Zhongpin, Inc. Announces Record Fourth Quarter and Full Year 2008 Results
CHANGGE CITY,
Zhongpin Inc. (Nasdaq: HOGS), a leading meat and food processing company in
the fourth quarter and year ended
Fourth Quarter 2008 Highlights
-- Revenues increased 39% year-over-year to $139.8 million
-- Gross profit increased 48% to $17.7 million with gross margin of 12.6%
-- Excluding non-recurring and non-cash charges, non-GAAP net income grew
65% to $9.3 million, or $0.31 per fully-diluted share
-- Net income increased 9% to $5.5 million, or $0.18 per fully-diluted
share
-- Added 66 new retail outlets, bringing the total number of retail
outlets to 3,061
-- Commenced operations at new prepared meat facility in Changge City,
bringing annual prepared meat products capacity to 54,000 metric tons
-- Terminated lease for the chilled and frozen pork facility in Hailun
City, Heilongjiang Province and moved production to new leased pork
production facility in Gongzhuling City, Jilin Province
-- Leased a new pork production facility in Shenzhou City, Hebei Province,
adding chilled and frozen pork production capacity of approximately
26,000 metric tons annually
Full Year 2008 Highlights
-- Revenues grew 85% year-over-year to a record $539.8 million
-- Gross profit increased 83% to $68.6 million with gross margin of 12.7%
-- Excluding non-recurring and non-cash charges, non-GAAP net income grew
69% to $35.1 million, or $1.18 per fully-diluted share
-- Net income grew 69% to a record $31.4 million, or $1.05 per fully-
diluted share
“We are excited to report another year of record financial results that
reflect our leading market position and increasing brand recognition as a
high-quality provider of pork products in
successfully executed our capacity expansion strategy and added 126,000 metric
tons of annual production capacity of chilled and frozen pork and more than
doubled our annual production capacity of our high-margin processed meat
products,” commented Mr.
expanded our presence in new markets through strategically identifying
attractive locations for our new facilities. During the fourth quarter, we
successfully ramped up capacity utilization at our new facilities in Luoyang
city and Changge City, as we aggressively expanded our presence in our target
markets.”
“In 2008,
terms of price and supply, with hog prices peaking early in the year and
declining in the second half of the year as a result of the central
government’s constructive policies to increase the hog supply. We expect the
prices and supply of hogs to remain fairly stable in the first half of 2009.”
Fourth Quarter Results
Revenues for the fourth quarter of 2008 increased
from
growth during the fourth quarter was attributable to increase in sales volume
driven by an increase in seasonal demand, increased production capacity
resulting from the new facilities that were put into operation in 2008,
expansion of the Company’s distribution channels, and increased marketing and
promotion at efforts. For the quarter, revenue from chilled pork amounted to
million
million
pork products increased 39% to
period a year ago. Revenue from fruits and vegetables was
5% from the fourth quarter of 2007.
Revenue from Zhongpin’s retail channels, including showcase stores,
network stores and supermarket counters, represented 43% of net sales.
Revenue from retail channels rose 49% to
the fourth quarter of 2007. During the quarter, Zhongpin added 66 new retail
outlets, including nine new showcase stores, 17 additional “branded” retail
stores and 40 new supermarket counters, for a total of 3,061 retail outlets.
Revenue from restaurants and non-commercial businesses was
12% from
sales in the quarter. Food service distributors generated 31% of net sales
and showed the largest increase in revenue growth year-over-year, up 70% to
which represented less than 1% of total revenues, declined 87% to
million
Gross profit for the fourth quarter of 2008 was
fourth quarter of 2008 compared to 11.8% in the fourth quarter of 2007. On a
sequential basis, gross margin decreased 0.1 percentage points from 12.7% in
the third quarter of 2008. The management believes that the slight
fluctuation is within a reasonable range.
For the fourth quarter of 2008, general and administrative (“G&A”)
expenses were
million
expense for the fourth quarter of 2008 increased primarily due to an increase
in salary expenses, additional training expenses, an increase in advertising
expenses as the Company advanced its brand-building efforts and an increase in
expenses related to its exchange listing. These expenses were partially
offset by the reduction in allowance for bad debt as one of the Company’s
subsidiaries, Henan Zhongpin, revised its conservative bad debt allowance of
10% to a more reasonable 5% due to stable collections from this subsidiary.
G&A expenses in the fourth quarter of 2007 included a non-cash compensation
expense of
of the Company’s employees of shares of common stock that had been deposited
into escrow by such employees in connection with the Company’s
private placement.
Selling expenses in the fourth quarter of 2008 were
of revenue, compared to
quarter of 2007. The increase in selling expenses was primarily due to
increase in transportation costs resulting from the growth in sales volume.
Also contributing to the increase in selling expenses were higher salary
expenses due to increased headcount in support of Zhongpin’s expansion.
Income from operations for the fourth quarter of 2008 was
35% as compared to
margin for the quarter was 5.9%, compared to 6.1% for the fourth quarter of
2007. The slight decline in operating margin was primarily due to a non-cash
impairment loss of
impairment of assets related to the closure of the Company’s vegetable and
fruit processing facility in Yanling City.
Provision for income taxes was
up 184% from
primarily due to a non-recurring, non-cash income tax expenses of
related to six individual shareholders donated
shareholders plus
shareholders into additional paid capital. In accordance with Chinese tax law,
the Company also recorded an income tax liability of
31, 2008
cash flow purposes.
Excluding the
non-GAAP net income for the quarter was
fully-diluted share, up 65% from non-GAAP net income of
per fully-diluted share, for the same period a year ago. Net income for the
fourth quarter of 2008 was
9% from net income of
fourth quarter of 2007.
Full Year 2008 Financial Results
Revenue for the full year 2008 increased by 85% to
from
12.9% in 2007. Income from operations increased 68% to
to
impairment loss and other non-cash charges, non-GAAP net income in 2008 was
income of
income for full year 2008 was
up 69% from net income of
2007.
Financial Condition
As of
equivalents,
Shareholders’ equity stood at
from
from operating activities of
in 2007.
Subsequent Events
In
frozen pork facility in Yongcheng City, which is on the main farm belt in
eastern
capacity of 80,000 metric tons, approximately 75% of which is dedicated to the
production of chilled pork and 25% to the production of frozen pork. Zhongpin
expects to quickly ramp up production at this facility to achieve an over 60%
utilization rate by the second quarter of 2009.
In
and dispose of the Company’s production facility in Yanling City,
Province
meat products. However, in recent years, Zhongpin built new state-of-the-art
facilities as part of its aggressive capacity expansion strategy, which
rendered the machinery at the Yanling facility outdated and obsolete.
Beginning in 2007, Zhongpin’s management utilized the facility to produce
fruits and vegetables. However, Zhongpin would be required to make
significant capital investments at the Yanling facility in order to be in
compliance with the recent restrictions imposed by
Protection Agency. In addition, the Company’s newly-built vegetable and fruit
production facility in Changge City, which is only 31 miles away from the
Yanling facility, is expected to come on line in
the total annual capacity to 30,000 metric tons and ensure that there is no
disturbance in supply to the customers previously served by the Yanling
facility.
Business Outlook
Zhongpin recently completed the construction of its fruits and vegetables
production line in Changge City,
operations in March of 2009. With the additional capacity from this new
facility and further consolidation of existing capacity, Zhongpin’s annual
fruit and vegetable capacity will increase 14% to 30,000 metric tons from the
current 26,280 metric tons.
Zhongpin new pork production facility in
construction in
chilled and frozen pork products annually and 36,000 metric tons of prepared
meat products. The
distribution center, and a R&D center, which will improve Zhongpin’s product
portfolio, support the Company’s cold chain logistics and effectively
accommodate the newly-added production capacity by facilitating efficient
distribution. The production lines for chilled and frozen pork products are
expected to come on line at the end of the first quarter of 2010 and will
achieve their target utilization rate at the end of the third quarter of 2010.
The prepared meat production line and the new warehouse and distribution
center are expected to come on line by the end of the second quarter of 2010
and to achieve their target unitization rate at the end of the fourth quarter
of 2010. The
into
Zhongpin will begin construction of its new prepared meat facility in
Changge City,
facility will add annual prepared meat production capacity of 36,000 metric
tons by the end of the fourth quarter of 2009. The new facility is expected
to achieve its target unitization rate by the end of the second quarter of
2010. The facility will effectively utilize Zhongpin’s advanced R&D
capabilities at its headquarters and produce quick-freeze sausages and other
prepared meat products catering to varying consumer tastes.
Capital expenditures for the next twelve months are expected to be
million
facility in
acquisition of land use rights for the new facility in
expected to cost approximately
position is strong as its business generates significant cash flow from
operations, and the Company has an adequate cash balance and readily available
lines of credit.
Zhongpin reaffirms its full year 2009 guidance for revenues to be in the
range of
its net profit margin of at least 6.0% and its fully-diluted earnings per
share to be in the range of
count of 30.7 million shares outstanding. This guidance excludes the impact
of any future acquisitions.
“We believe
growth as the Chinese government is encouraging the modernization of the meat
processing industry, improving the hygiene and quality standards, and
supporting the transition from traditional wet markets to modern dry markets.
Despite the temporary slight decline in pork consumption due to the impact of
the worldwide economic slowdown on the Chinese economy, we believe the market
fundamentals of the Chinese pork industry continue to remain strong. The
Chinese government’s
improve the overall health of the rural economy, which should open additional
market opportunities for Zhongpin by fostering the development of value-added
agricultural products, modernizing the agricultural industry and increasing
the living standards of farmers,” said Mr. Zhu, the Company’s CEO.
“Our growth strategy for 2009 will focus on revenue growth by targeting
Northern, Eastern, Southern and
surrounding our strategically-located facilities, increasing our market
penetration, expanding our network of retail outlets and continuing to utilize
our R&D capabilities to provide healthy and nutritious products tailored to
the tastes of our customers. We plan to build regional chilled pork
processing centers and further develop our cold chain logistics system to
raise our service standards and increase our market share. These actions
should also promote awareness of our brand and of our Company as one of the
leading high-quality pork suppliers in
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
included below. The non-GAAP information presented is supplemental and is not
purported to be a substitute for information prepared in accordance with GAAP.
Conference Call Information
Management will conduct a conference call at
on
results. Hosting the call will be Mr. Crocker Coulson, President of CCG
Investor Relations, joined by Mr.
Officer, Mr. Baoke Ben, Board Director and Executive Vice President, and Mr.
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. The pass code for the call is
31820886. If you are unable to participate in the call at this time, a replay
will be available on
through
International callers should dial 617-801-6888. The conference pass code is
77937182. 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. For those unable to participate during
the live broadcast, a 90-day replay will be available shortly after the call
by accessing the same link.
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 24 provinces and includes over 3,061 retail outlets.
Zhongpin’s export markets include the European Union,
Relations 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 build and
commence the new production facilities according to the timeline described,
expectations of future consumer demand, 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)
December 31, December 31,
2008 2007
ASSETS
Current assets
Cash and cash equivalents $41,857,166 $45,142,135
Restricted cash 17,040,201 3,559,401
Bank notes receivable 1,268,890 --
Accounts receivable, net of allowance for
doubtful accounts of $1,215,901 and
$1,341,872 20,432,752 18,982,312
Other receivables, net of allowance for
doubtful accounts of $500,447 and $500,447 1,907,243 4,826,279
Purchase deposits 10,738,147 6,059,782
Inventories 16,724,217 25,922,125
Prepaid expenses 360,265 1,667,448
VAT recoverable 7,432,365 4,350,795
Assets held for sale 623,871 --
Deferred tax assets 311,055 --
Other current assets 96,402 --
Total current assets 118,792,574 110,510,277
Property, plant and equipment (net) 133,684,051 66,429,654
Construction in progress 40,773,039 16,811,740
Land usage rights 35,983,947 23,339,142
Deferred charges 231,769 13,231
Other non-current assets 412,503 --
Total assets $329,877,883 $217,104,044
LIABILITIES AND EQUITY
Current liabilities
Short-term loans $67,893,001 $47,668,592
Bank notes payables 13,252,180 6,160,502
Long-term loans -current portion 145,671 145,671
Accounts payable 9,528,937 4,145,842
Other payables 7,130,384 6,416,354
Accrued liabilities 5,055,660 3,014,600
Deposits from customers 4,331,774 1,876,665
Research and development grants
payable -- 490,288
Tax payable 1,382,589 202,676
Deferred tax liabilities 94,812 --
Total current liabilities 108,815,008 70,121,190
Deposits from customers 2,420,967 --
Capital lease obligation 4,252,743 --
Amount due to Shareholders -- 2,330,491
Long-term loans 23,475,174 1,634,769
Total liabilities 138,963,892 74,086,450
Equity
Preferred stock: par value $0.001;
25,000,000 authorized; 2,129,200 and
3,125,000 shares issued and outstanding 2,129 3,125
Common stock: par value $0.001;
100,000,000 authorized; 27,504,918 and
25,891,567 shares issued and outstanding 27,505 25,892
Additional paid in capital 105,680,772 100,070,571
Retained earnings 66,108,995 34,732,049
Accumulated other comprehensive income 19,094,590 8,185,957
Total equity 190,913,991 143,017,594
Total liabilities and equity $329,877,883 $217,104,044
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars)
Three Months Ended Year Ended
December 31, December 31,
2008 2007 2008 2007
(Unaudited) (Unaudited)
Revenues
Sales revenues $139,817,970 $100,590,194 $539,825,135 $291,373,424
Cost of sales (122,139,187) (88,676,875)(471,264,359)(253,869,543)
Gross profit 17,678,783 11,913,319 68,560,776 37,503,881
Operating expenses
General and
administrative
expenses (4,037,806) (5,045,289) (17,944,100) (10,301,083)
Selling expenses (2,574,432) (1,726,080) (9,922,993) (5,037,489)
Research &
development
expenses 422,887 985,000 (715,057) (248,000)
Impairment loss (3,180,951) -- (3,180,951) --
Amortization of
loss from sale-
leaseback
transaction (16,389) -- (16,389) --
Total operating
expenses (9,386,690) (5,786,369) (31,779,490) (15,586,572)
Income from operations 8,292,094 6,126,950 36,781,286 21,917,309
Other income expense)
Interest income
(expenses) (908,218) (858,500) (3,361,356) (2,461,601)
Other income
(expenses) (7,241) 64,163 (10,189) 273,583
Exchange gain
(loss) (17,979) (1,331) (51,913) 27,564
Government
subsidies (566,907) 160,016 487,777 200,005
Total other
income
(expense) (1,500,345) (635,652) (2,935,681) (1,960,449)
Net income before
taxes 6,791,749 5,491,298 33,845,605 19,956,860
Provision for
income taxes 1,274,766 448,677 2,468,659 1,431,579
Net income after
taxes $5,516,983 $5,042,621 $31,376,946 $18,525,281
Net income 5,516,983 5,042,621 31,376,946 18,525,281
Foreign currency
translation
adjustment $(737,269) $3,805,773 $10,908,633 $6,503,190
Comprehensive income $4,779,714 $8,848,394 $42,285,579 $25,028,471
Basic earnings per
common share 0.18 0.23 1.06 1.03
Diluted earnings per
common share 0.18 0.18 1.05 0.80
Basic weighted
average shares
outstanding 29,475,817 25,232,693 29,475,817 18,000,437
Diluted weighted
average shares
outstanding 29,834,513 29,748,583 29,834,513 23,077,864
ZHONGPIN INC. AND SUBSIDIARIES
RECONCILIATION OF NON-GAAP FINANCIAL MEASURES
Three Months Ended Three Months Ended
December 31, 2008 December 31, 2007
Net Income Diluted EPS Net Income Diluted EPS
Non GAAP net income $9,255,528 $0.31 $5,605,150 $0.20
Impairment loss (1) $3,180,951 $0.11 $0 $0.00
Non-cash income tax
expense (2) $557,595 $0.02
Non-cash
compensation
expense (3) $562,529 $0.02
Net Income amount
per consolidated
statement of
operations $5,516,983 $0.18 $5,042,621 $0.18
FY 2008 FY2007
Net Income Diluted EPS Net Income Diluted EPS
Non GAAP net income $35,115,491 $1.18 $20,775,397 $0.90
Impairment loss (1) $3,180,951 $0.11 0 $0.00
Non-cash income tax
expense (2) $557,595 $0.02
Non-cash
compensation
expense (3) $2,250,116 $0.10
Net Income amount
per consolidated
statement of
operations $31,376,946 $1.05 $18,525,281 $0.80
(1) Non-recurring expenses of $3,180,951 associated with the impairment of
assets related to the closure of the Company's vegetable and fruit
processing facility in Yanling City.
(2) Non-cash income tax expense of $557,595 as the Company's shareholders
waived their right on private loans credited to Zhongpin and
transformed the liability to additional paid in capital invested in
Zhongpin, which incurred an income tax liability in 2008 according to
PRC tax laws.
(3) Non-cash compensation expense of $562,529 and $2,250,116 for the three
months ended December 31, 2007 and full year ended December 31, 2007,
respectively, in connection with the release from escrow to certain
employees of shares of common stock that had been deposited into
escrow to certain Zhongpin employees in connection with the Company's
private placement in January 2006.
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOW
(Amount in U.S. dollars)
Years Ended December 31,
2008 2007
Cash flows from operating activities:
Net income $31,376,946 $18,525,281
Adjustments to reconcile net income
to net case provided by (used in)
operations:
Depreciation 4,764,421 2,087,551
Amortization 602,511 397,975
Provision for allowance for bad debt 274,615 865,487
Impairment loss 3,180,951 --
Deferred tax assets (305,450) --
Deferred tax liabilities 93,103 --
Warrant expenses 145,791 15,950
Non-cash compensation adjustment 1,329,977 2,447,194
Changes in operating assets and
liabilities:
Accounts receivable (381,737) (4,938,690)
Other receivable 2,700,131 (2,849,234)
Purchase deposits (2,616,206) (5,818,276)
Prepaid expense (159,685) (1,459,077)
Inventories 10,830,892 (14,545,432)
Tax refunds receivable (3,495,617) (2,875,306)
Long term deferred charges (17,018) 46,140
Accounts payable 4,998,410 2,836,895
Other payable 2,942,790 3,555,551
Research and development grants
payable (273,807) 215,612
Accrued liabilities 491,730 1,265,329
Taxes payable 2,220,364 (388,705)
Deposits from customers 2,280,645 1,100,001
Deposits from clients - long
term portion
Net cash provided by (used in)
operating activities: 60,983,757 484,246
Cash flows from investing activities:
Construction in progress (76,572,004) (29,429,905)
Additions to property and equipment (15,031,502) (6,861,585)
Additions to intangible assets (11,573,776) (13,538,428)
Proceeds on sale of fixed assets 238,450 72,134
Increase in restricted cash (12,990,885) (3,417,545)
Net cash used in investing activities (115,929,717) (53,175,329)
Cash flows from financing activities:
Proceeds (repayment) from (of) Bank
notes 5,290,384 (9,332,527)
Proceeds from short-term loans 77,435,698 49,680,043
Repayment of short-term loans (60,883,458) (28,391,914)
Proceeds from long-term loans 21,589,878 (397,072)
Repayments of long-term loans (145,275) --
Proceeds from long-term payables 4,176,107 --
Proceeds from common stock -- 62,828,760
Proceeds from exercised warrants 1,543,587 --
Net cash provided by financing
activities 49,006,921 74,387,290
Effect of rate changes on cash 2,654,070 1,753,114
Increase (decrease) in cash and cash
equivalents $(3,284,970) $23,449,321
Cash and cash equivalents, beginning
of period 45,142,135 $21,692,814
Cash and cash equivalents, end of
period 41,857,166 $45,142,135
Supplemental disclosures of cash flow
information:
Cash paid for interest 5,462,627 $2,644,347
Cash paid for income taxes 1,162,359 $1,606,745
Sales by Division
Year Ended Year Ended
December 31, 2008 December 31, 2007
Sales Sales
Revenues Revenues
Metric (in Average Metric (in Average
Tons millions) Price/Ton Tons millions) Price/Ton
Pork and Pork
Products
Chilled
pork 128,962 $289.3 $2,243 88,665 $151.0 $1,743
Frozen pork 86,085 187.9 2,183 62,819 102.6 1,633
Prepared pork
products 24,621 53.7 2,181 16,416 29.2 1,779
Vegetables
and Fruits 13,472 8.9 661 11,743 8.6 732
Total 253,141 $539.8 $2,132 179,643 $291.4 $1,622
Sales by Distribution Channel
($ in millions)
Years Ended December 31 Net Percentage
2008 2007 Change of Change
Branded stores $226.9 $129.3 $97.6 75%
Food services
distributors 155.7 60.2 95.5 159%
Restaurants and
noncommercial 152.0 85.8 66.2 77%
Export 5.3 16.1 (10.8) (67)%
Total $539.8 $291.4 $248.4 85%
For more information, please contact:
Crocker Coulson, President
CCG Investor Relations
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com
Warren Wang, Chief Financial Officer
Zhongpin Inc.
Tel: +86-10-8286-1788
Email: ir@zhongpin.com
SOURCE Zhongpin Inc.