Zhongpin Reports Higher Revenues and Lower Net Income for the Third
Quarter 2012
BEIJING and CHANGGE,
China, Nov.
8, 2012 /PRNewswire-FirstCall/ -- Zhongpin Inc. ("Zhongpin"
or the "Company," Nasdaq: HOGS), a leading meat and food processing
company in the People's Republic of
China, today reported higher sales revenues and lower net
income for the three months ended September
30, 2012 compared with the third quarter 2012.
Third quarter 2012 highlights:
- Sales revenues increased 4% to $415.7
million for the three months ended September 30, 2012 from $398.1 million in the third quarter 2011
primarily due to higher sales volume for pork products sold at
lower average selling prices.
- Net income decreased 40% to $11.0
million in the third quarter 2012 from $18.3 million in the third quarter 2011 primarily
due to a lower gross profit margin, the cost of more employees to
support expansion, higher salaries, higher promotional activities,
rising labor and utility costs, and higher interest expenses. The
higher expenses were mainly due to the higher volume of business
and intense competitive pressure in the pork market.
- Basic earnings per common share (based on net income
attributable to Zhongpin shareholders) decreased 35% to
$0.30 in the third quarter 2012 from
$0.46 in the third quarter 2011.
Weighted average basic shares outstanding decreased 7% to
37,198,909 shares in the third quarter 2012 from 39,918,816 shares
in the third quarter 2011.
- Diluted earnings per common share (based on net income
attributable to Zhongpin shareholders) decreased 35% to
$0.30 in the third quarter 2012 from
$0.46 in the third quarter 2011.
Weighted average diluted shares outstanding decreased 7% to
37,240,843 shares in the third quarter 2012 from 39,918,816 shares
in the third quarter 2011.
- 40,376,182 common shares were issued as of September 30, 2012, of which 37,209,344 were
outstanding and 3,166,838 were held by Zhongpin as treasury
shares.
- The Company maintains its previous guidance for 2012. Zhongpin
expects that sales revenues should be within a range
of US$1.55 billion to $1.72
billion for 2012. Gross profit margin is expected to be
within the range of 8.6% to 10.2%. Net profit margin is
expected to be within the range of 3.3% to 4.2%. The resulting
diluted earnings per share for the fiscal year ending December 31, 2012 is expected to be within the
range of $1.36 to $1.92 per
share, assuming average diluted common shares outstanding of about
37.5 million shares in 2012. Assumptions and judgments supporting
the guidance are shown below.
Mr. Xianfu Zhu, Chairman and
Chief Executive Officer for Zhongpin, said, "We achieved 4 percent
sales revenue growth in the third quarter on higher tonnage at
lower average prices, compared with last year's third quarter, in
the face of intense competitive pressure. The competitive pressure
in the market remains very high due, in part, to industry
consolidation in the pork industry in China. Our costs continued to increase, mainly
to support our current operations and planned expansions. While
pork prices were generally lower, mainly due to intense competitive
market pressure, hog prices also declined, but not as rapidly as
pork prices. That is the primary factor for our lower gross profit
margin in the third quarter compared with last year's third
quarter.
Capacity and market expansions in 2012
Zhongpin is investing approximately $58.5
million to build a new production, research and development,
and training complex in Changge, Henan province, excluding the cost of land use
rights that it has already obtained. When completed, this new
facility is expected to have an annual production capacity of about
100,000 metric tons for prepared pork products. Adjacent to this
new production facility, Zhongpin plans to develop a center for
research and development, training, and quality assurance and
control. Construction for the first phase with a production
capacity of approximately 50,000 metric tons for prepared pork
products started in the third quarter of 2011 and was completed in
the second quarter of 2012. Trial production was started in
July 2012, and the plant has been in
regular production since the end of September 2012.
Zhongpin established a joint venture company in June 2011, of which the Company owns 65%, with
Henan Xinda Animal Husbandry Company Limited. The joint venture
company is financed by capital contributions and bank loans. All
capital contributions to the joint venture company have been made.
The joint venture company is expected to provide 20,000 sire boars
annually. Upon the completion of the building of infrastructures
for sire boar breeding in the third quarter of 2012, Zhongpin
leased the facility to a third party for annual rental in the
amount of RMB5.0 million.
Zhongpin is investing approximately $18.0
million in a cold-chain logistics distribution center in
Anyang, Henan province. This
distribution center will have a temperature adjustable warehouse
with a floor area of approximately 27,000 square meters, processing
capacity, distribution center, and a quality control center. The
distribution center will be used for third-party cold-chain
logistics service. Zhongpin expects to put this distribution center
into operation in the fourth quarter of 2012.
Zhongpin plans to invest approximately $87.5 million in a chilled and frozen food
processing and distribution center in Kunshan, Jiangsu province, which is near Shanghai. The center will be built in three
phases. The first phase will include a processing center,
cold-chain logistics center, and business complex. Zhongpin expects
to invest about $35.0 million on the
first phase that should be put into operation in the fourth quarter
of 2012.
Zhongpin is investing approximately $10.5
million in a by-product processing plant in Changge,
Henan province. This facility will
have a production capacity for 100 million meters of sausage
casings and 300 billion units of raw material to make heparin
sodium. The construction started in March
2012, and the new facility is expected to begin operations
in the fourth quarter of 2012.
Zhongpin will be investing approximately $47.6 million to build a cold-chain logistics
distribution center in Tangshan, Hebei province. This distribution center will
have a 27,000 square meter temperature-adjustable warehouse,
processing capacity, distribution center, and quality control
center. This distribution center will be used for third-party
cold-chain logistics service and is expected to be in operation in
the fourth quarter of 2013.
As of September 30, 2012, Zhongpin
had an annual capacity of 728,760 metric tons for chilled and
frozen pork, 176,000 tons for prepared pork products, 20,000 tons
for pork oil, and 30,000 tons for vegetables and fruits, for a
combined total of 954,760 metric tons.
Guidance for the year 2012
Mr. Warren Wang, Zhongpin's Chief
Financial Officer, said, "We are maintaining our prior
guidance.
"Our guidance for 2012 is based on several assumptions that
include:
- Continuation of China's
policies designed to stimulate domestic consumption and economic
growth.
- Average hog prices in China
are expected to decrease about 15% to 20% in 2012 from 2011, based
on the assumed forecasted trend for the supply of live hogs and the
increasing cost to raise hogs.
- A higher percentage of sales from our higher-margin chilled
pork and prepared pork products in 2012 compared with 2011, while
we plan to continue to increase sales volumes of processed pork
products to optimize our product structure.
- Average capacity utilization for the year of about 75% for pork
products.
- Increasing distribution efficiencies and reduction in the
duration of delivery times through the expansion of our cold-chain
logistics system, networks, and services.
- Total government subsidies for Zhongpin are expected to be
$5 million in 2012.
"In addition, we have assumed that the more aggressive price
competition that we saw in the latter part of 2011 and the first
quarter of 2012 will continue in 2012, especially aggressive
promotion efforts by our major competitors.
"We have assumed that we will increase our expenses in four
areas in 2012:
- First, we will continue to build our brand more
aggressively;
- second, we will increase our investments in human
resources, especially in training and recruiting;
- third, we will increase research and development for new
customized products with different styles and tastes to further
satisfy customer needs in different regions, with the objective of
capturing more market share for prepared pork products; and
- fourth, we will advance our information technology and
information systems more rapidly to support our cold-chain
logistics system, optimize the structure of the supply chain, and
to reduce the management cost.
"Lastly, we have assumed that the historical trend of increasing
costs for labor, energy, environmental protection, and quality
assurance and control will continue into the future, including in
2012.
"Given those comments and assumptions, we are maintaining our
prior guidance.
"For the year 2012, we expect that Zhongpin's sales revenues
should be within a range of US$1.55 billion to $1.72 billion.
"Gross profit margin is expected to be within the range
of 8.6% to 10.2%.
"Net profit margin is expected to be within the range
of 3.3% to 4.2%.
"Diluted earnings per share for the year 2012 are expected to be
within the range of $1.36 to $1.92 per share, assuming average diluted common
shares outstanding of about 37.5 million shares in 2012."
Sales revenues in the third quarter 2012
Total sales revenues increased $17.6
million or 4% to $415.7
million for the three months ended September 30, 2012 from $398.1 million in the third quarter 2011
primarily due to higher sales volume for pork and pork products
sold at lower average selling prices.
The higher revenues resulted mainly from continued increases in
the number of retail outlets, geographic expansion of its
distribution network and processing facilities, and higher sales to
chain restaurants, food service providers, and wholesalers and
distributors in China, and higher
selling prices for prepared pork products, partly offset by lower
average selling prices for chilled and frozen pork. The following
table shows tonnage, sales revenues, and average price per metric
ton by product division for the third quarters of 2012 and
2011.
|
|
Sales by Product
Division
(unaudited)
|
|
|
Three months
ended
September 30, 2012
|
|
Three months
ended
September 30, 2011
|
|
Metric
tons
|
|
Sales revenues
(millions)
|
|
Average
price per metric ton
|
|
Metric
tons
|
|
Sales revenues
(millions)
|
|
Average
price per metric ton
|
Pork and Pork Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilled
pork
|
|
101,198
|
|
$
253.6
|
|
$
2,506
|
|
73,771
|
|
$
247.7
|
|
$
3,358
|
Frozen
pork
|
|
38,101
|
|
84.9
|
|
$
2,228
|
|
33,045
|
|
93.0
|
|
$
2,814
|
Prepared pork products
|
|
28,754
|
|
72.3
|
|
$
2,514
|
|
21,600
|
|
52.4
|
|
$
2,426
|
Vegetables and
Fruits
|
|
5,733
|
|
4.9
|
|
$
855
|
|
6,034
|
|
5.0
|
|
$
829
|
Total
|
|
173,786
|
|
$
415.7
|
|
$
2,392
|
|
134,450
|
|
$
398.1
|
|
$
2,961
|
Chilled pork revenues increased on higher tonnage at lower
average prices per ton. Chilled pork revenues increased 2% in the
third quarter 2012 from the third quarter 2011. Chilled pork
tonnage increased 37% and the average price per metric ton
decreased 25% in the third quarter 2012 from the third quarter
2011. The higher revenues from chilled pork were mainly due to
higher tonnage sold as a result of higher capacity, increased sales
to existing customers, and increased volume of sales from new
geographic markets, expanded points of sales, and added new
customers, partly offset by the lower average selling price that
resulted from fluctuations in market price for chilled pork or
chilled pork-related products in a more competitive market.
Frozen pork revenues decreased on higher tonnage at lower
average prices. Frozen pork revenues decreased 9% in the third
quarter 2012 from the third quarter 2011. Frozen pork tonnage
increased 15% and the average price per metric ton decreased 21% in
the third quarter 2012 from the third quarter 2011. The lower
average selling price of frozen pork products was the result of
fluctuations in market prices for frozen pork or frozen
pork-related products in a more competitive market, which was
partly offset by higher tonnage sold.
Prepared pork revenues increased on higher tonnage at higher
average prices. Revenues from prepared pork products increased 38%
in the third quarter 2012 from the third quarter 2011. Prepared
pork tonnage increased 33% and the average price per metric ton
increased 4% in the third quarter 2012 from the third quarter 2011.
Prepared pork products are becoming more important to our business
since customers are increasingly demanding them for their flavor
and convenience and are willing to pay higher average prices for
these products. We plan to gradually increase sales from prepared
pork products by increasing our brand recognition and expanding our
capacity for these products.
Pork products totaled 98.8% of total sales revenues in the third
quarter 2012 and 98.7% in the third quarter 2011.
Geographic coverage and distribution channels
The sales of pork and vegetable products are closely related to
the particular regional markets in which our distribution channels
are located. Therefore, the increase in metric tons sold in the
third quarter of 2012 was partly attributable to our efforts to
expand our geographic coverage and broaden our distribution
channels since the third quarter 2011.
The following table shows sales revenues by distribution
channel. In the third quarter 2012, sales to wholesalers and
distributors accounted for 42% of sales revenues, restaurants and
food services were 29%, retail channels were 27%, and exports were
2%.
|
|
Sales Revenues by
Distribution Channel
(unaudited)
|
U.S. $ in millions
except %
|
|
Three months
ended
September 30,
|
|
Net
change
|
|
Percent
change
|
|
|
2012
|
|
2011
|
|
|
Wholesalers and
distributors
|
|
$
172.8
|
|
$
152.9
|
|
$
19.9
|
|
13%
|
Restaurants and food services
|
|
122.1
|
|
113.9
|
|
8.2
|
|
7%
|
Retail
channels
|
|
112.7
|
|
120.2
|
|
(7.5)
|
|
(6)%
|
Export
|
|
8.1
|
|
11.1
|
|
(3.0)
|
|
(27)%
|
Total
|
|
$
415.7
|
|
$
398.1
|
|
$
17.6
|
|
4%
|
The increase in sales revenues from different distribution
channels was mainly due to the following factors: (a) our
production capacity has increased because we completed the
expansion of our facilities in Taizhou, Jiangsu province and in Changchun, Jilin province in December 2011, and Changge, Henan province, in July
2012; to increase the utilization of our new facilities, we
focused our sales efforts on the wholesalers and distributors, as
it is easier to achieve higher volume sales within this channel; as
a result, we had significantly higher sales in the wholesalers and
distributors channel than in other distribution channels, with the
overall capacity utilization rate maintained at a level consistent
with that in the prior year; (b) we have built our brand image and
brand recognition through general advertising, display promotions,
and sales campaigns; (c) we have increased the number of stores and
other channels through which we sell our products; and (d) we
believe consumers are placing more importance on food safety and
are willing to pay higher prices for safe food products.
As of September 30, 2012,
Zhongpin's customers included 148 international and domestic fast
food companies, 143 processing factories, and 1,395 school
cafeterias, hotels, factory canteens, army bases, and government
departments. As of September 30,
2012, Zhongpin also sold directly to consumers in 3,447
retail outlets in China.
The following table shows the retail channels and number of
stores and counters that generated sales volume in the third
quarters of 2012 and 2011.
|
|
Numbers of
Retail Stores and Counters
(Generating Sales Volume, unaudited)
|
|
|
As of September
30,
|
|
Net
change
|
|
Percent
change
|
Retail
channels
|
|
2012
|
|
2011
|
|
|
Showcase
stores
|
|
159
|
|
164
|
|
(5)
|
|
(3)%
|
Branded
stores
|
|
1,352
|
|
1,239
|
|
113
|
|
9%
|
Supermarket
counters
|
|
1,936
|
|
2,016
|
|
(80)
|
|
(4)%
|
Total
|
|
3,447
|
|
3,419
|
|
28
|
|
1%
|
Geographic expansion and broader channel coverage together have
been important factors in our long-term success, including in the
third quarter of 2012. The table below shows the number of cities,
subdivided by the size, in which we distribute our products through
all of our distribution channels as of the end of the third
quarters of 2012 and 2011.
|
|
Number of Cities by
Tier
for All Distribution Channels
|
|
|
As of September
30,
|
|
Net
change
|
|
Percent
change
|
|
|
2012
|
|
2011
|
|
|
First-tier cities
(largest)
|
|
29
|
|
29
|
|
-
|
|
0%
|
Second-tier
cities
|
|
135
|
|
133
|
|
2
|
|
2%
|
Third-tier
cities
|
|
436
|
|
429
|
|
7
|
|
2%
|
Total cities
|
|
600
|
|
591
|
|
9
|
|
2%
|
Cost of Sales
Cost of sales primarily includes the costs of raw materials,
labor costs, and overhead. Of the total cost of sales, the cost of
raw materials typically accounts for about 95% to 96%, overhead
typically accounts for 2.5% to 3%, and labor costs typically
account for 1.5% to 1.7%, with slight variations from period to
period. All of our meat products are derived from the same raw
materials, which are live hogs. Vegetable and fruit products are
purchased from farmers located close to Zhongpin's processing
facility in Changge in the Henan
province. As a result, the purchasing costs of live hogs and
vegetables and fruits represent substantially all of the costs of
raw materials. The increase in the cost of sales was consistent
with but considerably higher than the increase in sales
revenues.
|
|
Cost of Sales by
Product Division
(unaudited)
|
|
|
Three months
ended
September 30, 2012
|
|
Three months
ended
September 30, 2011
|
|
|
Metric
tons
|
|
Amount
(millions)
|
|
Average
cost per
metric ton
|
|
Metric
tons
|
|
Amount
(millions)
|
|
Average
cost per
metric ton
|
Pork and Pork Products
|
|
|
|
|
|
|
|
|
|
|
|
|
Chilled
pork
|
|
101,198
|
|
$
231.2
|
|
$
2,285
|
|
73,771
|
|
$
223.6
|
|
$
3,031
|
Frozen
pork
|
|
38,101
|
|
80.1
|
|
$
2,102
|
|
33,045
|
|
86.4
|
|
$
2,615
|
Prepared pork products
|
|
28,754
|
|
60.7
|
|
$
2,111
|
|
21,600
|
|
43.9
|
|
$
2,032
|
Vegetables and
Fruits
|
|
5,733
|
|
4.2
|
|
$
733
|
|
6,034
|
|
4.1
|
|
$
679
|
Total
|
|
173,786
|
|
$
376.2
|
|
$
2,165
|
|
134,450
|
|
$
358.0
|
|
$
2,663
|
Gross profit margin (gross profit divided by sales revenues)
decreased to 9.5% in the third quarter 2012 from 10.1% in the third
quarter 2011 primarily due to (a) higher competition in the market,
(b) the decrease in the gap between pork prices over hog prices,
(c) increased promotional activities to grow our market share, and
(d) the increase in overhead due to the higher labor costs and
utility costs.
General, administrative, and selling expenses
General and administrative expenses increased $2.3 million or 31% to $9.7 million in the third quarter 2012 from
$7.4 million in the third quarter
2011. As a percent of revenues, general and administrative expenses
increased to 2.3% in the third quarter 2012 from 1.9% in the third
quarter 2011. The higher general and administrative expenses in the
third quarter 2012 were primarily due to a $0.6 million increase in salary expenses that
resulted from hiring more employees required to support the
expansion of the business, an increase in the average salary we
paid to our employees, an $0.9
million increase in the bad debt provision due to increases
in revenues and accounts receivable, and a $0.4 million increase in other taxes due to land
of property placed into service in December
2011 for two new facilities in Taizhou and Changchun on which the Company started paying
land and property taxes in the first quarter of 2012.
Selling expenses increased $3.5
million or 44% to $11.4
million in the third quarter 2012 from $7.9 million in the third quarter 2011, mainly as
a result of higher sales of pork and pork products and primarily
due to a $1.5 million increase in
advertising expenses, a $1.2 million
increase in transportation fees due to the increase in sales
volume, a $0.2 million increase in
supermarket management fees, and a $0.2
million increase in salaries. Selling expenses as a percent
of revenues increased to 2.7% in the third quarter 2012 from 2.0%
in the third quarter 2011.
Interest expense, net
Interest expense, net of interest income, increased $1.3 million or 19% to $8.3 million in the third quarter 2012 from
$7.0 million in the third quarter
2011. The increase in interest expense was primarily the result of
an increase of $39.1 million in
long-term bank loans and an increase of $105.6 million in short-term bank loans. The
interest expense increase was partly offset by higher interest
income due to higher bank deposits.
Other income and government subsidies
Other income and government subsidies increased $1.0 million to $2.4
million in the third quarter 2012 from $1.4 million in the third quarter 2011 primarily
due to higher government subsidies.
Provision for income taxes
The enterprise income tax rate in China on income generated from the sale of
prepared products is 25% and there is no income tax on income
generated from the sale of raw products, including raw meat
products and raw vegetable and fruit products. The provision for
income taxes increased $0.5 million
in the third quarter 2012 from the third quarter 2011 due to higher
sales of prepared pork products.
Net income
Net income decreased $7.3 million
or 40% to $11.0 million in the third
quarter 2012 from $18.3 million in
the third quarter 2011. The Company's net profit margin (net income
divided by sales revenues) declined to 2.7% in the third quarter
2012 from 4.6% in the third quarter 2011.
The reduction in net income was mainly due to (a) higher
competition in the market; (b) higher sales revenues from higher
tonnage sold at lower average prices per ton; (c) the higher sales
revenues were more than offset by higher cost of sales since the
cost of hogs increased at a higher percentage than did the price of
pork products, higher promotional activities were required to
maintain and grow market share, and labor and utility costs that
continued to rise; (d) general and administrative expenses were
higher, mainly due to hiring more employees to support the
Company's expanded operations, higher average salaries paid to
employees, a higher bad debt provision due to higher revenues and
higher accounts receivable, and higher land and property taxes due
the addition of two new plants in December 2011; and (e) higher
interest expense due to higher borrowings, partly offset by higher
government subsidies.
The higher expenses were mainly due to intense competitive
pressure in the pork market as the industry continues to
consolidate and companies are required to vie aggressively to win
additional market share in a variety of ways.
Earnings per share
The earnings per share numbers below are based on net income
attributable to Zhongpin Inc. shareholders.
Basic earnings per common share decreased 35% to $0.30 in the third quarter 2012 from $0.46 in the third quarter 2011. Weighted average
basic shares outstanding decreased 7% to 37,198,909 shares in the
third quarter 2012 from 39,918,816 shares in the third quarter
2011.
Diluted earnings per common share decreased 35% to $0.30 in the third quarter 2012 from $0.46 in the third quarter 2011. Weighted average
diluted shares outstanding decreased 7% to 37,240,843 shares in the
third quarter 2012 from 39,918,816 shares in the third quarter
2011.
40,376,182 common shares were issued as of September 30, 2012, of which 37,209,344 were
outstanding and 3,166,838 were held by Zhongpin as treasury
shares.
For a discussion of the Company's first nine-month results of
2012 and 2011, please see the Form 10-Q that Zhongpin will file
with the Securities and Exchange Commission on November 9, 2012.
Liquidity and capital resources
During the nine months ended September
30, 2012, Zhongpin's net cash flow increased cash and cash
equivalents by $10.4 million. Cash
and cash equivalents (excluding restricted cash) totaled
$146.2 million as of September 30, 2012 compared with $135.8 million as of December 31, 2011. As of September 30, 2012, working capital (current
assets minus current liabilities) was a negative $16.8 million. Based on the anticipated operating
cash flow of the company and its subsidiaries, the availability
remaining under its banking facilities, as well as alternative
sources of financing available to the company, Zhongpin believes it
will have the ability to meet its liabilities as and when they
become due within the next 12 months.
Net cash used in operating activities in the first nine months
of 2012 was $5.5 million, primarily
from net income that provided $34.2
million, depreciation and amortization that provided
$19.0 million, a provision for
allowance for bad debts that provided $2.8
million, accounts receivable and accounts payable that used
a total of $58.0 million, purchase
deposits that provided $6.3 million,
inventories that used $10.8 million,
tax refunds receivable that used $5.1
million, and other items that provided $6.1 million, net.
Net cash used in investing activities in the first nine months
of 2012 was $85.2 million, primarily
for construction in progress, additions to land use rights, and
prepayment for and additions to property, plant, and equipment that
together used $85.9 million.
Net cash provided by financing activities in the first nine
months of 2012 was $102.2 million,
primarily from the proceeds from loans and notes, net of
repayments, that provided $113.2
million, an increase in restricted cash that used
$5.0 million, a repayment of a
capital lease obligation that used $4.6
million, repurchases of common stock that used $2.8 million, and other items that provided a net
of $1.4 million.
As a result, including the effect from foreign currency exchange
rate changes on cash, Zhongpin increased its cash and cash
equivalents in the first nine months of 2012 by $10.4 million. Cash and cash equivalents on
September 30, 2012 totaled
$146.2 million compared with
$135.8 million as of December 31, 2011.
Zhongpin believes its existing cash and cash equivalents,
together with its ability to secure bank borrowings, will be
sufficient to finance its investment in new facilities, with
budgeted capital expenditures of about $114.4 million over the next 12 months, and to
satisfy its working capital needs. It intends to satisfy its
short-term debt obligations that mature over the next 12 months
through additional short-term bank loans, in most cases by rolling
over the maturing loans into new short-term loans with the same
lenders as the Company has done in the past.
Conference call and webcast
Zhongpin will host its third quarter 2012 earnings conference
call and live webcast at 8:00 a.m. Eastern
Standard Time (New York) on
Friday, November 9, 2012, which is
also 9:00 p.m. in China and Hong
Kong on the same day.
The dial-in details for the live conference call are:
1 866 549
1292
|
U.S. toll
free
|
1 800 356 465
|
Australia
local
|
1 866 869
1825
|
Canada toll
free
|
800 876 8626
|
China mainland toll free
land line
|
400 681 6949
|
China mainland toll free
mobile
|
400 889 9481
|
China mainland toll free
mobile
|
8088 6026
|
Denmark toll
free
|
0805 632 002
|
France toll
free
|
3005 2050
|
Hong Kong
local
|
180 921 4963
|
Israel toll
free
|
005 3112 1852
|
Japan toll
free
|
8002 7188
|
Luxembourg toll
free
|
0800 022 0733
|
Netherlands toll
free
|
800 120 5959
|
Singapore
local
|
900 941 847
|
Spain toll
free
|
0800 279 7818
|
United Kingdom toll
free
|
1 866 549
1292
|
United States toll
free
|
+852 3005
2050
|
International dial-in
toll call
|
|
|
326
957#
|
Participant access
code
|
The live webcast and archive of the conference call will be
available on the Investor Relations section of Zhongpin's website
at http://www.zpfood.com.
A telephone replay of the call will be available after the
conclusion of the conference call through 8:00 a.m. Eastern Standard Time, November 23, 2012. The dial-in details for the
telephone replay are:
1 866 753
0743
|
U.S. toll
free
|
1800 792 965
|
Australia toll
free
|
1 866 518
1652
|
Canada toll
free
|
800 876 5016
|
China mainland toll free
land line
|
808 86 774
|
Denmark toll
free
|
0800 901 585
|
France toll
free
|
3005 2020
|
Hong Kong
local
|
0053 1121 925
|
Japan toll
free
|
800 852 3586
|
Singapore toll
free
|
0808 234 7126
|
United Kingdom toll
free
|
1 866 753
0743
|
United States toll
free
|
+852 3005
2020
|
International toll
call
|
|
145
136#
|
Conference
reference
|
About Zhongpin
Zhongpin Inc. is a leading 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 3,447 retail outlets as
of September 30, 2012. 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 may be 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)
Director of Investor Relations
Telephone +86 10 8455 4188 extension 106 in Beijing
ir@zhongpin.com
Mr. Warren (Feng) Wang (English
and Chinese)
Chief Financial Officer
Telephone +86 10 8455 4388 in Beijing
warren.wang@zhongpin.com
Christensen
Mr. Victor Kuo (English and
Chinese)
Telephone +86 10 5826 4939 in Beijing
vkuo@christensenir.com
Mr. Tom Myers (English)
Mobile +86 139 1141 3520 in Beijing
tmyers@christensenir.com
www.zpfood.com
Financial statements follow.
ZHONGPIN
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF OPERATIONS AND AND COMPREHENSIVE
INCOME
|
(Amount in
U.S.dollars) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three Months
Ended
|
|
Nine Months
Ended
|
|
September
30,
|
|
September
30,
|
|
2012
|
|
2011
|
|
2012
|
|
2011
|
Revenues
|
|
|
|
|
|
|
|
|
|
|
|
Sales
revenues
|
$
|
415,744,666
|
|
$
|
398,086,490
|
|
$
|
1,198,083,901
|
|
$
|
1,050,322,271
|
Cost
of sales
|
|
(376,246,415)
|
|
|
(358,049,826)
|
|
|
(1,087,489,159)
|
|
|
(935,223,736)
|
Gross profit
|
|
39,498,251
|
|
|
40,036,664
|
|
|
110,594,742
|
|
|
115,098,535
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
expenses
|
|
|
|
|
|
|
|
|
|
|
|
General and administrative expenses
|
|
(9,694,515)
|
|
|
(7,423,392)
|
|
|
(28,023,615)
|
|
|
(20,873,595)
|
Selling expenses
|
|
(11,384,229)
|
|
|
(7,866,984)
|
|
|
(26,640,871)
|
|
|
(22,597,879)
|
Research & development expenses
|
|
(139,302)
|
|
|
(20,127)
|
|
|
(382,946)
|
|
|
(475,437)
|
Total operating expenses
|
|
(21,218,046)
|
|
|
(15,310,503)
|
|
|
(55,047,432)
|
|
|
(43,946,911)
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from
operations
|
|
18,280,205
|
|
|
24,726,161
|
|
|
55,547,310
|
|
|
71,151,624
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income
(expense)
|
|
|
|
|
|
|
|
|
|
|
|
Interest expenses, net
|
|
(8,280,935)
|
|
|
(7,017,272)
|
|
|
(22,191,446)
|
|
|
(15,828,655)
|
Other income, net
|
|
853,973
|
|
|
269,577
|
|
|
2,009,347
|
|
|
157,356
|
Government
subsidies
|
|
1,507,872
|
|
|
1,142,388
|
|
|
3,073,709
|
|
|
2,594,295
|
Total other
expense
|
|
(5,919,090)
|
|
|
(5,605,307)
|
|
|
(17,108,390)
|
|
|
(13,077,004)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income before
taxes
|
|
12,361,115
|
|
|
19,120,854
|
|
|
38,438,920
|
|
|
58,074,620
|
Provision for income taxes
|
|
(1,331,286)
|
|
|
(799,129)
|
|
|
(4,233,120)
|
|
|
(3,553,613)
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income after
taxes
|
$
|
11,029,829
|
|
$
|
18,321,725
|
|
$
|
34,205,800
|
|
$
|
54,521,007
|
Net loss
attributable to noncontrolling interests
|
|
13,501
|
|
|
1,167
|
|
|
15,676
|
|
|
22
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Zhongpin Inc. shareholders
|
|
11,043,330
|
|
|
18,322,892
|
|
|
34,221,476
|
|
|
54,521,029
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency
translation adjustment
|
$
|
(1,416,358)
|
|
$
|
9,098,658
|
|
$
|
(3,496,380)
|
|
$
|
19,031,328
|
Foreign currency
translation adjustment attributable to noncontrolling
interests
|
|
6,592
|
|
|
(14,885)
|
|
|
9,725
|
|
|
(26,450)
|
Foreign currency
translation adjustment attributable to Zhongpin Inc.
shareholders
|
|
(1,409,766)
|
|
|
9,083,773
|
|
|
(3,486,655)
|
|
|
19,004,878
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive
income
|
|
9,613,471
|
|
|
27,420,383
|
|
|
30,709,420
|
|
|
73,552,335
|
Comprehensive loss
(income) attributable to noncontrolling interests
|
|
20,093
|
|
|
(13,718)
|
|
|
25,401
|
|
|
(26,428)
|
Comprehensive income
attributable to Zhongpin Inc. shareholders
|
$
|
9,633,564
|
|
$
|
27,406,665
|
|
$
|
30,734,821
|
|
$
|
73,525,907
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per
common share
|
$
|
0.30
|
|
$
|
0.46
|
|
$
|
0.92
|
|
$
|
1.41
|
Diluted earnings per
common share
|
$
|
0.30
|
|
$
|
0.46
|
|
$
|
0.92
|
|
$
|
1.41
|
Basic weighted average
shares outstanding
|
|
37,198,909
|
|
|
39,918,816
|
|
|
37,295,245
|
|
|
38,723,299
|
Diluted weighted average
shares outstanding
|
|
37,240,843
|
|
|
39,918,816
|
|
|
37,303,300
|
|
|
38,781,507
|
|
|
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
|
|
|
|
|
ZHONGPIN
INC.
|
CONDENSED
CONSOLIDATED BALANCE SHEETS
|
(Amount in
U.S.dollars)
|
|
|
|
|
|
|
|
|
|
September 30,
2012
|
|
December 31,
2011
|
ASSETS
|
|
(Unaudited)
|
|
|
|
Current
assets
|
|
|
|
|
|
|
Cash and
cash equivalents
|
|
$
|
146,240,450
|
|
$
|
135,845,095
|
Restricted
cash
|
|
|
95,880,072
|
|
|
91,444,216
|
Bank notes
receivable
|
|
|
66,263,996
|
|
|
29,171,060
|
Accounts receivable, net of allowance for doubtful accounts
of $5,065,526 and $2,323,920
|
|
|
92,648,294
|
|
|
40,161,898
|
Other receivables, net
of allowance for doubtful accounts of $514,099 and
$449,048
|
|
|
1,675,490
|
|
|
1,081,311
|
Purchase
deposits
|
|
|
7,956,858
|
|
|
14,320,357
|
Inventories
|
|
|
52,431,905
|
|
|
41,944,020
|
Prepaid
expenses
|
|
|
470,228
|
|
|
379,633
|
VAT
recoverable
|
|
|
35,320,505
|
|
|
30,472,864
|
Allowance
receivables
|
|
|
947,797
|
|
|
3,116,108
|
Deferred
tax assets
|
|
|
569,169
|
|
|
572,791
|
Other
current assets
|
|
|
1,166,449
|
|
|
1,545,534
|
Total current
assets
|
|
|
501,607,213
|
|
|
390,054,887
|
|
|
|
|
|
|
|
Long-term
investment
|
|
|
473,111
|
|
|
476,122
|
Property,
plant, and equipment, net
|
|
|
465,795,213
|
|
|
427,929,871
|
Deposits
for purchase of land use rights
|
|
|
20,623,927
|
|
|
27,930,404
|
Construction in progress
|
|
|
59,684,788
|
|
|
47,887,224
|
Land use
rights
|
|
|
113,194,935
|
|
|
96,981,393
|
Deferred
charges
|
|
|
3,075
|
|
|
8,665
|
Prepayment
on property, plant, and equipment
|
|
|
3,595,410
|
|
|
-
|
Total assets
|
|
$
|
1,164,977,672
|
|
$
|
991,268,566
|
|
|
|
|
|
|
|
LIABILITIES
AND SHAREHOLDERS' EQUITY
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Current
liabilities
|
|
|
|
|
|
|
Short-term
loans
|
|
$
|
210,861,343
|
|
$
|
115,653,574
|
Bank notes
payable
|
|
|
190,304,368
|
|
|
177,627,006
|
Long-term
loans - current portion
|
|
|
44,545,316
|
|
|
16,016,419
|
Capital
lease obligation
|
|
|
1,184,779
|
|
|
5,769,600
|
Accounts
payable
|
|
|
13,389,257
|
|
|
15,693,948
|
Other
payables
|
|
|
31,230,591
|
|
|
26,873,586
|
Accrued
liabilities
|
|
|
14,757,280
|
|
|
12,596,651
|
Deposits
from customers
|
|
|
10,338,534
|
|
|
12,550,096
|
Tax
payable
|
|
|
1,692,812
|
|
|
1,822,812
|
Deferred
subsidy - current portion
|
|
|
68,338
|
|
|
68,773
|
Total current
liabilities
|
|
|
518,372,618
|
|
|
384,672,465
|
|
|
|
|
|
|
|
Deferred
tax liabilities
|
|
|
521,083
|
|
|
524,399
|
Deposits
from customers - long-term portion
|
|
|
2,127,591
|
|
|
2,615,449
|
Long-term
loans
|
|
|
108,322,994
|
|
|
97,261,330
|
Deferred
subsidy - long-term portion
|
|
|
1,924,863
|
|
|
1,988,693
|
Total
liabilities
|
|
|
631,269,149
|
|
|
487,062,336
|
|
|
|
|
|
|
|
Equity
|
|
|
|
|
|
|
Common stock: par value
$0.001; 100,000,000 authorized; 40,376,182 and 40,355,502
shares issued as of September 30, 2012 and December 31, 2011; and
37,209,344 and 37,556,964 outstanding as of September 30, 2012 and
December 31, 2011
|
|
|
40,376
|
|
|
40,355
|
Additional
paid-in capital
|
|
|
240,063,994
|
|
|
239,364,449
|
Retained
earnings
|
|
|
268,421,547
|
|
|
234,200,071
|
Treasury stock, at cost:
3,166,838 and 2,798,538 shares as of September 30, 2012 and
December 31, 2011
|
|
|
(26,225,647)
|
|
|
(23,131,074)
|
Accumulated
other comprehensive income
|
|
|
49,418,398
|
|
|
52,905,053
|
Total Zhongpin Inc.
shareholders' equity
|
|
|
531,718,668
|
|
|
503,378,854
|
Noncontrolling interests
|
|
|
1,989,855
|
|
|
827,376
|
Total shareholders'
equity
|
|
|
533,708,523
|
|
|
504,206,230
|
Total liabilities and
shareholders' equity
|
|
$
|
1,164,977,672
|
|
$
|
991,268,566
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
|
ZHONGPIN
INC.
|
CONDENSED
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
(Amount in
U.S.dollars) (Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Nine Months Ended
September 30,
|
|
2012
|
|
2011
|
Cash flows from
operating activities:
|
|
|
|
|
|
|
Net income
|
$
|
34,205,800
|
|
$
|
54,521,007
|
|
Adjustments to reconcile
net income to
|
|
|
|
|
|
|
net cash provided by
(used in) operations:
|
|
|
|
|
|
|
|
Depreciation
|
|
17,334,633
|
|
|
12,542,855
|
|
|
Amortization of land use
rights
|
|
1,660,272
|
|
|
1,386,615
|
|
|
Provision for allowance
for bad debts
|
|
2,834,924
|
|
|
780,323
|
|
|
Gain on disposal of
property and equipment
|
|
(134,389)
|
|
|
(15,174)
|
|
|
Deferred
subsidy
|
|
(51,448)
|
|
|
|
|
|
Stock-based compensation
expense
|
|
515,566
|
|
|
1,193,067
|
|
|
|
|
|
|
|
|
|
|
|
Changes in operating
assets and liabilities:
|
|
|
|
|
|
|
|
|
Accounts
receivable
|
|
(55,743,663)
|
|
|
(12,087,046)
|
|
|
|
Other
receivables
|
|
(953,122)
|
|
|
(2,467,660)
|
|
|
|
Purchase
deposits
|
|
6,296,770
|
|
|
(15,311,424)
|
|
|
|
Prepaid
expenses
|
|
(92,737)
|
|
|
12,906
|
|
|
|
Inventories
|
|
(10,793,990)
|
|
|
(9,281,330)
|
|
|
|
Allowance
receivables
|
|
2,156,768
|
|
|
(300,748)
|
|
|
|
Tax refunds
receivable
|
|
(5,059,499)
|
|
|
(13,003,464)
|
|
|
|
Other current
assets
|
|
370,717
|
|
|
35,141
|
|
|
|
Deferred
charges
|
|
5,556
|
|
|
11,899
|
|
|
|
Accounts
payable
|
|
(2,213,823)
|
|
|
30,300,071
|
|
|
|
Other
payables
|
|
4,659,448
|
|
|
1,104,339
|
|
|
|
Grants
payable
|
|
-
|
|
|
769,527
|
|
|
|
Accrued
liabilities
|
|
2,244,396
|
|
|
1,680,231
|
|
|
|
Taxes payable
|
|
(118,923)
|
|
|
(225,688)
|
|
|
|
Deposits from
customers
|
|
(2,140,298)
|
|
|
8,726,458
|
|
|
|
Deposits from customers
- long-term portion
|
|
(473,108)
|
|
|
(117,064)
|
|
Net cash (used in)
provided by operating activities
|
|
(5,490,150)
|
|
|
60,254,841
|
|
|
|
|
|
|
|
|
|
Cash flows from
investing activities:
|
|
|
|
|
|
|
Prepayment on property,
plant, and equipment
|
|
(3,609,070)
|
|
|
-
|
|
Refund (deposits) for
purchase of land use rights
|
|
532,975
|
|
|
(16,453,540)
|
|
Construction in
progress
|
|
(62,153,166)
|
|
|
(102,225,007)
|
|
Additions to property
and equipment
|
|
(8,155,015)
|
|
|
(4,645,211)
|
|
Additions to land use
rights
|
|
(11,927,087)
|
|
|
-
|
|
Proceeds from sale of
property, plant, and equipment
|
|
115,983
|
|
|
36,983
|
|
Increase in restricted
cash
|
|
-
|
|
|
(35,666,692)
|
|
|
|
Net cash used in
investing activities
|
|
(85,195,380)
|
|
|
(158,953,467)
|
|
|
|
|
|
|
|
|
|
Cash flows from
financing activities:
|
|
|
|
|
|
|
Proceeds from (repayment
of) bank notes, net
|
|
(23,565,944)
|
|
|
59,574,005
|
|
Increase in restricted
cash
|
|
(5,033,193)
|
|
|
-
|
|
Proceeds from short-term
bank loans
|
|
229,666,614
|
|
|
122,354,751
|
|
Repayment of short-term
bank loans
|
|
(133,362,962)
|
|
|
(112,957,341)
|
|
Proceeds from long-term
loans
|
|
42,117,373
|
|
|
24,607,716
|
|
Repayment of long-term
loans
|
|
(1,657,316)
|
|
|
(13,807,043)
|
|
Repayment of capital
lease obligation
|
|
(4,565,614)
|
|
|
(5,097,774)
|
|
Proceeds from offering
of common stock
|
|
-
|
|
|
66,356,662
|
|
Repurchases of common
stock
|
|
(2,812,322)
|
|
|
(15,797,352)
|
|
Proceeds from option
exercise
|
|
184,000
|
|
|
-
|
|
Capital contribution by
non-controlling interest
|
|
1,187,881
|
|
|
808,003
|
|
|
|
Net cash provided by
financing activities
|
|
102,158,517
|
|
|
126,041,627
|
|
|
|
|
|
|
|
|
|
|
Effects of rate changes
on cash
|
|
(1,077,632)
|
|
|
5,104,029
|
|
Increase in cash and
cash equivalents
|
|
10,395,355
|
|
|
32,447,030
|
|
Cash and cash
equivalents, beginning of period
|
|
135,845,095
|
|
|
84,172,186
|
|
Cash and cash
equivalents, end of period
|
$
|
146,240,450
|
|
$
|
116,619,216
|
|
|
|
|
|
|
|
|
|
Supplemental disclosures
of cash flow information:
|
|
|
|
|
|
|
Cash paid for
interest
|
|
24,490,837
|
|
|
16,292,479
|
|
Cash paid for income
taxes
|
|
4,352,043
|
|
|
3,768,455
|
|
|
|
|
|
|
|
|
|
The accompanying
notes are an integral part of these condensed consolidated
financial statements.
|
SOURCE Zhongpin Inc.