Pingtan Marine Enterprise Ltd.
Q2 2015 Earnings Call Transcript

Published: 11 Aug 2015

[Operator:]

Greetings, and welcome to the Pingtan Marine Enterprise 2015 Second Quarter Financial Results Conference Call. At this time, all participants are in a listen-only mode. A brief question-and-answer session will follow the formal presentation. [Operator Instructions] As a reminder, this conference is being recorded. I would now like to turn the conference over to your host, Ms. Katherine Yao, of the Equity Group. Thank you, ma'am. You may begin.

[Katherine Yao:]

Thank you Mannie, and good morning everyone. Thank you for joining us. Copies of the press release announcing the 2015 second 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 we'll be happy to send you a copy. In addition, this broadcast will be made available on 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 of 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 turn the call over to Pingtan Marine's Chairman and CEO, Mr. Xinrong Zhuo.

[Xinrong Zhuo:]

Thank you. Thank you for joining our 2015 second quarter conference call. In the first half of 2015, Pingtan faced a tremendous pressure from the moratorium act by the Indonesian Government, in compliance with guidelines required by the Indonesian Navy and to support its Anti-illegal Fishing Measures, our fishing vessels operating in Arafura Sea of Indonesia were forced to temporarily cease its operations since February. As a result, a majority of our revenue from this area, this temporary event had a significant drop in our harvest volume, that what's affected our overall operating results in the period. However, in light of this challenging environment, our Management quickly shifted our strategy to expand into new fishing territories, to diversify our revenue stream. In June, we were pleased to announce the purchase of six fishing vessels, include four longline fishing vessels and two squid jigging vessels for the appraised fair market value of approximately $56.2 million. These vessels are fully licensed in the Western and Central Pacific Ocean of the International Waters, primarily focused on catching tuna and squids. This will diversify our product mix. This new product category will help us target higher end customers and improve our revenue. In addition to the newly purchased six fishing vessels, we will have moratorium as an opportunity to ask and renovate our existing vessels. As part of Pingtan's ongoing vessel renewal plan, we have taken 13 of our older vessels out of service and expect to replace with new vessels that are presently under construction. In the long-term, we believe that the Indonesian Government's anti-illegal fishing measures will eventually benefit the fully licensed fishing companies such as Pingtan. Despite the challenges we faced in the first half and second quarter of 2015, we still generated positive cash flow from our operating activities. On July 15, we paid our third consecutive quarterly cash dividend for our shareholders as recorded as of June 15, 2015. We are confident in our ability to reward our investors. On the [indiscernible] development increasing investor confidence. In this regard, our risk management team is devoted to Pingtan's development to further strengthen our industry position, even in the most challenging unachievable time. Thus we will announce our next quarterly dividend payments in the coming weeks. We remain dedicated in building Pingtan's brand awareness; deepening our sales channels in inland provinces, actively searching new fishing areas and rationalizing all aspects of our operations to ensure our production capacity meets the changing demand. On behalf of our company, I look forward to meeting many of you in person, and as always welcome each of you to visit our facilities in Fuzhou and Fujian Province. Thank you. I would now like to turn the call over to Mr. Roy Yu, Chief Financial Officer of Pingtan Marine Enterprise.

[Roy Yu:]

Thanks Katherine. Good morning and welcome everyone. Today I will discuss Pingtan Marine's 2015 second quarter operational and financial results. Before I get started, I feel the need to provide everyone more details on the significant factors that impacted our operations here in the period. As we previously disclosed, the Indonesian government introduced a six-month moratorium on 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. As a result, all licensed fishing vessels operating in Indonesian waters have been informed by the Indonesian government to only operate within the strict guidelines in order to avoid potential enforcement actions by the Indonesian Navy such as boat seizures. Pingtan currently operates 117 vessels operating in Arafura Sea of Indonesia. To cooperate and remain in compliance with the Indonesian government's fishing license check procedures, in January 2015, we had lowered its operation to approximately half of its normal level; and from February 2015, Pingtan temporarily ceased operations in Indonesian waters. The Indonesian government had previously expected the license check of fishing vessels to be completed by April 30, 2015. As of the date of this report, the license check was still in process. As the Chairman mentioned earlier, we believe that over the long-term the Indonesian government's anti-illegal fishing measures will be beneficial to fully licensed fishing companies such as PME. However we cannot guarantee when fishing will resume in this area, and our financial condition and results of operation will continue to be materially impacted while this moratorium is in existence. As a result, our sales for the three and six months ended June 30, 2015 decreased significantly as compared to the three and six months ended June 30, 2014. Now I would like to move to the financial results. In the 2015 second quarter, due to the challenging environment in Indonesia, our sales volumes decreased 74% to 4.9 million kilograms from 19 million kilograms in the second quarter of 2014. Pingtan reports its revenues from our fishing business of $15 million for the three months ended June 30, 2015 compared to $57 million for the same period in 2014. The decrease was primarily due to significant decrease in sales volume as we temporarily ceased its operations in Indonesia waters from February 2015, due to the moratorium described above. For the second quarter ended June 30, 2015 gross profit from our fishing business was $1.2 million compared to $17.4 million in the prior year period. The gross margin was 7.9% compared to 30.6%. The significant decrease was primarily due to the reduced scale of operation resulting from the moratorium, which is reflected in the allocation of fixed costs, mainly consisting of depreciation and maintenance fees, to cost of revenue. The maintenance fees, represents ordinary repairs and maintenance were performed to maintain vessels in operating condition in the period. Our selling expenses include storage and shipping fees, insurance and other miscellaneous expenses. Our sales activities are conducted through direct sales by our internal sales staff because of the strong demand for our products and services, we do not have to aggressively market and distribute our products. Therefore, our selling expenses have been a small percentage of our revenue. For the second quarter ended June 30 2015, selling expenses was $0.3 million compared to $0.6 million in the prior year period. Our general and administrative expenses for the second quarter of 2015 were $0.4 million compared to $0.8 million in the prior year period. For the three months ended June 30 2015, Pingtan reported its net loss from the fishing business was $1.6 million, or $0.02 per basic and diluted share, compared to net income of $14.8 million, or $0.19 per basic and diluted share, in the prior year period. For six months ended June 30 2015, Pingtan's revenue was $44 million, compared to $123 million in the first half of 2014. The net income for the first half of 2015 was $6.8 million or $0.09 per basic and diluted share, compared to $38.2 million or $0.48 per basic and diluted share in the same period of 2014. Moving quickly to the balance sheet, at June 30, 2015 Pingtan's cash and cash equivalents were $26.2 million, total assets were $256 million. Total long-term debt was $32 million, and shareholder's equity was $165 million compared to cash and cash equivalents of $12.8 million, total assets of $249 million, total long-term debts of $38.6 million, and shareholder's equity of $145 million respectively, at December 31, 2014. We are obligated to operating this, the Indonesian Navy and hope to accelerate the elimination of illegal fishing vessels from the waters. However, due to all the uncertainty I mentioned above, we cannot control when fishing will resume. So we are still unable to provide financial projections for the full year 2015. However, this motivates us to shift our attention to further establishing new fishing territories and seeking other opportunities for expansion. Thus in the coming quarters, we will continue to expand our fleet and increase our production in international waters focused on reasonably arrange our product mix and actively initiate new customer relations in the further inland China. Thank you.

[Katherine Yao:]

With that operator, let's open it up for any questions.

[Operator:]

[Operator Instructions] Our first question comes from [Damian Fulton[ [ph], a Private Investor. Please proceed with your question.

[Unidentified Analyst:]

Yes. Thank you very much for taking my question. One of the things I would like to know is, what's the status of the processing plan? Has that gone any further, has there been a new opportunity given the moratorium to speed that process up of constructing the plant?

[Roy Yu:]

Yes. Sure, thank you for your question. Actually we achieved some very positive progress in this quarter. The joint venture company has signed the agreement with the local government for the piece of land, and we have paid the money for the land. So, currently we are in the process of making some paper documents such as registrations of the land which I believe should be finished very quickly and we are on schedule, we'll be starting construction hopefully in the third quarter of this year.

[Unidentified Analyst:]

Okay. That's good. And the next question I have, in regards to - I know the CEO often makes comment about taking the tour of the organization, and given the fact that this is a U.S. listed company, has there ever been any consideration regarding a virtual tour or a way in which to give the American investors who are not located in China, idea of the operations at Pingtan participating in and the organization, the vessels, the plants, things like that?

[Roy Yu:]

Yes. As a Management team we always want be as transparent as possible. Even though Investor coming to China to visit us is only a head quarter you go. So the real operation is on the sea. So we currently have hired professional teams trying to make a video about our whole operation of fishing on the sea. So, we believe we should be able to launch that to our website in the coming quarters so that Investors would have a better understanding of our business model.

[Unidentified Analyst:]

Okay. All right, that sounds good. And that's all the questions I have.

[Roy Yu:]

Thank you so much.

[Operator:]

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

[Roy Yu:]

Thanks again to all of you for joining us today. We look forward speaking with you again in November, after we report our third quarter financial results. As always, we welcome any visitors or investors to our facilities in Fuzhou, China. Thank you.

[Operator:]

This concludes today's teleconference. You may disconnect your lines at this time. And have a great day.