2014

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:


Q2 2012

Q2 2011

CHANGE

Revenue

$55.8 million

$49.5 million

+12.9%

Gross profit

$10.5 million

$8.9 million

+17.8%

Net Income*

$2.8 million

$3.1 million

-9.5%

EPS (Diluted)**

$0.23

$0.26

-11.5%

 

* Represents net income available to common stockholders.

**Earnings per diluted share for the quarter of $0.23 on 12.6 million shares. For Q2 2011, the Company reported fully diluted earnings per share of $0.26 on 12.5 million shares.

"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.

Date:

08/16/2012

Time:

8:30 AM Eastern

Conference Line Dial-In (US):

877-407-9205

International Dial-In:

201-689-8054

Conference ID#:

394583

Webcast Link: 

http://www.investorcalendar.com/IC/CEPage.asp?ID=168617

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)

Account#:

286

Conference ID#:

398967

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: kevin@nuwagroup.com

Company Contact: 

Ms. Amy He, Chief Financial Officer 
Deyu Agriculture Corp.
Tel: +86-10-5224-1802 X389
Email: amy@china-deyu.com

Ms. Cynthia Yang, Assistant to CFO
Tel: +1-646-820-8060
Email: deyuintl@gmail.com

 

- Financial Tables Follow –

 

DEYU AGRICULTURE CORP AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS  

 

Assets


June 30,
2012



December 31,
2011




(Unaudited)



(Audited)


Current Assets









Cash and cash equivalents


$

6,474,761



$

8,741,703


Restricted cash



499,172




1,850,999


Accounts receivable, net



27,539,439




36,167,136


Due from related parties



178,124




587,108


Inventory



29,023,501




20,314,090


Advance to supplier



3,696,763




7,233,371


Prepaid expenses



711,777




391,537


Assets held for sale



-




1,634,274


Other current assets



1,365,504




2,204,934


Total Current Assets



69,489,041




79,125,152











Property, plant, and equipment, net



19,903,673




12,355,946


Construction-in-progress



1,826,198




-


Long-term Investment



57,296




-


Other assets



180,370




727,535


Intangible assets, net



13,159,780




10,651,844











Total Assets


$

104,616,358



$

102,860,477











Liabilities and Equity


















Current Liabilities









Short-term loan


$

13,122,462



$

14,413,480


Accounts payable



2,303,402




1,833,190


Note payables



-




1,588,840


Advance from customers



2,455,218




8,488,272


Accrued expenses



1,592,012




1,149,205


Tax payable



286,413




-


Preferred stock dividends payable



218,902




219,721


Due to related parties



5,800,261




5,445,115


Other current liabilities



1,063,983




583,196


Total Current Liabilities



26,842,653




33,721,019











Equity









Series A convertible preferred stock, $.001 par value, 10,000,000 shares authorized,  1,995,475 and 1,997,467 shares outstanding, respectively



1,995




1,997


Common stock, $.001 par value; 75,000,000 shares authorized, 10,566,766 and 10,564,774 shares outstanding, respectively



10,567




10,565


Additional paid-in capital



20,657,189




20,367,138


Other comprehensive income



4,200,245




4,831,353


Retained earnings



52,511,489




43,491,465


Total Stockholders' Equity



77,381,485




68,702,518


Noncontrolling Interests



392,220




436,940


Total Equity



77,773,705




69,139,458











Total Liabilities and Equity


$

104,616,358



$

102,860,477


 

 

DEYU AGRICULTURE CORP AND SUBSIDIARIES


CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME


(UNAUDITED)

 




For The Three Months Ended



For The Six Months Ended




June 30,



June 30,




2012



2011



2012



2011















Net revenue


$

55,837,010



$

49,456,704



$

118,576,479



$

86,102,520


Cost of goods sold



(45,334,604)




(40,537,974)




(95,654,272)




(69,342,673)


Gross Profit



10,502,406




8,918,730




22,922,207




16,759,847



















Selling expenses



(3,973,047)




(2,799,444)




(8,131,419)




(5,022,847)


General and administrative expenses



(2,106,397)




(1,501,660)




(3,965,171)




(2,811,820)


Total Operating Expenses



(6,079,444)




(4,301,104)




(12,096,590)




(7,834,667)


Operating income



4,422,962




4,617,626




10,825,617




8,925,180



















Interest income



6,138




20,046




17,676




26,461


Interest expense



(445,495)




(132,886)




(930,039)




(211,824)


Non-operating income



8,304




(31,168)




576,650




9,292


Total Other Expenses



(431,053)




(144,008)




(335,713)




(176,071)



















Income from continuing operations before income taxes



3,991,909




4,473,618




10,489,904




8,749,109


Income taxes



(1,089,402)




282,240




(1,290,696)




512,505


Income from continuing operations



2,902,507




4,755,858




9,199,208




9,261,614


Loss from discontinued operations, net of income taxes



-




(2,359,135)




-




(3,568,142)



















Net income



2,902,507




2,396,723




9,199,208




5,693,472



















Net loss attributable to noncontrolling interests:

















Net loss from continuing operations



19,435




-




40,869




-


Net loss from discontinued operations



-




841,530




-




985,713


Total net loss attributable to noncontrolling interests



19,435




841,530




40,869




985,713


Net income attributable to Deyu Agriculture Corp.



2,921,942




3,238,253




9,240,077




6,679,185


Preferred stock dividends



(109,977)




(132,459)




(220,052)




(230,146)


Net income available to common stockholders



2,811,965




3,105,794




9,020,025




6,449,039


Foreign currency translation (loss) gain



(672,232)




598,679




(634,959)




969,839


Comprehensive income



2,139,733




3,704,473




8,385,066




7,418,878


Other comprehensive income attributable to noncontrolling interests



3,559




(36,741)




3,851




(44,071)


Comprehensive income attributable to Deyu Agriculture Corp.


$

2,143,292



$

3,667,732



$

8,388,917



$

7,374,807



















Amounts attributable to common stockholders:

















Net income from continuing operations, net of income taxes


$

2,811,965



$

4,623,399



$

9,020,025



$

9,031,468


Discontinued operations, net of income taxes



-




(1,517,605)




-




(2,582,429)


Net income attributable to common stockholders


$

2,811,965



$

3,105,794



$

9,020,025



$

6,449,039



















Net income attributable to common stockholders per share - basic:

















Income from continuing operations


$

0.27



$

0.44



$

0.85



$

0.86


Loss from discontinuing operations



-




(0.14)




-




(0.25)


Net income attributable to common stockholders


$

0.27



$

0.30



$

0.85



$

0.61



















Net income attributable to common stockholders per share - diluted:

















Income from continuing operations


$

0.23



$

0.38



$

0.73



$

0.75


Loss from discontinuing operations



-




(0.12)




-




(0.21)


Net income attributable to common stockholders


$

0.23



$

0.26



$

0.73



$

0.54



















Weighted average number of common shares outstanding - basic



10,566,574




10,527,356




10,565,674




10,498,724


Weighted average number of common shares outstanding - diluted



12,588,098




12,465,313




12,578,579




12,460,613


 

 

DEYU AGRICULTURE CORP AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS

(UNAUDITED)

 



For The Six Months Ended




June 30,




2012



2011


CASH FLOWS FROM OPERATING ACTIVITIES









Net income available to common stockholders


$

9,020,025



$

6,449,039


Loss from discontinued operations attributable to Deyu Agriculture Corp.



-




3,568,143


Adjustments to reconcile net income to net cash provided by operating activities:









Depreciation & amortization



1,159,709




403,386


Allowance for doubtful accounts



15,518




-


Reserve for inventory valuation



-




24,212


Share-based compensation



290,051




275,163


Preferred stock dividends accrued



226,737




212,420


Common stocks issued for services



-




42,779


Grain on bargain purchase



(499,079)




-


Deferred income tax expense (benefit)



790,260




(512,505)


Noncontrolling interests



(40,869)




-


Decrease (increase) in current assets:









Accounts receivable



8,453,627




(13,500,592)


Related-parties trade receivable



484,382




-


Inventories



(7,652,753)




(27,597,057)


Advance to suppliers



4,326,823




(6,300,152)


Prepaid expense and other current assets



(302,034)




(1,759,467)


Increase (decrease) in liabilities:









Accounts payable



171,344




1,888,448


Advance from customers



(6,224,402)




950,223


Accrued expense and other liabilities



479,664




(538,249)


Net cash provided by (used in) operating activities of continuing operations



10,699,003




(36,394,209)


Net cash used in operating activities of discontinued operations



-




(799,599)


Net cash provided by (used in) operating activities



10,699,003




(37,193,808)











CASH FLOWS FROM INVESTING ACTIVITIES









Consideration paid for acquisition



(5,175,006)




-


Construction and remodeling of factory and warehouses



(157,328)




(108,599)


Purchase of machinery and equipment



(46,992)




(240,026)


Advances to related parties



(78,739)




-


Cash held by the Taizihu Group at acquisition date



20,272




-


Net cash used in investing activities of continuing operations



(5,437,793)




(348,625)


Net cash used in investing activities of discontinued operations



-




(2,086,078)


Net cash used in investing activities



(5,437,793)




(2,434,703)











CASH FLOWS FROM FINANCING ACTIVITIES









Cash released from restriction (restricted) for credit line of bank acceptance notes



1,582,245




(10,073,725)


Net (repayments of) proceeds from short-term loans from bank and others



(7,650,559)




16,332,567


Net (repayments of) proceeds from short-term bank acceptance notes



(1,582,329)




26,265,716


Net proceeds from short-term loans from related parties



330,856




7,984,337


Payment of preferred dividends



(226,737)




(240,890)


Net cash (used in) provided by financing activities of continuing operations



(7,546,524)




40,268,005


Net cash provided by financing activities of discontinued operations



-




2,440,650


Net cash (used in) provided by financing activities



(7,546,524)




42,708,655











EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS



18,372




73,545











NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS



(2,266,942)




3,153,689


NET DECREASE IN CASH & CASH EQUIVALENTS FROM DISCONTINUED OPERATIONS



-




(439,797)


NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS FROM CONTINUING OPERATIONS



(2,266,942)




3,593,486











CASH & CASH EQUIVALENTS, BEGINNING BALANCE



8,741,703




5,791,418


CASH & CASH EQUIVALENTS, ENDING BALANCE


$

6,474,761



$

9,384,904











SUPPLEMENTAL DISCLOSURES:









Income tax paid


$

113,456



$

31


Interest paid


$

632,757



$

197,883


NONCASH INVESTING AND FINANCING ACTIVITIES:









Construction completed and transferred to property, plant, and equipment


$

-



$

5,618,908


Construction completed and transferred to land use rights


$

-



$

2,294,350


 

 

Note: Please refer to the Company's quarterly report on Form 10-Q for the three months ended June 30, 2012 for additional notes, which are an integral part of these consolidated financial statements

 

SOURCE Deyu Agriculture Corp.



RELATED LINKS
http://www.deyuagri.com

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