Revenue of USD 71.9 M with Diluted EPS of USD .39
Record Volumes in Value Added Processing, Beef imports, and
Aquaculture
May 16, 2016
GUANGZHOU, China-- Sino Agro Food, Inc. (OTCQX: SIAF | OSE:
SIAF-ME)
Record Volumes Across the Board during Transitional Period
· The Aquaculture segment continued growth in overall sales
volume to 1,891
metric tons of prawns and seafood in Q1 2016, increasing
approximately 40% over
both Q1 2015 (1,380 MT) and the Q4 2015 (1,325 MT). The
introduction of mixed
fish species contributed an increase in gross profit of USD
1.1M.
· The Company continued to grow value added beef production
to 2,177 MT in the
first quarter of 2016 (vs. 1,227 MT in Q1 2015), resulting in
year over year
revenue growth at QZH of 45 percent to USD 17.7M (12.2), and
gross profit growth
of 22 percent to USD 4.9M (4.0). Compared sequentially to Q4
2015, gross profits
grew 53 percent.
The Company's Integrated Cattle segment fared favorably
compared to Chinese beef
rearing peer companies, owing to value added production and
the herd transition.
· Total trading import volume grew to 1,050 MT in the first
quarter of 2016
(vs. 790 MT in Q1, 2015) as a result of record high beef
import volume of 970 MT
(398MT).
· The Cattle Farm segment (MEIJI) improved overall gross
margins to maintain
approximately equal gross profit by selling a higher
proportion of locally bred
"Yellow Cattle" at higher price points with an average weight
of 350 Kg /head
replacing lower margin beef cattle averaging over 600
Kg/head.
Improved Gross Margins Lead to Positive Gross Profits, Given
Challenging
External Conditions
A combination of product pricing pressures, supply shortages,
and severely
reduced available days for project development restrained
results in the first
quarter. Despite these factors, the Company did manage to a
gross profit within
tolerance for sequential comparison. We expect all of these
factors to improve
over the remainder of 2016.
In addition to the annual Chinese New Year holiday, inclement
weather and
extraordinary factors resulted in a period of only three
weeks to perform
contracted services throughout the first quarter. Without
these conditions,
sequential quarterly total gross profit would have increased
by approximately
USD 1.6M (or 7.5 percent).
· Stockholders' equity increased by USD 9.3M to USD 492.0M
(482.7) during the
quarter.
Significant Progress toward Incremental Future Results:
Some progress during the quarter does not show up directly in
the quarterly
financials, yet may be as significant or more significant
than current revenue,
by bringing significant future results closer to fruition.
· Initial stocking of tanks at Zhongshan's Prawn Farm 3
took place during the
quarter. The ongoing prawn life cycle trial is being used to
test and refine
design changes intended to dramatically improve technical
efficiencies beyond
the Company's existing RAS aquaculture farms, leading to
scaled, high yield
production.
· Portions of the low margin domestic cattle herd were
replaced during the
quarter by higher margin premium, albeit younger Wagyu and
Angus cattle that
will not produce revenue until reaching full growth.
Sequential Comparison:
The Company achieved the following results, comparing the
first quarter of 2016
to the fourth quarter of 2015:
+----------------------------------------+----------+--------
--+----------+
|(USDm, except per share and margin data)| Q1 '16| Q4
'15| %|
+----------------------------------------+----------+--------
--+----------+
|Revenue | 71.9|
98.1| -27%|
+----------------------------------------+----------+--------
--+----------+
|Gross Profit | 18.9|
21.4| -47%|
+----------------------------------------+----------+--------
--+----------+
|Gross Profit Margin | 26.2%|
21.8%| +20%|
+----------------------------------------+----------+--------
--+----------+
|Net Income | 13.5|
18.3| -26%|
+----------------------------------------+----------+--------
--+----------+
|Net Income attributable to SIAF | 8.6|
11.8| -27%|
+----------------------------------------+----------+--------
--+----------+
|Earnings Per Share (USD) - fully diluted| .39|
.64| -39%|
+----------------------------------------+----------+--------
--+----------+
Below are the key points explaining year over year
comparisons. The following
section, Outlook and Subsequent Events, explains the past and
recent
developments already put into action to improve results,
starting in Q2 and
progressively throughout 2016.
Key Points
· Short supply of eel elvers from last season adversely
impacted aquaculture
sales mix:
Aquaculture (CA and Tri-Way): Comparing Q1 2016 to Q1 2015,
revenue from the
sale of goods declined 40 percent to USD 16.5M (27.8M), and
gross profit
declined 46 percent to USD 3.8M (7.1). The introduction of
mixed fish species
contributed an increase in gross profit of USD 1.1M (0), but
the year over year
decline from eels alone was USD 4.7M, more than the total
decline of $3.3M.
· A severe sequential drop in domestic beef prices led to
curtailing the
sale of live cattle:
Integrated Cattle (SJAP): Revenue decreased 27.3 percent to
USD 26.3 (36.2).
Due to the relaxation of trade restrictions on beef imports
to China from 11
exporting countries, the price for live weight domestic
cattle fell from
RMB32/Kg in mid-year 2015 to an average price of RMB25/Kg in
the fourth quarter
of 2015, and bottomed at another 40% lower to RMB15/Kg during
the first quarter
of 2016. Accordingly, the Company curtailed its sales of
live cattle to 851
head in the first quarter of 2016 (vs. 5,032 Q1 2015),
resulting in commensurate
drops in revenue and gross profit.
· Supply shortage of imported seafood from constrained
trading volume:
Seafood and Meat Trading: The decrease of 34% in revenue to
USD 6.4M was due to
lower imports of seafood from Madagascar after its government
introduced
policies restricting its export of seafood in the second half
of 2015. Total
import volume grew to 1,050 MT in the first quarter of 2016
(vs. 790 MT in Q1,
2015). Record high beef import volume of 970 MT was
insufficient to outweigh the
seafood shortfall because of lower beef ASP.
· Capital expenditure amounted to USD 20M during Q1, with
the following main
components:
USD 9.9M was invested into SJAP toward additional capacity,
including completion
of cold storage; USD 3.4M in HSA for completion of cattle
facilities; and USD
3.1M invested into TRW/CA.
Two line items - the reduction in eel sales within the
aquaculture segment and
curtailed sale of live cattle in the integrated cattle
segment -- explain 120
percent of the company-wide year over year gross profit
decrease in sale of
goods, 66% and 54% respectively.
Outlook and Subsequent Events
From Q2 2016 and progressively beyond, the Company foresees
growth in all its
business segments, stemming not only from possible improved
product mixes and
pricing, but also because of newly constructed capacities
becoming productive,
new sourcing avenues becoming available, and some recent
positive developments
already put into action:
Aquaculture: Poised for Rapid Growth
· The Company anticipates beginning commercial scale
production and sale of
prawns at Zhongshan's Prawn Farm 3 early in the second half
of 2016. Achieving
targeted production of 2,500 MT in 2016 alone would double
the total segment
prawn production in 2015, and increase total 2015 aquaculture
volume and revenue
by approximately 37 percent. More importantly, this sets the
stage for full year
ramp up of Prawn Farm 3 in 2017 with targeted production of
10,000 MT, which
alone would increase 2016 full aquaculture segment production
by another 108
percent.
· Further, as first reported on the recent annual earnings
conference call,
the Company is now finalizing contractual arrangements to
construct Prawn Farm 4
in six modules, each the size of PF3, at a cost of
approximately USD 4.00/Kg,
considerably below expenditures for PF1 through PF3. In
addition, deferred
payment terms significantly enhance the ability of the
project to self-fund
ongoing construction with cash flow from the sale of goods.
· Development underway at Prawn Farm 2 targets doubling the
current capacity
of 2.5 billion postlarvae prawns per year to 5.0 billion in
2017, and adding
another 50% to 7.5 billion in 2018.
Integrated Cattle: Upgrades to Improve Margins and Profit
As highlighted for some time, the Company is transitioning
the beef business in
three major ways:
· Reducing the overall herd size by approximately 50% from
20,000 to 10,000 by
the end of 2018, and replacing domestic cattle with premium
Wagyu cattle and 550
-day grain fed Angus cattle. This transition is a deliberate
process by
definition, but will add dramatically higher profit margin
products
incrementally to the mix of live cattle sales.
· Continuing to expand deboning, packaging and cold storage
facilities and
throughput to process more imported beef into higher margin
down stream
products; i.e., freshly chilled and packaged frozen meats.
· Adding dried and canned meat lines into the value added
processing sector to
round out higher value brand products. Accordingly, the plan
for SJAP's canning
facility to be on line in 2017 is on schedule.
Trading: New Sourcing and Facilities to Boost Volumes
· Shipments of live lobster and snow crab from the U.S. and
Canada commenced
late in the first quarter with volume at the Shanghai
Distribution Center
passing 3 MT per week in April, aiming for 5 MT per week by
the end of Q2.
· Trial shipments of live tropical crayfish have been
imported from Pakistan.
Limited supply has created extremely attractive prices that
will lift gross
margins within this segment line item, even with relatively
small volumes.
· The Shanghai Distribution Center and a group of local
seafood dealers at
HunChun City, a northeast China city bordering Russia, are
now developing a
joint venture collection center operation. Crabs, marine
prawns, and shellfish
will be processed, frozen, packed, and shipped to the
Shanghai Distribution
Center for further distribution to regional seafood houses.
Trial shipments are
already underway and have proven successful. Russia has an
ample supply of
quality seafood, becoming one of China's fastest developing
import suppliers in
the seafood industry. We expect this venture to boost our
seafood trade from Q2
2016 onward, as well.
· In concert with HunChun development, a smaller scale
distribution facility
is also being constructed at the same complex, targeting live
fresh water prawn
sales to regional cities near HunChun City. These will be
supplied through our
APM farms, developing a mutually beneficial internal two-way
trade system
between our operations.
Project Development: Full Book of Business; New Opportunity
The pipeline is robust for several years:
· The Company is scheduled to construct building three at
the Zhongshan Prawn
Farm 3 starting later in 2016, increasing projected design
capacity from 6,000
MT of prawns per year to 10,000 MT.
· Upon completion of PF3, construction is scheduled to
commence on Prawn Farm
4 modules, each the size of PF3, over the ensuing 3 1/2
years.
· At Prawn Farm 2, the second phase of development of its
two hectare (20,000
square meter) RAS enclosed dams for prawn grow-out is
underway. Phase three work
has also begun to expand the brood stock and nursery
facilities at PF2.
· The Madagascar Government has granted an exclusive
abattoir license and an
export permit to a group of Chinese businessmen operating in
Madagascar to
process sheep, goat and cattle for exports to China. This
group of businessmen
has appointed Capital Award as their turnkey contractor to
construct and develop
the factory and to manage its operations.
Carve-out Exercises:
Work continued during the quarter on a long list of tasks for
carving out
subsidiary entities, primarily the Integrated Cattle
Operations and the
Aquaculture operations. Work progressed on schedule such that
the Company
anticipates being in a position to update shareholders with
meaningful
announcements within the next six weeks.
CEO Commentary
Summarizing the quarter, Sino Agro Food's Chairman and CEO
Solomon Lee states,
"In Q1, the Company produced and sold record tonnage in each
of the
aquaculture, beef import/ distribution, and value added beef
sectors, while
remaining profitable, even with the adverse cyclical
circumstances arising in
the first quarter.
"As for the Aquaculture sector, during the first quarter we
had an historically
low contribution from high value, high margin fish; however,
we expect
contribution from higher value prawns and seafood to
normalize for the remainder
of the year.
"In the first quarter of 2016, due to exceptionally low
prices effectively
curtailing live cattle sales, we experienced a decrease in
return on capital
employed for our beef operations, which had seen favorable
levels in previous
years. Over the long term, we anticipate that higher
proportions of revenue
derived from value added processing and high value, high
margin premium cattle
will return capital efficiency to previous levels.
"We have maintained focus on creating competitively
advantaged, stand-alone
protein food business entities that have demonstrated full
cycle production and
sales, and readily exhibit growth potential based on newer
and complementary
facilities entering production. These facilities also create
size, vertical
integration, and competitive advantages within our
subsidiaries, adding to the
evident growth path that makes them more viable for carve out
at more attractive
valuations. For instance, the brood stock and nursery
facilities at Prawn Farm 2
will feed the initial grow out tanks at Prawn Farm 3. The new
canning facility
further positions SJAP as a full service cattle farm and beef
processor,
expanding sales into overseas markets.
"Steps are being taken to carve out these entities for
separate listings in an
effort to align the operations and assets into proper market
valuations. We are
pleased with reception to date, and remain dedicated to these
tasks involved to
achieve our primary corporate strategic initiative for 2016."
2016 First Quarter Report
For detailed segment operational performance and
developments, please take the
time to read our latest 10-Q filing, or refer to the interim
report posted to
the Company website: 2016 First Quarter Interim
Results (http://sinoagrofood.investorroom.com/q1-
2016_interim_report)
Earnings Call InformationSIAF -- Q1 2016
Results
(http://mbpublicbinaryproxy/Public/13869/2010349/9bf4f7575394
5929.pdf)SIA
F -- Q1 2016
Results
(http://mbpublicbinaryproxy/Public/13869/2010349/9bf4f7575394
5929.pdf)The
Company will host an earnings call on Tuesday, May 24, 2016
at 10:00 AM EDT/4:00
PM CET to discuss annual financial results for 2015, with
questions and answers.
To participate in the conference call please use the
following information:
+---------------------------+-------------------------------+
|SIAF 2016 Q1 Call Information |
+---------------------------+-------------------------------+
|Date: May 24, 2016 |Time: 10:00 AM, EDT/4:00 PM CET|
+---------------------------+-------------------------------+
|Participant Dialing Instructions: |
+---------------------------+-------------------------------+
|SE: +46 8 5059 63 06 |UK: +44 203 139 48 30 |
|NO: +47 23 50 05 59 |CN: +86 400 681 54 21 |
|US: + 1 (866) 928-7517| |
+---------------------------+-------------------------------+
|Conference Pincode 52035826#The |
|earnings call will also be |
|available over the web.To access, |
|click the following link: Sino |
|Agro Q1 2016 Earnings |
|Call (http://cloud.magneetto.com/wo |
|nderland/2016_0527_Sino_Agro_Food_Q |
|1_Report/view) |
+---------------------------+-------------------------------+
Contact
Peter Grossman
Investor Relations
+1 (775) 901-0344
info@sinoagrofood.com
Erik Ahl
Nordic Countries
+46 (0) 760 495 885
erik.ahl@sinoagrofood.com
About Sino Agro Food, Inc.
SIAF develops and operates protein food businesses in the
People's Republic of
China. 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 429 million in 2015. 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.
No Offer of Securities
None of the information featured in this press release
constitutes an offer or
solicitation to purchase or to sell any securities of Sino
Agro Food, Inc.