Market Overview

Sino Agro Food, Inc. Reports Q1 2018 Results and Board Approves Dividend

Share:

Sino Agro Food, Inc. Reports Q1 2018 Results and Board Approves Dividend

Dividend of USD .05 for 2018; USD.10 for 2019

Revenue of USD 33.7M; EPS of USD .17

Restructured Businesses Show Positive Results

PR Newswire

GUANGZHOU, China, May 21, 2018 /PRNewswire/ -- Sino Agro Food, Inc. (OTCQX:SIAF) (OSE: SIAF-ME), a specialized investment company focused on protein food including seafood and cattle announces results for the quarter ending March 31, 2018.

Dividend Approval

Under the advisement of its Board of Directors, the Company has decided to issue the following cash dividends for Fiscal Years 2018 and 2019:    

  • For 2018: $0.05/share to be declared and payable during Q4 2018, date to be determined.
  • For 2019: $0.05/share will be declared and paid semi-annually (dates to be determined) for a total cash dividend distribution of $0.10/share for the year. In addition, five percent (5%) of the amount exceeding the Company's annual net income of $20 million in FY2019 will be paid as an additional cash dividend to be declared and payable during the subsequent fiscal year (i.e. sometime during FY 2020).

It is the Company's intention to carry-forward the cash dividend policy being implemented for FY2019 into subsequent years of operation, and will inform its investors as to its cash dividend policy for FY2020, FY2021, etc. as those years approach.

Financials

Revenue from the sale of goods decreased USD 26.1M, or 45.5%, to USD 31.3M for the quarter ended March 30, 2018 when compared on a year over year basis ("YoY"). When compared to Q4 2017, revenue from the sale of goods during Q1 2018 increased USD .6M or 2%. Revenue from project development increased USD 1.8M, or 225%, to USD 2.5M sequentially ("QoQ").

First quarter gross profits totaled USD 6.1M compared to a loss of USD 7.9M QoQ.

Fully diluted earnings per share were USD .17 in the first quarter versus USD .36 YoY and versus a loss of USD 1.04 QoQ.

Overview

Results reflect a reprioritization of businesses according to bottom line performance and guided by stricter cost control and capital expense rationale for each. For instance, throughout 2017:

  • Businesses with negative gross margins either had been discontinued or markedly curtailed.
    • SJAP eliminated losses incurred throughout 2017 by discontinuing its QZH slaughtering and deboning subsidiary.
    • SJAP further eliminated losses by limiting its live cattle business to its own farms, settling contracts with cooperative farmers that became unduly onerous due to unsustainable depressed market prices.
  • Product mix in the trading business is being transitioned toward higher profit margin items.
  • Gross margin is being increased at HSA by transitioning into more efficient production.
  • Capital expenditure for all businesses was reduced, most notably at SIAF's equity investee Tri-way, which restricts project development to a percentage of cash flow and as justified by individual projects, until outside cash resources become available to continue development of aquafarms 4 and 5.
  • G&A expenses were trimmed USD 2.4M, or 37% from USD 6.5M in Q1 2017 to USD 4.1M in Q1 2018.

As demonstrated by Q1 financials, these changes have resulted in a smaller, but more profitable company, one situated on more solid footing, positioned for growth stronger than before.

It should be noted that the pace and duration of some of the adverse market conditions required immediate action be taken by the Company could not be fully anticipated. Hence, a consequential cash shortfall had ensued requiring an issuance of shares to cover some of the ordinary operational expenses that typically would have been covered through ordinary cash-flow levels in the past.

The Company has adopted austere measures to reduce its dependence on equity funding by approaching it as the exception rather than the rule when it comes to determining which modes of operation are necessary to maintain the Company's outlook over the next two years.

Other Key Points

  • SIAF's income from its full 36.6% equity investment in Tri-way ("TW") increased from USD 3.66M in Q4 2017 to USD 3.78M in Q1 2018.
  • Revenue from project development at SIAF's wholly owned Capital Award ("CA") subsidiary increased from USD .8M in Q4 2017 to USD 2.5M in Q1 2018.
  • These results from TW and from CA reflect Tri-way's  "Plan B" strategy, which limits TW's capital expenditures and CA's revenue from project development attributable to TW to a percentage of TW's net income. TW is still profitable and growing. "Plan A" would greatly accelerate growth upon successful closing of its anticipated debt financing.
  • As of March 31 2018, the Company had net working capital of USD 183.9M, a  quarterly increase of USD 15.5M.
  • Stockholders' equity increased in the quarter by USD 18.7M to USD 631.1M.

 

 

Annual Comparison

(USD M, except per share and margin data)

Q1 '18

Q1 '17

%

Revenue

33.7

70.6

(52)%

Gross Profit

6.1

14.4

(58%)

Gross Profit Margin

18.1%

20.4%

(11%)

Earnings Per Diluted Share (FD) (USD) – from continuing
  and discontinued operations

.17

.36

(53%)

 

Sequential Comparison

The Company achieved the following results, comparing the first quarter of 2018 to the fourth quarter of 2017:

 

(USD M, except per share and margin data)

Q1 '18

Q4 '17

%

Revenue

33.7

31.4

8%

Gross Profit

6.1

(7.9)

N/A 

Gross Profit Margin

18.1%

N/A

N/A 

Earnings Per Diluted Share (FD) (USD) – from continuing
  and discontinued operations

.17

(1.04)

N/A 

 

The following table breaks out revenue by business segment, comparing the first quarter of 2018 to the fourth quarter of 2017:

 

Revenue (USD M)

Q1 '18

Q4 '17

%

Integrated Cattle Farm (SJAP)

6.6

15.4

(44%)

Organic Fertilizer (HSA)

2.4

1.8

33%

Cattle Farms (MEIJI)

5.0

(2.7)

N/A 

Plantation (JHST)

1.0

1.1

(9%)

Seafood & Meat Trading

16.4

15,0

9%

Sale of Goods Total

31.4

30.6

3%





Project Development Total

2.5

.8

200%

Group total

33.7

31.4

8%

 

Integrated Cattle (SJAP)

The Integrated Cattle Farm business segment (SJAP) discontinued its value-added processing subsidiary (QZH) December 30, 2017. Factoring out QZH, SJAP revenue increased by USD 2.6 M, or 42% from USD 6.2M in Q4 2017 to USD 8.8M in Q1 2018. Gross profits increased USD .5M, or 28% to USD 2.3M in Q1. QZH had negative gross margin both in Q4 2017 and for the entire year.

Fertilizer, and bulk and concentrated livestock feed contributed USD 1.9M or 83% of Q1 gross profit.

As reported in previous quarters, the cattle market has endured depressed pricing for over 18 months. The Company had already dramatically reduced the sale of live domestic cattle due to unprofitable conditions. Live cattle sales are now generated only from SJAP's own farm without any beef production from cooperative farms, which were generating negative gross margins. Thus, at present SJAP is a smaller business than in previous years but one that generates positive gross profits with good margins (28% in Q1) and requires considerably less capital expenditure.

SJAP is fortunate to enjoy excellent working relationships with various government agencies. These private company/state agency relationships are more important in China than in western countries. Recent discussions have produced progress toward transitioning and growing SJAP's business, while maintaining expense discipline:

 

  • SJAP has developed a cattle and meat trade center ("C&MT") concept to transition from a beef producer into primarily a commercial developer in the cattle industry. During late February 2018 through early March 2018 and supported by local government officials, SJAP hosted a series of investor conferences with financial institutions, developers, traders, fund managers, businessmen, and professionals of various cattle related commercial activities to introduce the C&MT concept. The concept was well received and has drawn initial interest from a highly reputable Guangzhou investment firm, as well as a Government backed securities and investment company. SJAP will work with these institutions to secure the necessary capital to meet its long-term development plan.

 

  • SJAP is preparing documentation required to apply for C&MT permit, which would allow SJAP the right to develop and to operate the C&MT center. The submission is targeted sometime in Q2 2018. The application process takes several months. If granted, the Company is confident it will provide SJAP a lucrative opportunity to develop one of the largest cattle trade centers in China.

 

Organic Fertilizer (HSA)

Revenue at HSA increased by

View Comments and Join the Discussion!