EX-99.1 2 c43875_ex99-1.txt 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 $ - ============= ============ # # #