China Linen Textile Industry, Ltd. Reports Second Quarter 2011 Results; Revenues Increase 82% to $16.0 Million, Net Income Increases 80% to $3.5 Million with Diluted EPS of $0.51

HARBIN, China, August 15, 2011 /PRNewswire-Asia/ -- China Linen Textile Industry, Ltd. (OTCQB:CTXIF) ("China Linen" or the "Company"), one of China's leading linen fabric and linen yarn producers and exporters, today announced financial results for the second quarter ended June 30, 2011.

• Q2 2011 revenues increased 82% to $16.0 million.
• Q2 2011 gross profit increased 116% to $5.9 million, gross margin up 572 basis points to 36.5%
• Q2 2011 net income increased 80% to $3.5 million; diluted EPS of $0.51 vs. $0.33 a year ago.
• Raised full year revenue guidance from $58-63 million to $60-64 million, raised full year net income guidance from $11.5-12.6 million to $12-13 million.

SUMMARY FINANCIALS

Mr. Gao Ren, Chairman and CEO of China Linen, commented: "I am pleased to report that the second quarter of this year was marked by substantial growth in revenue and net income compared to the same period last year, resulting from sales volume increases and price improvements of both linen fabric and linen yarn. The integration of Lanxi Tianxianfang Linen Co. is complete and we continue to realize cost saving benefits from this acquisition. Through the addition of a bleaching factory and our upgraded linen yarn dyeing facility, we move closer to our long term goal of becoming a fully integrated linen producer, which should further drive margin expansion and allow us to offer a full range of linen products and services to our customers. International sales remained robust, accounting for 58% of revenues in the second quarter, as fashion trends across Europe and Asia continued to favor pure linen products and accessories, and consumers increasingly recognized the quality and value of these products," Mr. Gao concluded.

Three Months Ended June 30, 2011 Financial Results

Revenue for the three months ended June 30, 2011 totaled $16.0 million, up approximately 82% from $8.8 million for the three months ended June 30, 2010. The increase in revenue was primarily attributable to increased sales volume of both linen fabric and linen yarn due to new customers and new products, and increased sales prices. Gross profit for the second quarter of 2011 was $5.9 million, up 116% from $2.7 million from the second quarter of 2010. The increase in gross profit was primarily driven by sales growth. Gross margin for the three months ended June 30, 2011 was 36.5%, an increase of 572 basis points from 30.8% for the three months ended June 30, 2010, mainly due to sales price increases and the ability to efficiently control production costs.

Operating expenses increased 151% to $1.1 million in the three months ended June 30, 2011 from $0.4 million in the same period of 2010, mainly due to an increase in sales expenses, research and development costs, and depreciation and amortization in connection with the increase of fixed assets.

Operating income increased 109% to $4.8 million for the second quarter of 2011 from $2.3 million in the same period of 2010, while operating margin increased 389 basis points to 29.8%.

Net income was $3.5 million for the three months ended June 30, 2011 as compared to $1.9 million for the three months ended June 30, 2010, representing an increase of approximately 80%, representing diluted earnings per share of $0.51, compared to $0.33 in the same period of 2010, an increase of 51%.

Six Months Ended June 30, 2011 Financial Results

Revenue for the six months ended June 30, 2011 totaled $31.8 million, an increase of approximately 81% from $17.6 million for the six months ended June 30, 2010. The increase in revenue was primarily attributable to increased sales volume of both linen fabric and linen yarn due to new customers and new products, and increased sales prices. Gross profit for the six months ended June 30, 2011 was $11.5 million, up 112% from $5.4 million from the first half of 2010. Gross margin for the six months ended June 30, 2011 was 36.2 %, an increase of 540 basis points from 30.8% for the six months ended June 30, 2010, primarily attributable to sales price increases and the ability to efficiently control production costs.

Operating expenses increased 140% to $2.3 million in the six months ended June 30, 2011 from $1.0 million in the same period of 2010, mainly due to an increase in sales expenses, research and development costs, and depreciation and amortization in connection with the increase of fixed assets.

Operating income increased 106% to $9.2 million for the first six months of 2011 from $4.5 million in the same period of 2010, while operating margins increased 361 basis points to 29.0%.

Net income was $6.6 million for the six months ended June 30, 2011 as compared to $4.0 million for the six months ended June 30, 2010, representing an increase of approximately 65%, representing diluted earnings per share of $0.97, compared to $0.70 in the same period of 2010, an increase of 39%.

Balance Sheet and Cash Flow

As of June 30, 2011, the Company had cash and cash equivalents of $0.6 million, compared to $4.2 million at December 31, 2010. The company borrowed $1.4M short term loan and paid back $3.6M in the first half year of 2011. Inventory increased from $9.9 million as of December 31, 2010 to $21.4 million as of June 30, 2011, as the Company purchased a significant amount of raw materials during the first half year of 2011 to meet increasing demand and to reduce the impact of increasing unit purchase prices in the future. Accounts receivable balance was approximately $12.6 million on June 30, 2011, compared to approximately $13.3 million on December 31, 2010. Days sales outstanding (DSO) for the first six months of 2011 were approximately 75 days, compared to 112 days for the same period in 2010, mainly due to increased collection efforts.

Working capital as of June 30, 2011 totaled $30.2 million. The Company had total stockholders' equity of $39.7 million at June 30, 2011, with total assets of $56.6 million versus total liabilities of $16.9 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. The book value of net assets per diluted share was approximately $5.55 as of June 30, 2011.

For the six months ended June 30, 2011, the Company's cash used in operations was $1.2 million, with the divergence to net income mainly coming from an increase in cash used for inventory.

Conference Call

The Company will host a conference call to discuss its second quarter 2011 financial results August 15th, 2011 at 8:00 am ET. Interested participants should call +1-877-941-4776 within the United States, or +1-480-629-9714 if calling internationally. The conference ID is 4464299. It is advisable to dial in approximately 5-10 minutes prior to 8:00 am ET.

A playback will be available through August 22, 2011. To listen, please call +1-877-870-5176 within the United States or +1-858-384-5517 if calling internationally. Utilize the pass code 4464299 for the replay.

This call is being webcast by Viavid Broadcasting and can be accessed by clicking on the following link: http://viavid.net/dce.aspx?sid=00008B2B or at ViaVid's website at http://www.viavid.net.

About China Linen Textile Industry, Ltd.

China Linen Textile Industry, Ltd. (www.chinalinentextile.com) is principally engaged in the production and sale of linen yarn and various types of linen fabric. The Company is also involved in consultation and R&D related to linen technology and linen products. The Company carries on all of its business activities through its subsidiary, Heilongjiang Lanxi Sunrise Linen Textile Industry Co., Ltd. ("Lanxi Sunrise"), established in June 2002 and located in Lanxi County, the "Homeland of Flax in China," near Harbin City in China. Lanxi Sunrise has one yarn-spinning factory, one bleaching factory and two fabric weaving factories in its 35,120 square meters of building area with a staff of 1,400 and 430 sets of world-class, advanced production machinery. Annual production capacity totals approximately 2,220 tons with 50 different types of yarn and 10 million meters of fabric with 110 types. Approximately 50 percent of its products are exported to more than 10 countries.

Forward-looking statements:

The above news release contains forward-looking statements. The statements contained in this document that are not statements of historical fact, including but not limited to, statements identified by the use of terms such as "anticipate," "appear," "believe," "could," "estimate," "expect," "hope," "indicate," "intend," "likely," "may," "might," "plan," "potential," "project," "seek," "should," "will," "would," and other variations or negative expressions of these terms, including statements related to expected market trends and the Company's performance, are all "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995 and involve a number of risks and uncertainties. These statements are based on assumptions that management believes are reasonable based on currently available information, and include statements regarding the intent, belief or current expectations of the Company and its management. Prospective investors are cautioned that any such forward-looking statements are not guarantees of future performances, and are subject to a wide range of external factors, uncertainties, business risks, and other risks identified in filings made by the company with the Securities and Exchange Commission. Actual results may differ materially from those indicated by such forward-looking statements. The Company expressly disclaims any obligation or undertaking to update or revise any forward-looking statement contained herein to reflect any change in the company's expectations with regard thereto or any change in events, conditions or circumstances upon which any statement is based.