Zhongshen PEM Power Systems
Zhongshen PEM Power manufactures low-cost, high quality, environmentally friendly small gas motorbikes, electric motorcycles, electric bicycles and other e-vehicles in China for the Chinese domestic and international markets.
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Electric and gas powered motorcycle manufacturer Zongshen PEM Power swings to third quarter net loss
Zongshen PEM Power Systems Inc (TSX: ZPP) released its financial results for the third quarter ended September 30.
The Chinese manufacturer of environmentally friendly electric and gas powered motorcycles also updated investors on its proposed bolt-on acquisition from Zongshen Industrial Group.
For the quarter the Company reported lower revenues of $5.8 million, compared to $23.8m last year, sales volumes during the third quarter totalled 16,971 units, which was down from 87,355 in 2008. As a result of lower sales volume, the company swung to a net loss of $445,635 compared to a net profit of $1.3m last year.
Against the whole nine months to date Zongshen reported a similar trend with lower year-on-year sales volumes and revenues. For the nine months the company lost approximately $1.2m against profits of $1.7m last year, representing a decrease in profitability of almost $3m.
According to Zongshen PEM, the decline in unit sales was mostly down to falling global demand and ‘fierce’ competition in domestic Chinese markets. The company said that it would remain focused on the development of premium electric motorcycles.
The company said it has ‘chosen not to compete’ in the China's ‘high volume, low-end market’ for electric motorcycles with as the current market ‘generates extremely low profit margins for electric motorcycle manufacturers’.
It is ZPP's belief that the China market for premium electric motorcycles will be driven by consumer demand for better electric products and stricter government regulations for safety and performance.
ZPP has identified target markets in China where consumers are less price sensitive and demand better performance and has been assessing technologies to develop premium products with a price point that can generate volume sales in the target markets.
Today’s statement also referred to the company’s previous announcement in October, to update investors on the proposed acquisition of Zongshen Industrial Group’s (ZIG) two-wheeled gas motorcycle business.
According to ZPP, a purchase price based on the ZIG subsidiary’s results for 2009, would total up to 800 million RMB ($126.2 million) consisting of a base price of 600 million RMB ($94.7 million) and further performance payments of up to 200 million RMB ($31.5 million).
The Company has commenced its due diligence investigation of the business, and has constituted a special committee of the board of directors to review and consider the proposed acquisition. Assuming satisfactory due diligence and recommendations the respective companies expect to enter into a definitive purchase agreement by no later than December 31, 2009.
Zongshen PEM Power Systems CEO, Zongshen Zuo commented on the company’s strategy going forward:
"In 2009, ZPP has conserved resources as we restructured our electric motorcycle business and considered acquisition opportunities. While we believe that electric vehicles are the product of the future ... We believe that the combination of ZIG's larger gas motorcycle business with ZPP's early stage electric motorcycle business will maximize synergies.”
