Zongshen PEM Power Systems Inc. ("ZPP" or the "Company") (TSX:ZPP) today
announced its financial results for the three-month and nine-month periods ended
September 30, 2011. All currency amounts referred to in this news release are in
Canadian dollars unless stated otherwise.
Third Quarter, 2011(1)
Third quarter, year to date financial results
------------------------------------------------------------------
YTD 2011 YTD 2010
------------------------------------------------------------------
Revenue $ 211,885 $63,816
Cost of goods sold (191,402) (56,918)
Gross margin 20,483 6,898
Operating expenses (20,627) (8,611)
Impairment of goodwill and intangibles (63,318) -
Other income (expense) (5,721) 124
Tax recovery (expense) 4,872 (48)
Loss (64,311) (1,637)
Loss per share (0.65) (0.02)
------------------------------------------------------------------
Adjusted net income (loss)(2) 2,414 (1,120)
Adjusted EPS 0.02 (0.01)
EBITDA(2) 9,692 1,141
Units shipped 413,000 136,000
(numbers in 000's, except for earnings per share (EPS) and shipment number)
Quarterly financial results
--------------------------------------------------------------------------
Q3 2011 Q3 2010 Q2 2011
--------------------------------------------------------------------------
Revenue $ 79,862 $56,267 $62,740
Cost of goods sold (72,979) (50,142) (57,903)
Gross margin 6,883 6,125 4,837
Operating expenses (7,181) (5,917) (6,506)
Impairment of goodwill and intangibles (63,318) - -
Other income (expense) (5,184) 103 (886)
Tax recovery (expense) 5,197 (48) 247
Net (loss) income (63,603) 263 (2,308)
EPS (0.64) 0.00 (0.02)
--------------------------------------------------------------------------
Adjusted net income (loss)(2) 1,428 780 (830)
Adjusted EPS 0.01 0.01 (0.01)
EBITDA(2) 3,888 2,866 1,166
Units shipped 156,000 112,000 126,000
(numbers in 000's, except for earnings per share (EPS) and shipment number)
For the third quarter 2011, the Company generated revenues of $79.9 million and
shipped 156,000 units of motorcycles and electrical two-wheelers which is an
increase of 41.9% in revenue and 39.3% increase in shipments compared with third
quarter, 2010. The loss for the third quarter 2011 loss was $63.6 million and
the adjusted net income was $1.4 million and EBITDA ("earnings before interest,
tax depreciation and amortization") was $3.9 million. The third quarter loss is
primarily due to non-cash impairment charges of $63.3 million to goodwill and
intangible assets recognized in the quarter. The net income in the third
quarter, 2010 was $263,000 and EBITDA was $2.9 million.
For the nine months ended September 30, 2011, the Company generated $211.9
million in revenues, loss of $64.3 million, EBITDA of $9.7 million and a loss
per share of $0.65. In the same period of 2010, Company's revenues were $63.8
million, loss of $1.6 million, EBITDA of $1.1 million and loss per share of
$0.02. The increase in revenue, EBITDA and motorcycle shipments were due to the
acquisition of the Motorcycle Business that was closed on July 2, 2010. The
larger loss in 2011 is due to impairment charges to goodwill and intangible
assets.
Excluding non-cash charges, such as impairment charges and amortization of
intangible assets, the adjusted net income was $1.4 million and adjusted earning
per shares was $0.01 for the third quarter 2011. In the third quarter, 2010, the
adjusted net income and adjusted earnings per share was $780,000 and $0.01. The
increase adjusted net income and EBITDA is due to higher shipment volumes.
Impairment of intangible assets and goodwill
Due to the challenging market conditions in the Chinese motorcycle industry
brought on by an emission standard change and uneven enforcement of the
standard, the Company revised its financial forecast, which formed the basis of
the intangible assets valuation. As a result the Company performed a full
impairment test on its long-lived assets and goodwill, which resulted in a
non-cash net impairment charge of $15.5 million to intangible assets and $42.6
million to goodwill.
Update of Escrow Share
The total purchase price of the Motorcycle Business was $145.0 million of which
the 34.8 million escrow shares were valued at $37.6 million. Under the HKVAS
Agreement the 2011 net income of the Motorcycle Business must exceed at least
169% of the 2009 normalized income of the Motorcycle Business in order for the
HKVAS to retain any of these escrow shares. The Company does not expect that
this earnings target will be reached and consequently, these 34.8 million escrow
shares will be cancelled on December 31, 2011.
Large Gas Bikes (above 50 cc motorcycles)
ZPP sold 147,700 motorcycles and generated $65.1 million in motorcycle sales for
the third quarter of 2011, which is an increase of 42.7% and 43.0% from the
third quarter, 2010.
Domestic Motorcycles
The total revenue for domestic motorcycle sales was $31.3 million and shipments
were 65,200 in the third quarter 2011 which are respective increases of 13.1%
and 8.7% compared with the third quarter 2010. The average sales price ("ASP")
was $480 per motorcycle, an increase of 3.9% compared to third quarter 2010.
Sales improved over same period prior year because motorcycle sales in the third
quarter, 2010 was particularly affected by the implementation of a new
motorcycle standard, set-out in Country Standard No. 3 ("G3") that became
effective on July 2, 2010 for motorcycle manufacturers.
For the nine month period ended September 30, 2011, sales increased in the third
quarter 2011 improved over second quarter 2011 because of local advertising
initiatives such as the Company's recent Legendary Motorcycle Tour and closer
collaboration with dealers which included increasing the credit limit to support
their sales initiatives. Increased parts delivery in the third quarter 2011 also
allowed the Company to deliver into the order backlog. In the prior quarters
sales were partly disrupted by late parts delivery because of raw material,
labor and electricity shortages that affected our key suppliers.
G3 - Emissions Update
Although domestic sales improved in the third quarter 2011, the Chinese domestic
motorcycle market remains challenging for large manufacturers, including ZPP in
the immediate term because the enforcement of G3 by the Chinese government has
been uneven. Most large manufacturers like ZPP comply with the new emission
standards while the compliance by smaller manufacturers has not been uniform and
as a result have continued to produce lower priced, non-G3 motorcycles. Large
manufacturers have been affected the most by G3 and in the first nine months of
2011, the top Chinese 13 manufacturers have seen domestic volume drop by 35%
compared with the same period in prior year.
Export Sales
The total revenue for export sales was $33.8 million and export shipments
totaled 82,500 units, respective increases of 89.6% and 89.7% over third quarter
2010. The ASP of export motorcycles was $409 in third quarter 2011, consistent
with third quarter 2010. Export sales in 2011 has continued to improve as key
export markets such as Brazil, Thailand and Southeast Asia enjoy strong
economies and because the Company has increased marketing initiatives and
introduced new motorcycle models in those markets.
Brazil continues to be one of ZPP's strongest markets in 2011 where the company
sold a total of 50,000 bikes in the first nine months of 2011, doubling prior
year's full year shipments. Brazil is a developing economy where like rural
China, the motorcycle is a key mode of transportation. In 2010, an estimated 2
million motorcycles were sold in Brazil, primarily for commuting purposes. The
Company's export initiatives in the fourth quarter will be to increase the level
of advertising in Southeast Asia and South America.
Small Gas Bikes (50 cc or below gas motorcycles)
Small gas bikes sales were $2.1 million and shipments totaled 6,300 units for
the third quarter of 2011, which represent revenue and volume increases of 34.4%
and 31.3% from third quarter of 2010.
Electric Bikes
For the third quarter of 2011, the total revenue in the electric bikes were $1.3
million and shipment totaled 1,800 units which is a 17.1% decrease in revenue
and a 43.8% decrease in volume compared with the third quarter of 2010 as the
Company is focused on selling higher average sales price two-wheelers.
Third quarter 2011 marks the one-year anniversary of the launch of the Company's
e-motorcycle, Toronto which was China's first e-motorcycle. Since the
e-motorcycle's introduction, the Company has sold over 2,000 units at an average
price of RMB 4,200 ($650) or 25% more than the average conventional gas bike.
In third quarter 2011, the Company introduced two additional e-motorcycles
ZS-800D-2 and ZS-1000D-3 that can reach maximum speeds of 40km/hr and 60 km/hr
respectively. ZS-800D-2 will sell for $380 excluding battery and $700 with a
battery. The Company is providing the domestic dealers the option to purchase
the electric two-wheelers without batteries to allow more customer flexibility.
The ZS-1000D-3 is destined for export markets, primarily in Southeast Asia and
the estimated price to the dealers is $750 including the battery.
The Company has also delivered a high-powered e-motorcycle that is capable of
reaching 80km/hr to a select group of domestic and export dealers for pre-sale
testing. This e-motorcycle will be sold in early 2012. The price for this
e-motorcycle has not yet been determined.
The Company expects that the electric products to contribute to a larger part of
the ZPP's overall business in the coming years. In the immediate term, the
Company's e-motorcycle deliveries have been affected by unsteady supply of parts
as the electric motorcycle supply network is in the developmental phase.
"Our export business continues to be strong and partially offsets slower the
Chinese market which is going through a structural change. In light of this
changing environment, ZPP will continue to enhance its ability to compete. For
our gas motorcycle business, the focus will be to increase our brand image
through advertising and promotional activities in our domestic and export
markets. We will continue to strengthen our relationships with our dealers by
extending their credit terms to support their sales initiatives. We reduced our
product line from 90 to 70 models this year, which is a key milestone in our
continuous effort to reduce product costs. In the meantime, we are improving the
electric motorcycle technology with the goal of rolling out additional
e-motorcycles because we believe electric transportation will lead the growth of
the motorcycle industry," said Mr. Zuo Zongshen, CEO and Chairman of ZPP.
Earnings Call Details
ZPP will host a conference call to discuss the third quarter, 2011 results and
answer questions. Please see details below:
Date: Tuesday, November 15, 2011 at 11 a.m. Eastern Time
Dial in number: 1-888-466-4587 (North America) or
1-719-325-2234 (International)
Live Webcast Link: http://viavid.net/dce.aspx?sid=00008F9E
About Zongshen PEM Power Systems Inc.
Zongshen PEM Power Systems Inc. is a public company trading under the symbol ZPP
on the Toronto Stock Exchange. The Company manufactures gas motorcycles,
electric motorcycles, electric bicycles and other e-vehicles in China for the
Chinese domestic and international markets. Zongshen PEM Power System's largest
shareholder is Zongshen Industrial Group, one of China's largest manufacturers
and distributors of engines and power equipment.
Non-IFRS Performance Measure
The Company discloses that EBITDA and Adjusted Net Income are not recognized
measures under the International Financial Reporting Standards ("IFRS") and
should not be considered more meaningful than measures determined under IFRS.
Readers should be cautioned that these non-IFRS measures should not be construed
as an alternative to other measures of financial performance as determined in
accordance with IFRS and may not be directly comparative to measures for other
companies where similar terminology is used. The methods of computation of these
non-IFRS measures can be found in the Company's interim Management's Discussion
and Analysis for the three and nine months ended September 30, 2011 filed on
SEDAR.
EBITDA is defined as Net Income adjusted for interest income/expenses, tax
expenses/recovery, impairment charges, amortization & depreciation expenses and
foreign exchange gain/loss.
Adjusted Net Income is defined as Net Income adjusted for amortization of fair
value increments, impairment charges, foreign exchange gains/loss.
Forward-looking Information
This Press Release contains "forward-looking information" that is based on ZPP's
expectations, estimates and projections as of the dates which those statements
were made. This forward-looking information includes, among other things,
statements with respect to the Company's expectation of the Chinese government
policies, future sales volume, margins and performance of the Company's gas
motorcycle business and future prices and margins of the Company's electric
motorcycles in China. There can be no assurance that such statements will prove
accurate. Such statements are necessarily based on a number of estimates and
assumptions that are subject to numerous risks and uncertainties that could
cause actual results and future events to differ materially from those
anticipated or projected. ZPP disclaims any intention or obligation to revise or
update such statements. The following factors, among others, could cause actual
results or developments to differ materially from the results or developments
expressed or implied by forward-looking statements: uncertainties associated
with the policies of the Chinese government, in particular, the enforcement of
the G3 standard by the Chinese government to ban G2 production by manufacturers
and ban sales of G2 motorcycles by dealers and distributors; uncertainties
associated with the sales volume and margins for the Company's gas motorcycles;
uncertainties related to the market supply and demand of electric motorcycles;
risks associated with the fluctuations in cost of operating the Company's gas
and electric motorcycle businesses; uncertainties associated with the current
and future operating parameters of the Company's gas and electric motorcycle
businesses; and risks associated with the Company's development and maintenance
of its proprietary technologies. All forward-looking statements in this Press
Release are based on management's reasonable beliefs, intentions, and
expectations with respect to future events and are subject to certain risks,
uncertainties, and assumptions as of the date of this release. Some of these
risks, uncertainties and factors include those disclosed herein under "Risks
Factors", those disclosed under the heading "Risks Associated with the Company
following the Completion of the Proposed Transaction" in the Company's
Information Circular dated May 26, 2011 and filed on SEDAR at www.sedar.com,
those disclosed under the heading "Risk Factors" in the Company's Annual
Information Form dated March 30, 2011 and filed on SEDAR at www.sedar.com, and
those disclosed under the heading "Risk Factors" in the Company's Management's
Discussion and Analysis - Period Ended September 30, 2011" dated November 15,
2011 and filed SEDAR at www.sedar.com.
(1) Comparative results for 2010 were adjusted based on International Financial
Reporting Standards ("IFRS").
(2) Computation for Adjusted net income (loss) and EBITDA are defined in
Non-IFRS Performance Measures and fully described in the Company's interim
Management's Discussion and Analysis for the three and nine months ended
September 30, 2011 filed on SEDAR.
Transatlantic Mining Corporation (TSXV:ASP)
Historical Stock Chart
From Jun 2024 to Jul 2024
Transatlantic Mining Corporation (TSXV:ASP)
Historical Stock Chart
From Jul 2023 to Jul 2024
