Revenue Soars for Sino Agro Food

CHINA - Chinese agrifood and aquaculture business Sino Agro Food, has reported record revenue for the first quarter of the year.
calendar icon 22 May 2012
clock icon 8 minute read

The revenue of $16 million represents 411 per cent Growth over the fisrt quarter of 2011.

Gross profit was $8.013 million compared to $1.93 million in 2011 - a rise of 315 per cent.

Aquaculture Operations

Revenue from fishery increased by $9,534,864 or 611.31% to $11,094,609 for the three months ended March 31, 2012 from $1,559,745 for the three months ended 31 March 2011. The increase was primarily due to our increased contract service income from fishery and prawn development contracts and sale of fish for the three months ended 31 March 2012 compared to such consulting income and sale of fish for the three months ended 31 March 2011.

Enping, Guangdong Operations: During the three months ended March 31, 2012, the Company sold almost 116,000 sleepy cod averaging 575g/fish. The Company anticipates that its production will gradually increase each quarter hereafter based on stocking volumes of the past months, especially when the contract for the supply of 500,000 fish executed in October 2011 is expected to begin resulting in sales in June 2012.

Also during three months ended 31 March 2012, Triway (a wholly owned subsidiary of the Company) acquired an additional 25 per cent equity stake in the Enping Fishery operations, resulting in a 50 per cent equity position.

Open Dam Fish Operations: During the three months ended 31 March 2012, there were over 73,000 sleepy cod averaging above 523g/fish being harvested and sold. The Company anticipates that as the weather gets warmer there will be more fish harvested and sold from this farm.

Management of Capital Award, Inc., a wholly owned subsidiary of the Company ("CA"), has concluded that the open dam concept, although faced with many external seasonal factors compared to our A Power Module in-house farms, remains a viable option because the weather in Guangdong Province, where the open dam farm is located, is rather mild compared to other parts of China (e.g., Northern China is too cold, the central part of China is too dry and the coastal part of China is too windy), and because the sale price of live sleepy cod is relatively stable in China. A new grow-out contract with the existing grower for an additional 600,000 fish was executed in March 2012 and will remain in force through 2014, but at a slightly higher price of RMB45/fish instead of RMB40/fish as contracted in 2011.

Cattle Farm, Beef and Fertiliser Operations

Organic fertiliser: Revenue from organic fertilizer increased by $13,061 to $13,061 for the three months ended 31 March 2012 from $0 for the three months ended March 31, 2011. The Company did not conduct this business during the three months ended 31 March 2011.

Revenue - Cattle farm: Revenue from cattle farm increased by $941,460 to $941,460 for the three months ended 31 March 2012 from $0 for the three months ended 31 March 2011. The Company did not conduct this business during the three months ended 31 March 2011.

Revenue - Beef: Revenue from beef increased by $2,369,100 to $3,930,886 for the three months ended March 31, 2012 from $1,561,786 for the three months ended 31 March 2011. The increase was primarily due to our increase in sales of beef.

Xining, Qinghai Operations: The Sino Joint Venture Company ("SJAP") situated at HuangYuan Town, Xining City Qinghai Province, sold 11,403 MT and manufactured 4,206 MT of organic fertilizer. SJAP also sold over 5,442 MT and produced 988 MT of livestock feed, sold 501 head of cattle over 13 month-old and bought 430 head of 5 to 6 month-old cattle.

Management anticipates having completed, furnished and staffed its four-story corporate office building by 31 May 2012. This facility should result in a much more streamlined operation that we have been diligently working toward over the past three years.

"We have now constructed and fitted out a total of 12 cattle houses as of April 30, 2012, with the capacity to house up to 1,500 head of cattle at any given time. Work on constructing and fitting out more cattle houses are in progress targeting to complete the planned capacity to house up to 2,500 head of cattle before the end of this year," said a spokesman.

"Most of the infrastructure work on the drainage channel systems are in progress, which when completed will pipe cattle waste to a centralized collection basin where a Mash Gas station is expected to be constructed during 2013. Upon completion of the Mash Gas station, SJAP will begin processing cattle waste as its main source of raw material for manufacturing organic fertiliser."

Seventy per cent of landscaping and roadwork has been completed around the 28-acre compound. SJAP is a now a show case operation in HuangYuan City.

During the three months ended 31 March 2012, the HuangYuan Government awarded a cash grant of RMB500,000 to SJAP toward development of its Enzyme factory targeted to be completed by the end of 2012 at a total cost of about US $2 million. The HuangYuan Government is authorized to provide grant funding of up to 66% of total development cost on selected projects.

The HuangYuan Government in conjunction with SJAP is replicating SJAP's cattle housing model for local farmers with the understanding that SJAP will purchase all mature beef (estimated to be up to 10,000 head) for processing at its new boning and cold storage facility, scheduled to be constructed in 2012 and to be online by the second quarter of 2013.

Linli, Hunan Operations: As of April 30, 2012, development and construction work on the Mixed Fertilizer manufacturing facility are being carried out consisting of a 7,000 square meter production and storage factory, external fencing to cover the production area of about 11.55 acres of land, internal roads, landscaping, drainage, a 300 square meter office, staff quarters that will provide accommodation for up to 25 workers and all related basic infrastructure, etc. Current Stage 1 development should be completed by August 2012 with a capacity to produce up to 10,000 MT/year.

Current wholesale prices on mixed fertilizer are much greater than organic fertilizer (e.g., up to RMB3,600/MT for mixed fertilizer versus RMB1,100/MT for organic fertilizer), resulting in greater profit margins for operations.

Enping, Guangdong Operations: During the three months ended March 31 2012, MEIJI paid a deposit of US $1.25m toward its purchase of 25 per cent equity in a cattle farm; the Sino Joint Venture Company is anticipating official approval of its partnership by August 2012.

The cattle farm's major construction has been completed and is under operation, currently rearing over 200 head of cattle as of 30April 2012, with further improvements in progress (e.g., construction of more feed storage facilities, general landscaping, and furnishing and fitting of office and staff quarters). Management expects these improvements to continue throughout 2012, creating a complex that, like our other developments throughout China, is self-sufficient.

The Company expects that there will be 125 to 150 head of beef cattle ready for market during the second quarter of 2012. Based on trials conducted during the first quarter of 2012, management expects positive sales results since our top graded quality meat was well received by some of the prime hotels and restaurants in Beijing and in Guangzhou City.

Macau EIJI is negotiating with two groups to provide consulting and servicing contracts to build more cattle farms using our free-range system and SJAP technology; management anticipates entering into a contract with one of them in May 2012.

Plantation Operations

Plantation: As usual, there is no revenue the first quarter of each year.

Development and construction work on green housing on 10 acres of the plantation is in progress and trials on irrigation, disease control and fertiliser application is expected to commence sometime in June 2012, before harvest season begins.

For the remainder of the plantation, the heavy rain fall in April 2012 should prove beneficial as compared to the dry weather experienced in April 2011, and with all other conditions remaining equal should result in a better harvest for 2012.

Development and construction of the nursery station facility for the nurturing of asparagus seedlings will be on the same 50 Mu block of land where the 1st Prawn Farm is located, and will begin once the major development work for the prawn farm is completed.

Marketing and Distribution Network

On 16 March 2012, the Company entered a 5-year lease for an approximate 650 square meter (~7000 square feet) space at the newly established Wholesale Fish and Seafood Market situated within Guangzhou City that is earmarked to replace the old Guangzhou Fish Market.

Renovation on this property is in the works for our first wholesale distribution center consisting of a cold storage facility including quick freezing, freezer and chill rooms, a processing and packaging area, and a retail outlet for live and frozen seafood. The company anticipates the bulk of these developments to be completed on or before June 30, 2012, with operations beginning immediately upon completion.

"Management knows that most of China's aquaculture imports (live or frozen), most of which originate in South Asian countries (e.g., Thailand, Vietnam, Indonesia, etc.), are extremely poor in quality because of infestation with chemicals and pollutants unfit for human consumption. As of March 31, 2012, much of the seafood from South Asian countries to China has been banned. China's aquaculture industry faces the same dilemma, resulting in China's seafood exports to other countries declining year over year," a company spokesman said. "Taking these recent events into consideration, management has decided to capitalize on the opportunity and has begun investigating importing seafood from Norway, a country that is surrounded by clean waters, and is currently producing abundant supplies of seafood for European countries. Norway has very stringent health standards applied to its wild and farm harvested aquaculture industries. "By 31 March 2012, trial orders of frozen fish and live scallops were placed by the Company with a few reputable Norwegian suppliers. Management expects air shipment deliveries in May and by seafaring vessels later in the month to Guangzhou City." The Company is negotiating with a group of restaurant chain operators to acquire equity in their operations, including exclusivity on beef supplied to those operations by our facilities. The Company intends to inform its stakeholders on any progress made in this area as it is made.

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