Tianli Agritech Reports Fourth Quarter and Full Year 2012 Results Company generated $5.6 million in cash flow from operations in 2012

WUHAN CITY, China, March 14, 2013 /PRNewswire/ -- Tianli Agritech, Inc. (NASDAQ: OINK) ("Tianli" or the "Company"), a leading producer of breeder hogs, market hogs and black hogs headquartered in Wuhan City, China, today announced its financial results for the fourth quarter and twelve month period ended December 31, 2012. 

"2012 proved to be a very challenging year for Tianli due to unstable market conditions. As a result, we saw revenue decline for the first time in our company's history," began Tianli's Chairwoman and CEO, Mrs. Hanying Li. "Looking ahead, we expect gradual recovery of pork prices in coming quarters. We remain confident in our long term growth prospects, strong financial position and ongoing ability to generate cash. With our black hog program in Enshi Prefecture continuing to make significant progress, we believe Tianli is well positioned to take full advantage of the ongoing industry consolidation and regain its growth momentum in coming years."  

Q4 2012 Highlights:


For the Three Months Ended December 31,

($ thousands, except per share data)

2012


2011


% Change

Revenue

$                6,857


$                6,970


-2%

Gross margin

10.6%


19.0%


-44%

Operating margin

-0.1%


11.9%


-101%

Net income from continuing operations

(110)


660


-117%

Diluted earnings per share

(0.01)


0.08


-112%

Revenue for the fourth quarter of 2012 fell 2% to $6.9 million primarily due to decline in market hog prices. The Company sold a total of 30,865 breeder and market hogs in Q4 2012 compared to 25,472 hogs in Q4 2011. Revenue from breeder hog sales increased 13% to $1.8 million in Q4 2012 with number of breeder hogs sold increasing 19% to 6,636 hogs and average selling price of breeder hogs decreasing 5% to $278 per hog. Revenue from market hog sales decreased 6% from $5.3 million in Q4 2011 to $5.0 million in Q4 2012 as number of market hogs sold grew 22% to 24,229 hogs and average selling price of market hogs declined 23% to $207 per hog. The decline in average selling price of market hogs was mainly due to competition from imported pork, which sells for less than domestic pork.


For the Three Months Ended December 31,


2012


2011


No. of Hogs Sold


Average Price/Hog ($)


Sales ($ thousands)


No. of Hogs Sold


Average Price/Hog ($)


Sales ($ thousands)

Breeder hogs

6,636


$                278


$            1,846


5,589


$               292


$            1,634

Market hogs

24,229


207


5,011


19,883


268


5,336

Total

30,865


222


6,857


25,472


274


6,970

Gross profit in Q4 2012 was $0.7 million, a 45% decrease from the same period of last year. Gross margin of 10.6% compared to 19.0% for the fourth quarter of 2011. Higher feed costs and lower pork prices contributed to the deterioration of gross margin.

Selling, general and administrative expenses increased $0.2 million to $0.7 million in Q4 2012. The increase was primarily due to our promotional marketing effort to sell our black hogs. Operating margin in Q4 2012 was (0.1%), compared to 11.9% for the same period of last year.

Net income (loss) from continuing operations in Q4 2012 was ($0.1) million, compared to $0.7 million in Q4 2011. The material decrease in net income was primarily the result of the deterioration in gross margin and increase in operating expenses. Earnings (loss) per diluted share were ($0.01), compared to $0.08 in Q4 2011.

FY 2012 Highlights


For the Year Ended December 31,

($ thousands, except per share data)

2012


2011


% Change

Revenue

$              26,529


$              28,638


-7.4%

Gross margin

13.0%


37.0%


-64.8%

Operating margin

0.1%


28.1%


-99.5%

Net income from continuing operations

(252)


7,895


NM

Diluted earnings per share

(0.02)


0.80


NM

Revenue decreased 7.4% to $26.5 million for the year ended December 31, 2012 with total hogs sold increasing 14% to 115,696 hogs and average selling price decreasing 19% to $229 per hog. Revenue from breeder hog sales was $7.8 million in 2012, down 17% from $9.4 million in 2011 with number of breeder hogs sold and average selling price declining 10% and 7%, respectively. The decline in breeder hog sales was mainly due to increase in feed cost throughout the year which caused hog farmers to reduce their purchase of breeder hogs. Revenue from market hog sales decreased 3% from $19.3 million in 2011 to $18.7 million in 2012 as number of market hogs sold grew 24% and average selling price declined 22% year-over-year. Our revenue from market hog sales was adversely impacted by decreased pork prices caused by an oversupply of pork and China's efforts to control pork prices. Since retail pork price reached its peak level in 2011, both domestic hog production and pork imports had continued to expand, leading to an oversupply of hogs and continued slide of pork prices.


For the Year Ended December 31,


2012


2011


No. of Hogs Sold


Average Price/Hog ($)


Sales ($ thousands)


No. of Hogs Sold


Average Price/Hog ($)


Sales
($ thousands)

Breeder hogs

26,690


$                293


$            7,821


29,654


$               316


$            9,374

Market hogs

89,006


210


18,708


71,946


268


19,264

Total

115,696


229


26,529


101,600


282


28,638

Gross profit margin decreased to 13% in 2012 from 37% in 2011. Gross margins for breeder hogs were 31% and 47% in the years 2012 and 2011, respectively. Gross margins for market hogs were 5% and 32% in the years of 2012 and 2011, respectively. Higher feed costs and lower pork prices contributed to the deterioration of gross margin for both breeder hogs and market hogs.

Selling, general and administrative expenses increased $0.9 million to $3.4 million in 2012. The increase was primarily due to non-cash expense of $1.1 million resulting from the issuance of 1,000,000 common shares to our marketing consultants and employees related to the promotion of black hog sales.

Net loss from continuing operations in 2012 was $0.3 million, compared to net income from continuing operations of $7.9 million in 2011. The material decrease in net income was primarily the result of the $2.1 million decrease in revenue, $5.0 million increase in cost of goods sold, and a $1.1 million non-cash expense resulting from the issuance of 1,000,000 common shares. Diluted earnings (loss) per share for 2012 and 2011 were ($0.02) and $0.80, respectively.

Financial Position  

As of December 31, 2012, the Company had $7.5 million in cash and cash equivalents, compared to $6.5 million as of December 31, 2011. The Company generated approximately $5.6 million of cash flow from operations during the year of 2012. Working capital as of December 31, 2012 was $9.0 million as compared to $12.0 million at December 31, 2011, reflecting $7.0 million investment in rearing facilities at our black hog program, the collection of $1.1 million previously loaned to An Puluo and the proceeds of $1.1 million related to the investment from Xiamen Reijin Equity Investment Fund ( "XMRJ").

Recent Developments

On January 28, 2013, Tianli-Xiduhei® black pork meat made its official debut at Hua Lian and Yong Hui supermarket chains in Beijing. Beijing is the largest pork consuming market in China with an estimated 10 million hogs consumed annually.

On December 10, 2012, Tianli completed the construction of a new black hog feed facility in Enshi Prefecture. The new facility has an annual production capacity of 30,000 tons, sufficient to supply 100,000 Black Hogs. Tianli expects the feed facility to commence full production in Q2 2013.

On November 5, 2012, XMRJ agreed to invest RMB10 million or approximately US$1.6 million in exchange for 40% equity interest in Hubei Tianzhili Breeder Hog Co., Ltd. ("Tianzhili").  Tianzhili is the wholly-owned subsidiary of Wuhan Fengze Agricultural Science & Technology Development Co., Ltd., our variable interest entity in China. XMRJ also agreed to provide interest-free loan of RMB5 million, or approximately US$0.8 million, to Tianzhili. As of December 31, 2012, Tianzhili received $1.1 million cash proceeds from XMRJ with the remaining $0.5 million due in the first half of 2013.

On October 19, 2012, Tianli held its annual meeting of shareholders. Jianguo Hu and Zihui Mo were elected Class II Directors for a term of three years and Yang Chen was elected Class I Director for a term of two years. RBSM LLP, previously known as Sherb & Co. LLP, was also ratified as our independent registered public accountant for the fiscal year ended December 31, 2012.

Black Hog Program Update   

In May of 2011, Tianli announced the development of its Black Hog program through which Tianli will breed and sell high-value Black Hog meat.  Black Hog meat is known for its increased nutritional value and better taste and thus commands a premium to white hog meat sold at retail.  The Company will work with all of its farmers and farming co-ops in the Enshi Prefecture in Hubei Province to ensure that the quality of the breed is maintained and to develop standardized programs for the feed and care of the hogs. As part of this effort, Tianli will develop an appropriate feed mix, which the farmers will purchase from the Company. To be eligible to participate in the program farmers will need to be able to maintain no less than 6 sows or produce at least 100 black hogs per year. By the end of 2012, the Company had funded and completed the construction of 645 farms for local farmers. The Company also expects to complete the construction of additional 120 farms by the end of March 2013. The long term target is to fund and construct 10,000 farms with an annual capacity of 1,000,000 black hogs. 

The Company expects to benefit from the program in a number of ways, principally by reselling the black hogs purchased from the participating farmers and by providing the farmers with necessary feeds.

Earnings Conference Call

Tianli will host an earnings conference call and live webcast covering its fourth quarter and year 2012 financial results at 8:00 a.m. Eastern Time (New York) on March 15, 2013, which is also 8:00 p.m. in Beijing on March 15. To attend the call, please use the information below for either dial-in access or webcast access. When prompted on dial-in, ask for "Tianli 4Q12".

Conference Call



Date:

Friday, March, 15, 2013


Time:

8:00 am EDT, U.S.


U.S. Dial-in:

+1 877-317-6789


International Dial-in:

+1 412-317-6789


Conference ID:

Tianli 4Q12


Webcast Link:

http://services.choruscall.com/links/tianli130315.html


Please dial in at least 10 minutes before the call to ensure timely participation. A playback will be available through March 25, 2013. To listen, please call +1-877-344-7529 within the United States or +1-412-317-0088 if calling internationally.

About Tianli Agritech, Inc.

Tianli Agritech, Inc. is in the business of breeding, raising and selling breeder and market hogs in China and is developing a retail channel for its pork products including high-value, black hog meat. The Company is focused on growing high quality hogs for sale for breeding and meat purposes. The Company conducts genetic, breeding and nutrition research to steadily improve its production capabilities.

Forward-Looking Statements

This news release contains forward-looking statements as defined by the Private Securities Litigation Reform Act of 1995. Forward-looking statements include statements concerning plans, objectives, goals, strategies, future events or performance, and underlying assumptions and other statements that are other than statements of historical facts.  These statements are subject to uncertainties and risks including, but not limited to, product and service demand and acceptance, changes in technology, economic conditions, the impact of competition and pricing, government regulation, and other risks contained in reports filed by the company with the Securities and Exchange Commission. All such forward-looking statements, whether written or oral, and whether made by or on behalf of the company, are expressly qualified by the cautionary statements and any other cautionary statements which may accompany the forward-looking statements. In addition, the company disclaims any obligation to update any forward-looking statements to reflect events or circumstances after the date hereof.

For more information, please contact:

Tina Xiao
Weitian Group LLC
Phone: +1-917- 609-0333
Email: tina.xiao@weitian-ir.com
Web: http://www.weitian-ir.com

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS








December 31,



2012


2011

ASSETS





Current Assets:





Cash and cash equivalents

$

7,477,205

$

6,507,742

Accounts receivable


158,047


126,866

Inventories


10,232,893


9,578,040

Advances to suppliers


189,094


-

Prepaid expenses


237,247


164,664

Loan to An Puluo


-


1,101,582

Restricted cash


793,512


-

Other receivables


208,325


154,775

Assets - discontinued operations


-


1,402,842

 Total Current Assets


19,296,323


19,036,511






Long-term prepaid expenses


1,681,488


1,818,399

Plant and equipment, net of accumulated depreciation of $4,979,716 and





$3,353,303 at December 31, 2012 and 2011, respectively


24,400,573


17,676,999

Construction in progress


1,655,901


3,126,317

Biological assets, net of accumulated amortization of $2,422,048 and





$1,090,459 at December 31, 2012 and 2011, respectively


4,357,846


3,886,580

Intangible assets, net


1,485,773


1,522,709






Total Assets

$

52,877,904

$

47,067,515






LIABILITIES AND STOCKHOLDERS' EQUITY










Current Liabilities:





Short-term loans

$

7,101,935

$

4,721,064

Accounts payable and accrued payables


190,811


172,541

Due to An Puluo


-


35,951

Other payables


2,893,332


781,037

Due to related party


125,842


120,326

Liabilities - discontinued operations


-


1,198,544

Total Current Liabilities


10,311,920


7,029,463






Stockholders' Equity:





Common stock ($0.001 par value, 50,000,000 shares authorized,





11,194,000 and 10,135,000 shares issued and outstanding as of





December 31, 2012 and 2011, respectively)


11,194


10,135

Additional paid in capital


14,888,470


13,520,276

Statutory surplus reserves


2,416,647


2,416,647

Retained earnings


21,582,277


21,795,072

Accumulated other comprehensive income


2,609,374


2,295,922

Stockholders' Equity - Tianli Agritech Inc. and Subsidiaries


41,507,962


40,038,052

Noncontrolling interest


1,058,022


-

Total Stockholders' Equity


42,565,984


40,038,052

Total Liabilities and Stockholders' Equity

$

52,877,904

$

47,067,515

















 

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME









For the Year Ended December 31,



2012


2011











Sales

$

26,529,423

$

28,638,431

Cost of goods sold


23,073,991


18,034,434

Gross profit


3,455,432


10,603,997






Operating expenses:





General and administrative expenses


2,239,737


2,450,399

Selling expenses


1,181,441


101,216

Total operating expenses


3,421,178


2,551,615






Income from operations


34,254


8,052,382






Other income (expense):





Interest expense


(461,299)


(181,218)

Subsidy income


218,605


233,928

Other income (expense)


(43,534)


(210,064)

Total other expenses


(286,228)


(157,354)






Income (loss) before income taxes


(251,974)


7,895,028






Income taxes


-


-

Net income (loss) from continuing operations


(251,974)


7,895,028






Discontinued operations:





Gain from operations of discontinued component, net of
    taxes


39,179


201,106






Net income


(212,795)


8,096,134






Other comprehensive income:





Unrealized foreign currency translation adjustment


313,452


1,057,803






Comprehensive income

$

100,657

$

9,153,937






Earnings per share - basic and diluted:





Weighted-average shares outstanding, basic and 
    diluted


10,605,625


10,135,000






Continuing operations - Basic & diluted

$

(0.02)

$

0.78

Discontinued operations - Basic & diluted

$

-

$

0.02







 

TIANLI AGRITECH, INC. AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF CASH FLOWS









For the Year Ended December 31,



2012


2011











 CASH FLOWS FROM OPERATING ACTIVITIES





 Net income (loss) from continuing operations

$

(251,974)

$

7,895,028

 Adjustments to reconcile net income to net cash





   provided by operating activities:





 Depreciation and amortization


2,969,098


2,248,545

 Amortization of prepaid expenses


406,357


188,998

 Bad debt expense


-


54,218

 Stock-based compensation


1,188,373


255,454

 Written of advances to suppliers


-


26,584

 Loss on disposal of construction in progress


49,338


-

 Changes in operating assets and liabilities:





 Accounts receivable


(30,095)


(124,883)

 Inventories


(573,473)


(4,507,283)

 Advances to suppliers


(189,025)


1,009,718

 Prepaid expenses


(366,450)


(229,070)

 Other receivables


(52,219)


131,164

 Accounts payable and accrued payables


16,802


30,871

 Other payables


2,287,254


590,777

 Total adjustments


5,705,960


(324,907)

 Net cash provided by operating activities from
                 continuing operations


5,453,986


7,570,121

 Net cash provided by operating activities from 
                 discontinued operations


154,135


10,791

 Net cash provided by operating activities    


5,608,121


7,580,912






 CASH FLOWS FROM INVESTING ACTIVITIES





 Cash collected from loan to An Puluo


1,110,512


-

 Acquisition payables


-


(940,994)

 Advance to An Puluo


-


(1,084,363)

 Payment for long-term prepaid expenses


-


(1,831,987)

 Purchase of intangible assets


-


(785,223)

 Investment in construction in progress


(6,977,751)


(3,077,452)

 Proceeds from disposal of construction in progress


509,842


-

 Proceeds from disposal of biological assets


-


-

 Deposits for purchase of equipment


-


-

 Purchase of biological assets


(1,760,034)


(1,923,470)

 Purchase of plant and equipment


(213,872)


(4,605,866)

 Net cash used in investing activities


(7,331,303)


(14,249,355)






 CASH FLOWS FROM FINANCING ACTIVITIES





 Increase in restricted cash


(793,223)


-

 Due to An Puluo


-


35,389

 Due to related party


-


161,793

 Proceeds from the noncontrolling shareholder's capital 
    investment


1,057,636


-

 Repayment of short-term loans


(4,759,336)


(743,564)

 Proceeds from short-term loans


7,099,343


4,647,272

 Net cash provided by financing activities      


2,604,420


4,100,890






 EFFECT OF EXCHANGE RATE CHANGES ON CASH


88,225


1,091,502






 NET INCREASE IN CASH


969,463


(1,476,051)






 CASH, BEGINNING OF YEAR


6,507,742


7,983,793






 CASH, END OF YEAR

$

7,477,205

$

6,507,742






 SUPPLEMENTAL DISCLOSURES:





 Cash paid during the period for:





 Interest paid

$

484,260

$

201,589

 Income tax paid

$

-

$

-












 

SOURCE Tianli Agritech, Inc.



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