China Marine Reports Record Second Quarter Revenues of $27.6 million and Adjusted EPS of $0.28
SHISHI, China, Aug. 10 /PRNewswire-Asia/ -- China Marine Food Group Limited (NYSE Amex: CMFO) ("China Marine" or the "Company"), a manufacturer of Mingxiang(R) seafood-based snack foods, "Hi-Power" marine algae-based beverages and a distributor of frozen marine catch, today announced its financial results for its second quarter ended June 30, 2010.
Second Quarter 2010 Highlights
-- Revenue was $27.6 million, up 86.8% from Q2 2009.
-- The Company expanded its retail footprint for seafood snack food
products by 400 sales points to 2,900 and sales grew 36.1% year over
year.
-- Retail locations for "Hi-Power", the Company's marine algae-based
beverage, crested over 10,000 retail points by the close of the second
quarter 2010 while quarterly revenues grew 183.6% sequentially to $7.8
million.
-- Gross margins expanded by 379 basis points to 37.0% with operating
margins of 29.0% for the quarter.
-- GAAP net income was $6.8 million, up 83.1% from Q2 2009; Adjusted net
income was $7.4 million*.
-- Earnings per diluted share were $0.26 based on 26.4 million shares;
Adjusted EPS was $0.28*.
* Adjusted Net Income and Diluted EPS in Q2 2010 are non-GAAP calculations
and do not include $0.6 million of non-cash, amortization of intangible
assets related to the Company's recent acquisition. The algae-based
beverage process expertise is amortized over its estimated useful life
of 10 years, on a straight-line basis, at a yearly amortization charge
of approximately $2.4 million (or $0.6 million per quarter). For more
information about the non-GAAP financial measures contained in this
press release, please see "About Non-GAAP Financial Measures" below.
Financial Summary
Second Quarter 2010 Results
Q2 2010 Q2 2009 CHANGE
Net Sales $27.6 million $14.8 million +86.8%
Gross Profit $10.2 million $4.9 million +108.1%
Net Income $ 6.8 million $3.7 million +83.1%
Diluted EPS $0.26 $0.16 +62.5%
Adjusted Net
Income* $7.4 million $3.7 million +98.9%
Adjusted Diluted
EPS* $0.28 $0.16 +75.0%
"We are very pleased with our second quarter results, which was driven by 36.1% organic growth in seafood snack food products line. We added an additional 400 retail points to our network and experienced year over year growth in every sales territory for our core product line," began Mr. Pengfei Liu, Chairman and CEO of China Marine. "Sales of our new beverage line,
"Hi-Power", exceeded our expectations, as we experienced strong demand across our home province of Fujian. We expect continued sales growth for our beverage segment in the second half of the year. Accordingly, we increased the number of "Hi-Power" sales and marketing staff from 23 at the beginning of the year to 188 currently as of June 30, 2010. In our recruiting effort, we have also retained top marketing talent from well-known international beverage brands to enable us a competitive edge in this fast-growing sector. "
Second Quarter Fiscal Year 2010 Results
Seafood Snack Food Segment
China Marine's continued focus on the sale of processed and packaged seafood snack foods produced $19.4 million in revenue, a 36.1% increase from $14.3 million in the second quarter of 2009, and accounted for 70.4% of total revenue in the second quarter of 2010. China Marine added approximately 400 new retail locations which carry Mingxiang(R)-branded snack foods. As of June 30, 2010, the total number of retail locations in China Marine's network is approximately 2,900 which are located in the Company's sales provinces of Zhejiang, Fujian, Guangdong, Shangdong, Jiangsu and Sichuan. The Company reported sales increases in each sales territory and particularly in Fujian and Zhejiang provinces where the Company witnessed sales growth of 56.2% and 23.8% respectively, compared to the same period last year. During the quarter, China Marine recruited and hired 15 new sales managers to develop new sales territories for the Company, work closely with the Company's exclusive distributors and to service and promote Mingxiang(R)-branded snack foods at their respective retail end points.
"Hi-Power" Beverage Segment
In its second consecutive quarter of operations under China Marine Food Group, revenue from algae-based beverages, "Hi-Power", was $7.8 million and accounted for 28.3% of total revenue in the quarter. Sales of Hi-Power increased 183.6% from the first quarter 2010. Sales in the quarter were primarily driven by orders in the Company's home province, Fujian, where promotional efforts have been concentrated since the product's re-launch in the first half of the year. The new packing of "Hi-Power" was well-received by the distributors' existing customer base and reorders are anticipated on a monthly basis. The total number of retail end-points reported by the Company on June 30, 2010 crested over 10,000, which includes major international retailers such as Walmart(R), China-based supermarkets like Trust-Mart(R), convenience stores, bars, restaurants, school canteens and local corner stores which carry "Hi-Power" beverages, and certain locations where
Mingxinag(R)-branded seafood products are also sold. In the second quarter of the year, sales staff increased to 188 dedicated for "Hi-Power," who work with distributors and retail end points. On average, sales manager each handle
50-100 retail points and are responsible for point of sales maintenance, reorders of "Hi-Power" and promotional activities coordinated with distributors for the territory. China Marine has been able to attract and retain a few top sales and marketing executives from other well-known international beverage brands to work with "Hi-Power" distributors and sales teams to compete in the fast-growing beverage market in China.
Based on the Company's second quarter and year-to-date performance, China Marine is confident it will exceed its revenue guidance of $20.0 million in "Hi-Power" sales for 2010 and will update investors with an increased guidance number after it consolidates its forecasts for the second half of the year.
Marine Catch Trade Segment
China Marine's third revenue segment, frozen marine catch, contributed $0.4 million in the second quarter of 2010 compared to $0.5 million in Q2 2009. Typically in the fourth quarter of the year, the Company sells frozen marine catch opportunistically to select domestic and export distributors based on favorable market pricing. Marine catch materials purchased for trade are the same species and types of squids the Company uses in the production of its seafood snack foods and thus limits the Company's exposure to unfavorable price fluctuations. The Company estimates that the marine trade portion of its revenue streams will account for more than 10.0% of total sales in 2010.
Total revenue in all segments: Mingxiang(R)-branded seafood snack foods, "Hi-Power" beverages and marine catch, for the quarter ended June 30, 2010 was $27.6 million, up 86.8% from $14.8 million in the prior year's period.
Costs of goods sold totaled $17.4 million for the quarter, or 63.0% of revenues for the period ended June 30, 2010. Costs of goods sold consist of the cost of raw materials, packaging materials, direct labor and manufacturing overhead. In the seafood snack food segment, costs of raw materials account for the greatest percentage of costs and were 76.2% for the quarter, while packaging represented 13.2%. Conversely, in the beverage segment, costs of raw materials were 15.6% of the total costs of goods, with approximately 68.0% spent on packaging, which include two-color satin-finished cans and four-color case packaging for retail. The balance for the costs of goods are mainly related to each product line's manufacturing overhead. China Marine produces seafood snack foods at its dedicated production facilities in Shi Shi while "Hi-Power" production is outsourced to third party blending and bottling facilities in Fujian province.
Gross profit in the second quarter of fiscal year 2010 was $10.2 million, an increase of 108.1% from $4.9 million in the prior year's corresponding period. Gross margin for the processed seafood line was 35.4%, compared to 33.9% in the second quarter of 2009. Gross margins per product stock keeping unit (SKU) amongst China Marine's seafood snack foods do not differ significantly and trend at 30-plus percent gross margins. Gross margins of "Hi-Power" marine algae-based beverages were 42.0% which the Company anticipates it can maintain for the balance of the year. Currently, China Marine only produces two SKU's of "Hi-Power" beverages, a 246ml and 960ml can, which have similar gross margins.
Selling, general and administrative (SG&A) expenses in the quarter ended June 30, 2010 were $1.6 million compared to $0.7 million in the prior year's period. Increases in SG&A for the quarter are mainly attributed to increased sales and advertising costs associated with the new beverage business and the recruiting and training of new sales personnel in both sales teams. Operating income in the second quarter of 2010 was $8.0 million, with operating margin of 29.0%, an 88.8% increase from $4.2 million in the prior year's period.
Based on the Company's 15% tax rate secured through 2012, GAAP net income for the quarter ended June 30, 2010 was $6.8 million, compared to $3.7 million in the prior year's corresponding period, an 83.1% increase year over year. Adjusted non-GAAP net income for the second quarter of 2010 excludes the
non-cash amortization charges of $0.6 million was $7.4 million, a 98.9% increase year over year. Earnings per weighted average diluted shares were $0.26 based on 26.4 million diluted shares, while adjusted earnings were $0.28 per share.
Six Months Results
Total revenue for the first six months of fiscal 2010 was $47.2 million, up 50.8% from $31.3 million in the prior year's period. The sale of processed seafood products produced $35.9 million in revenue, a 41.0% increase from $25.5 million in the first half of 2009 and accounted for 76.0% of total revenue in the first half of 2010. In its first half year, revenue from the algae-based beverage reached $10.6 million. China Marine's third revenue segment, frozen marine catch, contributed $0.8 million during the first half of 2010, a decrease of 87.2% from $5.9 million in the first half of 2009.
Gross profit in the first half of fiscal year 2010 was $16.8 million, an increase of 86.6% from $9.0 million in the prior year's corresponding period. Gross margin for the processed seafood line was 34.5%, compared to 33.3% in the first half of 2009. Gross margin of "Hi-Power" marine algae-based beverages was 40.3%. Gross margin for the marine catch segment was 22.5% compared to 9.1% in the first half of 2009 and reflective of the higher margins the Company receives on smaller orders.
Selling, general and administrative expenses in the first half of fiscal year 2010 were $2.6 million compared to $1.2 million in the prior year's period, as a result of increased sales and advertising costs associated with the new beverage business and new staff hires. Operating income in the first half of 2010 was $13.0 million, with operating margin of 27.5%, a 67.6% increase from $7.7 million in the prior year's period.
GAAP net income for the first half of fiscal year 2010 was $10.7 million, compared to $7.0 million in the prior year's corresponding period, a 54.1% increase year over year. Adjusted non-GAAP net income for the first half of 2010 was $11.9 million, a 70.9% increase year over year. Earnings per weighted average diluted shares were $0.41 based on 26.4 million diluted shares, while adjusted earnings were $0.45 per share for the six month period ended June 30, 2010.
Financial Condition
As of June 30, 2010, the Company had $40.4 million in cash compared to $7.1 million as of December 31, 2009, which included cash from the Company's $30.0 million financing secured in January 2010. Working capital was $62.9 million, up from $48.4 million as of December 31, 2009. Accounts receivable were $16.7 million, compared to $18.8 million as of December 31, 2009. The Company maintains days sales outstanding of about 60 days depending on sales volume and any promotions executed throughout the year. Inventories were $13.3 million, compared to $3.9 million as of December 31, 2009 and were driven by increased frozen trading stock and other seafood products during Fujian province's mandatory closure of the fishing grounds in June and July.
Current liabilities were $8.2 million as of June 30, 2010, compared to $8.0 million as of December 31, 2009. The Company fully repaid its short-term bank borrowings in the first quarter of this year. Accounts payable were $6.0 million, compared to $0.9 million as of December 31, 2009. Stockholder equity increased 66.0% to $99.3 million for the period ended June 30, 2010.
Construction Update - Cold Storage Facility
After the Company's ground breaking ceremony in April 2010 for its new cold storage facility, China Marine has updated its anticipated completion date of its port-side cold storage facility to the middle of 2011 due to the longer-than-expected time spent on acquiring approval from the government on the construction plan. China Marine will periodically update its investors on construction progress in its quarterly reports.
Conference Call
To attend the China Marine Q2 2010 conference call, please use the dial information below. When prompted, ask for the "China Marine Call" and/or be prepared to provide the conference ID.
Date: Tuesday, August 10, 2010
Time: 9:00 am Eastern
Conference Line Dial-In (U.S.): 1-877-941-2322
International Dial-In: 1-480-629-9715
Conference ID: 4344792 "China Marine Conference Call"
Webcast: http://viavid.net/dce.aspx?sid=0000793D
Please dial in at least 10 minutes before the call to ensure timely participation.
A playback of the call will be available from 12:00 Noon Eastern Time on August 10 until 11:59 pm Eastern Time on August 17, 2010. To listen, call
1-800-406-7325 within the United States or 1-303-590-3030 when calling internationally. Please use the replay pin number 4344792.
About China Marine
China Marine Food Group Ltd. is a food and beverage manufacturer of Mingxiang(R) seafood-based snack foods, "Hi-Power" marine algae-based health drinks, and a wholesaler of frozen marine catch in seven provinces in the PRC. Founded in 1994, China Marine has grown steadily and positioned its Mingxiang(R)-branded food products as a category leader in 2,900 retail sales points and "Hi-Power" is found in more than 10,000 retail points in the PRC. The Company has received "The Famous Brand" and "Green Food" awards. Located in Fujian province, it is one of the largest coastal provinces in the PRC and a vital navigation hub between the East China Sea and the South China Sea. The Company is committed to the highest standard of quality control with the ISO9001, ISO14001, HACCP certification and EU export registration.
Forward Looking Statements
This release contains certain "forward-looking statements" relating to the business of China Marine Food Group Limited and its subsidiary companies, which can be identified by the use of forward-looking terminology such as "believes, expects" or similar expressions. Such forward looking statements involve known and unknown risks and uncertainties, including all business uncertainties relating to product development, marketing, concentration in a single customer, raw material costs, market acceptance, future capital requirements, competition in general and other factors that may cause actual results to be materially different from those described herein as anticipated, believed, estimated or expected. Certain of these risks and uncertainties are or will be described in greater detail in our filings with the Securities and Exchange Commission. China Marine Food Group Limited is under no obligation to (and expressly disclaims any such obligation to) update or alter its
forward-looking statements whether as a result of new information, future events or otherwise. This press release shall not constitute an offer to sell or the solicitation of an offer to buy nor shall there be any sale of these securities in any state or jurisdiction in which such offer, solicitation or sale would be unlawful prior to registration or qualification under the securities laws of such state or jurisdiction.
About Adjusted Non-GAAP Financial Measures
To supplement the Company's consolidated financial statements, which statements are prepared and presented in accordance with GAAP, we use the following non-GAAP financial measures: non-GAAP adjusted net income, and
non-GAAP adjusted diluted EPS. The presentation of this financial information is not intended to be considered in isolation or as a substitute for, or superior to, the financial information prepared and presented in accordance with GAAP. The Company uses these non-GAAP financial measures for financial and operational decision making and as a means to evaluate period-to-period comparisons. Management believes that these non-GAAP financial measures provide meaningful supplemental information regarding the Company's performance and liquidity by excluding certain expenses and expenditures that may not be indicative of "recurring core business operating results", meaning operating performance excluding non-cash amortization charges for intangibles. China Marine believes that both management and investors benefit from referring to these non-GAAP financial measures in assessing performance and when planning, forecasting and analyzing future periods. These non-GAAP financial measures also facilitate management's internal comparisons to historical performance and liquidity as well as comparisons to competitors' operating results. The Company believes these non-GAAP financial measures are useful to investors both because (1) they allow for greater transparency with respect to key metrics used by management in its financial and operational decision making and (2) they are used by our institutional investors and the analyst community to help them analyze the health of the business.
-- Financial Statements Follow -
CHINA MARINE FOOD GROUP LIMITED
CONDENSED CONSOLIDATED BALANCE SHEETS
AS OF JUNE 30, 2010 AND DECEMBER 31, 2009
(Currency expressed in United States Dollars ("US$"), except for
number of shares))
June 30, December 31,
2010 2009
(Unaudited) (Audited)
ASSETS
Current assets:
Cash and cash equivalents $40,379,372 $7,143,232
Accounts receivable, net 16,744,658 18,834,062
Inventories 13,289,993 3,876,950
Note receivable -- 26,399,696
Prepaid expenses and other current
assets 619,808 151,653
Total current assets 71,033,831 56,405,593
Property, plant and equipment, net 8,644,340 8,599,977
Land use rights, net 2,942,483 615,355
Prepayment for land use right -- 2,274,323
Intangible assets, net 22,473,742 --
Goodwill 2,389,628 --
TOTAL ASSETS $107,484,024 $67,895,248
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Short-term borrowings $-- $4,139,121
Accounts payable, trade 6,031,370 885,286
Amount due to a stockholder 68,550 69,587
Income tax payable 600,640 618,664
Accrued liabilities and other payable 1,463,489 2,334,384
Total current liabilities 8,164,049 8,047,042
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.001 par value;
1,000,000 shares authorized; 0 shares
issued and outstanding as of June 30,
2010 and December 31, 2009 -- --
Common stock, $0.001 par value;
100,000,000 shares authorized;
28,493,650 and 23,413,639 shares
issued and outstanding as of June 30,
2010 and December 31, 2009 28,494 23,414
Additional paid-in capital 45,912,198 16,888,532
Statutory reserve 5,614,517 5,614,517
Accumulated other comprehensive
income 4,231,635 3,576,135
Retained earnings 43,186,881 33,745,608
Total China Marine Food Group Limited
stockholders' equity 98,973,725 59,848,206
Non-controlling interests 346,250 --
Total stockholders' equity 99,319,975 59,848,206
TOTAL LIABILITIES AND STOCKHOLDERS'
EQUITY $107,484,024 $67,895,248
CHINA MARINE FOOD GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
FOR THE THREE AND SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars ("US$"), except for
number of shares)
(Unaudited)
Three months ended June 30, Six months ended June 30,
Revenue, net 2010 2009 2010 2009
Processed seafood
products $19,394,692 $14,251,342 $35,892,599 $25,454,324
Marine catch 352,480 505,042 750,999 5,850,112
Algae-based
beverage products 7,810,056 -- 10,564,039 --
27,557,228 14,756,384 47,207,637 31,304,436
Cost of revenue
(inclusive of
depreciation and
amortization)
Processed seafood
products (12,530,967) (9,423,653) (23,499,987) (16,973,949)
Marine catch (292,709) (426,949) (581,954) (5,318,930)
Algae-based
beverage products (4,527,309) -- (6,311,039) --
(17,350,985) (9,850,602) (30,392,980) (22,292,879)
Gross profit 10,206,243 4,905,782 16,814,657 9,011,557
Operating
expenses:
Depreciation and
amortization (624,441) (19,680) (1,247,177) (39,052)
Sales and
marketing (916,747) (143,494) (1,301,965) (257,556)
General and
administrative (686,320) (515,842) (1,306,318) (981,596)
Total operating
expenses (2,227,508) (679,016) (3,855,460) (1,278,204)
Income from
operations 7,978,735 4,226,766 12,959,197 7,733,353
Other income
(expenses):
Subsidy income 71,253 71 71,253 143,208
Rental income 22,755 20,396 45,356 40,771
Interest income 76,038 70,592 94,897 161,062
Interest expense (7) (56,020) (39,704) (118,728)
Income before
income taxes 8,148,774 4,261,805 13,130,999 7,959,666
Income tax expense (1,330,947) (538,222) (2,387,039) (987,482)
NET INCOME 6,817,827 3,723,583 10,743,960 6,972,184
Less: net income
attributable to
non-controlling
interests (71) -- (366) --
Net income
attributable to
China Marine Food
Group Limited $6,817,756 $3,723,583 $10,743,594 $6,972,184
Other
comprehensive
income:
- Foreign currency
translation gain 678,053 3,109 655,500 60,064
COMPREHENSIVE
INCOME $7,495,809 $3,726,692 $11,399,094 $7,032,248
Net income per
share attributable
to China Marine
Food Group Limited
- Basic $0.27 $0.16 $0.42 $0.30
- Diluted $0.26 $0.16 $0.41 $0.30
Weighted average
shares outstanding
- Basic 25,488,157 23,026,301 25,488,157 23,026,301
- Diluted 26,379,587 23,026,301 26,379,587 23,026,301
CHINA MARINE FOOD GROUP LIMITED
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 30, 2010 AND 2009
(Currency expressed in United States Dollars ("US$"))
(Unaudited)
Six months ended June 30,
Cash flows from operating activities: 2010 2009
Net income 10,743,960 6,972,184
Adjustments to reconcile net income to
net cash provided by (used in)
operating activities:
Depreciation and amortization 1,382,324 156,216
(Reversal of) allowance for doubtful
accounts (10,499) 28,928
Changes in operating assets and
liabilities:
Accounts receivable 2,099,903 (5,785,549)
Inventories (9,413,043) (10,574,593)
Prepaid expenses and other current
assets (468,155) (1,271,696)
Accounts payable, trade 5,146,084 1,181,272
Income tax payable (18,024) 158,479
Accrued liabilities and other payable (870,895) (537,069)
Net cash provided by (used in)
operating activities 8,591,655 (9,671,828)
Cash flows from investing activities:
Purchase of property, plant and
equipment (152,538) (217,471)
Cash paid to construction in progress -- (995,235)
Addition to land use right (69,778) --
Net cash received from acquisition of
a subsidiary 1,008,940 --
Net cash provided by (used in)
investing activities 786,624 (1,212,706)
Cash flows from financing activities:
Repayment of amount due to a
stockholder (1,037) (164,000)
Advance to a non-controlling
stockholder of a subsidiary (141,766) --
Proceeds from the registered direct
offering, net of expenses 28,328,466 --
Proceeds from exercise of warrants 700,280 --
Proceeds from short-term borrowings -- 4,134,525
Repayment of short-term borrowings (4,139,121) (4,289,341)
Dividends paid (1,302,321) --
Net cash provided by (used in)
financing activities 23,444,501 (318,816)
Effect of exchange rate changes in
cash and cash equivalents 413,360 51,174
NET CHANGE IN CASH AND CASH
EQUIVALENTS 33,236,140 (11,152,176)
CASH AND CASH EQUIVALENTS, BEGINNING
OF PERIOD 7,143,232 31,640,307
CASH AND CASH EQUIVALENTS, END OF
PERIOD $40,379,372 $20,488,131
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION
Cash paid for income taxes $2,405,063 $829,003
Cash paid for interest $39,704 $118,728
SUPPLEMENTAL DISCLOSURE OF NON-CASH
INVESTING AND FINANCING TRANSACTIONS
Transfer from prepayment for land use
right to land use rights $2,274,323 $--
Transfer from construction in progress
to property, plant and equipment $-- $2,600,090
NON-CASH TRANSACTIONS IN CONNECTION
WITH THE ACQUISITION OF XIANGHE
Transfer from note receivable to
purchase price payable $26,399,696 $--
Consideration payable by Xianghe on
behalf of Mingxiang $1,400,304 $--
