Revenues climb 83% year-over-year to a record $55.8 million
CHANGGE CITY, China, May 10 /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 first quarter ended March 31, 2007.
Q1 2007 Highlights
-- Revenues up 83.0% year-over-year to a record $55.8 million
-- Gross profit increased 69.1% over Q1 2006 to a record $7.7 million
-- Net income increased 77.6% year-over-year to $4.6 million
Revenues for the first quarter of 2007 increased for the sixth consecutive quarter to a record $55.8 million, up 83.0% from $30.5 million in the first quarter of 2006. Operating income for the quarter was $5.2 million, up 81.2% from $2.9 million for the comparable prior year period. Net income increased to $4.6 million, up 77.6% from net income of $2.6 million in the first quarter of 2006. Fully-diluted earnings per share for the quarter were $0.22, up from fully-diluted earnings per share of $0.13 for the first quarter 2006. Weighted average fully-diluted outstanding shares for the first quarter of 2007 were 20,982,304 compared to weighted average fully-diluted outstanding shares of 19,342,568 in the first quarter of 2006.
Commenting on the quarter, Mr. Xianfu Zhu, CEO of Zhongpin Inc. said, "We believe our continued revenue and income growth is representative of our favorable market position and our ability to execute the build-out of both our capacity and our distribution network. The result is a continued increase in market share supported by increasingly high demand for our products. We also remain committed to optimizing our operations and have begun implementing the first phase of our new advanced planning, scheduling and logistics management systems, which should improve our margins."
Zhongpin's strong growth in the first quarter of 2007 was attributed to Zhongpin's market expansion, which resulted in higher revenue from all of Zhongpin's product lines and across all distribution channels. During the quarter, chilled pork and frozen pork represented 51.0% and 36.4% of total revenue, respectively. Chilled pork experienced the strongest growth, up 175% to $28.5 million from $10.3 million in the first quarter of 2006. Revenue from frozen pork was $20.3 million, up 25% from $16.2 million in the first quarter of 2006. Processed pork represented 10.5% of revenue, up 79% to $5.9 million from $3.3 million in the same period a year ago. Fruits and vegetables represented the remaining 2.1% of revenue, up 63% to $1.2 million from $0.7 million in the first quarter of 2006.
Revenues from retail channels, including showcase stores, network stores and supermarket counters, were up 75% from $14.9 million in the first quarter of 2006, representing 46.8% of total revenue at $26.1 million. During the quarter, Zhongpin added 92 new retail outlets, bringing the total number to 2,813. Restaurants and non-commercial businesses generated 25.6% of revenues, an increase of 86% to $14.3 million from $7.7 million in the same period a year ago. Food services distributors showed the largest increase in revenue growth, up 110% to $10.5 million from $5.0 million in the first quarter of 2006, and represented 18.9% of total revenue during the quarter. Revenues from exports represented 8.7% of total sales, an increase of 69% to $4.9 million from $2.9 million in the comparable period in 2006.
Gross profit for the first quarter of 2007 was $7.7 million, an increase of 69.1% from $4.6 million in the first quarter of 2006. Gross margin was 13.9% in the first quarter of 2007 compared to 15.0% in first quarter of 2006. The decline in gross margin is mainly due to the increase in hog prices, which was slightly offset by an increase in the market price of pork in the first quarter of 2007.
For the first quarter of 2007, general and administrative (G&A) expenses increased 56.2% to $1.4 million, or 2.5% of revenue, as compared to $0.9 million, or 2.9% of revenue, in the same quarter last year. The increase in the dollar amount of G&A expenses was attributed to the expansion of operations and the increased cost of being a public company. The decline in G&A expenses as a percentage of revenue was the result of management's efforts to manage internal expenses.
Operating expenses in the first quarter of 2007 were $1.1 million, or 2.0% of revenue, compared to $0.8 million, or 2.6% of revenue, for the first quarter of 2006. The decline in operating expenses as a percentage of revenue was attributed to increased operating efficiencies.
Operating income for the first quarter of 2007 was $5.2 million, up 81.2% from $2.9 million in the first quarter of 2006. Operating margin for the first three months of 2007 was 9.3% compared to 9.4% in the first three months of 2006. The slight decline in operating margin was the result of lower gross margins, which were offset by improved operating efficiencies.
Net income for the first quarter of 2007 was $4.6 million compared to net income in the first quarter of 2006 of $2.6 million. Fully-diluted earnings per share for the quarter were $0.22, based on weighted average fully-diluted outstanding shares of 20,982,304 during the quarter, compared to fully diluted earnings per share in the first quarter of 2006 of $0.13, based on weighted average fully-diluted outstanding shares of 19,342,568 during the quarter.
Financial Condition
As of March 31, 2007, Zhongpin had $25.9 million in cash and cash equivalents and $64.2 million in total liabilities. Accounts receivable turnover decreased from approximately 36 days during the first quarter of 2006 to 25 days during the first quarter of 2007. Net cash from operating activities during the quarter was $4.6 million. Shareholders' equity stood at $57.8 million at March 31, 2007, up from $52.7 million at December 31, 2006.
Business Outlook
Zhongpin intends to expand its production facilities for chilled and frozen pork to the southern, northern and western regions of Henan Province. In the second quarter of 2007, Zhongpin expects to open its new production facility in southern Henan Province, which is expected to add 72,000 metric tons of capacity. In the third quarter of 2007, Zhongpin expects to open its northern Henan Province production facility, which is expected to add up to 63,000 metric tons of capacity. The company has also planned to construct a third new production facility with up to 70,000 metric tons of capacity in the western region of Henan, which is scheduled to be put into production by early 2008.
"We believe we have made tremendous progress in building out our capacity, penetrating new markets and establishing Zhongpin as a highly-recognized brand for premium pork products. We expect to continue building on our success throughout the year as we bring our additional capacity online, with the goal of enhancing both our top-line and bottom-line growth," concluded Mr. Zhu.
Conference Call Information
Management will conduct a conference call to discuss Zhongpin's first quarter financial results and provide a corporate overview. The conference call will take place at 9:00 a.m. New York City time on Thursday, May 10, 2007. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 888-482-0024. International callers should dial 617-801-9702. When prompted by the operator, mention Conference Passcode 13070363. If you are unable to participate in the call at that time, a replay will be available from Thursday, May 10, 2007 at 11:00 a.m. New York City time, through Thursday, May 17, 2007. To access the replay, dial 888-286-8010 and enter the conference passcode 76424937. International callers should dial 617-801-6888 and enter the same passcode 76424937. 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 and to download and install any necessary audio software.
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)
March 31, 2007 December 31, 2006
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $25,917,698 $21,692,814
Accounts receivable and other
receivables (net) 17,047,013 13,471,450
Purchase deposits 336,695 --
Prepaid expenses and deferred charges 273,391 200,436
Inventories 11,464,847 10,077,479
Tax refund receivables 1,243,277 1,079,002
Total current assets 56,282,921 46,521,181
Property, plant and equipment (net) 32,679,396 32,597,150
Related party receivables --
Other receivables 2,445,994 2,056,642
Construction contracts 21,551,169 12,016,823
Intangible assets 9,070,043 9,030,077
Total assets $122,029,523 $102,221,873
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables $23,874,118 $20,712,794
Accrued liabilities 1,942,162 1,597,557
Short term loans payable 32,996,302 23,845,198
Taxes payable 1,044,359 378,705
Deposits from clients 2,039,645 683,814
Research and development grants
payable 249,034 248,572
Long term loans payable-current
portion 145,671 145,671
Total current liabilities 62,291,291 47,612,311
Long term loans payable 1,913,614 1,912,343
Total liabilities 64,204,905 49,524,654
Equity
Preferred stock: par value $0.001;
10,000,000 authorized; 5,478,754
and 6,900,000 shares issued and
outstanding 5,479 6,900
Common stock: par value $0.001;
25,000,000 authorized; 13,553,557
and 12,132,311 shares issued and
outstanding 13,554 12,133
Additional paid in capital 32,548,105 32,538,535
Retained earnings 23,029,172 18,456,884
Accumulated other comprehensive
income 2,228,308 1,682,767
Total equity 57,824,618 52,697,219
Total liabilities and equity $122,029,523 $102,221,873
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)
Three Months Ended
March 31,
2007 2006
Revenues
Sales revenues $55,791,778 $30,493,507
Cost of sales 48,049,622 25,914,155
Gross profit 7,742,156 4,579,352
Operating expenses
General and administrative
expenses 1,404,719 899,024
Operating expenses 1,125,945 804,146
Total operating expenses 2,530,664 1,703,170
Income from operations 5,211,492 2,876,182
Other income (expense)
Interest income 21,904 95,690
Other income (expenses) (4,428) 12,392
Allowances income -- 113,184
Exchange gain 3,484 13,709
Interest expense (442,811) (380,228)
Total other income (expense) (421,851) (145,253)
Net income before taxes 4,789,641 2,730,929
Provision for income taxes 217,353 145,245
Net income after taxes 4,572,288 2,585,684
Minority interest -- 10,720
Net income $ 4,572,288 $ 2,574,964
Foreign currency translation
adjustment $ 545,541 $ 141,150
Comprehensive income $ 5,117,829 $ 2,716,114
Basic earnings per common share $ 0.24 $ 0.16
Diluted earnings per common share $ 0.22 $ 0.13
Basic weighted average shares
outstanding 12,627,854 11,752,568
Diluted weighted average shares
outstanding 20,982,304 19,342,568
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) ( Unaudited)
Three Months Ended March 31,
2007 2006
Cash flows from operating activities:
Net income $4,572,288 $2,574,964
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Minority interest -- 10,720
Depreciation 415,186 145,734
Amortization 47,177 10,017
Warrant expense 9,570 --
Changes in operating assets and
liabilities:
Accounts receivable and other
receivables (3,964,914) (5,180,997)
Purchase deposits (336,695) 78,557
Prepaid expense and deferred charges (72,955) 4,645
Inventories (1,387,368) (2,364,754)
Tax refunds receivable (164,275) 492,903
Accounts payable and other payable 3,161,786 1,084,766
Accrued liabilities 344,605 --
Taxes payable 665,654 118,537
Deposits from clients 1,355,831 79,636
Net cash provided by operating activities 4,645,890 (2,945,272)
Cash flows from investing activities:
Construction in progress (9,534,346) (3,725,926)
Additions to fixed assets (497,433) (236,210)
Additions to intangible assets (87,143) --
Net cash used in investing activities (10,118,922) (3,962,136)
Cash flows from financing activities:
Repayment of Bank overdraft -- (619,579)
Proceeds from short-term loans 11,724,610 --
Proceeds from long-term loans 1,271 --
Repayment of short-term loans (2,573,506) (7,976,527)
Proceeds from preferred stock -- 23,110,703
Net cash provided by financing activities 9,152,375 14,514,597
Effect of rate changes on cash 545,541 136,367
Increase (decrease) in cash and cash
equivalents 4,224,884 7,743,556
Cash and cash equivalents, beginning of
period 21,692,814 10,142,394
Cash and cash equivalents, end of period $25,917,698 $17,885,950
Supplemental disclosures of cash flow
information:
Cash paid for interest $ 428,320 $ 352,002
Cash paid for income taxes $ 106,925 $ 186,567
