China Marine Reports Third Quarter 2011 Financial Results

SHISHI, China, Nov. 10, 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

"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

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:  

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".

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 -

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: [email protected]
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: [email protected]
Web: www.mz-ir.com

SOURCE China Marine Food Group Limited