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Zhongpin Reports Higher Results for 2009

by 5m Editor
15 March 2010, at 11:54am

CHINA - Zhongpin Inc., a leading meat and food processing company in the People's Republic of China has reported higher revenues, net income, and diluted earnings per share for the year 2009.

The highlights for the year 2009 for Zhongpin are reported to be a increase in net revenue by 34.5 per cent in the year 2009 to US$726.0 million from $539.8 million in 2008, while net income increased 45.2 per cent to $45.6 million in 2009 from $31.4 million in 2008.

Basic earnings per share increased 39.6 per cent to $1.48 in 2009 from $1.06 in 2008, and diluted earnings per share increased 39.0 per cent to $1.46 in 2009 from $1.05 in 2008.

The trend for hog and pork prices in the fourth quarter 2009 increased modestly early in the quarter then remained stable through the remainder of the quarter, primarily due to the traditional rising market demand for pork during colder weather.

Zhongpin made outstanding progress during 2009 in executing its long-term growth strategy that focuses on increasing production capacity, broadening awareness and recognition of its well-known brand, expanding sales capabilities by accessing more retail outlets and sales channels, and increasing sales revenues and net income. The company began production in two new pork processing plants and upgraded a third plant in 2009. These plants added 138,000 metric tons of annual capacity for pork products. Zhongpin's total annual production capacity for all products at year-end 2009 was 614,760 metric tons.

Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin Inc., said: "The year 2009 was memorable for us, with several great successes.

"During 2009, Zhongpin made outstanding progress in executing its long- term growth strategy that focuses on increasing production capacity; broadening awareness and recognition of our well-known brand that is starting to emerge from a regional toward a national market; exploiting sales capabilities by accessing more retail outlets and sales channels; and increasing revenues and net income.

"We began production in two new plant and one upgraded plant in 2009 that added about 138,000 metric tons of annual capacity for pork products to Zhongpin. Of that, 102,000 metric tons was for chilled and frozen pork and 36,000 metric tons was for prepared pork products.

"Our expanded capacity, combined with good marketing results from our brand, advertising, and in-store promotions and our sales team, helped to grow sales revenues by 34.5 per cent in 2009 over 2008.

"Our return on average assets was down just a half point – 11.0 per cent in 2009 compared with 11.5 per cent in 2008. We believe this was a major achievement, since we invested aggressively in new production facilities to support our market and sales expansion in 2009.

"To dimension that higher investment, in 2009, our major fixed assets – property, plant, and equipment, construction in progress and land use rights and deposits – increased by 51.9 per cent or $112.6 million during the year. Current assets, also supporting our operations and growth, were up 48.3 per cent or $54.3 million in 2009."

Capacity and market expansions in 2009

Mr Zhu continued: "In January 2009, we began operating our new chilled and frozen pork plant in eastern Henan province. It has an annual capacity of about 80,000 metric tons. Total new investment was about $17 million.

"In April 2009, we started processing in our new vegetable and fruit facility in Changge, It has an annual capacity of 30,000 metric tons. Total new investment was $11 million. This new plant replaced 15,480 metric tons of capacity in other facilities that we have eliminated, so the net gain in capacity is 14,520 metric tons for vegetables and fruits.

"In August 2009, we upgraded our pork facility in Changge and added an annual production capacity of 22,000 metric tons for chilled and frozen pork. Added investment was about $6 million.

"In December 2009, we began operating our new prepared pork products facility in Changge. It has an annual capacity of about 36,000 metric tons. This facility's advanced equipment and machinery imported from top-tier international manufacturers will produce quick-freeze sausages and other prepared pork products catering to varying consumer tastes. We expect to reach target capacity utilisation in this plant in the second quarter 2010. Total investment was $21 million.

"Total investment in the facilities brought on line in the year 2009 was about $55 million.

"At year-end 2009, our annual capacity for chilled and frozen pork was 494,760 metric tons, for prepared pork products, it was 90,000 metric tons, and for vegetables and fruits, it was 30,000 metric tons, for a total annual capacity of 614,760 metric tons."

Capacity and market expansions in 2010

Mr Zhu added: "In 2010, we will continue to execute our strategic plan to sustain the growth we have achieved in the last five years.

"In 2010, we expect to develop new markets and expand our distribution channels. Through our aggressive marketing campaigns, we expect to strengthen our brand recognition and customer loyalty. Our objectives are higher sales and improved profitability.

"We will continue our technology improvements in 2010, including research and development for new products and processes, as well as our work in further improving our existing products and processes. We will continue our sharp focus in maintaining the highest quality and safety of our Zhongpin products.

"In January 2010, we began production in our new chilled and frozen pork plant in Tianjin. It has an annual capacity of 100,000 metric tons, of which 70 per cent will be chilled pork and 30 per cent frozen pork. We believe we will reach target utilization in this plant during the third quarter 2010.

"In April 2010, we will begin constructing a new prepared pork products plant in Tianjin that will have an annual capacity of about 36,000 metric tons. The new Tianjin facility will include a new warehouse and distribution centre and a research and development centre, which should improve our product portfolio, support our cold-chain logistics, and help accommodate the higher production capacity by facilitating efficient distribution. Production is expected to start in October 2010 and should achieve target utilization in the second quarter 2011.

"The two start-of-the-art Tianjin facilities that will be added in 2010, which are integrated within one industrial park, are expected to cost about $61.0 million in total.

"In April 2010, we expect to open our new premium pork oil production plant in Changge. It will have an annual capacity of about 20,000 metric tons.

"By the end of 2010, we believe that Zhongpin's annual capacity will be at least 541,760 metric tons for chilled and frozen pork, 126,000 metric tons for prepared pork products, 20,000 metric tons for premium pork oil, and 30,000 metric tons for vegetables and fruits, for a total production capacity of 717,760 metric tons.

"As we build additional plants, we also extend our cold-chain logistics system for delivery into our new markets."

New cold storage and distribution centres

Zhongpin is also constructing three cold storage and distribution centres for chilled and fresh pork and agricultural products. The centres are located adjacent to Zhongpin's processing facilities in Zhumadian, Anyang, and Luoyang, in China's Henan province, and will begin operating in the second quarter 2010. Total investment for the centres will be $13.6 million.

Each centre will have more than 20,000 square metres for processing, storage, and allocation workshops. Adjustable multi-temperature multi-level cold storage rooms in each centre will provide outstanding conditions to maintain the highest quality and flavor for a variety of products. Initially, about 40 per cent of the capacity will be devoted to Zhongpin's chilled and frozen pork, with the remaining 60 per cent used to provide storage, processing, and allocation services for other food producers, most of which are already under contract. As with Zhongpin's other new facilities, the centres will have the most modern quality assurance, processing, logistics, and information technology systems.

Outlook for pork demand in China

Mr Zhu continued: "Our strategy has stayed intact for the past several years. The major objectives, which are designed to create additional value for our shareholders, are:

  • increase our brand recognition
  • expand our market presence
  • increase our production capacity
  • expand and optimise our product lines, and
  • maintain our technological superiority.

"China's economy appears to be expanding at a good rate, and pork remains China's preferred protein. We believe the outlook for China's pork processing industry remains quite positive. We are continuing to build a leading brand position and higher market share in the pork category and are continuing to expand our processing plants and distribution network to satisfy the increasing demand for our high quality products.

"Our operating and financial results for 2009 were very good. The economic, industry, and Zhongpin outlook for 2010 continues to be encouraging. We are comfortable in maintaining our previous performance guidance."