Yuhe International today announced that one of the Big Four accounting firms was engaged as the forensic accounting firm to assist in the conduct the independent investigation with respect to issues relating to the Company and the status of previously reported acquisition transactions. The Company further announced that it has engaged Marcum Bernstein & Pinchuk LLP as its new auditor.
The Audit Committee of the Board of Directors of Yuhe International today confirmed that it has engaged Loeb & Loeb LLP as counsel in connection with an independent investigation it is conducting with respect to issues relating to the Company and the status of previously reported acquisition transactions. Although the Company's press release dated July 21 in this regard originally suggested that the Audit Committee and its advisors would be publicly reporting the results of the independent investigation to investors, the Audit Committee today confirmed that the independent investigation would proceed as is customary in such corporate investigations, with the Audit Committee reporting such results to the full Board of Directors of the Company, who will then determine the appropriate remedial steps to be taken in light of the final report. The Audit Committee will rely on the advice of its own legal counsel in this regard and act in cooperation with the Company with a view to full transparency regarding the independent investigation process. As previously reported, Loeb & Loeb LLP, is in the process of engaging a forensic accounting firm in connection with launching the independent investigation, and the Audit Committee expects to be in a position to announce this engagement shortly.
Given the expected strong day-old broiler market in 2011 and the fact that the capacity ramp-up from the previous acquisitions will continue to contribute to the Company's sales volume of day-old broilers throughout 2011, the management of Yuhe International remains confident in the Company's capability to generate strong operational and financial results in 2011. The management reiterates its previously issued guidance for 2011 of production volume totaling 250 million day-old broilers and net income of between $33 million and $36 million.
Given the expected strong day-old broiler market in 2011 and the increased volume contribution from the Company's previous acquisitions made in December 2009 and July 2010, the management at Yuhe International forecasts its fiscal year 2011 net income to be in the range between $33 million and $36 million. "Currently, China's day-old broiler market continues to experience higher average unit selling prices as compared with the same period of 2010. In addition, the capacity increase from our previous acquisitions made in December 2009 and July 2010 is expected to be reflected in our increased day-old broiler output throughout 2011. We have commenced construction of the fourth hatchery facility designed to have 100 sets of hatchers, which is expected to commence operation in 2011. Given the strong capacity pipeline and the prevailing higher average selling prices in the market, we are confident that the Company will continue to leverage its operational expertise in the day-old broiler industry to continue delivering superb results and to achieve our projected 2011 guidance."
The Company raised its net income guidance for fiscal year 2010 to $18.5 million, up from previously announced $17 million. The raised guidance represents growth in net income of 44.5% as compared with fiscal year 2009. The Company expects the production volume of day-old broilers to be 145 million heads for fiscal year 2010, slightly down for 0.5% from previously expected 150 million day-old broilers. The updated guidance does not take into account of the impact of any potential acquisitions. "The upward adjustment to our net income guidance was mainly due to an increase in average selling prices of the day-old broilers, which have exceeded our initial expectations. The day-old broiler prices have stayed in high range from the third quarter of this year, and is still gaining upward momentum going into December. As one of the largest suppliers of day-old broilers in China, we are highly confident that the favorable supply and demand dynamic in the day-old broiler market will continue to support high unit selling prices throughout and beyond 2010, allowing us to reach our updated financial guidance for the fiscal year 2010."
The Company’s management expects sales volume and net income to rise in the second half of the year, given the seasonality of the business and the fact that the new parent breeders that were purchased in 2009 and 2010 will begin to generate revenue in the fourth quarter of 2010. Therefore, management re-affirms its previously issued guidance for 2010 with production of 150 million broilers in total and net income of approximately $17 million.
Considering the contribution of the five newly acquired breeder farms, management expects the output of broilers in 2011 to reach 250 million. Management also believes their existing sales network is capable enough to absorb the increased output in the short run. The Company plans to build sales networks gradually around those production facilities outside Shandong province 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: Day-old broiler output of 150 million in 2010 and 250 million in 2011. 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. "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."
The Company's management expects sales volume and net income to rise throughout the remainder of 2010. Yuhe's strongest results will occur in the second half of the year, given the seasonality of the business and the fact that the new parent breeders that were purchased in early 2010 will begin to generate revenue in the fourth quarter of 2010. Therefore, management re-affirms its previously issued guidance for 2010 of production totaling 150 million day-old broilers and net income of approximately $17 million.
In March 2010, the Company completed construction of a new breeder farm, bringing its total number of breeder farms to 28, with 15 in operation today. The new breeder farm, along with the 13 additional ones expected to come on-line in the second half of 2010, should increase the Company's ability to meet its 2010 production goal of 150 million day-old broilers. For the fiscal year 2010, Yuhe International is forecasting net income of approximately $17 million.