-- Revenues climb 116% year-over-year to a record $153.8 million --
Net income surged 90% to a record $10.1 million CHANGGE CITY,
Henan, China, Nov. 10 /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 third quarter ended September 30, 2008. Third
Quarter 2008 Highlights -- Revenues grew 116% year-over-year to a
record $153.8 million -- Gross profit increased 103% to a record
$19.6 million -- Net income increased 90% to a record $10.1
million, or $0.34 per fully diluted share -- 35 new retail outlets
were added, bringing the total number of retail outlets to 2,995 --
Operations commenced at the Company's new facility in Luoyang City,
adding 70,000 metric tons capacity of chilled and frozen pork
annually -- Grant received from Henan Government in recognition of
Zhongpin's contribution toward the advancement of meat processing
technology "Our exceptional financial performance in the third
quarter resulted from the strong demand for our high-quality
products and the additional capacity added by the Luoyang plant,
which came on line at the beginning of the third quarter. During
the quarter, China's hog industry benefited from the government's
constructive policies, resulting in an increased supply of hogs and
a moderation in live hog prices. As Chinese consumers continue to
place more focus on food safety issues, we believe Zhongpin's
reputation as a high quality, premium brand provides us with a
significant competitive advantage," commented Mr. Xianfu Zhu, CEO
of Zhongpin. "As we enter our peak season in the fourth quarter, we
believe we are poised to benefit from increased capacity, strong
demand and our expanding retail distribution network." Revenues for
the third quarter of 2008 increased for the twelfth consecutive
quarter to a record $153.8 million, up 116% from $71.3 million in
the third quarter of 2007. Zhongpin's strong revenue growth in the
third quarter resulted from an increase in both average sale prices
and sales volume and was driven by an increase in production
capacity contributed by the Luoyang plant. Sales volume increased
primarily due to the increase in hog supplies during the quarter,
which resulted in reduced hog prices. Expansion of the Company's
distribution channel and increased expenditure on marketing and
promotion also contributed to the growth in sales volume. During
the third quarter of 2008, the volume of pork products sold
increased 69% from the third quarter of 2007. Sales of chilled pork
accounted for 56% of net sales during the quarter, up from 52% a
year ago. Revenue from frozen pork was $51.9 million, up 109% from
$24.8 million in the third quarter of 2007. Prepared pork products
increased 106% to $13.8 million from $6.7 million in the same
period a year ago. Revenue from fruits and vegetables was $2.0
million, down $0.8 million from $2.8 million in the third 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
102% to $65.6 million from $32.5 million in the third quarter of
2007. During the quarter, Zhongpin added 35 new retail outlets,
including seven new showcase stores, 10 additional "branded" retail
stores and 18 new supermarket counters, for a total of 2,995 retail
outlets at September 30, 2008. Revenue from restaurants and
non-commercial businesses increased 97% to $41.2 million from $20.9
million in the same period a year ago, representing 27% of net
sales in the quarter. Food services distributors generated 29% of
net sales and showed the largest increase in revenue growth
year-over-year, up 248% to $45.6 million from $13.1 million in the
third quarter of 2007. Exports, which represented 1% of total
revenues, decreased 71% to $1.4 million from $4.8 million in the
comparable period in 2007. Gross profit in the third quarter of
2008 was $19.6 million, up 103%, from $9.7 million in the third
quarter of 2007. Gross margin was 12.7% in the third quarter of
2008 compared to 13.6% in the third quarter of 2007. With the
increase in production capacity, Zhongpin strived to increase its
market share and ramp up its capacity utilization rate, resulting
in a slight decline in gross margin. On a sequential basis, gross
margin increased 0.3 percentage points from 12.4% in the second
quarter of 2008. In the third quarter of 2008, general and
administrative ("G&A") expenses were $5.2 million, or 3.4% of
total revenues, compared to $2.4 million, or 3.4% of total
revenues, for the same quarter last year. G&A expenses in the
third quarter of 2007 included a non-cash compensation expense of
$0.56 million in connection with the release from escrow to certain
of our employees of shares of common stock that had been deposited
into escrow by such employees in connection with our January 2006
private placement. The increase in G&A expense in the third
quarter of 2008 was primarily due to increased investment in
R&D efforts and an increase in advertising expenses in an
effort to build Zhongpin's brand image. An increase in the number
of employees and option amortization expense incurred during the
quarter also contributed to the rise in G&A expense. Selling
expenses in the third quarter of 2008 were $3.0 million, or 2.0% of
revenue, compared to $1.1 million, or 1.5% of revenue, in the third
quarter of 2007. The increase in selling expenses was primarily due
to an increase in transportation costs as a result of revenue
growth. Also contributing to the increase in selling expenses were
higher salary expenses and an increase in the Zhongpin's salary
standard in 2008. Income from operations for the third quarter of
2008 was $11.4 million, up 84% as compared to $6.2 million for the
third quarter of 2007. Operating margin for the quarter was 7.4%,
compared to 8.7% for the third quarter of 2007. Net income for the
third quarter of 2008 was $10.1 million, or $0.34 per fully diluted
share, up from net income of $5.3 million, or $0.23 per fully
diluted share, in the third quarter of 2007. Nine Month Financial
Results For the first nine months of 2008, revenue increased to
$400.0 million, up 110% from $190.8 million in the first nine
months of 2007. Gross profit increased 99% in the first nine months
of 2008 to $50.9 million from $25.6 million in the comparable
period a year ago. Gross margin was 12.7% in the first nine months
of 2008 compared to 13.4% in the first nine months of 2007. Income
from operations increased 80% to $28.5 million compared to $15.8
million in the same period a year ago. Net income for the first
nine months of 2008 was $25.9 million, or $0.89 per fully diluted
share, up 92% from $13.5 million, or $0.65 per fully diluted share,
in the first nine months of 2007. Financial Condition As of
September 30, 2008, Zhongpin had $54.2 million in cash and cash
equivalents, $17.8 million in long-term debt, excluding the current
portion, $120.3 million in total liabilities and working capital of
$18.9 million. Accounts receivable turnover decreased to 13 days
during the third quarter of 2008. Shareholders' equity stood at
$182.9 million as of September 30, 2008, up 28% from $143.0 million
at December 31, 2007. Net cash from operating activities during the
first nine months of 2008 was $47.6 million. Subsequent Events In
November 2008, Zhongpin commenced production at its new prepared
meat facility in Changge City, Henan Province and increased annual
production capacity for prepared meat products to 54,000 metric
tons, a 114% increase over Zhongpin's earlier capacity of 25,200
metric tons. The new plant utilizes automated state-of-the-art
technology and advanced equipment that uses an industrialized
production process capable of producing high-quality meat products.
Zhongpin expects the new facility to achieve an over 80%
utilization rate by the second quarter of 2009. In October 2008,
Zhongpin named Mr. Feng (Warren) Wang as its new Chief Financial
Officer. Ms. Yuanmei Ma, Zhongpin's former Chief Financial Officer,
resigned from the post for personal reasons. Business Outlook
Zhongpin continues to move forward with its expansion plans and is
currently building a chilled and frozen pork facility in Shangqiu
City in eastern Henan Province, which is expected to begin
operations in January of 2009 and will expand Zhongpin's annual
capacity for chilled and frozen pork by 80,000 metric tons. The
upgrade and expansion of Zhongpin's fruit and vegetables production
line in Changge City, Henan Province is expected to begin
production in January of 2009. This new line will bring Zhongpin's
total annual production capacity for fruits and vegetables to
56,280 metric tons annually, including outsourcing from OEM
suppliers. Capital expenditures for the next twelve months are
expected to be $27.2 million. Zhongpin's financial position is
strong with a steady flow of cash from operations, a sizable cash
balance and readily available lines of credit. Zhongpin is
confident in its ability to meet guidance for its full year 2008
revenues in the range of $550 million to $570 million, gross margin
of at least 12.7% and fully diluted earnings per share in the range
of $1.15 to $1.19, assuming a fully diluted share count of 30.7
million shares outstanding. This guidance excludes the impact of
any future acquisitions. "We believe the market fundamentals of
China's pork industry remain favorable despite the recent global
economic slowdown. Pork consumption in China's rural and urban
areas is expected to increase due to a growing demand for high
quality and safe food products. Zhongpin's sophisticated quality
control standards, advanced cold-chain logistics, and hygienic
production processes instill consumer confidence regarding the
quality of our products. In addition, the Chinese government's
recent reforms designed to improve the overall health of the rural
economy should provide 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. "In the months ahead, we will
focus on expanding our retail distribution and brand-building
initiatives in order to leverage our increased production capacity,
improve our utilization levels, capture consumer demand, and
penetrate new markets. We also will continue to evaluate strategic
alternatives to broaden our geographic footprint and further expand
our business and scale of operations." Conference Call Information
Management will conduct a conference call at 9:00 a.m. Eastern
Standard Time on Monday, November 10, 2008 to discuss its 2008
third quarter results. Hosting the call will be Mr. Crocker
Coulson, President of CCG Investor Relations, joined by Mr. Xianfu
Zhu, Chairman and Chief Executive Officer, Mr. Baoke Ben, Board
Director and Executive Vice President, and Mr. Warren Wang, 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: 888-
481-7939. International callers should dial 617-847-8707. The pass
code for the call is 41829644. If you are unable to participate in
the call at this time, a replay will be available on Monday,
November 10, 2008 at 11:00 a.m. Eastern Standard Time, through
Monday, November 17, 2008. To access the replay, dial 888-286-8010.
International callers should dial 617-801-6888. The conference pass
code is 32042757. The conference call 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 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 24 provinces and includes over 2,995 retail outlets.
Zhongpin's export markets include the European Union, Eastern
Europe, Russia, Hong Kong, Japan and South Korea. For more
information, contact CCG Investor 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 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) September 30, December 31, 2008 2007 ASSETS
(Unaudited) Current assets Cash and cash equivalents $54,177,858
$45,142,135 Restricted cash 5,352,014 3,559,401 Bank notes
receivables 2,054,082 -- Accounts receivable, net of allowance for
doubtful accounts of $2,345,021 and $1,341,872 17,435,950
18,982,312 Other receivables 1,995,784 4,826,279 Purchase deposits
9,425,477 6,059,782 Prepaid expenses and deferred charges 240,042
1,680,679 Inventories 22,846,850 25,922,125 VAT recoverable
7,900,828 4,350,795 Total current assets 121,428,885 110,523,508
Property, plant and equipment (net) 113,851,995 66,429,654
Construction in progress 42,814,682 16,811,740 Land use rights
25,157,893 23,339,142 Total assets $303,253,455 $217,104,044
LIABILITIES AND EQUITY Current liabilities Accounts payable
$6,026,935 $4,145,842 Other payables 11,856,580 8,746,845 Bank
notes payable 2,209,164 6,160,502 Accrued liabilities 6,983,464
3,014,600 Short-term bank loans payable 69,544,470 47,668,592
Deposits from customers 4,701,742 1,876,665 Research and
development grants payable 457,072 490,288 Long-term bank loans
payable-current portion 145,671 145,671 Tax payable 633,043 202,676
Total current liabilities 102,558,141 72,451,681 Long-term loans
payable 17,762,467 1,634,769 Total liabilities 120,320,608
74,086,450 Equity Preferred stock: par value $0.001; 25,000,000
authorized; 2,229,200 and 3,125,000 shares issued and outstanding
2,229 3,125 Common stock: par value $0.001; 100,000,000 authorized;
27,371,585 and 25,891,567 shares issued and outstanding 27,372
25,892 Additional paid in capital 102,479,375 100,070,571 Retained
earnings 60,592,012 34,732,049 Accumulated other comprehensive
income 19,831,859 8,185,957 Total equity 182,932,847 143,017,594
Total liabilities and equity $303,253,455 $217,104,044 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, 2008
2007 2008 2007 (Restated) (Restated) Revenues Sales revenues
$153,752,841 $71,312,992 $400,007,165 $190,783,230 Cost of sales
(134,166,298)(61,641,917)(349,125,172)(165,192,668) Gross profit
19,586,543 9,671,075 50,881,993 25,590,562 Operating expenses
General and administrative expenses (5,199,366) (2,419,576)
(15,044,238) (6,488,794) Selling expenses (3,032,930) (1,067,048)
(7,348,563) (3,311,409) Total operating expenses (8,232,296)
(3,486,624) (22,392,801) (9,800,203) Income from operations
11,354,247 6,184,451 28,489,192 15,790,359 Other income (expense)
Interest income 118,304 42,932 1,288,629 169,856 Other income
(expenses) 64,439 101,339 (36,883) 238,315 Government subsidies
482,801 36,540 1,054,684 39,989 Interest expense (1,768,414)
(701,616) (3,741,767) (1,772,957) Total other income (expense)
(1,102,870) (520,805) (1,435,337) (1,324,797) Net income before
taxes 10,251,378 5,663,646 27,053,856 14,465,562 Provision for
income taxes 200,986 370,509 1,193,893 982,902 Net income
$10,050,392 $5,293,137 $25,859,963 $13,482,660 Foreign currency
translation adjustment 1,875,399 1,162,162 11,645,902 2,697,417
Comprehensive income $11,925,791 $6,455,299 $37,505,865 $16,180,077
Basic earnings per common share $0.34 $0.27 $0.90 $0.86 Diluted
earnings per common share $0.34 $0.23 $0.89 $0.65 Basic weighted
average shares outstanding 29,543,640 19,259,575 28,587,297
15,604,355 Diluted weighted average shares outstanding 29,905,010
23,421,587 29,019,128 20,878,935 ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (Amount in U.S. dollars)
(Unaudited) Nine Months Ended September 30, 2008 2007 Cash flows
from operating (Restated) activities: Net income $25,859,963
$13,482,660 Adjustments to reconcile net income to net cash
provided by (used in) operations: Depreciation 3,194,119 1,318,451
Amortization 321,975 247,493 Provision for allowance for bad debt
876,515 -- Warrant expense 145,791 15,950 Non-cash compensation
expense 1,026,674 1,715,999 Changes in operating assets and
liabilities: Accounts receivable 2,026,268 (7,553,889) Other
receivables 3,106,460 (1,877,685) Purchase deposits (1,276,496)
(366,173) Prepaid expense and deferred charges (26,296) (254,292)
Inventories 4,900,962 (5,799,057) VAT recoverable (3,131,223)
(443,004) Accounts payable 1,523,517 5,507,172 Other payables
2,416,588 3,447,179 Research and development grants payable 15,729
(21,035) Accrued liabilities 2,756,036 1,130,281 Taxes payable
1,300,681 (325,604) Deposits from clients 2,608,668 4,956,464 Net
cash provided by operating activities 47,645,931 15,180,910 Cash
flows from investing activities: Construction in progress
(57,838,392) (27,345,849) Additions to property and equipment
(10,691,673) (5,627,248) Additional to intangible assets (370,161)
(7,556,552) Proceeds on disposal of fixed -- assets 75,669 Net cash
used in investing activities (68,824,557) (40,529,649) Cash flows
from financing activities: Proceeds (repayment) from (of) bank
notes (6,293,518) (65,214) Proceeds from short-term bank loans
68,452,935 44,214,892 Repayment of short-term loans (50,695,270)
(20,737,958) Proceeds from long-term bank loans 15,752,767 --
Repayment of long-term bank loans (195,111) (146,188) Proceeds from
exercised warrants 1,236,923 16,010,511 Net cash provided by
financing activities 28,258,726 39,276,043 Increase in restricted
cash (1,480,708) (541,721) Effect of rate changes on cash 3,436,331
1,094,616 Increase in cash and cash equivalents 9,035,723
14,480,199 Cash and cash equivalents, beginning of period
45,142,135 13,351,045 Cash and cash equivalents, end of period
$54,177,858 $27,831,244 Supplemental disclosures of cash flow
information: Cash paid for interest 3,691,752 1,791,177 Cash paid
for income taxes 436,073 673,165 For more information, please
contact: Crocker Coulson, President CCG Investor Relations Tel:
+1-646-213-1915 Email: Web: http://www.ccgirasia.com/ Warren Wang,
Chief Financial Officer Zhongpin Inc. Tel: +86-10-8286-1788 Email:
DATASOURCE: Zhongpin Inc. CONTACT: Crocker Coulson, President of
CCG Investor Relations, +1-646- 213-1915, ; Warren Wang, Chief
Financial Officer of Zhongpin Inc., +86-10-8286 1788, or Web site:
http://www.ccgirasia.com/ http://www.zpfood.com/
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