BEIJING, August 13, 2013 /PRNewswire/ -- Deyu Agriculture Corp. (OTCBB: DEYU) (the "Company"), a Shanxi Province, 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, 2013.
Second Quarter 2013 Results:
Mr. Greg Chen, Chief Executive Officer of the Company commented, "Since its beginning, 2013 has been a very challenging year for the Company. Our Q2 2013 financial results showed large decrease in net income. China's on-going economic slowdown has imposed and continues to impose challenges for us. In addition, extreme weather conditions throughout the northern part of China have added to an already challenging situation."
"For corn division in particular, the decrease in pork prices and the spread of avian flu H7N9 has affected the livestock raising industry, which has greatly reduced the demand for animal feeds, the major market of our corn products. In addition, a good corn harvest last year increased market supply," continued Mr. Chen. "Oversupply caused a decrease in market sales prices of corn while purchase prices from farmers didn't decline consistently due to the government's protective farming policies in favor of farmers. The gross margin of our corn trading business declined significantly, especially in the second quarter."
"Conventional retail sales of grain products in supermarkets and convenience stores became increasingly competitive. The deteriorating efficiency of existing retail distribution channels has caused the Company to re-evaluate its overall sales approach for packaged grain products and to begin developing a new marketing strategy. For the time being, we have begun shifting some of our available resources from grain retail sales to more wholesale or bulk trading. A general slowdown in consumer market growth and competition in the market segment have had a negative impact on the grain bulk trading business."
"We also met some unexpected and extreme weather in recent months, which caused serious damage to our inventories and affected our operations. In late April, an unexpected heavy snow storm collapsed two of our warehouses and caused about $1.2 million in damage to our inventory. Beginning in May 2013, Shanxi had unusually frequent heavy rainfall which caused extreme humidity. As a result, we reinforced the warehouses and took measures to prevent inventories from mildewing, which reduced the efficiency of our operations and increased operational expenses," added Mr. Chen.
Financial Results for the Second Quarter Ended June 30, 2013
The Company's net revenue for Q2 2013 was $63.6 million compared with $55.8 million for Q2 2012, an increase of $7.8 million, or 13.9%, which was mainly due to the increase of our bulk trading business with low margin. Net revenue from our Corn Division for Q2 2013 was approximately $35.7 million, a decrease of $1.7 million, or approximately 4.4%, as compared to $37.4 million for Q2 2012, which was mainly attributable to the weakening demand for corn from livestock feed factories in the industry. Net revenue from our Grain Division Q2 2013 was $10.4 million, a decrease of $4.2 million, or 29.0%, as compared to $14.6 million for Q2 2012, which was mainly attributable to the decline of retail sales in supermarket and convenience stores. Net revenue from our Bulk Trading Division for Q2 2013 was $17.5 million, an increase of $13.7 million, or 354.2% as compared to $3.9 million for Q2 2012, which was mainly attributable to our strategic shift from grain retail sales to wholesale or bulk trading.
The Company's gross profit decreased by $4.9 million, or 46.6%, from $10.5 million for Q2 2012 to $5.6 million for Q2 2013, which was mainly attributable to the decrease of sales revenue from the Corn and Grain Division and the decrease of gross margin. Gross margin decreased from 18.8% for Q2 2012 to 8.8% for Q2 2013, which was mainly the combined result of the simultaneous decline of gross margin in each division and the increased sales percentage of the bulk trading business, which had a relatively lower gross margin.
Gross profit in the Corn Division was $3.4 million, contributing to 60.0% of total gross profit for Q2 2013. Gross margin for our Corn Division was 9.4% for Q2 2013, down by 610 basis points from 15.5% for Q2, 2012, which was mainly attributable to the weakening demand caused by the decrease of pork prices and the spread of bird flu H7N9, in addition to over supply as a result of a good harvest last year. Gross profit in the Grain Division was $1.8 million, contributing to 32.0% of total gross profit for Q2 2013. Gross margin for the Grain Division was 17.3% for Q2 2013, down by 1270 basis points from 30.0% for Q2 2012, which was primarily due to the increasing cost of raw materials in addition to the strategic shift from grain retail sales to wholesales, which has relatively lower gross margins but with fewer distribution expenses. Gross profit in the Bulk Trading Division was $0.5 million, contributing to 8.0% of total gross profit for Q2 2013. Gross margin in the Bulk Trading Division was relatively lower compared to our other Divisions as a result of its high turnover rate and relatively lower cost maintenance. Gross margin for the Bulk Trading Division was 2.6% for Q2 2013, a decrease of 540 basis points from 8.0% for Q2 2012, which was mainly attributable to negative margin for some transactions caused by severe market fluctuations of grains in May 2013.
The Company's operating expenses increased $1.9 million or 30.9% for Q2 2013 as compared to $6.1 million for Q2 2012. This increase was primarily the combined result of (a) an increase of $0.8 million of the expenses of handling, warehousing and freight, caused by frequent heavy rainfall in recent months; (b) an increase of $0.8 million of farmer seeding subsidies, of which parts were paid in the first quarter of 2012; (c) an increase of $0.5 million for management team enhancement, as well as business developments at the corporate level and (d) an increase of $0.4 million of professional service fees, mainly spent on financing consulting, internal control consulting, legal and other services; and offset by (e) a decrease of $0.8 million of advertisement and distribution expenses incurred as a result of the reduction of retail sales.
Interest expense for Q2 2013 was $0.2 million compared to $0.4 million for Q2 2012, a decrease of $0.2 million, or 48.9%, which was mainly due to the decrease in balances on loans. Non-operating loss for Q2 2013 was $1.2 million, mainly representing inventory loss due to the collapse of warehouses under an unexpected heavy snow storm on April 19, 2013. Non-operating income for the three months ended June 30, 2012 was not material.
The Company had net loss available to common stockholders of $4.1 million for Q2 2013, as compared to net income of $2.8 million for Q2 2012, a decrease of $6.9 million, or 244.8%. Earnings (loss) per diluted share was $(0.38) on 10.6 million shares for Q2 2013, compared to $0.23 on 12.6 million shares for Q2 2012.
Business Outlook
"Evolving market conditions in China present not only challenges, but opportunities," said Mr. Chen. "At this new stage of China's economic development, in which innovation and resource consolidation will be the key to competing in the China and global marketplaces, we realize the urgent need to develop a more sustainable growth strategy. We are currently developing new strategies and measures on several fronts, including product line enhancements and expansion, marketing and sales strategies and the development of digital platforms which are designed to go beyond conventional channels to meet market needs."
"We believe our new IT infrastructure, which is currently under development, will become a crucial operational platform to provide high level resource integration, information access and risk management," continued Mr. Chen. "We expect that the platform will offer extended services to farmers in the co-ops and to clients alike, will build strategic partnerships and serve Deyu's brand building strive. We believe the Company can compete more effectively with our new digital operational approach to turn some key barriers imposed by conventional approaches into strategic advantages."
"In the meantime, in order to adapt to the changing market for grain products sold to consumers, we are streamlining our operational structure, introducing new product lines, exploring new venues and utilizing a brand-driven approach to go beyond traditional distribution channels. Our new initiatives still continue to cultivate the whole value chain concept, by offering agricultural services to secure strategic production resources, to offer efficient commercial orders and other value-added services," added Mr. Chen. "However, while the Company's strategic and operational adjustments to the changing economic and market conditions in China will take some time, we could expect some more volatile quarters ahead of us."
Conference Call
The Company will host a conference call on August 21, 2013 at 9:00 AM EDT to discuss the Company's results for the second quarter ended June 30, 2013.
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: | 8/21/2013 |
Time: | 9:00 AM EDT |
Conference Line Dial-In (US): | 877-407-9205 |
International Dial-In: | 201-689-8054 |
Conference ID#: | 419592 |
Webcast Link: |
Dial in at least 10 minutes before the call to ensure timely participation. A Teleconference Replay will be available until 11:59 PM August 28, 2013. To listen, please call 877-660-6853 within the United States or 201-612-7415 if calling internationally.
Utilize the conference ID # for replay: 419592.
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 in 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. We have a nationwide sales network covering manufacturers, grain traders, wholesalers, distributors, institutional clients and retail stores in China. Deyu Agriculture Corp.'s facilities include sophisticated 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 Deyu Agriculture Corp.'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.
Company Contact:
Mr. Greg Chen, Chief Executive Officer
Deyu Agriculture Corp.
Tel: +1-646-499-5475
Email: gregchen@china-deyu.com
Ms. Amy He, Chief Financial Officer
Deyu Agriculture Corp.
Tel: +86-10-8273-2870 x8522
Email: amy@china-deyu.com
Financial Tables
DEYU AGRICULTURE CORP. AND SUBSIDIARIES | |||||||
CONSOLIDATED BALANCE SHEETS | |||||||
Assets | June 30, | December 31, | |||||
(Unaudited) | (Audited) | ||||||
Current Assets | |||||||
Cash and cash equivalents | $ | 8,013,686 | $ | 4,937,279 | |||
Restricted cash | 505,100 | 815,348 | |||||
Accounts receivable, net | 27,183,764 | 33,991,288 | |||||
Due from related parties | 43,834 | 397,214 | |||||
Inventory | 25,947,135 | 30,322,191 | |||||
Advance to supplier | 15,966,506 | 6,145,840 | |||||
Prepaid expenses | 722,350 | 1,453,184 | |||||
Other current assets | 146,281 | 340,456 | |||||
Total Current Assets | 78,528,656 | 78,402,800 | |||||
Property, plant, and equipment, net | 19,714,631 | 19,442,599 | |||||
Construction-in-progress | 1,970,542 | 2,614,491 | |||||
Long-term Investment | 59,309 | 58,426 | |||||
Intangible assets, net | 13,378,641 | 13,389,075 | |||||
Total Assets | $ | 113,651,779 | $ | 113,907,391 | |||
Liabilities and Equity | |||||||
Current Liabilities | |||||||
Short-term loan | $ | 8,832,242 | $ | 8,323,623 | |||
Accounts payable | 2,458,315 | 5,179,729 | |||||
Advance from customers | 3,581,751 | 2,249,282 | |||||
Accrued expenses | 1,741,161 | 1,506,776 | |||||
Tax payable | 249,074 | 305,712 | |||||
Preferred stock dividends payable | 235,344 | 229,171 | |||||
Due to related parties | 9,472,252 | 8,668,552 | |||||
Other current liabilities | 431,527 | 986,153 | |||||
Total Current Liabilities | 27,001,666 | 27,448,998 | |||||
Equity | |||||||
Series A convertible preferred stock, $.001 par value, 10,000,000 shares authorized, 2,110,094 and 2,039,970 shares outstanding, respectively | 2,110 | 2,040 | |||||
Common stock, $.001 par value; 75,000,000 shares authorized, 10,618,266 and 10,658,266 shares outstanding, respectively | 10,618 | 10,658 | |||||
Additional paid-in capital | 20,991,645 | 20,781,439 | |||||
Other comprehensive income | 7,081,392 | 5,737,793 | |||||
Retained earnings | 58,531,919 | 59,500,134 | |||||
Total Stockholders' Equity | 86,617,684 | 86,032,064 | |||||
Noncontrolling Interests | 32,429 | 426,329 | |||||
Total Equity | 86,650,113 | 86,458,393 | |||||
Total Liabilities and Equity | $ | 113,651,779 | $ | 113,907,391 | |||
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, | ||||||||||||
2013 | 2012 | 2013 | 2012 | ||||||||||
Net revenue | $ | 63,610,101 | $ | 55,837,010 | $ | 140,777,815 | $ | 118,576,479 | |||||
Cost of goods sold | (57,999,849) | (45,334,604) | (126,363,389) | (95,654,272) | |||||||||
Gross Profit | 5,610,252 | 10,502,406 | 14,414,426 | 22,922,207 | |||||||||
Selling expenses | (4,935,031) | (3,973,047) | (8,133,626) | (8,131,419) | |||||||||
General and administrative expenses | (3,021,371) | (2,106,397) | (4,904,238) | (3,965,171) | |||||||||
Total Operating Expenses | (7,956,402) | (6,079,444) | (13,037,864) | (12,096,590) | |||||||||
Operating income (loss) | (2,346,150) | 4,422,962 | 1,376,562 | 10,825,617 | |||||||||
Interest income | 5,572 | 6,138 | 13,672 | 17,676 | |||||||||
Interest expense | (227,577) | (445,495) | (403,281) | (930,039) | |||||||||
Non-operating income (loss) | (1,200,809) | 8,304 | (1,199,996) | 576,650 | |||||||||
Total Other Expenses | (1,422,814) | (431,053) | (1,589,605) | (335,713) | |||||||||
Income (loss) before income taxes | (3,768,964) | 3,991,909 | (213,043) | 10,489,904 | |||||||||
Income taxes | (185,120) | (1,089,402) | (525,553) | (1,290,696) | |||||||||
Net income (loss) | (3,954,084) | 2,902,507 | (738,596) | 9,199,208 | |||||||||
Net loss attributable to noncontrolling interests: | 185 | 19,435 | 3,804 | 40,869 | |||||||||
Net income (loss) attributable to Deyu Agriculture Corp. | (3,953,899) | 2,921,942 | (734,792) | 9,240,077 | |||||||||
Preferred stock dividends | (117,368) | (109,977) | (233,423) | (220,052) | |||||||||
Net income (loss) available to common stockholders | (4,071,267) | 2,811,965 | (968,215) | 9,020,025 | |||||||||
Foreign currency translation gain (loss) | 1,045,132 | (672,232) | 1,333,734 | (634,959) | |||||||||
Comprehensive income (loss) | (3,026,135) | 2,139,733 | 365,519 | 8,385,066 | |||||||||
Other comprehensive income (loss) attributable to noncontrolling interests | (384) | 3,559 | 9,865 | 3,851 | |||||||||
Comprehensive income (loss) attributable to Deyu Agriculture Corp. | $ | (3,026,519) | $ | 2,143,292 | $ | 375,384 | $ | 8,388,917 | |||||
Net income (loss) attributable to common stockholders per share - basic: | $ | (0.38) | $ | 0.27 | $ | (0.09) | $ | 0.85 | |||||
Net income (loss) attributable to common stockholders per share - diluted: | (0.38) | 0.23 | (0.09) | 0.73 | |||||||||
Weighted average number of common shares outstanding - basic | 10,618,266 | 10,566,574 | 10,632,189 | 10,565,674 | |||||||||
Weighted average number of common shares outstanding - diluted | 10,618,266 | 12,588,098 | 10,632,189 | 12,578,579 | |||||||||
DEYU AGRICULTURE CORP. AND SUBSIDIARIES | ||||||
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED) | ||||||
For The Six Months Ended | ||||||
June 30, | ||||||
2013 | 2012 | |||||
CASH FLOWS FROM OPERATING ACTIVITIES | ||||||
Net income (loss) available to common stockholders | $ | (968,215) | $ | 9,020,025 | ||
Adjustments to reconcile net income (loss) to net cash provided by operating activities: | ||||||
Depreciation & amortization | 1,195,722 | 1,159,709 | ||||
Allowance for doubtful accounts | - | 15,518 | ||||
Share-based compensation | 43,039 | 290,051 | ||||
Preferred stock dividends accrued | 233,423 | 226,737 | ||||
Common stocks issued for services | (57,200) | - | ||||
Grain on bargain purchase | - | (499,079) | ||||
Deferred income tax expense | - | 790,260 | ||||
Noncontrolling interests | (3,804) | (40,869) | ||||
Decrease (increase) in current assets: | ||||||
Accounts receivable | 7,261,186 | 8,453,627 | ||||
Related-parties trade receivable | 356,446 | 484,382 | ||||
Inventories | 4,820,912 | (7,652,753) | ||||
Advance to suppliers | (9,648,449) | 4,326,823 | ||||
Prepaid expense and other current assets | 943,714 | (302,034) | ||||
Increase (decrease) in liabilities: | ||||||
Accounts payable | (2,787,907) | 171,344 | ||||
Advance from customers | 1,287,414 | (6,224,402) | ||||
Accrued expense and other liabilities | (456,788) | 479,664 | ||||
Net cash provided by operating activities | 2,219,493 | 10,699,003 | ||||
CASH FLOWS FROM INVESTING ACTIVITIES | ||||||
Construction and remodeling of factory and warehouses | (92,473) | (157,328) | ||||
Purchase of machinery and equipment | (193,003) | (46,992) | ||||
Consideration paid for acquisition | - | (5,175,006) | ||||
Advances to related parties | - | (78,739) | ||||
Cash held by the Taizihu Group at acquisition date | - | 20,272 | ||||
Net cash used in investing activities | (285,476) | (5,437,793) | ||||
CASH FLOWS FROM FINANCING ACTIVITIES | ||||||
Net proceeds (repayment) from short-term loans from bank and others | 379,773 | (7,650,559) | ||||
Net proceeds of short-term loans from related parties | 343,616 | 330,856 | ||||
Cash released from restriction (restricted) for credit line of bank loans | 319,931 | 1,582,245 | ||||
Net repayments of short-term bank acceptance notes | - | (1,582,329) | ||||
Payment of preferred dividends | - | (226,737) | ||||
Net cash provided by (used in) financing activities | 1,043,320 | (7,546,524) | ||||
EFFECT OF EXCHANGE RATE CHANGE ON CASH AND CASH EQUIVALENTS | 99,070 | 18,372 | ||||
NET (DECREASE) INCREASE IN CASH & CASH EQUIVALENTS | 3,076,407 | (2,266,942) | ||||
CASH & CASH EQUIVALENTS, BEGINNING BALANCE | 4,937,279 | 8,741,703 | ||||
CASH & CASH EQUIVALENTS, ENDING BALANCE | $ | 8,013,686 | $ | 6,474,761 | ||
SUPPLEMENTAL DISCLOSURES: | ||||||
Income tax paid | $ | 586,307 | $ | 113,456 | ||
Interest paid | $ | 402,649 | $ | 652,757 | ||
NONCASH INVESTING AND FINANCING ACTIVITIES: | ||||||
Construction completed and transferred to property, plant, and equipment | $ | 767,494 | $ | - | ||
Note: Please refer to the Company's quarterly report on Form 10-Q for the three months ended June 30, 2013 for additional notes, which are an integral part of these consolidated financial statements.
