EX-99.1
[GRAPHIC]
ZHONGPIN
FOR IMMEDIATE RELEASE
ZHONGPIN INCORPORATED REPORTS RECORD SECOND QUARTER 2006 RESULTS
RECORD REVENUES CLIMB 71% TO $31.8 MILLION
NET INCOME RISES 112% TO $3.9 MILLION
CHANGGE CITY, HENAN PROVINCE, PRC - AUGUST 10, 2006 - Zhongpin Inc. (OTC
BB:ZHNP), a leading meat and food processing company in the People's Republic of
China ("PRC"), today reported financial results for the second quarter ended
June 30, 2006.
Q2 HIGHLIGHTS
o Revenues up 71% year-over-year to record $31.8 million
o Net income increased 112% to $3.9 million, or $0.17 per share
o 36 new products introduced bringing total products to just under 200
Revenues for the second quarter of 2006 were $31.8 million, an increase of 70.9%
from $18.6 million in the second quarter of 2005. Operating income for the
quarter increased to $3.0 million, up 23.7% from $2.4 million in the second
quarter 2005. Net income increased 112.4% to $3.9 million, or $0.17 per fully
diluted share, compared to $1.8 million, or $0.15 per fully diluted share, in
the second quarter of 2005. Net income in the current quarter includes allowance
income in the amount of $1.1 million relating to a cash grant received by
Zhongpin from the PRC government for the construction of a pork production line.
Diluted earnings per share in the current quarter reflect an additional
11,385,000 weighted average shares related to a private placement of Series A
convertible preferred stock and warrants in January 2006.
Commenting on the quarter, Xianfu Zhu, CEO of Zhongpin Inc., said "Our strong
performance for the quarter is the result of a combination of increasing our
customer base and the competitive advantages we derive from our fully-integrated
processing system. While our near-term margins were slightly impacted by higher
raw material costs, we expect our margins to improve through increased operating
efficiencies in our supply chain and customer optimization. We also launched
several promotional campaigns in major markets during the quarter that provided
increased visibility for our brands."
Revenue growth in the quarter was driven by sales of chilled fresh pork and
frozen pork, which accounted for 48% and 39% of total revenues, respectively.
This compares to 45% and 44%, respectively, in the second quarter of 2005. The
increase reflects the growing popularity of chilled fresh meat among Chinese
consumers. Meat products contributed 8% of revenues and fruits and vegetables
contributed the remaining 5%.
The Company continued to expand its retail channel in the second quarter of 2006
through the addition of 37 new outlets, bringing the total to 2,297. The retail
channel, which includes showcase stores, network stores and supermarket
counters, accounted for the greatest portion of revenues at 49%. Restaurant
chains and non-commercial organizations, which is the fastest growing channel
and also has higher margins than the traditional retail channel, accounted for
27.6% of revenues. Food service distributors contributed 15.2% of total revenues
and international sales contributed 8% of total revenues during the second
quarter of 2006.
Gross profit for the second quarter of 2006 was $4.7 million, an increase of
56.6% over gross profit in the second quarter of 2005 of $3.0 million. Gross
margin for the quarter was 14.9% of revenues, compared to 16.2% of revenues for
the same period in 2005. The decrease in gross margins was primarily due to the
increased cost of raw materials.
For the quarter, general and administrative (G&A) expenses were $1.0 million, or
3.2% of revenues, as compared to $0.3 million, or 1.5% of revenues, in the
comparable quarter last year. The increase in general and administrative
expenses was primarily related to the expansion of our operations as well as the
increased costs associated with being a public company.
Operating income for the second quarter increased by 23.7% to $3.0 million, or
9.4% of revenue, compared to $2.4 million, or 13.0% of revenue, for the second
quarter of 2005.
Other income was $1.1 million, compared to other expense of $0.5 million in the
second quarter of 2005. The current quarter included allowance income in the
amount of $1.1 million related to a portion of a PRC government grant that was
used for the construction of pork production line.
Net income for the quarter increased 112.4% to $3.9 million, compared to $1.8
million for the three months ended June 30, 2005. Diluted earnings per share
were $0.17 for the second quarter of 2006, as compared to $0.15 for the same
period last year.
Revenues for the first half of 2006 increased 88.7% to $62.3 million, compared
to $33.0 million in the same period last year. Gross profit was $9.3 million, up
65.7% from $5.6 million in the first half of 2005. Operating income was $5.9
million, up 32.6% from $4.4 million from the same period a year earlier. Net
income increased 81.1% to $6.4 million, compared to $3.6 million in the first
half of 2005. Diluted earnings per share were $0.30 for the first half of 2006,
which was unchanged from the same period last year.
FINANCIAL CONDITION
As of June 30, 2006, Zhongpin had $14.5 million in cash and cash equivalents,
$9.7 million in working capital, and $2.1 million in long-term debt.
Shareholders' equity stood at $44.3 million, up from $14.5 million at year end
2005.
BUSINESS OUTLOOK
For the remainder of 2006, Zhongpin plans to increase its production capacity,
expand its distribution channels, optimize its customer base and continue to
increase awareness of the ZHONGPIN and SHENGPIN brands. The Company also plans
to increase its production capacity by an additional 72,000 metric tons per year
by building a new facility in Zhumadian, Henan province.
Zhongpin remains comfortable with its guidance for fiscal 2006 previously
disclosed earlier this year of $117.7 million in revenues and $10.1 million in
net income.
"Our industry remains strong as demand for fresh meat products continue to rise
in China. This is supported by the PRC's "safe meat" policies and grants to meat
processors, which results in higher quality products available for consumers,"
said Xianfu Zhu. "Going forward we will continue to build our brands and
optimize our customer base to meet the increasing demand. In addition, our
state-of-the-art logistics system provides the platform for us to expand our
geographical presence and deliver fresh meat products in new markets outside of
the Henan province."
WEBCAST INFORMATION
Management will conduct a conference call to discuss Zhongpin's second quarter
financial results and provide a corporate overview. The conference call will
take place at 8:00 a.m. Eastern Time, on Thursday, August 10, 2006. To
participate in the live conference call, please dial the following number five
to ten minutes prior to the scheduled conference call time: (888) 482-0024.
International callers should dial (617) 801-9702. Callers from China should dial
10 800 130 0399. When prompted by the operator, mention Conference ID 39174488.
The conference will be broadcast live over the Internet and can be accessed by
all interested parties at Zhongpin's website at http://www.zhongpin.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 webcast, an audio replay of the
conference call will be archived on the Company's website for 90 days.
ABOUT ZHONGPIN INC.
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 twenty-four provinces and includes over 2,290 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.
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.
Contact: Zhongpin, Inc.
Room 605A, Tower A Raycom Info
Tech Park
No.2, Kexueyuan South Road
Zhongguancun, Haidian District
Beijing, 100080
Phone: 86 010 828 61788
Boake Ben,
Executive Vice President & Secretary
CCG Investor Relations Inc.
10960 Wilshire Boulevard, Suite 2050
Los Angeles, California 90024
Phone: 310-231-8600 ext. 103
Crocker Coulson,
President
--FINANCIAL TABLES BELOW
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNT IN U.S. DOLLARS) (UNAUDITED)
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
--------------------------------- --------------------------------
2006 2005 2006 2005
---- ---- ---- ----
Revenues
Sales revenues $ 31,777,348 $18,591,118 $ 62,270,855 $ 32,996,247
Cost of sales 27,052,820 15,574,225 52,966,975 27,383,004
------------- ----------- ------------ ------------
Gross profit 4,724,528 3,016,893 9,303,880 5,613,243
Operating expenses
General and administrative expenses 1,023,054 276,520 1,922,078 500,169
Operating expenses 716,090 327,304 1,520,236 692,663
------------- ----------- ------------ ------------
Total operating expenses 1,739,144 603,824 3,442,314 1,192,832
------------- ----------- ------------ ------------
Income from operations 2,985,384 2,413,069 5,861,566 4,420,411
Other income (expense)
Interest income 149,648 40,364 245,338 89,269
Other income (expenses) 23,844 (17,978) 36,236 (3,304)
Allowances income 1,113,661 5,435 1,226,845 44,082
Exchange gain 4,319 (31,103) 18,028 (42,276)
Interest expense (227,587) (458,908) (607,815) (808,658)
------------- ----------- ------------ ------------
Total other income (expense) 1,063,885 (462,190) 918,632 (720,887)
------------- ----------- ------------ ------------
Net income before taxes 4,049,269 1,950,879 6,780,198 3,699,524
Provision for income taxes 171,945 122,789 317,190 122,789
------------- ----------- ------------ ------------
Net income after taxes 3,877,324 1,828,090 6,463,008 3,576,735
Minority interest 8,575 6,801 19,295 19,055
------------- ----------- ------------ ------------
Net income $ 3,868,749 $ 1,821,289 $ 6,443,713 $ 3,557,680
============= =========== ============ ============
Foreign currency translation adjustment $ 123,941 $ - $ 265,091 $ -
------------- ----------- ------------ ------------
Comprehensive income $ 3,992,690 $ 1,821,289 $ 6,708,804 $ 3,557,680
============= =========== ============ ============
Basic earnings for common share $ 0.21 $ 0.15 $ 0.37 $ 0.30
Diluted earnings per common share $ 0.17 $ 0.15 $ 0.30 $ 0.30
Basic weighted average shares outstanding 11,752,578 11,752,578 11,752,578 11,752,578
Diluted weighted average share outstanding 23,137,578 11,752,578 21,240,078 11,752,578
TABLES
(US $ millions) REVENUE BY CHANNEL
June 30 2006 June 30 2005
RETAIL $15.60 49.2% $8.9 48.0%
FOOD DISTRIBUTOR $4.82 15.2% $3.1 16.8%
RESTAURANT AND NON-COMMERCIAL $8.75 27.6% $4.7 25.0%
EXPORTS $2.54 8.0% $1.9 10.2%
-------------------------------------------------
TOTAL $31.70 100.0% $18.6 100.0%
(US $ millions) REVENUE BY PRODUCT LINE
June 30 2006 June 30 2005
CHILLED PORK $15.2 48.0% $8.37 45.0%
FROZEN PORK $12.4 39.0% $8.18 44.0%
MEAT PRODUCTS $2.5 8.0% $1.49 8.0%
VEGETABLES $1.6 5.0% $0.56 3.0%
-------------------------------------------------
TOTAL $31.7 100.0% $18.6 100.0%
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN U.S. DOLLARS)
JUNE 30, 2006 DECEMBER 31, 2005
------------- -----------------
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $ 14,519,039 $ 10,142,394
Accounts receivable and other receivables 14,733,543 10,002,918
Purchase deposits 88,873 220,836
Prepaid expenses and deferred charges 140,985 99,009
Inventories 6,352,818 2,347,312
Tax refund receivables 794,618 644,232
------------- -------------
Total current assets 36,629,876 23,456,701
Property, plant and equipment (net) 22,638,938 10,212,848
Related party receivables 270,148 267,658
Other receivables - 632,063
Construction contracts 8,814,597 16,931,178
Intangible assets 5,476,867 1,753,124
------------- -------------
Total assets $ 73,830,426 $ 53,253,572
============= =============
LIABILITIES AND EQUITY
Current liabilities
Bank overdraft $ - $ 619,579
Accounts payable and other payables 10,363,474 10,278,464
Accrued liabilities 968,793 759,420
Short term loans payable 12,944,619 18,995,853
Taxes payable 943,674 2,055,925
Deposits from clients 250,331 769,398
Research and development grants payable 1,339,887 2,436,804
Long term loans payable-current portion 145,671 145,671
------------- -------------
Total current liabilities 26,956,449 36,061,114
Long term loans payable 2,107,165 2,264,448
------------- -------------
Total liabilities 29,063,614 38,325,562
Minority interest 431,037 411,742
Equity
Preferred stock: par value $0.001; 10,000,000 authorized;
6,900,000 shares issued and outstanding 6,900 -
Common stock: par value $0.001; 25,000,000 authorized;
11,752,578 shares issued and outstanding 11,753 11,753
Additional paid in capital 25,206,736 2,102,933
Retained earnings 18,541,547 12,097,834
Accumulated other comprehensive income 568,839 303,748
------------- -------------
Total equity 44,335,775 14,516,268
------------- -------------
Total liabilities and equity $ 73,830,426 $ 53,253,572
============= =============
ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNT IN U.S. DOLLARS) (UNAUDITED)
SIX MONTHS ENDED JUNE 30,
2006 2005
----- ----
Cash flows from operating activities:
Net income $ 6,443,713 $ 3,557,680
Adjustments to reconcile net income to
net cash provided by (used in) operations:
Minority interest 19,295 214,854
Depreciation 361,958 290,522
Amortization 51,605 10,923
Exchange gain (18,027) -
Provision for allowance for bad debt (76) -
Changes in operating assets and liabilities:
Accounts receivable and other receivables (4,101,052) (4,122,488)
Purchase deposits 131,963 1,580
Prepaid expense and deferred charges (41,976) (128,046)
Inventories (4,005,506) (1,059,548)
Tax refunds receivable (150,386) (1,786)
Accounts payable and accrued liabilities (802,534) (291,419)
Taxes payable (1,112,251) (46,193)
Deposits from clients (519,067) 139,634
------------- ------------
Net cash provided by (used in) operating activities $ (3,742,341) $ (1,434,287)
Cash flows from investing activities:
Construction in progress - (250,349)
Additions to fixed assets (4,669,791) (378,489)
Additions to intangible assets (3,775,109) -
------------- ------------
Net cash used in investing activities $ (8,444,900) $ (628,838)
Cash flows from financing activities:
Repayment of Bank overdraft (619,579) -
Proceeds from short-term loans 10,492,500 16,550,797
Repayment of short-term loans (16,543,734) (4,657,450)
Repayment of long-term loans (157,283) (1,582,575)
Proceeds from preferred stock 23,110,703 -
Payments of dividends - -
------------- ------------
Net cash provided by financing activities $ 16,282,607 $ 10,310,772
Effect of rate changes on cash 283,194 -
Increase (decrease) in cash and cash equivalents 4,376,645 8,247,647
Cash and cash equivalents, beginning of period 10,142,394 5,204,637
------------- ------------
Cash and cash equivalents, end of period $ 14,519,039 $ 13,452,284
------------- ------------
Supplemental disclosures of cash flow information:
Cash paid for interest $ 636,044 $ 808,658
============= ============
Cash paid for income taxes $ 312,672 $ -
============= ============
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