Higher sales and marketing costs pushed China Marine to a net loss in the first half of the year. In the six months to the end of June, the China-based seafood snack group recorded a net loss of US$2.79m , compared to earnings of $8.9m last year. The company also made an operating loss in the period, of $3.5m from an operating profit of $7.9m in the prior-year. The company recorded sales and marketing expenses in the six months of $13.3m versus $5.5m last year. Sales, however, climbed 56.7% to $76.37m as revenues recovered from the effects of the Japanese earthquake. "We are still feeling the lingering effects in consumer perception of food and beverage safety in seafood and canned beverages from two completely unrelated instances in Japan and Taiwan," chairman and CEO Pengfei Liu said. "As a result, we maintained an elevated level of investments in advertisements and promotions to communicate the safety and value of our products."
China Marine Reports Second Quarter 2012 Financial Results
SHISHI, China, Aug. 14, 2012 /PRNewswire-Asia-FirstCall/ -- China Marine Food Group Limited (NYSE MKT: 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, 2012.
"Our second quarter results reflect a rebound in demand for 'Hi-Power' beverages and marine catch products and the revenues we can achieve with seafood trade, as we work to maintain our position in the market with consumers of our foods and beverages," explained Mr. Pengfei Liu, Chairman and CEO of China Marine. "As we discussed on our year-end 2011 earnings call, we are still feeling the lingering effects in consumer perception of food and beverage safety in seafood and canned beverages from two completely unrelated instances in Japan and Taiwan. As a result, we maintained an elevated level of investments in advertisements and promotions to communicate the safety and value of our products. While certain distributors have placed reorders as they restock inventories of our seafood snack foods, overall consumer demand for seafood snacks remained well below levels prior to the Japan disaster. However, sales have rebounded nicely during the second quarter this year."
Second Quarter 2012 Results
Total net revenues in all segments for the quarter ended June 30, 2012, including Mingxiang®-branded seafood snack foods, "Hi-Power" beverages and marine catch, was $61.3 million, up 177.7% from $22.1 million in the prior year's period.
Seafood Snack Food Segment
China Marine's sale of processed and packaged seafood snack foods generated $10.7 million in revenue, a 20.6% decrease from the second quarter of 2011 mainly due to consumers' perception of food safety in relation to the nuclear radiation leaks in Japan which occurred in March 2011. Sales in Fujian province, the largest market for Mingxiang® seafood snacks, stabilized in the second quarter of 2012, with sales down 1.6% year-over-year compared to down 39.7% year-over-year in the first quarter of 2012. Seafood snack foods accounted for 17.4% of total revenues in the second quarter of 2012.
China Marine has maintained its product line of 27 Mingxiang®-branded seafood jerky snacks sold to consumers at retail locations. Gross profits margins for the seafood snack foods segment were 28.4% in the second quarter of 2012 compared to 27.2% in the same period last year as a result of reduction on headcount and the change in product mix to products with lower packaging costs. 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, Shandong and major prefectures like Shenzhen.
"Hi-Power" Beverage Segment
Revenues from the "Hi-Power" algae-based beverage line were $12.3 million in the second quarter of 2012, a 42.2% increase compared to $8.6 million in the second quarter of 2011. Sales were higher year-over-year in every market, including Fujian.
The total number of retail end-points for "Hi-Power" was 13,000 on June 30, 2012. "Hi-Power" beverages are sold and promoted in major international retailers such as Walmart®, China-based supermarkets like Trust-Mart®, convenience stores, bars, restaurants, school canteens and local corner stores which carry "Hi-Power" beverages, and certain locations where Mingxiang®-branded seafood products are also sold.
Gross margin was 38.2% in the second quarter of 2012, down 220 basis points from 40.4% in the same period last year due to higher raw materials and packaging costs. The Company outsources production, bottling and distribution to minimize its working capital and capital expenditures. China Marine continues to invest in sales and marketing, with various seasonal promotions including in store promotions and sporting event sponsorships, to drive trial and brand awareness.
Marine Catch Trade Segment
China Marine's frozen marine catch business segment generated $38.3 million in the second quarter of 2012 compared to no sales in the same period a year ago. The Company purchases and sells marine catch to local fishermen on an opportunistic basis. Gross profits were $1.2 million in the marine catch business during the three months ended June 30, 2012, representing a 3.3% gross profit margin.
Consolidated costs of goods sold totaled $52.3 million for the quarter, or 85.4% of net revenues for the period ended June 30, 2012, which consists of the cost of raw materials, packaging materials, direct labor and manufacturing overhead.
Gross profit in the second quarter of 2012 was $9.0 million compared to $7.2 million in the second quarter of 2011. Consolidated gross margins were 14.6% for the second quarter of 2012, down from 32.4% for the three months ended June 30, 2011 due to significant sales of marine catch, which generate lower gross margins than the seafood snacks and "Hi-Power" beverage businesses.
Operating expenses in the quarter ended June 30, 2012 were $10.6 million compared to $5.9 million in the prior year's period. The Company increased sales and marketing investments by approximately $4.8 million to $8.7 million in the second quarter of 2012 as a result of $3.7 million in advertising campaigns and $4.4 million in promotional costs to strengthen its brand position and improve market awareness.
Operating income in the second quarter of 2012 was a loss of $1.6 million compared to an operating profit of $1.2 million in the prior year's period. Excluding the $0.6 million non-cash amortization expense related to the "Hi-Power" acquisition, operating loss was $1.0 million for the three months ended June 30, 2012.
Net income attributable to China Marine shareholders was a loss of $1.6 million in the three months ended June 30, 2012 compared to $1.0 million of net income in the same period a year ago. Earnings per share in the second quarter of 2012 were $0.06 net loss per share and $0.03 earnings per share in the prior year's period.
Non-GAAP adjusted net loss of $1.0 million, or $0.03 net loss per share in the second quarter of 2012, compared to $2.2 million net income and $0.07 earnings per share in the same period last year.
Net revenues for the six months ended June 30, 2012 were $76.4 million compared to $48.7 million in the corresponding period a year ago. Sales of Mingxiang®-branded seafood products, "Hi-Power" beverages and marine catch were $20.6 million, $17.5 million and $38.3 million, respectively.
Gross profits were $13.6 million during the first half of 2012, representing a gross margin of 17.8%. Operating expenses were $17.1 million for the six months ended June 30, 2012, up 93.0% compared to $8.9 million in the first half of 2011. The Company had an operating loss of $3.5 million in the first six months of 2012. Excluding $1.3 of non-cash amortization expenses related to prior acquisitions and $0.6 million of after-tax non-cash stock-based compensation expenses, non-GAAP operating loss was $1.6 million.
Reported net loss and net loss per share attributable to China Marine shareholders were $3.7 million and $0.12, respectively. Non-GAAP adjusted net loss was approximately $1.8 million and $0.06 net loss per share. The weighted average shares outstanding were 29.7 million shares.
