted share for the quarter decreased 11.5% to $0.23

Summarized Second Quarter 2012 Results:

"I am very pleased with our solid revenue and increasing cash flow from operating activities," said Jianming Hao, Deyu's Chief Executive Officer. "Our corn division continued to drive results and our grain division sustained its progress. In terms of gross margin in our gain division, we are excited to see increasing brand awareness and new price strategies providing us with higher gross margins."

Mr. Hao continued, "We are also thrilled to see the Taizihu Group, which we acquired in February 2012, add $5.8 million in sales revenue to our grain division this past quarter. In 2012, we have been shifting our business strategy away from rapidly growing our business through supplementing our working capital with bank debts towards a more stable developmental approach that is focusing on maintaining our sales network resources, improving cash flow from operating activities, and managing a stable capital structure. By acquiring the Taizihu Group, which has advanced technologies and a management team with significant experience in the deep-processed grain industry, and by adding a supply relationship with Guangdong Wen's Food Group Co., Ltd. which has four feed mills that collectively use approximately 200,000 tons of raw corn per year and business operations in 20 Provinces in China, we are confident that that we are in a much better position to meet these objectives in future quarters."

Second Quarter 2012 Financial Results

Revenue

The Company had sales of $55.8 million in Q2 2012 compared to sales of $49.5 million in Q2 2011, an increase of $6.4 million or 12.9%.

Net sales from the Company's corn division increased $2.7 million or 7.7%, from $34.7 million in Q2 2011 to $37.4 million in Q2 2012. This growth was mainly due to the rise in the average sales price of corn as a result of inflation in China during this period, partially offset by a slight decrease in sales volume caused by the decrease in working capital supported by bank debts.

Revenue from the Company's grain division increased $6.9 million or 90.5%, from $7.7 million in Q2 2011 to $14.6 million in Q2 2012. This increase consisted of a growth of $1.1 million or 16% attributable to the Company's sustaining grain division sales, plus $5.8 million of sales revenue added by the Taizihu Group. The sustaining grain sales increase was primarily due to the growth of the Company's brand awareness among customers.

Sales from the Company's bulk trading division decreased $3.2 million, from $7.1 million in Q2 2011 to $3.9 million in Q2 2012. This decrease was mainly attributable to the Company's reduction of transactions with low margins or long credit terms by shifting more financial resources to its corn and grain divisions.

Gross Profit & Gross Margin

The Company's gross profit increased $1.6 million or 17.8%, from $8.9 million in Q2 2011 to $10.5 million in Q2 2012. This growth was a combined result of an increase of $2.5 million in the Company's grain division, a decrease of $0.4 million in the corn division and a decrease of $0.5 million in the bulk trading division.

The Company's gross margin increased from 18.0% in Q2 2011 to 18.8% in Q2 2012. This increase was the combined result of an increase of 530 basis points in gross margin in its grain division, which was partially offset by a decrease of 250 basis points in gross margin in its corn division as well as a decrease of 290 basis points in gross margin in its bulk trading division.

Gross profit in the Company's corn division was $5.8 million, contributing to 55.3% of total gross profit for Q2 2012. Gross margin for the Company's corn division was 15.5% for Q2 2012, down by 245 basis points from 18% for Q2 2011. The decrease in gross margin was mainly attributable to the continuous increase in the purchase price of raw corn while selling price didn't increase consistently and supplemental procurement from suppliers whose purchase prices were usually relatively higher.

Gross profit in the Company's grain division was $4.4 million, contributing to 41.8% of total gross profit for Q2 2012. Gross margin for the grain division was 30.0% for Q2 2012, an increase of 530 basis points from 24.7% in Q2 2011. The increase in gross margin was mainly attributable to the Company's shift in its marketing strategy in 2012 with a focus on brand promotion as compared to the expansion strategies in 2011 which included setting the Company's selling price lower than the average market price, which reduced the Company's profit margin last year.

Gross profit in the Company's bulk trading division was $0.3 million, contributing to 2.9% of total gross profit for Q2 2012. Gross margin for the bulk trading division was 8.0% for Q2 2012, which decreased by 290 basis points for Q2 2012 from 10.9% for Q2 2011. This decrease was mainly attributable to the Company's increasing sales percentage of wheat with relatively lower gross margin as compared to Q2 2011.

Expenses

Selling expenses increased by $1.2 million to $4.0 million for Q2 2012 compared to Q2 2011.  This increase was due to the increase of freight charges for product deliveries and advertisement expenses spent on brand promotion.

General and administrative expenses increased by $0.6 million to $2.1 million for Q2 2012 compared to Q2 2011.  This increase was mainly attributable to the increased expenses added by the Taizihu Group as well as increased depreciation and amortization caused by newly-acquired buildings

Income tax expenses increased $1.4 million to $1.1 million for Q2 2012 while income tax benefit of 0.3 million was recorded for Q2 2011. This increase was mainly due to an additional valuation allowance for deferred tax assets of one subsidiary which was generated in previous years and caused by uncertainty of realization of net operating losses carryover.

Net Income Available to Common Stockholders

As a result of the above, the Company had net income available to common stockholders of $2.8 million for Q2 2012 compared to a net income of $3.1 million for Q2 2011, a decrease of $0.3 million, or 9.5%.

Recent Updates

In April 2012, the Company introduced a new product line under the "Deyu" brand name that features a variety of noodle products, including smooth surfaced noodles, mushroom noodles, egg noodles and high gluten noodles. The Company is working with leading noodle OEM (Original Equipment Manufacturing) producers, in offering these products through its extensive distribution channels in China.

In May 2012, the Company promoted Ms. Amy He from Acting Chief Financial Officer to Chief Financial Officer of the Company. Ms. He had been serving as the Company's Acting CFO since February 2012. She previously served as the Company's Financial Controller in 2011.

In June 2012, the Company formed a supply relationship with Guangdong Wen's Food Group Co., Ltd. ("WFG") in which Deyu shall provide raw corn to four of WFG's feed mills in Southwestern China on a non-exclusive basis. Overall, the four feed mills use approximately 200,000 tons of raw corn per year. The Company has recorded 6.8 million in sales revenue attributable to WFG since shipments commenced to WFG in January 2012, which is equal to approximately 18,000 tons of raw corn.

In July 2012, Deyu's wholly-owned subsidiary, Detian Yu Biotechnology Co. (Beijing), Ltd. was elected a member of the China Food Industry Association. The Company believes that this membership will help it keep better up to date with China's industrial policies as well as participate in the nation's affairs in regard to cereal processing. Detian Yu, selected as one of the Top 10 Grain Processing Enterprises in China by the China Food Industry Association, is engaged in the wholesale and retail distribution of simple processed and deep processed packaged and unpackaged food products.

Business Outlook

"We believe that we are well-positioned to continue building on our success in upcoming quarters," remarked Mr. Hao. "During the past several years, we have accumulated resources and advantages through our operation model of "Company + Farmers + Base," which is supplemented by our advanced production technologies, strong warehousing capacity, exclusive logistics and an extensive sale network. With that said, we plan to continue to grow our business through extending our operating model to other producing areas of corn and grain such as in Hebei Province and North East China. In the meantime, we plan to enrich our product lines by introducing new products into our operational chain as a way to capture more market share of other food product sectors such as oils and staple foods. Additionally, we are also carefully considering other vertical or horizontal acquisitions to further grow our business, although we do not currently have any agreements in place at this time."

Mr. Hao continued, "In 2012, we are focused on promoting our name brand and products, and increasing customer purchases on a per store basis in our over 20,000 supermarkets and convenience stores across China. Moreover, we will explore gift market in China which we believe is in great demand at a fast growth rate by selling our refined packaged grain products to corporate client. We expect that our recent initiatives, acquisitions and partnerships will enable us to better meet the demands of Chinese consumers. To supplement our corn division, which we consider the foundation of our business, we are strategically exploring and maintaining solid supplier relationships with large livestock feed manufacturers such as WFG. We also anticipate that our acquisition of the Taizihu Group, which has very popular products among consumers in China such as its LongQuan Villa brand fruit beverages and Huichun brand pure soybean products, will play a key role in boosting our brand's awareness in the future."

Conference Call

The Company will host a conference call on August 16, 2012 at 8:30 AM EDT to discuss the Company's results for the second quarter ended June 30, 2012.

To join the conference call, use the dial-in information below. When prompted, ask for the "Deyu Agriculture Call" and/or be prepared to provide the conference ID.

Dial in at least 10 minutes before the call to ensure timely participation. A playback will be available until 11:59 PM August 30, 2012. To listen, please call 877-660-6853 within the United States or 201-612-7415 if calling internationally.

Utilize the pass code below for replay (both required)

About Deyu Agriculture Corp.

Deyu Agriculture Corp. is a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains operating in Shanxi Province of the People's Republic of China. The Company has access to over 109,000 acres of farmland in Shanxi Province for breeding, cultivating, processing, warehousing and distributing grain and corn products. Deyu has an extensive wholesale network in over 15 provinces and a retail distribution network of approximately 20,000 supermarkets and convenience stores in 29 provinces across China. The Company's facilities include advanced production lines and modern warehouses with a total production capacity of over 105,000 tons for grain products, storage capacity of over 100,000 tons and annual turnover of 700,000 tons for corn products. The Company's website is located at www.deyuagri.com.

Safe Harbor Statements

This press release contains forward-looking statements made under the "safe harbor" provisions of the U.S. Private Securities Litigation Reform Act of 1995. Forward looking statements are based upon the current plans, estimates and projections of the Company's management and are subject to risks and uncertainties, which could cause actual results to differ from the forward looking statements. Such statements include, among others, those concerning market and industry segment growth and demand and acceptance of new and existing products; any projections of sales, earnings, revenue, margins or other financial items; any statements of the plans, strategies and objectives of management for future operations; any statements regarding future economic conditions or performance; uncertainties related to conducting business in China, as well as all assumptions, expectations, predictions, intentions or beliefs about future events. Therefore, you should not place undue reliance on these forward-looking statements. The following factors, among others, could cause actual results to differ from those set forth in the forward-looking statements: business conditions in China, general economic conditions; geopolitical events and regulatory changes, availability of capital, changes in the agricultural industry, the Company's ability to maintain its competitive position. Additional Information regarding risks can be found in the Company's quarterly and annual reports filed with the U.S. Securities and Exchange Commission at www.sec.gov. 

Investor Contact:

Mr. Kevin Fickle, President
NUWA Group LLC.
Tel: +1-925-330-8315
Email: [email protected]

Company Contact: 

Ms. Amy He, Chief Financial Officer 
Deyu Agriculture Corp.
Tel: +86-10-5224-1802 X389
Email: [email protected]

Ms. Cynthia Yang, Assistant to CFO
Tel: +1-646-820-8060
Email: [email protected]

- Financial Tables Follow –

SOURCE Deyu Agriculture Corp.

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