Linen market will continue to expand; China Linen Chief

China Linen Textile Industry Ltd, one of China's leading linen fabric and linen yarn producers and exporters, announced financial results for the first quarter ended March 31, 2011.

• Q1 2011 revenues increased 79% to $15.8 million.
• Q1 2011 gross profit increased 109% to $5.7 million, gross margin up 507 basis points to 36.0%
• Q1 2011 net income increased 50% to $3.2 million; diluted EPS of $0.46 vs. $0.36 a year ago.

"The first quarter of this year was marked by continued growth in revenues and net income, which benefitted from both volume increases and price improvements. We successfully expanded the sales and distribution channels for our linen fabric and yarn during the past year and utilized new capacity brought on-line through the Lanxi Tianxianfang Linen Co. acquisition. We also began to realize cost saving benefits from the integration of this business," said Mr. Gao Ren, Chairman and CEO of China Linen.

"Through the addition of a bleaching factory and our recently upgraded linen yarn dyeing facility, we are becoming a vertically integrated linen producer, which enables to us to capture more of the value chain while meeting increasing demand for our products both in China and abroad. International sales comprised 58% of revenues and were driven by growth in India and Turkey, including new markets such as Spain and Thailand, while higher domestic demand for linen products also drove revenue growth."

Three Months Ended March 31, 2011 Financial Results

Revenue for the three months ended March 31, 2011 totaled $15.8 million, up approximately 79% from $8.8 million for the three months ended March 31, 2010. The increase in revenue was primarily attributable to increased sales volume of both linen yarn and linen fabric, increased sales from the acquisition, increased sales from new products and new customers.

Gross profit for the first quarter of 2011 was $5.7 million, up 109% from $2.7 million from the first quarter of 2010 and was driven by sales growth. Gross margin for the three months ended March 31, 2011 was 36.0%, an increase of 507 basis points from 30.9% for the three months ended March 31, 2010, mainly due to sales price increases and our ability to efficiently control production costs.

Operating expenses increased 131% to $1.2 million in the three months ended March 31, 2011 from $0.5 million in 2010, mainly due to an increase in sales expenses, research and development costs, depreciation and amortization in connection with the increase of fixed assets.

Operating income increased 103% to $4.4 million for the first quarter of 2011 from $2.2 million in the same period of 2010, while operating margins increased 332 basis points to 28.1%.

Net income was $3.2 million for the three months ended March 31, 2011 as compared to $2.1 million for the three months ended March 31, 2010, representing an increase of approximately 50%, representing diluted earnings per share of $0.46, compared to $0.36 in the same period of 2010, an increase of 28%.

Balance Sheet and Cash Flow

As of March 31, 2011, the Company had cash and cash equivalents of $1.5 million, compared to $4.2 million at December 31, 2010. Inventory increased from $9.9 million as of December 31, 2010 to $23.0 million as of March 31, 2011, as the Company purchased a significant amount of raw materials to meet future sales orders and to reduce the impact of increasing unit purchase prices in the future. Accounts receivable balance was approximately $11.8 million on March 31, 2011, versus approximately $13.3 million on December 31, 2010.

Days sales outstanding (DSO) for the first three months of 2011 were approximately 81 days, compared to 107 days for the same period in 2010 mainly due to increased collection effort. Working capital as of March 31, 2011 totaled $25.5 million. The Company had total stockholders’ equity of $35.7 million at March 31, 2011, with total assets of $57.8 million versus total liabilities of $22.1 million, compared to total stockholders’ equity of $32.2 million at December 31, 2010, with total assets of $51.6 million versus total liabilities of $19.5 million.

For three months ended March 31, 2011, the Company’s cash used in operations were $0.2 million, with the divergence in net income mainly coming from an increase in cash used in inventory.

"As fashion trends across Europe and Asia favor pure linen products and accessories, and consumers increasingly recognize the quality and value of these products, we believe the linen market will continue to expand in 2011. In addition, higher overall cotton prices make linen more affordable on a relative basis and give us another reason to be optimistic about our business prospects going forward," Mr. Ren concluded.