omniture

China Marine Reports Record Second Quarter Revenues of $27.6 million and Adjusted EPS of $0.28

2010-08-10 05:15 1011

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             $--

Source: China Marine Food Group Limited
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Keywords: Food/Beverages
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