VANCOUVER, BRITISH COLUMBIA — (Marketwire) — 05/14/12 — Zongshen PEM Power Systems Inc. (TSX: ZPP) (“ZPP” or the “Company”) today announced its financial results for the three-month period ended March 31, 2012. All currency amounts referred to in this news release are in Canadian dollars unless stated otherwise.
The Company generated $55.4 million in revenues, shipped 104,100 motorcycles and electric motorcycles, lost $2.1 million in the first quarter 2012. This represent revenue and volume decreases of 20.0% and 20.8% from comparable period prior year as well as a reversal from profit to loss. The loss is due to lower revenue and gross margins.
Large motorcycles
First quarter 2012 large motorcycle sales totaled $48.0 million on shipments of 97,700 units with domestic sales representing 70.3% of total sales compared with first quarter 2011 where the large motorcycle revenue was $60.2 million and shipments was 125,600 units of which domestic sales represented 57.5% of total sales.
Domestic market
The Company generated $33.8 million in domestic sales and shipped 66,500 units in the first quarter 2012 which represented revenue and volume decreases of 5.4% and 7.8% compared with same period prior year. Sales slowed in the first quarter 2012 as the domestic market continued to be challenging for large motorcycle manufacturers since the introduction of the motorcycle emissions standard set out in Country Standard No. 3 (“G3”). As the G3 emission standard has to-date not been effectively enforced by the Chinese regulatory authorities, some of the Company–s competitors have continued to produce non-compliant motorcycles which continue to take sales from the Company and other large manufacturers because most non-G3 motorcycles are lower priced. The motorcycle industry sales declined by 9.7% in first three months of 2012 to 5 million units and seven of the ten largest Chinese motorcycle manufacturers recorded volume decreases(2) in this period. First quarter 2012 sales were also slower than same period prior year because in 2011 dealers were stocking G3 compliant motorcycles in to build inventory for sales after February, 28, 2011 which was the sales deadline for motorcycles built under the previous emissions standard.
During the first quarter 2012 the Company introduced Z-one, a new line of motorcycles targeted at younger riders the Chinese semi-rural and rural markets. Z-one is a suite of motorcycles that range from 125 cc to 250 cc and these motorcycles are styled more aggressively and feature better material and riding technology. These motorcycles are priced at twice the price of comparable-sized regular Zongshen branded motorcycles and are expected to generate better gross margins. Z-one is the Company–s first major product introduction in three years and the Company is working closely with its dealers to increase the marketing and promotion for this new line.
The Company has also made significant strides in rationalizing its product lines to reduce product costs. The Company will continue to add new products to its product offerings, but will reduce the overall 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 31,200 units of motorcycles in the first quarter 2012 which represented revenue and volume decreases of 42.0% and 41.6% compared to same period prior year. The decline in export sales is primarily due to slowing demand in ZPP–s key markets such as Brazil and other countries in Latin American as these countries have experienced slower economies and have been sensitive to the appreciation of the Reminbi which made ZPP motorcycles more expensive. The sales decrease on a comparative basis is also due to resurgent export sales that occurred in the first half of 2011 as export markets were recovering from the 2010 recessionary slowdown.
During the first quarter 2012, the Company also signed a cooperation agreement with S&T Motors Co, Ltd. (“S&T”), a Korean motorcycle manufacturer, to expand the Company–s export product suite to include motorcycles that range up to 650 cc. S&T Motors and the Company will also share export distribution channels and these jointly developed motorcycles are expected to be marketed in the Company–s more mature export 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 6,400 units of electric and small gas bikes in the first quarter 2012. The quarterly revenue for the electric division more than doubled to $841,000 for the Company–s electric motorcycle division as there was an increased level of export sales. Improved reliability of the electric motorcycle supply chain also helped the Company increase the deliveries of electric motorcycles.
The Company plans to add an additional electric motorcycle model to the product offering in the second half of 2012.
Gross Margins & Cost Savings
The gross margin for the first quarter 2012 was 6.1% compared to 12.6% in the same period prior year. The lower gross margins in the current quarter were due to product rebates, more export shipments to lower margin countries as well as higher labor and raw materials input costs. The Company also reduced corporate headcount by 10% or 200 employees from the Company–s sales and general administrative department as part of the Company–s overall cost savings program.
“We are navigating through a changing motorcycle industry which we believe, despite short term challenges, will ultimately favor the large motorcycle manufacturers like ZPP in the longer term. In this environment, we have enhanced our competitiveness in streamlining our workforce and products and continued our commitment to product innovation to introduce new motorcycles like Z-one. We believe that these measures combined with our investment in branding and product quality will prepare us for opportunities ahead.” said Mr. Zongshen Zuo, CEO and Chairman of ZPP.
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 months ended March 31, 2012 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 , those disclosed under the heading “Risk Factors” in the Company–s Annual Information Form dated March 30, 2012 and filed on SEDAR at , and those disclosed under the heading “Risk Factors” in the Company–s Management–s Discussion and Analysis Year ended December 31, 2011 and Quarter ended March 31, 2012″ dated March 30, 2012 and May 14, 2012 and filed SEDAR at .
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, 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:
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 low-cost, high quality, environmentally friendly gas motorbikes, 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.
(1) 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 months ended March 31, 2012 filed on SEDAR.
(2) Chinese motorcycle industry volume obtained from China Association of Automobile Manufacturers.
The Toronto Stock Exchange has not reviewed and does not accept responsibility 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)