Zhongpin Inc.
November 2010 Safe Harbor Statement
Safe Harbor Statement Under the Private Securities Litigation Reform Act of 1995
Any statements set forth herein that are not historical facts are forward-looking statements that involve risks and uncertainties that could cause actual results to differ materially from those in the forward-looking statements.
Potential risks and uncertainties include but are not limited to such factors as unanticipated changes in product demand, possible effects from the A(H1N1) virus on our future sales revenues, interruptions in the supply of live pigs and 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. Accordingly, although the company believes that the expectations reflected in such forward- looking statements are reasonable, there can be no assurance that such expectations will prove to be correct.
2 Zhongpin Company Representatives
Mr. Feng Wang Vice President & Chief Financial Officer
Mr. Sterling Song Investor Relations Manager
3 Zhongpin Overview
th Started from 1993, now we are 4 largest pork supplier in China
Estimated FY2010 revenues between $900 MM -- $940 MM
+300 pork products and vegetables & fruits produced in 15 processing plants
Distribution to 20 provinces, plus Beijing, Shanghai, Tianjin & Chongqing
Directly sell to +3000 retail outlets
Chilled & Frozen Pork Prepared Pork Vegetables & Fruits
4 Industry overview
Drivers of industry consolidation
Accelerating urbanization with higher incomes encourages consumption of more, premium, and safe food best supplied by larger advanced producers.
No dominant supplier has emerged in the highly-fragmented pork industry in China. The total market shares for Top 5 suppliers altogether < 10%.
th China’s 12 Five-year Plan is speeding up industry consolidation.
The expansion of cold-chain logistics systems is broadening the coverage of wholesale and retail channels, with strong support from China Authorities.
Modernized channels (dry markets) are replacing traditional trading channels (wet markets).
5 Industry overview (continue)
China Meat Industry Development Strategy Report (2011 – 2015)
By 2015, to decrease outstanding licenses for slaughterhouses from more than 21,000 to around 3,000 in China;
By 2015, to increase sales of chilled pork from 10% to around 30% of total pork sales in China;
Bt 2015, to decrease sales of room temperature pork to below 50% of total pork sales in cities at or above county level in China; and
To build pork and pork products production bases in north China, east China, and south-west China.
6 Strategies and Tactics
Supply chain consolidator in China Pork Industry
Development strategies Development tactics
Form advantage of scale in key markets Industrial Clusters Adjust capacity utilization rates.
products structure and channels of market sales complement each other
Complete internal control systems to improve the ability to minimize risks.
Continuous construction of brand to increase the brand awareness and goodwill.
Establish strategic alliances with suppliers to Optimizing Strategy of Supply chain control raw materials supplies Expand cold-chain logistic network.
Share channels
Use integrated IT to improve the efficiency of the supply chain.
7 Tactical Execution in Industry Chain
Supply Slaughtering Processing Sales Channels
Cold-chain system
Management Information System to support and manage processing flow
• Strategic alliance • Scale • Acceleration of • Cold-chain logistics with large hog expansion scale expansion breeding farms • Extension & • Optimization of • Adjust products optimization of products structure channels structure • Hog breeders • Improve ability of • Increasing brand • Quality marketing awareness. assurance • Quality assurance
8 Target Markets For Processing Facilities
Heilongjiang
Jilin
Xinjiang Liaoning Henan Province Gansu Inner Mongolia Beijing Tianjin Hebei Ningxia Shanxi Shandong Qinghai Henan Anyang Shaanxi Jiangsu Tibet Shanghai Hubei Anhui Sichuan Luoyang Changge Yongcheng Zhejiang Hunan Jiangxi
Leased Guizhou Fujian Zhumadian Built or building Yunnan Guangxi Guangdong Acquired
9 Market Strategies
Positioning Market Strategies Natural chain, Natural products
Concentrate resources in key Branding markets.
Healthy, nutritious, fresh, safe, Upgrade channels to increase high -quality meat products for % of sales to high -end channels. middle and upper income Multiple channels strategies customers and large institutions. to strengthen brand awareness. Structural branding strategy Target markets to improve brand awareness. Central China, Eastern China, Optimize pricing through Northern China, Northeastern market and cost analysis systems. China, and Southeastern China
10 Product Mix
Zhongpin Brand
Chilled & Frozen Prepared Vegetables & Fruits Pork Products Pork Products
11 Product Mix
Proportion of Sales by Division
9-month 2009 9-month 2010
Vegetables & Fruits Vegetables & Fruits Prepared 2% 2%2%2% 17% Prepared 13%13%13%
Chilled Chilled Frozen 54% Frozen 54%54%54% 31%31%31% 27%
$ Saels $ Saels Metric Average Revenues Metric Average Revenues Tons Price /ton (in millions) Tons Price /ton (in millions) Chilled 153,767 1,805 278 Chilled 197,515 1,821 359.7 Frozen 95,274 1,675 160 Frozen 110,360 1,595 176 Prepared 29,806 2,174 65 Prepared 5,3846 2,074 111.7 Vegetables & Vegetables & Fruits 11,111 765 9 Fruits 15,787 823 13
12 Sales Channels
Broad reach of distribution Proportion of sales by different channels (9 month 2010) 20 provinces, Beijing, Export (1%) Shanghai, Tianjin & Chongqing 29 1st-tier cities 543 2nd-tier and 3rd-tier cities
Restaurant & More than 3,200 stores Food Services (28%) Retail (40%)
Wholesalers & Distributors (31%)
13 Diverse Client Base
We are serving
31 domestic and foreign fast food companies.
57 high end food processing companies.
1,693 school dinning halls, factory restaurants, and army dinning halls.
3285 retail outlets, including, Walmart, Carrefour and Metro.
14 R&D Improves Competitiveness
R&D capability • 108 scientists and technicians. • Cooperate with China Agricultural University in research center for products. • Establish pork branch under China Agricultural Products Research
Center. Central kitchen for taste development is also • Engineering Technology Center of available to customers for joint development. Henan Province and Key Labs • New products based on market survey and intelligence. • More than 100 new products under development.
15 World Class Quality Control System
Quality Guarantee • Implemented through the whole system. • Information system tracks products from farm to customer. • Certified by ISO 9001 and 14000 quality system. • Achieved certificates of HACCP management system, CAP, GMP and NCAC. • Implements operating program with SSOP public health standard. • Testing Center achieved the certificate of CNAS. • Advanced test facilities & equipment run by professionals.
Quality assurance system
breeding Wholesale market transport picking processing cold logistics Consumers planting Supermarket
Quality tracking system
16 Zhongpin’s continuous learning culture
Highly efficient management team
Deep and wide bench of exceptional talent
Systematic training for all
Extensive training and development for technical and production employees
Active recruiting of many talents
17 Continued processing capacity expansion
Annual Annual Planned Comes Cap Ex US$ Products Location Capacity MT a Location Capacity MT Online Million Chilled & Changge, Henan HQ (built) 81,760 Jiangyan (building) 100,000 3Q 2011 $63 b Frozen Gongzhuling, Jilin (leased) 30,000 Nong’an (building) 95,000 4Q 2011 $61.5 c Pork Deyang, Sichuan (acquired) 45,000 ADDING CAPACITY 195,000 Zhumadian, S Henan (built) 72,000 Anyang, N Henan (built) 85,000 Luoyang, W Henan (built) 70,000 Yongcheng, E Henan (built) 80,000 TOTAL CAPACITY 758,760 Tianjin (built) 100,000 CURRENT CAPACITY 563,760 35% increase
Prepared Changge, Henan (2 built) 54,000 Tianjin (building) 36,000 2Q 2011 $21 Pork Changge, Henan (built) 36,000 Jiangyan (planned) 30,000 2Q 2012 b Products Changge (Food oil, built) 20,000 Nong’an (planned) 30,000 3Q 2012 c CURRENT CAPACITY 110,000 ADDING CAPACITY 96,000
TOTAL CAPACITY 206,000
87% increase Vegeta- Changge, Henan (built) 30,000 bles & CURRENT CAPACITY 30,000 Fruits a Metric tons. Based upon an eight-hour working day. b&c included in the capax. 18 Capacity Utilization Rate
Utilization Rate by division quarter by quarter
100% 90% 80% 70% 60% 50% 40% 30% 20% 10% 0%
Q Q 2 84Q 91Q 3 01Q 02Q 00 0 01 1 20081Q 2008 20083Q 2 20 20092Q 2009 20094Q 2 20 20103Q
Chilled & Frozen Prepared Pork Products
• Relatively stable growth trend • Utilization rate has rebounded recently after temporary decline • Capacity utilization rate tends to be stable
19 Profit Margins Relatively Stable
Hog Prices versus Gross Margin
16 14%
14 12%
12 10% 134 10 117 116 8% 101 109 80 8 134 60 71 71 126 51 109 116 117 6% 6 101 80 71 71 4% 4 60 51 2 2%
0 0%
Q Q Q Q 1 83Q 4 92Q 3 01Q 2 008 0082Q 00 008 00 009 01 010 2 2 2 2 20091Q 2 2 20094Q 2 2 20103Q
Quaterly Sales Volume Quaterly Average Hog Price Gross Margin
20 Proven Financial Track Record
Continued capacity expansion Growth in Sales Volume
450 405 400 378 2006-2010 704 CAGR = 39.11% 665 350 300 253 469 250 359 200 180
150 122 188 100
50
0 2006 2007 2008 2009 2010 9Mon
Vegetables & fruits 13 13 23 13 30 Prepared pork 14 25 54 110 110 Chilled & frozen pork 161 321 392 542 564
21 Proven Financial Track Record
Revenues Net income
1000 900-940* 60 52 to 57* US$ in US$ in millions 900 726 50 800 2005-2009 2005-2009 45.6 CAGR = 77% 660.4 700 CAGR = 67% 40.3 40 600 539.8 31.4 500 30
400 291.4 20 18.5 300
200 143.8 10 100 4.1
0 0 2006 2007 2008 2009 E2010 2010 9Mon 2006 2007 2008 2009 E2010 2010 9Mon
Vegetables 5.7 8.6 8.9 12.1 13 & fruits Prepared pork 15.4 29.2 53.7 93 111.7 Frozen pork 50.9 102.6 187.9 224.8 176 Chilled pork 71.8 151 289.3 396.1 359.7 900 ––– Total revenues 143.8 291.4 539.8 726 660.4 940*
* Based on Zhongpin guidance on January 2010 22 Summary Income Statement
Highlights
Year Ended December 31 Strong historic growth in capacity 2007 2008 2009 2010 9Mon and distribution networks supports continuous increases in revenues. Net Revenue 291.37 539.83 726.04 660.4 Powerful raw material cost transfer Cost of Sales% 87% 87% 88% 88% abilities enable consistent margins Gross Margin 12.9% 12.7% 12.0% 11.7% through times of fluctuating input Operating Margin 7.5% 6.8% 7.0% 6.7% costs. Interest Coverage Ratio 9.1 11.1 8.3 8.5 Effective internal controls stabilize Pre-tax Income 20.0 33.9 49.4 43.3 operating costs.
EBITDA Margin 8.5% 7.9% 9.0% 9.1%
Net Income 18.5 31.4 45.6 40.3
Net Margin 6.4% 5.8% 6.0% 6.1%
23 Summary balance sheet
2010 Highlights in million dollars 2007 2008 2009 9Mon Current Assets We have maintained consistent financial Cash & cash equivalents 45.14 41.86 68.98 62.39 flexibility to capitalize Accounts Receivables 18.92 20.43 20.42 36.61 on attractive market Inventories 25.92 16.72 33.86 43.4 opportunities.
Total Current Assets 110.51 112.27 166.68 226.9 Our large base of Property, plant and equipment 66.43 133.87 189.59 290.77 assets are available to Total Assets 217.11 329.78 498.11 628.98 be leveraged further. We have prudent debt Short-term Loan 47.67 67.89 84.67 100.04 leverage 32.3% net debt (excludes cash & Total Current Liabilities 70.12 110.38 143.02 205.16 equivalents in both net Long-term Loan 1.63 23.48 44.91 69.35 debt and total capital). Total Liabilities 74.09 138.87 201.27 283.55 Interest coverage was 8.5 times on net Retained Earnings 34.73 66.11 111.7 152 interest in the first 9 Total Equity 143.02 190.91 296.84 345.43 months of 2010.
Quick Ratio 0.91 0.56 0.63 0.44 Total Liabilities/Total Equity 0.52 0.73 0.68 0.82 Return on Equity 13.0% 16.4% 15.4% 11.7% 24 Investment Highlights
√ Vertically integrated industry Chain
Successful industry clustering strategy to ensure capacity √ replication and expansion
√ Leading cold -chain logistic network and distribution ability
√ Advanced quality assurance in every phase of the supply chain
√ Ability to take advantage of market opportunities
√ Strong brand awareness, reputation and image of enterprise
25 Zhongpin Inc. Mr. Tom Myers Mr. Sterling Song +86-139-1141-3520, Beijing Investor Relations Manager [email protected] +86 10 8286 1788 ext 101 [email protected] Ms. Kathy Li +1-212-618-1978, USA [email protected]
www.zpfood.com 26