First quarter revenues climb 95% year-over-year to a record $108.7 million
CHANGGE CITY, Henan, China, May 12 /Xinhua-PRNewswire-FirstCall/ -- Zhongpin Inc. (Nasdaq: HOGS), a leading meat and food processing company in the People’s Republic of China (“PRC”), today reported financial results for the fist quarter ended March 31, 2008.
Q1 2008 Highlights
-- Revenues grew 94.9% year-over-year to a record $108.7 million
-- Gross profit increased 83.3% to a record $14.2 million
-- Gross margin improved to 13.1% from 11.8% in the fourth quarter of 2007
-- Net income increased 81.8% year-over-year to a record $7.3 million, or
$0.24 per fully diluted share
-- Seven new retail outlets were added, bringing the total number of
retail outlets to 2,946
-- Construction began on a 28,800 metric ton prepared meat facility
Revenues for the first quarter of 2008 increased for the tenth consecutive quarter to a record $108.7 million, up 94.9% from $55.8 million in the first quarter of 2007. Operating income for the quarter was $7.8 million, up 67.8% from $4.6 million for the comparable prior year period. Net income increased to a record $7.3 million, up 81.8% from net income of $4.0 million in the first quarter of 2007. Fully-diluted earnings per share for the quarter were $0.24, compared with fully-diluted earnings per share of $0.19 for the first quarter 2007. Weighted average fully-diluted outstanding shares for the first quarter of 2008 were 30,748,961, compared to weighted average fully-diluted outstanding shares of 20,982,304 in the first quarter of 2007.
“We started off 2008 with another quarter of record revenue and strong profitability. The first quarter is typically a seasonally strong quarter for us, as Chinese consumers increase consumption of pork products during the Chinese New Year holidays. Given this demand, we were able to sell our high quality, healthy and nutritious pork products at premium prices, which had a favorable impact on gross margin,” commented Xianfu Zhu, CEO of Zhongpin. "We have moved forward with our plan to bring our new facilities in western and eastern Henan Province online, which will add 150,000 tons of additional annual capacity of our chilled and frozen pork.”
Zhongpin’s strong revenue growth in the first quarter of 2008 was the result of increased prices for pork and pork products combined with increased sales to food service distributors and to restaurants and non-commercial customers. According to the Ministry of Agriculture of the PRC, the average pork price in the first quarter of 2008 increased 74.2% from the same period one year ago. Revenues increased $52.9 million, or 94.9%, to a record $108.7 million from $55.8 million in the first quarter of 2007. Approximately 20% of the increase was from increased sales volume and the other approximately 80% was from higher average selling prices. For the quarter, chilled pork and frozen pork represented 50.7% and 36.9% of total revenue, compared to 51.0% and 36.4% in the same period of 2007, respectively. Revenue from chilled pork increased 93.4% to $55.1 million from $28.5 million in the first quarter of 2007. Revenue from frozen pork was $40.2 million, up 97.9% from $20.3 million in the first quarter of 2007. Processed pork, which represented 11.0% of total revenues, increased 104.4% to $12.0 million from $5.9 million in the same period a year ago. Revenue from fruits and vegetables, which accounted for 1.4% of total revenues, was $1.5 million, up 29.9% from $1.2 million in the first quarter of 2007.
Revenue from Zhongpin’s retail channels, including showcase stores, network stores and supermarket counters, represented 41.2% of total revenues. Revenue from retail channels rose 71.6% to $44.8 million, from $26.1 million in the first quarter of 2007. During the quarter, Zhongpin added seven new retail outlets, including one new showcase store, two new Zhongpin “branded” stores and four new supermarket counters, for a total of 2,946 retail outlets. Revenue from restaurants and non-commercial businesses represented 31.3% of total revenues in the quarter, up 138.0% to $34.0 million from $14.3 million in the same period a year ago. Food services distributors generated 25.4% of total revenues and showed the largest increase in revenue growth year-over-year, up 161.8% to $27.6 million from $10.6 million in the first quarter of 2007. Exports, which represented 2.1% of total revenues, decreased 53.0% to $2.3 million from $4.9 million in the comparable period in 2007. This was the result of the Company’s decision to reduce exports in consideration of continuous appreciation of RMB as well as increasing prices for its pork products in China’s domestic market.
Gross profit in the first quarter of 2008 was a record $14.2 million, up 83.3% from $7.7 million in the first quarter of 2007. Gross margin was 13.1% in the first quarter of 2008 compared to 13.9% in the first quarter of 2007. The year-over-year decline in gross margin was attributed to hog prices rising faster than the prices of pork products. According to the PRC’s Ministry of Agriculture, hog and pork prices increased 82.1% and 74.2%, respectively, in PRC in the first quarter of 2008 compared to the same period in 2007. Sequentially, gross margin increased 1.3 percentage points from 11.8% in the fourth quarter of 2007, due to stronger demand for pork consumption which was favorably influenced by the Chinese New Year holidays. These conditions allowed Zhongpin to sell its pork products at premium prices.
In the first quarter of 2008, general and administrative (“G&A”) expenses were $4.4 million, or 4.1% of total revenues, compared to $2.0 million, or 3.5 % of total revenues, for the same quarter last year. The significant increase of G&A expenses was primarily the result of increased expenses for compensation, advertising, training, amortization and depreciation.
Operating expenses in the first quarter of 2008 were $2.0 million, or 1.8% of revenue, compared to $1.1 million, or 2.0% of revenue, in the first quarter of 2007. The decline in operating expenses as a percentage of revenue was attributed to increased operating efficiencies.
Income from operations in the first quarter of 2008 was $7.8 million, up 67.8% from $4.6 million in the first quarter of 2007. Operating margin was 7.2% in the first quarter of 2008, compared to 8.3% in the first quarter of 2007.
Net income for the first quarter of 2008 was $7.3 million, or $0.24 per fully diluted share, compared to $4.0 million, or $0.19 per fully diluted share, in the first quarter of 2007.
Financial Condition
As of March 31, 2008, Zhongpin had $50.0 million in cash and cash equivalents, $1.6 million in long-term debt, excluding the current portion, $83.4 million in total liabilities and working capital of $16.9 million. Shareholders’ equity stood at $157.9 million as of March 31, 2008, up 10.4% from $143.0 million at December 31, 2007. The Company generated net cash from operating activities during the first quarter of 2008 of $23.4 million, primarily from our net income of $7.3 million, a decrease in accounts receivable and an increase in deposits from clients.
Business Outlook
Zhongpin plans to continue to expand its production capacity through both new facility construction and acquisitions. The Company is ahead of schedule in the construction of its western Henan Province facility in Luoyang City which is now expected to begin operations by the end of the second quarter of 2008. Zhongpin’s eastern Henan Province facility in Shangqiu City is expected to begin operations in the fourth quarter of 2008. This is slightly behind schedule due to the delay of a waste water treatment facility to be built by local government outside of our facility. The new western and eastern facilities will add 70,000 metric tons and 80,000 metric tons annual capacity, respectively, of chilled and frozen pork. Once these facilities are completed, Zhongpin will have total capacity of 471,560 metric tons of chilled and frozen pork, excluding outsourcing from OEMs.
In March 2008, Zhongpin began construction of a new prepared meat facility at Zhongpin’s Industrial Park located in Changge City, Henan Province. The new facility will add 28,800 metric tons in annual capacity of prepared meat for a 114% increase over Zhongpin’s current capacity of 25,200 metric tons, bringing total capacity of prepared meat to 54,000 metric tons. The facility is expected to begin production in September 2008.
Capital expenditures and working capital for the next twelve months are estimated to be $49 million. Based on its current expansion plans and its financial results in the first quarter, Zhongpin is confident it will meet its guidance for full year 2008 revenues in the range of $490 million and $520 million, gross margin between 12.6% and 13.0% and net income of between $30 million and $33 million, or between $0.98 and $ $1.07 per share, assuming a fully diluted share count of 30.7 million shares outstanding. This guidance excludes the impact of any future acquisitions.
“As one of the premier brands of pork products in China, we are in an excellent position to benefit from the continued growth in meat purchases by China’s growing middle class, particularly as consumers embrace supermarkets and hypermarkets over traditional “wet” markets. In addition, our multi-channel distribution strategy allows us to increase our market share and brand recognition through our branded stores, food service distributors and restaurants," said Mr. Zhu. "We anticipate strong growth as we continue expanding capacity to meet demand. We are actively evaluating additional acquisition targets that have the potential to enhance our revenue and earnings growth in the future.”
Conference Call Information
Management will conduct a conference call at 9:00 a.m. Eastern Time on Monday, May 12, 2008 to discuss its 2008 first quarter results. Hosting the call will be Mr. Crocker Coulson, President of CCG Elite, joined by Mr. Xianfu Zhu, Chairman and Chief Executive Officer, Mr. Baoke Ben, Board Director and Executive Vice President and Ms. Yuanmei Ma, Vice President and Chief Financial Officer 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: 888-482-0024. International callers should dial 617-801-9702. When prompted by the operator, mention Conference passcode 63707285. If you are unable to participate in the call at this time, a replay will be available on Monday, May 12, 2008 at 11:00 a.m. Eastern Time, through Monday, May 19, 2008. To access the replay dial 888-286-8010, international callers should dial 617-801-6888, and enter the passcode 21129000. 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.
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 2,900 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 2008 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, 2008 December 31, 2007
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $50,020,362 $48,701,536
Accounts receivable and other
receivables (net) 15,146,289 18,982,312
Purchase deposits 5,010,054 6,059,782
Prepaid expenses and deferred charges 1,854,928 1,680,679
Inventories 24,249,233 25,922,125
Tax refund receivables 2,341,377 4,148,119
Total current assets 98,622,243 105,494,553
Property, plant and equipment (net) 79,705,309 66,429,654
Other receivables 7,341,076 4,826,279
Construction contracts 31,118,712 16,811,740
Intangible assets 24,502,643 23,339,142
Total assets $241,289,983 $216,901,368
LIABILITIES AND EQUITY
Current liabilities
Accounts payable $8,884,034 $10,306,344
Other payables 10,522,471 8,746,845
Accrued liabilities 4,221,820 3,014,600
Short term loans payable 50,890,440 47,668,592
Deposits from clients 6,625,658 1,876,665
Research and development grants
payable 478,776 490,288
Long term loans payable-current
portion 145,671 145,671
Total current liabilities 81,768,870 72,249,005
Long term loans payable 1,634,769 1,634,769
Total liabilities 83,403,639 73,883,774
Equity
Preferred stock: par value $0.001;
10,000,000 authorized; 3,125,000
and 3,125,000shares issued and
outstanding 3,125 3,125
Common stock: par value $0.001;
100,000,000 authorized; 26,274,470
and 25,891,567 shares issued and
outstanding 26,274 25,892
Additional paid in capital 101,711,685 100,070,571
Retained earnings 42,019,809 34,732,049
Accumulated other comprehensive
income 14,125,451 8,185,957
Total equity 157,886,344 143,017,594
Total liabilities and equity $241,289,983 $216,901,368
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)
Three Months Ended
March 31,
2008 2007
(Restated)
Revenues
Sales revenues $108,727,750 $55,791,778
Cost of sales 94,536,207 48,049,622
Gross profit 14,191,543 7,742,156
Operating expenses
General and administrative
expenses 4,404,661 1,967,248
Operating expenses 1,984,233 1,125,945
Total operating expenses 6,388,894 3,093,193
Income from operations 7,802,649 4,648,963
Other income (expense)
Interest income 635,777 21,904
Other income (expenses) 65,893 (4,428)
Allowances income 139,544 --
Exchange gain (loss) (23,758) 3,484
Interest expense (806,264) (442,811)
Total other income
(expense) 11,192 (421,851)
Net income before taxes 7,813,841 4,227,112
Provision for income taxes 526,081 217,353
Net income $7,287,760 $4,009,759
Foreign currency translation
adjustment $ 5,939,494 $ 545,541
Comprehensive income $13,227,254 $4,555,300
Basic earnings per common share $0.25 $0.21
Diluted earnings per common share $0.24 $0.19
Basic weighted average shares
outstanding 26,208,383 12,627,854
Diluted weighted average shares
outstanding 30,748,961 20,982,304
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) (Unaudited)
Three Months Ended March 31,
2008 2007
Cash flows from operating activities: (Restated)
Net income $7,287,760 $4,009,759
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Depreciation 883,113 415,186
Amortization 145,662 47,177
Warrant expense -- 9,570
Non-cash compensation expense 404,573 562,529
Changes in operating assets and
liabilities:
Accounts receivable and other
receivables 4,513,744 (3,575,562)
Other receivables (2,271,651) (389,352)
Purchase deposits 1,269,671 (336,695)
Prepaid expense and deferred charges (105,914) (72,955)
Inventories 2,671,624 (1,387,368)
Tax refunds receivable 1,934,948 (164,275)
Accounts payable (408,402) 2,779,252
Other payables 1,410,183 382,072
Research and development grants
payable 10,504 462
Accrued liabilities 1,071,048 344,605
Taxes payable -- 665,654
Deposits from clients 4,576,652 1,355,831
Net cash provided by operating activities 23,393,515 4,645,890
Cash flows from investing activities:
Construction in progress (23,039,757) (9,534,346)
Additions to property and equipment (1,560,363) (497,433)
Additional to intangible assets (355,111) (87,143)
Proceeds on sale of fixed assets 18,433 --
Net cash used in investing activities (24,936,798) (10,118,922)
Cash flows from financing activities:
Repayment of Bank notes (1,395,440) --
Proceeds from short-term loans 15,768,468 11,724,610
Repayment of short-term loans (14,518,378) (2,573,506)
Proceeds from common stock 1,236,923 1,271
Net cash provided by financing
activities 1,091,573 9,152,375
Effect of rate changes on cash 1,770,536 545,541
Increase in cash and cash equivalents 1,318,826 4,224,884
Cash and cash equivalents, beginning of
period 48,701,536 21,692,814
Cash and cash equivalents, end of period $50,020,362 $25,917,698
Supplemental disclosures of cash flow
information:
Cash paid for interest $901,674 $428,320
Cash paid for income taxes $424,919 $106,925
Sales by Segment
(U.S. dollars in millions)
Three Months Ended Net Percentage
March 31, Change Change
2008 2007 2008/2007 2008/2007
Pork and Pork Products
Chilled Pork $55.09 $28.48 $26.61 93.43%
Frozen Pork $40.16 $20.29 $19.87 97.93%
Prepared Pork
Products $11.96 $5.85 $6.11 104.42%
Vegetables and Fruits 1.52 1.17 $0.35 29.88%
Total $108.73 $55.79 $52.94 94.89%
Sales by Distribution Channel
(U.S. dollars in millions)
Three Months Ended March 31,
Distribution Channel 2008 2007
Amount Percent Amount Percent
Branded stores $44.80 41.2 $26.11 46.8
Food services distributors 27.62 25.4 10.55 18.9
Restaurants and non-commercial 34.03 31.3 14.28 25.6
Export 2.28 2.10 4.85 8.7
Total $108.73 100% $55.79 100%
For more information, please contact:
Crocker Coulson, President
CCG Elite
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Web: http://www.ccgelite.com
Yuanmei Ma, Chief Financial Officer
Zhongpin Inc.
Tel: +86-10-8286-1788
