Sino Agro Food, Inc. Revenue Increases 78% to $97.0M
18 Aug 2014 --- Sino Agro Food, Inc., announced revenue of $97.0M for the second quarter ended June 30, 2014. Gross profit, net income, and diluted earnings per share for the quarter were $32.3M, $23.1M, and $.14 per share, respectively.
SIAF is an integrated, diversified agriculture technology and organic food company with principal operations as primary producer, processor, and marketer in the People's Republic of China.
Consolidated Results
Revenue
Total revenue for the quarter ended June 30, 2014 was $97,032,504 a 78% increase over revenue of $54,400,329 in the corresponding quarter in 2013.
Revenue in the second quarter of 2014 was derived from the sale of goods and consulting services, split 84.9%-15.1%: $82,357,060 and $14,675,444, respectively. The fishery division contributed 89% of revenue from consulting and services in Q2 2014 versus 49% in Q2 2013. This was due to the new Zhongshan Prawn Project.
The breakdown of revenue in Q2 2013 from the sale of goods and consulting services was 77.5%-22.5%: $42,151,850 and $12,248,479.
Cost of Goods
Cost of Goods for Q2 2014 totaled $64,735,321. Cost of Goods sold accounted for $58,049,860, and cost of services totaled the remaining $6,685,461.
Corresponding numbers in Q2 2013 were $35,009,882 (total), $26,338,635 (from sale of goods), and $8,671,247 (services).
Gross Profit
Gross profit increased by $12,906,736 or 67% to $32,297,183 for Q2 2014 compared to $19,390,447 for Q2 2013.
Gross profits from sale of goods increased by $8,493,985, or 54% from $15,813,215 in Q2 2013 to $24,307,200 in Q2 2014. Gross profit from consulting services increased by $4,412,751 or 121% to $7,989,983 in Q2 2014 from $3,577,232 for Q2 2013.
The full gross profit margin of 38% at the fishery division yielded a gross profit of $15,267,739, or 47% of Company wide gross profits. The full product gross profit margin of 32% at SJAP yielded a gross profit of $8,737,679, amounting to 27% of the Company total.
The Q2 2014 gross profit total of $32,297,183 consisted of $24,307,200 from sale of goods (75%), and the remaining $7,989,983 from consulting services (25%). The comparable breakdown in the previous quarter, Q1 2014 was 78% from sale of goods and 22% from consulting services.
Division Operation Performance and Developments
Fishery Division
Revenue from the fishery division totaled $39,950,675, for the second quarter 2014, an increase of 123% from the second quarter 2013. Sale of goods accounted for 67% of the total, and 33% were derived from consulting services, commissions, and management fees. Gross profits totaled $16,439,342 for the second quarter 2014, an increase of 298% over Q2, 2013.
Revenue from the sale of goods increased by $14,949,524, or 125% from $11,955,394 for the quarter ended June 30, 2013 to $26,904,918 for the quarter ended June 30, 2014. Sale of goods in the second quarter, 2014 broke down as follows: eels, $17,574,960, or 65.4%; prawns, $5,230,548, or 19.4%; and sleepy cod, $4,099,410, or 15.2%.
The fishery division sold 786 metric tons of eels in the second quarter of 2014 at an average sales price of $22,360 per ton; 355 metric tons of prawns at an average sales price of $14,734, and 270 metric tons of sleepy cod at an average sales price of $15,183.
Gross profits from the sale of goods in the fishery division increased by $3,476,893 or 90% from $3,876,306 for Q2 2013 to $7,353,199 for Q2 2014. The gross profit from eels amounted to $5,225,445 or 71% of the division's gross profit from sale of goods.
Accounted within the fishery division, additional revenue from consulting and services amounted to $13,045,757 for Q2 2014, an increase of $7,097,045, or 119% over Q2 2013. Gross profit increased by $7,660,135 0r 3,011% over $254,405 in Q2, 2013 to $7,914,540 in Q2 2014.
Jiangmen City A Power Fishery, Development Co. Ltd. is fully operational. The Company strives to find techniques to continually improve yields. During the quarter, the Company determined that periodic size and age grading for "Big Giant Prawns" is crucial to optimize results. The Company invented a grading machine to separate males from females at certain ages, further improving results. Moreover, providing sufficient "hiding compartments" within the tanks for the prawns to hide while shedding their shells increases survival rates. The production capacity of prawns increased late in the second quarter, producing five million pieces/month in June versus 1.3 million per month before. And with strong market prices for 60 piece/kilogram sizes, gross profit margin reached 70%.
The Company intends to use these discoveries to design and configure special purpose APM tanks for the new Zhongshan Prawn Project.
Enping City Bi Tao A Power Prawn Culture Development Co., Ltd. During Q2, the Company completed construction of associated facilities, including conference rooms and show rooms for local farmers and customers, extra staff quarters, and storage room capacity. Currently, the Company is constructing additional APM tanks to increase annual capacity from 250 metric tons to 600 metric tons. The Company plans to build an adjacent, environmentally friendly demonstration hydroponic farm using residual wastes from prawn growth for fruits and vegetables.
Zhongshan A Power Prawn Culture Farms Development Co. Ltd.: The Company continued prawn fingerling production, supplemented by second stage eel grow-out to sizes of 350 to 400 grams at ZSAPP, preparing for third phase grow out at Fish Farm I or Fish Farm II. In addition, the Company expects to complete construction work to convert 6 x 10 mu and 3 x 20 mu open dams into semi-enclosed RAS dams by the end of August. Upon completion, the new RAS dam sections will produce prawns, fish, and/or eels year round, capitalizing on the seasonally higher prices in the colder winter months of November through April.
R & D Station
During the second quarter 2014, the Company imported six different species of table fish to test breeding and assess costs for market opportunities.
New Zhongshan Prawn Project: Work continued in Q2 2014 on a phased 20-year project using Capital Award's APRAS technology, consulting, and management systems. Consisting of gradual, phase dependent development, the project targets production of 10,000 metric tons/year of prawns in Phase I, Stage I, and ultimately up to 300,000 metric tons per year. To date, the Company:
1) Connected to electrical facilities
2) Established and piped fresh drinking water
3) Built six kilometers of three-meter wide roads surrounding the property. Twelve kilometers of internal roads sub-dividing project segments will be built gradually to accommodate phased development.
4) Built a complex of offices, including staff quarters and eating facilities, conference rooms, storage, parking and landscaping. Total build out is 2,000 square meters on 15,000 square meters of land (about 23 Chinese mu or about four U.S. acres). These facilities are sufficient to house the staff personnel and working areas to administrate Phase I of the project.
5) Completed site preparation and consolidation on 200 mu (33 U.S acres) to construct the first set of APM farms, expected to be started immediately, pending finalizing some sub-contractor arrangements.
6) Developed temporary RAS open dams on another section of 200 mu (33 U.S acres) adjacent to the office complex to grow out new fish species in connection with R & D activities. Trial and fish stocking is expected to start by the end of August.
HU Plantation Division
Revenue from the HU plantation division decreased by $1,043,098 from $3,554,986 in Q2 2013 to $2,511,888 in Q2 2014. Gross profit generated from the HU plantation decreased by $256,033 from $2,294,029 for Q2 2013 to $2,037,996 for Q2 2014. Gross profit margin increased to 81% in Q2 2014 from 65% in the corresponding 2013 quarter.
JHST harvested almost nine million pieces of flowers during Q2 2014, representing a yield 20% higher than during Q2 2013; therefore, expectations for sales in the second half of 2014 are optimistic. JHST also harvested 27.1 metric tons of fresh Immortal Vegetables from 10 mu (1.66 U.S. acres) of its plantation in the second quarter. The harvest was dried and packaged into gift boxes of 900 grams each that JHST sales agencies distributed to over 200 shops.
Organic Fertilizer Division
For segment reporting, the Company is consolidating the results from Qinghai Sanjiang A Power Agriculture Co., Ltd. and Hunan Shenghua A Power Agriculture Company Ltd. ("HSA"), including sales of beef.
Gross profit margins during Q2 2014 were 43% at HSA and 33% at SJAP.
In Q2 2014, SJAP sold 5,157 head of cattle for an average price of $4,009, with a gross profit margin of 27% versus comparable numbers in the corresponding 2013 quarter of 2,418 head, $3,031/head, and a gross profit margin of 20%, respectively.
During the first half of 2014 SJAP surpassed full year 2013 cattle sales.
SJAP slaughtered 158 head of cattle and deboned 88 metric tons of meat during the second quarter. Work on the slaughterhouse and deboning operation continued during and beyond the second quarter to increase operating efficiency.
During the quarter, SJAP entered into two five-year contracts with Tesco, PLC to become both a supplier and an in-store butcher shop concessionaire of beef and lamb. The first branded meat retail store is scheduled to open concurrently with this press release. The strategic messaging of SJAP owned/Tesco stores emphasizes "the highest quality beef, meeting the most stringent food safety standards." SJAP has designated 60 different cuts of beef and lamb products for sale, preparing to roll out its signature Tesco store, the second, on or before September 15th in Shanghai.
SJAP increased its cropping land from 46,000 mu (about 7,666 U.S. acres) to 54,000 mu about 9,000 U.S. acres). HSA sold more than 9,000 metric tons of purposed fertilizer to lake fish farmers and grape growers.
At HSA, the trend of steadily increasing sales to lake fishermen and to grape farmers in Q1 and Q2 of 2014 is expected to continue throughout 2014. After completing installation of an additional production line during Q2, HSA is now constructing additional fermentation facilities to improve overall production efficiency and capacity.
Cattle Farm Division
All from the sale of goods, total revenue from the cattle farm division increased by $2,534,854, or 55% from $4,589,061 for Q2 2013 to $7,123,915 for Q2 2014. During Q2 2014, Jiangman City Hang Mei Cattle Farm Development Co. Ltd. sold 2,324 head of live cattle (aromatic) in Q2 2014, 75% more than 1,325 in Q2 2013.
There was no revenue from consulting and services during Q2 2014.
Corporate Division (Marketing and Trading)
Total revenue in the corporate division increased by $5,087,696 or 53% from $9,573,698 for Q2 2013 to $14,661,394 for Q2 2014.
Revenue attributed to sale of goods accounted for 89% of the total, with 11% from consulting and services.
The Company has increased the quantity and variety of seafood imported from Madagascar, expecting to add live crayfish when the season starts in September. In tandem, the Company has begun importing beef and lamb from Australia, is rounding out its product offering, and enhancing its competitive ability to cater to all market spectra in China.
During Q2 2014, the Company continued work on several of its restaurants and wholesale/retail shop, having:
1) Completed 95% of renovation work at Leonie's restaurant (1) refocusing the motif and menu to a western style steak restaurant and increasing its seating capacity from 120 to 260, targeting an August re-opening.
2) Added a steak kitchen to Leonie's restaurant (2) to improve efficiency and turnover.
3) Begun expanding the seating capacity of Leonie's restaurant (4) at the Zhongshan HingZhang Shopping Complex from 100 to 250. The restaurant opened five months ago, and continues successful operation during renovation.
4) Started design and layout work for Leonie's restaurant (6), with construction work expected to commence in September 2014.
5) Progressed construction work on a 500 square meter frozen meat wholesale and retail shop at the Central Frozen Goods wholesale market of Guangzhou city, targeting opening in August 2014.
Strategic Developments
The Company's core wholesale production of seafood and meat has achieved sufficient size to fill out product offerings and add capabilities in the distribution, import, and retail branches. The second quarter was characterized by numerous such significant developments.
The Company signed two contracts with Tesco PLC to become both a supplier and an in-store butcher shop concessionaire. The first shop will open in August. The Company is expanding and branding its product line of meats for retail at grocery stores. In addition to establishing 60 different cuts of its own beef and lamb for retail sale, it is beginning to add imports from Australia, furthering selection and appeal to all Chinese consumers. Further, the Company is completing construction of a wholesale/retail shop in Guangzhou's Central Frozen Food Market to sell packaged, branded frozen meats.
Likewise the Company has packaged and branded its dried Immortal Vegetables into upscale gift boxes for sale at 200 retail shops. The Company is recasting and expanding several of its Leonie's restaurants to match the customer preferences experience has taught, and to suit individual locations.
The fishery division too is adding product variety, importing new varieties of seafood from Madagascar for sale and others for production-feasibility testing in the R & D station. The Company will post a video of local activities in Madagascar to its web site in the near future.
CEO Solomon Lee summarized the second quarter as follows: "We are seeing the Company's holistic vision come into focus. Meat and seafood production has grown to support complementary and downstream businesses. At the same time, we strive for continuous improvement. Just as we reconfigured APM tanks to accommodate eels in the first quarter, I am particularly pleased by our technical ability to improve prawn yields and margins, starting late in the second quarter.
Overall, we achieved ample and sustainable gross margins across all core divisions and subsidiaries.
While I expect that the current core businesses will continue to provide innovative opportunities to further the farm to table concept, we find ourselves in a new and enviable position. We are now able to achieve growth without new business contracts; yet, we will continue to consider new opportunities on a case-by-case basis as they arise. The newly producing abattoir at SJAP and the new Zhongshan Prawn project portray scaling potential, and projected volumes to feed growing distribution and retail facilities."
Please take the time to read our last 10-K filing, yesterday's 10-Q filing, and visit our web site, all of which have additional information describing the plans and potential of these projects.
