Deyu Agriculture Corp. Posts Strong Fiscal Year 2010 Results

BEIJING, April 5, 2011 /PRNewswire-Asia-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 based in Shanxi Province, China, today is pleased to release the Company's annual report for the fiscal year ended December 31, 2010. The Company plans to host year end 2010 financial results conference call at 8:30 a.m. ET on Thursday, April 7, 2011.

2010 Fiscal Year Financial Highlights:

• Revenue increased 119%, from $40,732,447 FY 2009 up to $89,175,633 for FY 2010

• Gross profit increased 110%, from $10,595,866 FY 2009 up to $22,254,093 for FY 2010

• Net income increased 60%, from $7,181,132 FY 2009 up to $11,502,252 for FY 2010

Summarized Full Year 2010 Results:

Jianming Hao, Chief Executive Officer and Chairman of Deyu, said: "We are delighted with the Company's solid financial results and growth this past year. We experienced significant growth in both revenue and net income. In particular, our corn division increased its revenue by $37.3 million in 2010, a 116% increase compared to 2009. This surge in revenues is attributable to the strong demand for corn from our loyal customer base and also our high production capacity, ability to promptly fulfill supply orders, large number of warehouses, accessibility to railway and transportation, superior quality of customer service and products and competitive pricing."  

Mr. Hao further commented: "We are also pleased that our simple processed grain division increased its revenues by $10.5 million in 2010, a 124% increase compared to 2009. This growth in revenues is a credit to our new sales and marketing initiatives, our expansion from 300 to approximately 10,000 stores and our enhanced brand name recognition efforts. Based upon our perceived and historical growing demand for our deep processed grain products, the changing dietary demands, and the rise in health and nutrition consciousness of the Chinese people, we believe that we have an excellent opportunity to further increase our revenues, net income and gross margins in the near future."

2010 Full Year Financial Results

Revenue

Deyu's revenue for the year ended December 31, 2010 was $89.2 million compared with $40.7 million for the year ended December 31, 2009, an increase of $48.4 million, or 119%, of which $69.5 million was attributable to corn sales, $19.1 million to simple processed grain sales and the remaining $0.6 million from deep processed grain sales.

Cost of Goods Sold

Cost of goods sold as a percentage of net revenue increased slightly by 1% from 74% in 2009 to 75% in 2010. Deyu experienced a purchase cost increase on both corn and grains in 2010 due to a growing demand for corn and grains both globally and domestically, price increases in general and temporary grain shortages in other regions of China which were caused by drought and floods. The increase in the price of corn resulted in higher margins in the Company's corn division since it was able to pass such increased costs onto its customers. However, for Deyu's simple and deep processed grain products, the Company's selling price remained stable and therefore, increased costs of grains in 2010 negatively affected the Company's profit margins in those divisions.

Gross Profit and Gross Profit Margin

As a percentage of net revenue, gross margin was 25.0% for the year ended December 31, 2010 as compared to 26.0% for the year ended December 31, 2009. The slight decrease was mainly due to a slightly lower gross margin in the Company's grains division in 2010 as compared to 2009, partially offset by increase in gross margin in the corn division.

Gross margin for the corn division was 22.13% for the year ended December 31, 2010, up by 255 basis points from 19.58% for the year ended December 31, 2009. The increase was mainly due to higher sales price resulting from higher value of Deyu's product brand pursuant to the strengthened relationship with the Company's major customers, the development and growing number of new customers, the funding to purchase more raw materials, and the continuous enhancements in warehousing, as well as the Company's existing advantages in logistics, transportation, product quality, and delivery in the market.

Gross margin for the simple-processed grains division was 35.21% for the year ended December 31, 2010, down by 196 basis points from 54.84% for the year ended December 31, 2009. The decrease was mainly attributable to the continuous increase in the purchase cost of millet in 2010. Additionally, the Company offered promotional price reductions for entering into new supermarkets and holiday sales events during the Chinese New Year season in January and February of 2010, which contributed to the compression of Deyu's margin of grain products.

Selling, General and Administrative Expenses

Selling expenses increased by approximately $5.1 million, or 262%, from $1.9 million in the year ended December 31, 2009 to $7 million in the year ended December 31, 2010. Such increase is attributable to increased freight charges of $1.7 million related to sales increases, new slotting fees of $2.0 million for entering more retail stores and supermarkets for simple and deep processed grain products, newly increased sales and marketing personnel expenses of $0.5 million and newly incurred advertising and endorsement costs of $0.5 million, as well as other costs increased associated with the Company's expanding sales force.

General and administrative expenses increased by approximately $3.4 million, or 474%, from $0.7 million in the year ended December 31, 2009 to $4.1 million in the year ended December 31, 2010. This increase is mainly due to the Company's business growth and expansion that increased its payroll and related expenses, travel, auto, office and all other related expenses. 

Net Income

Net income, before income taxes and preferred stock dividends, increased by approximately $3.5 million, or 49%, from $7.2 million in the year ended December 31, 2009 to $10.7 million in the year ended December 31, 2010. This increase is mainly attributable to the growth of Deyu's simple-processed grain division with an increase of $10.5 million in net revenue and an increase of $2.4 million in gross profit, as well as the growth of the Company's corn division with an increase of $37.3 million in net revenue and an increase of $11.4 million in gross profit.

Liquidity and Capital Resources

For the year ended December 31, 2010, net cash provided by operating activities totaled approximately $0.2 million, a decrease of approximately $1.4 million, or 87%, from approximately $1.6 million in the year ended December 31, 2009. This decrease is primarily attributable to increase in cash used in inventory purchasing as a result of the continuous growth of the Company's business and higher purchase cost of raw materials during 2010. Additionally, the purchase of the Company's raw materials requires payments to be made to the suppliers at the time of delivery without credit term. As Deyu's business continued to grow in 2010, more cash was used in inventory purchase accordingly. The increase in accounts receivable was $1.9 million in 2009 as compared to $6.6 million in 2010 as a result of growth of the Company's net revenue and credit terms offered to new retailers and wholesalers also contributed to the reduction in net cash provided by the Company's operating activities.

The Company believes that its current levels of cash, cash flows from operations, and bank/related party borrowings will be sufficient to meet its anticipated cash needs for at least the next 12 months.

Financial Outlook

Deyu believes that it will experience further growth if the Company continues to meet the increasing demand for its current products and expanded product lines. The Company's management team has developed strategies and taken actions to keep up with current demands and foreseeable ones, including working with farmers to increase current yields, focusing on the Company's ability to enter into new cooperative agreements, signing contracts with new farmer agents, and expanding geographically in Shanxi Province. Deyu is also looking into additional land acquisitions, building more production sites and warehouses, as well mergers and acquisitions of suppliers, vendors and competitors. The Company has also begun an initial evaluation of the viability of exporting its deep processed grain products to other countries, such as Japan and the United States.

Business Outlook

During the fourth quarter of 2010, the Company conducted bulk purchase and wholesale trading of rice and flour, resulting in $5.1 million and $0.8 million of sales revenue, respectively. The Company intends to continue increasing the trading volume and expanding its customer base in this sector during 2011.

Also in 2010, Deyu made the strategic decision to obtain additional supply sources in an effort to position itself for long-term success. For approximately $7 million dollars, the Company acquired the land use rights of two pieces of farmland totaling approximately 17,300 acres. The growing season for these parcels will begin in April 2011. Deyu believes that is has achieved economies of scale through its exclusive rights of use to over 109,000 acres of what the Company considers to be some of China's most fertile agricultural land, including ownership rights to approximately 19,000 acres. Also, the Company is constructing warehouses in Shanxi Province and a new plant in the outskirts of Beijing.

Mr. Hao stated: "In the coming year 2011, for sales and marketing strategy, instead of rapidly increasing the number of stores selling our products across Beijing and China as a whole, we have shifted our focus on promoting our name brand and products regionally, and increasing customer purchases on a per store basis. Since we have been successful promoting and selling our products through all of our distribution channels and networks, including B2B and B2C E-Commerce, and our brand names are becoming widely known, to support this growth, the Company has carefully planned to build more warehouses and plants and to acquire companies in the future that either fit in or expand Deyu product lines. It also helps ease requests of many of our wholesalers and retail stores for providing other non-existing Deyu product lines. Thus, we plan to make a few strategic acquisitions per year vertically or horizontally to sell either under our own brands name or theirs through our distribution networks."  

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 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.

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.

Conference Call

The conference call will take place at 8:30 a.m. ET on Thursday, April 7, 2011. To attend the call, please use the dial-in information below. When prompted, ask for the "Deyu Agriculture Call" and/or be prepared to provide the conference ID.

Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through April 22, 2011. To listen, please call 1-877-660-6853 within the United States or 1-201-612-7415 if calling internationally. Utilize the pass code 286 for the replay.

This call is being webcast by PrecisionIR and can be accessed by clicking on this link, http://www.investorcalendar.com/IC/CEPage.asp?ID=164114, or at PrecisionIR 's website at www.PrecisionIR.com., where the webcast can be accessed through April 22, 2011.

SOURCE Deyu Agriculture Corp.

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