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Unstable Market Conditions Make 2012 Challenging Year for Tianli

15 March 2013

CHINA - The last year has been a challenging one for Tianli Agritech, Inc becasue of unstable market conditions.

The producer of breeder hogs, market hogs and black hogs headquartered in Wuhan City, China, saw revenue for the fourth quarter of 2012 fall by two per cent to $6.9 million primarily due to decline in market hog prices.

Tianli sold a total of 30,865 breeder and market hogs in the fourth quarter of 2012 compared to 25,472 hogs in the fourth quarter of the previous year.

Revenue from breeder hog sales increased 13 per cent to $1.8 million with number of breeder hogs sold increasing 19 per cent to 6,636 hogs and average selling price of breeder hogs decreasing 5 per cent to $278 per hog.

Revenue from market hog sales decreased 6 per cent from $5.3 million in the fourth quarter of 2011 to $5.0 million in 2012 as the number of market hogs sold grew 22 per cent to 24,229 hogs and average selling price of market hogs declined 23 per cent 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.

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

Tianli's Chairwoman and CEO, Mrs Hanying Li said: "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.

"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."

Recent Developments

On 28 January 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 10 December 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 the second quarter of 2013.

On 5 November 2012, XMRJ agreed to invest RMB10 million or approximately US$1.6 million in exchange for 40 per cent 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 31 December 2012, Tianzhili received $1.1 million cash proceeds from XMRJ with the remaining $0.5 million due in the first half of 2013.

On 19 October 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 the company's independent registered public accountant for the fiscal year ended 31 December 2012.

Black Hog Program Update

In May 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 six 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.

ThePigSite News Desk



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