We are principally engaged in the meat and food processing and distribution business in The People’s Republic of China (the “PRC”). We are developing a nationally-recognized, high-quality, fresh, healthy and nutritious meat and food products brand targeting the new middle class in the PRC. At December 31, 2008, our product line included over 314 unique meat products, including chilled pork, frozen pork and prepared meats, and over 20 vegetable and fruit products, that are sold on a wholesale basis and on a retail basis through an exclusive network of showcase stores, network stores and supermarket counters. Our 12 processing plants, which are located in Henan, Hebei, Jilin and Sichuan Provinces and in Tianjin City in the PRC, have an aggregate processing capacity of approximately 1,570.4 metric tons per day, based on an eight-hour working day, or approximately 565,360 metric tons on an annual basis. All of our products are sold under the “Zhongpin” brand name.
At December 31, 2008, our customers included 21 international or domestic fast food companies in the PRC, 39 processing factories and 1,669 school cafeterias, factory canteens, army posts and national departments. At such date, we also sold directly to 3,061 retail outlets, including supermarkets, within the PRC.
To differentiate our company from other market incumbents, we also have successfully implemented a unique retail strategy that includes the establishment of a network of showcase stores, branded network stores and supermarket counters that are exclusive retailers of our product lines. At December 31, 2008, we had a total of 132 showcase stores, 961 network stores and 1,968 supermarket counter locations.
We believe we are a market leader in the meat and meat products industry in the PRC and that the principal strengths of our company are as follows:
·We have a vertically-integrated fresh meat, meat products, fresh produce and fruit supply chain from farming, slaughtering, cutting, processing and wholesaling to retailing;
·We have a wide distribution network through major areas of the PRC;
·The “Zhongpin” brand name is well recognized in major areas of the PRC as an established and leading brand;
·We have advanced production equipment for the packaging of meat and food;
·Our customers include some of the largest supermarket chains, such as Lianhua Supermarket Group, Carrefour China and Metro (China) Group;
·We have implemented a comprehensive logistics management program and have an efficient delivery system that, at December 31, 2008, utilized 463 temperature-controlled container trucks and public railway services;
·Based upon our historical growth rates, we believe our experienced management team, led by our founder and Chairman, Mr. Zhu Xianfu, has the ability to grow and expand our business;
·We have an emphasis on quality assurance systems;
·We have a comprehensive brand building strategy and brand equity management;
·We have an innovative product development program, with approximately 136 new products under development at December 31, 2008; and
·We experienced compound annual revenue growth of 79% (cumulative growth of 1,824%) and compound annual profit growth of 84% (cumulative growth of 2,093%) during the five-year period ended December 31, 2008.
Management’s Discussion and Analysis or Plan of Operation
During the period from our formation on February 4, 2003 to March 30, 2005, we were in an unrelated business that was discontinued on March 30, 2005. From March 30, 2005 to January 30, 2006, we did not generate any significant revenue, and accumulated no significant assets, as we explored various business opportunities. On January 30, 2006, in exchange for a controlling interest in our publicly-held “shell” corporation, we acquired all of the issued and outstanding capital stock of Falcon Link. This transaction is commonly referred to as a “reverse acquisition.” For financial reporting purposes, Falcon Link was considered the acquirer in such transaction. As a result, our historical financial statements for all periods prior to January 30, 2006 included in this Report are those of Falcon Link.
The following executive summary is intended to provide significant highlights of the Discussion and Analysis that follows.
•In 2008, net revenues increased 91% to $539.8 million and net profit increased 70% to $31.4 million. In 2007, net revenues increased 115% to $291.3 million and net profit increased 351% to $18.5 million.
•In 2008, basic earnings per share increased 4% to $1.06 and diluted earnings per share increased 31% to $1.05. In 2007, basic earnings per share increased 200% to $1.02 and diluted earnings per share increased 321% to $0.80.
•We made solid progress executing our long-term growth strategy, which focuses on expanding our production capacity, building a well-known brand and exploiting our sales capabilities by accessing more retail outlets and sales channels.
•We ceased production in our Yanling facility and recorded a $3.2 million impairment for the assets at that location. We plan to sell those assets as a group in 2009.
We are principally engaged in the meat and food processing and distribution business in the PRC. Currently, we have 12 processing plants located in Henan, Hebei, Jilin and Sichuan Provinces and in Tianjin City in the PRC. Our current total production capacity for chilled pork and frozen pork is approximately 1,385.4 metric tons per day, based on an eight-hour working day, or approximately 498,760 metric tons on an annual basis. We also have production capacity for prepared meats of approximately 150 metric tons per eight-hour day, or approximately 54,000 metric tons on an annual basis, and for fruits and vegetables of approximately 35 metric tons per eight-hour day, or approximately 12,600 metric tons on an annual basis. We utilize state-of-the-art equipment in all of our abattoirs and processing facilities.
As of December 31, 2008, we employed 5,762 employees, of whom 4,095 were operating personnel, 1,209 were sales personnel, 102 were research and development personnel and 356 were administrative personnel. We are not subject to any collective bargaining agreement and we believe our relationship with our employees is good.
Additional Available Information
We are a reporting company and file annual, quarterly and special reports, proxy statements and other information with the SEC. You may read and copy these reports, proxy statements and other information at the SEC’s Public Reference Room at 100 F Street N.E., Washington, D.C. 20549. Please call the SEC at 1-800-SEC-0330 or e-mail the SEC at email@example.com for more information on the operation of the public reference room. Our SEC filings are also available at the SEC’s website at http://www.sec.gov. Our Internet address is http://www.zpfood.com. There we make available, free of charge, our Annual Reports on Form 10-K, Quarterly Reports on Form 10-Q, Current Reports on Form 8-K, and any amendments to those reports, as soon as reasonably practicable after we electronically file such material with, or furnish such material to, the SEC.