BEIJING and NEW YORK, June 5,
2011 /PRNewswire-Asia-FirstCall/ -- Zhongpin Inc.
("Zhongpin", Nasdaq: HOGS), a leading meat and food processing
company in the People's Republic of
China, today summarized the briefings and discussions held
during its investor tour of Zhongpin's factories on May 30 and 31, 2011, and provided other
information of interest not covered.
Mr. Xianfu Zhu, Chairman and
Chief Executive Officer of Zhongpin Inc., said, "We are very
pleased that 30 investors and security analysts came to visit our
production facilities in Tianjin
and Changge. They saw firsthand our plants, production, processes,
and quality assurance, and learned how we achieve the highest
product quality and safety – from farm to fork. To extend the
understanding of our production-focused briefings and discussions
to other investors, we are providing the summary of the major
points in our briefings and discussions during the two days, plus
other information of interest not covered."
Tour on May 30
On the afternoon of May 30 in Tianjin, tour
participants visited the Zhongpin's chilled and frozen pork
production operations, the adjacent construction site for the
second phase of the site development, which will be a plant
producing prepared pork products, and nearby supermarket counters
where Zhongpin products are sold.
Highlights of the briefings and discussions in Tianjin, plus other information not covered,
include the following points:
1. Zhongpin's gross profit margins are usually higher than
Chinese industry peers for the following reasons.
Companies determine their own transaction patterns, industrial
layouts, and development strategies, and so on, depending on their
conditions. Different product and distribution channel structures,
sales strategy, positioning, and resource allocations result in
gross margin differences.
Zhongpin's industrial cluster approach is duplicated in each of
the geographic locations in which the company expands.
Our industrial cluster model has evolved over several years into
a proven "best practice" that includes comprehensive market
analysis, the design and structure for each processing facility,
and the design, structure, integration, and synergy of each of the
processing facilities into the whole industrial cluster. In
addition to production, included are quality assurance and quality
control, employee training, cold-chain logistics, and often a
research & development facility.
Our integrated industrial cluster approach has reduced
management and transaction costs due to both effectiveness and
efficiency.
For example, for chilled pork, the benefits have led to improved
earnings among regions, time periods, channels, and product
structures.
In our product line structure, we are focusing on increasing the
proportion of our sales derived from high-margin products that
include chilled pork and new customized products, especially those
developed through our R&D to have the taste desired in specific
regional markets and to be easy to prepare.
The structure of our distribution channel is based on providing
the highest product quality and safety -- from our plants to our
customers' coolers or freezers – by using our cold-chain logistics
system integrated with our advanced IT system.
In developing our customers, we focus on four market segments:
(1) customers in retail channels who require the highest quality
and highest value products – for example, upper income food store
chains, (2) customers who cater to upper income customers – for
example, upper income restaurants and restaurant chains, (3)
organizations that provide group meals with requirements for
customized services – for example, government customers, including
the military, government food services, and from time to time, the
national pork reserve, (4) and high-volume customers who require
high quality – for example, food facilities that feed employees in
major companies.
Our downstream operations, of course, involve mainly our
cold-chain logistics distribution system and our customers.
We also are involved in the upstream supply of raw materials,
since they influence our pork product quality and safety.
We have perfected a strategic cooperation model integrating
resources that include the raisers of sire boars, feed producers,
farms, local commercial banks, and the government. The government
helps us to coordinate the whole model.
The upstream – before the hogs reach our plants – includes our
support for creating the best sire boars that will provide the best
male hogs for meat, the best feed providers and best feed
formulations that will result in the best pork meat, and the best
farms with the best farm management and best medical support for
hogs, especially larger professional farms where the managers view
the production of hogs for premium pork as a full-time professional
business.
Then comes our slaughtering and meat processing facilities, our
integrated IT, and our cold-chain logistics distribution
systems.
Downstream from us are our customers and their coolers and
freezers, of course.
Also downstream, in another sense, are the local commercial
banks that extend credit to these farms and farmers to help them
expand their inventories.
2. Zhongpin's advanced processes usually produce higher yields
of carcass meat and all pork products than are typical.
The concept of the carcass dressing rate is different from the
pork products production rate.
The dressing rate of carcass meat is calculated by dividing the
weight of carcass meat – primarily the muscles that are used for
food (excluding the head, trotters, skin, viscera, etc.) -- by the
weight of the live hog. Carcass meat usually is about 65% to 70% of
the live hog's weight, and the average weight of carcass meat is
around 65 to 85 kilograms per hog.
The overall production rate is calculated by dividing the weight
of all pork products (muscles plus other parts that can be used as
co-products or by-products) by the live hog's weight. All pork
products typically total about 94% to 95% of the live hog's weight
or about 90 to 110 kilograms per hog.
3. Zhongpin's advanced industrial cluster concept usually
results in more rapid improvement in capacity utilization for new
plants than is typical.
Generally, a company's capacity utilization will be temporarily
lower when new facilities are opened. Capacity utilization for a
new plant then usually increases to its reasonable level in about
three to six months. This is because the market is often new to a
company and the production increases as the market develops and
grows. Sometimes the mix of products demanded is different than
expected and production is changed to produce the products
demanded.
Our new facility in Tianjin
reduced our capacity utilization by only a little for a short
period of time. This is because our original leased facility in
Tianjin had been operating for two
years, so we already had several significant customers and had
established a good market distribution channel, so our market share
increased nicely as our new capacity came on line. In addition,
most employees in the new Tianjin
plant are experienced workers from the original leased factory.
Tour on May 31
During May 31, the investor group visited the company's
home town of Changge in the Henan province and saw
chilled and frozen pork production, prepared pork production, and
the cold-chain logistics and transportation system. They also
visited retail stores and supermarket counters, and received
summary briefings on government policies, food safety, and industry
consolidation.
Highlights of the briefings and discussions in Changge, plus
other information not covered, include the following points:
4. Zhongpin's capital investment intensity is intentionally
higher than is typical because Zhongpin has chosen to focus on high
income markets and to provide the highest product quality and
safety to customers.
Zhongpin's capital investment intensity is at the upper level of
the industry – because we have focused on supplying the upper
income market.
To provide product quality and safety at the highest world
standard, we have correctly chosen the best approach that has
resulted in the integration of the best equipment and industrial
process engineering, the best quality assurance system backed by
quality control labs with scientific verification, efficient
temperature-controlled cold storage facilities, supporting R&D
for new products and new processes and for current product &
process improvements, and our cold-chain logistics distribution
system that assures that the quality and safety of our products are
maintained until they are delivered to our customers. Much of the
machinery in our new facilities comes from the United States, South Korea, and Europe.
By creating the most effective and efficient operations as a
complete end-to-end standardized system, plus extensive employee
training, the results are highly reliable, consistent, high-volume,
and safe operations that produce high-quality and safe products,
are energy efficient, and have a low cost per metric ton produced
over the longest period of time. In other words, it provides
essentially the best of everything at a low competitive cost per
metric ton over the life cycle.
5. Zhongpin also added further explanation about its new bank
line of credit with China Construction Bank ("CCB").
The new framework agreement with China Construction Bank
provides Zhongpin with a credit line of RMB
10 billion. As with all bank lines of credit, the company
will negotiate all terms and conditions with CCB when it needs to
access funds. Those include use of proceeds, duration, interest
rate, temporary pledge of assets, and so on.
About Zhongpin
Zhongpin Inc. is a meat and food processing company that
specializes in pork and pork products, vegetables, and fruits in
China. Its distribution network in
China covers 20 provinces plus
Beijing, Shanghai, Tianjin, and Chongqing and includes 3,378 retail outlets.
Zhongpin's export markets include Europe, Hong
Kong, and other countries in Asia. For more information about Zhongpin,
please visit Zhongpin's website at http://www.zpfood.com.
Safe harbor statement
Certain statements in this news release are forward-looking
statements made under the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. Zhongpin has based its
forward-looking statements largely on its current expectations and
projections about future events and trends that it believes may
affect its business strategy, results of operations, financial
condition, and financing needs.
These projections 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 downturns in the Chinese economy, unanticipated
changes in product demand, interruptions in the supply of live pigs
and or raw pork, the effects of weather on hog feed production,
poor performance of the retail distribution network, delivery
delays, freezer facility malfunctions, Zhongpin's ability to build
and commence new production facilities according to intended
timelines, the ability to prepare Zhongpin for growth, the ability
to predict Zhongpin's future financial performance and financing
ability, changes in regulations, and other information detailed in
Zhongpin's filings with the United States Securities and Exchange
Commission. These filings are available from www.sec.gov or from
Zhongpin's website at www.zpfood.com.
You are urged to consider these factors carefully in evaluating
Zhongpin's forward-looking statements and are cautioned not to
place undue reliance on those forward-looking statements, which are
qualified in their entirety by this cautionary statement. All
information provided in this news release is as of the date of this
release. Zhongpin does not undertake any obligation to update any
forward-looking statement as a result of new information, future
events, or otherwise, except as required by law.
For more information, please contact:
Zhongpin Inc.
Mr. Sterling Song (English and
Chinese)
Investor Relations Manager
Telephone +86 10 8286 1788 extension 101 in Beijing
ir@zhongpin.com
Mr. Warren (Feng) Wang (English
and Chinese)
Chief Financial Officer
Telephone +86 10 8286 1788 extension 104 in Beijing
warren.wang@zhongpin.com
Christensen
Mr. Christian Arnell (English and
Chinese)
Telephone +86 10 5826 4939 in Beijing
carnell@christensenir.com
Mr. Tom Myers (English)
Mobile +86 139 1141 3520 in Beijing
tmyers@christensenir.com
Ms. Kathy Li (English and
Chinese)
Telephone +1 212 618 1978
kli@christensenir.com
SOURCE Zhongpin Inc.