Zhongpin Inc. Announces First Quarter 2009 Results

Record first quarter revenues climb 41.5% year-over-year to $153.8 million

CHANGGE CITY, China, May 11 /PRNewswire-Asia-FirstCall/ -- Zhongpin Inc.
(Nasdaq: HOGS) ("Zhongpin or "the Company"), a leading meat and food
processing company in the People's Republic of China ("PRC"), today reported
financial results for the first quarter ended March 31, 2009.
Q1 2009 Highlights
-- Revenues grew 41.5% year-over-year to $153.8 million
-- Gross profit increased 34.9% to $19.1 million with gross margin of
12.4%.
-- Net income increased 33.7% year-over-year to $9.7 million, or $0.33
per diluted share
-- Added 36 new retail outlets, bringing the total number of retail
outlets to 3,097
-- Commenced operations at new chilled and frozen pork facility in
Yongcheng City with an annual production capacity of 80,000 metric
tons

"We are very pleased to begin 2009 with solid financial results.
Historically, consumers increase their consumption of pork products during the
Chinese New Year holidays resulting in a strong seasonal demand for pork in
the first quarter. Our ability to quickly ramp up capacity utilization at our
newly added facilities enabled us to achieve double-digit growth in revenue
and improved profitability, both on a year-over-year and sequential basis,"
commented Mr. Xianfu Zhu, CEO of Zhongpin. "Since the second half of 2008, our
newly added production capacities have been running efficiently and we have
achieved significant progress in upgrading our product line and distribution
structure, therefore adding increased value at every stage of the supply
chain."
Revenues for the first quarter of 2009 increased 41.5%, to a record $153.8
million from $108.7 million in the first quarter of 2008. Zhongpin's strong
revenue growth during the first quarter was driven by increased demand for
high quality pork products, increased production capacity contributed by the
Company's newly added facilities in 2008, and the Company's growing
distribution network. For the quarter, prepared meat products experienced the
strongest growth, up 83.3% to $22.0 million from $12.0 million in the first
quarter of 2008. Prepared meat products contributed 14.3% of the total
revenue during the quarter, up from 11.0% a year ago. Chilled pork and frozen
pork represented 56.1% and 28.6% of total revenue, compared to 50.6% and 37.0%
in the first quarter of 2008, respectively. Revenue from chilled pork
increased 56.9% to $86.3 million from $55.0 million in the first quarter of
2008. Revenue from frozen pork was $44.0 million, up 9.5% from $40.2 million
in the first quarter of 2008. Fruits and vegetables accounted for 1.0% of
total revenue at $1.5 million, unchanged from the first quarter of 2008.
Revenue from Zhongpin's retail channels, including showcase stores,
network stores and supermarket counters, represented 44.4% of total revenues.
Revenue from retail channels rose 52.5% to $68.3 million, from $44.8 million
in the first quarter of 2008. During the quarter, Zhongpin added 36 new
retail outlets, including three new showcase stores, nine new Zhongpin
"branded" stores and 24 new supermarket counters, for a total of 3,097 retail
outlets. Revenue from food services distributors represented 29.6% of total
revenues in the quarter and showed the largest increase in revenue growth
year-over-year, up 64.9% to $45.5 million from $27.6 million in the first
quarter of 2008. Revenues from restaurants and non-commercial business
generated 25.7% of total revenues, up 16.2% to $39.5 million from $34.0
million a year ago. Exports, which represented 0.3% of total revenues,
decreased 78.3% to $0.5 million from $2.3 million in the comparable period in
2008. The decline in revenue from exports is attributable to the Company's
decision to reduce export sales as the domestic market presents an attractive
growth opportunity in addition to higher gross margins.
Gross profit for the first quarter of 2009 was $19.1 million, up 34.9%
from $14.2 million in the first quarter of 2008. Gross margin was 12.4% in the
first quarter of 2009 compared to 13.1% in the first quarter of 2008. The
year-over-year decline in gross margin was as a result of increased labor
costs due to the new labor law implemented in the PRC and increased
depreciation expense associated with the newly built facilities in 2008. The
decline was also due to increase in sales of low margin products to capture
increased market share and increase capacity utilization level, of new
facilities. The Company expects such factors as the increase in pork prices,
changes in the Company's product mix as well as a greater contribution from
high margin prepared meat products to improve and enhance the Company's
profitability.
In the first quarter of 2009, general and administrative ("G&A") expenses
were $4.6 million, or 3.0% of total revenues, compared to $4.0 million, or
3.7% of total revenues, for the same quarter last year. G&A expenses in the
first quarter of 2009 increased due to higher salary expenses which were
partially offset by reduced advertising expenses during the quarter.
Selling expenses for the first quarter of 2009 were $2.8 million, or 1.8%
of total revenues, up approximately 40.0% from $2.0 million, or 1.8% of total
revenues in the first quarter of 2008. The increase in selling expenses was in
proportion to the increase in revenues during the quarter.
Income from operations in the first quarter of 2009 was $11.7 million, up
49.9 % from $7.8 million in the first quarter of 2008. Operating margin was
7.6% in the first quarter of 2009, compared to 7.2 % in the first quarter of
2008.
Net income for the first quarter of 2009 was $9.7 million, or $0.33 per
fully diluted share, compared to $7.3 million, or $0.24 per fully diluted
share, for the first quarter of 2008.
Financial Condition
As of March 31, 2009, Zhongpin had $48.0 million in cash and cash
equivalents, $19.0 million in long-term debt, excluding the current portion,
$173.2 million in total liabilities and working capital of $11.0 million.
Shareholders' equity stood at $200.6 million as of March 31, 2009 up 5.1% from
$190.9 million as of at December 31, 2008. The Company reported net cash used
in operating activities of $18.9 million for the first quarter of 2009,
primarily due to higher inventory and purchase deposits for hogs. As the
price of hogs declined 20% during the quarter and the Company expects hog
prices to increase by the middle of 2009, Zhongpin made strategic purchases of
lower cost inventories to potentially benefit operating results in future
quarters.
Recent Events
On April 25, 2009, Zhongpin commenced production at its new fruits and
vegetables facility in Changge City, Henan Province bringing the total annual
production capacity of fruits and vegetables to 30,000 metric tons, up 138%
from the prior 12,600 metric tons capacity. Due to the increased demand for
fresh fruits and vegetables in the market the Company expects to ramp up the
new facility to its target utilization level in 2009.
On April 27, 2009, Zhongpin announced that the Company's inspection center
has received the NCAC certificate from the China National Accreditation
Service ("CNAS") for Conformity Assessment.
On April 28, 2009, Zhongpin announced that it began construction of its
new pork products facility located in the Jinghai Economic Technical
Development Area in Tianjin City. The new facility will add 100,000 metric
tons in annual chilled and frozen pork capacity and 36,000 metric tons in
annual low temperature prepared meat production capacity. The production lines
for chilled and frozen pork products will come on line towards the end of the
first quarter of 2010 and will achieve target utilization level by the end of
the third quarter of 2010. The prepared meat production line will come on line
in the third quarter of 2010 and is expected to reach target utilization level
by the end of the fourth quarter of 2010. The facility will also include a new
warehouse and distribution center, and a R&D center.
Business Outlook
Zhongpin's capacity expansion plans for 2009 include the new pork products
facility in Tianjin City, as well as construction of a new prepared meat
facility in Changge City. This new facility will add annual prepared meat
production capacity of 36,000 metric tons by the end of the fourth quarter of
2009. The new facility is expected to achieve its target utilization level by
the end of the second quarter of 2010.
Capital expenditures for the next twelve months are expected to be $93.5
million, including the construction of the Company's new pork production
facility in Tianjin City and new prepared meat facility in Changge City, as
well as the acquisition of land use rights for the new facility in Tianjin
which is expected to cost approximately $10 million. Zhongpin believes it has
adequate resources available to finance these projects, including anticipated
positive cash flow from operations, an adequate cash balance and readily
available bank lines of credit.
Zhongpin reaffirms its full year 2009 guidance for revenues to be in the
range of $780 million to $810 million with a gross margin of approximately
12.0%, net profit margin of at least 6.0% and fully-diluted earnings per share
in the range of $1.50 to $1.63, assuming a fully-diluted share count of 30.7
million shares outstanding.
"While the pork industry experienced a negative impact in April due to the
recent H1N1 virus outbreak in North America, we believe this impact will be
short-lived. In fact, as fears surrounding the virus have subsided and
consumers are educated that the virus can not be contracted by consuming pork
products, we have observed an increase in demand for pork and some firming of
pork prices. As a result, we do not expect further negative impact from this
issue on our revenue for the second quarter. More importantly, the increased
consumer focus on food safety underscore the importance of high quality
products and stringent testing procedures which form the basis of our
modernized, safe, and hygienic processing facilities," commented Mr. Zhu.
"We believe that China's live hog prices and pork prices are close to
their bottom and expect an upward trend in the second half of the year as the
Chinese economy begins to recover. Our outlook for the long-term potential of
China's meat processing industry remains very positive and we plan to continue
to expand our distribution and processing plan to serve this market
opportunity and build a leading brand position in the pork category,"
announced Mr. Zhu.
Conference Call Information
Management will conduct a conference call at 8:00 a.m. New York City Time
on Monday, May 11, 2009 to discuss its 2009 first quarter results. Hosting
the call will be Mr. Sterling Song, Investor Relations Manager of Zhongpin,
joined by Mr. Xianfu Zhu, Chairman and Chief Executive Officer, Mr. Baoke Ben,
Board Director and Executive Vice President and Mr. Feng Wang, Vice President
and Chief Financial Officer of Zhongpin. Zhongpin plans to distribute its
earnings announcement earlier that same day. To participate in the live
conference call, please dial the following number five to ten minutes prior to
the scheduled conference call time: 800-688-0796. International callers should
dial 617-614-4070. When prompted by the operator, mention Conference passcode
43509308. If you are unable to participate in the call at this time, a replay
will be available on Monday, May 11, 2009 at 10:00 a.m. New York City Time,
through Monday, May 25, 2009. To access the replay, dial 888-286-8010,
international callers should dial 617-801-6888, and enter the passcode
27776985. 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, 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 20 provinces and 4 cities with special political
status, and includes over 3,097 retail outlets. Zhongpin's export markets
include the European Union and Southeast Asia. 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 build and commence the
new production facilities according to the timeline described, the expected
impact of the H1N1 virus on our future sales revenue, expectations of future
consumer demand, ability to prepare the Company for growth, 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)

March 31, December 31,
2009 2008
ASSETS (Unaudited)
Current assets
Cash and cash equivalents $47,963,950 $41,857,166
Restricted cash 14,909,977 17,040,201
Bank notes receivable 4,023,903 1,268,890
Accounts receivable, net of
allowance for doubtful accounts
of $1,495,452 and $1,215,901 27,894,066 20,432,752
Other receivables, net of
allowance for doubtful accounts
of $136,731 and $500,447 873,013 1,907,243
Purchase deposits 26,938,219 10,738,147
Inventories 25,332,125 16,724,217
Prepaid expenses and deferred
charges 297,599 360,265
VAT recoverable 9,572,278 7,432,365
Assets held for sale 622,648 623,871
Deferred tax assets 310,446 311,055
Other current assets 127,732 96,402
Total current assets 158,865,956 118,792,574

Property, plant and equipment (net) 196,462,483 169,667,998
Construction in progress 17,804,025 40,773,039
Deferred charges 219,683 231,769
Other non-current assets 411,694 412,503
Total assets $373,763,841 $329,877,883

LIABILITIES AND EQUITY
Current liabilities
Short-term loans $95,261,780 $67,893,001
Bank notes payable 18,038,590 13,252,180
Long-term loans - current portion 4,534,266 145,671
Accounts payable 11,699,457 9,528,937
Other payables 8,249,556 7,130,384
Accrued liabilities 5,590,452 5,055,660
Deposits from customers 3,065,158 4,331,774
Tax payable 1,308,200 1,382,589
Deferred tax liabilities 94,626 94,812
Total current liabilities 147,842,085 108,815,008

Deposits from customers 2,427,498 2,420,967
Capital lease obligation 3,884,542 4,252,743
Long-term loans 19,043,481 23,475,174

Total liabilities 173,197,606 138,963,892

Equity
Preferred stock: par value $0.001;
25,000,000 authorized; 2,094,037
and 2,129,200 shares issued and
outstanding 2,094 2,129
Common stock: par value $0.001;
100,000,000 authorized; 27,609,592
and 27,504,918 shares issued
and outstanding 27,609 27,505
Additional paid in capital 105,970,620 105,680,772
Retained earnings 75,850,294 66,108,995
Accumulated other comprehensive
income 18,715,618 19,094,590
Total equity 200,566,235 190,913,991
Total liabilities and equity $373,763,841 $329,877,883

ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME
(Amount in U.S. dollars) (Unaudited)

Three Months Ended March 31,
2009 2008
Revenues
Sales Revenues $153,849,448 $108,727,750
Cost of sales (134,705,646) (94,536,207)
Gross Profit 19,143,802 14,191,543

Operating expenses
General and administrative expenses (4,608,286) (3,986,029)
Selling expenses (2,793,278) (1,984,233)
Research and development (30,578) (418,632)
Amortization of loss from
sale-leaseback (16,657) --
Total operating expenses (7,448,799) (6,388,894)

Income from operations 11,695,003 7,802,649

Other income (expense)
Interest expense (1,499,520) (170,487)
Other income (expenses) 168,073 65,893
Exchange gain (loss) 1,333 (23,758)
Government subsidies 94,955 139,544
Total other income (expense) (1,235,159) 11,192

Net income before taxes 10,459,844 7,813,841
Provision for income taxes (718,545) (526,081)

Net income after tax $9,741,299 $7,287,760

Foreign currency translation adjustment (378,972) 5,939,494
Comprehensive income $9,362,327 $13,227,254

Basic earnings per common share $0.33 $0.28
Diluted earnings per common share $0.33 $0.24
Basic weighted average
shares outstanding 29,486,642 26,208,383
Diluted weighted average
shares outstanding 29,609,028 30,748,961

ZHONGPIN INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amount in U.S. dollars) (Unaudited)

Three Months Ended March 31,
2009 2008
Cash flows from operating activities:
Net income $9,741,299 $7,287,760
Adjustments to reconcile net income
to net cash provided by (used in)
operations:
Depreciation 1,801,235 883,113
Amortization 187,858 145,662
Provision for allowance for bad debt (102,628) --
Non-cash compensation expense 289,917 404,573

Changes in operating assets and
liabilities:
Accounts receivable (7,783,530) 4,513,744
Other receivables 1,378,559
(2,271,651)
Purchase deposits (16,221,596) 1,269,671
Prepaid expense 61,962
(99,329)
Inventories (8,640,944) 2,671,624
Tax refunds receivable (2,154,544) 1,934,948
Other current assets (31,519) --
Deferred charges 11,632
(6,585)
Accounts payable 2,189,263
(408,402)
Other payables 1,131,977 1,410,183
Research and development grants
payable -- 10,504
Accrued liabilities 544,581 1,071,048
Taxes payable (71,681) --
Deposits from clients (1,258,162) 4,576,652
Deposits from clients -
Long term portion 11,277 --
Net cash provided (used) by
operating activities (18,915,044) 23,393,515

Cash flows from investing activities:
Construction in progress (2,749,323)
(23,039,757)
Additions to property and equipment (3,441,307)
(1,560,363)
Additional to intangible assets --
(355,111)
Proceeds on disposal of fixed assets -- 18,433
Increase in restricted cash 2,096,882 --
Net cash used in investing activities (4,093,748)
(24,936,798)

Cash flows from financing activities:
Proceeds repayment from (of) bank notes 2,054,947
(1,395,440)
Proceeds from short-term bank loans 52,079,524 15,768,468
Repayment of short-term loans (24,576,854)
(14,518,378)
Proceeds from capital lease obligation (359,875) --
Proceeds from common stock -- 1,236,923
Net cash provided by financing
activities 29,197,742 1,091,573

Effects of rate changes on cash (82,166) 1,770,536
Increase in cash and cash equivalents 6,106,784 1,318,826
Cash and cash equivalents, beginning
of period 41,857,166 48,701,536
Cash and cash equivalents, end of
period $47,963,950 $50,020,362

Supplemental disclosures of cash flow
information:
Cash paid for interest 1,527,258 901,674
Cash paid for income taxes 753,430 424,919

Sales by Division
(U.S. dollars in millions)

Three Months Ended March 31,
2009 2008
(Unaudited) (Unaudited)
Pork and Pork Products:
Chilled pork $86.3 $55.0
Frozen pork 44.0 40.2
Prepared pork products 22.0 12.0
Vegetables and Fruits: 1.5 1.5
$153.8 $108.7

Sales by Distribution Channel
(Unaudited)
March 31, Net Percentage
2009 2008 Change of Change

Retail channels $68.3 $44.8 $23.5 52 %
Food services distributors 45.5 27.6 17.9 65 %
Restaurants and non-commercial 39.5 34.0 5.5 16 %
Export 0.5 2.3 (1.8) (78)%
Total $153.8 $108.7 $45.1 41 %

For more information, please contact:

Crocker Coulson, President
CCG Investor Relations
Tel: +1-646-213-1915
Email: crocker.coulson@ccgir.com
Web: http://www.ccgirasia.com

Feng Wang, Chief Financial Officer
Zhongpin Inc.
Tel: +86-10-82861788
Email: ir@zhongpin.com
Web: http://www.zpfood.com

SOURCE Zhongpin Inc.

Crocker Coulson, President of CCG Investor Relations, +1-646-213-1915, or
crocker.coulson@ccgir.com, for Zhongpin; or Feng Wang, Chief Financial Officer
of Zhongpin Inc., +86-10-82861788, or ir@zhongpin.com