Attached files
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| 8-K - YUHE INTERNATIONAL, INC. | v190862_8k.htm |
Exhibit 99.1
Contact:
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Yuhe International,
Inc.
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CCG Investor
Relations
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Mr. Vincent Hu,
CFO
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Mr. Athan Dounis, Account
Manager
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Phone:
+86-536-7300-667
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Phone: +1 (646)
213-1916
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Email:
vincent.hu@yuhepoultry.com
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Email:
athan.dounis@ccgir.com
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Mr. Jason Wang, Director of
IR
Phone:
+1-765-409-1844
Email:
jason.wang@yuhepoultry.com
www.yuhepoultry.com
Yuhe
Acquires Five Breeder Farms in Liaoning Province
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Acquisition
to make Yuhe the largest supplier of day-old broilers in terms of
production capacity in China
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Updates
expectation for day-old broiler output to 250 million for 2011, a 67%
increase over expected 2010 output of 150
million
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Company
schedules special conference call to discuss
acquisition
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Weifang, Shandong Province, P.R.C.
July 19, 2010 –Yuhe International, Inc. (NASDAQ: YUII) (“Yuhe” or the
“Company”), a
leading supplier of day-old chickens raised for meat production,
or broilers, in the People’s Republic of China (“PRC”), today announced that the
Company’s wholly owned subsidiary, Weifang Yuhe
Poultry Co., Ltd.
(“Weifang Yuhe”), entered into an asset purchase agreement with Liaoning Haicheng Songsen
Stock Farming and Feed
Company Limited (“Haicheng
Songsen”) to purchase five breeder farms in
Haicheng City, Liaoning Province for RMB 21.3 million (approximately $3.1
million).
Concurrently,
Weifang Yuhe entered into a service agreement with Mr. Zhaolin Jiang, the
controlling shareholder of Haicheng Songsen, who provides Weifang Yuhe with
certain services related to completing the asset purchase transaction in
exchange for 300,000 restricted shares of Yuhe common stock calculated at a
price of $10 per share with total consideration equal to approximately RMB 20
million. The restricted shares are subject to a six-month lock-up
period.
“Upon
completion of this deal, Yuhe will
be the largest farmer of parent breeders and the largest producer of day-old
broilers in terms of production
capacity in
China,” said Mr. Zhentao Gao,
Chairman and Chief Executive Officer. “For the first time, we will also
have a production base outside of Shandong
Province, an important milestone in our path toward becoming the leading company in the national broiler market
in China.”
The five breeder farms have a
total production capacity
of 430,000 sets of parent breeders, covering an
area of approximately 52 acres with building coverage of approximately 680,000 square feet. The assets to be purchase d include the buildings and equipment for the
acquired breeder farms, and the land leasing rights, which range from 14 years to 24 years. Upon the closing of the transaction, Yuhe will have a production capacity of 2.23 million sets of parent breeders.
The Company plans to spend RMB 1.6 million (approximately $0.2 million) to upgrade the facilities and RMB 200,000 (approximately $29,400) for employee training. The average cost for the Company to acquire these breeder farms (including the expenses for facility upgrades and employee training but excluding land rent and new-issued-share price premium) is approximately 20% to 25% lower than the cost of building such farms from scratch. The unit cost of day-old broilers in those farms is expected to decrease by 2% to 3% compared to the Company’s current cost structure due to lower depreciation and operating expenses. The Company expects to have sufficient cash after the payment for this acquisition to fund the renovations and daily operations of the acquired facilities.
In order
to ensure the superior quality of Yuhe’s products, the Company will not take
ownership of the parent breeders at the acquired breeder farms. Yuhe
plans to take ownership of four vacant farms (with total capacity of 230,000
sets of parent breeders) within seven working days following the completion of
the deal and commence renovations immediately thereafter. The takeover of the
fifth farm, which has a capacity of 200,000 sets of parent breeders, will be
completed by the end of 2010. The Company plans to put the first four farms into
production in September of 2010 and the fifth farm into production in March of
2011. This acquisition is expected to contribute an output of 30
million day-old broilers in 2011 and 43 million day-old broilers in
2012.
The
Company’s hatchery center will remain in Weifang, Shandong
Province. Yuhe plans to engage a third party to ship eggs from
Liaoning Province to Shandong Province. The increase in
transportation costs will be offset by savings from lower feed costs as Liaoning
Province is an important grain planting base with lower grain prices and lower
labor costs than Shandong Province. Although the Company’s existing
sales network has the capacity to absorb the increased output, Yuhe will
gradually build local sales networks to provide pre-sales services, marketing,
and after-sales support.
Considering
the impact of the five breeder farms the Company plans to acquire and assuming
the deal closes, the Company expects the following results:
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Day-old
broiler output of 150 million in 2010 and 250 million in
2011.
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Based
on the anticipated production increase and assuming the average selling
price for 2009 of RMB 2.74 and a net income margin of 26%, the newly
acquired breeding farms are expected to contribute an incremental $3.1
million in net income in 2011 and $4.5 million in
2012.
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Mr. Gao
added, “We believe the terms of this transaction are very beneficial for Yuhe
and its shareholders. We are acquiring breeder farms with a skilled
management team and staff for significantly less than it would cost us to build
such farms from scratch. This deal also represents the first time we
are using our stock as a currency for making acquisitions. Mr.
Zhaolin Jiang’s acceptance of restricted shares of Yuhe for the services he
provides as part of the deal is a vote of confidence in our business and its
future prospects. Where appropriate, we plan to use our stock as an
acquisition currency, but only if we have a high level of confidence that any
future acquisitions match the return profile of this deal, which we expect to be
highly accretive and have a positive impact on our revenues, net income and
diluted per share earnings. Our ultimate objective, above and beyond achieving
revenue and net income growth, is to grow our earnings per share.”
Yuhe also
announced it is accelerating the openings of the breeder farms it acquired in
early 2010 and the construction of its new hatchery. Five of the Company’s 13
newly purchased breeder farms have begun operations and additional two breeder
farms are expected to commence operations by the end of July 2010. The other six
farms are expected to commence operations in the second half of
2010. After construction delays due to cold weather conditions,
Yuhe’s new hatchery is now expected to commence operations by the end of this
month. The Company expects to have 160 sets of hatchers upon full operation and
the hatching capacity is expected to reach 208 million day-old broilers per
year.
Mr. Gao
concluded, “We view this as a very attractive time to capitalize on potential
acquisition opportunities within our industry. Acquiring existing
breeder farms has become a more attractive way for us to expand relative to
constructing new facilities from scratch due to the increased prices of raw
materials and labor. After this deal closes, we will be the largest
producer of day-old broilers in China in terms of production capacity at a time
that our industry is undergoing a period of consolidation. The recent
historical dynamic in our industry has been one of an oversupply of day-old
broilers leading to increased competition and falling profit
margins. As a result, many of our smaller and weaker competitors have
now left or are looking to leave our market because they continued to run their
operations at very low levels of efficiency, were not able to upgrade their
technical and management systems in the way that Yuhe did, or they are
approaching their retirement ages and are looking to sell their farms. Despite
the challenges during this period, we have maintained our profitability and been
able to significantly grow our business.
“We have
emerged from this period as a stronger company and are well positioned to
acquire and integrate farms from our smaller and weaker competitors, many of
whom are now looking to leave the market. With the exit of these
competitors, we foresee what may be an upcoming period of supply shortage in our
industry. We expect to benefit from this trend as we are the
leading brand in our market. Our reputation for quality is
underscored by the fact that our product carries a premium price and, despite
the higher prices our products sell for, we achieved significant volume growth
in our business during a period of industry oversupply. We are also
confident in our ability to acquire and integrate breeder farms as evidenced by
the smooth integration and operation of the breeder farms we acquired in
2009. We have the management talent and human resources to
successfully execute on our strategy. We have built a strong team at
Yuhe through internal development and training of new university graduates as
well as from our success in attracting highly qualified external
professionals. Furthermore, we have a strong financial position
to help fund our growth and, as a U.S.-listed public company, this is
complemented, where appropriate, by our ability to access the capital markets
and/or use our stock as an acquisition currency.
“We are
currently evaluating additional targets in Liaoning, Heilongjiang, Jinlin and
Henan provinces that represent a total capacity of between 1.0 million and 1.2
million sets of parent breeders. We are committed to delivering
sustainable growth in shareholder value and keep this principle foremost in our
mind when evaluating any potential future acquisitions.”
Conference
Call
The
Company will host a conference call at 9:00 a.m. Eastern Time on Tuesday, July
20, 2010, to discuss the acquisition in more detail. To participate in the live
conference call, please dial the following number five to ten minutes prior to
the scheduled conference call time: (877) 509-7549. International callers should
dial +1 (706) 902-4287. When promoted, enter the conference passcode:
89081689.
A replay
will be available for two weeks beginning on Tuesday, July 20, 2010 at 10:00
a.m. ET. To access the replay, dial (800) 642-1687. International
callers should dial +1 (706) 645-9291. When prompted, enter the
conference passcode: 89081689.
About Yuhe International,
Inc.
Founded
in 1996, Yuhe is one of the largest day-old broiler breeders in China. The
Company’s main operations involve breeding, as all broilers are sold within a
day of hatching. With headquarters in Weifang, Shandong province, the Company
has modern facilities and is led by an experienced team which includes experts
in chicken breeding, disease prevention and animal husbandry science. Yuhe has
two operational subsidiaries, Weifang Yuhe Poultry Co. Ltd. and Weifang Taihong
Feed Co. Ltd. which largely supplies the Company’s internal demand for chicken
feed. Currently, 90% of the Company's sales of day-old broilers are in Shandong
province through 28 local agents. There are 10 other sales agents in adjacent
provinces. The Company has
imported state-of-the-art equipment from the United States, Germany and Japan and has
passed ISO9001 certification, allowing it to adhere to international standards of operation. For more information on the Company and
its products, please visit http://www.yuhepoultry.com.
Cautionary
Statement
This
press release contains forward-looking statements concerning the Company’s
business, products and financial results. The Company’s actual results may
differ materially from those anticipated in the forward-looking statements
depending on a number of risk factors including, but not limited to, the
following: general economic and business conditions, development, shipment,
market acceptance, additional competition from existing and new competitors,
changes in technology, and various other factors beyond the Company’s control.
All forward-looking statements are expressly qualified in their entirety by this
Cautionary Statement and the risk factors detailed in the Company's reports
filed with the Securities and Exchange Commission. The Company undertakes no
duty to revise or update any forward-looking statements to reflect events or
circumstances after the date of this release.
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