Zhongpin Inc., a leading pig 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 first quarter of 2010 compared with the first quarter of 2009.

For the first quarter 2010, (Q1 2010) net sales revenues increased 32.8 per cent in the three months ended 31 March 2010 to US$204.3 million from $153.8 million in the first quarter 2009 (Q1 2009). Net income increased 37.1 per cent to $13.3 million in Q1 2010 from $9.7 million in Q1 2009.

Basic and diluted earnings per share increased 15.2 per cent to $0.38 in Q1 2010 from $0.33 in Q1 2009.

Hog and pork prices in Q1 2010 decreased about 10 per cent from Q4 2009, due mainly to the hog supply temporarily exceeding market demand. Prices are expected to recover in the near future.

In March 2010, Zhongpin started to expand its pork plant in Anyang to add 35 per cent more capacity for chilled pork; the expansion should be completed in July. The company opened its new premium pork oil plant in Changge on 12 April, with a designed annual capacity of 20,000 metric tons of oil.

Xianfu Zhu, Chairman and Chief Executive Officer of Zhongpin Inc., said, "Our first quarter of 2010, I believe, proves the wisdom of our aggressive expansion, since we were able to continue growing sales revenues, net income, and earnings per share during a period of moderate but temporary declines in the prices of hogs and pork.

"Our long-term strategy, established several years ago and only slightly retuned, continues to be (1) increase production capacity, (2) broaden awareness and recognition of our well-known brand, which today is starting to emerge from a regional toward a national market, (3) exploit our sales capabilities by accessing more retail outlets and sales channels, and as a result, (4) increase sales revenues and net income."

Capacity and market expansion

Mr Zhu added: "In 2010, we will continue to execute our strategic plan, which has proven to be successful so far in sustaining our growth. The easiest actions to see are our plant expansions.

"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 percent will be chilled pork and 30 percent frozen pork. We believe we will reach target capacity utilization in this plant during the third quarter 2010.

"In March 2010, we began to improve our chilled pork plant in Anyang to expand capacity by 35 percent. When the four-month project is completed in July, our annual capacity there will be 85,000 metric tons, of which 70 percent will be for chilled pork, up from 60 percent, and the remaining 30 percent will be for frozen pork, which remains unchanged in capacity. Production will be maintained during the changes. The improvements and capacity increase are expected to help meet the rapidly growing demand for high quality chilled pork that we expect in north China over the next several years.

"In April 2010, we started 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 center and a research and development center, 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 the fourth quarter 2010 and should achieve target capacity utilization in the second quarter 2011. The two state-of-the-art Tianjin facilities that will be added in 2010, which will be integrated within one industrial park, are expected to cost about $61.0 million in total.

"As expected, we opened our new premium pork oil production plant in Changge on April 12. It has a designed annual capacity of about 20,000 metric tons. This new product is being sold through Zhongpin's existing sales channels to institutional, wholesale, and retail customers. The first orders filled have been under contracts with institutional and wholesale customers that were signed before production began.

"By the end of 2010, we believe that Zhongpin's annual capacity will be at least 563,760 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 739,760 metric tons. Of course, as we build additional plants, we also extend our cold-chain logistics system for delivery into our new markets."

New cold storage and distribution centers

Mr Zhu explained: "Zhongpin is also constructing three cold storage and distribution centers for chilled and fresh pork and agricultural products. The centers 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 centers 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 center will provide outstanding conditions to maintain the highest quality and flavour 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."

Technology and training leverage

"Our research and development is focused mainly on advancing process technology for our production and on creating new products to serve the country's growing need for tasteful, healthy, and nutritious food that can be easily adopted in China's evolving modern way of life," said Mr Zhu.

"We also continue to invest in training and employee development so that we can better sustain rapid and healthy growth while maintaining a satisfactory profit margin."

Further emphasis on chilled pork and prepared pork products

He continued: "Our most popular products are chilled pork and prepared pork products. Chilled pork offers customers the most preferred taste, while prepared pork products offer great and varied tastes, combined with easy and quick preparation. We believe these two product lines, in particular, should provide us with attractive profit margins and high sustainable demand."

Hog and pork prices declined

Hog and pork prices decreased approximately 10 per cent in the first quarter of 2010 from the fourth quarter of 2009 primarily because the supply of hogs was higher than the market demand," said Mr Zhu. "The imbalance between supply and demand was due to a limited outbreak of foot and mouth disease in south China that affected the hog breeding industry. Zhongpin does not source hogs from south China. As of the end of the first quarter, we are not aware of any reports of new infections, so we believe the disease has been controlled and the outbreak is over. We expect hog and pork prices to recover in the near future."

Outlook for pork demand in China

Mr Zhu added: "China's economy continues to expand at a good rate, with pork at the top of the food buying list as China's preferred protein. The industry outlook for pork processing remains positive. Zhongpin's brand position and higher market share in the pork category continues to strengthen, and we are broadening into additional geographic markets and new products based on our research and development. The expansion of our processing plants and distribution networks is giving us the ability to satisfy the increasing market demand for our high quality products.

"With this good start for the year, we believe our outlook for 2010 continues to be encouraging, and we remain comfortable with our previous performance guidance," concluded Mr Zhu.