PR Newswire
GUANGZHOU, China, April 17, 2018
GUANGZHOU, China, April 17, 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 year ending December 31, 2017.
Revenue
Results reflect the carve-out of aquaculture operations announced March 2, 2017. Income from Sino Agro's interest in the carved-out company, Tri-Way Industries Ltd. is reported as "Income from unconsolidated equity investee." Revenue from the sale of goods from the former aquaculture business segment is no longer reported.
Revenue from the sale of goods decreased year over year ("YoY") by USD 89.6M, or 33%, to USD 181.2M for the year ended December 31, 2017 year over year ("YoY").
Revenue from consulting and project development decreased by USD 55.2M, or 76%, to USD 17.0M YoY. Prior to the acquisition of aquaculture farms by JFD/Tri-Way, construction and development costs were financed mainly by their respective owners and investors, and partially through the deferred accounts payable to Sino Agro's wholly owned subsidiary, Capital Award.
Beginning with the transfer of assets to JFD/Tri-Way, further infrastructure expansion and development became the sole responsibility of JFD/Tri-Way, and has been limited to available cash flow generated by internal operations. This accounts for the decrease in revenues from the aquaculture operations and Capital Award. Capital Award is the turnkey provider of consulting and project development services for JFD/Tri-Way, who is pursuing several avenues to fund development, including conventional financing of approximately USD 100M.
Overview
Adverse conditions impacting performance in the second quarter and third quarters continued in fourth quarter, resulting in a decline in gross profits on a YoY basis for FY 2017 from USD 83.9M to USD 19.6M.
Chief among these factors were continued pricing pressure in the beef and cattle businesses, and delays in the expected time to procure financing which could, among other things, rejuvenate business at Capital Award. It should be noted that based on recent discussions with lenders, Tri-Way remains confident in the approval of its applications for financing, but cannot pinpoint an exact time.
During the fourth quarter the Company took several actions to reprioritize its various business operations, focusing on its most prospective areas, while also addressing balance sheet items to support its carve-out and spinoff strategy:
All of these bullet points are explained in detail in the Company's recent 10-K filing under the heading of "Subsequent Events."
The Company has adapted to these segment specific conditions by restricting its capital expenditures, reducing general and administrative expenses, and tailoring product mix to products with reasonable, albeit lowered, gross margins.
Other Key Points
Again, all of these bullet points are explained in detail in the Company's recent 10-K filing.
Financial Comparisons
The Company achieved the following results, comparing FY 2017 to FY 2016:
(USD M, except per share and margin data) | FY '17 | FY '16 | % |
Revenue | 198.2 | 342.9 | (42)% |
Gross Profit | 19.6 | 83.9 | (77)% |
Gross Profit Margin | 9.9% | 24.5% | (56)% |
Earnings Per Diluted Share (FD) (USD) – from continuing and discontinued operations | (.53) | 1.93 | |
The following table breaks out revenue by business segment, comparing FY 2017 to FY 2016:
Revenue (USD M) | FY '17 | FY '16 | % |
Integrated Cattle Farm (SJAP) | 77.2 | 134.6 | (43)% |
Organic Fertilizer (HSA) | 7.2 | 20.6 |
(66)% |
Cattle Farms (MEIJI) | 20.4 | 29.8 | (31)% |
Plantation (JHST) | 4.6 | 13.3 | (65)% |
Seafood & Meat Trading | 71.8 | 72.4 | (1)% |
Sale of Goods Total | 181.2 | 270.8 | (33%) |
| | | |
Project Development Total | 17.0 | 72.2 | (76)% |
Group total | 198.2 | 342.9 | 1.5% |
Integrated Cattle (SJAP)
Gross profit for the Integrated Cattle segment in FY 2017 declined to USD .9Min FY 2016. Fertilizer, and bulk and concentrated livestock feed showed gross profits of USD .5M, USD 2.4M USD, and 5.3M respectively, and live cattle sales added USD .7M. However, the total SJAP gross profit of USD 8.95M was offset by a loss of USD 8.0 in the value added processing, QZH's slaughter and deboning operations.
The cattle market has endured depressed pricing for well over 12 months. The Company had already dramatically reduced the sale of live domestic cattle due to unprofitable conditions. Continuing increased competition in the fourth quarter had a materially negative impact on gross margins, filtering through to deboning and packaging, as competitive pricing for final product became increasingly challenged. As reported in November 2017, during the third quarter, gross margin for the deboning of imported beef deteriorated to the unsustainable level of 2.8%, which endured further deterioration to negative margin in the fourth quarter. In addition, the Central Government has instituted new environmental regulations that would require significant additional capital expenditure at SJAP.
For these reasons, SJAP management took two major actions.
Under this arrangement ongoing activities are expected to retain profitability albeit at lower levels than before the pricing pressures occurred, providing a stable business until market conditions return favorably and the local government's plan to develop Huangyuan District into a prominent cattle and beef trading center can materialize.
The rationale, terms, and impact of both actions are explained in great detail in the Company's 10-K filing, available here: http://sinoagrofood.investorroom.com/sec-filings
Organic Fertilizer (HSA)
Overall gross profit for HSA decreased by 73% to USD 2.2M. The overall decrease was mainly due to the YoY drop of 31,356 metric tons ("MT "), or 77%, in volume of mixed organic fertilizer sold to 9,042 metric tons ("MT"), as well as the a price decline of USD 7/MT.
The significant drop in sales volume was primarily due to a shutdown in production allowing construction work to be completed at the cattle workstation throughout the second half of 2018, and other reasons detailed in the 10-K.
It is now anticipated that HSA's annual target of 40,000 MT for organic mixed fertilizer will be reached somewhere in mid 2019.
Cattle Farms (MEIJI)
Improved cost efficiency led to a 145% increase in YoY gross profit to nearly USD 3.8M. Even though the number of head sold dropped by 39%, due an 11% increase in price per head, revenue declined significantly less, With a drop in unit costs, gross profits margins improved from 5% in FY 2016 to 18% n FY 2017.
Plantation (JHST)
As reported in previous quarters business at the HU plantation suffered from a poor quality of flowers due to root diseases caused by years of excessive rain. Nonetheless, the business managed a gross profit of USD 1.3M on sales of USD 4.6M, down from USD 13.3M in 2016.
The Company has experimented with a variety of hearty alternative cash crops and distribution avenues. One is processing Immortal Vegetable plants into dried tea to be repackaged and sold through one of China's best herbal health brand.
In March 2018, JHST signed two growing contracts, one a contract for a fruit for processing into a natural aromatic, and the second for 200 acres to produce Passion Fruit for a Juice manufacturer.
The Company anticipates that these changes will accelerate the sales results toward 2016 results, with less dependence on fair weather.
Seafood and Meat Trading (Corporate)
Gross profit declined 9% YoY to USD 8.0M, on a 1% decrease in revenue, stemming largely from the Company's decision to trade selective products with reliable profit margins.
The Company believes that this business segment has excellent growth potential. Historically, it has generated consistent profit margins, averaging 10.5% on a 12.5% product mark-up.
FY 2017 Interim Report
For detailed segment operational performance and developments, please take the time to read our latest 10-K filing, or refer to the FY 2017 Interim Report posted to the Company website at http://sinoagrofood.investorroom.com/download/Sino-Agro-Food_FY-2017-Interim-Report.pdf.
Earnings Call Information
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