Full Year Revenues Doubled to Record $143.8 Million
CHANGGE CITY, Henan, China, March 23 /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 year ended December 31, 2006.
(Logo: http://www.prnasia.com/sa/200611091647.jpg )
Full Year 2006 Highlights
-- Record revenue increased 95.9% from 2005 to $143.8 million
-- Non-GAAP net income increased 148.8% from 2005 to $14.7 million
-- Capacity increased 110% to 187,560 metric tons
Revenue for the year ended December 31, 2006 increased to a record $143.8 million, or an increase of 95.9%, from $73.4 million in fiscal 2005. Gross profit for the 2006 fiscal year was $20.6 million, up 69.3% from the gross profit in fiscal 2005 of $12.2 million. Net income for fiscal 2006 was $6.4 million, which resulted in fully diluted earnings per share of $0.31, as compared to net income for fiscal 2005 of $5.9 million and fully diluted earnings per share of $0.50. Calculation of fully-diluted earnings per share in 2006 included an additional 11,614,542 shares, which included 6.9 million shares of Series A preferred stock, 379,743 shares of common stock and warrants to purchase 4,334,799 shares of common stock that were issued during 2006. In addition, in 2006, Zhongpin incurred $8.4 million in penalties in connection with the delay in having its S-1 registration statement declared effective by the Securities and Exchange Commission. Adjusting for such penalties, non-GAAP net income would have been $14.7 million with fully diluted earnings per share of $0.72.
Mr. Xianfu Zhu, CEO of Zhongpin Inc., commented, “We are very pleased to have achieved record revenues for the full year 2006. During the year we doubled our production capacity, expanded both our geographic footprint and our customer base, and enhanced our logistic systems and product lines. Our success in achieving those goals is reflected in our financial performance. We believe we are continuing to establish a solid market position and are building a leading national brand in China for pork and pork products.”
Zhongpin’s record revenue in fiscal 2006 was driven by strong growth in sales of chilled pork to $71.8 million, an increase of 128% compared to $31.5 million in 2005. Chilled pork represented 49.9% of revenue. Frozen pork, which represented 35.4% of revenue, increased 54% to $50.9 million from $33.0 million in 2005. Processed meat, which represented 10.7% of revenue, increased 123% to $15.4 million from $6.9 million in 2005. Fruits and vegetables, which accounted for 4.0% of revenue, increased to $5.7 million, or 195%, from $1.9 million in 2005.
Zhongpin’s retail channel, which represented 45.0% of revenue, continued to generate the largest percentage of revenue during 2006. The number of retail outlets grew to 2,721 by the end of 2006 and included 96 showcase stores, 856 network stores and 1,769 supermarket counters. Restaurants and non-commercial organizations represented 26.7% of revenues, food distributors represented 19.8% of revenues, and exports represented the remaining 8.5% of revenues. Zhongpin’s distribution channel included 16 international and domestic fast food organizations, 36 export-registered processing factories, and 1,531 school cafeterias, factory canteens, army posts and national departments as of December 31, 2006.
Gross profit for the full year 2006 was $20.6 million, up 69.3% from the gross profit of $12.2 million in 2005. Gross margin declined to 14.3% from 16.6% a year earlier. The decline in gross margin was primarily due to an increase in hog prices in China during the second half of 2006.
For the year ended December 31, 2006, general and administrative (G&A) expenses were $3.0 million, or 2.1% of revenue, compared to $2.4 million, or 3.3% of revenue, in 2005. The total $3.0 million G & A expense incurred for the year ended December 31, 2006 was net of $1.3 million of outstanding accounts receivable received by Zhongpin during the year that had increased the bad debt allowance in fiscal 2005. The increase in the dollar amount of G&A expenses was primarily attributable to the additional expenses incurred by Zhongpin as a publicly-traded company reporting under the U.S. federal securities laws.
Operating expenses were $3.5 million, or 2.4% of revenues, for the year ended December 31, 2006, as compared to $2.3 million, or 3.1% of revenues, for the year ended December 31, 2005. The decrease in operating expenses as a percentage of revenue in fiscal 2006 was the result of increased total sales and operating scale. The increase in the net amount of operating expenses in fiscal 2006 was primarily the result of additional transportation expenses of $0.93 million.
In December 2006, Zhongpin settled in full its penalties payable as a result of the delay in having its S-1 registration statement declared effective by the Securities and Exchange Commission. Zhongpin believes the delay was primarily due to a recent change in the SEC’s interpretation of Rule 415 under the Securities Act of 1933, which affected the number of shares that could be registered under the registration statement. The Company paid a penalty of $8.4 million to the holders of its Series A convertible preferred stock and related stock purchase warrants, which was comprised of cash payments in the aggregate amount of $1.04 million and the issuance of an aggregate of 379,743 shares of the common stock valued at $2.85 million and warrants to purchase 884,799 shares of the common stock valued at $4.46 million.
Operating income for the 2006 fiscal year was $5.8 million compared to operating income in fiscal 2005 of $7.5 million. Adjusting for the registration penalties discussed above, non-GAAP operating income would have increased by 89.0% in fiscal 2006 to $14.1 million from $7.5 million in 2005.
Interest expense decreased to $1.6 million in fiscal 2006 from $1.8 million in fiscal 2005, which represented a decrease of $0.2 million, or 13%. The decrease in interest expense was primarily a result of having additional cash from its private placement in the first quarter of 2006, which enabled Zhongpin to repay and reduce higher-interest-bearing bank loans.
Net other income increased to $1.2 million for the year ended December 31, 2006 from a loss of $1.1 million for the year ended December 31, 2005. This increase was primarily the result of an increase of $2.4 million in allowance income from the Chinese central government.
Net income for the year ended December 31, 2006 was $6.4 million, or an increase of 7.5%, compared to $5.9 million for the year ended December 31, 2005. Adjusting for the registration penalties discussed above, non-GAAP net income would have been $14.7 million in fiscal 2006, or an increase of 148.8% from the net income in fiscal 2005. Fully-diluted earnings per share for fiscal 2006 was $0.31, compared to fully-diluted earnings per share in fiscal 2005 of $0.50. Non-GAAP fully-diluted earnings per share for fiscal 2006 was $0.72.
Financial Condition
As of December 31, 2006, Zhongpin had $21.7 million in cash and cash equivalents, and $1.9 million in long-term debt. Accounts receivable turn over was improved to 30 days in 2006 from 42 days in 2005 through the strengthening of the credit management process and the collection of outstanding accounts receivable of more than one year. Net cash provided by operations for 2006 was $9.5 million. Shareholders’ equity at December 31, 2006 was $52.7 million, up from $14.5 million at year-end 2005.
Business Outlook
In 2007, Zhongpin will continue to expand its capacity with the addition of 10,800 metric tons of capacity for processed pork at its existing facilities and the construction of two new factories with aggregate capacity of 135,000 metric tons that will each produce 60% chilled pork and 40% frozen pork. Total capital expenditures in 2007 for the capacity expansion is expected to be $17.0 million. Zhongpin believes a major part of its competitive advantage is its comprehensive low temperature logistic system, and it has budgeted $9 million in 2007 for enhancements to its logistics systems. Zhongpin also intends to continue to expand its geographic footprint in northeast, central and southwest China, including the rapidly-growing areas along the Yangzi River, the Eastern coast and the Beijing-Guangzhou railway, as well as to increase its international sales. Previously issued guidance for 2007 operating results projected $185 million in revenues and $15 million in net profit. Zhongpin now believes this guidance is conservative.
“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. Zhu. “We believe our efficient, state-of-the-art processing plants, network of branded retail stores, and sophisticated logistics systems will provide Zhongpin with a significant competitive advantage. We are excited about our recent expansion into Northeastern China, as well as the increases in our prepared meat capacity at our headquarters, 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 fourth quarter and year-end financial results and provide a corporate overview. The conference call will take place at 9:00 a.m. Eastern Time on Friday, March 23, 2007. 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. Callers from South China should dial 10 800 130 0399 and callers from Hong Kong should dial 800 96 3844. When prompted by the operator, mention Conference Passcode 21600012.
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 from Friday, March 23 at 11:00 p.m. Eastern Time, through Wednesday, April 6, 2007. To access the replay, dial 888-286-8010 and enter the conference passcode 23568010. International callers should dial 617-801-6888 and enter the same passcode 23568010.
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 12 month periods ended December 31, 2006 and December 31, 2005 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 12 month periods ended December 31, 2006 discussed in this release reflect operating results excluding the impact of the non-recurring penalty payments of $8.4 million paid by Zhongpin in December 2006 in connection with Zhongpin’s inability to have its registration statement declared effective by the SEC in a timely manner.
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 20 provinces and includes over 2,700 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. For more information please go to http://www.zpfood.com .
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.
(Financial Tables to Follow)
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(Amounts in U.S. dollars)
December 31,
ASSETS 2006 2005
Current assets
Cash and cash equivalents $21,692,814 $10,142,394
Accounts receivable 13,471,450 10,002,918
Purchase deposits -- 220,836
Prepaid expenses and deferred charges 200,436 99,009
Inventories 10,077,479 2,347,312
Tax refund receivables 1,079,002 644,232
Total current assets 46,521,181 23,456,701
Property, plant and equipment (net) 32,597,150 10,212,848
Related party receivables -- 267,658
Other receivable 2,056,642 632,063
Constructions contracts 12,016,823 16,931,178
Intangible assets 9,030,077 1,753,124
Total assets $102,221,873 $53,253,572
LIABILITIES AND EQUITY
Current liabilities
Bank overdraft -- 619,579
Accounts payable and other payables 20,712,794 10,278,464
Accrued liabilities 1,597,557 759,420
Short term loans payable 23,845,198 18,995,853
Taxes payable 378,705 2,055,925
Deposits from clients 683,814 769,398
Research and development grants
payable 248,572 2,436,804
Long-term loans payable -
current portion 145,671 145,671
Total current liabilities 47,612,311 36,061,114
Long term loans payable 1,912,343 2,264,448
Total liabilities 49,524,654 38,325,562
Minority interest -- 411,742
Equity
Preferred stock 6,900 --
Common stock 12,133 11,753
Additional paid in capital 32,538,535 2,102,933
Retained earnings 18,456,884 12,097,834
Accumulated other comprehensive
income 1,682,767 303,748
Total equity 52,697,219 14,516,268
Total liabilities and equity $102,221,873 $53,253,572
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars)
Year Ended
December 31,
2006 2005
Revenues
Sales revenues $143,812,212 $73,399,998
Cost of sales 123,195,870 61,220,499
Gross profit 20,616,342 12,179,499
Operating expenses
General and administrative
expenses 2,989,158 2,395,961
Operating expenses 3,485,397 2,299,950
Penalty 8,354,205 --
Total operating expenses 14,828,760 4,695,911
Income from operations 5,787,582 7,483,588
Other income (expense)
Interest income 316,604 182,798
Other income (expenses) 50,589 166,673
Allowances income 2,364,803 85,592
Exchange gain (loss) (21,377) 226,547
Interest expense (1,555,671) (1,802,042)
Total other income (expense) 1,154,948 (1,140,432)
Net income before taxes 6,942,530 6,343,156
Provision for income taxes 568,433 352,880
Net income after taxes 6,374,097 5,990,276
Minority interest (15,047) 76,429
Net income $6,359,050 $5,913,847
Foreign currency translation
adjustment 1,379,019 303,748
Comprehensive income $7,738,069 $6,217,595
ZHONGPIN INC. AND SUBSIDIARIES
NON-GAAP CONSOLIDATED STATEMENTS OF OPERATIONS
AND COMPREHENSIVE INCOME
(Amount in U.S. dollars)
Year Ended
December 31,
2006 2005
Unaudited Unaudited
Revenues
Sales revenues $143,812,212 $73,399,998
Cost of sales 123,195,870 61,220,499
Gross profit 20,616,342 12,179,499
Operating expenses
General and administrative
expenses 2,989,158 2,395,961
Operating expenses 3,485,397 2,299,950
Total operating expenses 6,474,555 4,695,911
Income from operations 14,141,787 7,483,588
Other income (expense)
Interest income 316,604 182,798
Other income (expenses) 50,589 166,673
Allowances income 2,364,803 85,592
Exchange gain (loss) (21,377) 226,547
Interest expense (1,555,671) (1,802,042)
Total other income (expense) 1,154,948 (1,140,432)
Net income before taxes 15,296,735 6,343,156
Provision for income taxes 568,433 352,880
Net income after taxes 14,728,302 5,990,276
Minority interest (15,047) 76,429
Net income $14,713,255 $5,913,847
Foreign currency translation
adjustment 1,379,019 303,748
Comprehensive income $16,092,274 $6,217,595
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars)
Year Ended December 31,
2006 2005
Cash flows from operating activities:
Net income $6,359,050 $5,913,847
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Minority interest 15,047 76,447
Acquisition gain 1,066
Depreciation 973,618 602,008
Amortization 127,449 37,431
Provision for allowance for bad debt (1,304,589) 1,214,461
Penalty 7,309,848 --
Warrant expense 22,330 --
Changes in operating assets and
liabilities:
Accounts receivable and other
receivables (3,320,865) (3,788,597)
Purchase deposits 220,836 (91,712)
Prepaid expense and deferred charges (101,427) (4,383)
Inventories (7,730,167) 865,583
Tax refunds receivable (434,770) (634,793)
Accounts payable and Other payable 8,248,230 7,135,575
Accrued liabilities 838,137 419,194
Taxes payable (1,677,220) 1,303,773
Deposits from clients (85,584) 35,676
Net cash provided by operating
activities 9,459,923 13,084,510
Cash flows from investing activities:
Construction in progress (17,051,855) (12,703,414)
Additions to fixed assets (1,820,630) (527,369)
Purchase of intangible assets (7,404,402) --
Net cash used in investing activities (26,276,887) (13,230,783)
Cash flows from financing activities:
Repayment of Bank overdraft (619,579) 610,501
Proceeds from short-term loans 30,081,418 9,641,295
Repayment of short-term loans (25,232,072) -
Repayment of long-term loans (352,105) (5,490,645)
Proceeds from preferred stock 23,110,703 --
Capital paid in at acquisition -- 117,216
Advances to related parties -- (190,476)
Investment in sub by minority holder -- 190,476
Net cash provided by financing
activities 26,988,365 4,878,367
Effect of rate changes on cash 1,379,019 205,663
Increase (decrease) in cash and cash
equivalents 11,550,420 4,937,757
Cash and cash equivalents, beginning of
period 10,142,394 5,204,637
Cash and cash equivalents, end of period $21,692,814 $10,142,394
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,554,883 $1,699,634
Cash paid for income taxes $323,866 $370,696
For more information, please contact:
Crocker Coulson, President, or
Leslie Richardson, Financial Writer,
CCG Elite
Tel: +1-310-477-9800
Email: crocker.coulson@ccgir.com
Yuanmei Ma,
Chief Financial Officer,
Zhongpin Inc.
Tel: +86-010-82861788
