China Marine Food Group's CEO Discusses Q2 Results - Earnings Call Transcript

China Marine Food Group Ltd (CMFO)

Q2 2012 Earnings Call

August 15, 2012 08:30 am ET

Executives

John Mattio - SVP, MZ North America

Pengfei Liu - CEO, Secretary and Director

Marco Ku - Chief Financial Officer

Analysts

Alberto Bassetto - Jayhawk Capital

Presentation

Operator

Welcome to the China Marine Second Quarter 2012 Earnings Conference Call. During today's presentation, all parties will be in a listen-only mode. Following the presentation, the conference will be opened up for questions. (Operator Instructions). This conference is being recorded today, August 15, 2012.

I'd now like to turn the conference to over, John Mattio. Please go ahead, sir.

John Mattio

Thank you and good morning, everyone. Joining us today for China Marine second quarter 2012 earnings conference call are the company's Chairman and CEO, Mr. Pengfei Liu, and the company's Chief Financial Officer, Mr. Marco Ku. Mr. Liu and Mr. Ku, we will be giving comments on the financial and operational results for the second quarter. They will then be available to answer questions after the presentation.

I would like to remind everyone though that on this call, prepared remarks may contain forward-looking statements, which are subject to risks and uncertainties and that management may make additional statements in response to your questions. Therefore, the company claims the protection from the Safe Harbor for forward-looking statements that is contained in the Private Securities Litigation Reform Act of 1995.

Forward-looking statements related to the business of China Marine Food Group and its subsidiaries can be identified by common use forward-looking terminologies and those statements involve unknown risks and uncertainties, including all business related risks that are more detailed in the company's filings on Form 10-K, 10-K and 8-K with the SEC.

For those who are unable to listen to the entire call, we'll have an audio replay that will be available and the call is also being webcast, so you could log in via the internet. That information was provided on the conference call announcement and in the earnings release yesterday.

At this time, I would like to turn the call over to Mr. Liu, the Chairman of the company. He will provide opening remarks that will be translated by Marco Ku.

Chairman, Liu? The floor is yours.

Pengfei Liu

Thank you, John. Good morning and thank you for joining us, for China Marine's second quarter 2012 earnings conference call. Our second quarter results reflect a rebound in demand for our products and gradual improvements in each of our core businesses. Brand, seafood snacks, Hi-Power beverages and marine catch.

We have worked diligently over the past year to overcome the short-term challenges caused by outside factors such as the Japan nuclear disaster and the beverage contamination incident happened in Taiwan last year. While underlying demand continues to rise from depressed levels, total consumer demand remains well below levels prior to these adverse events.

Nevertheless, we are pleased to see positive results from our investments in advertising, promotions and consumer education. The more improved sequential revenue in our seafood snacks in Q2 2012 and 42% year-over-year increase in Hi-Power revenue reflect an improvement in our competitive position versus smaller competitors that have lost their market share during the same period of time.

Another important milestone we achieved is the grand opening of our new 20,000 tons cold storage facility. This is the most advanced and largest cold storage facility in Shishi port in nearby area. It will not only increase the amount of raw materials to retail store for our seafood snack business, but also generate recurring revenues by leasing the excess space and some other services such as ice making to other fishermen in the area. This new facility further strengthens our position as an efficient and diversified consumer products and marine catch company.

Thanks for your interest in China Marine. We are yet to be satisfied with the financial results over the past few quarters, however we believe our strategy is sound and that worst is behind us.

Our CFO, Marco Ku, will now discuss our financial results for the second quarter of 2012. I will be available to answer your questions after he finishes his presentation. Thank you.

Marco Ku

Thank you, Mr. Liu, and good morning everyone. This is Marco Ku, the CFO of China Marine. I will begin by reviewing our results for the second quarter end June 30, 2012. Please be aware that all the growth figures that I will reference reflect year-over-year growth compared to the second quarter of 2011.

Total consolidated revenues were $61.3 million, up 177.7% from $22.1 million in prior year's period. Total revenue totaled $52.3 million in the quarter, or 85.4% of net revenues. Cost of revenue consists of raw materials, packaging materials, direct labor and manufacturing overhead. We produced seafood snack foods at our dedicated production facility in Shishi, where Hi-Power production is outsourced to the third-party, branding and bottling facilities in Fujian province.

Consolidated gross profit and gross margin were $9 million, a 14.6% in the same quarter compared to $7.2 million and 32.4% in the same period a year ago, respectively. The primary reason for the year-over-year decline in gross margin was greater contribution from our marine catch business in the second quarter of 2012, which generated lower margins in the seafood snack and Hi-Power beverages businesses.

A look at our business segments' performance for the second quarter of 2012, our Seafood Snack Food segment, sales of our May conference Seafood Snack Food, generated $10.7 million in revenue, down 20.6% compared to the same period last year and accounted for 17.4% of total revenues in the second quarter of 2012.

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