Deyu Agriculture Reports Third Quarter 2010 Results

BEIJING, Nov. 15, 2010 /PRNewswire-FirstCall/ -- Deyu Agriculture Corp. (OTC Bulletin Board: DEYU), a vertically integrated producer, processor, marketer and distributor of organic and other agricultural products made from corn and grains, today reported financial results for the third quarter and nine months ended September 30, 2010.

Third Quarter 2010 Highlights  

• Net revenue increased 79% year-over-year to $21.0 million
• Gross profit increased 58% year-over-year to $4.9 million
• Net income was $2.1 million or $0.18 per fully diluted share
• Enhanced access to high quality farmland; acquired rights to 8,700 acres in the Shanxi Province
• Expanded warehouse capacity by approximately 70,000 tons to over 120,000 tons

CEO Commentary

"We generated strong revenue growth in the third quarter due to record sales in both our corn and grain segments," said Mr. Jianming Hao, Chairman and Chief Executive Officer of Deyu Agriculture. "Consumer demand in China for high quality, healthy, organic grain foods continues to increase. Retailers are responding to the growing demand and we are now selling our branded grain food products in over 8,500 retail outlets throughout China."

"The shortage of arable land in China is a key hurdle to keeping pace with growing demand for more and better quality food and Deyu is fortunate to be operating in the Shanxi Province, the breadbasket of China.  To support our long-term growth strategy of becoming a large-scale producer in the area, we recently acquired the rights to 8,700 acres of high-quality farmland in Jinzhong City, bringing our total land under cultivation to over 100,000 acres. This enables us to secure long term access to high-quality grains, a very important component to our plans to expand our  product offering to include grain based food products that require no preparation, such as instant grain noodles, ready-to-eat grain rice, instant grain drinks and instant grain soups," added Mr. Hao.

Results for the Three Months Ended September 30, 2010

Net revenue totaled $21.0 million for the third quarter of 2010, an increase of 79.0% from $11.7 million for the comparable period in 2009. Sales of corn products increased 89.3% to $17.8 million (accounting for 85.0% of total net revenues).  The increase in corn products sales was due to higher sales to existing customers, the addition of some new smaller customers, and higher average net selling prices as compared to the prior year's quarter.  Sales of grain food products increased 37.0% to $3.2 million (accounting for 15.0% of total net revenues). The increase in grain food products sales was due to higher average net selling prices as compared to the prior year's quarter.

Gross profit for the third quarter of 2010 totaled $4.9 million, or 23.2% of net revenue, compared to $3.1 million, or 26.3% of net revenue in the year ago quarter. Gross profit margins for our corn products were 20.0% for the third quarter compared to 20.1% in the year ago quarter. Gross profit margins for our grain food products were 41.6% for the third quarter compared to 51.7 % in the year ago quarter. Grain food product margins declined due to higher grain supply purchase prices for the quarter as compared to the comparable period in 2009, partially offset by higher average net selling prices.

Operating expenses totaled $2.6 million in the third quarter of 2010, or 12.2% of net revenue, up substantially from $0.6 million, or 5.2% of net revenue, in the third quarter of 2009. Selling expenses totaled $1.5 million, up substantially from $0.5 million due to increased transportation costs related to higher volumes for the quarter and the incremental cost of obtaining expanded entry into retail outlets for our grain food products. General and Administrative expenses totaled $1.1 million, up substantially from $0.1 million due to higher administrative and personnel costs associated with the growth of our business and the added expense of being a public company.  

Net income, before preferred dividends, for the third quarter of 2010 was $2.2 million compared to $2.4 million for the third quarter of 2009. Net income per basic and diluted share was $0.21 and $0.18, respectively, for the third quarter of 2010 compared to net income per basic and diluted share of $0.50 for the third quarter of 2009. The basic and diluted weighted average number of common shares outstanding increased to approximately 10.0 million and 12.3 million, respectively, in the third quarter of 2010 from 4.9 million in the year ago quarter, reflecting the increased shares outstanding following our April 2010 private placement transaction.

As of September 30, 2010, Deyu has 9,999,999 shares of common stock outstanding.  If all options, warrants and convertible preferred shares are exercised and converted, fully diluted shares outstanding would be 13,610,134.

Cash generated from operating activities was $5.3 million for the third quarter of 2010 and cash used in investing activities was $3.9 million, which includes the $2.9 million acquisition of land use rights on 8,700 acres of farmland in the Shanxi Province.

As of September 30, 2010, Deyu had approximately $10.7 million in unrestricted cash and equivalents, compared to $2.6 million at December 31, 2009. As of September 30, 2010, the Company had $3.2 million in short-term bank loans and no long-term debt, compared to $1.8 million in short-term bank loans and no long-term debt at December 31, 2009.

Results for the Nine Months Ended September 30, 2010

Net revenue totaled $53.9 million for the nine months ended September 30, 2010, an increase of 104.8% from $26.3 million for the comparable period in 2009. Sales of corn products increased 123.4% to $44.8 million (accounting for 83.1% of total net revenues). Sales of grain food products increased 45.2% to $9.1 million (accounting for 16.9% of total net revenues).

Gross profit for the nine months ended September 30, 2010 totaled $13.1 million, or 24.4% of net revenue, compared to $6.8 million, or 26.0% of net revenue in the year ago period. Gross profit margins for our corn products were 20.6% for the first nine months of 2010 compared to 18.1% in the year ago period. Gross profit margins for our grain food products were 42.7% for the first nine months of 2010 compared to 51.2% in the year ago period. Corn product margins increased due to higher volume and higher average net selling prices as compared to the previous nine month period. Grain food product margins declined due to higher grain supply purchase prices as compared to the comparable period in 2009, partially offset by higher average net selling prices.

Operating expenses totaled $5.1 million for the first nine months ended September 30, 2010, or 9.5% of net revenue, up substantially from $1.4 million, or 5.5% of net revenue, in the first nine months of 2009. The increase was due to higher transportation costs related to higher volumes for the period, the incremental cost of obtaining expanded entry into retail outlets for our grain food products, and higher administrative and personnel costs associated with the growth of our business and the added expense of being a public company.  

Net income, before preferred dividends, for the first nine months of 2010 was $7.8 million compared to $5.3 million for the first nine months of 2009. Net income per basic and diluted share was $0.96 and $0.85, respectively, for the first nine months of 2010 compared to net income per basic and diluted share of $1.08 for the first nine months of 2009. The basic and diluted weighted average number of common shares outstanding increased to approximately 7.9 million and 9.1 million, respectively, in the first nine months of 2010 from 4.9 million in the year ago period, reflecting the increased shares outstanding following our April 2010 private placement transaction.

Outlook

"Demand for high quality and healthy organic grain foods is growing as the population in China has become more health and nutrition conscious," commented Mr. Hao. "At the same time, consumer preferences are changing and demand is shifting toward 'ready-to-eat' grain food products. We remain focused on expanding our line of branded grain food products to include instant noodles and ready-to-drink beverages to meet this growing demand. We are on track to expand our nationwide network of over 8,500 retail outlets to 10,000 stores by the end of 2010."

"Our corn products business continues to provide a solid base of strong cash flow to fund operations and growth. We plan to continue expanding our corn acreage and processing capacity to drive economies of scale and profitability. We anticipate that all of our strategic initiatives will result in continued strong growth in revenues and earnings in 2011 and beyond," concluded Mr. Hao.

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 the Shanxi Province of the People's Republic of China. Deyu has access to over 100,000 acres of farmland in the Shanxi Province for breeding, cultivating, processing, warehousing, and distributing grain and corn products. Deyu has an extensive retail distribution network of more than 8,500 retail stores across China.

Deyu Agriculture's web site is located at www.china-deyu.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 Deyu Agriculture'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 Report on Form 10-Q and in the Company's recently filed Prospectus filed pursuant to Rule 424(b)(3) with the SEC.

SOURCE Deyu Agriculture Corp.