-- Revenues climb 111% year-over-year to a record $71.3 million
-- Net income surged 331% year-over-year to a record $5.9 million
CHANGGE CITY, China, Nov. 12 /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, 2007.
(Logo: http://www.prnasia.com/sa/200611091647.jpg )
Q3 2007 Highlights
-- Revenues more than doubled year-over-year to a record $71.3 million
-- Gross profit increased 87.6% to $9.7 million
-- Net income was a record $5.9 million, or $0.25 per fully diluted share,
up 122.8% after eliminating the effect of penalty expenses in the year
ago period
-- Two new processing facilities were added with a total of 116,000 metric
tons of capacity
-- 39 new retail outlets were added, bringing the total number of retail
outlets to 2,902
“Our outstanding growth was attributed to our ability to expand our production capacity and increase our market penetration, which resulted in record revenues and net income for the quarter. Overall, demand for our products remains healthy as more consumers are choosing our high-quality and nutritious pork products over pork from traditional wet markets,” commented Xianfu Zhu, CEO of Zhongpin.
Zhongpin’s strong revenue growth in the third quarter of 2007 was the result of Zhongpin’s market expansion combined with an increase in the price of pork products in the PRC. During the third quarter of 2007, the volume of pork sold increased 57.3% and the average selling price increased 41.0% from the third quarter of 2006. For the quarter, chilled pork and frozen pork represented 51.9% and 34.7% of total revenue, respectively. Chilled pork experienced the strongest growth, up 209.0% to $37.0 million from $12.0 million in the third quarter of 2006. Revenue from frozen pork was $24.8 million, up 56.0% from $15.9 million in the third quarter of 2006. Processed pork, which represented 9.4% of revenue, increased 81% to $6.7 million from $3.7 million in the same period a year ago. Revenue from fruits and vegetables, which accounted for 3.9% of revenue, was $2.8 million, up 24.0% from $2.3 million in the third quarter of 2006.
Revenue from Zhongpin’s retail channels, including showcase stores, network stores and supermarket counters, represented 45.6% of total revenue. Revenue from the retail channels rose 107.0% to $32.5 million from $15.7 million in the third quarter of 2006. During the quarter, Zhongpin added 39 new retail outlets, including two new showcase stores, 11 new Zhongpin specialty retail stores and 26 new supermarket counters, for a total of 2,902 retail outlets. Revenue from restaurants and non-commercial businesses represented 29.3% of total revenues in the quarter and showed the largest increase in revenue growth, up 124.7% to $20.9 million from $9.3 million in the same period a year ago. Food services distributors generated 18.4% of total revenues in the quarter, up 111.3% to $13.1 million from $6.2 million in the third quarter of 2006. Exports increased 84.6% to $4.8 million from $2.6 million in the comparable period in 2006. Exports represented 6.7% of total revenues.
Gross profit for the third quarter of 2007 was $9.7 million, up 87.6% from $5.2 million in the third quarter of 2006. Gross margin was 13.6% in the third quarter of 2007 compared to 15.2% in the third quarter of 2006. The 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 62.9% and 51.2%, respectively, in China for the first nine months of 2007 compared to the same period in 2006. Hog prices in China started to decline in August 2007, as a major disease outbreak was brought under control and farmers expanded hog inventories in response to record-high prices and government subsidies for breeding sows.
For the third quarter of 2007, general and administrative (“G&A”) expenses decreased 26.6% to $1.9 million, or 2.6% of revenue, compared to $2.5 million, or 7.5% of revenue, for the same quarter last year. G&A expenses in the third quarter of 2006 include $1.3 million in penalty expenses due to a delay in the effectiveness of the registration statement related to its January 2006 private placement financing.
Operating expenses in the third quarter of 2007 were $1.1 million, or 1.5% of revenue, compared to $0.9 million, or 2.6% of revenue, for the third quarter of 2006. The decline in operating expenses as a percentage of revenue was due to improvements in operating efficiencies.
Income from operations in the third quarter of 2007 was $6.7 million, up 287.3% from $1.7 million in the third quarter of 2006. Operating margin for the quarter was 9.5% compared to 5.1% for the third quarter of 2006.
Net income for the third quarter of 2007 was $5.9 million, or $0.25 per fully diluted share, compared to net income of $1.4 million, or $0.06 per fully diluted share, for the third quarter of 2006.
Nine Month Financial Results
For the first nine months of 2007, revenue increased to $190.8 million, up 98.5% from $96.1 million in the first nine months of 2006. Gross profit increased 77.0% in the first nine months of 2007 to $25.6 million from $14.5 million in the comparable period a year ago. Gross margin was 13.4% in the first nine months of 2007 compared to 15.0% in the first nine months of 2006. Income from operations increased 89.3% to $13.3 million from $7.0 million in the same period a year ago. Net income for the first nine months of 2007 was $11.0 million, or $0.52 per fully diluted share, up 52.3% from $7.2 million, or $0.33 per fully diluted share, in the first nine months of 2006.
Financial Condition
As of September 30, 2007, Zhongpin had $36.7 million in cash and cash equivalents, $2.0 million in long-term debt and $90.2 million in total liabilities. Accounts receivable turnover decreased from 39 days during the third quarter of 2006 to 26 days during the third quarter of 2007. Shareholders’ equity stood at $86.6 million as of September 30, 2007, up from $52.7 million on December 31, 2006. Net cash from operating activities during the first nine months of 2007 was $15.2 million.
Subsequent Events
In October 2007, Zhongpin appointed two new independent directors to its board of directors. Mr. Yaoguo Pan, who was appointed to the Board of Directors effective September 26, 2007, serves as Chairman of the Compensation Committee. Mr. Min Chen, who was appointed to the Board of Directors on October 10, 2007, serves as Chairman of the Nominating Committee.
In October 2007, Zhongpin closed with certain accredited institutional investors the private placement of 6,250,000 shares of common stock at a purchase price of $8.00 per share, for net proceeds of approximately $46.4 million. With the net proceeds from the private placement, Zhongpin expects to continue executing its growth strategy through building and acquiring new pork processing facilities.
Business Outlook
Zhongpin intends to continue expanding its pork production capacity through acquisitions and building new facilities. Zhongpin has begun construction on a new facility in western Henan Province and is preparing to begin construction on a new facility in eastern Henan Province. These facilities are scheduled to begin production in third quarter of 2008 and will add a total of 150,000 metric tons of capacity. In August 2007, Zhongpin was awarded a grant of $1.2 million from the Finance Department of China’s Central Government to promote pollution-free fruits and vegetables. Zhongpin will use a portion of these funds to construct a new factory with 30,000 metric tons of capacity for pollution-free fruits and vegetables by the end of 2008. Capital expenditures and working capital for the next twelve months are estimated to be $39 million. Zhongpin reaffirms its 2007 year end guidance for revenues to be at least $265 million.
“Markets remain robust as the Chinese government is supporting the modernization of the meat industry as well as improved hygiene and food quality standards. We have established a solid position in this industry and remain dedicated to building a leading nationally-recognized brand for premium pork products,” concluded Mr. Zhu. “We recently were recognized for our high-quality pork products and strong brand by being awarded the ‘China Top Brand’ for our fresh pork and low-temperature pork products and “China’s Famous Trademark” for our brand logo.”
Conference Call Information
Management will conduct a conference call at 10:00 a.m., EST, on Monday, November 12, 2007, to discuss its third quarter 2007 results. Hosting the call will be Crocker Coulson, President of CCG Elite, joined by Mr. Xianfu Zhu, Chairman and Chief Executive Officer, Mr. Baoke Ben, Executive Vice President, and Ms. Yuanmei Ma, Vice President and Chief Financial Officer, of Zhongpin. To participate in the live conference call, please dial the following number five to ten minutes prior to the scheduled conference call time: 866-482-0024. International callers should dial 617-801-9702. When prompted by the operator, mention conference passcode 243 017 08. If you are unable to participate in the call at this time, a replay will be available on Monday, November 12, 2007 at 12:00 p.m. EST, through Monday, November 19, 2007. To access the replay dial 888-286-8010 and enter the conference passcode 13564447. International callers should dial 617-801-6888 and enter the same passcode 13564447. 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 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)
September 30, December 31,
2007 2006
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $36,714,734 $21,692,814
Accounts receivable and other
receivables 21,716,853 13,471,450
Purchase deposits 373,723 --
Prepaid expenses and deferred charges 465,308 200,436
Inventories 16,396,917 10,077,479
Tax refund receivables 1,574,021 1,079,002
Total current assets 77,241,556 46,521,181
Property, plant and equipment (net) 45,964,124 32,597,150
Other receivables 4,054,827 2,056,642
Construction contracts 32,732,747 12,016,823
Intangible assets 16,849,397 9,030,077
Total assets $176,842,651 $102,221,873
LIABILITIES AND EQUITY
Current liabilities
Accounts payable and other payables 30,598,365 20,712,794
Accrued liabilities 2,808,814 1,597,557
Short term loans payable 48,756,457 23,845,198
Taxes payable 61,346 378,705
Deposits from clients 5,770,544 683,814
Research and development grants
payable 236,958 248,572
Long term loans payable-current
portion 145,671 145,671
Total current liabilities 88,378,155 47,612,311
Long term loans payable 1,844,740 1,912,343
Total liabilities 90,222,895 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; 19,386,769
and 12,132,311 shares issued
and outstanding 19,387 12,133
Additional paid in capital 52,724,502 32,538,535
Retained earnings 29,492,558 18,456,884
Accumulated other comprehensive
income 4,380,184 1,682,767
Total equity 86,619,756 52,697,219
Total liabilities and equity $176,842,651 $102,221,873
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)
Three Months Ended Nine Months Ended
September 30, September 30,
2007 2006 2007 2006
Revenues
Sales revenues $71,312,992 $33,829,525 $190,783,230 $96,100,380
Cost of sales 61,641,917 28,674,782 165,192,668 81,641,757
Gross profit 9,671,075 5,154,743 25,590,562 14,458,623
Operating expenses
General and
administrative
expenses 1,857,047 2,528,877 4,801,207 5,007,525
Non-cash
compensation
expenses -- -- 4,134,573 --
Operating
expenses 1,067,048 883,696 3,311,409 2,403,932
Total
operating
expenses 2,924,095 3,412,573 12,247,189 7,411,457
Income from
operations 6,746,980 1,742,170 13,343,373 7,047,166
Other income
(expense)
Interest income 42,932 23,456 169,856 268,794
Other income
(expenses) 78,591 (724) 209,420 35,512
Allowances
income 36,540 6,664 39,989 1,233,509
Exchange gain 22,748 15,020 28,895 33,048
Interest
expense (701,616) (300,855) (1,772,957) (908,670)
Total other
income
(expense) (520,805) (256,439) (1,324,797) 662,193
Net income before
taxes 6,226,175 1,485,731 12,018,576 7,709,359
Provision for
income taxes 370,509 124,625 982,902 441,815
Net income after
taxes 5,855,666 1,361,106 11,035,674 7,267,544
Minority interest -- 2,390 -- 21,685
Net income $5,855,666 $1,358,716 $11,035,674 $7,245,859
Foreign currency
translation
adjustment $1,162,162 $ 479,389 $ 2,697,417 $ 744,480
Comprehensive
income $7,017,828 $1,838,105 $13,733,091 $7,990,339
Basic earnings per
common share $0.26 $0.07 $0.55 $0.41
Diluted earnings
per common
share $0.25 $0.06 $0.52 $0.33
Basic weighted
average shares
outstanding 19,259,575 11,752,568 15,604,355 11,752,568
Diluted weighted
average shares
outstanding 23,421,587 23,237,568 21,259,956 21,911,457
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) (Unaudited)
Nine Months Ended
September 30,
2007 2006
Cash flows from operating activities:
Net income $11,035,674 $7,245,859
Adjustments to reconcile net income to
net cash provided by (used in)
operations:
Minority interest -- 21,685
Depreciation 1,318,451 650,132
Amortization 247,493 84,246
Exchange gain (loss) -- (33,048)
Provision for allowance for bad debt -- (76)
Warrants issued for services 15,950 12,760
One-time non-cash compensation
adjustments 4,134,573 --
Non-cash compensation adjustment 28,412 --
Changes in operating assets and
liabilities:
Accounts receivable and other
receivables (9,431,574) (3,482,695)
Purchase deposits (366,173) (275,523)
Prepaid expense and deferred charges (254,292) (33,237)
Inventories (5,799,057) (7,782,998)
Tax refunds receivable (443,004) (279,514)
Accounts payable and Other payable 8,933,316 96,754
Accrued liabilities 1,130,281 --
Taxes payable (325,604) (973,392)
Deposits from clients 4,956,464 (82,716)
Net cash provided by (used in) operating
activities 15,180,910 (4,831,763)
Cash flows from investing activities:
Construction in progress (27,345,849) (6,725,968)
Additions to fixed assets (5,627,248) (5,070,015)
Additions to intangible assets (7,556,552) (3,976,049)
Net cash used in investing activities (40,529,649) (15,772,032)
Cash flows from financing activities:
Repayment of bank overdraft -- (619,579)
Repayment of bank notes (65,214) --
Proceeds from short-term loans 44,214,892 24,390,081
Repayment of short-term loans (20,737,958) (21,435,425)
Repayment of long-term loans (146,188) (154,497)
Proceeds from preferred stock -- 23,110,703
Proceeds from exercise of warrants 16,010,511 --
Net cash provided by financing
activities 39,276,043 25,291,283
Effect of rate changes on cash 1,094,616 777,605
Increase (decrease) in cash and cash
equivalents 15,021,920 5,465,093
Cash and cash equivalents, beginning of
period 21,692,814 10,142,394
Cash and cash equivalents, end of period $36,714,734 $15,607,487
Supplemental disclosures of cash flow
information:
Cash paid for interest $1,791,177 $901,642
Cash paid for income taxes $673,165 $313,540
For more information, please contact:
Crocker Coulson, President, or
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
