Sino AG — Earnings Release 2016

Nov 15, 2016

Sino Agro Food Inc. Reports Q3 2016 Results

Sino Agro Food Inc. Reports Q3 2016 Results

Revenue of USD 124.1M Remains Level with Q3 2015

Gross Profit Increases 3% with Gross Margin of 26.9%

EPS of USD .95 Falls Short of Q3 2015, but Increases

16% over Q2 2016

First Phase of Zhongshan Aquaculture Farm 50% Stocked

Sino Agro Food - Q3 2016 Interim Report

(http://mbpublicbinaryproxy/Public/13869/2122663/9a3952

c8eb9c71f9.pdf)GUANGZHOU, China-- Sino Agro Food, Inc.

(OTCQX: SIAF | OSE: SIAF-ME), an agriculture

technology and natural food company that produces and

sells protein food including seafood and cattle, is

pleased to announce the following quarterly results

ending September 30, 2016:

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|(USD M, except per share and margin data)

|Q3 '16|Q3 '15|% |

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|Revenue |124.1

|124.7 |0 |

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|Gross Profit |33.4

|32.3 |3 |

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|Gross Profit Margin |26.9%

|25.9% |4 |

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|Net Income attributable to SIAF |21.3

|21.5 |-1 |

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|Earnings Per Share (USD) - fully diluted |0.95

|1.14 |-17|

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|Diluted weighted average number of shares (M)|22.8

|18.8 |21 |

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Key Points

Summary Financials

Overall financial results were stable as compared to

Q3, 2015. Compared to Q2, 2016 gross profits increased

by 11% to USD 33.4M (30.0), and earnings per share

increased by 16% to USD .95 (.82). Most business

segments showed growing results.

· Revenue for the quarter ending September 30, 2016

totaled USD 124.1M (124.7). Revenue from the sale of

goods increased by 5% (y-o-y) to USD 100.7M (96.0),

while revenue from project development and management

fees decreased by 18% to USD 23.4M (28.6).

· Cash and equivalents increased from USD 3.3M at

the end of Q2 2016 t0 USD 9.1M September 30, 2016.

· G&A expenses increased by 27% in Q3 2016 to USD

5.oM (4.0). The increase was mainly due to corporate

exercises associated with the carve-outs.

· As of September 30 2016, the Company had net

working capital of USD 342.8M (304.3).

· Stockholders' equity increased by 15% to USD

535.3M (464.3) or USD 23.52 per share, based on the

weighted average number of fully diluted outstanding

shares in the quarter. The increase of USD 1.71 per

share versus Q2, 2016 is due to the sequential

increase of USD 19.7M and a small reduction in fully

diluted shares.

Core Businesses and Outlook

Improvements in gross profits stemmed mainly from an

overall small increase in gross margins and solid

sales performance in value added processing of

imported beef, concentrated livestock feed, and

trading of seafood and imported beef. Capital

investments were made in SJAP and Aquaculture to allow

for further capacity expansion and growth in Value

Added Processing and to complete the first phase of

the new Zhongshan aquaculture farm.

Integrated Cattle (SJAP)

Total revenue for the segment increased 22% to USD

43.4M (35.5), resulting in a 52% increase in gross

profits to $10.2M (6.7). The gains were spearheaded by

revenue increases 0f 196% in value added processing of

imported beef to USD 24.6M (8.3) and 65% in

concentrated livestock feed to USD 4.5M (2.7).

Together these areas contributed gross profit of USD

6.6M (3.5). Value added processing production

increased 146% in Q3 to a record 3,185 metric tons

(1,297).

Live cattle sales decreased 56% to USD 7.1M (16.4), as

the Company continues to transition to premium cattle

breeds. However, gross margins showed a marked

improvement to 17% (7%), resulting in a 7% increase in

gross profit to USD 1.2M. Average sales prices for the

quarter were CNY 30/kg, continuing the upward trend

from a low price of CNY 20/kg in Q1. As prices steady

or continue to increase, the Company expects to grow

its inventory of fattening cattle, commensurate with

expected margins and dependent on new contracts with

cooperative farmers. The inventory was reduced when

the pricing trough rendered live cattle sales

unprofitable earlier in the year. Replenishing

inventory will progress over several months.

Aquaculture (CA)

The Company is interchanging the species of seafood

and prawns at its various farms such that referring to

each as "aquaculture farms ("AF")" is now more

accurate. Fish Farm 1 becomes AF1 and Prawn Farms 1

through 4 become AF2 - 5. These labels will be

forthcoming in the Company's financial reports and

collateral material as the carve-out materializes.

Revenue from the sale of goods decreased 56% to USD

12.5M (28.6), while gross profit decreased 42% to USD

3.2M (5.5). Facilities at AF1 began extensive

renovation upgrades during Q3. These will continue

through the end of November. Production is fully

curtailed until completion. Also, retrofitting and

modifications were performed at AF2 and AF3 during the

quarter and are scheduled to continue throughout the

remainder of the year. Whereas production will be

reduced during this interim period, grow-out

facilities for tiger prawns at AF2 and a tripling of

harvests per year at AF3 are expected to dramatically

improve 2017 production.

The first two buildings housing 72 APM units at AF4

("MegaFarm") are complete, and have been stocked to

50% of capacity, expected to increase to 75% by year-

end. Stocking consists of the following varieties for

full grow-out and post harvesting: Giant Freshwater

Prawns, Grass Prawns, Sleepy Cod, Jade Perch, Murray

Cod, and various higher priced fresh water mixed fish.

As part of the aquaculture carve-out, the Company has

submitted all relevant documents for the transfer of

all fishery assets to Jiangmen City A Power Fishery

Development Co., Ltd. ("JFD"). JFD is in the process

of becoming a Wholly Foreign Owned Enterprise ("WFOE")

under the ownership of Triway Industries Limited.

(Hong Kong), ("Triway"). SIAF and Triway auditors are

reviewing financial data treatments and procedures

with the intended official carve-out date for

reporting purposes recorded as October 1, 2016.

Despite renovation, upgrading, modernization and

supporting transformation work, the Company expects

overall improvement in sales in the fourth quarter due

to commencement of sales at AF4. With AF1 coming back

on line; with AF2 and AF3 recommencing toward former

capacity or expanded capacity; and with AF4 expanding

facility use, the Company is excited by aquaculture

prospects as soon as Q1 2017, and beyond.

Management chose this time to perform supporting work

and upgrades for several reasons, as follows:

· Production ramp at AF4 is expected to overcome

production reduction at AF1 - AF3 in Q4, due in part

to support work to integrate other aqua farms.

· All facilities are best served by continual

improvement to optimize yields, margins, quality, and

longevity, with particular attention paid to insuring

AF4 performs optimally before full commercial scaling

and before AF4 and AF5 install and develop similar,

expanded support facilities within their own complexes.

· The upcoming carve-out has been aligned with the

Company modernizing its aquaculture facilities into

integrated high-yielding stations, increasing value

from both asset and projected income perspectives.

The Company has secured a loan commitment from a group

of third party lenders in the amount of USD 8.2M to

fund intra-company lending from SIAF to Triway for

short-term working capital. The first intra-company

loan agreement between the Company and Triway for USD

6M was entered July 5, 2016 with funds disbursed

between July 15 and August 6, 2016. The remaining USD

2.2M will be disbursed before the end of the year.

The company continues to pursue other value accretive

financing options for Triway.

Seafood and Meat Trading

Revenue increased by 131% to USD 23.2M (10.1) with

import volume growing to 1,782 metric tons (1,087).

Gross margins averaged 11.4% creating a 138% gain in

gross profit to USD 2.7M (1.1). Import of seafood

almost doubled from the previous quarter to USD 10.1M,

accounting for 44% of revenue and 45% of gross profit.

This business is meeting original production and

margin targets. The Company is confident increases

will continue as the revolving Trade Credit Facility

for the Shanghai Distribution Center is fully and

efficiently utilized and possibly increased as

lucrative opportunities become available, and as the

disposable income of China's middle class continues to

rise.

Project Development

Though revenue decreased 18% to USD 23.4M (28.6), the

gross margin of 46.7% resulted in a smaller gross

profit decline to USD 10.9 (11.5). Capital Award

deferred billing of Q3 work performed at AF3 until Q4,

due to the injection of assets into Triway. This

deferred revenue approximates the shortfall between Q3

2016 and Q3 2015.

Carve-out Exercises

The Company believes that the sum of its parts is

worth considerably more than the market value of the

whole. Accordingly, it has undertaken efforts to carve

out its major businesses, establishing each as a

standalone corporate entity. These carve-out

enterprises will seek to establish value within the

same financial measures afforded peer group companies,

in part through private placement prior to applying to

higher value market exchanges for IPO, utilizing

market industry experts to assist those efforts in

securing the best market(s) for listing.

Having had extensive discussions with consultants and

underwriting banks and brokers, as a general

proposition, the process involves three steps:

· Issue to SIAF shareholders a sustainable portion

of equity interest of the carve-out based on a value

equal to the entity's net tangible assets ("NTA").

· Seek and complete pre-IPO stages of private

placements, aiming to establish a value approximating

2 times NTA, providing an exit opportunity to said

existing shareholders.

· Seek listings on recognized exchanges with the

intention of establishing IPO valuations of

approximately 3-4 times NTA, or approximately 12 -16

times earnings.

Each exercise within each step requires countless

hours of work with a cadre of consultants, attorneys,

auditors, government authorities, and stock exchange

officials. The Company continues to work diligently,

making progress on its ambitions although at times

required to veer from a straight-line approach to

attain best results.

CEO Commentary

Sino Agro Food's Chairman and CEO Solomon Lee

summarized the quarter, as follows:

"During the third quarter of 2016 we made significant

inroads executing on our strategic plan to restructure

the business and maximize value for shareholders.

Overall, it was a very positive quarter, exhibited

through improved gross margins, a stronger cash

balance and significant operational progress in both

the aquaculture and the cattle/beef businesses.

"To recap our high-level strategy, we are undertaking

a series of initiatives to transition Sino Agro Food

into an investment vehicle with positions in multiple

independent, public companies operating within China's

agricultural industry. To this end, Sino Agro Food's

two largest and fast growing subsidiaries - the

aquaculture and beef businesses - will be carved out

from the parent company and listed on stock exchanges

where we believe their shares will be able to trade at

a market value commensurate with peers and

substantially higher than their embedded values. As

part of this carve out and IPO process, we are raising

growth capital for these subsidiaries to accelerate

their development, with Sino Agro Food expected to

retain significant stakes in each of the companies

after the spin offs have occurred.

"One key focus right now is our aquaculture business,

which we believe has the potential to develop into an

extremely profitable and sustainable business model of

much larger size. Through its proprietary indoor

recirculating aquaculture systems ("RAS") technology,

the aquaculture business produces disease-free,

superior quality and higher-margin seafood to the

China markets all year-round. With aquaculture the

fastest growing food production system in the world,

and currently accounting for nearly 45% of world

seafood supply, we are confident that our superior

production methods position the aquaculture subsidiary

as a competitive and significant player in a rapidly

growing market.

"By transferring all the assets from our wholly-owned

subsidiary, Capital Awards, into a standalone entity,

we expect to attract institutional investors who

specialize in investing in high-growth business

opportunities, spurring higher valuations for

the "new" entities, as well as SIAF. We strongly

believe this strategy is the most efficient way to

enable the aquaculture business to grow rapidly,

benefiting all shareholders.

"During the third quarter, we took necessary steps to

commence work at the aqua-farms. This has curtailed

production in the short term, but is expected to

expand capacity, and therefore revenues, as early as

Q4 2016. The Company was able to secure $8.2 million

in working capital to facilitate these efforts while

continuing to work closely with a major Asian bank

toward securing a larger loan to accelerate the growth

of the company. The larger loan is taking longer to

complete since the prospective lender is agreeing to

help underwrite the IPO as well. Thus, while the

overall review and approval process for the "entire

package" consumes more time, it also provides the

Company's shareholders a much greater return on

investment than would other available alternatives, at

this time. In the interim we will continue to develop

the aquaculture farms organically via internally

generated cash flow. With our plan to develop the

world's largest RAS farm, we are confident the

aquaculture business can grow into a highly profitable

company, driven by demand from the burgeoning middle

classes in China.

"SJAP, our cattle and beef subsidiary, is also

undergoing several strategic changes to maximize its

value. Specifically, we are restructuring the business

with the goal of listing it on a stock exchange in

early 2017. As with the aquaculture business, the

carve-out will make it easier to more accurately value

the company and is expected to attract more investors

at a higher valuation.

"SJAP is transitioning toward production of higher

quality beef which, as well as generating improved

margins for the company, allows us to tap into an

underserved niche. Currently, there is limited supply

of premium quality beef in China and products on the

market are typically imported from abroad. However, as

Chinese consumers become wealthier and more discerning

about food quality, the consumption of premium beef is

expected to grow significantly. Sino Agro Food is one

of the foremost players in this market and our

leadership position in the industry provides an

advantage going forward. During the quarter, we

continued to transition toward premium cattle breeds.

Coupled with higher prices for domestic beef, the

transition led to a marked improvement in gross

margins.

In the short term our cash flow is constrained by

ongoing investments in these business segments; yet,

results from our strategy have already begun to

materialize. As obscure as it may seem, the Company is

reaching an inflection point in its growth trajectory

and reiterates its appreciation to shareholders who

remain confident in the Company's mission going

forward."

2016 Third Quarter Report

For detailed segment operational performance and

developments, please take the time to read our latest

10-Q filing, or refer to the 2016 Q3 Interim Report

(http://sinoagrofood.investorroom.com/download/Sino-

Agro-Food_Q2-2016-Interim-Report.pdf) posted to the

Company website at

http://sinoagrofood.investorroom.com/download/Sino-

Agro-Food_Q3-2016-Interim-Report.pdf

Earnings Call Information

The Company will host an earnings call on Tuesday,

December 6, 2016 at 10:00 AM EDT/4:00 PM CET to

discuss quarterly financial results.

Please submit questions by email to

info@sinoagrofood.com. These will be organized and

answered with questions submitted during the call,

followed by live calls from institutional investors

and/or analysts.

To listen to the conference call please use the

following information:

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|SIAF 2016 Q3 Results

Call

|

|Information

|

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|Date: December 6, 2016 |Time: 10:00 AM,

EDT/4:00 PM CET |

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|Participant Dialing

Instructions:

|

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|SE: +46 8 5059 63 06 NO: +47 23|UK:+44 203 139 48

30 CN:+86 400 681 54|

|50 05 59 US: +1 (866) 928-7517

|21 |

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|Conference

Pincode25125518#

|

| The earnings call will also

be |

|available over the web.To

access, |

|click the following link: Sino

Agro |

|Q3 2016 Earnings

Call

|

|

(https://wonderland.videosync.fi/si

|

|no-agro-food-q3-

report)

|

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