ZPP Reports First Quarter 2012 Financial Results
VANCOUVER, BRITISH COLUMBIA, May 14, 2012 (Menafn - MARKETWIRE via COMTEX) --Zongshen PEM Power Systems Inc. ("ZPP" or the "Company")today announced its financial results for the three-month periodended March 31, 2012. All currency amounts referred to in this newsrelease are in Canadian dollars unless stated otherwise.
The Company generated 55.4 million in revenues, shipped 104,100motorcycles and electric motorcycles, lost 2.1 million in the firstquarter 2012. This represent revenue and volume decreases of 20.0%and 20.8% from comparable period prior year as well as a reversalfrom profit to loss. The loss is due to lower revenue and grossmargins.
First Quarter, 2012
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Q1 2012Q1 2011
Revenue55,40669,284
Cost of goods sold(52,038)(60,522)
Gross margin3,3688,762
Net income (loss)(2,141)1,601
EPS(0.02)0.02
EBITDA(1)(234)5,618
Adjusted Net Income(1)(1,588)2,797
Units shipped104,100131,400
Large motorcycles
First quarter 2012 large motorcycle sales totaled 48.0 million onshipments of 97,700 units with domestic sales representing 70.3% oftotal sales compared with first quarter 2011 where the largemotorcycle revenue was 60.2 million and shipments was 125,600 unitsof which domestic sales represented 57.5% of total sales.
Domestic market
The Company generated 33.8 million in domestic sales and shipped66,500 units in the first quarter 2012 which represented revenue andvolume decreases of 5.4% and 7.8% compared with same period prioryear. Sales slowed in the first quarter 2012 as the domestic marketcontinued to be challenging for large motorcycle manufacturers sincethe introduction of the motorcycle emissions standard set out inCountry Standard No. 3 ("G3"). As the G3 emission standard hasto-date not been effectively enforced by the Chinese regulatoryauthorities, some of the Company's competitors have continued toproduce non-compliant motorcycles which continue to take sales fromthe Company and other large manufacturers because most non-G3motorcycles are lower priced. The motorcycle industry sales declinedby 9.7% in first three months of 2012 to 5 million units and seven ofthe ten largest Chinese motorcycle manufacturers recorded volumedecreases(2) in this period. First quarter 2012 sales were alsoslower than same period prior year because in 2011 dealers werestocking G3 compliant motorcycles in to build inventory for salesafter February, 28, 2011 which was the sales deadline for motorcyclesbuilt under the previous emissions standard.
During the first quarter 2012 the Company introduced Z-one, a newline of motorcycles targeted at younger riders the Chinese semi-ruraland rural markets. Z-one is a suite of motorcycles that range from125 cc to 250 cc and these motorcycles are styled more aggressivelyand feature better material and riding technology. These motorcyclesare priced at twice the price of comparable-sized regular Zongshenbranded motorcycles and are expected to generate better grossmargins. Z-one is the Company's first major product introduction inthree years and the Company is working closely with its dealers toincrease the marketing and promotion for this new line.
The Company has also made significant strides in rationalizing itsproduct lines to reduce product costs. The Company will continue toadd new products to its product offerings, but will reduce theoverall style count from 70 styles to 45 styles by the end of 2012.
Export markets
The Company generated 14.2 million in revenue and shipped 31,200units of motorcycles in the first quarter 2012 which representedrevenue and volume decreases of 42.0% and 41.6% compared to sameperiod prior year. The decline in export sales is primarily due toslowing demand in ZPP's key markets such as Brazil and othercountries in Latin American as these countries have experiencedslower economies and have been sensitive to the appreciation of theReminbi which made ZPP motorcycles more expensive. The sales decreaseon a comparative basis is also due to resurgent export sales thatoccurred in the first half of 2011 as export markets were recoveringfrom the 2010 recessionary slowdown.
During the first quarter 2012, the Company also signed a cooperationagreement with S&T Motors Co, Ltd. ("S&T"), a Korean motorcyclemanufacturer, to expand the Company's export product suite to includemotorcycles that range up to 650 cc. S&T Motors and the Company willalso share export distribution channels and these jointly developedmotorcycles are expected to be marketed in the Company's more matureexport markets such as South Africa in the third quarter 2012.
Electric Motorcycles and Small Gas Bikes
The Company generated 3.3 million in revenue on shipments of 6,400units of electric and small gas bikes in the first quarter 2012. Thequarterly revenue for the electric division more than doubled to841,000 for the Company's electric motorcycle division as there wasan increased level of export sales. Improved reliability of theelectric motorcycle supply chain also helped the Company increase thedeliveries of electric motorcycles.
The Company plans to add an additional electric motorcycle model tothe product offering in the second half of 2012.
Gross Margins & Cost Savings
The gross margin for the first quarter 2012 was 6.1% compared to12.6% in the same period prior year. The lower gross margins in thecurrent quarter were due to product rebates, more export shipments tolower margin countries as well as higher labor and raw materialsinput costs. The Company also reduced corporate headcount by 10% or200 employees from the Company's sales and general administrativedepartment as part of the Company's overall cost savings program.
"We are navigating through a changing motorcycle industry which webelieve, despite short term challenges, will ultimately favor thelarge motorcycle manufacturers like ZPP in the longer term. In thisenvironment, we have enhanced our competitiveness in streamlining ourworkforce and products and continued our commitment to productinnovation to introduce new motorcycles like Z-one. We believe thatthese measures combined with our investment in branding and productquality will prepare us for opportunities ahead." said Mr. ZongshenZuo, CEO and Chairman of ZPP.
Non-IFRS Performance Measure
The Company discloses that EBITDA and Adjusted Net Income are notrecognized measures under the International Financial ReportingStandards ("IFRS") and should not be considered more meaningful thanmeasures determined under IFRS. Readers should be cautioned thatthese non-IFRS measures should not be construed as an alternative toother measures of financial performance as determined in accordancewith IFRS and may not be directly comparative to measures for othercompanies where similar terminology is used. The methods ofcomputation of these non-IFRS measures can be found in the Company'sinterim Management's Discussion and Analysis for the three monthsended March 31, 2012 filed on SEDAR.
EBITDA is defined as Net Income adjusted for interestincome/expenses, tax expenses/recovery, impairment charges,amortization & depreciation expenses and foreign exchange gain/loss.
Adjusted Net Income is defined as Net Income adjusted foramortization of fair value increments, impairment charges, foreignexchange gains/loss.
Forward-looking Information
This Press Release contains "forward-looking information" that isbased on ZPP's expectations, estimates and projections as of thedates which those statements were made. This forward-lookinginformation includes, among other things, statements with respect tothe Company's expectation of the Chinese government policies, futuresales volume, margins and performance of the Company's gas motorcyclebusiness and future prices and margins of the Company's electricmotorcycles in China. There can be no assurance that such statementswill prove accurate. Such statements are necessarily based on anumber of estimates and assumptions that are subject to numerousrisks and uncertainties that could cause actual results and futureevents to differ materially from those anticipated or projected. ZPPdisclaims any intention or obligation to revise or update suchstatements. The following factors, among others, could cause actualresults or developments to differ materially from the results ordevelopments 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 Chinesegovernment to ban G2 production by manufacturers and ban sales of G2motorcycles by dealers and distributors; uncertainties associatedwith the sales volume and margins for the Company's gas motorcycles;uncertainties related to the market supply and demand of electricmotorcycles; risks associated with the fluctuations in cost ofoperating the Company's gas and electric motorcycle businesses;uncertainties associated with the current and future operatingparameters of the Company's gas and electric motorcycle businesses;and risks associated with the Company's development and maintenanceof its proprietary technologies. All forward-looking statements inthis Press Release are based on management's reasonable beliefs,intentions, and expectations with respect to future events and aresubject to certain risks, uncertainties, and assumptions as of thedate of this release. Some of these risks, uncertainties and factorsinclude those disclosed herein under "Risks Factors", those disclosedunder the heading "Risks Associated with the Company following theCompletion of the Proposed Transaction" in the Company's InformationCircular dated May 26, 2011 and filed on SEDAR at www.sedar.com,those disclosed under the heading "Risk Factors" in the Company'sAnnual Information Form dated March 30, 2012 and filed on SEDAR atwww.sedar.com, and those disclosed under the heading "Risk Factors"in the Company's Management's Discussion and Analysis Year endedDecember 31, 2011 and Quarter ended March 31, 2012" dated March 30,2012 and May 14, 2012 and filed SEDAR at www.sedar.com.
Earnings Call Details
ZPP will host a conference call to discuss the third quarter, 2011results and answer questions. Please see details below:
Date: Tuesday, May 15, 2012 at 11 a.m. Eastern Time
Dial in number: 1-888-219-1458 (North America) or 1-719-312-0966(International)
Live Webcast Link: http://viavid.net/dce.aspx?sid=0000976E
About Zongshen PEM Power Systems Inc.
Zongshen PEM Power Systems Inc. is a public company trading under thesymbol ZPP on the Toronto Stock Exchange. The Company manufactureslow-cost, high quality, environmentally friendly gas motorbikes,electric motorcycles, electric bicycles and other e-vehicles in Chinafor the Chinese domestic and international markets. Zongshen PEMPower System's largest shareholder is Zongshen Industrial Group, oneof China's largest manufacturers and distributors of engines andpower equipment.
(1) The methods of computation of these non-IFRS measures can befound in the Company's interim Management's Discussion and Analysisfor the three months ended March 31, 2012 filed on SEDAR.
(2) Chinese motorcycle industry volume obtained from ChinaAssociation of Automobile Manufacturers.
The Toronto Stock Exchange has not reviewed and does not acceptresponsibility for the adequacy or accuracy of the release.
Contacts:
Zongshen PEM Power Systems Inc.
Michael Cheung
Chief Financial Officer
1.604.687.7908
1.604.677.7008 (FAX)
mcheung@zongshenpem.com
www.zongshenpem.com
SOURCE: Zongshen PEM Power Systems Inc.
mailto:mcheung@zongshenpem.com
http://www.zongshenpem.com
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