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Solomon Lee - Chairman and CEO

Analysts

Sino Agro Foods (OTCQB:SIAF) Q1 2013 Earnings Call May 20, 2013 11:03 AM ET

Operator

Ladies and gentlemen, thank you for standing by. Welcome to the Sino Agro Food Incorporated first quarter 2013 Results Conference Call. At this time all participants are in a listen-only mode. Later there will be an opportunity for questions and comments and instructions will be given at that time. As a reminder this call is being recorded.

I would now like to turn the conference call over to our host. Mr. Solomon Lee, Chief Executive Officer and Chairman of Sino Agro Foods. Solomon, please go ahead.

Solomon Lee

Thank you Christie, and thank you everyone who is attending today’s conference call. I would like to now take the opportunity to read to you a statement from the Company regarding quarter 1, 2013 results. The Company set a revenue record for the fifth consecutive quarter, achieving $55.1 million in revenue, a 245% increase over 2012. Net income from operations of $16.4 million, a 191% increase, and basic earnings per share of $0.16; a 100% increase.

In my opening remarks, I will briefly put these results into a strategic perspective. Then I will turn to exchange listing and financing issues, and then to 2013 financial guidance; before turning the call over for questionings.

In 2012 the Company’s business concentration grew (inaudible) from consulting and services and from overall wholesale operations. Now we are seeing the business (inaudible) the wholesale level, the business that offset at the wholesale level are making quite significant incremental contributions.

The fish and cattle wholesale operations continue to grow in the first quarter sufficient to support expanding the wholesale and distribution level. In accordance to organic fertilizer division contributed revenues of 8.1 million in the first quarter and the import-export segments of the distribution division contributed 5.7 million. To put these in perspective, the total of 13.8 million for these two business that barely existed one year ago amount to 86% of the total first quarter revenue from 2012.

With the upstream support of the pre-wholesale activities the Company believes the downstream operation at the wholesale distribution and retail levels (inaudible) 0each making the whole stronger. I am particularly pleased with the progress in the distribution wing. The two Wholesale Center and the new Trading Center provide a scale of infrastructure for distribution, not originally envisioned in the five year plan. As such this level is ahead of schedule.

In addition new business opportunities to broaden the distribution level and across the whole spectrum of our businesses are becoming available across a number of continents. The Company has set in motion the construction of facilities in Madagascar to supplement import from South East Asia. Within China, the Company is currently establishing a Cattle Station and related facilities within the Central Cattle Market and Facility of Beijing City, to distribute its own aromatic beef to top hotels and restaurants. This is the first in a broader interstate wholesale distribution development plan.

The layering of businesses creates operational synergy. Why overall net margins will decline with the incremental lower margin distribution activities. Total earnings per share will increase. Perhaps as beneficial to sustain the liberty of earning is enhanced as the underlying strength of interoperating business activities is realized, thus providing strategic advantage.

This globalization of the Company distribution operation is mirrored by the expected upcoming exchange trading on two continents. And by the new composition of the board of directors we are seeing the influence of the later due for affectation for listing in Sweden and with evolving thinking about financing alternatives that are more likely available aboard.

These geographical broadening gratifies me personally as I see the direct benefits to the Company which ought to accrue to the shareholder as not only improve financial result wise but also the more international scale and scope of the company is appreciated. If you haven’t already, all shareholders and interested parties are encouraged to read the 10-Q file, May 15, and associated press release of May 16. The company has more and more intra-operating parts and they are plenty of details in the filing and release.

Of note, net income in the first quarter would have been higher by approximately $0.02 per share at the price of sleepy cod remain the same as in the fourth quarter of 2012. Our results will always be sensitive to prices of our products. Throughout 2013 and beyond, a greater portion of wholesale revenue will come from more varieties of fish and prawns and from beef. All these prices are trending up.

My experience tells me the following. Sitting between wholesale and retail, sales and marketing are the heart of our business. When we have this sector fully organized and fully functional, our primary and very-aided producing sector will come to life and blossom. At this point, our own variety of wholesale and very-aided product will fulfill our own distribution system some into our own retail sector. We saw the very beginning of this last quarter.

The primary producing sector will always be subject to multiple, unpredictable, seasonal inferences and variations. That might have occurred or played economic impacts. As such the company must be quick with capacity to adapt and to change as quickly and efficiently as possible to capitalize on the good times and prices. Likewise, when bad times of prices arise, the company’s wholesale divisions must support the market and sales sector with diverse varieties of marketable products, flexibly adjusting the mix as much as practical to sustain profitability.

Our Q4 2012 and Q1 2013 performances now clearly evidence that our business is gradually and surely gear with the flexibility and the ability to sustain and to capitalize.

Of course, operations are the life hood of every company and this has in a way we have concentrate our efforts, although, we are in a dynamic business environment with constantly changing variables and new opportunities arising. Until we are well along the way towards the vertical integrated set of diverse operations that land themselves to reliability and good visibilities.

Subject to normal business and government constraints, the company is in control of the timetable for operational growth and maturity. We have been (inaudible) one downside the company’s global reach is the timing of nonoperational activities and sometimes outside the company’s direct control. The lawyers, government agencies, banks in several country in which we are now dealing often determine timing. We do not control both side of the process.

Examples are (inaudible) we did the good job in our disclosure in the S1 registration statements; however, we still end-up having to find time to respond to many questions and corresponding answers.

The amendment to our 2011 cash flow statement is another example of approved vision requested in the late process. For this reason, the First North (inaudible) at first we were over optimistic about the timing of the process. We are now moving closer and still fully expect the approval having comprised with all request for clarifications today.

We will meet with our certified advisor and our lawyers during last week in May in Stockholm with the intent to expertise the process and expectation to get a more accurate timetable. It is important to note that we as the company would prefer a quicker pace. Whenever we have made application, we have achieved our aims. The Form 10 Process was a good example.

Since late April 2013, the company has been working with professionals in Hong Kong, U.S.A. and Singapore on bond offering. Although, it is still too early to give concrete directions, we are working on relentlessly indication are positive again within the context of third party controlling the timetables. Please bear in mind that the company is undertaking the time, effort and expenses of these two major steps the first law of listing and pursuing multiple bond offerings on behalf of its shareholders. Please realize also that both steps are unprecedented for the Chinese OTCBB company. With positive indications today, we believe that all efforts will be successful and you can find (inaudible) and recognitions to the betterment of the company and its shareholders.

This now brings us to the 2013 guidance. We have gained momentum moving steadily forward in Q1 2013 performance, exceeding our quarter 4 2012 performance. This is an encouragement to all of us at Sino Agro Food. We all know that the company usually performance better, in Q3 and Q4 each year and it should not be much different this year. As the company continues to gain improvements in all existent profit centers and add new ones within our 5 reporting divisions mainly fishery, cattle, beef, organic fertilizer, HU plantation and the corporate divisions.

We target record revenue of between 240 million to 280 million in 2013, proactively from the five divisions and their respective profit centers. The variation between revenue of 240 million and 280 million will depends on variable operational and marketing factors, this representing yearly growth of 73% to 102%. At the same time, the target earning of between 87 million to 104 million representing yearly growth rate of 51.3% to 80.8% and targeting net asset between 304 million to 321 million representing yearly growth rate of 40% to 48%.

Now, our two new Board members are with me on today’s call Mr. Nils Sandberg and Mr. George Yap. So, without further delay, I would like to open the door to you, our shareholders who may have question for us to answer.

Question-and-Answer Session

Operator

(Operator Instructions). Caller, please go ahead.

Unidentified Analyst

I’m just curious just why shareholders or potential shareholders should be buying a stock and you know the financial years (inaudible) amount of shares to build and there is a massive offering in the range.

Solomon Lee

I didn’t get this question, sorry, didn’t hear.

Unidentified Analyst

Question is, why should people be buying the stock right now when we all know that financial years have millions and millions of shares to sell plus is a huge offering in the range, what’s the incentive?

Solomon Lee

Why people want to buy our shares when there is million shares out there to be sold? That’s what you mean, is it?

Unidentified Analyst

Yes. I mean, why would anybody want to buy the stock right here when the stock will not move due to finance years selling millions of shares plus there is a new offering in the (inaudible).

Solomon Lee

Well, I don’t think this is keep moving all the time, right. At a certain circumstances it would have to be like that, but there are limitation, we already said before in the last quarter up to certain amount of share we will have for this year and after Q1 2014 there will be no more.

Unidentified Analyst

Well, how about we have heard about growth and promises before such as the (inaudible) dividend?

Solomon Lee

Well, I don’t think we have booked any promises before but anyway our idea is the company growth, we have not lost anything. Yet not lost, we gain everyday on the shares, we cannot help to. I already said many times, you should not be a trader, when we invested in our company.

Unidentified Analyst

Yes. Be invested (inaudible). Yes, that works.

Solomon Lee

No. But, if you are trading every day, that’s not the position you should be in.

Operator

All right. I will go ahead and ask for next question in the queue. Caller, please go ahead.

Bob Rosenberry

My name is Bob Rosenberry I'm an investor, a journalist who writes about shrimp farming and I plan to post a note to my webpage about your terrific first quarter earnings, shortly I finish this call. I have three very quick questions for you; they all regard your prawn farming operation. The first one, in your new release May 16th on PR Newswire you mentioned the Mexican white shrimp and then you mentioned green prawns; do you know the species name for the green prawns?

Solomon Lee

The green prawns is like (inaudible) but it's a Chinese native and an Asian native prawns, I do not know their technical names, but they are the one with a very big body and very big head prawn, with very large claws. We usually call them the green prawns here in the Asian country.

Bob Rosenberry

All right good, I think I do know the scientific name and I've also heard them referred to as flower prawns, I believe and I'm guessing here that the scientific name is Penaeus semisulcatus, but I'll have to do a little more research on that.

Solomon Lee

Always doubtful with these technical names.

Bob Rosenberry

Yes, I get confused by them myself. Also, in your news release you mentioned that you were going to place 500,000 prawn flies in prawn farm number 1, instead of the word flies, fries, f-r-i-e-s, instead of f-l-i-e-s.

Solomon Lee

You're correct f-r-i-e-s, sorry about that.

Bob Rosenberry

Yes, not a problem, and it was logical as to what you meant. In Southeast Asia right now, shrimp farms or prawn farms as you call them are being devastated by a new disease called Early Mortality Syndrome, or EMS, do you have any sign of that disease in your prawn farm 1 or your prawn farm 2?

Solomon Lee

No in our prawn farm we have been very lucky so far. But we know this has been a tremendous disease this season, very growing. That's why the prawn prices are coming up very fast this season. But in our farms so far so good. But you see our system in view with the disinfecting and disease treatment chambers, such that I think we'd be pretty safe from a strong, when we get our fries, luckily the fries come from our own hatchery. We can quarantine all these before we reach the (inaudible) farm. So I don't expect this problem will hit us this year at all.

Bob Rosenberry

Okay good, that's good news. Can you give me any information on how this new disease, early mortality syndrome, is affecting other shrimp farms in China?

Solomon Lee

Yes, a lot of them because when they were one week old fries, this disease doesn't surface, but once when they release it into the pond, then they start to come, you can see white patches, you can see the mortality rate going very fast in the prawns. And this is what happened now, in a lot of these dams in the Guangdong district.

Operator

We'll go ahead on our line for our next question.

Brian

Solomon, this is Brian from the States, I've spoken to you from the last call and I agree with Bob, congratulations on a fabulous quarter and it's very nice to see the model taking fruit and continued success. So I want to state that up front. One of the questions I had last quarter and wanted to see if there was an update on my question was the search for a bilingual and a top tier CFO for the company that I think would help with your accuracy on your filings and also your timeliness on your filings, have you given thought to that.

Solomon Lee

Yes, the board has consented to nomination of CFO, in fact we have a lot of qualified staff here in accounting and the financial department qualified for that. By June we should make a nomination.

Unidentified Analyst

And this CFO does he come from a top accounting firm or is he internal?

Solomon Lee

Well they are well qualified and they definitely would be able to perform their duties.

Unidentified Analyst

Okay, the other question, I know that you project your earnings in I would call gross net income, can you project what your net income would be translated in terms of earnings per share for 2013 with the range you’re looking at?

Solomon Lee

In this sector, we already quoted on the last quarter that our share would not be at the (inaudible) would be 130 million and so because of a number variables, so we tend to announce a more accurate earnings per share, a little bit later instead of today. We’ll give you a guideline on the earnings and we’ll give you guideline on the number of shares on the last quarter’s conference call. I think at this moment if I quoted the figure, it might have this upside and downside so please give me until might be in June sometime, we’ll do the quarter then we can make the more accurate announcement on earnings per share.

Unidentified Analyst

Okay fair enough. The question is now that I would like to get some colors or some details on after your First North listing or (inaudible) with your First North listing, what your plans will be for investor relations especially trying to get institutional investors on board which I think would be a big help in terms of getting, you have a fabulous story to tell and I think, the value of the company would really improve if we can get more investors, know the story. So has there been a definite plan with the new investor relations team in terms of how we're going to go about telling a story?

Solomon Lee

Actually that's because we under the S1 although we try to improve the website now, number one, but because under the S1 registration our lawyer wants us not to change anything, so to answer your question, yes, after that after we get to First North we would improve number one the website number, two improve their IR and the PR positions in the state and the last week of May, we’re going over to Sweden to look at the appointment of couple of (inaudible) reportable IR agents and services company over there, and I think that appointment will be done while we’re there, so from there we will make our a number of program but as it is we already quietly moving in that directions.

Unidentified Analyst

Okay, you had mentioned that your First North listing is in the hands of third parties and you have answered most of the questions from the third parties as they presented themselves, is there any other outstanding issues that must be answered to this point in time or could you give some color on that so that we at least understand what needs to be done for the approval to take place?

Solomon Lee

You’re way in big too fast.

Unidentified Analyst

Sorry, I’ll slow down I’m sorry, so the First North listing you said that it is in the hands of third parties and that’s why you can’t give an accurate forecast on when it will be approved, but as you’re confident that eventually will be approved, so my question is, is there any outstanding issues that haven’t been addressed that you know of from third party that still need to be addressed, can you give some…

Solomon Lee

Yes, in fact there is no, we have answered all clarification satisfactorily so far. We have done everything that is requested of us, but I think we’ll be going to Sweden by next week. We our self also want to fix a more accurate timing, timetable if possible.

Unidentified Analyst

And what third party is not giving the approval at this point? It seems that you’ve answered all the questions to their satisfaction, so what's the delay at this point?

Solomon Lee

Well because see like the bankers for instance, they reckon that it could be at December time coming in Sweden which is like our time is New Year. (Inaudible) for instance, that is one example, it's not that they don't want to push it but in their opinion, they would think that timing may not be the perfect timing. And we are way acceptable to the suggestion only thing that is good for the company. But in our quarter, we believe even now Chinese New Year, China's stock, everyday something has been moving the whole incentives of more reasonable timing next week.

Unidentified Analyst

Excellent; in Europe what would be the best timing in the year for you to come out with your listing?

Solomon Lee

Well as soon as possible, as far as we wanted you see, but whether there is on due condition for Sweden then would we know we have to rely on the expert to tell us.

Operator

Thank you and we will go ahead with the line to the next question. Please go ahead.

Unidentified Analyst

Hello Solomon congratulations on a great quarter. This is Carol (inaudible); I follow several companies closely including SIAF and I am always impressed with the amount and quality of detail that you provide to us in your filings, press releases and in these calls. But it always seems to me that 90% of the information that you provide is positive about the company and the 10% set, tells us about legitimate challenges is what all of the investors are dwelling on and we all really don’t like that the stock price is low for example and even though all the other news is correct. I was on the investor tour and that really boosted my confidence on the company and made me a believer. I was really impressed with the quality of your processes and with your organic products; your food products, your fertilizer everything. My question is how's everything being received in China in your market? What is the feedback you are getting from your customers and prospect?

Solomon Lee

Well I give you just one recent example. As we said we stopped sending fish to the Shanghai market for instance, you see, and the feedback that comes back today is very positive. Our fish; our sleepy cod can stay in the restaurant now is almost eight days without any problem. And it doesn’t mean it doesn’t sell, but we kept some in the restaurants over there to see. In comparison to the dam growing sleepy cod, they only last one day in the tent. But out up till now still kicking and very healthy, so in a way it’s a good thing. So the orders are now pushing us to share more sleepy cod up there which we shall do and following that this week, we save in to the (inaudible) and to see how the reaction and next week we're going to send up to Beijing to see further receptions over there before sleepy cod, that's one example. Our beef we ordered last time, when we sent the beef up to Beijing we did send 180 cattle, next week they are going to slow that but so far and we shipped some very good on the testing sample. So, I am confident our quality depended on our products and our produce; we will one day will be known across the country here.

Operator

All right we will go ahead and go on with our next question, (inaudible) Go ahead.

Unidentified Analyst

Maybe I missed it earlier but I was a bit busy with some other stuff as well, but did you give any revenue or gross profit guidance for the company as a whole? Would you mind just repeating both for us; I think I lost it somewhere along the way.

Solomon Lee

We predicted sales between 240-280 million for 2013.

Unidentified Analyst

Okay that's great.

Solomon Lee

Earning between 73-87 million and net tangible asset between 304 million to 321 million.

Unidentified Analyst

Thanks for clarifying that and looking at CapEx, do you have any forecast there and where are you going to focus the CapEx for 2013?

Solomon Lee

I didn’t quite get that one can you repeat that question?

Unidentified Analyst

Sure capital expenditure as in the investment during the year.

Solomon Lee

Capital expenditure we are going to launch it sometime in June because of the more accurate capital after we do the second quarter and some of the bond offering and so on might become more evidenced. So we can determine it more accurately.

Unidentified Analyst

you were going to (inaudible) the eel production at the new fish farm one and you are also in the pipeline of starting up sheep farming in (inaudible) do you have any updates on that if that is going well or…?

Solomon Lee

Yes at (inaudible) we have constructed two demonstration sheep houses just like our cattle houses. In there at the moment we are housing about 500 sheep at the moment. These sheeps are what the housing is telling the native laboratory which is in very high demand and so far the reporting the growth rate on this sheeps were immense and the quality is very good. But I think within two months we should have the first batch ready to give you more information on those. The other one is on the eels is it or on what?

Unidentified Analyst

Yes exactly some importance given if you are going to shift from (inaudible) cost eels.

Solomon Lee

Yes on the eels at the moment what happened is that so far we know eel gains weigh faster and it has the better feed conversion rate and the cheaper feed cost. The particular species that we are growing is the flower pattern eels at the moment. Now this eel has to grow under constant temperature between 28 to 30 degrees C. in a way this is extremely difficult for the open dam system to grow which give us a competitive edge. Now the downside of that is we could culture and hatch our own sleepy cod (inaudible) internally but the fries of the (inaudible) of this flower pattern eel could only could hatch an under natural environment and we have to buy them from external supplier who catch them from the (inaudible).

Now therefore commercially there is a disadvantage due to the supply of the fries where we very subjecting to seasonal availabilities. now at the same time this flower pattern eels demand the higher price as they grow bigger from say two kilo, 2.5 kilo and upward. that means our turnaround cycle are longer. Now so to sum it up flower pattern eel in general is given this situation of the sleepy cod price is so low it will be far more attractive to grow the eel than to grow their sleepy cod. Because if their sleepy cod prices comes back up to last year’s prices then the sleepy cod give better performance (inaudible).

Unidentified Analyst

And my final question. As you might know very huge bad side of effects of growing prawns and (inaudible) that you are currently growing in for examples mangroves et cetera and the big thing right now in Europe are you considering potentially marketing your indoor rates prawns in Europe as ecological alternative in Europe?

Solomon Lee

We believe in the long run, we are circulating agricultural system of prawn farming, we provide the solution to the program that you just mentioned. Now we have already our first prawn farming operation and I think by next year we should get really eclipsed statistic record to verify our commercial viability and to certify our prawns with (inaudible) of health quality. so I think eventually we will start a new era of the prawn culture industry in China.

Unidentified Analyst

Okay great I understand thanks for answering my questions and good luck with upcoming quarters.

Operator

(Operator Instructions) Alright Solomon, there are no more questions in the queue at this time.

Solomon Lee

Okay thank you. Thank you for everybody’s presence tonight, and we will talk again in the next quarter. Thank you.

Operator

Thank you. And now we will conclude our conference today.

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