Sino Agro Food (SIAF) CEO Solomon Lee on Q1 2014 Results - Earnings Call Transcript

Jun. 2.14 | About: Sino Agro (SIAF)

Sino Agro Food, Inc. (OTCQB:SIAF) Q1 2014 Earnings Conference Call June 2, 2014 11:00 AM ET

Executives

Solomon Lee - CEO

Olivia Lai - CFO

Dan Ritchey - Independent Director

Peter Grossman - IR Contact Officer

George Yap - Independent Director

Analysts

Debra Fiakas - Crystal Equity Research

Operator

Welcome to Sino Agro Food's 2014 First Quarter 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 the results from operations during the quarter ending March 31, 2014.

Following comments by the CEO and the introduction of the new company Chief Financial Officer, the lines will be open for a question-and-answer session. All forward-looking disclaimers included in the company’s first quarter 2014 financial and operating results press release dated May 16, 2014, which is available on the company Web site, www.sinoagrofood.com, are in effect and incorporated throughout the duration of this call as an extension of the material discussed and provided in the press release and into 2013 10-Q filing available via the U.S. Securities and Exchange Commission’s EDGAR system.

On this call will be Mr. Solomon Lee, the Chairman and CEO of Sino Agro Food Incorporated, members of the Board of Directors, Mr. George Yap; Mr. Daniel Ritchey and Mr. Anthony Soh, as well as CFO, Olivia Lai; and Mr. Erik Ahl, Managing Director of Sino Agro Food Swedish subsidiary. The company’s Investor Relations representative, Peter Grossman, will assist in moderating this call. We will have now our further go in the interest of fairness please ask only one or two questions any time selected from the queue. Also, we will divide the Q&A period into four segments allowing 15 minutes or so for each. Corporate policies, dividends, exchange listings, governance, regulations et cetera, finance and financing, operations and others.

I would now like to introduce Mr. Solomon Lee.

Solomon Lee

Thank you, Kristen and thanks to everyone attending today’s conference call. I am very pleased to report Sino Agro Food’s 2014 first quarter financial results. The company achieved record revenue of 90.9 million, a 65% increase over fiscal year Q1 2013. Comprehensive net income from operations of 20.8 million, a 27% increase over Q1 2013. Fully diluted earnings per share amounted to $0.14 recorded the corresponding 2013 quarter. And total shareholders’ equity increased in the quarter by 26.1 million to 317.4 million.

First quarter results; net internal targets and rate decline work for successful 2014 a tumultuous year in which the company aims to take major towards establishing a future in which bottom line per share growth approximately consistent, healthy top line growth.

Revenue from the sales of goods totaled 78.3 million in the quarter an increase of 114% over the first quarter of 2013. Because cattle farm and corporate construction were completed in 2013, revenue from consulting and services decreases almost 6 million from the first quarter of 2013 and accounted for 13.5% of total revenue. This historically low revenue percentage is expected to increase in the upcoming quarter contributing to a further growth.

2014 got off to a great start. We are quite pleased with the first quarter results and operation to date. Hence we expect healthy natural growth to be continued. The remainder of the year we see expansion and new developments. The company’s growing operations intrinsically had more variables and opportunities than in the past year. For this reason and because the CFO will be instrumental, we will issue full year 2014 guidance when we have more clarity sometime before the end of the third quarter.

I am particularly pleased that fishery division's ability to repurpose its [indiscernible] resulted in eels producing a major contribution to gross profits. We expect this trend to continue, as we increase the proportion of eels sold while the market price is high. During the quarter we imported the first batch of 400,000 eel fingerlings from Madagascar to grow-out in stage; first nurturing at our R&D station to about 15 to 20 million [indiscernible] per eel, then the eels are transferred to our newly developed RAS open dams at Prawn Farm 2 for second stage grow out, to about 1.3 to 1.5 kilogram per eel. The final stage of grow out of 3 kg to 3.5 kilo per eel at Fish Farm 1 and our Fish Farm 2.

The abattoir at Qinghai Sanjiang A Power Agriculture Co. Ltd, SJAP will start producing to its capacity next month. Like eels in the fishery division SJAP’s marbled meat products had sales at high velocity and high profit margin to existing operations. SJAP is continues as one of the company’s main single project revenue producer and will do so for the coming years. The SJAP abattoir facilities enable end-product revenue increases of approximately 170% a kilo on top of continuously increasing volume of fattening the livestock.

In tandem with the growth of the SJAP's time livery, abattoir, de-boning and packaging of meat divisions, SJAP is currently making good progresses in the score maps for the marketing and sales of its meat, including beef and lamb to the western consumer market in China. In this respect we shall keep you informed accordingly and progressively. In time, the new Zhongshan Prawn Project will increase the revenue of SJAP. After construction pace quickens, and prawn sales are well established, I look forward to report progress on this project that promises very long-term consulting and services work, and sales volume on new scale of the company.

Consulting and services revenue in phase 1 stage 1 targeted 115 million. And a total of 2.6 billion of the project's expected 20 years life cycle. The target production for phase 1 alone is 100,000 metric tonnes of prawns per year. The very last scale of these two operations SJAP and the new Zhongshan prawn projects were not ambitioned even two years ago. Together they will propel the company to and will pass all financial goals of its original five years plan.

On May 21st, we welcome Ms. Olivia Lai to the company as the new Chief Financial Officer. Her expertise in supply chain management is a perfect fit with the company’s vertically integrated subsidiary structure. Uncertain Ms. Lai will help guide the company forward and emphasized on prudent financial discipline at the corporate level.

Regarding the payout of the series F further shared dividend, the company has been informed that the methodology used that is book entry, non-registered shares poses a problem that needs to be addressed and rectified. That said, the Board of Director will conduct the meeting in the way we term to resolve the issue and inform the holder of the series F first shares once the solution is determined and the decision made on staff to be taken. Unfortunately neither the board nor I are at the position to discuss the matter handing the full board's discussion on the issue.

In late April the company made investor presentation in Charlotte, North Carolina. These are the company’s websites I enjoy and appreciate the opportunity to meet many shareholders for the first time. While in the U.S. the company was able to meet with NASDAQ to discuss its current application for listing. Overall the meeting was productive and mutually informative, since then additional information has been provided for NASDAQ’s review.

Please take the time to read the 10-Q file, and the company’s press release. These are plenty of descriptions and development detail in the filling and release. This gives a clear picture of the company’s operations and strategy focus. Also recent developments are posted on company’s website and Facebook.

The company continues to strengthen its financial position in terms of growth in revenue and net income. We have built flexibility into operation to adopt quickly to changes in market condition to optimize returns. As reported work is continuing towards exchange listing to improve the company’s market availability, the company remains actively engaged in raising debt financing, we are optimistic that our effort on both fronts will come to positive results.

I have three independent Board Members on the call today Mr. George Yap, Mr. Daniel Ritchie and Mr. Anthony Soh. Also on our call today I have the Managing Director of Sino Agro Swedish subsidiary Mr. Erik Ahl and our CFO, Mr. Olivia Lai. They will help to answer your question as one team.

Before opening the floor to you our shareholders, it is my pleasure to introduce Ms. Olivia Lai, our new Chief Financial Officer, who will say a few words. Olivia please.

Olivia Lai

Okay, thanks Solomon, hello everyone, good evening, good afternoon and good morning to all of you. I am glad to be on the call, as Solomon just mentioned I have been working for this company for about two weeks. So far I have seen some of the operations and that was the accounting and finance and the management team and I am excited to be part of the team. I believe I will enjoy working at such an exciting and fast growing company. Today since I am calling you at the company, if I cannot answer any of your questions, please feel free to contact me after today’s call. You can e-mail me or call me.

So, I think with that I will turn it back to Kristen.

Question-and-Answer Session

Operator

Thank you. And we'll go ahead and open it up for our first section of Q&A (Operator Instructions). And we’ll go ahead with our first question in the queue, caller please go ahead.

Debra Fiakas - Crystal Equity Research

Yes, this is Debra Fiakas with Crystal Equity Research. I wanted to ask about the -- a couple of balance sheet items, the inventories increased significantly both for the fisheries and for cattle. And I wonder if those inventory levels will become typical or is this large increase was only temporary?

Solomon Lee

I would say the inventory level will keep increasing as the business expand.

Debra Fiakas - Crystal Equity Research

Okay. So we should expect additional investment in inventory and I would assume your purpose there is to grow sales?

Solomon Lee

Yes, that’s a good assumption, yes.

Debra Fiakas - Crystal Equity Research

Okay. And then the other question that I have during your comments Mr. Lee, you mentioned that the company is actively pursuing debt financing. Could you elaborate a bit and tell us more is this an issuance of bank debt or are you looking for a private placement of notes? And then also could you tell us what the intended use of proceeds might be?

Solomon Lee

Maybe I can turn this over for Dan or George because they are in the financial committee. We have often discussions on this subject. Dan or George might be one of you can answer these questions.

Dan Ritchey

Yes, this is Dan Ritchey, I’ll go first. Yes, with respect to the first part of the question which is debt financing we are looking at a bank financing in particular. Equity financing we are doing whatever can be done to put that on the back burner so conventional finance is our focus. It isn’t that we may not have a sweetener or thicker or however you want to categorize equity and to use in terms of attracting financing but for the most part our focus is on conventional financing, equity financing being secondary and tertiary in terms of its use in the future when it comes to acquiring profits.

Debra Fiakas - Crystal Equity Research

All right, thank you very much. I have a couple of other questions but I’ll get back in the queue.

Peter Grossman

Yes, this is Peter Grossman. We decided to try to consolidate the question this time into categories for cohesiveness and the first category is corporate policies like exchange listings, governance, regulations perhaps dividends and we’re going to allow 15 minutes for each category, second one is finance and financing, third is operations and then the fourth is all others. So if we could try to do that I think it will be easier for everyone.

Operator

All right, so we’ll go ahead and move onto our next question in the queue. Caller, please go ahead.

Unidentified Analyst

Did I hear correctly that the F-shares are not going to be paid this -- today? Hello?

Dan Ritchey

This is Dan again I don’t know, Solomon you want me to put this one up but yes we’ve just been informed because of the structure of the F-share which is book entry non-registered shares there has been an issue which has risen and we just been apprised of it and we are going to have to meet as a board to discern what are the next steps that have to be taken. It’s extremely premature right now we think the -- we understand there's an issue, we want to get it resolved, we’re going to do that sometime here with the -- within the next few days. So, bear with us as we work through this process and we'll get back with you once we come up with how we’re going to have to have those samples.

Unidentified Analyst

Any sort of expected time line on the handling of the fisher?

Dan Ritchey

No they are in the future and I am saying within next couple of days I can’t give you more details on that at this point.

Unidentified analyst

Okay and what about the overall refined dividend policy?

Dan Ritchey

With respect to the dividend policy that’s something again, when the company has free cash flow, we’re going to be in a position to be able to give a definitive dividend policy. But until that time, and I’m speaking as one board member mind you, and I might be overridden on this. My feeling is the company is growing, it’s developing, we are not going to putting out cash and having to borrow against it just simply to be able to say that we paid a dividend, that isn't serving the shareholders in any capacity in that respect. What served the shareholders is future growth development and valuation, and when it comes to, if the company is in a favorable position, free cash flow, I’m right there with you, I would be glad to make the dividend distribution. But from my perspective, [indiscernible] whatever what have you, when I look at things from a more conservative vantage point that’s my view on the issue.. Again I can't speak to the whole board, but that’s from my perspective on it.

Operator

Okay we'll go ahead and move on to the next question.

Unidentified analyst

This is [indiscernible].

Solomon Lee

Fine, thank you. How are you?

Unidentified analyst

The operations sound great, sounds like a step in the right direction. In regard to eels are you the only one growing them in China.

Solomon Lee

Regarding to what, to the eels, or what?

Unidentified analyst

Yes, yes. Are you the only one growing them in China?

Solomon Lee

No, there are many-many people growing eels in China.

Unidentified analyst

Oh really.

Solomon Lee

Probably thousands. Because a lot of farmers in the south have open dams, and eels is quite easy to grow, you could say many [indiscernible] from small white color to black color to yellow colors and they all got a very good market in China, especially when we have a neighbor country like in Japan and South Korean and they also come here to buy the eels, so eels is a pretty strong market here.

Unidentified analyst

Where do they get their -- the young eels, I mean the baby eels?

Solomon Lee

Well the baby eel supply is at the moment mostly comes from Hoi Lam Island, and some being smuggling in from other regional countries here. But the main thing is the country themselves, is not supposed to allow them for export. But a lot of them do manage to get them here. I was very, very, very lucky because Madagascar is allowed to export the eels, and we did manage to stock them up so that would be eventually we have some kind of advantage in that way.

Operator

Thank you, and we’ll go ahead and move on to the next question.

Unidentified analyst

Yes, I have a comment and then I have a question, I'll try to keep to the corporate policy as Peter requested. And I say this with all due respect with the performance of the operations and you’re doing a wonderful job with this. I think one of the problems with the valuation of the company beyond getting to a senior listing is some of credibility coming out of management with the company. There has been what I would call target date set for dividends, listings and other targets that haven’t been met and our shareholders that have been sitting here for many, many years that seen our value in the company at almost an all-time low and it’s quite a dilemma sitting here watching a company that’s doing so well, getting such an unfair valuation, so you can understand our frustration with the missed target. So for example with the series F shares, there was great discussion on how to set them up originally so that we wouldn’t be in this position on Friday, and now we’re told that last minute there is a problem, so that’s one point, we were told that there was going to be a dividend policy mentioned a few months ago and now that’s been delayed. We were told that there was going to be a projection for the rest of the year several months ago probably in the first quarter and now that’s delayed to the third quarter. That’s just my general comment. So there is no need to answer that unless you want to, but I think I speak for the majority of the long-term shareholders that we’re getting increasingly frustrated, we want valuation for the company, we respect what you’re doing with the operations but we really need to see value for our investment. So that’s my comment.

The second comment, the question I have on corporate policy has to do with your NASDAQ listing. You mentioned that you met with the NASDAQ when you were in the States, I am sorry that I missed you in Charlotte I had other business arrangements and I didn’t get to meet you. You had mentioned in the last meeting call that the listings typically takes seven or eight months to have fruition. As of June 3rd or tomorrow actually it will be the end of the eighth month. How long do you think it will take at this point? We've been told first the January was your target, then we were told it was seven or eight months. Now I really don’t know whether we’re going to get the listing at all. So that’s my question as far as corporate policy. Thank you very much.

Solomon Lee

I think this question has been raised not just by the shareholders but all over the company. In fact we have constant discussion over this issue, maybe this is a common question, maybe if we ask Dan or George just give a bit of information on this sector. Dan or George would you try to comment a little bit on it.

Dan Ritchie

George do you want to say a few words then I can tell you something afterwards.

George Yap

I would say that the Board has looked at all these issues quite critically because we are as confirmed as anybody is to move it quickly ahead. But of course with NASDAQ we have to satisfy their requirements and we have done so with the new team. And they have taken decisions for their application to be fast track again. So I think on that front we should expect some feedback from NASDAQ, since we provided information for them to review.

Now on the back of share price an issue that the Board is looking at quite directly is to bring in institutional investors who will bring in a more consistent share performance, in fact even fundamental to the company. That said I think we are making good progress there with certain funds that are quite keen to take a position at our company and I think in good time, we should be able to present this to our shareholders, who we understand are long suffering but like everybody else we are working very, very hard. The fundamentals of business is very sound. If you look at what we have done so far, we have got for SJP a gradual head status which in China is very, very significant, which means we are very good corporate citizen in the area where the company operates. And then on the other hand to get the mega prawn project that’s an endorsement of the execution power of the company, it is significant development for the company provides a lot of consulting income long-term and the opportunity to do what we are good at, which is to just to sign a venture agreement to grow the business so that's very particular.

I think all that being said we are working very hard towards a quick turnaround in terms of the delays we have faced. It’s good that we also have taken a bit of time to recruit somebody like Olivia Lai, because that would bring a lot of financial discipline, planning the growth in a significant way and we’re moving towards the free cash flow model. I think in the past the board has been very generous but if you go forward there is more traditional way of funding and as we bring lenders into the picture they all know they look at dividend policy quite closely and we need to balance that with what the expectations of the lenders are going to be so -- and I am sure with our shareholders retail there is knowledgeable I think institutional investors they will understand that we have to come with a policy that's a long term basis they need to have a dividend policy. But until we are certain of our free cash flow which should be more on the food end basis tempered dividend issue to what’s a more realistic expectation. And with that I think share price will take care of itself, we think that most important it's for us to perform and deliver the financial results and we continue to do that. Thank you.

Dan Ritchey

Again, this is Dan Ritchey, very good Joe. I -- let me add just a couple of things now. I do sympathize with the caller, with the same issues that you are bringing up. The fact of the matter is that the company realizing that when these decisions were being made the company was not running yet on all cylinders but it had lot of cylinders going at the time. And decisions being made were having to been made all within the [indiscernible] two individuals involved in that process understanding that we have certainly restrictions that the company had certain restrictions at the time we expected a thinner, with what it could issue within the time frame that distributions had to be et cetera, I don’t want to go into those details here.

But with respect to where we are today with regard to a fuller and broader independent board of directors with the hiring of the CFO as George alluded. Now the company was taking a measured approach with looking all these issues in details more thoroughly when it makes these decisions and I would suspect that any forecast or whatever is provided in the future is going to be much more to the conservative side especially if all of us as I know how we look at this thing come together and when these decisions are made and restrict the type of information that we’re putting out in every point in time.

Now that said, with regard to NASDAQ, I was at the meeting at NASDAQ. NASDAQ was very open with us, we had the senior level individuals that were there around the table, these are the decision makers. I will say that the Chinese sector still-still has a toll over the acceptance of new issues being listed on NASDAQ. Now that doesn’t mean this won’t happen, what it does mean though and you’ve seen this is that this is taking a longer period of time because NASDAQ is having to make certain for themselves and I don’t blame them, NASDAQ is a privately held company to be able to make sure that whoever is listed is going to work in NASDAQ's favor a swell as in the lister's favor. And that with respect to what they’re requiring all the documentation that's been provided to them, and we’re having follow up discussion with them, the process is moving forward, they [indiscernible] know by now that [indiscernible] that have to happen. So we’re looking forward to constructive and continuing development when it comes to our working through this process and getting in the venture listed with.

Operator

All right, we’ll move on to our next question in the queue. Caller, please go ahead.

Unidentified Analyst

Okay. Yes, you said in your understatement that you would like to wait with the full guidance for revenue and net income. But could you say something about the expected CapEx level for 2014?

Solomon Lee

I think I hear this question in previous...

Unidentified Analyst

Sorry I didn’t catch what you said. Could you please repeat?

Solomon Lee

I said I did not quite see your questions.

Unidentified Analyst

Okay. You said in your statement before the conference that you would like to wait with the guidance for revenue and net income for 2014 until later in the year. But could you say something about CapEx, expected CapEx spending for 2014 already now?

Solomon Lee

Yes, that is also part of the full cost, on our table right now but because there are a number of variables that needs to be considered. That’s why it took a little bit longer, but as far as the CapEx concern in the Qs and the Ks we had mentioned already indicated to certain figures, on the CapEx, but somehow the cost of the full forecast will not be 100% [indiscernible] between our own departments and by our new CFO, so if you can just wait for a little bit longer we should have it coming out including the CapEx.

Unidentified analyst

Okay, if I may continue with another question it might not be under your corporate policy but it says in the first quarter report that you’re looking for a project loan for the new big prawn farm of $60 million and what -- how can you be, you fell short, why do you think you will be able to get that project loan one year, still not haven’t received a loan for the Sino Agro Food Group which already produces profits and has a very solid balance sheet.

Solomon Lee

All of these file and pass off the project loan and it’s all come together, that’s what we are working on now.

Unidentified analyst

Okay, so, both the funding for Sino Agro Food and the project loans are something that you’re working on right now and they are not separate items, they go together.

Solomon Lee

Yes, simultaneously we’re working it all together in one pass, that’s [Multiple Speakers]

Unidentified analyst

[Multiple Speakers]

Solomon Lee

Yes, it's all debt financing.

Unidentified Analyst

Is that linked to a NASDAQ listing or is it independent of any NASDAQ listing?

Solomon Lee

Well, it tends to be, depends on the NASDAQ.

Unidentified analyst

Okay. It’s dependent on NASDAQ.

Solomon Lee

As [indiscernible] has to be.

Unidentified Company Representative

No, no. I’m sorry, Solomon you said independent but it's already reiterated where you responded by saying dependent, no, it is independent of the NASDAQ listing.

Solomon Lee

Yes independent of NASDAQ, yes.

Unidentified analyst

So, it’s independent, okay. May I continue with another question?

Solomon Lee

Okay.

Unidentified analyst

Dan, you said before that equity financing was second or third, first of all its debt financing. Does that mean that we wait for additional equity funding until we no doubt on what the debt funding process.

Dan Ritchey

The short answer is no. The longer answer is equity financing, we had some flexibility now with cash flow. With respect to that we are able to have a window of up to around two to three rounds to work with. With regard to conventional financing, we -- I can't go into detail on this again because we are still within the middle stages of each one of these that we are currently under discussion with. So each one of them have been moving and progressing in terms of getting to an end deal, we’re not talking just small numbers, we’re talking very large numbers and because of very large numbers we’re talking more time having to be invested and more documentation being provided.

That said, I hope, now this is my hope, my hope would be based on again, this isn’t just a hope that I just dropped on thought, it’s a hope based on what has already transpired with these institutions, and that is those things have made as much progress as they have within the last few weeks, I would like to hope that within the next few months that we would have solidified and signed off on one of them and that said, we’re going to eliminate whatever use of equity was going to needed and we'd prefer receivables coming -- payables I’m sorry coming due and not always have to dip into the equity funds to be able to meet those obligations. And again I think let me go back to a point I made in my, in the call for the annual conference call and that is the company should never have itself every saying that we will not have equity being utilized, there will be times when equity will prove more benefiting to the company as a whole as a financial tool, than it were where we are today with its current value.

So I think it’s always going to be why do companies go public? Companies go public not just simply to make shareholders happy; they go public to raise money. And having equity as an additional source of funding is whatever company does. How is this a different question? And that’s where we find a home in on that and not have it utilized under the conditions we're right now about 0.7, we believe is indicative, so once we get things straight and so forth equity may still continue to be a very valuable tool when it comes to financing future development and growth.

Peter Grossman

This is Peter Grossman again, I guess we sort of are de facto moved into the financing finance questions, so maybe we can simply have that be the category now.

Operator

Okay, great. (Operator Instructions). And we’ll go ahead and go on to our next question in queue, caller please go ahead. Caller from the 516 area code.

Unidentified Analyst

Yes, what were the factors for the S1 being pulled?

Dan Ritchie

The question is what was the S1 pulled. The S1 until recently the S1 was certainly the company’s benefit in terms of having additional shares registered for the use of additional findings in the future whether it be as collateral events the conventional loan or otherwise. Since that time we’ve also met, as I mentioned this earlier with NASDAQ, NASDAQ certainly had reasons to ask the question as why would a company be issuing shares at a time when its cash flow is showing positive signs and things are growing and you did tell us meaning we were telling about some of the conventional lenders that were coming in. With regard to continuing to go through the process of the S1, those were issues that were taken into consideration as well as the task the legal task et cetera of continuing the S1 process. So as a company the decision was that for the interest of what we’re looking at and to what little need in terms of the additional shares being registered, were going to be necessary in terms of attracting funding and outside sources, we felt that it was a better decision to call the S1 for those reasons.

It wasn’t something which we were thinking at a few weeks ago, yes we were thinking of it but we were also thinking that it’s certainly better purposed by since we’re already going through the process so far to continuing investing monies in it, having it done but since our meeting with NASDAQ and other factors as I mentioned we have thought that why go to the cost of continuing that we really are not seeing a real reason outweighing the other reasons I mentioned for spending audits.

Unidentified Analyst

Solomon is there any estimate when we will reach free cash flow?

Solomon Lee

That one will be in the forecast that we will show at launch, before the quarter, before the next quarter result. But you and I are in the same boat, we’re trying to get to the positive cash flow, free cash flow as quicker as possible. And so really in our financing department we’re looking also to try and reach that aim as soon as possible.

Operator

All right. And our next question, all right go ahead.

Unidentified Analyst

This is Mark Tey (ph) back again. I want to follow up over my question from George about your institutional investors? You mentioned that you are actively searching to increase valuation with institutional investors. Does that depend on whether you get the NASDAQ listing or not, will institutional investors invest in the company?

George Yap

No. I think, no. We’re looking at funds that can look at our company and then OTCBB. That’s what we are looking at.

Unidentified Analyst

Okay, that’s encouraging.

George Yap

That's correct. It means that we are looking at the situation with funding from these type of investors as well, so there is a long-term benefit there.

Unidentified Analyst

And how many funds are you looking at? Are they domestic or international funds?

George Yap

Yes, they are international funds, that’s right. We’re looking at a couple of them. We don’t shop the deal around. We just do it with people who are [indiscernible]. And we are very serious in negotiations with them.

Unidentified Analyst

And back to the financing question, so I guess for Dan or you George, when you get bank financing, I guess typically beyond typical terms as interest rates there are obviously covenants that the lenders will require. And obviously there are fair amount of covenants negative covenants and things like that. Is there anything that you guys are holding out for that would be, I would term unreasonable in light of a lender asking for, such as use of the proceeds, you are asking too much so that it’s holding back the negotiations. Could you give me some color in that? Is there a question about covenants or is it a question about interest rate?

George Yap

On interest rates we are improving our position progressively, but I think on the issue of covenants I think you will realize that we are above that -- that's very keen on continuing the dividend policy and it’s about time that our shareholders have to realize that when we go to work, the more traditional we are funding -- you know banks are saying, hey well we’ve given you money in exchange, and distributing a dividend. We don’t think it’s prudent to do that. Why don’t you get into a tax free cash flow position, a position to save you well that with a level; so this is where we are trying to stretch the envelope a bit with these lenders that you are talking about.

Unidentified Analyst .

So if the shareholders would say okay -- if the shareholders would say okay, we’re willing to wait on dividends so that you can get your financing. I certainly would agree to that, but I can’t speak for all the shareholders naturally, but why can’t you give on that?

George Yap

See, I would like to have an equilibrium; we are looking very-very hard and entirely -- you can’t have more progressive Board of Directors who are keen to make sure that shareholders -- long suffering shareholders funding needs to be rewarded, reasons why there is a dividend policy in the first place as we -- another thing that is the big feature of this company is there so far, we have funded all the expansion with equity and it’s now time to take on some debt and I think we should be able to do that, but on a much more favorable terms than was ultimately proposed and I think we are moving very-very well in that area.

Unidentified Analyst

Okay, and just finally, a question for you Dan. You said that you were only financing that you were negotiating these -- that it would be up size, it’s hard to describe what that would be, I imagine it to would be -- you are not talking about $2 million deal, so it’s tens of million dollars of financing. With that, are you considering using part of these proceeds for buybacks or would the financing allow even for buybacks down the road as part of the deal?

Daniel Ritchey

Well, that’s a good question. I would love for it to be allowed to be used as a buyback. The issue comes back to the point we were making earlier with respect to covenants in terms of those that are lending the money. What I am finding in not only in this process we thought that, it could also with my other businesses as well is the larger the lender the less covenants that are imposed. And I think only because they have the money available to do so. They did smaller lenders, their balls are more precious, more head closely and they’re going to be pushing to certain things beyond what is usually thought of as typical when it comes to covenants.

But when it comes to share buyback, I mean if we have operations free cash flow, I would see no reason as to why a lender is going to have a problem utilizing some of that free cash flow or buyback. Granted, if we were to simply, let’s say we’ll get a $50 million loan today and we decide we’re going to buyback tomorrow, I would think that any lender is going to have a very skeptical skewed position -- I am sorry skeptical eye and skewed position when it comes to that.

But if the company then is utilizing the $50 million for growth development projects and it starts providing a free cash flow my feeling on that only having dealt with these kinds of issues in the past is that most lenders are not going to concern themselves when it comes to the company to helping to develop its value in the market as well as its value in the company. Now that takes a period of time. Obviously you will we see that money that’s being borrowed being able to show free cash flow in order to be able to do what we are talking about here. But, yes, I mean to answer your questions, would we, yes, I would be totally in favor as long as we were allowed to do it and under what circumstances I think that will determine when we will be allowed to it.

Unidentified Analyst

And so you’re negotiating towards that?

Dan Ritchey

Yes, the negotiation doesn’t necessarily -- I mean the negotiation is mainly to be able to get the money, is to be able to develop project A, B, C or D. And then once that -- once if we were able to secure that and provisions or lines or certain things such as the share buyback and/or a dividend to be paid; then yes I mean we would obviously like to be able to get as much as we can from them when it comes to allowances. But I am just saying from my perspective and being in this business for a while off on my own private businesses as well as public companies that I’ve worked with, it is very difficult especially going after some of the money that you’re talking about or the size of the project that we are today this is larger companies who go after where there is tons of money that have a track record that have a history and the one that’s typically have as much of a problem is going to be kind of it being done as part of the fact.

So we are working with them on that, they are very cognizant of what we'd like to have, at the same time if none of them things are deal breakers, the main thing is to be able to get the funding do it with different projects underway and go on what we want to and then after that hopefully we’ll have the monies available whether it be to keep on funding itself with free cash flow, to be able to do the dividend policies we talked about, to be able to have the share buyback plan, et cetera.

Operator

All right, we’ll move on to our next question. Caller, go ahead. Caller from the 516 area code, you can ask your question.

Unidentified Analyst

Okay. Did the company buyback a limited number of shares from JV partners this year?

Solomon Lee

Dan or George can you read back?

Dan Ritchey

The question Solomon was did the company buyback any shares from the JV partners, I am sure I think if I heard him correctly, that was the question.

Solomon Lee

Buyback shares from the JV, I think actually somehow the caller got the message that the JV partner usually is a joint venture partner under [indiscernible] joint venture company following joint venture company and we don’t normally give them share to pick up the equity. So, I don’t understand your question, you see.

Unidentified Analyst

Going back to 2013 early you had an arrangement where you would buy back shares from JV partners if they held for X amount of time and you’re buying back at a premium. I am just wondering if maybe some of that occurred this first quarter this year.

Solomon Lee

No, because we, I don’t where you get that message from, but whatever it is, we don’t buy, we don’t issue share to any of our joint venture partners, we actually pay the project by cash actually normally and our equity we also pay it by cash, so the joint venture partner, we don’t have to buy back any of the equity. They already have equity of the companies, no difference to any other shareholder who owns shares in our company. There’s no such thing as private arrangement that we have to buy back from them the shares.

Unidentified Company Representative

As you talking according to lenders maybe as opposed to JV partners?

Unidentified Analyst

I think it’s more alluding to lenders, private lenders who….

Solomon Lee

Private lenders a different story altogether.

Unidentified Analyst

That’s a debt equity settlement you know.

Solomon Lee

Yes. Those are different story, we already own the shares and whether we can buy them back or not, is when the time comes we can do some kind of negotiation but not as you understood it, or the question that posed just then.

Dan Ritchey

I think if his original question is that you’re expecting us to buy from the JV partners, there’s no such room for anyone.

Solomon Lee

Hope that answers your question.

Operator

Okay, (Operator Instructions). All right ladies and gentlemen, I don’t see any other questions in the queue at this time.

Unidentified Company Representative

Mike will answer, just mention that we can go to operations or maybe there’s no callers and we’ll conclude.

Operator

All right then, we just got another question, caller go ahead. Caller from the 516 area code, you can go ahead and ask your question.

Unidentified Analyst

Okay in Q1, the profit margins were poor on the prawn and cattle NEIJI, was this a onetime event or will this continue going forward.

Solomon Lee

Well, that one we already explained under the Qs because half those revenue come from the cattles under, we brought a subcontractor, he grow some cattle from us and then we buy from them and sell, so that reduced the overall cattle operation profit but increased its revenue. Same as the prawns because we only got one prawn farm that it is our subsidiaries the others we just have to buy from them and sell them, so the profit margin under this kind of arrangement is low, and that brought down the average share profit margin, but it doesn’t mean our prawn farm has lower margin, it doesn’t mean by that, except we increased the revenue, one sector we earn less profit, the other sector we earn high profit reducing the average and that’s it you see. And we already explained that in the Qs.

Unidentified Analyst

Okay, the accounts receivable cycle is very long for the company, is there any chance of shortening that in the future.

Solomon Lee

Well when you’re looking at also in the Qs that account receivables, we had nothing over 180 days, so you cannot call it our loan receivable, in fact majority of that is the current account receivable, but is simply the goal for the company on their deal. It doesn’t mean it is a problem, we have 100% [indiscernible] on all receivables up to this point.

Operator

All right, and we’ll move on to our next question in the queue.

Unidentified analyst

Yes, hello. I have a question regarding long term breakdown of the proxy term prepaid expenses, you have as a positive regarding after term share contract for about $11 million, I’m wondering, which project that's announced for.

Solomon Lee

Dan, did you hear the question, I didn’t quite hear it.

Dan Ritchey

I believe the caller was asking with regard to a note -- regarding note term on the report a $11 million loan provided for one of the agriculture projects, is that correct caller?

Unidentified Analyst

Yes.

Dan Ritchey

And wanted to know specifically what that project was or which project that is referring to?

Unidentified Analyst

Yes exactly.

Solomon Lee

Dan, can you repeat that completely?

Dan Ritchey

Yes, the account note down on the two lines there was a statement showing a $11 million loan provided to one of the agricultural projects, the caller was asking what specific project was that for.

Solomon Lee

That one must be the Zhongshan project, yes. That is the cooperative farmer’s project yes.

Operator

Okay (Operator Instructions). Okay. There are no more questions in the queue at this time. We actually did just have one pop up let me go ahead and take that. Caller, go ahead.

Unidentified Analyst

Yes, this is Mark Tey [ph] back again, just as a final summary question for the call so that there is no misunderstanding. Obviously the valuation is ridiculous as Dan said, and we have been sitting here quarter after quarter trying to understand how the valuation is going to get better and it doesn’t seem to be getting any better even though the operations are doing so well. So, my question to you in general is, Solomon and anybody else that wants to chime in, is what are your priorities in terms of getting the valuation for the shareholders to a reasonable level as soon as possible, what do you intend to do?

Solomon Lee

Well, to answer that question I always think bad days you see. Fundamental the company is sound, financial fundamental. So I believe eventually it will find its way with the run value in the open market. It doesn’t mean the company’s valuation is not there. The company’s fundamental valuation is really growing very healthily every year. So, your question is how to get recognized of some of this value in the open market.

Now, I believe in lot of these scenario, we are victims. Sometime, we are victims of the circumstances. But all the bad news doesn’t go forever. Good news will also turn around the corner. And I believe, apart from the essential things like the IR and the introduction to the institutional player improved our corporate reverence, transparence and so on will also help in the meantime.

And we as a company we’re doing all that as possible. Then you just have to wait for the market turning, and I think the market will turn one day. I can’t tell you when. But it will turn because this company is not -- we’ve been here since 2007. Everybody -- my shareholder knows that we start from a scratch, from the one piece of paper to pin the company to what it is now. And if so many shareholders have seen my operation and we have delivered by so many due diligence exercise. I think this kind of event will eventually happen to the benefit of the company as well as to all our shareholders. And just hope you can bear with us for a little longer. We are frustrated as much as you are, but being a company like ours and being the Board of Director you see, every one of them are experienced and we’re not just sitting here and just looking at the situation not doing anything about it, so eventually I believe we will come up in front.

Dan Ritchey

Let me add one thing to that too, Solomon. The issue that we brought up is sometimes the same issue that the institutions themselves would touch by. And they have seen the growth of the company, they’ve seen what’s been going on, these are institutions by the way which have come to the facilities, all right. They’ve done their due diligence. They see what’s going on and I'll grant you, they also understand the Chinese sector [indiscernible] the industry as well, the share price with respect to some of these other Chinese companies as well, but they’re also seeing exactly what Solomon and everyone here has been talking about which is the growth and development that goes on.

At some point in time, there is going to be a realization whether it’s being driven by these institutions which I believe is where it’s going to have to come from. I mean let me just reflect back on the last couple of weeks. We've seen very little volume going on, on those days, and this has been very unusual. Typically, we’ve always had 400,000 shares more of that on a daily basis. There have been some days which have been within the 100,000 to 200,000 share range and we can tell on the OTC exchange, there is very, very little retail that’s going to do anything to boost the share price. It’s going to have to be institutions that are going to help drive it.

There were by the way and I am sure you'd observe it you’ve been look at the market a few days where we had immense amount of volume, and we can’t go in detail, but we do know that the parties involved were not general retail that we’re buying into the market. So our hope is we’ll continue to be able to attract those institutions, to be able to get them to take hold of what is extremely undervalued at this point in time and once that starts happening, hopefully retail will then start following suite. It’s usually that way anyway when it comes to the OTC market regardless.

And one of the reasons why going to NASDAQ is so that we would help to enhance the stature of company so that retail investors feel more comfortable and confident about putting money behind it, but we are at where we are today and we have to work with what we have. And at first point in time, I think just as Solomon alluded to we’ve been doing a lot, there has been quite a bit being done, it’s done behind the scenes obviously but there is progress that’s happening institutions that the one we just talked about they were buying wouldn’t have just done that on their own. So with time, the hope is we’ll be able to solidify more of this investment more of this interest and we'll see the share price responding as it should have already accordingly.

Operator

All right, and we’ll move onto our next question in the queue.

Unidentified Analyst

Hi, my question is for the new CFO, Olivia Lai, what were some of your motivations for -- hello -- what were some of your motivations for Fortune 500 Company to come to Sino Agro?

Olivia Lai

Yes, my motivation actually because I mean only two weeks' time of the Company but I have been feeling very good about the Company because particularly management team, they’re really -- they have a vision and they really want me to get there. So my motivation is really to help the Company not just on the financial discipline at the capital level also with my supply chain management background, I will also like to help the Company to streamline its operations to ensure that cost effective and efficient and also because they are many growth trends out there we have and we know just much recently opportunities for the Company. My motivation is there to work with the Company.

Unidentified Analyst

My question is more what was your motivation from jumping from a Fortune 500 Company to Sino Agro, is it just the expected growth in the future?

Olivia Lai

Yes, it’s actually quite simple although I -- if you’ve seen my file, I worked for really big companies before, but with the Agro, my motivation is just the way I mentioned because I know this is a fast growing company and I think my working with this Company will really -- I mean grow with the company that’s my motivation. That’s what I want to do.

Operator

(Operator Instructions) All right, there are no other questions in the queue at this time. Do we have any closing remarks?

Solomon Lee

Okay, we thank you for everybody coming tonight and we shall declare the meeting closed.

Operator

All right, thank you, I will conclude the call for the day. Thank you.

Olivia Lai

Thank you.

Solomon Lee

Thank you everybody.

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