omniture

China Marine Reports Second Quarter 2011 Financial Results

2011-08-08 19:04 999

SHISHI, China, August 8, 2011 /PRNewswire-Asia-FirstCall/ -- China Marine Food Group Limited (NYSE Amex: CMFO) ("China Marine" or the "Company"), a manufacturer of Mingxiang® 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, 2011.

Second Quarter 2011 Highlights

  • Seafood snack sales down 30.8% as a result of temporary drop in seafood consumption in China stemming from Japan reactor incident in March. Company reports monthly sales from June through August have been stabilized and moderately improved as consumer confidence returns.
  • "Hi-Power" revenues grew 10.7% year-over-year to $8.6 million.
  • Expanded "Hi-Power" sales force to 172 people and distribution to approximately 15,000 locations.
  • $27.0 million in operating cash flow during the first six months of 2011 ended June 30, 2011, with $38.3 million in cash and cash equivalents.

Financial Summary

Second Quarter 2011 Results



Q2 2011

Q2 2010

CHANGE

Net Sales

$22.1 million

$27.6 million

-19.9%

Gross Profit

$7.2 million

$10.2 million

-29.9%

Net Income

$1.0 million

$6.8 million

-85.2%

Diluted EPS*

$0.03

$0.23

-87.0%

Adjusted Net Income**

$2.2 million

$7.4 million

-70.4%

Adjusted Diluted EPS**

$0.07

$0.25

-72.0%



* EPS calculated for the period is based on 29.7 million shares on June 30, 2011 versus 29.4 million shares reported on June 30, 2010.

** Adjusted Net Income and Diluted EPS are non-GAAP calculations and do not include $0.6 million of non-cash, amortization of intangible assets related to the Company's acquisition and $0.6 million of non-cash stock-based compensation expenses in Q2 2011. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.

"Our second quarter results were negatively impacted by several short-term factors," stated Mr. Pengfei Liu, Chairman and CEO of China Marine. "Sales of our seafood snacks dropped unexpectedly due to consumers' concerns regarding the safety of ocean-based products following the Japan nuclear disaster in March of this year. Though we reported our feed stocks were not affected by radiation levels, consumer demand was the ultimate vote on this subject. We believed our two major stated-owned competitors have also experienced a similar impact on their sales. While we cannot accurately predict the duration of this temporary aversion to seafood, we are encouraged by the month-over-month sales improvement in July and order bookings for shipments in August. We will continue to invest in our brand and distribution to ensure we are well-positioned for sustained growth when consumer confidence normalizes."

Second Quarter 2011 Results

Seafood Snack Foods

China Marine's sale of processed and packaged seafood snack foods decreased 30.8% to $13.4 million in the second quarter of 2011 from $19.4 million for the second quarter of 2010. The Company's seafood products come from the South China Sea, which provide management with confidence in their quality and safety. However the Company's distributors and end users reported softer than expected reorder rates and volumes as a result of temporary drop in seafood consumption in China stemming from Japan reactor incident in March. Aggressive efforts by China Marine to communicate the safety of its products have resulted in stabilization in Mingxiang® sales from June through August. Seafood snack foods accounted for approximately 60.8% of total revenue in the second quarter of 2011.

China Marine sells 29 Mingxiang®-branded seafood jerky snacks to consumers at approximately 3,200 retail locations. Retail points for seafood snack foods include major supermarket chains, convenience store chains, general food stores, campus canteens and local corner shops in Fujian, Zhejiang, Jiangsu, Guangdong, Shandong and major prefectures like Shanghai and Shenzhen. Recent changes have been made to replace underperforming distributors in Chongqing and Shanghai. As a result of what the Company cited as a "lack of focus and commitment to Mingxiang®-branded foods," the Company used a performance clause in its distributor agreement to terminate its relationship with non-performing distributors in the two sales regions. China Marine's regional sales teams have been interviewing prospective new distributors, which they expect to replace and add sales momentum in their respective areas.

Gross profits margins for the seafood snack foods segment were 27.2% compared to 35.4% in the same period last year due to rising raw materials and production costs and lower sales.

"Hi-Power" Beverages

Revenues from the "Hi-Power" algae-based beverage line were $8.6 million compared to $7.8 million in the second quarter of 2010, a 10.7% increase. Sales were strong in Fujian province, driven by reorders from existing customers and continued reorders from major international and national food and beverage retailers where the Company continues its in-store promotional and end-cap display programs. The Company successfully entered the neighboring province to the north of Fujian, Zhejiang province, which accounted for approximately 11.3% of "Hi-Power" sales in the second quarter of 2011. Sales in Zhejiang are currently executed through one distributor, whose initial segment focus is in the hospitality sector, including restaurants, hotels and canteens in which China Marine sells both its 960ml and 246ml "Hi-Power" cans.

The total numbers of retail end-points for "Hi-Power" were about 15,000 on June 30, 2011. "Hi-Power" beverages are sold in major international retailers, such as Walmart®, China-based supermarkets like Trust-Mart®, convenience stores, bars, restaurants, school canteens and local corner stores, in addition to some store locations where Mingxiang®-branded seafood products are also sold.

Gross margin was 40.4% in the second quarter of 2011 compared to 42.0% in the same period last year due to higher packaging costs. The Company outsources production, bottling and distribution to minimize its working capital and capital expenditures. China Marine continues to invest aggressively to build the "Hi-Power" brand. Advertising and marketing initiatives in the second quarter included advertising and marketing campaigns and direct marketing designed to drive new and repeat purchases and build distributor loyalty.

Marine Catch Trade

China Marine's frozen marine catch business segment generated no sales during the second quarter of 2011 compared to $0.4 million in Q2 2010. The Company made opportunistic purchases of its marine catch in the first quarter of this year and expects to sell substantially all the inventory in the second half of 2011. A majority of this catch represents similar types of squid the Company uses in the production of its seafood snack foods and thus limits the Company's exposure to price fluctuations. China Marine's cold storage facility also allows the Company to secure more supply when prices are depressed.

Consolidated Results

Total revenue in all segments including Mingxiang®-branded seafood snack foods, "Hi-Power" beverages and marine catch, for the quarter ended June 30, 2011 was $22.1 million, a 19.9% decrease from $27.6 million in the prior year's period.

Costs of goods sold, which consist of the cost of raw materials, packaging materials, direct labor and manufacturing overhead, totaled $14.9 million for the quarter compared to $17.4 million in the second quarter of 2010.

Gross profit was $7.2 million compared to $10.2 million in the prior year's corresponding period, representing a 29.9% decline. Consolidated gross margins were 32.4% for the quarter, down from 37.0% for Q2 2010 as a result of rising commodity and production costs and lower sales.

Selling, general and administrative (SG&A) expenses in the quarter ended June 30, 2011 were $4.6 million compared to $1.6 million in the prior year period. In particular, sales and marketing expenses were up approximately $3.0 million, mainly attributed to increased sales and advertising costs associated with brand investments and distributor loyalty for Mingxiang® and "Hi Power" and the addition of new sales personnel for both brands. The Company also increased direct marketing expenses in the quarter to support customer demand in respective regions as it works together with the distributors in each territory. Such promotional efforts included in-store taste-testing and a focus on food safety approvals which the Company has maintained for many years in China.

Operating income in the second quarter of 2011 was $1.2 million, with operating margin of 5.5%, compared to $8.0 million and 29.0%, respectively in the prior year period. Excluding the $0.6 million non-cash amortization expense related to the "Hi-Power" acquisition and $0.6 million non-cash stock-based compensation expense, operating income was $2.4 million.

Adjusted non-GAAP net income for the second quarter of 2011 excludes the non-cash amortization and stock-based compensation expenses of $1.2 million was $2.2 million. Earnings per weighted average diluted shares were $0.03 based on 29.7 million fully diluted shares, while adjusted earnings were $0.07 per share. The Company's 15% preferential tax rate is secured through 2012.

Six Month Results

Six Months ended June 30


1H 2011

1H 2010

CHANGE

Net Sales

$48.7 million

$47.2 million

+3.2%

Gross Profit

$16.8 million

$16.8 million

-0.3%

Net Income

$6.6 million

$10.7 million

-38.3%

Diluted EPS

$0.23

$0.37

-37.8%

Adjusted Net Income*

$8.4 million

$11.9 million

-29.3%

Adjusted Diluted EPS*

$0.29

$0.41

-29.3%



*See non-GAAP reconciliation below.

Net sales for the six months ended June 30, 2011 were $48.7 million, a 3.2% increase from the same period a year ago. Sales of seafood snacks and "Hi-Power" beverages were $33.3 million and $15.4 million, respectively.

Cost of sales increased approximately 5.2% to $32.0 million while gross profit was flat year-over-year at $16.8 million. Gross margins were 34.4% and 35.6% in the first six months of 2011 and 2010, respectively.

SG&A expenses totaled $6.8 million compared to $2.6 million in the first half of 2010. Excluding $1.8 million of non-cash amortization and stock-based compensation expenses in the first half of 2011, operating income was $9.7 million compared to $14.1 million in the same period last year.

Reported GAAP net income was $6.6 million for the six months ended June 30, 2011 while diluted EPS was $0.23. Excluding the aforementioned $1.8 million of non-cash expenses, adjusted non-GAAP net income and diluted EPS were $8.4 million and $0.29, respectively.

Financial Condition

As of June 30, 2011, the Company had $38.3 million in cash compared to $15.6 million as of December 31, 2010. Cash flows from operations were $27.0 million in the first six months of 2011 due to improved account receivable collection, partially offset by decreased net income earned.

Working capital was $71.5 million as of June 30, 2011, up from $64.8 million as of December 31, 2010. The current ratio was 12.3 to 1 on June 30, 2011 compared to 7.9 to 1 on December 31, 2010. Accounts receivable were $17.2 million as of June 30, 2011, compared to $48.5 million as of December 31, 2010. The accounts receivable days sales outstanding were approximately 70 days. Shareholders' equity was $126.0 million.

Revised 2011 Guidance:

As a result of the Company's view that consumer demand for seafood products will not fully recover in the 2011 calendar year, China Marine has adjusted its previously stated guidance in March of 2011. While revenues are expected to increase as a result of increased marine catch sales and "Hi-Power" sales, the mix of products margins and the Company's continued marketing and advertising costs have also contributed to an adjustment in its 2011 guidance.


Projections

% Change vs 2010

Consolidated Revenues:

$130+ million

+5.9%

Consolidated Adjusted Net Income:

$14.8 million

-37.0%

Adjusted Diluted EPS:

$0.50

-38.3%



"While business cycles impact most industries, we have show sequential year-over-year growth for 16 years. We could not anticipate the confluence of a downturn in seafood demand as a result of a major international incident and the replacement of non-performing distributors coinciding at the same time," stated Chairman and CEO Pengfei Liu. "We have begun to see a positive trend in the sales of our seafood products by the end of second quarter. This is further substantiated by the continued moderate growth in the months of July and August for which we already have our August order backlog in hand. We are pleased with further progress with Hi-Power and expect to gain additional market share in Zhejiang province."

Construction Update - Cold Storage Facility

The Company anticipates completing the construction of its new cold storage facility by the beginning of the Company's fourth quarter. Upon completion, China Marine's in-house storage capacity will increase from approximately 2,000 tons to 22,000 tons. The project is expected to contribute approximately $8.0 million in revenues and $4.0 million in net income yearly once fully operational. Through June 30, 2011, $16.6 million of the $18.2 million total projected construction costs related to this facility has been spent.

Second Quarter 2011 Conference Call

Mr. Pengfei Liu, CEO, and Mr. Marco Ku, CFO, will host the conference call. To attend the call, please use the dial in information below. When prompted, ask for the "China Marine Food Group Second Quarter conference call".


Conference Call






Date:

Monday, August 8th


Time:

9:00 am Eastern Time US


Conference Line Dial-In (U.S.):

+1-877-317-6776


International Dial-In:

+1-412-317-6776


Conference ID:

"China Marine Conference Call"


Webcast:

http://webcast.mz-ir.com/publico.aspx?codplataforma=3076








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 pm ET on August 8th until 9:00 am ET on August 17th, 2011. To listen, call +1-877-344-7529 within the United States or +1-412-317-0088 when calling internationally. Please use the replay pin number 10003036.

This call is being webcast and can be accessed by clicking on this link: http://webcast.mz-ir.com/publico.aspx?codplataforma=3076 where the webcast can be accessed through August 8, 2012.

About China Marine

China Marine Food Group Ltd. is a food and beverage manufacturer of Mingxiang® seafood-based snack foods and "Hi-Power" marine algae-based health drinks, and a wholesaler of frozen marine catch in six provinces in the PRC. Founded in 1994, China Marine has grown steadily and positioned its Mingxiang® brand as a category leader in 3,200 retail food sales points and 15,000 beverage sales points in China. 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

(Currency expressed in United States Dollars ("US$"), except for number of shares))




June 30, 2011


December 31, 2010



(Unaudited)


(Audited)

ASSETS







Current assets:







Cash and cash equivalents


$

38,345,374


$

15,556,772

Accounts receivable, net



17,186,735



48,530,539

Inventories



19,381,473



9,992,870

Prepaid expenses and other current assets



2,947,419



105,640








Total current assets



77,861,001



74,185,821








Property, plant and equipment, net



11,240,671



8,801,267

Land use rights, net



3,011,427



2,991,459

Construction in progress



16,581,564



13,409,068

Intangible assets, net



21,121,181



21,926,593

Goodwill



2,510,016



2,460,971


TOTAL ASSETS


$

132,325,860


$

123,775,179








LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Accounts payable, trade



3,015,393



3,764,722

Amount due to a shareholder



37,539



261,789

Income tax payable



747



537,751

Accrued liabilities and other payables



3,282,060



4,858,694








Total current liabilities



6,335,739



9,422,956








Commitments and contingencies














Shareholders' equity:







Preferred stock, $0.001 par value; 1,000,000 shares authorized; 0 shares issued and outstanding as of June 30, 2011 and December 31, 2010



-



-

Common stock, $0.001 par value; 100,000,000 shares authorized; 29,677,976 and 28,977,976 shares issued and outstanding as of June 30, 2011 and December 31, 2010



29,678



28,978

Additional paid-in capital



50,023,172



47,377,872

Statutory reserve



9,263,241



9,263,241

Accumulated other comprehensive income



9,765,211



7,402,582

Retained earnings



56,552,143



49,922,756

Total China Marine Food Group Limited shareholders' equity



125,633,445



113,995,429

Non-controlling interests



356,676



356,794

Total shareholders' equity



125,990,121



114,352,223


TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


$

132,325,860


$

123,775,179




CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME

(Currency expressed in United States Dollars ("US$"), except for number of shares)

(Unaudited)




For the Three Months Ended June 30,


For the Six Months Ended June 30,



2011


2010


2011


2010

Revenue, net













Processed seafood products


$

13,423,305


$

19,394,692


$

33,292,076


$

35,892,599

Marine catch



-



352,480



75,976



750,999

Algae-based beverage products



8,645,909



7,810,056



15,357,726



10,564,039





22,069,214



27,557,228



48,725,778



47,207,637














Cost of revenue (inclusive of depreciation and amortization)













Processed seafood products



(9,762,761)



(12,530,967)



(22,886,407)



(23,499,987)

Marine catch



-



(292,709)



(47,350)



(581,954)

Algae-based beverage products



(5,155,255)



(4,527,309)



(9,028,359)



(6,311,039)




(14,918,016)



(17,350,985)



(31,962,116)



(30,392,980)














Gross profit



7,151,198



10,206,243



16,763,662



16,814,657














Operating expenses:













Depreciation and amortization



(676,540)



(624,441)



(1,339,827)



(1,247,177)

Sales and marketing



(3,918,204)



(916,747)



(5,504,324)



(1,301,965)

General and administrative



(682,351)



(686,320)



(1,342,983)



(1,306,318)

Stock-based compensation



(663,374)



-



(663,374)



-


Total operating expenses



(5,940,469)



(2,227,508)



(8,850,508)



(3,855,460)



























Income from operations



1,210,729



7,978,735



7,913,154



12,959,197














Other income (expenses):













Subsidy income



-



71,253



-



71,253

Rental income



24,259



22,755



48,227



45,356

Interest income



46,219



76,038



67,383



94,897

Interest expense



-



(7)



-



(39,704)

Income before income taxes



1,281,207



8,148,774



8,028,764



13,130,999


Income tax expense



(269,694)



(1,330,947)



(1,399,495)



(2,387,039)














NET INCOME



1,011,513



6,817,827



6,629,269



10,743,960














Less: net loss (income) attributable to non-controlling interests



74



(71)



118



(366)














Net income attributable to China Marine Food Group Limited


$

1,011,587


$

6,817,756


$

6,629,387


$

10,743,594














Other comprehensive income:













- Foreign currency translation gain



1,624,130



678,053



2,362,629



655,500














COMPREHENSIVE INCOME


$

2,635,717


$

7,495,809


$

8,992,016


$

11,399,094


Net income per share attributable to China Marine Food Group Limited

- Basic


$

0.03


$

0.24


$

0.23


$

0.38

- Diluted


$

0.03


$

0.23


$

0.23


$

0.37














Weighted average shares outstanding

- Basic



29,677,976



28,493,650



29,329,909



27,917,131

- Diluted



29,677,976



29,385,080



29,329,909



28,864,390




CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

(Currency expressed in United States Dollars ("US$"))

(Unaudited)




For the Six Months Ended June 30,



2011


2010

Cash flows from operating activities:







Net income


$

6,629,269


$

10,743,960

Adjustments to reconcile net income to net cash provided by operating activities:







Depreciation and amortization



1,487,294



1,382,324

Reversal of doubtful accounts



(157,507)



(10,499)

Compensatory stock awards



2,646,000



-

Changes in operating assets and liabilities:







Accounts receivable



31,501,311



2,099,903

Inventories



(9,388,603)



(9,413,043)

Prepaid expenses and other current assets



(2,841,779)



(468,155)

Accounts payable, trade



(749,329)



5,146,084

Income tax payable



(537,004)



(18,024)

Accrued liabilities and other payables



(1,576,634)



(870,895)








Net cash provided by operating activities



27,013,018



8,591,655








Cash flows from investing activities:







Purchase of property, plant and equipment



(14,683)



(152,538)

Cash paid to construction in progress



(4,934,302)



-

Addition to land use right



-



(69,778)

Net cash received from acquisition of a subsidiary



-



1,008,940








Net cash (used in) provided by investing activities



(4,948,985)



786,624








Cash flows from financing activities:







Repayment of amount due to a shareholder



(224,250)



(1,037)

Advance to a non-controlling shareholder of a subsidiary



-



(141,766)

Proceeds from the registered direct offering, net of expenses



-



28,328,466

Proceeds from exercise of warrants



-



700,280

Repayment on short-term borrowings



-



(4,139,121)

Dividends paid



-



(1,302,321)








Net cash (used in) provided by financing activities



(224,250)



23,444,501








NET CHANGE IN CASH AND CASH EQUIVALENTS



21,839,783



32,822,780


Effect of exchange rate changes in cash and cash equivalents



948,819



413,360








CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD



15,556,772



7,143,232








CASH AND CASH EQUIVALENTS, END OF PERIOD


$

38,345,374


$

40,379,372








SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION







Cash paid for income taxes


$

1,936,499


$

2,405,063

Cash paid for interest


$

-


$

.39,704








SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING TRANSACTIONS







Transfer from prepayment to land use rights


$

-


$

2,274,323

Transfer from construction in progress to property, plant and equipment


$

1,807,283


$

-








ACQUISITION OF XIANGHE







Transfer from note receivable to paid for acquisition of Xianghe


$

-


$

26,399,696

Consideration paid by Xianghe on behalf of Mingxiang


$

-


$

1,400,304




For more information, please contact:

COMPANY

Marco Hon Wai Ku, CFO
Suite 815, 8th Floor
Ocean Centre, Harbour City
Kowloon, HONG KONG
Tel: +852-2111-8768
Email: marco.ku@china-marine.cn
Web: www.china-marine.cn

INVESTOR RELATIONS

John Mattio, SVP
MZ-HCI
1001 Avenue of the Americas
New York, New York
Tel: +1-212-301-7130
Direct: +1-212-301-7131
Email: john.mattio@hcinternational.net
Web: www.hcinternational.net

Source: China Marine Food Group (CMFO)
Related Stocks:
AMEX:CMFO
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