Pingtan Marine Enterprise Ltd.
Q1 2016 Earnings Call Transcript

Published: 11 May 2016

[Operator:]

Greetings, and welcome to the Pingtan Marine Enterprise 2016 First Quarter Financial Results. A t this time, all participants are in a listen-only mode. A question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. It is now my pleasure to introduce your host, Katherine Yao of the Equity Group. Please go ahead ma'am.

[Katherine Yao:]

Thank you, Latania, and good morning, everyone. Thank you for joining us. Copies of the press release announcing the 2016 first quarter financial results are available on Pingtan Marine's website at www.ptmarine.com. You are also welcome to contact our office at 212-836-1600 and I will be happy to send you a copy. In addition, this broadcast will be made available at Pingtan Marine's website. Before we get started, I would like to remind everyone that this conference call and any accompanying information discussed herein contains certain forward-looking statements within the meaning of the Safe Harbor Provision of the Private Securities Litigation Reform Act of 1995. Investors are cautioned that such forward-looking statements involve risks and uncertainties that may affect Pingtan Marine's business and prospects and results of operation. Such risks are fully detailed in Pingtan Marine's filings with the Securities and Exchange Commission. The company filed its quarterly report on Form 10-Q yesterday. I would now like to take a moment to outline the format for today's call. The company's Chairman and CEO, Mr. Xinrong Zhuo, will read our prepared opening statements in Mandarin, which I will then read in English. I will then turn the conference call over to Mr. Roy Yu, Pingtan Marine's CFO, who will continue with the presentation. When he is finished, we will open the floor for questions. With that I will now start to – now introduce the Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo.

[Xinrong Zhuo:]

Good morning everyone and thanks for joining our 2016 first quarter conference call. In the first quarter of 2016, our operating results was significantly affected by the moratorium as even though the Indonesian Government has concluded its suspension in November 2015, but they have not, but they have not implemented new fishing policies and resumed fishing in Indonesian waters as of today. We continue to cooperate with the Indonesia Government and believe it is only a matter of time before fully licensed fishing companies like Pingtan are allowed to resume fishing in Indonesian waters. In light of these challenges and pressure, our sales team successfully met our customer demands by purchasing fish for resale from our third partly supplier. These resale activities of purchased fish generated a positive gross margin on such sales and helped us to continue to maintain positive relationships with key customers. Our management team is committed to diversify our product mix and expansion into new fishing territories. In June 2015 we added six fully licensed vessels in the international waters what are expected to dedicate in harvesting higher margin products. These vessels benefit us to upgrade our customer base by entering the higher end market. Meanwhile we are also negotiating with other neighboring countries to expand into new fishing regions. Again, we welcome any suggestions and introductions. On behalf of our company I look forward to meet many of you in person and as always welcome each of you visit our facilities in Fuzhou and take a tour. Thank you.

[Katherine Yao:]

I would now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise Ltd. Please go ahead sir.

[Roy Yu:]

Thank you, Katherine. Good morning and welcome everyone. Today, I will discuss Pingtan Marine's 2016 first quarter operational and financial results. As Chairman Zhuo noted, Pingtan's financial results were affected by the Indonesian Government's moratorium of issuing new fishing licenses and renewals so that the country's Ministry of Maritime Affairs and Fisheries could monitor the operations of existing fleets and to fight illegal fishing activities. In November 2015 the Indonesian Government announced that the moratorium had concluded. The company's expectation is the government will implement new fishing policies and resume the license renewal process, although this has not yet occurred. In the interim Pingtan's financial results will continue to be materially adversely affected by this moratorium. We currently operate 135 fishing vessels and 117 of these vessels operate in the Arafura Sea of Indonesia. To cooperate and remain in compliance with the Indonesian Government's fishing license check procedures, in January 2015 [ph], we have reduced our operations and from February 2015 [ph], Pingtan ceased operations of the 117 vessels which were licensed to operate in Indonesian waters. As a result, our sales for the three months ended March 31, 2016 and year ended December 31, 2015 decreased significantly as compared to the three months ended March 31, 2015 and year ended December 31, 2014. As the Chairman mentioned earlier, during the three months ended March 31, 2016 we have purchased fish from a third party to satisfy our customer demands. We generated a positive gross margin from the resale of purchased fish to our customers and the positive gross margin in this reselling activity partially offset the decrease in the Pingtan's overall gross margin for the three months ended March 31, 2016. However, our sales volumes decreased 84% to 1.7 million kilograms in the 2016 first quarter from 10.5 million kilograms in the first quarter of 2015. Now I'd like to move to financials. The company reported revenue from our fishing business of $4.1 million for the three months ended March 31, 2016 compared to $28.7 million for the same period in 2015. The decrease was primarily due to the company temporarily ceasing its operations in the Arafura Sea of Indonesia since February 2015 resulting from the moratorium. For the first quarter ended March 31, 2016 gross loss from our fishing business was $3.3 million compared to gross profit of $11.5 million in the prior year period. The gross margin was minus 80.5% compared to 39.9%. The significant decrease was primarily due to the reduced scale of operations resulting in lower revenues which is reflected in the allocation of fixed costs mainly consisting of depreciation to cost of revenue partially offset by the positive gross margin from our fish resale activities. Our selling expenses include storage and shipping fees, insurance, shipping and handling fees, customer service charge, advertising expense and vessels examination fees. Our sales activities are conducted through direct sales by our internal sales staff. Because of the strong demand for our products and services, our selling expenses have been a small percentage of our revenue as we do not incur much expense related to marketing and distribution. For the first quarter ended March 31, 2016 selling expenses were $0.3 million compared to $0.7 million in the prior year period. For the three months ended March 31, 2016 our general and administrative expenses were $1.5 million compared to $1.4 million in the prior year period. Pingtan reported net loss from fishing business for the first quarter of 2016 of $5.5 million or minus $0.06 per basic and diluted share compared to net income of $8.4 million or $0.10 per basic and diluted share in the prior year period. On the balance sheet as of March 31, 2016 Pingtan's cash and cash equivalents were $2.6 million. Total assets were $222.3 million. Total long term debt was $22.7 million and shareholders' equity was $161.4 million compared to $11.4 million, $231.9 million, $22.6 million and $166.8 million respectively at December 31, 2015. To conclude, we continue to cooperate with the Indonesian Government in the hopes of accelerating implementation of the new fishing licenses and policy. Licensed fishing company like Pingtan will remain focused on the factors we can control which is properly utilizing our assets and resources actively seeking to extend our fishing territories and carefully exploring all the opportunities to help reduce our dependency to any single region, while we continue to development our sales networks into land provinces and areas to acquire wholesale distributors and direct sales channels, rates and customers. With that, operator, let's open it up for any questions. Thank you.

[Operator:]

Thank you. [Operator Instructions] There are no questions in queue at this time. I would like to turn the call back over to management for closing comments.

[Roy Yu:]

Thanks again to all of you for joining us today. We look forward to speaking with you again in August after we report our second quarter financial results and as always we welcome any visitors to our facilities in Fuzhou, China. Thank you.

[Operator:]

Thank you. This concludes today's teleconference. Thank you for your participation. You may disconnect your lines at this time.