Deyu Agriculture records 187% sales gain in Q1

Deyu Agriculture records 187% sales gain in Q1

Deyu Agriculture Corp. announced its financial results for the first quarter ended March 31, 2011. Deyu had sales of $41.4 million in the first quarter of 2011 compared to sales of $14.4 million in the first quarter of 2010, an increase of $27 million or 187%.

Deyu Agriculture Corp. DEYU +11.11% ("Deyu" or "the Company"), a Shanxi Province, China based vertically integrated producer and distributor of organic and non-organic grain products, announced its financial results for the first quarter ended March 31, 2011.

First Quarter 2011 Financial Highlights:

Revenue increased 187%, from $14.4 million in Q1 2010 to $41.4 million in Q1 2011

Gross profit improved 138%, from $3.5 million in Q1 2010 to $8.4 million in Q1 2011

Net income grew 27%, from $2.6 million in Q1 2010 to $3.3 million in Q1 2011

Summarized First Quarter 2011 Results:   

                                            Q1 2011                             Q1 2010                     CHANGE

        Revenue                   $41.43 million                   $14.45 million                +187%

        Gross profit             $8.35 million                     $3.51 million                  +138%

        Net Income*             $3.30 million                     $2.57 million                  +27%

        EPS (Diluted)**          $0.24                                 $0.52                              (55%)

        *Available to common shareholders.

        **Earnings per diluted share of $0.24 on 14.6 million shares. For the first quarter of 2010, the Company reported diluted earnings per share of $0.52 on 4.9 million shares.

"We are thoroughly pleased with our strong first quarter results," commented Jianming Hao, Deyu's Chief Executive Officer and Chairman. "All three aspects of our business—corn, simple processed and deep processed grains—experienced tremendous growth in sales. Notably, our corn division, which is the foundation of our Company, increased its sales 87 percent. Also, our new unpacked grain products that provided a 57 percent gross margin sold extremely well and contributed significantly to our improved gross profit."

"Our brand is growing in recognition at a pivotal time when Chinese consumers are becoming increasingly diet conscious and grains as well as corn prices are rising due to high demand and short supply," Mr. Hao added. "We were able to capitalize on these developments through our exclusive access to over 100,000 acres of what we believe to be China's most fertile farmland and our agreements with three major Chinese railway lines. Our steady supply of crops and our excellent transportation links facilitated our supply to over 10,000 supermarkets and convenience stores located across China."

First Quarter 2011 Financial Results

Revenue

Deyu had sales of $41.4 million in the first quarter of 2011 compared to sales of $14.4 million in the first quarter of 2010, an increase of $27 million or 187%. The Company's 2011 first quarter revenue includes $20.5 million in corn sales, $18.9 million in simple processed grain sales and $2 million in deep processed grain sales. Revenues from Deyu's new unpacked grain products and bulk purchase/wholesale trading of rice and flour are reflected in the aggregated sales of the Company's simple processed grain business. Bulk purchase/wholesale trading of rice and flour generated revenues of $12.5 million and unpacked grains added revenues of $1.1 million.

Gross Profit

Deyu's gross profit was $8.4 million in the first quarter of 2011 compared to a gross profit of $3.5 million in the first quarter of 2010, an increase of $4.9 million or 138%. The Company's gross margin decreased from 24% to 20% during this period due to its sales mix in the first quarter of 2011, which included its deep processed grain and bulk trade and purchase businesses that each had lower than 10% margins and which diluted the Company's overall margin.

Net Income Attributable to Common Stockholders

Deyu's net income attributable to common stockholders was $3.3 million in the first quarter of 2011 compared to $2.6 million in the first quarter of 2010, an increase of $0.8 million or 27%.

Recent Updates

Deyu finished construction of a new storage center in early May 2011. The Company believes that its capacity expansion will reduce the risk associated with raw material seasonality as well as enable Deyu to better meet the rising demand for its products, especially its corn goods. The storage center's warehouse is capable of storing 70,000 tons of grains with an annual turnover rate of more than 350,000 tons. The new facility along with the Company's two other storage facilities pushes Deyu's total storage capacity to over 120,000 tons with an annual turnover rate of more than 600,000 tons. The new storage center features advanced corn-drying equipment that Deyu believes will facilitate the process of 500,000 tons of corn products annually. The Company projects that the facility will support annual corn sales of $120 million.

Financial Outlook

Based upon the increase in health and nutrition consciousness of the Chinese people and the growing demand for Deyu's deep processed grain products, the Company believes that it has the opportunity to increase its revenues, net income and gross margins in the future. As a result of the Company's acquisition of Deyufarm in 2010, Deyu's deep processed grain products are now higher margin products than its rough processed corn. Accordingly, the Company has heightened its efforts to enter into supermarkets in tier 1 and tier 2 cities in China since it believes that Deyufarm's deep processed grain products, like organic non-fried instant noodles and buckwheat teas, suit the needs of China's urban population, which is characterized by a growing middle class and high-income consumers who tend to have less time to cook and eat. Deyufarm's products are currently sold underneath Deyu's brand name "Deyufang."

Business Outlook

In 2010, Deyu obtained additional supply sources in an effort to position itself for long-term success. For approximately $7 million dollars, the Company acquired land use rights to two pieces of farmland totaling approximately 17,300 acres. The growing season for these parcels started in April 2011. Deyu believes that it has achieved economies of scale through its exclusive rights of use to over 109,000 acres of what the Company believes to be some of China's most fertile agricultural land, approximately 19,000 acres of which the Company holds the ownership rights to.

Mr. Hao commented, "We believe that the future looks very bright for our Company as Chinese consumers are looking more to wholesome foods products, our brand is growing in popularity and we are expanding our production capacity. Accordingly, we intend to extend our sales channels into other Chinese cities to further boost the availability of our products. Furthermore, we plan to continue to observe demand trends while we maintain our development of new food products. In particular, we anticipate that we will continue to develop our unpacked grain business so that we can better provide for our consumers who prefer determining the volume of the product they wish to purchase on their own. Also, we intend to keep working with our farmers to boost yields and we anticipate that we will enter new cooperative agreements, sign new farmer agents and expand our operations in Shanxi Province. While we are delighted with our success this past quarter, we will strive to secure a larger portion of China's grain product market."

About Deyu Agriculture

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. The Company has access to over 109,000 acres of farmland in the Shanxi Province for breeding, cultivating, processing, warehousing, and distributing grain and corn products. Deyu's deep-processed grain division was created in 2010 and its business is conducted through Detian Yu, Deyufarm and its subsidiaries, by producing and distributing instant grain vermicelli, instant millet beverage, and buckwheat tea to wholesalers and supermarkets underneath the brand name, "Deyufang". Deyu has an extensive retail distribution network of more than 10,000 retail stores across China. The Company's web site is located at www.deyuagri.com.

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