Sino AG — Earnings Release 2017

Nov 14, 2017

Sino Agro Food, Inc. Reports Q3 2017 Results

Sino Agro Food, Inc. Reports Q3 2017 Results

Revenue of USD 48.4M; EPS of USD .15

November 14, 2017

GUANGZHOU, China-- Sino Agro Food, Inc. (OTCQX: SIAF | OSE: SIAF-ME), also

referred to as "SIAF" or the "Company," an agricultural technology company

focused on protein food including seafood and cattle, announces results for the

quarter ending September 30, 2017.

Revenue

Results reflect the carve-out of aquaculture operations announced March 2, 2017.

Income from Sino Agro's interest in the carved-out company, Tri-Way Industries

Ltd. is reported as "income on investment."  Revenue from the sale of goods from

the former aquaculture business segment is no longer reported.

Excluding discontinued aquaculture revenue from Q3 2016, revenue from the sale

of goods decreased USD 42.8M, or 48.5%, to USD 45.4M for the quarter ended

September 30, 2017 year over year ("YoY"). Contrasted to Q2 2017, revenue from

the sale of goods decreased USD 2.5M or 5%.

Compared to Q2 2017, total revenue increased USD 0.7M or 1.5% to USD 48.4M,

including project development revenue of USD 3.0M versus no revenue in the prior

quarter.

Overview

The underlying conditions impacting performance in the second quarter continued

in the third quarter, namely:

·    Sale of goods in the aquaculture sector is discontinued, having been

replaced by a single income line item below the net income from continuing

operations.

·    Tri-way has restricted capital expenditure for purposes of expanding

production capacity and sales until it has successfully sourced third party

funding.

·    Depressed pricing for the local cattle and beef industry brought on by

relaxed import restrictions first from Australia and then the U.S. and Brazil

has had a deleterious effect not only on SIAF subsidiaries' live cattle sales

and gross margins, but also on upstream and downstream revenue sources:

livestock feed, fertilizer, and deboning of imported beef.

As a result, gross profits declined on a year over year basis from USD 30.2M to

USD 6.5M. The Company has adapted to these segment specific conditions by

restricting its capital expenditures, reducing general and administrative

expenses, and tailoring product mix to products with reasonable, albeit lowered,

gross margins.

Other Key Points

· Q3 2017 income from investment was USD 1.4M. This figure is based on its

current 23.89% equity interest in Tri-way, prior to the effective one-year

anniversary date (October 5, 2017) when SIAF is permitted to exercise its option

to convert Tri-way's USD 41M in outstanding debt into equity interest of 12.71%;

equivalent to 12.7M common shares of Tri-way, currently registered in HK and

available for transfer upon SIAF's instruction to exercise its option.

· As of September 30 2017, the Company had net working capital of USD 315.4M,

a quarterly increase of USD 1.5M.

· Stockholders' equity increased in the quarter by USD 6.4M to USD 636.3M.

Sequential Comparison

The Company achieved the following results, comparing the third quarter of 2017

to the second quarter of 2017:

+-----------------------------------------+------+------+-----+

|(USD M, except per share and margin data)|Q3 '17|Q2 '17|% |

+-----------------------------------------+------+------+-----+

|Revenue |48.4 |47.7 |1% |

+-----------------------------------------+------+------+-----+

|Gross Profit |6.5 |6.5 |0% |

+-----------------------------------------+------+------+-----+

|Gross Profit Margin |13.5% |13.6% |(-1%)|

+-----------------------------------------+------+------+-----+

|Earnings Per Diluted Share (FD) (USD) - |.15 |.03 |400% |

|from continuing and discontinued | | | |

|operations | | | |

+-----------------------------------------+------+------+-----+

The following table breaks out revenue by business segment, comparing the third

quarter of 2017 to the second quarter of 2017:

Revenue (USD M) Q3 '17 Q2 '17 %

Integrated Cattle Farm (SJAP) 19.4 20.5 (-5%)

Organic Fertilizer (HSA) 1.7 1.0 70%

Cattle Farms (MEIJI) 7.3 7.4 (-1%)

Plantation (JHST) 1.5 .8 87%

Seafood & Meat Trading 15.6 18.1 (-16%)

Sale of Goods Total 45.4 47.7 (-5%)

Project Development Total 3.0 0.0 n/a

Group total 48.4 47.7 1.5%

Integrated Cattle (SJAP)

Gross profit for the Integrated Cattle segment totaled USD 2.0M, a 54% decline

from Q3 2016, and a 14% decline from Q2 2017. Fertilizer, and bulk and

concentrated livestock feed contributed USD 1.9M or almost 95% of gross profit.

The cattle market has endured depressed pricing for well over 12 months. The

Company had already dramatically reduced the sale of live domestic cattle due to

unprofitable conditions. Continuing increased competition in the third quarter

had a materially negative impact on gross margins, filtering through to deboning

and packaging, as competitive pricing for the final products became increasingly

challenged. During the quarter, gross margin for the deboning of imported beef

deteriorated to the unsustainable level of 2.8%. In addition, the Central

Government has instituted new environmental regulations that would require

significant additional capital expenditure at SJAP. For these reasons, SJAP

management has suspended QZH's abattoir operations until an effective solution

can be found, likely deriving from either a marked turnaround in market forces

or government policies to stimulate domestic beef production and local value

-added processing.

The local government realizes the serious situation the cattle industry faces in

the region, and is looking at various options to assist, while waiting and

working with the Central Government to produce a concrete revitalized plan to

rebuild the industry.

As reported last quarter, SJAP's plan in the interim is to:

·    Restrict capital spending and to reserve its cash as much as possible to

buy enough time while working through the interim planning process until the

Central and Local Government's revitalization plan is adopted and implemented.

·    Continue limiting operations of the adversely affected aspects of its

business.

·    Continue discussions with other operators in wholesaling, logistics,

value-added processing, general trading, etc. to negotiate an overall

plan/solution in line with the government's strategic plan.

As previously noted, decisions are to be governed by stricter discipline on

return on capital employed ("ROCE") in support of SJAP's advised carve-out and

spinoff plans.

SJAP is fortunate to enjoy excellent working relationships with various

government agencies. These private company/state agency relationships are

perhaps more important in China than in western countries. For instance, SJAP

has successfully created a local cooperative farmer network that has mutually

benefited both parties for many years. Indeed, it is still viable; despite the

influx of highly competitive imported beef due to relaxed import restrictions.

Government agencies recognize the mutual benefit of public/private cooperation.

Support for the beef industry awaits a full assessment of forces to determine

market equilibrium, before likely indicating a proper and effective stimulation

to be supplied to local markets in the interest of all parties.

The Company continues to work through these challenges yet cannot provide a

timeframe on when or if these endeavors will provide a successful return or

outcome.

Organic Fertilizer (HSA)

Production and sales of organic fertilizer increased 69% to 6,082 MT; however,

unit prices dropped from USD 245/MT to USD 153/MT YoY. Sales of organic mixed

fertilizer declined 82% to 1,796 MT, due in part to the production plant being

retrofitted during the quarter. Unit prices declined 5% to USD 412/MT. These

factors led to an 80% YoY decline in gross profit to USD 440K. Nonetheless,

while abiding the policy not to incur additional capital expenditures until self

-generated cash flows allow, gross profit of USD 440K represented a sequential

increase of greater than 100% over Q2.

With the organic mixed production plant available for full utilization, the

Company expects a return to productive operation levels.

Cattle Farms (MEIJI)

Improved cost efficiency led to a 78% increase in YoY gross profit to nearly USD

1M. Improved performance continued from the previous quarter's similar gross

profit due to the competitiveness and market acceptance of locally bred "Yellow

Cattle."

Plantation  (JHST)

Revenue and gross profit suffered from a poor quality of flowers due to root

diseases caused by years of excessive rain. While gross profit of USD 238K

declined YoY by 94%, it was almost a 100% improvement over Q2, indicating the

start of remediation results.

JHST is experimenting with a variety of crops that may prove less susceptible to

the vagaries of weather in Guangdong province, as well as new processes designed

to mitigate the same issues. During the quarter an experimental crop of Passion

Fruit had a good reception with reasonable and stable prices. The Company plans

to improve the yield per acre while targeting 100 acres for commercial

production in the spring of 2018. In addition, Immortal Fruit has attracted the

interest of a health plant and operator. The Company plans to repackage this

product, aiming to launch sales programs to meet next season's commercial

harvests beginning in the spring of 2018.

The Company anticipates that these changes will accelerate the sales results

toward 2016 results, with less dependence on fair weather.

Seafood and Meat Trading  (Corporate)

Gross profit declined 35% YoY (14% QoQ) to USD 1.7M, on a 33% decrease in

revenue, stemming from the Company's decision to trade selective products with

reliable profit margins.

The Company is increasing import sales on quality Wagyu beef from Australia with

support from reliable producers and suppliers that have granted the Company

exclusive distribution rights. Imported Wagyu beef carries a higher profit

margin, and has seen increasing market acceptance in China.

Engineering Technology, Consulting and Services (Project Development)

Revenue and profit from this segment is not expected to return to precedent

levels until cash flow helping to finance capital expenditures are available to

carry out Tri-way's fishery development and Vigor's wholesale development.

Meanwhile, during Q3 Tri-way funded necessary development work from cash flow

resources totaling USD 3.0M after having curtailed any development during Q2.

In the interim, Capital Award ("CA") has continued to explore opportunities in

Asia (e.g., India, Vietnam, Indonesia, Malaysia and other countries), having

been introduced to interested parties during the quarter. CA aims to expand its

segment operations in technology transfer, related consulting services, and

plant and equipment development outside of China, while simultaneously

developing mutually beneficial partnerships with other aquaculture technology

companies, as demonstrated by the recent MOU signed with Utah, USA based

CibusDx.

CEO Commentary

Mr. Solomon Lee, CEO of Sino Agro Food, commented, "Our year over year results

continued to reflect the impact of increased competition from imported beef on

the local beef raising industry, as well as the marked decrease in aquaculture

sales that are no longer conducted by the Company, but rather by its investee,

Tri-way Industries. However, we are pleased to see a leveling off in the revenue

decline, with total sales of USD 48.4 million in Q3 2017, (versus USD 47.7

million in Q2 2017) and gross profit of USD 6.5 million in Q3 2017, consistent

with Q2 2017.

"Even though an immediate solution for SJAP is not expected, we are hopeful that

one materializes in the near future since SJAP's business is directly associated

with the livelihood of thousands of farmers. It is a major concern and

responsibility of the Government to secure an ultimate and practical solution

for the farmers, with SJAP available to assist when it can do so profitably.

"Under current circumstances, we believe our most significant growth

opportunities will come from:

·    Tri-Way, which is focused on ramping up its seafood production for

domestic sales, and on utilizing its marketing network and global connections to

increase sales on imported frozen seafood into China. As such, we are confident

that the pace of revenue growth will rapidly accelerate once Tri-way secures

adequate debt financing. The process to secure this funding has made significant

progress, the details of which will be made public once the funding is secured

and its closing in place.

·    Import sales of high grade quality meats (i.e., Wagyu beef with higher

overall margins) will continue to improve, achieving better performance as we

secure additional high quality products from new reputable suppliers and from

loyal, consistent customers.

"Adjusting to the current spectrum of external agricultural market conditions,

we are pleased to have achieved USD 0.15 earnings per share during the third

quarter, a meaningful improvement compared with USD 0.03 in Q2 2017. This result

is a testimony to our agility to execute even under unfavorable conditions,

establishing a positive baseline for improved results, when external conditions

return to more 'normal' levels.

"We continue to believe that there is a major opportunity to capitalize on the

growth of China's economy as the disposable income of China's middle class

continues to rise, leading to increased demand for premium seafood. We will

continue to tailor our strategy to leverage this growth, mindful of the shorter

term macro trends affecting agriculture in China, while Tri-way continues its

efforts to secure financing to accelerate production expansion.

"During the quarter we also continued several initiatives aimed at improving

financial discipline across the business to support a sustainable and cost

-efficient business model, such as concentrating on increasing free cash flow at

Tri-way by optimizing operations at each aquafarm in terms of product mix and

APRAS performance, and retrofitting HSA's second production plant's fertilizer

processor to allow for better cost savings in raw material.

"I would like to again thank our loyal shareholders as we implement these steps

and work through this transition period toward building long-term value at the

Company, while at the same time, continuing with positive momentum on our carve

-out and spinoff strategies."

Q3 2017 Interim Report

For detailed segment operational performance and developments, please take the

time to read our latest 10-Q filing, or refer to the Q3 2017 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_Q3-2017-Interim

-Report.pdf.

Earnings Call Information

The Company will host an earnings call on Friday, December 8, 2017 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 on the call.

To listen to the conference call please use the following information:

+---------------------+--------------------------------+

|SIAF Q3 2017 Results |

|Call Information |

+---------------------+--------------------------------+

|Date: December 8, |Time: 10:00 AM, EDT/16:00 PM CET|

|2017 | |

+---------------------+--------------------------------+

|Participant Dialing |

|Instructions: |

+---------------------+--------------------------------+

|SE:       +46 8 5059 |UK:      +44 203 139 48 30 |

|63 06 | |

+---------------------+--------------------------------+

|NO:      +47 23 50 05|CN:      +86 400 681 54 21 |

|59 | |

+---------------------+--------------------------------+

|US:      + 1 (866) | |

|928-7517 | |

+---------------------+--------------------------------+

|Conference PIN code: |

|80849742#The earnings |

|call will also be |

|available over the |

|web.To access, click |

|the following link: |

|Sino Agro Q3 2017 |

|Earnings |

|Call (https://tv.strea |

|mfabriken.com/sino |

|-agro-food-q3-2017) |

+---------------------+--------------------------------+

Peter Grossman

Investor Relations

1 (775) 901-0344

info@sinoagrofood.com

Todd Fromer / Elizabeth Barker

1 (212) 896-1215 / 212-896-1203

SIAF@kcsa.com

Nordic Countries

+46 (0)8 120 558 30

info-se@sinoagrofood.com (erik.ahl@sinoagrofood.com)

About Sino Agro Food, Inc.

SIAF is a specialized investment company focused on protein food. The Company

produces, distributes, markets, and sells sustainable seafood and beef to the

rapidly growing middle class in China. Activities also include production of

organic fertilizer and produce. SIAF is a global leader in developing land based

recirculating aquaculture systems ("RAS"), and with its partners is the world's

largest producer of sustainable RAS prawns.

Founded in 2006 and headquartered in Guangzhou, the Company had over 550

employees and revenue of USD 343 million in 2016. Operations are located in

Guangdong, Qinghai, and Hunan provinces, and in Shanghai.  Sino Agro Food is a

public company listed on OTCQX U.S. Premier in the United States and on the Oslo

Børs' Merkur Market in Norway.

News and updates about Sino Agro Food, Inc., including key information, are

published on the Company's website (http://www.sinoagrofood.com), the Company's

Facebook page (https://www.facebook.com/SinoAgroFoodInc), and on twitter

@SinoAgroFood (https://twitter.com/SinoAgroFood).

Forward Looking Statements

This release may contain forward-looking statements relating to the business of

SIAF and its subsidiary companies. All statements other than historical facts

are forward-looking statements, which can be identified by the use of forward

-looking terminology such as "believes," "expects" or similar expressions. These

statements involve risks and uncertainties that may cause actual results to

differ materially from those anticipated, believed, estimated or expected. These

risks and uncertainties are described in detail in our filings with the

Securities and Exchange Commission. Forward-looking statements are based on

SIAF's current expectations and beliefs concerning future developments and their

potential effects on SIAF. There is no assurance that future developments

affecting SIAF will be those anticipated by SIAF. SIAF undertakes no obligation

to publicly update or revise any forward-looking statements, whether as a result

of new information, future events or otherwise, except as required under

applicable securities laws.