Revenues Climb 100% year-over-year to a Record $63.7 Million
CHANGGE CITY, China, Aug. 9 /Xinhua-PRNewswire-FirstCall/ -- Zhongpin Inc. (OTC Bulletin Board: ZHNP), a leading meat and food processing company in the People's Republic of China ("PRC"), today reported financial results for the second quarter ended June 30, 2007.
Q2 2007 Highlights
-- Revenues doubled year-over-year to a record $63.7 million
-- Gross profit increased 73% to $8.2 million
-- Non-GAAP net income increased 23% year-over-year to $4.7 million, or
$0.23 per diluted share
-- GAAP net income was $607,720, or $0.03 per diluted share
-- Production began at new factory, adding 72,000 metric tons annual
capacity
Revenue for the second quarter of 2007 increased to a record $63.7 million, up 100.4% from $31.8 million in the second quarter of 2006. The increase in revenue was primarily due to increased sales in Zhongpin's meat and meat products segment resulting from the effects of the continued increase in the number of branded stores and increased sales to food service distributors. Gross profit for the second quarter of 2007 was $8.2 million, up 73.1% from $4.7 million in the second quarter of 2006. Gross margin for the quarter was 12.8% compared to 14.9% in the same period a year ago. The decline in gross margin was the result of an increase in hog prices during the quarter that was slightly offset by an increase in pork prices. Net income for the quarter was $607,720, or $0.03 per fully diluted share, compared to $3.3 million, or $0.14 per fully diluted share, in the second quarter of 2006.
Net income in the second quarter of 2007 was impacted by a one-time non- cash compensation adjustment of $4.1 million in April 2007. This non-cash compensation adjustment was made in connection with the release from escrow to some employees of common stock that had been deposited into escrow by the employees in connection with Zhongpin's January 2006 private placement. The shares were deposited in the escrow account in the event the company did not meet certain financial thresholds in 2006. Zhongpin reached the financial goals for 2006 and the escrowed shares were released back to management, resulting in a non-cash compensation expense under GAAP account rules. For additional information please refer to Zhongpin's 10-Q filing made in connection with this press release. Adjusting for the non-cash charge, non- GAAP net income was $4.7 million, or $0.23 per fully diluted share, up 22.6% from net income in the second quarter of 2006.
"We are happy to report our seventh consecutive quarter of record revenue. Overall, our sales continue to be strong for our high quality and nutritious pork products. A shortage in the supply of hogs put pressure on our margins this quarter, but we were able to pass most of these costs on to our customers while increasing our market share due to the high quality of our branded products," said Xianfu Zhu, CEO of Zhongpin Inc. "In addition, our policy of prepaying suppliers guaranteed an ample supply of hogs throughout the quarter."
Zhongpin's strong revenue growth in the second quarter of 2007 was the result of Zhongpin's market expansion combined with an increase in the price of pork products. During the second quarter of 2007, the volume of pork sold increased 47.2% and the average selling price increased 37% from the second quarter of 2006. For the quarter, chilled pork and frozen pork represented 51.6% and 34.9% of total revenue, respectively. Chilled pork experienced the strongest growth, up 211% to $32.9 million from $10.6 million in the second quarter of 2006. Revenue from frozen pork was $22.2 million, up 37% from $16.2 million in the second quarter of 2006. Processed pork, which represented 9.4% of revenue, increased 71% to $6.0 million from $3.5 million in the same period a year ago. Revenue from fruits and vegetables, which accounted for 4.1% of revenue, was $2.6 million, up 77% from $1.5 million in the second quarter of 2006.
Revenue from Zhongpin's retail channels, including showcase stores, network stores and supermarket counters, represented 46.9% of total revenue. Revenue from the retail channels rose 91% to $29.8 million from $15.6 million in the second quarter of 2006. During the quarter, Zhongpin added 50 new retail outlets, including two new showcase stores, 16 new Zhongpin specialty retail stores and 32 new supermarket counters, for a total of 2,863 retail outlets. Revenue from restaurants and non-commercial businesses increased 108% to $18.3 million from $8.8 million in the same period a year ago, generating 28.7% of total revenues in the quarter. Food services distributors represented 18.0% of total revenue and showed the largest increase in revenue growth, up 140% to $11.5 million from $4.8 million in the second quarter of 2006. Exports increased 64% to $4.1 million from $2.5 million in the comparable period in 2006. Exports represented 6.4% of total revenues.
Gross profit for the second quarter of 2007 was $8.2 million, up 73.1% from $4.7 million in the second quarter of 2006. Gross margin was 12.8% in the second quarter of 2007 compared to 14.9% in the second quarter of 2006. The decline in gross margin was attributed to hog prices rising faster than the price of pork. According to the PRC's Ministry of Agriculture, hog and pork prices increased 47% and 34%, respectively, in China in first half of 2007.
For the second quarter of 2007, general and administrative ("G&A") expenses decreased 2.5% to $1.54 million, or 2.4% of revenue, compared to $1.58 million, or 5.0% of revenue, in the same quarter last year. The decrease in the net amount of G&A expenses was primarily the result of the accrual of a liability in the amount of $0.55 million in the three months ended June 30, 2006 due to our failure to register in a timely manner for resale under the Securities Act of 1933, as amended, the shares of our common stock issuable upon the conversion or exercise of Series A Convertible Preferred Stock and warrants.
Operating expenses in the second quarter of 2007 were $1.1 million, or 1.8% of revenue, compared to $0.7 million, or 2.3% of revenue, for the second quarter of 2006. The decline in operating expenses as a percentage of revenue was due to increased operating efficiencies.
Operating income in the second quarter of 2007 was $1.4 million, down 43.0% from $2.4 million in the second quarter of 2006, due primarily to the previously mentioned $4.1 million non-cash compensation adjustment. Operating margin for the quarter was 2.2% compared to 7.6% in the second quarter of 2006. Adjusting for the non-cash compensation adjustment, non-GAAP operating income increased by 84.9% in the second quarter of 2007 to $5.5 million, or 8.7% of revenue.
Net income for the second quarter of 2007 was $0.6 million, or $0.03 per fully diluted share, compared to net income of $3.3 million, or $0.14 per fully diluted share, in the second quarter of 2006. Net income in the second quarter of 2006 benefited from a cash grant from the PRC for research and development and training programs which was recorded as allowance income of $1.1 million.
Non-GAAP net income was $4.7 million in the second quarter of 2007, or $0.23 per fully diluted share, up 22.6% from net income in the same period of 2006.
Six Month Financial Results
For the first six months of 2007, revenue increased to $119.5 million, up 91.9% from $62.3 million in the first six months of 2006. Gross profit increased 71.1% in the first six months of 2007 to $15.9 million from $9.3 million in the comparable period a year ago. Gross margin was 13.3% in the first six months of 2007 compared to 14.9% in the first six months of 2006. Income from operations increased 24.3% to $6.6 million compared to $5.3 million in the same period a year ago. Net income for the first half of 2007 was $5.2 million, or $0.26 per fully diluted share, down 12.0% from $5.9 million, or $0.28 per fully diluted share, in the first half of 2006. Non-GAAP net income for the period was $9.3 million, or $0.46 per fully diluted share, up 44.6% from net income in the first half of 2006.
Financial Condition
As of June 30, 2007, Zhongpin had $41.4 million in cash and cash equivalents, including the net proceeds of $14.42 from the exercise of certain of our outstanding stock purchase warrants. As of June 30, 2007, Zhongpin had $1.8 million in long-term debt and $78.6 million in total liabilities. Accounts receivable turnover decreased from approximately 34 days during the second quarter of 2006 to 24 days during the second quarter of 2007 due to improved operational efficiency. Shareholders' equity stood at $78.0 million at June 30, 2007, up from $52.7 million on December 31, 2006. Net cash from operating activities during the first half of 2007 was $17.4 million.
Subsequent Events
On July 19, 2007, Zhongpin submitted its application to list its common stock on the NASDAQ Global Market. The Company's common stock will continue to trade on the Over-the-Counter Bulletin Board until NASDAQ approves its application.
On June 29, 2007, Zhongpin acquired substantially all of the assets of Deyang East China Food Company Limited ("Deyang"), including a chilled and frozen pork processing facility located in Cangshan County, Sichuan Province. The Sichuan Province processing facility is expected to contribute to stronger gross margins as the feeding costs of hogs in Sichuan are relatively lower than other areas of China. The processing facility adds 45,000 metric tons of capacity and is expected to begin contributing to revenue in the third quarter of 2007.
Business Outlook
Zhongpin intends to continue to expand its production facilities for chilled and frozen pork in the northern, southern, eastern and western regions of Henan Province, as well as in Sichuan Province. In June 2007, Zhongpin began production of a new processing facility in Zhumadian City, southern Henan Province, which will add 72,000 metric tons of capacity. Zhongpin plans to begin production at its northern Henan Province production facility, which will have 63,000 metric tons of capacity, in the third quarter of 2007. The company also plans to construct two new production facilities with 70,000 and 80,000 metric tons of capacity in the western and eastern regions of Henan, respectively. These facilities are scheduled to begin production in the second and third quarters of 2008, respectively. Once all of the newly-constructed processing facilities are fully operational, and including the facility in Sichuan Province acquired in June 2007, total production capacity for pork products will be estimated at 510,000 metric tons. Capital expenditure for the following twelve months is estimated to be $30.0 million.
"We are in the middle of executing an aggressive growth strategy as we continue to build our pork production facilities in central, southwestern and northwestern China. While we are expanding our capacity, we intend to increase our penetration in the markets around our new processing facilities, particularly in the second and third tier cities," concluded Mr. Zhu. "We believe that we will continue to experience top-line and bottom-line growth throughout the rest of 2007 and into 2008 as we bring our new processing facilities online and build our brand recognition for high quality, nutritious premium pork products."
Conference Call Information
Management will conduct a conference call at 9:00 a.m., EST, on Thursday, August 9, 2007 to discuss its second quarter 2007 results. Hosting the call will be Crocker Coulson, President of CCG Elite, joined by Mr. Xianfu Zhu, Chairman and Chief Executive Officer, Ms. Yuanmei Ma, Vice President and Chief Financial Officer and Mr. Baoke Ben, Executive Vice President, of Zhongpin. Zhongpin plans to distribute its earnings announcement earlier that same day. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 866-800-8648. International callers should dial 617-614-2702. When prompted by the operator, mention Conference Passcode 669 290 75. If you are unable to participate in the call at this time, a replay will be available on Thursday, August 9, 2007 at 11:00 a.m., EST time, through Thursday, August 16, 2007. To access the replay dial 888-286-8010 and enter the conference passcode 92801249. International callers should dial 617-801-6888 and enter the same passcode 92801249. The conference will be broadcast live over the Internet and can be accessed by all interested parties at Zhongpin's website at http://www.zpfood.com . To listen to the call please go to the website at least 15 minutes prior to the start of the call to register, download and install any necessary audio software.
Use of Non-GAAP Financial Measures
To supplement Zhongpin's condensed consolidated financial statements presented on a GAAP basis, Zhongpin is providing certain income statement information that is not calculated according to GAAP. Zhongpin believes that its non-GAAP disclosures are useful in evaluating its operating results as this information supplies the user with another view of the matching of costs and expenses. A reconciliation of the adjustments to GAAP results for the three- and six-month periods ended June 30, 2007 and June 30, 2006 is included below. The non-GAAP information presented is supplemental and is not purported to be a substitute for information prepared in accordance with GAAP.
Non-GAAP financial results for the three- and six-months periods ended June 30, 2007 discussed in this release reflect operating results excluding the impact of the one-time non-cash compensation adjustment of $4.1 million in April 2007 in connection with the release from escrow to certain employees of shares of common stock that had been deposited into escrow by such employees in connection with Zhongpin's January 2006 private placement. Non-GAAP financial results also exclude the impact of a one-time penalty expense in the amount of $0.55 million for the three- and six-months periods ended June 30, 2006 due to Zhongpin's failure to register in a timely manner for resale under the Securities Act of 1933, as amended, the shares of the Company's common stock issuable upon the conversion or exercise of Series A Convertible Preferred Stock and warrants.
About Zhongpin
Zhongpin is a meat and food processing company that specializes in pork and pork products, and fruits and vegetables, in the PRC. Its distribution network in the PRC spans more than 20 provinces and includes over 2,800 retail outlets. Zhongpin's export markets include the European Union, Eastern Europe, Russia, Hong Kong, Japan and South Korea. For more information, contact CCG Elite directly or go to Zhongpin's website at http://www.zpfood.com .
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995: Certain statements in this press release and oral statements made by Zhongpin on its conference call in relation to this release constitute forward-looking statements for purposes of the safe harbor provisions under The Private Securities Litigation Reform Act of 1995. These statements include, without limitation, statements regarding our ability to prepare the Company for growth, the Company's planned manufacturing capacity expansion in 2007 and predictions and guidance relating to the Company's future financial performance. We have based these forward-looking statements largely on our current expectations and projections about future events and financial trends that we believe may affect our financial condition, results of operations, business strategy and financial needs, but these projections also involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements, which may include, but are not limited to, such factors as, unanticipated changes in product demand, interruptions in the supply of live pigs/raw pork, downturns in the Chinese economy, delivery delays, freezer facility malfunctions, poor performance of the retail distribution network, changes in applicable regulations, and other information detailed from time to time in the Company's filings and future filings with the United States Securities and Exchange Commission. You are urged to consider these factors carefully in evaluating the forward-looking statements herein and are cautioned not to place undue reliance on such forward-looking statements, which are qualified in their entirety by this cautionary statement. The forward-looking statements made herein speak only as of the date of this press release and the Company undertakes no duty to update any forward-looking statement to conform the statement to actual results or changes in the company's expectations.
--financial tables below--
ZHONGPIN INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. dollars)
June 30, 2007 December 31, 2006
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $41,358,434 $21,692,814
Accounts receivable and other
receivables 18,833,340 13,471,450
Purchase deposits 163,305 --
Prepaid expenses and deferred charges 513,252 200,436
Inventories 10,516,361 10,077,479
Tax refund receivables 1,938,696 1,079,002
Total current assets 73,323,388 46,521,181
Property, plant and equipment (net) 37,849,062 32,597,150
Other receivables (net) 2,079,348 2,056,642
Construction contracts 29,044,353 12,016,823
Intangible assets (net) 14,326,996 9,030,077
Total assets $156,623,147 $102,221,873
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables 33,016,328 20,712,794
Accrued liabilities 1,988,137 1,597,557
Short term loans payable 38,763,049 23,845,198
Taxes payable 99,832 378,705
Deposits from clients 2,541,633 683,814
Research and development grants
payable 237,613 248,572
Long term loans payable-current
portion 145,671 145,671
Total current liabilities 76,792,263 47,612,311
Long term loans payable 1,842,854 1,912,343
Total liabilities 78,635,117 49,524,654
Equity
Preferred stock: par value $0.001;
25,000,000 authorized; 3,125,000
and 6,900,000 shares issued
and outstanding 3,125 6,900
Common stock: par value $0.001;
100,000,000 authorized; 19,039,670
and 12,132,311 shares issued and
outstanding 19,040 12,133
Additional paid in capital 51,110,951 32,538,535
Retained earnings 23,636,892 18,456,884
Accumulated other comprehensive
income 3,218,022 1,682,767
Total equity 77,988,030 52,697,219
Total liabilities and equity $156,623,147 $102,221,873
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
2007 2006 2007 2006
Revenues
Sales revenues $63,678,460 $31,777,348 $119,470,238 $62,270,855
Cost of sales 55,501,129 27,052,820 103,550,751 52,966,975
Gross profit 8,177,331 4,724,528 15,919,487 9,303,880
Operating expenses
General and
administrative
expenses 1,539,441 1,579,624 2,944,160 2,478,648
One time
non-cash
compensation
adjustment 4,134,573 -- 4,134,573 --
Operating
expenses 1,118,416 716,090 2,244,361 1,520,236
Total
operating
expenses 6,792,430 2,295,714 9,323,094 3,998,884
Income from
operations 1,384,901 2,428,814 6,596,393 5,304,996
Other income
(expense)
Interest income 105,020 149,648 126,924 245,338
Other income 135,257 23,844 130,829 36,236
Allowances
income 3,449 1,113,661 3,449 1,226,845
Exchange gain 2,663 4,319 6,147 18,028
Interest
expense (628,530) (227,587) (1,071,341) (607,815)
Total other
income
(expense) (382,141) 1,063,885 (803,992) 918,632
Net income before
taxes 1,002,760 3,492,699 5,792,401 6,223,628
Provision for
income taxes 395,040 171,945 612,393 317,190
Net income after
taxes 607,720 3,320,754 5,180,008 5,906,438
Minority interest -- 8,575 -- 19,295
Net income $607,720 $3,312,179 $5,180,008 $5,887,143
Foreign currency
translation
adjustment $ 989,714 $ 123,941 $1,535,255 $ 265,091
Comprehensive
income $1,597,434 $3,436,120 $6,715,263 $6,152,234
Basic earnings per
common share $0.03 $0.18 $0.27 $0.34
Diluted earnings
per common share $0.03 $0.14 $0.26 $0.28
Basic weighted
average shares
outstanding 14,906,446 11,752,578 13,815,630 11,752,578
Diluted weighted
average shares
outstanding 20,633,233 23,137,578 20,286,545 21,248,411
ZHONGPIN INC. AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars in thousands) (Unaudited)
Three Months Ended Six Months Ended
June30, June 30,
2007 2006 2007 2006
Revenues
Sales revenues $63,678 $31,777 $119,470 $62,271
Cost of sales 55,501 27,053 103,551 52,967
Gross profit 8,177 4,724 15,919 9,304
Operating expenses
General and
administrative
expenses 1,539 1,023 2,944 1,922
Operating expenses 1,119 716 2,244 1,520
Total operating
expenses 2,658 1,739 5,188 3,442
Income from operations 5,519 2,985 10,731 5,862
Other income (expense)
Interest income 105 150 127 245
Other income 135 24 131 36
Allowances income 3 1,114 3 1,227
Exchange gain (loss) 3 4 6 18
Interest expense (628) (228) (1,071) (608)
Total other income
(expense) (382) 1,064 (804) 918
Net income before taxes 5,137 4,049 9,927 6,780
Provision for income
taxes 395 172 612 317
Net income after taxes 4,742 3,877 9,315 6,463
Minority interest -- 9 -- 19
Net income $4,742 $3,868 $9,315 $6,444
Foreign currency
translation
adjustment $989 $124 $1,535 $265
Comprehensive income $5,731 $3,992 $10,850 $6,709
Basic earnings per common
share $0.24 $0.21 $0.48 $0.37
Diluted earnings per
common share $0.23 $0.17 $0.46 $0.30
Basic weighted average
shares outstanding 14,906,446 11,752,578 13,815,630 11,752,578
Diluted weighted average
shares outstanding 20,633,233 23,137,578 20,286,545 21,240,078
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) (Unaudited)
Six Months Ended June 30,
2007 2006
Cash flows from operating activities:
Net income $5,180,008 $5,887,143
Adjustments to reconcile net income to net
cash provided by (used in) operations:
Minority interest -- 19,295
Depreciation 782,677 361,958
Amortization 153,243 51,605
Exchange gain -- (18,027)
Provision for allowance for bad debt -- (76)
Warrants expense 19,140 3,190
One-time non-cash compensation
adjustment 4,134,573 --
Changes in operating assets and
liabilities:
Accounts receivable and other
receivables (5,384,596) (4,101,052)
Purchase deposits (163,305) 131,963
Prepaid expense and deferred charges (312,815) (41,976)
Inventories (438,882) (4,005,506)
Tax refunds receivable (859,694) (150,386)
Accounts payable and Other payable 12,292,575 (249,154)
Accrued liabilities 390,580 --
Taxes payable (278,873) (1,112,251)
Deposits from clients 1,857,819 (519,067)
Net cash provided by (used in) operating
activities 17,372,450 (3,742,341)
Cash flows from investing activities:
Construction in progress (17,027,530) --
Additions to fixed assets (6,034,589) (4,669,791)
Additions to intangible assets (5,450,162) (3,775,109)
Net cash used in investing activities (28,512,281) (8,444,900)
Cash flows from financing activities:
Repayment of Bank overdraft -- (619,579)
Proceeds from short-term loans 19,707,990 10,492,500
Repayment of short-term loans (4,790,139) (16,543,734)
Repayment of long-term loans (69,489) (157,283)
Proceeds from preferred stock -- 23,110,703
Proceeds from common stock
14,421,835 --
Net cash provided by financing
activities 29,270,197 16,282,607
Effect of rate changes on cash
1,535,254 281,279
Increase (decrease) in cash and cash
equivalents 19,665,620 4,376,645
Cash and cash equivalents, beginning of
period 21,692,814 10,142,394
Cash and cash equivalents, end of period 41,358,434 14,519,039
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,174,112 $636,044
Cash paid for income taxes $669,237 $ 312,672
For more information, please contact:
Crocker Coulson, President
Leslie Richardson, Financial Writer
CCG Elite
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Yuanmei Ma, Chief Financial Officer
Zhongpin Inc.
Tel: +86-10-8286-1788
