Yuhe International Inc. Reports Record Second Quarter 2009 Results
Weifang, Shandong Province, P.R.C. August 14, 2009 –Yuhe International, Inc. (OTC BB: YUII) (“Yuhe” or “the Company”), a leading supplier of day-old chickens raised for meat production, or broilers, in the People’s Republic of China (“PRC”), today announced its financial results for the second quarter ended June 30, 2009.
Second Quarter 2009 Highlights
| · | Net revenue increased 75.5% to $9.8 million, compared to $5.6 million in the second quarter of 2008 |
| · | Gross profit grew 52.6% to $2.8 million, compared to $1.8 million in the same period last year |
| · | Operating income grew 60.6% to $2.1 million, compared to $1.3 million in the second quarter of 2008 |
| · | Net income increased 79.5% to $2.1 million, compared to $1.2 million in the same period last year |
| · | Fully diluted EPS increased 81.2% to $0.13 per share, compared to $0.07 in the second quarter of 2008 |
| · | Stock trading data became available through Standard & Poor’s Market Access Program. |
| · | Feed production facility operated by Shandong Nongbiao Purina Feed Co., Ltd. (“Purina”) began operations in July 2009 |
| · | Engaged Ernst & Young in Sarbanes-Oxley compliance project |
| · | Appointed Jason Wang as Investor Relations Director of the Company |
“The second quarter of 2009 was another very successful quarter for Yuhe International Inc. We achieved record revenue and net income in the quarter, due to our capacity expansion and stable customer relationships,” commented Mr. Zhentao Gao, Chief Executive Officer of Yuhe. “Selling prices fell in tandem with pork prices, which bottomed out in the first half of 2009 along with the normal seasonal decline associated with the harvest season. Selling prices have since increased, reaching RMB 2.6 per day-old broiler in July 2009. We believe that demand and average pricing for high-quality day-old broilers will continue to expand in the second half of the year.”
Second Quarter 2009 Results
Total reported revenue for the second quarter of 2009 increased 75.5% to $9.8 million, from net revenue of $5.6 million for the three-months ended June 30, 2008. The increase was mainly driven by 117.8% growth in sales volume of day-old broilers to 25.7 million from 11.8 million for the three months ended June 30, 2008. Production capacity expansion as well as the increase of parent breeder volume at the end of 2008 fueled the sales volume increase. The growth in sales volume was partially offset by a 24% decrease in selling price from RMB 3.13 per bird for the three months ended June 30, 2008 to RMB 2.38 for the three months ended June 30, 2009 due to lower prices for pork, a substitution meat, which affected chicken prices. In addition, seasonality weakened broiler demand and prices fell sequentially from the first quarter of 2009 (RMB 2.99 per bird), since customers were primarily engaged in harvest activities during the second quarter.
Gross profit increased 52.6% to $2.8 million in the second quarter of 2009, compared to $1.8 million the prior year period. Gross margin was 28.5%, as compared to 32.8% during the same period in 2008. The decrease in gross margin was due largely to early retirement of parent breeders. Excluding this early retirement, gross margin from the Company’s core business in the second quarter of 2009 was fairly consistent year- over-year.
Operating expenses for the second quarter of 2009 was $0.7 million, or 7.6% of total revenues, compared to $0.6 million, or 9.9% of total revenues, for the second quarter of 2008. General and administrative expenses increased 38.7% to $0.6 million, primarily due to increased expenses as a public company. Selling expenses were only up 12.8% to $0.1 million, which was significantly lower than the sales growth rate, mainly because customers pay the transportation fees to ship day-old broilers and the increased revenues were mostly from existing customers.
Operating income for the second quarter of 2009 increased 60.6% to $2.1 million, compared to operating income of $1.3 million for the same period in 2008. Operating margin was 20.9%, compared to 22.9% in the same quarter of 2008.
Net profit for the three months ended June 30, 2009 increased 79.5% to $2.1 million, compared to $1.2 million for the same period last year. Fully diluted earnings per share rose 81.2% to $0.13 from $0.07 for the same period last year.
Six Month Results
In the six months ended June 30, 2009, Yuhe reported net revenues increased 153.0% to $20.7 million, from pro forma net revenues* of $8.2 million in the six months ended June 30, 2008. Gross profit grew 209.4% to $6.9 million, as compared to pro forma gross margin of $2.2 million in the same period prior year. Reported gross margin expanded 600 basis points to 33.1% for the six months ended June 30, 2009, from pro forma gross margin of 27.1% in the same period last year. Reported operating expense was $1.6 million, or 7.6% of total revenues, compared to pro forma operating expenses of $1.0 million, or 12.4% of total revenues, for the same period of 2008. Reported operating income for the six month period rose 339.0% to $5.3 million, from $1.2 million in pro forma operating income for the same period of 2008. Reported operating margin increased 1,080 basis points to 25.5% for the six months ended June 30, 2009, compared to pro forma operating margin of 14.7% for the same period in 2008. Net income reported for the six months ended June 30, 2009 increased 384.1% to $5.0 million, compared to pro form net income of $1.0 million in the same period of 2008. Fully diluted earnings per share rose 301.5% to $0.32, from $0.08 pro forma earnings per share for the same period last year.
*Yuhe’s reported financial statements represent the consolidated results of Weifang Yuhe Poultry Co. Ltd., “PRC Yuhe”, and Weifang Taihong Feed Co. Ltd., “Taihong”, the Company’s two operating subsidiaries, from January 1, 2009 to June 30, 2009 and from February 1, 2008 to June 30, 2008. For comparison purposes, the Company has provided a pro forma consolidated statement of operations for PRC Yuhe and Taihong from January 1, 2008 through June 30, 2008 to provide comparable presentation to its reported results for the six months ended June 30, 2009. These pro forma results are discussed in this release, together with reconciliation to the reported financial information (table 4 below). Pro forma results are presented and discussed because the Company considers them useful in assessing performance between periods and in developing expectations of future performance.
Financial Condition
As of June 30, 2009 the Company had $17.3 million in cash and cash equivalents and working capital of $4.8 million and a current ratio of 1:2. The Company had $47.0 million in shareholders’ equity compared to $41.6 million at the end of 2008. In the first six months of 2009, Yuhe generated $8.3 million in cash flow from operating activities. Capital expenditures were $4.7 million in the first half of the year and were primarily used for the construction of two new breeder farms under construction that will have 100,000 sets of breeders each.
The company entered into a letter of engagement with Ernst & Young in May 2009 for consulting related to Sarbanes-Oxley compliance. The Company has made positive progress towards reaching full compliance with Section 404 of the Sarbanes-Oxley Act of 2002 by the end of fiscal 2009.
Business Outlook
“The Chinese economy has shown positive signs of recovery in recent months, and we believe Yuhe will continue to generate revenue growth from day-old broilers sales. We recently completed a comprehensive quality assessment of the new Purina feed facility and we are beginning to gradually phase out in-house feed production, which should contribute to improving margins over time. We are making good progress on our two new breeder farms and an additional hatchery is on track to be completed by the end of 2009. In addition, we expect the third quarter will be our best quarter of 2009 partly due to seasonality. In conclusion, we remain confident that we will be able to achieve our fiscal 2009 guidance of $50 million in total revenue and $13 million in net income,” stated Mr. Gao.
Upcoming Event
Yuhe International Inc. will present at the Rodman & Renshaw Annual Global Investment Conference to be held September 9-11, 2009 at the New York Palace Hotel in New York. During the conference, Yuhe’s management will be available for one-on-one meetings.
Conference Call
The Company will host a conference call at 9:00 a.m. Eastern time on Monday, August 17, 2009 to discuss its second quarter fiscal 2009 results. To participate in the live conference call, please dial (888) 419-5570 five to ten minutes prior to the scheduled conference call time. International callers should dial (617) 896-9871. When prompted by the operator, enter conference pass code 165 690 09. If you are unable to participate in the call at this time, a replay will be available for fourteen days after the call is held. To access the replay, please dial (888) 286-8010. International callers should dial (617) 801-6888. When prompted by the operator, enter pass code 182 938 99.
In addition, the call will be broadcast live over the internet via the following link: http://investor.shareholder.com/media/eventdetail.cfm?eventid=71814&CompanyID=ABEA-3EJRAZ&e=1&mediaKey=ED553D68E210D08B54549C6A2C81D376
(Please copy the full link to the browser for viewing)
Please go to the webcast via the link 10 minutes prior to the start of the call to register. The webcast of the call will be available through the same link for up to a year after the call occurs.
About Yuhe International, Inc.
Founded in 1996, Yuhe is the second largest day-old broiler breeder in China. The Company’s main operations involve breeding, as all broilers are sold within a day of hatching. With headquarters in Weifang, Shandong province, the Company has modern facilities and is led by an experienced team which includes experts in chicken breeding, disease prevention and animal husbandry science. Yuhe has two operational subsidiaries, Weifang Yuhe Poultry Co. Ltd. and Weifang Taihong Feed Co. Ltd. which largely supplies the Company’s internal demand for chicken feed. Currently, 85% of the Company’s sales are in Shandong province with a customer base of 27 local agents. The Company has imported state-of-the-art equipment from the United States, Germany and Japan and has passed ISO9001 certification, allowing it to adhere to international standards of operation. For more information on the Company and its products, please visit http://www.yuhepoultry.com.
Cautionary Statement
This press release contains forward-looking statements concerning the Company’s business, products and financial results. The Company’s actual results may differ materially from those anticipated in the forward-looking statements depending on a number of risk factors including, but not limited to, the following: general economic and business conditions, development, shipment, market acceptance, additional competition from existing and new competitors, changes in technology, and various other factors beyond the Company’s control. All forward-looking statements are expressly qualified in their entirety by this Cautionary Statement and the risk factors detailed in the Company's reports filed with the Securities and Exchange Commission. The Company undertakes no duty to revise or update any forward-looking statements to reflect events or circumstances after the date of this release.
- FINANCIAL TABLES FOLLOW-
Table 1
YUHE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Stated in US Dollars)
| | | June 30, | | | December 31, | |
| | | 2009 | | | 2008 | |
| | | (unaudited) | | | | |
| ASSETS | | | | | | |
| Current assets: | | | | | | |
| Cash and cash equivalents | | $ | 17,289,486 | | | $ | 13,412,205 | |
| Accounts receivable, net of allowances of $18,847 and $18,845 | | | 978 | | | | 902 | |
| Inventories | | | 6,454,753 | | | | 6,644,961 | |
| Advances to suppliers | | | 1,138,701 | | | | 661,138 | |
| Total current assets | | | 24,883,918 | | �� | | 20,719,206 | |
| | | | | | | | | |
| Plant and equipment, net | | | 26,831,096 | | | | 27,112,276 | |
| Deposits paid for acquisition of long term assets | | | 10,084,023 | | | | 6,092,359 | |
| Notes receivable, net and other receivable, net | | | 126,664 | | | | 74,720 | |
| Unlisted investments held for sale | | | 299,839 | | | | 299,427 | |
| Intangible assets, net | | | 2,880,997 | | | | 2,909,752 | |
| Due from related companies | | | 3,855,886 | | | | 3,706,589 | |
| Deferred expenses | | | 576,354 | | | | 604,973 | |
| Total assets | | $ | 69,538,777 | | | $ | 61,519,302 | |
| | | | | | | | | |
| LIABILITIES AND STOCKHOLDERS’ EQUITY | | | | | | | | |
| Current liabilities: | | | | | | | | |
| Accounts payable | | $ | 5,624,394 | | | $ | 4,606,055 | |
| Current portion of long term loans | | | 8,327,489 | | | | 1,356,832 | |
| Other payables | | | 1,193,021 | | | | 937,535 | |
| Accrued expenses and payroll related liabilities | | | 2,472,085 | | | | 2,125,587 | |
| Advances from customers | | | 1,262,500 | | | | 673,528 | |
| Loan from director | | | 292,193 | | | | 291,792 | |
| Other liabilities | | | 294,609 | | | | 285,132 | |
| Due to related companies | | | 575,837 | | | | 210,633 | |
| Total current liabilities | | | 20,042,128 | | | | 10,487,094 | |
| | | | | | | | | |
| Non-current liabilities | | | | | | | | |
| Long-term loans | | | 2,454,418 | | | | 9,410,289 | |
| Total liabilities | | | 22,496,546 | | | | 19,897,383 | |
| | | | | | | | | |
| Commitments and contingencies | | | | | | | | |
| | | | | | | | | |
| Stockholders' Equity | | | | | | | | |
| Common stock at $.001 par value; 500,000,000 shares authorized, 15,722,180 shares issued and outstanding | | | 15,722 | | | | 15,722 | |
| Additional paid-in capital | | | 30,305,437 | | | | 29,944,016 | |
| Retained earnings | | | 15,529,486 | | | | 10,522,673 | |
| Accumulated other comprehensive income | | | 1,191,586 | | | | 1,139,508 | |
| Total stockholders’ equity | | | 47,042,231 | | | | 41,621,919 | |
| | | | | | | | | |
| Total liabilities and stockholders’ equity | | $ | 69,538,777 | | | $ | 61,519,302 | |
Table 2
YUHE INTERNATIONAL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME AND COMPREHENSIVE INCOME- (UNAUDITED)
(Stated in US Dollars)
| | | For The Six Months Ended | | | For The Three Months Ended | |
| | | June 30 | | | June 30 | |
| | | 2009 | | | 2008 | | | 2009 | | | 2008 | |
| | | | | | | | | | | | | |
| Net revenue | | $ | 20,748,763 | | | $ | 6,708,482 | | | $ | 9,834,373 | | | $ | 5,604,931 | |
| | | | | | | | | | | | | | | | | |
| Cost of revenue | | | (13,883,779 | ) | | | (4,643,247 | ) | | | (7,031,426 | ) | | | (3,768,540 | ) |
| Gross profit | | | 6,864,984 | | | | 2,065,235 | | | | 2,802,947 | | | | 1,836,391 | |
| | | | | | | | | | | | | | | | | |
| Operating Expenses | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Selling expenses | | | (201,596 | ) | | | (144,831 | ) | | | (108,656 | ) | | | (96,291 | ) |
| General and administrative expenses | | | (1,379,237 | ) | | | (719,211 | ) | | | (635,247 | ) | | | (457,961 | ) |
| Total operating expenses | | | (1,580,833 | ) | | | (864,042 | ) | | | (743,903 | ) | | | (554,252 | ) |
| | | | | | | | | | | | | | | | | |
| Income from operations | | | 5,284,151 | | | | 1,201,193 | | | | 2,059,044 | | | | 1,282,139 | |
| | | | | | | | | | | | | | | | | |
| Non-operating income (expenses) | | | | | | | | | | | | | | | | |
| | | | | | | | | | | | | | | | | |
| Bad debts recovery | | | - | | | | 86,915 | | | | - | | | | 73,770 | |
| Interest income | | | 141 | | | | 4,455 | | | | 45 | | | | 4,297 | |
| Other income | | | 5,126 | | | | 5,900 | | | | 5,126 | | | | - | |
| Gain on disposal of fixed assets | | | 27,778 | | | | 87,588 | | | | 27,778 | | | | 87,588 | |
| Investment income | | | 15,509 | | | | 6,074 | | | | - | | | | 6,074 | |
| Interest expenses | | | (325,427 | ) | | | (443,120 | ) | | | - | | | | (262,646 | ) |
| Other expenses | | | (465 | ) | | | (56,342 | ) | | | - | | | | (26,078 | ) |
| Total other (expenses) | | | (277,338 | ) | | | (308,530 | ) | | | 32,949 | | | | (116,995 | ) |
| | | | | | | | | | | | | | | | | |
| Net income before income taxes | | | 5,006,813 | | | | 892,663 | | | | 2,091,993 | | | | 1,165,144 | |
| Income taxes | | | - | | | | - | | | | - | | | | - | |
| Net income | | $ | 5,006,813 | | | $ | 892,663 | | | $ | 2,091,993 | | | $ | 1,165,144 | |
| | | | | | | | | | | | | | | | | |
| Other comprehensive income | | | | | | | | | | | | | | | | |
| Foreign currency translation | | | 52,078 | | | | 1,068,750 | | | | 3,806 | | | | 650,829 | |
| Comprehensive income | | $ | 5,058,891 | | | $ | 1,961,413 | | | $ | 2,095,799 | | | $ | 1,815,973 | |
| | | | | | | | | | | | | | | | | |
| Earnings per share | | | | | | | | | | | | | | | | |
| Basic | | $ | 0.32 | | | $ | 0.07 | | | $ | 0.13 | | | $ | 0.07 | |
| Diluted | | $ | 0.32 | | | $ | 0.07 | | | $ | 0.13 | | | $ | 0.07 | |
| | | | | | | | | | | | | | | | | |
| Weighted average shares outstanding | | | | | | | | | | | | | | | | |
| Basic | | | 15,722,180 | | | | 12,844,935 | | | | 15,722,180 | | | | 15,543,330 | |
| Diluted | | | 15,722,180 | | | | 13,039,395 | | | | 15,722,180 | | | | 15,868,739 | |
Table 3
YUHE INTERNATIONAL, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS - (UNAUDITED)
(Stated in US Dollars)
| | | For The Six Months Ended | |
| | | June 30 | |
| | | 2009 | | | 2008 | |
| Cash flows from operating activities | | | | | | |
| Net income | | $ | 5,006,813 | | | $ | 892,663 | |
| Adjustments to reconcile net income to net cash used in operating activities: | | | | | | | | |
| Stock based compensation | | | 361,421 | | | | 33,946 | |
| Depreciation | | | 1,027,465 | | | | 621,912 | |
| Amortization | | | 32,759 | | | | 26,497 | |
| Bad debts recovery | | | - | | | | (86,915 | ) |
| Gain on disposal of fixed assets | | | (27,778 | ) | | | (87,588 | ) |
| Income from unlisted investment | | | - | | | | (6,074 | ) |
| Changes in operating assets and liabilities: | | | | | | | | |
| Accounts receivable | | | (75 | ) | | | (2,359 | ) |
| Advances to suppliers | | | (526,528 | ) | | | (301,750 | ) |
| Inventories | | | 199,889 | | | | (4,350,914 | ) |
| Deferred expenses | | | 29,459 | | | | (37,339 | ) |
| Accounts payable | | | 1,011,712 | | | | (699,260 | ) |
| Other payable | | | 254,103 | | | | (370,416 | ) |
| Payroll and payroll related liabilities | | | (32,432 | ) | | | 10,926 | |
| Accrued expenses | | | 376,532 | | | | (574,584 | ) |
| Advances from customers | | | 588,416 | | | | (29,814 | ) |
| Other taxes payable | | | 9,090 | | | | 9,386 | |
| | | | | | | | | |
| Net cash provided by (used in) operating activities | | | 8,310,846 | | | | (4,951,683 | ) |
| | | | | | | | | |
| Cash flows from investing activities | | | | | | | | |
| Deposit paid and acquisition of property, plant and equipment | | | (4,673,695 | ) | | | (11,394,809 | ) |
| Advance to notes receivable | | | (23,602 | ) | | | (3,432,604 | ) |
| Proceeds from disposal of fixed assets | | | 27,778 | | | | 118,216 | |
| Acquisition of subsidiaries | | | - | | | | (10,567,946 | ) |
| Advance to related companies | | | (144,350 | ) | | | (34,185 | ) |
| | | | | | | | |
| Net cash (used in) investing activities | | | (4,813,869 | ) | | | (25,311,328 | ) |
| | | | | | | | | |
| Cash flows from financing activities | | | | | | | | |
| Proceeds from loan payable | | | - | | | | 1,300,726 | |
| Proceeds from related party payable | | | 360,094 | | | | 1,106,240 | |
| Capital contribution by shareholder | | | - | | | | 12,149,750 | |
| Proceeds from common stock sale - net of offering costs | | | - | | | | 15,359,523 | |
| | | | | | | | | |
| Net cash flows provided by financing activities: | | | 360,094 | | | | 29,916,239 | |
| | | | | | | | | |
| Effect of foreign currency translation on cash and cash equivalents | | | 20,210 | | | | 142,169 | |
| | | | | | | | | |
| Net increase (decrease) in cash | | | 3,877,281 | | | | (204,603 | ) |
Cash- beginning of period | | | 13,412,205 | | | | 1,050,168 | |
| | | | | | | | | |
Cash- end of period | | $ | 17,289,486 | | | $ | 845,565 | |
| | | | | | | | | |
Cash paid during the period for: | | | | | | | | |
Interest paid | | $ | 448,487 | | | $ | 885,005 | |
Income taxes paid | | $ | - | | | $ | - | |
| | | | | | | | | |
Non-cash investing activities: | | | | | | | | |
Transfer of construction in progress to fixed assets | | $ | 1,831,131 | | | $ | - | |
Table 4
| | | For the six | | | For the six | | | For the six | |
| | | months ended | | | months ended | | | months ended | |
| | | 30-Jun | | | 30-Jun | | | 30-Jun | |
| | | 2009 | | | 2008 | | | 2008 | |
| | | (As reported) | | | (Pro forma) | | | (As reported) | |
| | | | | | | | | | |
| Sales revenue | | | 20,748,763 | | | | 8,199,811 | | | | 6,708,482 | |
| Costs of goods sold | | | 13,883,779 | | | | 5,980,685 | | | | 4,643,247 | |
| Gross profit (loss) | | | 6,864,984 | | | | 2,219,126 | | | | 2,065,235 | |
| Selling expenses | | | 201,596 | | | | 173,828 | | | | 144,831 | |
| General and administrative expenses | | | 1,379,237 | | | | 841,625 | | | | 719,211 | |
| Operating (loss) income | | | 5,284,151 | | | | 1,203,673 | | | | 1,201,193 | |
| Interest income | | | 141 | | | | 4,460 | | | | 4,455 | |
| Other income | | | 48,413 | | | | 105,166 | | | | 99,562 | |
| Interest expenses | | | 325,427 | | | | 529,287 | | | | 443,120 | |
| Other expenses | | | 465 | | | | 56,623 | | | | 56,342 | |
| Income taxes | | | - | | | | - | | | | - | |
| Net income (loss) | | | 5,006,813 | | | | 1,034,197 | | | | 892,663 | |
The pro forma financial information above was prepared based on the unaudited financial results for the Company’s Weifang and Taihong subsidiaries for the six month period ended June 30, 2008.
The pro forma financial information has been prepared based upon available information and assumptions that the Company believes are reasonable. However, the pro forma financial information is presented for illustrative and informational purposes only and does not purport to represent the Company’s actual results during the corresponding reporting periods nor is it necessarily indicative of the Company’s future performance.
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