omniture

China Marine Reports Third Quarter 2011 Financial Results

2011-11-11 05:09 1068

SHISHI, China, November 11, 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 third quarter ended September 30, 2011.

Third Quarter 2011 Highlights

  • Seafood snack sales shows quarter to quarter growth to $14.4 million of sales compared to $13.4 million in Q2 2011.
  • "Hi-Power" revenues increased 25.4% year-over-year to $8.4 million.
  • Expect to complete construction of new 20,000 tons cold storage facility by end of 2011
  • Expanded sales force to 198 people and distribution to approximately 3,200 retail food sales points and 15,000 beverage sales points, respectively
  • $22.5 million in operating cash flow during the first nine months of 2011 ended September 30, 2011, with $31.3 million in cash and cash equivalents.

Financial Summary

Third Quarter 2011 Results



Q3 2011

Q3 2010

CHANGE

Net Sales

$30.9 million

$22.7 million

+36.4%

Gross Profit

$7.7 million

$8.3 million

-7.5%

Net Income

$0.8 million

$4.2 million

-80.6%

Diluted EPS*

$0.03

$0.14

-78.6%

Adjusted Net Income**

$2.0 million

$4.8 million

-57.1%

Adjusted Diluted EPS**

$0.07

$0.16

-56.3%



* EPS calculated for the period is based on 29.7 million shares on September 30, 2011 versus 29.4 million shares reported on September 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 after-tax non-cash stock-based compensation expenses in Q3 2011. For more information about the non-GAAP financial measures contained in this press release, please see "About Non-GAAP Financial Measures" below.



"I was pleased to see a stabilization in our snackfood business since the middle of the second quarter and our growth of snackfood sales and Hi-Power through our third quarter," exclaimed Mr. Pengfei Liu, Chairman and CEO of China Marine. "As a result of increased marketing support and food safety advertising for Mingxiang® foods, our seafood snack sales grew by 7.6% from the second to the third quarter, with sales in Fujian Province growing by 16.9%. "Hi-Power" sales were robust, signifying that our investments in advertising and marketing have yielded positive results. As we see more reorders and expect to selectively add new distributors, we believe "Hi-Power" sales are poised to maintain very solid growth into 2012."

Third Quarter 2011 Results

Seafood Snack Foods

Processed and packaged seafood snack food sales decreased 8.9% to $14.4 million in the third quarter of 2011 from $15.9 million for the third quarter of 2010 due to continued consumer concerns of seafood-related products after the Japan nuclear 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 September, as evidenced by the 7.6% increase in net sales from the second quarter of 2011. Seafood snack foods accounted for approximately 46.7% of total revenue in the third 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, Guangdong and Shandong and major prefectures like Shenzhen. Management terminated relationships with underperforming distributors in Chongqing and Shanghai in the last few quarters. China Marine's regional sales teams have been interviewing prospective new distributors and add sales momentum in their respective areas.

Gross profits margins for the seafood snack foods segment were 27.4% compared to 34.5% in the same period last year due to rising raw materials and production costs and lower sales.

"Hi-Power" Beverages

Revenues from "Hi-Power" algae-based beverages were $8.4 million compared to $6.7 million in the third quarter of 2010, a 25.4% increase. Sales were strong in Fujian and the newly signed Zhejiang provinces, 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 total numbers of retail end-points for "Hi-Power" were about 15,000 on September 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 39.0% in the third 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. The Company plans to expand the number of bottlers it uses going forward in order to reduce concentration risk and manufacturing costs.

Marine Catch Trade

China Marine's frozen marine catch business segment generated net sales of $8.0 million during the three months ended September 30, 2011 compared to $0.1 million in the corresponding period a year ago. 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. Gross margin was 5.4% in the third quarter of 2011. 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 September 30, 2011 was $30.9 million, a 36.4% increase from $22.7 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 $23.2 million for the quarter compared to $14.3 million in the third quarter of 2010.

Gross profit was $7.7 million compared to $8.3 million in the three months ended September 30, 2010. Consolidated gross margins were 24.8% for the quarter, down from 36.7% for Q3 2010 as a result of rising commodity and production costs and higher opportunistic sales of marine catch at lower margins.

Selling, general and administrative (SG&A) expenses in the quarter ended September 30, 2011 totaled $5.3 million compared to $2.7 million in the prior year period. In particular, sales and marketing expenses were up approximately $2.7 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. The Company expects to maintain a high level of advertising and marketing expenses in order to support additional trials and market expansion.

Operating income in the third quarter of 2011 was $1.0 million, with operating margin of 3.3%, compared to $5.0 million and 22.0%, 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 after-tax non-cash stock-based compensation expense, operating income was $2.2 million.

Adjusted non-GAAP net income for the third quarter of 2011 excludes the non-cash amortization and after-tax stock-based compensation expenses of $1.2 million was $2.0 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.

Nine Month Results

Nine Months ended September 30,


YTD 2011

YTD 2010

CHANGE

Net Sales

$79.6 million

$69.9 million

+14.0%

Gross Profit

$24.5 million

$25.1 million

-2.7%

Net Income

$7.4 million

$14.9 million

-50.1%

Diluted EPS

$0.25

$0.51

-51.0%

Adjusted Net Income*

$10.4 million

$16.7 million

-37.2%

Adjusted Diluted EPS*

$0.36

$0.57

-36.8%



*See non-GAAP reconciliation below.



Net sales for the nine months ended September 30, 2011 were $79.6 million, a 14.0% increase from the same period a year ago. Sales of seafood snacks and "Hi-Power" beverages were $47.7 million and $23.8 million, representing 59.9% and 29.9% of sales, respectively.

Gross profit declined from $25.1 million for the first nine months of 2010 to $24.5 million in the same period in 2011. Gross margins were 30.7% and 36.0% in the first nine months of 2011 and 2010, respectively.

SG&A expenses were $12.1 million compared to $5.3 million in the first nine months of 2010. Excluding $3.0 million of non-cash amortization and after-tax stock-based compensation expenses in the first nine months of 2011, operating income was $12.0 million compared to $19.7 million in the same period last year.

Reported GAAP net income was $7.4 million for the nine months ended September 30, 2011 while diluted EPS was $0.25. Excluding the aforementioned $3.0 million of after-tax non-cash expenses, adjusted non-GAAP net income and diluted EPS were $10.4 million and $0.36, respectively.

Financial Condition

As of September 30, 2011, the Company had $31.3 million in cash compared to $15.6 million as of December 31, 2010. Cash flows from operations were $22.5 million in the first nine months of 2011 due to approximately $7.4 million of net income and improved account receivable collection, partially offset by higher inventories.

Working capital was $70.7 million as of September 30, 2011, up from $64.8 million as of December 31, 2010. The current ratio was 11.1 to 1 on September 30, 2011 compared to 7.9 to 1 on December 31, 2010. Accounts receivable were $27.0 million as of September 30, 2011, compared to $48.5 million as of December 31, 2010. The accounts receivable days sales outstanding was approximately 75 days. Shareholders' equity was $128.3 million.

2011 Guidance:

Based on current market demand, Management is reiterating full year 2011 financial guidance as follows:


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%



Construction Update - Cold Storage Facility

The Company anticipates completing the construction of its new cold storage facility by the end of 2011. 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 September 30, 2011, $20.1 million of the $24.0 million total projected construction costs related to this facility has been spent.

Third 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 Third Quarter conference call".

Conference Call






Date:

Friday, November 11th


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=3333




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 November 11th until 9:00 am ET on November 18th, 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 10006344.

This call is being webcast and can be accessed by clicking on this link: http://webcast.mz-ir.com/publico.aspx?codplataforma=3333 where the webcast can be accessed through November 10, 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 five 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))




September 30, 2011


December 31, 2010



(Unaudited)


(Audited)

ASSETS







Current assets:







Cash and cash equivalents


$

31,317,098


$

15,556,772

Accounts receivable, net



26,971,527



48,530,539

Inventories



16,859,087



9,992,870

Prepaid expenses and other current assets



2,515,618



105,640








Total current assets



77,663,330



74,185,821








Property, plant and equipment, net



11,246,805



8,801,267

Land use rights, net



3,026,491



2,991,459

Construction in progress



20,053,953



13,409,068

Intangible assets, net



20,739,051



21,926,593

Goodwill



2,539,286



2,460,971

TOTAL ASSETS


$

135,268,916


$

123,775,179








LIABILITIES AND SHAREHOLDERS' EQUITY







Current liabilities:







Accounts payable, trade



3,581,838



3,764,722

Amount due to a shareholder



50,075



261,789

Income tax payable



755



537,751

Accrued liabilities and other payables



3,361,507



4,858,694








Total current liabilities



6,994,175



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 September 30, 2011 and December 31, 2010



-



-

Common stock, $0.001 par value; 100,000,000 shares authorized; 29,697,976 and
28,977,976 shares issued and outstanding as of September 30, 2011 and
December 31, 2010



29,698



28,978

Additional paid-in capital



50,074,952



47,377,872

Statutory reserve



9,263,241



9,263,241

Accumulated other comprehensive income



11,190,470



7,402,582

Retained earnings



57,359,749



49,922,756

Total China Marine Food Group Limited shareholders' equity



127,918,110



113,995,429

Non-controlling interests



356,631



356,794

Total shareholders' equity



128,274,741



114,352,223

TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY


$

135,268,916


$

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
September 30,


For the Nine Months Ended
September 30,



2011


2010


2011


2010

Revenue, net













Processed seafood products


$

14,440,645


$

15,855,970


$

47,732,721


$

51,748,569

Marine catch



8,033,004



71,991



8,108,980



822,990

Algae-based beverage products



8,444,457



6,734,615



23,802,183



17,298,654





30,918,106



22,662,576



79,643,884



69,870,213














Cost of revenue (inclusive of depreciation and
amortization)













Processed seafood products



(10,468,698)



(10,384,718)



(33,355,105)



(33,884,705)

Marine catch



(7,599,621)



(45,982)



(7,646,971)



(627,936)

Algae-based beverage products



(5,153,109)



(3,908,462)



(14,181,468)



(10,219,501)




(23,221,428)



(14,339,162)



(55,183,544)



(44,732,142)














Gross profit



7,696,678



8,323,414



24,460,340



25,138,071














Operating expenses:













Depreciation and amortization



(684,922)



(632,059)



(2,024,749)



(1,879,236)

Sales and marketing



(4,677,574)



(1,987,391)



(10,181,898)



(3,289,356)

General and administrative



(613,047)



(714,355)



(1,956,030)



(2,020,673)

Stock-based compensation



(705,157)



-



(1,368,531)



-

Total operating expenses



(6,680,700)



(3,333,805)



(15,531,208)



(7,189,265)



























Income from operations



1,015,978



4,989,609



8,929,132



17,948,806














Other income (expenses):













Subsidy income



-



192



-



71,445

Rental income



26,907



23,229



75,134



68,585

Interest income



47,892



35



115,275



94,932

Interest expense



-



(107)



-



(39,811)

Income before income taxes



1,090,777



5,012,958



9,119,541



18,143,957

Income tax expense



(283,216)



(851,085)



(1,682,711)



(3,238,124)














NET INCOME



807,561



4,161,873



7,436,830



14,905,833














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



45



(126)



163



(492)














Net income attributable to China Marine Food Group Limited


$

807,606


$

4,161,747


$

7,436,993


$

14,905,341














Other comprehensive income:













- Foreign currency translation gain



1,425,259



1,699,426



3,787,888




2,354,926














COMPREHENSIVE INCOME


$

2,232,865


$

5,861,173


$

11,224,881


$

17,260,267

Net income per share attributable to China Marine Food
Group Limited













- Basic


$

0.03


$

0.15


$

0.25


$

0.53

- Diluted


$

0.03


$

0.14


$

0.25


$

0.51














Weighted average shares outstanding













- Basic



29,695,150



28,525,850



29,452,996



28,122,266

- Diluted



29,695,150



29,378,659



29,452,996



29,037,695




CHINA MARINE FOOD GROUP LIMITED

CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

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

(Unaudited)




For the Nine Months Ended September 30,



2011


2010

Cash flows from operating activities:







Net income


$

7,436,830


$

14,905,833

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







Depreciation and amortization



2,248,254



2,081,868

Stock issued to an executive



-



143,100

Stock issued for service



51,800



109,725

Reversal of doubtful accounts



(108,336)



(34,492)

Loss on disposal of property, plant and equipment



22,045



-

Compensatory stock awards



2,646,000



-

Changes in operating assets and liabilities:







Accounts receivable



21,667,348



6,898,320

Inventories



(6,866,217)



(25,740,686)

Prepaid expenses and other current assets



(2,409,978)



(2,444,803)

Accounts payable, trade



(182,884)



2,635,471

Income tax payable



(536,996)



(371,167)

Accrued liabilities and other payables



(1,497,187)



(1,107,334)








Net cash provided by (used in) operating activities



22,470,679



(2,924,165)








Cash flows from investing activities:







Purchase of property, plant and equipment



(26,045)



(177,715)

Cash paid to construction in progress



(8,213,324)



(13,027,294)

Addition to land use right



-



(69,778)

Net cash received from acquisition of a subsidiary



-



977,476








Net cash (used in) investing activities



(8,239,369)



(12,297,311)








Cash flows from financing activities:







Repayment of amount due to a shareholder



(211,714)



(568)

Advance to a non-controlling shareholder of a subsidiary



-



(144,113)

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



-



(1,305,837)








Net cash (used in) provided by financing activities



(211,714)



23,439,107








NET CHANGE IN CASH AND CASH EQUIVALENTS



14,019,596



8,217,631

Effect of exchange rate changes in cash and cash equivalents



1,740,730



1,559,520








CASH AND CASH EQUIVALENTS, BEGINNING OF PERIOD



15,556,772



7,143,232








CASH AND CASH EQUIVALENTS, END OF PERIOD


$

31,317,098


$

16,920,383


SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION







Cash paid for income taxes


$

2,219,707


$

3,609,291

Cash paid for interest


$

-


$

39,811








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 North America

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.mz-ir.com

Source: China Marine Food Group Limited
Related Stocks:
AMEX:CMFO
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