* Q3 revenues climb 86% to record $33.8 million
CHANGGE CITY, Henan Province, China, Nov. 15 /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 third quarter ended September 30, 2006.
Q3 Highlights
-- Revenues up 86.0% year-over-year to record $33.8 million
-- Gross profit increased 78.5% to $5.2 million over Q3 2005
-- 72 new retail stores, 106 new supermarket counters and 9 new branded
stores opened during the quarter
Revenues for the third quarter 2006 increased for the fifth consecutive
quarter to a record of $33.8 million, an increase of 86.0% from $18.2 million
in the third quarter 2005. Operating income for the quarter was $1.7
million, a decrease of 20.4% from $2.2 million for the prior year period.
Net income decreased to $1.4 million, down 22.9% from net income of $1.8
million in the third quarter of 2005. Results for the current quarter
reflect the impact of a pretax accrued liability totaling $1.3 million ($0.05
per diluted share) due to penalties resulting from a delay in the
effectiveness of the Company’s registration statement with the Securities
and Exchange Commission under its Registration Rights Agreement. Fully
diluted earnings per share for the quarter were $0.06, compared to fully
diluted earnings per share of $0.15 for the third quarter 2005. Diluted
earnings per share in the current quarter reflects an additional 11,485,000
weighted average shares related to a private placement of Series A
convertible preferred stock and warrants in January 2006.
Commenting on the quarter, Ben Baoke, Executive Vice President of
Zhongpin Inc., said: “We are very pleased to announce our fifth consecutive
quarter of record revenues. During the quarter, we continued to increase our
market share supported by our increased production capacity and expanded
retail platform. We also introduced 20 new products, which helped to
increase sales for our higher margin processed meat segment by 115% from the
third quarter 2005 to $3.7 million.”
Revenue for the quarter was driven by increased sales of chilled pork,
which represented 46.9% of sales, and frozen pork, which represented 35.4% of
revenues. This compares to sales of chilled pork and frozen pork of 42.7%
and 39.5% of revenue, respectively, in the third quarter of 2005. Processed
meat represented 11.0% of revenue for the quarter, up from 9.5% of revenue in
the same period a year ago. Fruits and vegetables accounted for 6.6% of
revenue, down from 8.3% from the third quarter 2005.
Zhongpin’s retail channel continued to generate the largest percent of
revenue, representing 46.5%. The company increased its retail outlets to more
than 2,480 during the quarter, with 72 new Zhongpin branded stores, 106 new
supermarket counters and 9 new showcase stores. Restaurants and non-
commercial organizations represented 27.4% of revenues, food distributors
represented 18.3% of revenues and exports represented the remaining of 7.8%
of revenues. Zhongpin’s customers included 14 international and domestic
fast food companies, and 1,360 school cafeterias, factory canteens, army
posts and national departments.
Gross profit for the third quarter 2006 was $5.2 million, up 78.5% from
the third quarter 2005 of $2.9 million. Gross margin declined slightly to
15.2% from 15.9% in the comparable period a year earlier, as the price of raw
materials increased. This was partially offset by a slight increase in the
market price for pork products.
For the quarter, general and administrative (G&A) expenses increased to
$2.5 million, or 7.5% of revenues, as compared to $0.3 million, or 1.6% of
revenues, in the comparable quarter last year. The dramatic increase in G&A
is attributed to the result of an accrued liability of $1.3 million in
penalties payable due to the delay of the effectiveness of the Company’s
registration statement with the Securities and Exchange Commission (SEC).
Zhongpin will accrue a liability of $414,000 per month plus related interest
until the Company’s registration is declared effective by the SEC. G&A
expenses also increased due to $0.8 million of legal, accounting and
consulting fees related to registration of outstanding shares for resale in
the public markets and reporting obligations, the addition of senior
executives and technical experts and an increase in advertising expenses.
Operating expenses were $0.9 million, or 2.6% of revenues, as compared to
$0.4 million, or 2.2% of revenues, for the third quarter 2005. The increase
in operating expenses is primarily the result of increased transportation
expenses due to the increase of the price of gasoline, as well as
compensation and welfare expenses within the sales department.
Operating income for the quarter was $1.7 million compared to operating
income in the third quarter 2005 of $2.2 million. Adjusting for penalties,
operating income would have increased 37.6% to $3.0 million as compared to
the same period a year ago.
Interest expense decreased to $0.3 million for the quarter from $0.4
million in the third quarter 2005. The decrease in interest expense is the
result of the Company’s ability to reduce its high-interest bearing loans
through the use of proceeds received from the private placement.
Net income for the third quarter 2006 was $1.4 million, as compared to
net income in the third quarter 2005 of $1.7 million. Results for the
current quarter reflect the impact of the aforementioned pretax accrued
liability totaling $1.3 million ($0.05 per diluted share). Fully diluted
earnings per share for the quarter were $0.06, compared to fully diluted
earnings per share in the third quarter 2005 of $0.15.
Nine Months Results
Revenues for the first nine months of 2006 increased to $96.1 million, or
87.8%, from $51.2 million in the first nine months of 2005. Gross profit for
the same period was $14.5 million, up 70.1% from $8.5 million in the first
nine months of 2005. Operating income for the first nine months of 2006 was
$7.0 million, up 6.6% from $6.6 million from the same period earlier. Net
income increased to $7.2 million, or 36.2%, from $5.3 million in the first
nine months of 2005. Fully diluted earnings per share for the first nine
months of 2006 was $0.33 as compared to fully diluted earnings per share of
$0.45 for the first nine months of 2005.
Financial Condition
As of September 30, 2006, Zhongpin had $15.6 million in cash and cash
equivalents, $4.0 million in working capital, and $2.1 million in long-term
debt, excluding current portion. Shareholders’ equity stood at $45.6
million, up from $14.5 million at year end 2005.
Business Outlook
Zhongpin’s strategy is to establish itself as a leading brand for pork
products in China, by leveraging its vertically integrated business strategy,
expanding into new geographic regions, and increasing production capacity in
a disciplined fashion. The company has recently leased a new factory in
Heilongjiang province that adds 80 metric tons per a day of capacity and
plans to open two new factories in 2007. The first factory, located in
southern Henan Province, is expected to be put into operation in second
quarter of 2007. The second factory, located in the northern part of Henan
Province, is expected to be put into operation in the third quarter of 2007.
Both factories are designed for chilled and frozen pork and will add
approximately 72,000 metric tons and 58,000 metric tons of annual capacity,
respectively.
“We are making significant strides in expanding our production capacity
and geographic reach to support a true national brand for high quality pork
products,” said Mr. Ben. “We believe that our efficient, state-of-the-art
processing plants, network of branded retail stores, and sophisticated
logistics systems provide Zhongpin with a significant competitive advantage.
We are excited about our recent expansion into Northeastern China, and see
strong demand to support our planned expansion both domestically and overseas
in 2007.”
Conference Call Information
Management will conduct a conference call to discuss Zhongpin’s third
quarter financial results and provide a corporate overview. The conference
call will take place at 10:00 am EST on Wednesday November 15th, 2006. To
participate in the live conference call, please dial the following number
five to ten minutes prior to the scheduled conference call time: (800) 688-
0796. International callers should dial (617) 614-4070. Callers from China
should dial 10 800 130 0399. When prompted by the operator, mention the
Conference Passcode 40365523.
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.
If you are unable to participate in the call at this time, a replay will
be available on Wednesday, November 15 at 12:00 p.m. EST, through Wednesday,
November 22, 2006. To access the replay dial (888) 286-8010 and enter the
conference passcode 85876699. International callers should dial (617) 801-
6888 and enter the same passcode 85876699.
About Zhongpin
Zhongpin is a meat and food processing company that specializes in pork
and pork products and vegetables and fruits, in the PRC. Its distribution
network in the PRC spans more than twenty provinces and includes over 2,480
retail outlets. Zhongpin’s export markets include European Union, Eastern
Europe, Russia, Hong Kong, Japan, and South Korea. For more information,
contact CCG Elite directly.
Safe Harbor Statement
Under the Private Securities Litigation Reform Act of 1995: Forward-
looking statements are statements that are not historical facts. Such forward-
looking statements are based upon the current beliefs and expectations of
Zhongpin’s management and are subject to risks and uncertainties, which
could cause actual results to differ from the forward-looking statements. The
following factors, among others, could cause actual results to differ from
those set forth in the forward-looking statements: 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.
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)
Three Months Ended Nine Months Ended
September September
30, 30,
2006 2005 2006 2005
Revenues
Sales revenues $33,829,525 $18,188,425 $96,100,380 $51,184,672
Cost of sales 28,674,782 15,300,514 81,641,757 42,683,518
Gross profit 5,154,743 2,887,911 14,458,623 8,501,154
Operating expenses
General and
administrative
expenses 2,528,877 297,373 5,007,525 797,542
Operating expenses 883,696 401,293 2,403,932 1,093,956
Total
operating
expenses 3,412,573 698,666 7,411,457 1,891,498
Income from operations 1,742,170 2,189,245 7,047,166 6,609,656
Other income (expense)
Interest income 23,456 62,725 268,794 151,994
Other income
(expenses) (724) (46,852) 35,512 (50,156)
Allowances income 6,664 2,438 1,233,509 46,520
Exchange gain 15,020 -- 33,048 (42,276)
Interest expense (300,855) (386,734) (908,670) (1,195,392)
Total other
income
(expense) (256,439) (368,423) 662,193 (1,089,310)
Net income before
taxes 1,485,731 1,820,822 7,709,359 5,520,346
Provision for income
taxes 124,625 54,498 441,815 177,287
Net income after taxes 1,361,106 1,766,324 7,267,544 5,343,059
Minority interest 2,390 4,958 21,685 24,013
Net income $ 1,358,716 $ 1,761,366 $ 7,245,859 $ 5,319,046
Foreign currency
translation
adjustment 479,389 254,716 744,480 254,716
Comprehensive income 1,838,105 2,016,082 7,990,339 5,573,762
Basic earnings per
common share $ 0.07 $ 0.15 $ 0.41 $ 0.45
Diluted earnings per
common share $ 0.06 $ 0.15 $ 0.33 $ 0.45
Basic weighted average
shares outstanding 11,752,578 11,752,578 11,752,578 11,752,578
Diluted weighted
average shares
outstanding 23,237,578 11,752,578 21,911,467 11,752,578
(US $ millions) Revenue by Channel
30-Sep-06 30-Sep-05
Retail $15.70 46.50% $8.80 48.40%
Food distributor $6.20 18.30% $2.80 15.40%
Restaurant and non-commercial $9.30 27.40% $4.70 25.60%
Exports $2.60 7.80% $1.90 10.60%
Total $33.80 100.00% $18.20 100.00%
(US $ millions) Revenue by Product Line
30-Sep-06 30-Sep-05
Chilled pork $15.90 46.90% $7.80 42.70%
Frozen pork $12.00 35.40% $7.20 39.50%
Meat products $3.70 11.00% $1.70 9.50%
Vegetables $2.2 6.6% $1.5 8.3%
Total $33.80 100.00% $18.20 100.00%
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. dollars)
September 30. 2006 December 31,2005
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $15,607,487 $10,142,394
Accounts receivable and other
receivables 14,112,217 10,002,918
Purchase deposits 496,359 220,836
Prepaid expenses and deferred
charges 132,246 99,009
Inventories 10,130,309 2,347,312
Tax refund receivables 923,746 644,232
Total current assets 41,402,364 23,456,701
Property, plant and equipment (net) 22,749,312 10,212,848
Related party receivables 273,117 267,658
Other receivables -- 632,063
Construction contracts 15,540,565 16,931,178
Intangible assets 5,644,927 1,753,124
Total assets $85,610,285 $53,253,572
LIABILITIES AND EQUITY
Current liabilities
Bank overdraft $ -- $619,579
Accounts payable and other
payables 10,809,047 10,278,464
Accrued liabilities 1,409,867 759,420
Short term loans payable 21,950,510 18,995,853
Taxes payable 1,082,532 2,055,925
Deposits from clients 686,682 769,398
Research and development grants
payable 1,352,528 2,436,804
Long term loans payable-current
portion 145,671 145,671
Total current liabilities 37,436,837 36,061,114
Long term loans payable 2,109,951 2,264,448
Total liabilities 39,546,788 38,325,562
Minority interest 433,427 411,742
Equity
Preferred stock: par value $0.001;
10,000,000 authorized; 6,900,000
shares issued and outstanding 6,900 --
Common stock: par value $0.001;
25,000,000 authorized; 11,752,578
shares issued and outstanding 11,753 11,753
Additional paid in capital 25,219,496 2,102,933
Retained earnings 19,343,693 12,097,834
Accumulated other comprehensive
income 1,048,228 303,748
Total equity 45,630,070 14,516,268
Total liabilities and equity $85,610,285 $53,253,572
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) (Unaudited)
Nine Months Ended September 30,
2006 2005
Cash flows from operating
activities:
Net income $7,245,859 $5,319,046
Adjustments to reconcile
net income to
net cash provided by
(used in) operations:
Minority interest 21,685 219,812
Depreciation 650,132 453,933
Amortization 84,246 30,055
Exchange gain (33,048) --
Provision for
allowance for bad
debt (76) --
Warrants issued
for services 12,760 --
Changes in
operating assets
and liabilities:
Accounts Receivable
and other
receivables (3,482,695) (4,608,438)
Purchase
deposits (275,523) (26,674)
Prepaid expense
and deferred
charges (33,237) (146,600)
Inventories (7,782,998) (2,762,146)
Tax refunds
receivable (279,514) (18,985)
Accounts payable
and accrued
liabilities 96,754 2,219,295
Taxes payable (973,392) 103,530
Deposits from
clients (82,716) 295,535
Net cash used in operating
activities (4,831,763) 1,078,363
Cash flows from investing
activities:
Construction in progress (6,725,968) (1,987,626)
Additions to fixed assets (5,070,015) (741,326)
Additions to intangible
assets (3,976,049) --
Net cash used in
investing
activities (15,772,032) (2,728,952)
Cash flows from financing
activities:
Repayment of Bank overdraft (619,579) --
Proceeds from short-term
loans 24,390,081 42,565,294
Repayment of short-term
loans (21,435,425) (26,475,217)
Repayment of long-term
loans (154,497) (2,520,850)
Proceeds from preferred
stock 23,110,703 --
Payments of dividends -- --
Net cash
Provided by financing
activities 25,291,283 13,569,227
Effect of rate changes on
cash 777,605 254,716
Increase (decrease) in cash
and cash equivalents 5,465,093 12,173,354
Cash and cash equivalents,
beginning of period 10,142,394 5,204,637
Cash and cash equivalents,
end of period 15,607,487 17,377,991
Supplemental disclosures of cash
flow information:
Cash paid for interest $901,642 $1,195,392
Cash paid for income taxes $313,540 $85,689