China Ruitai first quarter 2011 total revenue decreases 6% to $9.6 million

May 20 2011

China Ruitai International Holdings Co., Ltd. ("China Ruitai", "the Company") (OTC Bulletin Board: CRUI), a manufacturer and distributor of cellulose ether additives for use in the production of pharmaceuticals, construction materials, PVC products, foods and beverages and cosmetics, today announced its results for the three months ended March 31, 2011.

Financial Highlights

"We are working through several short term challenges," stated Chairman Dianmin Ma of China Ruitai. "The good news is we have built a diversified customer base across four industries which we believe provide us with relatively stable revenues. Along with others in the industry, we increased prices to offset the rising input costs of cotton. While this caused some order delays as customers worked through less expensive inventory, we expect this action will result in higher sales and stable margins in the second half of this year. As our products are essential ingredients in so many end products which consumers use every day, such as toothpaste and medicines, and we are one of the largest companies serving this industry, we feel confident in a resumption of growth and improved profitability looking forward.  Our outlook for the balance of the year is positive despite some setbacks in the first quarter."

First Quarter 2011 Results

Total revenue for the three months ended March 31, 2011 was $9.6 million, a decrease of 6% from $10.2 million in the comparable period in 2010.  The revenue decline was attributable to lower sales after the Company raised prices on approximately 90% of its products by an average of $1,500 per ton, or 26%, to offset rising raw materials cotton costs and labor costs. Adding to the temporary drop in demand was the decrease in sales to our construction customers as a  result of newly issued building insulation materials codes following the building fire in Shanghai on November 15, 2010. Cellulose ether, especially HPMC construction-specific material, is a necessary ingredient for insulation mortar due to its water retention characteristics. The insulation materials that led to the Shanghai building fire were unrelated to the Company's products.  However, we believe this event reduced demand for the Company's HPMC construction-specific materials due to the uncertainty of the newly issued codes.  The Company sold 1,260 tons of product during the first quarter of 2011 compared to 1808 tons in the comparable period in 2010. Management believes orders will recover in the second half of 2011 as customers adjust to higher pricing in the Company's HPMC-construction materials and as cotton input costs decrease after almost a year of increases.

Gross profit decreased by 15% year-over-year to $2.8 million. Gross margin was 29.2% and 32.4% in the first quarter of 2011 and 2010, respectively. The decline in gross margin reflects rising commodity costs and a lag between cost inflation and the pricing actions taken in the first quarter of 2011.  The Company was able to mitigate the price increases of cotton by using wood pulp as a source of cellulose for certain products.  However, the majority of the Company's products, and particularly HPMC products for the construction industry, require cotton-based cellulose.

The Company made further progress expanding its sales to higher-margin, pharmaceutical clients. Sales to pharmaceutical customers expanded 10% to $5.3 million, representing 55% of total sales. China Ruitai added 16 new customers to its pharmaceutical sales segment in the quarter.

Operating expenses increased by approximately $0.6 million in the first three months of 2011 to $1.3 million. Selling and marketing expenses, which consist of sales commissions, freight charges, and advertising and promotion expenses, increased 47% to $0.5 million due mostly to freight costs incurred by a free-freight program to encourage stocking orders with the Company's manufacturing customers. Administrative expenses were $0.7 million compared to $0.3 million in the comparable period of 2010, as a result of payroll increases and bonuses awarded to our employees in the first quarter of 2011. Excluding the $0.4 million non-recurring increase in bad debt collections in the first quarter of 2010, which was not present in this year's first quarter results, general and administrative expenses increased 7.2%.

Operating income decreased to $1.6 million compared to $2.7 million in the first quarter of 2010. Operating margin was 16.1% in the first quarter of 2011.

The net income for the three months ended March 31, 2011 was $0.7 million compared to $1.9 million in the prior year's corresponding period. EPS was $0.04 and $0.09 in the first quarter of 2011 and 2010, respectively. The weighted average shares outstanding were 26.2 million for both periods.

Financial Condition

The Company had $15.8 million in cash and cash equivalents at March 31, 2011, as compared to $25.5 million as of December 31, 2010. The restricted cash balance of $15.3 million represented deposits for notes receivables.  As of March 31, 2011, the Company had $42.6 million in short term loans and $19.5 million in notes payable from several large financial institutions, including Bank of China, Shanghai Pudong Development Bank, and Feicheng Rural Credit Cooperative.  The Company has long term relationships with these banks and management is confident that it will maintain access to these bank loans for the foreseeable future. Shareholder's equity was $30.8 million at March 31, 2011, a 3% increase from $29.9 million reported on December 31, 2010.