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Sino AG — Earnings Release 2018
May 21, 2018
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Earnings Release
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Sino Agro Food, Inc. Reports Q1 2018 Results and Board Approves Dividend
Sino Agro Food, Inc. Reports Q1 2018 Results and Board Approves Dividend
Dividend of USD .05 for 2018; USD.10 for 2019
Revenue of USD 33.7M; EPS of USD .17
Restructured Businesses Show Positive Results
May 21, 2018
GUANGZHOU, China-- Sino Agro Food, Inc. (OTCQX: SIAF | OSE: SIAF-ME), a
specialized investment company focused on protein food including seafood and
cattle announces results for the quarter ending March 31, 2018.
Dividend Approval
Under the advisement of its Board of Directors, the Company has decided to issue
the following cash dividends for Fiscal Years 2018 and 2019:
· For 2018: $0.05/share to be declared and payable during Q4 2018, date to be
determined.
· For 2019: $0.05/share will be declared and paid semi-annually (dates to be
determined) for a total cash dividend distribution of $0.10/share for the year.
In addition, five percent (5%) of the amount exceeding the Company's annual net
income of $20 million in FY2019 will be paid as an additional cash dividend to
be declared and payable during the subsequent fiscal year (i.e. sometime during
FY 2020).
It is the Company's intention to carry-forward the cash dividend policy being
implemented for FY2019 into subsequent years of operation, and will inform its
investors as to its cash dividend policy for FY2020, FY2021, etc. as those years
approach.
Financials
Revenue from the sale of goods decreased USD 26.1M, or 45.5%, to USD 31.3M for
the quarter ended March 30, 2018 when compared on a year over year basis
("YoY"). When compared to Q4 2017, revenue from the sale of goods during Q1 2018
increased USD .6M or 2%. Revenue from project development increased USD 1.8M, or
225%, to USD 2.5M sequentially ("QoQ").
First quarter gross profits totaled USD 6.1M compared to a loss of USD 7.9M QoQ.
Fully diluted earnings per share were USD .17 in the first quarter versus USD
.36 YoY and versus a loss of USD 1.04 QoQ.
Overview
Results reflect a reprioritization of businesses according to bottom line
performance and guided by stricter cost control and capital expense rationale
for each. For instance, throughout 2017:
· Businesses with negative gross margins either had been discontinued or
markedly curtailed.
· SJAP eliminated losses incurred throughout 2017 by discontinuing its QZH
slaughtering and deboning subsidiary.
· SJAP further eliminated losses by limiting its live cattle business to its
own farms, settling contracts with cooperative farmers that became unduly
onerous due to unsustainable depressed market prices.
· Product mix in the trading business is being transitioned toward higher
profit margin items.
· Gross margin is being increased at HSA by transitioning into more efficient
production.
· Capital expenditure for all businesses was reduced, most notably at SIAF's
equity investee Tri-way, which restricts project development to a percentage of
cash flow and as justified by individual projects, until outside cash resources
become available to continue development of aquafarms 4 and 5.
· G&A expenses were trimmed USD 2.4M, or 37% from USD 6.5M in Q1 2017 to USD
4.1M in Q1 2018.
As demonstrated by Q1 financials, these changes have resulted in a smaller, but
more profitable company, one situated on more solid footing, positioned for
growth stronger than before.
It should be noted that the pace and duration of some of the adverse market
conditions required immediate action be taken by the Company could not be fully
anticipated. Hence, a consequential cash shortfall had ensued requiring an
issuance of shares to cover some of the ordinary operational expenses that
typically would have been covered through ordinary cash-flow levels in the past.
The Company has adopted austere measures to reduce its dependence on equity
funding by approaching it as the exception rather than the rule when it comes to
determining which modes of operation are necessary to maintain the Company's
outlook over the next two years.
Other Key Points
· SIAF's income from its full 36.6% equity investment in Tri-way ("TW")
increased from USD 3.66M in Q4 2017 to USD 3.78M in Q1 2018.
· Revenue from project development at SIAF's wholly owned Capital Award ("CA")
subsidiary increased from USD .8M in Q4 2017 to USD 2.5M in Q1 2018.
· These results from TW and from CA reflect Tri-way's "Plan B" strategy,
which limits TW's capital expenditures and CA's revenue from project development
attributable to TW to a percentage of TW's net income. TW is still profitable
and growing. "Plan A" would greatly accelerate growth upon successful closing of
its anticipated debt financing.
· As of March 31 2018, the Company had net working capital of USD 183.9M,
a quarterly increase of USD 15.5M.
· Stockholders' equity increased in the quarter by USD 18.7M to USD 631.1M.
Annual Comparison
+-----------------------------------------+------+------+-----+
|(USD M, except per share and margin data)|Q1 '18|Q1 '17|% |
+-----------------------------------------+------+------+-----+
|Revenue |33.7 |70.6 |(52)%|
+-----------------------------------------+------+------+-----+
|Gross Profit |6.1 |14.4 |(58%)|
+-----------------------------------------+------+------+-----+
|Gross Profit Margin |18.1% |20.4% |(11%)|
+-----------------------------------------+------+------+-----+
|Earnings Per Diluted Share (FD) (USD) - |.17 |.36 |(53%)|
|from continuing and discontinued | | | |
|operations | | | |
+-----------------------------------------+------+------+-----+
Sequential Comparison
The Company achieved the following results, comparing the first quarter of 2018
to the fourth quarter of 2017:
+-----------------------------------------+------+------+---+
|(USD M, except per share and margin data)|Q1 '18|Q4 '17|% |
+-----------------------------------------+------+------+---+
|Revenue |33.7 |31.4 |8% |
+-----------------------------------------+------+------+---+
|Gross Profit |6.1 |(7.9) |N/A|
+-----------------------------------------+------+------+---+
|Gross Profit Margin |18.1% |N/A |N/A|
+-----------------------------------------+------+------+---+
|Earnings Per Diluted Share (FD) (USD) - |.17 |(1.04)|N/A|
|from continuing and discontinued | | | |
|operations | | | |
+-----------------------------------------+------+------+---+
The following table breaks out revenue by business segment, comparing the first
quarter of 2018 to the fourth quarter of 2017:
+-----------------------------+------+------+-----+
|Revenue (USD M) |Q1 '18|Q4 '17|% |
+-----------------------------+------+------+-----+
|Integrated Cattle Farm (SJAP)|6.6 |15.4 |(44%)|
+-----------------------------+------+------+-----+
|Organic Fertilizer (HSA) |2.4 |1.8 |33% |
+-----------------------------+------+------+-----+
|Cattle Farms (MEIJI) |5.0 |(2.7) |N/A |
+-----------------------------+------+------+-----+
|Plantation (JHST) |1.0 |1.1 |(9%) |
+-----------------------------+------+------+-----+
|Seafood & Meat Trading |16.4 |15,0 |9% |
+-----------------------------+------+------+-----+
|Sale of Goods Total |31.4 |30.6 |3% |
+-----------------------------+------+------+-----+
| | | | |
+-----------------------------+------+------+-----+
|Project Development Total |2.5 |.8 |200% |
+-----------------------------+------+------+-----+
|Group total |33.7 |31.4 |8% |
+-----------------------------+------+------+-----+
Integrated Cattle (SJAP)
The Integrated Cattle Farm business segment (SJAP) discontinued its value-added
processing subsidiary (QZH) December 30, 2017. Factoring out QZH, SJAP revenue
increased by USD 2.6 M, or 42% from USD 6.2M in Q4 2017 to USD 8.8M in Q1 2018.
Gross profits increased USD .5M, or 28% to USD 2.3M in Q1. QZH had negative
gross margin both in Q4 2017 and for the entire year.
Fertilizer, and bulk and concentrated livestock feed contributed USD 1.9M or 83%
of Q1 gross profit.
As reported in previous quarters, the cattle market has endured depressed
pricing for over 18 months. The Company had already dramatically reduced the
sale of live domestic cattle due to unprofitable conditions. Live cattle sales
are now generated only from SJAP's own farm without any beef production from
cooperative farms, which were generating negative gross margins. Thus, at
present SJAP is a smaller business than in previous years but one that generates
positive gross profits with good margins (28% in Q1) and requires considerably
less capital expenditure.
SJAP is fortunate to enjoy excellent working relationships with various
government agencies. These private company/state agency relationships are more
important in China than in western countries. Recent discussions have produced
progress toward transitioning and growing SJAP's business, while maintaining
expense discipline:
· SJAP has developed a cattle and meat trade center ("C&MT") concept to
transition from a beef producer into primarily a commercial developer in the
cattle industry. During late February 2018 through early March 2018 and
supported by local government officials, SJAP hosted a series of investor
conferences with financial institutions, developers, traders, fund managers,
businessmen, and professionals of various cattle related commercial activities
to introduce the C&MT concept. The concept was well received and has drawn
initial interest from a highly reputable Guangzhou investment firm, as well as a
Government backed securities and investment company. SJAP will work with these
institutions to secure the necessary capital to meet its long-term development
plan.
· SJAP is preparing documentation required to apply for C&MT permit, which
would allow SJAP the right to develop and to operate the C&MT center. The
submission is targeted sometime in Q2 2018. The application process takes
several months. If granted, the Company is confident it will provide SJAP a
lucrative opportunity to develop one of the largest cattle trade centers in
China.
Organic Fertilizer (HSA)
Revenue at HSA increased by USD .6M, or 33% from USD 1.8 M in Q4 2017 to USD
2.4M in Q1 2018. Gross profits increased by USD .25M or 50% from USD .5M in Q4
2017 to USD .75M in Q1 2018.
HSA's production has been capacity constrained due to the retrofitting of a
production plant. Production increased by 16% QoQ in Q1 2018 to 4,161 MT of
Organic fertilizer compared to Q4 2017's 3,578 MT, and by 21% to 3,100 MT of
Organic Mixed Fertilizer in Q1 2018 compared to Q4 2017's 2,566 MT.
The Company expects continued quarterly production increases in the short term.
Cattle Farms (MEIJI)
Revenue for Q1 2018 totaled USD 5.0M and generated a gross profit of USD .5M.
The MEIJI farms are growing and fattening Asian Yellow Cattle ("AYC"). The
domestic prices of AYC have not being affected by imports; however, their growth
rate is slower due to small stature, which in turn reduces volume and therefore
sales. AYC generates higher gross profits. For example, AYC sales of $20.4
million in 2017 produced $3.77 million in gross profit compared to $1.5 million
of gross profit derived from WOBC sales of $29.8 million in 2016.
This quarter some of the AYC being stocked have not reached sufficient sizes to
market, due to the Chinese New Year break, because cattle purchased after the
CNY have less time to be fattened enough to meet sales in the same quarter.
Therefore, the Company expects increased sales and gross profit next quarter.
Plantation (JHST)
Revenue at JHST decreased by USD .05M, or 5% from USD 1.1M in Q4, 2017 to USD
1.05M in Q1 2018. Gross profits also declined by USD .05M or 50% from USD .2M in
Q4 2017 to USD .15M in Q1 2018.
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 aimed to
mitigate the same issues.
In addition, JHST is processing and repackaging Immortal Vegetable into an
herbal health tea product ("HHTP"), which has attracted the interest of one of
China's best brand names in health and herbal products. JHST herbal health tea
products (The HHTP) have been accepted by one of their franchisees during March
2018.The Company is working on trials with the processor over the coming months
with the aim to launch HHTPs onto an e-commerce platform. If HHTP is launched
successfully, there is good potential over time for JHST's plantation to
generate sustainable sales revenues in excess of 2016 or 2017 levels, with very
strong gross margins.
Seafood and Meat Trading (Corporate)
Revenue from Seafood and Meat trading increased by USD 1.4M, or 9% from USD
15.0M in Q4 2017 to USD 16.4M in Q1 2018. Gross profits also increased by USD
.05M or 3% from USD 1.7M in Q4 2017 to USD 1.75M in Q1 2018.
The Company expects sales and gross profit on beef imports for the coming
quarters will improve as more higher grade goods carrying better margins have
been ordered to arrive starting in Q2. Import seafood sales have increased
during the quarter and are expected to continue throughout the coming quarters
as more suppliers gain confidence in our distribution channels.
Engineering Technology, Consulting and Services -- Project Development (CA)
Revenue from project development increased by USD 1.6M, or 200% from USD .8M in
Q4 2017 to USD 2.4M in Q1 2018. Gross profit was USD .8 compared to a loss in
the previous quarter.
Profit from this segment is not expected to return to previous levels until cash
flow and debt financing is available to carry out Tri-way's fishery development
and Vigor's wholesale development. The Company is confident that the pace of
revenue growth will rapidly accelerate once Tri-way secures adequate debt
financing. The process to secure this funding continues forward, an announcement
of which will be made public once its closing takes place.
CEO Commentary
"We are pleased to see our restructuring initiatives take hold as improved
operational efficiency strengthened our bottom line results, compared with Q4
2017," commented Mr. Solomon Lee, CEO of Sino Agro Food.
"At SJAP, the Integrated Cattle Farm, we took steps to reduce our fixed costs in
response to increased price competition from abroad, including eliminating our
QZH slaughtering and deboning subsidiary, and scaling back the live cattle
business. Having reorganized these unprofitable business areas, we are now
implementing several initiatives to position the Company to build out new
revenue streams. Supported by our close ties to local government agencies, we
believe our lean operations give us a strong foundation on which to achieve this
goal. As an example, we are exploring plans to establish a commercial cattle and
meat trade center, which would further diversify the Company's operations within
China's protein market and enable us to reposition ourselves in a new but
related vertical.
"We also made progress at the HU plantation (JHST), which suffered from
unfavorable weather conditions in 2017. To counterbalance the decline in sales,
we commenced processing and repackaging a new herbal health tea product, which
is already being sold at a franchise of one of China's best brand names in
health and herbal products. We are encouraged by this opportunity and are
exploring ways to leverage this new revenue stream to generate additional sales.
"The trading business generated improved revenues and gross margins, across both
meat and seafood, as our strategy to transition toward higher quality, and
higher margin, products positively impacted results. To support this new product
mix, we are building out our distribution channels, and believe our early
success will continue throughout 2018. Likewise, sales and gross margins
improved at HSA as we scaled up production of organic fertilizer, following the
completion of the retrofitting of our production plant.
"Tri-way and CA Award generated slightly improved results compared with Q4 2017
as the businesses grow at a gradual pace. We expect the true potential of these
operations will be realized if and when Tri-way secures additional funding.
Although this process is taking longer than initially expected, this continues
to be a core component of the Company's long term growth strategy.
"Given the positive direction the Company is moving in, the Board of Directors
has approved a dividend to further its commitment to unlocking value for
shareholders. We believe the progress we have made throughout the first quarter
demonstrates our flexibility in the face of changing market conditions, our
willingness to rapidly identify new growth opportunities, and our ability to
execute on these plans. While the business is smaller than it was a year ago,
primarily as a result of increased competition from foreign imports, it is also
leaner, better organized and well positioned to take advantage of new
opportunities. As a result of these strategic changes, we now have a strong
foundation on which to strengthen the business and grow the Company's market
value," concluded Mr. Lee.
Q1 2018 Interim Report
For detailed segment operational performance and developments, please take the
time to read our latest 10-Q filing, or refer to the Q1 2018 Interim
Report posted to the Company website at
http://sinoagrofood.investorroom.com/download/Sino-Agro-Food_Q1-2018-Interim
-Report.pdf.
Earnings Call Information
The Company will host an earnings call on Tuesday, May 29, 2018 at 10:00 AM
EDT/4:00 PM CET to discuss quarterly financial results.
Please submit questions by email to [email protected]. These will be
organized and answered on the call.
To listen to the conference call please use the following information:
+-------------+--------------------------------+
|SIAF Q1 2018 |
|Results Call |
|Information |
+-------------+--------------------------------+
|Date: May 29,|Time: 10:00 AM, EDT/16:00 PM CET|
|2018 | |
+-------------+--------------------------------+
|Participant |
|Dialing |
|Instructions: |
+-------------+--------------------------------+
|SE: +46|UK: +44 203 139 48 30 |
|8 5059 63 06 | |
+-------------+--------------------------------+
|NO: +47 |CN: +86 400 681 54 21 |
|23 50 05 59 | |
+-------------+--------------------------------+
|US: + 1 | |
|(866) 928 | |
|-7517 | |
+-------------+--------------------------------+
|Conference |
|PIN code: |
|68721650#The |
|earnings call |
|will also be |
|available |
|over the |
|web.To |
|access, click |
|the following |
|link: Sino |
|Agro Q1 2018 |
|Earnings Call |
+-------------+--------------------------------+
Peter Grossman
Investor Relations
1 (775) 901-0344
Todd Fromer / Elizabeth Barker
1 (212) 896-1215 / 212-896-1203
Nordic Countries
+46 (0) 760 495 885
[email protected] ([email protected])
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 198 million in 2017. 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.