Sino Agro Food - Q1 CONF.CALL

2012-05-26 22:48

Ett bra köpläge har uppenbarat sig i Sino Agro Food som nu handlas till ett P/e runt ca 0,85!

Från tel.konferensen. En utskrift så att man i lugn och ro kan läsa och förstå vad som sades.

Det blir många missförstånd när det är snåriga regelverk, språket mm som stökar till det.

Vi fick många positiva nyheter tyvärr speglades det inte i kursen.

Rapporten som också var över förväntan fick inget utslag på kursen. För det sämsta kvartalet ( Q1 ) rapporterade man 8 cent i EPS.

Då ska man veta att Q1 är sämsta kvartalet pga att man inte har någon skörd samt att alla verksamheter inte börjat generera inkomster än.

Ha en skön helg.

//Danne

Här är lite helgläsning:

Moderator

Welcome to Sino Agro Food's first quarter 2012 financial results conference call. During this call, Mr. Solomon Lee, the chief executive officer and chairman for Sino Agro Food, will provide shareholders with an overview of results from operationsduring the first quarter of 2012. Following comments by the CEO, the lines will be open for a question and answer session.
I would now like to introduce the Chairman and CEO of Sino Agro Food Incorporated, Mr. Solomon Lee.
Solomon

I would first like to thank everyone who is attending today's conference call.

We had a record first quarter this year as many of our operations have begun to mature. I'm also excited to say we are already working on signing two new additional contracts to build Recirculating Aquaculture Farms using our A Power technology in the Quangdong Province, as well as two new contracts to build cattle farms using our feedstock technology and free-range rearing methods. In addition to these four new A Power contracts, we are also currently negotiating with a group of restaurant chain operators to acquire an equity stake in their operations including exclusivity on beef supplied to those operations.

During the first quarter of 2012, we generated revenues of $16M dollars representing an increase of over 400% over the same period last year. This resulted in gross profit of $8M dollars for the period. Our net income was $5.6M dollars giving us earnings per share of $0.08 for the first quarter representing a 300% increase over last year.
I would now like to go over some highlights from our fishery operations.

We have increased our equity stake in our first fish farm from 25% to 50% during the first quarter. This facility produced some 116,000 Sleepy-Cod averaging about 575 grams per fish. With our current stocking operations we expect these numbers to grow quarter over quarter. We will also begin realizing sales from our supply contract signed late last year for 500,000 fish starting in June of this year.

Our first Prawn farm is expected to fully come onlinein September of this year. We experienced some delays in obtaining the proper zoning which put us behind about two months from our original schedule.

Our second Fish farm is currently under development and is expected to complete phase one construction later this year. Currently we are building the access roads and infrastructure to support site construction. Operations for this facility are not expected to come online until 2013.

Our second Prawn farm, which began development late last year has completed the majority of its Phase One construction and hasstartedproduction. So far the facility has produced some 2M prawn flies which were sold to regional prawn growers. Phase two is expected to be completed by year's end.

Our open dam operations yielded over 73,000 Sleepy-cod averaging approximately 523 grams per fish during the first quarter. As the weather gets warmer, we expect these numbers to increase.

Now we will discuss results from our beef and cattle farm operations.

Our construction continues at our SanJiang facility in Xinning. We have completed a total of 12 cattle houses capable of handling 1,500 head of cattle. Current construction efforts should result in a 2,500 head capacity by year's end.

Most of the infrastructure work on the drainage channel systems are in progress, which when completed will pipe cattle waste to a centralized collection basin where a Mash Gas station will be constructed sometime in 2013. Upon completion of the Mash Gas station, SJAP will begin processing cattle waste as its main source of raw material for manufacturing organic fertilizer.
70% of landscaping and roadwork has been completed around the 28-acre compound making the facility a show case operation in the Huangyuan City.

The HuangYuan Government has awarded a cash grant of RMB500,000 toward development of its Enzyme factory which is expected to be completed in 2012 at a total cost of about $2M dollars. The Huangyuan Government is authorized to provide grant funding for the project up to 66% of total development costs on selected projects. The Government is also building similar cattle houses at other locations based on our design in which we will be able to purchase cattle for processing at our new boning and cold storage facility that is expected to be operating by midyear 2013.

Our second cattle farm has completed all major construction and is currently rearing over 200 head of cattle. We are expecting to have up to 150 head of cattle ready for market in the second quarter. We received great feedback from trial sales to some prime hotels and restaurants in Beijing and Guangzhou, as a result we have high expectations for signing additional contracts moving forward.

I will now provide updates on our plantation operations for the first quarter.

Development and construction work on green housing 10 acres of the plantation are in progress and trials on irrigation, disease control and fertilizer application will commence sometime in June 2012, before harvest season begins.

For the remainder of the plantation, the heavy rain fall in April 2012 should prove beneficial as compared to the dry weather experienced in April 2011,and with all other conditions remaining equal should result in a better harvest for 2012.

Development and construction of the nursery station facility for the nurturing of asparagus seedlings will be on the same 50 Mu block of land where the 1st Prawn Farm is located, and will begin once major development work for the prawn farm is completed.
New for this year is the launch of our marketing and Distribution networks.

A major part of our business plan is the development of marketing and distribution networks. This is how we plan to gain an edge over potential future competitors. Once in place, we expect it will be difficult for competing farms to gain market share without using our established networks. This will allow us to profit even if the products are not coming from our own operations.

We have signed a 5 year lease for a 7,000 square foot space at the newly established Wholesale Fish and Seafood Market situated in Guangzhou city. This new facility is expected to replace the existing Wholesale market currently operating in the city. We already have started renovating the space adding in cold storage, processing and packaging areas. We also will be constructing a retail outlet for public purchase of our products. By marketing our products as pollutant free and using modern cultivation technologies, we feel confident we will gain substantial market share for our products at the new wholesale facility making us a popular stopping point for consumers. We also have begun trial runs importing fish from Norway which we believe will be a huge success with Chinese consumers. These items will include frozen fish and live scallops.

In Summary, we are pleased to say our business plan is moving along nicely. This year will be the year we begin to evolve into a vertically integrated supplier of beef and fish to Chinese consumers. With the growing middle class in China and increasing demand for quality products, we are very excited about the future.

Before we go on to Questions and answers, I like to take this opportunity to address 2 issues frequently debated among our shareholders, they are:

(1) Matters relating to Debt settlements and its Issuance of shares, (Debt Financing);

In this respect, I refer you to page 50 & 71 / 117 of our 10K 2011 Report filed in April 11th 2012, in which it reflected that there was a gain on additional Capital amounting to about US$11.5 million calculated to US$0.19 / share for the benefit of the shareholders resulting from the transactions of the Debt Financing,of which was not allowed to be recorded as Earnings but as increase in Additional Capital under GAAP accounting treatment;

(1.A) Derivation of the US$0.19 / share in 2011 is as follows:
Total number of shares issued for Debt Settlements = 13,399,397 shares
*Total Number of shares retired to offset the shares issued
arising from the Debt
Financing = 6,400,000 shares

Net new number of shares issued for the Debt Financing = 6,779,397 shares

Total amount received from the issuance of shares from the Debt Financing = $11,512,386.
Total cost for the shares that were retired at nominal par of $.001 / share = $ 6,400

Total Net amount entered as Additional Capital derived from the

transactions of the Debt Financing = $ 11,505,986

Note: * The 6.4 million shares being retired and the issuance of a new lot of 6.4 million shares was

In effect similarly to a transfer of shares, but under the Regulation we just could not do so if the said
shares were owned by related parties of the Company. However effectively this particular transaction of

6.4 Million shares did not result any increase of total issued shares.

(1.B) The Debt Financing / Capital Expenditure of 2011
Total employment of fund for Capital Expenditure in 2011 is around = $ 73 Million

Ratio of Debt Financing against total Capital Expenditure is = 15.75%
Total Net number of shares issued for Debt Financing is = 6,999,397 shares

Ratio of Debt Financing shares / Total Issued and outstanding shares = 10.29%

(1.C) Benefits of the 2011 Debt Financing;

(1.C.1) Direct Financial Benefit to shareholders in 2011;
Total gain in Additional Capital derived from the Debt Financing is = $0.19 / shares

Assuming if there was no Debt Financing in 2011;

Total Number of Weighted average shares as at 31.12.2012 would be around = 55 million shares

EPS (basic) under this assumed condition would be = $0.47 / shares

EPS (basic) as reported (with the Debt Financing issuance) = $0.43 / share

Net loss in EPS due to the extra shares issued for Debt Financing = $0.04 / share

Net effect of the two differences resulting net gain to shareholders is = $ 0.15 / share

Note: we think when shareholders are considering the consequence of the Debt Financing events,both factors (of loss in EPS due to the extra number of shares increased from and the gain in additional capital due to the Debt Financing) should be considered coordinately instead of just a singular factor especially when the share market performs negatively. Also we believe that under current market conditions, either the $0.04 / share loss in EPS or the Gain of $0.19 / share in additional capital would have any impact on the trading prices of our share one way or the other or would it affect our policy in payment of dividend

(1.C.1) Direct benefit of the Debt Financing to the Company:
The Completion of our Financing plan of 2011 inclusive of the Debt Financing allows us to move forward
achieving stronger fundamentals for the Company in 2011 as well as in 2012 which is evidenced in our 2011 and Q1 2012 financial reports, and we do not think the Company would have and will have achieved such financial performance and fundamentals or the related projected performance without it.
For instance if the Company did not and will not dedicate to the said Capital Expenditure, we could only guess that our natural annual revenue growth rate might progressively increasing at about 10 to 15% with similar growth rate for our EPS which would be much lower than our $0.43 / share performed in 2011 and $0.68 projected for 2012, and conjunctively, the most fear situation in management’s opinion is that we shall eventually lost our competitive edge in the China domestic markets, and we would not be in the position to mature our subsidiaries’ businesses quick enough to list them publicly and independently within our targeted schedule (if ever), all of that will not be to the best interest of our shareholders.

(2) Forecast for 2012 of Debt Financing

Having clarified the above, we like to move forward to let our shareholders inform and award of our estimates and forecast on our Debt Financing plans subjecting to Stock Market variations is projected as follows:

Total estimated Capital Expenditure for 2012 is about = US$103 Million

Estimated Ratio of Debt Financing against total Capital

Expenditure is between = 10 to 13%

Estimated Ratio of Net Shares issued for Debt Financing / Total issuance of shares = 10 to 12%

Estimated number of shares returned to treasury (to be retired) is about = 7 Million shares

Estimated Total issued and outstanding shares as at 31.12.2012 is around = 83 million shares

Estimated weighted average number of issued shares

as at 31.12.2012 is around = 70.5 to 73.5 Million shares

I hope the above clarification will help our shareholders to understand the overall situation of the Debt Financing of the Company, and let us concentrate going onward on achieving our long term objective in sound business developments of and strong financial fundamentals for the Company instead of the senseless reaction caused by the short term (daily) negative Stock Market performances.

I'd now like to take the time to answer any questions shareholders and potential investors may have.

Moderator..standard Q&A format..

Solomon Closing comments..no script for this portion, I'll let Solomon touch on any subject matter he wishes, or simply thank shareholders and close the conference..